ML19329E348

Proposed Findings of Facts & Conclusions of Law.Activities of CPC Under CPs for Midland Will Not Create or Maintain Situation Inconsistent W/Antitrust Laws

ML19329E348
Person / Time
Site:	Midland
Issue date:	10/08/1974
From:	Brunner T, Ross W, Watson K CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.), WALD, HARKRADER & ROSS
To:
References
NUDOCS 8006120658
Download: ML19329E348 (111)

Text

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UNITED STATES OF AMERICA -

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ATOMIC ENERGY COMMISSION 8

In the Matter of )

)

CONSUMERS POWER COMPANY ) Docket Nos. 50-329A (Midland Units,1 & 2) ) and 50-330A To the Atomic Safety and Licensing Board:

CONSUMERS POWER COMPANY i PROPOSEb FINDINGS OF FACT AND CONCLUSIONS OF LAW i

t WM. WARFIELD ROSS, ,

KEITH S. WATSON, THOMAS W. BRUNNER, GERALD B. WETLAUFER Attorneys for Consumers Power Company '

WALD, HARKRADER & ROSS .

1320 Nineteenth Street, N.W.

Washington, D. C. 20036

HAROLD P. GRAVES, JAMES B. FALAHEE, WAYNE A. KIRKBY (1 Of Counsel l

Consumers Power Company 212 West Michigan Avenue j Jackson, Michigan 49201 October 8,1974 l

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INDEX Page i PROPOSED FINDINGS OF FACT I. Consumers Power Company and the Midland Facility . . . . 1 II. The Electric Power Industry in Lower Michigan ...... 5 A. Lower Michigan's Electric Systems .......... 5 B. Re t ail Se rvi c e . . . . . . . . . . . . . . . . . . . . . . 7 l 1. Regulation of retail service . . . . . . . . . . . . . 7

2. Retail Rate and Cost Differences Among Systems . 9

3. Competition for Retail Customers ......... 12 i

a. Legal Barriers to Competition . . . . . . . . . 12

b. Economic Barriers to Competition ...... 16

c. Extent of Competition ............. 18 C. Bulk Power Supply ................... 21

1. Self-generation ................... 22

2. Other Bulk Power Suppliers . . . . . . . . . . . . . 24

3. The Company's Bulk Power Transactions. . . . . . 25 III. Relevant Markets and Market Power ............ 29 A. Re t ail M ark e t s . . . . . . . . . . . . . . . . . . . . . . 29 B. Bulk Power Supply Markets . . . . . . . . . . . . . . . 32 C. The Company's Market Power ............. 34 IV. The Company's Conduct ................... 41 A. Retail Electric Service ................. 41 l l

B. Bulk Power Supply Service ............... 42

1. Wholesale Transactions .............. 42

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2. Coordination Transactions ............. 45

a. Coordination Policies ... .......... 45

b. Refusals to Coordinate . . . . . . . . . . . . . 47

- c. Agreements to Coordinate ........... 50

1. Emergency power transactions ...... 51

11. Other coordination power transactions .. 55

d. Other Bulk Power Supply Transactions .... 57 C. Acquisitions of Other Systems ............. 64 D. Political Activity .................... 66 V. Proposed License Conditions ................ 68 PROPOSED CONCLUSIONS OF LAW y, i. Citations ........................... 73 I. Summa ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

II. Scope and Nature of the Proceeding . . . . . . . . . . . . . 81 III. Market Definition ...................... 85 t

.I IV. Absence of Monopoly Power. . . .............. 90

. V. Absence of Predatory or Unfair Conduct . . . . . . . . . . 97 1

VI. License Conditions ..................... 101 l

. INDEX TO EXHIBITS OF CONSUMERS POWER COMPANY . . . 103 4

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I. Consumers Power Company and the Midland Facility 1.01 Consumers Power Company is a large, investor-owned elec-

, tric utility serving customers in Michigan's lower peninsula. [ Exhibit 21]

Its generation and transmission facilities make up a mature, highly-

F integrated system which long antedatos the instant application. [ Exhibits 19, 20 Stafford and Lapinski 9160-9161] In 1972, the Company owned 50 genera-

[ tion units (two of them nuclear units) with a total generation capacity of 4,286 megawatts (MW). [ Exhibit 12,022, pages 436A-440] The Company's

? 1972 peak load was 4,080 MW and it anticipates that its peak load will grow to 5,870 MW by 1980. [ Exhibit 21, page 9; Stafford and Lapinski 9169]

The Midland Units are part of a generation construction program designed I to meet this load growth. [Mosley 8531; Stafford and Lapinski 9159]

1.02 The Midland project which is the subject of the instant appli-cation will consist of two electric generation units, one having electric generation capacity of 815 MW, the second 485 MW. [Mo:: ley 8528-8529; Stafford and Lapinski 9244] A construction permit for the units was issued by the Commission in 1973 and they are presently scheduled to become oper-ational in 1979 and 1980, respectively. [ Exhibit 21A; Stafford and Lapinski d

d. 9161]

1.03 Subject to the imposition of license conditions to the contrary, i

,1 1 the Midland Units will be owned and operated exclusively by Consumers l Power Company._ [Stafford and Lapinski 9159] There are no arrangements of any kind which will entitle any other entities to receive electric power directly from these particular units. [Id. ] Ar agreement with Dow Chemical

- Company provides for the sale of certain steam produced by the units. [ Paul 1

4

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3 i

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i r-7937; Mosley 8529; Stafford and Lapinski 9160-9161]

1. 04 The electric power generated by the Midland Units will be fully i

integrated into Consumers Power Company's system. (Stafford and Leoinski

+ 9160] Midland power will be commingled with that of the Company's other sources of bulk power and will be utilized by the Company solely as undif-i ferentiated electric power produced by the system as a whole. [Stafford and Lapinski 9160]

1. 05 The only transmission facilities which will have been built in

, conjunction with, or in c.ntemplation of, the Midland project will be 28 miles

' of 345 kilovolt transmission line connecting the Midland Units to the Company's I transmission system. [Stafford and Lapinski 9160] At the time that the Mid-land Units become operational, Consumers Power Company will own and op-erate approximately 5,800 miles of 345 and 138 kilovolt transmission lines.

[Stafford and Lapinski 9161] Thus, at the time the plant begins operation, I only about .48 of one percent of the Company's entire high-voltage trans-mission system will have been designed or built as a part of the Midland project.

I 1. 06 The entire electric output of the Midland Units is required to l l

serve the requirements of the Company and its customers. [Stafford and j l

1 Lapinski 9159] The Company established the size of Midland's generation

< capacity in 1967. (Mosley 8529] There is no evidence that either the Inter- 1 venors or any other systems expressed to the Company an interest in, or desire for, ownership interest or any other form of direct participation in the Midland Units either at or before the time the units were sized by the

[, Company. The earliest evidence of such interest are letters from several l

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!I systems written in 1971 -- four years after the units were sized. [ Stein-brecher 1202-1203,1215,1485-1486; Wolfe 1735; Keen 4516, 4520-4521; Exhibits 22, 24, 27, 58]

,. 1. 07 There is no causal or other special relationship between the Midland Units and any of the Company's coordination arrangements.

'f

[Mosley 8531] Specifically, neither the size nor the feasibility of the Midland Units is dependent upon, or otherwise related to, the Company's

-[ coordination arrangement with The Detroit Edison Company. [Id. ] Indeed,

) none of the Company's coordination agreements makes any reference to the Midland Units. [ Exhibits 67; 74; 75; 76; 105: 11,106; 11,108; 11,109; 11,112;

'( 11,119; 12,024]

f 1.08 The Company presently projects that the capacity costs of the j Midland Units will be $569 per kilowatt and that output from the units will cost 16 mills per kilowatt hour. [Mosley 8532] This cost is higher than j the Company's current system-wide average costs of generation. [Aymond 6352; Mosley 8532-8533] These system-wide average costs will rise in the future but, because of the unpredictability of the fossil fuel price situation, it is not possible to predict what the average costs will be when the units become operational. [Aymond 6352; Mosley 8533] Thus, there is no evidence that the Company's ownership of the Midland Units will alter the relationship between the Company's retail rates and those of its neighboring systems or that the units will bestow upon the Company any unique benefits with regard to bulk power supply.

1. 09 No evidence was offered in this proceeding as to the present bulk power generation costs of other systems within or adjacent to the

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Company's service area. Thus, there is no direct evidence as to how the cost of power generated by the Midland Units or the Company's average generation costs compare with the generation costs of the Company's neigh-c boring systems.

1.10 However, most of these neighboring systems are economically healthy, enjoy significant tax and financing advantages, and are generally able to sell electric power at rates below those of the Company. (See Findings 1

2.17 to 2. 23, 3. 29] Thus, there is strong, unrebutted circumstantial evidence that their total costs (including generation costs) are less than the Company's.

1.11 There is no evidence that direct access to the Midland Units is or will be necessary or essential to smaller systems within or adjacent to the Company's service area. The only concrete evidence comparing the

[ projected cost of bulk power alternatives for smaller, neighboring systems does not support the assertion that nuclear power is a unique and essential t

resource. This evidence is contained in an elaborate study prepared for the Lansing system by its engineering consultants. [ Exhibit 12,008] Ac-cording to this study, and testimony about it by Lansing's system manager, the difference between average per kilowatt hour cost of Lansing constructing

. a fossil-fired plant (Plan 3B) compared with a functionally comparable plan involving its purchasing a unit share of capacity from a nuclear plant (Plan

4) is less than 2-1/2 percent (i. e. ,12. 41 divided by . 28 (12. 64 minus 12.41) equals . 024; and 11. 65 divided by . 28 (ll. 93 minus 11. 65) equals . 0225).

[ Exhibit 12,008, p. S-4; Brush 2452-53, 2458-59] A difference of two to three percent is well within the range of engineering error, as Lansing's manager conceded. [ Brush 2483] Hence, the fossil-fired and nuclear unit

A 5-purchase bulk power alternatives analyzed in the study are economicany comparable and equally attractive from a cost standpoint.

1.12 This is the only record evidence bearing on this issue. The evidence offered by the Department's witness Helfman [ Exhibits 200-203) e does not purport to analyze costs of nuclear and fossil-fired base load gen-r eration on a functionany comparable basis, but rather to inustrate the relative benefits of coordination on various assumptions, including (cases III and IIIA) purchases of unit power from Consumers Power's Midland

{ plant. More specifically, the Helfman evidence does not compare the cost i~

of such nuclear unit purchases with the cost of producing comparable amounts of power from a fossil-fired plant.

1.13 The Company has no AEC applications on file to construct i

additional nuclear units, but does plan to have operational prior to 1980 three new fossil-fired, base load generation units: Karn 3 and 4 (approxi-mately 1300 MW total capacity) and Campbell 3 (800 MW capacity). [Stafford

( and Lapinski 9188) Therefore, the Midland Units are 1.1 no sense unique; they are merely one of several facilities designed to meet the Company's

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'l future load growth. [Mosley 8531; Stafford and Lapinski 9159]

II. The Electric Power Industry in Lower Michigan

, A. Lower Michigan's Electric Systems

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2.01 There are three types of electric systems operating in the lower i

peninsula of Michigan: investor-owned utilities, municipal systems and rural i

electric cooperatives. [Westenbroek 923]

2.02 There are presently five investor-owned utilities in Lower 4 J I

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Michigan: Consumers Power Company, The Detroit Edison Company, Indiana

& Michigan Electric Company, Michigan Power Company, and the Alpena Power Company. [Westenbroek 928, 933; Exhibit 19] Another investor-owned r- system, The Edison Sault Electric Company, is located immediately across the Straits of Mackinac in Michigan's upper peninsula. [Westenbroek 933; Exhibit 19] Each of the these systems owns generation facilities and distri-butes electric power at retail; and each adjoins to the service area of Con-sumers Power Company. [Westenbroek 932-933; Kline 4377; Exhibit 19]

7 2. 03 Twenty-nine municipal systems presently operate in the lower peninsula of Michigan [Westenbroek 933; Exhibit 19], 23 of which are within T:

or directly adjacent to Consumers Power Company's service area. IPaul 7805-7806] Of these 23, the largest is Lansing, followed in order of peak L load size by Holland, Bay City, Grand Haven and Traverse City. [ Exhibit

_. 11,307] All of the municipal systems distribute electric power to retail cus-L tomers and most also own generation facilities. [Westenbroek 932-933, 956; Paul 7878; Attachment JDP-2, Schedule 1, page 1, Column 2 after 7239]

2. 04 There are twelve rural electric cooperatives in lower Michi-f gan. [ Paul 7843] Ten distribute electric power at retail. [Westenbroek 933; Paul 7843] The other two -- Northern Michigan Electric Cooperative U and Wolverine Electric Cooperative -- own generation and transmission facilities and supply the entire bulk power requirements of seven of the ten distribution cooperativos. [ Paul 7843] All of the cooperatives are lo-cated within or adjacent to the service area of Consumers Power Company.

, [ Exhibit 19]

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2. 05 None of these neighboring electric systems is electrically o

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1 isolated and each is physically interconnected, directly or through an inter-

[ vening system, with Consumers Power Company. [Mosley 8458; Westenbroek 924]

r-B. Retail Service i

2. 06 An electric utility system provides retail electric service when s it sells electric power to an ultimate customer. [Westenbroek 923]

[~ 1. Regulation of retail service.

2. 07 Consumers Power Company has assumed an obligation to offer retail electric service to all who request it in the Company's franchised f

service area. [Aymond 6226; Paul 7872; Jefferson 8280-8281; see also Con-L clusion of Law 4. 02(a)) With only the most minor exceptions not relevant to this proceeding, the rates and conditions of the Company's retail service are regulated and approved by the Michigan Public Service Commission (MPSC) and must be reasonable, uniform and non-discriminatory. [ Jefferson L.

8280, 8285-8286, 8307; Pace 16 after 7239; see also Conclusion of Law 4.02(a)]

The reasonableness of the Company's retail service is also subject to investigation by the Commission either on its own initiative or on the complaint

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of any customer or other interested party. [ Jefferson 8282, 8285; see also l Conclusion of Law 4. 02(b)]

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2.08 The Michigan Public Service Commission has established the i

t Company's retail rates at the lowest possible level consistent with main-taining the Company's financialintegrity. It does not permit the Company k to set rates at levels which will maximize profits. [ Jefferson 8280; see also

[ Conclusion of Law 4. 02(c)]

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2. 09 Pursuant to MPSC requirements, the Company's retail rates L.

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r' are established on the basis of total embedded or historic cost of service

- -the economists' " average costs" -- rather than on the basis of incremental costs. [ Jefferson 8292, 8294-8295; Pace 50 after 7239; see also Conclusion f of Law 4. 02(d)] The only exceptions to this principle have been " promotional rates" which, because of unique circumstances, benefit all the Company's customers. [ Pace 51-52 after 7239]

2.10 Any particular rate reflects the average cost of serving a class l of customers requiring similar service. [ Jefferson 8285, 8287, 8289, 8292; r

I see also Conclusion of Law 4. 02(e)]

2.11 Differences between the rates applicable to various classes of customers generally reflect corresponding differ < .ces in the cost of serving the two classes. [ Jefferson 8285; see also Conclusion of Law 402(e)] There

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l is evidence of only one deviation from this principle by the MPSC, that being to the benefit of residential rate classes and to the corresponding detriment L

of commercial and industrial rate classes. [ Jefferson 8285]

2.12 The costs assigned to each customer rate class reflect the Com-pany's system-wide average cost of service . [ Jefferson 8292-8294; see also Conclusion of Law 4. 02(e)] For example, while the per kilowatt investment

, costs of the Company's generating units may vary from $80 to $250, each L class of customers is assigned generation costs on the basis of an average cost of generation, e. g. , $125 per kilowatt. [ Jefferson 8293] The same prin-t

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ciple is applied to such items as the Company's operating costs. [ Jefferson L 8293-8294]

2.13 In consequence of the facts set forth in Findings 2. 09 through

s. 2.12 above, no one retail customer or class of retail customers is assigned c.,

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f' I~ rates based on costs attributable to a particularly efficient or a particu-i larly inefficient part of Consumers Power Company's system. [Jeffer-

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son 8293: Pace 52-53 after 7239]

r 2.14 In accordance with MPSC requirements, all of the Com-pany's rates to each of its customer classes are uniform throughout the f' Company's service area. [ Jefferson 8286, 8307; see also Conclusion of Law 4. 02(a)] The Company lawfully cannot, and does not, deviate from r '

these rates because of the presence of other utilities in a given area or for any other reason. [ Jefferson 8307]

i 2.15 In addition to its retail rates, the Company's other terms and

(' conditions of retail service are subject to MPSC approval. [ Jefferson 8286-8287; see Conclusions of Law 4. 02(f)] Thus, for instance, the extent h to which a retail customer may be required to defray line extension costs or whether the Company may be required to provide underground service L is subject to regulations of the MPSC that are uniformly applied by the Company. [ Paul 7820-7821, Jefferson 8287]

2.16 The MPSC has also taken several actions to assure that the Company's retail service operations are efficiently and effectively managed. l

[Stelzer 9 after 7224, 6984, 7139-7140] No evidence was offered in r

v this proceeding that the Company is inefficient or that its retail rates are r excessive or otherwise unreasonable. )

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2. Retail Rate and Cost Differences Among Systems I 2.17 The municipal and small investor-owned systems within or adjacent to Consumers Power Company's service area provide their custo-I mers with service at retail rates the average of which is substan-

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i tially below the Company's comparable rates for each customer class. [ Pace

- 88-90, 94-95 after 7239; Attachment JDP-4 after 7239]

I 2.18 The rural cooperatives in or near the Company's service area

" provide some retail service at rates which are below the Company's compar-i able rates. [ Pace 89 after 7239; Attachment JDP-4 after 7239] For example, f' the cooperative systems' rates to commercial and small-industrial customers

,, average 12 and 19 percent less than Consumers Power Company's rates i

and it is this class of customers which is most subject to the very limited j' amount of competition which exists between the Company and its neighbor-ing cooperatives. [ Id. : see Findings 2.49 to 2. 51] However, not all retail rates of the cooperatives' retail rates are equal to or below the Company's.

[ Pace 89 after 7239; Attachment JDP-4 after 7239] This is explained by the rural, low density areas which the cooperatives by their very nature serve. [Westenbroek 948; Pace 90 after 7239; Attachment JDP-4 after 7239]

2.19 The total retail sales of the neighboring municipal, coopera-tive and small investor-owned systems during the period 1961-1971, taken togethar, have increased at a rate which exceeds Consumers Power Com-pany's sales gain. [ Pace 112-114; Attachment JDP-8 after 7239] More par-

. ticularly, commercial and industrial sales have increased more rapidly

' for these neighboring systems than for Consumers Power Company during l the period 1966-1971. During this five-year period, the cooperatives' L

sales to these larger customers increased at more than twice the rate of

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[ the Company's. [ Pace 114; Attachment JDP-8, Column 9 after 7239]

2.20 The retail rate differences between the Company and its neigh-boring systems reflect the differences in'the capital and tax costs among

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t P i Lower Alichigan investor-owned utilities, municipal systems and rural co-

- operatives. [ Pace 58-59 after 7239; Findings 2. 21 to 2.23]

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2.21 In 1971, Consumers Power Company's cost of raising capital I amounted to 21.7 percent of its total cost of service. [ Pace 56 after 7239]

Alunicipal systems, empowered to raise capital through tax-free bonds, have r-l capital costs of about half that percentage. [ Pace 58 after 7239; see Con-

- clusion of Law 4.04] Cooperative systems, long entitled to borrow from the federal government at 2 percent interest and still able to borrow at rates far below those available to Consumers Power, have embedded cap-ital costs of 7. 0 percent of their total cost of service -- less than one-third l of the percentage costs experienced by the Company. [ Pace 57 after 7239; see Conclusion of Law 4. 04]

2.22 Consumers Power Company pays federal and state income taxes, state franchise taxes and local property taxes. [ Pace 54 after 7239;

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Exhibit 21] Its 1972 direct tax liabilities amc,unted to 14 percent of its total cost of service. [ Pace 55 after 7239] Cooperative systems pay neither

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federal income tax nor Alichigan franchise tax and, consequently, their I,

e tax costs are only 5.1 percent of their total cost of service. [ Pace 55

, after 7239; see also Conclusion of Law 4.04] Alunicipal systems do not pay federal, state or local taxes, although some donate a portion of their

revenues to the treasury of the municipality they serve. [ Pace 55 after L.

7239; see also Conclusion of Law 4. 04] However, even when such donations

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,L equal the same portion of their costs that Consumers Power Company pays in local taxes -- and there is no evidence that most do -- freedom from

• - federal and state taxes still results in a total municipal " tax" liability r

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, r less than half that borne by the Company. [ Pace 55-56 after 7239]

2.23 In sum, Consumers Power Company's total annual tax and cap-ital costs are 35 percent of its overall cost of service while adjacent muni- l r cipal and cooperative systems have tax and capital costs equal to less than half that percentage of their overall costs. (Pace 58 after 7239]

3. Competition for retail customers

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2.24 As a result of barriers to competition for retail customers im-posed by local, state, and federallaw, by the economic characteristics of the

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'l industry and by the policies of other utilities, there is little direct or potential retail competition between the Company and its neighboring i

systems. [ Findings 2.25 to 2. 55]

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a. Legal Barriers to Competition i 2.25 Pursuant to Michigan law, the Company must obtain franchises from local governmental entities before it may render retail service.

