ML19329E830
| ML19329E830 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 01/26/1976 |
| From: | Brunner T, Ross W, Watson K CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.), WALD, HARKRADER & ROSS |
| To: | |
| Shared Package | |
| ML19329E831 | List: |
| References | |
| NUDOCS 8006180619 | |
| Download: ML19329E830 (361) | |
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T UNITED STATES OF AMERICA ', '
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Docket Nos. 50-329A ' CONSUM RS POWER COMPANY ' 'and~50 1 330A , , ~p., _ J(Midland Units 1 & 2) ,
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- WM. WARFIELD ROSS', ' ;;.:y;q 7' KEITH S. WATSO_N, '"
THOMAS W. BRUNNER, , ',a-. MARK SCHATTNER, . GERdLD B. WETLAUFER, , ,, 9. .:-' II n
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,Q WALD, HARKRADER & ROSS in
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JAMES 8. FALAHEE, , ' Washington, D.C. 20036 _ . .' , WAYNE A. KIRK 8Y ~~ ' u<
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' ~ dO'NShMERS PO'WER 'COMPAN'Y ~'
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212 West MichigenL Avenue M~ THIS DOCUMENT CONTAINS~ y
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TABLE OF CONTE'NTS Page Legal Citations . . . . . . . . . . . . . . . . . . . I. Introduction. . . . . . . . . . . . . . . . . . . . 1 A. Statement of Proceedings Below. . . . . . . . . 2
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B. The Origins of this Proceeding. . . . . . . . . 7 C. Summary Statement of Consumers Power
- Company's Position. . . . . . . . . . . . . . . 13 II. The Board's Rulings As To The Scope And Evidentiary Standards Of This Proceeding Were Correct, With One Exception, Which Was Harmless Error. . . . . . . . . . . . . . . . . 20 A. Specification of Issues. . . . . . . . . . . . 20 .- B. The " Situation Inconsistent with the '*
Antitrust Laws." . . . . . . . . . . . . . . . 33 C. Allocation of the Burden of Proof. . . . . . . 39 l.. Section 105c. . . . . . . . . . . . . . . . 42
- 2. NRC Rules of Practice. . . . . . . . . . . 49 e
O. Routine Activities under the License as Per Se Inconsistency. . . . . . . . . . . . . . 56 III. Consumers Power Company Does Not Have Monopoly Power In Any Relevant Market. . . . . . . 70 A. Power to Control Prices. . . . . . . . . . . . 76 ) B. Power to Exclude Competition. . . . . . . . . . 81
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C. Comparative Competitive and Financial Strength. . . . . . . . . . . . . . . . . . . . 92 D. The Bottleneck Theory. . . . . . . . . . . . . 104
- 1. Transmission as a " Bottleneck." . . . . . . 105 l
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- 2. Nuclear Generation as a " Bottleneck". . . . 114 l 1
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- 3. Coordination Alternatives as
" Bottleneck." . . . . . . . . . . . . . . 124
- 4. The. Legal Basis for the Bottleneck
-. Theory. . . . . . . . . . . . . . . . . . 128 E. Market Shares. . . . . . . . . . . . . . . . 132
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F. Relevant Markets. . . . . . . . . . . . . . . 151
- 1. The Bulk Power Product Market. . . . . . 154
- 2. The Bulk Power Geographic Market. . . . . 168 G. Retail Markets. . . . . . . . . . . . . . . . 179 IV. The Company's Conduct Does Not Reflect The Requisite Intent to Monopolize. . . . . . . . . . 186 A. Applicable Legal Standards. . . . . . . . . . 186
)
- 1. The Willfulness Standard. . . . . . . . . 186
- 2. Issues Not Argued Below. . . . . . . . . 196
_ 3. Deference Due the Hearing Board's Factual Findings. . . . . . . . . . . . . 199
- 4. The Absence of a Duty to Deal. . . . . . 203 y, B. The Company's Conduct Related to Coordination. . . . . . . . . . . . . . . . . 207
- 1. Coordination Generally. . . . . . . . . . 211
- a. Coordination policies: net benefits and reciprocity. . . . . . . 212
- b. Consumer Power's coordination practices: services exchanged under the Company's various agreements. . . . . . . . . . . . . . 227
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- c. Coordination practices: allegedly unreasonable refusals to coordinate. 234 k m
m , Page (i) Horthern Michigan Mnd Wolverine, 1964, and the prerequisite of self-sufficiency. . . . . . . . . . . 235 (ii) Horthern Michigan, 1967. . . . . 240
- (iii) Edison Sault. . . . . . . . . . 242 (iv) Miscellaneous allegations. . . . 243
- 2. Reserve-sharing Coordination:
Policies and Practices. . . . . . . . . . 246
- - a. Gainesville and the appro-priateness of equal percentage reserves. . . . . . . . . . . . . . . 247
- b. Application of the Company's reserve-sharing policies to Lansing, the MMCPP and Holland. . . . 255
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- 3. Coordination through Membership in 260 the Michigan Pool. . . . . . . . . . . .
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- 4. Coordinated Development: Policies and Practices. . . . . . . . . . . . . . 266
- a. Industry practice and the
- Company's policy. . . . . . . . . . . 266
- b. Direct participation in the Ludington Pumped Storage Project. . . 269
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- c. Direct participation in the j Midland Units. . . . . . . . . . . . 270
- 5. Alleged " Pre-emptive" Coordination. . . . 279
- 6. Restrictions on Interstate Connections. . 281 l
- 7. Wheeling for Coordination. . . . . . . . 288
~~ C. . Conduct Unrelated to Coordination. . . . . . 292
- 1. Wheeling for Delivery of Bulk
-- Power Purchases. . . .. . . . . . . . . 294 W.
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- a. Alleged discrimination. . . . . . . . 295
- b. Alleged unreasonable refusals to wheel. . . . . . . . . . . . . . . 298
- 2. Territorial Allocations. . . . . . . . . 307
- a. American Electric Power. . . . . . . 308
- b. Michigan Gas & Electric Company. . . 312
- c. Toledo Edison and Detroit Edison. . . 314 i
- 3. Acquisitions. . . . . . . . . . . . . . . 319
- 4. Political Conduct. . . . . . . . . . . . 333 V. The Hearing Board Correctly Held That No Evidentiary Demonstration Of Nexus Between The Alleged Inconsistent Situation And The
- Licensed Facility Has Been Made. . . . . . . . . 342 VI. The License Conditions Proposed By Our Adversaries Are Unnecessary, Unreasonable And Unlawful. . . . . . . . . . . . . . . . . . . 362 A. License Condition Principles. . . . . . . . . 364
- 1. Unjustified Shift in Power
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Production Costs. . . . . . . . . . . . . 364
- 2. Lack of Nexus. . . . . . . . . . . . . . 366
- 3. The Role of the FPC. . . . . . . . . . . 374 B. License Condition Proposals Providing for Access to the Midland Units. . . . . . 383
- l. Access through Wholesale Purchases. . . . 384 2.- Ownership Interest. . . . . . . . . . . . 387
- 3. Unit Power Sales. . . . . . . . . . . . . 389
'4. Midland "Back-Up" or Supplemental Power. . . . . . . . . . . . . . . . . . 394 4
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Page C. ' Proposed Conditions Unrelated to the
-r- Midland Units. . . . . . . . . . .. . . . . 398
- 1. Units other than Midland. . . . . . . . . 400
- 2. General Coordination Services. . . . . . 401
- 3. General Transmission (Wheeling)
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Services. . . .. . . . . . . . . . . . . 407
-- Conclusion. . . . . . . . . . . . . . . . . . . . 414 1
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i r LEGAL CITATIONS r ^- Page CASES: Abacoa Radio Corp. v. FCC, 358 F.2d 849 (D.C. Cir. 1966). . . . . . . . . . 199 Acme Precision Products, Inc. v. American Alloys Corp., 484 F.2d 1237 (8th Cir. 1973) . . . . . . . . . . . . . . . . . . . . . .46, 158, 159 i Acme Products, Inc. v. NLRB, 389 F.2d 104 (8th Cir. 1968) . . . . . . . . . . . . . . 201 [ Action for Children's Television, 50 F.C.C. 2d 1 (1974) . . . . . . . . . . . . . . 378 Admiral-Merchants Motor Freight, Inc.
- v. United States, 321 F. Supp. 353 (D. Colo.), af77d, 404 U.S. 802 (1971). . . . . . . . . . . . . . . . . . . . . . 371 Adoption of Rules Governing the Extension of Single-Phase Electric Service, MPSC Case 1 U-2291 (March 24, 1966) . . . . . . . . . . . . . 145, 180 '
Alabama Electric Cooperative, Inc. v. 1 SEC, 353 F.2d 905 (D.C. Cir. 1965), cert. denied, 383 U.S. 968 (1966) . . . . . . . . 34 5 Alan F. Neckritz, 37 F.C.C.2d 528 (1972), ; aff'd, 502 F. 2d 411 (D.C. Cir. 1974) . . . . . . 378 i a \ Amendment of Regulations Under the 1 Federal Power Act, FPC Dkt. No. RM75-3, Notice of Proposed Rule-making to Amend Regulations Under the Federal Power Act Covering ~' Emergency Actions Pursuant to Section 202(c) of the Federal Power Act (August 26, 1974) . . . . . . . . . . . . . 41 1 ~ Note: Authorities denoted with an
- will be included in an ,
Appendix of Legal Ma erials to be submitted. l l a l ov4
- 2-r Page r- American Football League v.
l National Football League, 323 F.2d 124 (4th Cir. 1963).-. . . . . . . . . . . . . . 139, 19 3 American Guaranty Corp. v. United States, 401 F. 2d 100 4 ( Ct . C1. 1968). . . . . . . . . . . American Smelting & Refining Co. v. Pennzoil United, Inc., 295 F. Supp . 149 (D. Del. 1969) . . . . . . . . . . . . . . . . .
. American Tobacco Co. v. United States, 328 U.S. 781 (1945). . . . . . . . . . . . . . . 134, 187, 188, 205 i . Anderson v. Shipowners' Ass'n 272 U.S. 359 (1926). . . . . . . . . . . . . . . 226 Arney v. United States, 479 F.2d 653 (9th Cir. 1973) . . . . . . . . . . 84 Ashworth Transfer, Inc. v. United States, 315 F. Supp. 199 (D. Utah 1970) . . . . 53 Associated Press v. United States, 326 U.S. 1 (1945). . . . . . . . . . . . . . . . 128, 129, 131 Atchison, Topeka and Santa Fe Railroad ~ ~
- v. Denver & New Orleans Railroad
, . 110 U.S. 667 (1884). . . . . . . . . , . . . . . 206
. Atlantic Refining Co. v. Public Service Commmission, 360 U.S. 378 (1959) . . . . . . . . 371 Avnet, Inc., 82 F.T.C. 391 (1973), aff'd, ,
511 F.2d 70 (7th Cir.), cert. denied, j 44 U.S.L.W. 3202 (U.S. Oct. 7, 1975) . . . . . . 177 Basic Books, Inc., 56 F.T.C. 69 (1959), aff'd, 276 F.2d 718 (7th Cir. 1960). . . . . . . 201 _ Beatrice Foods Co., 67 F.T.C. 473 (1965), aff'd as_ modified per consent, 1967 Trade Cas. S72,124 (9th Cir. 1967) . . . . . . . 37 M .. 1
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Page r l Bedford Cut Stone Co. v. Journeyman Stone Cutters, Ass'n, 274 U.S. 37 (1927) . . . . . . . 226 Beebe v. Federal Radio Commission, 61 F.2d 914 (D.C. Cir. 1932) . . . . . . . . . . 48 Bendix Corp. v. Balax, Inc., 4 71 F. 2d 149 (7th Cir. 1972), cert. denied, 414 U.S. 819 (1973). . . . . . . . . . . . . . . 158, 159 l Bendix Corp. v. FTC, 450 P.2d 534 (6th Cir. 1971). . . . . . . . . . . . . . . . . 29 Bluefield Waterworks & Improvement
, Co. v. Public Service Commission, 732 U.S. 679 (1923). . . . . . . . . . . . . . . 79 Board of Trade of Chicago v.
United States, 246 U.S. 231 (1918) . . . . . . . 209 Borough of Lansdale v. PPC, 494 P.2d 1104 (D.C. Cir. 1974). . . . . . - . . . . . . . . 79
- Boston Edison Co., PPC Dkt. Nos.
', E-8187 and E-8700, Order Granting Hearing on Petition f or a Declaratory r Order and Consolidating Proceedings
.I , (September 25, 1974), and Order Denying Application for Reconsidera-tion (November 18, 1974) . . . . . . . . . . . . 77, 90, 374
, 375, 380, 409 .a Boyle's Famous Corned Beef Co. v.
NLRB, 400 F.2d 154 (8th Cir. 1968) . . . . . . . 30, 312 r-I Brahy v. Federal Radio Commission, 59 F.2d 879 (D.C. Cir. 1932) . . . . . . . . . . 48 i Bridge Corp. of America v. American
' Contract Br idge Leigue , Inc., 428 F.2d 1365 (9th Cir. 1370), cert. denied, ; 401 U.S. 940 (1971). . . . . . . . . . . . . . . 209, 210,
.,_ 245 British Oxygen Co. , 3 CCH Trade Reg.
" Rep. 121,063 ( FTC Dec. 8, 1975). . . . . . . . . 177
'; w h 'w. we
i a-Page
, Brown Shoe Co. v. United States, 370 U.S. 294 (1962) . . . . . . . . . . . . . .35, 152, 168 322, 323 Budd Co., 3 CCH Trade Reg. Rep.
120,998 (FTC September 18, 1975) . . . . . . . . 94 Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245 (5th Cir. 1975) . . . . . . . . . 205 Cal Distributing Co. v. Bay Distributors, j Inc., 337 F. Supp. 1154 (M.D. Fla. 1971) . . . . 46 California Motor Transport v. Trucking C Unlimited, 404 U.S. 508 (1972) . . . . . . . . . 189, 336 Case-Swayne Co. v. Sunkist Growers, Inc.,
- r. 369 F.2d 449 (9th Cir. 1966), rev'd,'
389 U.S. 384 (1967) . . ..... . . . . . 187 Central Vermont Public Service Corp., 51 F.P.C. 1051 (1974) . . . . . . . . . . . . . 81, 86 Central West Utility Co. v. FPC, 247 F.2d 306 (3d Cir. 1957) . . . . . . . . . . 368
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Charles P.B. Pinson, Inc. v. FCC,
- r. 321 F.2d 372 ( D.C. Cir. 1963) . . . . . . . . . 48 I
'- Chambersburg Broadcasting Co. v. FCC, 37 2 F. 2d 919 (D.C. Cir. 1966), cert. denied, 3 86 U.S. 1004 (1967) . . . . . . . . . . . . . . 199 Cherryland REC v. Consumers Power Co.,
MPSC Case U-3200 (1968). . . . . . . . . . . . . 180 Chiplets, Inc. v. June Dairy Products Co., 114 F. Supp. 129 (D.N.J. 1953). . . . . . . 46
- Cinderella Career & Finishing Schools, Inc. v. FTC, 425 F.2d 583 (D.C. Cir. 1970) . . . 40, 198, 200 Cities of Statesville v. AEC, 441 F.2d 962 ( D.C. Cir. 1969) . . . . . . . . . .. . . . 60, 277 w$
r-4 Page Citizens for Allegan County, Inc. v. FPC, p 414 F.2d 1125 (D.C. Cir. 1969) . . . . . . . . . 88, 146,
; 320
- City of Cleveland v. Cleveland Electric Illuminating Co., 49 F.P.C. 118 (1973),
aff'd in part, remanded in part sub nom. City of Cleveland v. FPC, No. 73-1282 (D.C. Cir. January 9, TV76) . . . . . . . . . . 85, 125, 216, 217, 228, 374
- City of Cleveland v. Cleveland Electric
,_ Illuminating Co., FPC Dkt. Nos. E-7631 et
'j al., (April 8, 1974 . . . . . . . . . . . . . . . 217 City of Cleveland v. FPC, No. 73-1282 i (D.C. Cir. January 9, 1976) . . . . . . . . . . 77, 215
;
- City of Danville v. Aopalachian Power Co., 46 F.P.C 664 (1971) . . . . . . . . . . . .
City of'Huntingburg v. FPC, 498 F.2d 778 (D.C. Cir. 1974) . . . . . . . . . . . . . . . . 77, 86, 374, 380 City of Ishpeming v. MPSC, 370 Mich. 293, 121 N.W.2d 462 (1963) . . . . . . . . . ,. . . . 87 l City of Lafayette v. SEC, 454 F.2d 941 (D.C. Cir. 1971), aII'd sub nom. Gulf States Utilities Co. v. FPC, 411 U.S. I 747 (1973) . . . . . . . . . . . . . . . . . . . 345, 346 City of Memphis v. Southern Bell Telephone
& Telegraph Co. , 316 F.2d 53 5 ( 6th Cir.1963) . . 40
- City of Paris v. Kentucky Utilities Co.
38 F.P.C. 269 (1967 . . . . . . . . . . . . . . 85, 228, 298 City of Saginaw v. Consumers Power Co.,
, . 213 Mich . 4 6 0, 18 2 N.W . 146 (1921) . . . . . . . 87 CAB v. Modern Air Transport, Inc., 179 F.2d 622 ( 2d Cir.1950) . . . . . . . . . . . . . . . 376
_ . Cleary v. National Distillers & Chemical Corp., 505 F.2d 695 (9th Cir. 1974). . . . . . . 273, 274, 301 g_n Os I
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Page i 1 Cole v. Hughes Tool Co. , 215 F.2d 9 24
/^ (10th Cir. 1954), cert. denied, 348 U.S. ! , j 927l(1955) . . . . . . . . . . . . . . . . . . . 93 c c. - * ' Commonwealth Edison Co. , 36 F.P.C. 927 (1966), aff'd sub nom. Utility Users j League v. FPC, 394 F.2d_16 (7th Cir.),
cert. denied, 393 U.S. 953 (1968) . . . . . . . 88, 190 324, 325 Commonwealth Edison Co., 50 F.P.C. p 156L (1973) . . . . . . . . . . . . . . . . . 88
- Connecticut Light & Power Co., 52 F.P.C.
, c.. 175 (1974) . . . . . . . . . . . . . . . . . . . 76, 374, 6 380, 390 C. Consolidated Edison Co. (Indian Point Station, Unit 2), 7 A.E.C.
323 (App. Bd . 197 4 ) . . . . . . . . . . . . . . 55, 200 Consolidated Edison Co. v. NLRB, 305 U.S. 197 (1938) . . . . . . . . . . . . . . . . . . 312 7 Consumer s Ass' n, 3 2 F.C.C.2d 4 00 (1971). . . . . . . . . . . . . . . . . . . . . . . 378 i .,, Consumers Credit Rural Electric 1 Cooperative Corp. v. Commissioner , 319 4 r F.2d . 47 5 ( 6th Cir.1963) . . . . . . . . . . . . 100
'l Consumers Power Co., 49 F.P.C. 44 r.,- (1973) . . . . . . . . . . .. . . . . . . . . . . 73 .-i i l '- -
- Consumers Power Co. , MPSC Case U-4174, t
Order (November 24,.1972) . . . . . . . . . . . 103, 182,
.[' 183,.220, L. 321, 390 J
- Consumers Power Co., MPSC Case U-4576,
- l. Order Granting Partial and Immediate Rate Relief (September 16, 1974) . . . . . . . . 103, 104, 182, 220, .
'l.,_; 321, 390. '
Consumers Power-Co., FPC Dkt. No. ) [' ER-76-45 .-. . . . . . . . . . . . . . . . . . . 229, 382 I I h " Contin' ental Baking Co. v. United States, 1 ,m 281.F.2d 137 (6th Cir.L1960) . . . . . . .. . . 331 1
.y.
- w
I Page Continental Ore Co. v. Union Carbide & Carbon r- Corp., 370 U.S. 690 (1962) . . . . . . . . . . . 274 I' Conway Corp. v. FPC, 510 F. 2d 126 4 (D.C.
- Cir.), cert. granted, U.S. ,
96 S. Ct. 355 (1975) . . . . . . . . . . . . . 81 County of Wayne v. MPSC, 343 Mich. 144, 72 N .W. 2d 109 (1965) . . . . . . . . . . . . . 181 Crisp County Power Commission v. Georgia Power Co., 37 F.P.C. 1103 (1967), 42 F.P.C. 1179
) (1969) . . . . . . . . . . . . . . . . . . . . 85, 125, 228 I Crown Zellerbach Corp. v. FTC, 296 F.2d
( 800 (9th Cir. 1961), cert. denied, 370 U.S. 937 (1962) . . . . . . . . . . . . . . . . . . . . . 322
,_ Dahl, Inc. v. Roy Cooper Co. , 4 4 8 F. 2d 17
( 9th Cir.1971) . . . . . . . . . . . . . . . . 274, 329 i Dalmo Sales Co. v. Tysons Corner Regional Shopping Center, 429 F.2d 206 Cir. 1970) . l' . . . . . . . . . . ( D . C . . . . . . . . . . 209 _.- Deesen v. Professional Golfers' Ass'n of America, 358 F.2d 165 (9th Cir.), cert. denied, p 385 U.S. 846 (1966) . . . .. . . . . . . . . . . 209, 210, ,L 4 211
- c. Detroit Edison Co., FPC Dkt. No. E-7906,
,, Opinion No. 748, Opinion & Order " Determining Rates (December 30, 1975) . . . . . 109, 306, 411
- Duke Power Co., 48 F.P.C. 1384 (1972) . . . . . . . 79, 218 Duke Power Co., 49 F.P.C. 406 (1973) . . . . . . . 79 9
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Duke Power Co. (Catawba Nuclear Station, Units 1 & 2), 7 A.E.C. 307 (1974) . . . . . . . 44 Duplex Printing Press Co. v. Deering, 254 U.S. 443 (1921) . . . . . . . . . . . . . . 226 Duquesne Warehouse Co. v. Railroad , Retirement Board, 148 F.2d 473 1 ( 2d Cir .1945) , rev'd,'326 U.S. 446 (1946) . . . 205 l 1 e 1
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,.. E.A. McQuade Tours, Inc. v. Consolidated i Air Tour Manual Committee, 467 F.2d 178 (5th Cir. 1972), cert. denied, 409 U.S. 1109 (1973) . . . . . . . . . . . . . . . . 209 Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961) . . . . . . . . . . . . . . . . . . . 189, 335, 336
. , Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359 (1927) . . . . . . . 205 Elco Corp. v. Microdot, Inc., 360
, [- F. Supp. 741 (D. Del. 1973). . . . . . . . . . . 177 ( Emhert Corp. v. USM Corp., 1975-2 Trade Cas. 160,539 (D. Mass. Oct. 14, 1975), rev'd, 1975-2 Trade Cas. 160,598 (1st Cir. November 7, 1975) . . . . . . . . . . . . . 134, 135,
- Emhart Corp. v. USM Corp., 1975-2 Trade Cas . 160,59 8 (1st Cir. November 7,1975) . . . . 204
~
Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251 (6th .i Cir.1970) . . . . . . . - . . . . . . . . . . . 129 Far East Conference v. United States, 342 U.S. 570 (1952) . . . . . . . . . . . . . . 37 7
._ Fashion Originators' Guild of America v. -
FTC, 312 U.S. 457 (1941) . . . . . . . . . . . . 2.16 FCC v. RCA Communications, Inc., 346 86 (1953)
~
U.S. . . . . . . . . . . . . . . . . . 140
> FPC v. Hope Natural Gas Co., 320 J U.S. 591 (1944). . . . . . . . . . . . . . . . . 79, 220 FPC v. Florida Power & Light Co., 4 04
_ U.S. 453 (1972). . . . . . . . . . . . . . . . . 379 FPC v. Hunt, 3 76 U.S. 515 (1964). . . . . . . . . . 371 FPC v. Louisiana Power & Light Co., 406, U.S. 621 (1972) . . . . . . . . . . . . . . 368 '% f
' .n -
Page FPC v. Panhandle Eastern Pipe Line I Co., 337 U.S. 498 (1949) . . . . . . . . . . . . 36 8 FPC v. Sierra Pacific Power Co. , 350 U.S. 348 (1956). . . . . . . . . . . . . . . . . 79 FPC v. Southern California Edison Co.,
, 376 U.S. 205 (1964). . . . . . . . . . . . . . . 37 9 FPC v. Sunray DX Oil Co., 391 U.S. 9 (1968). . . . . . . . . . . . . . . . . . . . . 37 1 FTC v. Fred Meyer Inc., 390 U.S.
341 (1968) . . . . . . . . . . . . . . . . . . . 37 FTC v. Procter & Gamble Co., 3 86 U.S. 568 (1967)
. . . . . . . . . . . . . . . . . . . . . 35, 226 Florida Power Corp. v. FPC, 425 F.2d 1196 (5th Cir. 1970), rev'd sub nom.
Gainesville Utilities Department
- v. Flor ida Power Cor p. , 402 U.S.
515 (1971) . . . . . . . . . . . . . . . . . . . 82, 24 9 Florists' Nationwide Telephone Delivery Network -- America's Phone-Order Florists, Inc. v. Flor is t s ' Telegraph Delivery Ass'n, 371 F.2d 263 (7th Cir.), cert. denied, 387 U.S. 909 (1967) . . . . . . . . . . 209 i Frozen Foods Express, Inc. v. United States, 346 F. Supp. 254 (W.D. Tex. 1972) . . . . . . . . . . . . . . . . . . . 53
.
- Gainesville Utilities Department v. l Flor ida Power Corp. , 40 F.P.C. 1227 i (1968), 41 F.P.C. 4 (1969), aff'd, 402 U.S. l 515 (1971) . . . . . . . . . . . . . . . . . . 85, 201, 214, 215, 216, 228,
_, 247, 248, 249, J 251, 402 1 Gainesville Utilities Department v. Flor ida Power Corp. , 402 U.S. 515
)
(1971)
~
. . . . . . . . . . . . . . . . . . . . 125, 215, 216, i
_ 217, 249, 250 l i - Gamco, Inc. v. Pro'.ridence Fruit
& Produce Bldg., Inc., 194 F.2d 484 (1st Cir.), cert. denied,
.~. 344 U.S. 817 (1952). . . . . . . . . . . . . . 129, 131, 209, 210
, w - -,
I s r I Page Garrett Freightlines, Inc. v. United r States, 353 F. Supp. 1329 (W.D. i Wash. 1973) . . . . . . . . . . . . . . . . . . 53
" General Telephone of S.W. v. United ! States, 449 F.2d 846 (5th Cir. 1971) . . . . . . 140 m George R. Whitten, Jr., Inc. v.
Paddock Pool Builders, Inc., 508 F.2d 547 (1st Cir. 1974), cert. denied, 421 U.S. 1004 (1975) . . . . . . . . . . . . . . . . 158, 159 r-
\
Georgia Power Co., 35 F.P.C 436 (1966), aff'd sub nom. Georgia Power Co. v. FPC, 373 F.2d 485 (5th Cir. 1967) . . . . . . . 80, 86 u Georgia Power Co., 39 F.P.C. 9 30
- (1968) . . . . . . . . . . . . . . . . . . . .
Gilbertville Trucking Co. v. United States, 371 U.S. 115 (1962) . . . . . . . . . . 365 Golden Grain Macaroni Co., 78 F.T.C. 1 54 (1971), aff'd sub nom. Golden Grain Macaroni Co. v. FTC, 472 F.2d 882
~.
(9th Cir. 1972), cert. denied, 412 U.S. 918 (1973) . . . . . . . . . . . . . . . . . . . 71 Goldfarb v. Virginia State Bar , 419 U.S. 963 (1974) . . . . . . . . . . . . . . 65 l Gordon v. New York Stock Exchange,
] 422 U.S. 659 (1975) 64, 85, 89 J . . . . . . . . . . . . . .
Greene County National Farm Loan Ass'n v. Federal Land Bank, 57 F. Supp. 783 (W.D. Ky. 1944), af f ' d , 15 2 F. 2d 215 (6th Cir.), cert. detfed, 328 U.S. 834 (1945) . . . . . . . . . . . . . . . . . . . < . 218 J Greenville Publishing Co. v. Daily Reflector, Inc., 496 F.2d 391 (4th Cir. 1974) . . . . . . 139, 158,
] .
' 193
; Gulf States Utilities Co. v. FPC, 411 U.S. 747 (1973). . . . . . . . . . . . . . . 68, 81, 88, 140, 188, 192, 371
~
I
', p i Page
- r. Hanover Shoe, Inc. v. Unite Shoe Machinerg t' Corp., 392 U.S. 481 (1968) . . . . . . . . . . . 187 Hardin v. Kentucky ocilities Co. 390 U.S. 1 I (1968) . . . . . . . . . . . . . . . . . . . . . 148, 180
- i. .
Hawaiian Telephone Co. v. FCC, 4 98 p F.2d 771 (D.C. Cir. 1974) . . . . . . . . . . . 140, 148 H.E. Fletcher Co. v. Rock of Ages _ Corp., 326 F.2d 13 ( 2d Cir.1963) . . . . . . . 159
\~
Hempy v. Public Utilities Commission, 56 Cal.2d 214,14 Cal. Rptr. 436, 3 63 P.2d 476 (1961). . . . . . . . . . . . . . . 368 u Howard Hall Co. v. United States, 332 F. Supp. 1076 (N.D. Ala. 1971) . . . . . . . . 53 7 A* Huron Portland Cement Co. v. MPSC, 351 Mich. 255, 88 N.W.2d 492 (1958). . . . . . . 144 b.. Huron Valley Publishing Co. v. Booth Newspapers, Inc., 336 F. Supp. 659 (E.D.-Mich. 1972). . . . . . . . . . . . . . . . 46, 158 I. Haas Trucking Corp. v. New York Fruit Auction Corp., 364 F. Supp. 868
'q' (S.D.N.Y. 1973). . . . . . . . . . . . . . . . . 131 LJ International Salt Co. v. United States, it 332 U.S. 392 (1947). . . . . . . . . . . . . . . 37 2 International Telephone and Telegraph Corp. v.
General Telephone and Electronics Corp., 518 F. 2d 913 ( 9th Cir .1975) . . . . . . . . . . 177
. Jacobi v. Bache & Co., 50 2 F.2d 1231
- -' ( 2d Cir.1975) , petition for cert.
J filed, 44 U.S . L.W . 3281 (U.S. November 3, 1975). . . . . . . . . . . . . . . . 68 .1 Jaffee & Co. v. SEC, 44 6 F. 2d 3 87 (2d Cir. 1971) . . . . . . . . . . . . . . . . . 30 In re John Rich Enterprises, Inc., 481 F.2d 211 (10th Cir. 1973). . . . . . . . . . . . 219 .~ l %
-+
-~
t e-- [ I Page i. John Wright & Associates, Inc. v. Ullrich, r" 328 F.2d 474 (8th Cir. 1964) . . . . . . . . . . 139 Kansas Gas and Electric Co. and Kansas r- . City Power and Light Co. (Wolf { Creek Generating Station, Unit 1) Decision (ALAB-279) NCRI 75/C
- p. 559 (June 30, 1975) . . . . . . . . . . . . . 63, 197 366, 394 Kansas City Gas and Electric Co. and
_ Kansas City Power and Light Co. r-(Wolf Creek Generating Station, Unit 1), NRC DKT. No. 50-482A, Decision (ALAB-299) (November 21, 1975). . . . . . . . . . . . . . . . . . . . . . 28, 29, 74 L Kestenbaum v. Falstaff Brewing Corp.,
- 514 F.2d 690 (5th Cir. 1975) . . . . . . . . . . 46, 205
, Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506 (6th Cir.), cert.
c- 3enied, 409 U.S. 1001 (1972) . . . . . . . . . . 189, 193
- 337 , Leary v. United States, 395 U.S. 6 (1969) . . . . . . . . . . . . . . . . . . . . . 47 m
L.G. Balfour Co. v. FTC, 44 2 F. 2d 1 p (7th Cir. 1971). . . . . . . . . . . . . . . . . 29 Long Island Lighting Co. ( Sho reham r_ Nuclear Power Station), 6 A.E.C. 831 (App. Bd. 1973). . . . . . . . . . . . . . . 333 Lorain Journal Co. v. United States, 342 U.S. 143 (1951). . . . . . ~7........ 205 m. Louisiana & Arkansas Railway Abandon-ment, 290 I .C.C . 434 (1954). . . . . . . . . . . 54 Louisiana Power & Light Co. (Water-ford Steam Generating Station, Unit 3) 6 A.E.C. 48 (1973) . . . . . . . . . . . 342 Louisiana Power & Light Co. (Waterfo rd Steam Generating Station, Unit 3) 6 A.E.C. 619 (1973). . . . . . . . . . . . . . . 367, 368, 39 8, 407 a
,,,,n-,
r-
;
, Page Louisiana Power & Light Co. (Waterfo rd
(~ Steam Generating Station, Unit 3) ( ALAB-258, NRCI 75/2 p. 45 (February 3, 1975) . . 54, 197 r Louisiana Power & Light Co. (Waterford
! Steam Electric Generating Station, Unit 3), Memorandum of Atomic Safety and Licensing Board With Respect to Appropriate License Conditions Which Should be Attached to Construction Permit Assuming Arguendo a Situation Inconsis-r tent with the Antitrust Laws, RAI 74-10 (October 24, 1974) . . . . . . . . . . . . . . . 225, 274, 276, 381, 385, 397, 411 Louisiana Power & Light Co., 51 FPC 1290 (1974) . . . . . . . . . . . . . . . . . . . . . 86 Luckenbach Steamship Co. v. United States, 364 U.S. 280 (1960), aff'g 179 F. Supp.
m 605 (D. Del . 195 9) . . . . . . . . . . . . . . . 379 Magnolia Petroleum'Co. v. NLRB, 112 F.2d 545 (5th Cir. 1940). . . . . . . . . . . . . . . 44, 50 McFarland v. Amer ican Sugar Refining c. Co., 241 U.S. 79 (1916). . . . . . . . . . . . . 47 _. Mercoid Corp. v. Mid-Continent Invest-ment Co., 320 U.S. 661 (1944). . . . . . . . . . 190 Metro Cable Co. v. CATV of Rockford, Inc., 375 F. Supp. 350 (N.D. Ill.
, . 1974), aff'd, 516 F.2d 220'(7th Cir . 197 5) . . . . . . . . . . . . . . . . . . . 138, 337 Metrc Cable Co. v. CATV of Rockford, Inc.,
516 P.2d 220 (7th Cir.1975) . . . . . . . . . . 189 Michigan Consolidated Gas Co. v. Austin Township, 373 Mice 123, 128 N.W. 2d 491 (1964) . . . . . . . . . . . . . 87 Michigan Gas & Electric Co., MPSC Case U-2468 (1966) . . . . . . . . . . . . . . . 144 h i
~
_ _ , r. ..- _
r-I Page Milne v. Berman, 384 F. Supp. 206 r- (S.D.N.Y. 1974), prob. juris. [ noted, U.S. , 95 S. C *. . 2676 (1975). . . . . . . . . . . . . . . . . . . 47 Milwaukee Towne Corp. v. Loew's, Inc., L 190 F.2d 561 (7th Cir. 1951), cert, denied, 342 U.S. 909 (1952). . . . . . . . . . . 274 Mississippi Power Co., 45 F.P.C. 269 (1971) . . . . . . . . . . . . . . . . . . . . . 80 Mississippi Power & Light Co. v. City of Clarksdale, 288 So. 2d 9
,_ (Miss. 1973) . . . . . . . . . . . . . . . . . . 146
.. Mobil Oil Corp. v. FPC, 46 3 F. 2d 2 56
( D.C. Cir. 1971), cert. d enied , 4 06 U.S. 976-(1972). . . . . . . . . . . 36 8 Mobil Oil Corp. v. FPC, 48 3 F. 2d 1238 (D.C. Cir. 1973) . . . . . . . . . . . . . . . . 368, 369 Montana-Dakota Utilities Co. v. North-western Public Service Co., 341 U.S. 246 (1951). . . . . . . . . . . . . . . . . . . . . . 380 Monterey Peninsula Municipal Water District v. California Water and Telephone Co., 56 P.U.R.3d 252 1 (Calif. PUC 1965). . . . . . . . . . . . . . . . 146
;.
Monticello Tobacco Co. v. American
- Tobacco Co., 197 F.2d 629 (2d Cir.), cert. denied, 344 U.S. 875 i (1952) . . . _ . . . . . . . . . . . . . . . . . . 328 Moore v. Jas. H. Matthews & Co . ,
; 473 F.2d 328 (9th Cir. 1973) . . . . . . . . . . 81
# Morgan v. United States, 304 U.S .1 1 (1938) . . . . . . . . . . . . . . . . . . . . . 29 I
- ._- Morgan Pioneer, Inc. v. Bismarck Tribune Co., 493 F.2d 383 ( 8th Cir. ),
j cert. denied, 419 U.S. 836 (1974). . . . . . . . 46
F- s Page Morton Salt Co. v. G.S. Suppiger Co., _ 314 U.S. 488 (1942). . . . . . . . . . . . . . . 190 i i Municipal Electric Ass'n of Massachu-setts v. SEC, 413 F.2d 1052 ( D.C. [~ Cir. 1969) . . . . . . . . . . . . . . . . . . . 88, 27 7 i.
- Municipal Light Boards, FPC Dkt. No.
r E-7400, Opinion Nos. 729 and 729-A . (May 13 and August 4, 1975), petition for review filed sub nom. Boston Ed ison Co. v . FPC, No. 75-1850 (D.C.
- Cir. August 28, 1975). . . . . . . . . . . . . . 80 t
Murdock v. City of Jacksonville, 361 F. Supp. 1083 (M.D. Fla. 1973). . . . . . . . . . . 334 Nankin Hospital v. Michigan Hospital Ser-
,.. vice, 361 F. Supp. 1199 (E.D. Mich. 1973). . . . 46, 138 National Ass'n of Women's and Children's Apparel Salesmen, Inc., 77 F.T.C. 998 (1970), aff'd, 470 F.2d 139 (5th Cir),
cert. denied,, 414 U . S . 1004 (1973) . . . . . . . 37 8 National Aviation Trades Ass'n v. CAB, 420 F.2d 209 (D.C. Cir. 1969) . . . . . . . . . 159 _ NLRB v. Imparto Stevedoring Corp., 25 0 F. 2d 297 (3d Cir. 1957). . . . . . . . . . . 31 2 NLRB v. Local 160 International Hod { Carriers, 268 F.2d 185 (7th Cir.1959) . . . . . 201 .u NLRB v. Riverside Manufacturing Co. , 119 F.2d 30 2 ( 5th Cir.1941) . . . . . . . . . . 50 NLRB v. Tennsco Corp., 339 F.2d 396 _. (6th Cir. 1964) . . . . . . . . . . . . . . . . 29 ..- National Motor Freight Traffic Ass'n v. United States, 242 F. Supp. 601 (D.D.C. 1965)
. . . . . . . . . . . . . . . 50
~~ NEPOOL Power Pool Agreement, 4 6 F. P. C. 538 (1972) . . . . . . . . . . . . . . . . . . . 90, 374, 380 New Engl_and Power Co., 43 F.P.C. 5 68 (1970), amended in other respects, 143 F.P.C. 785 (1970) . . . . . . . . . . . . . . 344, 34 8
,5
r' t Page F t New England Power Co. v. FPC, 349 F.2d p, 258 (1st Cir. 1965) . . . . . . . . . . . . . . i 85 New England Power Pool Participants, C' FPC Dkt. No. RM 74-22, Order Per-
! h 2cting Withdrawal of Petition for ' E; argency Relief ( Dkt. No. E-8589) at.d Accepting Rate Schedules Per-I mitting Withdrawal of Rate Schedules,
- Disposing of Procedural Matters and Terminating Proceedings ( August 26, 1974).
I' {
..................... 411 New State Ice Co. v. Liebmann, 285 U.S.
262 (1932) . ~ . r . . . . . . . . . . . . . . . . . 144
'- New York, New Haven, & Hartford R.R.
Abandonment (Portion), Pomfret-
" Putnam, Conn., 312 I.C.C. 465~(1961),
l aff'd sub nom. Smith v. United States, 211 F. Supp. 66 (D. Conn. 1962).
. . . . . . . . 54 New York Shipbuilding Corp. , 1 A.E.C. 707 (1961)
..................... 54 Niagara Mohawk Power Corp. v.
! FPC, L 3 7 9 F. 2d 15 3 ( D .C . Cir. 1967)! . . . . . . . . . 370 Niagara Mohawk Power Corp. (Nine
- [' Mlle Point Nuclear Station, Unit 2), Decision (ALAB-264), NRCI 75/4R, r p. 347. (April 8, 1975) . . . . . . . . . . . . . 28, 200
" Northeastern Indiana Building and i:onstruction Trades Council v.
'b 54LRB, 352 F.2d 696 (D.C. Cir. 1965) . . . . . . 4- 30 Northern California Power Agency v.
~'
FPC, 514 F.2d 184 (D.C. Cir.), cert. denied, U.S. b U.S.6.W. 3204 (Oct. 7,-1975)
, 44
. . . . . . . . . .53, 368, 378 m
j Northern Natural Gas Co. v. Grounds,
" 441 F.2d 704 (10th Cir. ), cert. ~ denied, 4 04 U.S. 951 (1971)
. . . . . . . . . . . . . . 368 Il
- Office of Communications of the United Church of Christ v. FCC, 425 F.2d 543 ( D.C. Cir. 1969) l
. . . . . . . . . . . . . . 48 1
- a ;
l mY
I - (
~
Page t Oklahoma-Arkansas Telephone Co. v. Southwestern Bell Telephone Co., 45 F.2d 995 (8th Cir. 1930), cert. denied, 283 U.S. 822 (1931). . . . . . . . 206 Otter Tail Power Co. v. FPC, 473 F.2d 1253 i (8th Cir. 1973). . . . . . . . . . . . . . . . . 82 (- Otter Tail Power Co. v. United States,
. 410 U.S. 366 (1973). . . . . . . . . . . . . . . 63, 64, 65, 66, 67, 68, 69, 89, 112, p, 113, 129, 142, 143, 145, 148, 149, 172, 193, 205, 212, 227, 375
'I Overseas Motors, Inc. v. Import Motors
. _ . Ltd., 375 F. Supp. 499 (E.D. Mich.
1974), aff'd, 519 F. 2d 119 (6th r Cir), cert. denied, U.S. , 44 U.S.L.W. 3305 (U.S. November 18, 1975). . . . 46 Ovitron Corp. v. General Motors Corp., 295 F. Supp. 373 (S.D.N.Y. 1969) . . . . . . . . 139 Owens v. Roberts, 377 F. Supp. 45 (M.D. Fla. 1974) . . . . . . . . . . . . . . . . 47 Pacific Coast Agrictiltural Export rm Ass'n v. Sunkist Growers, Inc., 1975-2 Trade Cas. 160,617 (9th Cir. November 11 , 1975) . . . . . . . . . . . . . . . 135 Pacific Engineering & Production
~
Co. v. Kerr-McGee Co., 1974-1 Trade Cas. 175,054 (D. Utah, February 28, 1974) . . . . . . . . . . . . . . . 135, 159
~
Pacific Power & Light Co., 50 F.P.C. 70 (1973) . . . . . . . . . . . . . . . . . . . . . 180 : Pacific Power & Light Co. v. FPC,
, 111 F.2d 1014 (9th Cir. 1940). . . . . . . . . . 48
_J Packaged Programs, Inc. v. Westing-house Broadcasting Co., 255 F.2d 708 (3d Cir.1958)
. . . . . . . . . . . . . . . 205 ~
Pan American World Airways, Inc. v. United States, 371 U.S. 296 (1963) . . . . . . . 379 a l i l s L
F
- 4
- Page Panhandle Eastern Pipe Line Co. v. FPC, 204 F.2d 675 (3d Cir. 1953). . . . . . . . . . . 36 8 Panhandle Eastern Pipe Line Co. v.
- MPSC, 328 Mich . 650, 44 N.W.2d 324 (1950), aff'd, 341 U.S. 329 (1951) . . . . . . . 144 Papercraft Corp. v. FTC, 472 F.2d 927
[ (7th Cir. 1973). . . . . . . . . . . . . . . . . 365 i Permian Basin Area Rate Cases, 390 U.S. 747 (1968) . . . . . . . . . . . . . . . . . . . 217 Petition for Amendment of 18 C.F.R. Part 141, 49 F.P.C. 588 (1973), aff'd sub i nom. Alabama Power Co. v. FPC, 511 F.2d 383 L (D.C. Cir. 1974) . T.............. 148 Philadelphia Co. v. SEC, 175 F.2d 808 [ (D.C. Cir. I948), vacated as moot, 337 U.S. 901 (1949). . . . . . . . . . . . . . . 50 Plumbers Local 519 v. Construction Industry Stabilization Commission,
, 4 79 F. 2d 105 2 ( Emer. Ct. App. 1973). . . . . . . 48 1
L Public Service Co. of Indiana, 41 F.P.C. 399 (1969) . . . . . . . . . . . . . . . 85, 228 I L_ Retail Clerks Union v. NLRB, 466 F.2d 380 ( D.C. Cir. 1972) . . . . . . . . . . . . . . 201
.teynolds Metals Co. v. FTC, 309 F.2d 223 ( D.C . Cir. 1962) . . . . . . . . . . . . . . 36 5 f
R.H. White Corp., 54 F.T.C. 1734 (1958) . . . . . . 197 L Ricci v. Chicago Mercantile Exchange,
;- 4 09 U.S . 289 (1973) . . . . . . . . . . . . . . 376, 379
.Riker v. Federal Radio Commission, 55 F.2d 535.(D.C. Cir. 1931) . . . . . . . .. . . 48
'U Rodale Press, Inc. v. FTC, 407 P.2d 125 2 ( D.C. Cir. 1968). . . . . . . . . . . . . . 30
- _ ' Rogers v.- Douglas Tobacco Board of Trade, Inc., 244 F.2d 471 (5th Cir.
1957), cert. denied, 361 U.S. 833 (1959) .. . . . . . . . . . . . . . . . . . . . 21 1
r-l- - Page Roofire Alarm Co. v. Royal Indenmity Co., 202 F. Supp. 166 (E.D. Tenn. 1962), aff'd per curian, 313 F.2d _ 635 (6th Cir.), cert. denied, 373 U.S. 949 (1963). . . . . . . . . . . . . . . . . 209, 210 Royster Drive-In Theaters, Inc. v. American Broadcasting-Paramount Theatres, Inc., 268 F.2d 246 (2d Cir.), cert. denied, 361 U.S. 855 (1959). . . . . . . . 274 Russell v. Farley, 15 Otto 433 (1882) . . . . . . . 37 1
~
St. Louis-San Francisco Ry. Trustees Abandonment, 261 I.C.C. 781 (1946) . . . . . . . 54 Saunders v. National Basketball Ass'n,
'~
348 F. Supp. 649 (N.D. 111. 1972). . . . . . . . 273, 274
~
Savon Gas Stations Number Six, Inc. v.
. Shell Oil Co., 309 F.2d 306 (4th Cir. 1962), cert, denied, 372 U.S. 911 (1963). . . . . . . . . . . . . . . . . 129 Schwartz v. S.S. Nassau, 34 5 F.2d
,. 465 (2d Cir.), cert. denied, 382 U.S. 919 (1965) . . . . . . . . . . . . . . . . 40 Scientific Manufacturing Co. v. FTC, 124 P.2d 640 (3d Cir.
. . _ 1941). . . . . . . . . . . . . . . . . . . . . . 339 - Scott Publishing Co. v. Columbia Basin Publishers, Inc., 293 F.2d 15 (9th Cir.), cert. denied, 3 68 U.S.
_ 940 (1961) . . . . . . . . . . . . . . . . . . . 329 SEC v. Insurance Securities, Inc., 254 F.2d 642 ( 9th Cir . ) , cert. denied, 358 U.S. 823 (1958). . . . . . . . . . . 219 Shawver & Son, Inc. v. Oklahoma Gas & -. Electric Co., 463 F.2d 204 (10th Cir. 1972) . . . . . . . . . . . . . . . . . . . 45, 46 4 Sherbert v.. Verner, 374 U.S. 398 (1963). . . . 339 j i f
F Page Shrewsbury Municipal Light Department v. New England Power Co., 32 F.P.C. 3 '/ 3
- (1964), aff'd su.) nom. New England Power Co. v. FPC, 349 F.2d 258 (1st Cir. 1965). . . . . . . . . . . . . . . . . 85, 228
"~
Sierra Pacific Power Co., FPC Dkt. Nos. E-7706, E-7750, E-8092, Opinion Nos. 702, 702-A, and 702-B (August 15, 1974, June 17 and August 20, 1975. . . . . . . . 80 Sierra Pacific Power Co., FPC Dkt. No. _ E-8224, Opinion Nos. 730-A, I' 730-B (May 15, July 16 and Septem-C , ber 2, 1975) . . . . . . . . . . . . . . . . . . 80 Silver.v. New York Stock Exchange, 3 73 U.S. 341 (1963). . - . . . . . . . . . . . . . . . 128, 131 r, 608 Hamilton Street Corp. v. Columbia l' Pictures Corp., 244 F. Supp. 193 (E.D. Pa. 1965). . . . . . . . . . . . . . . . . 27 4 Six Twenty-Nine Productions, Inc. _ v. Rollins Telecasting, Inc., 365 F.2d 478 (5th Cir. 1966) . . . . . . . . . . . . 205 South End Oil Co. v. Texaco, Inc., 237 F. Supp. 650 (N.D. Ill. 1965). . . . . . . . 33 0 Southeastern Michigan REC v. Consumers Power Co., MPSC Case U-3366 (1966) . . . . . . . 180 Southwestern Public Service Co., 33
. F.P.C. 343, modified 34 F.P.C. 841 (1965). . . . 80 Speiser v. Randall, 357 U.S. 513 (1958) . . . . . . 47, 339, 368 ~
Sprung v. Weinberger, 386 F. Supp.
. 74 (D.N.J. 1974) . . . . . . . . . . . . . . . . 201 l
EsWe w .w
I r-I. _ 1 Page S.S. Kresge Co. v. NLRB, 416 F. 2d {-
, 1225 (6th Cir. 1969) . . . . . . . . . . . . . . 29 Standard Oil Co . v. Moore, 251 F.2d 188 (9th Cir.), cert.
I- denied, 356 U.S. 975 (1958). . . . . . . . . . . 328
"~
Standard Oil Co. v. United States
. 221 U.S. 1 (1911). . . . . . . . . . . . . . . . 206 r- Stanley Works v. FTC, 469 F.2d 498 (2d l Cir. 1972), cert, denied, 412
~
U.S. 928 (1973). . . . . . . . . . . . . . . . . 323 Storm v. Lumbermens Mutual Casualty L. Co., 6 F.R.D. 355 (S.D. Cal. 1946) . . . . . . . 51 P-
' Structural Laminates, Inc. v. Douglas
[_ Fir Plywood Ass' n, 261 F. Supp. 154 (D. Ore. 1966), aff'd, 399 F. 2d 155 p- (9th Cir. 1968), cert. denied, 393 L U.S. 1024 (1969) . . . . . . . . . . . . . . . . 245 I' Swift & Co. v. United States,196 O.S. 375 (1905). . . . . . . . . . . . . . . . . 192, 205 d. Taussig v. Wellington Fund, Inc., f;- 187 F. Supp. 179 (D. Del. 1960),
- ~ af f 'd , 313 F. 2d 472 (3d Cir.),
cert. denied, 374 U.S. 806 (1963). . . . . . . . 219 a - Telex Corp. v. International Business Machines Corp., 367 P. Supp. 258 (N.D. Okla. 1973), rev'd and remanded, F 510 F.2d 894 (10th Cir.), petition -- L_ for cert. dismissed , 4 23 U.S. 802 (1975) . . . . . . . . . . . . . . . . . . . . .45, 191, 204
,.. )
L Telex Corp. v. International Business Machines Corp., 510 F.2d 894 (10th Cir.), petition for cert. dismissed, L-423 U.S.-802 (1975). . . . . . . . . . . . . . . 73, 157, 190, 191, 221 r-L l i y
.m
r-
;
e Page _ Terrell v. Household Goods Carriers' _ Bureau, 494 F.2d 16 (5th Cir.),
. cert. dismissed, 419 U.S. 987 (1974) . . . . . . . . . . . . . . . . . . . . . 46 I
Texaco, Inc. v. FPC, 290 F.2d 149 ( 5 th Cir. 1961) . . . . . . . . . . . . . . . . . . . 37 1 Times-Picayune Publishing Co. v. United L States, 345 U.S. 594 (1953). . . . . . . . . . . 17, 192, 205, 221, 229 i L Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951). . . . . . . . . . . 130 Toledo Edison Co. (Davis-Besse Nuclear Power Station, Unit 1), NRC Dkt. No. 50-346 A, Memorandum and Order [ (ALAB-297) (November 5, 1975). . . . . . . . . . 363 t-r- Toledo Edison Co. (Davis-Besse Nuclear Power Station Unit 1), NRC Dkt . No. 50-346A, L. ~ Opinion and Order ( ALAB -30 0) (Novem-ber 26, 1975). . . . . . . . . . . . . . . . . . 31, 334 [ Tot v. United States, 319 U.S . 4 63 (1943) . . . . . . . . . . . . . . . . . . . . . 47 I Travelers Insurance Co. v. Blue Cross
- c. of Western Pennsylvania, 361 F. Supp.
774 (W.D. Pa. 1972), aff'd, 481 t- F.2d 80 (3d Cir.), cert. denied, 414 U.S. 1093 (1973) . . . . . . . . . . . . . . 138, 139, 204 Travelers Insurance Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80 (3d Cir.), cert. denied, 414 U.S. [ 1093 (1973). . . . . . . . . . . . . . . . . . . 191 i Traverse City v. Consumers Power Co., 340 Mich. 85, 64 N.W.2d 894 (1954) . . . . . . . 87 Treasure Valley Potato Bargaining Ass'n v. Ore-Ida Foods Inc., 497 F.2d 203 (9th Cir.) cert. denied, 419 _ U.S. 999 (1974). .. . . . . . . . . . . . . . . 73 , 135 _ bM
-e s
M
Page l Union Leader Corp. v. Newspapers of { i. New England, Inc., 180 F. Supp. 125 (D. Mass. 1959), modified, 284 F.2d 582 (1st Cir. 1960), cert. denied, 3 65 U.S. 833 (1961). . . . . . . . . . . . . . . 139, 189, f 206 Union Leader Corp. v. Newspapers of _ New England, Inc., 284 F.2d 582 (1st Cir. 1960), cert. denied, 365 U.S. 833 (1961). . . . . . . . . . . . . . . . . '189, 192, 339
~
United Community Services v. Omaha National Bank, 162 Neb. 786, 77 N.W.2d 576 (1956). . . . . . . . . . . . 219 United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 _ (1956) . . . . . . . . . . . . . . . . . . . . . 79 i L United Gas Improvement Co. v. Callery Properties, Inc.,
; 382 U.S. 223 (1965). . . . . . . . . . . . . . . 371 k' United Mine Workers v. Pennington, r .-
381 U.S. 657 (1965). . . . . . . . . . . . . . . 189, 335, 336, 340 United Nuclear Corp. v. Combustion Engineering, Inc., 302 F. Supp. f'
- 539 (E.D. Pa. 1969). . . . . . . . . . . . . . . 160
,- United Packinghouse, Food & Allied ~ l' Workers v. NLRB, 416 F. 2d 1126 -~ (D.C. Cir.), cert. denied, 396 y U.S. 903 (1969). . . . . . . . . . . . . . . . . 30 1 - United States v. Aluminum Co. of America, 233 F. Supp. 718 (E.D. F Mo. 1964), aff'd, 382 U.S. 12 L. (1965) . . . . . . . . . . . . . . . . . . . . . 327
, United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.
1945). . . . . . . . . . . . . . . . . . . . . .45, 130, 134, 153, 160, 187, 188, 205 W
-m9
. - - - - r g
1
,, .I Page F
" United States v. Aluminum Co. of Amer ica , 3 7 7 U. S. 271 (1964) . . . . . . . . . . 32 3 United States v. Arnold, Schwinn & Co . ,
388 U.S. 365 (T967). .. . . . . . . . . . . . . . 46 United States v. Associated Press, 52
. F. Supp. 362 (S.D.N.Y. 1943),
aff'd in part, rev'd in part, y 326 U.S. 1 (1945). . . . . . . . . . . . . . . . 176, 209, { 210, 211 _ United States v. Besser Manufacturing Co., 96 F. Supp. 3 04 .( E . D. Mich. 1951), aTf'd, 343 U.S. 444 (1952) . . . . . . . . . . . 188
~
United States v. Blue Dell, Inc., L 395 F. Supp. 538 (M.D. Tenn. 1975) . . . . . . . 175, 176 United States v. Borden Co., 3 08 U.S. I 188 (1939) . . . . . . . . . . . . . . . . . . . 377 Y United States v. Brooklyn Union Gas Co., [ 168 F.2d 391 (2d Cir. 1948). . . . . . . . . . . 146 L United States v. Chas. Pfizer & Co., 246 F. Supp. 434 (E.D.N.Y. 1965) . . . . . . . . 158, 159, 160 United States v. Citizens & Southern National Bank, 422 U.S. 86 (1975). . . . . . . . 69, 73, 138, 151
' ~ ~
United States v. Colgate & Co . , 250 U.S. 300-(1919). . . . . . . . . . . . . . . 128, 205 United States v. Columbia Steel Co.,
! 334 U.S. 495 (1948). . . . . . . . . . . . . . . 93, 134 United States v. Connecticut National Bank, 418 U.S. 656 (1974) . . . . . . . . . . . 101, 174
.L . United States v. Crescent Amusement
- Co., 323 U.S. 173 (1944) . . . . . . . . . . . . 187 v*
w w --
J, 25 - Page [~ United States v. Crowell, Collier &
- i. MacMillan, Inc., 361 F. Supp. 983 (S.D.N.Y. 1973). . . . . . . . . . . . . . . . . 322 I ',
United States v. E.I. duPont deNemours
& Co., 351 U.S. 377 (1956) . . . . . . . . . . . 45, 46,
- r. 74, 81, 102, 127, 128 156,
. 157, 158 i
United States v. E. I. duPont deNemours
& Co., 353 U.S. 586 (1957) . . . . . . . . . . . 372 United States v. General Dynamics Cory.,
341 F. Supp. 534 (N.D. 111. 1972), _ aff'd, 415 U.S. 486 (1974) . . . . . . . . . . . 74, 159 United States v. General Dynamics Corp., 415 U.S. 486 (1974) . . . . . . . . . . . . . 73, 74, 93,
~
135-36 United States v. Greater Buffalo Press, _ Inc., 402 U.S. 549 (1971), . . . . . . . . . . . 130, 177-178 United States v. Griffith, 334 U.S. 100 (1948) . . . . . . . . . . . . . . . . . . . . . 187, 194, a 292
- r. United States v. Grinnell Corp., 384 U.S. 563 (1966). . . . . . . . . . . . . . . . . 70, 71, 74 134, 186, 187 United States v. Harte-Hanks Newspapers, Inc.,
170 F. Supp. 227 (N.D. Tex. 1959) . . . . . . . . 139 United States v. Hutcheson, 312 U.S. 219 _ (1941). . . . . . . . . . . . . . . . . . . . . . 226 United States v. International Business
,;
Machines Corp., 1973-2 Trade Cas. 160,4?5 (S.D.N.Y. August 6, 1973) . . . . . . . . . . . . 135, 196 United States v. International Telephone &
,. Telegraph Corp., 1971 Trade Cas. 173,619 (N.D. Ill. 1971) . . . . . . . . . . . . . . . . 160 4
m
. v- + - -
v.,
; -
i b j i Pace {' United States v. International Telephone & Telegraph Corp., 306 F. Supp. 766 (D. Conn. 1969), appeal dismissed, 404 U.S. 801 (1971) . . . . . . 322 l n' United States v. International Telephone & Telegraph Corp., 324 F. Supp. 19 (D. Conn. 1970), r appeal dismissed, 404 U.S. 801 (1971) . . . . . . 176, 322 t' United States v. Jerrold Electronics Corp.,
-, 187 F. Supp. 545 (E.D. Pa. 1960), aff'd l
ger curiam, 365 U.S. 567 (1961) . . . . . . . . . 229, 324 Unit 1d States v. Marine Bancorporation, Inc.,
"~
~~TTI U.S. 602 (1974) . . . . . . . . . . . . . . . 136-37, 143 u
United States v. Masonite Corp., 316 U.S. 265 (1942) . . . . . . . . . . . . . . . . . . . 226 United States v. Otter Tail Power Co.,
,_ 331 F. Supp. 54 (D. Minn. 1971), aff'd, 410 U.S. 366 (1973) . . . . . . . . . . . . . . . 65, 66, 67, . 112, 113, 132, 408 United States v. Otter Tail Power Co.,
360 F. Supp. 431 (D. Minn. 1973),
,. aff'd per curiam, 417 U,S. 901 (1974) . . . . . . 66 I"-
United States v. Penn-Olin Chemical Co., 246 F. Supp. 917 (D. Del. 1965), aff'd per curiam, 389 U.S. 308 (1967) . . . . . . 46, 130 United States v. Philadelphia National Bank, 374 U.S. 321 (1963) . . . . . . . . . . . . . . . 168, 226 i
~
United States v. Phillipsburg National-Bank,
. . & Trust Co., 399 U.S. 350 (~1970). . . . . . . . . 179 i
United States v. Reading Co., 253 U.S. 26 (1920). . . . . . . . . . . . . . . . 187 United States v. Romano, 382 U.S. 136 (1965) . . . . . . . . . . . . . . . 47 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) . . . . . . . . . . . . . . . 226, 292, _. 293 1a .a
?,
i-s r-t j
- Page f~'
l United States 's. Terminal Railroad Ass'n, 224 U.S.-383 (1912) . . . . . . . . . . . . . . . 128, 131 h' United States v. Topco Associates Inc. 405 U.S. 596 (1972) . . . . . . . . . . . . . . 226
'~
United States v. United Shoe Machinery Coro., 'l 85 F. Supp. 349 (D. Mass. 1950) . . . . . . . . . 328, 329
-- United States v. United Shoe Machinery Coro.,
l'- 110 F. Supp. 295 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954) . . . . . . . . . 134, 138, _ 160, 187 j United States Navigation Co., Inc. v.
.-- Cunard Steamship Co., 284 U.S.
474 (1932) . . . . . . . . . . . . . . . . . . . 377 Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967). . . . . . . . . . . . . . . 94 In te Uranium Contract Litigation, MDL No. 235 (E.D. Va.) . . . . . . . . . . . . . 120 [ Utility Users League v. FPC,
.. 394 F.2d 16 (7th Cir.), cert.
denied, 393 U.S. 953 (1968) . . . . . . . . . . . 141, 148, 325 Village of Elbow Lake v. Otter Tail
.- Power Co., 40 F.P.C. 1262 (1968), aff'd ' sub nom. Otter Tail Power Co. v. FPC, b: 429 F.2d 232 (8th Cir. 1970), cert.
denied, 401 U.S. 947 (1971) . . . . . . . . . . . 65, 66, .' 89, 113
~
Village of Elbow Lake v. Otter Tail Power Co., 46 F.P.C. 675 (1971), aff'd I- as modified sub nom. Otter Tail Power
~
Co. v. PPC, 473 F.2d 1253 (8th Cir. T973) . . . . . . . . . . . . . . . . . . . . . . 65, 85, 89, 99, _ 113, 125, 148, 215, 228, 251 Walker Process Eculpment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).
, . . . . . . . . . . . . . . . . . . . . . 45, 128 4
t (^ e
~
l Pace Atomic Energy Act of 1954
'- S1, 42 U.S.C. S2011 . . . . . . . . . . . . . . . 380 S103(b), 42 U.S.C. . . . . . . . . . . . . . . 42, 55 S105, 42 U.S.C. S2135 . . . . . . . . . . . . . . 55
[ ~' S105a, 42 U.S.C. S2135a . . . . . . . . . . . . . 49 S105c, 42 U.S.C. S2135c(5). . . . . . . . . . . . Passim r S18 5, 4 2 U .S .C. S2235 . . . . . . . . . . . . . . 42 S189(a), 42 U.S.C. S2239(a) . . . . . . . . . . . 381 S271, 42 U.S.C. 52018 . . . . . . . . . . . . . . 55 r, Communications Act l , 47 U.S.C. 5309(a) . . . . . . . . . . . . . . . . 48 r 47 U.S.C. S309(e) . . . . . . . . . . . . . . . . 48 Energy R-organization Act of 1974 42 U.S.C. S5801 . . . . . . . . . . . . . . . . . 1, 123 Federal Financing Bank Act of 1973 , s, 57, 12 U.S.C. S2286 . . . . . . . . . . . . . . . 98 Federal Power Act
'~
5 7, 16 U.S.C . 5800(a) . . . . . . . . . . . . . . 131
. ~,
- S202(b), 16 U.S.C. 5824a(b) . . . . . . . . . . . 82, 83, l
84, 86,
- 125, 131, 250, 379
- S203(a), 16 U.S.C. S824(b). . . . . . . . . . . . 88
- S204(a), 16 U.S.C. S824: 2) . . . . . . . . . . . 88
,
- S205(2), 16 U.S. S824d(a) . . . . . . . . . . . . 379
.i
- S205(d), 16 U.S.C. S824d. . . . . . . . . . . . . 76, 77, 78, 86, 396
- S205(e), 16 U.S.C. 5824d(e) . . . . . . . . . . . 78, 80 i
- S206 , 16 U.S.C. S824(e). . . . . . . . . . . . 77, 379,
- - 396
- S207, 16 U.S.C. S824f . . . . . . . . . . . . . . 379 L Federal Property and Administra-tive Services Act of 1949 40 U.S.C. 5488. . . . . . . . . . . . . . . . . 36 h
( l Pace
,c Federal Trade Commission Act t
SS, 15 U.S.C. S45 . . . . . . . . . . . . . . . . 71 [' Internal Revenue Code 26 U.S.C. S103. . . . . . . . . . . . . . . . . . 97, 99 r 26 U.S.C. S115(a) . . . . . . . . . . . . . . . . 97, 101
; 26 U.S.C. s501(c)(12) .. . . . . . . . . . . . . 97, 100
- c. Natural Gas Act i
S7, 15 U.S.C. 5717f(e). . . . . . . . . . . . . . 369 Patents 35 U.S.C. 5154. . . . . . . . . . . . . . . . . . 190 Public Utility Holding Company Act of 1935 29, 15 U.S.C. S791. . . . . . . . . . . . . . . . 88
.- 5 :,0 , 15 U . S . C. S79j . . . . . . . . . . . . . . . 88 Rural Elactrification Act 7 U.S.C. S901 et seg. .. . . . . . . . . . . . . 148
- - 7 U.S.C. 5904 . . . . . . . . . . . . . . . . . . 97, 98,
~l 145, 172 7 U.S.C. 5913 . . . . . . . . . . . . . . . . . . 97, 172 7 U.S.C. S930 . . . . . . . . . . . . . . . . . . 98, 131 ,i~ 7 U.S.C. 5934 . . . . . . . . . . . . . . . . . . 98 - [, 7 U.S.C. 5936 . . . . . . . . . . . . . . . . . . 97 ; 7 U.S.C. S940 . . . . . . . . . . . . . . . . . . 98 l Sherman Act 1 S2, 15 U.S.C. 52. . . . . . . . . . . . . . . . . 70, 71, l 6 143 Tennessee Valley Authority Bonding Act
- ,_ 16 U.S.C. S831. . . . . . . . . . . . . . . . . . 148 l
l w ,
( 1
,k ' .
Page f State: t Michigan Consititution r-I Art. VII, S15 . . . . . . . . . . . . . . . . . .
' 181 Art. VII, S24 . . . . . . . . . . . . . . . . . . 173 r Art. VII, S25 . . . . . . . . . . . . . . . . . . 146
; Art. VII, S29 . . . . . . . . . . . . . . . . . . 147 Michigan Statutes Annotated:
!- 5 1432. . . . . . . . . . . . . . . . . . . . . . . 145, 146 5.1534. . . . . . . . . . . . . . . . . . . . . . 173 r- 5.1858. . . . . . . . . . . . . . . . . . . . . . 146 P
~
5.4083. . . . . . . . . . . . . . . . . . . . . . 145, 173 7.557(1201) . . . . . . . . . . . . . . . . . . . 97, 101 _ 8.20. . . . . . . . . . . . . . . . . . . . . . . 146 l 8.78. . . . . . . . . . . . . . . . . . . . . . . 146 v 21.81 . . . . . . . . . . . . . . . . . . . . . . 97, 101 22.4. . . . . . . . . . . . . . . . . . . . . . . 181 t' 22.13(6). . . . . . . . . . . . . . . . . . . . . 181, 182 [^ 22.13(6a) . . . . . . . . . . . . . . . . . . . . 181 22.141. . . . . . . . . . . . . . . . . . . . . . 147 , , 22.152. . . . . . . . . . . . . . . . . . . . . . 181, 182 T-1 22.156. . . . . . . . . . . . . . . . . . . . . . 89 22.157. . . . . . . . . . . . . . . . . . . . . . 182 {. Michigan Administrative Code (1954) v R. 460.2008 . . . . . . . . . . . . . . . . . . . 182
~
- Public Act No. 230 (1975) . . . . . . . . . .. . . 101 Public Act No. 296 (1975) . . . . . . . . . . . . . 145, 173 1 1
1-Minnesota Statutes Annotated: 'j ' Ch. 216B. . . . . . . . . . . . . . . . . . . . . 67 1 South Dakota Statutes: [. C.L. Ch. 49-34-A. . . . . . . . . . . . . . . . . 67
~
t
%= e b
me
T a l Pace f- Regulations: Federal Power Commission Rules of r Practice and Procedure l 18 C.F.R. Sl.8(b) . . . . . . . . . . . . . . . . 78
, Federal Trade Commission Rules of Practice for Adjudicative Proceedings 53.43, 16 C.F.R. S3.43. . . . . . . . . . . . . . 45
/*
~
I Nuclear Regulatory Commission Rules of Practice
, S2.732, 10 C.F.R. S2.732. . . . . . . . . . . . . 49
' S2.743(i), 10 C.F.R. S2.743(i). . . . . . . . . . 111 S2.762(a), 10 C.F.R. S2.762(a). . . . . . . . . . 333
;
LEGISLATIVE MATERIAL: Bills: H.R. 12322, 90th Cong., 1st Sess. (1967). . . . . 58 H.R. 13828, 90th Cong., 1st Sess. (1967). . . . . 58 H.R. 716, 91st Cong., 1st Sess. (1969). . . . . . 58
, H.R. 7016, 91st Cong., 1st Sess. (1969) . . . . . 58 s H.R. 7052, 91st Cong., 1st Sess. (1969) . . . . . 58 H.R. 9557, 91st Cong. ,1st Sess. (1969) . . . . . 58 H.R. 9647, 91st Cong., 1st Sess. (1969) . . . . . 26 } '~~
H.R. 12585, 91st Cong. ,1st Sess. (1969). . . . . 59 H.R. 605, 92d Cong., 1st Sess. (1971) . . . . . . 60 H.R. 3838, 92d Cong., 1st Sess. (1971). . . . . . 60 H.R. 5941, 92d Cong., 1st Sess. (1971). . . . . . 60 S. 2564, 90th Cong., 1st Sess. (1967) . . . . . . 58, 131 S. 1071, 91st Cong. ,1st Sess. (1969) . . . . . . 58 i S. 1883, 91st Cong., 1st Sess. (1969) . . . . . . 26 S. 194, 92d Cong., 1st Sess. (1971) . . . . . . . 60 Hearings: Hearings on Licensing and Regulation of Nuclear Reactors before the Joint Com-
- l mittee on Atomic Energy, 90th Cong.,
t-1st Sess. (1967-68) . . . . . . . . . . . . . . . 60 o l
- . -
r -ro e
.)
f* i Page r Hearings on the Participation by Small
! Electric Utilities in Nuclear Power, Before the Joint Comm. on Atomic Energy
, 90th Cong., 2d Sess., (1968). . . . . . . . . . . 278 I
Hearings on Prelicensing Antitrust Review of Nuclear Power?lants, Before the Joint Comm. on Atomic Energy 91st Cong. ,1st & 4 2d Sess. (1969-1970). . . . . . . . . . . . . . . 26, 27, 28, 278 Hearings on S. 2135 and S. 2744 Before the Subcommittee on Reorganization, Research , and International Organization of the Senate Committee on Government Operations,
. 93d Cong., 1st & 2d Sess., (1973-1974). . . . . . 123
[ Reports: H.R. Rep. No. 1446, 89th Cong., 2d Sess. (1966). . . . . . . . . . . . . . . . . . . . . . 99 H.R. Rep. No. 1335, 90th Cong. 2d Sess. 56 (1968) . . . . . . . . . . . . . . . . . . . . 99 H.R. Rep. No. 91-1470, 91st Cong., 2d Sess., U.S. Code Cong. & Admin. News 4991 (1970). . . . . . . . . . . . . . . . . . . . . . 36
)
H.R. . Rep. No. 93-91, 93d Cong,, _ lst Sess. (1973). . . . . . . . . . . . . . . . . 98
- S. Rep. No. 1699, 83d Cong., 2d Sess.,
(1954), also published as H.R. Rep. No. 2181, 83d Cong., [ 2d Sess. . . . . . . . . . . . . . . . . . . . . 36 S. Rep. 93-980, 93d Cong., 2d Sess., I (1974). . . . . . . . . . . . . . . . . . . . . . 123 JCAE Rep. No. 91-1247, 91s t Cong. , i 2d Sess. (1970) . .. . . . . . . . . . . . . . . 37 L
- .
i~a , - m
. . ~ ..e .g ---u... y -- , , ., .,, . , , ,.. , , . . ,-gv., ,, , . .,_
.t-l' l Paqe
" Dissenting Views on H.R. 18679" (draft
[ dated September 14, 1970) of Senator 61 Aiken . . . . . . . . . . . . . . . . . . . . . .
) Debates:
Remarks of Rep. Hosmer, 116 Cong. Rec. H. 39819 (December 3, 1970) . . . . . . . . . . . 61 I Remarks of Senator Pastore, 116 Cong. c- Rec. S. 39619 (December 2, 1970). . . . . . . . . 60, 61 l c MISCELLANEOUS I AEC, NUCLEAR POWER GROWTH 1973-2000 (WASH-1139, 1972) . . . . . . . . . . . . . . . . 123 i AEC, NUCLEAR POWER GROWTH 1974-2000 (WASH-1139, 1974) . . . . . . . . . . . . . . . . 123 Attorney General's advice 3 9tter, Carolina Power & Light Cc.. ' (Shearon Harris Power Units 1, 2, [_ 3& 4), AEC Dkt. Nos. 50-490A, 50-401A, 50-402A & 50-403A, 37 Fed. Reg. 18016 (September 16, 1974). . . . . . . 213 'I Attorney General's advice letter , Detroit Edison Co. (Enrico Fermi Unit 2), AEC Dkt. No. 50-341A, 36 Fed. Reg. 17883 (August 16, 1971). . . . . . . 260
.~
Attorney General's advice letter, . , Detroit Edison Co. (Greenwood 'L Energy Center, Units 2&3), AEC Dkt. No. 50-453A, 39 Fed. Reg.
- , 12373 (April 5, 1974) . . . . . . . . . . . . . . 261, 264, I 399 Attorney General's advice letter,
) Duke Power Co. (Oconee Units 1, 2 & 3,
- l. McGuire Nuclear Station Units 1 & 2, Catawba Nuclear Station Units 1 & 2),
. AEC Dkt. Nos. 50-269A, 50-270A, 50-369A, 50-370A, 50-(13A & 50-414A, 39' Fed. Reg. 17461 (May 16, 1974) . . . . . . . . 214
'b, _,-._ .m_
4 , c. l Pace
- r. Attorney General's advice letter,
~) Gulf States Utilities Co. (River Bend Units 1 & 2), AEC Dkt. Nos.
50-458 & 50-459A, 39 Fed. Reg. 12374 (April 5, 1974) . . . . . . . . . . . . . . 261 Attorney General's advice letter, r Illinois Power Co. (Clinton Power i Station Units 1 & 2), AEC Dkt. Nos. 50-461A & 50-462A, 39 Fed. Reg. _. 15898 (May 6, 1974) . . . . . . . . . . . . . . . 214 l Attorney General's advice letter, Northern Indiana Public Service Co. (Bailly Gen-
'" erating Station, Unit 1), AEC Dkt. No.
