ML19329F232
| ML19329F232 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 11/25/1974 |
| From: | Brunner T, Ross W, Watson K CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.), WALD, HARKRADER & ROSS |
| To: | |
| References | |
| NUDOCS 8006230756 | |
| Download: ML19329F232 (305) | |
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. .. .. - > i UNITED STATES OF AMERICA ATOMIC ENERGY COMMISSION in the Matter of Docket Nos. 50-329A CONSUMERS POWER COMPANY and 50 330A (Midland Units 1 & 2) w
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REPLY BRIEF OF CONSUMERS POWER COMPANY i
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c?' < ... O WM. WARFIELD ROSS, . Ih ' KEITH S. WATSON, ,7.'
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. THOMAS W. BRUNNER, L i ,[f2!.'ur:gy GERALD B. WETLAUFER, Q\ ;"'L U:Tp '
Q 3 Attorneys for Consumers O -I' Power Company K WALD, HARKRADER & ROSS 1320 Nineteenth Street, N.W. Washington, D. C. 20036 HAROLD P. GRAVES, JAMES B. FA'AHEE, WAYNE A. KIRKBY THIS DOCUMENT CONTAINS Of Couns*l POOR QUAL.lTY PAGES CONSUMERS POWER COMPANY 212 West Michigan Avenue - l, Jackson, Michigan 49201 30 r November 25, 1974 t, p t
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TABLE OF CONTENTS Midland Reply Brief Page No. I. Introduction . . . . . . .. . . . . . . . . . . 1 A. Nexus . . . . . . . . . . . . . . . . . . 1 B. Monopolization Theory . . . . . . . . . . . 2 C. Essential Facility . . . . . . . . . . . . 6 D. Relief . . . . . . . . . . . . . . . . . . 8 II. In construing the " nexus" and other provisions of Section 105c, the briefs of the other parties misread or ignore the Commission's LP&L order, the legis-lative history of Section 105c, and the record of this proceeding. . . . . . . . . . 12 A. Nexus Theories . . . . . . . . . . . . . . 12
- 1. "The Wave of the Future" . . . . . . . 15
- 2. "The Energy Crisis" . . . . . . . . . 17
- 3. " Commingling" and Other " Truisms" . . 23 B. Avoiding Standards of Proof . . . . . . . 27
- 1. " Inconsistent with the Antitrust Laws" . . . . . . . . . . . . . . . . 29
- 2. Antitrust Policies . . . . . . . . . . 31 III. The relevant bulk power and retail market definitions proposed by the Department of Justice ignore legal principles appli-cable to the factual record of this pro-caeding. . . . . . . . . . . . . . . . . . . 40 A'. Bulk ~ Power Markets . . . . . . . . . . . . 40 B. Retail Market . . . . . . . . . . . . . . . 52 C. The Yardstick . . . . . . . . . . . . . . 59
- I' Page No.
IV. The monopolization theory of the other parties is fatally defective since it fails to take account of governmental regulation and special characteristics of the electric utility industry. . . . . . 62 A. The Barriers to Entry and Competition . . . . . . . . . . . . . . 62 B. Regulation as a Bar to Monopoly Power . . . . . . . . . . . . . . . . . 71
- 1. Rate Regulation . . . . . . . . . . . 71
- 2. Other Regulation . . . . . . . . . . 76
- 3. Primary Jurisdiction and Parker v. Brown . . . . . . . . . . 82 C. The So-Called Bottleneck Theory . . . . . 86 D. Subsidies . . . . . . . . . . . . . . . 97 V. The briefs of the other parties do not demonstrate that the Company's conduct has been unreasonable or that such con-duct is evidence of improper intent. . . . 99 A. Coordination and Wheeling . . . . . . . . 99
- 1. Refusals to Coordinate . . . . . . . 103
- 2. Reserve-Sharing Practices . . . . . . 106
- 3. Coordinated Development Policies . . 113
- a. Inndustry Practice . . . . . . . 113
'b. Discrimination . . . . . . . . . 119
- c. Alleged Refusals to Deal . . . . 122
- 4. Wheeling . . . . . . . . . . . . . . 128
- 5. Alleged " Pre-emptive" Coordi-nation . - . . . . . . . . . . . . . . 136
- 6. Restrictions on Interstate a , Connections . . . . . . . . . . . . . 140 m
Page No.
- 7. Admission standards of the Michigan Pool . . . . . . . . . . . 145 B. Other Conduct . . . . . . . . . . . . . 151
- 1. Territorial Allocations . . . . . . 152
- a. NCP System . . . . . . . . . . . 153
- b. MG&E . . . . . . . . . . . . . . 158
- c. Toledo Edison and Detroit Edison . .. . . . . . . . . . 160
- 2. Acquisitions . . . . . . . . . . . . 165
- 3. The " Tying" of Components of Wholesale Service . . . . . . . . . 169 VI. The license conditions proposed by our adversaries are discriminatory, put the Company at an unfair disadvantage vis-a-vis public power neighbors, and will in-crease costs to Consumers Power Company's
' customers. . . . . . . . . . . . . . . . . 176 A. Proposed License Conditions . . . . . . 177
- 1. Eligible Entities . . . . . . . . . 177
- 2. Unit Access . . . . . . . . . . . . 180
- 3. Coordinated Operations . . . . . . . 194
- 4. Transmission Service . . . . . . . . 199 B. The Impact of License Conditions . . . . 202 Appendix A - The Role of Regulation in Assuring Efficiency . . . . . . . 207
LEGAL CITATIONS Page CASES:
*** Abbott _ Securities Corp. v. New York Stock Exchange, 197T-2 Trade Cas.
T75,324 (D.D.C. October 30, 1974) . . . . . . 84 Admiral-Merchants Motor Freight, Inc.
- v. United States, 321 F. Supp. 353 (D. Colo. 1971), aff'd, 404 U.S. 802. . . . . 190 Alabama Electric Cooperative, Inc. v.
Alabama Power Co.,'38 FPC 962 (1967). . . . . 73
*** Amendment of Regulations Under the Fuderal Power Act, FPC Dkt. No. RM75-3, Notice of Proposed Rulemaking to Amend Regulations Under the Federal Power Act Covering Emergency Actions Pursuant to Section 202(c) of the Federal Power Act (August 26, 1974) . . . . . . . . . . . . . . 202 American Crystal Sugar Co. v. Cuban-American Sugar Co., 152 F. Supp. 387 (S.D.N.Y. 1957), aff'd, 259 F.2d 524 (2d Cir. 1958). . . . . . . . . . . . . . . . 46 American Federation of Tobacco Growers
- v. Neal, 183 F.2d 869 (4th Cir. 1950) . . . . 97 American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272 (2d Cir.
1967) . . . . . . . . . . . . . . . . . . . . 173, 174 NOTE: Materials denoted
- are included in Appendix I (Michigan Legal Materials), and those denoted **
are included in Appendix II (General Legal Mater-ials) of Consumers Power Company's Brief in Sup-port of Its Proposed Findings of Fact and Conclu-sions of Law. Materials denoted *** are attached to this Reply Brief as Supplemental Legal Materials.
l i i Page Associated Press v. United States, 326 U.S. 1 (1945). . . . . . .. . . . . . . . . 92, 93 Atlantic Refining Co. v. P.S.C. of New York, 360 U.S. 378 (1959). . . . . . . . . . 190 Baker v. Simmons Co., 307 F.2d 458 (1st Cir. 1962). . . . . . . . . . . . . . . . . . 174 Borough of Lansdale v. FPC, 494 F.2d 1104 (D.C. Cir. 1974). . . . . . . . . . . . 79
** Boston Edison Co., FPC Dkt. Nos. E-8187 and E-8700, Order Granting Hearing on Petition for a Declaratory Order and Consolidating Proceedings (Sept. 25, 1974). . . . . . . . . . . . . . . . . . . . 79 Boyle's Famous Corned Beef Co. v. NLRB, 400 F.2d 154 (8th Cir. 1968). . . . . . . . 134 Bridge Corp. of America v. American Contract Bridge League, Inc., 428 F.2d 1365 (9th Cir. 1970). . . . . . . . . . 101, 102, 105 Brown Shoe Co. v. United States, 370 U.S. 294 (1962). . . . . . . . . . . . . . . 31, 41, 45, 47-48, 52 Carolina Power & Light Co. (Shearon Harris Nuclear Power Plant Units 1, 2, 3 & 4) AEC Dkt. Nos. 50-400, 50-401, 50-402 & 50-403, Prelimi-nary Conference Order (July 11, 1974). . . . 20 Cities of Statesville v. AEC, 441 F.2d 962 (D.C. Cir. 1969). . . . . . . . . . . . 28 Citizens for Allegan County, Inc. v.
FPC, 414 F.2d 1125 (D.C. Cir. 1969). . . . . 139 City of Huntingburg v. FPC, 498 F.2d 778 (D.C. Cir. 1974). . . . . . . . . . . . 79
*** Cleary v. National Distillers &
Chemical Corp., 1974 Trade Cas. 175,330 (9th Cir . October 2:9, 1974) . . . . 131
- -lii-Page Consolidated Edison Co. v. NLRB, 305 U.S. 197-(1938). . . . . . . . . . . . . . . 156
**
- Consumers Power Co., 3 PUR 4th 321 (MPSC 1974). . . . . . . . . . .. . . . . . 75, 208 Consumers Power Co. and Detroit Edison Co., Case No. U-4128, Order to Show Cause Why Emergency Procedures Should Not Be Implemented Granting Interim Effect, Requiring Publication and Setting Public Hearing (MPSC Janu-ary 28, 1974). . . . . . . . . . . . . . . . 209 Continental Ore Co. v. Union Carbide
& Carbon Corp., 370 Uts. 690 (1962). . . . . 123 Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17 (9th Cir. 1971). . . . . . . . . . . 123 Deeson vs Professional Golfers Ass'n, 358 F.2d 165 (9th Cir. 1966), cert.
denied, 385 U.S. 846. . . . . . . . . . . . 101, 102 Dehydrating Process Co. v. A.O. Smith Corp., 292 F.2d 653 (1st Cir. 1961), cert. denied, 368 U.S. 931. . . . . . . . . 171.- 174 Duke Power Company (Oconee Units 1, 2 & 3, Mc Guire Units 1 & 2) AEC Dkt. Nos. 50-269A, 50-270A, 50-287A, 50-369A, 50-370A, Order on Joint Motion of the Regulatory Staff of the Atomic Energy Comis-sion and the Department of Justice to Place Conditions on Oconee and McGuire Licenses, (May 24, 1974). . . . . . . 180 FPC v. Hunt, 376 U.S. 515 (1964). . . . . . . 190 FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956). . . . . . . . . . . . . 79 A
s' -iv-Page FPC v. Sunray DX Oil Company, 391 U.S. 9 (1968). . . . . . . . . . . . . . 189 FTC v. Procter & Gamble Co., 386 U.S. 568 (1967). . . . . . . . . . . . . . . 65 Florida Power Corp. v. FPC, 4 25 F.2d 1196 (5th Cir. 197H), rev'd sub nom., Gainesville Utilities Dept.
- v. Florida Power Corp., 402 U.S. 515 (1971). . . . . . . . . . . . . . . . . . . . 77 Florists' Nationwide Telephone Delivery Network v. Florist's Telegraph Delivery Ass'n, 371 F.2d 263 (7th Cir. 1967), cert.
denied, 387 U.S. 909. . . . . . . . . . . . . 101 Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 (1969). . . . . . . . . . . . . . . . . . . . 170, 172 Gamco, Inc. v. Providence Fruit & Produce Building, Inc., 194 F.2d 484 (1st Cir. 1952), cert. denied, 344 U.S. 817 . . . . . . . . . . . . . . . . 92, 101, 102 Gilbertville Trucking Co. v. United States, 371 U.S. 115 (1962). . . . . . . . . 193 Gulf States Utilities Co. v. FPC, 411 U.S. 7 47 (1973). . . . . . . . . . . . . 189 Hazel Park v. Municipal Finance Comm'n, 317 Mich. 582, 27 N.W. 2d 106 (1947). . . . . 55-56 Independent Taxicab Operators Ass'n v. Yellow Cab Co., 278 F. Supp. 979 (N.D. Cal. 1968). . . . . . . . . . . . . . . 166
*** Industrial Communications Systems, Inc. v. Pacific Telephone and Telegrapy'$o., 1974-2 Trade cas.
175,291 ( 9th Cir . October 4, 1974 ) . . . . . . 84 International Salt Co. v. United States, 332 U.S. 392 (1947).
. . . . . . . . 171, 172, 190, 192
_y. 7 Page-Kugler v. AAMCO Automatic Transmis-sions Inc., 337 F. Supp. 872 (D. Minn. 1971), aff'd, 460 F.2d 1214 (8th Cir. 1972). . . . . . .. . . . . . . . 174 Louisiana Power & Light Co., (Waterford Steam Generating Station Unit No. 3) AEC Dkc. No. 50-382A, Memorandum of Board.with Respect to Appropriate License Conditions Which Should Be
- Attached to a Construction Permit Assuming Arguendo a Situation InconsisteEt with the Antitrust Laws (October 24, 1974). . . . . . . . . . . 96, 123-24, 126, 176, 180, 184, 197, 198, 201, 206 Louisiana Power & Light Co. (Waterford Steam Electric Generating Station Unit No. 3) AEC Dkt. No. 50-382A, Memorandum and Order of the AEC, RAI 73-9, 619 (September 28,'~1973). . . . . . . . . . . . . 12, 14, 24 Louisiana Power & Light Co. (Waterford Steam Generating Station Unit No. 3),
Memorandum and Order of the Commission, ' RAI 73-2, 48 (February 23, 1973). . . . . . . 187 Milwaukee Towne Corp. v. Loew's, Inc., 190 F.2d 561 (7th Cir. 1951), cert. denied, 342 U.S. 909 (1952). . . . . . . . . 123 Missouri Portland Cement Co. v. Cargill, Ing], Order Vacating Stay Entered by
, Single Justice, 94 S. Ct. 3210 (1974). . . . . 65 Missouri Portland Cement Co. v. Cargill, Inc., 458 F.2d 851 (2d Cir. 1974),
cert. denied, 95 S. Ct. 150... . . . . . . . 65
*** Monticello Heights, Inc. v. Morgan Drive Away, Inc., 1974-2 Trade Cas. 175,282 (S.D.N.Y. September 30, 1974). . . . . . . . . . . . . . . . . . . 84 Munici ? al Electric Ass'n of Mass. v. SEC, !
413 ?.2d 1052-(D.C. Cir. 1969). . . . . . . . 93 l l
-vi- /
Page NLRB v. Imparato Stevedoring Corp.,
- 750 F.2d 297 (3d Cir. 1957). . . . . . . . . 134 National Screen Service Corp. v.
Poster Exchange, Inc., 305 F.2d 647 (5th Cir. 1962). . . . . . . . . . . . . 93-94 New England Power Co. v. FPC, 349 F.2d 258 (1st Cir. 1965). . . . . . . . . . . 77
*** New England Power Pool Partici-pants, FPC Dkt. No. RM.74-22, Order Permitting Withdrawal of Petition for Emergency Relief (Dkt. No. E-8589) and Accepting Rate Schedules, Permitting With-drawal of Rate Schedules, Dis-posing of Procedural Matters and Terminating Proceedings (August 26, 1974). . . . . . . . . . . . . . . . . 178, 200-201 Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153 (D.C. Cir. 1967). . . . . . . . 188, 189 Northern Pacific Railway v. United States, 356 U.S. 1 (1958). . . . . . . . . . 32, 171, 172 Northern Securities Co. v. United States, 193 U.S. 197 (1904). . . . . . . . . 33 N.W. Controls, Inc.-v. Outboard Marine Corp., 333 F. Supp. 493 (D. Del. 1971). . . . . . . . . . . . . . . . 174
~
Otter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1977T. . . . . . . . . . 77 Otter Tail Power Co. v. United States, 410 U.S. 366 (1973). . . . . . . . . 63, 81, 82, 95 Packaged Programs, Inc. v. Westing-house Broadcasting Co., 255 F.2d 708 (3d Cir. 1958). . . . . . . . . . . . . . 91, 95 Panhandle Eastern Pipeline Co. v. Pub. Serv. Comm'n of-Indiana, 332
- U.S. 507 (1947). . . . . . . . . . . . . . . 83
-vil-r Page l Papercraft Corp. v. FTC, 472 F.2d 927 (7th Cir .1973 ) . . . . . . . . . . . . . . 193 Par ker v. Brown , 317 U.S . 341 (1943). . . . . . 82 Pennoyer v. Neff, 5 otto. 714 (1877). . . . . . 13 Poster Exchange, Inc. v. National Screen Service Corp., 362 F.2d 571 (5th Cir. 1966). . . . . . . . . . . . . 94 Reynolds Metals Co. v. FTC, 309 F.2d 223 (D.C. Cir. 1337). . . . . . . . . . 193 Ricci v. Chicago Mercantile Exchange, 4 09 U.S . 289 (1973). . . . . . . . . . . . . 84 Rogers v. Douglas Tobacco Board of Trade, 244 F.2d 471 (5th Cir.
1957). . . . . . . . . . . . . . . . . . . . 102 Roofire Alarm Co. v. Royal Indemnity Co., 202 F. Supp. 166 (E.D. Tenn. TY62), aff'd, 313 F.2d 635 (6th Cir. 1963). . . . . . . . . . . . . . . . . . . . 101, 102 Royster Drive-In Theatres, Inc. v. American Broadcasting-Paramount Theatres, Inc., 268 F.2d 246 (2d Cir. 1959), cert. denied, 361 U.S. 885 (1959). . . . . . . . . . . . . . . 123 Russell v. Farley, 15 Otto. 443 (1882). . . . . 190 Saunders v. National Basketball Ass'n, 348 F. Supp. 649 (N.D. Ill. 1972). . . . . . 123 Silver v. New York Stock Exchange, 373 U.S. 341 (1963). . . . . . . . . . . . . . . 92 608 Hamilton Street Corp. v. Columbia Pictures, 244 F. Supp. 193 (E.D. Pa. 1965). . . . . . . . . . . . . . . . . . . . 123 Six Twenty-Nine Productions v. Rollins Telecasting, Inc., 365 F.2d 478 (5th Cir. 1966). . . . . . . . . . . . . . . . . . 91, 95 s
-viii- .5 Page Structural Laminates, Inc. v. Douglas Fir Plywood Ass'n, 261 F. Supp. 154 (D. Ore. 1966), aff'd, 399 F.2d 155
( 9 th Cir . 1968 ) , cert. denied, 393 U.S. 1024 (1969). . . . . . . . . . . . . 105 Texaco v. FPC, 290 F.2d 149 (5th Cir. 196T). . . . . . . . . . . . . . . . . . . . 190 Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953). . . . . . 33, 173 United Gas Improvement Co. v. Callery Properties, 382 U.S. 223 (1965). . . . . . . 189 United Gas Pipe Line Co. v. Mobile Gas-Service Corp., 350 U.S. 332 (1956). . . . . . 79 United States v. Bethelem Steel Corp., 168 F. Supp. 576 (S.D.N.Y. 1958). . . . . . . 49 United States v. Columbia Steel Co., 334 U.S. 495 (1948). . . . . . . . . . . . . 98 United States v. Connecticut National Bank, 94 S. Ct. 2788 (1974). . . . . . . . . 50, 53, 65, 97 United States v. E.I. duPont deNemours
& Co., 351 U.S. 377 (1956). . . . . . . . . . 41, 57, 72 United States v. E.I. duPont deNemours
& Co., 353 U.S. 586 (1957). . . . . . . . . . 190, 192 United States v. Falstaff Brewing Corp.,
410 U.S. 526 (1973). . . . . . . . . . . . . 65
*** United States v. Falstaff Brewing Corp.,
1974-2 Trade Cas. 175,135 (D. R.I. October 23, 1974). . . . . . . . . . . . . . 66 United States v. General Dynamics Corp., 341 F. Supp. 534 (N.D. Ill. 1972), aff'd, 415 U.S. 486 (1974). . . . . . . . . . 41 l United States v. Jerrold Electronics Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff'd, 365 U.S. 567 (1961). . . . . . 171, 173 ;
-ix-Page United States v. Marine Bancorporation, 94 S. Ct. 2856 (1974). . . . . . . . . . . . 32, 65, 66, 67, 82 United States v. Otter Tail Power Co., .331 F. Supp. 54, (D. Minn. 1971),
aff'd in part, rev'd in part, 410 U.S. 366 (1973). . . . . . . . . . . . . . . 97 United States v. Paramount Pictures, 334 U.S. 131 (lFTIT: . . . . . . . . . . . . 74-75 United States v. Penn-Olin Chemical Co., 378 U.S. 158 (1964). . . . . . . . . . . 65 United States v. Philadelphia National Bank, 374 U.S. 321 (1963). . . . . . . . . . 48, 49 United States v. Phillipshurg National Bank and Trust Co., 399 U.S. 350 (1970). . . . . . . . . . . . . . . . . . . . 54 United States v. Phillipsburg National Bank and Trust Co., 306 F. Supp. 654 (D.N.J. 1969), rev'd, 399 U.S. 350 (1970). . . . . . . . . . . . . . . . . . . . 54 United States v. Phillips Petroleum Co., 367 F. Supp. 1226 (D.C. Cal. 1773), aff'd, 94 S. Ct. 3199 (1974). . . . . 64, 66 United States v. Socony-Vacuum Oil Co., 310 U .S . 150 (1940). . . . . . . . . . . . . 165 United States v. Swift & Co., 286 U.S. 106 (1932). . . . . . . . . . . . . . . 33 United States v. Terminal Railroad Ass'n, 224 U.S. 383 (1912). . . . . . . . . . 91 United States v. United Shoe Machinery Cogr ., 110 F. Supp. 295 (D. Mass. 1953), aTt d, 347 U.S. 521 (1954). . . . . . . . . . 53, 166 Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967). . . . . . . . . . . 93
-X-Page
** Village of Elbow Lake v. Otter Tail Power Co., 40 FPC 1262 (1968),
aff'd sub nom. Otter Tail Power Co . v . FPC, 429 F.2d 232 (8th cTr. 1976), cert. denied, 401 U.S. 947 (1971). . . ............ 63, 64, 82
** Village of Elbow Lake v. Otter Tail Power Co., 46 FPC 675 (M, aff'd sub nom. Otter Tail Power Co.
- v. FPC, 473 F.2d 1253 (8th Cir. 1973). . . . . 82
*** Village of Williamston v. Williamston Illuminating Co., 1917C PUR 121 (Mich. Railroad Comm'n 1917). . . . . . . . . 208 Washington Gas Light Co. v. Virginia Electric and Power Co., 438 F.2d 248 (4th Cir. 1971). . . . . . . . . . . . . 175 Willapoint Oysters, Inc. v. Ewing, 174 F.2d 676 (9th Cir. 1949), cert.