!, [ Conclusion of Law 3. 05(f)]

u. 2.26 This franchising authority affords local governments the power to prevent the initiation of unwanted competition by simply refusing to grant franchises to other utilities. There is no evidence that any Michigan munici-pality has franchised the Company to offer general retail service within u

its municipal boundaries once that municipality has begun operating its owm

,1 j 1, electric system. (Paul 7818] In fact, the City of Coldwater has expressly obligated itself to franchise no utility other than the municipal system while J- its municipal system bond issues are outstanding. [Munn 4157-4158, 4163; ll Exhibit 12,009]

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r 2.27 The Company serves about 45 percent of its retail customers i

under perpetual franchises that can only be terminated by condemnation.

[ Pace 10 after 7239; see also Conclusion of Law 5. 05(g)] Most of the Com-p pany's other retail customers are served under 961 voted, thirty-year fran-chises which can only be terminated by expiration or condemnation. [ Paul

'F 7866; Exhibit 11,306; see also Conclusion of Law 3. 05(g)]

i 2.28 None of the Company's franchises has ever been condemned.

[ Paul 7877] In Michigan, it is extremely difficult and expensive to condemn p the Companyrs franchises and facilities because under Michigan law a jury f

must find the condemnation to be a necessity and because, in the event of condemnation, the Company legally must be compensated not just for

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the cost of the condemned facilities, but also for the value of the going business. [See Conclusion of Law 3. 05(d))

2.29 All but two of the Company's 375 thirty-year franchises which

.. expired between 1960 and 1973 were routinely renewed. [ Paul 7867; Exhibit 11,306] During the next ten years only 215 Company franchis'es are scheduled

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to expire and only 79 of these franchises involve areas within 10 miles I of another electric supplier. [ Paul 7868, 7871; Exhibit 11,306]

2. 30 It is therefore unlikely that the Company will in the foresee-

,_ able future lose a significant number, if any, of its retail franchises.

, [ Findings 2.25-2.29]

l' 2.31 The lack of significant retail competition between the Company

'l,L and neighboring invester-owned and cooperative systems is also attributable j to the regulations of the Michigan Public Service Commission. [Aymond 6065,

!l I 6070; Paul 7846, 7861; Findings 2.32-2.36]

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'3.32 Michigan law requires investor-owned and cooperative systems to obtain from the MPSC a certificate of convenience and necessity before T '

offering service in areas already served by another system -- a require-r ment the MPSC uses to prevent duplication of utility facilities. [Westen-broek 979-980; Paul 7847; Exhibit 3; see also Conclusion of Law 3. 05(c)j

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Similarly, the MPSC's requirement that retail rates and conditions of service be uniform and nondiscriminatory prevents the systems under its jurisdiction i' such as the Company from offering special competitive arrangements to j

r certain customers. [ Jefferson 8286, 8307; see also Conclusion of Law 4. 02(a)]

I

- 2. 33 The Michigan Public Service Commission's " single-phase rule" has virtually eliminated competition among private and cooperative utilities for residential and small commercialloads. [Westenbroek 966B, 982; Pace 18-19 after 7239; Paul 7850; see also Conclusion of Law 3. 05(a)] Under f

the single-phase rule, an existing single-phase customer may not transfer

- from one utility to another. [ Exhibit 9; Westenbroek 965-966; Paul 7850] A

) new single-phase customer must take service from the nearest utility, except i

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in infrequent instances where the customer is either (a)less than 300 feet from the distribution facilities of two or more utilities or (b) more than

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one-half mile (2640 feet) from the distribution facilities of any utility. [Id. ]

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.. 2.34 The MPSC has also significantly limited competition among investor-owned and cooperative utilities for new and existing three-phase (larger commercial and industrial)1oads. [ Paul 7853-7854; see also Conclu-sion of Law 3.05(b)]

2.35 Competition between Consumers Power Company and its neigh-

[. boring cooperatives for new three-phase loads has been restricted by the L

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MPSC's policies and pronouncements (a) that systems should not duplicate one another's facilities in order to serve new three-phase customers and i'

. (b) that existing single-phase customer 0 who desire new three-phase service

'r should be served by their existing single -phase supplier. [ Paul 7853-7854]

Competition for existing three-phase customers has similarly been discour-

.I aged by the MPSC. [ Paul 7854]

2. 06 When one cooperative or investor-owned system believes that t-another such system is serving or seeking to serve retail customers in a manner which is contrary to the public interest or to the MPSC's established policies, the complaining system may formally or ' formally bring the matter

{ to the attention of the MPSC. On several occasions controversies between the Company and other systems have been resolved in this manner. [ Paul e

7854-7856; Exhibits 1062 and also 2150; see also Conclusion of Law 4. 02 c (a), (b) and (f)]

2. 37 Eetail competition by rural cooperatives is further restrained

,j by the restrith in the terms of their REA financing which bars them from initiating service in communities larger than 1500 in population. [Westen-broek 963; Pace 18 after 7239, 7660; Paul 7860) Similarly, the Rural Electri-fication Act provides that cooperatives may only be financed to serve areas i- not already served by another supplier. [See Conclusion of Law 3. 06]

i 2.38 Retail competition between Consumers Power Company and i

neighboring municipal systems have been significantly limited by the oper-ation of the "25 percent rule" under Michigan law. [ Pace 17-18 after 7230]

Until recently amended, the law limited each municipal electric system's

. service outside municipalits boundary to 25 percent of the power it furnished

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r-inside the municipality. [ Exhibit 223; Westenbroek 975-976; Brush 3243; Aymond 6061-6062; Pace 17-18 after 7239; see also Conclusion of Law 3.05(h)}

2. 39 Although the 25 percent rule has recently been amended, the new p law explicitly prohibite municipal competition for the Company's existingcus-tomers and permits municipal systems to render extraterritorial retail ser-vice only in cities, villages or townships which, as of June,1974, were either contiguous to the municipality or already being served by the municipal sys-

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tem. [Sec Conclusion of, Law 3. 05(1)] Thus, extensive areas now served by the Company remain closed to competition by existing municipal systems.

2.40 In sum, there exist substantial legal barriers forbidding or i

significantly restricting competition among existing systems and the cre-ation of n?w competing electric systems. [ Findings 2. 25 to 2. 39]

b. Economic Barriers to Competition

, 2.41 In most industries, optimum resource allocation is sought pri-marily through the promotion of competition. [Wein 17 after 3979; Stelzer 6-7 after 7224] However, competition cannot be relied on to optimize resource allocation in so-called " natural monopoly" industries characterized f' by significant economies of scale, capital-intensity, high costs of duplication and significant dangers of discriminatory pricing. [Wein 19-20 after 3979;

.. Stelzer 7 after 7224] The electric utility industry is such an industry.

[Stelzer 10-11 after 7224]

.l 4.42 Because the electric utility industry has these natural monopoly )

1 characteristics, direct competition resulting in duplication of facilities to serve new customers or solicitation of other system's existing customers i

.<.. is wasteful and undesirable. [Westenbroek 1056-1057; Wolfe 1833-1834, i 1

i een dq' f

.~

i 2029, 2039; Brush 2258, 2260-2261; Keen 4552, Wein 3998; Gutman 4982;

,, Aymond 6312; Stelzer 15 after 7224; Paul 7829] Such competition i

benefits neither the customers nor the competitors. [Wolfe 1833-1834; r Brush 2260; Gutman 4982; Paul 7829]

2.43 The management of systems located within or adjacent to the Company's service area are cognizant of the economic barriers which make l.

competition for retail customers uneconomic and undesirable. [Westenbroek 1055-1057; Wolfe 1833-1834; Brush 2260; Keen 4552] For example, one sys-

,r tem manager testified that it would be a " losing proposition" to create a sys-tem to dupkicate the facilities of the Company and that he would rather " roll f dice" than undertake such a venture. [Wolfe 2039] Similarly, Michigan's cooperative systems oppose the " pirating" of existing customers and have proposed measures to the Michigan Public Service Commission to virtually

eliminate retail competition between their electric systems and the Com-pany for all existing and most new customers. [ Exhibit 9; Exhibit 11; West-( enbroek 964-974, 991; Keen 4552, 4507-4508] The managers of the Lansing municipal system -- Michigan's largest publicly-owned electric utility --

'1 L also expressed strong disapproval of competition between electric systems for retailload. [ Brush 2260; Wolfe 1833-1834]

i-2.44 In testimony sponsored by the Department of Justice in this proceeding, the system manager of the Northern Michigan cooperative ("Nor-L l thern") explained in the following words why he opposes other systems serv-

.

ing either new or existing loads (i. e. , customers) in Northern's service area:

, "We simply cannot have loads served by the members i of Northern fragmented. Northern must have all of the v loads, the diversity that exists in these loads, to improve l

.;-

i 6

t the system load factors, to the benefit of all the consumers supplied by Northern.

[ " Investments have previously been made to serve this consumer, and if Northern agrees to fragmentation of power supply within its service area it obviously cannot

'. do the job it should be doing. " [Steinbrecher 1909-1910]

2.45 Like its neighboring systems, Consumers recognizes the unde-

{ sirability of retail competition which results in wasteful duplication of facil-ities. [Aymond 6312; Paul 7829] Therefore, the Company cooperates with neighboring systems to avoid unnecessary duplication of facilities in those circumstances where a new customer is physically within reach of the dis-i tribution facilities of two systems. (Paul 7865] These efforts involve dis-cussions to resolve misunderstandings which could result in " pirating" ex-

{i isting customers, the inter-system exchange of information concerning re-

quests for new retail service, and, in the one instance where it proved nec-

, essary and appropriate, developing with The Detroit Edison Company a somewhat more formal and routinized procedure for handling such requests.

[ Paul 7864-7865]

i.

3

c. Extent of Competition 2.46 As a result of the legal and economic barriers to competition, j' there is no significant actual or potential competition for new or existing i.

retail customers between the Company and 21 of its 23 neighboring municipal

{, systems. The Company serves only one-half of one percent of the retail I.

customers inside the boundaries of these other 21 municipalities and most

.i L of these customers are located in areas where the Company was franchised ll and serving prior to municipal annexation. (Paul 7812, 7816, 7818] Similarly, outside of the boundaries of these 21 municipalities there is little duplication

r i

t-I -

i of facilities and generally no competition for new or existing customers.

,. [ Paul 7818-7819] -

2.47 Bay City and Traverse City are historically anomalous excep-tions to the this rule. [ Paul 7806-7807] Within those two municipalities, there is complete duplication of facilities between Consumers Power Com-I'

( pany and the local municipal system. [ Paul 7806] The areas around these cities account for most of the " fringe" competition at the interface of the Company's distribution facilities and those of its neighboring municipal sys-

[ tems. [ Paul 7831-7832] Since 1960, the Company has suffered a net loss of customers to the Bay City system. Similarly in the Traverse City area,  !

more than 75 percent of all new customers -- and an even greater proportion  ;

1 of new industrial customers -- have taken service from the municipal system. l I l L [Wolfe 1576-1577, 2023; Paul 7809, 8194]

2.48 No new municipal electric system has been formed within Lower Michigan in the last 40 years. Because of the legal barriers to the Company's i

1 e

loss of its retail franchises [ Findings 2.25-2.30] and because of the eco-nomic barriers to the construction by a municipality of duplicative facilities I

!_. [ Findings 2.41-2.44], there is little likelihood that a new municipal system j will be formed in any of the areas now served by the Company.

[Westenbroek 937; Pace 7264-7265] 1 l

2.49 As a result of legal and economic barriers to competition, there is little competition between the Company and its neighboring coop- 1 I

.. eratives. [ Paul 7846] The infrequency of the limited competition permitted i

under the MPSC's single-phase rule is illustrated by the facts that in the past five years only 17 new customers located within 300 feet of both the fa-F

'I .

i -

cilities of Consumers Power Company and Top O' Michigan Electric Cooper-ative have requested the Company's service and that since 1966 there have i been a total of less than a half dozen customers in the Company's general

<' service area who have located more than 2640 feet from any utility's distri-bution facilities. [ Paul 7852-7853]

2. 50 There is similarly no significant competition between the Com-pany and its neighboring cooperatives for the larger commercial and indus-t

, trial (three phase) loads. Very few new customers of this size locate in the

rural areas served by the cooperatives and fewer still fall outside the MPSC's restrictions on competition. [ Paul 7858; Finding 2. 35] Further, the Com-U pany has not sought other system's existing three-phase customers and there t

is no evidence that even a single existing three-phase customer has changed f-t its source of supply as between a cooperative and the Company since the co-

,. operatives became subject to MPSC regulation in 1966. [Aymond 6065; i-Paul 7856]

2.51 There is no evidence that a new cooperative electric system has L.

been formed within Lower Michigan since 1950. [Westenbroek 1060] Even if one were formed, legal restrictions would not permit it to serve where

, the Company is already serving. [ Finding 2. 37]

i

2. 52 The facilities of the Company and its neighboring investor-owned electric systems are not duplicative and there is no significant competition for retail customers between these systems. [ Paul 7861, 7847]

f_ 2. 53 There is no evidence of significant competition between the Com-pany and any other neighboring system to attract new industrial customers to  !

their respective service areas. Indeed, except for the most highly energy-1

'w s

's intensive industries, the customer's cost or source of electric power is far less significant in deciding where to locate his business than are such factors as the availability and cost of labor, raw materials and transportation. [ Paul

~!

7834-7835]

p,

2. 54 Consumers Power Company has an Area Development Depart-

\ ment which seeks to attract industry to lower Michigan -- including those l' municipalities which operate their own electric utility. [ Paul 7835-7837]

The Company supplies data to prospective industrial clients to assist in the

industrial development of the entire region without regard to whether the new customers will be served by Consumers Power Company or another system.

[ Paul 7837, 7841; Exhibit 11,303] For example, a number of new industrial customers which the Company helped to locate in Coldwater and in Marshall i.

are being served by the local municipal electric system. [ Paul 7837]

2. 55 In sum, with the exception of Bay City, Traverse City and other relatively insignificant areas of overlap, there is no evidence of either actual

! or potential competition for retailload between the Company and other electric systems. [ Findings 2.46 to 2. 54] This situation is the result of substantial l

legal and economic barriers forbidding or significantly restricting competi-

,I' tion among existing systems and the creation of new competing electric sys-tems. [ Findings 2. 25 to 2,45] l I<

C. Bulk power supply

2. 56 An electric utility system engages in a bulk power supply trans-action when it buys, sells or exchanges power with other electric systems.

i

t. [ Pace 33-34 after 7239] Bulk power supply transactions are of two types:

r

+3 he

1 r g g l T

[ Pace 33 after 7239; I wholesale transactions and coordination transactions.

i Mosley 8459-8460]

2.57 A wholesale transaction is one in which one electric system sells

[Mosley 8459-8460]

i Very reliable or " firm" bulk power to another electric system.

l A coordination transaction contemplates the exchange of bulk power between two systems. [Mosley 8460] Coordination arrangements are inherently, and by definition, reciprocal. [Slemmer 8 after 8838]

f

2. 58 The municipal, cooperative and small investor-owned utilities ad-jacent to Consumers Power Company's service area need not, and in fact not, rely exclusively on Consumers Power Company for bulk power supply.

the contrary, these systems satisfy most of their bulk power requirements through self-generation and/or through either wholesale or coordination ar-

[ Paul rangements with bulk power suppliers other than Consumers Power.

7878-7879]

1. Self-generation 2.59 Most of Consumers Power's neighboring municipal, cooperative and small investor-owned utilities own generation facilities and supply all l

-

1 or a portion of their own bulk power requirements. [ Paul 7878-7879]

2.60 Both of the small investor-owned systems neighboring Consumers Power Company meet at least a portion of their requirements through self-generation. [ Pace 41 after 7239; Fletcher 4256; Kline 4377]

2. 61 Among the 10 distribution cooperatives, seven generate their full I requirements through G&T cooperatives while an eighth, the Thumb coopera-tive, generates part of its requirements and purchases the remainder from Th l Detroit Edison Company. [ Paul 7897]

t L

ii L

I i

I 2.62 Sixteen of the Company's 23 neighboring municipal systems self-i generate to meet at least a portion of their bulk power requirements. [ Pace 41 after 7239] In 1972, the 23 municipal systems neighboring Consumers

(

l, Power Compary generated approximately 70 percent of their own bulk power requirements; Consumers Power Company supplied only about 17 percent of I

(

those bulk power requirements, while other suppliers provided about 13 per-1 cent. [ Paul 7878-7879; Attachment JDP-2, Schedule 1, page 1 after 7239]

2.63 Many neighboring systems have chosen to generate their own bulk power supply or to purchase it from others despite the Company's active promotion of bulk power sales during the 1960's. [ Paul 7879] From

(..

t 1960 to 1972, Consumers Power Company's bulk power sales as a percent-

age of the purchasing systems' total requirements rose only from 12. 6 percent to 17.1 percent. [ Attachment JDP-2, Schedule 1, Page 2, Column 5, and Schedule 2, Page 2, Column 5 after 7239] During the same years, the Company was unsuccessful in its efforts to sell firm bulk power to Holland,

'( Grand Haven, Traverse City, South Haven, Lowell, Paw Paw and Hart.

,, s [ Paul 7881]

b 2. 64 Since 1972, municipal systems in Lansing, Hillsdale, Mar-shall, Grand Haven, Lowell, Coldwater, St. Louis and Holland have either installed or are planning to install additional generation facilities. [ Brush 2302; Paul 7884-7885] Three of these systems have recently reduced their firm bulk power purchases from the Company, while Lansing has discon-L tinued such purchases altogether. [ Paul 7884] Six other small systems e

i plan to jointly construct a large-scale generation plant with several units

~

of up to 350 MW each prior to 1980. [ Exhibit 12,017; Fletcher 4274]

)

i L

L.

e p.

i 2. 65 The managers and consulting engineers of the small systems in Lower Michigan often conclude that self-generation is their most econom-i

ical source of bulk power. [ Paul 7883; Wolfe 1563-1564; Exhibit 12,008]

Thus their tax and financing advantages [See Findingc 2. 21 to 2. 23] appear to offset the fact that these systems, standing alone, may have insufficient load to justify construction of nuclear or other large-scale generation units.

2. Other bulk power suppliers

2. 66 In addition to Consumers Power Company, there are other

, systems which supply bulk power to purchasers within and adjacent to its I

service area. [ Paul 7879] The municipal systems of Portland, Hart, Lowell, i St. Louis, South Haven, Paw Paw and Petoskey, as well as the Southeastern

{

Michigan cooperative, have each had the choice of two or more bulk power suppliers in addition to the option of self-generation. [ Paul 7889-7890, '

7900] The other suppliers in these instances included the Wolverine cooperative, l

the Northern Michigan cooperative, Indiana & Michigan Electric Company, j Michigan Power Company and The Detroit Edison Company. [Id. ]

i

! l

2. 67 The Company has not always been successful in its bulk power supply competition with other suppliers. For example, in 1966 the Company offered to serve the firm bulk power needs of the Paw Paw municipality, but

}. Paw Paw chose to continue purchasing its needs from the Indiana & Michigan l Company. [Sundstrand 3911-3914; Paul 7891-7894] At approximately the same time, the Southeastern Michigan cooperative changed from being an all-

! requirements customer of the Company to takmg most of its bulk power needs from The Detroit Edison Company. [ Paul 7900] In addition, the Northern Mi-I'

_ chigan and Wolverine generation and transmission cooperatives have secured

'i L.

5

f t 50-year all-requirements contracts with seven distribution cooperative sys-l tems. [Westenbroek 958,1060; Paul 7904]

i l

2. 68 The municipal systems of Grand Haven and Traverse City and 7- the Wolverine and Northern Michigan cooperatives supply bulk power to each 1

I' other under the Michigan Municipal and Cooperative Power Pod (MMCPP) coordination arrangements. [ Exhibit 104A] These systems also have bulk power arrangements with the Hart, Zeeland and Lowell municipal systems.

I l

[Steinbrecher 1289-1290, 1363; Helfman 3487-3488)

3. The Company's bulk power transactions

2. 69 Consumers Power Company presently engages in bulk power

{

t supply transactions with 28 neighboring systems. Some of these involve

( wholesale transactions, the others coordination transactions. [ Findings 2. 70 and 2. 76)

, 2. 70 The Company presently engages in wholesale transactions with L.

16 systems in or adjacent to its service area -- 12 municipal systems, two r l

{ cooperative and two investor-owned utilities. [ Exhibit 11,307; Paul 7884; Steinbrecher 1154-1155]

f L 2.71 The rates, terms and conditions of Consumers Power Company's wholesale transactions are subject to the regulatory jurisdiction of the Federal Power Commission and by law must be reasonable, uniform and nondiscrim- 1 inatory. [ Jefferson 8300; Findings 2. 72 to 2. 75 below; see also Conclusion of Law 4. 03(a)]

L 2. 72 The FPC requires that the Company's wholesale rates are es-tablished at the lowest possible levels consistent with maintaining the Com-pany's financial integrity. The rates may not be set at levels which will L

Q-

I

, maximize profits. [ Jefferson 8280; see also Conclusion of Law 4. 03(c)]

2. 73 The Company's wholesale rates are established on the basis of average embedded cost of service rather than on the basis of incremental p costs. [ Jefferson 8292, 8294-8295; Pace 50 after 7239] Thus, wholesale i.