I 50-367A, 36 Fed. Reg. 22325 (November 24, 1971) . . . . . . . . . . . . . . . . . . . . 399 Attorney General's advice letter, Texas Utilities Generation Co. (Comanche Peak Units 1 & 2), [ AEC Dkt. Nos. 50-445A & 50-446A,
. 39 Fed. Reg. 3845 (January 30, 1974). . . . . . . 262 Attorney General's advice letter, 4
Virginia Electric & Power Co. (North Anna Power Units 1 & 2),
~ AEC Dkt. Nos. 504A & 50-405A, 37 Fed. Reg. 16221 (August 11, 1972). . . . . . . 213 Attorney General's advice letter,
[ Virginia Electric & Power Co. L (Surry Power Station Units 3 & 4), AEC Dkt. Nos. 50-434A & 50-435A, 38 Fed. Reg. 32596 (November 27, 1973). . . . . . 213 Attorney General's National Committee Antitrust Report (1955) . . . . . . . . . . . . . 187 4 L
-. Address of Donald I. Baker, Director of Policy Planning, Antitrust Divi-sion, Department of Justice, to 1.' Americare Public Power Association, National Conference, May 16, 1973 . . . . . . . . 273, 389 s
I -*
- - , - * -* * -- , -- =
i e 'l
}
Pace {~ Address by Wallace Edward Brand, " Solving Your Power Supply Problems with the Antitrust Laws," to American Public Power Association, National Conference,
! May 21, 1975. . . . . . . . . . . . . . . . . . . 9
.
- Brief for the United States; United States v.
Blue Bell, Inc. , 39 5 F . Supp. 538 (M.D. Tenn. 1975) . . . . . . . . . . . . . . . . . . . . . . 175
~
- Brief for the United States, United States v.
l . Otter Tail Power Co., 410 U.S. 366 (1973) . . . . 67 Consumers Power Co. (Quanicassee Units 1& 2), AEC Dkt. Nos. 50-475 & 50-476, Answer of Consumers Power Co. (August 2, 1974). . . . . . . . . . . . . . . . . 103, 392 FEA, 1974 Project Independence Report . . . . . . . 120 Letter of Lee V. Gossick for L. Manning Muntzing, Director of Regulation of the l AEC, to the Hon. Warren G. Magnuson, l Chairman, Committee on Commerce, U.S. Senate, July 6, 1973, in S. Rep. No. 792, 93d Cong., 2d Sess. (1974) . . . . . . . 381 Henn, Law of Corporations (1970 ed.)
., S226. . . . . . . . . . . . . . . . . . . . . . . 332
- Letter from James A. Inglis, Chairman, MPSC to Consumers Power Co. , Decem-ber 7, 1962, transmitting the MPSC's decision in Consumers Power Co.,
MPSC Case U-1152 of the same date . . . . . . . . 147 Kaysen and Turner, Antitrust Policy (1959). . . . . 187 McCormick, Evidence (1972). . . . . . . . . . . . . 50 Meeks, Concentration in the Electric Power Industry: The Impact of Anti-trust Policy, 72 Colum. L. Rev. 64 (1972). . . . . . . . . . . . . . . . . . . . . . 56, 180
. Morris, Tax Exemption for State and Local Bonds, 42 Geo. Wash. L. Rev.
526 (1974). . . . . . . . . . . . . . . . . . . . 99
~
1
.p y~.
I l-Pace I National Rural Utilities Cooperative Finance Corp., Annual Report 1975 . . . . . . . . 98 Penn, Delaney & Honeycutt, NRC Economic I Analysis Section, COORDINATION, COMPE-TITION, AND REGULATION IN THE ELECTRIC r UTILITY INDUSTRY, NUREG-75/061 (June 1975) . . . . . . . . . . . . . . . . . . . 68, 140, 141, 165, 180, 223 l
- Restatement of the Law Second: Agency 2d S287 (1958) . . . . . . . . . . . . . . . . . . . 328
! Rockefeller, Monopolization Under Section 5 of the Federal Trade Commission Act,
( 41 ABA Antitrust Law Journal 635 (1972) . . . . . 71 REA Bulletin 111-3, August 4, 1969. . . . . . . . . 173 Remarks by Donald I. Baker, Director ,[ of Policy Planning, Antitrust Divi-sion, Department of Justice, 55th NARUC Convention Proceedings (1973) . . . . . . . 9 Remarks by Joseph J. Saunders, Esq.
, " Antitrust and Nuclear Power Supply,"
l before ALI-ABA Atomic Energy Licen-s - sing and Regulation Course, September 22, 1972. . . . . . . . . . . . . . . . 10
" Letter from Bertram A. Schur, Esq., of the Atomic Energy Commission to Joseph J. Saunders, Esq., of the ; Department of Justice, February 8, 1971 . . . . . 2 Total Energy, Electric Energy, and i Nuclear Power Projections, United i States (1975) . . . . . . . . . . . . . . . . . . 123, 205 1 von Kalinowski, Antitrust Laws and Trade Regulation (1972) SSI.01-1.03 . . . . . . . 206 8 von Kalinowski, Antitrust Laws and
- Trade Regulation (1972) S59.01. . . . . . . . . . 190 8
he-
, 9 -r -
l'
?
r I. Introduction. r This is the first fully-litigated case to be heard 1 ( under the 1970 amendments to the Atomic Energy Act which re-f quire pre-licensing antitrust review of nuclear reactor li-cense applications. The Initial Decision in this proceeding, dated July 18, 1975, held th at the activities of Consumers e Power Company under licenses to operate two nuclear reactors l located near Midland, Michigan (" Midland Units") would not [ crea te or maintain a situation inconsistent with the antitrust laws and that therefore no antitrust license conditions should i
-1/
be imposed. Exceptions to this Decision have been filed by the Department of Justice, the Commission Staff, and certain intervening systems.-2/ I I For the reasons set forth herein, Consumers Power ) Company (" Consumers Power" or "the Company") submits that the f, exceptions of the other parties are wholly without legal founda-7- tion or record support and that the Initial Decision should be t-affirmed in its entirety. 1/ Consumers Power Co. (Midland Plant , Units 1 & 2), NRCI ;
~~ 75/7 at 29, 114 (ASLB July 18, 1975), slip. op. at 182. l (Hereinafter the Initial Decision will be cited as "Ini- l tial Decision at , NRCI 75/7 at . ") ;
l 2/ Consumers Fower regrets that the complexity of this case has required such an extensive brief in support of the decision below. We have been compelled to answer 580
. pages of briefs in support of exceptions filed by our three opponents, each taking somewhat different positions on many issues. However, every effort has been made to ~
avoid prolixity and duplication, and to organize, index and annotate the brief so as to facilitate its use.
- - , + ,7 _
-._y , g
i~ l' ( 1 { A. Statement of Proceedings Below. This proceeding arises under a " Notice of Antitrust r~
} '
Hearing on Application for Construction Permits," issued by 3/ the Commission- on April 11, 1972,- which established a three-i man Atomic Safety and Licensing Board (" Hearing Board"). The Commission's Notice ordered the Hearing Board to conduct a hearing and to consider, inter alia, "whether the activities under the permits in question would create or maintain a situ-r- ation inconsistent with the antitrust laws . . . . The Notice I also instructed the Hearing Board to confine its decision to F to "those matters relevant to that issue which are in contro-
-4/
versy among the parties . . . . "
- { Prior to the issuance of this Notice, the Commission
, had initiated the instant proceeding by transmitting the Com-pa f s Midland permit applications to the Department of Justice i
p f or antitrust review.-5/ The Attorney General, in a letter L 'k -
-3/ By the Energy Reorganization Act of 1974, 42 U.S.C. 5801, et seq., the Atomic Energy Commission was abolished, the Nuclear Regulatory Commission was established, and the
,_ former 's licensing functions were transferred to the latter. Unless otherwise identified, as used herein
" Commission" refers to either the Atomic Energy Commission or the Nuclear Regulatory Commission, whichever existed at the time in question.
4/ 37 Fed. Reg. 7726.
-5/ Letter from Bertram H. Schur, Esq., of the Atomic Energy l Commission to Joseph J. Saunders, Esq., of the Department l
_. of Justice, Feb. 8, 1971. l 1 6 I J
r j I dated June 28, 1971, adv ised tne Commission that a hearing 4 e should' be held on antitrust questions which he considered r
! to be raised by the Company's proposed activities under the 6/
r Midland licenses.- In this letter , as well as through state-
.I ments of counsel and witnesses sponsored in this proceeding, the Department of Justice in ef fect charged Consumers Power
- Company with monopolization of bulk power supply through its p
{ practices and policies concerning coordination with other c- electr ic systems. In addition to Consumers Power and the Antitrust I Division of the Department of Justice ("the Department"), the other parties to this proceeding are the Commission's regula- [ tory antitrust staf f ("the Staf f"), and intervening parties,
, which include the Michigan Municipal Electric Association and seven cooperatives and municipal electric systems loce.ted within or adjacent to the Company's service area in the lower
{
,, -7/
peninsula of Michigan ("Intervenors") . l I u_ Shortly af ter 'the first pre-hearing conference, the
;
. Hearing Board issued an order defining the " relevant matters in controversy" between the parties, in accordance with the
? Commission's Notice of April 11, 1972. The Hearing Board's i " 6/ 36 Fed. Reg. 17881.
~
7/ The Intervenors were admitted as parties at the first pre- I _. hearing conference, July 12, ~197 2 (Hearing Transcript, 33-
- 35. (Hereinaf ter the Hearing Transcript will be cited as "Tr. ") See Initial Decision at 8, NRCI 75/7 at 33.
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gr. .
, e- ,w o--, e --, n- --
----,.r . -
i J c l' _4_ order, dated August 7, 1972, included the following defini-
,_ tion of relevant issues:
\
"The basic thrust of Justice's case is that (a) applicant has the power to grant or deny access P to coordination; (b) applicant has used this 1
power in an anticompetitive fashion against the smaller utility systems; (c) applicant's said E" u se of its power has brought into existence a situation inconsistent with the antitrust laws, which situation would be maintained by activities
~. under the licenses that applicant seeks. Neither ; the intervening parties nor the Atomic Energy Com-mission's regulatory staff enlarge this scope.
Hence, the scope of the relevant matters in con-troversy is as herein outlined. " As we discuss further in Section II-A, infra, no party obj ec-r ted to the " scope of the relevant matters in controversy" as defined by the Board and all parties relied on the order in pursuing pre-hearing discovery and in presenting their evidence at the hearing. Following the Board's specification of the issues in controversy, the parties engaged in extensive pre-hearing documen t-8/ t# v..
-8/ Document discovery directed to Consumers Power from the other parties included the following:
Nineteen interrogatories from the Commission at the behe st of the Department (Feb. 25, 1971); five inter-rogatories from the Department (June 4, 1971); four document requests by the Department (Oct. 29, 1971); 25 interrogatories from the Commission Staff (Nov. 8, 1971); 30 Joint Document Requests from the Department, _. the Staff and the Intervencrs (July 26, 1972); four document requests from the Department (Aug. 16, 1972); seven document requests from the Intervenors (Sept.
" 21, 1972); 235 requests for admission and interroga-tories from the Department (Feb. 12, 1973). 1 4 4
g 1
;.
9/ t and deposition discovery. This included discovery requests to other parties and to non-party electric systems, includ ing
\
- subpoenas to neighboring investor-owned utilities (by the De-partment)--10/ and municipal and cooperatively-owned utilities (by Consumers Power).--11/ For example, document discovery re-
'^
quests to Consumers Power required the Company to review four million documents in files located at its executive offices r j in Jackson and numerous field of fices. The Company produced more than 25,000 document pages in response to these requests. To verify the completeness of the Company's responses, the f Hearing Board also took the unprecedented step of permitting opposing counsel to review many unproduced (and unresponsive) Company documents and to examine the counsel's instr uct ions to those who searched .the Company's files.--12/
- Evidentiary hearings began November 27, 1973, and F continued to June 12, 1974. Assuming the lead role among the 1
m i'
' 9/ In May, June and October 1973, our adversaries deposed 12 Company employees in depositions which consumed approxi-
~
mately 2200 transcript pages. 10/ Application for Issuance of Subpoenas Duces Tecum (Nov. 10, 1972).
--11/ Order Granting Applicant's Motion To Compel Non-Parties .- To Respond To Depositions Upon Written Interrogatories (Feb. 27, 1973), modified in part, Consumers Power Co. - (Midland Plant, Units 1 & 2), 6 A.E.C. 248 (App. Bd.
1973). _. 12/ Order of the Board Regarding Joint Intervenors' " Request for Ruling" of Aug. 27, 1973 (Sept. 25, 1973).
%4
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1 p
- I proponents of antitrust . license conditions, the Department IT sponsored the testimony of 18 witnesses, including four expert
! 13/
witnesses-- and 10 representatives of smaller electric systems p- 14/ located within or adjacent to Consumers Power's service area. I r_ The Intervenors presented four witnesses including three ex- ) i 15/ 16/ i I perts,- and the Staff presented one witness. The Company's l ' 'P' 17/ j witnesses included three expert witnesses and six Company l ! employees (two of them Company officers -- the Company's chief . r- [. executive and its vice president in charge of bulk power plan- j 18/ 1 r ning and coordination) .-- .r-13/ Mayben , Tr. 2539-2738, 2741-2882, 3587-3769, 3837-3889; '[ Wein, Tr. 3974-4038; Helfman, Tr.- 3199-3344, 3369-3557, 3560-3584; Lundberg ,- Tr . 8994-9137. I " 14/ -Westenbroek (Top O' Michigan REA), Tr. 916-1003, 1012-
-- ~
1087; Steinbrecher (Northern Michigan REA), Tr. 1110-1211,
~
1214-1395, 1411-1518, 1883-1987; Wolfe (Lansing, Traverse City), Tr. 1549-1693, 1697-1877, 1988-2054, 2058-2064; _. Brush (Lansing), Tr. 2064-2197, 2211-2312, 2315-2534; Rainson (Holland), Tr. 3154-3198; Sundstrand (Paw Paw), Tr. 3890-3939; Munn (Coldwater), Tr. 4056-4107, 4114-4318;. Fletcher (Alpena Power), Tr. 4322-4368; Kline (Edison Sault), Tr. 4375-4459; Keen (Wolverine REA), Tr. 4463-4643.
'I -15/ Gutmann, Tr. 4659-4819, 4822-5068; Chayavadhanangkur, Tr.
5084-5279, 5303-5409, 5417-5470;. Rogers, Tr. 5470-5635. The non-expert witness was Land, Tr. 5874-6039. Mr. Land is an' employee of Consumers Power Company. 16/ Muller, Tr. 5643-5871.
~
17/ Stelzer,.Tr. 6677-6865, 6869-7100, 7114-7224; Pace, Tr. 7230-7441, 7444-7649, 7652-7797, 8835-8987; Slemmer, Tr. 8835-8987.
+- 18/ Aymond-(Company President, Chairman of .the Board and Chief Executive Officer), Tr. 6045-6240, 6254-6452, 6457-6673;
.Mosley (Company Vice-President), Tr . 84 52-8639, 86 42-87.11; i j Paul, Tr.- 7804-8003, 8009-8191, 8243-8270; Jefferson, Tr.-8272-8389, 8392-8445; Stafford, Tr. 9149-9291; Lapinski, Tr. 9149-9291.
i w4 r . - __ . - _ . , _ . _ . - . - - . - - . _ _ . . . . . _ _ . _
If r l The hearing consumed 42 hearing days and nearly I 9,000 transcript pages. Each of the parties filed lengthy [ post-hearing briefs (October 8, 1974) and reply briefs (Novem-( ber 25, 1974). Subsequent to the close of the record, the v (
;
Chairman of the Hearing Board was killed in an automobile ac-j cident; with the consent of ell parties, the remaining Board 19/ l members were ordered to render the Initial Decision.~~ r- The Initial Decision was issued July 18, 1975, and j the proponents of license conditions filed exceptions thereto c 20/
~~
, on September 8, 1975. This brief responds to those excep-tions and the briefs filed in support of them dated Novem-F L' ber 13, 1975, by the Department, the Staf f, and the Inter-p venors.
i
, B. The Origins of this Proceeding.
t t-As we demonstrate in the sections which follow, the { Initial Decision rejected nearly all of the contested factual L_. r-l 19/' See " Responses of AEC Regulatory Staff and the Joint Inter-venors . .
." (Sept. 13, 1974); " Response of the Department of Justice . . ." (Sept. 13, 1974); and " Designation of m
Board Chairman" by the Chairman of the Atomic Safety and Licensing Board Panel (Sept. 20, 1974).
" 20/
~~ By Order of this Board (Consumers Power Co. (Midland Plant, Units 1 & 2 ) , ALAB-282, NRCI 75/7 at 9 (July 25, 1975)),
only those parties aggrieved by the ultimate result of the i Initial Decision (that is, the proponents of license condi-tions) were permitted to file exceptions. Consumers Power does not, of course, waive its right to contest portions of the Initial Decision with which it disagrees. 4
*,d -
- kr
P 1 e i-
-~8 -
E allegations and many of the legal conclusions proposed by the i-Department of Justice and the other proponents of license r conditions. Some historical perspective may be useful in {
,. appraising the basic findings of the Hearing Board and in
( illuminating why they are so at odds with the allegations r of our adver sa r ies . [ The Antitrust Division of the Department of Justice has, f rom the outset of this proceeding, assumed the leading role among the parties urging the imposition of license condi- [ tions. This role is hardly surprising since the issues of the r Midland case were framed with reference to legal and economic theories developed by Antitrust Division attorneys prior to passage of the 1970 amendments to Section 105c. In developing L e-the se theories, these attorneys worked extensively with Leonard m Weiss -- a prominent' economist who was a full-time Division
.- consultant between September, 1969 and June, 1970. --21/
'}" The theories developed by the Department embodied a I" basic premise that existing relations between large, investor-L owned systems and municipal and cooperative systems in most 21/
~~ See " Affidavit of Wallace Edward Brand," p. 2, attached ,
to " Reply of the Department of Justice . . . " dated May l 26, 1972, and filed in thir proceeding. Dr. Weiss was originally appointed to be a member of the Hearing Board in this proceeding, but withdrew voluntarily in respense to a motion by Consumers Power objecting to his partici-pation on grounds of possible prejudgment and prior in-
-' volvement with counsel for the Department then partici-pating in this proceeding. ~
t' a
g, i
" r parts of the country generally amounted to patent violations of the antitrust laws. The Departmert recognized that cooperative and municipal systems, with some significant exceptions, engage primarily in distribution activities, and are characterized by~ , relatively small scale generation. In contrast, large, private investor-owned systems typically are vertically integrated, pos-sessing distribution systems, high 'roltage transmission systems, and large scale generation. The Department concluded, based on its generalized studies, that the publicly-owned systems could not compete effectively with the investor-owned systems, which - were regarded as possessing relatively unrestrained monopoly power. ~
The avowed aim of the Department's program was to per-mit publicly-owned systems to obtain direct, preferential access i to large scale generation and transmission, and thus to become, __ in aggregate, functionally and economically the equivalent of I
;
the private investor-owned systems. Only on this basis, it was concluded, would effective competition become possible between
~
publicly and privately owned systems in most parts of the 22/ country. 22/ See, e.g., Remarks by Donald I. Baker, Director of Policy Planning, Antitrust Division, Department of Justice, 55th
~
NARUC Convention Proceedings at 79 (1973); Address by , Wallace Edward Brand " Solving Your Power Rupply Problems ' with the Antitrust Laws," to the National Conference of the American Public Power Association Boston, Mass., May 21, 1975, at 15; and Tr. 47-60. w
r
}
1 p I i
,. The Department's theory necessarily rested on gener- i alized conclusions about engineering, economic, and competitive P
factors prevailing in the industry. It is undiscuted that the Department at this time had made no detailed investigation of , r- i these factors in any geographical area and that the underpin-t l F, nings of its theoretical analysis rested primarily on such gen-l
! eralized sources as the National Power Survey. I c- When Congress, in December 1970, amended Section 105c i~
of the Atomic Energy Act to provide for a new antitrust review , procedure, the Department applied its theory in the review of a large number of reactor applications filed and processed under ,t the new procedures. Since many license applicants were under r, great pressure to obtain authorization to permit the timely
) ,
L construction of nuclear power plants, the Department was able
~
to negotiate proposed licensed conditions with a high percentage
- m. 23/
of such licensed applicants. In a number of instances, inclu-r [~ ding the instant case, where license applications were "grandfa-
~
24/ r. thered," - no such conditions could be agreed upon, and the ao- - ;. - L plications were set for antitrust hearing. m 23/ See Remarks by Joseph J. Saunders, " Antitrust and Nuclear Power Supply," before ALI-ABA Atomic Energy Licensing and Regulation Course, September 22, 1972, Washington, D.C.
~
24/ That is, they were subject to a proviso in Section 105c a of the Act which permitted the issuance of a construc-tion permit pending antitrust review. See 42 U.S.C. 2135c(6).
~ %d E
8 W
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r I l I t l l While Midland was the earliest of the applications re-ceiving a letter of " advice" f rom the Department, its status as if the initial test case was largely fortuitous. It is und ispu t-able that the Department had made no detailed study of competi- l I tive conditions in the electric utility industry in the Lower r' Michigan Peninsula prior to issuing its " advice" letter or for-mulating its basic position in this proceeding. Indeed, the r-- [. only investigation made by the Department was a series of in-
, formal discussions with representatives of publicly-owned utili-ties in Lower Michigan, as well as several brief discussions i' with representatives of the Company. Thus, all of the Depart-1 i
ment's detailed allegations on which its evidence was based r- j
! were made af ter its " advice" letter was prepared and af ter for- '
L mal proceedings had been initiated by order of the Commission.
. It is hardly surprising, therefore, that the facts disclosed on the record do not f it the Department's precon-
'~
ceived notion about the nature of competitive relationships be-tween public and private utilities -- at least insof ar as they existed since 1960 in and adjacent to Consumers Power Company's [_ service area. As is disclosed in the Hearing Board's detailed findings and overwhelmingly confirmed by the record, the actual competitive situation in the Lower Peninsula since 1960 simply
, does not conform to the archetype which the Department had assumed in developing its economic and legal theories. Thus, T
virtually every aspect of the Department's case is contradicted by the Hearing Board's findings and by tho record. .U
E ,l-r I F Specifically, the Department's theory presumed that s. the publicly-owned utilities in the Company's service area were r J. . competitively disadvantaged by being denied access to the bene-lg fits of large scale generation, transmission, and _ coordination, L and throttled by price squeezes and other predatory practices i in sum, victimized by pervasive monopolizing conduct. What the Hearing Board found and what the record demonstrates, is p - '[ that the publicly-owned utilities were and are highly success-ful competitors , in all cases holding their own, and frequently substantially underselling the Company; --25/ have engaged and now engage in coordination with Consumers Power on fair terms in
' --26/
every instance where they possessed coordinating capability; r
~
were and are provided access to large scale generation ( including m
nuclear generation) through the Company's wholesale service, as 27/ ,.__ well as through coordination transactions;-- and were and are 28/ j
~
.in nowise subjected to price squeezes or other predation.--
Thus, whatever the hypothetical merits cf the Depart-ment's economic and legal theories, it did not prove its case a F
'~
e
'-"25/ Initial Decision at 111-13, 115, 118, 153, 155, 176-77, N RCI 75/7 at 86-87, 88, 89, 103, 104, 112. ~
26/ Initial Decision at 132-33, NRCI 75/7 at 95-96.
-'27/ Initial Decision at 53, 132-33, 175-77, NRCI 75/7 at 56-57, -- 95-96, 111-112.
28/ Initial Decision at.ll8, 176-77, NRCI 75/7 at 89, 112. w 4 w _ _ _ _ - ___ _ - _ _ ~ , _ ._ __ - __
p F in this proceeding. Indeed, in light of the Board's f actual i findings, the Department and the other parties are, in ef fect , [ compelled to abandon the theoretical underpinnings of their r_ cases and to argue here that establishment of a few " truisms" l- about the industry is sufficient to invoke the Come scion's F antitrust conditioning authority under Section 105c. Consequently, this Board need not reach or rej e ct the P { theory under which the Department of Justice and the other par-ties litigated this proceeding, since the underlying f acts as-suced by the theory do not exist. In fact, the Initial Deci-r~ sion can be affirmed in its entirety, without reaching and pass-ing upon most of the controverted legal and economic questions t raised by that theory, as we demonstrate more fully below. C. Summary Statement of Consumers Power Company's Position. i r The briefs of the Department ~, the Staff, and the In-I tervenors filed with this Board highlight the deficiencies of law and fact which are inherent in the positions they espoused 4 below and seek to resurrect here. Reduced to essentials, our
. , adversaries argue that smaller systems in Consumers Power 's area cannot effectively compete with the Company, and that the future competitive ability of the systems is jeopardized unless license conditions are imposed which require the Com-pany to sell to the smaller systems a portion of its Midland , Units, to obtain access to the Company's transmission system (wheeling), and to coordinate under specified terms.
O w t 9 -* - - - ~ -
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p I
- 14
( \ l t 1 This argument can be reconciled neither with the
;
legal requirements of Section 105c nor with the essentially un-p contested findings of fact in this proceeding. Our adversaries' leg al argument that the mere addi-
~
tion of a nuclear reactor to a system maintains a " situation n- inconsistent' with the antitrust laws" rests on " truisms" of the electric utility industry existing in the Company's service area, but equally applicable to all nuclear reactor applicants. l t Hence, their position is credible only if one assumes that Sec-
~
tion 105c requires applicants to grant unit access, coo rd ina-tion and wheeling in all cases. As we demonstrate in Section II, this assumption is wholly at odds with the legislative his-tory of the 1970 amendments to Section 105c. As already noted, our adversaries' factual argument t i is that license conditions are necessary to correct a competi-
~
tive imbalance between Consumers Power and its smaller neigh-bors resulting from the Company's alleged exclusive access to j nuclear ge.ieration, coordination with other large systems. and ! _ other alleged economies of scale. However, the Hearing Board l found, and in the face of overwhelming record support the other par ties do not here contest, that the smaller systems are grow-ing, economically viable and vigorous competitors with Consumers 29/ Power Company.~~ Indeed, as the Hearing Board found, and as 29/ Initial Decision at 115, 153, 176, NRCI 75/7 at 88, 103, 112.
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l w.
the record amply verifies, the smaller systems are able to ob-tain bulk power supply and sell it to their retail customers I 30/
'. at rates up to 33% less than those of the Company.
f~ Similarly, it is uncontroverted that the economic ( and competitive relationships between Consumers Power and its r i smaller neighbors have not appreciably changed during the last fifteen years. There is likewise no dispute that the Midland
- i. Units will generate power at a cost no lower than the Company's r- average cost of service ;--31/ and that , in any event , smaller neighboring systems can choose to obtain access to the Com-I pany's bulk power supply under FPC-regulated terms at its aver-32/
age cost of such supply. -- Thus the record conclusively dem-m onstrates that the economic and competitive relationships be-tween the Company and the smaller systems will not be adversely af fected by the construction or operation of the Midland Units. These essentially uncontested facts cannot be recon-ciled with the monopolization theory of our adversaries. In u the first place, these facts belie any suggestion that Consu-mers Power has the power to control price .or exclude competition i
-- 30/ Initial Decision at 113, 118, NRCI 75/7 at 87, 89.
31/ Initial Decision at 118-19, NRCI 75/7 at 89.
~
32/ Initial Decision at 53, 175-77, NRCI 75/7 at 56-57, 111-112. eines enume
-w-
F l l~ l r and thus preclude a finding that Consumers Power possesses [
, monopoly power . These facts also preclude a finding that the L Company's transmission f acilities or its nuclear generation
~
units are a " bottleneck," i.e., essential to the financial and competitive viability of the smaller systems. The contentions r
; of the other parties concerning the Company's alleged monopoly
, power are explor ed in Section III of this brief.
- The competitive and financial success of the smaller
'- systems also contradicts the argument that Consumers Power has f
foreclosed smaller neighboring systems from valuable coordina-r-
! ting opportunities. If coordination opportunities are as es-sential as our adversaries suggest , if the Company is the sole L source of coordination with smaller systems, and if the Company has not engaged in reasonable coordination arrangements with such systems, the record should reflect a competitive imbalance between Consumers Power and the smaller systems. The record j manifestly reveals the exact opposite, as the Hearing Board j' explicitly found.--33/ l
- L Th us , these facts and additional record support discussed in .Section IV confirm our position that Con-
~~
sumers Power has never declined to enter into coordination ar-rangements with any entity which met minimal, accepted industry
~
33/ Initial Decision at 111-12, 115, 153, 155, 176-77, NRCI 75/7 at 86-87, 88, 103, 104, 112. i-l
- -
1
~
34/ prerequisites f or such arrangements.--
- In addition, the uncontested facts of record reveal the absence of substantial connection or " nexus" between the
~
Midland Units and any alleged inconsistent antitrust situation. Indeed, the re is no evidence that the Midland Units will create or maintain a competitive imbalance between the Company and its smaller neighbors; and, of course, any benefits derived from the Midland Units will be " passed through" to smaller systems
~
which choose to receive FPC-regulated bulk power service f rom
--35/
the Company. Thus, as we discuss in Section V, there is no
" nexus" between the Company's operation of the Midland Units and whatever antitrust situation is deemed to exist between
-L the Company and its smaller neighboring systems.
' ' ~
Finally, -in light of the financial and competitive viability of the smaller systems, the re is a fundamental 11-logic in the antitrust license conditions proposed by the other parties. For example, in the name of competition, our _. adversaries seek to compel a form of cooperation that will 36/ promote cartelism rather than competition. ~~ If, as our 34/ Initial Decision at 133, NRCI 75/7 at 95-96. 35/ Initial Decision at 53, 175-77, NRCI 75/7 at 56-57, 111-112. 36/ Initial Decision at 84, 85, 92-95, NRCI 75/7 at 72, 73, 76-78 ' Egem
- _ , , -+c
F l _ opponents prop se, the company includes the bulk power require-ments of the smaller systems in its generation unit construc-tion programs, all of the area's systems will be relying on the same bulk power supply source, and the bulk power supply competition which our adversaries purport to champion will be foreclosed. The antitrust laws clearly should not be utilized i to foster such anticompetitive consequences. There is also fundamental illogic in the contention r- th at unequal parties must, under the antitrust laws, be treated equally or th at a large firm must assist its smaller competi-I to rs to maximize their competitive opportunities. Such treat-L ment would permit systems which lack the ability or willingness I' to engage in reciprocal coordination services to initiate coor-L dination arrangements for their preferential benefit and to the Company's detriment. Obv io usly, this would result in an ir4- [ creased differential in the costs borne by the Company's custo-t 37/ mers and by its smaller neighbors ' customers.-- Although the creation of such a disparity is advanced in the name of competition, our opponents .do not explain, and we cannot fathom, what public policy is served by discrimina- [ ting against the Company's customers in this manner. In any
--37/_ Initial Decision at 16, 72, 77, 131, 146, 176-77, NRCI at 36-37, 66, 68, 95, 100-101, 112.
h
event, there is no antitrust law or policy which permits, much s less compels, this Board or the Commission to fashion relief
, whose purpose is to transfer burdens from the customers of
_ smaller systems to the customers of a large one. Such a re-sult would be particularly anomalous here where Consumers Power 's rates are typically higher than those of its smaller 38/ neighbors. Congress clearly never intended such consequences in enacting the antitrust laws 3r Section 105c of the Atomic Energy
-Act -- vehicles which the Department of Justice and our other ad-p versaries now invoke to promote .i result so clearly contrary to L~
the antitrust laws and the public interest. Theref or e , as we demonstrate more fully in Section VI below, both the theory of liability and the remedial license conditions proposed by our adversaries are wholly unreasonable and inapplicable to this Case. I L IL 38/ Initial Decision at 112-13, 118, NRCI 75/7 at 86-87,
- 89. l i'
i , J- ; r 1
~
l
. , J
II. The Board's Rulings As To The Scope And Evidentiary Standards Of This
~
Proceeding Were Correct, With One Exception, Which Was Harmless ErE6r. p- The Initial Decision examines four questions appro-
- L~
priate to its consideration of the record in this proceeding:
- 1) the nature of the relevant issues in controversy, 2) the meaning of the statutory phrase " situation inconsistent with
, the antitrust laws," 3) the assignment of the burden of proof, and 4) whether an applicant's proposal to construct and operate the licensed unit as an integrated part of its system, without more, is sufficient to justify imposition of license conditions.
For the reasons set forth below, we submit that the Hearing Boar' d 's resolution of the first, third and fourth
,- issues, was clearly correct. As to the 3econd, the Bo rd's 1 ' reading of the phrase " situation inconsistent with the anti-trust laws" was considerably broader than we believe proper and therefore was favorable to our adversaries. Thus, if the Board erred, it did not affect the outcome of the case and,
_ accordingly, its error was harmless. A. Specification of Issues, j As the Initial Decision explains, our adversaries 4 agreed at the outset of the proceeding to limit their scrutiny of the Company's policies and practices to those relating to f_ f coord inat ion. In accordance with this agreement, the Board's u order of August 7, 1972, provided as follows: r II
..4 L
I-- r-
"{
~
"The basic thrust of Justice's case is that (a) applicant has the power to grant or deny access to coordination;
- (b) applicant has used this power in an anticompetitive f ashion against the smaller utility systems; (c) applicant's said use of its power has brought into I existence a situation inconsistent with
(- the antitrust laws, which situation would be maintained by activities under the p licenses that applicant seeks. Neither i the intervening parties nor the Atomic Energy Commission's regulatory staff enlarge this scope. Hence, the scope of f_ the relevant matters in controversy is 6 as herein outlined." F~ Even though they have never previously, and do not f.. 1/ now, challenge the propriety of this order, the other parties seek to broaden the issues beyond those set forth in this order to encompass evidence of the Company's alleged conduct t concerning all bulk power supplies (including one-way firm wholesale power sales), alleged conduct in the retail market
~~
and the Company's acquisitions.- We believe this ef fort is unreasonable and unlawful, a nd if sustained, would constitute serious and unfair prejudice against the Company in this i proceeding. At the outset , it must be emphasized th at the limita-
~
tion as to the issues in controversy was proposed by the De-partment of Justice, the party which assumed the lead position l
;
1/ None of the other parties took exception to the Board's recitation of its prior ruling. Initial Decision at 25, NRCI 75/7 at 42. 1 I
F 1 r-f among the proponents of antitrust license conditions. Indeed,
;
the Department's advice letter of June 28, 1971, set forth (pp. i' 5-6) allegations which related exclusively to coordination and I concluded as follows: L
" Based on information which appears in
"- Applicant's responses to the- Department's f questions, review of Applicant's contracts on file at the Federal Power Commission, and
. other information which has come to the attention of this Department, it appears that Applicant, through its sole owner-ship and control of the high voltage and I extra high voltage transmission system L covering a major portion of Michigan's lower peninsula, has substantial market t power vis-a-vis its smaller competitors
[ and may be exercising that power to deny , to those competitors participation in
,- coordinated bulk power supply to the ! extent necessary to maintain their L long-term competitive viability. "
(Emphasis added. ) Subsequently, the Commission established the Hearing
, Board in April, 1972, and instruct ed it to seek a specifica-r.
tion of the matters related to the issues in this proceeding l-
'- which are in controversy" at an early date and to confine its inquiry to those matters.-2/ Pursuant to those instr uct ions ,
{ the Board convened the first pre-hearing conference on July
?
{ 12, 1972. At that conference, the Department continued to
.. limit its allegations to the Company's practices and policies C relating to coordination, while at the same time reserving n
-2/ Notice of Antitrust Hearing on Application for Construc- ;
- tion Permits ( April 11, 1972).
l. I 1n i 1 1
[- 1. I the question of whether it would charge the Company with
; 3/
having illegally obtained its market position. - As the Initial Decision notes, the Department explained that it deemed the
,, " situation inconsistent with antitrust laws" to be the " maintenance . 4/
l of the power to grant or deny access to coordination." - When
"~
the Department was pressed to specify the scope of its allegations, I Mr. Brand, the Department's counsel, engaged in the following colloquy with Board Member Clark (Tr. 59-60):
"Mr. Clark: Yes, but what is the situ-I .ation [ inconsistent with the antitrust laws] ? That is what I am trying to find out.
r i Mr. Brand: Ah, yes. The situation, as we have mentioned, more briefly is main-tenance of the power to grant or deny
'r access to coordination. In other words, - so far as these smaller systems are con-cerned the applicant has the power to grant or deny access to coordination.
Mr. Clark: Has the applicant used that power? p
" Mr. Brand: Yes, your Honor, it has used it in an anticompetitive fashion against ;
the smaller systems, w Mr. Clark: And you intend to introduce evidence to that effect?
'~
Mr. Brand: Yes, your Honor. 3/ Tr. 59-63. . . 4/ Initial Decision at 23, NRCI 75/7 at 40-41, quoting Tr. 59. M e 4
-c- m
(. l r i l r
,i Mr. Clark: All right, that is one thing that you wish us to explore. You are p going to introduce evidence tha t the , applicant has used its power to deny co-ordination activities with the smaller companies.
l' Mr. Brand: Exactly. r' Mr. Clark: All right. Now what else do you suspect the applicant of having done which is in violation of the 7- antitrust laws? 'l '- Mr. Brand: I think that [ coordination] forms the basic thrust of our case. L Mr. Clark: That is the thrust of your case? Mr. Brand: Yes, your Honor." (Emphasis added.) 7.. Similarly, a question by the Board Chairman elicited b the following statement from the Department's counsel (Tr. 55):
" Chairman Garfinkel: In response then are you saying the activity that is contrary to the antitrust laws' purposes is the refusal ,:. to permit these municipals to participate in coordination?
{ Mr. Brand: Yes, your Honor, of various types. [ One kind of coordination is such reserve
- sharing. Another kind of coordination is what we call coordinated development. . . .
] Nor did any other party seek to raise issues broader than those proposed by the Department. Counsel for the Inter-1 venors stated that the Department's advice letter was "a fair statement of the interest" of his clients and that the Inter-a venors' participation in the case would not " add new issues." Tr. 14, 31. Similarly, the Staff's counsel stated that the SEAS m
-- - w
, . + + . -
;
I~
; Staff would rely on the Department's case and would offer p evidence only as to oropased license conditions. Tr. 41-44.
\ Following this conference, the Board issu ed the above-quoted order of August 7, 1972, setting forth the relevant matte rs in controversy. No party took exception to, or sought 1 i reconsideration of, the order and thereaf ter , as the Initial
. Decision documents in detail, all parties cited and relied upon the order in the discovery pleadings and evidentiary presenta-e- SI tions.
In view of the legislative history of Section 105c, f \
- . it is hardly surprising that our adversaries proposed the type
,-- of limitation that was reflected in the Board 's order . In l
1969 the Joint Committee on Atomic Energy ("JCAE") began con-l sideration of a bill sponsored by the Commission, and endorsed [ L, n -5/ Initial Dec ision at 25-26, NRCI 75/7 at 42-44. On one occa-li sion during the actual conduct of the hearing when the Intervenors sought to retreat from the specification of issues, counsel for Consumers Power responded as follows: , i L. " Applicant has placed substantial reliance on l this (August 7, 1972] ruling [as to relevant l issues] in preparing and presenting its direct
- ,
evidence and in cross examining other evidence. We submit that nearly two years af ter the August
- 7 order and af ter the direct cases of all par-ties have been virtually completed it is too
" late to enlarge the scope of the proceeding." Letter from W. W. Ross to Chairman Garfinkel dated March 12, 1974. The Hearing Board made no response to the Intervenors' pleading in this regard. w
[' !. r by the Department of Justice, which proposed pre-licensing Com-I m.'.ssion antitrust review. However, this bill failed to decribe under what circumstances and to what ex te nt the Commissior. f^ 6/ should impose antitrust license conditions.- Responding to F' 7/ [. concern about this deficiency, the Department o f fered assur-
, ances that the legislation would not be ut ilize.] to engage J
-8/
in scrutiny of far-ranging, industry-wide matters: I "
. . . antitrust review would [under the proposed leg islation] consider the con-tractual arrangements and other factors governing how the proposed plant would be I
owned and its output used. We would also consider the arrangements under which it r would be built and supplied. No broader scope of review is contemplated, cognizant { r i s __ r 6_/ H.R. 9647, S. 1883, 91st Cong., 1st Sess. (1969).
--7/ See, e.g., Hearings on Prelicensing Antitrust Review of ._ Nuclear Powerplants Before the Joint Comm. on Atomic fL l Energy, 91st Cong. ,1st & 2d Sess. (1969-1970) (herein-after cited as 1969-1970 Hearings), pt. 2 at 323 (Edison ~
Electric Institute), 528-29 and 536-37 (New England Elec-tric System). As one member of the JCAE staff observed m to the Department of Justice witness: c "[T]here apparently are no other statutes, and no I court decisions based thereon, to which the AEC could look for guidance in implementing and in te r - l
-, preting cection 105c. The only analogous statute, l ! as far as I am aware, is the one you [the Acting v Assistant Attorney General] mentioned, the Federal Property and Administrative Services Act. For the reasons indicated earlier, it probably would not u afford much guidance." 1969-1970 Hearing _s, pt.
1 at 125. 8_/ 1969-1970 Hearings, pt. 2 at 366. , rv w
l' l as we are of the need to avoid delays in [ getting atomic plants into operation. We
- do not consider such a licensing procee3Ing as an appropriate forum for wide-ranging scrutiny of general industry affairs essen-f, tially unconnected with the plant under re-view." (Emphasis added.)
This testimony was put into the JCAE hearing record by the American Public Power Association, as part of its writ-
) , ten response to questions propounded by tne JCAE. The Com-r' mission's General Counsel also testified that, under the }
pending bills, "'the antitrust authority of Commission [ sic] will be an appropriate complement to the authority of the Attorney General and, it would seem, should not be used by L the Commission to duplicate authority already held by the
~
9/ Attorney General.'" l s
--9/ 1969-1970 Hea-ings, pt. 2 at 365-66. The restricted scope of antitrust under Section 105c is further illuminated by
[' the Justice Jepartment's choice of specifics in giving an example of the kinds of antitrust issues the Commission would be expected to consider. Commenting upon " issues which are of particular concern to the electric utility I industry at this time," the Department's spokesman testi-fied: .{ "Specifically, the industry is now going through __ a considerable controversy over the extent to which, and the means by which, small systems should have access to large new generation and transmission facilities. As to this, I think antitrust law provides some general guidance. Companies acting together to create or control a unique facility may be required by application ' of the rule of reason, to grant access on equal j and nondiscriminatory terms to others who lack a , practical alternative." 1969-1970 Hearings, pt. 1 at 127-28. (Emphasis supplied) ) Footnote continued -- G
(. [ P l Thus, the consistent tenor of the representations made to Congress in suppert of the 1970 amendments to Section (
, 105c by the Department of Justice, the public power systems r and the Commission was that its application would be limited ;
to antitrust issues directly related to the licensed facility. In light .of this legislative history, the decision of our ad-f vt 'saries to limit the issues of the first case to be liti-
! gated under newly-amended Section 105c was most appropriate. - In any event, it would be patently unf air and unlaw-I ful to decide this case on the basis of any issues other than those specified in the prehearing order. The applicable legal principles in this regard were accurately set f or th by this
[ 10/ [ t ribunal- in Niagara Mohawk Power Corp. (Nine Mile Point Nu-clear Station, Unit 2), ALAB-264, NRCI 75/4R at 354 (April 8, 1975): 'm Footnote continued -- (- A similar disclaimer may be found in the Justice Depart-l- ment 's comment on the implications of an applicant's mem-bership in power pools. When pressed as to whether the
,, Department's purportedly narrow concern with joint ven-
.), tures was broader than it seemed, by reason of the possi- l L ble argument that the owner's membership in a power pool would make a joint venture out of a nuclear facility nom-
- ~ inally under single ownership, the Department assured the )
[ JCAE that pool membership per se would r.ot be seized upon to subject a single-owner f acilIty to antitrust review as if it were a joint venture. 1969-1970 Hearings, pt. 1 L at 134. 10/
-~
These principles clearly apply to cases arising under Sec- -{l i tion 105c, as this tribunal r ecog ni= ed in its Wolf Creek II decision. There, the Board observed that through the petition of the intervening systems , "the applicant and the Board Footnote continued --
A c-r, "[W] hen the Board (or any administrative
} agency) elects to decide a case on a basis different from that on which it was
. brought and tried, it has a concomitant obligation to bring this fact to the f4 attention of the parties before it and to
^
afford them a fair opportunity to present
. argument and, where appropriate, evidence l on the new issues. The cases hold it to be 'well settled that an agency may not
'e change theories in midstream without giving
}
respondents reasonable notice of the change.'" (Footnote omitted.) These principles, of course, are embodied in the " notice" 11/
~-
provisions of Section 5 of the Administrative Procedure Act,
~
12/ f_ and applicable case law. As the Court of Appeals for the
,- District of Columbia euphasized, in reversing the Federal Trade Commission in a comparable proceeding:
Footnote continued -- below have been placed on clear notice . . . that the ap- _, plicant's retail activities form no part of the [ peti-
), tioner's] claim." Kansas City Gas and Electric Co. and l -s Kansas City Power and Light Co. (Wolf Creek Generating Station, Unit 1), NRC Dkt. No. 50-4 8 2, ALAB-279, (Nov.
21, 1975), slip. op. at 16 (hereinafter cited as " Wolf
$ Creek II"). In the instant case, the Department's state-ment of position, the other parties' adoption of it, and ! -, the uncontested Board order summarizing that position were comparable " clear notice" that only conduct relating i to coordination was at issue.
11/ The Administrative Procedure Act requires that a party
.. in an administrative hearing be given notice of "the matters of fact and law asserted. " 5 U.S.C. S554(b)(3).
12/ See Morgan v. United States, 304 U.S. 1, 18-19 (1938) (Morgan I); L. G. Balfour Co. v. FTC, 442 F.2d 1 (7th Cir. 1971); Bendix Corp. v. FTC, ITU F.2d 534 (6th Cir. 1971); S.S. Kresge Co. v. NLRB, 416 F.2d 1225 (6th Cir. l 1969); NLRB v. Tennsco Corp., 339 F.2d 396 (6th Cir. 1964). l
~
l
{- t
,.. "By sabstituting an issue [on review from i
I a hearing examiner's ruling] . . . the Com-mission has deprived petitioners of both notice and hearing on the substituted issue. The evil at which the statute [Section 5 of { the APA] strikes is not remedied by observing that the outcome would perhaps or even likely
,- have been the same. It is the opportunity to j present argument [and evidence] under the new theory of violation, which must be supplied."
Rodale Press, Inc. v. FTC, 407 F.2d 1252, f' 1256-57 (1968). (Emphasis in original). Clearly any enlargement of the issues beyond those specified in the August 7 order would be inconsistent with fundamental concepts of administrative fairness and consti- [ 13/
< tutional due process.-- Such an enlargement would be es-r pecially egregious here where the Hearing Board was ordered 1
to resolve only those issues "in controversy," where our ad-versaries clearly agreed to limit the scope of such issues,
]
and where Consumers Power presented its case in reliance upon I ~ ' '
-~13/ This is so even though there is some evidence in the record which relates to these other irrelevant issues.
See United Packinc house, Food & Allied Workers v. NLRB, v IIT F.2d 1126, 1114 n.12 (D.C. Cir.), cert. denied, 396 U.S. 903 (1969) (though evidence was received .[ on the matter of racial discrimination, because it L was not a theory proceeded on, the company "should have the opportunity to have the matter more fully litigated"). See also Boyle's Famous Corned Beef Co. v. NLRB, 400 F. I 73 13T7 164 (8th Cir. 1968) (cross-examination of the General Counsel's witnesses and raising of contravening
, arguments as to non-alleged matters did not constitute
" full litigation"); Jaffee & Co. v. SEC, 446 F.2d 387 (2d.Cir. 1971); Northeastern Ind. Bldg. & Constr.
Tr. Council T. NLRB, 352 F.2d 696 (D.C. Cir. 1965). r. ,~ h i i l~'l l
1 i r .. [~ that limitation.--14/ In light of the fact that the issues were limited ( to " coordination," many issues raised here by our adversaries
- c. are clearly irrelevant. As the Board found, and as all parties i
l' appe ar to agree , " coordination" includes both coordinated oper-I ations (which involves the interchange of emergency reserves, ( maintenance power and the like) and coordinated bulk power Initial Decision at 11-12, NRCI 75/7 at 34-35; f facilities).
, . _ Tr. 1599 (Wolfe). However , " coordination" clearly does not I
; encompass long-term, one-way sales of bulk power from one r, system to another, or wheeling to ef fectuate such sales, since ,
in those circumstances the parties are in a supplier-customer relationship, not a coordination arrangement. --15/ It also plainly { does not include the acquisition of one electric system by another. i l l' m
--14/ See Toledo Edison Co. et al. (Davis-Besse Nuclear Power !
- f. Station), ALAB-300, particularly slip. op. at 26-30, !
(Nov. 26, 1975), where this tribunal held that an agreement by litigants to refer certain questions to a master could not be challenged or unreasonably construed af ter-the-fact l , L by a party disappointed by the master's rulings.
' --15/ A wholesale transaction is one in which one electric system sells very reliable or " firm" bulk power to another electric system. Tr. 8459-60 (Mosley). A , coordination transaction contemplates the exchange of bulk power between two systems. Tr. 8460 (Mosley).
Coordination arrangements are inherently, and by defi-nition, reciprocal. Tr. 8 after 8838 (Slemmer); Initial
; Decision at 11, NRCI 75/7 at 34-35.
V. 1
r i r I Therefore, the efforts of the other parties to raise { allegations concerning the Company's past conduct with respect s' ( to relations with non-generating wholesale customers, the
- retail market, acquisitions and other irrelevant matters are 1
16/ clearly improper. In Section IV, we will set forth in detail I' those areas of the Company's conduct which are irrelevant i to " coordination" and therefore to the issues of this proceeding r-l as defined by the Hearing Board and accepted, until now, by c, our adversaries. Suffice it to state here that the Board
?
was clearly correct in specifying the issues at the outset
'~
of this protracted proceeding and in refusing in its Initial {. Decision to deem as relevant issues outside the parameters of that specification. [ 16/ Issues relating to transmission (wheeling) services are a hybrid because such services can be utilized to provite p either one-way, long-term bulk power supply or coordina- , [; tion arrangements between non-adjacent systems via the lines of a third party system. As we discuss further in
, Section IV, Jespite a confusion of this dichotomy by our adversaries, only issues relating to transmission to
'u facilitate coordination are relevant to this proceeding. -r The Staff, while not disputing the August 17, 1972 Order, L suggests that the Hearing Board read it to exclude wheel-
~ ing for purposes of facilitating coordination. Staff Appeal
,- Brief at 12-13. This is simply incorrect. The Initial
.i Decision distinguishes between wheeling for coordination and wheeling for wholesale service, treating the former
, as within the scope of the proceeding and the latter
~; without. Indeed, under a section of the Initial Decision J entitled " Situations Within the Relevant Matters in Con-troversy" .is a subsection captioned " Prevention of Co-p ordination by Refusal of Applicant to Wheel Between or Among the Smaller Utilities." Initial Decision at 138-43, NRCI 75/7 at 97-99. .' vh U' .
I I I' l' r . f B. The " Situation Inconsistent with the Antitrust Laws." f' (~ In assessing whether an applicant's activities under a reactor license will create or maintain a " situation in-consistent with the antitrust laws," the Hearing Board re-i ( jected Consumers Power's contention that such a situation [' could be found only by showing that the Company had violated (., the antitrust laws or the policies thereunder. Indeed, it used the following standard:
"In determining the existence of anticom-
[ petitive conduct, each of the following L criteria should be considered: (a) conduct which is a violation of the antitrust laws r enumerated in Section 105a of the Atomic l Energy Act, including conduct heretofore determined to be unf air by the FTC pur-7 suant to Section 5 of the FTC Act; and
; (b) conduct, without necessarily having
' been previously considered unlawful, (1) which offends public policy as it
has been established by statutes, the
~b common law, or otherwise, or, in other words, is within at least the penumbra of some common law, statutory, or other ', established concept of unfairness; (2) which is immoral, unethical, oppressive i or unscrupulous; and (3) which causes substantial injury to consumers or com- _ petitors or other businessmen." 17/ In our view, the Hearing Board's adoption of these { open-ended criteria was incorrect, at least to the extent that F . . .; --17/ Initial Decision at 40-41, NRCI 75/7 at 50. (Emphasis added.)
- )
v e W
r- {~ - 34 - 1 it encompassed activity outside of the ambit of established
;
antitrust law and policy. However, even under this broad I standard, the Hearing Board found Consumers Power's conduct ( 18/ relating to coordination since 1960 wholly reasonable.-~ r I Thus, if the Board erred in this regard, its er ror was bene- -r- ficial to our adversaries and harmless in light of the Board's I' ultimate findings and conclusions. I' In the event that this Board chooses to re-visit this issue, we submit that the statutory phrase " situation inconsis-tent with the antitrust laws" embodies a far more limited and precise standard for antitrust review than that proposed by the Hearing Board. The criteria set out in the Initial Decison covers conduct which " offends public policy" or which is deemed
" immoral" and would compel a licensing board to assess activi-
- t. '
ties not only with reference to antitrust law and policy, but '( ; also to contemporary mores, traditional ethical and religious standards and the public weal. Such assessments are not only unworkable in the context of this Commission's administrative processes, but cannot be reconciled with the language and leg-islative history of Section 105c. The Commission's mandate under Section 105c explic-itly is limited to the antitrust laws and the policies clearly 18/ Initial Decision at 168, NRCI 75/7 at 109. J 3 J
t F ! t [ underlying those laws, not to open-ended notions of morality 1. and non-economic policy go;;r Indeed, the Section reouires (. that "public policy" considerations be weighed, but only af ter ( a situation inconsistent with the antitrust law and policy I 19/
! has first been deemed to exist. Thus, the concerns raised by our adversaries under the rubric of "public policy," such
{~ as those relating to the environment or for some ultimate goal of " efficiency," have no place in the initial antitrust 20/ assessment under Section 105c. ') e 19/ Sub-section 6 of Section 105c, as amended, provides, in . ~ . pertinent part:
"In the event the Commission's finding L under paragraph (5) is in the affirmative
[i.e., activities under the license would create or maintain a situation inconsis- .i tent with the antitrust laws], the Com-mission shall also consider, in determining whether the license should be issued or ~I continued, such other factors, including L the need for power in the affected area, as the Commission in its judgment deems necessary to protect the public interest." 20/
~~
Considerations relating to efficiency raised frequently
, by our adversaries (see, e.g., Department's Appeal Brief at 75 and 77; Staff Appeal Brief at 72) are no part of antitrust policy which deliberately accepts some ineffi- ~
ciency to promote diversity. Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962); FTC v. Proctor & Gamble
. Co., 386 U.S. 568, 580 (1967).
b6W m, men
..-- - - , _ _ - - , . . . _ . . . y
-7,
;
!_ i
~
This position is wholly in accord with the legisla-
- -21/
tive history of Section 105c. When the concept of antitrust inconsistency was first int roduced into the Atomic Energy Act, the Joint Committee on Atomic Energy stated flatly that the Section "provides for hearings and judicial review in
~
case there is any claim . . . that a propored license . . .
-~22/
The JCAE also addressed would violate the antitrust laws." r, l l the question in proposing the 1970 amendments to Section 105c l s l and again stated explicitly that the inconsistency concept 1 L "was intended to be the equivalent of actual violation of the r antitrust laws."--23/ t n 21/ It should be noted that the phrase " situation inconsistent with the antitrust law" did not o rig inate in the Atomic l L Energy Act. It was first used twenty-five years ago in l the Federal Property and Administrative Services Act of l 1949 (40 U.S.C. S488). Agencies active under this statute I have included the War Assets Administration, the Recon-struction Finance Board, the General Services Administra- l tion and the Small Business Administration as well as the
- Department of Justice. Despite this long history, oppos- i w ing counsel have pointed to no instance (and research has revealed none) in which any judicial or administrative tribunal determined under that Act that an " inconsistency" ~
with the antitrust laws was something less than a viola- I tion of explicit statutory standards of conduct or the
, policies clearly underlying those standards.
22/ S. Rep. No. 1699, 83d Cong., 2d Sess., U.S. Code Cong-
& Adm in . News 3456, 3476 (1954); also published as H.R.
Rep. F . 2181, 83d Cong., 2d Sess. ( Emphas is added . )
.J 23/ H .~ R . Re p . No . 91-1470, 91st Cong., 2d Sess, 11, U.S. Code ~
Cong. & Admin. News 4981, 4991 (1970). (Emphasis added. )
~
W
- , - , m e
l l r - 37 - b r As the Staff's brief points out, the JCAE's Report I also included instructions that this Commission's antitrust findings should be based on " reasonable probability of con-travention." Staf f Appeal Brief at 33. This Report explained: r~
"It is intended that, in effect, the Conmission will conclude whether, in - its judgment, it is reasonably probable that the activities under the license would, when the license is issued or thereafter, be inconsistent with any I' of the antitrust laws or the policies L clearly underlying these laws." 24/
p This passage, however, serves only to elucidate how the Com-i mission is to approach the problems of prediction inherent in anticipating the antitrust impact of a not-yet-contructed plant. f It certainly cannot be used to incorporate general notions of
. public morality and policy into a proceeding under Section
-25/
105c. - t w 24/
-- JCAE Rep. No. 91-1247, 91st Cong. , 2d Sess. a t 14-15 (1970), cited in the Staf f Appeal Brief at 33.
25/ By use of the phrase "or policies thereunder," the JCAE Report appears to suggest that technical or jurisidic-tional defenses should not bar a finding of inconsistency with the antitrust laws. Cf. FTC v. Fred Meyer, Inc., 390 U.S. 341 (1968); Beatrice Foods Co., 67 F.T.C. 473, 724-26 (1965), aff'd as modified per consent, 1967 Trade Cas.
,.; 172,124 (9th Cir. 1967). A reading of that phrase which would attribute an open-ended mandate for review under Sec-tion 105c would be at odds with clear statements elsewhere
'" in the Report that this review should focus on antitrust law and policy. See, e.g., U.S. Code Cong. & Admin. News 4994. M
, _ , , -,n. ~"
i-t
- 6. .
r-l In light of the foregoing, assertions that "inconsis-I tency" means less than a violation of antitrust law and policy I are plainly without merit.--26/ Ind eed , in order to accept such I asse r tions it is necessary to reach the far-fetched conclusion I that Congress intended sub silentio to create a new, less v.
, rigorous test and that it thrust the responsibility f or its n interpretation, without any guidance as to its application, not on the federal district courts, nor on the Fedecal Power ~
Commission (with its broad authority over the operational and economic relations of electric utilities), nor on the Federal c-Trade Commission (with its decades of antitrust expertise), but onto this Commission which has not heretofore had any antitrust experience. Thus, we submit, a " situation inconsistent with the antitrust laws" cannot be found, and no license conditions can be imposed, in this proceeding absent a finding that the
- Company had violated the antitrust laws or the policies clearly & underlying them.
uum-26/ Department's Appeal Brief at 18-21; Staff Appeal Brief at 31-39.
)
1 . M
r )
- i n C. Allocation of the Burden of Proof.
;
i The Initial Decision held that, "in accordance with F the usual principles of law and the Commission's Rules of Prac-L. tice, the burden of proof rests upon Justice, Staff and Inter-venors." Initial Decision at 31, NRCI 75/7 at 45. Although the Board's holding in this regard appears to have played no role in its resolution of contested issues in the proceeding, i the Board was clearly correct in its allocation of the burden , of proof. l The Department of Justice has not excepted to the Board's burden of proof ruling. On the other hand, the Inter-
. venors argue that the Department's advice letter shifted the
- burden of proof to the Company, while the Staff suggests that both the Company and its adversaries should be assigned the
27/
burden of proof.
~
The most striking deficiency in the burden-of-proof arguments of the Staff and the Intervenors is that they come
- too late. Consumers Power's proposed conclusions of law, filed f- at the close of the hearing, contended that the proponents of li-
~
cense conditions be assigned the burden of proof in this proceed-
~ 28/
ing.-- That proposal was accompanied by extensive analytical i 27/. Staff Appeal Brief at 8-11; Intervenors' Appeal Brief at 166-172. 28/ 'ensumers Power Co. Proposed Findings of Fact and Con- l clusions of Law at 84-85 (12.09). I i ia-i J
p ' support in the Company's principal brief. --29/ Nevertheless, I the other parties failed to advance any contrary proposed con-clusion of law; they also declined to address the issue at all ' in their principal or reply briefs below, r' In these circumstances, we submit that our adver-saries have waived whatever objectivas they had as to the allo-k cation of the burden of proof in this proceeding. Parties which fail to submit proposed rulings or to object to proposals I submitted by an adversary party should not be hea rd to complain when the tribunal's decision on the issue is adverse. That r is certainly the case where, as here, objections were never L presented to the lower tribunal and are raised for the first
- time here on appeal.--30/
In any event, we agree with the Staff's suggestion that the burden of proof appears not to _have played a signifi-31/ cant role in the Board's findings and conclusions.-- Indeed, T'.
, in one ins tance , the Board found the evidence "not very satis-32/
p factory" and still ruled against Consumers Power. -- Thus, the I 29/ Consumers Power Company Post-Hearing Brief at 57-78. 30/ See Cinderella Career and Finishing Schools, Inc. v. FTC,
425 F.2d 583 (D.C. Cir. 1970); Schwartz v. S.S. Nassau, 345 F.2d 465 (2d Cir.), cert. denied, 382 U.S. 919 (1965);
City of Memphis v. Southern Bell Tel. & Tel. Co., 316 F.2d 535 ( 6th Cir .1963) . 31/ Staff Appeal Brief at 9. _- 32/ Initial Decision at 142, NRCI 75/7 at 99. t a
, - - - - - , - ,p-
r i ( Board's rulings do not turn on the burden of proof allocation but rather reflect its independent assessment of the evidence. ( Consequently, as in another burden-of-proof case recently de-33/ cided by this tribunal,- if the Board's burden of proof allo-E' cation was incorrect, its subsequent thorough and independent r-analysis of the evidence rendered that error harmless. In light of these circumstances, we believe it un-t necessary that the merits of the burden-of-proof issue be o re-visited here. Should this tribunal disagree, however, or b should it determine that the allocation of the burden is r j ger' mane to the resolution of any contested issue, it should af firm and apply the Hearing Board's holding. The Staff and Intervenors' arguments against the Board's holding espouse an exception to the principle that the burden-of-proof rests on the party who charges another I with conduct contrary to, or inconsistent with, the antitrust
' 34/ ,
laws. They cite no antitrust proceeding in which the party charged was held to have the burden of proving a universal neg-ative -- the absence of wrongdoing. Nevertheless, our adver-saries argue that, in seeking to defend itself in an antitrust : i proceeding under Section 105c, Consumers Power should have m
~
33/ Consumers Power Co. (Midland Plant, Units 1 & 2), ALAB-283, N RCI 75/7, 11 (1975). 34/ Staff Appeal Brief at 8-11; Intervenor, Appeal Brief at 166-172. k.d
. .mu
- '* w-
P j r i that burden. For the reasons set forth below, we submit that i the arguments of the Staff and the Intervenors in support of ( this novel proposition are inconsistent with Section 105c and r this Commission's Rules of Practice.
- l. Section 105c I The Hearing Board's ruling that our adversaries must t
bear the burden of proof in this proceeding is supported by the ( structure and language of Section 105c. Section 105c does not r set out substantive prerequisites which must be shown to be 35/ satisfied before a license may be issued!- Rather, Section 105c establishes a standard of review which the Commission must apply to relevant information about the applicant which is presented to it . Consequently, unless the Department of 4 Justice, the Staff, or petitioners to intervene ccme forward with such information and request antitrust review, the Commis-sion is free to issue a construction permit and operating li- .c cense without an antitrust hearing.
; As a result of Section 105c's structure, many appli-cants need make no affirmative antitrust showing in order to
~L. l f 35/ Compare Section 103(b)of the Atomic Energy Act which lists " desirable" qualities concerning health, safety
'- and common defense that an applicant must possess to receive a license. An applicant must always af firmatively
,,, ' establish that it meets the standards of S103 and a hearing must always be held on this issue. Cf. 5189(a) of the C Atomic Energy Act, 42 U.S.C. S2239(aT. we y - - - ,. , y - --
r i r- t 36/
~~
obtain Commission approval of their application. Specifi-cally, such applicants have no obligation to present evidence
~
to the Commission that their activities under the proposed li-cense will'be consistent with the antitrust laws. Thus, at F
; this stage, the applicant clearly is not allocated the burden - of proof as to antitrust questions.
Nothing in Section 105c suggests that this initial allocation should be shif ted simply because the Department of. I 37/
~~
Justice advises "that there may be adverse antitrust aspects" e-to the issuance of the license in question or because the Staff or petitioners to intervene come forward with antitrust allega-
- tions. The language of Section 105c describing the~ advice to be r rendered by the Attorney General -- i.e., advice as to whether
{
"there may be adverse antitrust aspects" -- does not even amount-to a charge that antitrust inconsistencies will occur; it is, rather a preliminary assertion which does no more than
{'_ 38/ L place antitrust questions in issue. The unproven allegations 36/ All that is required of such applicants is the furnishing 1 of such information as the Attorney General.may require to render his advice. S105c(4), 42 U.S.C. S2135(c)(4). 37/ S105c , 4 2 U.S.C. 52135(c)(5). 38/ The Commission is specifically directed by Section 105c(5) to give only "due consideration" to the Attorney General's advice and to give comparable consideration to "such evi- " dence as may be provided during the [ antitrust] proceed-ings." Moreover, the role of the Attorney General under Section 105c is only that of a party. The Department's initial advice does not amount to a formal ruling or order, but is merely an ex parte statement to the Commission. l l v
r 6 of intervening systems or of the Staff have similar weight. In effect, the Department's advice letter, the pet i-l tions of Intervenors, and the recommendations of the Staff 39/ p cor respond to complaints in civil antitrust procedure. The I ' filing of such complaints, of course, does not relieve the com-r --40/ plainant of his evidentiary burdens. Plainly, if unproven { antitrust allegations were given the ef fect of shif ting the { ultimate onus of persuasion f rom the complainants, where it initially rests, and of thrusting it upon an applicant , the [-- Department's advice letter and the other parties' allegations would be endowed with considerably greater weight than evidence present ed at hearing -- a result contrary to the statutory I ~[ directive. Furthermore, because shif ting the burden of proof to those accused in Section 105c cases would run directly counter [ to the unvarying practice in proceedings elsewhere under the u antitrust laws, it is inconceivable that Congress intended to shif t the burden sub silentio. The rule that the party i~ L. l 1 j 39/ Duke Power Co. (Catawba Nuclear Station, Units 1 & 2), 7 A.E.C. 307, 309, n.3 (1974).
.._. 40/ One "may not by accucing put the accused upon proof."
Magnolia Petroleum Co. v. NLRB, 112 F.2d 545, 548 (5th Cir. 1940). 6
r-
)
i - seeking relief under the antitrust laws bears the burden of
- proof is followed whether the government or a private party is 41/
suing, - whether the action is before the courts or the Federal. 42/ Trade Commission,-- regardless of which of the antitrust laws is r-I r' L L 41/ See, e.g., Walker Process Equio., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177-78 (1965) (private party plaintiff); United States v. E. I. duPont deNemours & Co., 351 U.S. 377, 381 (1956) (government plaintiff); Shawver & _ Son, Inc. v. Oklahoma Gas & Elec. Co., 463 F.2d 204, 205 (10th Cir.1972) (private party plaintiff); United States
- v. Aluminum Co. of America, 148 F.2d 416, 427 (2d Cir.
1945) (government plaintiff); Telex Corp. v. IBM Corp.,
' 367 F. Supp. 258, 335 (N.D. Okla. 1973), rev'd on otaer grounds, 510 F. 2d 894 (10th Cir.1975) (the existence of plaintiff's burden of proof held not subject to question) .
ll"- 42/
-- The cases cited in the previous footnote and two following footnotes provide examples of court litigation; S3.43 of ._ the Federal Trade Commission's Rules of Practice,16 ! C.F.R. 53.43, states:
u
~
Burden of Proof. Counsel representing the Com-mission, or any person who has filed objections c; sufficient to warrant the holding of an adjudi-cative hearing pursuant to S3.13, shall have the burden of proof .... h ammN
E g. 43/ 44/ invoked,-- and without rega rd to the procedural setting.-- Similarly, there is no evidence that, in enacting Sec-tion 105c, Congress chose to deprive applicants such as Con-
~
awmers Power Company of the fundamental presumption of inno-cence. Because Section 105c authorizes this Commission to I 43/ See, e.g., United States v. Arnold, Schwinn & Co., 388 U.S. 365, 374 n.5 (1967) (Sherman Act 51 suit: "The bur-den of proof in antitrust cases remains with the plain-tiff, ... "); United States v. E.I. duPont deNemours & Co., supra (Sherman Act S2 suit); Kestenbaum v. Falstaff Brew-ing Corp., 514 F.26 690, 69 4 ( 5th Cir .1975) (Clayton Act S5 suit); Terrell v. Household Goods Carriers' Bureau, u 494 F.2d 16, 20 n.5 (5th Cir.), cert. dismissed, 419 U.S. 987 (1974) (Sherman Act $S1 & 2, Clayton Act 54 suit); Morning Pioneer, Inc. v. Bismarck Tribune Co., 493 F.2d 383, 386 (8th Cir.), cert. denied, 419 U.S. 836 (1974) (Sherman Act $2 suit); Overseas Motors, Inc. v. Import Motors Ltd., 375 F. Supp. 499, 542 n.153, (E.D. Mich. 1974), aff'd, 519 F.2d 119 (6th Cir.), cert denied, U.S. , 44 U.S.L.W. 3305 (Nov. 18, 1975) (Sherman Act $51 & 2, Clayton Act S7 suit); Nankin Hosp. v. 'I Michigan Hosp. Serv., 361 F. Supp. 1199, 1207-08 (E.D.
-- Mich . 1973) (Sherman Act SSl & 2 suit); United States
- v. Penn-Olin Chem. Co., 246 F. Supp. 917, 934 (D. Del.
- 1965), aff'd per curiam, 389 U.S. 308 (1967) (Clayton Act $7 suit); Shawver & Son, Inc. v. Oklahoma Gas & Elec.
Co . , supra (Clayton Act SS4 & 6 suit). r, 44/ See, e.g., Acme Precision Prod., Inc. v. American Alloys Corp., 484 F.2d 1237,124 2 ( 8th Cir .1973) (counter-claim); Cal Distributing Co. v. Bay Distrib. Inc., 337 4 F. Supp. 1154, 1157 (M.D. Fla. 1971) (defendant's motion _m for summary judgment against a Sherman Act 52 claim); Huron Valley Publishing Co. v. Booth Newspapers, Inc.,- a 336 F. Supp. 659, 663 ( E.D. Mich. 1972) (plaintiff's motion for a preliminary injunction in a Sherman Act S2 case); Chiplets, Inc. v. June Dairy Prod. Co.,
, 114 F. Supp. 129, 143 (D.N.J. 1953) (antitrust claim by defendant intervenor).
l_
c-jQ
~
impose penalties, in the form of license conditions, poten-tially as onerous as those threatened in traditional criminal and civil antitrust actions, shif ting the burden of proof to p_ the applicant at any stage of Section 105c proceedings could
+
raise significant constitutional issues of due process.--45/ F Again, it is unreasonable to suggest that Congress took such L a serious step sub silentio in the course of enacting Section 105c.
. In arguing for a contrary interpretation the Interven-u P
m p. L E 45/ See, e.g., Western & A.R.R. v. Henderson, 279 U.S. 639 (1929); Tot v. United States, 319 U.S. 46 3 (1943); Speiser [ v. Randall, 357 U.S. 513 (1958); United States v. Romano,
; 382 U.S. 136 (1965); Leary v. United States, 395 U.S.
6 (1969); Milne v. Berman, 384 F. Supp. 206 (S.D.N.Y. 1974), prob. juris noted, U.S. , 95 S. Ct. 2676 1 (1975) (statutory presumpti6n that weffare applicants ter-minated employment to qualify for assistance held violative of due process); Owens v. Roberts, 377 F. Supp. 45 (M.D. l Fla. 1974) (statutory presumption of fraud relating to I L property transfers by welfare recipients held violative of due process). -Cf. McFarland v. American Sugar Ref. Co., f" 241 U.S. 79 (1916) Tarbitrary evidentiary presumpti5n held violative of Equal Protection Clause). I W
1 '~ 46/
~~ 47/ 1
.- ors and the Staff-~ rely cn cases not involving accusations l
~
, 46/ The'Intervenors Appeal Brief at 168-172 lists several b, --
. Federal Communications Commission cases to support its
- r, contention that Consumers Power should bear the burden of proof. Office of Communications of United Church of Christ
' 'f
- v. FCC, 425 F.2d 543 (D.C. Cir. 1969); Charles P.B. Pinson, Inc. v. FCC, 321 F.2d 372 (D.C. Cir. 1963); Beebe v. Federal
'_ Radio Comm'n, 61 F.2d 914 (1932); Brahy v. Federal Radio l Comm'n, 59 F.2d 879 (D.C. Cir. 1932); Riker v. Federal Radio , ii_ Comm'n, 55 F.2d 535 (D.C. Cir. 1931). None of these cases l involves efforts by third parties to impose conditions on i- another's license. Moreover, these cases merely reflect i i j"- provisions of the Communications Act which provide that i operation consistent with the public interest is the chief i- condition of eligibility to receive a license (47 U.S.C. ' 2 5309(a)); they also expressly allocate the burden of proof to the applicant. By contrast, in a license revocation 'f proceeding, Section 312(d) of the Communications Act expressly places the burden of proof on the Commission. The allocation b_ of the burden of proof in a license revocation proceeding 4 is more closely analogous to the instant proceeding: Consumers j- .Power Company has already satisfied the Section 103 health, l !: safety and common defense license conditions and received l" its construction permit; now it is simply attempting to ., preserve its permit free of antitrust licensing conditions.
j- The Intervenors also cite Pacific Power & Light Co. v.
,~ FPC,111 F.2d 1014 (9th Cir.1940), for the proposition 4 that Consumers Power must show that the license here at
_ issue is consistent with the pubic interest. Intervenors Appeal Brief at 170. That case, however, involved a public i p utility consolidation under the Federal Power Act which, as
- [
! Intervenors themselves recognize, contained explicit stat-utory requirements that the parties seek FPC approval
- ,, for the consolidation and that the agency find the pro-
'j. posal in the public interest. As we have noted, pp. 34-35, l-. supra,.this proceeding involves issues of antitrust law and policy and "public interest" considerations are not l applicable to that question. 47/ In a similar vein the Staff cites Plumbers Local 519 i.n v.. Construction Indus. Stabilization Bds., 479 F.2d 1052 t k.h (Emer. Ct. App.1973) for the proposition that Consumers j- Power "has the burden of showing that it is entitled to a license without antitrust conditions." Staff Appeal l[ iu Brief at 10. That case supports no such' generalization, since it involved only narrow issues of statutory construc-4 ! r, a ticn under Section 203 of the Economic Stabilization Act. I r l [Ti
- - - .~ e n. . . , , - - . . . , . . , , , . . , , , . -n, , ,,,-,-n-,,,-,,-...,,-,_-.n,.--...-,,. ,n.,-,- ,,m,,,e,,e,,
r-
;
i +m l 1
i 7.. i r I must b3 deemed the proponent of the order , and accordingly F bears the burden of proof in a proceeding concerning such l conditions. For example, the Federal Power Commission, in a set-ting parallel to that here, has held that a party seeking imposi-i
- tion of antitrust conditions has the burden of proof. In 53/
'~ Western Massachusetts Electric Co.,- the Massachusetts munici-L pal intervenors sought to impose a restriction on a proposed r-l FPC construction and operating license for a pumped storage generation project. The restriction would have required the
!. applicants to admit the Massachusetts municipals to a regional electric coordination " council" theretofore composed exclu-l sively of investor-owned electr ic companies. The Massachusetts
[, municipals alleged that the council, by excluding them, had pre-vented them f rom obtaining low-cost bulk power and transmission I in violation of the antitrust laws and the Federal Power Act.