denied, 338 U.S. 860. . . . . . . . . . . . . 134 Zuckerman v. Yount, 362 F. Supp. 858, (N.D. Ill. 1973). . . . . . . . . . . . . . - 101 STATUTES: Federal: l 1 Atomic Energy Act of 1954, 68 Stat. 934. . . . 38 l l Atomic Energy Act of 1954, as amended, ! 42 U.S.C. SS2011, et seq.: l I S1, 42 U.S.C. 52011. . ............ 38 i S105c, 42 U.S.C. S2135(c). . . . . . . . . . . passim S271, 42 U.S.C. S2018. ............ 85 Clayton Act, 15 U.S.C. SS12 et seq.: S7, 15 U.S.C. S18. . . ............ 29, 31 l 1
-xi-Page Federal Power Act, 16 U.S.C. SS791 et seg.:
5201, 16 U.S.C. S824. . . . . . . . . . . . . 78 S202, 16 U.S.C. 5824a. . . . . . . . . . . . . 78 Federal Trade Commission Act, 15 U.S.C. SS41 et seq.: SS, 15 U.S.C. 545. . . . . . . . . . . . . . 91 State: Michigan Statutes Annotated 22.13(6). . . . . 208 Regulations:
- MPSC R. 460.2006 (1954 Mich. Admin. Code). . . 73 LEGISLATIVE MATERIAL:
Bills:
** H.R. 13828, 90th Cong., 1st Sess. (1967). . . 27 S. 218, 89th Cong. ,1st Sess. (1965). . . . . 36 ** S. 2564, 90th Cong., 1st Sess. (1967). . . . 27 Hearings:
Hearings on Atomic Power Development and Private Enterprise Before the Joint Committee on Atomic Energy, 83d Cong., 2d Sess., pt. 1 (1954). . . . . . . . . . . 35 Hearings on Licensing and Regulation of Nuclear Reactors Before the Joint Committee on Atomic Energy, 90th Cong., 1st Sess. (1967-68). . . . . . . . . 27 Hearings on~ Participation by Small Elec-trical Ut ilities in Nuclear Power Before the Joint Committee on Atomic Energy, 90th Cong., 2d Sess. (1968). . . . . . . . . . . 27
-xii-Page Hearings on Prelicensing Antitrust Review of Nuclear Powerplants Before the Joint Committee on Atomic Energy, 91st Cong.,
1969-70). . . . . . . . . . . . . . . . . . 37 Reports: H.R. Re p . No. 2181, 83d Cong., 2d Sess. (1954). . . . . . . . . . . . . . . . . . 30 H.R. Re p . No . 14 7 0, 91 st Cong . , 2d Sess. (1970). . . . . . . . . . . . . . . . . . 25, 30, 31 S. Re p . No. 1699, 83d Cong., 2d Sess. (1954). . . . . . . . . . . . . . . . . . 30, 38 " Dissenting Views on H.R. 18679" (draft dated September 14, 1970) of Senator Aiken. . . . . . . . . . . . . . . . . . . 37 Debates: 116 Cong. Re c . S . 39619 (December 2, 1970). . . . . . . . . . . . . . . . . . . 28 MISCELLANEOUS: R.C. Arnold, Metropolitan Edison Co., to W.G. Mcdonald, AEC, Metropolitan Edison Co. (Three Mile Island Unit 2), AEC Dkt. No. 50-320, September 13, 1974. . . . . . . . . . . . . . . . . . . 21 AEC, NUCLE AR POWER GROWTH , 1974-2000 (WASH-ll39, 1974). . . . . . . . . . 16 Attorney General's advice letter, Detroit Edison Co. (Greenwood Energy Center, Units 2 & 3), AEC Dkts. Nos. 50-452A and 50-453A (March 22, 1974), 39 Fed. Reg. 12373. . . . . . . . . . . . . . . . . . 151 Attorney General's advice letter, Carolina Power & Light Co. (Shearon Harris Units 1, 2, 3,
-xiii-Page
& 4), AEC Dkt. Nos. 50-400A, 50-401A, 50-402A and 50-403A, 37 Fed. Reg.
18016 (September 16, 1974)... . . . . . . . . 117 Attorney General's advice letter, Illinois Power Co. (Clinton Power Station Units 1 & 2), AEC Dkt. Nos. 50-461A and 50-462A, 39 Fed. Reg. 15898 (May 6, 1974). . . . . . . . . . . 118 Attorney General's advice letter, Virginia Electric & Power Co. (North Anna Units 1 & 2), AEC Dkt. Nos. 50-404A and 50-405A, 37 Fed. Reg. 16221 (August 11, 1972). . . . . . . . . . . . . . . . . . . . 117 Attorney General's advice letter, Virginia Electric & Power Co. (Surry Power Station Units 3 & 4), AEC Dkt. Nos. 50-434A and 50-435A, 38 Fed. Reg. 32596 ! (November 27, 1973). . . . . . . . . . . . . 118 Attorney General's supplemental advice letter, Duke Power Co. (Oconee Units 1, 2, & 3; Mc-Guire Nuclear Station Units 1& 2), AEC Dkt. Nos. 50-269A, 50-270A, 50-287A, 50-369A, 50-370A, 50-413A and 50-414A, 39 Fed. Reg. 17461 (May 16, 1974). . . . . . 118 Address of Donald I. Baker, Director of Policy Planning, Antitrust Division, Department of Justice, to American Public Power Associ-ation, National Conference, May 16, 1973. . . . . . . . . . . . . . . . . . . . . 127 Brief for the United States, Otter Tail Power Co. v. United States, 410 U.S. 366 (1973). . . . . . . . . 63, 81 Consumers Power Co. (Quanicassee Units 1 & 2), AEC Dkt. Nos. 50-475'and 50-476, Answer of Consumers Power Co. (August 2,
~1974). . . . . . . . . . . . . . . .. . . . 20
-xiv-Page ECAR Report to the FPC, SYSTEM PERFORMANCE AND TRANSMISSION PLANNING, Volume II (April, 1972). . . . 26 FPC, NATIONAL POWER-SURVEY (1970). . . . . 16, 19, 115, 116 General Accounting Office, REPORT TO THE SUBCOMMITTEE ON BUDGETING, MANAGEMENT AND EXPENDITURES, COMMITTEE IN GOVERNMENT OPERA-TIONS, UNITED STATES SENATE, SURVEY OF FEDERAL AND ELECTRIC .
UTILITY PROCUREMENTS OF POWER EQUIPMENT (B-174317, August 1, 1974). . . . . . . . . . . . . . . . . . 209 Letter from Ivan R. Finfrock, Jr., Jersey Power & Light Co., to W. R. McDonal.d, AEC, Jersey Power & Light Co. (Forked River Nuclear Generating Station Unit 1 ) , . AEC Dk t . No. 50-363, Septem-ber 13, 1974. . . . . . . . . . . . . . . 21 R. Hellman, GOVERNMENT COMPETITION IN THE ELECTRIC UTILITY INDUS-TRY (1972). . . . . . . . . . . . . . . . 36, 68, 69 Memorandum of L.L. Kinter, AEC, Detroit Edison Co. (Enrico Fermi Atomic Power Plant, Unit 2), AEC Dkt. No. 50-341, September 19, 1974. . . . . . . . . . . . 21 Letter from R.L. Mitti, Public Service Electric & Gas Co. to A. Giambusso, AEC, Public Ser-Vice Electric & Gas Co. (Salem Nuclear Generating Station), AEC Dkt. Nos. 50-272 and 50-311, September 25, 1974. . . . . . . . . . . . 20-21 A.D. Neal, THE ANTITRUST LAWS OF THE U.S.A. (1960). . . . . . . . . . . . . 33 Richard E. Raymond, Florida Power Co., to W. G . Mcdonald, AEC, Florida Power Co. (Florida Units 1& 2), AEC Okt. Nos. 50-530, September 24, 1974. . . . . . . . . . . . 21
-XV-Page 1
Rostow A NATIONAL POLICY FOR THE OIL INDUSTRY (1948). . . . . . . . . . . . 33 i l Turner, The Validity of Tying ; Arrangements Under the Anti- { trust Laws, 72 Harv. L. Rev. ' 50 (1958). . . . . . . . . . . . . . . . 17 3 i ( a
_. .- - - .. -. . _.. . ~ -
. +
I. Introduction The briefs of the Department of Justice, the Staff, and the Intervenors confirm that the adversaries of Consumers Power Company in this proceeding have failed to prove their case against the Company. Specifically, I the Company's' adversaries have: (a) f ailed to demonstrate that any " meaningful tie" or nexus exists ' between the Mid-land Units and the antitrust " situation" in Lower Michigan; (b) failed to reconcile their general monopolization theory to the facts of record in this case which contradict the
theory; (c) failed to prove that preferential access to the Midland Units and the Company's other bulk power fa-j cilities is necessary for the competitive or financial viability of the Company's smaller neighboring systems; a nd . ( d ) failed to take account of the inequitable, adverse impact which the relief they propose will have upon the Company, its rate-payers, and the investor-owned electric utility industry generally. A. Nexus As we demonstrated in our main -brief-1/ and reiter-2/ ate-in Section II of this Reply, our adversaries have been
-1/ Consumers. Power Company Brief in Support of its Pro-posed Findings of Fact and Conclusions of Law (herein-after " Consumers Power Co. Brief"), pp. 8-14.
1 2/ Cee pp. 12-26 infra. I
unable to demonstrate that the Midland Units will have any substantial impact at all on the antitrust " situation" in Lower Michigan. Rather, by resting their " nexus" theories upon vague references to nuclear power as "the wave of tne 3/ 4/ future,"- to "the energy crisis"~ or to " truisms applicable S to all cases", /our opponents seek to read the " nexus" pre-requisite out of Section 105c and the Commission's LP&L decision.
- 8. Monopolization Theory The other parties begin their antitrust argument by urging that this Board adopt a standard which ignores the antitrust laws and affords discriminatory access and prefer-ential coordination arrangements to smaller systems in all cases--a requirement that Congress explicitly declined to enact during the legislative process that led to the adoption of the 1970 amendments to Section 105c.~6/
As an alternative to tnat thesis, the other parties present an antitrust tneory that argues that the nation's pr iva te , investor-owned utilities have typically acquired their present size and their technical and economic configuration 3/ See pp. 15-17 infra. 4f See pp. 17-23 infra. 5/ See pp. 23-26 infra. 5 See pp. 27-39 infra.
by monopolizing activity. Under their theory, these activi-ties include aggressive and of ten predatory acquisition of competitors, predatory pricing and other predatory practices, and the' foreciosure of various types of coordinating activi-ties to those competitors which they are not able to acquire -- tnus establishing and enhancing a position from which each utility can control prices and restrict entry in its geograph-ical service area. Most striking about this theory is that it demon-strably does not apply to Consumers Power Company's policies or practices here under scrutiny. As we demonstrate in this Reply, une briets of our adversaries must repeatedly strain the recora to fit this tneory (or ignore it entirely in favor of equally strained interpretations of materials outside of the record which are typically inapplicable to Lower Michigan). Several examples will serve to demonstrate the pervasive gap oetween our opponents' generalized theory and the f acts per-taining to Consumers Power's conduct and market position as they nave been developed on the record. (1) Tneory: Private power companies have acquired and maintained monopoly positions through predatory pricing (price squeezes, pricing below cost, etc.) and other predatory 7/ marketing practices.- Fact: As our adversaries concede, there 7/ ~ See, e. g., Brief United States and Proposed Findings of Fact of the Department of Justice (hereinafter " Justice Brief"), pp. 178-182; Brief on Proposed Findings of Fact of Michigan Cities and Cooperatives (hereinafter "Interven-ors' drief, pp. 96-97.
f is no evidence of Consumers Power ever imposing a price squeeze on a customer, and Consumers Power's retail and wholesale rates during tne relevant period have been uniform within all classes and nondiscriminatory for all customers.-8/ (2) Theory: Private power companies as monop-polizers by definition have the power to control the prices 9/ (i.e., rates) of their smaller neighbors.- Fact: Consumers Power's neighboring systems typically charge rates up to 20% oelow Consumers Power's own prices which are subject to regulation by two regulatory commissions; and both the theory 10/ and practice of this regulation preclude monopoly pricing.-- (3) Theory: The monopolizing or dominant posi-tion of private power companies has resulted in substantial 11/ inj ury to neighooting utilities.-- Fact: With inconsequen-tial exceptions, Consumers Power's neighboring utilities since 1960 have prospered and grown at rates surpassing that of Consumers Power. Many have been a' ole consistently 1 8/- Justice Brief, p. 178; Intervenors' Brief, p. 53. 9/ Proposed Findings of Fact and Conclusions of Law of AEC Regulatory Staff (hereinafter " Staff Brief"), pp. 166-70. 10/ Consumers Power Co. Brief, pp.' 113-20, 126-27. Con-sumers Power Company Proposed Findings of Fact (here-inaf ter " Findings of Fact") 2.17-2.18; pp. 62-70.
. 11/ See e.g., Justice Brief, pp. 168, pp. 213-14; Staff Briel pp. 124-26.
1 1 I
--12/
_ to undersell Consumers Power in the marketplace. The profitability of such entities compares favorably with those of Consumers Power during the relevant period.--13/ In addition, no evidence suqqests that the Company engaged in unreasonable conduct that injured its neighbors.--14/ (4) Theory: Private power companies have strength-ened dominant or monopoly positions in geographical areas, inter alia, through the acquisition of competitors.--15/ Fact: Consumers Power's growth since 1960 has resulted almost entirely from a growth in its existing service area, and its acquisitions during this period have been inconsequential.--16/ (5) Theory: Private power companies, relying on monopoly or dominant positions, have foreclosed neigh-17/ boring entities from valuable coordinating opportunities.-- Fact: The record demonstrates that Consumers Power has enter ed into coordination arrangements with every entity in its service area which has requested such arrangements
~~12/ Consumers Power Co. Brief, pp. 126-27; Findings of Fact 2.17-2.18.
13/ Finding of Fact 3.29. 14/ Consumers Power Co. Brief, pp. 155-213; pp. 99-175 infra. 15/ Justice Brief, pp. 87-94.
~~16/ Consumers Power Co. Brief, op. 205-213; pp. 165-169 infra.
17/ Justice Brief, pp. 97-167; Staff Brief, pp. 61-74. T
from the Company and which has possessed the ability to meet its own load -(including appropriate reserve require-18/ ments). Our adversaries nave not been able to point to a single instance in which Consumers Power nas declined to enter into coordination arrangements with any entity wnich met minimal, accepted industry prerequisites for sucn arrangements. In sum, the monopolization theory of our oppon- . ents, whatever its general merits, is simply inapplicable to this case. hhile it is perhaps understandable that, for reasons of efficiency and economy, the Department and tne Staff seek to set forth a general theory applicable to an entire major industry, it is no part of the duties of this Hearing doard and the Atomic Energy Commission to
- - espouse such a theory or apply it to a record which is fundamentally at odds with it.
C. " Essential" or " Bottleneck" Facilities. I One of tne more glaring defects of our opponents' case is their f ailure to demonstrate that the smaller sys-tems need preferential access to nuclear generation or the otner relief they seek in order to ce competitively or
-19/
financially viaole. While their oriefs devote many pages 18/
-- Consumers Power Co. Brief, pp. 182-202; pp. 99-151, intra.
19/
-- This issue is treated more fully at pp. 15-26 and pp. 86-96, intra.
l 1
l l to showing tnat naving the option of obtaining preferential access may be desirable for a small system, our opponents patently do not estaolish that such access is "necessary" or " essential" in the legal sense, or that the Company's ex-clusive ownership and control.of its bulk power facilities creates a " bottleneck" situation contrary to the antitrust laws. It is uncontroverted, of course, that Consumers Power is the largest electric system in its service area and tnat, as such, the size and number of its generation and transmission facilities are considerably larger than those of its smaller neighbors. Arguably, this permits tne Company to take advantage of economies derived from its large scale, unit diversity, and coordination oppor-tunities that may be unavailable to smaller systems. Where tne analyses of the other parties break down, however, is in their argument that these advantages create a competi-tive imbalance; i.e., that they tend toward a situation in wnich Consumers Power generates and distributes power at lower average cost than its smaller ns ighbors and, tuereby, undersells them in the marketplace. There are two fatal defects in this argument. First, the Company sells wholesale power at its average costs to all those wnich seek it at rates regulated by the Fed-l
)
20/ eral Power Commis~sion,- so that other systems have access to whatever Denefits the Company derives from size advan-tages; secondly, the capital and tax advantages enjoyed by the municipal and cooperative systems permit them to offset whatever advantages the Company derives from its size and
-21/
to sell power at rates generally below those of the Company. - Thus, as our main brief demonstrated and as this Reply brief reiterates, the record is devoid of any evidence that direct access to the Company's large-scale f acilities is needed to assure the continued viability of these smaller systems or 22/ - to remedy any alleged anticompetitive imbalance.-- D. Relief. There is a fundamental illogic in the license conditions proposed by our opponents. First, in the name of competition, our adver-saries seek to compel a form of cooperation that will pro-mote cartelism rather than competition. For example, if, 23/ as our opponents propose,- the Company includes the bulk power ' requirements of the smaller systems in its genera-20/ -Consumers Power Co. Brief, pp. 117-120; pp. 77-78, infra. 21/ Censumers Power Co. Brief, pp. 125-133; pp. 97-98, infra. 22/
-- Consumers Power Co. Brief, pp. 145-154; pp. 15-96 and 86-96, intra, 23/ Justice Brief, p. 251; Staff Brief, pp. 150-51.
- 1
'l I
tion unit construction programs, all of the neighboring systems will be relying on the same bulk power supply j source , and the bulk power supply competition which our adversaries purport to champion will be foreclosed. The antitrust laws clearly should not be utilized to foster such anticompetitive consequences. Second, the contention that unequal parties must, under the antitrust laws, be treated equally is inherently 24/ illogical.- Such treatment would permit systems which lack the ability or willingness to engage in reciprocal coordi-nation servicca to receive coordination arrangements for ; their preferential benefit and to the Company's detriment.-- The remedies sought by our adversaries would result in an increased differential in the costs borne by the Com-pany's customers and by its smaller neighbors' customers.--26/ Although the creation of such a disparity is ad-vanced in the name of competition, our opponents do not explain, and we cannot fathom, what public policy is served by discriminating against the Company's customers in this manner. In any event, there is no antitrust law or policy
--24/ Justice Brief, pp. 147, 164; Staff Brief, pp. 97-101; Intervenors' Brief, pp. 29-31.
25/
~-
Consumers Power Co. Brief, pp. 193-94, 216-19, 228-33; pp. 103-128 and 183-188, infra. 26/ See e.g., Justice Brief, pp. 49-50.
which .per mits, much- less compels, this Board or the Commis-sion to fasnion relief whose purpose is to frustrate the economic and legal barriers to wasteful, duplicative com-Petition inherent in tne natura of the electric utility in-dustry or . adopted oy Congress. and the Michigan Legislature. Finally, our opponents would have the Board and-the Commission disregard that their proposed relief seeks to restructure the pluralistic electric utility industry as it nas long existed. The nation's electric utility industry is divided into two sectors: one consists of large, investor-owned utilities which obtain their invest-ment financing in the private money market and pay taxes like any other corporate enterprise. The other sector involves so-called puolicly-owned utilitie", consisting principally of federal projects, municipal sy:,tems and REA cooperatives. These systems enjoy substantial, artificial advantages involving subsidized financing and freedom from 27/ taxation.-- In Lower Michigan, the public and private utility sectors are, and have long been, in relative equilibrium -- apparently as a result of the f act that the scale advantages of private' systems such as Consumers Power are offset by the 27/ Consumers Power Co. Brief, pp. 125-133; pp. 98-99, infra.
t tax and financing advantages of the public power systems. This equilibrium has been fostered and maintained by the 28/ actions of. Congress and regulatory authorities.-- Its existence is acknowledged by the other parties as well.--29/ If the municipal -and cooperative systems are granted preferential access to the scale advantages of Con-sumers Power, as our. opponents propose in this proceeding, this equilibrium would be upset and the Company's ability to of fer competitive services in tne marketplace would be undercut. 30/ As we set forth in Section VI of this Reply brief,- the result j l would be a gross misallocation of economic resources. Congress clearly never intended such consequences in enacting the antitrust laws or Section 105c of the Atomic Energy Act -- vehicles which the Department of Justice and our other adversaries now invoke to promote this fundamental change in Lower Michigan's electric utility structure. --31/ 28/ See pp. 192-196, infra.
.29/- Justice Brief, p. 241, Intervenors' Brief, pp. 114-15.
30/ See pp. 192-196, infra.
--31/ Consumers Power Co. Brief, pp. 43-50; pp. 32-40, infra. l
II. In construing the " nexus" and other provisions of Section 105c, the briefs of the other parties mis-read or ignore .the Commission 's LP&L order, the leg-islative history of Section 105c, and the record of this , proceeding. A. Nexus Theories. The failure of the other parties to establish the requisite " nexus" between the Company's proposed activities under the Midland licenses and the allegedly inconsistent antitrust situation is strikingly highlighted by their briefs. As the AEC staff observed in its brief, "the requisite ele-ments of nexus [were] propounded in the Louisiana Power and i Light Company Memorandum and Order" of the Atomic Energy Com- ; 1/ mission.- Yet, despite this acknowledgment of the crucial i I authority in this area, not one of the parties seeking anti- , trust conditions in this proceeding attempts to justify its position in light of the " appropriate benchmarks"-2/ relating to " nexus" established by the Commission in LP&L.-3/
-1/ Staff Brief, p. 17 referring to Louisiana Power and Light Co. (Waterford Steam Electric Generating Station Unit 3) Dkt. No. 50-382A, Memorandum and Order of the AEC, RAI 73-9, 619 (September 28, 1973) (hereinafter LP&L Order).