L customers receiving identical service are charged uniform rates. [ Jefferson

{ 8310-8311; see also Conclusion of Law 4. 03(a), (d))

2. 74 As a result of Consumers Power Company's adherence to these f rate-making principles, none of its wholesale customers are assigned rates

- based solely on costs attributable to a particularly efficient or a particularly inefficient part of the Company's system. [ Jefferson 8293] Rather, the Com-F pany's wholesale rates reflect all the benefits and burdens experienced by l-the Company's system. For instance, to the extent that a given generation r-unit or coordination arrangement reduces the Company's average cost of service, that reduction is passed on through the Company's wholesale b rates. [Stelzer 27 after 7224; Pace 63-64 after 7239]

[ 2. 75 Thus, for example, benefits which may accrue from the Com-

'l pany's nuclear generation generally, or the Midland Units in particular, are reflected in the Company's wholesale rates. [Stelzer 27 after 7224; Pace 63-64 after 7239] In this manner, the Company's wholesale customers

[, enjoy access to the benefits of nuclear generation but share these benefits on an equitable basis with all of the Company's other customers. [Id_. ]

'~

2. 76 The Company presently engages in coordination transactions with eight Lower Michigan systems -- four municipals, two cooperatives and

.b two investor-owned utilities -- as well as with four systems wholly outside ll[ of lower Michigan. [ Exhibits 67; 74; 75

76; 105:11,106; 11,108; 11,109;

,9 u

1

{ 11,112; 11,119; 12, 024]

j 2. 77 The Company's coordination arrangements with other systems are undertaken pursuant to contracts filed with and subject tc, the regulatory jurisdiction of the Federal Power Commission. [ Jefferson 8298; see also Conclusion of Law 4. 03(g)]

2. 78 Because these contracts are the product of negotiations con-ducted at different times with systems having different characteristics and

{

I desires, they are not uniform. [Slemmer 9 after 8838; Mosley 8460] There-i fore, in order to meaningfully assess or compare given arrangements, each t

must be reviewed as a whole. [Id. ]

2.79 Consumers Power Company's coordination agreement with The Detroit Edison Company, also known informally as the " Michigan Pool", pro-vides for the exchange of emergency capacity and energy (referred to in the contract as " coordinated services"), supplemental capacity and energy (inclu-t-

ding short-term and maintenance capacity and energy, see Finding 4. 49),

{ and economy energy. [ Exhibit 67, Article I sections 2 and 4, Article II]

t The agreement also calls for coordinated development of certain generation and transmission facilities. [ Exhibit 67, Article I, section 3]

2.80 Consumers Power Company's coordination arrangements with the Lansing Board of Water and Light, with the Michigan Municipals and I

L Cooperatives Power Pool (the "MMCPP" comprised of Northern Michigan Electric Cooperative, Wolverine Electric Cooperative, the City of Grand Haven, Michigan, and the City of Traverse City, Michigan) and with the j

City of Holland also provide for the exchange of emergency capacity and L_

energy, supplemental capacity and energy, and economy energy.

l

&l _ . _ _ - - _ _ _ - _ _ - _ - _ _ - _ _ _ _ - - - _ - _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

L  ;

i Exhibit 11,112, Article I, section 2(a), Article IV; Exhibit 105, section 4; l

Exhibit 12,024, section 4; Mayben 2863]

i 2.81 The Company's coordination contract with the Hydro-Electric  !

.- Power 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 and energy"), supplemental capacity and energy, and economy energy. It also provides for the exchange of annual  !

diversity capacity and energy. [ Exhibit 11,106, Article V}

l 2.82 None of the Company's agreements with The Detroit Edison Com-pany, the MMCPP, the Lansing Board of Water and Light, or the City of Holland provide for diversity capacity and energy. [ Exhibits 67; 105; 11,112; 12,024] However, the Department's expert witness conceded that diversity exchange requires time zone or climatic differences. [Mayben 2864] There is no evidence that any such differences exist between the Company and any of these four Lower Michigan systems. Finally, there is no evidence 1

that any of these four systems ever sought provision for diversity exchange.

2. 83 Consumers Power Company's contracts with The Toledo Edison Company and Indiana & Michigan Electric Company provide for the same

• N three transactions common to the Company's arrangements with the five

!p s;

- systems discussed above: the exchange of emergency capacity and energy, i

supplemental capacity and energy, and economy energy. [ Exhibit 11,108,

u Article I, section 1. 04 and Service Schedules A, B, C and D; Exhibit r

4 11,109, Article I, section 1. 04 and Service Schedules A, B, C and D]

The Company's agreement with Commonwealth Edison Company provides for i

~ the exchange of emergency capacity and energy, supplemental capacity and i-t -

M

,- _ - - . , , . - , , , , , , , , - - . - - . - - _ - - - , ~ , , , y-,- .-,, ,r----r-r.-wr,-=we ++ v---.%e*-w-=-e,- -

[ { energy, and diversity capacity and energy. [ Exhibit 76, Article I, section

1. 03 and Service Schedules A, B and D] Finally, its agreement with the I Northern Indiana Public Service Company provides only for the exchange

- of emergency capacity and energy. [ Exhibit 76, Article I, section 1. 03 and l

Service Schedule B]

j' 2. 84 In addition to these arrangements, the Company exchanges trans-mission services with Indiana & Michigan Electric Company and also provides l certain transmission services to the MMCPP. [ Exhibit 11,109, Amendment No. 4, Schedule D, sections 3.12-3.13, Schedule F, section 3.12-3.13, i

Amendment No. 6, Schedule G, sections 3.12-3,13; Exhibit 12,023]

, 2. 85 Except for the Detroit Edison agreement [ Exhibit 67, Article I.

I section 3], the Company's coordination agreements donot call for the par-ties to engage in the coordinated development of generation or transmission facilities. [ Exhibit 74; Exhibit 75; Exhibit 76, Article I, section 1. 01, Article

. VI; Exhibit 105, section 13(a); Exhibit 11,106, Article I, section 4; Exhibit l 11,108, Article I. section 1. 01; Exhibit 11,109, Article I, section 1. 01; Ex-L' hibit 11,112, Article V; Exhibit 11,119, Article I, section 1. 07; Exhibit 12,024, Section 13a] At the same time, however, none of the agreements prohibit any party from engaging in coordinated development on mutually acceptable terms and conditions. [ d. ] Further, there is no evidence that any of the smaller neighboring systems ever, except in the course of this proceeding, expressed to the Company interest in coordinated development.

! [ Paul 7934]

III. Relevant Markets and Market Power A. Retail Markets tumme

3.01 One of the two relevant product markets in this proceeding is the market for retail electric power. [ Pace 11,19-20, 25-26 after 7239; see

~

also Conclusion of Law 3. 01]

3.02 Retail electric power is distributed in three distinct geographic

__ areas, all located witir.n or adjacent to the Company's service area. [ Pace 11, 19-20, 25-26 after 7239]

{ 3. 03 The first geographic area consists of (a) the municipalities of Bay City and Traverse City; (b) the areas immediately surrounding the 23 municipal electric systems where the distribution facilities of such sys-tems and the Company overlap or interface; and (c) the areas where the fa-cilities of the Company andthose of the rural electric cooperatives overlap or interface -- to the limited extent which the MPSC permits retail competi-tion. [ Pace 25-26 after 7239] Since the purchasers of retail power have a choice among electric suppliers in this area, it may be characterized as "open" to competition. [ Pace 26 after 7239; see also Conclusion of Law 3. 07]

3. 04 The second geographic area consists of areas within or adjacent

, to the Company's service area where only one electric system distributes re-

- tail power pursuant to limited term (irrevocable thirty-year or revocable) franchises, or where the Company and the cooperatives have overlapping dis-tribution facilities but are effectively foreclosed from competing by MPSC regulations. [ Pace 19-20 after 7239; see also Conclusion of Law 3. 07]

This area is effectively " closed" to competition by significant legal and

-l L economic barriers to the establishment of new systems and to the duplication of facilities. [ Pace 20 after 7239; see Findings 2. 25 to 2.45] Although retail L

purchasers in this area could conceivably have a choice of suppliers in the l

L

c

[ -

long run by refusing to renew the existing utility's franchise and either granting a franchise to an existing rival or creating a new municipal electric system, the likelihood of such occurrence is remote. [ Pace 21 after 7239]

3.05 The third geographic area consists of the area covered by the I,

Company's perpetual franchises where the Company is the only supplier.

[ Pace 11 after 7239; see also Conclusion of Law 3. 07] This area is and

'_ will likely remain permanently " closed" to competition as a result of vir-

,l tually insurmountable legal and economic barriers to entry by a new system and to the duplication of facilities. [ Pace 13-15 after 7239; see Findings I

2. 25 to 2. 45]

3. 06 It would be inappropriate and misleading to analyze these "open"

{

and " closed" geographic market areas as an aggregate. [ Pace 9 after 7239]

Consumers Power Company's share of such an aggregation represents an averaging of (a) the Company's share of retail power sales in those areas L in which the entry of and/or competition by other systems has been foreclosed j by the economic and legal barriers to duplication and retail competition with L

(b)its share of the market in areas where there is competition and some I

duplication. [ Pace 9-11 after 7239] No conclusion meaningful to the issues of this proceeding can be drawn from an aggregation of these areas. [Id. ]

3. 07 Consumers Power Company is not dominant in the "open" geo-graphic market area for retail power. [ Pace 30 after 7239] In both Bay City

'~

. and Traverse City, Consumers Power Company faces a single competitor

{ and the Company's average market share in these two cities is 56. 5 percent.

[ Pace 26 after 7239] That share is almost precisely what it would be in a

'L perfectly competitive two-firm market, and it is not increasing. [ Pace 27 1I

- j

6 F  !

.~ after 7239] As to the other portions of this "open" market, the Company's shares are not quantifiable because it proved impossible to obtain appropriate b data from the other systems. There is, however, no evidence of statistical

. . - predominance by the Company in these portions of the "open" market. [ Pace i

t 30 after 7239]

3. 08 Within that portion of the " closed" market where purchasers may

~

have a choice of suppliers in the long run, the Company sells approximately 77 percent of the retail power. [ Pace 20 after 7239; Attachment JDP-1, page 1, after 7239]

3. 09 Within the other portion of the " closed" area where the Com-pany serves pursuant to perpetual franchises and is the only supplier, it has a 100 percent share of the retail power sales in the market. [ Pace 11 t ..

after 7239]

~

B. Bulk Power Supply Markets L ~

3.10 The second product market relevant to this proceeding is the market for bulk power supply to small systems. [ Pace 33-34 after 7239; see also Conclusion of Law 3. 01]

t- 3.11 Lower Michigan bulk power customers have and exercise the following options in meeting their systems' bulk power supply needs:

~

they may self-generate their own bulk power from one or more sources, or they may purchase bulk power at wholesale; in addition, in combination with either or both of these options, they may exchange bulk power under

~l a coordination agreement. [Wolfe 1713; Pace 34 after 7239] Thus, among the Company's smaller neighbors, some systems rely exclusively on wholesale purchases for bulk power supply, some purchase part of their requirements i

l L.

!(

lL

r r t at wholesale and obtain the remainder through self-generation, and some

?

rely upon self-generation and coordination. [ Pace 41-42 after 7239]

{_ 3.12 The self-generation and wholesale purchase bulk power supply

_ alternatives are functionany interchangeable and are so viewed by the Com-k pany's neighboring systems. [ Pace 33-34 after 7239; see also Conclusion of Law 3. 02] Their view of the interchangeability of these alternatives is con-I firmed by power supply studies performed by such municipal systems as f Grand Haven in 1968, Traverse City, in 1968 and Lansing in 1973. [ Pace

- 34 after 7239; Exhibit 12,008] For example, in 1964 the cooperatives viewed f., their options as meeting their bulk power supply needs "by self-generation or purchase of power or some combination of these arrangements. " [ Stein-3 l brecher 1424]

3.13 Under certain circumstances, coordination power may be func-tionally interchangeable with self-generated power or purchased wholesale L power. [ Pace 33 after 7239] Thus, for example, in 1967 Traverse City conducted a bulk power supply study which concluded that its system should coordinate with other smaller systems rather than purchase wholesale power from the Company. [Wolfe 1561-1562] A system may satisfy its bulk u

power needs through self-generation and/or wholesale purchases without utilizing coordination power. [ Pace 33 after 7239] However, a system cannot rely upon coordination power exchanges independent of self-generation and/or wholesale for the purpose of providing firm power to retail customers

( -- the ultimate product in this industry. [Steinbrecher 1361; Mayben 2697-I~

-2698] For example, the Wolverine cooperative requires that each party

"{ to coordination power transactions have self-generation capacity available i

f w

i l

l l [ to it equal to 110 percent of the system peak load. [ Keen 4555-4556]

3.14 The ability of the Company's neighbors to substitute one source of bulk power for another is also evidenced by the vigorous competition that Consumers Power Company's wholesale service faces from self-generation i'

by, and coordination power exchanges among, the neighboring municipal, cooperative and small investor-owned systems. [See Findings 2. 58 to 2. 68]

3.15 The economic viability of various combinations of the three I bulk power alternatives is evidenced by the fact that the municipal systems which rely principally either on wholesale power purchases or on self-gen-i eration, including all those which also exchange coordination power, have IE average retail bills substantially below Consumers Power Company's in each customer class. [ Pace 88, 94-95 after 7239]

3.16 The only market for bulk power supply which is relevant to this proceeding consists of the bulk power requirements of the Company's L

neighboring municipal, cooperative and small investor-owned systems.

[ Pace 39-40 after 7239]

3.17 This relevant bulk power market historically has not included l f

the market for the bulk power supply needs of Consumers Power Company, except for the quantitatively insignificant coordination power exchanges in which the Company engages. [ Pace 36-37 after 7239; Keen 4537; see also Conclusion of Law 3. 03] Consumers Power does not now and has not planned

^

its system in contemplation of purchasing a significant share of :!ts bulk power requirements from any other supplier. [ Pace 36 after 7239] Moreover, the 25 percent rule [See Finding 2.38] has effectively prohibited municipal L systems from supplying the Company's bulk power requirements. Because h

(

L

I' i

I .~ approximately 20 percent of the customers served by the Company's neigh-I boring municipal systems are located outside of their municipal boundaries, there has been little capacity which could lawfully be sold at wholesale to r.

entities such as the Company. [ Paul 7818; Pace 36 after 7239] Likewise i the cooperatives have been and are prohibited from supplying the Company with firm bulk power supply. [ Pace 37 after 7239; Keen 4537] There is no evidence that any of the Company's small neighboring systems have the f capacity or the desire to supply the Company with any significant part of

_ its bulk power supply needs at the present time or in the foreseeable future.

I 3.18 The Company's share of sales in this relevant bulk power supply market is 17. I percent and there is no evidence that this share will likely increase significantly in the foreseeable future. [ Pace 40 after 7239]

3.19 One of the Department of Justice's witnesses proposed that a separate product market consisting of coordination transactions is relevant L to this proceeding; this witness and another Department spokesman character-t ized this as the " regional power exchange" market. [Wein 54-55 after 3979; L~

Mayben 2706] In light of the facts set forth in Findings 3.11 to 3.15 such a market definition is inappropriate: other products (self-generated power and purchased wholesale power) are functionally interchangeable with the f coordination transactions which make up the Department's " regional power exchange" product market and therefore all of these products must be included in a single bulk power supply market. [ Pace 34-35 after 7239; see also Conclusion of Law 3. 02]

3. 20 The Department's witness also purported to analyze the Com-L pany's coordination agreements with other systems and to exclude from his

L

)

) { regional power exchange market those agreements which he deemed not to be comprehensive. [Mayben 2871-2872, 2856-2857, 2766; Exhibit 197]

However, it is not appropriate te analyze relevant markets in terms of p the alleged " comprehensiveness" of the Company's coordination agreements.

k Because these contracts are the product of negotiations conducted at dif-ferent times with systems having different characteristics and desires, they f

are not uniform. [Slemmer 9 after 8838; Mosley 8460] For example, Con-sumers Power Company's coordination agreements with Ontario Hydro and Commonwealth Edison contain provisions for the exchange of diversity capa-city and energy which are not part of he Company's arrangements with

[-' Lansing, the MMCPP, Holland or The Detroit Edison Company. [ Findings

2. 81 and 2. 82] This is however fully consistent with the fact that the ex-I change of diveraity capacity and energy requires time zone or climatic dif-

,g

_ ferences [Mayben 2864] which there is no reason to believe exist in Lower L Michigan. [ Finding 2. 82]

3.21 In any event, the cor-lusion by'the Department's witness that the Company's coordination arrangements with lage systems are more "com-prehensive" than its coordination arrangements with its small municipal and cooperatively-owned neighbors is contradicted by the contracts themselves. '

I

[See Findings 2. 79 to 2. 85] For example, the Company's coordination agree-ments with the small Lansing, MMCPP and Holland systems all provide for the exchange of economy energy and emergency capacity and energy [ Finding

2. 80] while its agreement with the much larger Norther Indiana Public Ser-vice Company does not. [ Finding 2. 82] Similarly, its arrangements with the L large Ontario Hydro system and the much smaller Lansing, MMCPP and I_

L

l-1 l

r

! { and Holland systems all provide for the same types of transactions -- except for the exchange of diversity capacity and energy which requires special cir-cumstances [Mayben 2864] not shown to exist between the Company and the p..

smaller systems located as they are in Lower Michigan. [ Finding 2. 81 and I

2.82]

3. 22 The witness' conclusions about the " comprehensiveness" of the f

Company's agreement with Lansing compared to its agreements with the pri-vately-owned systems such as the MIIO companies is further belied by the

.. testimony of Lansing's system manager, Mr. Brush. Mr. Brush testified

! that the coordination arrangement between Lansing and Consumers Power was a " good agreement" and that "we were able to get them to treat us as an equal partner and have negotiated an agreement which contains the more im-F

[ portant terms and conditions found in the inte; connection agreement

,_ [ sic] between two private utilities. " [ Brush 2406, 2403]

L.- 3.23 In light of the foregoing, it is clear that the so-called " regional power exchange" market is not a relevant market for the purposes of this

"~

proceeding. [ Finding 3.19 to 3. 22]

,f

C. The Company's Market Power

3. 24 The Company does not possess or exercise monopoly power in any relevant market. [ Pace 44-45, 6,15-16, 23-25, 30-31, 39 after 7239; Findings 3.24-3.29] The Company's rates and conditions of service in the relevant retail and bulk power supply markets are regulated oy state and federallaw I.

and regulatory authorities [See Findings 2. 07-2.16 and 2. 72-2. 75] so that l the Company does not have the ability to control prices or exclude competition -

- the prerequisites of monopoly power. [ Pace 44-45, 6, 15-16, 23-25, 30-31, f_

! L' . .

~

)

f 39 after 7239; see also Conclusions of Law 4.01-4.03]

)

3. 25 Unlike other industries, the electric utility industry is subject 1 to comprehensive regulation and other economic and legal barriers to entry

(

- and competition so that the existence of monopoly power cannot be inferred

)

from one firm's statistical concentration in a given relevant market. [ Pace j 6-7 after 7239; see also Conclusion of Law 4.01-4.03] Thus, even though the Company has more than 75 percent of the share of two of the relevant retail markets, it lacks monopoly power because the MPSC's rate regulations

. preclude it from controlling prices [ Findings 2.07-2,16] and because eco-

}

nomic and legal barriers preclude the entry of and competition by other i systems [ Findings 2.25 - 2.45].

3. 26 In the markets in which there is meaningful present or poten-tial competition -- the "open" retail market and the relevant bulk power supply market -- purchasers of electric power have a choice of electric L suppliers. However, the Company's share in these markets is 56 percent

~

and 17 percent, respectively. [ Findings 3. 07 and 3.18] The Company lacks the dominance required for monopoly power in these markets. [ Pace 30-31, 43-44 after 7239]

3. 27 One of the indicia of monopoly power is monopoly profits.

},.

[ Pace 16 after 7239; see also Conclusion of Law 4. 05] The Company, how-ever, has not earned such profits. [Stelzer 6983, 7114] In fact, during the past six years the Company has earned a rate of return considerably l below that deemed minimally adequate by regulatory authorities. [Aymond 6409; Stelzer 6983, 7114; Pace 101-102 after 7239]

i

_ 3.28 The financial positionof Consumers Power Company dispels

- f.

I L

(

{

{ any doubt as to whether the Company has enjoyed the financial success typical of those who possess and exercise monopoly power. In late 1972, the Michigan Public Service Commission reviewed the Company's financial p position and reached the fonowing conclusions:

". . . Applicant's [ Consumers Power Company's] ability to attract additional capital is at a low ebb. Applicant's

[ common stock is now seHing at or near its historica11ow price and only slightly above the book value of such stock.

Moreover, Applicant has suffered a downgrading in the fi-r nancial rating of its securities with its bonds having been l downgraded from AAA to AA, its preferred stock having been downgraded from AAA to A, and its common stock

.. from A-plus to A. The interest coverage ratio on Appli-

}

cant's first mortgage bonds has declined from 5. 68 times in 1967 to 2.22 times in March 1972 and is expected to de-cline to less than 2.1 times . . . . This decline is partic-

'I t~ ularly alarming because Applicant's Indenture requires that an interest coverage of at least 2. 0 times must be maintained in order to issue additional first mortgage bonds." (Citations omitted) [ Consumers Power Co. ,

MPSC Case U-4174, Order (November 24, 19 72), App.

I-11]

[ A similar review by the Commission in September of this year revealed L-that the Company's financial situation had deteriorated stin further.

"At this time the record substantiates Applicant's [ Consumers Power Company's] contention that it win be required to obtain hundreds of minions of dollars in the foreseeable future through I the sale of debt and equity securities in order to finance the L- construction necessary to maintain reliable service and that its ability to do so is threatened for several reasons. The eco-nomic stability and public health and welfare of a large part of Michigan depends on the ability of Applicant to finance ade-quate service to the public.

" Applicant's depressed financial status is clearly indicated by certain critical facts such as its depressed earnings per share, the low price of its ccmmon stock, its downgraded bond rat-

i ings, its legal inability to sell preferred stock, and the possibility of legally being restrained from selling first

. mortgage bonds. Even taking into account its reduced con-struction program, Applicant concludes that its outside

_ financing requirements for 1975 will be approximately t

!L

-4 0 -

I $325,000,000.