- ss
.g The FPC rejected these allegations stating that neither the
- L2 Massachusetts municipals, nor the FPC staf f which supported
- ,
the ir position', had " satisfactorily demonstrated" that these invervenors had been injured by exclusion from the council I s and that: ; 7 !b r 53/ 39 F.P.C. 723, 738 (1968), modified on other grounds, 40 ..s F.P.C. 296, aff'd sub nom. Municipal Electric Ass'n of Mass v. FPC, 414 F.2d 1206 (D.C. Cir. 1969). 4 l-
" ~
"'Fm a
l r l [ > l l
"The showing made by the Municipals and staff in connection with the restraint of trade issue has not convinced the Commission that the (I license issued to the Applicants should be L qualified in the manner suggested . . . . "
39 l F.P.C. at 738. ( Emphasis added. )
,s
} Thus, in that case the intervenors and staff were allocated l 54/
7- the burden of proof and f ailed to sustain it. l
\
Similarly, the Interstate Commerce Commission has es-55/ tablished rules, repeatedly endorsed by reviewing courts,- that i where intervening protestants seek to place economic or com-r- 56/ { petitive restrictions-- upon another carrier's ICC certificate
'~
54/ Likewise in Northern California Power Agency v. FPC, 514 F.2d 184,189 (D.C. Cir.), cert. denied, U.S. , ,[ 44 U.S.L.W. 3204 (October 7, 1975), the D.C. Circuit upheld the FPC's decision to deny antitrust relief because ,
"[o]n the record in th is ca se , we do no t think that [the ;
l- antitrust petitioner] met its burden of showing a reasonable nexus between the alleged anticompetitive scheme . . . and the activities further by the . . . rate schedules." J, (Emphasis added. ) wi. l 55/ Garrett Freightlines, Inc. v. United States, 353 F. Supp. g' 1329 (W.D. Wash . 197 3) (three judge court); Frozen Foods
~
l Express, Inc. v. United States, 346 F. Supp. 254, 262 (W.D. Tex. 1972) (three judge court); Howard Hall Co. v. r, United States, 332 F. Supp. 1076 (N.D. Ala. 1971) (three 'l., judge court); Ashworth Transfer, Inc. v. Caited States, 3 315 F. Supp. 199 (D.-Utah 1970) (three judge court). '
.i' --56/ These restrictions prohibit the certificate holder from i
g accepting shipments for destinations beyond the limits of ' his authorized route. See Frozen Foods Express, Inc.
~
v.--United States, supra. The similarity of proceedings
~
before the ICC concerning certificate restrictions and the instant proceeding is noteworthy,. for in both settings _ the ' licensee had previously obtained a full grant of authority from the regulating agency to conduct licensed
- - activities and rival entities, in a separate proceeding, have sought, under the respective regulatory schemes, i! to restrict the authority initially granted in order lC to enhance their competitive situation.
, ,,w, w , w - - , -% .,y-w -,.-,-.,p.m,.----
,y+v--g-- .,ew-+v-w,c m,v ~ r -- t -e- ww- - ci q w y 't
4- the protestant has the burden of affirmatively establishing
~,
that the proposed conditions are appropriate.--57/ It must be emphasized that the conditions here at issue I~ are essentially similar to those in Western Massachusetts Elec- 'b tric and the ICC cases in that they are economic; they do not 58/ i involve involve health, safety and environmental matters.
--57/ The ICC has followed a similar practice with respect to the imposition of certain conditions upon ICC orders b, approving railroad line abandoment. Where railroad unions have proposed conditions on such orders providing for the r- compensation of employees adversely affected by an aban-donment, the unions are treated as proponents of an order
[" and have the burden of demonstrating that the abandonment will indeed injure certain employees. St. Louis-San Fran-
; cisco Ry. Trustees Abandonment, 261 I.C.C. 781, 788 (1946);
~ Louisiana & Ark. Ry. Abandonment, 290 I.C.C. 434, 441-43 (1954); New York, New Haven, & Hartford R.R. Abandonment j'
(Portion), Pomfret-Putnam, Conn., 312 I.C.C. 465, 468 (1961), aff'd sub nom. Smith v. United States, 211 F. Supp. 66 (D. Conn. 1962). bd --58/ In Louisiana Power & Light Co., (Waterford Steam Generat-ing Station), ALAB-258, N RCI 75/2 at 45 (Feb. 3, 1975), the Appeal Board noted that it routinely scrutinized radi-I,s ological health and safety / environmental proceedings, U but that absent extraordinary circumstances, "we see no compelling reason to scrutinize the resolution of the r' purely economic issues posed in an antitrust proceeding
~~
unless one of the litig an ts is suf 2 tciently dissatisfied with that resolution to br ing it be f ore us . " Id . at 48 3 n.6. (Emphasis added. ) t U See also New York Shipbuilding Corp. , 1 A.E.C. 707 (1961),
'~
wherein the burden of persuasion was placed on the party (the Commission staf f) challenging a licensee's continued b enj oyment of its license. With respect to each of the staff's allegations, the presiding officer determined that, despite stipulations, the record was inconclusive
~#
and, acco rd ingly, found for the licensee on the grounds that the staff had f ailed to meet its burden. i
e-t t F* l D. Routine Activities Under the License As Per Se Incon-sistency. [ Our adversaries take issue with the Hearing Board Es i conclusion that an applicant's plans to construct and operate p.- i a nuclear facility to meet its increased capacity needs is in-7 sufficient, without more, to require it to grant unit access, f 61/ coordination, and wheeling to smaller neighboring systems. I' However, the position of the Department, the Intervenors, and the Staff is credible only if one accepts the hypothesis that Congress intended Section 105c to require that all license r. applicants be compelled to coordinate, wheel bulk power, and grant unit access. We submit tha t the Hearing Board's rejection of this notion was clearly correct. A review of the " advice" letters submitted by the Department of Justice to the Commission since 1971 reveals that virtually all systems seeking approval to construct and operate l v nuclear generation facilities are large electric public utilities
; whose service areas surround those of smaller electric systems (principally municipal systems and REA-financed cooperatives)
[ which usually have insuf ficient loads to justify installation of a large nuclear (or any type of sizable) unit on an indivi-i' 62/ of d ual ba sis .-- Further, all of the applicant utilities intend
~
1 61/ Initial Decision at 51-61, NRCI 75/7 at 55-61; Depart- _, ment's Appeal Brief at 2, 41-51, 60-61; Intervenors' Appeal,Brief at 61. 62/ See also Meeks, Concentration in the Electric Power Industry: The Impact of Antitrust Policy, 72 Colum. L. ,, Rev. 64 (1972).
1.;' l to use _ the nuclear f acility to contribute to the generation l
}
capacity expansion of their systems and, necessarily, con-(~ l
- l. clud ed at some point that the f acility would be the most 1
,- economical means available to their system to accomplish the l expansion.
{ Our adversaries would translate the foregoing cir-cumstances found in nearly every case into a congressional mandate that certain antitrust license conditions be imposed
,. on all licenses (except where the applicant is already engaging l - in the very conduct specified by such conditions, i.e. , coord i-i nation, wheeling, and furnishing of direct unit acce ss to smaller systems in the applicant 's service area) . Section 105c contains i no such mandate. Rather, the statute requires that before any
( antitrust license conditions can be imposed, it must be established
}
m that the applicant's " activities under the license would create or maintain a situation inconsistr.nt with the antitrust laws." h; (Emphasis added.)
, Congress was acutely aware of the structure and prac-
- t. :es of the electric power industry and the other generally
. (. ' i as ylicable circumstances set forth above during its consideration 63/ of the amendments which led to enactment of Section 105c. Had Congress intended that all applicants be compelled to coordinate, wheel, and grant unit access, the language it chose to express -} 63/ See Department's Post-Hearing Brief at 215-16. i
- wa M
r' k
" that intention'- " activities under the license create or l
maintain a situation inconsist6nt with the antitrust laws" p.
-- would be obscure and peculiar at best. Indeed, common
{ sense compels the conclusion that if Congress intended that
, all applicants for nuclear facilities be reg 12:ed to coordinate, r wheel, and grant unit access, it would have expressly so l
provided in Section 105c. Instead, Congress provided that
~
a finding of an inconsistent situation was a prerequisite to the imposition of any antitrust conditions. See Secti'n l' 105c(5).
-- This conclusion is amply supported by the legis-lative history of Section 105c. Prior to adopting Section
{ 105c in its present form, Congress declined to enact legis-l lative proposals which would have compelled all nuclear fa- ; iI ' cility license applicants to coordinate, wheel pcwer, and
. , . grant unit access. For example, the Kennedy-Aike: bill in-
~ , 64/
'lJ troduced in 1967
~-
would have amended the Atomic Energy Act to prohibit the Commission from issuing construction permits or operating licenses for nuclear generation units unless, j c. il inter alia,
- l l
. t. 2 64/ S. 2564, H.R. 13828, 90th Cong., 1st Sess. (1967).
The bill was referred to the JCAE. See also proposed
" " Electric Power Reliability Act of 15I7", H.R. 12322, 90th Cong. ,1st Sess. (1967); S. 1071, H.R. 7016, H.R.
3~ 7052, H.R. 716, H.R. 9557, all 91st Cong., 1st Sess. (1969). ~
.J I l
r F 1 (. r
! "(1) the applicant has granted to all other interested persons , including Govern-ment agencies and public, private, and co-f,: operative bodies, engaged in the distribu-tion, transmission, or production of elec-tric energy an opportunity to participate E to a fair and reasonable extent, as deter-
. mined by the Commission, in the ownership of the f acility for which the license is r requested; . . .
}
"(3) the applicant agrees to make the y output of electric energy from the facility j available, during the life of such facility, t- for sale on fair and nondiscriminatory terms to all persons, including Government agencies
(' and public, private ano cooperative bodies, i [, engaged in the distribution, transmission, l or sale of electric energy; . . . l c i
! "(6) adequate transmission capacity is or will be made available to provide reason-able service to all owner-participants and j purchasers of electric energy; . . . "
L- 65/ S imila rly, a 1969 bill ~~ would have had Congress de-E L, clare and enact leg islation to compel that
,_ "all electric ut lities and their customers j >, should have access to the benefits of coor-dination and advancing technology, including advances in nuclear technology financed by
. fi the taxpayers of this country and economies .b of scale, on f air and reasonable terms, in-cluding access by means of capacity sharing, lr- staggered construction, coordination of f a-
- l cilities and reserves, wheeling, displace-ment transactions and other exchanges. . . .
I Such legislation was opposed as too broad in scope and neither of these bills nor any similar proposals was ever
-t 65/ Proposed " Electric Power Coordination Act", H.R. 12565, S2(7), 91st Cong., 1st Sess. (1969).
l M
--66/
reported out of committee. As the Department acknowledged
}
below in its post-hearing brief, the rejection of this legis-r, [. lation -- especially the Kennedy-Aiken bill -- set the stage for the adoption of the present Section 105c. TEL prese nt law 1 l is, in the words of its Senate floor manager, "a carefully per- [' fected compromise . . . [which] constitutes a balanced, mode - 67/ ate f ramework for a reasonable licensing review procedure. "-- I L Thus, Section 105c rejects both extremes -- the Kennedy-Aiken c, approach of automatic conditioning and the absence of any pre-l 68/ licensing antitrust review-- -- in favor of a licensing proce-I dure which requires that accou nt be taken of the antitrust laws L, i l
~:
l.
'l 66/ See Hearings on Licensing and Regulation of Nuclear Reac-
, tors before the Joint Comm. on Atomic Energy, 90th Cong.,
, 1st.Sess. pt. 2 (1967). Comparable legislation was again
- proposed in the next Congress, S. 194, H.R. 605, H.R.
3838, H.R. 5941, all 92d Cong., 1st Sess. (1971).
. 67/ Remarks of Senator Pastore,116 Cong. Rec. S. 39619 (December 2, 1970).
--68/ See Cities of Statesville v. AEC, 441 F.2d 962 ( D.C. Cir.
Ills), holding antitrust review procedures included in the Atomic Energy Act prior to 1970 to be inope rative . J w* a
'}
l
69/ in certain defined cases. -- Yet, despite this legislative history, which is not (- open to serious controversy, the other parties would have this Board decree that the mandatory unit access-coord inat ion-r' , l-wheeling approach of the rejected Kennedy-Aiken bill was in- ' 1 corporated sub silentio into the quite dif ferent provisions of f Section 105c. This position, we submit, is not only plainly ( incorrect as a matter of statutory construction, but also consti-l' tutes no more than a thinly-veiled attempt to win before this Commission the same battle which was lost before the Congress during the legislative process which led to enactment of the f
!. present section 105c.
r I u 69/ Indeed, Senator Aiken -- who co-sponsored the Kennedy-i Aiken bill and served as a ranking JCAE member -- conceded L that Section 105c as reported to the floor reflected the Committee's effort to " cut back on the scope of the AEC
. consideration of antitrust is su es . " See " Dissenting Views C. on H.R. 18679" (draft dated Sept. 14, 1970), at 2, attached as App. A to " Reply of the Department of Justice on . Issues Other Than Disqualification", filed June 9, 1972 in this $ proceeding.
s. It should be noted that af ter the JCAE bill was passed by !< the House, the Department of Justice ~ sought to lay the L . groundwork for a broader interpretation of Section 105c by writing expansively-worded lette rs to various Congress-i men. When these letters were introduced into the Congres-L sional Record by Senate proponents of broad antitrust review, Rep. Hosmer (the co-author of the reported bill)
, . . rose on the House floor to remind the Congress that: } " 'a . . . the views and opinions expressed in the letters f rom the Antitrust Division of the De-
- { . partment of Justice are not necessarily authori-L tative, and may or may not accurately represent the intent (of the bill] ." 116 Cong. Rec. H. 39819
!, (December 3, 1970).
i w ' L:
I 1 [' Although utilizing a somewhat different analytical f' 70/ approach (Initial Decision at 33-61, NRCI 75/7 at 47-61), -- i c-the Initial Decision agreed with our position that an electric {
,, utility's plans to construct and operate a nuclear f acility do not per se compel imposition of antitrust license conditions, ~
i.e., ' hi the Hearing Board's words, " activities under a license issued by the Commission pursuant to statute per se cannot
,~
create or maintain a situation inconsistent with the antitrust 71/ laws." Initial Decision at 61, NRCI 75/7 at 61.-- The language and legislative history of Section 105c, as described above, fully supports the Board's holding in this regard. 70/ In analyzing this question, the Hearing Board makes r ef erence to analagous situations which arise in patent and labor law. Initial Decision at 51-60, NRCI 75/7 at _; 56-60. This analysis is clearly useful in helping to interpret a statute such as Section 105c which has yet
- to - be judicially construed. However, we do not deem it
, j productive to embark on a' lengthy discourse on patent or ,' labor law, as proposed by the Staff Appeal Brief at
- 7 46-48.
b 71/ In several. passages of its Initial Decision, the Hearing Board refers to this holding as reflecting an aimmuniza-T tion" from the antitrust laws. Initial Decision at 55, j 56, 60, NRCI 75/7 at 56, 57, 60-61. Another word might
'have more accurately expressed the Board's otherwise e clear meaning. However, possible verbal imprecision should I not obscure the Hearing Board's basic holding, plainly apparent f rom - its Decision, that an applicant's plans to utilize nuclear capability from a licensed facility to meet increased demands on its system are not ger se a inconsistent with the antitrust laws. The deficiency of our adversaries ' briefs in this regard is that they focus upon the possible verbal imprecision of the Board's ,,' - conclusions, not upon their substantive merits.
so.! l
I (c This Board's decision in Wolf Creek I is entirely [- 72/ consistent with our position.-- In Wolf Creek I, this tribu-f~ nal reviewed the legislative history of Section 105c and found no evidence that Congress proscribed the Commission's scrutiny r-l of an applicant's coordination, wheeling and unit access prac-
;
, tices in all cases or its imposition of license conditions in i
i these areas under appropriate circumstances. However, nothing i' in the Wolf Creek I decision suggests that Section 105c requires I, that all applicants must coordinate, wheel, and grant unit access. In fact, by emphasizing that intervening parties must specify the antitrust theory and factual allegations under i i_ which they intend to proceed, Wolf Creek I recognized that a r mere invocation of generally applicable truths about the
\
electric utility industry is insufficient to establish a 73/ [' : situation inconsistent under the antitrust laws.
~-
A second source which our opponents cite in support bj of their argument that a per se antitrust inconsistency is
- p
- s inherent in the conventional operations of a large electric i
utility is Otter Tail Power Co. v. United States, 410 U.S.
. 366 (1973). The Otter Tail decision will not support any such theory.
,7 J 22/ Kansas Gas & Elec. Co. and Kansas City Power & Light Co. (Wolf Creek Generating Station, Unit 1), ALAB-279, NCRI 75/6 at 559, 564-574 (June 30, 1975). (Hereinafter
; " Wolf Creek I".)
- - .-
73/ Wolf Creek I at 574-577. 1 , ! _J M
, , - . , - - - - , , -e
p [ f (- The central issue in the otter Tail case -- on which I f the Court divided four to three -- was whether regulation by
, the Federal Power Commission of electric utility operations is so pervasive as to preclude the application of the antitrust 74/
ir laws to that industry. The majority of those voting held ( 75/ that it is not. However, at no time in this proceeding has Consumers Power Company argued that its activities challenged
, here were immunized from the antitrust laws by virtue of federal
,I' or state regulation. Nor, of course, did the Initial Decision F hold that such regulation immunizes the Company's conduct i in any way. ,f This is not to suggest that FPC and Michigan Public , Service Commission regulation is irrelevant to this proceeding. [ 75a/ m on the contrary, as Otter Tail itself ref3ects, such regula-tion is clearly significant in assessing the Company's market power, reviewing its conduct in the marketplace and, if necessary, 76/
;) , in fashioning appropriate license conditions. Nothing in a
otter Tail suggests that an antitrust tribunal should ignore ifl
,, federal and state regulation in these areas and, as we discuss g in Section III, subsequent Supreme Court decisions have held explicitly otherwise.
w: 74/ See majority opinion, 410 U.S. at 372-375 and dissenting opinion of Justice Stewart at 382-388. ! ~' 75/ See, however, the more recent decision of Gordon v. New I York ~ Stock Exch., 422 U.S. 659, 688-89 (1975), which i reads Otter Tail narrowly in this regard. 7 75a/ See 410 U.S. at 366-67, 380, n.10, 382.
- _, 76/ See Sections III, IV and VI, infra.
I > m?
r 1 C (= . 1 l 7 i ; (' ( It is also important to recognize that Otter Tail
--77/
is a case of extreme facts. The Otter Tail system set out f' - [~ to destroy new municipal distribution systems in -its service 78/
- c. area,-- and demonstrated a " proclivity for predatory prac-79/
i tices."-- It dismantled its own distribution facilities at a g reat loss simply to force the new municipal systems to the 80/ expense of replacing them.-- It coerced the Bureau of Recla- ,
- p. ,
( mation into agreeing to a territorial allocation which made 81/
.- the Bureau's power unavailable to the new municipal systems.
82/
- l. It refused to sell power at wholesale to the new systems,-- it n
L c 77/ In this regard otter Tail parallels Goldfarb v. Virginia l
) State Bar, 419 U.S. 963 (1974), decided two years later, which held that. the activities of legal professional organizations were not immunized f rom antitrust scrutiny. I In both cases, had the underlying and admitted conduct i
.- of the defendants been commited by an association of commercial ' entities (Goldfarb) or a large manufacturer
~
(Otter Tail) the matter would have been more likely to I,
~
be resolved by a guilty plea to criminal charges than through extended appellate proceedings. 78/. 410 U.S. at 377. 79/ 410 U.S. at 381.
--80/ Village of Elbow Lake v. Otter Tail Power Co. , 40 F.P.C.
1262, 1271 (1968), af f'd sub nom. Otter Tail Power Co.
- v. PPC, 429 F.2d 232 ( 8th Cir.1970) , cert. denied, 401 U.S. 947 (1971) (hereinaf ter cited as " Elbow Lake I");
Village of Elbow Lake v. Otter Tail Power Co. , 46 F.P.C.
. 675, 678 (1971), aff'd, 47 3 F. 2d 1253 (8th Cir. 1973)
(hereinaf ter cited as " Elbow Lake II"). 81/ 410 U.S. at 371; United States v. Otter Tail Power Co. , 331 F. Supp. 54, 60 (D. Minn. 1971). 82/- 410 U.S. at 371; 331 F. Supp. at 56, 60-61. i d I O l4
~ _
a _ - ,: c:
.(<
f~ . t 83/ refused to wheel power from others-- and it refused to coordinate 84/ with self-generating systems -- all in an effort to deny the municipalities any bulk power supply source whatsoever.--85/
- c. Finally, it-engaged in groundless litigation so as to preclude i
i 86/ the marketing of bonds for the new municipal systems. No [ modern civil antitrust case considered by the Supreme Court i has involved more extreme predatory conduct. f'
- g. What is striking about Justice Douglas' opinion in Otter Tail is the degree to which it is able to avoid consid-I eration of the difficult policy issues raised by the holding that electric utilities are not immune fror antitrust scrutiny.
j Indeed, the Court, having held that Otter Tail brazenly committed an attempt to monopolize, never reached the question cf whether the utility also committed the offense of monopo-87/ lL lization.-- In this regard the Supreme Court's decision in Otter Tail stands in marked contrast to the District Court opinion in.that case which reached out for new conceptual problems jh and was fully prepared to resolve them on the casis of the su-Il
- 83/ 410 U.S. at 371; 331 F. Supp. at 56, 60-61.
84/ 331 F. Supp. at 60; Elbow Lake I, supra, 410 U.S. at 371.
- ' 85/ 410 U.S. at 378; 331 F. Supp. at 58.
~
86/ 331 F. Supp. at 62; United States v. Otter Tail Power Co., ,a 360 F. Supp. 451 (D. Minn. 1973), aff'd per curiam, 417 U.S. 901 (1974). Q 87/ 410 U.S. at 377. 1 W I
C (: 1
.p i .t.
88/ l The Supreme Court, with its broader single episode before it . responsibility, declined to pursue that approach. r ,k There is , of course , little analysis of utility in- l i p dustry structure in the Otter Tail' case. Since the conduct i found was so extreme, no discussion was necessary. More I" fundamentally, Otter Tail involved f acts bearing little rela-t tion to electric utility operation elsewhere, particularly I Lower Michigan. At the releve nt times, Minnesota and Sout!. m Dakota were among the handful of states lacking comprehensive
! 89/
regulation of utility retail rates and operations.-- . The form [ of competition actually occurring in Otter Tail, franchise competition, has been acknowledged even by the most ardent proponents of additional competition in the electric utility 88/ 331 F. Supp. at 61-65.
--89/ At all times relevant to the Otter Tail litigation,
(_ Minnesota and South Dakota were among the handful of states which did not provide for comprehensive regula-
, tion of electric utility retail operations by a state commission . The Department of ' Justice brought the lack -- of state regulation- to the Supreme Court's attention in Otter Tail. See Brief for the United States at 62-63, 4 j n.51, United States v. Otter Tail Power Co., supra.
a ("In Minnesota & South Dakota retail rates are not regulated by the States and there is no effective muni-
- cipal regulation except through the. franchising process.")
Both states subsequently enacted legislation providing for such regulation. See Minnesota Stat. Ann. Ch. 216B
., added by laws 1974, c. 429 (effective Jan. 1, 1975) and
] South Dakota C.L. Ch. 49-34A, added by or amended by SL 1875, ch. 283 (effective July 1,1975).
~l
. .;
4 . l 6.'
- - . , _ . . _ . . . - . . . , . . . , _ _ _ . . _ . . , _ .__._c,_-_,.. -. , , _ , - . _ . . _ - _
I I r lE t
--90/
' [' industry as rare, expensive' and of little public benefit. L Further, while Otter Tail was seeking to deny the new municipal systems all power supplies, Consumers Power was 1 g actively seeking to sell such power to the smaller systems 91/ in its area.-- f 'Thus, although Otter Tail may be relevant to this proceed ing, it stands for little more 't han that the antitrust l laws apply to the electric utility industry. Contrary to the
-- suggestions of our adversaries, it cannot be used to dispose l-I summarily of the novel, dif ficult and important questions raised F by applying antitrust principles at the edges of regulation to
[ --92/ an industry with " basic natural monopoly characteristics." As Judge Friendly's thoughtful opinion in Jacobi
- v. Bache & Co.--93/ stresses, a conclusion that activities in L regulated indust ries are subj ect to antitrust scrutiny is merely the point of departure for a careful examination of
{ L: those principles' proper application in the context of the industry. This process inherently entails the reevaluat ion
.,r
~~90/ Penn, Delaney & Honeycutt, NRC Economic Analysis Section, COORDINATION, COMPETITION, AND REGULATION IN THE ELECTRIC UTILITY INDUSTRY, at 17, n.34 (NCRI 75/061, June 197 5) .
91/ Tr. 7879 (Paul). 92/ Gulf States Util. Co. v. FPC, 411 U.S. 747, 759 (1973). 93/ 520 F.2d 1231, 1236-39 (2d Cir. 1975), petition for cert. filed, 44 U.S.L.W. 3281 (U.S. Nov. 3, 1975). W w g-, n -
,g , ,- - ---
F
-{.
r
.t-t' l
of antitrust standards that in other settings have become = r.. axiomatic. i
'I Indeed, the Supreme Court followed precisely this
(~ approach last term in United States v. Citizens and Southern i Nat'l. Bank, 422 U.S. 86, 114-119 (1975). There the Court 'F held that an arrangement which would otherwise constitute an unreasonable restraint of trade in violation of Section 1 of
-I the Sherman Act was proper where it was made necessary by state p regulatory action. Thus, while Otter Tail may be deemed a point of departure concerning the legal issues of this proceed-ing, it cannot be fairly read to have determined the conclu-sions which this pr'oceeding should ultimately produce. To the i, extent- that our adversaries read Otter Tail to require electric
<r utilities to grant unit access, coordinate and wheel power in every case, their reading is simply incorrect. f{ In sum, the Hearing Board correctly refused to hold that the establishment of a few " truisms" of the electric m utility industry was sufficient per se to establish the Com- , pany's antitrust liability or to trigger the Commission's conditioning authority under Section 105c. Rather, the issues raised by this proceeding must, on the merits and in light u of the record, be subjected to a conventional antitrust analysis -- _, i.e., whether the Company has monopolized any relevant market and, if so, whether there is the requisite nexus between that situation and the Company's activites under the Midland
- licenses. We now turn to an analysis of these issues.
l \ u i
r (- r i
' III. Consumers Power Company Does Not Have Monopoly Power In Any Relevant Market.
b Our adversaries contend that there exists a "situa- [ tion inconsistent with the antitrust laws" in the area served i-by Consumers Power because the Company possesses " power" in the mar ketplace which it has improperly used to maintain its market position. In effect, therefore, Consumers Power i stands accused of having violated that part of Section 2 of the Sherman Act, 15 U . S . C. 52, which makes it a crime to
" monopolize . . . any part of the trade or commerce among the f.. several States . . . .
" J/
t In assessing whether the monopolization provision l' of Section 2 has been violated, the courts have established well-defined analytical principles. The Supreme Court, in i United States v. Grinnell Corp., 3 84 U.S. 563, 570-71 (1966), i
;' articulated these principles as follows: ;
v i l r i I i L
--1/ For the first time in this proceeding, the Intervenors ,, suggest th at the standards of Section 1 of the Sherman Act are applicable here because the Midland Units are a joint venture with the Dow Chemical Company. Intervenors' Appeal Brief at 17. The factual assumption of this be-lated suggestion is simply incorrect: Consumers Power a is the sole owner of the Midland Units and will utilize all of the electric output of the, units. Tr. 9159 (Stafford l and Lapinski). Dow's only relationship to the Midland ' '~
Units is that the Company has agreed to provide Dow with specified amounts of steam which are produced by one of
, the units. Tr. 7937, Tr. 8529 (Mosley); Tr. 9160-61. ,
Thus, Dow will neither own, nor be entitled to, any ! 2 portion of the electrical output of the Midland Units . except, of course, as a regular retail customer from the Company's integrated system. m M r - ---r- ,m--
r i l' [ [ t "The offense of monopoly under S2 of the Shermar. Act has two elements: (1) the possession of mo-nopoly power in the relevant market and (2) the willful acquisition or maintenance of that power l as distinguished from growth or development as a consequence of a superior product, business r acumen, or historic accident." i Thus, two elements -- possession of monopoly power a nd its willful acquisition and maintenance -- must be established i before monopolization is proven. In this section, we demon-strate that Consumers Power does not possess monopoly power in : any market relevant to this proceeding._2/ l
~~2/ In the course of the proceedings below and on appeal, the ' Staff has also relied on Section 5 of the Federal Trade Commission Act, 15 U.S.C. S45. In assessing monopolization charges brought against a single entity under Section 5, the Federal Trade Commission has required the same sub-stantive showing that is necessary to sustain monopoliza-tion complaints brought under Section 2 of the Sherman ! Act, i.e., the showing set f or th in the Grinnell case, as L. quoted in the text, relating to relevant markets, monopoly power, and the willful maintenance of that power. See e.g.,
p Golden Grain Macaroni Co., 78 F.T.C. 154, 157 (1971), aff'd L sud. nom. Golden Grain Macaroni Co. v. FTC, 472 F.2d 882 ( 9th Cir .1972) , cert. denied, 412 U.S. 918 (1973). A _,. close observer of FTC monopolization cases in recent years
! has concluded that:
L.
"In these monopolization cases, the Commission seems to have been guided by the judicially accepted ele- .. ments of monopolization under Section 2 of the Sher-man Act. It has been as though the Commission were acting as a court, finding a violation or no violation " of the basic antitrust law and then simply concluding that such a violation is an unf air method of competi-tion prohibited by Section 5 of the Federal Trade Com-mission Act." Rockefeller, Monopolization Under Sec-tion 5 of the Federal Trade Commission Act, 41 ABA Antitrust Law Journal 635, 640-41 (1972).
Thus, our analysis here is applicable whether reliance is placed on Section 2 of the Sherman Act or Section 5 of the Federal Trade Commission Act. WS
l r- ( j In its Initial Decision, the Hearing Board analyzed and rejected allegations that Consumers Power had acted im-e properly in the marketplace, " assuming without deciding that l Applicant has or had monopoly power in the relevant geographic f 3/ [ market." ~ In proceeding in this manner, the Board recognized e that in order to sustain the charges against the Company, the proponents of license conditions would have to establish both I the Company's possession of monopoly power and its willful ac-( quisition or maintenance. The Board therefore was presented
][ -with an analytical choice of examining the wi11 fulness element 7
first and then, if necessary, assessing the presence of monopoly power -- or vice versa. In its Initial Decision, the Board I chose to examine the wi11 fulness standard first, assuming i
. arquendo that the Company possessed monopoly power; when the Board concluded that the Company's conduct did not reflect
.g such wi11 fulness, it was, of course, unnecessary to resolve L whether the Company, in fact, possessed monopoly power.
~
The Department of Justice purports to find error in the Board's common sense recognition that where one necessary .r-element of antitrust inconsistency has not been demonstrated, ~'
, others need not be considered. --4/Not only was the Board's l ,, _3/ Initial Decision at 178, NRCI 75/7 at 112-13.
_4/ Department's Appeal Brief at 38-39.
.A m.
I l
I ( procedure eminently logical, it parallels the Supreme Court's approach in two recent cases arising under Section 7 of the r { Clayton Act, United States v. Citizens & Southern National p Bank, 422 U.S. 86, 120-122 (1975) and United States v. Gen-eral Dynamics Corp., 415 U.S. 486, 496-504, 510-511 (1974), in which the Court also bypassed ouestions of relevant market definition and market power and proceeded to resolve antitrust i j issues on other grounds.--5/ Thus, in Citizens & Southern Bank, the district court "did not decide whether the geographic markets proposed by the Government were the appropriate ones." 422 U.S. at 120. i The Supreme Court, " assuming arguendo, that they were [ correct]," found that the challenged mergers "would not ' lessen' competi-tion" for reasons unrelated to market structure and therefore could not be illegal. 422 U.S. at 120-121. In General Dynam-r' ics, the Supreme Court declined to review the district court's market definition and market share determinations, noting that its affirmance of the lower court's conclusion that "divesti-ture [would not] benefit competition even were the court to 5/
~~
The Tenth Circuit recently following the same procedure in the leading monopolization case of Telex Corp. v. In-ternational Business Mach. Corp., 510 F.2d 894, 926 (10th
- Cir.), petition for cert. dismissed, 423 U.S. 810 (1975).
See also Treasure Valley Potato Bargaining Ass'n v. Ore-Ida Foods Inc., 497 F.2d 203 (9th Cir.), cert. denied, 419 U.S. 999 (1974). nmw
r i [ ( ; ( accept the Government's unrealistic product and geographic 6/ r.arket definitions,"-- meant "that the judgment before us may I be af firmed without reaching the issue of geographic and prod-l uct markets." 415 U.S. at 511. F ,, While the same approach is available to this tribunal, 7 it may also sustain the decision below on the independent ground I that Consumers Power does not possess monopoly power. " Monopoly
!. power," according to the Supreme Court, is "the power to. con-I trol prices or exclude competition" in the relevant market. --7/
The paragraphs which follow will demonstrate that, regardless r of the relevant market definitions which are adopted, restraints imposed by federal and state regulation prevent the company f rom controlling prices or excluding competition in any and all relevant markets, and hence deny it monopoly power. t 8/ As this tribunal observed in Wolf Creek II,- the electric utility industry is generally analyzed for antitrust .L purposes in terms of two relevant markets: the market for re-tail power and the market for bulk, or wholesale, potier. Since the issues of this case were limited to " coordination," we
- !
understand only the bulk power market to be relevant here.
--6/ 415 U.S. at 511, quoting 341 F. Supp. at 560. (Bracketed material added by Supreme Court.)
--7/ United States v. Grinnell Corp., supra at 571 quoting United States v. E.I. duPont deNemours & Co., 3 51 U . S .
377, 391 (1956). _8/ Wolf Creek II, slip op. at 15. ~. w
-- w- , ,-
,,n,, n. , ,- -ew-- - eas 4 --e~
r F. The parties argued at some length below as to the proper parameters of the relevant markets (both product and 9/ r geographic), and much evidence addressed these questions.-- 10/ l The issue is further complicated on appeal because the Staff-~ 11/ and the Department"~ have changed their position (while the f-
' 12/
Intervenors-- decline to assert any view on the question t whatsoever). It is our primary position that even if a mar-ket definition is adopted which gives the Company a statisti-i cally high share of the marketplace, regulatory and market i constraints deny the Company the power to control prices or l exclude competition in that market. Therefore, because the r i monopoly power question may be disposed of on this basis, the e first part of this Section analyzes the Company's power to control price or. exclude competition and explains why market share statistics and market definitions are essentially irrel-evant to this proceeding. We also demonstrate that the Com-r- pany does not possess monopoly power as a result of its c 9/ Department's Post-hearing Brief at 21-22, 61-86; Staff Post-hearing Brief at 29-54; Consumer Power Company's Post-hearing Brief at 79-111. 10/ Staff Appeal Brief at 51. 11/ Department's Appeal Brief at 41-55. 12/ While the Intervenors caption a subsection of their
~~
Appeal Brief " Consumers Power Company's Coordination a Arrangements Provide a Market for Power Transactions from which Intervenors Are Excluded," it includes no discussion of market definition principles. Intervenors Appeal Brief at 64-72.
- ~.
i w
I l~
t-i i supposed control of various "battleneck" resources. To com-
- plete the record,.however, the concluding pages of the Section r set forth our relevant market analysis, dealing, inter alia, with percentage market shares.
r A. Power to Control Prices. As the Department conceded in its post-hearing brief, the presence of " regulation which restricts-the exercise of monopoly power" precludes any finding that a firm possesses j 13/ such power.-- In this case it is uncontested that the Federal r Power Commission possesses and exercises regulatory authority l over all of the prices (i.e., rates) charged by Consumers Power
;
for bulk power supply. Such regulation prevents the Company from raising prices to extract monopoly profits or selectively lowering prices in a given area to injure or destroy a competi-tor. Accordingly, as we demonstrate more fully below, FPC reg-ulation precludes any finding that Consumers Power possesses the power to control prices in the relevant market. The Federal Power Act subjects each of the Company's bulk power transactions -- including its wholesale power con-14/
- 15/
tracts, ~ unit power arrangements,~~ coordination power 9 .+e 13/ Department's Post-hearing Brief at 97. 14/ 16 U.S.C. S824d. 15/ Connecticut Light & Power Co., 52 F.P.C. 175 (1974). W M w or- - +
(* l r l 16/ exchange agreements and transmission (wheeling) arrange-
; 17/
~~
i ments -- to review and revision by the FPC to assure that 18/
~-
they are just, reasonable and non-discriminatory. When the Company proposes to change its bulk power rates or other 16/ See, e.g., City of Huntingburg v. FPC, 498 F.2d 778, 783 (D.C. Cir. 1974) ("the Interconnection Agreement was
' properly filed as an interstate rate schedule' . .
~
. and was-therefore subject to the regulatory authority vested in the Commission by Sections 205 and 206 of the Federal Power Act"); Cf. City of Cleveland v. FPC, No. 73-1282 (D.C. Cir. Jan~ 9, 1976).
17/
~~
Boston Edison Co., FPC Dkt. Nos. E-8187 and E-8700, Order Granting Hearing On Petition For A Declaratory Order And
~
Consolidating Proceedings (September 25, 1974), and Order Denying Application For Reconsideration (November 18, 1974). The Federal Power Commission does not have power to compel the provision of transmission services, but does have power over their terms and conditions once a party agrees to provide such service. 18/ Section 205 of the Federal Power Act (16 U.S.C. S824d) provides that:
"(a) All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges shall be just and reason-able, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful.
_ (b) No public utility shall, with respect to _ any transmission or sale subject to the juris-diction of the Commission, (1) make or grant any
~'
undue preference or advantage to any person or subject any person to any undue prejudice or dis-advantage, or (2) maintain any unreasonable differ-ence in rates, charges, service, facilities, or in
- _ any other respect, either as between localities or as between classes of service."
h l I t -
1 T~ i-conditions of service, it must give 30 days' notice to the 19/ public and to the Commission- and the Commission may order a hearing on the lawfulness of proposed changes. Such a hearing may be called either in response to a complaint r~ 20/
, by those af fected or on the Commission's own initiative, -- - and all interested persons in the matter may intervene. --21/
i For example, many of the Lower Michigan systems which obtain wholesale service f rom the Company have obj ected to certain provisions of the Company's two most recent wholesale power service proposals and intervened in the hearing p process established by the FPC to review these proposals.--22/ L The manner in which the FPC regulates Consumers F Power's bulk power transactions precludes the Company f rom e L. I L. 19/ Section 205(d), 16 U.S.C. S824d(d). r~ L 20/ Section 205(e), 16 U.S.C. S824d(e). 21/ 18 C.F.R. Sl.8(b). 22/ See Consumers Power Co., 49 F.P.C. 44 (1973), and Con-sumers Power Co., FPC Dkt. No. ER-76-45, Order Accepting ,i for Filing and Suspending Proposed Rate Increase, Grant-L. ing Interventions, Providing for Hearing, Establishing Procedures, Denying Motion to Reject and Providing for F Responses to Motion (Aug. 19, 1975). The former case was settled in 1973; the latter has been set for hear-ing on antitrust issues March 23, 1976. f a
t I
;
23/ controlling prices or obtaining monopoly profits. The FPC requires that rates be as low as possible consistent with
- the Company's financial integrity and prohibits the setting of l
l 24/ rates which will maximize profits. Rates which are approved 25/ I generally reflect system-wide average embedded costs. The (. FPC also requires that rates must be uniform within a class of p 26/ service and that rate differentiations-- between classes be _ based on corresponding differences in the cost of serving I 23/ In their Post-hearing Briefs, both the Staff and the Inter-venors (Staff Brief at 146; Intervenors' Brief at 36) ac-
,. knowledge that Cor sumers Power Company cannot control its
[ prices. The Intervenors' Brief at 93-94 tries to find a L significant regulatory gap in the Sierra-Mobile doctrine, which holds that FPC-regulated utilities that enter into F contracts which later fail to provide them a reasonable m return are nevertheless generally held to their contracts. United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 (1956); FPC v. Sierra Pac. Power Co., 350 U.S. l 348 (1956). See Dorough of Lansdale v. PPC, 494 F.2d 1104 (D.C. Cir. 1974). However , that doctrine does not eliminate FPC authority over those contracts, as the , h_ Intervenors would suggest, but merely shif ts the regula-L tory standard the FPC is to follow in ascertaining what might " adversely affect the public interest." Sierra Pac., r" supra, 350 U.S. at 355.
"~
24/ Tr. 8280. FPC v. Hope Natural Gas Co., 320 U.S. 591, 605 (1944); BlueTIeld Waterworks & Improvement Co. v. Public Serv. Comm'n, 262 U.S. 679 (1923). 25/ Tr. 8292, 8294-95; Tr. 50 after 7239 (Pace). See, e.g.
~~
Duke Power Co., 48 F.P.C. 1384, 1394 (1972), in which the L Commission upheld the Examiner's decision that municipal and cooperative systems were " entitled to rates based on n fully allocated costs the same as any other customer." See also Duke Power Co., 49 F.P.C. 406, 408 (1973). . ,_ 26/ Tr. 8300, 8310-11; Duke Power Co., supra. ' L' ~
- eu o
_ u. 27/ those classes. Thus, the FPC has also on many occasions F 28/
, rejected all or part of a proposed rate increasc-- or even 29/
r- required that overall wholesale rate levels be lowered.~~ l* The FPC regulatory jurisdiction extends far beyond I~ assuring that rates are consistent with a utility's cost of
- u. .
service. For example, in Georgia Power Co., 35 F.P.C. 436 f~ (1966), aff'd sub nom. Georgia Power Co. v. FPC, 373 F.2d
- 485 (5th Cir. 1967) and Mississippi Power Co., 45 F.P.C 269 1 (1971), the Commission eliminated the " dual rate" structure
[ under which wholesale customers were charged more for power I 27/ The Departrcent of Justice seeks to distinguish away Sec-
- r. tion 205 by emphasizing that the FPC "normally" does not initiate its own investigations of rate schedules or co-l - ordination agreements. Department's Appeal Brief at 125-26. Yet, if such filings affect the substantive r
I interests of parties other than the filing utilities, they are almost invariably contested. For example, since Consumers Power became subject to FPC jurisdiction, none p of its proposed wholesale rate increases has yet gone un-contested. Consumers Power Co., FPC Dkt. Nos. ER-76-45 and E-7803. In addition, the Commission will often on its own initiative question unchallenged filings either in-I formally or through an evidentiary proceeding. Section L 205(e) of the Federal Power Act, 16 U.S.C. 5824d(e). 28/ E', e.cr. Sierra Pac. Power Co. , FPC Dkt. No. E-8224, Op. Nod.~7IO, 730-A & 730-B (May 15, July 16 & Sect. 2, 1975); Municipal Light Bds., FPC Dkt. Nos. E-7400, Op.
- g. Nos. 729 & 729-A (May 13 & Aug. 4, 1975), petition for j' review filed sub nom. Boston Edison Co. v. FPC, No.
75-1850 (D.C. Cir., Aug. 28, 1975); Sierra Pac. Power Co., FPC Dkt. Nos. E-7706, E-7750, E-8092, Op. Nos. 702, 702-A
& 702-B (Aug. 15, 1974, June 17.& Aug. 20, 1975).
29/ Southwestern Pub. Serv. Co., 33 F.P.C. 343, 349-50, modi-
- r- fied in other respects, 34 F.P.C. 841 (1965).
ii
- L.'
.{
.u.
r s
I r- which they resold to another wholesale purchaser than for 30/ power which they sold to an ultimate user. The Commission { must also weigh antitrust allegations relevant to bulk power rates, including allegations of " price squeeze" where the e-bulk power supplier and purchasing system also compete at 31/ _ retail. l In sum, the Company clearly has no power to control { the price of bulk power which it sells or transmits. Control o'rer prices is, of course, the classic means of dominance by l 32/ l { a monopolist. A second element of monopoly power is the l ability to exclude competition. We therefore turn to an analysis of that issue. r B. Power to Exclude Competition. Perhaps the most compelling evidence that Consumers Power has no power to exclude competitors is the uncontested l 1 T' l 30/ See also Central Vermont Pub. Serv. Corp., 51 F.P.C. T5517 I689-90, 1094-95 (1974) (Initial Decision). This proceeding was settled prior to adjudication by the FPC itself. 51 F.P.C. at 1051-52. 31/ Gulf States Util. Co. v. FPC, 411 U.S. 747 (1973); Conway Corp. v. FPC, 510 F.2d 12ET-(D.C. Cir. 1975), cert. granted, U.S. , 96 S.Ct. 355 (1975). The price squeeze question has no bearing on this proceeding since l
~ as the Department's Post-hearing Brief admits (at 170),
Consumers Power's wholesale customers do not face a so-
, called " price squeeze."
32/ United States v. E.I. duPont deNemours & Co., 351 U.S. 377, 389 (1956) (duPont-Cellophane); Moore v. Jas. H. Matthews & Co., 473 F.2d 328, 332 (9th Cir. 1973). j
i s p ! fact that within its service area there are numerous aggres-sive and highly successful electric systems which compete with 33/
~
Consumers Power to the maximum feasible extent. In addition, { the Federal Power Commission and the Michigan Public Service Commission are empowered to prevent any exclusion of competi-tion by the Company as a matter of law -- even assuming the
. Company were so inclined. The following paragraphs discuss these regulatory constraints and then return to an analysis }
of the actual competitive milieu in which the Company operates. Central among the laws which deny the Company the ability to exclude competition is Section 202(b) of the Federal l Power Act which authorizes the FPC to order the interconnection 34/
-~
of two electric systems for bulk power supply purposes. Under Section 202(b), the FPC is empowered to order that Con-sumers Power Company provide wholesale service to any electric system within its service area, whether or not it has genera-I tion capacity, and to order that the Company enter into co-35/
-. ordination operations with all generating systems. To be L-P 33/
-~
Initial Decision at 115, NRCI 25/7 at 87. See Section L. III-C, infra. 34/ 16 U.S.C. S824a(b). l-- 35/
~~
New England Power.Co. v. FPC, 349 F.2d 258 (1st Cir. 1965) _' (firm wholesale power to non-generating retail distribu-tor); Otter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973) (coordination with small generating system); Florida Power Corp. v. FPC, 425 F.2d 1196, 1201-03 (5th Cir. 1970),
, rev'd on other grounds sub nom. Gainesville Util. Dept. v.
y Florida Power Corp., 402 U.S. 515 (1971) (FPC has jurisdic-tion to order interconnection with generating and non-generating entities). ow
-o w q
i 1 E sure, the Commission's power under Section 202(b) is subject p- -36/ to limitations. - However, these do not restrict the FPC's
- authority to require the Company to continue bulk power service to an existing wholesale customer or to provide those arrange-p ments to a newly-created system which proposes to replace the Company as a retail distributor in a particular locality or 37/
area. Nor do they prevent the FPC from compelling parties to share reserves or to exchange emergency power, economy s l energy, maintenance power and the like under appropriate terms 38/ r and conditions. i'
--36/ Section 202(b), 16 U.S.C., S824a(b), prohibits the Commis-sion from compelling a utility to engage in transactions which require it to enlarge its facilities or to jeopardize the reliability of its system.
37/ If the Company were replaced as a retail supplier it would necessarily possess the generating and transmission ca-pacity to continue service since it would merely be con-
,_ tinuing to serve loads at wholesale it had previously supplied at retail. Thus the limitations on the FPC's . authority in Section 202(b) described above would not be applicable. See n. 36 supra. ~,
38/
~~ The Staff continues to insist that "the FPC cannot compel system interconnection for purposes of coordinated opera-
. tion. . . . That is, the FPC cannot order large and small systems to . . . engage in power exchanges that reduce power supply costs." Staff Appeal Brief at 81, citing Section 201(a) and (b), the preamble of the Federal Power
, Act. As we noted when the Staff made precisely the same L observation below (see Staff Post-hearing Brief at 146 and Consumers Power Co. Post-hearing Reply Brief at 78-79),
.s this position is simply and unarguably wrong. See the text of Section 202(b) of the Federal Power Act, 16 U.S.C.
S824a(b), the cases cited supra at n.35 and the Depart-ment's Appeal Brief at 125-26.
?
( I The Federal Power Commission has not had occasion to order Consumers Power to render bulk power service because, as discussed below, the Company has never refused to sell whole-c- -- 39/
! sale power to anyone in its service area who requested it.
Nevertheless, the FPC clearly has such authority--40/ and has t j 39/ Indeed, no party has ever invoked Section 202(b), 16 U.S.C.
"- S824a(b), at the FPC to complain about the Company's interconnection terms and conditions.
I,_ L --40/ The Department seeks to " disprove" the FPC's legal author-ity to order wholesale service through the unusual means e of citing the testimony of Mr. Aymond, Chairman of the Board of Consumers Power Company (Tr. 6496). This testi-mony was hardly an unequivocal statement th at the FPC had
, no such authority:
'- "Unless there is some requirement of the Federal Power Commission and thus f ar I know of none ex-cept possibly the Otter Tail case, we have no
{
,, obligation to serve other utility companies.
^ Nevertheless, it is our view that we should serve
-; other utility companies that presently exist in our service area to the best of our ability, and we will treat them in a non-discriminatory f ashion, 4 meeting all the requirements that they care to
- place upon us."
Thus, the statement was made in the context of stressing
-L that the Company voluntarily serves the wholesale require-ments of its neighbors , and at most, is an uncertain view on what was presented as a purely hypothetical question.
More fundamentally, there is simply no basis for arguing that a lay opinion (though a member of the bar, Mr. Aymond ceased practicing law in 1957 (Tr. 6045)) somehow deter-mines a purely legal question. Cf. Arney v. United States,
~L 479 F.2d 653, 659 (9th Cir. 1973)T J
' W a-
- wi. y , nw~y wi g ,
h s r: exercised it with regard to other systems on a number of b occasions. 42/
-~
The Department seeks to make much of the Hearing l
. Board's observation that Consumers Power Company has the power
[' to refuse to engage in voluntary coordination with its neigh-43/
-~
neighbors. As the Board recognized, its finding is merely a tautology. Voluntary relationships are those which are, f by definition, entered into freely. The Department offers l
, no rationale for attaching any signficance to this truism.
i' 41/
~~
City of Cleveland v. Cleveland Elec. Illuminating Co., 49 F.P.C. 118 (1973), aff'd in part, remanded in part f sub nom. City of Cleveland v. FPC, F.2d , No. l~ M fD (D.C. Cir. Jan. 9, 1973T7 VTITage of Elbow Lake
- v. Otter Tail Power Co., 46 F.P.C 675 (1971), aff'd as
, modTried sub nom. Otter Tail Power Co. v. FPC, 473 F.2d i 1253 (8th Cir. 1973); Public Serv. Co. of Ind., 41 F.P.C.
399 (1969); Gainesville Util. Dept. v. Florida Power Corp., 40 F.P.C. 1227 (1968), 41 F.P.C. 4 (1969), aff'd, 402 l U.S. 515 (1971); Crisp County Power Comm'n v. Georgia t Power Co., 37 F.P.C. 1103 (1967), 42 F.P.C. 1179 (1969); City of Paris v. Kentucky Util. Co., 38 F.P.C. 269 (1967); Shrewsbury Municipal Light Dept. v. New Eng. Power Co., i
"~
32 F.P.C. 373 (1964), aff'd sub nom. New Eng. Power Co.
- v. FPC, 349 F.2d 258 (1st Cir. 1965).
I 42/ Department's Appeal Brief at 80. The Department concedes
-- that "the FPC has the authority to compel interconnections and . . . a small system can force involuntary interconnec-tion if it convinces the FPC that such interconnection is
.L in the public intorest." Department's Appeal Brief at 124.
, 43/ Initial Decision at 128, NRCI 75/7 at 93-94. The Hearing Board also held that the Company could be required to enter into coordinated operation arrangements with other systems. Id. ,
-i k
W I %@
r" i Further supplementing the authority of the FPC to r* prevent the Company from excluding competing electric bulk power suppliers is its authority under Sections 202(b) and
~I 205 of the Federal Power Act whi'ch empower the FPC not only I to compel bulk power services as we have described, but also 44/
to regulate the terms and conditions of bulk power supply.-- Utilizing this authority, the FPC has invalidated anticompet-
. itive limitations in wholesale and coordinating agreements.
l For example, in Georgia Power Co. 35 F.P.C. 436 (1966), aff'd
~~
sub nom. Georgia Power Co. v. FPC, 373 F.2d 485 (5th Cir. l . 1967), the Commission struck down contractual limitations on ,r the size of retail loads that could be served by a wholesale 45/
, customer. Recently in Louisiana Power & Light Co., 51 F.P.C.
1290 (1974) the Commission on its own motion initiated an in-vestigation of clauses in a standard, firm power contract that prohibited re-sales of bulk power to future or existing whole-46/ , { sale customers of either the supplier or the purchaser. ! _ 44/ 16 U.S.C. SS824a(b), 824d. I 45/ See also Central Vermont Public Serv. Coro., 51 F.P.C.
-- l 1051, 1089-90, 1094-95 (1974) (Initial Decision). This l proceeding was settled prior to adjudication by the FPC l itself. 51 F.P.C. 1051-52. l b 46/ See also City of Huntingbura v. FPC, 498 F.2d 778 (D.C.
~-
Cir. 1974), requiring the FPC to articulate its basis for refusing to conduct such an investigation with regard to _ a provision in an interconnection agreement prohibiting further wholesale marketing of the affected power by some of the parties. Am W w v , . _ - - - , - . , ,, , y . , .
,Y p !
r- Michigan Public Service Commission regulation also assures that Consumers Power cannot unfairAy compete against { new entrants. The MPSC requires that rates be uniform throughout 48/ the Company's service area-- and that differences in the rates
, charged ditferent classes generally reflect only differences 49/
, in the cost of serving the various classes.-- Thus, the Com-1 pany cannot offer special rates or discounts to attract the
~
customers of other electric suppliers -- even assuming that other constaints would permit such competition. Consumers l Power is also obliged to offer service to all customers in it 50/
. franchised service areas.-- This requirement precludes the I
Company from serving only those customers with low costs of service -- a practice known as " cream-skimming." Consumers Power Company's ability to exclude compe-tition is restricted still further by Section 203(a) of the { l L
--48/ City of Ishpeming v. MPSC, 370 Mich. 293, 121 N.W.2d 462, 468 (1963). Tr. EYE 6, 8307.
49/ Tr. 8285. L 50/ City of Saginaw v. Consumers Power Co., 213 Mich. 460, 182 N.W. 146, 154 (1921); Michigan Consol. Gas Co. v. Austin Twp., 373 Mich. 123, 128 N.W.2d 491, 499 (1964); Traverse City v. Consumers Power Co., 340 Mich. 85, 64 I N.W.2d 894, 899-900 (1954). Initial Decision at 68, NRCI 75/7 at 64. Tr. 6226 (Aymond); 7872; 8280, 8281. 9 we l
- , e
1 Federal Power Act which prohibits the Company's acquisition r I of the facilities of another system without the prior, express
- approval of the Federal Power Commission. That approval may 1
be granted only if, after opportunity for hearing, the Com-l mission finds the acquisition to be " compatible with the 51/ public interest."-- Such a public interest finding may l only be made after taking account of any anticompetitive 52/
,_ effects which may flow from the acquisition.-- }
A final regulatory bar to the Company possessing the ability to exclude competition is the power of the i
, 51/ 16 U.S.C. S824b; Citizens for Allegan County, Inc. v. , FPC, 414 F.2d 1125 (D.C. Cir. 1969). This case specifi-cafly reviewed the acquisition by Consumers Power Company t
of the Allegan municipal system. See Section IV-C-3, infra. 52/ Gulf States Util. Co. v. FPC, 411 U.S. 747 (1973); ! Commonwealth Edison Co., 33 F.P.C. 927 (1966), aff'd ; sub nom. Utility Users League v. FPC, 394 F.2d 16 (7th l l Cir.), cert, denied, 393 U.S. 953 TT968); Commonwealth
' l Edisori Co. , 50 F.P.C. 1561 (1973). l Similarly restraining the Company's power to exclude
. competition through acquisition are (1) Sections 9 and 10 of the Public Utility Holding Company Act of i l
, 1935 requiring approval by the Securities and Exchange '
Commission of certain acquisitions by the Company of securities of other public utility companies (15 U.S.C. SS791 and 79j); and (2) Section 204(a) of the Federal
} Power Act permitting the Company to issue securities only after a finding by the Federal Power Commission that the object of the issue is compatible with the public interest (16 U.S.C. S824c(a)). Both Commissions ,
l ._ must, before issuing their approval, take account of possible anticompetitive effects. Municipal Elec. Ass'n of Mass. v. SEC, 413 F.2d 1052 (D.C. Cir. 1969); . Gulf States Util. Co. v. FPC, supra. l l
;
p The Company cannot be deemed to have monopoly power i in any bulk power market where bulk supplies are available I either through regulatory action or self-help at such cost r-as to permit vigorous competition in the marketplace. In Lower Michigan, regulatory authorities can compel Consumers
,. Power to provide bulk power supply through wholesale service or through coordinated operations with those systems which a
have choosen to install their own generation facilities. If by utilizing these alternatives the systems in Consumers c-l Power's service area are financially and competitively viable,
, the Company's lack of monopoly power should seem self-evident.
I
;
The Initial Decision found, and other adversaries do not context, that not only are the smaller neighboring systems viable, they are " vigorous', " aggressive" and the 57/ epitome of financial and competitive success.-- The follow-
, ing subsection provides detailed support for the Board 's )
- 1. findings in this regard. Given these findings and that support, it is clear that Consumers Power does not have
"~
the power to exclude competition. i Thus, we have shown that Consumers Power possesses neither the power to control prices nor to exclude competition
--57/ See Initial Decision at 111-13 and 176, NRCI 75/7 at 86-86 and 112. See also Staff Appeal Brief at 67 con-ceding "the fact that the smaller entities who buy
' wholesale' power from the Applicant are viable, grow-
; ing, active competitors of the Applicant. '"
it i
h in any relevant market. In these circumstances, the Company can not be deemed to possess monopoly power as the Supremo l Court has defined it. Although our monopoly power analysio r- could conclude at this juncture, it is also useful to con-1
~
firm this analysis by examining the comparative financial and competitive strength of the systems in the marketplace. The following subsection examines that question. C. Comparative Competitive and Financial Strength,
- r. The competitive success and comparative financial i
strength of the Company's smaller neighbors are very illumi-I nating in their confirmation that Consumers Power does not possess monopoly power. [ With regard to the competitive strength of neighbor-
, ing systems, our adversaries would have this Board believe that Consumers Power possesses monopoly power simply because ~ ; it is considerably larger than most neighboring systems, par-ticularly the municipal and cooperative systems within and adjacent to its service area. By frequent reference to this theme, the other parties seek to establish Consumers Power as a monopolist whose normal arm's length dealings with its neighbors must be considered under a standard which imposes an ~
affirmative duty on the Company to assist its " disadvantaged" 58/ neighbors.-- , j l 58/ See, e.g., Staff Appeal Brief at 61-64. 1 l
I' * [. e-Yet, the underlying factual premise of this central l elev.ent in our opponents' briefs is simply untrue: the smaller e systems -- far from surviving at the margin -- cre able to market this product at rates which are as much as 33% below those of Consumers Power and to make large and consistent 59/
~-
profits. In the words of the Hearing Board, they ate "vi-C 60/ able, growing, active competitors" of the Company.--
<~ Direct consideration of the economic strength and )'
competitive viability of competition in the marketplace is, ' I of course, an established means of gauging market power. In United States v. Columbia Steel Co., 334 U.S. 495, 527 (1943), f evaluation of the " strength" of the other firms in the mar- , ,, ketplace was identified as a necessary consideration in de-b termining whether a company with a high market share has ac- , [- quired monopoly power. Similarly, in United States v. General b. Dynamics Corp., 415 U.S. 486, 502 (1974), the Supreme Court V* .) .e: pointed to the competitive weakness of a statistically leading _ firm as a factor to be considered in assessing the impact of a
)~
L, merger under the Clayton Act. In Cole v. Hughes Tool Co., 215 F.2d 924, 938, 941
- l" (10th Cir. 1954), cert. denied, 348 U.S. 927 (1955), the court
-i
.;.
_ 59/ Attachments JDP-4, JDP-6 and JDP-7 after Tr. 7239. 60/ Initial Decision at 176, NRCI 75/7 at 112. f . w e-
- , ,- r , .
[ of appeals specifically relied upon the profitability of the
< smaller competitors in rejecting the allegations that Hughes 7
Tool Company had monopoly power or could extract monopoly profits. And in the very recent case of Budd Co., 3 CCH Trade Reg. Rep. 120,998 at p. 20,855 (FTC, Sept. 18, 1975), the Federal Trade Commission held that the data on " prices and profits" offset " market share figures" in evaluating market 61/ structure. Perhaps the best measure of the competitive and fi-nancial viability of given entities is the price at which they are able to sell their product -- in this industry, the rates electric suppliers charge their customers. As the Hearing Board held, and as no party disputes, the rates of the other systems in Consumer . ver's area are generally either compar-62/ able to, or substantially below, those of the Company.
~
The record vividly confirms the Hearing Board's
; findings in this regard. Specifically, it shows that the , average retail customer rates of the municipal and small
_ investor-owned systems which are within or adjacent to the Company's service area are typically at least 10 percent,
.s 61/
~~
Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967) cited for the contrary proposition by the Inter-venors, is irrelevant to this point, holding only that an unreasonable combination in restraint of trade un@nr
._ Section 1 of the Sherman Act does not become reasonable because the intended victim survives.
62/ Initial Decision at 112-13, NRCI 75/7 at 86-87. 49 h
I p .
", and as much as 33 percent below the Company's comparative rates 63/
for each customer class.-- Although some of the cooperatives' rates are not lower than the Company's because of the low pop-
;
64/ ulation and electric load density of the areas they serve,-- 1 e-the cooperatives rates to commercial and small industrial customers average 12 and 19 percent less than the Company's
-- the classes of customers which are most subject to the very limited amount of competition which the MPSC permits 65/
between the Company and neighboring cooperatives.--
~
It is important to emphasize that the rates of the smaller systems are competitive with those of Consumers Power regardless of their source of bulk power supply. Thus, for example, Bay City purchases all of its bulk power needs from Consumers Power and is able to re-sell that power at rates 75 percent to 82 percent of those charged by the Company for comparable service; for Hillsdale, which purchases about
- one-half of its requirement from the Company and self generates
- the remainder, the figures are 83 percent to 89 percent; for Holland, which self-generates all of its needs and coordinates 63
~~/ Tr.
Tr. 88-90, 7239. 94-95 af ter 7239 (Pace); Attachment JDP-4 af ter 64/ Initial Decision at 113, NRCI 75/7 at 87; Tr. 948 (Westen-broek); Tr 7239.Tr. 90 after 7239 (Pace); Attachment JDP-4 after 65/ Tr. 89 after 7239 (Pace); Attachment JDP-4 after Tr. 7239; Tr. 6065 (Aymond); Tr. 7846, 7853-54, 7856, 7858.
-g.d N
- - - - , . - - . - ~
3 ----m , ,. -,,y , - , -
I' with the Company, the figures are 67 percent to 84 percent and for Traverse City, which self-generates all of its needs and coordinates with three other small systems in the MMCPP
! which in turn coordinates with Consumers Power, the figures 66/
-~
[- are 82 percent to 88 percent. The financial and competitive strength of the smaller [ systems is highlighted by their success in the few areas of Lower Michigan where economic and legal barriers have not fore-i f closed street-to-street competition between these systems and 67/
-~
c- Consumers Power. Thus, in Traverse City and Bay City, where I such competition exists, the Company's average market share is I only 56 percent of a two-firm market and that share is not in-68/ creasing.~~ Indeed, since 1960 Consumers Power has suffered a
! net loss in customers to the Bay City system; and the Traverse 7
City system has obtained more than 75 percent of the new cus-l tomers which have located there recently -- and an even higher 69/
-~
percentage of industrial customers. 66/
~~
Attachment JDP-4 af ter Tr. 7239; Exhibit 11,307; Exhibit 104A. 67/ These economic and legal barriers to competition are L ~~ discussed in subsection II.~~E, infra. 68/ Tr. 26-27 after 7239 (Pace). 69/ Tr. 1576-77, 2023 (Wolfe); Tr. 7809, 8194. The Hearing Boatd found that Bay City, which purchases all of its bulk
,. power requirements from the Company, sells at retail at rates 10 to 15 percent lower than the Company's (Initial Decision at 118, NRCI 75/7 at 89), and that, in 1965, .[~ Traverse City's rates were 10 percent lower than Consumers .._ Power's (Initial Decision at 153, NRCI 75/7 at 103) .
W
f V s In addition, most of the Consumers Power's smaller F [ neighboring systems are quite successful financially, and even those which are seemingly less successful could. raise their very low rates and earn a favorable rate of return without any adverse competitive consequences relative to the Company.--70/ l This provides further evidence that these systems are competi-r 71/ tive with the Company. ,,.. A key reason why these systems have, and are likely i to maintain, their ability to obtain low-cost bulk power supply r- and to re-sell it at such low rates is the availability to nearly all such systems of significant financing and tax advan-tages vis-a-vis Consumer s Power.--72/ These advantages are of
, particular importance in view of the capital-intensive natute t
70/ Tr. 105-07 arter 7239 (Pace); Tr. 2415; 2440-41 (Erush).
~
) 71/
-- The growth rates of the smaller systems confirm tais evi-L- dence. During the most recent ten year period for which data'is available (1961-1971), the total retail sales of the Company's small neighboring systems increased at a
_ faster rate than the Company retail sales. Tr. 112-14 after 7239 (Pace); Attachment JDP-8 after Tr. 7239; Tr. 1576-77, 2023; Tr. 7809, 8194; Initial Decision at 111, NRCI 75/7 at 86. This trend is evident in commercial and industrial -- as well as residential -- sales, with the cooperatives' rate of increase in this regard more than double that of the Company. Tr. 114 after 7239 (Pace); Attachment JDP-8, Column 9 after Tr. 7239, In-itial Decision at 115, NRCI 75/7 at 88. 72/ Tr. 55-59 after 7239 (Pace); 7 U.S.C. SS904, 913, 936; i 26 U.S.C. SS103, 115(a), 501(c)(12); MSA 21.81, 7.557 ; (1201). ' I 1 l
;
i
]
I
f I' (. 73/ of the electric utility industry and of the Company's exten-p 74/ sive tax liabilities.-- { The differences in the cost of capital experienced by i s Consumers Power and those borne by its neighboring cooperative r and municipal systems are striking. For cooperatives, rural electrification loans have historically been issued to coopera-tives at a 2 percent interest rate and most of the embedded cost of capital of the cooperatives in Lower Michigan is at that { 75/ Currently, most new REA loans, including generation [ rate. 76/ p and transmission loans, are made at the rate of 5 percent. I Additional subsidized borrowing is available through federally-guaranteed loans made by the Federal Financing Bank or the National Rural Utilities Cooperative Finance Corporation at
' 77/
[ rates of interest far below open market rates. Congress r consciously intended these loan programs for generation and
;
transmission to strengthen the bargaining position of the
.f
.L: r-
'l, 73/ Tr. 19-20 after 3979 (Wein); Tr. 7, 10-11 after 7224 (Stelzer).
74/ Tr. 54-56, 68 after 7239 (Pace); Exhibits 21 and 21A. 75/ 7 U.S.C. S904; Tr. 57 after 7239. 76/ 7 U.S.C. S930 -et seg. See also H.R. Rep. No. 93-91, 93d Cong., 1st Ness. (1377). 77/ 12 U.S.C. 52286; 7 U.S.C. SS934, 940. See National Rural Utilities Cooperative Finance Corporation, Annual Report 1975, p. 21. l
-l i
.-...v.. , ., , ,, .
F 78/ r cooperatives in their dealings with larger utilities.-- Similarly, the cost of borrowed capital for municipal electric systems is significantly reduced through the Federal income tax laws. Section 103 of the internal Revenue Code, F 26 U.S.C. 5103, provides that interest on obligations of local c and state governments is exempt from Federal income taxation. i The effect of that exemption is to permit municipal systems to i market debt obligations on which the payable interest rate is t significantly lower than that paid at the same time by non-I i exempted borrowers, including investor-owned utilities such 79/
- as Consumers Power Company.
78/
~~ "The construction of power generating facil- ' ities is a secondary function considered to be necessary to preserve the bargaining posi-tion of REA Cooperatives in securing power at reasonable rates and under reasonable terms.
The Administrator of REA is expected to observe these basic concepts in carrying out his re- [ sponsibilities under the law. The Congress has (, always attempted to protect the bargaining power of the REA with respect to negotiation of power p contracts with private utility companies, through the approval of adequate loan funds to orovide REA-financed power generation facilities where
, alternative sources of power are not available on proper terms."
H.R. Rep. No. 1446, 89th Cong., 2d Sess. 46-47 (1966). The committee recognizes the importance of the availability of G. and T. loan funds to the bargaining positions of the REA coopera-tives." H.R. Rep. No. 1335, 90th Cong., 2d Sess. 56 (1968). 29/ See, e.g., Morris, Tax Exemption for State and Local Bonds, 42 Geo. Wash. L. Rev. 526 (1974); Tr. 56, 58 after 7239 (Pace). .a am'
I p - 100 - - r These long-standing cooperative and municipal cost 1 : I advantages have had a dramatic impact on the overall cost of r service of Lower Michigan's electric suppliers. While Con-f sumers Power Company's capital costs amount to 21.7 percent c-of its total cost of service, municipal systems face capital m costs which amount to about half the percentage of their total cost of service and the cooperative systems have embedded capital costs of 7 percent of their total cost of service
-- less than one-third of the percentage of costs experienced
- r. 80/
by the Company. Plainly, these substantial disparities in the cost of capital translate into substantial differences
, in the respective costs of new bulk power supply to the Company and to its public power neighbors.
The disparate tax treatment of Consumers Power com-pared to the cooperatives and municipal systems leads to fur-
)
ther strengthening of the market position of these systems. The Company is subject to Federal and state income taxes, state
- franchise taxes and local property taxes. About 14 percent of the Company's cost of serving its customers is attributable to 81/
~~
such taxes. By contrast, cooperative systems are exemot 82/ from Federal income taxation and the Michigan franchise _. 80/ Tr. 56-58 after 7239 (Pace). 81/ Tr. 35 after 7239 (Pace).
~
82/
~~
26 U.S.C. 5501(c)(12); see also Consumers Credit Rural _ Elec. Cooperative Corp. v. Commissioner, 319 F.2d 475, 477 (6th Cir. 1963); Tr. 55 after 7239 (Pace). 9 ' we
/~
- 101 -
I
- 83/ 84/ 85/
tax,- the municipalities do not pay major Federal,- state, r- 86/ or local-- taxes. Some municipal electric systems make vol-untary contributions to municipal government operations, but
! even considering these payments, the tax-type expenses of the r municipal systems are less than half, viewed as a percentage 87/
of cost of service, of those borne by Consumers Power. The 14% of the Company's cost of service attributable to taxes m 83/ Michigan rural electrification cooperatives as non-profit corporations are required only to file an annual report accompanied by a $10 filing fee. MSA 21.81; Tr. 55 after _ 7239 (Pace). The State of Michigan has recently enacted several changes in its system of business taxation which will take effect in the future but which do not change the basic conclusions cf this paragraph. 1975 P.A. 230 repealed the corporate franchise tax effective May 14, 1977, and 1975 P.A. 233 repealed the corporate income tax effective with the 1976 tax year. In lieu thereof, the
.- State has adopted the " single business tax act" (1975 P.A. 228) effective January 1, 1976. Both Consumers Power Company and the rural electric cooperatives will be sub-
_ ject to this new tax, but municipalities will be fully
; exempt. In essence, the new single business tax replaces .. the repealed taxes with a 2.35 percent levy on profits, payroll, interest and depreciation, with a 100 percent credit for capital investment. These changes in the law ~
will have no effect until long after the close of the re-cord. See United States v. Connecticut Nat'l Bank, 418 U.S. 656, 661-64 (1974). 84/ 26 U.S.C. Sll5(a); Tr. 55 after 7239 (Pace). 85/ The Michigan taxing statute exempts from Michigan income _, tax those persons who are exempt from federal tax, MSA 7.557 (1201), Tr. 55 after 7239 (Pace). See footnote 83. 86/ Tr. 55 after 7239 (Pace). 87/ Tr. 55-56 afte' 7239 (Pace). l l s
(.
- 102 -
p i r stands in even sharper contrast to the cooperative systems' 88/ 4 5.1 percent tax component of their cost of service. F In sum, the total annual tax and capital costs of I Consumers Power Company -- 35 percent of its total cost of l' service -- is more than twice the percentage of its municipal 7.. and cooperative neighbors. These advantages mean that such
. systems are able to self-generate their needs, or purchase l- bulk power from the Company, at costs which permit them to
( compete with, and in many cases significantly to undersell I the Company. Thus, the competitive and financial viability of the smaller neighboring system confirms that Consumers Power lacks r the power to control prices or exclude competition, the prereq-
;
uisites of monopoly power. Finally, we believe the Board should take careful u note of the Company's financial status in assessing its mar-r ket position and, if necessary, the license conditions proposed 89/ r by our adversaries.~~ Unusually high profits are a frequently v cited indicia of a firm's monopoly power. United States v. E.I. duPont deNemours and Co., 351 U.S. 377, 404 (1956). In 88/ Tr. 55 after 7239 (Pace). 89/ The license condition proposals are described in detail in Section VI, infra. m
, - - ~ ,- __m ,, , - - .
, , - - - - - - --e,---r
- 103 -
I this regard, the Company's financial position stands in marked contrast to the financial success of the small systems described y_ in the previous paragraphs. In fact, as the Hearing Board
! noted, for the six years ending with the close of the record, r- Consumers Power's rate of return has been significantly below what the Michigan Public Service Commission deems minimally c 90/
adequate. This financial position has created such diffi- [ culties in raising capital that the Company recently cancelled I_ 91/
-~
l construction plans for its next scheduled nuclear f acility. After a thorough review of the Company's operations, the Michigan Public Service Commission concluded that the Com-pany's financial condition is " depressed" and "in serious r jeopardy". In so holding, the Commission pointed to "cer-f L tain critical facts such as [the Company's] depressed earn-ings per share, the low price of its common stock, its down-graded bond ratings, its legal inability to sell preferred -[ stock and the possibility of legally being restrained from L i i 90/
~~
Initial Decision at 112, NRCI 75/7 at 86; Tr. 6409 l (Aymond); 6983, 7114 (Stelzer); 101-02 after 7239 (Pace). l Consumers Power Co., MPSC Case U-4174, Order (November 24, l 1972), (". . . [ Consumer Power Company's] ability to : attract additional capital is at a low ebb"); Consumers l .__- Power Co., MPSC Case U-4576, Order Granting Partial and i Immediate Rate Relief (September 16, 1974). l
~
91/
~~
Consumers Power Co. (Quanicassee Units 1 & 2), AEC Dkt. Nos. 50-475 and 50-476, Answer of Consumers Power Co.
- , (August 2, 1974) (withdrawing construction permit applica-tion).
t , wd emam '
I' f
, - 104 -
f - selling first mortgage bonds."--92/ This is not the record of a Company that has exploited monopoly power to reap high profits. On the contrary, this record further confirms that L the Company does not possess such power. r D. The Bottleneck Theory. Our adversaries place great emphasis on the so-called t " bottleneck" theory in their efforts to show that Consumers 93/ [- Power Company possesses monopoly power.-- As bulk power alter-( natives that it can withhold from its neighbors through its
" bottleneck" power, they point variously to (1) the Company's transmi,ssion network and (2) its ability to construct large r-i nuclear units and (3) its coordination arrangements. In this i effort, they both strain the facts of record and seek to evade the requirements of antitrust law.
The record of this proceeding demonstrates that these f alleged " bottleneck" alternatives are not necessary to the fi-r ( nancial and competitive viability of the smaller systems and
- that the " bottleneck" theory of antitrust law which our adver-saries seek to invoke is not applicable to this case. Indeed, the application of the theory which they espouse would promote 92/ Consumers Power Co., MPSC Case U-4576 (Sept. 16, 1974), pp. 23-24. ,
93/ Department's Appeal Brief at 31-36; Intervenors' Appeal l
- -
Brief at 93-96, 119-34; Staff Appeal Brief at 51-59. l
I 7
- 105 -
l cartelism, not competition, and thus be inconsistent with anti-F'
! trust law and policy. ;
- 1. Transmission as a " Bottleneck".
Consideration of the Company's hypothetical " power" to deny others access to its transmission network must be framed by an awareness that the Company has, in fact, qcanted the only specific requests for wheeling it has ever received -- one of the requests coming from four intervening parties in
; 94/
this proceeding. - Thus, at the very time that our adversar-les seek to conjure up images of the Company strangling its smaller neighbors through its transmission policies and prac-tices, the Company is actually wheeling power to four such neighbors from Detroit Edison Company, a large investor-owned 95/ utility serving eastern Michigan.-- Moreover, in resoonse to issues of access raised for the first time in this proceeding, Consumers Power has committed itself on the record of this 94/
~~ Exhibit 12,023; Exhibit 11,109, Amendment No. 4, Schedule D, sections 3.12-3.13, Schedule F, sections " 3.12-3.13, Amendment No. 6, Schedule G, sections 3.12-3.13.