2/ LP&L Order, RAI 73-9, at p. 620. 3/
~ The degree to which the legal nexus theories of the other parties are removed from the nexus standards put forward by the AEC in LP&L is illustrated by the Staff's position set forth at pace 110, footnote 53, of their brief. There, as authority for their view of nexus as a largely ephem-eral requirement, they cite a general dictionary defini-(cont.)
4
._w
Apparently because their " nexus" position is at odds with the Commission's LP&L decision, the other parties set-forth another " nexus" theory for which they provide n'o legal basis. Although the verbal formulations differ among the other parties, each claims, in essence, that because nuclear generating facilities (such as the Midland Units) will " strengthen" Consumers Power Company's electric system and thereby " maintain" any existing anticompetitive situation, the requisite nexus has been demonstrated. In the words of the AEC staff, the argument is that "[t]he addition of the 1300 mw Midland nuclear plant will helo enable Consumers to maintain its dominant position in its 4/ service area in Michigan's Lower Peninsula."- The Inter-venors would find nexus in the fact that "[t]he building of large nuclear units and attendant new 345 kv transmis-sion will do nothing to diminish this control [of bulk 3/ (cont.) tion (" connection, tie or link"), three cases (in-cluding one from the Oregon Supreme Court) concern-ing the " nexus" required for a state to be able to tan non-residents, and an 1877 Supreme Court decision (Pennoyer v. Neff, 5 Otto. 714) concerning the ties a non-resident must have with a jurisdiction before service by publication is permissible. Their reliance on such obscure and irrelevant authority underscores, we submit, the inability of the other parties to sat-isfy the LP&L standards. 4/ Staff Brief, p. 129 (emphasis added).
l l 5/ power facilities and interchange arrangements] . "~ Obviously, virtually nothing Consumers Power Com-pany would do in its corporate interest -- even meeting its payroll or paying its taxes -- could fail to satisfy these meaningless standards. Seeking to add at least an appear-ance of substance to the same test, the Department of Jus-tice asserts that:
"The only thing necessary (to estab-lish the requisite nexus] is that the e
license activities be found to contribute in a significant manner to the maintenance of a situation inconsistent with the anti-trust laws or their underlying policies."6/ However baldly or circumspectly they may be stated, these nexus tests asserted by the other parties cannot be reconciled with the more demanding standards established i by the Commission 1 in its LP&L Order, and by Congress in en-acting Section 105c of the Act. In addition, as we demon-strated in our main brief, the meaningless nexus test pro-pounded by the other parties does violence to the well-established principles of administrative law governing an agency's determination of the scope of its proceedings.-7/ l 5/ Intervenors' Brief, p. 7 (emphasis added). 6/ Justice Brief, p. 227 (first emphasis added, emphasis in the original) . second
~
7/ As to _ the LP&L Order, pp. 5-14. see Consumers Power Co. Brief, ' Regarding congressional intent, see pp. 14-24 and for administrative law principles ~, 24-38. pp.
l 1 l l Yet, even were their legal theory to be credited,
- .the parties proponnding -it have failed completely to make a showing that the Midland Units will, in fact , " contribute in a significant manner to the maintenance" of any alleged j anticompetitive situation, i.e., they have not shown how Con-sumers Power' Company's relative competitive position will i
be substantially improved by the construction and operation of the Midland Units. l Our opponents make three arguments in seeking to
- show that the Midland Units will significantly contribute i
to an alleged antitrust inconsistency. First, they con-I tend that the " fact" that nuclear generation is the " wave of the future" intrinsically establishes that ownership of ! a nuclear unit bestows a significant advantage. Second, they assert that Midland will result in an unfair advantage to Consumers Power because of the " energy crisis". Third, the parties, particularly the Department of Justice, resur rect the " commingling" theory and other " truisms" of the 4 electric utility industry. We will discuss the deficien- i cies of each of these nexus arguments in turn.
- 1. "The ave of the Future".
The other parties contend flatly that the Midland Units will contribute significantly to the maintenance of an antitrust ' inconsistency simply because the electric utility industry is increasingly turning to nuclear energy as a source
- . . . _ = - . . . -- - - -.-
.8/
of fuel for base load units.- For example, in a paragraph completely devoid of record citations or other documentation, the Staff's brief claims that "[t]he impact of nuclear tech-nology will foster greater pressures for increased concentra-9/ tion and reduced diversity in the electric utility industry."- Whether or not nuclear-fueled generation is in 10/ fact the " wave of the future",-- any gradual trend toward an increased reliance upon nuclear capacity does not in-8/ See, e.g., Staff Brief, pp. 124-26, 172; Intervenors' Brief, pp. 8, 14-15, 20. 9/ Staff Brief, p. 125.
--10/ The parties rely primarily on the 1970 National Power Survey in support of their argument that nuclear gen-eration is the " wave of the future". See, e.g., Staff Brief, pp. 118-121; see also Justice Brief, p! 221.
While the Power Survey, which uses 1968 data through-out, may have been authoritative at the time of its preparation, it is out of date today, and consequently of little probative value. Indeed, in 1970 the AEC projected 150 million kw of nuclear generation would be operational in 1980 but in 1974 projects only 85 to 112 million kw, a reduction of 43 to 25%. " Nuclear Power Growth, 1974-2000" (WASH-1139) (74), p. 17. Even more dramatic evidence of the other parties' re-liance on outmoded projections to show the supposedly general adoption of nuclear generation is found in the Staff's citation of the 1972 edition of that AEC publi-cation, entitled " Nuclear Power Growth, 1973-2000" (WASH-1139) (72), p. 4, Staff Brief, p. 120. "'h e 197 4 edition of the very same publication, which the Staf f , neglects to cite, states at p. 17 that its present ' forecast is "somewhat lower" than that of the 1972 ' edition relied upon by the Staff. Indeed, the latest projection shows only 85 to 112 million kw of nuclear generation capacity in 1980 as contrasted to the earlier 132 million kw projection -- a reduction of up to 36%.
trinsically demonstrate that the construction of the Mid-i land Units will " contribute in a significant manner to the maintenan.9 ' of an antitrust inconsistency. Without a demonstration of a resultant change in relationships be-tween those who own nuclear generation units and those who do nc ., a change in fuel usage is irrelevant to the question whether the requisite nexus exists between the Midland Units and any alleged situation inconsistent with the antitrust laws.. 11/ No such demonstration has been made in this proceeding.--
- 2. "The Energy Crisis".
The other parties also engage in a sweeping invo- , cation of the " energy crisis" in an attempt to make the req-uisite nexus showing. The arguments as set forth in their j briefs in this regard appear to be no more than restatements i of their " bottleneck" theories. But whatever their context, the factual basis for the " energy crisis-bottleneck" argument is totally lacking. Regarding fossil fuel availability, the other parties offer no evidence of record to support their asser-tion that nuclear energy will be the only available fuel for base load generation units in the future.-- 12/ Significantly, i 11/ See also Finding of Fact 1.'08. 12/ ' ~~ Justice Brief, pp. 219-21; Staff Brief, pp.116-18; Intervenors' Brief, pp. 35-36. i 7 , . . - - .-. -
none of the other parties called fuel supply expert witnesses to support their claims in this regard. Particularly with regard to coal, we are confident that, had the other parties raised this issue on the record in this proceeding, they could not have established that fossil fuels for generation units will be unavailable in the future; obviously, they cannot prevail on this point on the basis of a naked undocumented assertion. Indeed, the argument that only nuclear-fueled generation units are feasible in the future is inherently unbelievable. Were utilities in Lowc r Michigan faced with a future unavailability of fossil fuels, neither Consumers Power Company ' nor its neighbors could operate. The most
;
convincing evidence that fossil fuels are expected to be available is the fact that Consumers Power is constructing 13/ 2100 mw of additional coal and oil-fueled base-load capacity -- and several of its smaller neighbors are seriously consider-14/ ing construction of sevaral 350 mw coal-fueled units. In apparent recognition that they have not estab-lished the future unavailability of fossil fuel, the other parties next argue that the costs of nuclear generation will < 4 13/ Finding of Fact 1.13. 14/ Finding of Fact 2.64.
)
/- l l be so much lower than those of fossil-fired generation as to create an advantage which will " contribute in a significant 15/ manner to the maintenance" of an anticompetitive situation.-- l l Again, the factual record does not support the claim. Instead of presenting expert witnesses, the Depart- ! I ment of Justice and the Staff have chosen to rely on off-l the-record and out-of-date documents: the 1968 projections of the FPC National Power Survey--16/ and an equally out-dated 17/ 1971 study prepared by Consumers Power Company.-- Had the j question of comparative unit cost been reviewed in light of l
.today's circumstances, we anticipate that the increase in fossil fuel prices since the aforementioned data were com-piled might well be shown to be exceeded by the extraordinary --15/ Justice Brief, pp. 221-23; Staff Brief, pp. 78, 118-20; Intervenors Brief, pp. 35-36.
16/ Justice Brief, p. 221. 17/ Applicant's Supplemental Environmental Report (Exhibit 236) cited in Justice Brief at pp. 221-22, and the Staf f Brief, pp. 117-18. The Department and the Staff both fail to note that this Report was submitted October 19, 1971. As an indication of the degree of obsolescence reflected in these 1971 figures, at that time the estimated capi-tal cost of the electrical capacity of the Midland Units was $430 million, or $331 per kw.(Exhibit 236, p. 5.2-4). On April 2, 1974, witness Mosley testified in this pro-ceeding that Midland's anticipated capital cost will be
$569 per kw, with an energy cost of about 16 mills per kwh or about twice the 1971 estimate upon which the De-partment relies. (Mosley 8532).
increases in construction- and financing costs, both especially crucial to nuclear plants, which are extremely capital inten-18/ sive.-- Significantly, the nost recent relevant evidence of record is' a study made by consultants for the Lansing sys-tem using 1972 data which showed that purchasing unit power from a nuclear facility was no more economical than con-structing fossil-fired units.--19/ More recently, the spate ' 20/
~-
of planned nuclear unit cancellations and postponements (including cancellation of Consumers Power's next nuclear 21/ unit)-- because of the high cost or complete unavailability 22/ of capital-- suggests that if the other partiec had relied 18/ As to the capital intensive character of nuclent gener- 1 at: ion, see Mayben 2560, 2808. ' 19/ Exhibit 12,008, p. S-4; Finding of Fact 1.11. f0/ See Table I, attached to this Reply brief.
--21/ Answer of Consumers Power Co., Consumers Power Co.
(Quanicassee Units 1 and 2), AEC Dkt. Nos. 50 375 and 50-476, August 2, 1974. As this document makes plain, the Department of Justice's characterizstion, Justice Brief, p. 218, of Quanicassee as "temporar-ily deferred" is incorrect.
)
i 22/
-- An Atomic Safety and Licensing Board recently pointed l to "the present difficulty of all utilities in raising capital for construction -costs" as a principal reason for a postponement, Carolina Power & Licht Co. (Sheaton Harris Nuclear Power Plant Units 1, 2, 3& d), AFC Okt.
Nos. 50-400, 50-401, 50-402, and 50-403, ?reliminary Conference order, July ll, 1974, p. 2. See also, as other very recent instances in which this factor was crucial, letter of R. L. Mittl, Public Service Electric (cont.) L
on up-to-date data they could not have shown the kind of significant cost advantages from nuclear generation which they claim here as evidence of nexus between the Midland 23/ Units and the alleged antitrust inconsistency.-- Regardless of what the record might have shown, the only cited evidence of record, other than purely conclu-22/ (cont.)
& Gas Co. to A. Giambusso, AEC, Public Service Electric
& Gas Co. (Salem Nuclear Generating Station), AEC Dkt.
Nos. 50-272 and 50-311, September 25, 1974, p. 2; Richard E. Raymond, Florida Power Co. to W. G. Mcdonald, AEC, Florida Power Co. (Florida Units 1 & 2), AEC Dkt. 50-530, September 24, 1974 (attached press release); R. C. Arnold, Metropolitan Edison Co., to W. G. Mcdonald, AEC, Metro-
?olitan Edison Co. (Three Mile Island, Unit 2), AEC Dkt.
No. 50-320, September 13, 1974, c. 1; Ivan R. Finfrock, Jr., Jersey Power & Light Co. to W. R. Mcdonald, AEC, Jersey Power & Light Co. , (Forked River Nuclear Gener-ating Station, Unit 1), AEC Dkt. No. 50-363, September s 13, 1974, p. 1; and a memorandum of September 19, 1974 of L. L. Kinter, AEC, in Detroit Edison Co. (Enrico Fermi Atomic Power Plant, Unit 2), AEC Dkt. No. 50-341,
- p. 1.
23/ The suggestion of the other parties that the Midland Units represent a sort of economic bonanza for Con-sumers Power finds no support in the record. Indeed, Company witnesses Aymond, Jefferson and Mosley testi-fled that it was not even certain whether or not Mid-land power would be more costly than the Company's average system generation costs when Midland comes on line [Aymond 6352-6353; Jefferson 8434; Mosley 8532-8533]. The only caveat to this line of testimony was witness Aymond's observation that Midland would be the " lowest cost facility" of future units because
" construction costs keep going uo all the time".
[Aymond 6352-6353] This observation should not, however, be mischaracterized as support for the view that Mid-land represents an economic windfall to the Company. l
~
24/ sory assertions,-- provides no support whatsoever for the
" energy crisis" argument of our adversaries. The excerpt from witness Stafford's cross-examination cited ~-25/ by the Department of Justice is misleading since it involves only a comparison of coal-fired and nuclear-fired operating costs which are, 26/
of course, only a portion of the total cost of generation.-- Except for such inaccurate citations, the other parties offer 27/ only statements generally extolling nuclear energy-- or con-firming that the Company projected Midland would be somewhat less expensive for its needs than a fossil-fueled alternative which it could construct -- a conclusion inherent in deciding to build the plant.--28/ Such evidence fails te refute our show-
--24/ See for example, Mr. Mayben's progressively more equivo-cal characterizations:
" nuclear power does hold out [1] a promise of low-cost power supply, [2] at least the lowest or [3] among the lowest expanding into the future ... " Tr. 2825, cited at Staff Brief, p. 152, (brackets added).
25/. Justice Brief, pp. 222-23.
--26/ Capital costs are the other principal component. Nuclear plants tend to have high capital costs and low operating costs while fossil fueled plants have the opposite char-acteristics. Mayben, 2560, 2808. The' quoted passage is also misleading in that the Campbell Units in question were placed in service in 1962 and 1967, more than a decade prior to the Midland Units. (Ex. 12022, p. 436A).
27/ Staff Brief, p.118; Justice Brief, p. 222. 28/ Staff Brief, pp. 118-119; Intervenors' Brief, p. 36; Justice Brief, p. 222.
-ing that smaller systems have economical bulk power supply alternatives available to them either through wholesale ser-29/
vice from Consumers Power and other suppliers - or by exploi-tation of their capital and tax advantages through self-gen-30/ eration.-- In sum, as our main brief explains in discussing 31/ the " bottleneck" theory,-- the record in this proceeding will not support a finding that the Midland Units provide the Com-pany with a " unique" source of low cost bulk power that is unavailable to smaller neighboring systems. While the other parties propose that the " nexus" standards of LP&L be re-placed by a " nexus" theory founded upon the " energy crisis" and the unique availability and lower cost of nuclear units, the record of this case does not supoort the theory.
- 3. " Commingling" and Other " Truisms".
In its effort to show that the Midland Units will make a " substantial contribution" to the maintenance of an antitrust inconsistency, the Department of Justice also seeks to resurrect the discredited " commingling" theory which it
)
29/
-- Consumers Power Co. Brief, pp. 118-24, 214-16; Section IV-B, infra. l 1
30/
-- Consumers Power Co. Brief, pp. 125-33; Findings of Fact 3.11 and 3.18.
31/ Consumers Power Co. Brief, pp. 145-54. i i l l l
l l l set forth in its pretrial brief.--32/ In effect, the argument goes that (1) Consumers Power is " dominant" in its service area; .(2) Consumers Power will " commingle" Midland power through its transmission system with the generation capacity of its other generation units; and (3) the addition of this power will " strengthen and expand" the Company by enabling it to meet its load growth and contractual obligations to coordination partners. The argument in support of Justice's position is, of course, unconvincing. As the Commission's LP&L decision recognized, the argument rests upon " truisms applicable to 33/ all cases."-- An electric utility has natural monopoly char-acteristics and, as such, is generally the only or the " dom-inant" supplier in its service area. Nuclear units are not built in isolation, but rather are invariably commingled or integrated into the constructing company's system. New units are, of course, necessary to permit the electric utility to meet expanding load growth and other public . utility obligations. The Department cites these truisms in support of its conclusion that "[ilt is not necessary
--32/ Compare Prehearing Brief of the United States Depart-ment of Justice, pp. 70-72, with Justice Brief, pp.
225-227. The theory remains credicated on the obser-vations: "This power will not and cannot be marketed in-isolation...." " Midland power will strengthen and expand Applicant's system...." 33/ LP&L Order, RAI 73-9 at 621. l l
that the license activities themselves be inconsistent 34/ with the antitrust -laws or their policies".-- But this view is ~ contradicted by a passage from the Joint Committee report explaining the 1970 amendments to Section 105c, H.R. Rep. No. 1470, which instructs the Commission that the appli-cable standard is whether "the activities under the license would, when the license is issued or thereaf ter , be inconsis-tent with any of the antitrust laws or the policies clearly 35/ underlying the se laws" .-- In sum, the inadequacy of the other parties'
" nexus" arguments is not confined to the deficiencies of their legal theory reviewed in our main brief.--36/ Rather, even accepting arguendo the nexus criteria they propose, our opponents have failed to make the requisite factual showing. In addition, by proposing nexus theories which are applicable in all cases, our opponents would delete " nexus" standards from Section 105c and render the Commis-37/
sion's LP&L decision a nullity.-- Thus, our adversaries 34/ Justice Brief, p. 227 (emphasis in the original) .
--35/ H . R. Rep. No. 1470, 91st Cong. 2d Sess. (1970), U.S.
Code Cong. & Admin News, p. 4994, Staff Brief, p. 19-20 (emphasis supplied). 36/ ' Consumers Power Co. Brief, pp. 5-37.
~~37/ Although the other parties do not address the LP&L're-quirements, ~they do make scattered factual assertions
- that may relate to those standards. These are simply erroneous. For example, they assert that "the location (cont.)
progese, in effect, that standard preferential unit access, coordination, and wheeling arrangements should be afforded to intervening systems in all cases. As we ex-plained in our main brief and reiterate in the next section of this Reply, Congress explicitly declined to enact such a requirement during the legislative process that led to the adoption of the 1970 amendments to Section 105c. 31/ (cont.) and use of the company's 345 kv lines" were " influenced" by Midland, citing no authority whatsoever. Staff Brief,
- p. 114. The statement, "The majority of the additions to the transmission network will be used to integrate
... the Midland plants," is, we are told, " [d ] erived from Consumers' Federal Power Commission Form 12 for the year ending December 31, 1971; and [the 200-page]
' System Performance and Transmission Planning', Volume II, a Report by ECAR to the Federal Power Commission, Apr il 197 2. " The " derivation" is not explained and is not evident from the cited documents. Witnesses Stafford and Lapinski testified that only 28 miles of 345 kv lines are being built in conjunction with, or in con-templation of, the Midland project. See Finding of Fact 1.05 Similarly, in four separate passages, Justice Brief,.
pp. 5, 190 and 192, Staf f Brief, p. 121, the other parties assert that Consumers Power could not erect Midland were it not for its coordination arrangements with other utilities or could do so only by increasing its reserves to 40%. The only authority cited for this proposition are generalized statements that installa-tion of large units would require increased reserves if a utility operated in complete isolation. Yet witness Mosley testified that there is no causal or other spe-cial relationship between the Midland Units and any of the Company's coordination arrangements and that the size of the units was well within the range of the
. Company's internal requirements. See Finding of Fact 1.07; Mosley 8531.
- - - - -~,av -
B '. Avoiding Standards of Proof. The other parties rely on several phrases in Sec-tion 105c of the Atomic Energy Act and in the legislative his-tory of that Section in an effort to demonstrate that they can ignore the traditional standards of proof required of those seeking relief under the antitrust laws. We submit that their strained reading of Section 105c and its legislative history should not obscure the actual intent of Congress in enacting this statute. In the context of the Atomic Energy Act, the Ken-
-38/
nedy-Aiken bill of 1967 - would specifically have required,. without reference to any antitrust standard, that any utility erecting a nuclear f acility must of fer joint ownership, unit power sales and wheeling arrangements to all nearby systems. But the Kennedy-Aiken proposal was rejected in committee 39/ after extensive hearings.-- 40/ As the Department of Justice acknowledges,-- the
--38/ S. 2564, H.R. 13828, 90th Cong., 1st Sess. (1967). The relevant portions 'of the bill are reproduced in Con- l sumers Power Company App. II-52. (See Consumers Power Co. Brief, p. Sn.2. Supplemental legal materials ;
attached to this brief are cited in the following format: " App. S-1.") 39/ Hearings on Licensing and Regulation of Nuclear Reac-tors before the Joint Committee on Atomic Energy, 90th Cong., 1st Sess. (1967); Hearings on Participation by Small' Electrical Utilities in Nuclear Power Before the Joint Committee and Atomic Energy, 90th Cong. , 2d Sess. (1968). 40/ Justice Brief, pp. 215-216. I I i
d rejection of Kennedy-Aiker, set the - stage for the adoption of the present Section 105c. The oresent law is, in the words of its Senate floor manager, "a carefully perfected compromise . . . (which] constitutes a balanced, moderate 41/ framework for a reasonable licensing review procedure."-- It rejected both extremes -- the Kennedy-Aiken approach and ' 42/ the absence of any competitive review-- -- in favor of a review procedure which required that account be taken of the 43/ , antitrust laws.-- Yet, despite this legislative history, which is not open to serious controversy, the other parties argue ' that the mandatory unit access-coordination-wheeling approach of
~
the rejected Kennedy-Aiken bill was incorporated sub silentio i- into Section 10Sc. In part, their argument rests upon a novel J reading of two applicable phrases: " inconsistent with the antitrust laws" and " policies under the antitrust laws". This position, we submit, is not only plainly incorrect as a mattar of law, but also constitutes no more than a thinly-veiled i- . 41/
-- Remarks of Senator Pastore, 116 Cong. Re c . S . 39619 (December 2, 1970).
42/
-- See Cities of Statesville v. AEC, 441 F.2d 962 (D.C.