, " Examination of Applicant's earnings per share discloses that for calendar 1973 earnings per share were $2.41. They I

have since declined to $1. 79 per share for the twelve-month period ending June 1974. As outlined in the Staff report, 7 earnings for the twelve-month period ending July,1974 have

(

further declined to $1. 67 per share. The gravity of these facts is accentuated by the fact that Applicant's dividend rate is $2. 00 per share.

I " Applicant's common stock is presently selling at approx-imately 56% below its book value and only slightly over its c

$10 par value, below which it cannot legally be sold. Ap-l '

plicant cannot sell preferred stock since its present cov-erage ratio is considerably below the minimum coverage

.. ratio of 1. 5 times specified in its articles of incorporation.

{ Furthermore, Applicant is very near the condition of being unable to sell first mortgage bonds under the terms of its bond indenture. With the sale of $50,000,000 of first

[ mortgage bonds on August 20, 1974 at an all-time high

interest rate of 11.38% Applicant's coverage ratio dropped to 2. 008 times, extremely close to its minimum indenture r coverage of 2. 00 times, as verified by the Staff report.

[-

" Applicant 8s financial rating has been declining since the

, time it last sought rate relief. Moody's reduced Appli-cant's bonds from double-A to single-A at the time of the t sale of $GO,000,000 of first mortgage bonds in July,1974.

Simultaneously, Moody's lowered Applicant's sinking fund r

debentures and pollution control revenue bonds from single-A

[~ to Baa and Applicant's preferred stock from double-A to single-A. Applicant's new convertible preference stock,

, which was issued and sold in July,1974, was only rated Baa by Moody's. Standard & Poor's has also followed the

'~ downward trend in rating Applicant's securities. It has reduced Applicant's debentures, pollution control revenue bonds and preferred stock from single-A to triple-B.

Standard & Poor's rated the first issue of preference stock at trible-B. Less than three years ago Applicant's bonds and preferred stock were both rated triple-A.

"In short, the record substantiates that Applicant's financial condition is in serious jeopardy. The Commission recognized that Applicant's situation is compounded by the financial crisis facing all electric utilities throughout the nation caused in large part by the inability to finance the construction necessary j to maintain adequate and reliable service and the high cost of

}

6 s

P M l

l inflation, as well as a continuous decline in its rate of return. " (Consumers Power Co., MPSC Case U-4576, Order Granting Partial and immediate Rate Relief r (September 16,1974) (Emphasis supplied) App. I-13]

L

3. 29 The Company's financial position stands in contrast to that of its smaller neighboring systems. Most of these systems are quite success-ful financially. [ Pace 105-106 after 7239] For example, the Lansing system I,

< offers retail service at rates which are 10 to 30 percent below those of the m Company and maintains a AAA financial rating. [ Brush 2415; 2440-2441]

l Even those which are not so successful could raise their rates and earn a f' favorable rate of return without any adverse competition consequences vis a vis the Company. [ Pace 106-107 after 7239]

3. 30 In view of their financial and competitive viability [see Findings 2.17-2.23, 3.29], there is no evidence that the Company's smaller neighboring systems require direct access to the Company nuclear generation or trans-i mission facilities in order to maintain their financial or competitive viability.

In any event appropriate access to these facilities is available through the

{

( Company's whoesale service which permits all systems the opportunity to g share fairly in whatever benefits the Company derives from large-scale gen-eration and transmission, nuclear technology or coordination arrangements such as the Michigan Pool. [ Pace 63-64 after 7239]

IV. The Company's Conduct

~

A. Retail Electric Service P

4. 01 There is no evidence that the Company has engaged in any con-duct reflecting anticompetitive intent in, or monopolization of, the retail power market. The rates, terms and conditions of its retail service are regulated and i

(

approved by the Michigan Public Service Commission and must be uniform, reasonable, and non-discriminatory. [ Jefferson 8280, 8286, 8288, 8307; r-

! Finding 2. 07-2.1G; see also Conclusion of Law 4.02] There is no evidence r that the Company has violated or deviated from this requirement for any pur-L pose.

) B. Bulk Power Supply Service

1. Wholesale Transactions f 4.02 Consumers Power Company assumes the same public-utility responsibility to provide its customers with firm wholesale service that it does in providing retail service. [Aymond 6065; Mosley 8459] There is no I evidence that the Company has refused to provide wholesale service to any i

system in its service area so requesting and, in its policy statement, it l

u has bound itself to meet the future needs of its wholesale customers. [Aymond r 6065; 8108] The rates, terms and conditions at which Consumers Power Com-pany offers wholesale service are filed with and regulated by the Federal 1

Power Commission and there is no evidence that the Company has violated or deviated from them for any purpose. [ Jefferson 8280-8282; 8298-8300; I

p. 1

! see also Conclusion of Law 4. 03] Before the Company's wholesale service

-r became subject to FPC jurisdiction the Michigan Public Service Commission asserted jurisdiction over Consumers Power's wholesale service to cooperative

, and investor-owned customers. [ Jefferson 8439-8441] l 3 t 4.03 There is no evidence that any terms or conditions contained in j l

the wholesale service contracts are anticompetitive ia their effect or intent, j 4.04 For example, the contracts require wholesale purchasers to pay i

o a minimum amount based upon their peak billing demands on the Company's i I

!I b

l l

' L

_ _ - + , . - -

i system through what is galled a " demand ratchet" of 60% [Steinbrecher 1354-1355; Jefferson 8309] In order to serve each wholesale customer, the I

l Company must make a variety of investments for which it incurs continuing

c. costs. The ratchet provides a basis for recovering such costs and is com-monly utilized in the industry. [Steinbrecher 1361; Chayavadhanangkur 5113-5114; Jefferson 8309, 8312] Indeed, a 60 percent demand ratchet is also contained in all the Company's two-part commercial and industrial rates.

[ Jefferson 8308]

, 4.05 In its most recent wholesale service proposal, Consumers Power I Company has lengthened the billing demand interval from 15 to 30 minutes, I thus serving to reduce the peak load level on which the ratchet is formulated.

i (Jefferson 8429-8430]

4.06 Capacity reservations such as that contained in paragraph 1 of Consumers Power Company's partial purchase wholesale contract (Exhibit

[.. 11,309) require wholesale customers to advise the Company of the amount p of service the purchaser needs from the Company. [ Paul 7940-7941] This

!~

provision en[bles the Company to plan its system to meet these demands.

There is no evidence that the provision is anticompetitive in intent or effect.

[ Paul 7941]

i. _ 4. 07 Prior to the time the Company filed its wholesale service con-tracts with the Federal Power Commission, the Company's wholesale con-

_ tract with one of its customers, the Alpena Power Company, contained a

_ provision that permitted either party to renegotiate the wholesale rate provided in the contract whenever Consumers Power Company's industrial retail rate "D" changed. [ Fletcher 4262-4263; Paul 7944] In the interests of 9

f-(

{ contract uniformity, and because the Company believed that the FPC would be unwilling to permit the level of wholesale rates to be tied to retail rates f not subject to its jurisdiction, the provision was substantially modified.

[ Fletcher 4266; Paul 7944, 8173-8176]

l-

4. 08 There is no evidence that Alpena has been or will be adversely affected by this contract change. It may petition the FPC to change any of the Company's existing or proposed rates or terms of wholesale service;

} in fact, Alpena has intervened at the FPC to set forth its views about pro-7_

posed wholesale rate revisions. [ Fletcher 4277; Paul 7944; see also Conclu-sion of Law 4. 03(b)] Thus, neither the purpose nor the effect of the Alpena

~

contract change was anticompetitive or otherwise unreasonable.

4.09 Until the Company's wholesale agreement and rates became sub-r

{ ject to Federal Power Commission jurisdiction, its wholesale contracts re-quired wholesale customers to obtain the Company's written consent if they L proposed to interconnect with another system in such a way that the Com-j- pany would become engaged in interstate commerce. [ Paul 7941; Jefferson l'

8300] The Company's purpose in including this provision was to avoid be-I coming inadvertently subject to jurisdiction of the FPC. [Id. ] Since the L

Company now deems itself subject to FPC jurisdiction, those provisions f '

L have been removed from all its wholesale contracts. [ Paul 7941-7942]

,7 4.10 During the time those provisions were a part of the Company's wholesale contracts, no wholesale customer either requested or was denied permission to interconnect with another system. [ Paul 7942] Indeed, during 0

this period one wholesale customer, the Northern Michigan cooperative,

i

( interconnected with Traverse City without consulting the Company. [ Paul

'l 1

w

F

/

r i.

i i'

I 7942-7943) 4.11 There is no evidence that any wholesale customer ever re-

/

j frained from interconnecting with a third system because of this provision

.- in its contract. Therefore, there is no evidence that the provision's effect

'(-

was anticompetitive.

{ 4.12 The Company's sale of wholesale power on the terms and con-ditions regulated by the FPC permits existing or potential electric systems to distribute retail power at rates equal to or below those of Consumers Power Company and, to the extent that retail competition is feasible and lawful, to I

s '

compete successfully. [ Pace 88-90, 94-95 after 7239) The low rates and com-

," petitive success of Bay City, an all-requirements wholesale customer of the l

i Company, are striking evidence of this situation. [ Paul 7808-7809; Wolfe 1576-f 1577, 2023; see Findings 2.47, 2.17; Attachments JDP-3 and JDP-4 after 7239]

2. Coordination Transactions

- 4.13 It is Consumers Power Company's policy and practice to enter T into coordination arrangements with other systems when there is a reasonable i~

prospect that each party will derive meaningful net benefits from the arrange-ments. [Aymond 6053; 8107] There is no evidence with regard to either the policy, or the the Company's practices in implementing the policy, that

!. . the Company has engaged in conduct whose purpose or effect is anticompet-itive or otherwise unreasonable.

a. Coordination Policies l 4.14 The Company's policy that to coordination arrangements should provide each party with meaningful benefits reflects standard industry practice and is fully justified from an economic and engineering point h  :

n .-

i L.

(

{ of view. [Slemmer 7, 24 after 8838]

4.15 An inherent and essential characteristic of coordination agree-I ments between electric systems is the existence of reciprocal benefits.

- [Slemmer 8-9 after 8838] In the electric utility industry, systems engage in

' coordination arrangements only when each concludes that the benefits it will receive from the relationship will significantly exceed the costs it will incur, k

[Slemmer 6-7 after 8838] Moreover, even after a coordination agreement has been entered, meaningful net benefits to each party remain a prerequisite to

,. the successful operation of the agreement in order to provide each party with the necessary incentives to make it work. [Slemmer 7-8 after 8838]

~

Meaningful net benefits can be derived only where each system to the arrange-ment possesses the ability and the willingness to engage in comparable trans-I' y actions on a reciprocal basis. {Slemmer 8 after 8838]

4.16 In recognition of the reciprocal nature of a coordination trans-C .

. action, the rates for such transactions frequently do not reflect system-wide

- average costs. [Slemmer 8 after 8838] Where reciprocity is not present, these rates are not appropriate and may, in fact, be unduly discriminatory

-- that is, one customer class may be receiving lower rates only at the expense of other classes of customers whose rates are increased. [Slemmer f

L 8-9 after 8838; Pace 32-33 after 8838]

. 4.17 Reciprocity is particularly a prerequisite to coordination trans-actions involving the construction of bulk power facilities such as generation

' units, transmission facilities or interconnection ties for the benefit of the coordinating partner. [Slemmer 8,18 after 8838] These transactions require I the constructing system to raise capital for the benefit of others than its k

u v - c m-- ,-,, n -

')  ; j' customers. One of the common objectives of coordination agreements is that "no system will have an unreasonable capital investment for the benefit of

[j others and no one system will be dependent on others for a disproportionate

,- amount of capacity requirements. " [ Exhibit 167, page 31) Unless its coordi-

\

k '

nating partner agrees to undertake a comparable construction program of facilities to whien the Company is afforded access, such additional capital requirements could well have adverse effects upon the Company's cost of, f or even ability to raise, capital to serve its customers. [ Finding 3. 28)

.. 4.18 The Company's rates are established at the lowest level which will permit it to earn an adequate rate of return and thus to attract capital.

'~

[ Findings 2.08 and 2. 70) Thus where coordination arrangments are not recip-rocal and do not provide net benefits to the Company, the financial burden that results is borne by the Company's customers through rate adjustments designed to increase revenue and thus to permit the Company to regain an L adequate rate of return. [ Pace 63-64 after 7239, 37-38 after 8838)

(- 4.19 Therefore, it is the Company's customers -- not its management or its shareholders -- who usually must suffer the consequences of coordination i f' arrangements which lack reciprocity and net benefits. [ Pace 63-64 after

,t.

7239, 37-38 after 8838] The Company's policy of refusing to enter into

,L arrangements having such consequences is reasonable.

I

, b. Refusals to Coordinate 1

1 1 4.20 On two occasions since 1960, the Company has refused to en-gage in coordination arrangements which offered no prospect of reciprocal 1

i benefits. [ Paul 7925) The first occasion arose in 1964 when the Company Ji declined to coordinate with the Northern Michigan and Wolverine coopera-ji lb f '.

.h

, _ , _ - , _ _ _ - _ . . _ , ..~m _,y. ,, , _ . _ - , , -

{

( i f tives because those systems were too deficient in generating capacity to provide the requisite reciprocity. [Id. ]

4.21 In testimony during this proceeding, Northern Michigan's sys-tem manager conceded that both his system and Wolverine were " deficient" in 1964; i.e., that these systems had insufficient dependable generation ca-pacity to cover projected peak load. [Steinbecher 1411-1416] 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 capacity. [Steinbrecher 1413-1417, 1420-1421, 1949-1953]

(  !

t

4. 22 The second refusal came in 1967 when Northern Michigan again requested a coordination arrangement and the Company again found no pros-pect of mutual benefits from the arrangement. [ Paul 7925] The Company's f action was clearly reasonable since in 1967, Northern Michigan's system peak load was 43. 52 MW, its installed capacity was 45.10 MW and the size of its largest unit was 23. 5 MW. [Steinbrecher 1441; Exhibit 12,001, May 18, 1967 letter) Thus, Northern 'tichigan's 1967 installed reserves covered less than 10 percent of the system's largest unit and its total reserves f amounted to approximately 1. 6 MW or 4 percent reserves. [Steinbrecher 1446]

u 4.23 Northern Michigan was interconnected with other systems in l 1967 but denied the Company's request to provide the Company with the details of those arrangements. [Steinbrecher 1453-1457; Exhibit 12,001] )

In light of this refusal, the Company could not asses the value of those u

relationships to Northern Michigan and was therefore justified in refusing to consider them in evaluating Northern Michigan's 1967 coordination propo-1 s.

1 (U ..

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4. 30 Although the Company's coordination contracts are subject to

{

FPC regulation [ Finding 2. 77; see also Conclusion of Law 4.03(g), there is no evidence that any system has complained to the FPC about their terms and conditions or that the FPC has ever found any provision of such contracts i

to be unreasonable or discriminatory.

> ., 4. 31 There is no evidence that any of the terms of particular co-a ordination transactions in which the Company engages are anticompetitive, unduly discriminatory, or otherwise unreasonable in either intent or effect.

f

[See Findings 4.32-4.50) 1 1 1. Emergency power transactions

4. 32 All of the coordination arrangements to which the Company is a

• li party provide for the mutual exchange of emergency capacity and energy.

[Mosley 8462] In line with standard industry practice, the Company agrees L

to provide other systems with emergency capacity and energy with the expec-tation that emergency support will be supplied to an approximately equal extent and that the amount of such support supplied and received will balance I- out over time. [Slemmer 10 after 8838: Mosley 8462A-8463]

J 4. 33 To assure reciprocity in the exchange of emergency power, L.

it is standard industry practice that coordination arrangements (1) limit the amount of emergency power that will be exchanged, providing power in excess of these limits only at higher rates, and (2) require that all systems maintain L sufficient reserves to produce equal reliability. [Slemmer 10-11after 8838]

4. 34 To assure that its coordination partner maintains adequate re-serves, the Company's coordination arrangements either provide that each party will maintain an ascertainable level of reserves or provide more gener-

+

- , -- _ . - . -- . - , . , .-.,--_- ,.,,,. . - . . . - - . . . - - - - + _ _ . - - , , - - - . . ,

I ally for the monitoring and maintenance of reserve adequacy. Both of these p- techniques take account of the particular characteristics of each party's system which affect reliability. [Mosley 8477-8495; Slemmer 11-13 after

[ 8838) In addition to the quantitative relationship between reserves and system load, other factors affecting system reliability include the concentration of

) generating capacity in relatively large units, the forced outage rates of the

,. system's units, the adequacy of its transmission facilities and the character-1

/

istics of its load. [Slemmer 13,15, 24 after 8838; Mosley 8467, 8494)

F 4. 35 The Company conforms to standard industry practice when it i

insists that its coordination partners maintain sufficient reserves to assure i that those partners will not " lean" on the interconnection and that the emer-gency power transactions will be reciprocal and balance out over time. This o

practice is reasonable from both an engineering and an economic point of view. [Slemmer 24 after 8838]

4 4.36 Many of the emergency power exchange arrangements to which the Company is a party specify the reserves which the system must maintain either in terms of absolute megawatts, a percent of peak system load, a percent of the size of one or more of the system's largest generation units -- or

, in terms of some combination of these factors. [Mosley 8481-8482, 8485-8489]

~

4.37 For example, the Company's arrangement with Detroit Edison pro-vides for each party to maintain reserves equal to a varying percentage of sys-tem peak load or the size of the system's largest generation unit, whichever is

.. higher. [ Exhibit 67, Article III, section 2(b)] Currently, under this arrange-ment the Company plans for reserves of ?2 to 24 percent of its peak load.

"~

[Mosley 8488) )

3 I

N l

k l

i r

~

4. 38 The Company's coordination arrangements with Ontario Hydro and

the MIIO companies [ Exhibits 11,106; 11,108; 11,109 and 76] do not specify par-T-

ticular reserve requirements. [Mosley 8478, 8480-8481] However, the parties

~. to the Ontario Hydro and MIIO agreements are required to maintain reserve reliability through annual planning committees which monitor the adequacy of f' each system's generation capacity additions, load levels and reserves. [Id. ]

4. 39 The Company's coordination arrangement with Lansing provides

.I that a specified level of spinning reserve be maintained. [Mosley 8486;

,.. Exhibit 11,112, Article I, section 2(d)] Lansing's requirement is presently

1 70 MW, but at Lansing's request, this requirement will become 35 MW in 1977. [Mosley 8486-8487; Exhibit 11,112, Service Schedule A] The 70 MW figure is equal to approximately 19 percent of Lansing's most recent r

system peak load. [ Brush 2069-2070]

4.40 Under the Consumers Power Company coordination arrange-lt ments with Holland and the Michigan Municipal and Cooperativ. Power Pool r (MMCPP), these systems maintain installed reserves equal to one-half the size of their largest unit, plus one quarter the size of their second largest unit, l l

! plus ten percent of their system's forecasted peak load. [ Exhibit 105, section L

2; Mosley 8487-8488; Exhibit 12,024] Under this reserve formula, the MMCPP i was required to maintain reserves of 19 percent while under its new contract t, Holland must maintain reserves of about of 27 MW. [Mosley 8488; Rainson L 3158-3160, 3186]

I ll 4.41 Holland's current megawatt reserve requirement is the result u

of its use of a 31 MW generating unit on a system whose peak load is less than twice the size of this unit. -[Rainson 3186; Mosley 8482] Holland's concentra- l i

.~

l l t

1 I-

,ene e tion of generation capacity in a few units increases the likelihood that Holland will need emergency support from the Company and therefore Holland must r-maintain a higher percentage of reserves in relation to peak load. [Slemmer

,_ 11,15, 24 after 8838] Even at this level of reserves, Holland is able to provide only minimal benefits to the Company. [Slemmer 28 after 8838]

l 4.42. The reasonableness of Holland's reserve requirements is also evidenced by the fact that with its largest unit out of service for any reason at f peak load, Holland has insufficient capacity to carry its load and must look to the Company for assistance. [Mosley 8482] By contrast the Company maintains 8

reserves at least as large as its largest unit so even when its largest unit

(~ is out of service, i'. need not call upon Holland for assistance and, indeed, it still has capacity to assist Holland under these circumstances. [Mosley 8482-8483]

4.43 There is no evidence that the Company's use of different for-I' t mulas to specify reserve requircments is anticompetitive in either intent or

. f- - effect. These various formula are utilized throughout the electric industry i

and reflect the economic and engineering facts of life, i. e. , the differing characteristics and circumstances of parties to the various arrangements.

[S1'emmer 9, 24, 27-28 after 8838]

4.44 Specifically, the reserve requirements contained in the Lan-sing, Holland, and MMCPP arrangements are consistent with the Company's

goal of obtaining reciprocal net benefits from emergency power arrange-ments . [Slemmer 27-28 after 8838] There is no evidence that another for-e-

mulation of reserve responsibility, such as the equal percentage reserve i

L formula, would provide the Company with the requisite reciprocal benefits.

?!

l L.

!L

\.

4.45 Indeed, providing reserves under the equal percentage reserve formula may, under certain circumstances, deny one of the coordination par-7-

ties net benefits or even result in considerable net detriments to one party.

7 [Mosley 8468; Slemmer 13-14, 23-24 after 8838] For example, in 1972 had the Company agreed to enter into emergency capacity and energy exchange arrangements under an equal percentage formula with systems of the size

!f and generation capacity of the MMCPP members, and had these systems P

i. experienced the same generation outage record as the Company, the Company g would have had to increase its reserves by 29 MW over its pre-agreement I-level. [Mosley 8469-8472; Exhibit 11,104] Such an agreement clearly would

~

not have provided the Company with reciprocal net benefits.