95/ See Section IV-C-1, infra. While the Hearing Board con-cluded on a factual record it deemed "not very satisfac- _ tory" that Consumers Power had not always been willing to wheel firm wholesale power, (Initial Decision at 142,
. NRCI 75/7 at 99), it did so principally in reliance on testimony by Mr. Keen of Wolverine Coop, whose meaning the Board clearly (though understandably) misapprehended. . 4 we w - -. ,-, q - -
y r - 106 - f proceeding to a wholly reasonable policy concerning wheeling I which makes available a broad range of bulk power supply 96 i' alternatives.~ / I Against this background, the other parties' conten-I tion that Consumers Power possesses monopoly power through its ability to withhold transmission services must be care-
. fully appraised. We understand our adversaries to argue that
(- (a) their competitive viability is jeopardized without access to bulk power supply from systems other than Consumers Power I and (b) they cannot obtain such supplies from others without access to the Company's transmission system. As the Hearing .~ Board found and as the record confirms, both of these conten-tions are plainly incorrect. First, we have previously demonstrated that smaller systems which self-generate and coordinate with Consumers Power or which purchase some or all of their bulk power from - 97/ the Company are competitively and financially successful.--
. In other words, assuming arguendo that without access to the Company's transmission facilities a small system cannot obtain ~
96/
~~
See Section IV-C-1, infra; Tr. 8106-07. For examole, the Staff conceded below (Staff Post-hearing Brief at 74) that the Company's wheeling policy provides for coordination be-
' tween small systems that are not themselves interconnected.
92/ See section Irr-C, supra. n
-.-- =. .- . . .
L -. ree
- 107 -
bulk power supply froni other systems, these circumstances do f not adversely affect competition in the lower Michigan elec-tric industry. Thus, Consumers Power's hypothetical ability p to deny one possible (and plainly secondary) bulk power supoly alternative to the smaller systems in its service area cannot be equated with monopoly power. As the Hearing Board noted,
"[t]hese smaller utilities have 'the make or buy from Appli-j 98/
t cant' option."-~ Indeed, in addition to the fact that they are already competitively and financially successful, there is no record evidence that wheeling would appreciably lower i the bulk power costs of those systems. i The only evidence at all in this area are self-r serving statements by small system managers and their consul-tants that access to the Company's transmission system is 99/ desirable because it adds another power supply option.-- u h 98/ Initial Decision at 164-65, NRCI 75/7 at 106. 99/ The Department quotes at length (Appeal Brief at 62-69) from the testimony of representatives of six small sys- [ tems (Messrs. Steinbrecher, Keen, Fletcher, Munn, Brush u and Wolfe) for the self-evident fact that they cannot engage in coordination or wholesale transactions with far-distant systems without wheeling. But none of the
," witnesses claimed an inability to compete successfully with Consumers Power as a result of this situation.
Mr. Brush, Lansing's manager, did remark that "If the City of Lansing is to ever participate in nuclear power we are going to have to have the benefits of wheeling."
~
Tr. 2292. But what Mr. Brush obviously meant by " wheel-ing" is delivery of electricity from a plant constructed _ as a joint venture with Consumers Power, not the kind of wheeling fro.m distant utilities that the Department's brief discusses in this passage.
,, Footnote continued --
.~. -
- 108 -
Of course, businessmen always prefer to expand their options; but that preference without more hardly transforms the hypo-thetical ability of a competitor to deny one possible option among many into monopoly power. L Footnote continued -- Nor does witness Mayben's testimony cited by the Depart-ment (Tr. 2770) claim that wheeling from distant sup-pliers is significant to the smaller systems. He refers rather to the supposed desirability of interconnection with Consumers Power and access to nuclear generation.
-. As the Department concedes, Mr. Mayben's testimony quoted in its Appeal Brief at 69-71 was based solely on " studies he had conducted in other parts of the country." (Tr. 2771 ~
quoted at Department's Appeal Brief at 70). The Hearing Board was also skeptical of Mr. Mayben's capacity to tes- _ tify as to this matter as is shown by the following ex-change between Judge Clark and Mr. Mayben: F MR. CLARK: ****
- "You say you are not familiar with these systems?
THE WITNESS: Not in detail, your Honor. I have not conds.cted a detailed study of exactly what generating units they have, what condition they are in, whether they operate in a base load mode or a f-L peaking mode or an intermediate mode. This sort of thing would be required to
- {; really begin to get an understanding of the power supply requirements now and in the future of a coordinated group such as the MC Pool." [ I_d . )
The testimony of Mr. Wein and Mr. Helfman quoted at De-
- partment Appeal Brief at 71-72 do not relate to wheeling but are merely comments on the undisputed fact that the smaller systems would be disadvantaged if each were re- ~
quired to operate in isolation. In fact, no Michigan system operates in isolation. Tr. 924 (Westenbroek); _ 8458 (Mosley). m
- 109 -
Second, there is ample evidence that many small systems within Consumers Power's service area are in fact able to obtain bulk power supply arrangements with third-party sys-tems without access to the Company's transmission system. As the Hearing Board emphasized, the Consumers Power network is
~
primarily used to support the Company's internal operations and only to "some extent" to carry out coordination arrangements. 100/ Thus, the references in the other parties' briefs to the un-101/
,_ desirability or impossibility of " duplicating" the Company's transmission network are simply irrelevant since far more
~
limited connections permit the smaller systems to obtain bulk power from other parties. More relevant is the Hearing Board's conclusion that the MMCPP pool is clearly "quite self-s.atisfied" with its own 102/ _ present and projected transmission network through which four small systems (utilizing a 1182 mile transmission network which 4 103/ stretches approximately 200 miles from end to end),
~
engage in
~
100/ Initial Decision at 138, NRCI 75/7 at 97. Detroit Edison Co., FPC Dkt. No. E-7906, Opinion No. 748, Opinion & 7- D? der Determining Rates at 9 (Dec. 30, 1975). I L 101/ See e.g. Department's Appeal Brief et 77; Staff Appeal r Brief at 56.
}
u 102/ Initial Decision at 139-40, 7R ", ' 7 at 98. The Hearing Board premised its holding ire part on the demeanor of Mr. Steinbrecher. i 103/ Tr. 1285-86, 1293-95 (Steinbrecher); Exhibit 20. f F ' Ww
, , r--* e-
- 110 -
bulk power exchanges and coordinated planning without utilizing the Company's transmission system. The Board also found that every other smaller system capable of coordination could econ-omically connect and exchange bulk power with systems other than Consumers Power without unreasonable expense. Initial Decision at 140, NRCI 75/7 at 98. For those systems, the Board continued, "(a] bout all that can be said in favor of wheeling over Applicant's system is that it might possibly 103a/ be cheaper. Also, it could be more expensive." In the process of attacking the Board's findings in this regard, the Department of Justice actually helps demon-strate their validity. The Department's argument that inter-connections are not economically feasible rests on its state-ment that Lansing would have had to spend $600,000 and Holland
$200,000 to make direct connections with third party systems.
,, Department's Appeal Brief at 77. While these may be large sums of money in absolute terms, it is not an inconceivable or even a substantial capital expenditure for a system such 103a/ Id. The Department of Justice (Appeal Brief at 77-79) seeks to refute the Board's judgment with the wholly unsupported suggestion that extensive wheeling could be accommodated indefinitely on the Company's transmission network without any expansion of the Company's facilities and that therefore no expansion of capital investment would be called for.
-m_. OW
E
.1 4
T-
- 111 -
t F as Lansing which is currently contemplating committing $56
- 1. 104/
million for a new generation plant .or Holland, whose total r 105/ i utility plant in 1974 was valued at $21 million.
- p. Equally specious is the Department's argument that I
such interconnection arrangements would be insufficient because F they would not provide for " transactions in the regional power exchange from which significant cost saving in generation can
- p. -106/
1. be achieved." Although the Department refers to this highly technical engineering proposition as " demonstrated," they cite e no evide ce at all for it and the Hearing Board expressly found p L 104/ Exhibit 12,008. 105/ 1974 Annual Report of Holland Board of Public Works, FPC [- Form 1-19,,page 3, line 2. Holland's 1974 electric oper-c ating revenues were $4 million. Supra at page 3, line 50. This Report is on file with the Federal Power Commission and we request official notice of it pursuant to Section
2.'J43(i) of the Commission's Rules of Practice, 10 C.F.R.
S2.743(i).
~
The Department has also.not demonstrated that the extreme 2 case of building a line from Coldwater to the MMCPP Pool, entailing a capital expense of $2 million, would be out of line for those systems. The contrary " expert" tes-
" timony of Mr. Mayben, quoted at great length at Depart-ment's Appeal Brief at 69-71, was admittedly based on
" studies he had conducted in other parts of the country."
Mr. Mayben made no study of Michigan and, indeed, seemed uncertain even of the rudimentary geography of the state. r 106/ Department's Appeal brief at 74. Mr. Mayben, the Depart-it ment's witness on coordination, testified that Consumers Power was "a regional exchange in itself." Tr. 3709. P t i I, ?. L. - ! f.~ L
. ... . . . - - ~ - . - , ,
- _ . - . .-. . - - . ~ - . . , . . . . . - - , - - -. . ,- ..
- 112 -
l _. 107/ to the contrary. On its face, it is hardly self-evident i that financially successful systems which have built or can
., build direct connections and which engage or could engage in coordinati 2 among themselves or with Consumers Power on FPC-mandated terms also need access to bulk power supplies from I distant large systems. Indeed, the fact that many systems have not chos'n e to exercise the interconnection options avail-able to them belies their allegations that their present
- arrangements are as disadvantageous as they claim or, even disadvantageous at all.
r- Through citation to the district court decision in United States v. Otter Tail Power Co., 331 F. Supp. 54 (D. r- 108/ Minn. 1971), our adversaries also suggest that a utility's _. transmission network must be deemed a " bottleneck" as matter t_ of law. But that bottleneck analysis was not adopted by the 109/ [f Supreme Court on appeal. While there were important reasons of antitrust policy for the Court to abjure that approach,
- r. , 110/
- as we shall later describe, there are key factual reasons L
r, 3 107/ Department's Appeal Brief at 74; Initial Decision, p. 140, NRCI 75/7 at 98.
~
108/ Since the Department cites only to " Otter Tail, supra," _ Department's Appeal Brief at 32 n. **** , 35, its reli-ance on the lower court's decision rather than that of the Supreme Court is not explicitly evident.
~
109/ 410 U.S. 366 (1973). See pp. 63-68, supra.
~
110/ See paragraph 4 of this subsection. PM . essee
k-p- 113 -
'l
- as well. Most pertinently, as the Court noted, Otter Tail's i
attempted stranglehold over bulk power supply was pried open F 111/ by the Federal Power Commission. i., Moreover, even if the district court's bottleneck analysis in Otter Tail is credited, the facts of the two cases are so different as to render that analysis inapplicable here. Otter Tail concerned the fate of villages facing the imminent denial of any outside assistance for their unreliable electric
~~
_ 112/ systems. T,y contrast, here the complainants are highly successful electric suppliers with several bulk power options who are simply casting about for additional bulk power op-113/
." tions. It may be that Otter Tail's multi-faceted predatory 114/
ir practices and the absence of state regulation in Minnesota
"~ 115/ ,
and South Dakota gave it a temporary ability to deny the w 111/ See Village of Elbow Lake v. Otter Tail Power Co., 40 r FTF.C. 1262 (1968), aff'd sub nom. Otter Tail Power Co. g, v. FPC,'429 F.2d 232 (8th Cir. 1970), cert. denied, 401 U.ST Y47 (1971); Village of Elbow Lake v. Otter Tail Power
-. Co., 46 F.P.C. 675 (1971), aff'd as modified sub nom.
5tter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973). 1 Another reason for the inapplicability of the " bottle-e. neck" model in Otter Tail was the existence of alternate
- transmission facilities owned by the Bureau of Reclamation whose unavailability to the small municipalities was not due to any structural factor but rather to predatory con-duct by Otter Tail. 410 U.S. at 378.
112/ 46 F.P.C. at 676-78.
, 113/ See Section III-C and pp. 108-112, supra.
\
_ 114/ See pp. 65-69, supra. 115/ See p. 67, n.89, supra. I ..W
. - - . - , - - - , - , , , _ .--,e ,- ---~v.
!~
I. t F t
-- - 114 -
P-villages all feasible sources of power supply until the FPC [, issued its emergency order but that conclusion is obviously inapplicable to the wholly different context of the instant case. { In sum, it is clear that the Hearing Board was cor-rect in holding that the Company's transmission facilities 4 were not a " bottleneck" to the smaller systems. _ 2. Nuclear Generation As a " Bottleneck." l
!! Upon examination, the contention that nuclear gen-eration is a " bottleneck" resource proves equally insubstan- "~ 116/
tial. To begin with, as the Hearing Board held, the re is r-no substantial evidence that the smaller systems are unable to construct a nuclear plant by themselves. Six of the small sys-
. tems are considering construction of a large focsil generation plant; consisting of units up to 350 mw and, as the Board noted, there is no credible evidence that these units could 117/
; not be nuclear.
L. 116/ Initial Decision 172-74, NRCI 75/7 at 110-11. 117/ See Exhibit 12,017. Initial Decision at 174, NRCI 75/7 at-111. The commercially licensed Fort St. Vrain nuclear
;
plant in Colorado (Public Serv. Co. of Colo. (Ft. St. Vrain Nuclear Generating Station), NRC Dkt. No. 50-267)), has 330 mw units. The smaller systems also retain the 3 option, never previously exercised, of proposing coor-
- dinated development of generation facilities in a timely fashion with Consumers Power Company. See subsection IV-B-4-c, infra.
I I / - 115 - [' But even if tnor;e systems cannot by themselves con-struct a nuclear plant, se circumstance hardly demonstrates y-s the existence of a " bottleneck." Rather, to make such a show-7 ing, they must demonstrate they have been denied a resource 1
' 118/
essential to their economic or competitive well-being. On the facts of this case, our adversaries have failed to make 2 any such showing. Specifically, there is no evidence the _ nuclear generation capacity which Consumers Power constructs _ is, or is likely to be, significantly cheaper than fossil l' generation which the smaller system can construct. 119/ In fact, the only concrete evidence of record com-paring the actual cost of bulk power alternatives for smaller, neighboring systems demonstrates precisely the contrary. That
, evidence is contained in an elaborate study prepared f or the m Lansing system in 1973 by its engineering consultants (Exhibit 120/
12,008). According to this study, and testimony about it d 118/ See paragraph 4 of this subsection infra. 119/ Initial Decision at 120-21, NRCI 75/7 at 90-91.
~
120/ This is the only record evidence bearing on this issue. The evidence offered by the Department's witness Helfman [ Exhibits 200-203] does not purport to analyze costs of nuclear and fossil-fired base load generation on a func-
. tionally comparable basis , but rather to illustrate the relative _ benefits of coordination on various assumptions,
_) including (cases III and IIIA) purchases of unit power f rom Consumers Power's Midland plant. More specifically,
; the Helfman evidence does not compare the cost of such ~~
nuclear unit purchases with the cost of producing com-parable amounts of power from a fossil-fired plant that
; would be owned by municipal and/or cooperative systems, t
a m
?
- 116 -
r-by Lansing's system manager, the difference between average per kwh cost of Lansing constructing a fossil-fired plant (Plan 3B) and a functionally comparable plan involving its purchasing a unit share of capacity from a nuclear plant f^I 121/ (Plan 4) is less than 2 _/2%. Because a difference of 7- two to three percent is well within the range of engineer-I ing error as Lansing's manager conceded, the fossil-fired and nuclear unit purchase bulk power alternatives analyzed in 122/ the study are comparable from a cost standpoint. In an attempt to refute this highly specific evi-
,. dence, the opposing parties point to a potpourri of outdated and off-the-record data regarding the cost of the Midland Units and nuclear generation generally. Instead of presenting expert witnesses or cross-examining the Company's witnesses in
~
this regard, the Department of Justice has chosen to rely on 123/ - the 1968 projections used in the FPC's National Power Survey u and an equally out-dated 1971 study prepared for the Midland L .. f t 121/ This figure is derived from the following calculations l ', 5 'a utilizing data from page 5-4 of the study: 12.41 divided by .28 (12.64 minus 12.41) equals 0.24; and 11.65 divided by. 28 (11.93 minus 11.65) equals .0225. Exhibit 12,008,
- p. S-4; Tr. 2452-53, 2458-59 (Brush).
' ~g 122/ Tr. 2483 (Brush). 123/ Department's Appeal Brief at 143. ia
.4
=sen
, _ , _ _ , . _ , , _ . *P " ' ' ' ' '
7'"'P'
l'*
!i
[ - 117 - 124/ [, Section 103 proceeding by Consumers Power Company. Had the
\
r-question of comparative unit cost been reviewed in light of to-
;, day's circumstances, we anticipate that the increase in fossil fuel prices since the aforementioned data were compiled would be exceeded by the extraordinary increases in costs of nuclear fuel 125/
T' I as well as in construction and financing costs. The spate of recent cancellations and postponements of planned nuclear r, 125a/ units (including the cancellation of Consumers Power's only pending application to build additional nuclear plants) I provides a powerful indication that had the other parties sought 124/ Applicant's Supplemental Environmental Report (Exhibit 236) cited in the Department's Appeal Brief at 143. The Depart-ment fails to note that this Report was submitted to the _ Commission on October 19, 1971. i As an indication of the degree of obsolescence reflected
"" in these 1971 figures, at that time the estimated capital cost of the electrical capacity of the Midland Units was
~)
$430 million, or $331 per kw (Exhibit 236 at 5.2-4). On
[i April 2, 1974, Mr. Mosley testified in this proceeding that, as of March 1974, Midland's anticipated capital costs 3 were $569 per kwh or almost twice the 1971 estimate upon which the Department relies. Tr. 8532 (Mosley). This " expert Board is doubtless aware that those costs have risen further since. 125/ Construction and financing costs are especially crucial for nuclear generation which is extremely capital inten-sive. Tr. 2558, 2560, 2808 (Mayben). j 125a/ Among the most recent cancellations reported to this Commission were Detroit Edison's Enrico Fermi plant, Unit 2; ~~. Louisiana Power & Light's St. Rosalie plant; South Carolina " Electric & Gas' Virgil C. Summer plant, Unit 2; Delmarva Power & Light Company's Summit Power Station (NRC Dkts. Nos. 50-450 and 50-451); and Florida Power & Light's-Orlando plant. s 4 1-es==
l~ I U (:
- 118 -
c-I .
;'
out up-to-date data, they could not demonstrate significant cost advantages for nuclear generation over the fossil gen-4 eration which is readily available to systems of all sizes
$ in the area.
126/ Similarly, the suggestion of the other parties r' I that the Midland units represent an economic windfall to Con-sumers Power finds no support in the record. Indeed, Company witnesses Aymond, Jefferson and Mosley testified that it was not even certain whether or not Midland power would be more costly than the Company's average system generation costs when 127/ Midland comes on line. The only caveat to this line of
, testimony was witness Aymond's observation that Midland would be the " lowest cost facility" of future units because "construc-tion costs keep going up all the time." Tr. 6352-53 (Aymond).
m This conclusion, not tied to the fuel source used but to the { timing of construction, should not, however, be mischaracter- l ized as support for the view that the Midland Units or nuclear
!- generation generally is somehow uniquely economical. Indeed, the Hearing Board concluded:
"On this state of the evidence. . ., the relation of cost of power from Midland to Applicant's system average cost is speculative but the chances are that Midland costs will exceed Applicant's 126/ See, e.g., Department's Appeal Brief at 148. *
)
'=' 127/_Tr. 6352 (Aymond); 8434 (Jefferson); 8532-33 (Mosley). I
- a 4
esaum _ ~_
p. i
\
- 119 -
[ e-p average system cost. Certainly, there is no evi-dence that Midland power will be cheaper." 128/ f- The final and perhaps most extreme economic argu-ment for the smaller system's need for nuclear generation is
'l the putative future unavailability or high price of fossil e i 129/
fuel. This contention, not supported by any serious ex-r- i amination of fossil fuel markets, wholly fails to exclain why
-. Consumers Power is constructing 2100 mw of additional coal 130/
and oil-fueled base-load capacity and why several of ite { m_ smaller neighbors are considering construction of several 131/ 350 mw coal-fueled units. Moreover, the projection of the 1970 National Power Survey, cited in the Department's Appeal Brief at 143, that m nuclear fuel will retain or expand its then anticipated cost advantage over fossil fuels had not been borne out in a period of skyrocketing energy costs not forseen in 1970. For example, I m.
.I:s L 128/ Initial Decision at 119, NRCI 75/7 at 89.
i 129/ Department's Appeal Brief at 143; Staff Appeal Brief at
- 68. Of course, if fossil fuels become so scarce that the smaller systems are unable to generate, it is doubtful i -- that Consumers Power would not also experience a lack of fossil fuels and, therefore, have little nuclear 7i capacity to spare. See Tr. 4243.
~
130/ Tr. 9188; Initial Decision at 122, NRCI 75/7 at 91. l 131/ Exhibit 12,017; Tr. 4274 (Fletcher). lx l ~'e 'm
- , . , , - . - - . , , , , - - - , ,, ,-r- * ' w-r w-
,[
- 120 -
p the Federal Energy Administration's 1974 Project Independence Report (at 283-88') forecasts little or no cost advantage for nuclear generation'over coal and notes that protracted lead times and heavy financing demands of nuclear plants outweigh I' 132/ any possible cost saving. Thus, economic support for the r-view that. nuclear generation provides unique advantages to 133/ its owners is simply not available. Moreover, even.if nuclear generation were to provide significant economic advantages to Consumers Power Company, I'
; those advantages are available in precisely the same proportion to the smaller systems through wholesale purchases. As the Hearing Board held, wholesale purchases provide full and appro-priate access to any economies attainable through nuclear gen-I
',_ 134/ ' eration. All the Company's cost experience, including ! lJ 132/ This Board may take notice of the pendency of thirteen suits against Westinghouse Electric Corporation growing
] out of its unilateral abrogation of contracts to deliver d' nuclear fuel. In re Uranium Contract Litigation, MDL No. 235 (E.D. Va.).
133/ See for example, Mr. Mayben's progressively more equivo-cal characterizations:
" nuclear power does hold out [1] a promise l of low-cost power supply, [2] at least the
~ lowest or [3] among the" lowest expanding l' into the future. . . . Tr. 2825, cited at
]: Staff Appeal Brief at 68. (Brackets added.)
' 134/ Initial Decision at 175-76, NRCI 75/7 at 111-12; Tr. 27 after'7224 (Stelzer), 63-64 after 7239 (Pace). '
\
C l - 121 - s {' any cost savings attributable to nuclear generation, are
\
passed through in those rates which are, of course, subject i 135/ i to FPC regulation. Thus to the extent those benefits are not
,, obtained by some small systems, it is not because of any power i
\ exercised by Consumers Power, but by "the choice of the manage-(' ment of the smaller utilities. " Initial Decision at 176, NRCI 75/7 at 112.
7 :- As the Hearing Board fully recognized, once the rhetoric of deprivation is put aside, what is meant by the t
;. nuclear-generation " bottleneck" argument is simply a demand, e- couched in an antitrust guise, for " lower (bulk power] costs
. . . to be made up by charging the remaining customers of 136/
f Applicant higher rates." Thus, it cannot be emphasized too
~
strongly that when the other parties speak of " full access" t [ to nuclear generation, they mean preferential discriminatory
- access to such generation i; and only if it proves cheaper than )!
alternate bulk power options with the cost of such preferential treatment inevitably being subsidized by Consumers Power's =f. retail customers. As the Hearing Board stressed, what is sought is "the right to look things over and choose such par-
, ticipation, if any, the smaller systems desire to have," at
'l m 135/ Tr. 27 after 7224 (Stelzer); 63-64 after 7239 (Pace).
?-
<l , 136/ Initial Decision at 176, NRCI 75/7 at 112.
, i en 5 _ __
1 - 122 - a time " years after Applicant's plans and commitments are 137/
, fixed." $. The second and perhaps principal argument for our
[s adversaries' nuclear generation " bottleneck" hypothesis is (~ emotional rather than economic. For example, the Staff quotes the manager of the Lansing system, whose background reveals 7, no experience with, or expertise in, nuclear generation, to f the effect that: "In my judgment the future of the entire 138/ n l electric utility industry is dependent upon nuclear power." While such emphatic enthusiasm for nuclear generation may have
$^
- . been widespread at an earlier point in the development of nu-139/
I' clear power, it is inappropriate and unjustified today. ,[ The erosion of informed expectations regarding the role of nuclear generation is perhaps most dramatically illus-
)"
trated by comparing the Atomic Energy Commission's declining
) projections of nuclear generation to be installed by 1980 --
roughly the date by which the first Midland Unit is scheduled .! [ to go on line. In 1970, this Commission foresaw 150 million th
}
i 137/ Initial Decision at 146, NRCI 75/7 at 100. 138/ Tr. 2354 (Brush) quoted in Staff Appeal Brief at 68. This y passage is also cited at Department's Appeal Brief at 143. I
) Mr. Brush's background is described at Tr. 2064-67.
139/ See, e.g., the 1970 National Power Survey, Part II at l _' IC59 quoted in Department's Appeal Brief at 143 and Part I at-18-7 cited at Intervenors' Appeal Brief at 9. r*, hI b. I b.
l' I [ - 124 - {' Our point is not totally to discount nuclear power as a future energy source, but to display the lack of evi-den'iary t or other foundation for the emotional claim that nuclear is the " wave of the future." That is, the record I. , . s of this case provides absolutely no basis for a conclusion (~
;
that nuclear generation offers intrinsic qualitative advantages over other forms of electric generation. In this light, the argument that nuclear generation constitutes a " bottleneck" becomes simply another articulation of the access per se l 144/ v approach. p 3. Coordination Alternatives as a Bottleneck. The third and perhaps most surprising " bottleneck" r i allegation concerns Consumer Power's supposed ability to block 145/ the access to coordination of the smaller systems in its [ area. This charge can quickly be refuted. With regard to coordinated operations, the Company 12 currently coordinates with every smaller system in its area [' u capable of coordination, as the Hearing Board expressly recog-146/ nized. Those arrangements provide for essentially all 3
'),
144/ See Section II-D supra.
~
145/ This allegation is made principally in Staff Appeal Brief ,c at 24. See also Intervenors' Appeal Brief at 133-34. i l v, 146/ Initial Decision at 131-134, NRCI 75/7 at 95-96. See l] subsection IV-B-1-b.
'T lJ
, t l w
l'
.(
f - 125 - 5 forms of coordinated operations available under any of the 147/ Company's other coordination agreements. In addition, 148/
!_. as the Staff conceded below, the Company's wheeling policy p facilitates coordination among the smaller systems.
More fundamentally, as we have described, the Fed-eral Power Commission has full authority to order coordinated 149/ s operation and to regulate its terms. The FPC has repeat-
, edly used that power to provide coordination to smaller sys-150/
tems over the strong objection of large utilities. Thus, i our opponents are simply wrong in alleging that Consumers Power Company has unreasonably refused to engage in coordi-nated operations and that it has the power te withhold the benefits of such coordination. 147/ See subsection IV-B-1-b. The only class of transactions not provided for are diversity exchanges which, by def- _ inition, require climatic or time diversity. 148/ See Staff Post-hearing Brief at 74.
~
149 See Section III-B supra.
~
150/ See e.g., Crisp County Power Comm'n. v. Georgia Power Co.,
.- 37 F.P.C. 1103 (1967), 42 F.P.C. 1179 (1969); Gainesville Util. Dept. v. Florida Power Corp., 402 U.S. 515 (1971);
;
+
Village of Elbov Lake v. Otter Tail Power Co., 46 F.P.C.
675 (1971), aff'd as modified sub nom. Otter Tail Power Co.
- v. FPC, 473 F.2d 1253 (8th Cir. 1973); City of Cleveland
' v. Cleveland Elec. Illuminating Co., 49 F.P.C. 118 (1973),
s rev'd in part, remanded in part sub nom. City p_f Cleveland
- v. PPC, F.2d , No. 73-1282 (D.C. Cir. Jan. 9, 1976).
No smaller system has ever initiated a proceeding against Consumers Power Company under Section 202(b) of the Federal
. . . Power Act, 16 U.S.C. S824a(b).
l
..l e
(t s.
- 126 -
We do not read our opponents' briefs to charge a
" bottleneck" as to coordinated development independent of
[ their allegations about the Company's transmission and nu-clear f acilities. Any such allega'tions would be specious since the Company does not generally engage in joint con- [' struction of generation facilities and, in any event, such coordination is manifestly not essential to the continued n 151/ competitive success of smaller systems. This review demonstrates, we submit, that none of
}^
the bulk power alternatives the other parties claim to be { " bottlenecks" is essential, necessary or even particularly important f or the future viability and prosperity of neigh-boring systems. As the Hearing Board found and the Staff 's Brief here concedes, the smaller systems are " viable, growing, 152/ a active competitors of the Applicant" and the re is no reason to believe that Consumers Power can significantly impede their future success by withholding any of the supposed " bottleneck" 3 i4 resources. In sum, Consumers Power has, at.most, a latent
')
n 151/ Consumers Power Company's only jointly-developed facility is the technologically-innovative Ludington Pumped Stor-
,, age facility. As we discuss, infra at Subsection IV-B-
'j. a 4-b, smaller systems were offered an opportunity to participate in Ludington but declined. m. 152/ Initial Decision at 176, NRCI 75/7 at 112; Staff Brief at 67.
.J' .a
f.'
- 127 -
ability to deny the other systems certain non-essential alter-nate supply options -- and this potential has not detracted ($. 153/ f rom the highly successful nature of these other systems. r- There is , of course, nothing unusual or surprising about this situation. Toyota dealers migE like to sell Fords as well, I but Ford is under no duty to sell their product to them: Toyota might like to use Ford's assembly plant but Ford's ability to P 154/ refuae is hardly monopoly power. " [T] he re is monopoly l
. 153/ According to the Intervenors, "it should be stressed here th at the issue is not whether nuclear ownership is pref-erable to other forms of ownership or purchased power . . .
but whether the smaller systems shall have the opportunity to make that decision." Intervenors' Appeal Brief at 55 n.l. The Intervenors stress this point repeatedly. See, e.g., Intervenors' Appeal Brief at 55, 96 and 131. 154/ The Supreme Court in the duPont-Cellophane case was care-ful to explain that, although one firm by definition has exclusive power over the products which it makes or owns, I' this is "not the power that makes an illegal monopoly. " L., United States v. E.I. duPont DeNemours & Co., 351 U.S. 377, 393 (1956). The Court goes on to note that 11 "one can theorize that we have monopolistic competi-tion in every nonstandardized commodity with each
- manufacturer having power over the price and produc-tion of his own product. However, this power that, let us say, automobile or soft drink manufacturers have over their trademarked products is not the power l- that makes an illegal monopoly. Illegal power must ,, be appraised in terms of the competitive market for the product. " 351 U.S. at 393. (Footnote omitted) .
j Thus, the Court attached no antitrust significance to the ~ f act that it may be practically impossible for anyone
._' to commence manuf acturing cellophane without full access to - duPont 's technique. Id. at 392.
Footnote continued -- t d
f i s I - 128 - I' power" only "[w] hen a product is controlled by one interest 155/ i without substitutes available in t he mar k e t . " I 4. The Legal Basis for the Bottleneck Theory. The applicable case law construing the bottleneck { principle fully recognizes that the denied resource must be essential, as a practical matter, to the competitive viability of the excluded firm before monopoly power can be infer red from its control. Thus, in many of these cases, the resource 7; withheld has been a physical necessity, e.g., the only bridge (_, 156/ over the Mississippi River. In the others, the courts have required that the denied resource be "needed in order to 157/ compete effectively". For example, in Associated Press
- v. United States, 326 U.S.1 (1945), the Court stressed the crucial importance of AP's service:
"AP is a vast, intricately reticulated organ-ization, the largest of its kind, gathering ia v'
,q Footnote continued -- h; See also United States v. Colgate & Co., 250 U.S. 300,
.' 337 (1919); Walker Process Equip., Inc. v. . Food Mach. &
3 1- Chem. Corp., 382 U.S. 172, 177 (1965) (even a fraudulent !J patent-holder with obvious total control over a particular product cannot be held to have monopoly power until the
~j court has "[ appraised] terms of the relevant market for 3 the product involved . " ) . ,; 155/ duPont-Cellophane, supra 351 U.S. at 394.
156/ United States v. Terminal R.R. Ass'n, 227 U.S. 683 (1912). 157/ Silver v. New York Stock Exch., 373 U.S. 341, 347 (1963). 1
]
k 1 o. m
-- -v
(
\
r.
- 129 -
news f rom all over the world, the chief single source of news for the American press, universally agreed to be of great consequence." 158/ In contrast , where less significant resources have been with-
; held, the courts have found such circumstances not to be in 159/
consistent with the antitrust laws. As we have noted, the concept is not adopted in the Supreme Court's opinion in Otter Tail Power Co. v. United States, 410 U.S. 366 (1973). The Supreme Court 's reluctance, f, in Otter Tail and in the earlier cases, to extend bottleneck
- concepts to resources which are less than essential has impor-i tant policy underpinnings. As the Department of Justice itself told the Supreme Court in a somewhat dif ferent context, " [i] t is hardly novel that certain competing firms in an industry k
n
>;
45
? 158/ 326 U.S.1,18, quoting the district court opinion, (empha- $ s is added. )
To similar ef fect is Gamco , Inc. v. Providence Fruit & 1 Produce Bldg., Inc., 194 F.2d 484, 487 (1st Cir. 1952), cert. denied, 344 U.S. 817, where the court . stressed that
, "it is only at the Building [the crucial resource] itself that the purchasers to whom a competing wholesaler must sell and the rail facilities which constitute the most economical method of bulk transport are brought together."
(Footnote on itted)
^
159/ Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251 (6th Cir.1970); Savon Gas Stations Number Six, Inc. v. Shell Oil Co., 309 F.2d 306 ( 4th Cir . 1962) ,
~
cert. denied, 372 U.S. 911 (1963). V
,.2 + .r. 7 -p _. . . - , . - , , , . - , - .
l' p.
- 130 - ~, 160/ )' have various advantages over others." The entire competi-tive policy of the antitrust laws is premised on the desira-bility of firms developing and utilizing their particular ;- , competitive advantages. See United States v. Aluminum Co. of Ame r ica , 14 8 F. 2d 416, 450 (2d Cir. 1945).
If competitors were permitted ownership or an equiv-alent share in each others facilities -- simply because that facility is a desirable commodity -- the economic system would become one of stultifying cartelism. In this regard the Hearing Board properly observed that joint ventures are inherently
~
161/ suspect under the antitrust laws. While such obligatory joint ventures may be appropriate for certain unique resources n. (e.g., a news wire service or a stock exchange) they cannot be , , . justified for less-than-critical facilities. If joint ventur-ing becomes the automatic right of the competitor who fears
~
he may fall behind, or has already fallen behind through lack , l of innovation, the competitive market structure will be seri- ,
. 162/
ously threatened. That conclusion obviously has particular m l
-- 160/ Brief for the United States at 21, United States v. Greater Buffalo Press, Inc., 402 U.S. 549 (1971).
161/ Initial Decison at 84, NRCI 75/7 at 72; citing Timken Roller Bearing Co. v. United States,-341 U.S. 593 (1951)
-. and United States v. Penn-Olin Chem. Co., 378 U.S. 158 i -(1967).
a-162/ Cf. Worthen Bank & Trust Co. v. National BankAmericard Inc., 485 F.2d 119 (8th Cir. 1973), cert. denied, 415 a U.S. 918 (1974). r s,)
.-+,,-m , ,, - -- -w. ..- , , . -v,-,.. -y.- - , - , -yv-----. - -+w,,.--- m-- + --
r' 1
- 131 -
l f or ce in a field such as electric bulk power supply where Congress has frequently provided more finely-honed approaches f 163/ [ when it perceived a competitive imbalance. p These policies are also reflected in the fact that a party seeking to invoke the bottleneck principle in antitrust law must prove not only that a resource is essential, but that there has also been injury in fact. The courts have not here-tofore applied the concept to a mere latent capability of deny-
- c. ing a resource, nor inde ed to isolated minor abuses. It is I
only when a competitor actually faces an inability to compete
-- wh en the Chicago Tribune attempts to destroy the Chicago 164/
Sun or the New York Stock Exchange arbitrarily seeks to 165/ destroy Mr. Silver's livelihood -- that the courts have 166/
- stepped in. ',_ 163/ See e.g., SS7 and 202(b) of the Federal Power Act, 16 U.S.C. SS800(a) and 824(b). Rural Electrification Act, q 7 U.S.C. S901 et. seg. (see especially SS930-980, added ., by P.L. 93-32 (1973)). Congress rejected an effort to provide automatic preferential access to nuclear genera-tion. S. 2564, 90th Cong. 1st Sess. (1967) (Kennedy-Aiken l bill).
164/ Associated Press, supra. a 165/ Silver,' supra. 3 166/ As the court noted in I . Haas Trucking Corp. v. New York
- Fruit Auction Corp., 364 F. Supp. 868, 873 (S.D.N.Y.
J 1973) with specific reference to Terminal R.R. Ass'n. and Gamco, "the defendants f ailed to justify their actions [and) evidence of predatory intent was clear." 1 . a! now
('i
- 132 -
h Finally, except for the district court opinion in Otter Tail, whose rationale was not approved by the Supreme ( Court, no court has applied bottleneck concepts to the facil-167/ F- ities of a single firm. The Department of Justice suggests 168/ that th is f act is mere happenstance. In fact, as the Hear-I ing Board noted in its review of the bottleneck theory, the 169/ distinction derives f rom important policy considerations.
-~
Thus, the antitrust laws recognize that a company or ind ividual c may engage in activities to create an edge over his' competitors i which might be illegal if done in concert with others. A more i restrictive standard of conduct for an independent competitor would necessarily stifle private initiative which the antitrust r laws are designed to promote. In sum, not only does the " bottleneck" legal theory proposed by our adversaries misconstrue the law, but the
" theory" itself is inapplicable to the facts of this case. . .O E. Market Shares.
Our opponents' other arguments concerning monopoly m power are striking in their tailu re to offer a cogent assess-
, ment of whether the Company has the power to control price or
_ 167/ United So-ces v. Otter Tail Power Co. , 331 F. Supp. 54 (D. Minn. 1971). a 168/ Department's Appeal Brief at 32.
. 169/ Initial Decision at 92-94, NRCI 75/7 at 76-78.
,w
*-W m e-m -
r
- 133 -
l' exclude competition in any relevant market. In lieu of such an assessment, the other parties approach the issue mechanis-l tically relying exclusively on statistical calculations.
~
170/ Thus, the Department of Justice merely offers what 171/ we believe to be a f aulty bulk power market definition, finds the Company has a high percentage of one such market, and then urges this tribunal to equate that number "automati-cally" with monopoly cower. The statistical monopoly power 172/ 173/
-. arguments of the Staff and the Intervenors are even more simplistic: they would find monopoly power in the bulk
~
power market solely by reference to the self-evident fact that within its service area the Company makes a high percent-age of all retail electric sales and that the Company's trans-mission facilities are considerably more extensive than those of its smaller neighbors. T; It is our position that each of these theories nec-essarily fails since market share statistics are essentially irrelevant to an assessment of monopoly power in the circum-stances in which this case arises. Market share percentages 170/ Department's Appeal Brief at 55. ) 171/ See Section III-F, infra. 172/ _ Staff Appeal . Brief at 51. 1 I . 173/ Intervenors' Appeal Brief at 54-63. j j
- 2
r-
- 134 -
[ are of ten used in cases arising both under Section 2 of the Sherman Act and Section 7 of the Clayton Act as evidence of the market position of a firm. However, although there is case law to the ef fect that a market share of 80 or 90 per-I_ 174/ cent permits an inference of monopoly power, the Supreme Court has never permitted monopoly power to be inferred from a statistically dominant market share except in unregulated l- industries where prices and entry are controlled exclusively 175/ by competition. l - Thus, the Court has warned that "[o]bviously no 7 magic inheres in numbers [ reflecting market share becauce] the relative effect of percentage command of a market var ies
,. 176/
with the setting in which that factor is placed. '" Recent Supreme Court cases have made clear that this principle applies m 174/ United States v. Aluminum Co. of America, 148 F.2d 416, l' 424 (2d Cir. 1945); United States v. Grinnell Corp., 384 U.S. 563, 577 (1966); American Tobacco Co. v. United
,_ States , 3 28 U.S. 781, 797 (1946).
lO 175/ See American Tobacco Co. v. United States, supra; United States v. Grinnell Corp., supra; see also United States -{~ tr . Aluminum Co. America, supra. 176/ Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 612 (1953) quoting United States v. Columbia Steel Co., 334 U.S. 495, 528 (1948). While a court "gives some weight , [, it] considers other to the . . . percentage . . . l factors as well." United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 343 (D. Mass. 1953), aff'd per
- a curiam, 347 U.S. 521 (1954). See Emhart Corp v. USM Corp., 1975-2 Trade Cas. 160,539 at 6 7,371 ( D. Mass.
{ Footnote continued --
- d
,n ,
f. 4 r-
- 135 - ). .
[' particularly where there are economic and legal restraints upon competition in the relevant market. r-United States v. General Dynamics Corp., 415 U . S . i o
,_ 486 (1974), a Clayton Act acquisition case concerning the coal industry, involved economic curbs on competition. Oh ,
l~ the question of whether the acquired firm possessed a " prob-able future ability to compete", the Supreme Court stressed that the district court had found , inter alia, that the reductian in the ~ number of competitors in the coal industry i - Footnote continued -- October 14, 1975), rev'd on other grounds, 1975-2 Trade Cas. 160,598 (1st Cir. Nov. 7, 1975) in which Judge !. ~ Wyzanski again stressed that the finding of monopoly [< power in United Shoe was premised on consideration of such " factors in United's market power in relation to actual and potential competitors [and] its then relatively strong capital position, its facilities for research and its capacity to develop new machine -types." See also l Pacific Eng'r & Prod. Co. v. Kerr-McGee Corp. , 1974-1 i Trade Cas. 175,054 ( D. Utah 1974), declining to premise
" a determination of monopoly power on market' share data
, _ but rather making a direct and specific analysis of whether the accused nonopolist had the power to control
. prices or exclude competition; United States v. Inter-national Business Mach. Cor?., 1973-2 Trade Cas. 174,613 (S.D.N.Y. 1973), (" market saare is no holy talisman that
-, alone determines whether a defendant has monopolized an industry.") Cf. Treasure Valley Potato Bargaining Ass'n
! - v. Ore-Ida Foods, 497 F.2d 203, 209 (9th Cir. 1974), cert.-denied,-419 U.S. 999 (1974), in which the Ninth
~~ Circuit af firmed a. finding that the defendant lacked monopoly power even though the trial court had f ailed to determine the. relevant market and the relative market la shares, and Pacific Coast Agricultural Export Ass'n v.
I Sunkist Growers, Inc., 1975-2 Trade Cas 160,617 ( 9th Cir.
. November 11, 1975), in which that court found monopoly power _ through direct analysis of market structure despite a-relatively low market share.
,+: >a n n,.- , .,_,.. _ , , - _ ,, -c._- , , - -
7.
- 136 -
wasthe result of " inevitable" economic forces and th at the acquired firm "was far weaker than the aggregate production
, statistics relied on by the Government might otherwise have 177/
m indicated." In this light the Supreme Court concluded that the district court had properly:
" held that United Electric [the acquired com-pany] was a f ar less significant factor in the coal mar ket than the . . . production statistics seemed to indicate . . . . Irre-spective of the company's size when viewed as a producer, its weakness as a competitor - was properly analyzed by the District Court and fully substantiated that court's conclu-sion. . . ." 415 U.S. at 503-04.
In United States v. Marine Bancorporation, 418 U . S . 602 (1974), the Supreme Court followed its holding in General Dynamics that market share data did not necessarily demonstrate _ actual power in the marketplace. In that case, government regu-lation was the factor cited by the Court as barring an inference
~
178/ of market power based solely on market share statistics.
~
Specifically, the Court held a large market share to be an e M4 l
~
, , 177/ 415 U.S. at 487, 492-93, 503. 178/ 418 U.S. at 632, especially n.34. me
p (- r 1 m
- 137 - i j
l f" unreliable indication of market streng th in a bank merger l t case where state regulation lawfully foreclosed or limited r ) 179/ [ competition in the market. The Court emphasized that market share statistics i may be used to draw tentative inferences about market power [. only where there is " unfettered competition" and expressly refused to adopt a conventional market structure analysis 1 l
' because governmental regulatory authorities significantly 180/ l
- restrained competition. The Court also stressed that , '
I t - in regulated industries characterized by barriers to entry 4 i by competing firms, it is "hardly surprising" that one firm t. possesses a statistically high share of the relevant market. r { 418 U.S. at 632. r I L. I'
" 179/ "We . . . hold . . . that the application of the doctrine
[of potential competition] to commercial banking must
- r. take into account the unique federal and state regula-tory restraints on entry into that line of commerce. . . .
"The Government's present position has evolved over a
(~ series of eight District Court cases, all of them de-L, cided unfavorably to its views. The conceptual dif fi-culty with the Government's approach, and an important reason why it has been uniformly unsuccessful in the
" district courts, is that it f ails to accord full weight to the extensive federal and regulatory barriers to entry
_, into commercial banking. This omission is of great im-portance, because ease of entry on the part of the ac-u quiring firm is a central premise of the potential-competition doctrine." 418 U. S . at 627-28. _ 180/ 418 U.S. at 630-32. I kd l-. 6
l' I r-
- 138 -
Even more recently, in United States v. Citizens
& Southsrn National Bank, 422 U.S. 86, 120 (1975), the court 1 again recognized that under the facts of that case "the n
market-share statistics gave an inaccurate account of the ac-181/ quisitions' probable ef f ects on competition. " These are only the most recent of a long line of cases 182/ holding that in markets involving governmental regulation I
~
181/ In a series of earlier cases arising under Section 2 of
., the Sherman Act, courts also recognized that where eco-nomic and legal forces cause a single firm to obtain a dominant market share, that position cannot suppo rt an inference of monopoly power. In United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 34 2 (D. Mass.
1953), af f'd per curiam, 347 U.S. 521 (1954), Judge Wyzanski made clear that there is no monopolization if
- the existence of a monopoly market share is due " solely to . . . licenses conferred by, and used within, the C limits of the law, (including . . . franchises granted ;
_ directly to the enterprise by a public authority)." l (Emphasis supplied). See also Metro Cable Co. v. CATV l of Rockford, Inc., 516 F.2d 220, 228-29 (7th Cir. 1975), l
, wherein a franchised public utility was recognized to be precisely that type of business.
182/ The courts have expressly held that governmental regulation
- may preclude the power to exclude competition or to control price, and thus a finding of monopoly power even where the relevant product market is completely dominated by a single supplier. Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199 (E.D. Mich. 1973); (restraints on power to i . exclude competition); Travelers Ins. Co. v. Blue Cross l i of W. Pa., 361 F. Supp. 774 (W.D. Pa. T972), aff'd, 481 F.2d 80 ( 3d Cir . ) , cert. denied, 414 U.S. 1093 (1973) (re-straints on power to control price). In Travelers, the 1 district court stated:
_ Footnote continued -- l
~.
\ -.
.. f .i .r'
, - 139 - ! or other natural monopoly characteristics, unlawful monopoliza-tion does not result from mere occupation of a dominant market 183/
t position. And, antitrust law has long recognized that [~ in many regulated industry settings, competition is neither Footnote continued --
. . . Blue Cross is not a monopolist, for it r not only lacks control over the rate-making I ef fects normally incidental to lawful com-petition, but is without power to establish its own rates. . . . 361 F. Supp. at 780.
u See also Ovitron Corp. v. General Motors Corp., 295 F. Supp. 373, 377 (S.D.N.Y. 1969): c "Apparently, the Army, as the only user f squad radios, has thus far limited its s ap-pliers to one, i.e., the lowest bidder or, the publicly let procurement contract who met its requirements. If, as a result, mo- ~ ,. nopoly power is acquired, such power would I
;
necessarily reside in any bidder who pre-o valled. I r Plainly, it cannot be said that any bidder I i- on such a Government contract . . . who was successful and has thereby acquired a natural monopoly, has therefore violated .i. Section 2." 183/ United States v. Harte-Hanks Newspapers, Inc., 170 F. Supp. 227, 229 (N.D. Tex. 1959) (The Department of a Justice declined to appeal the ruling in this case); Union Leader Corp. v. Newspapers of New England, Inc. 284 F.2d 582 (1st Cir. 1960), cert. denied, 365 U.S.
> 833 (1961); American Football League v. National root-ball League, 323 F.2d 124 (4th Cir. 1963); John Wright ,. & Associates, Inc. v. Ullrich, 328 F.2d 474, 478 (8th I Cir. 1964); Greenville Publishing Co. v. Daily Reflector, l I n c '. , 49 6 F. 2d 391, 397 (4th Cir. 1974).
hue l .u
140 - to be expected nor encouraged even where it is technically 184/ and economically feasible. This principle is clearly applicable to the elec-tric utility industry. That th is industry has " basic natural 185/ monopoly" character istics resulting both from its inherent structure and f rom regulatory policy is universally recognized by students of the industry -- though seemingly not by our opponents. See Initial Decision at 113, NRCI 75/7 at 87.
- Thus, even the economic advisors to this Commission's anti-trust staff emphasize that:
~
"It is generally recognized th at the scope
- of competition is more limited in the elec-tric utility industry than in other sectors of the economy. Significant economies of h
~~
IP4/ The Supreme Court has held that "[p]rohibitory legisla-
-'~
. _ tion like the Sherman Law, defining tne area within which
'competitior' may have full play, of course loses its
- effectiveness as the practical limitations increase; as such considerations severely limit the number of sep-arate enterprises that can ef ficiently or conveniently, exist, the need for careful qualification of the scope of competition becomes manifest. Surely it cannot be
- said in these sitituations that competition is of itself a national policy. " FCC v. RCA Communications, Inc.,
346 U.S. 86, 92 (1953). See also Hawaiian Tel. Co. v. FCC, 498 F.2d 771 (D.C. Cir. 1974) and General Tel. of S.W. v. United States, 449 F.2d 846, 857 (5th Cir. 1971) (Tuttle, J.) (in " regulated industr ies such as public utilities . . . competition would indeed be potentially harmful.") 185/ Gulf States Util. Co. v. FPC, 411 U.S. 747, 759 . _ (1973).
.a
- M
f
- 141 -
t scale and regulation of the industry have
' limited these opportunities.186/
" In Utility Users League v. FPC, 39 4 F. 2d 16 (7th Cir.), cert. denied, 393 U.S. 953 (1968), the court of appeals
~
i gave decisive effect to its recognition that the assumptions . I made in some industries regarding the interrelationship be-
! tween market share and market power were inapplicable to the electric utility industry because of the presence of regula-tion. The court held:
" Petitioners have shown, in general terms, that the merger will increase Edison's eco-
- nomic power and contribute to economic concen-tration 'in the electrical energy industry. They have not shown how such growth and concentra-tion will aggrieve them. In a market charac-t terized by competition a merger or other ac-1 [,- quisition necessarily injures the consumer
, if it substantially lessens competition. In i, the electric utility industry, where restraints
- on competition are not only tolerated, but en-j- couraged, s ee 16 U . S . C . A. S824a(a), and where rates are subject to federal or state regula-t ion , 16 U.S .C. A. $$812, 824d, injury to the
!m consumer cannot be inferred from a merc er ,
but must be demonstrated." (Emphasis added. )
~
Id. at 19-20. In light of this extensive body of law holding that 3 mark et shares approaching 100% do not necessarily evidence monopoly power in industries with natural monopoly characteris-tics,. it is startling to ' find the Department's Brief asserting: l
,a 186/ Penn, Delaney & Honeycutt, NRC Economic Analysis Section, COORDINATION, COMPETITION, AND REGULATION IN THE ELECTRIC a UTILITY INDUSTRY, NUREG-75/061, at ' 13 (June 1975 ) .
i
.:5 d
- , - ~ . . , , ,,,y,. ,- +. - <- -- ....,,,-c,- ,,,,,~,---,.,,-,e,,,,,,-4,,,,a,v-,,.-, --
,,.ve,--me,,n e- g ., -.-
- 142 -
f "We know of no case where a market share i of the magnitude of 77 percent has not resulted in an automatic inference of r monopoly power. 187/ k Moreover, the principal case cited to support this
" automat ic inference of monopoly power," Otter Tail Power Co.
- v. United States, 410 U.S. 366 (1973), provides no support for I
it. Although they neither quote nor cite any specific pas-sage in the opinion, the Department contends that the Supreme 'I
" Court in Otter Tail clearly rejected Applicant's argument; it inferred market power from a statistically high market 188/
sha re in a retail electric power market . . . . This contention grossly misreads the Otter Tail
, decision. There is literally no reference in that opinion to the proportion of retail sales in the relevant market made by the Otter Tail Power Company. While there is a passing one-sentence reference in the description of the case to the number and percentage of towns served by Otter Tail without . any indication of the size of the loads involved (410 U.S.
2 187/ Department's Appeal Brief at 51 n.*. 188/ Department's Appeal Brief at 54. w* M
r
- 143 -
r at 370), there is simply no suggestion that monopoly power can be inferred from those facts. As the foregoing demonstrates, in regulated, natural
,_ monopoly industries, such as the electric utility industry, the size of a firm's share of a market is at most a point of p depar tu re in assessing the existance of monopoly power. In fact, these legal and economic factors often make it inevita-ble, or at least "hardly surprising" in the words of the Marine Bancorporation case, that only one large firm will be present in a given market area.
The electric industry in Lower Michigan is a classic example of this situation where economic and legal constraints generally preclude competition among existing systems and sig-nificantly discourage the entry of new systems into the market place. These constraints take several forms. 189/ Id. Indeed, the Court makes clear that Otter Tail's market position was not in issue, but rather its con-duct:
"The antitrust change against Otter Tail does not involve the lawfulness of its "
retail outlets, but only its methods. . . . 410 U.S. at 370.
~ In fact, the Court considered only whether Otter Tail's l conduct and market power violated the " attempt to monop- :
olize" provision of Section 2 of the Sherman Act and did ! not address the question of monopolization relied upon l as an alternate theory by the district court. 15 U.S.C. S2. See pp. 63-68, supra.
.1 l~
~
- 144 -
Perhaps the most pervasive constraint is the regu-latory scheme imposed under Michigan and federal law. Michigan law prohibits another utility subject to Michigan Public Service Commission jurisdiction f rom seeking to serve an area presently I-
, served by Consumers Power unless it obtains a certificate of convenience and necessity f rom the MPSC; and the MPSC consistently uses its certificating authority to prevent the
, 190/
duplication of facilities. Even in the unlikely event that a certificate were granted, the MPSC's anti-duplication rules and policies would prohibit a new supplier subject to MPSC jurisdiction f rom serving most of the Company's new and 190/ Initial Decision at 114, NRCI 75/7 at 87. Tr. 979-81 (Westenbroek); 7847; Exhibit 3; MSA 22.141, 22.145; _ Huron Portland Cement Co. v. MPSC, 351 Mich. 255, 88 N . W. 2d 492, 499 (1958); Panhandle E. Pipeline Co. v. MPSC, 328 Mich. 650, 44 N.W.2d 324, 330 (1950), aff'd, 341 U.S. 329 (1951); Michigan Gas & Elec. Co . , MPSC Case U-2468 (1966), (applying these statutes to bar 3 duplicative gas service).
"The introd uct ion in the United States of the certifi-cate of public convenience and necessity marked the growing conviction that under certain circumstances f ree competition might be harmful to the community, and that , when it was so , absolute freedom to enter a the business of one's choice should be denied." New State Ice Co. v. Liebmann, 285 U.S. 262, 282 (1932)
(Brandeis , J. dissenting).
;
a i a 1 l
;
r - 145 - f 191/
;- existing customers. Further, as previously noted, rural I
electrification cooperatives are legally barred by federal I law from initiating service in towns exceeding 1500 in popu-192/ lation. r
, Although the municipal systems are not st;bj ect to MPSC jurisdiction, Michigan law explicitly prevents these systems from expanding beyond areas contiguous to those they served in June 1974 and proscribes the " pirating" of an ex-193/
isting utility's customers outside the municipal's boundary. The franchise laws of Michigan also serve to dis-courage new entrants into the industry. Almost one-half of the Company's customers are served in areas in which the Company possesses a perpetual f ranch ise , while most of the remaining areas are served under 30-year franchises which 191/ Initial Decision at 114; NRCI 75/7 at 87. Tr. 966-66B, 9'82 (Westenbroek); 7860, 7853-54; Exhibit 9. Adoption
~
of Rules Governing the Extension of Single-Phase Electric Service, MPSC Case U-2291 (March 24, 1966). 192/ 7 U.S.C. SS904, 913; Tr. 963 (Westenbroek), 18 after 7239; 7860. See Otter Tail, supra, 410 U.S. at 369, n.l. s 193/ MSA 5.1534, 5.4083, 1975 Mich. P.A. No. 296. WE M W m
[ - 146 - t. 194/ r- are routinely renewed. Thus, as the Department's brief
, 195/
concedes, new competing entrants in the relevant market I~ would generally be required to duplicate the existing dis-1. tribution facilities of the Company and then to " pirate" E the Company's customers in order to enter the market -- even
} ;- assuming that such actions were permitted under Michigan law.
I Another legal barrier to the displacement of exist-
~
ing retail electric suppliers is the ability of the local gove'enmental entity to refuse to grant another supplier the p. 194/ Tr. 10 after 7239, 7866-67; Exhibit 11,306. Replacement of a f ranchised electric supplier through condemnation of its franchise, while not flatly prohibited, is also i made unrealistic by legal limitations relating to condem-L nation. Unlike the condemnation laws of many jurisdic-tions, Michigan law does .not provide municipal governments c with unrestrained powers of eminent domain; rather, before any property can be condemned, a jury or independent com-mission must find that the condemnation is a " necessity" . MSA 8.20, 8.78, 5.1858 (fourth class cities) and 5.1432 f~ (villages). In add ition, the acquisition of a "public utility" must be approved by three-fif ths of a municipality's electorate. Mich . Const . 1963, Art. VII, 525. See Allegan [~~ County, Inc. v. FPC, 414 F. 2d 112 5 ( D . C. Cir. 1969). Even in the event that such a condemnation and acquisition r were effected, principles of utility law would require
+
that the value of the franchise be measured for condemnation purposes by the value of the going business that operated under it. See, e.g., Judge Charles Clark's decision in i United States v. Brooklyn Union Gas Co., 168 F. 2d 391, L. 395 ( 2d Cir.1948); Mississippi Power & Light Co. v. City of Clarksdale, 288 So.2d 9 (Miss. 1973); Monterey Peninsula Municipal Water Dist. v. California Water and Tel. Co . , - 56 PUR 3d 25 2 (Calif . PUC 1964). There is no evidence a public utility franchise has ever been condemned
. in Michigan. See Tr. 7877.
195/ Department's Appeal Brief at 51-52. 4 emes
- , -a.- , - _ , , - - . - , - . - - - . - , , .
~
i r-i
- 147 -
196/ franchise which is a prerequisite to service. For ex-r ample, none of the neighboring municipalities which operate
~
electric systems has offered the Company f ranchise rights
!, 197/
to render general service inside their boundaries and o at least one municipality has contractually committed it-
;. self not to franchise others while its electric systems' 198/
debt instruments are outstanding. Indeed, the Michigan Public Service Commission has formally advised Consumers Power Company that the Commission i has a statutory duty "to restrict the activities of a utility r-m which desires to render service in an area already served 199/ r by another utility. " The rationale for this approach
' is obvious, as the United States Court of Appeals for the I District of Columbia emphasized:
I
'196/ Initial Decision at 114, NRCI 75/7 at 87. Mich . Const .
_ 1963, Art. VII, S29.
' 197/ Tr. 7818; Initial Decision at 114, NRCI 75/7 at 87.
l- 198/ Tr. 4157-58, 4163; Exhibit 12,009 ( ref er r ing to the _ Coldwater system, an intervening par ty here) . 199/ Letter from James H. Inglis, Chairman MPSC to Consumers l Power Company, December 27, 1962, transmitting the MPSC's decision in Consumers Power Co., MPSC Case
- n. U-ll52 of the same date. While this case arose with e regard to gas service, the same statute, MSA 22.141 et seo., applies equally to electric utilities under the MPSC jurisdiction.
r. mee j\ L
- r ll
- u_
r-e p - 148 - L-m "The whole theory of licensing and regulation by government agencies is based on the belief that competition cannot be trusted to do the
- r. j b of regulatign in that particular industry
- which competition does in other sectors of the L. economy. Without in any way derogating the merits of the competitive free enterprise sys-I tem in the economy as a whole, we cannot ac-
; cept [an agency decision] in a tightly regulated indust r y, supported by an opinion
- which does no more than automatically equate the public interest with additional competi-tion." 200/
I i
~
200/ Hawaiian Tel. Co. v. FCC, 498 F.2d 771, 777 (D.C. Cir. g 1974). See also Petition for Amendment of 18 C.F.R. Part 141, 49 F.P.C. 588, 589 (1973), aff'd on other grounds sub m nom. Alabama Power Co. v. FPC, 511 F. 2d 38 3 ( D.C. Cir. 1974); Utility Users League v. FPC, 394 F.2d 16 (7th Cir.), cert. denied, 393 U.S. 953 (1968). Congress has also repeatedly recognized that the electric
- u. utility industry could not properly be viewed in conven-tional competitive terms. See, e.g., the Rural Electrifi-
- cation Act, 7 U.S.C. S901 et seg; the Tennessee Valley Authority Bonding Act, 16 U7S.C. S831; Cf. Hardin v.
Kentucky Util. Co., 390 U.S. 1, 6 (1968)7 I Otter Tail Power Co. v. United States, 410 U.S. 366 (1973)
- provides no support for a view that structural and regula-tory constaints on competition in the electric utility
? industry can be disregarded. There is no such conclusion in the opinion. Even under the extreme facts of Otter Tail, which we have previously described (pp. 63-68, supra.),
- the FPC, while providing the relief which Elbow Lake
! requir ed to operate, stressed that the operation was "an ill-advised excursion into the power business" in which "[a]ll who have been involved -- Otter Tail, Elbow
. Lake and the customers of each -have been the losers."
! Village of Elbow Lake v. Otter Tail Power Co. , 46 F.P.C.
675, 677-78 (1971), aff'd as modified sub nom Otter Tail Power Co. v. FPC, 473 F.2d 125 3 ( 8th Cir . 1973). For these reasons, as well as the gross predatory practices involved in Otter Tail, the f acts of that case in no
..- way control the more typical electric utility situation a presented here.
a M
F-V
- 149 -
I t-Those who operate electric systems within or ad j a-r cent to the Company's service area are cognizant of the 201/
- severe constraints upon new entrants in lower Michigan. ~I't .
For example, one municipal system manager testified that it [~ would be a " losing proposition" to create a system to duplicate the facilities of Consumers Power Company and that he would 202/ rather " roll dicc ' than undertake such a venture. Similarly, _ Michigan's cooperative systems oppose the " pirating" of existing L customers and have proposed measures to the Michigan Public r Service Commission to proscribe retail competition between their electric systems and the Company for all existing and 203/ most new customers. The present and former managers of the Lansing municipal system -- Michigan's largest publicly-owned
. electric utility -- also expressed strong disapproval of compe-204/
p tition between electric systems for retail loads. fl J 201/ Tr. 1055-57 (Westenbroek); 1833-34 (Wolfe); 2260 (Brush); 4552 (Keen). P- __ 202/ Tr. 2039 (Wolfe).
- 203/ Exhibit 9; Exhibit 11 ; Tr . 964-74, 991 (Westenbroek);
4552, 4507-08 (Keen). See Tr. 19-20 after 3979 (Wein); Tr. 7 af ter 7224,10-11 af ter 7224 (Stelzer). Thus,
' many witnesses at the proceeding argued that duplicative competition in Lower Michigan's electric industry a is contrary to the public interest. Tr. 1056-57 (Westenbroek); 1833-34, 2039 (Wolfe); 2258, 2260-61 (Brush); 4552 (Keen); 3998 (Wein); 4982 (Gutmann); 6312
-(Aymond); 15 after 7224 (Stelzer), 7829 (Paul). See also Otter Tail Power Co. v. United States, 410 U.S. 366, 369 (1973) recognizing that "the distribution and sale of electric power at retail" is a " natural monopoly."
w 204/ Tr. 2260 (Brush); 1833-34 (Wolfe). '
~
W
\
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-----e .-.u- . - , 4. , - ,.w-. e- --
r s r
- 150 -
i r, These concerns are not confined to retail suppliers. In testimony sponsored by the Department of Justice in this U proceeding, the system manager of the Northern Michigan genera-I.. r tion and transmission cooperative, which serves only at whole-
'I sale, explained in the following words why he opposes other
- r. systems serving either new or existing loads (i.e. , customers) in Northern's service area:
"We simply cannot have loads served by ,
I the members of Northern f ragmented. North- l ern must have all of the loads, the diversity ) that ex ists in these loads, to improve the ! system load factors, to the benefit of all l the consumers supplied by Northern. P
" Investments have previously been made i
to serve this consumer, and if Northern
'~
agrees to fragmentation of power supply within its service area it obviously can-l'] not do the job it should be doing. " 205/ c-- In sum, the pervasive regulatory constraints and u natural monopoly characteristics of lower Michigan's elec- { tric utility industry not only preclude equating Consumers Powers ' size with monopoly power , but also render it "hardly j surprising" that within its service area the Company is by I C 205/ Tr. 1909-1910 (Steinbrecher). 'In light of such undisputed evidence, the Hearing Board he]d : " Competition at re-m tail is limited because the cost of facilities to serve l
. a customer (distribution lines and related equipment) is so high that duplication of facilities is generally
~-
._ viewed as uneconomic." Initial Decision at 113, NRCI 75/7 at 87.
- p
\
n l-
r
\'
V'
' - 151 -
r-i far the largest firm. Moreover, while existing smaller util-t r ities prosper within this framework, legal and economic con-t' straints discourage new entry and rigidify market position. Consequently, to the extent that the structure of the indust ry f) is considered non-competitive, that structure is not the result 3 , of Consumers Power 's market position. Ra the r , it inevitably emerges from "he legal and economic facts-of-life in Michigan's
;
206/ electric utility industry itself. 7 .. f
> F. Relevant Markets.
As we explained at the beginning of this Section, Consumers Power does not possess monopoly power even assuming arguendo that relevant markets are defined so as to give the Company a statistically high share of sales in the market
- place. Therefore, defining the parameters of the relevant r; mar ke ts is unnecessary to a conclusion that the Company does not possess monopoly power. However, because the Staff and the Department propose what we believe to be an erroneous relevant market analysis, the following paragraphs set forth
_3
. our position in this regard. ~J '~
206/ Cf. United States v. Citizens & Southern Nat'l Bank, g Il2 U.S. 86 (1975). l , lJ
- . _ . __ + - .
y y
P
\
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! - 152 -
e t For antitrust purposes, relevant markets are defined [- in terms of the products which are manufactured, bought and t sold within the market and the geographic areas in which such r-lL J; products are exchanged. The criteria established by the Supreme Court to define the relevant product and geographic
. markets are " essentially similar," i.e., both must correspond 207/
p- to " commercial realities." Th us , as the Court has empha-sized, these definitions are not " f or ma l" or " legalistic"; I rather, the antitrust laws prescribe "a pragmatic, factual approach." c, It has been our position from the outset of this pro-
- ceeding that there were two markets, a retail market and a bulk power market, and that the relevant product market should be defined to include all sources of bulk power supply reasonably available to the smaller systems in the Company's f
service area. We believe that the bulk power market should
,73 include the following products, either singly or in varying -- combinations: 1) bulk power which is self-generated; 2) bulk power which is purchased from one or more systems; and 3) bulk power obtained under coordination arrangements, as a supplement to one or both of the foregoing.
a s 3 u a 207/ Brown Shoe Co. v. United States, 370 U.S. 294, 336-37
] (1962).
g .J 3 m
]~
t
~
- 153 -
r' In this bulk power market, it is clear that Consumers i
"- 208/
Power is not dominant. As the Hearing Board found, in 1972
~\
the smaller systems obtained only 17% of their bulk power needs from the Company; the remainder was obtained from self-generation (70%) and bulk power purchases from other systems 209/ (13%). We understand our adversaries to take issue with our i f' relevant market position in two respects: first, the Department r-and the Staff argue that bulk power obtained from coordination I
,. arrangements should be segregated from the bulk power market 210/
and deemed a separate product market; second, the Depart-ment argues that the geographic market should encompass not only the bulk power supplies of the smaller systems in the Com-pany's service area, but also the Company's bulk power needs l' 211/ which it provides to itself through its integrated operations. ' II s L!
+,
~l O 208/ Initial Decision at 116, NRCI 75/7 at 88; Tr. 7878. , f3 209/ Even gauged by the standards set forth in United States
" v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir.
1945) and other decisions involving unregulated in-dustries, "it is doubtful whether sixty to sixty-four L percent [of the market] would be enough; [as indicia of v' monopoly power]; and certainly thirty-three percent is not."
.? -L 210/ Department's Appeal Brief at 43; Staff Appeal Brief at 21.
211/ Department's Appeal Brief at 44. 8 V 4 9, -
-n:---r-
_ _ _ . . ._ = _ i-r i- - 154 - r-
; In the following paragraphs we set forth our rele-vant product and geographic market analysis in some detail p
(- and explain why the contrary views of our adversaries should
- e. be rejected.
I,
- ; 1. The Bulk Power Product-Market.
'. With respect to the products to be included in the relevant bulk power market, the only dispute among the parties appears to be whether bulk power obtained under coordination ! r- ', arrangements should be included in a single bulk power supply market or whether this s'e ecies of bulk power should be segre-gated as a separate product for relevant market purposes.
1
' At the outset we should note that the precise nature of our adversaries contentions in this area is hardly free from doubt. For example, in its appeal brief the Staff, t_
. contrary to its previous position, argues that coordination [' 212/
! L- power should be deemed a separate market. As authority
< for its newly-adopted view, the Staff merely cites the Initial I
Decision's holding that the parties agreed to limit the issues 213/ of this proceeding to " coordination." This reading of the Initial Decision conflicts with
- ..
the Department's and our own. We agree with the Department
~~i l " 212/ Staff Appeal Brief at 21, compare Staff Post-hearing j Brief at 33. .
l u 213/ Id., citing Initial Decision at 12 [ sic], 35, 45. r.
.g e
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- 155 -
that the Board's holding in this regard referred only to a
, limitation as to the evidence which would be adduced concern- ! s. ing the Company's conduct, not to the parameters of the rel-214/
- evant product market. The Staff's misunderstanding of the Initial Decision is apparent from the fact that the Hear-ing Board analyzed the case " assuming without deciding" that the Company possesses monopoly power -- thus making unneces-sary any ruling with respect to the various relevant markets 215/
definitions proposed below. Certainly, there is nothing in the Initial Decision to suggest that the Hearing Board adopted the relevant market definitions now espoused by the Staff.
. The positions of the Department and the Intervenors are hardly clearer. The Department, in sharp contrast to its heavy reliance below on the coordination-as-a-separate market 216/
theory, now offers no more than a cursory recitation of the [_ 217/ theory with neither record support nor substantive defense. Similarly, while the Intervenors purport to discuss the " Market
% +
214/ Depart'wnt's Appeal Brief at 39. 215/ Initial Decision at 178, NCRI 75/7 at 113. L, 216/ Department's Post-hearing Brief at 61-71; Department's Post-hearing Brief at 54-58. 217/ Department's Appeal Brief at 44. h
r - 156 -
,- for Power Transactions", that discussion is wholly devoid of 218/
relevant market definition principles or their application. 7 In any event, there appears to remain some dispute
\
whether coordination power should be included in the bulk power supply product market. We submit that coordination
., power should be so included and that suggestions to the con-trary fail.to recognize that such power has " reasonable inter-changeability" with other bulk power supply sources.
I Under the relevant market definition criteria estab-- 219/
! lished by the Supreme Court in the duPont-Cellophane case,
, products must be viewed as part of the same relevant product market which have " reasonable interchangeability". In holding products so seemingly different as adhesive saran wrap and i
aluminum foil to be within the same relevant market, the duPont-Cellophane Court explained the " reasonable interchange-ability" concept as follows: 1 "The ultimate consideration in such a deter-mination is whether the defendants control the price and competition in the market for I such part of trade or commerce as they are l charged with monopolizing. Every manufac- ! turer is the sole producer of the particular 1
, ,. 218/ Intervenors' Appeal Brief at 64-72.
, 219/ United States v. E. I. duPont deNemours & Co., 351 U.S.
, j 377 (1956) ("duPont-Cellophane").
- M
(- l ,
'I -
157 - r commodity it makes but its control in the
/ above sense of the relevant market depends upon the availability of alternative commo-dities for buyers: 1.e., whether there is I. a cross-elasticity of demand between cello-phane and the other wrappings. This inter-changeability is largely gauged by the pur-T, chase of competing products for similar uses i considering the price, characteristics and adaptability of the competing commodities."
351 U.S. at 380-81. Later in the opinion, the Court further elucidated the stand-
]' ards for defining relevant markets:
"The ' market' which one must study to determine when a producer has monopoly power l will vary with the part >f commerce under consideration. *he ter J are constant. That market is composed of products that have rea-sonable interchangeability for the purposes for which they are produced -- price, use and qualities considered." 351 U.S. at 404.
1 This decision and later lower court rulings have 1 made clear that " reasonable interchangeability" is measured by the availability of " market alternatives that buyers may [ readily use for their purposes" and does not require that the L 220/ goods be "fungible". Thus, products in the same product
)
. i i
i 220/ 351 U.S. at 394. See also Telex Corp. v. International Business Mach., Inc., 5ID F.2d 894, 917-18 (10th Cir. 1975). 'l-
%, d 4
,+
\
/
- 158 -
221/
' market need not be similar as to such factors as price or 222/
physical characteristics if they are reasonably inter-changeable. For example, in United States v. Grinnell Corp., 384 U.S. 563, 572 (1966), the Supreme Court found "no barrier i to combining in a single market a number of different products i e 221/ In duPont-Cellophane, the price per 1000 square inches of flexible packaging materials found to be in a single indi-visible market ranged from 6.1 cents to 0.7 cents with two of the twelve products being priced at more than twice the price of moisture-proof cellophane and four at less than half the price of that material. See 351 U.S. at 400-403. In Acme Precision Prod., Inc. v. American Alloys Corp., 484 F.2d 1237, 1244 (1973) the Eighth Circuit summarized duPont's holding on this point: " [T] he 'end use' of a product has a greater influence on the determination of ' cross elasticity' than the higher price of a more desirable product." See also Bendix Corp. v. Balax, Inc., i 471 F.2d 149, 161 n.29 (7th Cir. 1972), cert. denied, 414 U.S. 819 (1973) (including in a single market two products one of which sold for twice the price of the other but lasted ten times as long). 222/ In addition to duPont-Cellophane, see George R. Whitten,
.Tr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547, 552 (1st Cir. 1974); United States v. Chas. Pfizer & Co., 246 F. Supp. 464, 469 (E.D.N.Y. 1965) ("It is not necessary in establishing reasonable interchangeability to show the same or similar physical characteristics and chemical
_. composition or reaction."); Huron Valley Publishing Co. v. Booth Newspapers, Inc., 336 F. Supp. 659, 662 (E.D. Mich. 1972) (holding that all advertising was in a single mar-
ket); Cf. Greenville Publishing Co. v. Daily Reflector, Inc., T76 F.2d 391, 399 (4th Cir. 1974) (question of f act whether television and radio advertising in same market as newspaper advertising). -Y
l-
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P
+ - 159 -
or services where that combination reflects commercial i e 223/ realities". Later cases have also emphasized duPont's crucial
,. conclusion that products which are frequently substituted may be in a single indivisible market even though some or all of them may be unsuitable for the needs of particular buyers. As the leading case of United States v. Chas. Pfizer & Co., 246 F.