UTr. 1969), holding antitrust review procedures in-cluded in the Atomic Energy Act prior to 1970 to be inoperative. 43/
-- Senator Pastore's remarks are quoted more extensively in Consumers Power Company Brief, p. 20.
l l attempt to win at the Atomic Energy Commission the same Q battle which was lost before the Congress during the legis-lative process which led to enactment of the present Section 105c.
- 1. " Inconsistent with the Antitrust Laws."
In seeking to avoid the traditional standards of antitrust law, the other parties first attach crucial sig-nificance to a distinction between inconsistency with the antitrust laws and violation of those laws. The S ta f f 's brief, for example, asser ts that "a situation inconsistent with the antitrust laws is quite different from a violation 44/ of such laws,"-- while the Department of Justice asserts that it may prove an inconsistent situation "withcut proof of intent and anticipated ef fect" required to demonstrate a violation of the monopolization provision of the Sherman 45/
~-
Act. 44/ Staff Brief, pp. 18-19. 45/ Justice Brief, p. 265. See also Intervenors' Brief, pp. 80-81. As a further example of its unwavering quest to avoid traditional antitrust standards, the Staff Brief at pp. 21-24 excerpts from Section 7 of the Clayton Act the words "may be substantially to- lessen competition" as though they stood alone as a general standard for ' evaluating antitrust inconsistency. Reference to the entire test of Section 7 shows that these words are only directed toward various types of acquisitions or mergers. l'
l These- unsupported assertions cannot be reconciled with the legislative history of Section 105c. When the con-cept of antitrust inconsistency wos first introduced into the Atomic Energy Act, the Joint Committee on Atomic Energy stated flatly that the Section "provides for hearings and judicial review in ca.se there is any claim . . . that a pro-46/ posed license . .. would violate the antitrust laws."-- The Joint Committee also addressed the question in proposing the 1970 amendments to Section 105c and again stated explicitly that the inconsistency concept "was intended to be the 47/ equivalent of actual violation of the antitrust laws."~~ The only support of fered by any of the three op-oosing briefs for their contrary construction of the "incon-- l sistent" language are two oassages in the aforementioned 1970 l , JCAE repor't ( h . R. Rep. No. 1470) that unambiguously rejected l i 48/ their in te r pre ta t ion . -- Those passages instructed the AEC to base its finding "on reasonable probability of contravention". In using that phrase , however , the Committee was not defining inconsistency. As the report explained: 46/ S. Rep. No . 1699, 83d Cong., 2d Sess., U.S. Code Cong.
& Admin. News 3456, 3476 (1954), also published as H.R.
Rep. Mo. 2181, 83d Cong., 2d Sess.- (emphasis added). 47/
-~ M.R._ Rep. No. 1470, 91st Cong., 2d Sess.,0.s. Code Cong.
& Admin. News, 4991 (1970) (emphasis added). I 48/. ' Justice Brie f, p.183; Intervenors' Brief, p. 81; Staff Drief, pp. 19-20.
t
, g , , - - - - - - ,- ,.~,.s , - , - , - ,-,,--,,r.,,,-,,,-...,,--o-w w- - , , ,p. ---,
"It is intended that, in ef fect, the Com-mission will conclude whether, in its judg-ment, it is reasonably probable that the activities under the license would, when the license is issued or thereafter, be Tnconsistent with any of the antitrust laws or the policies clearly underlying these laws." 49/
Thus, far from explaining the concept of inconsis-tency, this passage merely elucidated how the AEC is to ap-proach the problems of prediction inherent in anticipating the impact of a not-yet-constructed plant. The passage in no way contradicts the clear statement elsewhere in the Com-mittee's report' that a situation " inconsistent" with the antitrust laws is meant to be the equivalent of an anti-50/ trust violation.--
- 2. Antitrust Policies.
The other parties also read the phrase " antitrust policies" in the legislative history of Section 105c as ex-cusing their failure to demonstrate that Consumers Power 51/ has violated antitrust laws. Relying upon this language,~~ 49/ H.R. Rep. No. 1470, suora at 4994 (emphasis added).' The standard of " reasonable probability" of an anti-competitive effect is, of course, borrowed from cases under $7 of the Clayton Act. See e.g., Brown Shoe Co. v. United States, 370 U.S. 7747 723 n.39 (1962). tee Court observed there that "the very working of 57 requires a prognosis of the probable future effort of the merger." 370 U.S. at 332 (emphasis in the original) . 30/ -- For a full treatment of this issue, see our main brief, pp. 38-43. 51/ -- This phrase is, of course, not found in the Act but only in the JCAE report. H.R. Rep. No. 1470, supra at 4994.
. l l
our opponents would transform Section 105c into a require-ment that all large systems must assist small ones to compete more vigorously.
. In support of this novel thesis, reliance is placed uoon two cases, which in our view are wholly inapposite.
One of the cases, Northern Pacific Railway v. United States, 52/ 356 U.S. 1, 4-5 (1958),-- states only in the broadest dictum that "[t]he Sherman Act was designed to be a comprehensive charti.- of economic liberty aimed at preserving free and S .ij unfettered competition . . . .'~~ Even assuming that the cartelism proposed in the Kennedy-Aiken approach could be termed the " free and unfettered competition" to which the Court referred, there is nothing in Northern Pacific's general statement that suggests an affirmative duty to share facilities with one's neighbors or enter into joint ventures with them.
--52/ Quoted in Staf f Brief, pp.17-18, and Justice Brief, op. 183-184.
53/ Obviously, Northern Pacific's introductory dictum must be read in the context of the opinion's holding that the type of tie-ins with which it was dealing were "because of their pernicious effect on competition and lack of any redeeming virtue ... conclusively presumed to be unreasonable . . . . " By contrast, using the same terminology, the Supreme Court has just held that where " unfettered competition" is limited or barred by regulation, no antitrust issues are raised by resulting market concentration or parallel behavior. United States v. Marine Bancorporation, 94 S. Ct. 2856, 2875 and fn. 34 (1974).
. 1
- 33'-
The second case on . which our adversaries rely l l with regard to alleged " antitrust policies," is Northern Securities Co. v. United States, 193 U.S. 197 (1904). This decision is cryptically quoted by the Department of Justice
'for the proposition that "[t]here is a potency in numbers when combined ..." If tnis excerpt seeks to suggest an antitrust hostility to larger firms as such, it is mislead-ing since the Supreme Court has repeatedly held to the con-r
- 54/
trary.-- In addition to these references to the two phrases from the legislative history of Section 105c, the other par-ties of fer no credible authority in support of their claim that traditional standards of antitrust proof can be ignored in this proceeding. Except for the two inapplicable cases and citations to the out-dated theories of academic commenta-55/ tors,- the only antitrust analysis offered by the other parties is their attempt to transform antitrust proscription of a " bottle-neck" into an affirmative duty that a large firm must share its exclusively-owned - resources with all smaller firms. Thus, 54/ See, je.., Times-Picayune Pub. Co. v. United States, 3T5 U.S. 594 (1953); United States v. Swift & Co., 286'U.S. 106, 116 (1932). 55/ Cited are Professor Rostow's 1948 book, A National Policy for the Oil Industry, and a British scholar's 19 60 st udy , A . D. Neale, The Antitrust Laws of the U.S.A. -Neither commentator 's ideas have been endorsed , by the courts and, we submit, are irrelevant to "the ; established policies of the antitrust laws." i 1
.- ._ _ _ _ - - - - - - _ - .__...---,-....___,_m,. , ,,
the Staff's brief argues that the " bottleneck" theory is applicable because "the right to have access to and choose the best alternative for a particular system is paramount to the continuation of the pluralistic industry as it exists 56/ today."~- As we will review more fully in our discussion of the " bottleneck approach," the assertion that a system may demand that a competitor provide it with a range of alter-native facilities or sources of supply, even .to the point of entering into a joint venture with it, is totally foreign to 57/ to the antitrust laws.-- Beyond these few attempts to find antitrust support for the relief they seek, the other parties point to various statements of oresent and former public officials and to the introductory section of the Atomic Energy Act in urging this Board, as a matter of public policy rather than antitrust analysis, to incorporate the rejected Kennedy-Aiken approach into Section 105c. An analysis of the referenc =s they cite, however, merely confirms the weakness of their case. For examp2 9, the Department of Justice places great reliance on the tes.imony of a witness, Leland Olds, at one of the hearings that led to the 1954 Atomic Energy Act. Indeed, the Department contends that "[i]n enacting Section Sf/ Stsff Brief, p. 77. 57/ See IV-C, infra.
i l l l SR/ 105c, Congress adopted the Olds-Wein view ...."-- The ' e-partment of fers no explanation as to why Mr. Olds, one of the 59/ 163 witnesses at the 1954 hearings on the Atomic Energy Act, should be deemed to reflect congressional intent in en-acting this legislation. In fact, Mr. Olds was urging the Joint Committee on Atomic Energy to undertake a course fun-damentally inconsistent with the legislation it actually en-l acted; he was advocating a set of principles which he termed a l l
" Federal power policy", but which made no reference at all to '
the antitrust concepts ultimately incorporated in the Act.--60/ 53/
~~
Justice Brief, p. 133. See also the similar assertions of Mr. Olds' allegedly crucial role at Justice Brief,c. 214. Hearings before the Joint Committee on Atomic Energy on Atomic Power Development and Private Enter-prise , 8 3d Cong . , 2d Sess., pt. 1 (1954) (hereinafter cited as 1954 Hearings). In 1954 Dr. Wein was an employee of Slick Airways and there is no evidence that he played any role whatsoever concerning the 1954 Act. (Wein 2 after 3979) 59/ See, e.o., 1954 Hearinas at 524. Key aspects of his proposal included the incorporation in the Atomic Enercy Act of provisions paralleling the hydroelectric licens-ing provisions of the Federal Power Act. One alter-native he proposed was "to have an am^endment to the Federal Power Act which would bring atomic as well as hydroenergy into the field of the Commission's licens-ing function." 1954 Hearings at 537. 60/
-- The Department also quotes Mr. Olds' testimony, 1954 Hearings at 530-31 (Justice Brief, pp. 131-33) as the main support for its attack on the adequacy of regulation.
! Aside from the dubious probative value today of a 1954 l description of academic papers delivered in 1937, it is l plain that the professors to whom Olds' alluded were l describing the analysis of state regulatory deficiencies in the early Thirties that underlay the early New Deal (cont.)
1 Equally irrelevant to the legislative history of Section 105c is the testimony of former FPC chairman Joseph 61/ C. Swidler, relied upon by the Intervenors.-- Mr. Swidler 's quoted testimony was wholly unrelated to antitrust legisla-tion; rather, his testimony concerned a bill which would have
-62/
deprived the FPC of its broad regulatory authority. - Mr. Swidler's efforts were successful and the FPC retained its authority to preclude an electric utility from exercisina 63/ monopoly power in its bulk power operations.-- Thus, Mr. Swidler's testimony is irrelevant to this proceeding -- except perhaps in highlighting the FPC's important regu-latory role in the electric utility industry. The Department of Justice and the Intervenors also place great stress on the remarks of Senator Aiken regarding
-64/
the purposes of Section 105c. - However, the statements of {0/ (cont.) program of subsidizing duplicative public oower systems, a policy largely abandoned after the adoption in 1935 of Title II of the Federal Power Act. See R. Hellman, GOVERNMENT COMPETITION IN THE ELECTRIC UTILITY INDUSTRY, 18-37 (1972), a pro-public power source relied upon by Intervenors (Intervenors' Brief, p. 104). 61/ Intervenors' Brief, p. 64. f2/ S. 218, 39th.cong., 1st Sess. (1965). {3/ See Consumers Power Co. Brief, pp. 118-124. {4/ Justice Brief, pp. 115-16.
Senator Aiken, the principal author of the rejected Kennedy-Aiken bill are by no means authoritative in interpreting Sec-tion 105c. In the same Senate speech the Department auotes, Senator Aiken conceded that his own expansive views had not 65/ influenced his JCAE colleagues.-- Elsewhere, he acknowledged that Section 105c " cut back on the scope of AEC consideration 66/ of antitrust issues."-- In fact, the House co-author and the Senate floor manager of the bill which became the present Section 105c also took public issue with Senator Aiken's eleventh hour efforts to rewrite the legislative history of 67/ Section 105c.-- Thus, Senator Aiken's position clearly represents the view which the Congress rejected, not that which it incorporated into Section 105c. Perhaps the most surprising authority cited by the other parties in support of their argument that they 65/
-- Senator Aiken stated in this regard: "I have repeatedly pressed for corrective action, but I have made little progress in the legislative field." Hearinos on Pre-licensing Antitrust Review of Nuclear Powerplants,"~71st Cong., 2d Sess., part 2, at 556 (1970), reprinting remarks made on the floor of the Senate, March 4, 1970, cuoted in Justice Brief, pp. 215-16.
66/
" Dissenting Views on H.R. 18679" (Draft dated Sectem-ber 14, 1970), p. 2, attached as. Aopendix A to " Reply of the Department of Justice on Issues Other Than Dis-qualification" filed June 9, 1972 in this proceeding.
67/
~~
See, e.g., remarks of Senator Pastore and Rep. Hosmer, quo ted . at Consumers Powe r Co. Brief, n. 20, I l L i
need demonstrate no antitrust violation in this proceeding is Section 1 of the Atomic Energy Act, 42 U.S.C. 42011, "" * :h speaks generally of a purpose to " strengthen free competition 68/ in private enterprise."-- The legislative history of the 1954 Atomic Energy Act, 68 Stat. 934, makes clear that, far from referring to electric utility competitive practices, this pro-vision referred to the congressional intent to expand the role of private industry as opposed to that of the federal govern-ment in developing nuclear technology -- an intent manifested in the obligatory cross-licensing of patents and the expanded 69/ access to nuclear information provided for by the Act.-- 69/ Justice Brief, p. 228; Intervenors' Brief, p. 75. 69/ ~~ The emphasis on patent issues was noted et Justice Brief,
- p. 214. For an example of that concern, see S. Pep. No.
1699, 83d Cong . , 2d Sess. , U.S. Code Cong. and Admin. News, 3464 (1954) stating:
"This report has already summarized the con-siderations underlying the strinaent prohibi-tion of the Atomic Energy Act of 1946 against private participation in atomic eneroy. It has also made clear that changing conditions now not only permit but require a relaxation of the prohibitions if atomic energy is to contribute in the fullest possible measure to our national security and progress.
We are mindful of the fact that in the immedi-ate future, relatively few firms may be involved in this effort. We acknowledge that dangers of restrictive patent practices are present, though (cont.)
l Thus, the passage has no bearing whatsoever on Section Inse. As this review of the authority they cite reveals, the other parties have eschewed reliance upon antitrust laws in interpreting Section 105c and have chosen to utilize Sec-tion 105c to raise a purely political auestion: whether, through the imposition of mandatory unit access, coordina-tion, and wheeling, laraer utilities should provide the small systems preferential advantages at the expense of the larger systems. In its principal brief, Consumers Power Company has set forth the principles which Congress established in 70/ . amending Section 105c in 1970.-- These stand in sharp con-trast to the extended list of preferential forms of treatment for public power entities and other small systems tne other parties deem, with no real basis in antitrust anal-t ysis, to be compelled by this legislation. The Board's ac-ceptance of this approach, which Congress rejected in the Kennedy-Aiken bill, would , we submit, be inappropriate and plainly contrary to congressional intent. 19/ (cont.) not inherent, in such a situation. Accordingly, we recommend to the Congress that holders of patents on inventions of primary imoortance to the peace-time uses of atomic energy be recuired to license such patents to others in return for f air royal-ties. This requirement of compulsory licensing. will apply to all patents in the field which are sought in the next 5 years." 70/ -Consumers Power Company Brief, pp. 43-50.
1 III. The relevant . bulk power and retail market definitions proposed by the Department of Justice ignore legal principles applicable to the factual record of this proceeding. A. Bulk Power Markets. The post-trial briefs in this proceeding have sub-stantially narrowed the range of controversy regarding the definition of the bulk power markets relevant to this pro-ceeding. In its main brief, Consumers Power proposed a relevant market definition which encompassed all of the bulk power alternatives of the Company's smaller neighboring sys-tems; i.e., self-generation, wholesale purchase, and coordi-nation exchange. The AEC Staff has substantially adopted 1/ Consumers Power Company's market analysis- while the Inter-2/ venors apparently regard market definition as irrelevant.
.The Department of Justice, however, still argues that there are two relevant bulk power markets and that power derived from wholasale purchases and self-generation constitutes one relevant product market while coordination transactions (such as unit powe. and emergency power trans-actions) belong in a separate market.-3/ Upon caref ul anal-ysis, the Department's approach clearly fails.
The other parties appear to concur that 1/ Staff Brief, p. 33, n.40. - 2/ Intervenors' Brief, p. 109. 3/ Justice Brief, pp. 62-71.
~ i the appropriate standard to aoply in delineating relevant markets is that set forth by the suoreme Court in the duPont 4/ case.~ According to duPont, products must be in the same market when they have " reasonable interchangeability" as to
~
5/ price, use and quality. In addition, market definitions 6/ must consider economic and commercial realities.~ As the district court noted in the leading General Dynamics case: If competition cuts across product or in-dustry lines, the product market must be drawn broadly enough to include comoeti- l tion as it exists. 7/ l The Department justifies its separation of the various bulk power transactions into a firm power market i i
- . and a coordination regional power exchange market with two arguments
- (1) that a single source of non-firm power can-not alone substitute for firm wholesale power; and (2) that firm power is a " final" product, while the types of 4/ United States v. E.I. duPont deNemours & Company, 351 U.S. 377 (1956), see, e.g., Justice Brief, p. 62.
~5/ These standards are reviewed in Consumers Power Co.
! Brief, pp. 81-86 and supplied to the bulk power sun-ply arrangements in Lower Michigan in that Brief, pp. 97-92. l l 6/ Brown Shoe Co. v. United States, 370 U.S. 294, 336-37 I (1962). 7/
~ United States v. General Dynamics Corp. , 341 F. Supp.
534, 555 (M.D. Ill. 1972),att'd on other grounds, Als U.S. 486 (1974). 8/ Justice Brief, pp. 64-65.
42 - 2 coordination transactions that the Department claims to take place in the regional power exchange market are " factors of 9/ production".- The Department's first argument is clearly falla-clous since it rests on a short-run, myopic view of commer-cial realities. It is true, of course, that at an in-stant in time, considering only a single transaction, non-firm power such as emergency power cannot be substituted for firm wholesale purchases. But if this observation pro-vided the basis for market definition, the Department's own regional power exchange market definition would collapse, since the various types of coordination transactions which it includes in this market cannot be substituted in this instantaneous manner. For example, when viewed as a single transaction
~
~
in the short-run, it is elementary that emergency power can-not be substituted for unit power, economy energy cannot be substituted for maintenance power, and unit power cannot be substituted for maintenance power. The Department proposes to place power derived from all of these different coordinat-ing transactions in the same relevant product market, but to exclude from this market power derived from firm wholesale purchases and self-generation. But, the Department's brief 9/ Id., pp. 66-71.
;
demonstrates the flaw in its own analysis since it emphasizes all of those various firm and non-firm bulk power alternatives are, in fact, " interchangeable." At one point, its brief states:
"The principal form or actual comoetition in the wholesale firm power market in the lower peninsula of Michigan arises from the alternative that C.P. Co's wholesale customers have of installina self-cenera-tion -- either on an isolated basis or on a partially or fully coordinated basis --
or of purchasing wholesale firm power. In the period of 1960 to present, the record is replete with examples of such competition. Indeed , there is no dis-agreement between the parties over the existence of this competition."10/ Elsewhere in the brief the same point is summarized:
" Actual wholesale competition in Aopli-cant's area arises principally from the option that small systems have of install-ing self-generation as an alternative to purchasing power from Applicant. Appli-cant regularly solicits the approximately two dozen independent retailers -- munic-ipal electric power utilities, one private electric power company, and one distribution cooperative -- to purchase their wholesale firm power requirements from C.P. Co.
rather than to construct, operate or ex-pand their own bulk power supply f acili-ties. Similar competition occurs between Applicant and two generation and transmis-sion (G & T) cooperatives in the western and northern areas of the relevant geographic market." 11/ 10/ Justice Brief, p. 36. (emphasis added ) . l 'll/ Id., pp. 3-4.
i
In another passage, the Department concedes the competitive interchangeability of coordination arrangements in its " pawer exchange" market wi th other bulk power supply arrangements in the course of its characterization of Con-sumers Power Company's competitive relationship with the MMCPP:
"To the extent the M-C pool provides power exchange services to each of its members (and to four satellite municipals), which lowers the cost of firm bulk power supply to them and makes self-generation more com-petitive with firm wholesale power from Ao-plicant, the M-C pool's offerina of power exchance has also been a source of comoeti-tion to Applicant, which offered wholesale firm power." 12/
Strippad of its rhetoric, the Department's posi-
' ion represents an abandonment of the " comprehensiveness" argument relied upon by its expert witnesses and a return 13/
to a simplistic firm power /non-firm power distinction.-- An electric utility already owning generation capacity can satisfy additional load growth by installing an additional generation unit, by reducing its reserve requirements through coordinating agreements, or by purchasing firm wholesale oower. As we documented in our main brief, the Company's smaller 12/ Justice Brief, p. 43 (emphasis added ) . 13/
-~
Mayben 2706, 2766, 2856-57, 2A71-72. See Consumers Power Co. Brief, p. 90-92, and Findings of Fact cited therein. a
neighbors utilize each of these alternatives in meetina 14/ load growth; and as the Court stiessed in Brown Shoe 7~ a market analysis which fails to take account of those com-mercial realities presents a myopic and distorted view for antitrust purposes. For this reason alone, the Department's bulk power market analysis should be reiected. The Department's second argument for the separation of bulk power transactions into two markets is equally defi-cient. According to this argument, coordination transactions should be excluded from the bulk power relevant market which the Company proposes because coordination exchange is a "fac-tor of production" while firm bulk power is a final oroduct. This position ignores the f act that numerous products through-out the economy may be viewed simultaneously as factors of production and final products, but that does not' orovide an 1 a priori basis for separating them into distinct relevant markets. For example, sugar may be consumed directly by ul-timate customers or may be utilized by candy manufacturers' l as a factor of production; the sucar may be marketed in some- ' what different form for each purchaser, but it is clearly ab-surd to suggest that there are necessarily two markets for l i 14/
~~
Brown Shoe Co. v. United States, 370 U.S. 294, 336 (1962).
i l 1 J' sugar under these circumstances. We submit that how the con-sumer uses the product is irrelevant in defining relevant mar-kett rather the appropriate inquiry must focus, according to the case law, on interchangeability -- whether, for e := ole, sugar used as a candy ingredient realistically can be substi-15/ tuted for sugar used as the dining room condiment. In resolving such questions, courts look to the 16/ behavior of consumers in the marketplace.-- Here, the ap-plicable bulk power consumers interchangeably utilize whole-sale purchases, self-generation, and coordination in meeting their load growth. Thus, these sources must be included in the same relevant market as they have been in our bulk power 15/ Cf. American Crystal Suaar Co. v. Cuban-American Sugar Co , 152 F. Supp. 387 (S.D.N.Y. 1957), aff'd, 259 F.2d T74 (2d Cir. 1958), the case in which the " commercial realities" concept adopted by the Supreme Court in Brown Shoe originated. 16/
-- The Justice Brief, p. 65, asserts by simplistic analogy that our contention is equivalent to arguing that nails are in the same market as houses. If analogies are pertinent at all, a far more apt one is'as follows: Customers can buy houses for guaran-teed delivery on a preset date and houses for delivery some time during a specified building season. Are houses with guaranteed delivery dates in the same market as houses with non-firm delivery dates? We submit that the key to all such ouestions is customer behavior which is the commercial reality; if customer behavior shows that one product (e.g., houses with cuaranteed delivery dates or firm wholesale power) are viewed as highly substitutable for another cro-duct (houses with non-firm delivery dates or coordi-nation exchange) by mo s t buye rs, then the commercial realities demonstrate that there is one product mar-ket. Such is the undisputed factual situation in this case.
market analysis. The Staff brief agrees t' hat the Company's analysis is correct, i.e., that self-generation, firm wholesale purchase and coordination exchange are highly interchangeable for the buyers who actually are in the relevant market, consumers Power Company's small neighbors. According to the Staff's brief:
"The important aspect of these various transactions is that the contracted service has one, and only one, function, i.e. , to produce firm power. Thus the grouping of these various bulk power services into the same product market is justifiable since these inputs have a unique application." 1]/
17/ Staff Bria', p. 33 (footnote omitted ) . As a final com-ment at the conclusion of their market definiticn sec-tion, the Staff suggests that there may be thre2 submar-kets within the bulk power market, base load aeneration, nuclear generation and transmission. Staff Brief po. 33-35. These distinctions make little sense. Obviously, nuclear generation is simply a form of base load aenera-tion and cannot be distinguished, in relevant market analysis, from other forms of base load generation such as coal-fired generation. Base load generation has no distinct purchasers who do not also reauire intermediate peaking generation caoacity as well. High voltaae trans-mission transactions, i.e. wheeling, are so rare as to be inconsistent witE any notion that they are a distinct market or submarket. Moreover, under the standards of submarket defi-nition set forth in Brown Shoe Co.'v. United States, supra, at 325, a submarket must be established by (cont.)