4.46 Use of a reserve formula other than the equal percentage for-mula may require a system to hold higher reserves when it chooses to con-

r. centrate its generating capacity in a few large generation units. While such L reserve formula may therefore discourage the construction of large units, this formula appropriately reflects the engineering fact of life that concentra-i tion of generation in a few large units reduces system reliability and reserve adequacy. Therefore, the Company's utilization of reserve criterion other than the~ equal percentage reserve formula is justified and reasonable from

'I

~S an economic-engineering point of view. [Slemmer 15 after 8838]

t ii. Other coordination power transactions 4.47 " Economy energy" is non-firm energy exchanged between two systems each with excess operating capacity. [Westenbroek 1022; Stein-i brecher 1368-1369; Chayavadhanangkur 5194-5195; Mosley 8495-8496; Slem-  ;

I l

L- I l

\

mer 16 after 8838] The exchange occurs when the supplying system canpro-vide the recipient system with energy which is less costly than the energy the recipient can then generate on its system. [Westenbroek 1022; Steinbrecher r 1368-1369; Chayavadhanangkur 14 after 5090; 5194-5195; Mosley 8495-8496; i

Slemmer 15 after 8838] The savings to the recipient system are split be-

,1 tween the two parties. [Mayben 2716-2717; Chayevadhanangkur 14 after 5090, 5195: Mosley 8496)

( 4.48 All of the coordination arrangements that the Company has with

other LJwer Michigan systems provide for the exchange of economy energy on i

essentially similar terms. [Mosley 8496; Exhibit 12,024; Exhibit 67, Article II, section 8 and 9; Exhibit 105, section 4(d); Exhibit 11,112, Article IV, section 4]

4.49 Supplemental power is electric power provided for a period of 1 y time ranging from several days to several months to meet temporary deficiencies on the recipient systems. [Mosley 8497] In some of the Com-pany's coordination arrangments supplemental power is called short-term, seasonal, or maintenance power. [Mosley 8488; Exhibit 105, Article IV; i

Exhibit 11,106, Article V; Exhibit 11,112, Article IV; Exhibit 12,024,

[

Article IV] Although the terms vary slightly, all of the Company's coordina-l -

tion arrangements, except that with Northern Indiana Public Service Company, provide for supplemental power at rates reflecting both an energy and capacity L

charge. [Mosley 8498]

4. 50 In sum, there is no evidence that any of the aforementioned or any other particular provisions of the various coordination contracts are dis-I

1. criminatory, anticompetitive, or otherwise unreasonable in intent or effect.

ii~

4

e l~ d. Other Eulk Power Supply Transactions i

4. 51 There is no evidence that the Company has engaged in anti-competitive conduct concerning other bulk power supply transactions such r.

as unit power sales, joint unit ownership or wheeling arrangements.

4.52 Unit power transactions occur when one system builds a genera-F tion unit and agrees to sell a certain portion of that unit's output to another k

system. [Mosley 8505] Such transactions are normally entered into by sys-r j tems seeking to take advantage of generation unit economies of scale (and thus reducing their bulk power costs) by constructing a unit larger than one I

system needs. [Slemmer 18-19 after 8838] Unit power transactions also r may be entered into where systems seek to share the risk of units which are technically innovative. [Id. ]

~

f t /

4. 53 The electric energy delivered to the purchasing system does not usually come from the participating unit since, as is the case with re-L. gard to the Midland Units (See Finding 1. 04], the power output from a given j unit is commingled with, and is therefore indistinguishable from, other )

)

generation capacity which is delivered to the system's transmission grid.

t [Slemmer 19 after 8838] Thus, a unit power transaction is merely a pric-L ing device in which the sale is made at a rate based on the costs o'f a par-b ticular generating unit. [Slemmer 20 after 8838] This contrasts with whole-sale purchases which reflect the average costs of all generation units on the L system. [ Jefferson 8292-8293]

i

4. 54 It is the Company's policy to enter into unit power transactions L

as part of other coordination arrangements only where the Company and its

{

1 customers will derive net benefits from the arrangement. [Aymond 6055- l i L.

r L_

r 9

4 g 6056, 8107] Such benefits only arise when the unit power sale is a part of a coordinated plan of generation expansion in which the systems agree to con-I_

> struct generation units and to sell comparable amounts of unit power to one p- another. [Aymond 6055] Then, though each system is selling unit power below average cost, it is receiving in exchange the opportunity subsequently to replace that power with other below average cost power. Except under these conditions of reciprocity, a unit power transaction would be simply a device by which one purchaser is permitted to buy power at a price which is or in the foreseeable future will be below system-wide average costs.

[Aymond 6059-6060; Pace 68-69 after 7239] Such a result would be unrea-(~ sonable and would unduly discriminate against the selling system's wholesale and retail customers. It would also jeopardize the Company's ability to raise capital. [ Finding 3. 28] Therefore, the Company's policy concerning unit power transactions is reasonable. [See Finding 4.17]

L 4. 55 In the only unit power arrangement to which it is a party, Con-sumers Power Company has agreed to sell one-third of its share of the out-put of the Ludington Pumped Storage Project to Commonwealth Edison for a period of ten years. [Mosley 8506; Exhibit 11,118] This arrangement is unique in that it involves a pumped storage hydroelectric project and in

{

., that Commonwealth Edison must supply the energy required to pump its share p of water into the upper reservoir at the site of the plant. [ Exhibit 11,118, L

sections 3.2 and 3. 3] As a general rule it takes about three kilowatt hours

[ of pumping energy to recover two kilowatt hours of peaking energy from a pumped storage plant. [Steinbrecher 1936] The Company engages in no l l l L other unit power arrangements. [Mosley 8506] l l

< l lL l 1

l

['

F

!- 4. 56 In 1967, an officer of Consumers Power Company discussed i

with representatives of the Northern Michigan Electric Cooperative, the I

MMCPP's engineering consultants, and the staff of the Michigan Public Ser-

- vice Commission the availability to other systems of unit power from Luding-ton. (Steinbrecher 1897-1900,1929; Paul 7939, 8165-8166; Exhibit 12,007)

[' The Company received no response or other expression of interest from the cooperatives, the MMCPP, or any other system. [Steinbrecher 1901; Paul i 7939, 8168-8169] Except under the circumstances set forth in Finding 4. 57,

, the Company has received no other expression of interest in any unit pur-l chase. (Paul 7934; Steinbrecher 1486]

f~ 4. 57 No electric system expressed any interest to the Company in i i

purchase of unit power from the Midland facility until after the initiation of this proceeding in 1971. [ Exhibits 22, 24, 27, 58; Steinbrecher 1485-1486, 1202-1203,1215; Wolfe 1735; Keen 4516, 4520, 4521; Paul 7934] These E expressions of interest were then untimely since the Midland Units were

[- sized in 1967. [ Finding 1. 06] In addition, these 1971 communications did not suggest that, in consideration for the Midland unit purchases, the pur-r chasing systems would agree to construct units in which the Company could u

participate. [ Exhibits 22, 24, 27, 58]

L 4.58 Because their expressions of interest in Midland were untimely I r and because these communications revealed no willingness or capacity by

" l these systems to construct units in which the Company could participate,  !

I the Company determined that such a sale would result in additional system

-L i costs to the Company of up to $141 million since it would be compelled to

_ replace the sold unit power from higher cost bulk power sources. (Stafford

.l

.L L _.

,r ,

'

s

[i r and Lapinski 9161-9165; Exhibit 12,018]

I

4. 59 These add'.tional system costs resulting from the Midland unit purchases would be borne by the Company's customers in the form of higher rates. [ Pace 37-38 after 8838; Finding 2. 74] The Company was therefore i justified in refusing to engage in a transaction which would be unduly discrim-inatory against its customers.

4. 60 Joint ownership participation in a 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. [ Pace 74 after 7239]

.I Each owner thus bears the investment-related cost and the fixed portion of operating costs in relation to his ownership share. [Slemmer 20 after 8838]

4. 61 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 largerthan one system requires or through risk sharing. [Slemmer 18-19 after 8838]

Unlike unit power arrangements, however, joint ownership arrangements do not require the constructing system to finance the construction of gen-I eration capacity not to be utilized by its customers.

L

4. 62 The Company engages in joint ownership arrangements only i

{ with regard to the aforementioned Ludington project. [Mosley 8508] The Company owns 51 percent of the Ludington units, Detroit Edison 49 per-bl cent. [Mosley 8508: Exhibits 11,114,11,115, and 72] The costs and bene-

!, fits of the project are shared on the same percentage basis. [Mosley 8509]

L~

4. 63 Except in the context of this proceeding, none of the small neighboring systems has ever expressed interest in ownership interest in L.

'f l-a

i i

any generation units operated by the Company. [ Paul 7934, Steinbrecher

[ 1486-1487] Specifically, with regard to the Midland Units, no other systems expressed an interest in direct participation in Midland until after the initia-tion of this proceeding in 1971 -- long after these units were sized. [ Finding 1.06] In view of the untimeliness of these expressions of interest, the ad-verse consequences to the Company of selling part of the unit are the same as those arising from a comparable unit power purchase: the lost capacity l

must be replaced with bulk power alternative as much as $141 million more f costly to the Company. [See Finding 4. 58]  ;

4. 64 Favorable responses to 1971 expressions of interest in Mid-land ownership interest, like Midland unit power purchases, would not have i provided the Company with net benefits, and would have been unduly dis-l criminatory against the Company's customers. [Slemmer 25 after 8838; Finding 4. 58] The Company was therefore justified in declining to sell other systems part of the Midland Units.

4. 65 Wheeling describes transmission services in which electric ,

1 power belonging to another system is supplied at some interconnection point on the wheeling party's transmission system and the same amount of power i is concurrently delivered to a third system at some other interconnection L

point on the wheeling party's transmission system. [Slemmer 21-22 after 8838] Provision for wheeling services are not prerequisite to, nor usually

, found in, coordination agreements in the electric utility industry. [Slemmer 22 after 8838] ,

l

4. 66 Until after the initiation of this proceeding, Consumers Power Com- i u

pany had never received a concrete or specific request for wheeling services

r from any of its neighboring systems. [Aymond 6165, 6046-47; Paul 7935] In fact, it was not until several months after the Department of Justice advice letter of June 28, 1971 that any party expressed to the Company any interest in wheeling. These expressions took the form of written communications from the MMCPP [ Exhibit 58, Steinbrecher 1489-1490] in September,1971, and from the City of Coldwater [ Exhibit 26; Munn 4076] in November,1971.

4. 67 These communications did not request that a specific amount of power be wheeled between two particular points, but merely sought to initiate discussions about the Company's wheeling policies generally. [Aymond 6163-6164; Exhibits 26 and 58] At the time, the Company had no policies regarding

~

wheeling since its management had never previously had occasion to consider v

the question. [Aymond 6046-6047]

4. 68 In response to these communications and to the wheeling issues raised in this proceeding, the Company formulated a wheeling policy under which it offers bulk power wheeling services to other electric systems to the following conditions:

L

"(1) that we have the physical capability on our existing or projected transmission grid to provide the desired service, without impairing service to our existing and projected loads or commitments or endangering L our system reliability;

"(2) that we be properly compensated for this 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 e

not subsidize the wheeling customer;

_ "(3) that provision of bulk power wheeling service will not i

b

i i result in a significant loss to Consumers Power, directly or indirectly, of existing load or service areas, with resulting idle facilities and social waste;

"(4) that provision of bulk power wheeling service will not re-

,. sult in significant loss to Consumers Power of access to interchange power I

transactions with third parties. " [8106-8107]

4. 69 These couditions are reasonable. For example, as to condition (2), compensation for wheeling must take account of the fact that a system's V

ability to provide wheeling services is not dependent on the capability of a single transmission line but on the total capability of a transmission system.

[Mosley 8513-8514; Slemmer 22 after 8838] Therefore, unless the wheeling system is compensated according to average system-wide transmission costs, the wheeling arrangement will unduly discriminate against the wheeling sys-

/

tem's retail and wholesale customers and cause their rates to increase. [ Pace

~

78 after 7239]

4. 70 As to condition (3), the Company is clearly justified in refusing 3

t'o engage in wasteful transactions. "Creamskimming" is one form of social waste which can arise from wheeling. [ Pace 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 system's most profitable industrial and wholesale customers. [Aymond 6099; Stelzer 21 after 7224; Pace 76 after 7239] The net effect of such a transaction is to raise the costs of power to the wheeling system's remaining customers. [ Pace 76-77 after 7239] Indeed, the manager of one of the generation and transmission cooperatives testified that he would not offer his system's transmission L services to the Company for the purpose of taking one of his customers.

,o f

L i

~

r

,[

[Steinbrecher 1909-1912]

4.71 There is no evidence that the Company has ever refused a concrete request to wheel power. The only such request involving a smaller neighboring system occurred recently when the MMCPP systems requested

{

that the Company wheel 20 MW of bulk power from Detroit Edison. An agree-t

[ ment to provide such wheeling services has been negotiated. [ Exhibit 12,023]

r C. Acquisitions of Other Systems I 4.72 Since 1960, Consumers Power Company has purchased the facil-ities of three small systems in its service area -- Grayling (1961), the Rogers City Power Company (1967) and Allegan (1968). [Aymond 6063; Paul 7907; Ex-

, hibit 11,308] In addition, the Company's offer to purchase two other small municipal systems was approved by the city councils but rejected by the voters.

. [Aymond 6063; Paul 7907-7908; Exhibit 11,308]

4,73 Through these three purchases, the Company acquired approxi-I 3

. mately 4,700 retail customers in addition to more than one million such cus-r tomers it already served. [ Paul 7917; Exhibit 11,308] In light of the large .

i L number of the systems presently operating within or adjacent to the Company's service area [ Findings 2.01-2.04] and in light of their economic vitality j

~

[ Findings 2.17-2.23, 3.29), these three acquisitions have not significantly l l

w diminished the number or economic viability of other systems in the area.

4. 74 .Most of the proposed acquisitions involved municipal systems

[.

_ and therefore required the approval of 60 percent of the municipal's voters in a referendum. [ Exhibit 11,308; see also Conclusion of Law 3.05(e)]

l

f_ 1-

,[ 4. 75 There is no credible evidence that the Company's management articulated or implemented a policy designed to acquire all of the smaller I electric systems in the Company's service area. [Aymond 6064] During the 1960's the Company favorably considered acquisition proposals when it was convinced that improved service would result from the acquisition.

r

[Aymond 6063] To the extent that one document [ Exhibit 188] offered in

[

evidence appears to reflect a different view concerning the Company's ac-

quisitions, the chief executive officer of Consumers Power Company testified in this proceeding that such views were and are contrary to Company policy.

[Aymond 6421] The document itself merely summarizes the contents of an informal intra-company sales talk by a middle-level employee of the Company's marketing department. [ Paul 8026-8028] Neither the contents of the sales talk or the document were reviewed by or discussed with the employee's superiors or any Company officer. [ Paul 8244-8245]

' 4. 76 Since 1965, the Company has refused to make acquisition offers unless the proposal enjoyed the near unanimous support of the customers to be acquired. [ Paul 7910-7911] More recently, the Company has experi-enced difficulty in financing facilities to serve additional customers and has therefore become reluctant to incur further retail service obligations through acquisitions. [Aymond 6064, 6406-6407] For example, in 1970 the Company turned down a municipal system's request that the Company consider acquir-

'~

ing it and it has not offered to' acquire or acquired any syswm since 1968.

[ Paul 7913; Exhibit 11,308]

4. 77 There is no evidence that the purpose or effect of the Company's

_, proposed or consummated acquisitions was anticompetitive or otherwise un-i u.

9 W

6

i i reasonable.

(

T D. Political Activity

~

l

4. 78 There is no evidence that the Company's participation within the political process at the local, state, or federallevels supports an inference

.. of anticompetitive intent or effect.

! 4. 79 In 1965, the Traverse City electric system sought funds from the

~

city council to increase its generation capacity. [Wolfe 1587; Paul 7909] Sub-stantial opposition to the proposal developed based on economic, environmental f and philosophic concerns. (Wolfe 1793; Paul 7909, 8048-8049] In response to this situation, Consumers Power Company offered the alternative of leasing the municipal electric system. [ Paul 7909]

4. 80 After the city council rejected the Company's proposal and agreed to finance additional municipal generation, the Company's Traverse City

!.. representative wrote a public letter to the council urging reconsideration L

of its action. [Wolfe 1587-1588,1794-1797; Exhibit 00] There is.no f evidence that the statements in the letter were untrue, misleading or made t

for an improper purpose. The city council declined to reconsider its action and the additional generation was, in fact, installed. [Wolfe 1798]

4. 81 At the state level, Cons tmers Power Company has opposed legislation sponsored by the municipal electric systems which would have y removed the 25 percent limitation on sales outside their boundaries. [ Brush 2254-2255; Land 5901; Aymond 6133-6134, 6139] The 25 percent rule had been a part of Michigan law since 1908 and the Company, among others, believed that its repeal would result in unner:essary municipal duplication u

of facilities and would otherwise be contrary to the public interest. [ Brush i

'r L . -.

. _. - _ - . - - ~ -

k L' 2241; Land 5901]

I

4. 82 A1.thcagh initial efforts to repeal the legislation failed, in 1974 the 25 percent limitation was amended and replaced with a provision r designed to eliminate unnecessary municipal duplication of retail distribu-I tion facilities. [See Conclusion of Law 3.05(i)) There is no evidence that the Company's efforts before the state legislature were illegal, misleading,

!-

or otherwise unreasonable; indeed, one municipal system manager testified that the Company's efforts were in "no way" improper. [ Brush 2263)

4. 83 At the federallevel, the only evidence of the Company's politi-

,I.

L cal activities concerns its discussions with the Rural Electrification Admin-istration (REA). Under law, the REA cannot finance cooperative generation

! additions unless it finds more economic bulk power supply alternatives to be unavailable. [Steinbrecher 1224; Exhibit 7) 4.84 In 1964, the Michigan generation cooperatives applied for REA ii..

L financing for generation expansion. [Steinbrecher 1233; Paul 7901-7902)

,( Pursuant to their application, the cooperatives presented to REA officials a study purporting to demonstrate that self-generation was the most eco-nomic option available to them. [Steinbrecher 1233,1422; Paul 7901-7902]

The study analyzed several bulk power alternatives, including self-generation and the purchase of peaking power from the Company at wholesale, and con-cluded that self-generation was the most economical alternative. [ Stein-i

,' brecher 1424-1427, 1430] However, the study did not take account of the option of purchasing base load wholesale power from the Company. [ Stein-brecher 1431-1433]

j [. 4. 85 The Company believed the cooperatives' study to be incomplete L

P huun

since it failed to consider the base load purchased power alternative which

(

may have been the cooperatives' most economic option. [ Paul 8065-8067:

Steinbrecher 1431-33] Consequently, the Company brought the study's defi-

, ciency to the attention of REA officials in Washington and urged that the base I

load purchase alternative be considered. [Steinbrecher 1233-1235: Paul 7902, 8067: Exhibit 143] Although the cooperatives and the Company disagreed about which bulk power supply alternative was more economic in those par-F l ticular circumstances, there is no evidence that the Company's efforts before the REA were frivolous or misleading or that the Company acted illegally or improperly in expressing its views to federal officials.

4.86 Following the Company's efforts, the REA agreed to finance the cooperatives' generation expansion. [Steinbrecher 1233,1277: Paul 7902]

There is no evidence that the Company's action delayed these generation expansion plans of the cooperatives or that it had any anticompetitive purpose

?

-L or effect.

V. Proposed License Conditions 5.01 Parties to this proceeding other than the Company have pro-L posed conditions to the Midland license dealing in three areas: nuclear unit access, coordination transactions, and transmission (wheeling) services.

The Company's policies with regard to each of these three stems are rea-i{ sonable and consistent with industry practice. [See Findings 2. 75, 4.13-4.71] Therefore even if license conditions are imposed upon the Company

i

'L in this regard they should not deviate from these policies.

5.02 With regard to unit access, it would be contrary to the public

~

interest to require the Company to offer unit power or an ownership interest l*

I

-6

>> in the Midland Units. Because the Intervenors' requests for such access c

l were untimely, to require the Company now to grant it would impose on the

,) Company and its wholesale and retail customers a substantial penalty in the form of replacement costs. Thus granting either of these forms of access to the Midland Units would be discriminatory, unreasonable and contrary to

the public interest. [ Findings 4.57-4.59, 4.63-4.64]

I.

5.03 It would be contrary to the public interest to require the Company I to offer unit power purchases in any unit unless the proposed purchaser agrees, as a part of a plan of coordinated development, to construct units of its own from which the Company would be permitted to obtain a comparable amount of unit power. [Aymond 6055-6056; Slemmer 18 after 8838; Findings 4.17, 4.54] Any other unit power purchase arrangement will fail to provide net bene-fits to the Company and would be unreasonable and discriminatory against the Company and its wholesale and retail customers, and would therefore be con-

)

[ trary to the public interest. [ Pace 37-38 after 8838; Findings 4.17-4.19, 4.54, 2.74]

I

5. 04 Nonreciprocal unit power purchase arrangements would also

( require the Company to raise capital to finance generation capacity which t

would not be used for the benefit of its customers. [ Findings 4.17] Given the Company's present financial position, a license condition requiring such unit power sales would jeopardize the Company's basic ability to raise capi-tal. [ Finding 3.28] Therefore a condition requiring unit power sales from

the Midland Units or any other units would be unduly burdensome, unreason-l

~

able and contrary to the public interest. [Aymond 6409; Stelzer 6983, 7114]

f[ 5. 05 Although these principles and circumstances may restrict the

L

,es .

1 the Intervenors' access to nuclear units, the restrictions are reasonable and consistent with the public interest. Further, there is no evidence that the en

) operation of these restrictions will adversely affect the viability of the smaller

,. systems. In the first place, self-generation and wholesale purchases by the Company's smaller neighbors permit them to be financially viable and to r distribute power at rates comparable to the Company's. [ Pace 88, 94-95 I

after 7239; Findings 2.17-2.23, 3.29] Secondly, there is no evidence that the cost of the electric output of the Midland Units or other future nuclear units will be significantly different than the Company's average-cost whole-t sale power rates. [See Findings 1.08, 2.75] Thus, there is no compelling need to require the Company to afford special access to these systems.