Supp. 464, 468 (E.D.N.Y. 1965) noted, " functional interchangea-bility does not require complete identity of use." Thus,
"[I]f competition cuts across product or industry lines, the product market must , be drawn broadly enough to include com-petition as it exists."224/
7' In other words, in determining whether " reasonable interchangeability" of certain products exists, the courts look l l ,I u _
, , 223/ See George R. Whitten, Jr., Inc. v. Paddock Pool Builders, ) Inc., 508 F. 2d 547, 550-55 (1st Cir. 1974); National ,
i EvIation Trades Ass'n v. CAB, 420 F.2d 209 (D.C. Cir. 1969); H.E. Fletcher Co. v. Rock of Ages Corp. , 326 F.2d 13, 17 (2d Cir. 1963); Bendix Corp. v. Balax, Inc., ,
, 471 F.2d 149, 161 (7th Cir. 1972), cert. denied, 414 l U.S. 819 (1973); Acme Precision Prod., Inc. v. American Alloys Corp., 484 F.2d 1237 (8th Cir. 1977); Pacific Eng'r. & Prod. Co. v. Kerr-McGee Corp., 1974-1 Trade Cas.175,054 at 96,737-38. (D. Utah 1974).
224/ United States v. General Dynamics Corp., 341 F. Supp. 534, 555 (N.D. Ill. 1972), aff'd on other grounds, 415 U.S. 486 (1974).
%d t .
e W
I~
\
r 6 - 160 - s 225/ to "the patterns of tande" {' in the market place and examine the behavior of'the purchasers, i.e., " purchaser reaction
^
( L -- the willingness or readiness to substitute" one product 226/
,. for another. In the Pfizer case, for example, the court h cited the substitution of one product for another during the latter's unavailability as an indicia of " interchange-227/
ability". Similarly, products that may be either manu-
- m i factured by the users or purchased by them in the market are
, deemed to be within a single market to the extent the "make ' 228/
or buy" option actually exists. Consequently, the occa-sional specialized requirements of a particular purchaser or the intermittent unavailability of a specific source of i i
,~ 225/ United States v. United Shoe Mach. Corp., 110 F. Supp.
295, 303 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521
-("the problem of defining a market turns on discovering i, patterns of trade which are followed in practice.")
v 226/ United States v. Chas. Pfizer & Co., supra, 246 F. Supp. at 468. 227/ Id. at 469. 228/ United States v. Aluminum Co. of America, 148 F. 2d 416, 424 (2d Cir. 1945); United States v. International Tel.
& Tel. Corp., 1971 Trade Cas. 173,619 (N.D. Ill. 1971);
United Nuclear Corp. v. Combustion Eng'r., Inc., 302 F. Supp. 539 (E.D. Pa. 1969).
../
of
r i l - 161 -
! the product cannot justify segregating that product from a given relevant product market.
( In light of these principles, the sources of bulk power previously enumerated -- self generated power, purchased power, and coordination power -- manifestly are part of the same relevant product market in this proceeding. For example, the Hearing Board concluded that for the smaller systems in I Lower Michigan self-generation and wholesale purchases are almost completely interchangeable in satisfying their bulk
)
power requirements, and we do not understand our adversaries 229/ to contest that conclusion. Indeed, the record clearly demonstrates that some of the smaller systems purchase all , of their needs at wholesale, others utilize self-generation to meet all of their needs, while many systems utilize both 230/ sources in a wide variety of combinations. As the Board also found, in recent years come of these neighboring systems have lowered their reliance on [ wholesale power and increased self-generation while, at the same time, others have maintained the same proportion or have m. 229/ Initial Decision at 164-165, NRCI 75/7 at 107-109; Tr. 33-34 after 7239 (Pace). 230/ Tr. 1561-62, 1713 (Wolfe); 1424 (Steinbrecher); 33-34 after 7239, 41-42 after 7239 (Pace); Ex. 12,008. 1
i' ( r
- 162 - ,_ 231/ ;
experienced an opposite trend. In addition, the engineering studies made by these systems evaluating options available to T j meet load growth usually consider both the wholesale purchase
, and self-generation alternatives; in some cases self-generation is deemed to be the most economic alternative; in other cases, 232/
wholesale purchase. Furthermore, the record clearly establishes that I coordination power is also reasonably interchangeable with 233/
, wholesale purchases and self-generation. Thus, some Lower Michigan systems choose not to exchange coordination power, but rather to rely exclusively on wholesale purchases and 234/
self-generation. Other systems such as the MMCPP members 231/ Initial Decision at 116-17, NRCI 75/7 at 88-89. See also Tr. 7879, 7881, 7884-85; 2302 (Brush); 4274 (Fletcher); Attachment JDP-2, Schedule 1, Page 2, Column 5 after 7239; Exhibit 12,017. ) ,~ 232/ Tr. 1563-64 (Wolfe); 34 after 7239 (Pace); 7883. Congress has expressly recognized the interchangeability of whole- - sale service and self-generation for rural cooperatives. See n.78, on p. 99 supra. { 233/ Of course, a system cannot rely upon coordination power exchanges independent of self-generati7n and/or wholesale for the purpose of providing firm power to retail customers
-- the ultimate product in this industry. Tr. 1361 (Stein-brecher); 2697-98 (Mayben). For example, the Wolverine
_, cooperative requires that each party to coordination power transactions have self-generation capacity avail-able equal to to 110 percent of its system peak load. am! Tr. 4555-56 (Keen). 234/ For example,.the municipal systems of Hart, Zeeland, Lowell and Portland desired to continue their existing , purchase agreements with Wolverine rather than become
" full-fledged participants" in the MMCPP. Tr. 1363 (Steinbrecher).
( r - 163 - s
- chose to self-generate and to exchange coordination power
- 235/
among themselves and with Consumers Power Company. Before entering into arrangements to exchange coordination power, these neighboring systems compare the coordination option 236/ with the wholesale purchase or self-generation alternatives. For example, in 1967 the Traverse City system, after such an analysis, opted for self-generation in combination with coordination with the MMCPP Pool (a group of public power systems) instead of wholesale purchases from the Company. In addition to the technical feasibility of inter-
-f changing the various bulk power supply sources, the record also demonstrates that these bulk power sources are economi-r cally interchangeable.' Thus, the smaller systems are able to compete (and usually undersell) the Company whether they I choose to purchase all their bulk power from the Company (e.g., Bay City), or to purchase half of their needs and self-(, generate the remainder (e.g., Hillsdale), to self-generate r all their needs and coordinate with the Company (e.g., Holland),
u 235/ Exhibit 104A; Exhibit 105; Exhibit 11,112; Exhibit 12,024. [, 236/ Tr. 34 after 7239; (Pace); 1561-62 (Wolfe);.1424 (Steinbrecher); Exhibit 12,008. To be sure, some systems l are so deficient in generation capacity that only whole-sale power purchases or self-generation expansion will satisfy their needs. 237/ Tr.-1561-62 (Wolfe). I r .: n' j l
l' r
- 164 -
[ or to self-generate all thet.r needs and coordinate with other 238/ smaller systems (e.g., Traverse City). i In sum, whether a system chooses to purchase all of
+
its bulk power from Consumers Power, to purchase part of its needs and to self-generate the rest, or to self-generate all of its needs and coordinate with either large or small systems, its costs and rates are competitive with those Consumers I Power Company and with those of its smaller neighbors which 238/ c have chosen other bulk power supply alternatives. Thus, each of these alternatives is e onomically interchangeable and belongs in the same relevant product market. The economic advisors to the NRC antitrust staff have also recognized that the various forms of bulk power supply are
. highly i.terchangeabla. Their analysis concludes as follows:
" Competition Among The Components of Bulk Power Supply
<. "Many components comprise bulk power supply, including firm power purchases for resale, self-generation, and numerous coordination arrangements and unbundled services.49/ These components are not mutually exclusive and may be combined in a variety of ways to obtain the most economical bulk power supply for a given electric system.
System planners continually evaluate the multitude of available power supply options in order to assure themselves dependable, efficient, long-
, . term sources of power and energy. Distribution systems, by definition, purchase bulk power at 238/ See Section III-C supra.
239/.Tr. 88 after 7239, 94-95 after 7239 (Pace). m
( r
- 165 -
[ wholesale, although not necessarily from ti.e same source. Those utility systems which gen-erate as well as distribute may seek to combine r many types of coordination services in order to l obtain a reliable, low-cost power supply. Such component purchases will ultimately be combined
, with existing system facilities and supply op-tions, or with planned system alterations. For example, future load growth can be met by a unit power purchase from the more economical nucleat generating unit of a neighboring system and then combined with the installation of peaking units, and/or with the purchase of necessary backup support.
J "Thus, every electric system potentially
, has available a variety of bulk power supply
, options which are interchangeable for purposes of establishing a reliable, long-term bulk power supply package.50/
"49/
~~
Unbundled services refer to the avail-ability of the component parts of a package of services rather than the entire package on an all or nothing basis.
"50/ While these components themselves may be complementary, the many different combi-nations of these components may be ;. thought of as substitutes." 240/
Similarly, the Department'r Post-hearing Brief below emphasized that various bulk power supply alternatives are, in fact, 241/
, " interchangeable." At one point, its brief stated:
240/ Penn, Delaney and Honeycutt, COORDINATION, COMPETITION AND REGULATION IN THE ELECTRIC UTILITY INDUSTRY NUREG 75/061 (June 1975) at 23-24. t 241/ In its Post-hearing Brief (at 64-71) the Department jus-tified its separation of the various bulk power trans-actions into a firm power market and a coordination re- _ gional power exchange market with two arguments: (1) Footnote Continued -- of
' f+ i ij - 166 -
s +~
"The_ principal form of actual competition ff <
in the wholesale firm power market in the lower peninsula of Michigan arises from ' r: the alternative-that C.P. Co's wholesale [ . customers have of installing self-genera-tion -- either on an isolated basis or on ! ) ., a partially or fully coordinated basis -- F or of purchasing wholesale firm power. 4 j' "In the period of 1960 to present, the ; record is replete with examples of such ; !, competition. Indeed, there is no dis- i agreement between the parties over the*
~ existence of this competition." 242/
i' 1 i
}
Footnote continued -- I that a single source of nonfirm power cannot alone sub-stitute for' firm wholesale-power; and (2) that firm power is a " final" product, while the types of coordina-tion transactions that the Department claims to take
- place in the regional power exchange market are " factors of production". To the extent that it may seek to re-surrect these arguments in its Reply Brief, they are completely dealt with and refuted in Consumers Power Post-hearing Brief at 82-92 and Consumers Power Post-
- m. hearing Reply Brief at 40-47.
~~'
242/ Department's Post-hearing Brief at-36. (Emphasis added.) Elsewhere in the same brief (at 3-4) the same point is summarized:
- " Actual' wholesale competition in Applicant's area
- ari~ses principally from the option that small sys-tems have of installing self-generation as.an al-ternative to purchasing power from Applicant. Ap-
'plicant regularly' solicits'the approximately two dozen independent retailers -- municipal electric
^ -
power utilities,.one private electric power company,
~
and one distribution cooperative -- to purchase their wholesale firm power' requirements from C.P. j Co. rathe'r than to construct, operate or expand l their own bulk' power supply facilities. Similar 1 22- competition occurs between Applicant and two gen- f eration and transmission-(G & T) cooperatives in
'. the western-and northern areas of the relevant O geographic market."
c N
~
r L - 167 - [ In another passage, the Department's Post-hearing Brief again conceded, in the course of its characterization of r j Consumers Power Company's competitive relationship with the 7 . MMCPP pool, the competitive interchangeability of coordina-
' tion arrangements with other bulk power supply arrangements:
i "To the extent the M-C pool provides power exchange services to each of its members e- (and to four satellite municipals), which I lowers the cost of firm bulk power supply to them and makes self-generation more com-petitive with firm wholesale power f rom Ap-j plicant, the M-C pool's offering of power i exchange has also been a source of competi-tion to Applicant, which offered wholesale firm power. 243/ The Staff also agreed with our position in its Post-hearing r Brief:
"The important aspect of these various transactions is that the contracted ser- .i vice has one, and only one, function, i.e.,
E to produce firm power. Thus the grouping of these various bulk power services into y the same product market is justifiable
'~
since these inputs have a unique appli ca-tion. 244/ Thus, it is clear that in the Lower Michigan electric industry, bulk power obtained pursuant to a coordination arrange-i ment is typically a viable alternative source of bulk power. Consequently, such power must be deemed " reasonably" if not totally interchangeable with other bulk power alternatives .b - 243/ Department's Post-hearing Brief at 43. (Emphpsis added.)
,3 244/ Staff Post-hearing Brief at 33. (Footnote omitted.) ~:
. k-_
F - 168 - and must be included -- together with wholesale purchase and self-generated power -- in the relevant bulk power product r j market.
- 2. The Bulk Power Geographic Market t
With regard to relevant bulk power geographic market 244/ definition, the only dispute appears to be whether bulk power c self-generated to serve Consumer Power's own load should be I included within the market. It is our position that including [ the Company's bulk power supply distorts the market and therefore renders it substantially meaningless for analytical purposes. While disagreeing with the Department's ultimate con-clusion in this question, we concur with its view that:
"'The basic rule with regard to the definition of the geographic extent of relevant product markets is that the market must ' correspond to
.. commercial realities of the industry and be economically significant.' Brown Shoe Co. v.
" United States, 370 U.S. 294, 336-337 (1962).
,~
Stated differently, 'the area of effective competition in the effective [ sic "known"] line . ,- of commerce must be charted by careful selec-tion of the market area in which the seller
" operates, and to which the purchaser can prac- ^
ticably turn for supplies.' United States v. Philadelphia National Bank, 374 U.S. 321, 359 (1963)." 246/
; Applying these principles to the instant situation,
~ " it is true of course that the Company obtains nearly all of
-- 245/ We do not read the briefs of the Intervenors and the Staff to address this question at all.
m 246/ Department's Appeal Brief at 42. (Footnote omitted, emphasis in the case.) .a a &m
L y j - 169 - its bulk power supply from its own generation facilities and f- 247/ that it is the largest system within its service area. How-r ever, the fact that it supplies its own needs does not bestow r any ability or power to dominate or unfairly affect the bulk power supply alternatives available smaller systems in its
~
service area. Indeed, there is no evidence that in supplying its own requirements that the Company obtains any advantage in com-n
. peting to supply the bulk power needs of the smaller systems. - On the contrary, the Board found that Consumers Power supplies only 17% of these systems' bulk power needs.
Of course, if the bulk power needs of Consumers Power are included in a relevant market which is geograph-ically co-extensive with its service area, the Company neces-sarily possesses a large share of the market. Indeed, this situation would be true for almost any self-sufficient electric system (even a small municipally-owned system) since, as we a have shown, electric systems are generally the dominant supplier 248/ in the areas they serve. Thus, combining the bulk power needs of the Company and the other smaller systems distorts the - very purpose for which relevant market analyses are undertaken. ' The Department of Justice offers two arguments in 1 favor of combining the Company's needs with the others in J 247/ Initial Decision at 115, NCRI 75/7 at 88. 248/ See Section III-E supra. w' y -%-- + * -w w -g<
- e
~
( i
- 170-e the relevant market. First, it argues that the Company obtains f much of its bulk power supply from sources other than its own generation; and second, it argues that, as a matter of i
( law, the bulk power market must be geographically combined 249/ r in the manner it proposes. Both of these conte'ntions are incorrect. The record demonstrates that the Department's first
\
argument is erroneous. The consistent pattern of bulk power i commerce in Lower Michigan has been, and is, that Consumers r Power plans its system in contemplation of generating
)
almost all of its needs. Thus, the Hearing Board specifically i found: i "It is Applicant's policy to generate in its .r own facilities the electric energy needed
- (- for its sales. Hence, . . . there is no competition for the bulk power requirements
, of Applicant. In other words, Applicant is vertically integrated from generation through i' delivery of electric energy." 250/
[~ This finding is clearly correct. Except for statis-
- L, tically insignificant exchanges of coordination power, the record reveals the Company does not now and has not planned
- r, its system in contemplation of purchasing its bulk power re-i 251/
quirements from any other supplier. To the limited extent that unanticipated eventualities -- notably delays in the
- u 249/ Department's Appeal Brief at 46-48.
- - 250/ Initial Decision at 115-16; NRCI-75/7 at 87-88.
> 251/ Tr. 36 after 7239 (Pace); Initial Decision at 116, NRCI 75/7 at 88.
u w -.+
l'
- 171 -
f' availability of the Palisades nuclear unit -- have forced it 1 252/ to purchase power on an emergency basis, it hac of necessity r' r_ 252/ The Palisades plant was extensively delayed in attaining , full operation and was out of service for repairs for ex- ! t- tended periods in 1972 and 1973. See the Company's Annual Reports for 1972 (Exhibit 21) at 8-9 and 1973 (Exhibit 21A) e at 4; Tr. 8692-94 (Mosley). As the Company there noted,
, " [a] major cause of this decline [in the Company's earnings]
was the necessity of purchasing bulk power from other
- utilities to replace the energy which otherwise would have
, been generated by the Company's Palisades nuclear plant, which presently is under repair." (Exhibit 21A at 3-4).
Another cause for the Company's atypical reliance on other [ large systems during this period was a similar problem t_ with Detroit Edison's Monroe No. 2 unit. Under the " pool unit" provisions of the 1962 Michigan Pool agreement (Exhibit 71), Consumers Power was committed to purchasing
- a. portion of the output of the Monroe Unit for about one year. This unit came into service and operated for about three weeks. It was then out of service for six months due to a generator failure. Tr. 8502-03 (Mosley).
In addition, the very document Justice cites (Exhibit 228 at E-16) as purportedly showing the company's participation in the market of its smaller neighbors in fact demonstrates the fallacy of their approach. Not only does it reveal that almost a quarter of Consumers Power's purchases from 5 others were for its geographically separate Pontiac oper-ation (conceded by all parties to be outside the relevant markets -- see Initial Decision at 109, NRCI 75/7 at 85), [ but virtually all of those purchases were from large-
- investor-owned utilities, not from the predominantly municipal and cooperative systems to which the Department refers. Moreover, the Department points to dollar amounts even though the power purchases made from other utilities under emergency conditions were at a far higher kilowatt-hour cost than its internal generation. If kilowatt-hours instead of dollar amounts are the basis of comparison and purchases from Pontiac are excluded, power bought from
_ others even under the extreme circumstances of 1972 and 1973 accounted for only 19.7% of the Company's consumption. a In any event, those purchases bear little resemblence to
, .the normal pattern of trade in the market place as the record fully establishes. ~2
.. a
(T
'i .
c - 172 - 4-looked to far larger systems, not to its smaller neighbors l f- which are the focus of this proceeding. The Hearing Board f- thus properly rejected the notion that the Company's emergency,
-i' unplanned purchases significantly alter the established patterns f' of trade concerning bulk power supply.
1. These patterns of trade in the bulk power market are explained and reinforced by the legal barriers to bulk power sales by the cooperatives and municipal systems. The coopera-tives are barred by the terms of their REA financing from sel-254/ { ling firm bulk power to non-members on a regular basis or from initiating wholesale or retail service to customers living 255/
- in communities exceeding 1500 in population. Indeed, the Rural Electrification Administration lacks the legal power to finance generation or transmission facilities except for the
purpose of furnishing power "to persons in rural areas who are 256/ , ~ not receiving central station service. . . ." A cooperative
.i 253/ The Hearing Board noted that that."[i]n recent years, construction delays and operational difficulties have forced Applicant to purchase on a short-term basis sub-stantial quantities of wholesale power," and concluded
~ that those purchases in extremis in no way affected the parameters of the long term market. Initial Decision at 116; NRCI'75/7 at 88.
J 254/ Tr. 37 after 7239 (Pace); 4537 (Keen). See Otter Tail ,
- v. United States, 410 U.S. 366, 369 n.1 (1973).
a 255/ Tr. 963 (Westenbroek); 18 after 7239, (Pace); 7860; 7 U.S.C. SS904, 913.
. , 256/ 7 U.S.C. 5904.
lJ t . m
-tp e--*t--- -7 +-' . = - - - -+ - + - ~ + 7 - *-
i l [~
\
- 173 -
e l seeking to satisfy Consumers Power Company's bulk power require-257/ ments would confront all three of these legal barriers. Similar barriers confront the municipal systems. Until the close of the record in this case, the municipals r could not sell to other systems (or to retail customers out-side their boundaries) an amount of electricity exceeding 25% c 258/ of their retail sales within their city limits. Since the t municipals made an average of 20% of their retail sales outside i I their limits during this time, they had little lawful surplus r- bulk power to sell to the Company.
- l. .
r 257/ Even cooperatives seeking to finance generation and trans-mission facilities with which to meet the requirements of their own retail customers face a restrictive REA loan policy. See, for example, REA Bulletin 20-6 (Exhibit 7),
- m. May 7, 19E57 See also REA Bulletin 111-3, August 4, 1969 at 2-3, providing that no loan exceeding $2,000,000 for generation or transmission facilities will be made except "upon certification by the Administrator to the Secretary of Agriculture that the loan has been approved
- after the completion of a power supply survey which shows t' that the loan is . . . (c) needed because existing and u proposed contracts to provide the facilities or service ~-
to be financed were found to be unreasonable, each sup-plier involved was advised of the provisions that made ly its contract unreasonable, REA attempted to have such contracts made reasonable, and the existing or other pro-
, posed supplier had failed or refused to do so within the time set by the Administrator."
258/ Mich. Const. 1963, Art. VII, S24, imposes the limitation unless modified by statute. Exhibit 223; Tr. 975-76 a (Westenbroek); 2243 (Brush); 6061-62 (Aymond); 17-18
~
after 7239 (Pace). The constitutional limitations was modified by a very recent statute. Wholesale service
~, by a muncipality is now permitted without any quantitive restriction but subject to the consent of the existing
, supplier. MSA 5.4083, 5.1534, 1974 PA. Nos. 157, 174; Footnote continued --
t .,)
i r - 174 - Ignoring these " commercial realities," the Department of Justice argues that the bulk power requirements of the r~ Company and of its smaller neighbors should be combined into one market. The principal response of the Department IIL to the fact that Consumers Power does not generally look to its small neighbors or other systems for bulk power supply is that, as a matter of law and despite the evident patterns es of trade, Consumers Power's bulk power requirements must be k'
- p L
Footnote continued -- C 1975 PA. No. 296. However, no significant impact on actual market conditions have arisen from this r legislative change to date. See Initial Decision at 114, j{ NRCI 75/7 at 87-88.
-In United States v. Connecticut Nat'l Bank, 418 U.S.
656, 665 (1974), the Supreme Court held that a trend
- , toward elimination of barriers to competition between commercial and savings banks, already partially reflected in state legislation, could not be considered for purposes l" of market definition because insufficient time had elapsed to permit alteration of existing trading patterns. The
- ,- Department of Justice seeks to distinguish Connecticut -
Nat'l Bank (Appeal Brief at 48, n.) because not all 4- legislative changes necessary to the change in the market structure had occurred prior to trial in that case. That attempted distinction is wholly specious, for all of the statistical evidence on which the Department relies in this case in asserting their view both of the market
- structure and of Consumers Power's purported share of that market concerns time periods before 1974 -- i.e.,
prior to modification of the Michigan statutes in question. Indeed, the' relevant statutes took effect on June 20, !. and 23, 1974 and the record closed in this case on 'J June 20, 1974.
.)
es , _ . , . y am- -v y -,w. -g
r
?
r
- 175 -
[ is that, as a matter of law and despite the evident patterns of trade, Consumers Power's bulk power requirements must be {~ 259/ l included in the market for its smaller neighbors' needs. r This contention is wholly at odds with applicable case law, including the legal position the Department ar-gued successfully the last year in United States v. Blue Bell, Inc., 395 F. Supp. 538, 543 (M.D. Tenn. 1975). In that case, the court adopted the Department's view that industrial garment
,- rental laundries owned by garment manufacturers could not I '- be included in the same market for the sales as independent laundries even though the manufacturer-owned laundries bought
- m. 260/
between 15 and 20% of their requirements from independents. 1 L I
~
259/ Department's Appeal Brief at 46-49. The only additional , I attempt by the Department of Justice to refute the record _ support for our position is premised on a quotation from the testimony of Dr. Joe D. Pace, an economic expert , witness sponsored by Consumers Power. (Department's Appeal i Brief at 45, n.) However, the quoted statement has nothing whatsoever to do with alternate sources of supply for Consumers Power. Rather, it is wrenched from its context: a colloquy between counsel for the Department and Dr. Pace concerning an economist's anticipation
~
of the behavior of a hypothetical rational distribution system seeking to enter the generation business. It is a wholly unrelated to the actions of a large, experienced utility. Tr. 7547-59 (Pace); sea particularly colloquy between counsel and the Hearing Board at Tr. 7551-54. 260/ Government's Post Trial Brief at 27-28, United States v. l Blue Bell, Inc., supra.
- i. 1 t- -e- -
# .-.w- p.
I
\
r'
- 176 -
f
! The Department then concluded:
F "Not surprisingly, where rental garment (~ manufacturers and laundries are under common ownership, the laundries buy the bulk of their requirements from their affiliated 7 manufacturer, and other manufacturers are
' . effectively foreclosed from competing from that business. Accordingly, it is not part l of the market in which there was effective ;
i competition among manufacturers. r' "It is a well established principle of i antitrust law that vertical foreclosure of this nature may occur when firms that 1
- have a supplier-customer relationship come under common ownership."261/
262/ Numerous other cases have reached the same result. In principal support of its contention that Consumers r Power's internal needs should somehow be viewed as part of the V 261/ Id. at 27-28. (Emphasis added.) The Department's i Brief there goes on to dismiss as irrelevant to this analysis purchases by manufacturer-owned laundries made i '" because "the affiliated manufacturer has run out of, won't deliver promptly or does not make" the needed item.
- The same rationale obviously applies to the Company's emergency purchases in 1972 and 1973.
262/ The most recent application of this approach was in British Oxygen Co., 3 CCH Trade Reg. Rep. 121,063 at
- p. 20,910, (FTC Dec. 8, 1975) (industrial gases made by vertically integrated firms not in market for sale of gases). Other cases include Judge Learned Hand's deci-
.,~ sion for the special three-judge court in United States
- v. Associated Press, 52 F. Supp. 362, 374 (S.D.N.Y. 1943) aff'd in part, rev'd in part on other grounds, 326 U.S. 1 (1945) (AP's photo service used only by its members not in the same market as independent service); United States
- v. International Tel. & Tel. Corp., 324 F. Supp. 19, 27 (D. Conn. 1970) (sales of sprinklers " practically all" c, of which are installed by manufacturers not in the same market as sales of other sprinklers); Avnet Inc.,
Footnote continued -- w
- - - *w -, ,w ,- , , -w.--w-i------,r-----w v
r
\
I' _ 177 _ ( i f relevant bulk power market as a matter of law, the Department I relies on United States v. Greater Buffalo Press, Inc., 402 f~ ( U.S. 549 (1971). In fact, this case actually suggests pre-263/ l cisely the opposite principle. ' f l The Greater Buffalo Press case " involves the comic p supplement business used weekends by most newspapers. Some ; l.
,, i Footnote continued -- ~
82 F.T.C. 391, 451-454 (1973), aff'd, 511 F.2d 70 (7th
. Cir.), cert. denied, 44 U.S.L.W. 3202 (U.S. Oct. 7, 1975); ;
(in-house manufacture of paris for automotive electric
- (- components rebuilders); Elco Corp. v. Microdot Inc.,
i (~ 360 F. Supp. 741, 748 n.3 (D. Del. 1973) (electronic man-ufacturers who consistently make their own metal plate
- I
' connectors not in market for sale of connectors). Al-though cited in Consumers Power's Post-hearing Brief at 95 n.42, Associated Press and ITT are passed over in silence by the Department's brIef here. It does attempt, 'i' however, to refute Microdot, albeit through the wholly [ unsupported contention that markets should for some reason be defined differently if the defendant is the customer whose purchases would be excluded. The Department seeks to refute this body of law through
- citation to International Tel. & Tel. Corp. v. General Tel.
& Electronics Corp., 518 F.2d 913, 930-31 (9th Cir. 1975).
L (Department's Appeal Brief at 47). But that case only rejected the converse proposition that vertical foreclosure invariably bars the inclusion of the vertically integrated
. firm from the relevant market and concluded, in light of the Bell system consent decree there centrally at issue, that such an exclusion was inappropriate under the facts of that case. But the Court of Appeals there undertook the type of particularized inquiry into market structure the Department eschews, and rejected an effort to deal with such factual matters through rigid legal rules such
> as the Department proposes.
263/ Indeed, this case was very recently cited by the Federal _, Trade Commission for the opposite conclusion from that argued by the Department. British Oxygen Co. 3 CCH Trade Reg. Rep. 121,063 at p. 20,910 (FTC Dec. 10, 1975).
- - - --:,er-e, -w. aw---- - -
w -r, wre y ,wr, --=-=va- ~vv,~u nv-- q -- e
I' i r~
- 178 -
f papers print their own comic supplements; others purchase them." 402 U.S. at 551. In that case, Greater Buffalo Press, a pri7. ting company (not a newspaper as the Department implies), proposed to acquire another printer, International. Both firms printed comic supplements for others, with Greater Buffalo do-i i ing so under direct arrangements with newspapers while Inter-national worked through a third organization. 402 U.S. at 552. The Court held that both firms were within the inde-pendent " color comic supplement printing" market (402 U.S. l l
] at 552), pointing to specific instances of actual competition s
between them (402 U.S. at 554). The Court made clear, however,
, that even though some newspapers printed their own comic <, supplements (402 U.S. at 551 and 555) those newspapers were not to be included in the relevant market because they had little effect on competition in the independent supplement printing market. Thus, far from mandating the combining - . of vertically integrated firms (i.e., newspapers printing
_ their own supplements) with those buying products from others (i.e., the customers of Greater Buffalo and International), the Court expressly recognized that, under the facts of that case, the vertically integrated firms had to be viewed as being outside the relevant market. In view of the foregoing, it is clear that the rele-vant bulk power market in this proceeding excludes Consumer
%0
'M
, ,m-- - ~ r - r , - - -
?l U F i - 179 - l i Power's internal needs and therefore encompasses all of the 7.. alternative bulk power supply sources of the smaller systems [ located within or adjacent to the area of lower Michigan served by Consumers Power Company; that is, bulk power de-i rived from self generation, wholesale purchases and coordi-
~
nation arrangements, or various combinations thereof. As we 4 have explained, since Consumers Power's sales constitute only j 17% of this market, the Company obviously has no monopoly _ power there. G. Retail Markets. 264/ j In its principal and reply briefs below, Consumers !
~
Power set forth for the assistance of the Hearing Board an an-alysis of the retail markets in which the Company operates. 265/ However, except as we have previously discussed, matters con-cerning retail sales are far removed from the question of bulk power supply and coordination with which this case is centrally concerned. We do not propose to burden this appellate brief with that wholly peripheral but highly ddtailed retail market analysis. Nevertheless, some discussion of this market is use-ful in illuminating the pervasive regulation to which the company is subject. a 264/ Consumers Power Co. Post-hearing Brief at 97-111; Con-sumers Power Co. Post-hearing Reply Brief at 52-59. 265/ In United States v. Phillipsburg National Bank & Trust Co., 399 U.S. 350, 368 (1970), the Supreme Court rejected any j notion that wholly speculative competitive possibilities should be considered simply because they were theoretically possible. d m- +- e w - , - - , - +e- -rm - -r fr-- -
~
l i p - 180 - i 7 At the outset, it should be emphasized that a broad range of observers including a consultant to the Department 266/ of Justice, the economic advisors of the NRC antitrust
; 267/
staff, and both the federal and Michigan regulatory authori-r 268/ ties have confirmed the inapplicability of normal competi- { _ tive models to the retail sale of electricity. These considered
!- views stand in stark contrast to the Justice Department's stri-
~
dent insistence that Consumers Power's large proportion of re- [ tail sales in its service area "' leave [s] no doubt' that Appli-269/ cant possesses monopoly power." Thus, the principal sig-m nificance of the retail market in this case is that it highlights m . the simplistic artificiality of the Department's market power r approach. i L r 266/ Meeks, Concentration in the Electric Power Industry: The Impact of Antitrust Policy, 72 Colum. L. Rev. 64, 95 (1972): "[A]ny extensive competition in another's service area is so wasteful as to be undesirable, and even on the l
- m. margins such competition is probably not worth promotion."
r- 267/ Penn, Delaney and Honeycutt, COORDINATION, COMPETITION AND I REGULATION IN THE ELECTRIC UTILITY INDUSTRY, Economic An-alysis Section, Office of Antitrust and Indemnity at 17
,. (" Opportunities for direct competition at the retail level 4
are limited"). 268/ See, e.g. Pacific Power & Light Co., 50 F.P.C. 70, 71 (1973); Adoption of Rules Governing the Extension of _; Single-Phase Electric Service, MPSC Case U-2291 (1966); Cherryland REC v. Consumers Power Co., MPSC Case U-3200 (1968); and Southeastern Mich. REC v. Consumers Power Co., MPSC Case U-3366 (1966); Cf. Hardin v. Kentucky Util. Co., 390 U.S. 1 (1968). 269/ Department's Appeal Brief at 55. 1 1 -a t l l w
~ ; - 181 -
In the retail power market which Consumers Power serves, the regulatory scheme is clearly plenary. The Michi-gan Public Service Commission exercises regulatory authority,
- inter alia, over "all r'ates, fares, fees, charges, services, rules, conditions of service and all other matters pertaining 270/
to the formation, operation or direction" of the Company. Consumers Power may change its rates or other conditions of
' 271/
service only pursuant to an order of the MPSC and only 272/
- after an elaborate review process. In addition, at any 270/ MSA 22.13(6).
271/ MSA 22.152. There are only a few very minor exceptions to this principle, involving service in Pontiac and ' retail sales to three mrnicipal governments. Because the Company's Pontiac distribution system is geographically isolated from the Company's main integrated system and uses bulk power supplied by another entity, it is unique and is outside of any relevant geographic market in this proceeding. Initial Decision at 109, NCRI 75/7
~
at 85. All four of these exceptions are the result of MSA 22.4, which denies the MPSC the power to change or l
- alter the rates or charges fixed in, or regulated by, l any franchise or agreement granted or made by a city, l village or township. !
272/ Notice of proposed rate changes are publicized throughout the area affected and a public hearing is held. MSA 22.13(6a). Municipal and township governments, as well i as individual and corporate retail customers, are author- l ized to participate in these proceedings. Mich. Const. 1963 Art. VII, S15 (governmental participation); County of Wayne v. MPSC, 343 Mich. 144, 72 N.W. 2d 109, 111 (1955); Tr. EYEY, 8285 (Jefferson). Before a proposed rate change becomes effective, "affir-mative action" approving the rate must be taken by the Footnote continued -- r w
,_ - 182 -
l time after a rate is approved, the Commission may initiate an inquiry. into rates or other conditions of retail service, 274/
- either on its own motion or in response to a complaint.
Under the rate-making principles followed by the MPSC, the Company cannot extract monopoly profits. On the contrary, the MPSC establishes the lowest possible rates con- [ 275/ !. sistent with maintaining the Company's financial integrity.
- More specifically, the Commission uses the embedded or historic cost of service (including capital costs) as a basis for rate-
_ 276/ making. Thus, the rate charged particular customers gen-erally reflects the average cost of serving the general public .F - Footnote continued -- Michigan Public Service Commission. MSA 22.152. The only exception to this principle arises out of the opera-tion ~of a fuel adjustment clause included, pursuant to _ MPSC approval, in a utility's tariffs. Obviously, the operation of a fuel adjustment clause is controlled by p,' forces in the fossil fuel markets, not by the utility whose administration of the clause is largely mechanical. See Exhibit 11,002. I 273/ Prior to the late 1960's, when Consumers Power Company's ' wholesale rates came under Federal Power Commission regu- ~ lation, the MPSC exercised jurisdiction over all of the Company's rates including wholesale rates, except unit sales to municipalities. MSA 22.13(6); Tr. 8439-41 (Jef-ferson). The MPSC called wholesale rates subject to its jurisdiction "special rates." See MPSC Regulation R. 460.2008 (1954 Mich. Admin. Code). 274/ Tr. 8282, 8285 (Jefferson); MSA 22.157. _ 275/ MSA 22.157; Consumers Power Co. , MPSC Case U-4174 (Nov. 24, 1972) at 21; Consumers Power Co., MPSC Case U-4576 , _- (Sept. 16, 1974) at 22-23; Tr. 8280 (Jefferson). 276/ Tr. 8292, 8294-95 (Jefferson); 50 after 7239 (Pace). Consumers Power Co., MPSC Case U-4174 supra at 28-29.
l. I r- - 183 - 1 y
~
277/ of customers requiring similar service. The Hearing Board I held, and the record confirms, that the "MPSC does a conscien-278/ 1 tious job of policing rates." r- As for the Company's ability to exclude competition, we have already demonstrated that many competing systems pro-I vide retail electric service in the Consumers Power's area t-at rates competitive with, and in many cases substantively r
! below, those of the Company. In addition, the same legal r- constraints which prevent the Company from excluding bulk power competitors also obviously prevent exclusion from the ~
279/ retail market as well. L. On the other hand, Michigan law and the economic re-I allties of the electric utility industry generally. preclude L r new entrants in the market. Consequently, again in the Supreme 1
'- Court's words, it is "hardly surprising" that the Company has P
U P 277/ Tr.'8285, 8287, 8289, 82J2 (Jefferson). Consumers Power r Co., MPSC Case U-4174, supra at 28-29. Incremental pricing has historically not been permitted except for " promotional rates" (e.g., for water heating); and the MPSC has recently held that even this form of below-I average-cost pricing is no longer in the public interest. L Intial Decision at 112, NRCI 75/7 at 86-87. Tr. 51-52 after 7239 (Pace); Consumers Power Co., MPSC Case p U-4174, supra at 28. 278/ Initial Decision at 112, NRCI 75/7 at 86; Tr. 6984. 279/ See Section III-B supra. L. L. IT; O
m 4 l
- - 184 -
- l l
4 p a high share of all retail sales within its service area. In-deed, except in those few historically anomalous instances l where there is street-by-street competition, each Michigan ! electric system (including the Intervenors' systems) dominates i r' 280/ I L retail sales in the areas they serve. l Thus, even to the extent that the retail sales marg-ket is deemed relevant to this proceeding, it is clear that 1 Consumers Power has no power to control prices or exclude ) competition in this market and therefore cannot be deemed to
- 3. possess monopoly power there.
L.
- The foregoing amply confirms that our adversaries ._ have not proven one of the necessary prerequisites of their ~
monopolization charge -- the Company's possession of monopoly power. That is, neither their reliance on statistical market share calculations or their effort to strain the record to fit , a discredited " bottleneck" hypothesis demonstrates the Company's L alleged power to control prices or exclude competition in any
~
relevant market. Indeed, the evidence of record is precisely to the contrary: government regulation deprives the Company y. ' L4
- y_ 280/ Tr. 17-19 after 7239.
p. p .s ' tense
\
1 1 i
. *~.
{ - 185 -
)
.of both power over price and competition, as the financial and
' competitive success of the Company's small system competitors makes vividly clear.
r'- A finding that the Company lacks monopoly power, of , l course, permits this tribunal to dispose of the monopolization charges without further scrutiny of the Company's "willfull-r, ness," i.e., its conduct in the marketplace. Alternatively, t.. like the Hearing Board, this tribunal may choose first to re-view allegations about the Company's conduct. The next section therefore provides an analysis of the Company's policies and practices regarding coordination and other matters raised by a our adversaries. p. L, m
. i._
- ,r,
. ;
e, e, m M ' esse enume =m , u- .m nv ='
- - . - - - - --e,., -
s-e- ---
5 F i- - 186 - r IV. The Hearino Board Was Correct in Holdino That The Company's Condtct Does Not Reflect
- n. The Requisite Willful Monopolization.
Even were Consumers Power Company deemed to possess [- monopoly power in any relevant market, it cannot be found to
.1 have monopolized that market unless it has engaged in the
" willful acquisition or maintenance of that power as distin-guished from growth or development as a consequence of a superior product, business acumen, or historic accident."
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). As the Hearing Board stressed in the Initial Decision, the opposing parties fell far short o.f demonstrating willful main-t tenance of monopoly power at the evidentiary hearing.-1/ In m the subsections which follow we demonstrate that the Hearing Board's legal principles and its application of these principles to the factual allegations against Consumers Power were clearly f- correct. L.J A. Applicable Legal Standards. r-
- 1. The Willfulness Standard.
In unregulated industrial settings, the precise dim-ensions of the " willfulness" standard have been the subject P
-1/ Initial Decision at 168, 178, NRCI 75/7 at 109, 112-13. ", That circumstance may well reflect the fact that this proceeding had its origin not in a Justice Department investigation of possible violations of the law nor in the legal initiative of supposed victims but rather in the unwillingness of Consumers Power to implicitly concede its liability and agree to " standard" licensing conditions. See Section 1, suora at 10.
hw
1 r~
- 187 -
r r of considerable litigation.-2/ However, research reveals and opposing counsel have cited no case in which the requisite willfulness was found without a showing of predatory conduct. 2/ Verbal formulations have varied. See Judge Wyzanski's d iscussion in United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 342 ( D. Mass. 1953), aff'd per curiam, 3 47 U.S. 521 (1954). Pointing to textual inconsistencies
. . , between the various opinions, he stressed that a trial court could not "give any authoritative reconciliation of opinions rendered by appellate courts."
3/ In United States v. United Shoe Mach. Corp., supra, 110 F. t Supp. at 343-44, the leasing arrangements under which USMC machines were made available were themselves condemned. See Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 485-86 (1968), particularly n.3. In Case-Swayne Co. v. Sunkist Growers, Inc., 369 F.2d 449, 459 (9th Cir. 1966), rev'd on other grounds, 389 U.S. 384 (1967), a post-Grinnell case, the court carefully reviewed the pur- _. portedly predatory practices f rom which wi11 fulness could be inferred. In most Section 2 monopolization cases, of course, predatory practices held to constitute a violation
~'
of Section 1 of the Sherman Act have also been present. See, e.g., Grinnell, supra; United States v. Griffith, 334 U.S. 100,.106-07 (1948); American Tobacco Co. v. I' United States, 328 U.S. 781 (1946) United States v. Cre-scent Amusement Co., 323 U.S.173 ;( 1944 ) ; United States
- v. Reading Co., 253 U.S . 26 (1920).
_t In United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945), substantial evidence of predatory conduct was offered at tr ial . Many leading commentators have in-
~
dicated that predatory practices were present in the case and suggested that the district court was plainly wrong
- in its conclusion to the contrary. See, e.g., C. Kaysen
\ and D. Turner, Antitrust Policy 107 (1959); Att'y Gen.
Nat'l Comm. Antitrust Rep. (1955), 58-59; Roback, Monopoly or Competition through surplus Plants Disposal? The Alumi-num Case, 31 Cornell L. Q. 302, 306-07 (1946). Thus, as _ United Shoe surmises, the Alcoa court was obliged to follow an ambiguous approach because of the dubious, but unrever-sible, district court findings: Footnote continued -- M .i
- __ -~M
t r-
- 188 -
=
Thus, as the Department's brief concedes, "exclusionary prac-r-
~
tices must be found" before a monopolization charge can be sus-
~~
4/ p tained. I In unregulated industries without natural monopoly
^
, characteristics, it may be that "no monopolist monopolizes i
5/ unconscious of what he is doing ."- But, as we have demon-strated, this case arises in an industry with "a basic natural
-Sa/
, monopoly structure," - i.e., almost all participants in the market occupy monopoly positions. In this context, it would ,
" in Judge Hand's phrase, "make nonsense" of the antitrust laws i
to suggest that the ordinary conduct of electric utilities con-r stitutes the requisite " willfulness" of a Section 2 allegation. m. That app' roach would be tantamount to holding that an electric utility per se commits the offense of willful monopolization
. r- - . u.
Footnote Continued --
. - "In Aluminum Judge Hand, perhaps because he
!), was cabined by the findings of the District k-Court, did not rest his judgment on the cor-poration's coercive or immoral practices." l[ 110 F. Supp. at 341. wi No court of which we are aware has ever premised a find-ing of monopolization on the theoretical possibilities suggested in Alcoa. Indeed, the courts have typically l" made a specific finding as to the existence of predatory
., practices, e.g., United States v. Besser Mfg. Co., 96 F F. Supp. 304, 310-11 (E.D. Mich. 1951), aff'd 343 U.S.
444 (1952). 4/ Department's Appeal Brief at 26. (Emphasis added.)
-5/ American Tobacco Co. v. United States, 328 U.S. 781, 814
, (1946), quoting United States v. Aluminum Co. of America, 148 F.2d 416, 43 2 ( 2d Cir .1945) .
Sa/ Gulf States Util. Co. v. FPC, 411 U.S. 747, 759 (1973). <oe f 4 s t . _,_ _ . - _ _ . . .m -,.
1 r- ! l 1
\
t - 189 - i simply by being a utility. No court has ever suggested such a bizarre result. On the contrary, it is well-settled that in
- a natural monopoly setting " intending the natural consequences l' of acts which are in all respects lawful, does not constitute !
the 'exclusionary intent' that is a prerequisite for finding
~
6/ a violation of section 2." f
~
6/ Union Leader Corp. v. Newspapers of New Eng., Inc., 284 F.2d 582, 584 (1st Cir. 1960), cert. denied, 365 U.S. 833 (1961). These principles gain added force in the pre-sent setting because the principal means by which a util-ity maintains its market position, obtaining municipal franchises, is shielded from antitrust scrutiny by the Noerr-Pennington doctrine. Eastern R.R. Presidents Conf. -
'v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), United Mine Workers v. Pennington, 381 U.S. 657 (1965), California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508,
, 509-11 (1972). The Seventh Circuit recently held that even allegations of extreme exclusionary conduct in ob-taining a municipal utility franchise did not state a cause of action under the antitrust laws:
" Illinois law gave the city council authority
; to grant franchises for cable television, and a implicitly, the authority to determine whether one or more than one applicant should be fran-
~ chised. . . . Even though the council's ac-tions gave CATV a monopoly of cable television in Rockford and restrained plaintiff from com-peting in Rockford, those actions did not them-selves violate the Sherman Act." Metro Cable Co. v. CATV of Rockford, Inc., 516 F.2d 220, 228-29-(1975). To the same effect is Lamb Enterprises, _ Inc. v. Toledo Blade Co., 461 F.2d 506 (6th Cir.) cert. denied, 409 U.S. 1001 (1972). Plainly, if proven pred-atory conduct in obtaining a franchise would be insuf-
~~
ficient to show willful monopolization, to permit that conclusion to be inferred from the mere possession of franchises through use of a presumption would be truly to "make nonsense" of the willfulness test.
.- Footnote continued --
h
- m - -
- 190 -
Thus, in United States v. United Shoe Machinery Corp., 110 F . Supp. 295, 342 (D. Mass. 1953), aff'd oer curiam, 347 U.S. 521 (1954), it was expressly held that monopolization
, could not be found without explicit "exclusionary practice" when a monopoly resulted from " economic or technological effi-ciency" or " franchises granted directly to the enterprise by a public authority."
Particularly instructive in this regard is a leading ! recent monopolization case, Telex Corp. v. International Busi-ness Machines Corp., 510 F.2d 894, 919-928 (10th Cir.), petition Footnote continued Similarly, utility mergers and acquisitions to facili-tate attaining larger scale have long been encouraged by governmental authorities and can hardly be presumed ) to be predatory. See, e.g., Chairman Lee White's opinion for the FPC in Commonwealth Edison Co., 36 F.P.C. 927, 936- t l
' 943 (1966), aff'd sub nom. Utility Users League v. FPC, 394 m
F.2d 16 (7th Cir.), cert. denied, 393 U.S. 953 (1968). ! The Board's discussion of patent law (Initial Decision at
" 56-56, NRCI 75/7 at 56-58) is also relevant in this re-gard.
;
The grant of a patent carries with it "the right i to exclude others from making, using, or selling the in- i t vention throughout the United States," 35 U.S.C. S154. This " natural monopoly power inherent in a patent , is not, in itself, violative of the federal antitrust
~
laws," 8 von Kalinowski, Antitrust Laws and Trade Regula-
~~
tion S59.01 at 59-3 (1972). This is because the grant of a patent " carries, of course, a right to be free from com-petition in the practice of the invention." Mercoid Corp.
- v. Mid-Continent Inv. Co., 320 U.S. 661, 665 (1944). Only when activities inconsistent with the patent grant are undertaken can an antitrust violation be found. See, e.g.,
Morton Salt Co. v. G.S. Suppiger Co., 314 U7S. 488, T91 (1942). The routine business activitics of the paten-tee monopolization. ful therefore are not sufficient to constitute will- { _.-
4
- 191 -
? -7/
. for cert. dismissed, 423 U.S. 802 (1975). In that case, the district court found that the defendant IBM possessed monopoly i power and through a legal but aggressive marketing program had maintained its market position to the detriment of its smaller competitors. On the basis of these two findings, the lower court concluded that IBM was guilty of monopoli:ation under Section 2 of the Sherman Act.-8/The court of appeals reversed, holding that even though IBM possessed monopoly power and sought to maintain its monopoly position, Section 2 could not be construed to " prohibit the adoption of legal and ordinary 9/
marketing methods." To the same effect is Travelers Insurance Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80, 85 (3d Cir.), cert.
- denied, 414 U.S. 1093 (1973). There, the court of appeals also rejected the notion that the requisite willfulness for monopoli- ~
zation could be shown by demonstrating that the dominant firm "has made itself considerably more attractive to consumers. The 7/ The Antitrust Division failed to support the petition for certiorari. See BNA Antitrust and Trade Reg. Rep., No. 733 at A-9 (October 7, 1975).
~
8/ Telex Corp. v. International Business Machs. Corp., 367
*. F. Supp. 258 (N.D. Okla. 1973).
9/ 510 F.2d at 927. As the court of appeals expressly noted, its consideration of the willfulness issue was premised on the assumption that IBM had monopoly power. Id. at 919. he i
~
s- -- p-w- -ye
9
'. - 192 -
antitrust laws were not intended to condemn such conduct."
. - Where, as here, the industry under scrutiny is marked 10/
\ by "a basic natural monopoly structure"-- and extensive govern-mental regulation, the standard is clear: the other parties to s
this proceeding must show that the Company has acquired or main-
--11/ ! tained its position through unfair or predatory conduct.
This standard has been explicitly enunciated in many circuit and district court opinions, and adopted at least by
'~ implication by the Supreme Court itself. For example, in a in a case specifically involving competition for a municipal public utility franchise, the Sixth Circuit held:
"In a natural monopoly situation any successful competitor gets the market. Thus,
. it cannot be ' unreasonable, per se r to fore-close competitors from any substantial market,'
United States v. Griffith, 334 U.S. 100, 107
. . . (1948), where such foreclosure is the natural result of success in a natural monop- ,_ oly situation." Lamb Enterprises, Inc. v.
n. i 10/ Gulf States Util . Co. v. FPC, 411 U.S. 747, 759 (1973).
'~
11/ We do not read the other parties' briefs to significantly rely upon an attempt to monopolize theory not advanced below. To the extent they seek to do so, it is, of course, 4
; axiomatic that they are required to prove a specific in-
- tent to monopolize even without regard of the industrial setting involved. See Department's Appeal Brief at 26; Swift & Co. v. United States, 196 U.S. 375 (1905); Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953).
%M
I f
- 193 -
I Toledo Blade Co., 461 F.2d 506, 515 (6th Cir.), cert. denied, 409 U.S. 1011 (1972). 12/ I Recognition of the above-quoted principle was also 1 plainly implicit in the Supreme Court's opinion in Otter Tail
- 7. .
Power Co. v. United States, 410 U.S. 366 (1973). Both the l
, statement of facts (410 U.S. at 369-72) and the only discus-i L sion of general principles of the case (410 U.S. at 377-79) stressed Otter Tail's clearly predatory methods. For example, j the Court noted "that Otter Tail's refusals to sell at whole-f sale or to wheel were solely to : revent municipal power sys-tems from eroding its monopolistic position." 410 U.S. at 4.-
--12/ Other Circuits have held to the same effect in cases in-volving the newspaper and professional football industries where the natural monopoly resulted from high economic barriers to entry. In Union Leader Corp. v. Newspapers of New Eng. Inc., 284 F.2d 582, 584 (1st Cir. 1960), cert.
[ denied, 365 U.S. 833 (1961), the First Circuit held: a "a natural monopoly market does not of it-self impose restrictions on one who actively, 1 but fairly, competes for it, any more than it does on one who passively acquires it. In either event, there must be some affirmative showing of conduct from which a wrongful in-tent can be inferred." (Footnote omitted.) l To similar effect is the holding of the Fourth Circuit in American Football League v. National Football League, 323 F.2d 124, 131 (4th Cir. 1963). There, the court ruled that "[w] hen one has acquired a natural monopoly by means l which are neither exclusionary, unfair nor predatory, he is not disempowered to defend his position fairly." See
, also Greenville Publishing Co. v. Daily Reflector, Inc.,
496 F.2d 391, 397 (4th Cir. 1974). 3 N o h
( (^ - 194 - 195 - r~ 378.-~13/Those willful anticompetitive acts were comparable, the Court suggested, to those of a theater operator who "uses ,r that strategic position [ ownership of the only theaters in cer-s tain towns) to acquire exclusive privileges in a city where he
- i. has competitors ," United States v. Gr if fith, 334 U.S. 100, 107
- (1948), cited at 410 U.S. at 377. Obviously, the Court would
}
have had no need to review these practices in detail if it deemed Otter Tail's market position alone, without unf a ir and predatory conduct, sufficient to establish prohibited monopoli-
, i
[ zation.
- The Hearing Board in this proceeding was clearly cor-
)
rect in adhering to the principles established in the case law in rejecting the hypotheses that evidence of the Company's "le-13a/ gal and ordinary" business activities could support a monop-r . olization charge. Beginning with that principle, it searched r 1
,, 13/ As the Department of Justice told the Supreme Court on the appeal f rom the remand of the original decision,
. . Motion to Affirm at 18, Otter Tail Power Co. v. United States, 417 U.S. 901 (1974):
~
"These findings showed a deliberate purpose to maintain Otter Tail's monopoly position by every means available to it , including refusals to deal, refusals to wheel power, a and use of restrictive contract provisions to prevent other supplia rs from wholesaling power to those Otter Tail sought to control.
The litigation was an integral and extremely effective part of this ef fort." 13a/ Telex, supra, 510 F. 2d at 927.
% d
( (~
- 196 -
c relevant portions of the record for evidence of exclusionary 14/ r conduct. Finding none, it concluded:
"The record in this proceeding does '. not disclose substantial evidence of any fact or facts within the relevant matters in controversy which constitute a scheme or conspiracy the purpose or effect of which is to cause the crea-tion or maintenance of a situation 15/
inconsistent with the antitrust laws."-- It is clear, therefore, that the Hearing Board ap-plied the correct legal standards in reviewing the extensive I ( facts of record in this proceeding. 7-
- 2. Issues Not Argued Below.
E' Many of the most extensively argued allegations of our adversaries were not argued to the Hearing Board and are 16/ t raised for the first time on appeal.-- This practice deprives
?
14/
-- The Department of Justice seeks to diminish the statura
of the Initial Decision by criticizing its terminology, notably its use of the concept of a " scheme of monopo-L lization." Department's Appeal Brief at 24 n*. Yet, on the same page of its Appeal Brief, the Department cites an interlocutory opinion by Judge Edelstein in " United States v. International Business Machs. Corp., 1975-2 Trade Cas. 160,495 (S.D.N.Y. August 6, 1975) which uses the term " scheme of monopolization" in precisely the same way. ,
;
15/
~~ Initial Decision at 168, ERCI 75/7 at 109. In light of the Department of Justice's extended effort to
.~ distinguish between " purpose" and "effect" of exclu-sionary conduct, it is noteworthy that the Hearing Board's finding expressly includes both concepts. 16/ See Sections IV-B and IV-C, infra. %Y l
I r-
- 197 -
this Appeal Board of the benefit of initial consideration by
/ the Hearing Board; if permitted, it could be used to resurrect factual contentions whose accuracy and weight may well turn on the credibility and demeanor of witnesses. As we have noted, this Board has repeatedly emphasized its normal deference to I
the lower tribunal's determinations on factual matters. We
- submit that this Board should not permit this procedure, at t
least in purely economic proceedings involving experienced r t counsel. Y ( Numerous other federal agencies have followed this approach. For example in R.H. White Corp., 54 F.T.C. 1734,
, 1737 (1958), the Federal Trade Commission strongly rebuked its staff counsel for failing to raise their interpretation of the facts before the hearing examiner:
s.
" Counsel supporting the complaint have advanced cogent reasons, both in their brief and in oral argument, why the defense of abandonment should not be here considered.
,_ The contentions in this vein are advanced, , however, for the first time on appeal. After the motion to dismiss was filed, counsel supporting the complaint took no exception to the basic or essential facts asserted in 17/ Cf. Louisiana Power & Light Co. (Waterford Steam Generat-
~~
I~g Station, Unit No. 3), ALAB-258, NRCI 75/2, pp. 45, 48 n.6 (Feb. 3, 1975); Wolf Creek I, NRCI 75/6 at 576. H In many circumstances, the NRC's Rules of Practice limit a litigant to the factual and legal issues he raised in an orderly and proper fashion. See SS2.760a, 2.770, , _. 2.785(b) (2) of the NRC Rules of Practice, 10 C.F.R. I SS2.760a, 2.770, 2.785(b)(2). i w-m
( e
- 198 - ~ ; the respondent's answer and affidavit and made no effort to supplement the record with additional facts bearing on the good r faith of the respondent's discontinuance.
They thus permitted the motion to go to the hearing examiner for decision virtually by r default and, on the record presented to him, i the hearing examiner's action of dismissal without prejudice was clearly appropriate." Id. at 1737. (Emphasis added.)18/ I Courts have strongly endorsed the policies of both
^
the Federal Communications Commission and the Interstate Com-merce Commission in refusing to consider factual theories not [ offered to subordinate tribunals. We submit a comparable 18/ In another case, when the FTC departed from that approach, its decision was reversed by the court of appeals in a highly critical opinion:
"The regulations are drawn so as to re-
-. quire reliance on that evidence by the hearing exue.iner. We think it as prepos-terous for'the Commission to claim a right to ignore that evidence and, with more . daring than prudence, to decide a case ,. de novo as it would be for this court l' to claim a right to ignore the findings of fact and conclusions of law of a dis-trict court in a proceeding here, substi-tuting the judgment of this court on a ... cold record for that of the finder of the fact below." (Footnote omitted.)
; Cinderella Career & Finishing Schools, Inc. v. FTC, 425 F.2d 583, 587-88 (D.C. Cir. 1970).
19/ Abacoa Radio Corp. v. FCC, 358 F.2d 849, 850 (D.C. Cir. 1966); Youngblood Truck Lines, Inc. v. United States, 221 F. Supp. 809, 819 (W.D.N.C. 1963) (three judge cour). j ~J nd
l' r-1
- 199 -
e-i approach is proper here. At the very least, the Appeal Board F should be skeptical indeed both of the plausibility and the
\
importance of allegations not argued by the opposing parties e 20/
-~
l before the Hearing Board.
,. 3. Deference to the Hearing Board's Factual Findings.
[ In assessing the Board's factual findings, it is necessary to recall the record was developed during an eviden-tiary hearing which began on November 27, 1973 and ended on June 17, 1974, and encompassed the testimony of 32 witnesses {
,, and the introduction of 550 documents, many of them hundreds of pages long. The Hearing Board observed the demeanor and conviction of economic and technical experts and of the actual participants in disputed events, noting, for example, that the w
witnesses from the smaller systems " displayed" an " aggressive 21/ and even hostile attitude."-- Drawing on its own technical t m-19/ Abacoa Radio Corp. v. FCC, 358 F.2d 849, 850 (D.C. Cir. 1966);.Youngblood Truck Lines, Inc. v. United States, 221 F. Supp. 809, 819 (W.D.N.C. 1963) (three judge court) .
- '. 20/ As the Cos:rt of Appeals noted in Chambersburg Broadcasting Co. v. FCC, 372 F.2d 919, 921 n.4 (D.C. Cir. 1966), cert.
- denied , 3T6 U.S. 1004 (1967), " [h] ad [the licensee] really considered that it was being treated inequitably, it seems strange that no such argument had been raised before the Hearing Examiner or the Review Board. The contention was G
offered for the first time when WCHA filed before the _ Commission its application for review." 21/ Initial Decision at 156,105, NRCI 75/7 at 105, 83. s ~d
l'
'] - 200 -
f. ,e
- j expertise as well as its meticulous examination.of witnesses
, and review of numerous technical documents, the Board's Initial i Decision reflects its careful and thorough study of the complex
- r questions of fact central to this proceeding.
This Appeal Board has previously stated that it will [ defer to licensing board findings which have reasonable and substantial basis in the record, even though the Appeal Board j ' might have reached a different. result in the first instance. In this Board's words: j' "even though we may be clothed with legal ' a authority to do so, it is [not] appropriate I' for us as a reviewing tribunal to substitute our judgment on purely factual matters for that of the' Licensing Board. Specifically, l- while it is our daty to reject or modify factual determinations which we conclude are not well founded and rational, we see no
, , justification for setting aside licensing
; ;- board findings simply because, had we been
+
the trier of f act, we might have found dif-ferently." 22/ y L The Appeal Board's practice is, of course, wholly
,)
consistent with'well-accepted administrative procedure. Where 4
- -
1
~~22/ Wisconsin Elec. Power Co. (Point Beach Nuclear Plant, Unit 2), 5 A.E.C. 319, 322 (App. Bd. 1972). (Footnotes omit- . ~
ted.) See also Consolidated Edison Co. (Indian Point Sta-tion, ' Unit No. 2) , 7 A.E.C. 323, 357 (App. Bd. 1974); m Niagara Mohawk Power Cora. (Nine Mile Point Nuclear Sta-tion, Unit 2) ALAB-264, 1RCI 75/4 at 347 (April 8, 1975). The Department of Justice, which quotes this passage, seems -to admit that the factual judgments of the Hearing
,3 Board are entitled.to substantial deference. Department's Appeal Brief at 4-5. See also Cinderella Career & Finish-ing Schools, Inc. v. FTU7 T75 F.2d 583, 587-88 (D.C. Cir.
1970). e 5&?
, -- - . . . . . .,..-e .
<w ,_ _, , . , _ . - - . . , . - - - > . , , . , , ,, ..-mm., ..,,-.,-ww r ..,.e ,, -,r--,vy.. ry w
f s
- 201 -
t an administrative hearing board makes findings of fact based on its first-hand assessment of the demeanor and credibility 3 of witnesses, those findings are entitled to especially great weight. Thus "where . . . the question . . . on the facts is _ a close one, the resolution of credibility conflicts is more properly made in the first instance by the trial examiner, who, unlike the [ National Labor Relations] Board, has the op-portunity to observe the witnesses and to hear the testimony at first hand. " Retail Clerks Union v. NLRB, 466 F.2d 380,
-23/
386 (D.C. Cir. 1972). - In this novel proceeding involving conduct in "a 24
- highly technical field," ~/both-the rigorous factual analysis 23/ See also Acme Products, Inc. v. NLRB, 389 F.2d 104, TUT TEtH Cir. 1968); NLRB v. Local 160 Int'l Hod
- Carriers, 268 F.2d 185, 187 (7th Cir. 1959) (where the credibility of witnesses is the only issue, a court may overturn an agency determination for its " refusal to ,, accept the Trial Examiner's resolution of the issue ...."); Sprung v. Weinberger, 386 F. Supp. 74, 77 (D.N.J. 1974) (where credibility is central, the Administrative Law Judge's finding certain witnesses, "whose live testimony he and he alone heard, entitled to belief was, to say the least, of the greatest cogency"); Wheatley v. Shields, 292 F. Supp. 608, 610 (S.D.N.Y. 1968) ("it is the exclu-
" sive province of the administrative trier of fact to pass upon the credibility of witnesses"); Basic Books, Inc.,
56 F.T.C., 69, 84, (1959), aff'd, 276 F.2d 718 (7th Cir. I 1960)("[a] hearing examiner confronting witnesses is pe- l culiarly qualified to determine credibility of witnesses and the weight to be given their testimony") . 24/ Gainesville Util. Dept. v. Florida Power Corp., 402 U.S. 515, 528 (1971). a 2
- 202 -
and the considered appraisals of witnesses and circumstances e set forth by the Hearing Board are of particularly critical value in gauging the significance of controverted conduct. The Hearing Board carefully considered and rejected the ad hominem allegations of unfair treatment and the strident demands from
" hostile" witnesses that smaller systems be granted preferen-tial advantages at the expense of Consumers Power and its cus-25/
tomers. It recognized that, under the guise of antitrust law, the other parties actually seek only " lower [ bulk power] costs [for the smaller systems] . . . to be made up by charging the remaining customers of Applicant higher rates" -26/and that what our adversaries labeled "exclusionary conduct" was no more than the Company's refusal to provide such preferential advantages. 27/ In addition, by requiring- that all except expert witnesses testify " live" on both direct and cross-examination, the Board recognized the importance of demeanor in assessing I the credibility of allegations against the Company and the Company's responses. These circumstances make it particu- l larly appropriate that great weight and deference be afforded the Board's factual findings in this case. i i l 25/ Initial Decision at 156, NRCI 75/7 at 105. 26/ Initial Decision at 176, NRCI 75/7 at 112. 27/ Tr. 81, 502-03. w
1 (. 203 - r-
- 4. The absence of a duty to deal.
r' The other parties attemot to remedy the striking de-l ficiencies found by the Hearing Board in their allegations about the Company's conduct by now seeking to improvise af ter-the-fact affirmative duties which, they contend, Consumers Power has failed to satisfy. First, they claim that Consumers
- - Power is under an affirmative duty to enter into a coordination transaction which provides its neighbors with additional advan-tages, even though the transaction offers no benefit to the t
Company or its customers and may involve considerable net
-28/
losses. ~ Second, they argue that the Company is obliged to sell its neighboring systems a portion of its generation facil-ities -- years after the facilities were planned and their size determined -- even though doing so will cost the Company's re- .c 2_9/ tail customers millions of dollars. In the end, the other l parties' theory of conduct must stand or fall on these two novel 30/
, contentions.'--
6 28/ Staff Appeal Brief at 60-64; Intervenors' Appeal Brief at
. 86-96. See also Department's Appeal Brief at 80-126.
29/ Department's Appeal Brief at 132-148; Staff Appeal Brief
, at 23, n.36; Intervenors' Appeal Brief at 112, 180-81.
, 30/ Beyond these two theories, the other parties offer only a grab bag of hostile (and unsubstantiated) speculations by small system managers about the Company's reactions to hypothetical events, contrived and unsupported inferences from demonstrably fair dealings, and distortion and over-a statement of a miscellany of documents wrenched out of context. The Hearing Board examined and consistently re-
. -jected those miscellaneous contentions of misconduct
.a Footnote continued -- w.* W- - m -<--e--w4e p--
- 204 -
j-i As the Hearing Board properly concluded, such eso-r ter ic and retroactively-imposed special standards of conduct r find 'no support in either common sense or antitrust law. --31/ In f 32/ Telex Corp. v. International Business Machines Corp.,- the
~~
Court of Appeals rejected the notion that conduct could be
" predatory" and therefore satisfy the willfulness requirement if it consisted of "no more than engaging in the type of com-petition prevalent throughout the industry." Likewise, in Emhart Corp. v. USM Corp., 1975-2 Trade Cas. 160,598 at 67,649
[ (1st Cir. November 7, 1975), Judge Aldrich expressly rejected the proposition that even a convicted monopolist (the former United Shoe Machinery Corporation) could be requir ed to engage in a " deficit operation." To the same ef fect is Travelers In-surance Co. v. Blue Cross of Western Pennsylvania,--33/ where the Court of Appeals held the " willfulness" prerequisite of m Section 2 to be unsatisfied where the defendant "ha [d ] done no more than conduct its business as every rational enterprise , Footnote continued --
^
which were presented to it . Initial Decision at 125-68, NRCI 75/7 at 92-109. As we note infra at 196-99, several , of the episodes to which the other parties now purport to j attach crucial significance were not even argued to the l Hearing Board. While we will deal with each such allega-4 tion in detail below, we urge the Appeal Board to recog-nize that the heart of the conduct aspect of this case concerns the two wholly novel af firmative duties to deal which the other parties seek to impose. a 31/ Initial Decision.at 81-88, NRCI 75/7 at 71-74. .y --32/ 510 F.2d 894, 928 (10th Cir.), petition for cert. dismissed, 4 23 U.S. 802 (1975). 33/ 481 F.2d 80, 84 ( 3d Cir . ) , cert. denied, 414 U.S. 1093 (1973). m
/
h
- 205 -
I' does, i.e., get the best deal possible" even though its "initia-tive makes life harder for commercial competitors." As to refusals to deal, it is axiomatic that a f irm has a right to exercise its business judgment in choosing those with _ which it wishes to deal, absent specific proof of monopolistic in-tent. United States v. Colgate & Co. 250 U.S. 300 (1919); Bandett Sound, Ing. v. Altec Corp., 515 F. 2d 1245 (5th Cir. 1975); Kesten-34/ baum v. Falstaf f Brewing Corp. , 514 F.2d 690 (5th Cir. 1975)T-
--34/ In seeking to overcome this black letter principle, the De-partment of Justice cites several cases holding that a pre-datory discontinuance of vital prior dealings is sufficient to establish requisite specif ic inte nt in attempt-to-monop-olize cases. Department's Appeal Brief at 27-31 citing Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S.
359 (1927); Lorain Journal Co. v. United States, 342 U.S. 143 (1951); otter Tail Power Co. v. United States, 410 U.S. 366 (1973); Packaged Programs, Inc. v. Westinghouse Broad-casting Co., 255 F.2d 708 (3d Cir. 1958); Six Twenty-Nine Prods., Inc. v. Rollins Telecasting, Inc., 365 F.2d 478 (5th Cir. 1966). In each of these cases, explicit monopo-listic motivation was found which manifested itself in
" bold, relentless, and predatory commercial behavior" (Lorain y Journal, supra, 342 U.S. at 149) in the form of totally dis-continuing to supply that which had formerly been provided.
They have no application here where that motivation has not been established and where there is no allegation that Con-sumers Power refused to provide a previously-provided service. J Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 625-27 (1953). In arguing for the same purported principle, the Staff Ap-peal Brief at 52 cites several other prominent antitrust cases, United States v. Colgate & Co., 250 U.S. 300 (1919); Swift & Co. v. United States ,196 U.S. 375, 396 (1905); American Tobacco Co. v. United States, 328 U.S. 781, 785, 809 (1945); and United States v. Aluminum _Co. of America, 14 8 F . 2d 416, 4 7 4-7 5 (2d Cir. 1945). Colgate, is , of course , the classic case holding that a firm ordinarily is under no duty to deal with another, the opposite point from that for which it is cited. The other cited passages have literally
nothing to do with a duty to deal. Indeed the passage cited to Alcoa is in f act in an unrelated case styled Duquesne Warehouse Co. v. Railroad Retirement Bd. , 148 F.2d 473 ( 2d ~
Cir. 1945), rev 'd , 3 26 U.S . 446 (1946). 'e-s,-
.,e.y,, . - - -
i il e
! - 206 -
l r l The Hearing Board repeatedly stated its judgment, l articulated principally through analogy to the parable of the , 35/ l good Samaritan,- that the antitrust laws impose no general l ' ~ affirmative duties to aid competitors. As the Hearing Board noted, there is no legal support for the proposition that ', "a large utility's refusal to aid the small utility" is in any sense improper, at least if "the refusal does not cause 36/ whatever difficulties the smaller utility may have."-- In sum, two key principles emerge from this review of the "wi11 fulness" prerequisites of Section 2. First, any notion that willfulness may be inferred simply from market position _ cannot be applied to a public utility such as Consumers Power.
.. Second, the courts have also made clear that even a firm with
_ 35/ Initial Decision at 81-82, NRCI 75/7 at 71. The common law, and particularly tort law, is an appropriate and often necessary guide for determining whether conduct is reasonable under the antitrust laws. See Standard Oil Co.
- v. United States, 221 U.S. 1 (1911); Union Leader Corp. v.
" Newspapers of New England, Inc., 180 F. Supp. 125, 144 (D. Mass. 1959), modified, 7EI F.2d 582 (1st Cir. 1960),
cert. denied, 365 U.S. 833 (1961); see generally 1 von Kalinowski, Antitrust Laws & Trade Regulation, SSI.01-1.03 (1972). 36/
-- Initial Decicion at 83, NRCI 75/7 at 72. (Emphasis in s original.) Indeed the law is clear that a public utility (or common carrier) is under no duty to interconnect with i
a competing or neighboring utility unless required to do so pursuant to a regulatory statute such as Section 202(b) of the Federal Power Act. Atchison, Topeka & Sante Fe R.R. _, v. Denver & New Orleans R.R., 110 U.S. 667, 680 (1884); Oklahoma-Arkansas Tel. Co. v. Southwestern Bell Tel. Co., 45 F.2d 995 (8th Cir. 1370), cert. denied, 283 U.G. 822 (1931); Western Union Tel. Co., 17 F.C.C. 152, 171 (1952).
%) .w
I.
~
- 207 -
^
a monopoly share cannot be held to bizarre and retroactively conceived obligations and -- absent " bold" predatory conduct which results in the destruction of competition -- is not re-quired to deal. Measured against those benchmarks, tha Hearing i Board's assessment of the Company's practices and policies is clearly correct. The following subsection examines in the Board's treatment of those issues in detail . B. The Company's Conduct Related to Coordination. The proponents of antitrust license conditions charge the Company with a variety of misdeeds, some related to coordi-nation and some not. The charges include various forms of dis-crimination against smaller systems, sundry " refusals to deal" and numerous alleged acts and practices directed toward the ultimate destruction of those smaller systems. While these allegations may reflect what the prosecutor set out to find
- in the industr y--37/ they are in fact singularly without support in the record of this proceeding. Standing alone or taken to-gether , they amount -- as the Hearing Board clearly found --
to nothing. As to the allegations related to coordination, the f acts of record, and the findings of the Board, make unmistakably
~'
clear that: (1) the Company's decisions whether to J coordinate with a particular system -- and the policies underlying those decisions --
, 37/ See Section I-B, supra.
a
.s
. - , - - . ,,--7 -. - ,-- ,
y . l.
- 208 - , have been uniformly reasonable; 38/
(2) the terms on which the Company has been willing to share reserves have been reasonable r' and nondiscriminatory; 39/ (3) the prerequisites of membership in the
-- Michigan Pool are reasonable and have been expressly approved by the Department of Justice; 40/
_ (4) the terms on which the Company has been willing to coordinate development have been reasonable and nondiscriminatory; 41/ (5) the Company has never been guilty of anything that could meaningfully be called " preemptive coordi-nation"; 42/ (6) the Company has not unreasonably restricted interstate connections by others, nor has it in f act frustrated the development of any smaller system through contractual restriction on interstate con-
, nections; and 43/
(7) the Company has never been asked to wheel for coordination and has never refused to do so. 44/ _ As we have demonstrated earlier, there is no reason to depart h this proceeding f rom the usual rule that a firm is free to deal or not deal as it sees fit.--45/ But in the light
.- \
of the facts of record and the Hearing Board's findings, it is ) i 38/ See Section IV-B-1, infra. 39/ See Section IV-B-2, infra. 40/ See Section IV-B-3, infra. 41/ See Section IV-B-4, infra. 42/ See Section IV-B-5, infra. 43/ 'See Section IV-B-6, infra. 44/ See Section IV-B-7, infra. 45/ See Section IV-A-4, supra. l u.