. . = . . .
l Turning to another area in which the Department of Justice disputes our market analysis, we submit that the Department has f ailed to justify its inclusion of Con-sumers Power Company's bulk power recuirements in the same market as the bulk power requirements of its smaller neigh-18/ bors.~~ The Department concedes that as a matter of law, market definitions look to "the market area in which the seller operates, and to which the purchaser can practicably , 19/ ' turn for supplies...."-- Yet, having explained that purchaser alternatives are controlling, the Department proceeds in the next sen-tence to ignore Consumers Power Company's position as a
" purchaser" of power and to focus solely on its role as a l seller. Thus, the Department defines all of its geooraphic markets as "the area in which it is technically and econ-omically feasible for Applicant to sell at retail and at 17/ (cont.)
"such prcchical indicia as industry or public recognition of the submarket as a seoarate entity, the product's peculiar characteristics and uses, unique pro-duction facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors."
None of-these standards distinguish any of the Staff's . three supposed submarkets from the general bulk power market. 18/ Justice Brief, p. 71 (emphasis in the original), 19/
~~
United States v.' Philadelphia National Bank, 374 U.S. 721, 359 (1963), quoted at Justice Brief, p. 71.
l ~ l - 49 - l 20/
. wholesale...."-- See the holding in the leadino case of :
1 ( United States v. Bethlehem Steel Corp., 168 P. Supo. 576, 592 L l (S.D.N.Y. 1958), that I
"Any definition of line of commerce which ignores the buyers and focuses on what the sellers do, or theoretically can do, is not meaningful." 21/
The other parties do not dispute our contention that, in satisfying its need to obtain power for distribution to its customers, Consumers Power cannot realistically look to its smaller neighboring systems. Although this pattern 1 of trade 'is explained and reinforced by legal barriers on bulk power sales by the cooperative and municipal systems, 22/
, the Department chooses to ignore them.-- This is presumally explained by the f act that only through inclusion of Consumers 20/ Justice Brief, pp. 71-72 (emphasis added).
21/ Among the cases citing this passage is United States L v. Philadelphia National Bank, supra, 374 U.S. at 367
- n. 43 (1963).
--22/ The Department's Brief does recognize the imoortance of these barriers in another context at op. 44-45.
Also, the Department's brief (p. 56 n.) suagests that the 25% limitation on municipal sales was not fully repealed by the recent action of the Michigan legis-lature'which prohibited.municipals_from expanding their' future service areas or from piratino the Com-pany's. existing customers. If the Deoartment's posi-tion is correct, the continued validity of the 25% rule under some circumstances will further restrict bulk power sales- by the municipals to the Company and thus further reinforce the Company's bulk power market definition. e ,m, + - - - , - ., , . , - + + , . - - ,e.---, * - - -
t generating capacity of its smaller neighbors or transfers
of load to other wholesale suppliers arose under circum-stances that.are-unlikely to recur in precisely the same 76/ form.-- This is, lof course, a myopic and irrelevant arqu-i ment since most. complex transactions do not recur. The significance' of recent market behavior (i.e., market share l
data) is not in the prediction of the precise nature of I l tuture transactions'but in gauging the strength of com-26/
~~
~ Justice.Brief, pp. 120-22. Principally, the Depart-
- ment argues that because Edison. Sault decreased its i
wholesale purchases from the Company through the our-chase of a hydroelectric generation unit and other hydro facilities will not be available in Michigan, Edison Sault's decreased wholesale purchases should be ignored for purooses of quantifying market shares. The _ Department also contends, but offers no support for its view, that customers.other than the South-
eastern cooperative will be unable to change electric suppliers in the future. Witness Pace specifically testified that this " pick and choose" approach was invalid in extrapolating future trends since such ' predictions would involve "many things" while this particular adjustment was an isolated incid ent. [ Pace 7419-20]. Indeed, witness Paul suagested that, since the -end of the oeriod studied by Dr. Pace, many wholesale customers had begun decreasing wholesale purchases in favor of self-generation and coordina- ' tion [ Paul 7884]; thus, there is substantial evidence that in predicting f uture trends, these "downside"
_ adj ustments in : the Company's mar ket. share would at ' least balance out the " upside" adjustments urged by the Department. In'any event the record offers no support for the
-view that the Department can properly ignore Edison Sault's hydro capacity and arbitrarily raise the Com-
- oany's share of .the bulk power supply market from 17%
_to 24%.
- -
l r _ _ . __ _ . _ - - _ _ . . _ _ . _ - _ _ ._. . _ . _ . _ . _ . _ - . . . . _ , _ . _ _ , . . _
27/ petitors. - Thus, the Department's attack upon the Comoany's bulk power market share data must be rejected. B. Retail Market. At the retail market level, the Department of Jus-tice, the AEC Staff and Consumers Power Company apparently agree on the definition of the relevant product market. The Department appears to take issue, however, with Consumers Power Company's contention that there are two retail geo-graphic markets (and two sub-markets) delineated by differ-ing barriers to entry which are relevant to the instant case. Relying upon three arguments, the Department seeks to establish the proposition that the entry barriers de-scribed in our brief should be ignored in defining the re-28/
-~
tail market. These arguments can be summarized as follows:
- 1. All legal and economic barriers to entry could be overcome in tae future.
- 2. Any action that lowers the cost to a poten-tial new electric system increases the probability that entry will take place in the f uture despite the existence of barriers to entry.
- 3. The relief requested by the Department, if 27/
-- See Brown Shoe Co. v. United States, 370 U.S. 294, T2T-22 (1962). 28/ Justice Brief, pp. 74-86.
t granted by this Hearing Board, would in the future produce opportunities for potential entrants to achieve lower costs. The Department's "how things micht be in the f uture" approach flies in the f ace of the fundamental con-cepts of relevant market definition practiced by antitrust tribunals. As Judge Wyzanski stated , "the problem of defin-ing a market turns on discovering patterns of trade which 29/ are followed in practice."-- In adherence to that precept, the Supreme Court recently reversed a trial court's market definition which took account of a prospective trend the presence of which it premised principally on the impact of 30/ a recently enacted state banking law.-- Although the Court noted that the law would remove barriers to entry by savings banks, it refused to consider the law's future ef fect on the 31/ relevant market for commercial banking in the State.-- 29/ United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 303 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). 30/ The state law which permitted savings banks to provide individual checking accounts was to be ef fective with- l in six months of the time the Court wrote. 31/ According to the Court:
"At some stage in the development of sav-ings banks it will be unrealistic to dis-tinauish them from commercial banks for purposes of the Clayton Act. In Connec- )
ticut, that point may well be reached when ) and if savings banks become significant i participants in the marketing of bank services to commercial enterprises." j United States v. Connecticut National Bank, 94 S. Ct. 2788 at 2714-95 (1974), 1
Surely, if the Supreme Court was unprepared to extrapolate even minimally from a definite and imminent change in the law, it would condemn the Department's approach here which departs from present trading patterns on the basis of specu-32/ lation piled upon conjecture.-- This conclusion is obviously particularly pertinent where, as here, the very change being speculated about is the relief under consideration on the basis of that market analy-sis. Under this bootstrap approach, the relief demonstrates the existence of a substantive violation and the substantive violation proves the need for relief. 32/ In United States v. Phillipsbura National Bank and Trust Co., 399 U.S. 350 (1970), the Supreme Court rejected a comparable, if far less drastic speculation. Discussing " ease of access to the market," the district court had asserted that "[i]t is not dif ficult for a small group of businessmen to raise sufficient capital to establish a new small bank when the bankinq needs of the community are sufficient to warrant approval of the charter," and implied that the proposed merger might actually stimulate other banks to enter the market. United States
- v. Philliosburo National Bank and Trust Co., 306 F. Supp.
654, 659 (D.N.J. 1969). The Supreme Court, however, declined to sanction the merger. Referring to the district court's market barriers analysis, the Supreme Court emphasized that no showing had been made "that a group of businessmen would move to start a new bank in Phillipsburg-Easton, should the proposed merger be approved," 399 U.S. at 368 (emphasis added), and noted the substantial though surmountable barriers to entry posed by the banking laws of New Jersey and Pennsylvania. Thus, the Court held the unproven potential for overcom-ing entry barriers insufficient in the face of existing barriers.
e l In addition, the Hearing Board should recognize what it is that the Department of Justice contemplates. The Department seeks a situation in which this Hearing Board so drastically adds to the subsidies of municipal power systems and to the costs borne by Consumers Power Company's retail rate-payers, that governments in communities now served by the Company will feel obliged to launch unprecedented dupli-cative municipal systems to compete with the Company. The extent to which the ' Department urges this Board to distort existing economic and political circumstances can be gauged by considering how much pressure municipal officials would have to receive from their- constituents to be induced to start parallel electric systems in the face of their normal and appropriate concerns with governmental and economic stability and with the environment.--33/ 33/ As an additional element of its efforts to disregard the existing barriers to entry, the Department also speculates upon the possibility of a successful chal-lenge to the validity of Michigan's single-phase rule upon retail competition (Justice Brief, pp. 51-52). The Michigan Supreme Court gives considerable weight to administrative agencies' interpretation of the statutes they are charged with administering. For example, in Hazel Park v. Municipal Finance Commis-sion, 317 Mich. 582, 605, 27 N.W. 2d 106, 116 (1947), App. S-7, the Michigan Supreme Court stated:
"'It is well settled that the construction placed upon statutory provisions by any particu-lar department of government for a long period of time, although not binding upon the courts, (cont.)
Even on its own terms, the Department's analysis lacks elementary logic. The first two arguments offered by the Department -- that entry barriers can conceivably be overcome and that lower barriers raise the likelihood of entry -- are universally true, but they are hardly relevant. Obviously, some magnitude of compacative advantage to a potential entrant is sufficient to overcome any entry bar-rier and any increase in such magnitude increases the oro-bability that barriers will be overcome. Since it would make a mockery of antitrust analysis to assume away all entry barriers for the purpose of a market analysis, plain-ly the Department's cosition rests on its third arqument that this Hearing Board should help destroy these barriers to entry. The Department's reasoning on this critical point is that because this Hearing Board could take action that would contribute to overcoming entry barriers in the 33/ (cont.) should be given considerable weight. ' Aller v. Detroit Police Department Trial Board, 309 Mich. 382, 386." The . Hearing Board is entitled to assume that a rule promulgated by the Michigan Public Service Commission over eight years ago which has not been legally chal-lenged by any of the eiqht investor-owned and fifteen
-rural electric cooperatives distributina electric energy at retail in Michigan is a stable factor which must be considered in analyzing the retail market.
l l l l
57 - C future, the massive barriers which presently exist should be ignored . We submit that such reasoning is fallacious in two crucial respects. First, the Department's position ignores the dimension of time. In cases dealing with the issue of monopolization, the relevance of defining the appropriate geoaraphic market is simply to spotlight the arena within ' which the alleged of fense has transpired and , in so doinc, to provide the conceptual framework in which to determine whether a firm willf ully acquired or- maintained monopoly po we r . As the Department of Justice itself noted in another portion of its market definition discussion:
" Market definition is intended to produce a framework within which to measure Appli-cant's power; the determination of whether Applicant has monopoly power in any or all of the market (s) selected and the examina-tion of how that power may have been exer-cised can only follow this oreliminary step in the analysis." 3f/
Consequently, an inherent and significant dimension of the market is the dimension of time. More specifically, 3f/ Justice Brief, p. 73. (emphasis in original). See duPont, supra, at 380: " Market delineation is nec-essary ... to determine whether an alleged monopolist violates 52. The ultimate consideration in such a determination is whether the defendants control the price and competition in the market for such a oar-tial trade or commerce as they are charged with monopolizing . " \
/
the barriers to entry relevant to market definition are those which existed during the period in which the supposed ille-gality is to be analyzed. To say that markets and commercial relationships exist over periods of time is not merely to state the obvious. It provides a cortion of the context within which to assess whether the activity of monopoliza-tion has transpired. A critical deficiency in the Department's retail market analysis is that it has no relevance to the time period in which its charges of monopolization are to be tested. In that time: period, it is plainly necessary to take account of the barriers imposed by the presently existing economic and legal facts-of-life in Lower Michiqan. Second, even if it were assumed that certain com-pelled changes in Consumers Power's policies or certain in-creases in the advantages enjoyed by municipal systems or other potential entrants could reduce the impact of some-entry barriers (a contention that inevitably must be based on pure speculation), this does not discredit our market analysis. Diminished barriers may nevertheless be formid-able. The Department's view would be correct only if the advantages were so significant that entry barriers would 1 play no substantial role whatsoever in municipal utility entry decisionc. That entry might become somewhat more conceivable as a result of increased advantage would not a
alter the fact that such barriers would nevertheless make entry substantially more dif ficult in the markets where the Company has Foote Act and 30-year franchises. It is on that fact that our view of the relevant retail markets is based. Our conclusion is seemingly incontestable since the Department has of fered no proof for its speculation that the impact of the license conditions it proooses will appreciably reduce the significance of the legal and econ-35/ omic barriers to entry.-- In sum, even if the Department's " bootstrap" ap-proach to geographic retail market definition is credited, it fails to establish that the indisputable barriers to j entry can be disregarded and that all retail power sales can be lumped into a single market in which the charges of monopolization can be considered. Consequently, even by its own terms, this f ar-fetched analysis is insufficient to justify the market definition the Department proposes. C. The Yardstick. The other parties point to " yardstick" notions as being a forum of competition relevant to this proceed- l ing and characterize Consumers Power's position as a denial 35/ Indeed, the Department does not address the impact of the relief it proposes at all. See Justice Brief, po. 251-56. l- - - - - - - _ _ _ _ _
I i that those concepts play any role in this industry.--36/ Consumers Power has never denied that yardstick concepts -- though skewed by subsidization -- have some impact on the political . process and consecuently on the actions of electric system managements. We dispute (1) that the yardstick approach clays any role in FPC or MPSC regulation or (2) that what is sometimes loosely termed
" yardstick competition" is a comprehensible markot in anti-trust terms in which monopoly power can be exercised.
With regard to regulation, there is simplv no evi-l dence that yardstick concepts are ever considered by either regulatory commission. Indeed, the application of that appenach, particularly in light of the subsidies on one side, would be contrary to the rate-making aoproaches of 37/ both commissions.-- In antitrust terms, " yardstick comoetition" has
-little meaning. There are no transactions in any " yardstick competition" market, no market shares and , in the sense in which the term is normally used, no geographic markets.
Neither element of monopolization -- monopoly power nor 36/ . Justice Brief, pp. 131-34, 1 71 7 J ' Staff Brief, oo.
~~
126-27; Intervenors' Brief. ,b A-05. See Appendix A to this brief, .regarding che oth4r parties' allega-tions that regulation does not assure efficiency. 37/ See Consumers Power Co. Brief, pp. 113-20. t 1
J
/ I willf ulness -- has any meaning in the yardstick context. I Indeed, to the extent that yardstick concepts have any pertinence to this' proceeding at all, they would argue against the forced cartelism sought by the other parties which would obviously preclude the traditional yardstick comparison being made between the subsidized public oower entities and the large-scale but unsubsidized utilities.
l
, _ , , - , - - - - w--
IV. The monopolization theory of the other parties is fatally defective since it fails to take account of governmental regulation and special character-
'istics of the electric utility industry.
A. The Barriers to Entry and Competition. In its principal brief, Consumers Power Company
. demonstrates how the legal and economic barriers to com-petition prevailing in Michigan effectively preclude com-petition in several of the relevant markets and therefore bar any inference that Consumers Power Company has improp-er'.y or monopolistically occupied those markets.-1/ Neither 2/
the Staff nor the Intervenors seem to disagree.- On the other hand, the Department of Justice in-sists there is, or should be, a form of competition in which municipal systems would displace Consumers Power in part or 3/ all of its service area.- Our main brief explains why we deem such competition to be infeasible and inconsistent with 4/ the public interest in Lower Michigan.- In contrast to the Company 's position, the Department's contrary view does not rely on facts of record, but rather argues that, as a matter 1/ Consumers Power Co. Brief, pp. 103-11, and 136-45.
-2/- Their briefs do not explain with any specificity where the competition they purportedly seek to protect is found. Indeed, by speaking in terms of a policy of
" pluralism" rather than terms of competition, they in effect bypass the issue.
3/ Justice Brief, pp. 7 4-8 5, and pp. 207-217. 4/ Consumers Power Co. Brief, pp. 136-45.
4%6 %.a fI
~
of law,-the existence of such competition must be presumed. The Department's authority for this ingenious approach is Otter Tail Power Co. v. United States, 410 U.S.-366, 277-78L(1973).-5/We submit that Otter Tail offers no support to the Department.in this regard. In Otter Tail, a private electric utility was in fact displaced by a municipal system but the decision expresses no opinion as to whether displacements in other circumstances
-6/
- are either feasible or desirable.- -Plainly, since the legal barriers to its displacement by a municipal system cited !
7/ in our brief are all established by Michiaan law or regu-latory policy, the fact that such displacement was pos-sible in Otter Tail's service area in other states is totally irrelevant to this proceeding. Indeed in its Otter Tail brief to the Supreme Court, the Department of Justice itself pointed out, in the-course of its discussion of retail l distribution franchises, that utility regulation by the 8/ l states- in which Otter Tail served was minimal.- i 5/ Justice Brief, pp. 207-09. l l
-6/ In describing the factual underpinning of that case, j the Federal Power Commission noted the unusual charac-ter of "the present ' Elbow La ke Situation '" . Village
.of Elbow Lake v. Otter Tail Power Company, 40 FPC 1262,
-1271 (1968), App. II-44, aff'd.sub nom. Otter Tail Power Co. v. FPC, 4 29 F . 2d 232 (8th Cir. 1970), cert.
' denied, 401 UTE! 947 (1971).-
7/ Findings.of Fact 2.25-2.45
)
-8/. Brief for the United States at 62-63 n. 51, Otter Tail Power Co. v. United Staths, 410 U.S. 366 (1973).
^
Regarding competition with rural electric coop-eratives, which is precluded by both federal law and state 9/ regulatory policies,- the Supreme Court in Otter Tail followed prec.'.sely the approach our main brief proposed and excluded such systems from the relevant market.--10/ Consequently, otter Tail not only fails to hold that the possibility of a utility's displacement by another supplier must be presumed, but also specifically recognizes that the force of law may make such displacement impossible. Beyond Otter Tail, the Justice Department invokes the doctrine of " potential competition" as legal support for its allegations that the potential for displacement is a realistic form of competition. Its treatment of that doc-trine is, we submit, illustrative of the Department's mis-use of the relevant case law in this proceeding. The Department cites United States v. Phillips Petroleum Co.--11/ as "the most recent in a long line of Supreme 9/ Consumers Power Co. Brief, pp. 102-03. 10/ 410 U.S. at 369, n. 1. 11/
~~
367'F. Supp. 1226 (D. C. Cal. 1973), aff'd per curiam, 94 5. Ct. 3199 (1974). The Supreme Court's order reads, in toto: -" July 8, 1974. Appeal from the United States District Court for the Central District of California. Judgment affirmed ."