5.06 As to the coordination arrangements, it would be unreasonable

,e and contrary to the public interest to require the Company to engage in any coordination arrangement, or any individual coordination transaction, which

'ii does not offer the Company meaningful net benefits. [Slemmer 24 after 7239; Findings 4.14-4.19] Meaningful net benefits can be derived only where each system possesses the willingness and ability to engage in comparable i! transactions on a reciprocal basis. [Slemmer 7-8, 26-27 after 7239; Findings 4.14-4.19]

.l 5.07 Coordination transactions which do not provide the Company with reciprocity or net benefits would result in unfair and discriminatory burdens L being placed upon the Company's wholesale and retail customers. [ Pace ll 37-38 after 8838, 63-64 after 7239; Findings 4.18-4.19] Coordination under -

such terms would also deprive the arrangement of the financial incentive which is a prerequisite to its success. [Slemmer 6-8 after 8838; Pace 36 a

(L .

i i l' after 883b Finding 4.15]

(i ~

t 5.03 The appropriateness of coordination terms varies according to I the characteristics and desires of the parties. [Slemmer 9, 26 after 8838]

j- For example, the terms of a given arrangement between the Company and I

j large system may be inappropriate, and in fact unduly discriminatory, if f jI entered into with small system. [Slemmer 26-27 after 8838; Mosley 8468-j4 L j 8472] Therefore, it is neither not reasonable nor consistent with the public

r

,l interest to impose license conditions upon the Company which specify the i

j, detailed arrangements which the Company must agree to in all coordination

j '

negotiations. [Slemmer 27 after 8838] For the same reasons it is neither i

3 [ reasonable nor in the public interest to require the Company, as a license

i

{' condition, to coordir. ate with all systems on identical terms. [Slemmer 27

! r

$-. after 8838]

(

t 5.09 In particular it would be unreasonable and contrary to the pub-

<i jL lic interest for license conditions to require reserve sharing on the basis

l of the " equal percentage reserve" or any other given formula, since the i

designated formula will1:nder some circumstances be inappropriate, inequi-table and unduly discriminatory. [Slemmer 23-24 after 8838; Finding 4.45]

Unless a coordinating partner has sufficient reserve capacity, that system

[. will probably need emergency power ' support much more often than the other

! party to the arrangement and will be less likely to provide such emergency 1h i support when the other party needs it. [Slemmer 11-12 after 8838; Finding 4.33] Coordination arrangements are structured so as to assure that such

" leaning" will not occur. [Slemmer 11-13 after 8838] Requiring the Com-14

( pany to coordinate with systems which are unable or unwilling to avoid such 4 e

L

.- __ _- - . _ _ _ _ , , _ , . _ _ . . _ _ ,, _ . _ , _ ,4______, .m_ _

1

' I leaning would deny the Company the net benefits which are fundamental l

to coordination arrangements. [Slemmer 11-12 after 8838]

5.10 As to transmission (wheeling) services, it would be unreason-

)

able and contrary to the public interest to require the Company to provide f these services if the transaction would not be fully compensatory or would

~

diminish the Company's reliability or its opportunities to engage in coordi-nation transactions. [Aymond 6049-6050; Pace 78 after 7239; 8106-8107]

h It would be similarly unreasonable and contrary to the public interest to require the Company to provide wheeling services when the result would be to permit others to " cream-skim," i.e. , render the Company's facilities F,

idle, or otherwise unfairly serve or " pirate customers" within the Company's i.

service area. [Aymond 6099; Stelzer 21 after 7224; Pace 76 after 7239; Steinbrecher 1909 ~.912]

L If 1-m i

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L L.

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e

, CITATIONS f

Conclusions i

e CASES:

Acme Precision Products, Inc. v. American l

Alloys Corp. , 484 F. 2d 1237 (8th Cir.

1973) ........................ 3.02

• Adoption of Rules Governing the Extension t of Single-Phase Electric Service, AIPSC Case U-2291 (Alarch 24, 1966) ........... 3.05 F

l Alabama Power Co. v. Alabama Electric .

Cooperative, Inc. , 394 F. 2d 672 (5th Cir.

1968), cert. denied, 393 U. S. 1000 . . . . . . . . . 2.07 1

American Football Leacue v. National Foot-ball League, 323 F. 2d 124 (4th Cir.1963) . . . . . 5. 01 American Tobacco Co. v. United States, 328 U. S. 781 (1946) ................. 5.01 r

Associated Press v. United States, 326 1

7 .S. 1 (1945) .................... 4.07 Atlantic Refining Co. v. FTC, 381 U. S.

' 357 (1965) . . . . . . ... ........... 2.08

( Bluefield Waterworks and Improvements l

( Co. v. Public Service Commission,

'JD U. S. 679 (1923) ................. 4. 03(c)

,' Board of Trade of Chicago v. United States, 246 U. S. 231 (1918) .................. 5.04 i Bridge Corp. of America v. American Contract L - Bridge League, Inc. , 428 F. 2d 1365 (9th <

Cir.1970), cert. denied, 401 U. S. 940 (1971) ........................ 5.04

(

L i l

i I L i NOTE: Aiaterials denoted

• are included in Appendix I (Alichigan Legal .

l Alaterials) and those denoted ** are included in Appendix II (

', (General Legal Aiaterials). I i

i i

us e

i p

l ,

Conclusions Brown Shoe Co. v. United States, 370 U. S.

294 (1962) ...................... 3. 01, 5.06 i'

l ** Cantor v. Detroit Edison Co. , Civ. Act. No.

4-70026 (E. D. Mich. July 2, 1974) . . . . . . . . . 4. 02(f), 5. 02

,.~

l

• Cherryland REC v. Consumers Power Co. , MPSC Case U-3200 (1968) ................. 3.05

[ Citizens for Allegan County, Inc. v. FPC,

' 4. 03(h) 414 F. 2d 1125 (D. C. Cir.1969) ..........

T'

• City of Benton Harbor v. Michigan Fuel &

l Light Co. , 250 Mich. 614, 231 N. W. 52 (1930) ........................ 3.05

j.

• City of Dowagiac v. Michigan Power Co. ,

No.11,106 (Mich. Ct. App. November 2 9, 19 7 2 ) . . . . . . . . . . . . . . . . . . . . . . . 3.05 City of Huntingburg v. FPC, 498 F. 2d 778 r (D. C. Cir. 19 74) .................. 4. 03(g)

City of Lafayette v. SEC, 454 F. 2d 941

, (D. C. Cir.1971) a7FH sub nom. Gulf States Utilities Co. v. FPC, 411 ITT 747 (1973) . . 2.05 i.

• City of Lansing v. Michigan Power Co. ,183 Mich. 400,150 N.W. 250 (1914) .......... 3.05

• City of Saginaw v. Consumers Power Company,

. 213 Mich. 460, 182 N. W. 146 (1921) ........ 4. 02(a)

I- ** Commonwealth Edison Co., 36 FPC 927 (1966),

aff'd sub nom. , Utility Users League v. FPC, I 394 F. 2d 16 (7th Cir.1968), cert. denied, L 3 9 3 U. S. 9 5 3 . . . . . . . . . . . . . . . . . . . . . 5.06 i

• Consumers Power Co. , MPSC Case U-4174, i Order (November 24, 1972) . . . . . . . . . . . . . 4.02

• Consumers Power Co. , MPSC Case U-4576, 1

.} Order (September 16, 1974) ............ 4. 02, 4.05 '

t.

Consumers Power Co. , (Midland Plant Units

l. 1 and 2), Construction Permit Nos. 81 L. and 82. Memorandum and Order of the ASLB, RAI 74-7, p.112 (July 12,1974) ...... 2.09

(..

I t

I

- )

Conclusions Crown Ze11erbach Corp. v. FTC, 296 F. 2d 800 (9th Cir.1961) ................... 5.06

~

Dahl v. Roy Cooper, Co. , 448 F. 2d 17 (9th i Tr. 19 71) ..................... 5.07 r Deesen v. Professional Golfers Ass'n, 358

! F. 2d 165 (9th Cir.1966), cert. denied, 385 U. S. 846 .................... 5.04

[ ** Duke Power Co. , 48 FPC 1384 (1972), 49

( FPC 406 (1973), appeal docketed sub nom., Electricities of North Carolina r F TPC, Nos. 73-1185 and 73-1237 (D. C.

i C i r-' TE 7 3 ) . . . . . . . . . . . . . . . . . . . . . . 4. 03(d)

Eastern Railroad Presidents Conference v.

Noerr Motor Freight, Inc. 365 U. S.127 (1961) ........................ 5.02, 5. 03

[ Eastman Kodak Co. v. Southern Photo Materials, i Co. , 273 U. S. 339 (192 7) .............. 4.07

Elco Corp. v. Microdot, Inc. , 360 F. Supp. 741 (D. Del. 1973) . . . . ................ 3.03 FCC v. RCA Communications, Inc. , 346 U. S. l 7 ( 19 5 ? ) . . . . . . . . . . . . . . . . . . . . . .. 2.07 l e i FPC v. Hope Natural Gas Co. , 320 TS. 591 (1942) ................... 4. 03(c)

FTC v. Brown Shoe, Inc. , 384 U. S. 316

,- (1966) ........................ 2.08

)

l Gainesville Utilities Dept. v. Florida Power Corp. , 402 U. S. 515 (1971) ......... 4. 03(f)

._ Gainesville Utilities Dept. v. Florida Power Corp. , 40 FPC 1227 (1968),

i 41 FPC 4 (1969), aff'd 402 U. S.

[ 515 (1971) ...................... 5.05 Gas Light Co. of Columbus v. Georgia j Power Co. , 440 F. 2d 1135 (5th Cir.

L 1971), cert. denied, 404 U. S.1062 (1972) ........................ 5.02 l

t Gulf States Utilities Co. v. FPC, 411 U. S. 747 (1973) ................... 4. 03(h) a L

M e" i

~

i l Conclusions r-

'! Hardin v. Kentucky Utilities Co. , 390 U. S. 1 (1968) .................... 2.07 I Hawaiian Telephone Co. v. FCC, 498 F. 2d 771 (D. C. Cir.1974) ............. 2.07 p.

j Holloway v. Bristol-Myers Corp. , 485 F. 2d 986 (D. C. Cir.1973) ................ 2.08 F

• Huron Portland Cement Co. v. MPSC, 351

! Alich. 255, 88 N.W. 2d 492 (1958) ......... 3.05

- International Tel. & Tel. Corp. v.

! General Tel. & Electronics Corp.

351 F. Supp.1153 (D. Haw.1972),

appeal docketed, No. 73-1513 (9th

, Cir. 1973) ..................... 3.03 Lamb Enterprises, Inc. v. Toledo Blade Co. ,

461 F. 2d 506 (6th Cir.1972), cert.

(

i denied, 4 09 U. S. 10 01 . . . . . . . . . . . . . . . . 5.01

, Leary v. United States, 395 U. S. 6 (1969) ...... 2.09 l t

Louisiana Power & Light Co. (Waterford Steam ,

Electric Generating Station, Unit 3), Dkt. No. 1 50-382A, Memorandum and Order of the AEC, '

< RAI 73-9, p. 619 (September 28, 1973). . . . . 2. 01, 2. 02, 2. 03

Louisiana Power & Light Co. (Waterford Steam Electric Generating Station, Unit 3), Dkt. No.

(' 50-382A, Memorandum and Order of the ASLB, CCli Atom. Ener. Law Rptr. 511, 710. 01 i (February 23, 1973) ................ 6.03 L-Missouri Portland Cement Co. v. Cargill, I Inc. 498 F. 2d 851 (2d Cir.1974), l

\ petition for cert. filed, 43 U. S. L. W.

" l 3114 (U. S. July 11, 1974), stay entered l by single Justice vacated, 94 S. Ct.

f- 3210 (July 25,1974 ................. 4.01 National Ass'n of Women's and Children's Apparel Salesmen v. FTC, 479 F. 2d 139

. (5th Cir.1973), cert. denied, 414 U. S.1004 ... 2.05

New England Power Co. v. FPC, 349 F. 2d 258 (

.st Cir.1965) ................. 4. 03(e) v i

.u

l - Conclusions i

Otter Tail Power Co. v. United States, 410 U. S. 366 (1973) ................. 4.07, 5.01 Parker v. Brown, 317 U.S. 341 (1943) ........ 5.02

• • Petition for Amendment of 18 C. F. R. Part l 141, FPC Dkt. No. R-432, 49 FPC 588 (1973), appeal docketed sub nom. ,

Alabama Power Co. v. FPC, No. 73-1436

{

(D. C. Cir. 1973) .................. 5.02 Ricci v. Chicago Mercantile Exchange, 409 T. 289 (1973) ................... 2.05 Rogers v. Douglas Tobacco Board of Trade, 244 F. 2d 471 (5th Cir.1957) ............ 5.04 l REA v. Northern States Power Co. , 373 F. 2d 686 (8th Cir.1967), cert. denied, 387

'{ L U . S . 9 4 5 . . . . . . T. . . . . . . . . . . . . . . . 2.07 Scott Publishing Co. v. Columbia Basin r- Publishing, Inc. , 293 F. 2d 15 (9th Cir.

j

• 1961) ........................ 5.07 Silver v. New York Stock Exchange, 373 U. S. 341 (1963) ................... 4.07

• Southeastern Michigan REC v. Consumers

[ Power Co. , MPSC Case U-3366 (1969) . ...... 3.05 t~

South End Oil Co. v. Texaco, Inc. , 237 F. Supp. 630 (N. D. Ill.1965) . ........... 5.07 L. Times-Picayune Publishing Co. v. United States, 345 U. S. 594 (1953) ............ 4.01 l

t Union Leader Corp. v. Newspapers of New England, Inc. , 284 F. 2d 582 (1st Cir.

1960), cert. denied, 365 U. S. 833 (1961 ...... 5.01 i

United Mine Workers of America v.

Pennington, 381 U.S. 657 (1965) .......... 5.03 i

L United States v. Aluminum Co. of America, 148 F. 2d 416 (2d Cir.1945) . ............ 4.06 I

! United States v. Erooklyn Union Gas Co. ,

168 F. 2d 391 (2d Cir.1948) ............ 3.05

(

l b,

iL

__-

• v

Conclusions C

- United States v. Colgate & Co. , 250 U. S. 300 (1919) ................... 4.07 I United States v. Columbia Steel Co. , 334

' 4.04 U. S. 495 (1948) ...................

United States v. Connecticut National Bank,

( 94 S. Ct. 2788 (June 26,1974) ........... 3.04 r United States v. E. I. duPont deNemours and Co. , 351 U. S. 37 7 (1956) ........ 3.01, 3.02, 4.01, 4.05

,_ United States v. General Dynamics Corp. ,

415 U. S. 486 (1974) ................. 4. 01, 4. 04 United States v. Griffith, 334 U. S.100 (1948) ..................... ... 5.01

(

United States v. Grinnell Corp , 384 r- U. S. 563 (1966) . . . . . . . . . . . . . 3. 01, 4. 01, 4.06, 5. 01 United States v. International Tel. & Tel.

Corp. , 324 F. Supp.19 (D. Conn. 19 70) ..... 3. 03

! United States v. Jerrold Electronics Corp. ,

18 7 F. Supp. 545 (E. D. Pa. 1960), aff 3d

'~

per curiam, 365 U. S. 567 (1961) .......... 5.06 United States v. Marine Bancorporation, '

94 S. Ct. 2856 (June 26,1974) ......... 3.04, 4. 01, 4.06

l i '

L United States v. St. Regis Paper Co., 355 F. 2d 688 (2d Cir.1966) . . ............. 2.08 u United States v. Terminal Railroad Ass'n, 22 7 U. S. 683 (1912) ................. 4.07 f"

United States v. United Shoe Machinery Corp. ,

110 F. Supp. 295 (D. Mass.1953), aff'd per curiam, 347 U. S. 521 (1954) .......... 4.01 L Utility Users League v. FPC, 394 F. 2d 16 (7th Cir.1968), cert. denied, 393 U. S.

j 953 (1973) ...................... 4.01 L

Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp. , 382M.

I 172 (1965) ...................... 4.07 L.

r N

t

-f Conclusions r*

i Western & A. R. R. v. Henderson, 279 U. S.

- 639 (1929) ...................... 2.09

(. **

i Western Mass. Elec. Co. , 39 FPC 723 (1968) modified, 40 FPC 296, aff'd sub nom. ,

r. Municipal Electric Ass'n of Mass. v.

! FFC, 414 F. 2d 1206 (D. C. Cir.1969) ....... 2. 03, 2. 09 Zuckerman v. Yount, 362 F. Supp. 858 (N. D. Ill. 19 73) ................... 5.04 STATUTES:

Federal:

Atomic Energy Act of 1954, as amended, 42 U. S. C. S2011, I et seq. :

F $271, 42 U. S. C. $2018 .............. 2.06 1

$272, 42 U. S. C. 52019 .............. 2.06 r

L Federal Power Act,16 U. S. C. S$791 g seg. :

, $201 e_t t seq. ,16 U. S. C. $ $824 et seq. . . . . . . 4.06

- $202, 16 U. S. C. $824a . . . . . . . . . . . . 4. 03(e), 4. 03(f) i- $ 2 0 3, 16 U. S. C. S 8 24b . . . . . . . . . . . . . . 4. 03(h)

{'

5205, 16 U. S. C. S824d . . . . . . . . . . . . 4. 03(a), 4. 03(b) f Internal Revenue Code, 26 U. S. C. 51 et seq. ,

$ 103, 2 6 U. S. C. $ 103 . . . . . . . . . . . . . . . 4.04

. $ 115, 2 6 U. S. C. $ 115 . . . . . . . . . . . . . . . 4.04

)

5 5 01, 2 6 U. S. C . 5 5 01 . . . . . . . . . . . . . . . 4.04 Rural Electrification Act of 1936, 7 U. S. C. S$901 et seq. :

L S4, 7 U. S. C. $904 ................ 3. 06, 4. 04

$ 13, 7 U. S. C. $913 . . . . . . . . . . . . . . . . 3. 06, 4. 04

$ 3 06, 7 U. S. C. $ 9 3 6. . . . . . . . . . . . . . . . 4. 04 i

f' i

1. M

(

, e- Conclusions k State: e

~

Constitutions:

• Mich. Const. 1963, Art. VII, 524 . . . . . . . . . . . 3.05 F

\

Mich. Const. 1963, Art. VII, 525 . . . . . . . . . . . 3.05 Mich. Const. 1963, Art. VII, $29 . . . . . . . . . . . 3.05 t

( Mich. Const. 1963, Art. VII, S30 . . . . . . . . . . . 3.05 r

• Michigan Statutes Annotated:

MSA 5.1534 . . . . . . . . . ............ 3.05 MSA 5. 4083 . . . . . . . . . ............ 3.05 MSA 7. 5 5 7 (12 01 ) . . . . . . . . . . . . . . . . . . . . 4.04 T'

L MSA 21. 81 . . . . . . . . . . . ............ 4.04 g M SA 2 2.13 (6 ) . . . . . . . . . . . . . . . . . . . . . . 4. 02, 4.06 AISA 22.141 . . . . . . . . . . ............ 3.05 MSA 22.145 . . . . . . . . . . ............ 3.05 L.

MSA 22.156 . . . . . . . . . . ............ 4. 02(g)

I

[ MSA 22.157 . . . . . . . . . . ............ 4.02

, Regulations:

i 1

' Federal:

I ** Rural Electrification Administration, REA

l. Bulletin 111-3, Power Supply Surveys ....... 3.06 LEGISLATIVE MATERIAL:

Hearings on Preliminary Antitrust Review of Nuclear

r. Powerplants Before the Joint Comm. on Atomic Energy, 91st Cong. ,1st Sess. (1969-70) . .......... 2.04 H. R. Rep. No. 1470, 91st Cong. , 2d Sess. (1970) . . 2.04, 2.07 l

(_' 80 Cong. Rec. 52 83 (193 6) . . . . . . . . . . . . . . . 2.07 i

N

s L.

l I' ,

i  ? PROPOSED CONCLUSIONS OF LAW e

I. Summary.

1.01 The activities of Consumers Power Company under construc-tion permits for the Midland. Units will not create or maintain a situation inconsistent with the antitrus t laws.

II. Scope and Nature of the Proceeding.

2.01 In order for antitrust conditions to be imposed on the Midland licenses, a " substantial connection" must be shown between r

[ the activities under the license and a situation inconsistent with the

,- , antitrust laws. [Brief pp. 5-38: Louisiana Power & Light Co. (Waterford

( Steam Electric Generating Station Unit No. 3) Dkt. No. 50-382 A, Memorandum and Order of the AEC, September 28,1973, RAI 73-9.p. 819;

{

Conclusions of Law 2. 02 - 2. 06].The requisite connection between the licensed activities and the applicant's system-wide operations is not established by the truism, applicable in all cases, that electricity from -

i. a licensed facility will commingle with power flowing throughout the l- facilities of a utility seeking an AEC license. [Brief pp. 6-14; LP&L Order, 1-RAI 73-9 at pp. 620-21]. Because,in this instance, output from the

{ Midland Units will be entirely commingled in the Company's system and because there is no evidence that the Midland Units will affect the i Company's coordination arrangements or competitive relations with other systems, the requisite " substantial connection" has not been established.

t- [ Findings of Fact 1.03, 1.04, 1.07, 1.08).

I L 2.02 An applicant's coordination arrangements are not appropriate for consideration in Section 105c proceedings unless there is established

'2 a " meaningful tie" with the licensed units. [Brief pp.10-12; LP&L

.j :

L. .

'l L.