- 209 -
not necessary to rest on this principle in order to conclude that Consumers Power Company's dealings with its smaller neighbors do not show willful monopolization. Even if the Company's con-duct is judged by the higher standard of " reasonableness" appli- ~ able to those who are bound to deal (i.e., those engaged in col-lective activity) it is clear that the Company's actions have been wholly proper. Thus, cases under the more exacting standard of Sec-tion 1 of the Sherman Act have held that a party may be excluded from a joint venture for failing to satisfy reasonable conditions
-- even if the e f f e ct of the exclusion is to competitively dis-advantage the excluded party. That was the express holding of Judge Hand for the three judge court in United States v. Associ-ated Press, 52 F. Supp. 362, 375 (S.D.N.Y. 1943), aff'd, 326 46/
U.S. 1 (1945) and of many other leading cases. In assessing
~
~~46/ Board of Trade of Chicago v. United States, 246 U.S. 231,
- 238 (1918); Deesen v. Professional Golfers' Ass'n of America, 358 F.2d 165 (9th Cir.), cert. denied, 385 U.S. 346 ( 19.6 6 ) ; Florists' Nationwide Tel. Delivery Network v. Florists' Tel. Delivery Ass'n, 371 F.2d 263 (7th Cir.), cert. denied, 387 U.S. 909 (1967); Bridge Corp. of America v. American Con-tract Bridge League, Inc., 428 F.2d 1365,1368-70 (9th Cir. 1970), cert. denied, 4 01 U . S . 940 (1971); Gamco, Inc. v. Providence Fruit & Produce Bldg., Inc., 194 F.2d 484, 487 ~ (1st Cir.), cert, denied, 344 U.S. 817 (1952); Roofire Alarm Co. v. Royal Indem. Co., 202 F. Supp. 166 (E.D. Tenn. 1962), aff'd, 313 F.2d 635 (6th Cir.), cert. denied, 373 U.S. 949 (1963); Dalmo Sales Co. v. Tysons Corner Regional Shopping Center, 429 F.2d 206 (D.C. Cir. 1970); E.A. McQuade x Tours, Inc. v. Consol. Air Tour Manual Comm., 467 F.2d 178, 188 (5th Cir. 1972), cert. denied, 409 U.S. 1109 (1973). Indeed, the Department of Justice appears to concede, as " it must, thet a reasonable refusal to deal cannot be the basis for a finding of monopolistic conduct. Department's Appeal Brief at 86-87.
i ii - 210 -
=
whether the conditions are, in f act , " reasonable," antitrust _; tribunals' defer to a considerable extent to the business judgment j' 42/
.. of the party f rom whom a right to deal is sought and do not ;" require that the conditions for dealing offer the requesting
n 4
- -,
~~47/ See Associated Press, supra. In Zuckerman v. Yount, 362 F. Supp. 858, 863-64 (N.D. Ill. 1973), a case concerning
.E
'~
membership in the Midwest Stock Exchange, Judge McLaren (formerly head of the Antitrust Division), approved and y quoted the Department of Justice's position, that "as long as an exchange acts -in good f aith and follows f air proce- dures ' antitrust liability would not turn upon whether an exchange had reached what a court subsequently determined to be the "right" decision.'" (Emphasis in original. ) To the same ef fect, see Deesen, supra, 358 F.2d at 170 (discretion in certilyIng tournament players proper unless
- discrimination applied); Bridge Corp. of America, supra, 428 F.2d at 1370 (Bridge League free to exercise judgment in safeguarding against "a situation where the integrity - of the master point system . . . would be questioned"); ,; Roofire, supra (Underwriters Laboratory may apply its .c threshold standards in determining whether to test equip-ment); Gamco, supra ,19 4 F. 2d at 487 (tenants may be ex-n cluded on such grounds as " lack of available space, financial
- D unsoundness, or possibly low business or ethical standards").
l-The Department of Justice (Appeal Brief at 87 n.*) seeks - to distinguish Zuckerman through a variety of insubstantial
" distinctions. It points to the fact that the opinion arose at the summary judgment stage as somehow affecting Judge McLaren's purely legal determination. Add itionally , !J they . incorrectly read the opinion as terming this subject "as only a threshold matter." However , that " threshold"
'n matter was " procedural due process." 362 F. Supp. at 863. Finally, the Department . seeks to narrow the holding to its ." specific factual setting without any explanation of why lm that is proper.
- a i
5*,
. - - - - , - , , - - . - , ,- , - , . - - , , ,n ,~----,.,,,,n,-,,-,-,- -- --m,n
l l I
- 1
- 211 -
48/ l party the most favorable possible alternative.-- 1 As we explained in Section II-A, the Board limited the issues as to the Company's conduct to those relating to
" coordination." This subsection addr,sses allegations as to
_ the Company's conduct in this area. Subsection C will then examine those issues irrelevant to coordination which our l adversaries have raised in their briefs.
- 1. Coordination Generally. l Consumers Power Company has consistently agreed to l coordinate with other systems whenever there has been a rea-sonable prospect that each party would derive meaningful net
_. benefits from the arrangement. Initial Decision at 133, NRCI 75/7 at 96; Tr. 6053 (Aymond). Further, it has unequivocably agreed to continue this practice. Tr. 8107. The Hearing Board found, and the evidence unmistakably proves, that when-ever the Company d'eclined to coordinate "true coordination i 48/ In Associated Press, supra, 52 F. Supp. at 375, the court expressly permitted by-laws which "will restrict admis-sion" so long as publishers in the same city were not given a veto over a new entrants application. In Rogers
..' v. Douglas Tobacco Bd. of Trade, 244 F.2d 471, 481 (5th Cir. 1957), cert. denied, 361 U.S. 833 (1959), the court upheld the authority of a tobacco board to allocate selling time on a basis deemed to be "not unreasonable," although other reasonable alternatives less discriminatory toward y a new entrant were available. In much the same way in Deesen, supra, the PGA was allowed to favor its own mem-
, bers over other qualified golfers in choosing tournament participants so long as it asserted a rational basis for its preference. 358 F. 2d at 170-171.
.a
~
l
i
)
o r - 212 - i
, with benefits to both parties was not feasible." Initial Decision 1
at 131, NRCI 75/7 at 95. As we will demonstrate, that criterion is entirely appropriate and has been equitably applied. e a. Coordination policies, net benefits and reciorocity. The Hearing Board expressly found that the Company "do[es] not have an obligation to enter into alleged coordina-tion agreements from which no net benefit results . . . . To
, coordinate . . . without any net benefit would injure either the public served or the stockholders or both and would be a waste of the assets of the corporation." Initial Decision at 71-72, NRCI 75/7 at 66.
The Company does not insist that the benefits it re-
. ceives be equal to those obtained by the other party but simply :
that its coordination arrangements not impose a detriment on its retail customers. Tr. 6053-54 (Aymond). In the Company's
~
view, net benefitr cannot be derived from a coordination l
~
l arrangement unless each of the parties thereto possesses the willingness and ability to engage in comparable coordinating
, transactions on a reciprocal basis. Tr. 8 after 8838.
The Company's coordination policies conform to FPC 49/ 7 standards of reasonableness ~~ and to accepted industry practice, a 49/
-- In Otter Tail Power Co. v. United States, 410 U.S. 366, 382 (1973), the Supreme Court expressly recognized the propriety of evaluating proposed interconnection arrange- ' ' ments for antitrust purposes under "the policies embodied I in the Federal Power Act." While the defendant's past re-J fusals to coordinate in that case were admittedly exclu-Footnote continued --
G2 ' w- l j
~
l 4 213 -
; l
. Tr. 7-9, 24 after 8838. In addition, the importance of a " net ! l benefit" to coordination arrangements has also been acknowledged by the Department of Justice in its Appeal Brief here and , 50/ l _ in several " advice letters" to the Commission.-- And as th e ! l Hearing Board emphasized, the net benefits principle is also t Footnote continued -- l sionary, the FPC standard was held to apply prospectively. The Staff's citation of Otter Tail (Staff Appeal Brief at 63-64) as adopting a harsher coordination standard is sim-ply inconsistent with the Court's holding. 50/ Department's Appeal Brief at 81-82 See, e.g. , the following five letters of advice released by the Attorney General: (1) Virginia Electric & Power Co. (North Anna Units 1 & 2), [
. A EC Dkt . Nos. 504A & 50-405A, 37 Fed. Reg. 16221 (August 11, !
1972): "1. Vepco will interconnect with any neighboring utility if it can be shown that benefits accrue to both , parties, and the benefits to Vepco exceed the costs to Vepco.
- 2. Vepco will interchange electric bulk power with any ;
neighboring utility when net benefits accrue to both i parties." !
- (2) Carolina Power & Light Co. (Shearon Harris Units 1, 2, ;
, 3& 4), AEC Dkt. Nos. 50-400A, 50-401A; 50-402A & 50-403A, i 37 Fed. Reg. 18016 (September 16, 1974): " Bulk power supply
> arrangements should be such as to provide benefits, on bal- l ance, each to Applicant and the other participant (s), re- !
spectively. The benefits to participants in such arrange- '. ments need not be proportionately greater than those re-alized by a larger system." ; ! (3) Virginia Power & Light Co. (Surry Power Station, Units ! 3& 4), AEC Dkt. Nos. 50-434A & 50~435A, 38 Fed. Reg. 32596 l l, (November 27, 1973): " Bulk power supply arrangements should
- l be such as to provide net! benefits both to Applicant and to j la .the other participant (s), respectively. The benefits to !
t participants in such arrangements need not necessarily be i equal and the benefits realized by a small system may be : greater than those realized by a large system." ! s' i
.2 l
1 m
> ,-~ - ,, ,, ,,,g ,,- r<,--r --,,,--,-a,---- v - - - - - , , - - - - , - - - - - - , - ,.,-,--,,-,,we.,w .-r,--,,- --,+--or-vo-- mew-,,--egmvw cr-+w w -vw-
I.
,r- - 214 -
inhe re nt in bedrock principles of public utility operation and {, 51/ i corporate law.-- t With regard to the coordination standards recognized i at the Federal Power Commission, all parties look principally r~ to Gainesville Utilities Dept. v. Flor ida Power Corp. , 40 F.P.C.
. 1227 (1968), aff'd, 402 U.S. 515 (1971). As the FPC itself has subsequently stated, the Gainesville case embodies that Comm is-sion's views on the appropriate criteria to be observed in L
Footnote continued --
' (4) Illinois Power Co. (Clinton Power Station, Units 1 & 2),
AEC Dkt. Nos. 50-461A & 50-462A, 39 Fed. Reg. 15898 (May 6, e 1974): ". . . The arrangement should also be reciprocal as nearly as may be although it is recognized that, in any particular arrangement, the benefits may not be equal or
' identical for each party and that a smaller electric sys-tem may realize benefits which are greater than those re-
_ alized by a larger system. No party should be obligated to enter into an arrangement if it would realize no net benefits from the arrangement, or if the arrangement would result in net burdens to the party. " L (5) Duke Power Company (Oconee Units 1, 2 & 3, McGuire Nu-clear Station Units 1 & 2, Catawba Nuclear Station Units r- 1& 2), AEC Dkt. Nos. 50-269A, 50-270A, 50-369A, 50-370A, 'l' 50-413A, 50-414A, 39 Fed. Reg. 17461 (May 16, 1974): "Any particular bulk power supply transaction may afford greater benefits to one participant than to another. The benefits realized by a small system may be proportionately greater than those realized by a larger system. The relative bene-
~~ fits to be derived by the parties f rom a proposed transac-tion, however, should not be controlling upon a decision a with respect to the desirability of participating in the transaction. Accordingly, Applicant will enter into pro-posed bulk power transactions of the types hereinaf ter " described which, on balance, provide net benefits to Appli- l cant."
I r (Emphasis added to each excerpt. ) 51/ Initial Decision at 11, 67, 72, NRCI, 75/7 at 34, 64, 66. w ,- ,
r~ t
.- - 215 -
52/ evaluating c:oordination interconnection proposals.-- One i passage of the FPC's Gainesville opinion is of "particular note" 52a/ r- according to a later decision of the Commission; it fully re-flects the right of the larger utility to insist on reasonable r. terms: As a general proposition we note that whenever two electric systems with generating . capacity undertake to interconnect and operate in parallel it is necessary for them to consider the nature of their respective electrical re-sources and individual system utility responsi-bilities, both as a means of evaluating the par-ticular services to be rendered between the con-necting systems and in order to ensure that ap- , . propriate compensation is afforded, either through service exchanges or financial payments. Marked disparities between two (or more) systems in the reliance placed upon the network should be re-flec'ed in the terms and conditions of the inter-
- , connh tion arrangement through appropriate pro-F visions. Each participant should bear its pro-portionate share of that r e sponsibility. In our judgment, a prerequisite to viable and effective interconnected operations among all electric sys-
. tems is an equitable sharing of the responsibili-ties of interconnected operation. Each participant should bear its proportionate share of that responsibility. In doing so, each intercon-necting system will meet its utility responsi- , bilities and there will be no economic penalties ; for being the last one on the interconnected network." 40 F.P.C. at 1233. (Emphasis added.)
In af firming, the FPC's Gainesville decision, the Supreme Court placed crucial emphasis on the FPC's conclusion that ,a "the interconnection will [not] prove to be a one-way street , l m, 52/ Village of Elbow Lake v. Otter Tail Power Co. , 46 F.P.C. 675, 678-79 (1971), aff'd as modified sub nom. Otter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973). See
. City of Danville v. Appalachian Power Co., 46 F.P.C 664, 667 (1971).
52a/ Village of Elbow Lake, supra at 678. u
r < ~
- 216 -
!" with all the benefits flowing f rom the Corporation to the City. The Commission is satisfied that the connection will permit a i-i reciprocal exchange of benefits to the mutual advantage of both 53/ j, systems."-- A more explicit requirement that a coordination arrangement provide both parties with benefits is difficult to imagine. ! To implement this principle, according to the FPC in its Gainesville decision, a utility may insist upon " sufficient
- -assurance" that its partner will not disproportionately " lean" j on the interconnection, and the reasonableness of such assurance must be measured through examination of the " specific character-54/
-~
istics" of the two systems. Surely, if a utility is entitled l to obtain these benefits and assurances when subject to an FPC order to coordinate, it cannot b= deemed predatory or unf air l m. condu ct for Consumers Power Company to insist upon such benefits l- and assurances in its coordination policies and practices. Another FPC decision bearing on the Commission's con-struction of reasonableness in coordination terms is City of Cleveland v. Cleveland Electric Illuminating Co., 49 F.P.C. 118 _ (1973), aff'd in part, remanded in part on other issues sub nom. City of Cleveland v. FPC, No. 73-1282 (D.C. Cir. Jan. 9, 1976). a 53/~ 402 U.S. at 524-25 n.5, 526, quoting 41 F.P.C. at 5-6. J (Emphasis added.) m 54/ Gainesville Util. Dept. v. Flor ida Power -Corp. , 40 F.P.C. 1227, 1257 (Initial Decision). a
- 217 -
In that case, the FPC determined that the parties must " keep their systems in good operating condition in accordance with accepted utility practices and ECAR standards so as to avoid imposing a burden on the other party" as a precondition to the interconnection being required.--55/ In this way, the Commission endorsed the common sense conclusion that interconnections should only be required with a system that maintains appropri-ate standards of reliability and engineering soundness. Obv i-ously then, it is not unreasonable, and therefore not predatory, for a utility to decline to enter into a voluntary interconnec-tion agreement with a system when there are well-founded doubts about that system's reliability.
~
As the Supreme Court noted in the Gainesville case, the net benefits principle is simply an application of the fa-miliar rule that a utility is to be assured the " compensation 56/
- [it] is reasonably due."-- Here the Hearing Board correctly recognized that a utility must receive full compensation for
--55/ The quoted language is set forth in the Initial Decision, 49 F.P.C. at 136 and adopted as one of the " conditions prece-dent" to the ef fectiveness of the Commission's order, 49 F.P.C. at 124. Subsequently, the Commission noted with gra-vity that "the City . . . has failed to maintain its sys-tem" and "the City is not taking the steps necessary to
~
alleviate the unreliable and inef ficient nature of its electrical system . . . . " Order Directing Compliance
.. with Previous Orders and Denying Motion, City of Cleveland
- v. Cleveland Electric Illuminating Co., FPC Dkt. Nos.
E-7631 et al., April 8, 1974 at 4.
--56/ 402 U.S. at 528, citing Permian Basin Area Rates Cases, 390 U.S. 747, 767 (1968).
a
. . . . . ,_ .e. _ ., ----., ,, -,
- 218 -
57/ for all of its services including coordinstion.-- More parti-
~
cularly, the Board stressed "the ' costs of service that a regulated utility provides should, as far as possible, be borne by those who are served as they are being served.'" Williams v. Washington Metropolitan Area Transit Commission, 415 F.2d 922, 951 (D.C. 58/ Cir. 1968), (en banc), cert. denied., 393 U.S. 1081 (1969).- A
~
rate structure in whien a loss in serving one class of customers is off-set by raising the charges to other classes f ails to sat-
;
isfy these principles. Duke Power Co., 48 F.P.C. 1384, 1393-94, _ (1972). Since these principles requiring compensating benefit to the utility apply in any proceeding regarding a coordination agreement brought at the FPC under either Sections 202(b) or 205 of the Federal Power Act, --59/ they necessarily govern the
~
reasonableness of the Company's conduct in its initial negotia- l _ tion of such agreements.
-60/
More generally, as the Hearing Board also recognized, -
~ ~
a corporation's management is barred from entering into trans-actions it does not believe will be of " ultimate benefit to the 61/ corporation,"-- and "[t]he assets of a corporation may not be - O l 57/ Initial Decision at 68-69, NRCI 75/7 at 64-65. 58/ Initial Decision at 69, NRCI 75/7 at 65.
~
59/ See Section III-B, supra. 60/ Initial Decision at 72, NRCI 75/7 at 66. 61/ Greene County Nat'l Farm Loan Ass'n v. Federal Land Bank, 5 7 F. Supp. 783, 788 (W.D. Ky. 1944), aff'd, 152 F.2d _' 215 (6th Cir.), cert. denied, 328 U.S. 834 (1945).
- 219 -
.r wasted . . . by corporate of ficers acting in a fiduciary capa-
-62/
city." - In particular, a corporation's officers may not
~
share or give away its resources without receiving com-pensating benefits. These rules are especially strictly con-
~
65/ strued with regard to public utilities.-- Obviously, they
- bar the management of Consumers Power from entering into co-ordination agreements which they anticipated would provide no net benefit to the Company. Plainly, it cannot be willful monopolization for Consumers Power to decline to enter into a transaction when agreeing to the proposed arrangement would be - a breach of its officers' duties.
In addition to this duty to the corporation, ad-herence to the principles of nec benefits and reciprocity assures a utility against undue discrimination against its own customers. The rates paid by Consumers Power's customers are
- established at the lowest level which will permit the Company - to earn an adequate rate of return and thus to attract the
- 6
--62/ SEC v. Insurance Sec., Inc., 254 F.2d 642, 650 ( 9th Cir. ),
cert. denied, 358 U.S. 823 (1958).
--63/ Taussig v. Wellington Fund, Inc., 187 F. Supp. 179, 211-12 (D. Del. 1960), aff'd, 313 F. 2d 472 ( 3d Cir. ), cert. denied, - 374 U.S. 806 (1963).
64/ In re John Rich Enterprises, Inc., 481 F.2d 211, 214 (10th l _ Cir. 1973). 65/ United Community Servs. v. Omaha Nat'l Bank,162 Neb. l 786, 77 N.W. 2d 576 (1956). b eea emus
, ,_ ~ , - - r -
220 - {~ 66/ capital it needs. When coordination agreements are not recip-rocal and do not provide net benefits to the Company, its cus-tomers' rates have to be adjusted to permit the Company to re-gain an adequate rate of return. Tr. 63-64 after 7239, 37-38 after 8838. Thua, if the Company's no-net-banefit coord inat ion
" partners" receive lower-cost power supply only at the expense of the higher rates being charged to the Company's wholesale I and retail customers, the effect is blatant discrimination.
I Another discriminatory effect arises from the fact i that while wholesale and retail rates are based on system-wide average costs, coordination agreements are normally priced 67/ at incremental costs. When reciprocity is absent and incre-mental costs are lower than system-wide average costs (as they were throughout the Sixties), the coordination " partners" are L simply buying power for less than its average cost. Tr. 8294. The effect is that coordination without net benefits offers to deficient systems an opportunity to transfer some of its
, costs, without justification, to the Company's other custo-mers. Tr. 8-9 after 8838, 32-33 after 7239. Therefore, t '
4 66/ Tr. 8280; Consumers Power Co. , MPSC Case U-4174, Order at L -- 21 (November 24, 1972); Consumers Power Co., MPSC Case F U-4576, Order at 22-23 (September 16, 1974); Bluefield Waterworks & Improvement Co. v. Public Serv. Comm'n, 262 __ U.S. 679 (1923); FPC v. Hope Natural Gas Co., 320 U.S. 591, 605 (1944). .c 62/ Intervenors' Appeal Brief at 13-15, 140; Tr. 8292-95; t 50 after 7239, 3-9 af ter 8838. emus =
--m ,-
- 221 -
r- it is the Company's customers -- as well as its shareholders
-- who suffer the consequences of coordination agreements ~'
which lack reciprocity and net benefits. Tr. 63-64 af ter 7239, 37-38 after 8838. Thus, the Company's policy of refusing to enter into arrangements having such consequences is not only c. only reasonable, it is undoubtedly required by law. Finally, Consumers Power's concern that a coordination arrangement provide for net benefits, reciprocity, and adequate L, assurance of each system's reliability is also reflected in ac-
- 68/
cepted industry practice concerning coordination.-- The exis-tence of reciprocal net benefits is, according to industry prin-f_ L ciples, the crucial prerequisite to any coordination agreement r- and plainly these benefits must be present not only at the time [^ 69/ the arrangement is consummated but throughout its life. I Industry practice is especially clear in requiring ;
. i reciprocity as a prerequisite to coordination transactions in-
_ volving the construction of bulk power facilities such as gen-r, eration units, transmission facilities or interconnections ties for the benefit of the coordinating partner. Tr. 8, 18 after
~
l
-_ i I
r' 68/ Tr. 7-9, 24 after 8838. 4 I
'~ l 69/ The prevailing practices and standards in an industry are l r-of ten relevant in determining whether conduct is exclu-sionary. Telex Corp. v. International Business Machs.
" Corp., 510 F.2d 894, 928 (10th Cir.), petition for cert. dismissed, 423 U. S. 802 (1975); Times-Picayune Publishing [ L Co. v. United States, 345 U.S. 594, 623 (1953). l' f'
- 222 -
9 8838. These transactions require the constructing system to l raise capital for the benefit of others than its customers. One of the common objectives of coordination agreements is that "no one system will have an unreasonable capital investment for the benefit of others and no one system will be dependent I on others for a disproportionate amount of its capacity require-F 70/
! ments.""~ Unless its coordinating partner agrees to undertake - a comparable construction program of facilities to which the I
sharing system is afforded access, such additional capital re-
; quirements could well have adverse effects upon the latter's cost of, or even ability to raise, capital to serve its custo-F L mers.
- m. In sum, the record and applicable case law amply dem-onstrate that the Company's coordination policies are reason-able and fully consistent with FPC criteria, corporate and pub-
{' lic utility law, and accepted industry practice. The response of our adversaries in this regard varies: the Department seeks to obfuscate the record, the Staf f misreads the law and the In-
- tervenors ignore the matter entirely. Each of these approaches is wholly deficient. ; ~
In its appeal brief, the Department now concedes that r Consumers Power "is not obligated to coordinate with small sys- { tems where the coordinating transactions would result in no net 70/ Exhibit 167, page 31. l r-w w M
,--,w - --- --- -
y __ . - - . - -
- 223 -
71/ r_ benefit . . . . However, the Department promptly proceeds I L to' misrepresent, or at least mi'sconstrue, the net benefits ap-The {i proach Consumers Power and the Hearing Board applied. Department states that Consumers Power has "apparently" r--
" weigh [ed] in the balance any potential loss
[' of revenue to the Applicant that may result because the small system, once afforded [_ coordination, would thereafter purchase less
! wholesale firm power, or because the small system might obtain a lower cost power supply through coordination and then compete i more vigorously . . . . " 72/
- r. It is simply and unambiguously incorrect as a factual matter to assert that either Consumers Power or the Hearing
{ Board weighed the potential loss of load as a detriment in de-L. termining whether net benefits were attainable in a coordinating r
) relationship. The Department of Justice supports this wholly , insubstantial argument solely with quotations from the record i
- t. . relating to wheeling ~, not coordination.
p Although wheeling may be used to facilitate coordina-t
~
tion arrangements between two systems which are not directly c- 73/ connected, wheeling is not a form of coordination.-- In other { 71/ Department's Appeal Brief at 82. 22/ Id. at 82. This approach to net benefits though not re-r flected action in the Company's position in the Initial '- Decision has substantial logic to it and has been recog-nized as legitimate and proper even by the economic ad- . . visors of the NRC antitrust staff. See Penn, Delaney
& Honeycutt, COORDINATION, COMPETITION, AND REGULATION IN THE ELECTRIC UTILITY INDUSTRY, NUREG-75/061 at 7
36-37 and 41-42 (June 1975). ._ 73/ Initial Decision at 11, NRCI 75/7 at 34. See Penn, et al., supra at 31. Consumers Power's coordination agree-ments do not generally provide for wheeling. See m Paragraph IV-C-1-a. w' L
F
\
- 224 -
F, words, wheeling is not a mutual two-way arrangement; unlike coordinating utilities, the wheeling utility is not affected by the capabilities of the receiving utility and derives no in-l t crement to its electric reliability or capacity from the ar-r rangement. Thus, in the establishment and articulation of its [ policies, the Company has treated wheeling and coordination I quite separately. It has never linked the two topics. The I. Department's belated inference that the Company regards loss
! of load as a detriment to be weighed in gauging the benefits r- of coordination relationships finds no support whatsoever i
in the voluminous testimony and documentary evidence in E this proceeding. Even more specious is the Department's sugges-L tion that the Hearing Board utilized loss of load considera-tions in its net benefit analysis. In fact, the Initial Deci-
, sion makes no reference at all to " loss of load" in either a ji 74/
E coordination or a wheeling centext.
. e
~'
74/
-~ Indeed, the Memorandum of the Waterford licensing
- - board cited by the Department provides clear evidence f1 that the Hearing Board in this proceeding did not include loss of load among the detriments to be weighed in determining net oenefits. As the Depart-ment notes (Department's Appeal Brief at 85), the
. ,_- Waterford Board expressly excluded " loss of re7enues" among the costs to be considered in evaluating coordi-
~
nation arrangements. RAI 74-10 at 741. Yet Judge
~
Clark, who was the chairman of the Waterford Board, was also the chairman of the two-man Hearing Board
-_ in this proceeding. It stretches credulity to con-
.; tend that Hearing Board Chairman Clark would par-ticipate in two decisions employing directly incon-sistent results without offering some explanation Footnote continued --
l t
, 4 l
. , - , - . , _ . . --m pr -
1
- 225 -
r-f In contrast to the Department of Justice's attempt p to obfuscate what was meant by " net benefits" below, the t Staff flatly argues that the antitrust laws compel Consumers [~ Power to enter into coordination relationships even where no
\
75/ net benefit to the Company results. The Staff brief v. f argues that otherwise illegal conduct cannot be justified F. by possible public or individual benefits. In this setting, l the argument is wholly circular; it presupposes the very I illegality that is at issue.
]
Moreover, in contesting the net benefits approach r. relied upon by Consumers Power and the Hearing Board under L this theory, the Staff points to three surprisingly inadequate l- bodies of law. The first of these consists of a group of cases, r decided prior to 1927, holding that labor union activities I v
! Footnote continued --
for the change of view. Particularly because the { Department did not argue the point below, the only L. plausible conclusion is that the Department's new interpretation of what the Company and the Hearing
- Board meant by " net benefits" simply never ocurred
'd to that Board or to the parties. See Louisiana Power & Light Co. (Waterford Steam Electric Generating Station, Unit 3), Memorandum of Atomic Safety
)i l
and Licensing Board with Respect to Appropriate License i Conditions Which Should be Attached to Construction l
, Permit Assuming Arguendo a Situation Inconsistent b with the Antitrust Laws, RAI 74-10 at 741, (Oct.
24, 1974) quoted in the Department's Appeal Brief at
;
85-86. 75/ Staff Appeal Brief at 60-64. i ' L.
F
- 226 -
r- and employment practices violate Section 1 of the Sherman Act. I 76/ These cases have, of course, long since been discredited. A second group of its cited cases is irrelevant to this pro-ceeding since they hold only that public economic benefit f is no defense as to per se violations of Section 1 of the
-~ '
77/ T'- Sherman Act. These cases contain no suggestion that I a refusal to coordinate on unreasonable terms is a ger se violation of Section 1 or, indeed, subject to Section 1 standards at all. Finally, the Staff cites two leading merger r. cases under Section 7 of the Clayton Act which hold that
..- where a merger's tendency to reduce competition is shown, courts should not consider any possibly compensating benefits 78/
[ to the economy or to competition.-- We frankly fail to see L how those cases have any relevance to the matter for which _. 76/ Staff Appeal Brief at 60-61 citing Bedford Cut Stone Co. l '. v. Journeyman ~ Stone Cutters Ass'n, 274 U.S. 37 (1927), L- see especially separate opinion of Justice Stone and dis-sent of Justices Brandeis and Holmes; Anderson v. Ship-
^
owners' Ass'n, 272 U.S. 359 (1926) and Duplex Printing b Press Co. v. Deering, 254 U.S. 443 (1921), see especially dissent of Justices Brandeis, Holmes and Pitney. As to the subsequent status of those cases, see United States
- v. Hutcheson, 312 U.S. 219 (1941).
77/ Staff Appeal Brief at 61-62 citing United States v. Masonite Corp., 316 U.S. 265 (1942); United States v. L_- Socony-Vacuum Oil Co., 310 U.S. 150 (1940); United States
- v. Topcc Associntes Inc., 405 U.S. 596 (1972);
Fashion Originators' Guild of America v. FTC, 312 U.S. 457 (1941). l 78/ Staff Appeal Brief at 62-63 citing United States v. j Philadelphia Nat'l Bank, 374 U.S. 321 (1963); FTC
- v. Procter & Gamble Co., 386 U.S. 568 (1967).
M
- _
l- --
f 1 r - 227 - r - 79/ l, they are cited. ~ 7 In sum, no theory in the briefs of our adversaries I
\
refutes our position that the Company's " net benefits" prin-i" ciples are a reasonable and necessary aspect of its coordi-nation policies.
+
I
- b. Consumers Power's coordination practices:
- y. ~
services exchanged under the Company's various agreements. In the Initial Decision, the Hearing Board reviewed I.-
, voluminous evidence and concluded that the Company has coordi-r_ nating arrangements with every system " capable of coordina-
[ 80/ ting."-- It also examined allegations concerning the Company's
'~
b refusals to coordinate during the 1960's with certain systems r and concluded that, since these proposals offered no net benefits 81/ { to the Company, its refusals were reasonable.-- Thus, the Hear-i ing Board concluded, the Company had equitably applied its ! l' L: coordination policies in practice. As we demonstrate in the 1 subsection which follows, the record fully supports the Hearing Board's findings in this regard. The Company presently engages in coordination trans-actions with eight Lower Michigan systems -- four municipals, 1 79/ As to the Staff's reliance on Otter Tail Power Co. v.
~-
p United States,~410 U.S. 366, 381 (1973), see n. 49, p.212, supra. 80/ Initial Decision at 133, NRCI 75/7 at 96. i 81/ Initial Decision at 131, NRCI 75/7 at 95. s_
..y-- .- ,,--r -,
1 1
- 228 -
I two cooperatives and two investor-owned utilities -- as well 82/ as with four systems wholly outside of lower Michigan. These ( coordination agreements are the product of negotiations con-
- ducted at different times with systems having different charac- ! 83/
teristics and desires. Their terms and conditions are [ therefore not uniform. Although all of the Company's coordination agree-I ments have been filed at the FPC,--84/ no party has ever initi-ps ated proceedings there to dispute the terms of a coordinated operation arrangement that had been entered into or to require
; coordinated generation where it did not exist. Many non-Michigan systems have availed themselves of the FPC's regulatory authority in this regard and have obtained all or part of the relief 85/
they sought. At the outset, we therefore urge this Board i 82/ Exhibits 67; 74; 75; 76; 105; 11,106; 11,108; 11,109; 11,112; 11,119; 12,024. _ 83/
-- Initial Decision at 132, NRCI 75/7 at 95; Tr. 9 af ter ,, 8838.
84/ Tr. 8298; see Sections III-A and III-B, supra.
85/ City of Cleveland v. Cleveland Elec. Illuminating Co., 49 F.P.C. 118 (1973), aff'd in part, remanded in part sub nom.
City of Cleveland v. FPC, No. 73-1282 (D.C. Cir. January 9, c
" 1976); Village of Elbow Lake v. Otter Tail Power Co., 46 F.P.C. 675 (1971), aff'd as modified sub nom. Otter Tail - Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973); Public Serv. Co., 41 F.P.C. 399 (1969); Gainesville Util. Dept.
- v. Florida Power Corp., 40 F.P.C. 1227 (1968), 41 F.P.C.
4, (1969); aff'd, 40 2 U. S . 515 (19 71 ) ; Crisp County Power Comm'n v. Georgia Power Co., 37 F.P.C. 1103 (1967), 42
~ 'F . P . C . 1179 (1969); City of Paris v. Kentucky Util. Co., 38 F.P.C. 269 (1967), Shrewsbury Municipal Light Dept. v. New
!. Eng. Power Co., 32 F.P.C. 373 (1964), aff'd sub nom. New l Eng. Power Co. v. FPC, 349 F.2d 258 (1st Cir. 1965). l
- _
f r t - 229 - l to look skeptically upon charges of unfair treatment which 86/
-~
r have not been properly raised at the FPC. .5 The pattern that clearly emerges from examination of the Company's coordination with its various partners is one of evenhandedness, not discrimination. Moreover, the
) facts which form this pattern are not the subject of serious
,_ controversy. The reasonableness of the Company's conduct in this regard may be assessed in terms of the particular services exchanged under the various arrangements.
The Company's coordination arrangement with The Detroit Edison Company is known informally as the " Michigan Pool." Formed in 1962 and amended in 1973, it provides for I
~
r 86/
-- Perhaps the clearest example of an attempt to present in ' this forum an issue at the heart of the regulatory concern of the FPC is the far-fetched contention that the Company's ,_ wholesale rate _is in reality a " tie-in." Intervenors' Ap- } peal Brief at 22-23; Staff Appeal Brief at 66-67. In sub-L stance, the allegation is that the Company should be re- " quired to offer coordination-type services on a non-recip-rocal basis at a rate which includes a demand component
[- lower than that reflected in the Company's conventional wholesale rate. The Intervenors have, in fact, raised this same contention in the Company's current FPC rate proceed-ing, FPC Dkt.'No. ER76-45. Leaving aside the rate design issues suggested, the b rhetorical reference to " tie-ins" is, of course, unsound, Tie-ins arise in "the forced purchase of a second distinct commodity with the desired purchase of a dominant ' tying' I product" [ Times Picayune Pub. Co. v. United States, 345
~ U.S. 594, 614 (1953)(emphasis added)] and "as a general rule, a manufacturer cannot be forced to deal in the min-t imum product that could be sold or is usually sold." United States v. Jerrold Electronics Corp., 187 F. Supp. 545, 559 (E.D. Pa . 13RM7f, af f ' d pe r cu r iam , 36 5 U . S . 567 (1961).
w I L
.- e-,, - - - . -,--v , , - - - .---- -e
f r i l 1 - 230 - ), l l l ( the exchange of emergency capacity and energy (referred to in r the contract as " coordinated services"), supplemental capacity and energy (including short-term and maintenance capacity and ; 87/ energy), and economy energy. The agreement also calls for f the joint planning of generation and major transmission facil-t 88/ ; I ities.-- l 1 y Consumers Power is also a party to coordination ar-
} the Lansing Board rangements with several smaller systems:
r' of Water and Light, the City of Holland, and the Michigan Mu-I nicipal and Cooperative Power Pool (the "MMCPP" is comprised l I of Northern Michigan Electric Cooperative, Wolverine Electric Cooperative, the City of Grand Haven, the City of Traverse 1 L City). These agreements all provide for the exchange of emer-gency capacity and energy, supplemental capacity and energy,
~
89/ and economy energy. Like the dompany's contracts with Lansing, Holland and the MMCPP, its agreements with the Hydro-Electric Power
- b. Commission of Ontario (" Ontario Hydro") provides for these same three transactions: the exchange of emergency capacity
~
and energy (referred to in the contract as " capacity power a 87/ Exhibit 67, Article I, sections 2 and 4, Article II; Tr. 8462, 8496, 8498 (Mosley).
~
88/ Exhibit 67, Article I, section 3. 89/ Exhibit 11,112, Article 1, section 2(a), Article IV; Exhibit 105, section 4; Exhibit 12,024, section 4; Tr. 2863 (Mayben), 8462, 8496, 8498 (Mosley). _ . , , , . _ _ _..--np. _ .y ,.
L p' - 231 - l. and energy"), supplemental capacity and energy, and economy energy. It also provides for the exchange of annual diversity 90/ I capacity and energy.-- ( Recently, the Company became interconnected with its larger neighbors to the south. Its coordination contracts with e The Toledo Edison Company and Indiana & Michigan' Electric Com-l pany provide for the same three transactions common to the Company's arrangements with the five systems previously dis-r, cussed -- the exchange of emergency capacity and energy, sup-91/ [j plemental capacity and energy, and economy energy.-- The _. Company's agreement with Commonwealth Edison Company, an Illi-Iu nois utility, provides for the exchange of emergency capacity and energy, supplemental capacity and energy, but not economy energy. In addition, the distance between these two systems r-92/ 1 permits the exchange of diversity capacity and energy.-- _ Finally, the Company's agreement with the Northern Indiana
>J %. Public Service Company provides only for the exchange of emer-90/ Exhibit 11,106, Article V.
F
~
91/
~~
Exhibit 11,108, Article I, section 1.04 and Service Schedules A, B, C and D; Exhibit 11,109, Article I, sec-
,{ tion 1.04 and Service Schedules A, B, C and D.
a 92/ Exhibit 76, Article I, section 1.03 and Service Schedules A, B and D. Diversity is that which may be " exchanged
- among or between electric utility systems during definite periods because of the differences in the characteristics of the loads of the individual interconnected systems."
- Exhibit 167, p. 39015.
go.s if y- .--,ee
r 1 L
- 232 -
h' 93/
-~
gency capacity and energy. I~ Setting aside its relatively limited coordination ( agreements with Commonwealth Edison and Northern Indiana, the Company's coordination contracts vary only with respect to di-r- versity capacity and energy and joint generation and transmis-i l sion planning. Charges of discrimination cannot account for these differences. Dissimilarities with respect to diversity [ i exchanges relate simply to differing opportunities to engage n in this transaction. The exchange of diversity capacity and [ energy is found in the Company's agreements with Ontario
), Hydro and with Commonwealth Edison of Illinois. It is not, however, found in any of the Company's agreements with The i
Detroit Edison Company, the MMCPP, the Lansing Board of Water and Light or the City of Holland. Exhibits 67; 105; 11,112 12,024. This is not, though, the result of discrimination.
;O Rather, as the Department's coordination witness conceded, 1
p diversity exchange requires time zone or climatic differences.
, p'.
Tr. 2864 (Mayben). There is no suggestion that any such differences exist between the Company and any of these four Lower Michigan systems or that any of these four, systems we
, 93/
~~
Exhibit 76, Article I, section 1.03 and Service Schedule B.
-! In addition to these coordination arrangements, the Com-pany exchanges transmission services with Indiana & Michigan Electric Company and also provides those services to the MMCPP. Exhibit 11,109, Amendment No. 4, Schedule D, section
. _ , 3.12-3.13, Schedule F,~section 3.12-3.13, Amendmen t No. 6, Schedule G, Sections 3.12-3.13; Exhibit 12,023. he
i-
- 233 -
F [ ever sought provision for diversity exchange. p Likewise, joint planning is formally provided for 94/ only in the Company's agreement with Detroit Edison.- How-ever, none of the Company's other agreements prohibit any , I party from engaging in coordinated development on mutually r i
! acceptable terms and conditions. As we demonstrate below c, (Subsection IV-B-4-c) with specific reference to the Midland I
Units, the smaller systems evidenced no interest in coordi-I nated development with the Company prior to the initiation of this proceeding. Indeed, so far as can be ascertained, [ none of the smaller neighboring systems ever, except in the
,. course of this proceeding, expressed to the Company any de- \
i sire to consider coordinated development. Tr. 7934. In fact, when in 1967 the Company sought out smaller systems to pro-pose that they participate in the Ludington pumped storage
. 95/
.)m ,u plant, none of those systems showed even preliminary interest. In overview, what is striking about these coordination <$ agreements is their high degree of similarity. They are very much alike despite their having been negotiated at different l .a 94/
-~
Exhibit 67, Article 1, section 3. See Exhibit 74; 75; 76,
, Article I, section 1.01, Article VI; Exhibit 105, section l
_, 13(a); Exhibit 11,106, Article I, section 4; Exhibit 11,108, 1 Article I, section 1.01; Exhibit 11,109, Article I, section n 1.01; Exhibit 11,112, Article V; Exhibit 11,119, Article I,
] section 1.07; Exhibit 12,024, Section 13a.
95/ See Subsection IV-B-4-b, infra. .a
.c
l
- 234 -
r
! times and under differing circumstances. The differences that p exist relate to the various systems' different characteristics
( and desires, to whether there is opportunity for diversity and r 96/
) interest in coordinated development. The differences are L
plainly not the result of discriminatory purpose or abuse of r [ market power. As the Hearing Board held, "[e]ach agreement is r- tailored to the capabilities and the needs of the parties so l- 97/ as to achieve net benefits to each party."-- (' Accordingly, there is simply no substance to the l charge that Consumers Power Company discriminatorily denied r. i certain forms of coordination to those of its smaller neighbors with which it has coordinating agreements. Despite the allega- -)e ations of the opposing parties -- never pursued at the FPC -- the record reveals only fair, arm's-length dealings producing L' remarkably consistent results. 'I c. Coordination practices: allegedly unreasonable 'd refusals to coordinate.
] Beyond charging that Consumers Power Company has discrimi-a nated against smaller systems, the opposing parties suggest
} that the Company's unwillingness to enter into coordination arrangements with certain smaller systems was unreasonable and 98/
- -l therefore predatory.
As we will demonstrate, the accusa- l __ ; l 96/ See also Tr. 9 after 8838; 8460 (Mos.l.ey). l 97/ Initial Decision at 131, NRCI 75/7 at 95. l 98/ See, je.., Department's Appeal Brief at 86-105; Interve- l __ nors' Appeal Brief at 158-65. e +--.
, - - - -m - # .-u
I
- y. .
- 235 -
F I tions are premised on misstatements of fact and on novel notions 'I of coordination which were never raised in the negotiations ( I nor supported by our adversaries' expert witnesses. The Hearing l f' [ Board reviewed these allegations in detail and emphatically rejected them:
"Save for the smaller utilities with which Applicant is coordinated, the record shows no ; smaller utility in the relevant geographic mar-
- ket which has adequate reserves to support a coordination agreement.
,~. l i
"We find as a matter of fact that Applicant l has never refused operational coordination with !
- a smaller utility in the relevant geographic market and that Applicant has operational coor-dination agreements with every smaller utility
~
in the relevant geographic market capable of coordinating. h "There is no evidence that Applicant has ever used in anticompetitive fashion its power to grant
~
or deny voluntary operational coordination between Applicant and the smaller utilities." _ Initial Decision at 133, NRCI 75/7 at 96. Examination of the episodes to which the other parties
] point will show that Consumers Power Company could not reasonably have entered into the proposed transactions.
(i) Northern Michigan and Wolverine, 1964, and the prerequisite of self-sufficiency.
.' The Hearing Board found, and the facts clearly demon-a strate, that in 1964 Consumers Power Company declined to coordi-nate with the Northern Michigan and Wolverine cooperatives be-cause those systems lacked self-sufficiency in generating capacity and therefore could not provide the Company with reciprocal net benefits. Initial Decision at 129-30, NRCI 75/7 at 94-95.
Nd
.,---. r, -- ~ , , - y 1-----*- -
-e . , . - . - - r
~.
i F (
- 236 -
l F Thus the Board expressly found that: I " (
. . . Northern Michigan's system manager, Mr. Steinbecker [ sic], conceded that both his system and Wolverine were ' deficient'
[' in 1964; i.e., that these systems had in-l sufficient dependable generation capacity to cover projected peak load. [Tr 1411-16] This testimony is confirmed by the systems' 1964 Forms 12 filed with the FPC which show a combined system peak load of 59.84 mw and only 55.93 mw in dependable generating capa- [ city [Tr 1413-1417, 1420-1421, 1949-1953]." t Initial Decision at 29, NRCI 75/7 at 94. r- Both the Department and the Intervenors contend that b-the Compary was obligated to coordinate reserves with Northern I L Michigan and Wolverine in 1964 even though the smaller com-bined system was lacking in self-sufficiency and relied heavily [ 99/ [ , on wholesale purchases from the Company.-- The Department's position rests on the simplistic claim that "the normal expec-tation" is that reserve coordination with non-self-sufficient systems would provide the Company with "some benefit." 100/ m i The Intervenors contend more elaborately that a non-self-sufficient n
)a system "would form the conceptual analog of two separate sys-tems," one depending entirely on wholesale purchases and the other being the " conceptual analog" of a self-sufficient system 101/
- [ worthy of coordination. Both the " normal expectation" and
" conceptual analog" hypotheses are unsupported and belated J
99/ Department's Appeal Brief at 90-93; Intervenors' Appeal l Brief at 158-62. !" 100/ Department's Appeal Brief at 93. a 101/ Intervenors' Appeal Brief at 160.
t
~:
--. . ,-_.m. -. .,m,
t
. ('
! - 237 -
y creations of counsel and should, as such, be rejected. p- Apparently, even its own coordination witness, Mr. I Mayben, was unprepared to endorse the " normal expectation" i position the Department now asserts. Thus, it is baldly set I out in the Department's brief without the pretense of support in the record. Similarly, counsel for the Intervenors have waited until this time to advance their novel and seemingly esoteric theory. They offered no evidence in its support and, p like the Department, refrained from asking even their own wit-L nesses to assess its validity. Further, by stating their theory for the first time now, Intervenors denied the Company
, the opportunity to address it on the record and deprived the 102/
t Hearing Board of the opportunity to assess its merits. r-The record is not, however, altogether silent on
}
these matters. It shows for instance that, contrary to the j' claims of opposing counsel, the " normal expectation" actually u n held by those in the industry is that an acceptable coordina-b, tion partner must have self-generation capacity significantly
, in excess of its system peak load. Thus Mr. Keen -- manager of the Wolverine cooperative at all relevant times and a wit-ness called by our adversaries -- testified that his system, f i
as a prerequisite to coordination, requires the other system to have capacity equal to 110 percent of its projected peak _ load. Tr. 4555-56. In addition, it is perfectly clear from 102/ See pp. 196-199 supra. w
~.
'N
~
[ - 237a - ( the record that in 1964 Northern Michigan and Wolverine, {' ( while admitting their generation deficiencies and affirming f~ self-suf ficiency as a prerequisite to coordination, were not z asking Consumers Power Company to coordinate with that portion L of- their combined systems which formed "the conceptual analog" f- of a self-sufficient system. They were asking Consumers Power l to coordinate with their combined systems as an entirety. r-Thus, whatever may be said of the speculations and surmises {. of opposing counsel, they bear no relationship whatsoever L to the reasonableness of the Company's decision not to coordi-103/ p nate with Northern Michigan and Wolverine in 1964. L f 103/ Even on its purely theoretical merits, counsel's hypo-L thetical should be given no credence. To begin with, the analysis is circular. If a small system cannot meet (~ its load without power from Consumers Power, that smaller L system will be in no position to assist the Company in times of emergency. Furthermore, although the record
- is devoid of even indirect support for counsel's theory, the evidence shows enough to demonstrate the " wholesale" Wl portion of these actual non-self-sufficient systems was not the " conceptual analog" of a distribution system which H] meets its entire load through wholesale purchases. The Q key fact is that the Company's partial purchase customers have normally chosen to meet their base load requirements
.n with their own generating capacity, reserving wholesale I' power for use in meeting peak loads. Tr. 1423-33 (Mr. Steinbrecher of Northern Michigan discussing a 1964 power supply study done for the Northern Michigan and Wolverine h 'u systems). From that fact it follows that the " wholesale system" will have a load factor far poorer than would a comparable actual wholesale customer. Thus, if the overall system had a typical load factor, the " wholesale analog"
- b would have an extraordinarily poor one. At that level, energy use would be so low that the " partner" providing m wholesale service would not recover its fixed costs for
- h providing the needed generating capacity for the wholesale service.
Footnote continued --
- a
F t
- 238 - -
L Finally, our adversaries' attempt to analogize the C long-standing capacity deficiencies of the two cooperatives to I the emergency purchases of electricity made by Consumers Power ( 104/ in 1971 and 1973 is badly misconceived. A system's reserves f-' [ are its extra generating capacity above anticipated peak. That extra capacity provides a margin of protection against unanti-F.. I cipated losses of generation (including delays bringing new units [~ on line) and unexpectedly high demand on the system. Initial (. Decision at 12, NRCI 75/7 at 35; Tr. 3878-80 (Mayben), 6 after r [ 8996 (Lundberg), 8927-29. Thus, they are simply reserves against future contingencies. L The premise underlying our adversaries argument, 105/ r offered for the first time on appeal, is that reserves are t ,I Footnote continued -- c on the "self-sufficient" side of the " conceptual analog," [1 the base-loaded use of the available generation would, O in the terms of the Intervenors' example (Appeal Brief at 160), mean that "self-sufficient system" would be opera-ting at peak almost all of the time (i.e., all times ex- '(g cept when the overall load is below SUT of peak). In the example provided by Intervenors' counsel, the "self-sufficient system" had generation capacity of 11.8 mw and reserve peak load of 10 mw. Under the hypothetical, instead of having a varying amount of reserves available for its coordinating partner which will not fall below E 1.5 mw absent an outage, this " system" will consequently a have no more than 1.5 mw in reserves at virtually any time. Thus, both the " conceptual analog" of the " wholesale" customer and the " conceptual analog" of the "self-suffi-cient" system would short-change the wholesale supplier / coordination partner as compared to the supposedly analo-gous entities. 104/ Department's Appeal Brief at 93-95; Intervenors' Appeal Brief at 159. 105/ See Section IV-A-2, supra. m-. ,-- . - , - - . - - . _..e.-
~
- 239 -
t not really reserves if they are ever used. The fact that the Company experienced an unprecedented series of adversities in t b those years in no way detracts from the undisputed fact that the Company planned its system throughout this period so as I 106/ l to maintain substantial and adequate reserves. p. I 106/ Mr. Mosley described some of these problems in explaining the need to negotiate a new Michigan Pool agreement. He f,! testified that from 1970 through 1972 the Company suffered serious losses of anticipated generating capacity because of difficulties in bringing and maintaining the Palisades Unit [' on line and because of delays and then a massive outage on Detroit Edison's Monroe Units from which the Company had L: purchased an entitlement to short-term unit power. Tr. 8500, c 8502-03, 8692, 8694; Initial Decision at 116, NRCI 75/7 at
;
- 88. See also p. 171 at n.252, supra. These unanticipated losses of generation, amounting to several hundred megawatts in each year, are precisely the sorts of contingencies I. against which reserves are held. The Department's figures, L compiled from the Company's annual reports, take no account of these and similar events and treat reserves actually used to cover actual contingencies as if they had not been
, reserves at all.
In addition to this erroneous after-the-contingencies assess-
- Uh ment of reserves, the other parties make a series of plain errors. First, in its claim that the Company was not self-sufficient in 1971, the Department apparently makes a
- F, simple mistake in transcription from its exhibit (Exhibit zb 21 shows the Company's generation to have been 3643 mw not the 3443 mw claimed by the Department) which results in a e-nine-fold overstatement of the alleged deficiency. Depart-
-
ment's Appeal Brief at 93. Secondly, the Department makes a similar error with regard to 1968 which causes them to , , - credit the Company with 2.9% in after-the-contingency "re-serves" when the exhibit on which they rely clearly shows Lu 6.0% to be the correct result of their computation.- Id. -- at 94. 3_ Similarly, the Department points to the Company's "substan-tial purchases and interchange" transactions but fails to note that a large portion of the purchases were not for the l- - Company's integrated system which is the subject of this
case, but for the geographically isolated Pontiac system Footnote continued -- I"
. - 240 -
Our adversaries' argument that the-Company is obligated to coordinate with other systems without regard to their lack of self-sufficiency is totally unsupported in the massive record of this proceeding. Further, these arguments are not based on en-r gineering studies of qualified experts, but on the wholly extra-i evidentiary constructs of counsel. And, most significantly they f' l i they are in crucial respects contrary to the clear facts of j r- record. { Accordingly, the reasonableness of Consumers Power's decision not to coordinate with the two cooperatives in 1964 is not at all impugned by the novel and contrived theoretic propo- 1
;
L sitions put forward for the first time in our opponents' appel-late briefs. 7 a' (ii) Northern Michigan (1967). [ In 1967, Consumers Power again declined to coordinate L. with the Northern Michigan cooperative because, as the Board ! " expressly found, the Company "again found no prospect of mutual 107/ 1 benefits from the arrangement." The Board declared that this U ' Lj Footnote continued -- ' r 's
~ which is supplied entirely by wholesale purchases from 1 Detroit Edison. Id. at 95. The Department also calculates !
the Company's outside purchases in terms of dollars, not id i kilowatts-hours, thus unrealistically inflating its stat-istics. See Section III-F-2, p. 171, fn. 132, supra. These !
~ contentions about the Company's reserve levels have been i raised for the first. time in the Department's and Interven-w ors' appeal briefs. The Company was never put on notice that its reserve levels were at issue in this proceeding.
See Subsection IV-A-2, supra. If the Company had had such '~ notice, it would have proven that between 1960 and 1973 it planned and maintained reserves that were at all times suf-J ficient according to the standards prevailing in the industry. f
- a 107/ Initial Decision at 130, NRCI 75/7 at 94. See also Tr. 7925. 1
;
l .a l I
- 241 -
f decision was { " clearly correct since, in 1967, Northern Michigan's system peak load was 43.52 Mw, I its installed capacity was 45.10 Mw and ( the size of its largest unit was 23.5 Mw [Tr. 1441; Exhibit 12,001, May 18, 1967 r' letter]. Thus, Northern Michigan's 1967
. installed reserves covered less than 10 percent of the system's largest unit and its total reserves amounted to approxi-I. mately 1.6 Mw or 4 percent reserves (Tr.
I 1446]." Initial Decision at 130, NRCI 75/7 at 94. f~ {_ Northern Michigan was interconnected with other sys-
- tems in 1967 but refused the Company's request for the details 108/
of those arrangements. Consequently, the Company was unable F to assess the value, or lack of value, of those relationships i to Northern Michigan and was therefore justified in refusing ( [~ to consider them in evaluating Northern Michigan's 1967 coordi-109/
,- nation proposal.. Moreover, the Department's brief concedes l ' that it was not until 1968 -- one year later -- that Northern
[ Michigan, Wolverine, Traverse City and Grand Haven " formally .L entered into the Michigan Municipal and Cooperative Power
~
110/ Pool Agreement." 7 It is, therefore, hardly surprising that the Com-pany's unwillingness to enter a so-called " coordination" agree- [ L, ment with Northern Michigan in 1967 was found by the Board to 108/ Tr. 1453-57 (Steinbrecher); Exhibit 12,001. Tr.'1455A (Steinbrecher); Exhibit 49. 109/ m 110/ Department's Appeal Brief at 99, citing Exhibit 104A. l v
ip - 242 - _p be " clearly correct," or that the Board concluded that the i Company owed "a duty to its customers and stockholders" to I Initial Decision at 130, 131, NRCI 75/7 at act as it did. ( 94, 95. i (iii) Edison Sault 111/ The Department of Justice complains here on appeal, 112/
,. ; for the first time, about Consumers' Power's alleged re-fusal to coordinate with Edison Sault in 1972. The Hearing p Board examined the negotiations between Edison Sault and Con-I sumers Power and concluded that Consumers Pce.er declined to r
i coordinate "because Edison Sault did not have sufficient gen-L erating capacity for its own load." Initial Decision at 130, L NRCI 75/7 at 94. This finding is in precise accord with the l testimony of Edison Sault's Vice Chairman of the Board and 1 chief executive officer, Mr. Kline. Tr. 4375, 4416. Mr. Kline also testified that, after the Company ex-u plained that it could not coordinate reserves with non-self-m [ sufficient systems, his system's management reviewed all of the Company's filings with the FPC and the MPSC and independently
-~
verified the Company's consistency in its application of this policy. Tr. 4419. Further, Mr. Kline testified that even his passing interest in coordination became quickly moot be- _ cause of changed circumstances on his system. Tr. 4420-21. 111/ Department's Appeal Brief at 104-05. 112/ See pp. Section IV-A-2, supra. hA
- - - - ---,~e --
p - 243 - i f Thus, again, the Department of Justice's belated allegations about unreasonable conduct are wholly without substance or
~
record support. (iv) Miscellaneous Allegations. l There remains to dispose of several miscellaneous al-legations in this area raised by the Department's brief. First, I the Department of Justice claims that Consueers Power refused I to coordinate with the City of Allegan. It cites as its only
\.
evidence a 1966 request that the Company supply the city with p 113/
" standby or supplemental power." According to uncontested testimony by the author of that document, the " standby power" L referred to there was simply one variety of wholesale service r which, in fact, the Company subsequently offered. Tr. 7981, 7912, 7978. Thus, the issue raised by the Department doas j not relate at all to coordination. ,. Second, the Department broadly asserts that the u present interconnection agreement between the Company and the r
MMCPP Pool was " delayed," -- apparently inferring that the ' 114/ alleged delay amounted to a refusal to deal. The charge is premised on an August 1969 letter (Exhibit 53) from Wolverine's manager, Mr. Keen. However, that letter did not ask the Company to coordinate with the MMCPP. Rather, it asks the Company to coordinate with the Wolverine system in such a 113/ Department's Appeal 3rief at 100, citing Exhibit 178. 114/ Department's Appeal Brief at 99. M
+ - - - , ., -.
- 244 -
[ l i ' way that the power from the Company could be provided to other members of the MMCPP "on an unrestricted basis." This is a fundamentally different transaction from that which was ultimately consummated between the Company and [~ the MMCPP. Mr. Steinbrecher, the manager of Northern Michigan L cooperative and a MMCPP Pool spokesman, explained that this F basic change in approach " developed over an extended period l 115/ of time in negotiations with the company." In fact it was not until 1970 that the MMCPP members agreed that, since the
& Company would in fact be coordinating with the MMCPP as a whole, the four parties to the MMCPP should all to be parties I to the coordination agreement with the Company. Tr. 1335-36, L
1464-1466; Exhibit 12,005. With that approach established, _ the Company quickly agreed in principle to a coordination agree-ment and offered a preliminary draft to the MMCPP. Exhibits 12,002-05. ,f The Department's complaint about " delay" stands in t contrast to the fact that no representative of the MMCPP systems has ever complained that the Company either suspended negotia-tions or in any way failed to negotiate continuously and in good faith. To the contrary, Mr. Steinbrecher testified that the negotiations were continuous and that neither party broke
.._ 116/
them off.
~
115/ Tr. 1336 (Steinbrecher). 116/ Tr. 1492; see also Tr. 1411-1518. Further extending these negotiations was the fact that in 1971 -- soon after the initiation of this proceeding -- the MMCPP added to their requests a serid' s'of-new demands for coordinated development and participation'in the Midland Units. Tr. 1490 (Stein-brecher); Exhibits 22, 24, 27 & 58.
- . , ,w9,.w w ,---,-w-
F l-F - 245 - i r In assessing whether undue delay has recurred, it must be recognized that coordination agreements are extremely 117/ complex. The courts have recognized that an organization operating a technically complex enterprise may conduct a thorough and, if necessary, extended review of, and negotiations about, any proposed change in its arrangements without giving rise to any inference that a refusal to deal is intended. See, e.g., Bridge Corp. of America v. American Contract Bridge League, Inc., 118/ 428 F.2d 1365, 1368-70 (9th Cir. 1970). r I Finally, the Department of Justice charges that the 119/ Company refused to coordinate with Traverse City in 1968. The L Department's allegation is contradicted by Mr. Wolfe, the man-
~
- ager, at the time, of the Traverse City system, who testified that the Company offered to coordinate with Traverse City, but I
u l L 117/ See, e.g., Exhibits 67; 74; 75; 76; 105; 11,106; 11,108; II710T; 11,112; 11,119; 12,024. 118/ A prolonged review is no less proper if it ultimately de-monstrates that a refusal to change the existing arrange-
- ments would be unreasonable. Structural Laminates, Inc.
- v. Douglas Fir Plywood Ass'n, 261 F. Supp. 154, 159 (D. Ore.
1966), aff'd, 399 F.2d 155 (9th Cir. 1968), cert. denied, 2 393 U.S. 1024 (1969). 119/
~
Justice Appeal Brief at 101-02. M M em w w - - w v- w~ ~- r e- n
f-i r - 246 - 120/ _ the City chose instead to enter the MMCPP arrangement. i Thus, we submit it is clear that Consumers Power has
~
not failed to enter into any reasonable coordination arrange-1 121/ ment sought by its small neighbors. When the Company has r declined proposed transactions, it has been, as the Hearing Board stressed, because "true coordination with benefits to i both parties was not feasible." Initial Decision at 131, NRCI 75/7 at 95. I~
- 2. Reserve-sharing coordination:
p- policies and practices. L Gor adversaries contend that Consumers Power unreason-
~~
ably limited the range of coordination transactions into which e it will enter with small systems and the class of systems with F~ which it is willing to coordinate. They also allege that the L _ Company's coordination arrangements with small systems unfairly L allocate a disproportionate share of the benefits to the F- Company. We demonstrate below that these contentions, like L the other attacks on the Company's coordination arrangements, r- _ L 120/ Tr. 1564, 1767; See Department's Post-hearing Brief at 153. The Company's Mr. Paul, who recalled differently, testified _ that the Company declined to coordinate when it found that an agreement with Traverse City offered no net benefits. r Tr. 7924-25. Perhaps he confused his personal judgment g with the action ultimately taken by the Company.
- g. 121/ The Intervenors' suggestion that Coldwater, Hillsdale and L-Marshall were denied coordination with Consumers Power (Intervenors' Appeal Brief at 143) is totally without merit.
The record reveals no evidence that these small systems have ever requested ccordination with Consumers Power. t The Company, a fortiori, has never refused such a request. The Intervenors' nominal citations in this regard are not !
- evidence of any such request or refusal. I L
(. ' L_ e , - , - ,-
I-
- 247 -
i are premised on a faulty description of the facts and novel,
~
unsupported theories about coordination, t
- a. Gainesville and the appropriateness
~
of equal percentage reserves. Our adversaries charge that by failing to utilize the " equal percentage" formula in all of its reserve-sharing n coordination arrangements, the Company has acted unfairly r~ 122/ c and unreasonably. The Gainesville litigation is cited in this regard, apparently for the proposition that the " equal percentage" formula is presumptively required for coordination
,_ 123/
arrangements under all circumstances. We agree with the 124/ Initial Decision that this reading is unsound both as r to the law and the facts of that case. r Because our adversaries so misread the Gainesville U case, it is necessary to examine it in some detail. The Gainesville proceeding arose under Section 202(b) of the Fed-o eral Power Act, 16 U.S.C. S824a(b). Pursuant to that section, 9 U - 122/ Gainesville Util. Dept. v. Florida Power Corp., 40 F.P.C. I 1227 (1968), 41 F.P.C. 4 (1969), rev'd, Florida Power Corp. L v. FPC, 425 F.2d 1196 (5th Cir. 1970), reinstated, 402 U.S. 515 (1971). 123/ Before the Hearing Board, the Department of Justice insisted that Gainesville established that the formula was invariably r- appropriate. Department's Post-Hearing Brief at 195, see also
' 155, 234-35, 251. The Hearing Board demonstrated quantitatively that the proposition stated by the Department below is patently antenable (Initial Decision at 73-77, NRCI 75/7 at 67-68),
5, and the Department's position on appeal proposes to treat u the " equal percentage" formula as presumptive rather than absolute. Department's Appeal Brief at 121-22. r~
. _ 124/ Initial Decision at 77-81, NRCI 75/7 at 68-71.
t ' ,r. .-Q
I L , - 248 -
- . { '
'i^ the FPC ordered ' Florida Power Corporation to interconnect with I the Gainesville municipal system, under the following terms: _ (1) Gainesville' would pay the entire cost (about $3 million) : t i of the facilities required to construct the interconnection; ]m (2) Gainesville would maintain reserves at a level which would, l in fact, assure that the city did not disproportionately rely E r-4 on the interconnection; (3) Gainesville would pay its share of Florida Power 's costs of frequen iy regulation, until it in-stalled its own tie line bias control equipment; (4) energy r- exchanged across the interconnection would be priced equally : ' l' , 120/ f or both parties. The FPC Hearing Examiner concluded l that the total savings achieved under interconnection should r be evenly divided; however this allocation was rejected by the 1,.* Commission, as was Florida Power's request for a " standby" 121/
' charge . to be paid by Gainesville.
7 4 In reviewing the second aspect of the arrangement -- 8 the reserves which Gainesville would be required to maintain -- Cy 2 the Commission concluded that 15 percent installed and 10 per-
[0[. cent spinning reserves to be reasonable. According to the Com-U. mission, the 15 percent installed reserve standard was justi-
- 3!
i fled,-inter alia, in light of " studies relating to the specific { I, characteristics of the Florida Power and Gainesville systems .' ki l
'" .120/ Gainesville Util. Dept. v. Florida Power Corp. , 40 F.P.C. 1227, 1245-46 (1968).
'121/140 F.P.C. at 1236-39.
L esumI
- fi'
!L
P- {
- 24 9 -
p-t such as load characteristics, capacity of generation, size of t individual generating units, forced outage rates and scheduled 122/ maintenance requirements." The evidence showed , according to the Hearing Examiner in a finding adopted by the Commission, r that 15 percent would provide Florida Power with "suf ficient i assurance" that Gainesville would not disproportionately rely C 123/ on the interconnection.
- Although the Commission believed the anticipated benefits f rom the interconnection to be irrelevant as a matter of law to the proper decision of the case, it found as a fact th at both parties would receive substantial benefits from the - ~
124/ interconnection. On appeal, however, the Fif th Circuit re-
- jected the Commission's findings, characterized the benefits i to Florida Power as ..cy" and held the compensation pre-125/
scribed by the Commission to be thereby unreasonable. 126/ The Supreme Court reversed the Court of Appeals.
.3 The validity of the Fif th Circuit's conclusion, it held, 4
122/ 40 F.P.C. at 1257-58 (1968) (Initial Decision). _ 123/ 40 F.P.C. at 1258.
~
124/ See particularly the Comm.ssion's decision opinion on
;
reconsideration, 41 F.P.C. 4 (1969). 125/ Florida Power Corp. v. FPC,_425 F.2d 1196, 1203 (5th Cir. 1970). 126/ Gainesville Util. Dept. v. Florida Power Corp. , 402 U.S. 515 (1971). ep 6
l
- 250 -
F-I
" depends upon whether the court correctly read the record r
as showing that Florida Power ' receives no benefit ' and that Gainesville incurs 'no real obligations'. The Commission's findings are sauarely contrary." 402 U.S. at 526. (Emphasis added.) The Supreme Court thus concluded:
"Insof ar as the Court of Appeals' opinion I implies that there was not substantial evi-dence to support a finding of some benefits, it is clearly wrong. And insof ar as the
- court's opinion implies that the responsi-bilitied assumed by Gainesville in combina-tion with benefits found to accrue to
- Florida Power were insuf ficient to consti-i tute ' compensation . . . reasonably due,'
L the Court of Appeals overstepped the role of judiciary. Congress ordained that that
'~ determination should be made, in the first instance, by the Commission, and on the record made in this case, the Court of Appeals erred in not deferring to the Commission's expert judgment." 402 U.S. at 527. (Em-phasis in the original. )
Thus, the essence of the Supreme Court's Gainesville decision is that (1) because substantial evidence supported the Commission's finding that Florida Power would receive bene-7 fits from the interconnection, and (2) because the statute ex- plicitly entrusts to the Commission the judgment as to what terms and compensation are reasonably due with respect to an L! interconnection ordered under Section 202(b)(3), the Commis-sion's conclusion should in th is instance be sustained. 127/
. As the Initial Decision recognizes, neither the L ,, 127/ Initial Decision at 77-81, NRCI 75/7 at 68-71.
L'" -w. t
)
1
~
- 251 -
S,
~. FPC nce the Supreme Court at any point suggested that the par-ticular formula approved in Gainesville had any applicability m
to any other setting. To the contrary, the FPC later cautioned that "[m]unicipalities, and private power suppliers as well,
., should take particular notice" of the passage in the FPC's ~
Gainesville decision which emphasized the need for systems to shape each coordination transaction to reflect:
"the nature of their respective electrical resources and individual system utility responsibilities, I both as a means of evaluating the
.. particular services to be rendered between the connecting systems and in order to ensure that appropriate compensation is afforded, either through service exchanges or finan-
- cial payments. "128/
, Just as the FPC's Gainesville decision took into ac-count each of the coordinating systems' " load characteristics, total generation capacity, size of individual generating units, 4 129/
forced outage rates and scheduled maintenance requirements", so Consumers Power considers these characteristics in establish- ._ ing coordination terms which will assure it that coordinating par-ties will not " lean" on the interconnection and that all parties 130/ have the ability to provide comparable emergency assistance. 128/ Village of Elbow Lake v. Otter Tail Power Co. , 46 F.P.C.
.. 675, 678-79, aff'd as modified sub. nom. Otter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973), quoting Gaines-ville UtII. Dept. v. Florida Power Corp., 40 F.P.C. 1227, 1233 (1968).
129/ 40 F.P.C. at 1257-58.
- 130/ Tr. 8468 (Mosley), 11-14, 23-24 after 8838.
e'
i, p - 252 - s. Thus, it is hardly surprising that the Company utilizes differ-ent reserve criteria in arrangements involving systems with .I d if f erent characteristics. , i In the electric utility industry, a variety of for-r- mulae for reserve criteria is used. It is well recognized that ( _ a given formula is not appropriate in all circumstances and 4 that the use of the equal percentage reserve formula does not , always offer assurance of equal reliability and may well deny h one party any net benefit f rom the coordination arrangement. 131/ a r*^ i Reserve-sliaring formulae found in the Company's co- _ ordination arrangements with the small systems take appropriate i, account of each party's particular generation and load charac-132/ t- teristics. Conversely, there is no reason to believe that 4 the use of the equal percentage formula in these circumstances would have provided any net benefits to the Company. In fact, I in 1972 had the Company agreed to eater into emergency power it
- exchange arrangements under an equal percentage formula with - a systems of the size and generation capacity of the MMCPP members, 'l and had these systems experienced the same generation outage
- } record as the Company, the record demonstrates that the Company
, would have had to increase its reserves by 29 mw over its pre-
, 133/
- L . agreement level. Such an arrangement clearly would not have
. u 131/ Id. See also Initial Decision at 72-77, NRCI 75/7 at 66-68. l < ,v 132/ Tr. 9, 24, 27-28 after 8838. l 133/ Tr.
; 8469-72 (Mosley), Exhibit 11,104.
a l
~.
l l' !~
m L I s;
- 253 -
provid ed the Company with reciprocal net benefits. Indeed, the other parties' arguments favoring use of I ( the equal percentage f ormula in all instances cannot be recon-ciled with any of the following uncontradicted principles: I s (1) What matters in reserve-shar ing is system reli-134/ bility, not unit reliability. It is an " engineering f act i of life" that a given amount of capacity from one unit is less [ a reliable than an equal amount of capacity f rom several smaller 135/ units.
.. (2) Coordination with other systems on the basis of 7- equal percentage reserves will sometimes result in net detriment 136/
and inequitable burden to the Company and its customers. f (3) If the Company's reserve sharing policies or I 134/ The Intervenors particularly seek to confuse this point. On page 141 of their Appeal Brief they claim that a reserve formula which takes account of the degree in which a system has concentrated its generation capacity in a few large units
, "results in far greater reserves being required of the l
. ;4 smaller systems in proportion to their load, even though there is no showing that such systems' units are less re-liable." We concede that such a formula may require systems ! with units disproportionately large in relation to their 1 l~ loads to keep somewhat larger reserves. This, however, simply corresponds to the fact that the reliability of those systems is lessened by such concentration of generation. Tr. 15 after 8838. It matters little to a coordination partner that another system may have reliable units if its system as a whole is unreliable. The Intervenors ' sugges-tion that unit reliability is all that matters is therefore ,a pure sophistry. i 7 135/ Initial Decision at 20, NRCI 75/7 at 39; Tr. 15 after 8838. 1 1 136/ Initial Decision at 73-77, NRCI 75/7 at 67-69; Tr. 8468
. (Mosley); 13-14, 23-24 after 8838. . .o a
_ , _ - - - ,w
r - 254 - f practices are in any respect improper, the Federal Power Commission can remedy the situation but, to date, it has not I ., 137/ ( been asked or seen fit to do s o . r Thus, the argument that the equal percentage formula i must be utilized in all instances is inconsistent not only with
! Gainesville case but also with fundamental system planning prin- ,
ciples. Once the assertion that reserve sharing should always e be conducted on an equal percentage basis is put aside, the l reasonableness of Consumers Power's reserve sharing arrange-ments can quickly be demonstrated. In particular, the asser-f tion that Consumers Power has exacted "the lion's share" of the coordination benefits from certain of its coordination 138/
.- partners is crucially deficient since there is no credible )
claim -- inuch. less, proof -- that the Company has actually re-ceived an inequitable or unreasonable share of the benefits of any of its coordination agreements. Furthermore, it ignores the testimony of witnesses Mayben and Slemmer that the benefits which have flowed to Consumers Power f rom these agreements are .i 139/ '" extremely limited. w 137/ See Section III-B, supra; Initial Decision at 81, NRCI
,, 75/7 at 71.
138/ Justice Appeal Brief at 100. 139/ Tr. 2690 (Mayben); 28-29 after 8838 (Slemmer). 1 -wJ
,_,,4 ,
w -- - w
d, r - 255 -
- b. Application of the Company's f, reserve-sharing policies to s Lansing, the MMCPP and Holland.
(' Our adversaries claim that the Company's coordination
\
agreements with Lansing, the MMCPP and Holland are discrimina-
, - 140/
i tory and unreasonable. Specifically, they charge that the
, Company's contracts with these systems impose " onerous reserve i
s requirements" and provide "more of the form than the substance
; of genuine reserve sharing" with the " lion's share" of the i ' -141/
benefits going to the Company. -- Further, they claim, be-cause of requirements the Company has " forced upon" Lansing, the smaller system "has been forced to operate with almost {, 142/
, 100% reserves capacity." Similar allegations are made in
(- regard to the Holland system and the MMCPP reserve-sharing 143/ agreements. These charges should be rejected. { The allegations regarding Lansing and Holland's re-serve-sharing arrangements rest on factual statements that are simply wrong. For example., it is untrue that the Company has
,- forced Lansing to operate with almost 100% percent reserves. }
L .t [. 140/ Department's Appeal Brief at 102-04, 113-22; Intervenors' Appeal Bqief at 74, 75, 81, 133-34, 136, 144, 150-57. i N' 141/ Intervenors' Appeal Brief at 141; Department's Appeal Brief at 100. 142/ Intervenors' App'eal Brief at 4.. M3/ d. at 74, 141, 144.
- L
. n. l 9 1 LJ r M
- 256 -
{, On the contrary, the Company's coordination agreement with f, i Lansing and the testimony of Lansing's system manager conclu-( sively demonstrate that Lansing's reserve obligation (1) is
\-
totally unrelated to unit size and (2) presently amounts to less
,- 144/
I than 20 percent of its annual peak load. This represents a 145/ lower percentage reserve than that maintained by the Company. p 144/ According to its coordination contract with Consumers 'I Power, Lansing's reserve responsibility is stated in terms
~
of a specified level of spinning reserves, with no refer-
, ence at all to un it size. Exhibit 11,112. Its spinning reserve responsibility is 70 mw until 1977 when, pursuant lo to Lansing's request, it will be reduced further to 35 mw.
Tr. 8486-87 (Mosley); Exhibit 11,112, Service Schedule A. Further, Mr. Brush, Lansing's system manager, who negotiated the contract here in question, (Tr. 2067, 2085) testified
,- that while both parties meant the coatract to be silent on )' the matter of installed reserves, "the spinning actually becomes the installed responsibility." Tr. 2140.
Thus, ha view of a) Lansing's 1973 peak load of 372 mw (i. (Tr. 2069-2070), b) its contractual obligation to maintain 70 mw in spinning reserves until 1977 and 35 mw thereaf ter, [? and c) the uncontroverted fact that the spinning reserve (~ requirement "actually becomes the installed responsibility," it is clear that Lansing's coordination contract with the
- Company now requires it to maintain less than 20 percent installed resc rves. Furthermore, even assuming zero load #" growth, the requirement will fall to less than ten percent after 1977.