Court cases placing potential competition under the protec-12/ tion of the antitrust laws."-- It is perhaps technically accurate that the Court's summary affirmance, without opinion and in the midst of its summer recess, of the -district court in the Phillips Petroleum case is the "most recent in a long line of Supreme Court [ potential competi-13/ tion] cases . . . . But that characterization, coupled 14/ with tne citation of the leading pre-1974 cases,- is plain-ly misleading because it ignores two full opinions of the Co ur t, decided in June of this year, which are particularly applicable to the question of potential competition raised 15/ by the Department in this case. Consideration of the Department's argument on the 12/ Justice Brief, p. 209.
--13/ Even that statement is open to question in light of the Court's July 25, 1974 action, reported at 94 S. Ct.
3210, vacating Justice Douglas' issuance of a stay in Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851 (2d Cir.), cert. denied, 95 S. Ct. 150 (1974).
--14/ Justice Brief, p. 211, cites United States v. Penn-Olin Chemical Co., 378 U.S. 158, 174 (1964); FTC v.
Procter & Gamble Co., 386 U.S. 568, 581 (1967); and United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973). 15/ United States v. Connecticut National Bank, 94 S. Ct. 2788 (1974); United States v. Marine Bancorporation, 94 S. Ct. 2856 (1974). The Department also ignores Judge Friendly's learned opinion in Missouri Portland Cement Co., supra.
1 l I merits highlights he important its omission is. The De-partment argues, Yn 'ie basis of Phillips Petroleum, that many of the benefits of actual competition also result from the presence of a potential competitor, waiting on the edges of a market and capable of entering at a pro-pitious time. These principles may be valid, of course, in a case like Phillips Petroleum involving an unregulated 16/ market such as the retail sale of gasoline.-- But in the two cases not cited by the Department, particularly the Marine Bancorporation case, the Court held that the poten-tial competition did not exist when the ability to enter of firms which might otherwise be potential entrants is signi-ficantly restricted by force of law. In Marine Bancorpora-tion, the Court stated:
"We . . . hold . . . that the application of the doctrine [of potential competition) to commercial banking must take into ac-count the unioue federal and state regula-tory restraints on entry into that line of
--16/ In a very recent case in which "the Government relies heavily . upon" Phillips Petroleum, United States v.
Falstaff Brewing Corp., 1974-2 Trade Cas. 175,315 (D.R.I. October 23, 1974), App. S-6, the court, in rejecting the Government 's position, noted that (1)
"Phillips had a history of entering markets de novo or unilaterally," (2) "it-[was] a leading international company," (3) "Phillips was engaged in [other aspects of the petroleum] business in California [the relevant geographic market]" and (4) the transaction in question was not "a particularly large one for a company of Phillips' size," Falstaff, supra, at p. 98,011.
t 1
. commerce. Failure to do so would produce misconceptions that go to the heart of the doctrine itself.
The Gove'enment's'present position has evolved over a series of eight District s Court case.*, all of-them decided unfavor-ably to its views. .The conceptual dif fi-culty with- the Government's approach, and an important reason why it has been uni-formly unsuccessful in the District Courts, is that it fails to accord full weight to the extensive - federal and regulatory bar-riers 'to entry into commercial banking. This omission is of great importance, be-cause ease of entry on the part of the acquiring firm is a central premise of the potential competition doctrine." 94 S. Ct. at 2872-73.
-(footnotes omitted). 17/
In view of the legal barriers to entry (and related econ-18/ omic barriers as well) described in our principal brief,-- it is difficult to imagine a more complete or precise re- l jection of the Department's theory than that voiced by the nation's highest court several months ago in Marine Ban-19/ corporation.-- Aside from these efforts to presume the existence of potential competition as a supposed matter of law, the
--17/'
In addition, the Department points to the supposed public policy of affirmatively requiring utilities to enter into joint ventures with their smaller neigh-bors, relying on the 1954 statements of Leland Olds and the 1970 remarks of Senator Aiken. See pp. 34-37, supra; regarding this assertion. 18/ Consumers Power Co. Brief, pp. 92-111. 19/ For a full _ development of this point, see Consumers Power.Co. Brief, pp. 136-45. ('
{ l Department of Justice points only to two incidents as fac-tual support for its theory that potential competition j exists in the " closed" markets which the Company serves. These concern the creation of the Zeeland municipal system in the 1930's and an exchange of distribution facilities between the City of Lansing and Consumers Power Company in the mid-1960's. The Department's theory is that a municipality will establish a duplicative system and seek to displace the Company if its advantages vis-a-vis the Company are increased to the point where the municipal system is assured that it can significantly undersell the Company. The Department then hypothesizes that the Company would quickly recognize the purported futility of such competition with the lower-cost municipal system and sell out to it. It is true that during the 1930's Zeeland decided to construct a municipal system to duplicate areas served 20/ by the Company. But the Department's suggestion that this pattern will recur is incorrect because the Zeeland system was built with substantial assistance from the New Deal's 21/ Public Works Administration.- The PWA lost its authority to 20/ Westenbroek 938-939. See Justice Brief, pp. 41 and 76,
--21/ Pace 7265-7266. There is no record evidence as to the size of that grant. However, R. Hellman, GOVERNMENT COMPETITION IN THE ELECTRIC UTILITY INDUSTRY, 36 (1972),
a study relied upon by the Intervenors' Brief, p. 104, reports that such grants averaged 39% of labor and l materials cost. l l
underwrite such programs in 1938, and this "niarked the end 22/ of the PWA program as a competitive power influence." -- Plainly, the peculiarity of the Zeeland situation and the PWA program discontinued 35 years ago, negates any suggestion that municipal systems are likely to follow Zeeland's lead and spring into existence in the Company's service area in the foreseeable future. Moreover, even in the anomolous Zeeland setting, the second step of the Department's hypo-thesis -- that the Company will ultimately sell out its , facilities -- has proven incorrect. The Company did not sell out its facilities but continues even today to serve 23/ some custome rs in Zeeland.-- I The second purported example of displacement the : Department cites concerns the North School District of Lan-24/ sing.- The Lansing system began service in that district as ; I a result of municipal annexation. The Company's decision to sell its facilities there to Lansing was not the capitu-lation of a defeated competitor but rather a fully compensated mutual effort to eliminate the duplication of facilities in 22/ Id. at p. 36. 23/ Paul 7814. 1 24/ Justice Brief, pp. 5, 50 and 76. ' l
25/ several locations.-- Consumers Power did not suffer a significant loss of load in the transaction and the high price paid, corresponding .to the price that would be payable 26/ in the event of condemnation of one of its franchises,-- hardly supports the Department's theory that the Company would abandon its f acilities at salvage value if confronted by duplicative competition from a subsidized municipal system. Indeed, the Department ignores the fact that the Company has for years remained and competed on a street-to-street basis with the Traverse City and Bay City municipal systems which 27/ duplicate its service area and wnich underprice it. Thus, the Department's hypothesis that new mu-nicipal systems are likely to overcome barriers to entry and displace the Company -- at least without wasteful duplica-tive competition -- is insubstantial.
--25/ Aymond 6462-6463. The undesirability of this type of competition nas been noted by all observers. [ Findings of Fact 2.42 and 2.43.] . --26/ In exchange for giving up the customers in the annexed area, the Company received no: only the value of the property,.but also a severance allowance, a separate allowance for loss of profit and a ten-year contract to serve the area at wholesale. Brush 2074. A com- '
parable price would be payable in the event one of its franchises were to be condemned. See Consumer Power Co. Brief,_pp. 106-107, especially n. 7ET j 27/ Findings of Fact 2.47, 3.07; Attachment JDP-3, Schedule 1, pp.- 1-2, af ter 7239 i
B. Regulation as a Bar to Monopoly Power. As the Department of Justice acknowledges, " [i] n a regulated industry such as the electric power industry, it is also necessary to consider [in determining whether a firm-has monopoly power] whether there is a valid scheme of governmental regulation which restricts the exercise of monopoly power ." The Department recognizes that, what-ever Consumers Power Company's market share, the presence of
" regulation which restricts the exercise of monopoly power" would preclude any inference that the Company possesses monopoly power. Thus, the question before this Hearing Board is narrowed to whether or not such regulation exists; as the Department seemingly concedes. if it does, monopoly oower cannot he present.
- 1. Rate Regulation.
In its principal brief, Consumers Power Company outlines in detail how regulation denies it the power to control prices or exclude competition, the elements of 29/ monopoly power.-- The other parties do not attempt a com-parable survey .of the impact of regulation on the Company's 28/ Justice Brief, p. 97. 29/ Consumers Power Co. Brief, pp. 113-125, 136-145. l l l I
3- - 72 - mar ket position. Rather they vaguely, characterize that regulation as limited and point to various isolated and . 'often irrelevant areas which they allege it does not cover. . Before turning ' to the other parties' ef forts to diminish the_ scope .of regulatory supervision over Consumers Power Company, it is important to note the range of requ-lation they do not dispute. First, they appear by their
~
- - silence to concede that regulation' bars monopoly power in the retail market. Second, they concede that the Company generally lacks the power to control its own prices, i.e.,
-30/
its rates, in the bulk power market as well. - The Supreme I l Court has indicated that without the power to control prices 31/' there can be no monopoly power.-- Thus, unless they can demonstrate significant gaps in the structure of rate regu-lation, the other parties would appear to have conceded that Consumers Power Company lacks monopoly power. I The other parties, principally the Department 1 of Justice,_ allege three such gaps in rate regulation which . Staff Brief, p. 146, Intervenors' Brief, p. 36. The
--30/ ' Department of Justice agrees that the Company can-not raise its prices at will. Justice Brief, p. 175.
31/ " Monopoly power is the power to control prices or exclude competition. . . .It is inconceivable that price could be
-controlled without power- over competition or vice versa."
United States v. E. I. duPont deNemours and Co., 351 U.S. 377, 391-92 (1956). s (
----,.,-w -,, . ~e----- + . - ,
-- -- - - - , , - - - - , , - --n-n -- . , , . -.,,..n., , , , -
i i i i 73 - l 1 they claim are germane to this case. The first is that the Federal Power Commission allegedly lacks the authority to require ' pricing below system average cost. The only case
--they cite for this proposition, Alabama Electric Cooperative, Inc. v. Alabama' Power Co., 38 FPC 962 (1967), fails complete-32/
ly to support it. Moreover, the Department of Justice recognizes that the guestion of below average pricing is academic in this case, since "the record does not disclose that Applicant had a general policy of pricing below average 33/ cost to deter self-generation."- Consequently, not only
--32/- In that case, the FPC merely held that a rural elec-trification ' cooperative - was not entitled to pre-ferential wholesale rates simply because of its status as an REA cooperative. 38 FPC at 968. The Commission did not hold that it could not order i incrementally priced wholesale service where doing so would be required to meet the standard of the Act.
The Federal Power Act itself, contains no restriction on the form of rate the Commission can impose in enforcing the Act's public interest s'tandard.
- - '33/ Justice Brief, p. 176. Surprisingly, the Department l points, as its one purported instance of discriminatory l 3 below-system average pricing by the Company, to a reference I in one document to "special rate proposals." Justice Brief, pp.. 176-177, quoting Exhibit 188. The Department there. implies that "special" was a euphemism for
" unduly preferential." Yet, as the contemporaneous
. Michigan Public Service Commission regulations make clear, "special services" and -"special rates" were simply .part 'of the terminology used in Michigan, prior to -the ' FPC's assertion of jurisdiction over most' wholesale transactions, to describe non-municipal i wholesale transactions. MPSC Regulations R.460. 2006, (1954 Mich. Admin. Code), App. I-26.
J is the Department incorrect in its characterization of the FPC's actions, -it raises a topic that it concedes is factually 34/ irrelevant to this case.-- The second purported defect in rate regulation alleged to be . relevant to this proceeding concerns the FPC's present unwillingness to consider the competitive-effect of the relationship between the wholesale rates it regulates and a utility's ! retail rates. That question also has no bearing on the facts of this proceeding since the Department of Justice a& nits that Consumers Power's wholesale customers do not 35/ face a so-called " price squeeze."-- Giv6a those undis-
--34/ The Department also indulges in a rapid shif t of position, implying on page 175 of its brief that a gap in FPC regulation is suggested because the FPC permitted incrementally priced transactions where the alternative .would be the erection of inefficient plants but arguing two pages later ?
that, under hypothetical circumstances not actually present, the incrementally priced sale of Midland power to avoid ' the erection of inef ficient plants would be in the public interest. .
--35/ Justice Brief, p. 178. Elsewhere in its brief, the Department unconvincingly. equivocates in two respects concerning their admission about the lack of any
" price squeeze." First, it attempts to fi n d a l " price soueeze" 'in the fact that St. Louis would have
- lost $9,000 'in 1965 serving an industrial customer.
l It is, of course, axiomatic that virtually every busi-ness, and certainly every utility, occasionally loses money serving a particular customer; that every day fact of business life is hardly a " price squeeze." Then the Department, in a footnote at
.p. 178, cites United States v. Paramount Pictures,
~
(cont.) l E e pg-erv--
g puted circumstances, the Justice Department's extendes price' squeeze argument hardly establishes a substantial 36/ gap in the rate regulation of Consumers Power Company.-- Justice's third critique of rate regulation is 37/ that regulation does not assure efficiency.-- This argument has nothing to do with monopoly power, i.e., the power to control prices or exclude competition. Even were a regulated utility permitted to be extremely wasteful and unimaginative, , it would not thereby acquire any further power over its neighbors. Indeed, to that extent, it would be a less effective competitor. Stripped of its rhetoric, the Department is really
- arguing that regulatory authorities are either unwilling or unable to carry out their legislative mandate to regulate electric utilities and, therefore, that this Commission should ,
step in. The irrelevance of this contention to the issae of monopoly power only underscores the undesirability of this 35/ -(cont.) 334 U.S. 131, 173 (1948), for the proposition that the intent to engage in monopolistic conduct (i.e., placing one's competitors in a " price squeeze"T Is the equivalent of actually doing so for purposes of demonstrating monopolization. But Justice points to no evidence at all that Consumers Power Company ever intended to impose a price squeeze on its neighbors, so that this case is irrelevant to this proceeding. 36/ Justice's analysis also ignores the MPSC's hcchility to the retail promotional pricing without which a price squeeze would _ not be possible. The state Commission recently stressed that "[p] romof;ional rate structures are 343-(January out of date." 18, Consumers ly /s) app. Power o i- Co., 3 PUR 4th 321, 37/ Justice Brief, pp. 127-33.
' Commission's passing judgment on the efficacy or competence of public utility regulation. - And, in any event, the Depart-ment of Justice has failed completely to establish that the 4
regulation of Consumers Power Company is ineffectual in ! 38/ promoting the Company's efficiency.-- In sum, the Department of Justice has offered only j three supposed deficiencies in rate regulation: (1) the 1 unsupported claim that the FPC will not order below system average pricing in appropriate cases or bar it in inappro-priate cases; (2) the irrelevant " price squeeze" issue; and (3) the assertion, inapplicable to Michigan and unrelated to the - question of monopoly power , that regulation does not seek to promote efficiency. As has been shown,' Justice has not, by these charges, refuted our contention that Consumers Power Company is denied control over its prices by rate regu . lation.
- 2. Other Regulation.
Our adversaries also attack aspects of public utility regulation other than rate regulation as being de-ficient'or inadequate. In view of the Supreme Court's con-4 clusion in duPont that monopoly power cannot be found with-39/ out control over prices,- it is a sufficient response that 4
--38/ Because of the marginal nature of the Department's argument in this regard, our response has been placed in Appendix A of this Reply.
39/ See p. 79, infra. i
, - - . . . - . . - - - . . _ . , . - - . _ - . , . , , _ , . . - . . - - ~ . , - . _ .
these inadequacies, assuming their existence, are irrelevant to the presence or absence of monopoly power. In.any event, those attacks are ill-founded. For example, the Department of Justice argues, without any ref-erence to legal authority, th1t the FPC lacks the power to
-40/
order a utility to engage in wholesale service. - Yet, the FPC and the courts of appeals have plainly held to the cc -trary.--41/ Despite the FPC's authority in this regard, and despite the absence of any instance in which the Company has 42/ refused to serve at wholesale,- the Justice Department has called into question the Company's willingness to provide that service in all reasonable future circumstances. To put that unfounded speculation to rest, counsel for Consumers Power Company have been authorized to commit the Company, on the record of this proceeding and for the life of the Midland 40/ Justice Brief, p. 127. 41/
-- New England Power Co. v. FPC, 349 F.2d 258 (1st Cir.
1965) (firm wholesale power to non-generating retail distributor); Otter Tail Power Co. v. FPC, 473 F.2d 1253 (8th Cir. 1973) (coordination with small gener-ating system); Florida Power Corp. v. FPC, 425 F.2d , 1196, 1201-03 (5th Cir. 1970), rev'd on other grounds sub nom. Gainesville Utilities Dept. v. Florida Power Corp., 402 U.S. 515 (1971) (FPC has identical juris-diction to order interconnection with generating and non-generating entities). 42/ Finding of Fact 4.02. i l
Units, to provide wholesale service at rates regulated by the Federal Power Commission to any present or future customer with which the Company does not have a coordination . agreement, provided that such service is technically and economically feasible and can be furnished without jeopar-dizing the Company's ability to furnish economical, dependable and satisfactory service to its customers or to satisfy its obligations to other electric systems with which it is in-terconnected. This explicit commitment is consistent with the Company's past practices and dispels any suggestion that the Company has monopoly power over bulk power supply. In pointing to another supposed deficiency of regu-43/ 1ation, the Staff- argues that the FPC cannot compel in-terconnection; this view appears to confuse the FPC's emergency interconnection authority under S202(c) of the Federal Power 44/ 45/ l Act,- with its general interconnection authority under S202(b)-- It is patently incorrect to contend, as the Staff does with-out citation of authority other than the Federal Power Act's 46/ preamble,- that "[g]enerally, the FPC cannot compel system 43/ Staff Brief, p. 146. 44/ 16 U.S.C. S824a(c). 45/ 16 U.S.C. S824a(b). 46/ SS201(a) and (b), 16 U.S.C. SS824(a) and (b). l l 1 l l
interconnection for purposes of coordinated operation" or that "the FPC cannot order large and small systems to
... engage in power exchanges that reduce power supply 47/
costs."-- More generally, the other parties also argue--48/ that the existence of two areas of utility activity argu-ably not subject to FPC and MPSC regulation -- the initia-tion of wheeling and' coordinated development programs -- sug-gests.that Consumers Power can possess and exercise 49/ monopoly power.-- No showing has been made, however, that these exceptions to the broad authority of the state and 47/ Staff Bricf, p. 146. The Intervenors try to find a significant gap in the impact of regulation in the Sierra-Mobile doctrine, which holds that FPC-regulated utilities that enter into contracts which later fail to provide them a reasonable return are nevertheless typically held to their contracts. United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956). Fee Borough of Lansdale v. FPC, 49 4 F. 2d 1104 (D.C. Cir. 1974). However, that doctrine does not eliminate FPC authority over those contracts, as the Intervenors would suggest, but merely shifts the regulatory standard the FPC is to follow in ascertain-ing what might " adversely affect the public interest." Sierra Pacific, supra, 350 U.S. at 355. 48/ Staff Brief, pp. 146-47; Justice Brief, pp. 123-26, 233-36.
--49/ Of course, it is incontestable that the FPC has full authority to regulate the terms and conditions of coordinated development and wheeling arrangements once they are entered into. City of Huntingburg v. FPC, 498 F .~ 2d 7 7 8, 7 8 3 ( D . C . Cir . 19 7 4 ) ; Boston Edison Co., FPC Dkt. Nos. E-8187 and E-8700, Order Granting Hearing on Petition for a Declaratory Order and Consolidating Pro-l ceedings (September 25, 1974), App. II-5.
l l
federal commissions permit the exercise of monopoly power to the disadvantage of the smaller systems in Consumers Power's service area. As our adversaries concede, Consumers Power cannot control the price at which it sells wholesale or retail. power and energy.--50/ Neighboring systems may insist upon obtaining wholesale power from the Company and the Staff 51/ concedes,- may engage in a broad range of coordinated development
. and wheeling transactions with each other or with outside en-tities under the Company's announced wheeling policies.
. They may also insist on obtaining wholesale service from the 52/
Company.- The f act that Consumers Power may not be compelled by regulatory authority to engage in the coordinated development i Hof generating facilities with its competitors does not mean 4 that it thereby can acquire monopoly power over their generating capacity;_that is, it does not mean they cannot plan and de-velop their own generation, and, indeed, they-are currently ! 53/ l in the process of so doing.-- Finally, the parties claim to find authority for the proposition that utilities must be presumed to possess monopoly power despite the presence of state and federal regulation. 50/ See p. 72, supra. 51/ Staff Brief, p. 74. The Company's wheeling policies are set forth'in Finding of Fact 4 68. 52/ See pp. 77-78, supra. 53,/ Finding of Fact 2.64. l l
The Staff and the Department of Justice argue that Congresa disposed of the question by enacting Section 54/ 105 of the Atomic Energy Act.- Leaving aside the nexus-related issue of whether Congress intended to authorize a sweeping inquiry under Section 2 of the Sherman Act, there is absolutely nothing in the words of the statute or in its legislative history that suggests a congressional intent to raise a presumption that all elective utilities possess monopoly po we r . The Intervenors' invocation of Otter Tail Power Company v. United States, 410 U.S. 366 (1973), as somehow dispositive of the role of regulation is even more surpris-
~
ing. Without citing a single passage in either the Supreme Court or the District Court opinion, the Intervenors premise their arguments on an extended quotation from the Otter Tail Power Company's brief which, they say, sets forth a rejected 55/ argument. In reality, Otter Tail involved attempted monop-olization in the retail market principally in states (Minne-sota and South Dakota) which have no significant state regu-56/ lation of electric utilities.-- The Supreme Court expressly l 54/~ Justice Brief, pp. 97-98, 131-34; Staff Brief, p. 25. l 55/ Intervenors' Brief, pp. 97-100 56/
' -- In its Brief for the United States at 62-63 n. 51, in Otter Tail Power Co. v. United States, 410 U.S. 366 s
(1973), tne Justice Department pointed out that (cont.)
t 1 4 noted that those elements of Otter Tail's, activities that involved the bulk power market were thwarted by effective 57/ , 3 FPC regulatory action.-- Therefore, Otter Tail illustrates 4 rather than refutes the FPC's ability to deny monopoly power l' in the bulk power market. As suc h, it is a further example of the principle expressed, most recently in United States
i
- v. Marine Bancorporation, 94 S. Ct. 2856 (1974), that regulation '
-58' may bar an inference as to a firm's market power. -
- 3. Primary Jurisdiction and Parker v. Brown.