1-

)

Order, RAI 73-9, pp. 620-21]. Here, where the units are to be

?

! wholly-owned by the Company and are not dependent, or related 7-in any way, to the Company's . coordination arrangements, the meaning-ful tie is lacking, [ Findings of Fact 1.03, 1.07].

r I 2.03 An applicant's system-wide transmission service arrange-

- ments with other systems are not appropriate for consideration in l

Section 105c proceedings where, as here, the Company's trans-1~ mission system was not built "in connection with" the Midland Units.

i

[Brief pp.12-14; LP&L Order, RAI 73-9, p. 621; Western Mass. Elec.

Co. , 39 FPC 723, 731 (1968), modified on other grounds, 40 FPC 296,

,, aff'd sub nom. Municipal Electric Ass'n of Mass v. FPC,414 F. 2d 1206 (D. C. Cir.1969) App. II-46; Findings of Fact 1. 01, 1. 05].

i L 2.04 The legislative history of Section 105c confirms the Com-

, . _ mission's LP&L decision that Congress did not intend Section 105c

! to authorize Commission inquiry into an applicant's system-wide

( operations which lack a substantial connection to the construction or L

operation of the licensed unit. [Brief pp.14-24; Hearings on Prelicensing m

Antitrust Review of Nuclear Power Plants Before the Joint Committee on Atomic Energy, 91st Cong. ,1st Sess. pts. I and 2 (1969-70); H. R. Rep. No.

, 1470, 91st Cong. 2d Sess. (1970)].

2.05 Where, as here, the Company's system-wide operations are extensively regulated by other administrative agencies, well-established i L. principles of administrative law make it particularly inappropriate for if the Commission to regulate in this area. [Brief pp. 24-38; City of l

Lafayette v. SEC, 454 F. 2d 941, 955 (D. C. Cir.1971), aff' d i*

t W

n i

) on other issues sub. nom. Gulf States Utilities Co. v. FPC, 411 U. S. 747 (1973)]. These principles include the doctrines of " primary jurisdiction" and " deference". [Brief pp. 27-38; Ricci v. Chicago j Mercantile Exchange, 409 U.S. 289 (1973); National Ass'n of Women's

\

a nd Children's Apparel Salesmen v. FTC, 479 F. 2d 139 (5th Cir.1973),

f cert. denied, 414 U. S.1004].

y r- 2.06 In addition to these general principles, the Atomic Energy

} '

Act itself provides that, in the event of potential duplication between the authority of the Commission and other agencies (particularly the Federal Power Commission), the AEC should refrain from intruding on the jurisdiction of other agencies. [Brief pp. 31-35; Atomic Energy Act of 1954, r $271, 272, 42 U. S. C. $ $2018, 2019).

L 2.07 The legislative history of Section 105c demonstrates that in I,

i utilizing the phrase " inconsistent with the antitrust laws" Congress

, intended that the applicant's proposed activities under the license must be found to be violative of the antitrust laws or the policies clearly underlying those laws before antitrust license conditions can be imposed.

m

[Brief pp. 38-43; H. R. Rep. No. 1470, 91st Cong. 2d Sess. ,14]. In I

i referring to the policies underlying the antitrust laws, Congress intended the Commission to recognize that competition is not a national policy in regulated industries such as the electric utility industry. [Brief pp. 43-45; FCC v. RCA Communications, Inc. , 346 U.S. 86, 92 (1953); H awaiian Telephone Co. v. FCC, 498 F. 2d 771 (D. C. Cir.1974)]. Congress has also reflected this conclusion in enacting a series of laws pertaining to

!4 L

h--n

1 I

the electric utility industry.[Brief pp. 45-49; Remarks of Representa-l tive Rayburn, 80 Cong. Rec. 5283 (1936); Alabama Power Co. v. Alabama i Electric Cooperative, Inc.,394 F. 2d 672, 683 (5th Cir.1968), cert. denied, 393 U.S.1000 (dissenting opinion); REA L Northern States Power Co. , 373 F. 2d

[ 686, 695 (8th Cir.1967), cert. denied, 387 U.S. 945; Hardin v. Kentucky

\

Utilities Co.,390 U. S.1 (1968)].

i

2. 08 Although Section 5 of the Federal Trade Commission Act,15 j U.S. C. s45, is among the statutes which the Commission may consider in Section 105c proceedings, the AEC should limit its reliance on

(~

l this statute to the parameters of the section established by the Federal Trade Commission. [ Brief pp. 50-57; United States v. St. Regis Paper Co. , 355 F.2d 688 (2d Cir.1966); Holloway v. Bristol-Myers Corp. , 485 j F. 2d 986 (D. C. Cir.1973)]. That Commission has held the unfair competi-tion provision of Section 5 contravened only where the activity in question would have violated the Sherman Act or Clayton Act but an essentially technical element of violation was absent. [Brief pp. 55-57; FTC v.

l Brown Shoe Co. , Inc. , 384 U. S. 316 (1966); Atlantic Refining Co. v.

r FTC, 381 U.S. 357 (1965)]

)

2.09 Under Section 2. 732 of the Commission's Rules of e Practice, the proponents of antitrust license should bear the burden of p roof in this proceeding. [ Brief pp. 57-78; 10 C. F. R. $2. 732 ; Consumers k ,'

Power Co. (Midland Plant Units 1 and 2) Construction Permit Nos. 81 and 82; k Memorandum and Order of the ASLB, RAI 74-7, p.112 (July 12,1974)).

The practice of antitrus t courts and other administrative agencies and

(,

l, the structure of Section 105c itself confirms this conclusion. [Brief pp. 62-72; Western Mass. Elec. Co. , 39 FPC 723 (1968), modified s t

f.,

.t

)

other grounds,40 FPC 296, aff'd sub. nom. Municipal Electric Ass'n.

I'

of Mass. v. FPC, 414 F. 2d 1206 (D. C. Cir.1969); Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.,382 U.S.172, 177-78 (1965)]. Failure to place the burden of proof on the proponents

/~ of antitrust conditions would raise secious constitutional issues.[Brief

\

pp. 72-78; Western & A. R. R. v. Henderson, 279 U. S. 639 (1929);

Leary v. United States, 395 U.S. 6 (1969)].

III. Market Definition.

I~

3.01 In order to sustain the charge that the Company has committed

the offense of monopolization, it must be established that it has monopolized one or more " relevant market [s]." [ United States v. Grinnell Corp. , 388 U. S. 563, 570-71 (1966)] . For antitrust purposes, relevant markets are definedin terms of the products sold within a market and the geographic area in which such products are exchanged and must reflect " commercial realities" and " pattern of trade" in the industry. [ United States v. E. I.

duPont deNemours & Co. , 351 U.S. 377 (1956); Brown Shoe Co. v. United r States, 370 U.S. 294, 336-37 (1962)]. In this proceeding there are relevant m arkets for retail power and bulk power purchases. [Brief pp.79-111; Conclusions of Law 3.02-3.08].

3.02 Products are part of the same relevant market if they are 1 i<

l

" reasonably interchangeable". [ United States v. E.I. duPont deNemours

{ & Co. , 351 U. S. 377 (1956)]. Interchangeability is measured in terms 1 L.

of options readily available to most customers in the market place. l l

y I

r' i

I

[Brief pp. 80-86; United States v. E. I. duPont deNemours & Co. ,

7-(' 351 U.S. 377 (1956); Acme Precision Products, Inc. v. American Alloys Corp.,484 F. 2d 1237 (8th Cir.1973)]. Interchangeable pro-

\

ducts are included in the same market even when they vary sub-l' stantially in price or physical characteristics or where one product 1

is unsuitable for some uses within the market. [Id. d ]. The record of q

f this case establishes that self-generation, wholesale purchases, and coordination exchanges are reasonably interchangeable for most of the Company's smaller neighboring systems and that they therefore comprise the relevant bulk power supply market in this proceeding. [Brief pp. 87-

{'

i 96; Findings of Fact 3. 11 - 3. 15].

3.03 Under relevant market definition standards, the require-

[- ments of a vertically integrated firm which supplies its own i i

needs should be excluded from the market for comparable products if that approach conforms to commercial realitias.[Brief pp. 95-96; Inter- '

national Tel. and Tel. Corp. v. General Tel. & Electronics, Corp. ,

L, 351 F. Supp.1153,1175-77 (D. Haw.1972), appeal docketed No. 73-1513 (9th s

Cir.1973); United States v. International Tel. & Tel. Corp., 324 F. Supp.

19, 27 (D. Conn.1970); Elco Corp. v. Microdot, Inc. , 360 F. Supp. 741, 748 n. 3 (D. Del.1973)]. Under the facts of this case, it is plain that Consumers Power Company's bulk power needs are satisfied by self-I L

generation and that other systems lack the legal ability and/or the desire

-I to serve those needs. [Brief pp. 92-95; Finding of Fact 3.17; Conclusions b of Law 3. 07, 3. 08]. Hence, Consumers Power Company's bulk power needs j j should not be included in the relevant bulk power market in this proceeding. l l

lj L

L

i f~

3.04 Because a choice of electric suppliers is foreclosed

{ by economic and legal barriers to Lower Michigan retail power i

purchasers in some areas, while in other areas such a choice is not foreclosed, relevant geographic market definitions in this proceeding must take account of these barriers. [Brief pp.98-111; i United States v. Connecticut National Bank, 94 S. Ct. 2788 (June 26,1974);

p United States v. Marine Bancorporation, 94 S. Ct. 2856 (June 26,1974)].

3.05 The following restraints on competition are imposed under Michigan law:

[- (a) the Michigan Public Service Commission's " single-phase rule" which provides that existing single-phase customers shall not transfe.:' from one utility to another, and prospective single-phase customers must take service from the nearest utility, except r

L in instances where the new customer is either (i) less than 300 feet 7 from the distribution facilities of two or more utilities or (ii) more t

than one-half mile from the distribution facilities of any utility.

l [Brief pp. 102-103; Adoption of Rules Governing the Extension of Single-Phase Electric Service, MPSC Case U-2291 (1966), App. I-1].

(b) the MPSC's policies restricting competition for new and existing three-phase (large commercial and industrial) lo ads. [Brief p.103; Cherryland REC v. Consumers Power Co. , MPSC c Case U-3200 (1968), App. I-2; Southeastern Michigan REC v. Consumers i

L Power Co. , MPSC Case U-3366 (1969), App. I-20].

(c) the statutory requirement that a certificate of conven-ience and necessity be obtained from the MPSC before a private utility

'l or a cooperative may initiate service in a city, village or township in

, which another utility is rendering the same type of service -- a require-t ii- ment which the MPSC has used to preclude duplicative s. rvice. [Brief

p.

I i~

i.

p.104 MSA 22.141, MSA 22.145, App. I-24; Huron Portland Cement Co.

F

[V v. MPSC, 351 Mich. 255, 88 N.W. 2d 492, 499 (1958), App. I-15; r- Michigan Gas & Electric Co. , MPSC Case U-2468, Order (1966), App.

k I-17.]

[~ (d) the legal requirement which makes condemnation of I

the Company's franchises or facilities difficult and expensive because r

! (i) a jury mm t find the condemnation is a " necessity" and (ii) the Company must be fully compensated for the loss of a going business, i

! not jm t for the value of the condemned facilities.[Brief pp. 106-107;

.[-

MSA 8.20, 5.1859, 5.1432, App. I-24; United States v. Brooklyn Union t

Gas Co. ,168 F. 2d 391 (2d Cir.1948)].

(e) the constitutional requirement that an acquisition of a public utility by a municipality must be approved by 60% of the voters T

(_ in the affected municipality voting thereon. [Mich. Const.1963, Art. VII:

,. $25, App. I-23].

I L (f) the constitutional requirement that a public r utility must obtain franchises from local governmental entities b.

before rendering retail electric service [Mich. Const.1963, Art VII:

r

$29, App. I-23].

(g) the perpetual irrevocability of public utility

('

[_ franchises in areas where 45% of the Company's customers are located

[Brief pp. 108-109; City of Lansing v. Michigan Power Co. ,183 Mich.

400,150 N. W. 250 (1914), Mich. App. I-7; City of Dowagiac v. Michigan Power Co. , No.11,106 (Mich. Ct. App. November 29,1972), App. I-5; l City of Benton Harbor v. Michigan Fuel & Light Co. , 250 Mich 614, 231

\.

I N. W. 52 (1930), App. I-4; Finding of Fact 2. 27] and the state's l

it lL

F

}

r

{ constitutional grant of authority to municipalities in other areas to

~

award irrevocable thirty year public utility franchises [Brief pp.109-110, Mich. Const.1963, Art. VII: 530, App. I-23].

(h) the state's constitutional "25 percent rule" which r ..

until its recent amendment limited each municipal electric I system's service outside its municipal boundaries to 25 percent of the service it furnished within its municipal limits [Brief pp. 101-102; Mich. Const.1963, Art. VII: 524, App. I-2 3].

r (i) the recent statute modifying the constitutional 25 percent l

rule to explicitly prohibit municipal competition for the Company's

,I~

i existing customers and to permit municipal systems to render extra-territorial retail service only in cities, villages, or townships which, i

as of June,1974, were either contiguous to the municipality's corporate r

limits or already being served by the municipal system. [Brief pp. 1 i

101-102, Mich. Const.1963, Art. VII: $24, App. I-23; MSA 5.4083, 5.1534, App. I-24; 1974 PA Nos.157,174, Appendix I-24 ].

3.06 The Rural Electrification Act, 7 U. S. C. S901 et seq. ,

and the regulations of the Rural Electrification Administration, I~

which effectively prohibit REA funded cooperatives from initiating l

service to non-rural areas (communities exceeding 1,500 population) or areas presently served by another supplier, also raise substantial legal barriers to competition by cooperatives [Brief pp. 93-94; 7 U.S. C. S904, 913; REA Bulletin 20-6 (Exhibit 7), REA Bulletin 111-3, App. II-51].

I L. 3.07 The economic realities of the electric utility industry

) in Lower Michigan and the limitations on competition imposed by law b

require the recognition of separate "open" and " closed" relevant W

- --. 7

r-1 r'

i

! geographic markets for the sale of retail power. [Brief pp.97-111; Con-F clusions of Law 3.05 - 3.06, Findings of Fact 3.02 - 3.06]. In the "open" l

retail market, retail power consumers have a choice of electric suppliers.

[Brief pp. 100-103; Findings of Fact 3. 03 ]. In the " closed" market, there is no existing or potential competition because legal and economic barriers deny retail power purchasers a choice of electric suppliers -- either now or in the foreseeable future. [Brief pp. 103-108; Conclusions of Law 3. 04, 3.05]. The " closed" retail market may be divided into two submarkets:

[ a " perpetual closed" submarket in which Michigan law has foreclosed the possibility of present or future competition and a "long-run closed" sub-market in which there is a possibility that purchasers may have a choice o f electric suppliers in the long-run, but not in the foreseeable future.

I._

L [Brief pp. 109-111: Conclusion of Law 3. 05(f), (g); Findings of Fact 3. 04,

~

3.05].

r- IV. Absence of Monopoly Power.

4 ' 4.01 In order to demonstrate that a firm has monopolized a relevant market, it is necessary to show that the firm possesses monopoly power.

~

[ United States v. E. I. duPont deNemours and Co. , 351 U.S. 377, 391 (1956);

r Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953);

United States v. Columbia Steel Co. , 334 U. S. 495 (1948)]. Monopoly power

_ is defined as the power to control prices or exclude competition.[ United States v. Grinnell Corp.,384 U.S. 563, 571 (1966)]. Monopoly power may be l-inferred from a statistically high market share only in industries where l 1

{ prices and entry are controlled exclusively and meaingfully by competition. l L

[Brief pp. 136-137; Times-Picayune Publishing Co. v. United States, 345 l-l L

F J

=+

'A r-b U.S. 594, 612 (1953); United States v. United Shoe Machinery Corp. ,110 I

t F. Supp. 295, 343 (D. Mass.1953), aff'd per curiam, 347 U.S.

521 (1954)]. Statistical predominance may not be relied on as an indication of monopoly power when economic or legal barriers restrict the power to control prices or exclude competition.

l r

(Brief pp. 136-145; United States v. General Dynamics Corp. ,

415 U.S. 486 (1974); United States v. Marine Bancorporation, 94 l

S. Ct. 2856 (June 26,1974); Missouri Portland Cement Co. v.

['

Cargill, Inc. , 498 F.2d 851 (2d Cir.1974), stay entered by single Justice vacated, 94 S. Ct. 3210 (July 25,1974)]. Because Consumers Power Company is a regulated public utility, it lacks the power to I

{

control prices or exclude competition. [Brief pp. 113-125; Utility Users League v. FPC, 394 F.2d 16,19-20 (7th Cir.1968), cert. denied, 393 U.S. 953 (1973); Conclusions of Law 4.02-4.03].

I u 4.02 The following Michigan laws and Michigan Public Service

- Commission regulations deny Consumers Power Company the power

~

to control prices and exclude competition:

(a) By law, the Company must serve all persons who request service m

within its franchised service areas. [Brief p. 116; City of Saginaw v. j Consumers Power Co. , 213 Mich. 460,182 N.W.146,158 (1921),

App. I-8]. The rates and conditions of that service, with certain j

- very minor exceptions not here relevant, are subject to the regulatory jurisdiction of the Michigan Public Service Commission and must be {

[

L reasonable, uniform and nondiscriminatory. [Brief pp. 115-116; MSA 22.13(6), App.1-24; City of Ishpeming v. MPSC, 370 Mich. 293,121 N.W.

2d 462, 188 (1963), App. I-6].

m y.

~

f (b) By law. the reasonableness of the Company's retail rates and conditions of service is subject to review whenever a proposed change is submitted to the MPSC or at any other time

{

upon either the MPSC's own initiative or the complaint of any r

interested party. [MSA 22.152, 22.157, App.1-24] .

(c) By MPSC regulations, the Company's retail rates

}.

L are established at the lowest possible levels consistent with main-taining the Company's financial integrity, not at levels which will maximize profits. [ Consumers Power Co. , MPSC Case U-4174, Order (November 24,1972), p. 21, App. I-11: Consumers Power Co. ,

4 MPSC Case U-4576, Order (September 16,1974), pp. 22-2 3, App. I-13].

,r l

(d) By MPSC regulation, the Company's retail rates are generally established on the basis of total embedded or historic cost of service rather than on the basis of incremental costs. [Brief p.115; Consumers Power Co., MPSC Case U-4174 supra, at pp. 28-29, App. I-11].

(e) By MPSC regulation, any particular retail rate reflects the system-wide average cost of serving a class of customers requiring similar service and the differences in rates as between one class of customers and another generally L reflect corresponding differences in the cost of serving the two

[ classes. [g.].

L (f) By law, the Company's other terms and conditions of retail service are also subject to MPSC approval [MSA 22.13(6);

Cantor v. Detroit Edison Co. , Civ. Act. No. 4-7002 6 (E. D. Mich. ,

L July 2,1974), App. II-7].

t.

1

i k N

t reflect corresponding differences in the cost of serving the two classes.

[Brief pp. 119-120; Duke Power Co. , 48 FPC 1384 (1972), 49 FFC'406 (1973),

appeal docketed sub. nom. Electricities of North Carolina v. FPC, Nos.73-118 ano 73-1237 (D. C.1973)].

r (e) By law, the Federal Power Commission may compel 1

1- the Company to provide wholesale service to another system except where doing so would require it to expand its facilities or jeopardize the relia-bility of its system. [Brief pp. 121-124; 16 U. S. C. 5824a(b); New England Power Co. v. FPC, 349 F. 2d 258 (1st Cir.1965)].

(f) Under similar conditions, the Commission may order the Company to coordinate operations with another electric supplier n on reasonable terms. [Brief pp. 120-122; 16 U. S. C. S824a(b);

i Gainesville Utilities Dept. v. Florida Power Corp. , 40 FPC 1227 (1968),

41 FPC 4 (1969), aff'd, 402 U. S. 515 (1971); see Conclusion of Law 5. 05).

e (g) By law, the Company's coordination agreements must be filed with and subject to the regulatory jurisdiction of the FPC.

. [16 U.S. C. $824d; City of Huntingburg v. FPC, 498 F. 2d 778 (D. C. Cir.

m 1974)].

(h) By law, before the Company may acquire another public utility system, the Federal Power Commission must find the acquisition to be in the public interest and in doing so must take account of possible anticomoetitive consequences of the acquisition. [Brief pp.123-124; 16 U. S. C. $824b; Citizens for Allegan County, Inc. v. FPC, 414 F. 2d 1125 (D. C. Lir.1969); Gulf States Utilities Co. v. FPC, 411 L U. S. 747 (1973)].

I u

(

.L h

r i

( -

(g) By law, the l\1PSC may order the Company to deliver

[' power suitable for distribution at an appropriate primary voltage to I

any municipality in areas where the Company has transmission facilities. [Brief pp.122-123; MSA 22.156, App. I-24].

F 4.03 Among the requirements of the Federal Power Act I

and Federal Power Commission regulations which deny the Company power to control prices or exclude competition are the following:

(a) By law, the rates, terms and conditions of the I

Company's wholesale and coordination transactions are subject r to the regula, tory jurisd.iction of the Federal Power Commission and must f b e reasonable, uniform and nondiscriminatory. [Brief pp.117-120; 16 U. S. C. 5824d].

(b) By law, the reasonableness of these rates, terms f and conditions of service is subject to review whenever a proposed

, change is submitted to the FPC or at any other time upon either the b FPC's own initiative or the complaint of any interested party. [Brief pp.

117-118; 16 U. S. C, 824d(e)].