- m. 145/ The Company's planned reserves at this time were 22 to 24 percent. Tr 8428. While admitting that their figure does not represent the Company's planned reserves, the Inter-
[, venors argue that in 1972 the Company had actual reserves of only 5.3 percent. Intervenors' Post-hearing Brief at
.- 27. This contrasts with Mr. Mosley's testimony that in J. 1972 the Company's reserves were 12-1/2 percent over its U peak load. Tr. 8704. Mr. Mosley's figures include short-term purchases of firm capacity not included in the Inter-
[ venors' figure. In any event, the Intervenors' claim in no way conflicts with Mr. Mos?.ey's testimony that the u Company plans its system to maintain 22 to 24 percent j c- reserves. Tr. 8488. .'U/ o
,-.- ,- _ . _ ~ .-
F,
- 257 -
{s j, Simila rly, the Department cites Lansing's manager, I Mr. Brush, for the proposition that Lansing would have preferred { an agreement incorporating the "Gainesville formula" to the re-
\ 146/
serve-sharing arrangement it ultimately obtained. Mr. Brush,
<- 147/
l however, said nothing of the kind. -- Rather, his testimony -- when read together with the reserve-sharing formula he negoti-ated -- demonstrates beyond question that the arrangement which Lansing ultimately received was very favorable indeed. Moreover, [~ in a document written to his supervisors, Mr. Brush expressed his satisf action with the new arrangement and praised the Com-
, pany for treating Lansing "as an equal partner" and for agree-i i ing to "the more important terms and conditions found in inter-148/
connnection agreements between two private utilities." The Company's reserve-sharing arrangements with the f [ MMCPP members and with Holland are equally reasonable. Under
,, Consumers Power 's coordination arrangements, these systems ya u maintain installed reserves equal to one-half the size of T' their largest units, plus one-quarter the size of their secoad L. ~
largest unit, plus ten percent of their system's forecasted 149/ j peak load. Under this reserve formula, the MMCPP was a 146/ Department's Appeal Brief at 104. 1 147/ We particularly refer the Board to Tr. 2140 on which the , Department purportedly relies. 148/ Exhibit 242 (September 10, 1970 memorandum f rom Mr. Brush i to Claud R. Erikson, General Manager of the Lansing system). 149/ Tr. 8487-8488 (Mosley); Exhibits 12,024 & 105.
%=
1
\
l
- n. - 258 - l
- - ;
; .(
requir ed to maintain reserves of 19 percent -- again lower than
-l, s the Ccmpany's planned reserves. Tr. 8488.
(~ Under its new contract with the Company, Holland must ( ' maintain reserves of about 27 mw. Tr. 3158-3160, 3186. This requirement is entirely reasonable. As its system manager ack- l nowledged, Holland's megawatt reserve requirement is the direct result of its decision to rely on a 31 mw generating unit to 150/ serve a system whose peak load is less than twice that amount. This decision affects Holland's system reliability, and therefore its desirability as a coordinating partner, in two significant ways. First, Holland's concentration of genera- [ tion capacity in such a large unit means that -- even wh en it 7 holds the required 27 mw in reserves -- if the city's single I largest un it is f or any reason out of service at or near peak load, Holland has insufficient capacity to carry its load and must look to the Company for assistance. Tr. 848 2 (Mosley) . r~ By contrast , the Company maintains reserves at least as large , as its largest unit so, if that unit is out of service at the 1 time of the Company's peak, it need not look to Holland for help. Indeed, even when the Company's largest unit is inoper-ative at peak load, the Company still has the reserve capacity [', to carry Holland's entire load. Tr. 8482-84 (Mosley). y Similarly, in terms of statistical probabilities, L Holland's concentration of capacity in a relatively small '; number of units sharply increases the likelihood that Holland
'[50/ Tr. 3186 (Rainson); see also Tr. 8482 (Mosley).
i >J J
q- i
\
> (' - 259 - 0 will need emergency support from the Company. Therefore, in 1 order to provide reciprocity to its coordination partner, I Holland must maintain a higher percentage of reserves in rela-k 151/ tion to peak load than does the Company. In fact, even at [> its current level of reserves, the City of Holland is able to 152/ 7- provide only limited benefits to the Company. Thus, the reserve requirements contained in the Lansing, Holland and MMCPP arrangements are consistent with the Company's 153/ net benefit principles. There is no evidence in the record that another formulation of reserve responsibility, such as the 7 equal percentage reserve formula, would in these instances have provided the Company with any reciprocal benefits.
. Accordingly, the Hearing Board was plainly correct in concluding that the equal-percentage reserve formula is not ap-1 propriate in all cases and that each of the Company's reserve- ,. sharing arrangements are " individually tailored to the capabil- ) ' ities and needs of the parties so as to achieve net benefits 154/
[' L. to each party." In light of the Hearing Board's findings and the record of this proceeding, the Company's use of reason- { able reserve-sharing formulae other than the equal-percentage method was clearly appropriate. a
~,
L 151/ Tr. 11, 15, 24 after 8838. q 152/ Tr. 28 after 8838. 153/ Tr. 27-28 after 8838. 154/ Initial Decision at 132, NRCI 75/7 at 95. < J
1" ( i m - 260-
, 3. Coordination through Membership in the Michigan Pool.
Our adversaries repeatedly contend that the Company t has systematically undertaken "to prevent small systems from ob-155/ taining coordination through membership in the Michigan Pool." {- l The Pool, of course, is the coordination agreement between Con-l sumers Power and The Detroit Edison Company. The Initial Decision held that the provisions governing the admission of new parties a f' to the Michigan Pool had been expressly approved by_the Depart-156/ g, ment of Justice and that they were " fair and reasonable." t The finding should be affirmed.
~
As the Initial Decision recognized, the Department of Justice played a central role with regard to the third party r- [ admission provisions at issue. The original 1962 coordination g agreement between Consumers Power and Detroit Edison left the
/
v question of the admission of additional members into the Pool . u2 {l completely open. In 1971, Detroit Edison's Fermi 2 application to this Commission was sent to the Department of Justice for its Section 105c review. In the course of that review, the Department
,. and Detroit Edison agreed as to the standards which should govern }; 157/
the rights of other systems requesting membership in the Pool.
- p The Department also secured from Detroit Edison a commitment
> ?i
;
,') " 155/ Department's Appeal Brief at 106-13; Intervenors' Appeal Brief at 84. ; ![] I
~156/ Initial Decision at 135-36, NRCI 75/7 at 96-97. l 157/ Attorney General's advice letter, Detroit Edison Co. !
it , (Eurico Fermi Unit 2), AEC Dkt. No. 50-341A, 36 Fed. l
] Reg. 17883, (August 16, 1971).
l 1 k e2
- 261 -
{- r
, that the utility would " exert its best efforts to modify
'- the third-party membership provisions of the pool agreement
[ so that third parties who met reasonable objective criteria t 158/ would be allowed to participate." When negotiations between Detroit Edison and Consu-
- mers Power about a new Michigan Pool agreement were initiated in late 1972, Detroit Edison proposed to incorporate the Depart-l ment's third-party admission standards into the new agreement.
[ Consumers Power concurred and these provisions are now part of e 159/ i the Michigan Pool agreement. Subsequently, in the course
. of reviewing another Detroit Edison license application under Section 105c, the Department again reviewed the third-party
[ standards of the Pool agreement, as well as the new Pool agree-
" 160/
ment as a whole, and found no cause for complaint.
'158/ Department's Post-hearing Brief at 163; see also statement
[ of counsel for Department of Justice, Tr. 16577-u 159/ Exhibit 67, Article 1,16; Initial Decision at 135-36, q NRCI 75/7 at 96-97; Tr. 8515 (Mosely). Y 160/ Attorney General's advice letter, Detroit Edison Co. (Greenwood Energy Center, Units 2 & 3), AEC Dkt. Nos. 50-453A, 39 Fed. Reg. 12373 (April 5, 1974). The Depart-ment now suggests that it was "not satisfied" with the new Michigan Pool agreement as an entirety and that it there-
," fore sought further commitments from Detroit Edison during ;j review of the Greenwood application. Department's Appeal Brief at 112. A review of the Greenwood advice letter, , however, reveals that the commitments secured from Detroit l t Edison were no different from the " standard" conditions 1 being negotiated with many "non-grandfathered" applicants
_ in 1974. See, e.g., advice letter regarding application 1 of Gulf States Utilities Co. (River Eend Units 1 & 2), i AEC Dkt. Nos. 50-458 & 459A, 39 Fed. Reg. 12374 (April 5, 1974); advice letter regarding application of Texas 1 Footnote continued -- I l . i l.2 i ._ _ _ _ _ _ - .
o.
$J C' - 262 -
( Despite this uncontroverted history, the complaining parties are broadly critical of Consumers Power Company's third-(~ party admission criteria to the Michigan Pool. Thus, the De-l partment of Justice claims to find " clear evidence" of the Con-I sumer Power's " intent to monopolize" in the Company's alleged efforts "to eliminate the Michigan Pool as a potential avenue 161/ by which small systems might obtain access to coordination." f In assessing these contentions, it is important to keep in mind that none of the Company's neighboring systems has ever applied for membership in the Pool. Tr. 8516 (Mosley). Only one such system, the City of Lansing, has even raised the matter with the Company and on that occasion Consumers advised Lansing that the Company would not oppose the city's participa-162/ tion. The Depaiiment's allegations in this regard rely almost
.-- exclusively on an i.nternal memorandum which was written in 1967 by a subordinate employee in the Company's marketing department.
l Footnote continued -- Texas Utilities Generating Co. (Comanche Peak Units 1& 2), AEC Dkt. Nos. 50-445A and 446A, 39 Fed. Reg. 3845, (January 30, 1974) 39 Fed. Reg. 3845. Further, although making ex-plicit reference to the Michigan Pool, the Greenwood letter reveals no expression of the Department's " dissatisfaction" with the new Michigan Pool arrangement. See 39 Fed. Reg. a 12373. 161/ Department's Appeal Brief at 109, 106. I ~ 162/ Initial Decision at 135-36, NRCI 75/7 at 96-97; Tr. 2533 (Brush). .i
.2 a, - -~ , -,,,
(' 4 ( ! F - 263 - l ( , Exhibi: 170. The document proposes that Pool admission standards I be revised so as to exclude " undesirable third parties" and sug- [ gests that one such party could be "the group consisting of North-s ern Michigan and Wolverine Electric Cooperatives and Traverse f
- City and Grand Haven municipal systems [which] have just entered
,. into a so-called new pooling agreemenc." Thus, the document concludes, the company should establish "some definite minimum 'i standards or levels of mutual *benefits that must be available 163/ before third parties will be considered." J , j, Even the Department concedes that no action was taken 164/ on this proposal. Rather, in the absence of membership re-quests from any third party, the Michigan Pool agreement re-mained silent on the admission question until the 1973 change proposed by the Department which we have previously described. Also, on its merits, the proposal set forth in the document at issue is fully reasonable. It is undisputed that - unreliable systems with insufficient capacity are undesirable
, coordinating partners since they " lean" on and thus burden the
! 165/
other parties to these arrangements. The document's expres-
~
sion of concern about such " leaning" was not all hypothetical ~- 363/ Exhibit 170. There is a striking similarity between the ~,. Department's insistence that the Pool agreement contain
" reasonable objective criteria" for the admission (Depart-q ment's Appeal Brief at 110) and Exhibit 170's proposal, so roundly condemned by the Department, that the Company establish "some definite minimum standards."
! 164/ Department's Post-hearing Brief at 163.
;
165/ Tr. 11-13 after 8838. I J
(-
;
ri - 264 - since the two cooperative members of the MMCPP had shortly be-(.
! fore sought to coordinate with the Company despite generation 166/ ;- deficiencies..
Thus, the document's 1968 proposal that " minimum stan- { dards" for Pool admission be established is, in the Hearing
, Board's phrase, "nothing sinister" and "not anticompetitive."
Initial Decision at 136, NRCI 75/7 at 97. On the contrary, i the document is evidence of misconduct only if one accepts the clearly erroneous proposition that Consumers Power Company
'~
L was obligated to coordinate fully with any and all systems
-- without regard to generation deficiencies, technical unre-liability and the potentially adverse effects that such coordi-nation might have on the Company and its customers. 167/
Faced with the fact that no third parties have sought admission to the Pool and that the Department is the author of the Pool's admission standards, the Department of Justice seeks
~
to becloud the issue with complaints regarding other unrelated changes which were made in the Pool agreement in 1973. Again, J it must be understood that the Department is complaining of , l terms which it reviewed and took no exception to in 1974. 168/
.- 166/ See-Subsection IV-B-1-c(i) and (ii), pp. 234-242, supra. ;
;
167/ See Section III-B, pp. 209-11, supra, on the legitimacy t_. of reasonable standards for admission to a collective enterprise. 168/ See, Attorney General's advice letter, Detroit Edison Co.
TUreenwood Energy Center, Units 2 & 3), AEC Dkt. Nos.
50-452A & 50-453A 39 Fed. Reg. 12373, (April 5, 1974). l~2 l
.2-
7, i p - 265 - The Department's belated and unsupported conjecture (' ! that the execution of a new Pool agreement in 1973 was causally [ linked to the addition of specific third party membership cri-teria is flatly contradicted by the testimony of Mr. Mosley, the Company officer responsible for coordination and bulk power planning. Tr. 8607-08. Mr. Mosley testified that several , business reasons, having no relationship to the admission of third parties, led the parties to delete the unit power sharing , (" pool unit") provisions of the earlier agreement. Tr. 8500-05, 8669-70. According to Mr. Mosley, similar considerations led the parties to amend the reserve-sharing provisions of the agreement to add another condition requiring each system to maintain reserves at least equal to its largest unit. Id. The reasonableness of the Company's actions is con-firmed by the fact that its representatives began discussing the need for the amendments to the Michigan Pool's " pool unit" provision in 1970 and to the reserve-sharing provision at _, least by 1967. Tr. 8671, 8610-11. Since no party raised the issue of Pool admission standards until 1971, the considerations
^
other than admissions standards were manifestly legitimate ones. Thus, there is r., evidence to support the Department's view
.J that these other changes in the Pool agreement were prompted .. by a conspiratorial desire to deny possible advantages to
_ the smaller systems. 4 J
l' i
,- - 266 -
i In sum, our adversaries' allegations about third-party I admission to the Michigan Pool, as the Hearing Board found, 169/ 'F fall of their own weight. Their claims that the Company ( has sought unreasonably to exclude smaller systems from the Michigan Pool have absolutely no basis and should be summarily rejected. i
- 4. Coordinated Development: Policies and Practices, s
{- Perhaps the central allegation of our opponents in this proceeding is that Consumers Power breached an alleged duty to volunteer direct participation in the Midland Units. Before turning to the specifics of that charge, we briefly consider the important questions of how and why electric systems F
; enter into coordinated development projects and describe what
;, happened when Consumers Power did in fact offer direct partici-
.t pation in a large new generating plant to its smaller neighbors.
~
; [J
' t a. Industry practice and the Company's policy.
Arrangements in which two or more electric systems par-k' ticipate riirectly in a generating facility almost invariably fall into one of two categories: unit power sales or joint 1
- r-t u
- P ,
ta 169/ Initial Decision at 136, NRCI 75/7 at 97. r w .a i)
P L r - 267 -
\
170/
;- ownership.
I The Company's policy is to enter into unit power {~ transactions as part of other coordination arrangements only
\
where the Company and its customers will derive net benefits l' i 170/ Unit power transactions occur when one system builds a gen-eration unit and agrees to sell a certain portion of that unit's output to another system. Tr. 8505 (Mosley). Such i' transactions are normally entered into by systems seeking 6' (a) to take advantage of generation unit economies of scale (and thus reduce their bulk power costs) by constructing a p unit larger than one system needs immediately, ot (b) to share the risk of units which are technically innovative. Tr. 18-19 after 8838. I The electric energy delivered to the purchasing system t does not usually come physically from the participating unit since, as is the case with regard to the Midland [~ Units, the power output from a given unit is commingled i~ with, and is therefore indistinguishable from, other gen-eration capacity which is delivered to the system's trans-r mission grid. Tr. 19 after 8838, 9160. Thus, a unit power l transaction is merely a pricing device in which the sale is made at a rate based on the costs of a particular gen-erating unit. By contrast, wholesale purchases reflect ' {" the average costs of all generation units on the system.
- U Tr. 8292-93 (Mosley), 20 after 8838.
p In its economic effect, joint ownership participation in a
'O generation unit differs from unit power purchase only in that the participating system directly finances its portion of the unit and has an equity interest in it. Tr. 74 after }.. 7239. Each owner thus bears the investment-related cost L and the fixed portion of operating costs in relation to his ownership share. Tr. 20 after 8838.
.a ' As in unit power transactions, joint ownership arrangements are generally entered into by systems seeking to reduce .,- their costs per kilowatt hour, either through the economies
" of scale available in units larger than one system immedi-ately requires or through risk-sharing. Tr. 18-19 after
,. 8838. Unlike unit power arrangements, however, joint owner-
.; ship arrangements do not require the constructing system to o
finance the construction of generation capacity not to be utilized by its customers. Tr. 74 after 7239. F. w2 t =
th ( I - 268 -
\
171/ {' from the arrangement. Such benefits arise only when the t unit power sale is a part of a coordinated plan of generation expansion in which the systems agree to stagger construction of generation units and to sell comparable amounts of unit power 172/ t to one another. In that setting, although each system is r selling unit power below average cost, it is receiving in ex- [ change the opportunity subsequently to replace that power with other below-average-cost unit power. f Except under these conditions of reciprocity, a unit
<m power / joint-ownership transaction is simply a device by which p one purchaser is permitted to buy power at a price which 's,
. or in the foreseeable future will be, below system-wide average
.L I costs. Such preferential treatment would be unreasonable and would unduly discriminate against the selling system's whole-( 173/ [. sale and retail customers. And given Consumers Power's r- current financial situation, it would jeopardize the Company's P
' 174/
ability to taise capital. Therefore, the Company's policy P concerning unit power and joint ownership transactions is
- L. 175/
reasonable and fully consistent with industry practice. 171/ Tr. 6055-56 (Aymond), 8107. 172/ Tr. 6055 (Aymond).
. 173/ Tr. 6059-6060 (Aymond); Tr. 68-69 after 7239; see also Section IV-B-1-a, supra.
n 174/ Tr. 6409 (Aymond), 6938-84, 7114, 101-02 after 7239; see also Sections III-D a t pp.102-04 and IV-B-1-a , supra. I 175/ See Tr. 25-26 after 8838. a i
.a
r - 269 - i
- b. Direct participation in the Ludington Pumped
'.. Storage Project.
I In the only unit power or joint ownership arrangement F s to which it is a party, Consumers Power jointly owns the Luding-r- ton Pumped Storage Units with the Detroit Edison Company, and has sold one-third of its share of the output of Ludington to
, 176/
Commonwealth Edison for a perio3 of ten years. The Intervenors' contend that the Company " excluded" F 177/ l t the smaller systems from participation in Ludington; in fact, i 7 the opposite is true. In 1967, an officer of Consumers Power l-outlined for representatives of the Northern Michigan coopera-tive, the MMCPP's engineering consultants, and the staff of the Michigan Public Service Commission the availability to other r 178/ systems of unit power from Ludington. The Company received
, no response or other expression of interest from the coopera-179/
tives, the MMCPP, or any other system. Excent for the be-l
] lated requests for participation in Midland after this proceeding o l began, the Company has received no other expression of. interest l m
J U-176/ Tr. 8506 (Mosley); Exhibits 72; 11,114; 11,115; 11,116; ' 11,118. Under the unit power arrangement, Commonwealth ! Edison must supply the energy required to pump its share i of water into the upper reservoir at the site of the ' plant. Exhibit 11,118, section 3.2 and 3.3. As a gen-
' eral rule, it takes about three kilowatt hours of pumping i energy during low demand periods to recover two kilowatt hours of peaking energy from a pumped storage plant.
.~ Tr. 1936 (Steinbrecher). 177/ Intervenors' Appeal Brief at 103 n.l. _. 178/ Tr. 1897-1900, 1929 (Steinbrecher); 7939, 8165-66; Exhibit I 12,007. 179/ Tr. 1901 (Steinbrecher); 7939, 8168-69. '
}
2 _ .- . -- -r. --
P ( r - 270 - l 180/
;- in any unit sale or joint-ownership arrangement.
l Quite aside frcra the Intervenors' allegations, the [' 1967 Ludington discussions are important to this proceeding in L. two additional respects. First, they demonstrate that when
; the Company did engage in the joint construction of generation r and in unit power sales, it affirmatively sought out smaller systems and apprised them of the availability of participation.
[' t~ Second, both the Company's offer of Ludington participation and the smaller systems' striking lack of interest must be weighed, together with other factors discussed below, in as-
, sessing the plausibility of those systems' charges that they l were " chilled" from requesting participation in the Midland
- r Units in 1967.
- c. Direct participation in the Midland Units.
'f.t. Until after the initiation of this proceeding in 1971 -- the size of the Midland Units having been established in 1967 -- neither the Intervenors nor any other electric sys-tem expressed to the Company any interest in the Midland
. r!_ 181/
g-Units. In addition, even the 1971 communications did not n v 180/ Tr. 1486 (Steinbrecher); 7934. The Ludington project is
,3 also the only joint ownership arrangement the Company engages in. The Company owns 51 percent of the Ludington unity Detroit Edison 49 percent. Tr. 8508 (Mosley);
Exhibits 11,114; 11,115; 72. The costs and benefits of the project are shared on the same percentage basis. Tr. 8509 (Mosley). .; 181/ Exhibits 22, 24, 27, 58; Tr. 1485-87, 1202-03, 1215 r-(Steinbrecher), 1735 (Wolfe), 4516, 4520-21 (Keen), 8529 (Mosley), 7934.
- u I
'S h
l . -_ . - . --
'(- ; i r - 271 - ! i p- suggest that, in consideration for participation in the i Midland Units, the purchasing systems would agree to con-I'i struct units in which the Company might enjoy reciprocal 182/ participation. In the words of the Initial Decision: c' , [ "None of the smaller utilities requested participation in the Midland Plant. They r wanted the option to decide whether or not they wanted access, and if so, what kind of access, when and how much [ Note page 21 of Brief on Proposed Findings of Michigan Cities f ,' and Cooperatives dated October 8, 1974]. In
! developmental or planning coordination, each Party binds itself at the beginning of the project as to the terms of participation in the projected facility. By no stretch of the imagination can it be deemed to be develop-mental coordination where a smaller utility, years after Applicant's plans and commitments are fixed, requests the right to look things over and chose such participation, if any,
[ the smaller utility desires to have." L. Initial Decision at 145-46; NRCI 75/7 at 100. (Emphasis added.) The Hearing Board also stressed that:
,. "In developmental planning involving stag-gered construction, surplus power is sold by the facility owner to the ether party as unit power. In this case, there is no sur-p plus power to be sold, since Applicant needs
[ all of the power from the facility to serve its own customers [Tr 9160]. In a joint-
, venture, each party gets the portion for which it planned. In this case, Applicant has planned for all of the power and the
smaller utilities have planned for none. If the smaller utilities should get either o unit power or joint-venture participation in Midland, Applicant would be short of p., t_ 182/ Exhibits 22, 24, 27 & 58. u / 44
y, l' r - 272 -
\
planned power by the amount taken by the l' smaller utilities. Applicant would have 'i to buy wholesale power to cover the shor-tage. This would increase Applicant's costs t ' [Tr 9162]. In other words, the grant of
, access to either unit power or joint-venture would result in a detriment and a financial burden to Applicant and, I- hence, would NOT be coordination ...."
l Initial Decision at 146, NRCI 75/7 at 100-01. F ,1 The record amply confirms the Hearing Board's find-r- ings in this regard. Because the small system's expressions of h' interest in the Midland Units were four years out of time and because they revealed no willingness or capacity to construct units in which the Company might enjoy reciprocal participation, f [ their direct participation in the Midland Units would cost the 183/ r Company as much as $141 million. This represents the cost of replacing that portion of the Midland output which would, I through ownership interest or unit power arrangements, become 1
- b. 184/
the property of the other systems. These additional costs
" would, of course, be borne by the Company's customers in the 185/
form of higher rates. Under these circumstances, having 'b been denied the prospect of receiving net benefits from the ; l P 183/ Tr. 9161-65; Exhibit 12,018. _ 184/ Id. 185/ Tr. 25 & 37-38 after 8838, 27 after 7224, 63-64 after 7239. I
. . l W
l l
r I i' - 273 - 1
~
proposed transaction, the Company was clearly justified in 186/ refusing to discuss participation in the Midland Units. The other parties do not contest the fact that the Company was never asked to provide direct in the Midland Units until four years after the unit had been sized. Nor do they challeng the Company's assessment of the extra cost and dis-crimination if this untimely and nonreciprocal request were 4 to be granted. Standing alone, the concession that none of the smaller systems timely sought to participate in Midland should j be sufficient to defeat the allegation that the Company had I refused to deal. "In a successful action for refusal to deal, [ it is essential that the plaintiff show that he has made a de-L 187/ mand or request on the defendant." "A plaintiff can have
' no relief when his failure to obtain a desired product is 188/
7 attributable to his own failure to make a request." Indeed, the plaintiff's failure to make a demand on the defendant has [L 186/ Indeed, a speech by one of the Antitrust Division's rank-( ing officials (and one of the Department's counsel in this '~ proceeding), acknowledged that those seeking unit access must request it "in a timely fashion," i.e., before "a system is designed and built." Address of Donald I. Baker, I then Director of Policy Planning and later Deputy Assistant i u Attorney General, Antitrust Division, Department of Justice, I r to American Public Power Association, National Conference, May 16, 1973, pp. 12-13. I 187/ Saunders v. National Basketball Ass'n, 348 F. Supp. 649, 655-656 (N.D. Ill. 1972). 188/ Cleary v. National Distillers and Chem. Corp., 505 F.2d 695, 697 (9th Cir. 1974). t i s2 ~1
I' I r - 274 - ( p been held to be a fatal deficiency even when the plaintiff k insists that the making of the demands would have been fruit-169/ , less. ' l i The only attempt the other parties make to justify j r [ the small systems' failure to make a timely request is to T. assert that the Company is responsible for that failure. Specifically, they argue that the Company's supposed unwill-l ingness to coordinate operations (e.g., share reserves) e 189/ Cleary, supra. Dahl, Inc . v . Roy Cooper Co . , 4 4 8 F . 2d .' 7 r (9th Cir. 1971); Royster Drive-In Theatres, Inc. v. Ameri-
' can Broadcasting Paramount Theatres, Inc., 268 F.2d 246 (2d Cir.),'~ cert. denied, 361 U.S. 885(1959); Milwaukee Towne Corp. v. Loew's, Inc., 190 F.2d 561 (7th Cir. 1951),
cert. denied, 342 U.S. FUT (1952); Saunders, 608 Hamilton Street Corp. v. Columbia Pictures Corp., supra;TI2 F. Supp. 193 (E.D. Pa. 1965). L While this requirement is neither rigid nor mechanical, Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962), exceptions Eave only been made on those rare
' occasions when it is proven that the failure is specifically attributable to conduct by the defendant which has the effect ~ of an explicit refusal. Thus, a licensing board held the failure to make numerous requents for access not to be fatal in Waterford only where "the self-expression of Applicant's representatives is so firm, so resolute, and so unyielding as i to cause others to despair of further fruitful discussion or a negotiation." Louisiana Power & Light Co. (Waterford Steam Generating Station, Unit 3), Memorandum of Board with 4
Respect to Appropriate License Conditions Which Should Be Attached to a Construction Permit Assuming Arquendo a Situ-ation Inconsistent with the Antitrust Laws, RAI-74-10 p. 718, _ 726 (ASLB October 24, 1974). l L la
~
- 275 -
r -- " chilled specific requests for coordinated development of I future supply." This claim of " chilling" is, however, on its face inapplicable to the Lansing, Holland, Traverse City, Northern ( Michigan, Wolverine and Grand Haven municipal and cooperative r systems -- the only smaller systems found by the Board to be l 192/
" capable of coordination." Specifically, the claim cannot account for the failure of Lansing and Holland to seek partici-1 pation in the Midlani Units because, even as of 1967, the
~
Company had long engaged in reserve sharing and other forms 193/ of coordination with those municipal systems. Similarly, Mr. Wolfe testified that the Company offered to coordinate 194/ ( with the Traverse City system in 1968. Therefore, it can- [ 1 not be said that the Company's refusal to coordinate operations with these three systems could explain their failure to request _ direct participation in the Midland Unit until 1971. An even
- 191/ Department's Appeal Brief at 137. Similarly, the Interve-nors flatly assert that "[i]f this record makes anything clear, it is that the Interveners could have had no hope L of an affirmative response from Consumers Power Company to requests for participation in Midland but through f
this proceeding." Intervenors' Appeal Brief at 181.
- t. 192/ Initial Decision at 133, NRCI 75/7 at 96.
p 193/ Exhibits 91; 99; 100-03; 11,112; 12,024. 194/ Tr.1564,1767 (Wolfe); Department's Post-hearing Brief at 153; Staf f Post-hearing Brief at 100. I 9 'sl 1 m.
p- - 276 - (
;
clearer refutation of the " chilling" notion comes from the t undisputed fact that in 1967 the Company discussed with repre-
, sentatives of the MMCPP the availability of unit power from
( 195/ the Ludington plant. There has been in this proceeding no evidence at all
,. of such explicit conduct as "self-expression . . . so firm, I
( so resolute, and so unyielding as to cause others to despair 196/ of further fruitful discussion or negotiation." Quite the contrary, these systems have long been on notice that the i Company would consider all reasonable coordination opportunities with its smaller neighbors. There remain two additional gaping holes in the logic of the " chilling" theory. The argument is, at most, a claim that the Company, in agreeing to coordinate only with self-sufficient systems somehow created in the minds of E neighboring systems a firm conviction that the Company would [ never coordinate development (e.g., joint venture) even with 7 a self-sufficient system, so that they were released from 195/ Tr. 1897-1900, 1929 (Steinbrecher), 7939, 8165-66; Exhibit 12,007. See pp. 269-270, supra.
~
196/ Louisiana Power and Light Co., (Waterford Steam Electric Generating Station, Unite 3), Memorandum of Atomic Safety and Licensing Board with Respect to Appropriate License i Conditions Which Should be Attached to Construction Per-mit Assuming Arquendo a Situation Inconsistent with the Antitrust Laws, RAI-74-10 at 726 It is noteworthy that Chairman Clark of the Hearing Board in this proceeding was also chairman of the Waterford Board. M
- 277 -
I their normal obligation to inquire. Though many Lower Michi-t gan sy: stem managers took the stand, none testified that they [ actually held that attitude at the time. Indeed, their silence y on this point is deafening. In the very year Midland was sized, the smaller
~ 197/ '
systems showed no interest in participating in Ludington. The record offers no reacon to believe that their reaction (- [ to Midland participation would have been any different. __ The small systems' silence as to Midland in 1967 stands in stark contrast to the actions of managers of small r system, in other parts of the country. In at least three states,
~
the small systems initiated administrative litigation seeking 198/ direct participation in nuclear generation. Similarly, in the hearings preceding the enactment of Section 105c, a large _ number of electric suppliers, particularly those which are publicly or cooperatively owned, appeared to express their support for one or more of the various bills under consider- ' p:- li 197/ Tr. 1901 (Steinbrecher), 7939, 8168-69. 198/ Cities of Statesville v. AEC, 441 F.2d 962 (D.C. Cir. 1969) (North Carolina); Municipal Electric Ass'n of Mass.
~
- v. SEC, 413 F.2d 1052 (D.C. Cir. 1969) (Maine and Mass-achusetts).
e, a 9 w
r-r
+
- 278 -
i _ 199/ ation. However, although Consumers Power participated 200/ actively in the hearings, none of the municipal and cooper-ative systems in Lower Michigan even submitted a letter indi-r cating an interest in direct access to the Midland Units or to nuclear generation generally. All of these circumstances belie allegations that the small systems were " chilled" in their interest in Midland 199/ See Hearings on S. 2564 Before the Joint Comm. on Atomic Energy 90th Cong., 2d Sess., pts. 1& 2 (1968); and Hearings on S. 212 Before the Joint Comm. on Atomic Energy, 91st Cong., 2d Sess., pt. 2 (1970). Public power groups which indicated an interest in direct participation in nuclear power plants included: Hearings on S. 2564, pt.1 Municipal Electric Association of Massachusetts, App. 27, at 697; pt. 2, Burlington (Vt.) Electric Department at 900, 901; Halifax Electric Cooperative, Inc., Vermont Elec-tric Cooperative, Inc. and Washington Electric Cooperative,
' Inc., at 1034, 1130, 1137-1138; Lyndonville (Vt.) Electric Department at 1135; Mid-West Electric Consumers' Associa-tions, Inc., at 953, 954, 956; Municipal Electric Associa-8 tion of Hassachusetts at 1035, 1039; North Carolina Munici- l l pally Owned Electric Systems Association at 891, 892, 893; !
~ Northern California Municipal Electric Association at 1117, l 1118, 1120; Brazos (Tex.) Electric Power Cooperative, at 1161; Cedar Falls (Iowa) Utilities at 1166; City of Ukiah, s California at 1166; Holyoke (Mass.) Gas and Electric Depart- l ment at 1166; Illinois Municipal Utilities Association at 1179; Chicopee (Mass.) Municipal Lighting Co. at 1179; Ohio Municipal Electric Association, Inc. at 1199; Public Utility District No. 1 of Franklin County, Washington at 1199; Sno-homish County (Washington) Public Utility District No. 1, at 1201; Yankee-Dixie Inc. at 1208; and Hearings on S. 212, ElectriCities of North Carolina at 488; Mid-West Consumers Association at 462; Municipal Elec. Ass'n of Massachusetts at 409, at 417; Northern California Power Agency at 673, 674.
t 200/ Hearings on S.2564, pt. 2 at 855-74; Hearings on S.212, pt. 2 at 513-22. f % wa l
, - _ . , _ _ . . - , , _ , = , . , - .
!~
t
- 279 -
in 1967 by the Company's coordination policies or anything else. Rather, they demonstrate either that the Company's small neigh-bors had no interest at all in Midland in 1967 or, at the least, that they were inexcusably late in making that interest known. The Initial Decision recognized that the smaller
- systems' requests as to Midland were untimely and that a belated access offer could unreasonably burden the Company.
In the Hearing Board's words, the Company's
" response, to the belated inquiries, con-cerning access to Midland, which response was a refusal to grant the smaller utilities an option to participate in Midland by purchase of unit power or by joint-venture is not a refusal to enter into developmental coordination with the smaller utilities."
Initial Decision at 147; NRCI 75/7 at 101. (Emphasis added.) This holding is clearly correct a_nd should be affirmed by this Board.
- 5. __ Alleged " pre-emptive" coordination.
p _ Confronted by the fact that the Company has coordinated with all of the self-sufficient smaller systems 201/ in its area, and that the Midland access requests were 202/ inexcusably late, the Department of Justice charges the I 201/ Initial Decision at 133, NRCI 75/7 at 96. l 1 202/ Intial Decision at 145, 147, NRCI 75/7 at 100, 101; see Subsection IV-B-4-c, supra. t
- 280 -
Company with something it calls " pre-emptive coordination." Just as the Department condemns the Company for refusals to coordinate with smaller systems, it also condemns the Company for offering to coordinate with smaller systems for an allegedly improper purpose. The Hearing Board apparently thought so
~~
little of this far-fetched allegation that the Initial Decision does not respond to it. The only alleged episode of " pre-emptive coordination" cited by the Department involves the City of Holland -- specif-ically, the Company's 1966 decision to negotiate a renewal of 203/ its coordination agreement with Holland. The only evidence relied upon is a memorandum written by Robert A. Conden, a marketing department employee whom the Department deposed at 204/ length but declined to call as a witness. The document states that the " prime reason" for the Company's decision to r coordinate with Holland was that, if the Company did not act, Holland would interconnect with the Wolverine cooperative sys-r 205/ t tem. We submit that this document evidences nothing more 203/ Department's Appeal Brief at 162. 1 204/ See Exhibit 150. The Intervenors offered in evidence portions of Mr. Conden's deposition unrelated to this memorandum. Exhibit 1016. 205/ Exhibit 3 50.
p
~
- 281 -
than the Company's acknowledgement that, if it did not prcceed
~
promptly to negotiate the new contract with Holland, the Com- , pany stood to lose a beneficial coordination relationship. Ironically, it can be presumed with certainty that, l if Consumers Power had for any reason failed to negotiate this contract renewal with the City of Holland, our adversaries would ; now be citing such failure as a wrongful refusal to deal and as 207/ evidence of monopolistic intent. This demonstrates how thinly stretched is our adversaries' theory: Consumers Power can neither coordinate on reasonable terms nor reasonably refuse to coordinate without being accused of monopolistic conduct. In other words, it is damned if it does coordinate and damned if it doesn't.
- 6. Restrictions on interstate connections.
_ Closely related to the charge of " pre-emptive coordi-nation" is a variety of misdirected rhetoric about a provision . u. W 206/ Holland has been a net seller of emergency power to Consumers Power since 1967. Tr. 7 after 3211 (Helfman). 207/ See Department's Appeal Brief at 86-106. . m
- M w
k
-- +
c
e T
- 282 -
\
, once found in the Company's contractual arrangements with cer-tain small systems. Until the Company became subject to Federal
~
Power Commission jurisdiction, its wholesale contracts included a provision that wholesale customers should obtain the Company's t' written consent before interconnecting with another system in
, such a way that the Company would become engaged in interstate commerce. Exhibit 91; Tr. 7941, 8300. The Hearing Board found, on a clear and uncontradicted record, that the only purpose of i
this provision was "to avoid inadvertently becoming subject to r-the jurisdiction of the FPC." Initial Decision at 125, NRCI 75/7 at 92. The Board went on to determine:
"Af ter Applicant submitted to the jurisdiction of FPC, this Provision was omitted from its contracts as they were amended, renewed, or
, replaced. It has now disappeared from all of Applicant's contracts [Tr 7941-7942]." 208/
~
The Hearing Board also expressly found that during the time this provision was part of the Company's wholesale con-b- tracts, "no other contracting party requested or was denied per-209/ j mission to interconnect with a third party." Indeed, the L:
; 208/ Initial Decision 126, NRCI 75/7 at 92. The Department i ~ of Justice noted in its Midland " advice letter" on June 28, 1971, that the third-party interconnection provisions were inoperative and were being remo'ed from all contracts as they came up for renewal. Ad-vice Letter, p. 8.
209/ Initial Decision at 126, NRCI 75/7 at 92.
e-l 1 283 - i
, _ Board noted, during this period, one wholesale customer, the Northern Michigan cooperative, interconnected with a third 210/
party without consulting the Company. Therefore, there is no evidence that the provision's effect was unreasonable or anticompetitive.
,. Undeterred by these facts, the Intervenors flatly con-tend that "both the Holland and Lansing agreements contained ex-press provisions, required as a condition of interconnection, that the cities could not buy power from or sell power to other sys-y 211/
tems." They also argue that in 1967 " Holland could not inter-change with both Consumers Power and Wolverine because Consumers 212/ Power Company precluded such a dual arrangement." Similarly, the Department charges that when the MMCPP approached Lansing in 1968 about either joining or interconnecting with the newly or-b ganized pool, the discussions collapsed because the existing a
%d P'
v - 209/ Initial Decision at 126, NRCI 75/7 at 92. 210/ Initial Decision at 126, NRCI 75/7 at 92-39; Tr. 7942-43. 211/ Intervenors' Appeal Brief at 74-75, 144. 212/ Id. M M
, . - . . - 6 er - *-
- i 1 - 284 -
f* contract between Consumers Power Company and Lansing 213/
" precluded Lansing's interconnection with the MC Pool."
l Although these charges are repeated again and (~ again, especially by the Intervenors, they are demonstrably untrue. First, the allegedly offensive provision refers only to " interconnection [s] . . . which might result in either party" becoming engaged "directly or indirectly, in a trans-mission or sale at wholesale of electric energy in interstate 214/ commerce." The Department itself has made much of the fact that the MMCPP and other smaller systems are located in the northern part of Michigan's lower peninsula, which is bounded by water on three sides, and that they were therefore isolated 215/ from systems outside of Michigan. The Hearing Board noted, that "[t]here is no evidence that an interconnection m 4 between any two of the smaller utilities in the relevant !
- n. l l geographic market would result in the transmission or sale l 1
of wholesale electric energy in interstate or foreign com-f L merce." Initir.1 Decision at 126, NRCI 75/7 at 92-93. That being the case, there can have been no ~~ reasonable apprehension that in the late 1960's Lansing's interconnection with the MMCPP, or Holland's with Wolverine, { would have involved any smaller system, or Consumers Power, in ~. 213/ Department's Appeal Brief at 146. 214/ Department's Appeal Brief at 144; Exhibit 100. (Emphasis supplied). 215/ Department's Appeal Brief at 144-45; See Tr. 1218.
,- (Steinbrecher).
I
~
]
op I f 285 -
!'~
216/ interstate commerce. Furthermore, Consumers Power Company had in 1968 long been physically interconnected with.the MMCPP members, including Wolverine. Thus, Lansing's a f'
- l. connection with the MMCPP or Holland's with' Wolverine could 4
not.have involved Consumers Power Company in anything in
' 217/
which it was not already involved.
;, ,) There is not a scintilla of evidence that Holland was at all affected by the provision; indeed, its system i
manager was called as a witness by the Department (Tr. 3154-
; 98), but.never mentioned the issue. Although Lansing's manager i'
did testify.about this provision, the Board expressly found ij" i, his testimony to depend upon a " completely unrealistic"
' 218/
reading of the contractual language.- Thus, it is quite
;n !) !O 216/ The Department cites the distance from the smaller systems to'the state line as a basis for doubting
. _ . the Company's motives in inserting the provision at j issue. Department 's Appeal Brief at 144-45. However,
.L; the contracts in question were long-term and the Company had a bona fide interest in protecting against future expansion which involved interstate commerce.
- t 217/ Consumers Power.was connected to the MMCPP through one
'of its members, Northern Michigan. Exhibit 64.
IV
- '-
218/ Initial Decision at 126, NRCI 75/7 at 92-93. NoneHof
, the system managers of the MMCPP who testified in this proceeding offered any support for Mr. Brush's
- L. position and no contemporaneous documents were offered li which reflected Mr. Brush's characterization of events in 1968. See Subsection IV-A-3, supra, on the weight J".^
to be given the Hearing Board's first-hand assessment of the credibility of witnesses. Ui
=
h'- 1 - e- w e'e _pw - m- vy-iw wpy. w' wr wpr- 9 Swwy- mpwh v V -p 1 vy.**ge w wre e y v y t f*v=pvvr y w'eg vv-g r -p ='g ww w m 9 y$ g pqyW*'tgg- ^gvu- V
P P ' i r ; - 286 - 219/ clear that the provisions had no restrictive effect. _ The Department of Justice also challenges the Hearing Board's express finding that the purpose of this provision was to permit the Company "to avoid in-advertently becoming subject to the jurisdiction of the 220/ FPC." Its only basis for this challenge, however, is the allegation that the Company's " interest in imposing
. I that clause continued well after the time when it decided '
221/ , it was required to file its rate schedules with the FPC." l j This contention is founded on a false factual premise: the Company has never asserted that the purpose of this provision.was to avoid the need "to file its rate
, schedules" with the FPC. Rather, it sought to avoid in- l advertently becoming subject to FPC regulatory jurisdiction.
J l 219/ The Department argues that ' the Hearing Board's finding . . . that no ' contracting party requested , ' _. or was denied per~ mission to interconnect with a third I party' (ID. at 126) is refuted" by certain of Mr. Paul's l testimony on cross-examination. Department's Appeal 1 Brief at 149. This claim is completely without founda- l The testimony in question relates to Bay City tion. ' and does not deal with any smaller system's request to interconnect with a third party. Instead, it shows only that the Company declined to remove the clause in its entirety when the city's contract was being renegotiated. . Exhibit 272. In fact, Bay City is " located near the ' __ head of the Saginaw Bay far from any state boundary" l (Department's Appeal Brief'at 147) and never asked the { Company's consent to make an ir.terstate connection. I l 220/ Initial Decision at 125, NRCI 75/7 at 92. 221/ Department's Appeal Brief'at 147.
-en
,-e-m- ,-~,,-,m, , - ,- r-, -rwn ,~ m- - +y inns
r
- 287 -
7-I The significance of this distinction is demonstrated by a Company memorandum placed in evidence by the Department which shows that, although the Company began filing wholesale con-
;
tracts with the FPC in 1966, the question of FPC regulatory 7 222/
; jurisdiction was not resolved until 1970. And as the i
Department's advice letter of June 28, 1971, concedes, by i I that date the Company was removing the provision from all 223/ r of its contracts. In light of these undisputed facts, the Department fails completely in its effort to prove that the Company's "in-I 222/ Exhibit 172. This 1970 document makes clear that:
"[t]he Federal Power Commission's investiga-i tion of the jurisdictional status of the Com-pany and The Detrcit Edison Company has been pending since July 1965. In August 1966, the Commission expanded panded the investigation
{' to include companies' the question of whether or not both wholesale electric contracts were subject to the jurisdiction of the Commission. f_, In view of the Michigan pool's interconnection with electric companies to the south, the ques-tion of jurisdictional status of both companies has been resolved. Accordingly, Mr. Aymond has ' requested that I obtain the dismissal of the Federal Power Commission's investigation . . . .
)
"Following the expansion of the Commission's in-vestigation to the wholesale electric contracts of both companies in 1966, both companies filed b with the Commission all of their wholesale elec-tric contracts . . . . In such filings, the com- 1 panlos reserved the question of jurisdiction I p over the contracts." l 223/ Advice letter, p. 8.
i s, i ! 1
=
J
t (
- 288 -
V I terest in imposing" this clause long outlived the Company's r j bona fide justification for having it. Subsequent to the resolution of the jurisdictional question, the provision was ( unenforced and, as contracts came up for the renewal, the pro-224/ r vision was removed. Indeed, as we have shown, even during
}'
the 1960's when the FPC jurisdictional question was a real f' concern, no smaller system sought the Company's consent to make an interstate connection (which is all the clause required). F L Accordingly, there can be no real question that the r- challenged contract provisions ever had either an exclusionary i effect or purpose. They were inserted for an entirely proper [ purpose, they did not impinge on the contracting parties' s freedom of action, and they were removed when their bona fide f purpose had passed. r 7. Wheeling for coordination.
' Wheeling is the transmission of power between two I systems over the facilities of a third. It can be used either L
to deliver purchased bulk power or to facilitate coordination r.
} arrangements between two systems which are not directly inter-connected. While most of the evidence of record deals with 224/ The Department argues that the third party provisions re-mained in Lansing's contract until the superseding contract became effective early in 1973. Department's Appeal Brief 7 at 146. However, the Department neglects to mention that I the "1973" contract, from which it concedes the restric-tion was dropped, was signed on October 7, 1970. Exhibit 11,112.
b .u e 6es
'r A
- 289 -
3-( the company's policies and conduct with respect to the first I' type of wheeling, only.its policies and practices respecting
- l. ..
225/
~
the second are relevant to this proceeding. The Board f recognized this dichotomy and analyzed t;ie wheeling issue 226/ accordingly. As we will explain in Subsection IV-C, our I opponents continue to ignore this vital point. ( As to such wheeling for coordination, the record is perfectly clear. On the one hand there is absolutely no evi-dance that "any two or more of the smaller utilities ever
'[
,, agreed to coordinate subject to obtaining wheeling, or re-
,1 quested wheeling from Applicant and were denied." Initial Decision at 141, NRCI 75/7 at 99. Secondly, when on cross- .I examination Mr. Aymond was asked whether the Company would '} be willing to grant the smaller systems access to transmission
.. so they might coordinate among themselves, he testified simply ? ;L and directly: "I think that could be worked out." Tr. 6630.
- {- Thus, the Company has never refused to or expressed an unwill-
' ingness to wheel for purposes of coordination.
!b iu
- i . .
i ,w We now conclude our review of the other parties' at-9 J tacks on Consumers Power Company's coordination policies and it
- Ls 9
225/ See Section II-A, supra. 1
- _
226/ Initial Decision at 141, NRCI 75/7 at 99. [[7 b [I~
l
- 290 -
r I practices. These attacks in the end come to nothing. Our ad-227/ versaries, despite voluminous discovery and months of trial, can show no unfairness. In addition, as we have f ully demon-F^ strated with respect to all matters related to coordination there { have been no unreasonable refusals to deal, no discriminatory
! transactions, no exactions of "the lion's share," i.e. , nothing
( inconsistent with antitrust law or policy. At the time when the Company.was allegedly denying smaller system coordination advan-tages which it enjoyed, these systems were able to obtain bulk power and re-sell at rates generally equal to, or substantially i t t below, those of the Company. See Section III-C, supra. Under the scope of this proceeding as proposed by I I 228/ i our adversarias and ordered by the Hearing Board, we should ) 1
;
now stop. The Hearing Board ruled that the only " situation inconsistent with the antitrust laws" whose existence vel non , t would be decided in this proceeding was an alleged denial of accer, to coordination - - coordinated operations and coor-229/ dinated development. The Company prepared its defensive case and conducted its cross-examinations on the basis of, and in I 227/ See Section I-A, supra. 228/ Prehearing Conference Order of the Atomic Safety and , Licensing Board (August 7, 1972). u 229/ See Sections I-A and II-A, supra. s .2 w* -m
r-I
- 291 -
f. ( 230/ ; reliance on, the Board ruling. l r- \ ,} Such evidence as was presented in this case on mat- l l ters unrelated to coordination was brought out piecemeal, prin- I r~ l
/ cipally in cross-examination of Company witnesses testifying !
l r' on other matters or in documents arguably relevant to other < issues. Despite the Board's order limiting issues, our adver- ,I saries argue that matters such as the Company's alleged ter-ritorial allocations, its alleged acquisition policy and its f" alleged denial of wheeling for third party wholesale service r i have created a situation inconsistent with the antitrust laws I which will be maintained by operation of the Midland Units. Having accepted the Board's ruling, and in view of the Company's reliance on it, our opponents are bound by it. l See Section II-A, supr,a. To decline to affirn the Initial
, Decision on the basis of alleged circumstances unrelated to coordination would be so grossly unfair to the Company as to deny it due process.
However, because some evidence has been offered on { these topics and because the Hearing Board discussed a number n L 230/ For example, the Company did not prepare or present an
~
economic analysis of the effects on competition of util-ity mergers and acquisitions. Similarly, it did not deal with alleged territorial allocations or wheeling c' for wholesale service in its direct evidence, since it regarded these topics as beyond the scope of the _ hearing under the Board's ruling. 4M
.,-- y w -
w- - r w +- - =*
i'
'l
- 292 -
i' ( 231/ of them (although holding them irrelevant), we necessarily address them in the next subsection. In so doing, we do not intend to waive our position that they are improperly advanced i before this tribunal. C. Conduct Unrelated to Coordination. [- ( The allegations with which our opponents seek to I supplement their allegations regarding coordination are a true miscellany of unconnected charges concerning unrelated aspects P 232/
! of Consumers Power Company's electric operations. They I
t 231/ See Initial Decision at 150 et seq., NRCI 75/7 at 102 et seg. (" Situations Not Within The Relevant Matters -! In Controversy And Not Within The Relevant Market"). p 232/ Indeed, two of the other parties complain that they were i not permitted to range far enough !.n this effort. The Intervenors (Appeal Brief at 173-79 and incorporated mo-
, tion) complain that they were barred from discovery con-l cerning the Company's natural gas operations. Aside from a vague allusion to United States v. Griffith, 334 U.S.
100 (1948), no justification for this broposed foray which F would have virtually doubled the burden of already mas-
.L sive discovery in this proceeding has ever been offered.
See pp. 4-5, supra. m The Department of Justice argues that it should have been permitted to delve into "past history" with specific ref-erence to two sixty-year old documents, only one of which t-has any reference to Michigan. Department's Appeal Brief m at 55 n.*. Of course, if the Department had been permitted to explore such truly ancient events, Consumers Power p Company would have been entitled to present its analysis i, of the utility industry's formation. In United States
- v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150 (1940),
the Supreme Court approved the trial court's exclusion of evidence concerning market conditions in the oil ]-- industry in 1934. In language applicable to the case
, at bar, Justice Douglas writing for the Court explained; ms Footnote continued --
iA
.7 (-.
- 293 -
r-have only one common element: their irrelevance to "coordi-r nation."
, on the merits, we demonstrate below that each of the practices or events characterized as anticompetitive ~
by'our opponents was proper and legitimate and that the alle-233/ gations do not support a finding of willful monopolization. The allegations, as stated, concern wheeling for wholesale service, alleged territorial allocations, acquisitions and Footnote continued -- While the offer was not wholly irrelevant to the issues, it was clearly collateral. The trial court has a wide range for discretion
~
in the exclusion of such evidence . . . .
' Admission of testimony showing the market con-ditions late in 1934 would have opened an in-quiry into causal factors as involved and interrelated as those present during the in-dictment period . . . . As once stated by Mr. Justice Holmes, one objection to the introduction of collateral issues is a ' purely ~
practical one, a concession to the shortness of life. 310 U.S. at 230. ^ In each of the cases cited by the Department of Justice the Court considered past practices in the industry in ' question or past conduct of the company in question, be-cause under the particular circumstances of the case such evidence was believed to be relevant and material. No-where is there any indication that the trial judge or I hearing board was required or encouraged to hear such evi- _ dence. Taken together, the Socony-Vacuum case and the cases cited by the Department stand for the proposition that the trial court or hearing board has broad discre- , tion to admit or exclude evidence of past practices. l Plainly, in the'present case, which involved a massive ~ ~ record as actually tried, the Hearing Board was fully justified in barring such peripheral topics. )' 233/ Initial Decision at 149-68, NRCI 75/7 at 102-109, i e 1 L l
.294 -
C b ..
. _ 234/
political activ'ities.
- We will treat each in turn.
4 y f 1. Wheeling for delivery of bulk power purchases. The other parties charge Consumers Power Company [7 l' with a variety of misdeeds in its conduct and policies related l C to the provision of . transmission services for the use of others. They contend that the' Company has, invidiously and with mono-polistic intent, discriminated against its smaller neighbors
~ .i.
I (- i ,i l , c. 234/ Or. appeal, the Department of Justice also refers to pro-visions in deeds conveying a few small obsolete hydro-
;
electric sites which bar further use for generation. De-i partment's Appeal Brief at 149-152. Although far afield o~ from the scope of the hearing set forth by the Hearing m, Board, this. allegation was mentioned in passing by the i Department of Justice in its Post-hearing Brief where 4; r it was relegated to a footnote in the Department's dis-
' cussion of market definition (p. 121 n.**). No finding of fact was proposed on the subject by the Department hC and the Hearing Board, quite reasonably, saw no need to address the Department's footnote reference in the Ini-
~
L tial Decision. See Section IV-A-2, supra. L; In its argument here, the' Department fails to explain why these facilities, which were so uneconomic for the Company ' that it ' typically gave them away, would be of value to other electric suppliers. Tr. 6434 (Aymond). Rather the i l- Department recites at length the benefits of hydroelectric generation generally, pointing to the 1970 National Power
- Survey and to testimony. of officials of Edison Sault and lI' Alpena Power as to the value of their hydro-electric fa-
!w cilities. None of~these materials offer any. reason to '- believe that other suppliers could operate the Company's
' obsolete hydro facilities more successfully than the Com- "~.
pany. And none of the numerous small system managers who
-appeared as witnesses testified that he had any interest s, in acqui' ring these sites. '
.;
a-
;
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r-b
- 295 -
p-in its wheeling practices and that the Company has unreasonably [. 235/
! refused to wheel. The record belies these allegations.
- a. Alleged Discrimination, The Intervenors grossly misstate the nature of the p
b Company's wheeling arrangements both with larger neighboring systems and with smaller ones. Thus, they declare that the Com-pany's coordination agreements with'large utilities "almost uni-r 236/ formly. provide mutual access to transmission capacity. . . . l [ r The only specific allegation they make is to contend that under the Michigan Pool agreement between Consumers Power and Detroit 237/ Edison "[e]ach can use the other 's transmission." .h 235/ Department's Appeal Brief at 127-32; Staff Appeal
" Brief at 23; Intervenors' Appeals Brief at 18-20, 83-84, 131; Department's Post-hearing Brief at i 144-47 and Staf f Post-hearing Brief at 92-96 incor-u porated by reference in Department's Appeal Brief at 127. Wheeling describes transmission services p in which electric power belonging to another system ! is supplied at some interconnection point on the ~
wheeling party's transmission system and the same amount of power is concurently delivered to a h, third system at some other interconnection point d on the wheeling party's transmission system. Initial Decision at 11, NRCI 75/7 at 34. Provisions for wheeling services are not prerequisite to, nor
~
usually found in, coordination agreements in the electric utility industry. Tr. 22 after 8838. 236/ Intervenors' Appeal Brief at 139-41. See also p. 131 of that brief in which they assert that ' Consumers Power Company has agreed with other systems in Illinois, Indiana and Ohio to transmit for each
,_ other. . . .
237/ Intervenors' Appeal Brief at 85. Aw
- 296 -
F i The record shows to the contrary. The Company and l Detroit Edison may only be said to exchange transmission ser-
- vices to the limited extent that certain high voltage facili-ties, jointly financed by both parties pursuant to the Michigan I Pool arrangement, may be used for transactions conducted on L 238/
behalf of the Pool as a whole. Apart from these jointly-l' owned facilities, neither system wheels for the other. The o Intervenors' characterization of this arrangement as a gen-i 239/ eral wheeling arrangement at no cost to the Company is thus obviously unfounded. By supposed contrast, the Inta ven :s charge that the Company has consistently discriminated against and refused to 240/
, deal reusonably with smaller systems concerning transmission.
More specifically, they contend that the Company's agreements with smaller systems make "no provision for joint use of trans-mission capacity, or even for the purchase or sale of such r 241/ capacity." r. Both sides of the purported comparison are simply
- incorrect. In fact, the Company has wheeling arrangements 238/ Exhibit 71, Article VI,12.
239/ Intervenors' Appeal Brief at 85.
~
240/ Intervenors' Appeal Brief at 18, 19, 20, 139-40. 241/ Intervenors' Appeal Brief at 139-41. (Emphasis in the original.) See also Intervenors' Appeal Brief at 140-41 n.1 substantially retracting this unqualified charge. k w w a n w
P t
,_ - 297 -
t with only two systems: Indiana & Michigan Electric Company ( and the MMCPP -- a group of four public power systems in 242/ , r- the Company's area. Since the Company is a party to no other wheeling agreements, it is simply wrong to allege, as [ have the Intervenors, that the Company's coordination agree-i ments with large utilities "almost uniformly provide mutual 243/ access to transmission capacity" or that "[t]he basic MIIO agreements (and most of Consumers Power Company's interchange j arrangements)" provide for wheeling without "any charge to I any party for the use of the interconnected transmission
- 244/
facilities". It is likewise wrong to suggest that the Company a does not wheel for the smaller systems on the same basis as it wheels for larger systems. Quite the contrary, Consumers Power's transmission rates for the MMCPP are precisely the same as those that govern its wheeling arrangement with 245/ Indiana & Michigan.' 242/ Exhibit 11,109, Amendment No. 4, Schedule D, sections 3.12-3.13, Schedule F,' sections 3.12-3.13, Amendment No. 6, Schedule G, section 3.12-3.13 (Indiana & Michi- 1 gan); Exhibit 12,023 (MMCPP). j 243/ Intervenors' Appeal Brief at 139. l 244/ Id. at 139-40.
~
245/ Compare (1) Supplemental Agreement No. 2 to Interconnec- _ tion Agreement between Consumers Power Company and North-ern Michigan Electric Cooperative, Inc., Wolverine Elec-tric Cooperative, Inc. , City of Grand Haven, Michigan and Footnote continued --
-- -,.n. - .- ,.
P r-i
- 298 -
l-r b. Alleged Unreasonable Refusals to Wheel. I Unlike the Intervenors, the Department of Justice f- alleges a supposed unreasonable refusal to wheel by Consumers l' Power Company. As we will demonstrate, the Company has never r { refused to' wheel power for a smaller system and until recently r had never received a specific request for wheeling. 1 i At the threshold, it should be noted that Consumers [ Power Company is under no duty to wheel for other systems. No L public utility duty to wheel is imposed by the Federal Power Act p 246/ 247/ i or otherwise. Since, as we have demonstrated, wheeling . t merely provides a possible additional bulk power supply option i and is not an essential resource, there can equally be no duty r- to wheel under the antitrust laws, even if the joint-venture [' " bottleneck" concept is extended to single firm actions. 248/ t Footnote continued -- i[ City of "rr. verse City, Michigan (Exhibit 12,023), Supple-e ment F, section 5 and 6 with (2) Operating Agreement among Consumers Power Company, The Detroit Edison Company, and 4p Indiana & Michigan Electric Company (Exhibit 11,109), i Amendment 4, Service Schedule D, sections 3.12(b) and 3.13, and Amendment 6, Service Schedule G, sections 3.12(b) and 3.13.
; - 246/ City of Paris v. Kentucky Util. Co., 38 FPC 269 (1967).
247/ See Section III-D, supra. 248/ Otter Tail Power Co. v. United States, 410 U.S. 366 (1973),
. cited by the Department o"f Justice for.the opposite con-clusion, supports no such position. Otter Tail involved explicitly monopolistically-motivated refusals to deal 'in wholesale. service, in coordination and in wheeling, cou-pled with affirmative predatory acts such as the removal of a facilities, imposition oi' restrictive arrangements on the Bureau of Reclamation and sham litigation. See pp. 63-68.
Footnote continued --
- -c--, ----e ,-- m-,g-.y i--p, y y wy w---,-,e- - -w, ,, ,.-,m* y,# ,p.e,g= ..acw wi e are. ,c- 7
- l
,r - 299 - !
l l l In the only instance in which a concrete request for l wheeling has been received from a smaller system, the Company [ agreed to wheel for the MMCPP. That agreement came in response [. to that system's recent request that the Company wheel 20 mw r 249/ [ of firm bulk power from Detroit Edison. Except for their allegations concerning the Southeastern Michigan cooperative, 7 { the other parties have formally admitted that prior to this 250/
.c proceeding none of the smaller systems made a request, in any form whatsoever, for wheeling by Consumers Power Company.
r Footnote continued -- F Otter Tail's actions were not a refusal to enter into a .L particular class of transactions but a deliberate scheme to deprive the villages of all conceivable bulk power p supply. The Department offers the facile suggestion
- (Department's Appeal Brief at 20) that if everything Otter Tail did taken together was " monopolistic," each g part of it was " predatory." But it is simply illogical t to suggest that if it is wrongful to build a "ex around one's neighbor, it is necessarily " predatory" to build a wall between his property and one's own. Nothing in
.F Otter Tail nor in any authority cited by the other parties
, indicates that an unwillingness to wheel standing alone is monopolistic, predatory or otherwise improper. r 1 249/ Exhibit 12,023. x 250/ As to the requirement of a request, see pp. 273-74, supra. 251/ Department's Post-hearing Brief at 146-47; Staff Post- ' hearing Brief at 95-96; both incorporated by reference into Department's Appeal Brief at 127. Citing no au- !
~
thority, the Department of Justice placed these events I in 1966. Department's Post-hearing Brief at 144. We
~ submit this is plain error. The only evidence bearing on this " request" is Mr. Paul's testimony and Mr. Bruce's letter of June 10, 1969. Tr. 7936; Exhibit 125. The ~ meeting they describe took place on June 5, 1969. This contrasts with a related episode in 1966, discussed at pp.
o 315-319, infra in which Toledo Edison declined to provide i wholesale service to Southeastern cooperative. I l w
<r ~~
r~
- 300 -
- ~~
( As for Southeastern Michigan cooperative, the other r parties argue that in 1966 Consumers Power Company wrongfully i 252/ refused to wheel for that system. This incident, however, [ cannot accurately be characterized as a denial of a request i for wheeling. The only evidence that wheeling was even dis-r- { cussed between the parties is a single document reflecting a 7 June,1969 meeting between representatives of the Southeastern ,j 253/ cooperative and the Company's marketing department. In the course of discussing a number of other matters, a Southeastern
- (
representative asked whether Consumers Power would " wheel power t from the Cardinal Plant [in Ohio] to Southeastern Michigan." The Company's representative responded simply that the Com- 'L pany "didn't have a policy or rate on wheeling" and that "such i[ wheeling would involve other systems over which we had no L 254/ control." , Our adversaries' argument seeks to transform this isolated, prelimina'ry and generalized verbal inquiry into a L 252/ Department's Post-hearing Brief at 144, incorporated by reference into Department's Appeal Brief at 127. 253/ Exhibit 1075. 254/ Tr. 7936; Exhibit 125. The Department described its Exhibit'125 as an " internal memorandum." Department's _ Post-hearing Brief at 144. It is nevertheless plain
- on the face of this document that it is a letter from Mr. Bruce of Consumers Power Company to Mr. Richard
" Stutesman of the Southeastern cooperative. Neither Mr. Bruce nor any witness from Southeastern Michigan , i cooperative was called as a witness in this proceeding. l
~
I
~ '
H, - ) i l 301 - 1
; i 255/ l formal request to purchase transmission services. They I also mischaracterize the Company's response as a refusal to wheel, whereas-in fact, its representative merely stated two
)
pertinent truths: the Company had no wheeling policy or rate and, in any event, the request involved the transmission of power from the Cardinal Plant in Ohio to the Company and was i
- thus dependent upon other systems which, apparently, were contractually prohibited from making such power available to 256/
Michigan systems. The Hearing Board did not hold that this discussion constituted a specific request for wheeling. Rather, it con-L cluded that when Southeastern " sounded out" Consumers Power on the possibility of wheeling, it simply was told that
257/ !' Applicant had no provision for wheeling. This response was truthful, if not especially enthusiastic. The cooperative never followed up this brief conversation with a more formal r-inquiry or one directed to a higher level of the Company's 255/ In a case similar to this, the Ninth Circuit has recently found such evidonce insufficient to establish a concerted refusal to deal. Here, at most, "[a]ll we have is evidence
,_ of preliminary negotiations. A demand and refusal is 1
a prerequisite to a claim of concerted refusal to deal." < m Cleary v. National Distillers & Chem. Corp., 505 F.2d 695, 697 (9th Cir. 1974).
.256/ Under the " Buckeye Pact," power from the Cardinal Plant could only be consumed wholly within the state of Ohio.
-c Department's Appeal Brief at 155. Since other systems were contractually prohibited from wheeling power from the plant to systems in Michigan, any plan for Consumers Power to wheel Cardinal Plant power was inherently infeasible. 257/- Initial' Decision at 141, NRCI 75/7 at 99.
'? )
m
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- 1 l
- 302 - !
, 2
~
i i I management. Thus, this episode cannot be deemed a refusal to wheel by the Company.
. It should also be emphasized that Southeastern cooper-t ative has no generation facilities. Tr. 962 (Westenbroek).
[ Thus, whatever its interest in wheeling, the cooperative obviously had no interest in wheeling for coordination purposes. We have already noted, and the other parties have ad- _ mitted, that no smaller system, apart from Southeastern, sought i wheeling from the Company prior to the initiation of this pro-258/ ceeding. Despite these formal concessions, incorporated by
- 259/
reference in the Department's Appeal Brief, the Hearing 3 Board, on the basis of its own research, cites to what it deemed 260/ to be a prior refusal to wheel. For this finding, the Board relies essentially upon the testimony of John Keen of the Wolverine cooperative. According
~
to Mr. Keen, some time prior to 1964-65 he had his " ears chopped
, off" by a Consumers Power representative "in regard to wheeling" and that because of that reaction, he never raised the subject 261/
__ again. The other parties did not cite this testimony as evidence of a " refusal" because they knew the episode did not
~
involve a request that the Company wheel power. Rather, as 258/ See p. 299, supra. 259/ Department's Appeal Brief at 127. 260/ Initial Decision at 142, NRCI 75/7 at 99. 261/ Id. M . 9 w
- 303 -
r Mr. Keen made perfectly clear in his deposition, the incident involved simply the Company's rejection of Mr. Keen's offer in the early 1960's to wheel over Wolverine's transmission 262/ system for the Company and not vice versa. Even though the Hearing Board clearly attached sub-stantial weight to its transposition of Mr. Keen's testimony,
~
the Board emphasized that "the state of the evidence is not 263/ very satisfactory." We submit, on the basis of the Board's r-- discussion of the other allegations of refusals to wheel, but
~
for its confusion as to Mr. Keen's testimony, it would have 264/
, concluded that no such refusal had been shown.
Until after the initiation of this proceeding, Con-i sumers Power Company had never received a concrete or speci-fic request for wheeling services from any of its neighboring 265/ systems. As we have noted, one post-hearing wheeling re-266/ request was made and granted. In addition, sev'eral months after the Commission initiated this proceeding by transmitting r. U the instant application to the Department for antitrust review, F the Company received written communications from Traverse L. r-262/ Keen Deposition, August 16, 1973, at 304.
- 263/ Initial Decision at 142, NRCI 75/7 at 99.
264/ Had Consumers T rer been afforded the opportunity to do so, it would have excepted to the Board's finding in this regard for the reasons set forth in the text. See Section I at p. 7 n.20, supra.
, 265/ Tr. 6046-47, 6165 (Aymond), 7935.
266/ See p. 299, supra. 4 en sm.
r-l'
- 304 -
267/ 268/
- City (in May, 1971), from the MMCPP (in September, 1971),
269/ and from the City of Coldwater (in November, 1971). These
~
letters did not request that a specific amount of power be 4 wheeled between two particular points, but merely sought to r-initiate general discussions about several different matters, 270/
._ including the Company's wheeling policies.
At the time, the Company had no policies regarding wheeling since its management had never previously had occasion to consider the question. Tr. 6046-47 (Aymond). However, in e-response to these communications and to the wheeling issues m otherwise raised in these proceedings, the Company formulated l 271/ l
- t. a wheeling policy under which it offered bulk power wheeling I cervices to other electric systems under the following conditions:
o 267/ Exhibit 24. 268/ Exhibit 58; Tr. 1489-90 (Steinbrecher). n _ 269/ Exhibit 26; Tr. 4076 (Munn). ! , 270/ Tr. 6163-64 (Aymond); Exhibits 24, 26 and 58. Mr. Wolfe, then manager of the Traverse City system, testified (Tr. ! 1624-25) that these letters were sent in furtherance of ' ,_ this litigation because the system managers " felt that these particular requests should be documented and made __ clear for the record that we were, in fact, asking for consideration of these items." The letters are entirely m summary in form, simply asking for discussion of the j listed topics.
- 271/ The other parties allege that Consumers Power Company has C ? not adequately responded to inquiries about the Company's wheeling policies which were made by Traverse City, the
~ MMCPP and City of Coldwater after the initiation of this proceeding. Staff Post-hearing Brief at 92-93 incorporated Footnote Continued --
- wn
- - 305 -
"(1) that we have the physical capability on our existing or projected transmission grid to pro-vide the desired service, without impairing ser-vice to our existing and projected loads or commit-ments or endangering our system reliability;
"(2) that we be properly compensated for the r service. Proper compensation means that we recover our costs, measured by proper alloca-tion of average system transmission costs, so that our other customers do not cubsidize the wheeling customer;
"(3) that provision of bulk power wheeling ser-vice will not result in a significant loss to Consumers Power Company, directly or indirectly, of existing load or service areas, with resulting
- idle facilities and social waste;
"(4) that provision of bulk power wheeling ser-vices will not result in significant loss to Consumern Power of access to interchange power transactions with third parties." Tr. 8106-07.
These conditions are clearly reasonable. For example, as to condition (2), compensation for wheeling must take account of the fact that a system's ability to provide wheeling services is not dependent on the capability of a single trans-mission line but on the total capability of a transmission Footnote continued -- by reference at Department's Appeal Brief at 127. Since _ issues relating to the Company's wheeling policies were raised in this proceeding by the Department and the In-
~
tervenors, it is hardly surprising that the Company de-clined to discuss the matter once it was in litigation. In effect, proposals to talk about wheeling at that junc-
- ture must be considered settlement overtures. We submit that the Company's unwillingness to engage in such off-the-record discussions of matters of controversy in this proceeding cannot itself give rise to antitrust liability.
h'
= Ju
, 7
-- - 306 -
system. Tr. 8513-14 (Mosley), 22 after 8838; Exhibit 1004 at 272/
, 184-85. Tnerefore, unless the wheeling system is compensated according to average system-wide transmission costs, the wheeling arrangement will unduly discriminate against the wheeling system's retail and wholesale customers and cause their rates to increase.
Tr. 78 after 7239. As to condition.(3), the Company is clearly justi-fled in refusing to engage in wasteful transactions. " Cream-skimming" is one form of social waste which can arise from wheeling. Tr. 76 after 7239. This occurs when a system, having no general obligation to serve in the wheeling system's area, is able to serve and thus " pirate" away the wheeling 273/ system's most profitable industrial or wholesale customers. 272/ Detroit Edison Co., FPC Dkt. No. E-7906, Opinion No. _ 748, Opinion and Order Determining Rates (December 30, 1975). There, the Commission held:
~
"[W]e concur in staff's comments that an electric transmission system
-~, such as [ Detroit] Edison's operates as an integrated cohesive network in moving
= electric energy in bulk and is designed and constructed to achieve maximum effic-iency and reliability at minimum cost on
_; a system-wide basis. Given this engineer-ing and economic basis, and the dynamic manner in which electric transmission systems are developed within a utiity's service area, the rolled-in cost approach in this case offers a consistent and equit-E able method of costing electric transmis-
~ sion service." Slip op. at 9.
273/ Tr. 6099 (\ymond); 21 after 7224; 76 after 7239. eens e
l'
- 307 -
r~ The net effect of such a transaction is to raise the costs of
- y. 274/
power to a wheeling system's remalning customers. Indeed, i the manager of one of the Lower Michigan generation and trans-mission cooperatives testified that he would not offer his r system's transmission services to the Company for the purpose
, 275/
-~~
of taking one of his customers.
"~
In sum, there is no credible or substantial evidence
\
that the Company's conduct concerning transmission (wheeling) services has been discriminatory, predatory or otherwise unrea-sonable, even were there deemed to be a legal duty to wheel at all. Rather, the evidence is clear that the Company has never refused a concrete request for wheeling and has set forth an entirely reasonable wheeling policy which will facilitate a broad range of transmission transactions on behalf of the
, smaller systems.
[_ 2. Territorial Allocations.
. {3 One of the more extreme claims advanced in the brief of the Department of Justice is that Consumers Power and four r
other bulk power suppliers have executed and enforced wholesale 276/ territorial allocation agreements. These allegations rest al-L_ most exclusively on unsworn hearsay, on hearsay upon hearsay, u
.. 274/ Tr. 76-77 after 7239.
L- 275/ Tr. 1909-12 (Steinbrecher). m 276/ Department's Appeal Brief at 152-60. u L t . s2 1+3
i i
- 308 - ;
and on unadorned speculation. They are repeatedly denied in
; the sworn testimony of Company spokesmen. Despite massive dis-r covery of the Company's files, they ar. unsupported by credible i
i documentary evidence. These circumstances prompted the Hearing F Board to conclude that "there was no substance to" these accu-277/ , sations. The Board also explicitly recited and credited emphatic testimony by the company's chief executive officer 278/ 7 that there were no such agreements. I
- a. American Electric Power.
I The first of the Department's allegations concerns territorial allocation with the American Electric Power (AEP) system located to the south and west of the Company's service 279/ area. Particular emphasis is placed on events occurring in the village of Paw Paw in 1966. As evidence of an allocation f' l, agreement between the Company and AEP, the Department alleges only that "in 1966, following a tender offer by American Electric b Power to the shareholders of Michigan Gas & Electric, Applicant did make an offer to the Village of Paw Paw .
~
. . but promptly
.~
277/ Initial Decision at 160; NRCI 75/7 at 106.
. 278/ Id.; see Tr. 6476, 6481 (Aymond).
a 279/ Department's Appeal Brief at 153-54, 155, 159. AEP's service is rendered through Indiana & Michigan Elec- , tric Co., an AEP subsidiary. In 1969, AEP purchased
~ the Michigan Gas & Electric Co., so that today AEP systems serve throughout the southwestern portion of Lower Michigan. Tr. 3912 (Sundstrand). *4 aumm$
l -
A^ r.
- 309 -
withdrew it when it appeared competition had developed between 280/
, it and AEP. . . ." We submit that these facts, stripped of the rhetoric unsupported by the record, provide no evidence i'
of an agreement not to compete. Rather, these facts show precisely the opposite: the willineness of the Company to engage in bulk power supply competition with its investor-owned neighbors.
,, The facts involving the Paw Paw incident are not in p.