The presence of extensive regulation in the elec-i tric utility industry is relevant to this proceeding in another respect as well. Under the doctrines of primary jurisdiction and of Parker v. Brown, 317 U.S. 341 (1943), j independent antitrust review by the Atomic Energy Commis-l
56/_ (cont.)
- Minnesota and South Dakota retail rates are not regulated by the States, and there is no effective municipal regulation except through the franchising process." Indeed, Minne-sota does not even have a utility commission. North Dakota, in which Otter. Tail also has some facilities, conforms to the more conventional pattern of state regulation.
4 The Intervenors~ seek to disparage this crucial distinction by referring to our anticipated reference to it as "much artistry." IntervenorsBrief, p. 100.
, 57/ : 410 .S.lat 366, 371, citing Village of Elbow Lake v.
. Otter Tail Power Co., 40 FPC 1262 (1968), App. 11-44, aff'd sub nom. Otter Tail Power Co. v. FPC,'429 F.2d 232 (8th~Cir. 1970), cert. denied, 401 UTE. 947 (1971);
-Village 1of Elbow take-v. Otter Tail Power Co.,.46 FPC 675-(1971), App. II-45; aff'd as modified sub nom.
Otter. Tail' Power-Co.--v. FPC, 473 F.2d 1253-(8th Cir. <r 1973).: 5_8/~ See-. Consumers. Power Co. Brief, pp. 136-45.
~
8
,e - ,--p _ , . - - - - - -
-r- -~ - -.-gwy my +9. , .mog iq .ya
, ~
sion should take account of, and. avoid interference with, the regulatory authority and actions of other governmental agencies. Zhe briefs of the other parties never address or take account of these important antitrust principles. Indeed, although the Board asked the parties to address its 59/ impact on this case,- the only reference to Parker v. Brown in any of our adversaries' three briefs is a statement by the Staff that they are relying on the Justice Department position on this issue, a position not contained in the 60/ Department's brief. Although we are confident Parker v. 4 Brown will be discussed in the other parties ' reply briefs, their initial failure to discuss this significant antitrust doctrine demonstrates, we submit, how far the approach of the other parties departs from accepted antitrust principles. Regarding primary jurisdiction, the Department of 61/ Justice also seeks to skirt the heart of the issue.-- It 59/ Tr. 9286. 60/ Staff Brief, p. 12.
--61/ Justice Brief, p. 230-37. The Intervenors deal with the primary jurisdiction doctrine in a footnote at p.12.
There they obliquely refer to the Brief for the Appellant in the Otter Tail case and to a series of totally irrelevant cases (e.g., Panhandle Eastern Pipeline Co. v. Public Service Commission of Indiana, 332 U.S. 507 (1947), which dealt with the relationship between the FPC and a state utility commission). From that purported authority, they extract a " thread" which appears to be a blanket denial force'. that the primary jurisdiction doctrine has any
y-62/ totally ignores that extensive body of law- holding that an antitrust dispute must be initially considered by the appropriate regulatory agency "when conduct seemingly with-in the reach of the' antitrust laws is also at least arguably protected or prohibited by another regulatory statute enact-63/ j ed by Cong r e s s. "-- Instead, without any citation to auth-ority, the - Department of fet s an intricate three-pronged test wnich in effect eliminates virtually all applications 64/ A tne primary j urisdiction doctrine.-- Most surprising of all is Justice's bald assertion that "a finding by the AEC on the question of the inconsis-tency with the antitrust laws would obviously be binding on. the FPC, as would the AEC's finding as to the basic measure of remedies which should be included in appropriate license 65/ conditions."-- Not only does the Department f ail to cite
--62/ The most recent case of which we are aware is Abbott Securities Corp. v. New York Stock Exchange, 1974-2 l
Trade Cas. 175,324 (D.D.C. October 30, 1974), App. S-1.
~
See also Industrial Communications Systems, Inc. v. Pacific Telephone and Telegraph Company,1974-2 Trade Cas. 17 5,291 -( 9th Cir . Octo be r 4, 1974), App. S-8, in
which the appeals court found that the California Public -Utilities Commission had primary j urisdiction
~ ~
over an allegation ' that two telephone companies had conspired to dominate the one-way signalling business, and Monticello Heights, Inc. v. Morgan Drive Away, Inc., 1974-2_ Trade Cas. 175,287 TS.D.N.Y. September 30, 1974), App. S-10, another case reaching the same conclusion concerning ICC regulation.
.6.p/' Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 299-300 (1973).
L' 64/. Justice Brief, p. 232.
- 65,/L Justice Brief, p.
- 231.
i'
?
any authority for this startling position, it silently passes over the Atomic Energy Act's squarely opposite language:
"Nothing in this- chapter shall be construed to affect the authority or regulations of any Federal, State, or local agency with respe ct to the generation, sale or trans-mission of electric power produced through the use of nuclear facilities licensed by the. Commission...."66/
In view of their silence concerning Parker v. Brown and their disparate efforts to read the primary jurisdiction
- doctrine out of antitrust law, we submit that the Company's views in this regard, as set forth in its main brief, are 67/
reinforced and confirmed.-- 66/ S271, 42 U.S.C. 52018. 67/ As to primary jurisdiction, see Consumers Power Co. Brief, pp. 27-38; regarding Parker v. Brown, see id. at pp. 160-71. t L l t v- v
C. The So-Called Bottleneck Theory. The opposing parties argue that - sma11 ' electric suppliers should have preferential access to the bulk power facilities of their larger neighbors as a variation on their
" bottleneck" theme. To do this, they attempt both to stretch the ' f acts and to cut down the requirements of the law.
At various points in their briefs, the other parties suggest that the smaller systems require access to three resources in order to eliminate the purported bottle-64/ 65/ neck effect: nuclear facilities,- wheeling services-- 66/ and coordinated development.- They present alternate expla-nations as to why these are "bottlenecked" resources. In some instances, they assert that these resources are essential to those systems. In others, they assert a right to access to all arrangements that might prove to be advantageous to the small systems because "the antitrust laws gives [ sic] 67/ them the specific right to compete at wholesale on fair terms."-- I 64/ See Je.. Justice Brief, pp. 169-73, 218-23; Intervenors' , ErTef, pp. 15, 20-21, and 35-36; Staff Brief, pp. 117-30, 172. f
~65/
Justice Brief, pp. 103-112; Intervenors' Brief, pp. 22-26; Staff Brief, pp. 82-87. 66
--' Justice Brief, pp. 113-20; Intervenors' Brief, pp.
29-3 7;- Staf f Brief, pp. 7 2-7 4, 154-56. 67/ Intervenors' Brief, p. 124.
\
l L i ,_ .- . . - - _ _ _ _ , _. ~~--,_
First, the other parties totally f ail to sustain their contention that these resources are, in fact, essen-68/ tial. In Part II of this brief, and in our principal brief,-- we nave reviewed the most extensively argued of these asser-tions, that pertaining to nuclear generation. Beyond that effort,.our adversaries rely principally on bare assertions not supported by citation to the record of this proceeding. For example, the Staff asserts without more that:
"[Because Consumers Power Company owns most nuclear generation and high voltage transmission in its area], there exists in the relevant market area a bottleneck situation. This control over essential resources allows Applicant to determine how other electric systems in the rele-vant area participate in the bulk power services market." 69/
With regard to wheeling , the only discussion which argues with any specificity that such services are essential to small systems is found in the Staff Brief, pp. 82-83. But that discussion merely speculates about the possible consequences of a utility's unbridled exploitation of physi-cal control of transmission facilities. However, the Staff's brief in this regard is f actually irrelevant to this case j8/ Consume rs Power Co. Brief, pp. 147-50; pp. 15-23, supra. j9/ Staff Brief, p. 53.
because it disregards Consumers Power Company's broad policy 70/ commitment to provide wheeling service.-- Since the Staff does not address how, under this commitment, some essen-tial service relating to the Company's transmission facili-ties is being denied to the smaller systems, the Staff discussion about wheeling merely constitutes a sound 71/ thrashing of its poorly-constructed straw-man.-- Most surprising are the assertions by the Depart-ment of Justice that the Company may achieve a " bottleneck" effect through its ability to deny other entities access to
" power exchange," i.e., coordination. The plain fact is that Consumers Power Company has never refused to engage in a 72/
reasonable coordination arrangement,- has adopted a wheel-ing policy that f acilitates coordination transactions be-73/ tween its smaller neighbors and may be required by the FPC to engage in coordinated operation when doing so is in 74/ the public interest. 70/ The Staff concedes that the Company's wheeling policies I facilitate coordination between small systems that are not themselves physically interconnected. Staff Brief,
- p. 74.
71/
-- A similar, although more abbreviated argument is to De found at Justice Brief, p. 187. The argument is defective for the same reasons.
72/
-- See Consumers Power Co. Brief, pp. 182-202, pp. 103-128, Intra.
73/ See Consumers Power Co. Brief, p.146, n. 103, pp. T2T-136, infra. 74/
-- See Consumers Power Co. Brief, pp. 120-122; pp. 78-75 supra.
/
The Department's bottleneck analysis of coordin-ation appears no more than an effort to recast its argument regarding the propriety of the terms of the Company's coor-dination agreements into the more dramatic framework of a denial of an essential resource. However, since the Company has never declined to engage in coordinated arrangements under reasonable terms, and conditions the Department is forced to resort to generalized observations about the diffi-75/ culty of isolated operations.-- These observations are, of i course irrelevant to Lower Michigan where there are no -- l 75a/ l isolated electric systems. In short, no showing of a denial of an essential resource, the obvious first. step in a bottleneck analysis, has been made. Instea', s'e other parties have offered only naked assertions 4 .essentiality and observations about factually non-existent circumstances. Recognizing the weakness of their position in traditional cottleneck terms, the other parties assert they need not show that the denied resources are essential or unique but merely that they are desired -- or may be l desired in the future -- by the smaller systems. For example, 75/ See e.g., Justice Brief, pp. 168 and 187. l 75a/ Finding of Fact 2.05.
the Staff asserts that an electric supplier has a legal right to choose from all technically feasible alternatives:
"While many alternatives may be quite costly the zight to have access to and choose the best alternative for a par-ticular system is' paramount to the con-tinuation of the pluralistic industry as it exists today." 76/
2 Similarly, the Intervenors argue:
"The issue is not whether nuclear owner-ship is preferable to other forms of own-ership or purchased power as an objective matter (assuming this can be determined with any degree of certainty), but whether the smaller systems shall have the opportu-nity to make that decision. The ultimate decision and responsibility for power supply should be that of the individual system and, in making this decision, small systems should not be foreclosed from nuclear access." 77/
In substance the argument is that: (1) Consumers Power Company has the power to foreclose certain alterna-tives to its neighbors which they would prefer to keep open; and (2) a business enterprise is disadvantaged by not hav-ing available the . broadest possible range of alternative 76/ Staff Brief, p. 77. See also Justice Brief, pp. 106-112, quoting a number of public power officials and others to the effect that they would prefer to have alternatives open to them which they believe are con-trolled by Consumers Power Company. 77/ Intervenors' Brief, p. 21 n. (emphasis in the original). l ( s 1
4 (. approaches to its problems. This position is but a branch 78/ of their argument, which we have reviewed earlier,- for the imposition of an affirmative duty requiring a large firm to share its exclusively-owned resources with its smaller com-petitors. The foregoing position is contrary to law. No such obligation is recognized under the antitrust laws (in-cluding Section 5 of the Federal Trade Commission Act).--79/ The few cases the opposing parties cite in discussing their bottleneck concept do not support this argument. Ratber, these cases all recognized that a resour:e must be function-ally necessary to the denied party before bottleneck concepts havn any role. In many of these cases, the resource with-held has been a physical necessity: the only bridge over
-81/
the Mississippi River or the only television station in 82/ an area.-- In the others, the courts have required that 78,/ See pp. 31-39, supra. l 79/ See Staff Brief, p. 170. See Consumers Power Co. Brief, pp. 50-57 80/ As we discuss infra, we submit that several of these cases are, in fact, not " bottleneck" cases at all. 81/ United States v. Terminal Railroad Ass'n, 224'U.S. 383 (1912). 82/ Packaged Programs, Inc. v. Westinghouse Broadcasting Co., . 255 F.2d 708 (3d Cir. 1958); Six Twenty-Nine Produc-tions v. Rollins Telecasting, Inc., 365 F.2d 478 (5th-Cir. 1966). Both cases involve denials of access.to the sole television outlet in a market for local tele-vision commercials. 1
the denied resource be "needed in order to compete effec-83/ tively".~ For example, in Associated Press v. United States, 3 26 U.S. 1 (1945), the Court stressed the crucial importance of AP's service:
"AP is a vast, intricately reticulated organization, the largest of its kind, gathering news from all over the world, the chief single source of news for the American press, universally agreed to be of great consequence." 84/
Even then, the Court indicated its result was dependent on the conclusion that AP's membership provisions were " aimed 83/ Silver v. New York Stock Exchange, 373 U.S. 341, 347 (1963). 84/ 326 U.S. 1,18, quoting the district court opinion (emphasis added) . Contrary to the suggestion in the Staff Brief, p. 173, the Court did not reject the concept that the wire service must be "indis-pensible" [ sic] to newspapers. What it rejected was the argument that AP service to other papers was not indispensable to newspaper readers because at least one paper in each city had access to it. To similar effect is Gamco, Inc. v. Providence Fruit
& Produce Building, Inc., 194 F.2d 484, 487 (1st Cir.
1952), cert. denied, 344 U.S. 817, where the court stressed that "it is only at the Building [the crucial resourcel itself that the purchaser to whom a competing wholesaler must sell and the rail facilities which
. constitute the most economical method of bulk trans-port are brought together." (footnote omitted)
at the destruction of competition," a conclusion with no 85/ counterpart in this case.-- Thus, under existing law, an entity such as Con-sumers Power need not give its neighbors access to each and every resource which it uniquely possesses, but only those unique resources which are essential to those sys-tems. Put in other terms, a possessor of a unique facility or capability is not requir ed to advantage its competitors by joint ventures, forced leasing or other involuntary ac-cess, merely because such access 'would be, or might become, beneficial to the competitors. In an attempt to refute the principles developed in these cases, the Department of Justice quotes the decis-ion in the preliminary injunction phase of National Screen l --85/ 326 U.S. at 13-14 and 17-18. To similar effect is Municipal Elec. Ass'n of Mass. v. SEC, 413 F.2d 1052, 1057 (D.C. Cir. 1969), cited by the Intervenors, at p. 63, a case concerned solely with an allegation of a conspiracy ; with the specific purpose "to prevent Municipals from ! obtaining any form of low cost bulk power..." Utah Pie Co.
- v. Continental Baking Co., 386 U.S. 685, 702 (1967),
another case cited by the Intervenors, at p. 112, equally has no bearing on the issue of.what can be a "bottlenecked" resource, holding only that when an antitrust violation is otherwise proven, the fact that the victim has remained prosperous is no defense. l l l
)
- - 94 _
Service Corp. v. Poster Exchange, Inc., 305 F.2d 647, 652 (5th Cir.1962), to the ef fect that the " possibility of obtaining substitute facilities is not a sufficient answer 86/ . if there is in fact a monopoly."-- However, that statement, as the Fif th Circuit stressed in its later opinion on the merits, was directed to a contention that the plaintiff had waived his claim for treble damages by not seeking advan-tages available to him under a Justice Department consent
- 87/
decree.-- The passage quoted by the Department refers to the waiver allegation; it is plainly not intended as an expansive definition of an " essential resource" under the
" bottleneck" theory.
Consequently, the cases the other parties cite provide no support for the notion that a large firm must share a resource with its small neighbors merely because they would prefer to have that alternative available. 86/ Justice Brief, p. 119.
--87/ Poster Exchange, Inc. v. National Screen Service Corp., l 362 F.2d 571, 573 (5th Cir. 1966). The quoted language was "In response to defendant's contention that plain-tiff is in no position to complain of defendant's unlawful activi.ty ... because plaintiff, under the protective provisions of a previous consent decree
..., could have applied to motion picture producers for - its own non-exclusive licenses to manufacture and distribute motion picture advertising accessor-ie s . . . . "
l
Instead, the cases underscore that a true standard of essentiality is applied in determining whether a bottle-neck exists. While the other parties' inability to demonstrate that any of the purportedly bottlenecked resources are "needed to compete effectively" weighs most decisively against them, their argument is wide of the mark in several other respects. First, in sach of the cases upon which they rely an actual denial of the resource had occurred and monopolistic intent was inferred therefrom. Here, we submit, there has been no instance in which the resources in question have been unreasonably withheld.-88/ - Second, all of the cases in which bottleneck theories have been enunciated have involved 89/ a combination of two or more entities.-- In its recent 88/ See Consumers Power Company Brief, pp. 146-47, 89/ Id. pp.152-53. Some of the other parties have cited cases involving only a single firm but that citation, we submit, is inaccurate. i Six Twenty Nine Productions and Packaged Programs, supra, involved fully consummated ' monopolization of a market, the production of local television commercials, withholding of a resource. not merely the preliminary In the Otter Tail case, the Supreme Court failed to adopt the bottleneck concept - referred to by the District Court. See Consumers Power Co. Brief, pp. 151-52. 4
-- - -,w. - . . - + , , - . .-m. -
..-nn -.y.,-.,.-...-
-r - --
Memorandum, the LP&L Hearing Board points to an important corollary derived from that f act, noting that "neither the Hearings of the Joint Committee on Atomic Energy nor the decided cases support the Cities' position that a sole owner of a facility must enter into a joint venture with competi-90/ tors or any other entity."-- Accordingly, the other parties have neither met the accepted tests set forth in the cases adopting the bottleneck approach nor shown that a large firm's affirma-tive duty to share resources under all circumstances is, or should be, encompassed within the accepted parameters of the bottlaneck theory. As we noted earlier, what they have offered in the guise of antitrust analysis is a policy argument promoting further public power subsidization
-- a policy that Congress has explicitly declined to adopt.
90/ Louisiana Power & Light Co. (Waterford Steam Gene-rating Station, Unit 3), AEC Dkt. No. 50-382A, Memorandum of Board with Respect to Appropriate License Conditions Which Should be Attached to a Construction Permit Assuming Arguendo a Situation Inconsistent with the Antitrust Laws (October 24, 1974), p. 34. l 1 1 1
D. Subsidies. The other parties misconceive the relevance of the fact that most of Consumers Power's smaller neighbors enjoy significant tax and finance advantages. We do not claim these advantages as a justification for the Company's conduct but ratner as
an explanation of the impressive financial and competitive strength enjoyed by the municipal and cooperative systems 91/ despite their smaller size.-- (See Findings of Fact 2.17-2.20, pp. 125-33 of our brief). This financial and competitive 91/ See Consumers Power Co. Brief, pp. 125-133. The citations, Justice Brief pp. 245-246, to American Federation of Tobacco Growers v. Neal, 183 F.2d 869 (4th Cir. 1950), and an oral ruling by the trial judge in United States v. Otter Tail Power Co., 331 F.Supp. 51 (D. Minn 1971), are consequently completely irrelevant. In those cases, the defendants asserted the advantages of their competitors as an excuse for predatory conduct. Consumers Power Company has never asserted that position. We, like the Justice Department, merely view those advan-tages as part of the market structure in which market power must be gauged. Even further afield is the Department's reference in this regard, as with market definition, to a "how things might be in the f uture" approach in con-tending that the subsidies may be discontinued in the future, Justice Brief, pp. 241-43. All statutes -- including the Sherman Act and the Atomic Energy Act -- are, of course, amendable. As the Supreme Court has made clear, speculative future changes in relevant laws cannot appropriately be considered in antitrust analysis. See pp. 53-54, supra. Plainly, that con-clusion, valid even in the face of a trend toward change as in United States v. Connecticut National l Bank, 94 S. Ct. 2788 (1974), is inevitable where, as ! here, there is not the least indication that major ; changes are likely. 1
strength of the municipal and cooperative systems is, in turn, relevant to whether an inference of market power can be drawn from the Company's size or market share. United
-92/
States v. Columbia Steel Co., 334 U.S. 495, 527 (1948). - We have thus used these considerations in pre-cisely the same way as has the Department's witness Helfman: as a real feature on the landscape of this industry which must necessarily be considered in any assessment of the indtis-try's structure or of the ef fect that various arrangements might have -- whether those arrangements arise in the course of the dealings among the various utilities or as a remedy
-93/
imposed by this Board. - Therefore, to adopt the course proposed by the Department and to ignore these subsidy advan-tages simply because they are the product of governmental action would clearly be improper. 92/ Staff Brief, p. 170, seemingly acknowledges this principle. 93/ See Justice Brief, p. 240.
V. Tne briefs of the other parties do not demonstrate that the Company's conduct has been unreasonable or that such conduct is evidence of improper intent. The proponents of license conditions in this pro-ceeding charge that Consumers Power Company has acted impr op-erly in various of its dealings with smaller neighboring sys-tems. Most of taese complaints concern the Company's practices and policies related to coordination and wheeling; other allegations deal with territorial allocation agreements, the acquisition of other systems, and the alleged " tying" , l of wholesale service. l A. Coordination and Wheeling. The other parties devote considerable space to al-legations that the Company wrongf ully refused to coordinate and nas imposed coordinating terms that are onerous, dis-criminatory, anticompetitive in intent and effect, and which amount to the extraction of monopoly profits. In order to make these assertions,- the other parties must do consider-aole violence to the record. Further, they simply ignore l such principles of coordination as reciprocity and the need for mutual benefits and treat as irrelevant the undisputed i fact that coordination arrangements made without regard to l these principles will sometimes have adverse effects on the Company and its customers. 'l l Stripped of their rhetoric, the allegations of the i . l l l
- 100 -
other parties fall into three categories, none of which sup-ports a finding of improper conduct. First, they charge that Consumers Power Company has not agreed to every re-quest for coordination it has ever received, including those that offered the Company no benefit. Next, they charge that Consumers Power Company has not acceded to every request made by other parties during contract negotiations, including those which would sometimes impose a net detriment on the Company. Finally, they charge that the Company has not agreed to a considerable number of coordinating arrangements for wnich it had never been asked. Thus our adversaries insist on analyzing the Company's conduct not in terms of whether it was reasonable but rather in terms of whether the Company has granted and af firmatively offered every possible advantage to smaller systems -even at the cost of burdening itself and discriminating against its other customers. This " maximum advantage" standard goes far beyond anything that is required by existing antitrust law. As we have argued elsewhere, the antitrust laws impose no general 1/ and unqualified duty to deal with.otners.- Even with regard to collective enterprises from whir;h others may not unreasonably oe excluded, and even where denial of entry might result in 1/ Consumers Power Co. Brief, pp. 183-84.