(c) By law and FPC regulation, the Company's wholesale rates are established at the lowest possible levels consistent with main-u taining the Company's financialintegrity and the rates may not be set at m

levels which will maximize profits. [Brief pp. 118-119; Bluefield Water Works and Improvements Co. v. Public Service Commission of W. Va. , 262 U.S. 679 (1923); FPC v. Hope Natural Gas Co.,320 U.S. 591, 605 (1944)].

(d) A particular wholesale rate reflects the system-wide average cost of serving a class of customers requiring similar service.

j The differences in rates as between one class of customers and another mem-

r

[ I l

4.04 An assessment whether Consumers Power Company

(

I' possesses monopoly power must take account of the special tax and

, financing advantages which are enjoyed by the Company's neighbors vis-a-vis the Company where, as here, those advantages substantially I enhance the financial and competitive strength of those systems. [Brief

[

pp. 125-133; United States v. Columbia Steel Co.,334 U.S. 495, 527 (1948);

I"

! and United States v. General Dynamics Corp.,415 U.S. 486, 502 (1974)].

_. By law, rural electrification cooperatives have had, and continue to have ,

access to low-interest government loans. [Brief p.129; 7 U. S. C. ,

55904, 913, 936]. Similarly, federal laws permit municipal systems to issue low-interest tax-exempt debt obligations.[26 U.S. C. $103]. As f for tax advantages, cooperatives are exempt from federal income i

f taxation and Michigan franchise taxation, while municipal systems are exempt from the major federal or state taxes.[Brief pp. 130-132; 26 U. S. C. $$115(a), 501(c)(12); MSA 21. 81, 7. 557 (1201), App. I-24].

L 4.05 An assessment whether Consumers Power Company possesses monopoly power must take account of its financial status; i. e. ,

whether it is accruing monopoly profits. [Brief pp. 132-133; United I--

States v. E. I. duPont deNemours and Co. , 351 U. S. 377, 404 (1956)]. The Michigan Public Service Commission's determination that the Company's financial condition is " depressed" and "in serious jeopardy" establishes that l 1

-[ the Company is not making monopoly profits. [Brief pp. 132-133; Consumers Power Co., MPSC U-4576, Order (September 16,1974), pp. 23-24, App.1-13).

L

~h L

[

~L

I i

4.06 Since Consumers Power Company has a market share of 17 percent in the relevant bulk power rm rket, [Brief pp. 133-136; Finding of Fact 3.18] and a 56. 5 percent of that representative portion of the "open" retail market for which data is available, [ Finding of j Fact 3.07], even in terms of unregulated industries without natural c monopoly characteristics, the Company's market share of these markets is l*

s o low that it cannot be deemed to possess monopoly power. [ United States I v . Aluminum Co. of America,148 F. 2d, 416, 424 (2d Cir.1945); United l

States v. Grinnell Corp. , 384 U. S. 563, 577 (1966)]. As for the other markets, governmental regulatory authorities prevent the Company, as a matter of law, from controlling prices or excluding competition. [Brief l pp.115 -125; MSA 22.13(6), App.1-24; 16 U.S. C. 5824 et. segj.Some of r the economic and legal restraints which are responsible for Consumers Power Company having a high or complete share of the market also negate the inference that the Company possesses monopoly power in these markets.

L.

[Brief pp. 138-145; Findings of Fact 2.25 - 2.46, 3.04, 3.05, 3.24, 3.25; Conclusions of Law 3.05 - 3.06; United States v. Marine Bancorporation,

, 94 S. Ct. 2856 (June 26,1974)].

i ..

4.07 One acting in good faith and without monopolistic intent may refuse to deal with another without violating the antitrust laws. [ United

. States v. Colgate & Co. , 250 U. S. 300, 307 (1919); Walker Process Equipment, L

Inc. v. Food Machinery & Chemical Corp. , 382 U. S.172,177 (1965)]. Only group refusals to deal, which are condemned under $1 of the Sherman Act,15 U.S.C. $1 or refusals motivated by monopolistic intent are proscribed.

[Brief pp. 145-154; United States v. Terminal Railroad Ass'n, 227 U.S. 683 w

tw

F

f~

l n (1912): Associated Press v. United States, 326 U.S.1 (1945); Silver v.

h New York Stock Exchange, 373 U.S. 341 (1963); Otter Tail Power Co. v.

, United States, 410 U. S. 366, 371-73 (1973); Eastman Kodak v. Southern Photo Materials, Co.,273 U.S. 339 (1927)]. Even in these settings, only actua1 refusals to deal involving unique or " bottleneck" resources

_, have been condemned. [Id. ] The facts of this case demonstrate that neither of the resources on which Consumers Power Company is purported t o have control, nuclear generation and transmission facilities, is unique or essential to the financial competitive viability of their systems. [Brief

['

l.

pp. 145-150; Findings of Fact 1.08 - 1.12, 2.17 - 2.23, 2.74 - 2.75, 4.02, 4.68

4. 71]. The " bottleneck" theory is therefore inapplicable to this pro-ceeding.

i V. Absence of Predatory or Unfair Conduct.

L 5.01 In order to sustain a charge of monopolization, it is 1

L necessary to show the willful acquisition or maintenance of monopoly power

.as distinguished from its growth or maintenance as a consequence of a s uperior product, business acumen or historic accident. [ United States v.

(

Grinnell Corp. , 384 U.S. 563, 570-71 (1966)] . While verbal formulations L

have varied, the courts have consistently looked into predatory conduct

or explicit monopolistic intent for proof of such willful acquisition or main-t enance of monopoly power. [Brief pp. 155-159; Otter Tail Power Co. v.

I L United States, 410 U. S. 366, 377 (1973); United States v. Griffith, 334 U. S.

c 100, 197 (1948); American Tobacco Co. v. United States, 328 U.S. 781 (1946)].

W

~L

1 I

This is particularly so with regard to industries, such as the electric p utility industry in LowerMichigan, possessing natural monopoly charac-l teristics where competition is foreclosed by legal or economic barriers.

{ [Brief pp. 156-159; Lamb Enterprises. Inc. v. Toledo Blade Co. , 461 F. 2d 506, 515 (6th Cir.1972), cert, denied, 409 U.S.1001; Union Leader Corp.

v. Newspapers of New England, Inc. , 284 F. 2d 582, 584 (1st Cir.1960), cert.

,.. denied, 365 U.S. 833 (1961); American Football League v. National Football i

League, 323 F. 2d 124,131 (4th Cir.1963)].

r l 5.02 Neither predatory conduct nor monopolistic intent can be demonstrated by reference to conduct that is compelled, supervised, or approved by regulatory authority. [Brief pp. 160 - 171; Parker v. Brown, 317 U.S. 341 (1943); Eastern Railroad Presiderts Conference v. Noerr Motor Freight, Inc. , 365 U.S.127,136 (1961)). These principles apply parti-cularly to regulation of electric utilities such as Consumers Power Company by state and federal agencies. [Brief pp. 161-165; Gas Light Co.

=i i[ of Columbus v. Georgia Power Co. , 440 F. 2d 1135 (5th Cir.1971), cert.

1

' ' denied, 404 U. S.1062 (1972)]. Specifically, they have been applied to e onduct supervised by the two agencies which reg.11 ate the Company's retail, and wholesale and coordination practices -- the Michigan Public L

Service Commission and the Federal Power Commission. [Brief pp. 162 - 163 and 166 - 171; Cantor v. Detroit Edison Co. , Civ. Art. No. 4-70026 (E. D.

Mich. July 2,1974), App. II-6; Petition for Amendment of 18 C. F. R.

k it. .

Part 141, FPC Dkt. No. R-432, 49 FPC 588 (1973), App.11-32 appeal

(- docketed sub nom. Alabama Power Co. v. FPC, No. 13-1436 (D. C. Cir.

'L 1973)]. Therefore, the Company's retail, wholesale, and coordination b

. r-i 1*

99 r

}

policies and practices cannot be deemed evidence of predatory conduct or monopolistic intent.

I 5.03 Absent fraud, deception or other " sham" activities, I

a firm's political activities cannot be utilized to support r

j a finding of monopolization. [Brief pp. 171 - 179; Eastern Railroad g

President Conference v. Noerr Motor Freight, Inc.,365 U.S.127 (1961);

United Mine Workers of America v. Pennington, 381 U.S. 657 (1965)].

Because the record reflects no such " sham" conduct by the Company,

)

{

the Company's political activities are irrelevant to this proceeding.

m

[Brief pp. 179 - 182; Findings of Fact 4.76 - 4.86].

~

~

5.04 Even when the antitrust laws require a firm to deal, such dealings may be conditioned upon reasonable criteria, even if the effect of such conditions is to exclude and thus competitively injure u

o ther parties. [Brief pp. 182 - 184; Board of Trade of Chicago v.

L United States, 246 U. S. 231, 238 (1918); Deesen v. Professional Golfers

- Ass'n, 358 F. 2d 165 (9th Cir.1966), cert. denied, 385 U. S. 846]. In

~

assuring whether conditions imposed are in fact reasonable, antitrust I tribunals defer to a considerable extent to the business judgment of the )

party from whom a right to dealis sought and do not require that the con-ditions for dealing offer the requesting party the most favorable 1

possible alternatives. [Brief pp. 182 - 184; Bridge Corp. of America v.  !

1 b American Contract Bridge League, Inc. , 428 F. 2d 1365,1368 - 70 l l

r (9th Cir.1970) cert. denied, 401 U.S. 940 (1971); Rogers v. Douglas 1

~

Tobacco Board of Trade, 244 F.2d 471 (5th Cir.1957); Zuckerman v.  ;

Yount, 362 F. Supp. 858, 863-64 (N. D. Ill.1973)]. I l

i

- 10 0 -

r-5.05 In this case, the criteria which the Company has established as a prerequisite to coordination with others are reasonable; i. e. ,

,_ that all parties obtain net benefits from the arrangement. [Brief pp. 188 - 202; Gainesville Utilities Dept. v. Florida Power Corp. , 40 FPC 1227 (1968),

F 41 FPC 4 (1969), aff'd,402 U.S. 515 (1971)]. The reasonableness of I

Consumers Power Company's policies regarding coordination is further evidenced by their consistency with Federal Power Commission standards and industry practice and by the fact that they have been applied in a fair, "l nondiscriminatory and consistent manner. [Brief pp. 184 - 202; Finding of Fact 4.13 - 4. 71]. Therefore, the coordination policies and practices

' of the Company cannot be relied upon as evidence of predatory conduct or

~

monopolistic intent. [ Conclusions of Law 5.01, 5.02, 5.04, 5.05]

>p 5.06 Where a larger firm's acquisition of a small actual I

or potential customer or of a small horizontal competitor has only

[ limited impact on the ma rketplace, it is of no antitrust significance.

L

[Brief pp. 205 - 212; Brown Shoe Co. v. United States, 370 U.S. 294, 329 (1962); Crown Ze11erbach Corp. v. FTC, 296 F. 2d 800, 818 (9th Cir.

. 1961)]. In regula%d industries such as the electric utility industry, L even acquisitions which would plainly be condemned in a conventionally lj competitive market may well be in the public interest. [Brief pp. 209 - 210; L

Commonwealth Edison Co.,36 FPC 927 (1966), aff'd sub nom. , Utility Users League v. FPC, 394 F. 2d 16,19-20 (7th Cir.1968), cert. denied 393 U. S. 953]. In addition, even a series of acquisitions which would be

.l iL found to exceed legal standards of the Clayton Act do not necessarily demonstrate monopolistic intent. [Brief pp. 208 - 209; United States v.

Jerrold Electronics Corp. ,187 F. Supp. 545, 566, 568 (E. D. Pa.1960),

.I

l

- 101 -

r-l p aff'd per curiam, 365 U.S. 567 (1961)]. Under the facts of this case, Consumers Power Company's acquisition of 4700 retail customers out of a total of more than one million customers is so limited as to be of no antitrust significance. [Brief pp. 205 - 206; Findings o f r

{, Fact 4. 72 - 4. 77].

5.07 Neither monopolistic intent nor predatory conduct rm y be demonstrated by reference to remarks by a middle-level marketing employee where, as here, the remarks were not endorsed by the corporate management or actually implemented. [Brief pp. 210 - 212; i

Dahl v. Roy Cooper, Co. , 448 F. 2d 17,19 (9th Cir.1971): Scott

[ Publishing Co. v. Columbia Basin Publishing, Inc. , 293 F. 2d 15, 21-22 (9th t

Cir.1961); South End Oil Co. v. Texaco, Inc. , 237 F. Supp. 630, 655 i

) (N. D. Ill.1965)].

[ VI. License Conditions.

L 6.01 Since no situation inconsistent with the antitrust laws

,, under Section 105c of the Atomic Energy Act will be created or maintained by the activities of Consumers Power Company under the L licenses here in question, no antitrust conditions may be imposed on j the Midland construction permits. [ Conclusion of Law 1. 01].

n4 3

6.02 Additionally, the imposition of license conditions is

[-

not in the public interest in light of the fact that they were sought on an l untimely basis and in light of the serious adverse financial consequences tu which will result to both the Company and its customers from imposition of license conditions. [Brief pp. 213 - 233].

1 L

F I

i - 102 -

r~

l 6.03 The Atomic Energy Commission lacks authority to condition a license to construct and operate a nuclear facility

upon a requirement that the licensee must adhere to certain require-

{ ments relating to its system-wide operations such as coordination

{ practices or transmission services. [Brief pp. 222 - 225; Louisiana Power & Light Co. (Waterford Steam Electric Generating Station,

.- Unit 3), Dkt. No. 50-382A, Memorandum and Order of the ASLB, CCH Atom. Ener. Law Rptr. 511,710. 01, (February 23, 1973);

~

Conclusions of Law 2. 01 - 2. 04].

.F r.

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I.

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- ~ , . - - - _ , - - - , _ - _ , . . . , . _ . , , , ,, , _ . - _ , - . ~~.

f - 103 -

1

[r r- INDEX TO EXHIBITS OF CONSUMERS POWER COMPANY Date Admitted Exhibit No.

3/7/74 11,001 (1 page) Comparison of Approximate Rate of Return and Index of Earnings f for Major Retail Rate Classes --

l Present and Proposed Rates Based i

on Year Ended December 31, 1972

~

3/7/74 11,002 (65 pages) Consumers Power Company's

. Electric Rate Schedules, Retail

~ 3/7/74 11,003 (5 pages) Electric Rate Schedules

-l Wholesale for Resale

~ 3/7/74 11,004 Electric Utilities in Lower Peninsula of Michigan, Bills for Typical Con-

! sumptions

,i' (8 pages) Residential (12 pages) Commercial (8 pages) Industrial g.-

(~ 4/2/74 11,102 (1 page) Consumers Power-Detroit Edison Approximate Total Bulk Power'Transmis-sion Investment at End of 1972 lL 4/2/74 11,104 (1 page) Illustrative Example of Reserve Requirements (Large and Small Systems) 4/2/74 11,106 (33 pages) Interconnection Agreement dated May 23, 1969 between Consumers Power Company, The Detroit Edison Company and The Hydro-Electric Power Commission of Ontario, with Supplements 4/2/74 11,108 (27 pages) Operating Agreement among Consumers Power Company, The Detroit Edison Company and The Toledo Edison c Company dated March 1,1966 b em e

~

f,. - 104 -

t

(~

l r Date l Admitted Exhibit No.

4/2/74 11,109 (51 pages) Operating Agreement among Consumers Power Company, The Detroit Edison Company and Indiana & Michigan Electric Company dated March 1,1966, with Amendments 1 through 6.

4/2/74 11,111 (32 pages) Agreement For Electric Ser-vice between Consumers Power Company

l

and the City of Holland dated November 15, 1967, with Supplemental Agreements

, I through 6.

4/2/74 11,112 (34 pages) Interconnection Agreement between Consumers Power Company and

.- } The City of Lansing dated October 7,

' 1970, with letter Agreements dated December 15, 1972 and June 27, 1973 f 4/2/74 11,114 (36 pages) Ludington Pumped Storage Hydroelectric Generating Plant Project Transmission Facilities Agreement

,I.. between Consumers Power Company i and The Detroit Edison Company dated August 20, 1969

\^

j' , 4/2/74 11,115 (36 pages) Transmission Facilities Agreement between Consumers Power Company and The Detroit Edison Com-pany dated August 20, 1969 4/2/74 11,116 (32 pages) Ludington Pumped Storage Hydroelectric Generating Plant

- Operating Agreement between Consumers Power Company and The Detroit Edison Company dated August 20, 1969 4/2/74 11,118 (20 pages) Agreement for Sale of Portion of Generating Capability of Ludington ,

j Pumped Storage Plant by Consumers i L- Power Company to Commonwealth Edison Company dated June 1,1971 i

4/2/74 11,119 (17 pages) Facilities Agreement among Consumers Power Company, The Detroit .

Edison Company and The Toledo Edison c.

Company dated March 1,1973

. i

~

iL

l

- 105 -

I J' Date

,l Admitted Exhibit No.

-

c 4/2/74 11,120 (60 pages) East Central Area Relia-

' f- . bility Coordination Agreements dated

i August 1,1967 and Supplemental Agree-

ments dated October 20,1967 and i April 7,1970, and ECAR Documents j! 1, 2, 3 and 4 p 3/5/74 11,302 (1 page) Customers Served by Municipal Systems and Consumers Power Company

,.. 3/5/74 11,303 (1 page) Area Development Data Books, it Consumers Power Company, as of f October 1,1973 j^ 3/5/74 11,304 (52 pages) Data on Hillsdale-Jonesville,

t. Michigan

3/5/74 11,305 (1 page) Customers over 3,000 kw within j Three Miles of REA System Located Outside Community of More than 1,500 Population 3/5/74 11,306 (1 page) Consumers Power Company Franchise Data

'E

!{' , 3/5/74 11,307 (2 pages) Consumers Power Company Wholesale Power Sales to Other Systems

3/5/74 11,308 (1 page) Municipal Electric Systems --

Appraisals, Purchase or Lease Offers by Consumers Power Company i

'{, 3/5/74 11,309 (7 pages) Contract for Electric Service Between Consumers Power Company and the City of Charlevoix dated July 12, 1973 (Total Purchase) 3/5/74 11,310 (7 pages) Contract for Electric Service

,! between Consumers Power Company and L.i the City of Coldwater dated February 14, 1972 (Partial Purchase) 1 11/30/73 12,001 (6 pages) 4/21/67 letter from Daverman to Steinbrecher; 4/25/67 letter from Steinbrecher to Daverman; 5/18/67

letter from Daverman to RL Paul

~

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, . ,c ,-,-eww s e - ---

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- 10 6 -

t Date f Admitted Exhibit No.

T- 11/30/73 12,002 (1 page) 5/18/70 letter from RL Paul l to Keen r 11/30/73 , 12,003 (7 pages) Consumers Power Company's Preliminary Proposal: Interchange i{, and Wholesale Power Purchase with Wolverine Electric Cooperative 11/30/73 12,004 (1 page) 5/25/70 letter from RL Paul to Keen 11/30/73 12,005 (21 pages) 9/9/70 letter from RL Paul to Keen; 9/8/70 Draft Agreement for Interchange and Wholesale Power Pur-chase between Consumers Power Com-pany and Northern Michigan, Wolverine, Grand Haven and Traverse City i

l 12/5/73 12,006 (5 pages) 5/5/711etter from McLaren and Saunders to Thumb Electric Coop; List of companies receiving identical

, l 1etters 12/6/73 12,007 (1 page) 12/7/67 memo from RL Paul re meeting with Northern Michigan Coop, i Consumers Power Company and the MPSC relative to the continuation of the Alba interconnection 12/7/74 12,008 Lansing 8/10/73 Power Supply Study l 1/16/74 12,009 (27 p s) Prospectus for Coldwater's 7/24 61 Bond Issue i 1/16/74 12,010 (34 pages) 11/28/72 letter from DeBoe

[ to Endicott; 11/27/72 Campbell, Deboe, Giese and Weber Report on Electric Utility 1/29/74 (41 pages) Data on Coldwater, Michigan, 12,011 compiled by Board of Public Utilities and Coldwater Area Chamber of Commerce 1/16/74 12,013 (2 pages) 11/12/71 letter from G. Collins to W.G. Milliken re Coldwater State Home

~

1/16/74 12,013 (2 pages) 5/10/71 letter from E.H. Munn to A.H. Langius re Coldwater State Home

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I L - 107 -

5.

Date

! Admitted Exhibit No.

P 1/16/74 12,014 (1 page) 11/21/71 letter % om R. E.

! Brewster to R. L. Paul '

1/16/74 12,015 (1 page) 2/12/64 letter from F.M.

Hoppe to Coldwater Board of Public Utilities

[' 6/4/74 12,016 (20 pages) MPSC order, Case No.

U-4346, re revision of Alpena Power 3

Company's rate schedules 4/2/74 12,017 (2 pages) 2/27/74 letter from C.L.

Johnson to E.H. Kaiser

(

6/11/74 12,018 (1 page) Estimated Annual Cost Dif-ll ferences Resulting from 220 mw or 440 mw Sale of Midland 1 and 2 Plant i Rejected 6/11/74 12,019 (1 page) JRL-5 Restated in Terms of MW Reserve 1,

Rejected

, 6/12/74 12,020 (4 pages) 3/7/74 Analysis of Senate Bill No.1065 t

Rejected j! 6/12/74 12,021 (3 pages) 5/9/74 Analysis of Substitute

[. Bill No. 1065 g- See 6/21/74 Order 12,022 (232 pages) Consumers Power Company's

[- 1973 Annual Report to the FPC Official 12,023 (9 pages) 8/29/74 letter of intent from

_ notice J.N. Keen, representing the MMCPP, requested to Consumers Power Company and

.j attached agreement Official 12,024 (29 pages) Interconnection Agreement notice between Consumers Power Company requested and City of Holland iL

L