I' dispute. In 1966, Paw Paw was served by Michigan Gas and Elec- [' tric Company at wholesale rates which the Village believed to l 281/ be too high. Hoping to improve its situation, Paw Paw asked r 282/ i Consumers Power to provide it with wholesale power. Negotiations
,, began in early 1966, and on October 10, 1966, the Company ;
283/ formally offered to serve Paw Paw at its standard wholesale r rate, which was "substantially less" than Michigan Gas and [ 284/ , Electric's and which would have saved Paw Paw $50,000 per 285/ L year. However, a month after the Company's formal offer, a the American Electric Power system (which was soon to purchase i-Michigan Gas & Electric) proposed a new contract which offered 280/ Department's Appeal Brief at 154.
- [ 281/ Tr. 3895-96 (Sundstrand). !
-a 282/ Tr. 3907 (Sundstrand). l
,_ 283/ Exhibit 141.
284/ Exhibit 136 at 2.
~
285/ Tr. 3911 (Sundstrand). _p r3
- 310 -
"a savings to the Village of Paw Paw substantially in excess of the savings afforded by the contract offered by Consumers 286/
,_ Power Company." Paw Paw accepted that better offer and
) 287/
<\ following this action, Consumers Power withdrew its offer. f The Village of Paw Paw has never, even in the con-text of this proceeding, complained that the Company's with-288/ j drawal was in any respect improper. Furthermore, the record provides no support whatsoever for the Department's claim that i 1 - the Company's withdrawat of its offer was somehow related to the possibility of competition with AEP. Rather, these events show that the Company was willing to provide service to a sys-tem being served by one of its investor-owned neighbors -- a willingness which belies the existence of territorial alloca-
, tions.
The Department also claims to find evidence of a territorial allocation scheme between Consumers Power and the AEP system in events related to the Southeastern Michigan co- . s.J operative and the MMCPP. These charges can quickly be disposed ' T" \
.i of.- As to the Southeastern cooperative, all the Department claims is that the Indiana & Michigan Electric Company (an 286/ Exhibit 136 at 3.
L 287/ Exhibit 138.
~~
2;8/ In page 1 of his letter of January 31, 1967, Mr. Sund-strand is plainly not speaking of the Company's 1966
- .. offer. Exhibit 136.
6
' m-d
I i
- 311 -
r I AEP subsidiary) declined to serve the cooperative on September 20, 1960,-and_again on December 2, 1965, and that on that latter 289/ datecit informed Consumers Power Company of its decision. We submit that these facts reflect only a unilateral refusal r- to deal on I&M's part and offer no evidence whatsoever of I 290/ a territorial agreement. I&M's decision is fully and consistently explained by technical considerations, and it cannot be converted into evidence of an illegal agreement C. l simply by the f act that I&M chose to inform Consumers Power r- Company of the decision it had reached. I' Our adversaries' contentions concerning the MMCPP [ incident are equally ethereal. Here, the evidence is noth-L. ing more than Mr. Steinbrecher's statement that I&M once de- [ clined to sell power to the MMCPP and that "it's my under-r standing that the reason for the refusal was the fact that !
}, !
Indiana & Michigan did not want to supply power which would l be distributed in the area where power is supplied by the [j 291/ Applicant." Even if th s were creditable testimony, it does e, {_ not in its terms allege the existence of an agreement. In fact, l F e l j i
-s- 289/ Department's Appeal Brief at 159.
290/ The Department subpoenaed documents from the I&M system b seeking evidence of territorial agreements. I-A, supra. See Section Nevertheless, no documentary evidence of that nature was offered at the hearing and'our adversaries j., did not call any I&M officials as witnesses. , a l
, 291/ Department's Appeal Brief at 50.
i
.a ' I w
- l. f'
-t I
- 312-F however, this testimony does not even rise to the doubtful
,i dignity of hearsay; rather,.it is pure and unadorned specula-( tion. In such an administrative hearing as this, evidence y having such negligible probative value is insufficient to
)' 292/
support a finding of fact.
; Thus, there is literally no basis for concluding
( that the Company and -the AEP systems have since 1960 either e f executed or implemented and enforced bulk power territorial
, allocation arrangements.
I b. Michigan Gas & Electric Company. The Department also charges that Consumers Power
;
i Company was a party to a territorial allocation agreement with 293/ { Michigan Gas and Electric Company. The Department points ( 291/ Department's Appeal Brief at 50.
~
292/ Substantial evidence includes more than uncorroborated ~ [~; hearsay and more than hearsay corroborated by a mere scintilla. Boyle's Famous Corned Beef Co. v. NLRB,
- 7. . 400 F.2d 154 (8th Cir. 1968); NLRB v. Imparato Steve-
~J' doring Corp., 250 F.2d 297 (3d Cir. 1957); Willapoint Oysters, Inc. v. Ewing, 174 F.2d 676, 690 ( 9th Cir.) cert. denied, 338 U.S. 860 (1949). In Consolidated
, Edison Co. v. NLRB, 305 U.S. 197, 229-30 (1938), Chief L Justice Hughes emphasized that statutory provisions designed to assure " flexibility in administrative ,
_- procedure'(do) not go so far as to justify orders without j
-" a. basis in evidence having rational probative force. {
Mere uncorroborated hearsay or rumor does not constitute
,, substantial evidence." l l
1 b 293/ .~, spar tment 's Appeal Brief at 153. It should be noted that the quotation marks which the Department has placed around i " gentlemen's agreement" do not denote the use of this term in any evidence cited by the Department in connec-tion with this charge. W P
- T
r l f ..
! - 313 -
I' to a le tter written on March 1,1960 concerning the Company's I s 294/ l efforts to serve the Village of Constantine. Here again, i however, no mention is made of a territorial agreement. Rather, the document makes clear that its author was merely considering whether the Company could serve a wholesale load
)
then served by another. Here, as elsewhere, our adversaries l seek to convert evidence of the Company's willingness to com- ; I pete for wholesale loads into evidence of an agreement not to
, compete. !'
l 295/ The second cited incident involving the Company and the Michigan Gas and Electric Company (MG & E) occurred in ! Paw Paw in the early 1960's. At this time, as we have related, Paw Paw was dissatisfied with its service from MG&E, and Warren Sundstrand, one of its representatives, informally made over-296/ tures to the Company. Because the service by the Company
] would have required a significant investment in transmission ~J facilities and because there was some legal doubt as to the Company's right to serve without MPSC approval, the Company did not offer service at that time. Tr. 7892. According to Mr. Sundstrand, the Company's representative referred at the time to "more or less of a gentleman's agreement that so long .. a 294/ Exhibit 157. I 295/ Departuant's Appeal Brief at 153-54. l i
296/ Tr. 3895, 3900-01 (Sundstrand). l
)
w e
!~
- 314 -
F as one company wanted to serve a municipality that the other l company would not compete with it." Tr. 3903. This statement, of course, conflicts with the sworn testimony of the man with whom he allegedly spoke (Tr. 7950) and the chief executive of-( ficer of the Company. Tr. 6071 (Aymond). It also conflicts (~ with the Company's offer to serve Paw Paw in 1966. In the ( Hearing Board's words, "if there was such a gentleman's agree-297/ f, ment, Applicant broke it." We submit therefore that the Board properly discounted fI the isolated recollection of one witness and was plainly correct 298/ e in concluding that no such territorial agreement existed. f r c. Toledo Edison and Detroit Edison. IL The last of the Department's " evidence of territo-( i rial allocation agreements" concerns the efforts of the South-
- s.
eastern Michigan cooperative to obtain an alternative bulk power 299/ supply source in 1965. The Southeastern cooperative is located in both Michigan and Ohio and, at the time, purchased 75 per-
- [_. 300/
L cent of its needs from Consumers Power, all of which was .ii 296/ Tr. 3895, 3900-01 (Sundstrand). } 297/ Initial Decision at 159, NRCI 75/7 at 106. 298/ Id. See Subsection IV-A-3, supra, on the weight to be 1s> given the Hearing Board's assessment of the credibility of witnesses. 299/ Department's Appeal Brief at 155-60. 300/ Tr. 7898; Exhibit 11,307; Attachment JDP-2, Schedule 2
, after 7239.
.) w t -.
I (
- 315 -
used in Michigan. The cooperative's service area was located
~
adjacent to Toledo Edison Company (an Ohio electric utility) and Detroit Edison, and in 1965 it requested service from p . 301/ ( each of these systems. Toledo Edison declined to serve, but
, Detroit Edison agreed to supply most of Southeastern's needs, so that Consumers Power's share of Southeastern's bulk power 302/
'( pur :hases fel' to 17 percent. I To e;. plain Toledo Edison's refusal to serve, oppos-
/ ) ing counsel did not call a single witness. Rather, they rest , their case entirely on the unsworn hearsay contained in the
[. memoranda of two field agents of the Rural Electrification 303/ [ Administration. Since neither these agents nor any repre-sentative of Toledo Edison were called as witnesses, these I documents constitute the most blatant kind of hearsay, and 304/ hearsay upon hearsay. Such vague and unsupported ) bi hearsay evidence is- not sufficiently substantial to support
- ['-
O' 301/ Exhibit 128. 302/ Tr. 7898; Exhibit 11,307; Attachment JDP-2, Schedule 1, w after 7239. 303/ Exhibit 128.
~
304/ The Badner report, dated February 14-17, 1966, for ex-ample, explains Toledo Edison's decision not to sell in
- Michigan by observing that Toledo Edison "did not appear to be too concerned" over FPC jurisdiction and conflict
- - with the Buckeye Pact, but that they "seemed disturbed and concerned over the thought of invading" Consumers
+1 Power Company's territory. Quoted in Department's Appeal Brief at 157. ~
l
.i--
[ - 316 - r 305/
; a finding of fact in a hearing such as this.
g Even on their face, the documents are quite innocuous. ') i They offer three raasons why Toledo Edison could not serve the
~
Michigan needs of the Southeastern cooperative -- only the last of which even mentions Consumers Power. The Department's brief , attempts to strengthen this obviously deficient evidence by
-intimating that the first two reasons were " shams," intended to disguise its territorial agreement with Consumers Power.
In fact, the first two reasons explaining the refusal are perfectly valid. 307/ Although, as the Department's brief emphasizes, Toledo Edison would become subject to FPC jurisdiction by 1970
- . because of its pending interstate interconnections, that pros-spect was three or four years away at the time of the episode in question. In 1966, FPC jurisdiction represented a significant
_ 308/ and legitimate concern for Toledo Edison. The second reason 1 l- -
'~ 309/ See p. 312-n.291, supra, on the insufficency of hearsay to support a finding of fact. The Department complaints F
that the REA field reports (Exhibit 128) should not have
- been' deemed " hearsay" by the-Hearing Board because, it claims, they were admissible as " business records."
~ Initial Deci_ '.on at 159, NCRI 75/7 - at 106; Department's Appeal'Brief at-160. This complaint is without merit
._ since the issue is the exhibit's evidentiary weight, not'its admissibility.
306/ Department's Appeal Brief at 157-58. 307/- Department's Appeal Brief at 157. 4 s 308/ At this time Consumers Power had similar bona fide concern in this area. See Section IV-B-6 supra. ) H$
~
(. 317 - p b for Toledo Edison's refusal -- that relating to the Buckeye Pact -- was equally valid. As the Department concedes, the Buckeye Pact provided that power from the Cardinal Plant (a
,( 'l joint venture involving Ohio investorowned and cooperative sys-309/
4 y tems) could not be transmitted out of Ohio. Thus the Buck-
, 310/
i eye Pact proscribed the scheme proposed by Southeastern. (. It is therefore clear that Toledo Edison had valid 4 reasons for unilaterally refusing to serve the Southeastern
; cooperative in Michigan in 1966. Under these circumstances, , the Department's speculation that these explanations sought i
( to cover an unlawful territorial agreement with Consumers [. Power cannot be sustained. Surprisingly, the Department also cites this 1966 incident involving the Southeastern cooperative as evidence _ of a territorial agreement not to compete between Consumers [,.* Power Company and its coordination partner, The Detroit Edison 311/ p Compar s . It is uncontroverted that when Southeastern coopera-J r 309/ Tr. 5587, 5624 (Rogers); Exhibit 128. 310/ Department's Appeal Brief at 155. ,j ' 311/ The Intervenor's make a passing reference to " territorial acteements" in the retail market. Intervenors' Appeal Prief at 73. The Hearing Board examined these matters j >. in detail and found the Company's agreement with Detroit Edison "is not an agreement 'not to compete' but is an agreement to implement MPSC [ Michigan Public Service Commission] policies and minimize need to recourse to MPSC in the event of disputes. " Initial Decision at 160-62,- NRCI 75/7 at 106-07. The Board also found , the testimony that the two~ companies were parties to l ij a " gentleman's agreement" to be " pure speculation." l Initial Decision at 158, NRCI 75/7 at 105.
)
--#. - . - . , . , . - - - - _ . - - , . - . .,,,-,,.-..,.-,--..e v,---. - y- . - . . ..-
~
t (
- 318 -
a f~ rive sought alternatives to the wholesale service from Con-I sumers Power in 1966, Detroit Edison agreed to provide such 312/ service. This would seem to put to rest any claim that the Company and its pooling partner had a bulk power territorial l arrangement. However, according to the Department's brief,
" a contrary conclusion is in order because Detroit Edison allegedly did not offer as low a rate as it should have, I- and because Detroit Edison advised Consumers Power that it i 314/
take over most of Southeastern's bulk power business.
;
We submit that this charge, like the other allegations of 315/
, improper territorial allocations, is wholly insubstantial.
In sum, there is no credible evidence tc support a [ finding that the Company had bulk power territorial arrange-ments with its investor-owned neighbors -- the AEP systems, Michigan Gas and Electric Company, Toledo Edison Company,
- The Detroit Edison Company, or any other electric system.
,1 - I' 312/ Department's Appeal Brief at 160. 313/ Department's Appeal Brief at 159. 314/ Department's Appeal Brief at 160. 315/ Another of the Department's baseless allegations con-cerning Southeastern's partial change of bulk power
-- suppliers was that Consumers Power made efforts to s
deter the Rural Electrification Administration (REA)
'i ; from financing the subtransmission line required to
_. interconnect with Detroit Edison. Department's Post-hearing Brief at 146 incorporated by reference at Justice Appeal Brief at 127; Department's Post-hearing Brief at 121. Nothing whatever in the record is cited to support this charge. 4 e
I di
- 319 -
{ .p Further, the Company's President and Chief Executive Officer 316/ 4 { . testified that there are no such agreements. Thus, the Hearing Board's rejection of these allegations was plainly correct. 1 !r 3. Acquisitions. I The opposing parties purport to find both exclusion-r ary effect and monopolistic intent in the Company's activities i 317/
-regarding acquisitions. Yet, the Company made almost no il acquisitions in the relevant time period. In the fourteen years r under rev'iew in this proceoding, Consumers Power Company has
!I acquired only three small systems -- those which served the lI
'l towns of Grayling (in 1961), Rogers City (in 1967) and 111egan 318/
(in 1968). Those systems served a combined total of 4,700 l i[p~ customers out of the mc 2 than one million other customers 319/ of Consumers Power Company. Consumers Power also sought iL. 316/ Tr. 6071 (Aymond); see also Tr. 7950.
- L l 317/. Department's Appeal Brief at 167-70; Intervenors' Appeal l c3 Brief at 76-77.
i
-318/ Tr. 6063 (Aymond), 7907; Exhibit 11,308; Initial Decision
! at 151, NRCI 75/7 at 103. 319/ Tr. 7917; Exhibit 11,308; Initial Decision'at 152-53, NRCI 75/7 at 103. [b Again, there-is no evidence that any of these systems were capable of, or exhibited any interest in, coordination
- ,, with the Company. As to 'one system, the Department dis-di 4"
agrees. The Department contends (Department's Appeal Brief at 100-01) that in 1966 Allegan asked the Company to 1 coordinate and that the Company refused as a part of a scheme to force'the. City to sell its system to the Company. Footnote continued -- D W f
. _ . . ~ . . _ , . . . . - - , . _ . . _ . - _ , . _ , . . . . , . . . . , , . . _ _ _ . . ,
r-i [ - 320 - i r to acqui>:e two other systems between 1960 aed 1968 but { 320/ those offers were rejected. F Footnote continued -- I This claim is wide of the mark in two respects. First, Allegan never requested coordination. The very evidence on which the Department relies shows that Allegan requested firm wholesale power -- not coordination -- and that the i Company complied with the request. Exhibits 178 and 179; see also Tr. 7912. Secondly, it was not the Company but
, the Mayor of Allegan, speaking for the City Council, who i
i first proposed that the Company offer to buy the municipal system. Thus, on January 21, 1966, Ted Malila, the City's Mayor, told the Company that the City Council would like to I receive an offer to acquire the system. Exhibit 180. The i exhibits cited by the Department reflect the Company's internal efforts in February to respond to this invitation. c Subsequently, the Company made an offer to buy the system at the same time it offered to sell the partial purchase wholesale power about which the City had also inquired.
, In due course, sale of the system was deemed by the City Council to be the best alternative and its decision was approved by more than 60 percent of the electorate, by the Federal Power Commission and by a United States Court of Appeals. Citizens for Allegan County, Inc. v. FPC, 414 F.2d 1125 (D.C. Cir. 1969).
Although the Company's personnel knew that Allegan was q also considering interconnecting with Wolverine at the time, there is no evidence that this knowledge motivated
" the Company's decision to purchase the Allegan system.
Rather, the record clearly indicates that Allegan exer- _ cised its free will and declined to pursue the Wolverine alternative. Surprisingly, the Department's Appeal Brief at 101 cites Exhibit 178 as contrary evidence. Yet the language'the Department quotes plainly has nothing to do with the acquisition offer but rather concerns the prospect for success in the Company's wholesale competition with Wolverine to serve the Allegan system. It provides no support for the proposition for which it is cited. 320/ In both post-1965 acquisitions, the purchase otfer was approved by the respective city councils. Tr. 6063 (Aymond), 7907-08; Exhibit 11,308. W4 u _ _ _ ,_m...
F' , k ) [^ : [
- 321 - ,
i
!_ Since 1965, however, Consumers Power has declined to
( consider acquisitions which lacked near-unanimous support in
)
[. 321/ ; i the affected community and since 1968 it has not made an i 322/ r offer to acquire and has not acquired any system. At the
'i present time, and for the foreseeable future, the Company's I difficulties in financing new bulk power facilities have !
l 323/ l
, led it to eschew censideration of acquisitions. For example, l t
; in 1970 Consumers Power declined a neighboring municipality's r proposal that the Company consider acquiring the municipal
}
324/ system. Thus, throughout its limited activities relating to acquisitions, Consumers Power's conduct has been fair and f [ straightforward. Under these circumstances, well-established antitrust principles compel the conclusion that Consumers Power Company's three small acquisitions lack any significance for this proceeding. f .[ 321/ Tr. 7910-11. I. 322/ Id. In 1969, a Company spokesman made a passing reference to acquiring the Southeastern cooperative (Exhibit 125) and c in 1970 the acquisition of the two G & T cooperative was discussed internally by one middle level Company employee. i (Exhibit 187). There is no evidence in either case that the _ Company ever tendered an offer to purchase the systems in question. n ' 1
}# 323/ Id. See also Tr. 6409 (Aymond), 6983, 7114, 101-102 after 773NT Consumere Power Co., MPSC Case U-4174, Order
.' (November 24, 1972); Consumers Power Co., MPSC Case U-4576, Order Granting Partial & Immediate Rate Relief (Sept. 16, m 1974). 324/ Tr. 7913. e ~- .
& . 'i
7-L f - 322 - .i i I Cases arising under Section 7 of the Clayton Act, 15 ( U.S.C. S18, have repeatedly concluded that a larger firm's ac-quisition of a small horizontal competitor or of a small actual
- p. or potential customer may have such limited impact on the mar-( ketplace as to be of-no antitrust significance. In Brown Shoe Co. v. United States, 370 U.S. 294, 329 (1962), the Court :
I ! noted that even under Section 7, which imposes "less stringent" l ( l
; tests than the Sherman Act, " foreclosure of a de minimis share l
,. of the market will not tend 'substantially to lessen competi-tion.'" This principle was also reflected in Crown Zellerbach '
r Corp. v. FTC, 296 F.2d 800, 818 (9th Cir. 1961), cert. denied, I' 370 U.S. 937 (1962) in which the court stated:
"If the acquisition took out of the market a concern whose total sales and competitive impact was so small relative to all sales and all competition in the market that it m lacked real importance, then the acquisi-tion cannot be said to affect competition p in a substantial manner."
- L-A succession of recent Section 7 cases have applied
! that maxim to mergers between companies that were competitively or vertically related where either the acquired company was small i
;_ overall or the area of product overlap between the two companies l 325/ 1 was not extensive. When courts have found a significant impact
- a 325/ United States v. Crowell, Collier & Macmillan, Inc., 361 F. Supp. 983, 994 (S.D.N.Y. 1973); United States v. Inter-national Tel. & Tel. Corp., 324 F. Supp. 19, 39-40 (D. Conn.
1970), (sprinklers); American Smelting & Ref. Co. v. Penn-2011 United, Inc., 295 F. Supp. 149, 157 (D. Del. 1969); ^~ United States v. International Tel. & Tel. Corp., 306 F. Supp. 766, 794 (D. Conn 1969), cert. dismissed, 404 U.S. 801 (1971) (insurance). m.
-- - - - . - - - ,-- -- - . , - - . - - . .c. 7 y--, ,- -
,-rp-y
I [ p - 323 - 1
- on competition in cases involving limited additional market
(- foreclosure, they have pointed principally to special factors
" 326/
which affect the market, not to market share statistics. In the present case, the parties opposing Consumers F j Power Company have not pointed to any such f actors to overcome the obvious insubstantiability reflected by the miniscule i size of the Grayling, Rogers City and Allegan electric systems. To the contrary, there is every indication that little, if _any, retail competition occurred between the Company and f.hese c 1 systems and that there was only a limited potential of such 327/ competition in the future. t In cases under Section 7 of the Clayton Act, the r irrelevance of small acquisitions to antitrust issues has been recognized. Even acquisitions which would be struck down under 328/ the incipiency standard of Section 7 provide no support for L, 326/ For example, in United States v. Aluminum Co. of America, 377 U.S. 271, 280-81 (1964) ("Alcoa-Rome"), the Court, p, ' apparently recogn'izing that elimination of a firm with only 1.3 percent of the relevant markets would typically not be objectionable, stressed the acquired firm's special record of aggressive competitive effort. To similar effect see Stanley Works v. FTC, 469 F.2d 498 (2d Cir. 1972), cert. denied, 412 U.S. 928 (1973) (finding special cir-
~
cumstances creating a substantial effect on competition). See also Judge Mansfield's vigorous dissent reaching the
~ opposite conclusion under the same principles. 469 F.2d at 509.
327/ See pp. 140-151, supra. 328/ The Supreme Court has characterized the objective of Section 7 as " arresting mergers at a time when the trend to a lessening of competition in a line of commerce was still in its incipiency." Brown Shoe Co. v. United States, 370 U.S. 294, 317 (1962). a , ,d
F l l 1
- l
, - 324 - i r charges of monopolization here where the standards of Section 2 [ of the Sherman Act are applicable. In the leading case of United States v. Jerrold Electronics Corp., 187 F. Supp. 545, I 566, 568 (E.D. Pa. 1960), aff'd per curiam, 365 U.S. 567 (1961), l ' f. . 'l the court held that a series of acquisitions were " approaching ; t if not beyond" a possible Section 7 violation and forbade any i ! further acquisition in its decree. However, the court refused f to infer monopolistic intent from the relatively limited acqui-sition program. That holding further underscores the irrele-I l i vance of Consumers Power's few isolated acquisitions to the l r allegations of monopolization put forward in this case. Finally, the Federal Power Commission has held that even acquisitions which would plainly be condemned in conven-L. tional non-regulated industries will not have an "anticompeti-
, tive effect" in the electric utility industry. In reviewing 1 Commonwealth Edison.'s acquisition of-a neighboring utility l k
whose sales amounted to 7% of those of the acquiring company, l{ the FPC concluded that "it does not appear that Commonwealth's o merger with its much smaller neighbor will add appreciably to , 329/ ! its command of economic power...." The Commission further l l
~
329/ Commonwealth Edison Co., 36 F.P.C. 927, 941 (1966). The 1 importance of this decision is emphasized by the Commis-sion's statement that the opinion by Chairman White is
intended "to provide guidance to utilities contemplating merger" generally. 36 F.P.C. at 932. The FPC also noted that merger could be an appropriate means to obtain the benefits of coordination. 36 F.P.C. at 930-31. 64
==
ym--y * - '
I T'
- 325 -
l determined that the merger would not " choke off actual or 330/ potential areas of competition between [the two utilities] ." I~
! In affirming the FPC's action, the Seventh Circuit, in holding
- that no injury to consumers had been shown, added:
"In a market characterized by competition a merger =or other acquisition necessarily in-
[. jures the consumer if it substantially lessens l competition. In the electric utility industry, where restraints on competition are not only F tolerated, but encouraged, see 16 U.S.C. A. { S824a(a), and where rates are subject to fed-eral or state regulation, 16 U.S.C.A. SS812,
,- 824d, injury to the consumer cannot be in- ! ferred from a merger, but must be demon-strated." 331/
[ Under these circumstances, it is quite clear that Con-L sumers Power Company's activities regarding acquisitions have no significance for this proceeding. The Initial Decision found as 332/ follows conerning the effect of the three acquisitions in ques-tion:
" System requirements data for these three utilities L for 1960 are 31,894 Mwhr, compared with Applicant's ;
requirement for 1960 of 4,896,066 Mwbr Applicant's ' 1970 Annual' Report to Stockholders, page 31, resi- l dential and commercial sales] represents less than 1% of Applicant's sales. By customers, the three acquired utilities totaled approximately 4700 com-pared with either 873,834 in 1960 [ Applicant's ~L. 1970 Annual Report to Stockholders, page 34] or 1,112,000 in 1972 [Tr 7917], or 1,147,507 in 1972 [ Exhibit DJ 21, page 27], or less than 0.6%. See _. also Exhibit CP 11,308. During the same period 330/ 36 F.P.C. at 941. 331/ Utility Users League v. FPC, 394 F.2d 16, 19-20 (7th Cir.),
- _ cert. denied, 393 U.S. 933~(1968).
332/ Initial Decision at 152-153, NCRI 75/7 at 103. l
. p-I
- 326 -
l 1960-1973, Applicant's internal growth was approx-I mately 130%. By any comparison, these acquisitions had a de minimis effect on Applicant's growth r during the. period." (Emphasis added.) i ( Despite the de minimis factual impact of the acquisi-tions made by Consumers Power, the proponents of antitrust-conditions would' infer not only an intent to make further
~( acquisitions but impute a willful monopolistic purpose to all j of the Company's activities. In urging this view, our oppo-nents rely upon a single document from among the 26,000 docu-I ment pages produced by the Company following a file search i
333/ of four million documents. That document, written in 1965,
, summarized the contents of an informal talk by a middle-level I, salesman to some of the Company's engineers and referred to l'
an alleged " marketing" policy favoring acquisition of publicly-
!I owned systems. The Department purports to divine from this 'l.
document not only a corporate intent to acquire competitors in
-violation of Section 2, but also the " mortar" to explain all of 334/
the Company's activities over the course of fifteen years. We submit that this one document cannot support such a pyramid r 1 of speculation. ' .L ) Courts have occasionally drawn conclusions about a company's intent from statements by top corporate management +
,,, officials when the course of conduct proposed by them has
- Li 333/
See pp. 4-5, suora. 334/ Department's Appeal Brief at 170.
~
i w lw . ., . .- ._ _ _. _ _ . _ _ . _ _
(~ , i
- 327 -
actually been implemented. See, e.g., United States v. Alumi- [ num Co. of America, 233 F. Supp. 718 (E.D. Mo. 1964), aff'd per curiam, 382 U.S. 12 (1965), (executive vice president of i Alcoa explaining purpose of attempted acquisition) . However, r i here the document merely summarizes the contents of an informal 335/ talk by a sales official to some of the Company's engineers. i It was written eleven years ago, was not seen, reviewed or f approved by any Company officer (or any other of the sales-i man's superiors), and as the Hearing Board found, was contrary
- 336/
to Company policy. Further, the goal arguably espoused in the document -- to acquire neighboring municipal and cooperative I
! systems -- was never implemented either in whole or in sub-stantial part.
While Consumers Power Company does not contest the admissibility of this document in the context of an administrative antitrust hearing, it should be noted that the document would i L3 335/ The author of the document was Rob,ert Paul. Mr. Paul's duties consisted of selling bulk power to large commercial accounts and to wholesale customers. Tr. 7805. He did not report to an officer of the Company, but to a higher level employee, R. L. Conden, who, in turn, reported to - the Company's Vice President for Marketing, then Mr. B. G. Campbell. Tr. 7950. Campbell and Conden were deposed by the. Department but deposition testimony relevant to this subject was not offered and neither individual was called as a witness. Mr. Campbell continued working for the Com-pany until his death on March 26, 1974 -- long after '.he Department filed its witness lists (see its letters of July 13 and 30, and September 4, 1973) and three months after the close of the Department's case on January 20, 1974. Tr. 4643. 336/ Initial Decision at 151, NRCI 75/7 at 102.
/
bb
- 328 -
have been excluded from evidence in a conventional lawsuit. Thus, in United States v. United Shoe Machinery Corp., 89 'l F. Supp. 349, 353-56 (D. Mass. 1950), Judge Wyzanski, while t L holding that the rules governing admissibility should be construed in civil antitrust proceedings as they would be in a Federal Trade k Commission proceeding, noted that: r
"[T]here is no reason to suppose that in ordi- ; nary litigation the federal courts should re-ceive against a corporation a statement in the ' course of duty made by one corporate agent to another unless it was shown by the offeror of i
the statement that the corporation either (1) authorized the agent not only to make the in-tramural statement but to commit the corpora-tion by intramural statements or (2) adopted the statement by appropriate votes or by r thereafter conducting its business on the l
. basis of that statement." 337/
Th.e issue with regard to the document in question here, L is, of course, weight rather than admissibility. In that context, f' 337/ 89 F. Supp. at 354. Agency 2d, S287 (1958):See also Restatement of the Law Second: 3 " Statements by an agent to the principal or to another agent of the principal are not admissible against the principal as admissions. . . ." m Comment under this section explains:
"[S] tatements made by the agent to the princi- !
i
" pal or to other agents are statements which the principal does not intend to be given to ,
{ the world or to be considered as his state-a ments. He does not in any way vouch for their truth." Id. See also Standard Oil Co. v. Moore, 251 F.2d 188 (4th UIr.), ' cert. denied, 356 U.S. 975 (1958) and Monticello Tobacco Co. v. American Tobacco Co., 197 F.2d 629 (2d Cir.), cert. denied, 344 U.S. 875 (1952), which apply _ strict standards of admissibility in antitrust proceedings. h
p i
,. - 329 -
i we subn.it the policies that lead to the rigid exclusion of such statements in civil litigation plainly militiate against r attaching substantive weight to them in administrative proceed-i ings. As Judge Wyzanski noted, in an administrative proceeding, as in other litigation, "[u]nless the author of a hearsay state-ment [as to the policies of corporate management] had personal
! knowledge or other special opportunity to acquire trustworthy information, his statement should not be relied on for any critical point. 89 F. Supp. at 356. (Emphasis added.) Under
~
these circumstances, it is clear the salesman's intramural statements should be given little substantive weight. Moreover, antitrust tribunals are justifiably skepti-r- cal of allegations that monopolistic purpose can be demonstrated {~ through the general statements of subordinate personnel unrela-ted to actual conduct. Thus, the Ninth Circuit has held "Such a manifestation of intent to triumph in the competitive market [a threat to drive
;[7 a neighbor out of business if he undertook active competition), in the absence of evi-
- dence of unfair, anticompetitive or preda-tory conduct, is not enough to establish a violation of S2."
338/
;[ Dahl, Inc. v. Roy Cooper, Co., 448 F.2d 17, 19 (9th Cir. 1971).
-L 338/ In Scott Publishing Co. v. Columbia Basin Publishers, Inc., 293 F.2d 15, 21 (9th Cir.), cert. denied, 368 U.S. 940 (1961), the Court of Appeals recognized that a statement j of the manager of the defendant to his financial backers
that he was "' driving [the plaintiffs] to the wall'" did not show monopolistic intent but rather, under the facts of the case, was "'in the nature of a sales pitch . . . . '"
Footnote continued -- A w -, - .e . c
. p ,
r 6
- 330 -
1 The Hearing Board expressly found that the documents reflected views which had the " characteristic of a daydream y totally divorced from reality" and that "any possiblity of 339/ t achieving the aim [was) so remote as to be negligible." With F regard to testimony by the Company's chief executive officer i that the salesman's views were precisely contrary to management policy, the Board held that "we accept Mr. Aymond's testimony 339a/ on policy as true." The Board also found that in the Lower t . Michigan electric utility industry, "the occasional acquisition r of a competitor, such acquisition having little effect on com-
;~
340/ petition, is fair competition. . . . Coupled with the r Footnote continued -- L In South End Oil Co. v. Texaco, Inc., 237 F. Supp. 650, 655 (N.D. Ill, 1965), the plaintif f sought to show an m unlawful purpose by reference to incidents in which
" Texaco representatives allegedly approached Eustace and inquired if he sold to certain discount houses.
In one instance he was asked to speak to one of his J customers and request the removal of a large sign advertising the discount price; on another he alleg-p edly was asked and agreed not to make sales to a g,' certain outlet. . . . "
-- However, noting that Texaco's actual conduct at the time did not support any inference of hostility to the plaintiff, L the court held "that the only reasonable explanation of these incidents is that they were connected, isolated occurrences. . . ."
b 339/ Initial Decision at 156, NRCI 75/7 at 105. 7,. 339a/ Initial Decision at 151, NRCI 75/7 at 102. See Section IV-A-3 supra, on the weight to be given the Hearing l , r. Board's first-hand assessment of the credibility of witnesses. L l 340/ Initial Decision at 154, NRCI 75/7 at 103. i vt w
t-
, _ - 331 -
Board's conclusion that the Company's actual acquisitions were 340a/
"d3 minimis," these factual findings make clear that the document cannot be read to reflect corporate policy.
Despite the Hearing Board's express acceptance of the
. chief executive officer's testimony about the Company acquisition policies "as true," its assessment of the statement as a " daydream" , and its finding that the Company's acquisitions had actually had - a "de minimis" impact, the Board nevertheless felt itself con-
.L strained to " conclude as a matter of law" that the Company is '_ " bound" by Mr . Paul's remarks. 341/ Not only do the f actual find-ings make clear that this conclusion is purely formalistic, the 342/ conclusion itself is contrary to the law of agency. The Board appears to have a mistaken notion of "ap-343/ parent authority." The nature of its legal error is illum-inated by its citation of Continental Baking Co. v. United States, 281 F.2d 137 (6th Cir. 1960), a case which holds that a corpora-344/ tion may be bound by the illegal acts of its agents. Since the document in question is evidence of a statement, not an
~
340a/ Initial Decision at 152-53, NRCI 75/7 at 103. 341/ Initial Decision at 151,153, NRCI 75/7 at 102-04. 342/ Had it been afforded the opportunity to do so, Consu-mers Power would have excepted to the Board's findings
~ in this area for the reasons set out in the text. See p.7 n.20, supra.
343/ Initial Decision at 151,- NRCI 75/7 at 102. 344/ Indeed, the cited discursion in Continental Baking is captioned " Admission of Evidence of Other Acts." 281 F.2d .at 148-49. (Emphasis adde'd.) emass
-w -
,. .-m .-e w p.a
i
- 332 -
action, that principle is manifestly inapplicable. The law is clear regarding intramural statements from 344a/ one subordinate employee to another. As we have noted not only do such statements not conclusively bind the corporation,
~
they are typically not even admissible in evidence as to its intent. Similarly, the law of " apparent authority" is inappli-
, cable here since this concept refers to statements or actions y_ ,
of corporate agents which are relied upon by third parties -- not from one employee to another. H. Henn, Law of Corporations
~
S226 (1970 ed.),. and cases cited therein at n.1 and n.3. Thus, the Board's legal conclusion that the document in question must constructively be deemed to reflect corporate pol- _ icy is, as a matter of law, erroneous and should be disregarded u- by this tribunal. With that conclusion put aside "as a matter of law," the document in question can be assessed for what it was: the overeager and self-aggrandizing claim of a subordinate u: employee. It does not show a plan to acquire smaller systems b and cannot, even by gross exaggeration, be treated as the 345/
" mortar" of a scheme of monopolization permeating wholly unrelated aspects of the company's conduct. ]
L In sum, not only is the acquisition question wholly irrelevant to coordination issues, there is no evidence that T 344a/ See pp. 328-30, supra.
' 345/ Department's Appeal Brief at 170.
1 r-w h,
-m
- 333 -
4 the Company's policies or practices concerning acquisitions [ were, in either effect or intent, anticompetitive or otherwise r- unreasonable. s
,_ 4. Political Conduct.
During the prehearing phase of this proceeding the Hearing Board ruled that the Company's political activities
347/
were irrelevant to the issues in controversy.
~
347/ See " Order Ruling on Applicant's Objections to Document Requests, the Department of Justice's Motion to Compel __ the Production of Four Categories of Documents, and Appli-cant's Motion for Protective Orders," pp. 2-3 (Nov. 28, 1972), where the Hearing Board held that "[w]hether or not Applicant [ Consumers Power] has engaged in unfair practices through political maneuvers is a matter not relevant to the issues in controversy. . . ." The'Intervenors' Appeal Brief (at 173-78) argues that as to discovery of political activities, the Board's order of November 28, 1972, was erroneous and that their
" Motion to Reconsider of June 29, 1973 should have been granted. This argument can be summarily rejected on
, __ several independent grounds. l First, the Intervenors' exceptions of September 8, 1975, 4
' contain no reference to the Board's November 28 ruling or to a reiteration of this ruling in the Initial Decision.
_3 Initial Decision at 179, NRCI 75/7 at 113. Having failed to take exception in this regard, the argument should be stricken from their brief. See Section 2.762(a) of the Commission's Rules, 10 C.F.R. S2.762(a); see also Long Island Lighting Co . (Shoreham Nuclear Power Station), 6 A.E.C. 831 (App. Bd. 1973). _; Second, the Intervenors accepted the benefits of the i Board's order of November 28, 1972 -- both by gaining ac-cess to documents the Board ordered the Company to pro-
~ duce-in that ruling and by using the order to block cer-tain discovery the Company sought from the Intervenors.
Tr. 255, 257. Only after seven months had passed and Footnote continued-- J .
t
- 334 -
Nevertheless, there is some evidence of the Company's poli-348/
, tical conduct in the record and our adversaries cite two political incidents in their appeal briefs: (1) Consumers
[ Power's petition to the Traverse City municipal council with
, Footnote continued --
after they had gained substantial advantage from the or-
~
der did they move its reconsideration. This effort can-not be reconciled with the well-settled principle, recently
applied by this tribunal, that one who accepts the benefits of an order "is estopped to deny the validity thereof."
4
. Toledo-Edison Co. (Davis-Besse Nuclear Power Station),
NRC Dkt. No. 50-456A, Opinion and Order (ALAB-300) (Nov. 26, 1975), quoting American Guaranty Corp. v. United u States, 401 F.2d 1004, 1011 (Ct. C1. 1963). Third, on the merits, the Hearing Board properly rejecced Intervenors' efforts to engage in a " fish-ing expedition" on the basis of a single newspaper article raising issues of no discernable relevance
~
to " coordination" -- or in fact to any aspect of
, ' the Company's bulk power operations whatever. Before discovery into constitutionally-protected political activities is permitted a more substantive showing must be made. Murdock v. City of Jacksonville, 361 F. Supp. 1083 (M.D. Fla. 1973). Thus, the Hearing ~ Board's exercise of discretion in this regard was clearly correct.
A For a detailed exposition on the lack of merit in the t Intervenors' discovery objections in this regard, see
- " Applicant's Answer to Intervenors' Motion to Compel
" dated July 9, 1973, in the instant proceeding.
348/ The record also reflects comparable political activity by the smaller systems. For example, Lansing's manager
', testified as to his lobbying activities urging the state legislature to revoke Michigan's limitation on municipal
.u systems serving outside of the municipal boundary. Tr. 2273-75 (Brush). Similarly, a witness from Coldwater testified as to his political efforts in urging state officials to change the electric supplier for the Coldwater State Home and Training School fror; Consumers Power to the municipal system. Tr. 4192-94; Exhibits
._', 12,012 and 12,013.
x4 l .4
. , - +
- 335 -
regard to the Company's proposal to lease the municipal elec-
. . _ 349/
tric system and (2) its discussions with the Rural Electri-r fication Administration about wholesale service to two Lower 350/ L Michigan cooperatives. 351/ c- The Noerr-Pennington doctrine, applies where, as here, there is no suggestion that the Company's political
~
conduct included fraud, or abuse of process, under tha t doc-trine the Company's political activities cannot be utilized to support a finding of monopolization. The case of United Mine Workers of America v. Penn-l t ington, 381 U.S. 657 (1965), is particularly on point. This case involved an effort oy large mine operators and union officials to influence the Secretary of Labor to prescribe minimum wages for companies selling coal to the Tennessee Valley Authority on long-term contracts -- an action which 6 would have the effect of driving smaller coal operators out of business. The Court held that such conduct, despite its J P% !? 349/ Department's Appeal Brief at 168; Intervenors' Appeal Brief at 76, 177. 350/ Department's. Appeal Brief at 168; Intervenors' Appeal Brief at 76, 177. 351/ Eastern R.R. Presidents Conf. v. Noerr Motor , Freight, Inc., 365 U.S. 127 (1961); United Mine l Workers of America v. Pennington, 381 U.S. 657 (1965). l 1 mrE e l
i
- 336 -
lt 352/ plainly anticompetitive purpose, to be protected under r-l Noerr:
"Nothing could be clearer from the Court's
[ opinion [in Noerr] than that anticompeti-tive purpose did not illegalize the con-duct there involved. . . . Noerr shields from the Sherman Act a concerted effort to
' influence public officials regardless of intent or purpose." 381 U.S. at 669-70.
r-Thus, political activity, whether addressed to the 353/ I legislative branch or to the executive, regardless of its underlying purpose, and regardless of its relation to other possible anticompetitive practices, cannot be an element of monopolization or any other antitrust violation. The Noerr-Pennington doctrine is, of course, fully applicable to regulated industries. For example, this doctrine l 352/ The fact that the attempt to influence government ac-tion in Pennington was alleged to be part of a broad
" plan to eliminate the small mine operators -- a factor not present in Noerr, where the railroads' political
^ activities were the sole basis for the truckers' anti-trust claim -- did not impair the immunity accorded
- the political activity:
" Joint efforts to influence public officials do 1
-- not violate the antitrust laws even though in-tended to eliminate competition. Such conduct is not illegal, either standing alone [as in Noerr) or as part of a broader scheme itself violative of the Sherman Act. " 381 U.S. at 670.
353/ In California Motor-Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972), the protection afforded advocacy with respect to the passage and enforcement of laws be-fore the legislature and the executive branch was extended to encompass advocacy in the context of adjudications before courts and administrative agencies. In addition, the constitutional basis for such protection, never ex- _' plicitly confirmed in Noerr or Pennington, was clearly announced. 404 U.S. at 511. l J
i i
- 337 -
r r was recently relied on in rejecting the contention that even k unethical conduct in seeking a utility franchise from a city council could support an antitrust action:
"These so called ' predatory' acts -- <- meetings with and statements to commit- ' tees of legislative bodies seeking to influence the decisions of those bodies, y and campaign contributions -- are the essence of politics . . . . Such allega-tions with respect to political matters totally fail to state a claim under the 'l t
federal antitrust laws." Metro Cable Co.
- v. CATV of Rockford, 375 F. Supp. 350, 358 (N.D. Ill. 1974), aff'd, 516 F.2d 220 I r (7th Cir. 1975).
'~
To similar effect is Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506, 516 (6th Cir.), cert. denied, 409 U.S. 1001 (1972), in which the Court of Appeals held that f-
;_ evidence of a joint plan to obtain f avorable action from a city council on a utility franchise application to the exclu-t sion of one's competitors properly was inadmissible under Noerr-Pennington principles.
ta Applying the Noerr-Pennington doctrine to the evi- [ dence of political conduct cited by our adversaries demon-i strates that their evidence can not support antitrust allega-u tions against the Company. With regard to the Company's Traverse City leasing ; a proposals in 1965, the record simply shows that the Company l publicly urged the city council to reconsider its position 354/ against leasing the municipal electric system to the Company. i v 354/ Tr. 1587-88, 1794-98; Exhibit 30. -a
F t t
- 338 -
Thus, there is no evidence that its conduct was in any way {' s improper. The other incident cited by our adversaries is equally innocuous. In 1964 the Company contacted officials l of the Rural Electrification Administration in Washington to present its view that a pending loan application by two Lower Michigan cooperatives failed to satisfy REA criteria 355/ for subsidized financing. Under those criteria, the co-operatives were obliged to demonstrate that purchasing whole-sale base load power from the Company was a less economic 356/ alternative than expanding its self-generation facilities. I Although the cooperatives, the Company, and ultimately, the 7 REA, disagreed as to whether the agency's standards had been 4 satisfied in this regard, there is no evidence that the Com-
, pany's discussions with REA officials were misleading or 357/
otherwise improper. 7 o ,' 355/ Tr. 1233-35 (Steinbrecher), 7902, 8065-67; Exhibit 143. 2 !
. 356/ Department's Appeal Brief at 169 n.*; Exhibit 7. !
> I
) 357/ Tr. 1233-35 (Steinbrecher), 7902, 8065-67; Exhibit 143.
The disagreement arose in the following context. As a part of their loan application, the cooperatives pro-vided the REA with a study purporting to demonstrate that v' self-generation was the most economical option available to them. Tr. 1233, 1422 (Steinbrecher), 7901-02. The study analyzed several bulk power alternatives, inclu-
. ding self generation and the purchase of peaking power from the Company at wholesale, and concluded that self-
, generation was the least expensive. Tr. 1424-27, 1430 v
(Steinbrecher). The study did not, however, take account of the option of purchasing base load wholesale power from the Company. Tr. 1431-33 (Steinbrecher). Footnote continued -- a
U l s r- - 339 - { r- In sum, there is no evidence that Consumers Power i
\
Company's political activities amounted to anything more than F wholly proper conduct in the political arena. Its conduct in the two cited episodes was reasonable -- and in both cases
! unsuccessful. Particularly in a natural monopoly context, ,- as here, " intending the natural consequences of acts which 1
are in all respects lawful, does not constitute the 'exclu-r sionary intent' that is a prerequisite for a finding" that the 358/ Company m;nopolized a relevant market. Since it is clear 1 Footnote continued -- f The Company believed this to be an important omission
- s. from the study because the base load purchased power alternative might have been the most econ mical. Tr.
r 3065-67, 1431-33 (Steinbrecher). Consequently, it brought the study's deficiency to the attention of REA cfficials in Washington and urged that altern~atives be cons 362 red.
- c. Tr. 1233-35 (Steinbrecher), 7902, 8067; Exhibit 143.
The Department's attack upon the Company's conduct ns
" specious" in this matter rests on nothing but innuendo.
P Department's Appeal Brief at 168 n.*. If its logic is i sound, then every unsuccessful petitioner is, by his lack of success, presumptively guilty of " specious" conduct.
- f 358/ Union Leader Corp. v. Newspapers of New Eng., Inc., 284 F.2d 582, 584 (1st Cir. 1960), cert. denied, 365 U.S. 833
. . (1961). There is a second, related basis for holding 3
Consumers Power's political activities beyond the scope
.- of inquiry here. It is constitutionally impermissible to condition or deny a government benefit as a consequence of the exercise of First Amendment rights. -See Speiser g v. Randall, 357 U.S. 513 (1958); Sherbert v. Verner, 374 U.S. 398 (1963). Administrative tribunals are bound a to respect the First Amendment as firmly as courts and legislative bodies. Scientific Mfg. Co. v. FTC, 124 F.2d 640.(3d Cir. 1941). Thus it would be plainly ~ unconstitutional for the Board to place conditions upon the Midland license premised in part on the grounds that
_ J the Company had engaged in anticompetitive activities where such activity is protected by the First Amendment. 3 (
l s I
- 340 -
2 , that the Company's political activities were proper and
\
lawful, they cannot under Noerr-Pennington principles be
- r i utilized in support of a finding of an antitrust incon-359/
,, sistency in this proceeding. r * * * * * * * * * *
,i I-In conclusion, it should be apparent from the fore-
[ going, necessarily extended, discussion that the Hearing Board correctly found no relevant evidence of conduct by the Company constituting unfair or predatory acts designed to injure
. ,_ competitors. The record overwhelmingly supports the Board's Ib- findings that the Company's relations with its smallcr system competitors was reasonable. While the Company attempted to
.s u< compete fairly and successfully in the marketplace and to
~
protect its customers against discriminatory cost impositions .F*i I: .
~~
359/ A footnote in the Pennington decision concludes that conduct, otherwise constitutionally immune from anti-trust attack, may provide evidence of the " purpose and character of the particular transactions under scru-
tiny." 381 U.S. at 670 n.3. Whatever the proper
' construction of this dictum, the record demonstrates that the Company's political activities were honest, above-board expressions of opinion in the public arena and were fully justified by the Company's public i -- utility obligation to serve electric customers with the yi most efficient service at the lowest possible rates.
l w
r 1
-t
- 341 -
[ by wholly lawful means, ; did not take unfair advantage of
- (
whatever resources its size and experience may have provided to it. We have sh' i shat absent acts of predation (not proven ,, here), the Company cannot be held to have monopolized -- the .I offense charged against it. Hence, as the Board correctly held,
- r no conditions may be imposed on its license, since no situation I
inconsistent with the antitrust laws existed in any relevant market 1/T
- { during the period since 1960 here under scrutiny.
- r -
4
- I l '
'f t.
/
-) .
L, j- . m B p . r* , o 1 O
;r:
I 2 r3 I .Ls s k#I
'eg
f t.
- 342 -
1 ( V. The Hearing Board Correctly Held That No Evidentiary Demonstration Of Nexus Between The Alleged Inconsistent Situation And The
.; Licensed Facility Has Been Made.
Before a license may h. conditioned in a proceeding { under Section 105c, a " nexus" or " causal connection" must be r J' established between the antitrust situation and the applicant's 1/ y, activities under the license.- None of the opposing parties i
!- disputes that this nexus requirement "is a primary and pre-2/
dominant question which must pervade the proceeding".- Nevertheless, even after the establishment of an exten-sive evidentiary record, they now offer only the most perfunctory and generalized explanation of how the Midland Units will affect b the allegedly inconsistent antitrust situation in Lcwer Michi-j gan. A review of the relevant legal principles and of the factual allegations made in an effort to satisfy the " nexus"
- requirement of Section 105c leads inescapably to the conclu-sion that the Hearing Board was correct in ruling that the
~
. requisite nexus had not been established.
- n The Commission's Waterford II decision and this
~'
tribunal's Wolf Creek I opinion have set forth the applicable
;
-1/ Louisiana Power and Light Company (Waterford Steam Electric
, Generating Station, Unit 3), 6 A.E.C. 48 ,"Waterford I"),
lL; 6 A.E.C. 619 ("Waterford .7I") (1973); Kansas Gas & Elec. Co. and Kansas City Power & Light Co. (Wolf Creek Generating Station, Unit No. 1), NRCI 75/6 559, 566, 569 (ALAB June 30, 1975) (" Wolf Creek I").
- wl 2/ Waterford II, 6 A.E.C. at 621.
l- ' ~i l' l- . _ _ _ _ ..
- 343 -
guidelines for assessing whether " nexus" standards have been satisfied. In Waterford II, the Commission expressly noted that it was taking "this opportunity . . . to outline some
,, appropriate benchmarks" in defining its role under Section
~
3/ 105c. The Commission observed that Section 105c " involves licensed activities, and not the electric utility industry 4/ as a whole,"- and concluded that it is [' "the existence of that tie [between alleged anticompetitive practices and the nuclear facilities) which is critical to antitrust [' proceedings under the Atomic Energy Act. If activities relating to a facility have no substantial connection with alleged anticom-petitive practices, there is no need for a hearing as to such practices or proposed forms of relief from them." 5/
, 6/
In Wolf Creek I, the Appeal Board reiterated the " nexus" standard in similar language: _,; "[A]s the Commission's antitrust responsi-bilities are linked to license applica-
-) tions, the Commission's antitrust mandate j extends only to anticompetitive situations intertwined with or exacerbated by the . , , award of a license to construct or oper- ,J ate a nuclear facility."
J The " nexus" requirement is, of course, well-estab-
~t
, lished in administrative law, particularly as it relates to i A
,a
~3/ 6 A.E.C. at 620.
s fj 4/ Id. (Emphasis in original.) 5/ 6 A.E.C. at 621. (Emphasis added.) 6/ NRCI 75/6 at 569. I
* =/
, 4 y , - .- -
- 344 -
consideration of antitrust allegations raised in administrative l proceedings.2/ ! For example, in City of Lafayette v. SEC, j 454 F.2d 941 (D.C. Cir. 1971), aff'd on other issues sub nom.
,. Gulf States Utilities Co. v. FPC, 411 U.S. 747 (1973), cer-
-} , tain municipal electric systems sought to present their anti- l I trust claims, inter alia, to the Securities and Exchange l Commission. That agency had refused to consider the munici-l l pals' allegations of anticompetitive activity in the course l
,. of approving a proposed issuance of securities. The Court I '
found that the SEC, lacking regulatory authority over the .r ! operations of the utility, was justified in its refusal:
"Where an agency has some regulatory juris- ,- diction over operations, it must consider
's t whether there is a reasonable nexus between the matters subject to its surveillance and those under attack on anticompetitive grounds.
- ,' , But the general doctrine requiring an agency t to take account of antitrust considerations r-does not extend to a case like the one before us where the antitrust problem arises out of
)
operations of the regulated company (past and projected) and the agency, here the SEC, has
, not been given any regulatory jurisdiction
]. h 7/ See also Northern Cal. Power Agency v. FPC, 514 F.2d TET, TUV (D.C. .r. 1975), cert. denied, U.S. , 44 ~' U.S.L.W. 3204 (U.S. October 7, 1975) (holding that there was no showing of a " reasonable nexus between the alleged anticompetitive scheme" and the activity subject to the FPC's jurisdiction) . See also Western Mass. Elec. Co., . .. 39 F.P.C. 723, 731-33, modITIed on other grounds, 40 F.P.C. 296 (1968), aff'd sub. nom. Municipal Elec. Ass'n of Mass v. FPC, 414 F.2d 1206 (D.C. Cir. 1969); New Eng.
" Power Co., 43 F.P.C. 568, 573 (1970), amended in other respects, 43 F.P.C. 785 (1970); Georgia Power Co., 39
. F.P.C. 930, 932 (1968).
.s
- 345 -
over operations of the company." City of f Lafayette v. SEC, supra, 454 F.2d at 955. 8/ Thus the necessity of demonstrating with particu-F. larity the nexus between the challenaed activities and the i Commission's regulatory responsibilities has been recognized by the courts, the Commission and this Board. However, all of the cases in which the Commission and this Board have pre-c viously considered the nexus requirement under Section 105c I-arose at the intervention stage of antitrust proceedings. [ The necessity of crediting fully the allegations made by in-tervenors at that preliminary stage has heretofore precluded, [ ~8/ Earlier, in Alabama Elec. Cooperative, Inc. v. SEC, t 353 F.2d 905, 907 (D.C. Cir. 1965), cert. denied, 383 U.S. 968 (1966), the Court had also refused to require SEC consideration of competitive issues, holding that [ the issues caised relating to system operation were properly for the Alabama Public Service Commission to consider and that the specialized SEC was not to enter into the " normal regulation of public utility operations." Although the holding in Lafayette represents a "modifica-tion in part" of Alabama Electric Cooperative, the Court in the latter case reiterated its key conclusions:
"[T]he purpose of the Public Utility Holding Company Act, * *
- was to supplement state regulation --
~
not to supplant it. Nowhere in the Act is there a provision granting to the SEC the sort of regula-tory power attributed to it by the petitioner. In-deed, the congressional choice of that Commission s to administer the Act is, in itself, the strongest 7 sort Of proof that the general purpose of the Act
+
was to regulate the issuance of securities which m; could not be reached by state commissions." City of_ Lafayette, supra, 454 F.2d at 954-55. (Deletion in original.) 'J-
{ - 346 - (- we submit, any meaningful implementation of the rigorous ( -9/ nexus standards set forth by these tribunals.
; The Commission has nevertheless made emphatically clear ths. nexus must be a real and specific element of proof in a Section 105c proceeding and cannot be demonstrated by
,(- some formalistic recitation. In the Waterford II case, the 1 l' Commission expressly held that an applicant's intention to commingle output from the licensed unit with its ather gen-eration capacity is not sufficient to establish the requisite causal connection between the unit and allegedly "anticompeti-10/ r tive practices in the electric utility industry." - The basis I for the Commission's holding was that commingling is "a truism
' 11/
applicable to all cases; power is not isolated." -- Thus, t
" truisms" cannot be substituted for the showing of a " substantial T
[ connection" which the Commission requires.
. . . In Waterford II and in Wolf Creek I, the concept of I
i -- a " meaningful connection" was further elucidated with spec- [ ific regard to wheeling and coordination arrangements. With
. L:
respect to interconnection arrangements such as coordination i
- ;
i 9/ In Waterford II the Commission emphasized that " evidentiary .pq records have yet to be developed." 6 A.E.C. at 620. 6 A.E.C. at 621. ~
. ,l_0/
11/ Id. C
~2 I
{ L
- 347 -
r and pooling, the Waterford II decision sets forth a clear f nexus standard:
"While the propriety of pooling arrange-mentr and physical interconnections could certainly be considered in appropriate t
cases, such matters in most circumstances
! could not be dealt with by this Commis-sion where no meaningful tie exists with r
nuclear facilities." 12/ 1 As to transmission (wheeling) arrangements, the Commission expressly provided:
" Denial of access to transmission systems j would be more appropriate for censideration where the systems were built in connection with a nuclear unit than where the systems
- solely linked non-nuclear facilities and had been constructed long before applica-tion for an AEC license." 13/
[ s. Through these examples, the Commission made clear its predis-position against antitrust scrutiny of aspects of a prospec-tive licensee's operations far removed from the licensed i r a) 12/ 6 A.E.C. at 621. (Emphasis added.) Gi
? 13/ 6 A.E.C. at 621. Applying this standard to the instant case, the facts already demonstrate the lack of nexus j between the Midland Units and the Company's transmission i system. The Company is an integrated electric system l
~
whose transmissfon system long antedates its Midland application. Exhibits 19, 20; Tr. 9160-61. This system connects.the Company's present 50 generating units (only two of which are nuclear) and was not constructed in conjunction with, or in contemplation'of, the Midland Units. Exhibit 12,022, pp. 436A-40. In fact, the only
". transmission facilities relating to the the Midland Units
' are 28 miles of line which will connect the units to the z Company's 5,800 mile transmission natwork. Tr. 9160-61. a i 1
~2
f f - 348 - 14/ k activities.-- l[ With specific. regard to wheeling, this tribunal's ( 15/ Wolf Creek I and II decisions-- illustrate the type of link 'i necessary to bring.such matters properly before this Commission. ,I. g In order to obtain a settlement with the Department of Justice I and the Staff, the applicant in Wolf Creek agreed to sell e a portion of the unit in question to the members of Kansas
)'
Electric Cooperative. The cooperative alleged, however, that the access provided was " illusory" in that "a refusal to ' wheel' to the cooperative the supplemental power needed to make effective l[ economic use of the base power which the nuclear plant would e i L [- 15/ Wolf Creek I, supra: Kansas City Gas & Elec. Co. and
~
Kansas City Power & Light Co. (Wolf Creek Generating Station, Unit No.1), NRC Dkt. No. 50-482A, Decision [; (ALAB-299) (Nov. 21, 1975) (" Wolf Creek II").
, 1,/
-- The Federal Power Commission has developed similar bench-
! }O
' marks for assessing the scope of its regulatory authority under Part I of the Federal Power Act, 16 U.S.C. SS792 et se . . For example, as to transmission lines, i t looks to t e basic purpose of the line in relation to other
_, facilities." Under this standard, the FPC has ruled that its licensing proceedings should not consider lines "used
't
- principally for,the transmission and distribution of power generated at plants other than '[ plants to be licensed],"
lines which " function as major links of a regional trans-mission grid," or lines'which "will be built by Applicants whether or not the [ license]-is authorized." Western Mass. Elec. Co., 39 F.P.C. 723, 731-33, modified on other grounds,.40.F.P.C. 296 (1968), aff'd sub. nom. Municipal Elec. Ass'n of Mass. v. FPC, 414 F.2d 1206 (D.C. Cir. 1969). See also New Eng. Power Co.,-43 F.P.C. 568, 573 (1970), amended in other respects, 43 F.P.C. 785 (1970);
,.s Georgia Power Co., 39 F.P.C. 930, 932 (1968).
.e f
. er .-
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I i
- 349 -
r provide" would effectively preclude "the cooperative's c- . 16/ { acquisition of any interest in the nuclear facility."
,_ This Board held such an allegation sufficient to raise relevant antitrust questions, since it is appropriate for
[ the Commission to "look behind an offer of ' access' to a i nuclear facility to see if it is bona fide or, because of r- { the offeror's concurrent refusal to wheel power, but a mask for a situation inconsistent with the antitrust laws."--17/
'I Yet, while good faith allegations of this type are
. frequently made, proof is another matter.--18/
After hearing, of course, neither unsubstantiated allegations, nor " truisms," nor subjective generalities will suffice to establish nexus. A post-hearing examination of IL nexus contentions -- in which evidence is weighed rather than r allegations characterized -- is vital in order for the Com- I
)
o mission's antitrust activities to retain their proper focus 1
- L )
r-16/ Wolf Creek I, NRCI 75/6 at 567.
'b" 17/
1 Id. at 573.
.. 1 i
18/
--' It was precisely for this reason that the Commission emphasized that the nexus requirement l
- , "is a primary and predominant question 4_ which must pervade the proceeding. We remind the Board and the parties that c
' if it becomes apparent at any point ~ that no meaningful nexus can be shown, all or part of the proceeding should be summarily disposed of." Waterford II, .~.
6 A.E.C. at 621. 4.w b$
- 350 -
--19/
on licensed activities and not become an alternative to the district courts or scLe other forum for those who per-ceive themselves to have an antitrust grievance against an 20/
-~ - electric utility. \
I It should also be emphasized that Consumers Power { is an' electric utility and that the Federal Power Commission and the Michigan Public Service Commission have authority i [ over its operations, but this Commission does not. For example, 6 l 19/ See Intervenors' Appeal Brief at 47-48 for an instance of HIsregard of this requirement. Interestingly, both the Department of Justice and the Commission expressly rep-resented to Congress prior to its enactment that Section r i 105c would not be used to conduct district court-type antitrust proceedings. A Department spokesman described the scope of proposed Section 105c legislation in the !
, following narrow terms:
f
. . . We do not consider such a licensing pro- ~'
ceeding as an appropriate forum for wide-ranging t scrutiny of general industry affairs essentially unconnected with the plant under review." Hearings ) on Prelicensing Antitrust Review of Nuclear Power- ' plants before the Joint Comm. on Atomic Energy, ; 91st Cong., 2d Sess., pt. 2 at 366 (1970). j a l The Commission's General Counsel testified that, under the I pending bills, "'the antitrust authority of Commission [ sic] will be an appropriate complement to the authority of the Attorney General and, it would seem, should not be used by the Commission to duplicate authority already held by the Attorney General.'" Id., pt. 2 at 365-66. 20/ That this forum will be selected in preference to dis-trict courts can be assumed since, except in the " grand-a fathered" cases, proponents of license conditions may gain enormous leverage by delaying the construction of much-needed generation facilities. Cf. Duke Power ~ Co. (Catawba Nuclear Station, Units 1 I 2), 7 A.E.C. 767-(1974). o M _. . - ._ -- l
i
- 351 -
f identical charges of anticompetitive activity and requests
,. for relief have also been made by intervening systems in the 21/
Company's current wholesale rate proceeding at the FPC. [- Therefore, the regulatory purposes of this Commission will be I served fully if its antitrust inquiry focuses on the Midland Units and does not extend to Consumers Power's system-wide rates and other operating policies and practices over which
! this Commission has no regulatory authority.
Against this background, we turn to an application I of the Commission's nexus principles to the evidence of record in this proceeding. The Hearing Board meticulously revjewed the record and, rejecting the " incidental and inconsequential" nexus criteria proposed by our adversaries, held that no causal connection had been established between the Midland Units and 22/ the allegedly inconsistent antitrust situation.-- We believe ~ the Board was clearly correct. O We should note at this juncture that, in light of the ~ record of this proceeding, it is not necessary to argue about 23/ the precise verbal formulation of the nexus standard. This 21/ _ Consumers Power Co., FPC Dkt. No. ER-76-45.
-- The antitrust
_ phase of this proceeding is scheduled for hearing on April 27, 1976. 22/ Initial Decision at 45, NCRI 75/7 at 52. 23/ Consumers Power Company set forth its views as to the proper formulation of the nexus standard in its Post-s hearing Brief at pages 5 through 38, and we have not, of course, abandoned that position. However, because no Footnote continued --
-,v-w m --9
- 352 -
F is because the evidence of record fails to satisfy the nexus f standard as the other parties themselves have formulated it:
"the licensed activities [must) be found to contribute in a
- significant manner to the maintenance of a situation inconsis-24/
tent with the antitrust laws or their underlying policies."-- C No such "significant contribution" by the Midland Units has f been shown or even suggested in the record of this proceeding. r 25/ ( Our adversaries- point to three purported bases for finding nexus between the Midland Units and the alleged anti-( trust inconsistency. In substance, these arguments relate to '{ commingling, meeting of load growth (i.e., prospective commin-gling), and an invocation of "the wave of the future." In light of the Commission's emphatic insistence that the " truism" of " commingling" is insufficient to demon-F 26 / [ strate nexus, it is startling to note that the Department's i c principal nexus theory is that: 5
) ?
L rootnote continued -- : l r I nexus has been established under the more lenient nexus
" criterion of our adversaries, we have not reiterated {
our nexus position in detail here. [- 24/ Department's Appeal Brief at 178. (Emphasis in the original.) i 25/
-- In their brief, the Intervenors never seek to make a nexus c showing at all. Their principal nexus contention (Inter-venors' Appeal Brief at 47-48) seems to treat nexus as a
, mere legal fiction.
26/ 6 A.E.C. at 621. N I
g f
- 353 -
i "This power (from Midland] will not and cannot be marketed in isolation -- the Midland units will be integrated into Applicant's system and coordinated with generation of other systems through the regional power exchange. r " Finally, we have demonstrated that Midland power . . . will be integrated into Applicant's l system, coordinated with generation of other 7 systems throughout the regional power ex-change and marketed by Applicant in the { wholesale and retail markets in Michigan."22/ This argument is commingling pure and simple. It i is also verbatim the same language which, as the Hearing Board correctly noted, is merely an argument "that the existence of a situation inconsistent with the antitrust laws and the simul-taneous existence of activities under licenses to build and operate a nuclear reactor automatically supply a bond which
' --28/
is a basis for nexus." Thus, the Department's nexus approach [ reveals an absolute disregard for the Commission's concern that:
~.
bb r 2]/ Department's Appeal Brief at 175. (Emphasis in the original.) See also Staff Appeal Brief at 74-76. The Staff appears to premise its nexus argument on the sup-posed dependence of the- Midland plant on other aspects of Consumers Power's operations. Of course, we take e issue with the accuracy of the factual premise, since
~
there is uncontested evidence that neither the size nor the operation of the Midland Units is dependent upon the Company's coordination arrangements. Tr. 8531 j (Mosley). However, even assuming the accuracy of the v factual premise, it is simply a non sequitur to contend l that because the Midland Units could not operate without the Company's other arrangements, Midland will somehow l significantly contribute to an anticompetitive situation ' which allegedly is created by those arrangements. 28/ Initial Decision at 50,.NRCI 75/7 at 55. .a l l
1
- 354 -
1 "a finding should not be utilized to support I the view that an application to construct one nuclear plant somehow authorizes an in-
. quiry into all alleged anticompetitive prac-tices in the electric utility industry. As we have said, alleged anticompetitive prac-tices -- however serious -- which have no sub-stantial connection with the nuclear facility, are beyond the scope of antitrust review under the Atomic Energy Act." 29/
A second nexus argument, largely intertwined with the first, is that the addition of Midland "will enable" { Consumers Power to maintain its position in the market- - place.--30/ If the point of this argument is that the Company's competitive strength will be enhanced merely by an enlarge-r .', ment of generation capacity, this essentially technical con-tention lacks any record support. Likewise, if the point r ,[ is that the Company is in a better posture meeting its load
\
i r growth than failing to do so, then this argument merely adds a time dimension to the truism that Midland's output will l
- be integrated into and used throughout the Company's system.
In either event, this argument is merely another variant of the per se theory of antitrust liability which we have shown 29/
~
Waterford II, 6 A.E.C. at 621.
--30/ In the words of the Staff's Appeal Brief at 77, "the ,
addition of the Midland units will increase Consumers' ' total. generating capacity by approximately 25% and will
' enable Consumers to maintain its dominant position."
-(Emphasis added.)
To the same effect, see Department's Appeal Brief at 175-76. is
PM
- 355 -
to be wholly at odds with the language and legislative history of Section 105c.--31/ ( Further, this argument proves too much. Almost any action by the Company -- such as meeting its payroll or paying its taxes - " enables" the Company to preserve the status quo. To establish nexus, however, it is insufficient to show simply that Midland will not cause a change in the existing situation; rather, even under the nexus criteria of our adversaries, Midland must be shown to make a "signi-ficant contribution" to the continuance of the antitrust inconsistency. The " load growth" argument fails to address, much less meet, this standard. The final nexus argument asserted by our adversaries is that the Midland Units provide some economic or other r advantage that significantly strengthens Consumers Power's
, market position. As articulated on appeal, the argument does L-- not appear to be an economic one. Rather, it is simply another
[ incarnation of the simplistic theme that nuclear generation L is inherently the " wave of the future" and therefore must be made available to smaller systems whatever the economic _ realities of the marketplace and of nuclear generation 32/
. and without regard to the requirements of law.-- Thus, V
31/ See Section II-D, supra. n ]*' 32/ See, e.g. , Department's Appeal Brief at 176 n.*; 5Eaff Appeal Brief at 77. c u
- b. s
1 l
- 356 - !
our adversaries would have this Board conclusively presume not only that a conventional electric utility possesses and abuses monopoly power, but also that a utility's decision to l construct a nuclear power plant rather than a fossil-fueled one intrinsically " contributes in a significant manner" to its market power. That kind of " inconsistency per se" analysis is, > r- 33/
- { as we noted above,-~ wholly at odds with Congressional intent
, in enacting Section 105c and with the pronouncements of the Commicsion and this Board. It clashes most emphatically with the Commission mandate:
"that the specific standard which Congress
- required for antitrust reviews - 'whether the i
activities under the license would create or maintain a situation inconsistent with the anti-'
~
trust laws as specified in subsection 105a -- has inherent boundaries. It does not authorize an unlimited inquiry into all alleged anti-competitive practices in the utility industry. i The statute involves licensed activities, and not
' the electric utility industry, as a whole. If Congress had intended to enact a broad remedy
',. against all anticompetitive practices throughout the electric utility industry, it would have been a anomalous to assign review responsibility to the .r Atomic Energy Commission, whose regulatory juris-diction is limited to nuclear facilities. It is '" the status and role of these facilities which lie at the heart of antitrust proceedings under the Atomic Energy Act." 34/ Thus, the fatal deficiency in the nexus arguments of our adversaries is that they fail to meet the very nexus stand-ard they propose, i.e., whether the Midland Units will " con-m
, 33/ See Subsection II-D, supra.
34/ Waterford II, 6-A.E.C. at 620. (cmphasis in the original.) N
, , . , - +- - - -
- 357 -
tribute in 'a significant manner" to the maintenance of the alleged situation inconsistent with the antitrust laws. Indeed, they are compelle3 to ignore their own nexus standard because they introduced no evidence to demonstrate that the Company's operation and exclusive use of the Midland Units will. change, or have any impact whatever, upon its competitive or coordinating relationships'with any other system. Specifically, there is no evidence that construction P-and operation of the Midland Units will affect the competitive retail customer relationships between the Company and any other system, that Midland will bestow upon the Company any exclusive benefits with regard to bulk power supply which it r l does not now possess, or that Midland will affect in any way the Company's coordination arrangements with other systems. [u In contrast to these evidentiary deficiencies in the " nexus" argument.s of our adversaries, Consumers Power affirmatively presented considerable evidence, and the Board r, made numerous findings, in support of our position that the Midland Units will not " contribute significantly" to any al-f leged antitrust inconsistency. Although this evidence is m dtscussed in detail in our analysis of " bottleneck" allega-s 3S/ tions, - g it is useful to summarize it in this context. 4
- s m
,, 35/ See Subsection III-D-2, supra. l a l
~
l l
- 358 -
First, the record demonstrates, through a profes-sional study conducted for the Lansing system, that those who operate nuclear generation capacity in Lower Michigan will en-
, joy no unique or significant bulk power supply cost advantage 36 /
over their non-nuclear rivals. - Second, it shows that even if the Midland Units were to enable the Company to reduce its bulk power costs, those reductions would be equitably " passed on" through the Company's FPC-regulated bulk power supply 37/ services.-~ As the Hearing Board held:
"[TP.e argument has been made that nuclear power is low-cost and, therefore, the smaller utilities have to have direct access to low-
[ cost power in order to be competitive.
"The record shows that the wholesala :us-l tomers who buy from Applicant are viable, growing, active competitors of Applicant. " There is no substantial evidence that any reduction in Applicant's system average-cost
_ will not be passed on to wholesale custom-ers. . . . Initial Decision at 176, NRCI 75/7 at 112. i As this part of the Initial Decision suggests, { u the third and perhaps most persuasive evidence of the absence of " nexus" in this proceeding is the competitive and financial [, viability of the smaller systems in the Company's service
, area. The record conclusively demonstrates that these systems
_ 36/
-- See Subsection III-D-2, supra; Initial Decision at 118-ITF, NCRI 75/7 at 89.
37/ See Subsection III-D-2, supra; Initial Decision at 176; NRCI 75/7 at 112. lJ
~
- 359 -
have, and will continue to have, economical bulk power supply alternatives available to them, both through wholesale service P from Consumers Power and other suppliers and/or by exploitation 38/ of their capital and tax advantages through self-generation.-- Thus, the smaller systems' failure to obtain unit power sales r from, or ownership interest in, the Midland Units will not affect, or in any way jeopardize their continued financial and competitive viability. In sum, this is a proceeding in which the. latent subtleties of the nexus standard need not ba assessed. Rather,
, we submit that our opponents' nexus arguments are a thinly i
L veiled effort to sidestep the fact that the evidence they have
~
adduced i n this proceeding is basically irrelevant to the Mid- >l land Units. Accordingly, our adversaries are seeking to utilize the fortuity of a license application to litigste antitrust issues unrelated to'these Units. P
- c. Whetner viewed from the perspective of Consumers ;
Power alone or in terms of its impact on inter-system relation-ships in Lower Michigan, the lice.ised facility here is no
~~ ;
more than a routine addition of generation capacity. Thus, application of the nexus principle to the record of this case a:
.I 38/
-- Initial Decision at 165, NRCI 75/7 at 108; Tr. 7878-79, 58-59 after 7239, Attachment JDP-2 after Tr. 7239; see Subsection III-C, supra.
W i I i l l
1
~
- 360 -
admits of only one result: the Midland Units will not create or significantly contribute to any alleged inconsistent antitrust situation. r In the prior two sections, we demonstrated that
~
Consumers Power has not monopolized any relevant market and that therefore there exists no situation inconsistent
~.
with the antitrust laws. This section has shown that there y is no " nexus" or meaningful tie between the Midland Units and b whatever antitrust " situation" is deemed to exist in the Company's service area. Thus, as the Hearing Board held, I L there are two independent bases for holding that Consumers r l Power's activities under the Midland licenses will not main-tain a situation inconsistent with the antitrust laws. Should this tribunal affirm the Initial Decision on either of these grounds, or on any other, Section 105c
~
does not authorize the imposition of any antitrust license
- { conditions to the Midland licenses. Indeed, if this Board --
after careful study of the foregoing pages and of our oppon-i- D ents' briefs -- concludes that the Initial Decision should be affirmed, it need not read the next section, contained in the second volume of this brief, which discusses the license condition proposals of our a6versaries. 5 h
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