- 101 -
') serious injury, it is axiomatic that entry may be premised 2/
on reasonable conditions.- While no universal standard of reasonableness can be extracted, substantial deference has always been shown in the collective enterprise cases to the reasonable business judgment of those granting entry. Thus in Zuckerman
- v. Yount, 362 F. Supp. 858, 863-64 (N.D. Ill. 1973), a case concerning membership in the Midwest Stock Exchange, the court adopted the Department of Justice position that "as long as an exchange acts in good f aith and follows f air proced-ures antitrust liability would not turn upon whether an exchange had reached what a court subsequently determines to be the 'right' decision." (Emphasis in the original.)
l 2/ Deeson v. Professional Golfers Ass'n, 358 F.2d 165 (9th Cir. 1966), cert. denied, 385 U.S. 846; Florists' Nationwide Telephone Delivery Network v. Florists' Telegraph Delivery Ass'n, 3 71 F. 2d 263 (7th Cir. 1967), cert. denied, 387 U.S. 909; Bridge Corp. of America v. American Contract Bridge League, Inc., 428 F.2d 1365, 1368-70 (9th Cir. 1970); Gamco, Inc. v. Providence Fruit & Produce Bldg., Inc., 194 F.2d 484, 487 (1st Cir. 1952), cert. denied, 344 U.S. 817; Roofire Alarm Co. v. Royal Indemnity Co., 202 F. Supp. 166 (E.D. Tenn. IT62), af f 'd per curiam, 313 F.2d 635 ( 6th Cir.19 63) . l l l I 1
l l l l 7 - 102 - 3/ Thus, this and other' cases ~ demonstrate that a considerable sphere is ' reserved for the subjective business conclusions of those with whom a right to deal is sought. Under the antitrust laws, a would-be participant in an inter-system coordination arrangement is entitled to insist only that the proposed terms be reasonable, not the most reasonabl9 available option or the option he would most 4 prefer. In an analogous situation, the court in Rogers v. Douglas Tobacco Board of Trade, 244 F. 2d 471 (5th Cir. 1957), upheld the authority of a tobacco board to allocate selling time on a basis deemed to be "not unreasonable" although other reasonable alternatives less discriminatory toward l a new en1 rant were available. Similarly in Deeson v. Professional Golfers Ass'n, 358 F.2d 165 (9th Cir. 1966) cert. denied, 385 U.S. 846, the PGA was allowed to favor
;
,' -3/ In Gamco, supra, at 487 the court held that appropriate standards for excluding new tenants from a crucial business f acility could include " lack of available space, . financial unsoundness, or possibly low busi-
- ness or. ethical standards...." In Roofire, Underwriters Laboratories, an insurance . industry clearing house, was held justified in applying threshold standards in determining whetner equipment is to be tested. In Deeson,
-tne PGA.was upheld in. relying on the " opinion" of certain citicials regarding a player's_" ability to play golf and finish in the money . . . financial responsibility.
. . . - a nd ... moral character.and integrity." (358 F.2d at 167). In Bridge Corp. of America, judgments intended
to preclude "a situation where the integrity of the-master point- system . . . would be questioned" (428 F.2d at : 1370 ) were approved.
. - . _ , _ _ ~ . , , , , _ . . _ . . _ . , - . , - . _ , _ .
- 103 -
e its own members over other qualified players in choosing tournament carticipants so long as it asserted a rational 4/ basis for its preference.- Given these principles, the Company's particular policies and practices discussed below cannot be faulted under the antitrust laws.
- 1. Refusals to coordinate.
Consumers Power Company has entered coordination agreements with all Lower Michigan systems which have requested such an arrangement. These systems include the City of Holland, the Lansing Board of Water and Light, and the MMCPP whose members are Northern Michigan Electric Cooperative, Wolverine Electric Cooperative, the City of Grand Haven and Traverse City.-5/ The only party which appears to disagree is the Staf f, which persists in ignoring the coordination arrangement signed in September 1973 between the Company 6/ and the four MMCPP systems. - 4/ 358 P.2d at 170-71. 5/ Finding of Fact 4.28.
-6/ The Staff's discussion of the Company's "Intersystem Relationships" omits all reference to the Company's coordination agreement with the MMCPP. Staff Brief, pp. 46-52. At another point, the Staff flatly asserts, relying not on the record but on the Justice Department's 1971 Advice Letter, that in 1969 the Company engaged in negotiations with the MMCPP but those negotiations "were not fruitful." Staff Brief p. 143. The coordination (cont.)
l l w
- 104 -
More broadly, however, our opponents allege that Consumers Power Company wrongfully refused to coordinate (1) with Northern Michigan and Wolverine cooperatives in 1964, (2) with Northern Michigan in -1967, (3) with' Traverse City in 1968, and (4) with the MMCPP in 1969. In our main brief, we discussed the first two of these instances and demonstrated that Northern Michigan and Wolverine were deficient in genera-- tion capacity in 1964 and that Northern Michigan was still deficient in 1967. Hence, these proposed arrangements offer-7/ ed no prospect of benefits for the Company.- The charges involving Traverse City and MMCPP are even more plainly without merit since they simply did not involve refusals to coordinate. Mr. Wolfe testified that in 1968 the Company offered to coordinate with Traverse City but the city chose instead to enter the MMCPP arrangement.-8/ Finally, contrary i l l l l 1 i 6/ (cont.) contract between Consumers Power Company and the four members of the MMCPP offered in evidence by the Depart-ment of Justice , plus uncontradicted testimony on the record confirm that negotiations between the Company i and the MMCPP did, in fact , produce an agreement. Finding of Fact 4.28; Exhibit 105; Steinbrecher 1141, 1492; Keen 4497-4501. 7/ Findings of Fact 4.20-4.23; Consumers Power Co. Brief, pp. 192-93.
-8/ Justice Brief, p. 153; Staff Brief, p. 100; Wolfe 1564, 1767. Mr. Paul, who recalls differently, testi-fies - that the Company declined to coordinate when it found that an agreement with Travc tse City offered no net benefits. Paul 7924-25.
- 105 -
to the charges made by the Staff, the negotiations with the MMCPP led a coordination agreement.-9/ Turning to the scope of the Company's various coordination arrangements, we have previously set out the types of transactions for which each of these contracts 10/ provide.-- The other parties appear to dispute our findings 11/ bo th in broad outline and in narrow particulars.-- Their 9/ Exhibit 105. It is well established that an organiza-tion operating a technically complex enterprise may conduct a thorough and, if necessary, extended review of, and negotiations about, any proposed change in its arrangements without giving rise to any inference that a refusal to deal is intended. See, e.g., Bridge Corp. of America v. American Contract Bridge League, Inc., 428 F.2d 1365, 1368-70 (9th Cir. 1970). This principle is equally applicable when that prolonged review ultimately demonstrates that a refusal to change the existing arrange-ments would be unreasonable. Structural Laminates, Inc.
- v. Douglas Fir Plywood Ass'n, 261 F. Supo. 154, 159 (D.
Ore. 1966), aff'd, 399 F.2d 155 (9th Cir. 1968), cert. denied, 393 U.S. 1024 (1969). 10/ Findings of Fact 2.79-2.85.
--11/ They charge the Company with refusing to deal with its municipal and cooperative neighbors "on the same basis" as it deals with other systems in matters of wheeling, coordirated development, and access to nuclear power.
Staff 3rief, p. 87. They also advance the more par-ticular assertions that the Company has " agreed ... to ccot dinate ...' development" with Ontario Hydro [Staf? Brief, p. 49], that it is interconnected with Lansing and Holland only "[to] a limited degree" (Staff Brief, p. 52), and that its agreement with Lansing is
" limited to the transfer of energy during emergencies
.... " Staff Brief, p. 52.
1
- 106 -
contentions are wholly without support in the record and are belied by the extensive authority, chiefly the contracts themselves, on which our Findings of Fact rely.
- 2. Reserve-Sharing Practices.
Perhaps the most persistent indictment advanced by the other parties is that the Company is guilty of a variety of misdeeds related to the terms on which it shares reserves and exchanges emergency capacity and energy with neighboring municipal and cooperative utilities. On the one hand , they contend - 'without qualification and citing no support in the record -- that equal percentage reserve formulas are " ordinary" in the industry and invariably repre-sent a fair, equal and non-discriminatory arrangement for emergency power .--12/Conversely, they charge that reserve-sharing provisions found in the Company's contracts with 13/ 14/ its smaller neighbors are discriminatory,- " onerous"- and "nothing more than a complicated way of charging a monopolist's 15/ price."-- 12/ Justice Brief, p. les; Intervenors' Brief, p. 133. 13/ Intervenors' Brief, pp. 38-40. 14/ Id., p. 40. 15/ ' Justice Brief, p. 153. -- Similarly, the Intervenors char-acterize any departure from equal percentage reserves as an unwarranted " admission fee." Intervenors' Brief,
- p. 129.
- 107 -
( The record of this proceeding offers no authority for these various allegations and often contradicts them. For example, it is not true either that the terms on which Consumers Power Company exchanges emergency capacity and energy with municipal and cooperative systems are " invariably based 16/ on some kind of ' largest unit' formula"- or that "due to the requirements forced upon it by Applicant, Lansing has been forced 17/ to operate with almost 100% reserve capacity." -- On the con-trary, the Company's coordination agreement with Lansing and the testimony of Lansing's system manager conclusively demon-strate that Lansing's reserve o' .igation (1) is totally unre-lated to unit size and (2) now amounts to less than 20 percent 18/ of its annual peak load.-- This represents a lower percentage 16/ Intervenors' Brief, p. 40. 17/ Intervenors' Brie f, p. 20n. 18/ According to its coordination contract with Consumers Power Company, Lansing's reserve responsibility is stated in terms of a specified level of spinning re-serves, with no reference at all to unit size. Ex-hibit 11, 112. Its spinning reserve responsibility is 70 mw until 1977 when, pursuant to Lansing's request, it will be reduced further to 35 mw. Finding of Fact 4.39. Further, Mr. Brush testified that while both parties meant the contract to be silent on the matter of in-stalled reserves, "the spinning actually becomes the installed responsibility." Brush 2140. Mr. Brush, the Board _ will recall, is the General Manager of the Lansing Board of Water and Light who negotiated the contract here in question. Brush 2067, 2085.
.(cont.)
- 109 -
3 20/ quickly."-- In fact, Mr. Brush was silent on his system's needs and said only that Lansing "could not accept" the offer 21/ and " subsequently thereto rejected it in writing."- Similarly, l the Department cites Mr. Brush for the proposition that "the arrangement which Lansing ultimately obtained was still not as favorable to it as the Gainesville formula would 22/ have be en . "-- Mr. Brush, however, said nothing of the 23/ kind.-- Rather, his testimony -- when read together with the contract he negotiated -- demonstrates beyond question that the arrangement which Lansing ultimately received was 24/ very favorable ind e ed . -- Moreover, in a document written to his supervisors, Mr. Brush expressed his satisfaction with the new arrangement and lauded the Company for treating Lansing in the same way it treats large, investor-owned systems.--25/ 20/ Justice Brief, p. 152.
--21/ Brush 2111. This transcript page is the sole authority cited by the Department for the contention set out in the preceding sentence of our text.
22/ Justice Brief, p. 152.
--23/ We specifically refer the Board to transcript page 2140 on which the Department purportedly relies.
24/ See n. 18, supra. 25/ Exhibit 242. l
;
l
- 110 -
Still seeking evidence of the Company's discrimina-tory conduct, the Department again departs from the record with its assertion that the .MMCPP accepted its coordination 26/ agreement with Consumers Power Company only " reluctantly."-- The Department does not cite to, and the record does not contain, a single shred of evidence to support this characterization of the MMCPP's attitude. More generally, the Department and the Intervenors claim that compensation for emergency power provided on an "if and when available basis" is " ordinarily the return of the service in kind with each participant maintaining the same 27/ percentage of reserves to load."- They also charge that a reserve requirement which takes account of unit size is a
" monopolist's price," provides "more of the form than the substance of genuine reserve sharing," and constitutes an un-28/
reasonable " admission fee".-- This argument is wholly without 29/ authority in the record.-- 26/ Justice Brief, p. 151. 27/ Justice Brief, p.149. 28/ Justice Brief, pp. 151-153; Intervenors' Br ie f , p. 129. 29/ On page 149 the Department provides the form but not the substance of authority. After its assertion that
" compensation is ordinarily the return of the service in kind with each participant maintaining the same per-centage of reserves to load", the Department cites three portions of the record. None support the quoted propo-(cont.)
,m , ,
- 111 -
For example, the assertion that Consumers Power has. exacted a " monopolist's price" from certain of its coordination partners is crucially deficient since there is no credible claim -- much less, proof -- that the Company has actually received an inequitable or unreasonable share of the benefits of any of its coordination agreements. Furthermore, it ignores the testimony of witnesses Mayben and Slemmer that the benefits which have flowed to Consumers Power Company 30/ from these agreements are extremely limited.-~ We believe that our main brief has adequately an-ticipated the deficiencies in our adversaries' position concern-ing reserve-sharing and that a detailed review of our position 30a/ here would serve no useful purpose. Suf fice it to say that despite their ef fort to ignore or obscure the facts, the other parties' argument cannot be reconciled with the following uncontradicted principles of record in this proceeding: (1) what matters in reserve-sharing is system reliability, 29/ (cont.) sition. In fact, pages 1212-13 are the introductory
" title" and " content and exhibits" pages from the Novem-ber 29 hearing. Even if what they meant was 5212-13, those pages provide no authority for this central proposition.
30/ Mayben 2690; Slemmer 28-29 after 8838. 30a/ Consumers Power Co. Brief, pp. 197-202. i 1
. . . _ , 4.---
- 112 -
[. not unit ~ reliability--31/and that a system has lower reliability if it relies on a few very large units than if it relies' 31a/ on a larger number of smaller units; (2) coordination with i other. systems on the basis of equal percentage reserves will i sometimes result in net detriment and inequitable burden 32/ to the Company and its customers; -- and (3) if the Company's reserve sharing policies or practices are in any respect
' improper, the Federal Power Commission can remedy the situ-32a/
ation but, to date, it has not seen fit to do so. 31/ The Intervenors particularly seek to confuse this point. On page 40 of their brief they claim that a reserve formula which takes account of the degree in which a ' system has concentrat ad its generation capacity in' a few large units "results in far greater reserves , i (sic] requirements by the smaller systems as a propor-tion of their load, even though there is no showing that such systems' units have lesser reliability." We concede that such a formula may require systems. with units disporportionately large in relation to their loads to keep somewhat larger reserves. This, however, simply corresponds to the engineering fact-of-life that the reliability of those systems is lessened by such concentration of generation. Finding of Fact 4.46.
~It. matters little to a coordination partner that another system may have reliable units if its system as a whole is unreliable. The Intervenors' suggestion-that unit reliability is all that matters is pure sophistry.
31a/' Finding of Fact 4.45. ! 32/ Findings of Fact 4.45, 5.09. 32a/ Consumers Power Co, Brief. pp. 120-124. 1 s , w s-- , y n ,-r- - - , , , , , ,-~ -----mm--- -----,-n . , - , -- ~
- 113 -
In sum, .the briefs of the other parties -- misleading as they are concerning reserve-sharing -- make no case against { the Company.
- 3. Coordinated Development Policies.
The other parties to this proceeding assert that coordinated development, even between very large and very small systems, is standard in this industry. They then charge that Consumers Power' Company has departed from these norms and discriminated against neighboring municipal and cooperative systems by failing to coordinate planning and development and by failing to offer direct and preferential access to the Midland facility. Finally, they characterize these alleged failures as an unlawful refusal to deal. Each of their_ claims is fundamentally in error.
- a. Industry Practice. ,
- The Department announces that it is " standard among neighboring utilities" to engage in coordinated de-33/
velopment.- 'As proof, it relies on two documents which, it claims, outline "the various forms of coordination taking
place throughout' the country today between utilities of 34/ equal bargaining strength. "-- 33/ Justice Brief, p. 148, 148n. 34/ Justice Brief, p. 148n. d
- .m., y ---,,,,,e,. .-- ,,-. ,<--,-p , . , -,,ev. ,e -
- 114 -
This " proof" fails completely. Neither document purports in any way to assess what is " standard" in this 35/ industry. Nor do they support the proposition that the arrangements they discuss will necessarily offer the mutual benefits that provide the incentive to agreement or that these are the arrangements or the particular terms that will be agreed upon among systems of " equal bargaining strength." Indeed, to the extremely limited extent these documents speak to topics here in controversy, it is only to confirm the Com-pany's position that wholesale purchases permit small systems 36/ to enjoy the benefits of coordination.-- The Staff similarly argues that the participation of small systems in coordinated development -- including the coordinated development of nuclear capacity -- is " character-
--35/ One document is intended only "to assist electric utility systems in developing contractual arrangements whereby they may derive the attainable benefits of coordina-tion." Exhibit 167 pp. "39003 and 39001". The other document merely presents "several methods of owning and selling generating capacity . .. to be considered should neighboring utilities conclude it is to the mutual benefit to buy or sell generating capacity to each other or to own a plant jointly." Exhibit 234, introductory memo and Forward (emphasis added).
--36/ According to Exhibit 167: "It is obvious that when systems are approximately the same size, there are fewer problems to resolve in determining an equitable distribution of the benefits and responsibilities. . . . In_many instances, it is advantageous for the small system to buy wholesale energy from a pool. In so doing they share in the benefits of the pool because of their ability to purchase reliable power at a low cost." (pp. 39007-39008).
- 115 -
37/ istic" in other areas of the United States.-- They are able, however, to cite only one intersystem coordination agreement in which coordinated development with small systems is being undertaken: the New England Power Pool Agreement. Even among the other arrangements they discuss, none offers proof for their argument. These include the Washington 38/ 39/ Public Power Supply System,- WEST,- Northwest Power Pool, 40/ the Pacific Northwest Coordination Agreement, the Rocky 32/ Staff Brief, pp. 136-142.
--38/ Mhile it is apparently involved in coordinated develop-ment, the Washington Public Power Supply System is any-thing but the product of an "intersystem coordination
=rrangement". Instead, it is "A Municipal Corporation and a Joint Operating Agency of the State of Washington".
Staff Brief, Appendix G. According to the source on ; which the Staff relies, municipals, public utilities, dis- ! tricts or rural cooperatives need only choose to partici- l pate. National Power Survey, III-3-197.
--39/ The Staff offers no evidence that WEST engages in coor-dinated development. Indeed, all that is alleged is that some, though apparently not all, cf its members undertook joint development of a nuclear facility and offered some form of ownership participation to smaller systems. It appears, however, that none of the smaller systems chose to participate. Staff Brief, pp. 137-138. --40/ The Staff does not suggest that either the Northwest Power Pool or the Pacific Northwest Coordination Agree-ment provides for coordinated planning and development.
Staff Brief, pp. 138-139.
I
- 116 -
41/ Mountain Power Pool,- and PJM.--42/ Thus, neither the Depart-ment nor the Staff of fers any substantial evidence that coor-dinated development, whether among large systems or between large systems and small ones, is standard in, or characteris-tic of, the market in which Consumers Power Company operates.
--41/ The Staff discusses the Rocky Mountain Power Pool (Staff Brief, p.140) only in the context of the following language in the National Power Sorvey:
"Small systems may also be able to act in concert to install large units at much lower cost than would be possible if they supplied all their own needs from generating capacity within their sys-tem. To accomplish this objective, these systems may find it desirable to participate in wheeling arrangements to deliver power from such jointly sponsored plants without themselves constructing transmission lines. This type of wheeling arrangement ... has received acceptance by utilities in the Rocky Mountain Power Pool. .."
(p. III-3-1966). The Board will recall that the Staff itself quotes the testimony of Mr. Aymond to the ef fect that Consumers Power Company could work out cuch an arrangement as this for neighboring utilities. Staff Brief, p. 74. 42/ The Staff errs with respect to PJM. It asserts that there are three municipal members. This is incorrect. While the municipals are interconnected with members of PJM they are not members, satellite or otherwise. Indeed, the National Power Survey on which they rely (p. II-1-78) points out that:
"Because these systems are so small, they have no substantive effect on area reliability, capacity planning, or operation. From the
_ pool's viewpoint there is no engineering or financial' benefit through inclusion of these very small systems in the power pool, since their scale of operations does not contribute any reduction in overall cost to the area which is not already available within PJM."
- 117 -
-Nevertheless, the record does contain substantial evidence as to what coordinated development arrangements are reasonable and consistent with industry practice. For in-stance, we have previously demonstrated that a prerequisite to coordination is the reasonable prospect that the parties
-43/
will derive meaningful and reciprocal benefits. - Although the Department cites the Company's requirement of " mutual benefits" as "nothing more than its insistence upon exacting the advan-44/ tage of its monopoly position",- it has found no antitrust in-consistency, and no need for a Section 105 hearing, in the comparable coordination policies of many other systems.--45/ 43/ Findings of Fact 4.13 - 4.15. 44/ Justice Brief, p. 7. --45/ See, e.g. , the following letters of advice released by the Attorney General: Virginia Electric and Power Company (North Anna Power Units 3 and 4), AEC Dkt. Nos. 504A and 50-405A, 37 Fed. Reg. 16221 (August 11, 1972);"1. Vepco will inter-connect with any neighboring utility if it can be shown that benefits accrue to both parties, and the benefits to Vepco exceed the costs to Vepco.
"2. Vepco will interchange electric bulk power with any neighboring utility when net benefits accrue to both parties."
- Carolina Power and Light Company (Shearon Harris Power Units 1,2,3 and 4), AEC Dkt. Nos. 50-400A, 50-401A, 50-402A and 50-403A, 37 Fed. Reg. 18016 (September 16, 1974): " Bulk power supply arrangements should be such as to provide benefits, on balance, each to Applicant and the other participant (s), respectively. The benefits to- participants in such arrangements need not be pro-portionately greater than those realized by a larger system."
(cont.)
- 118 -
Furthermore, we have shown that reciprocity is particularly 45/ (cont.) Virginia Power and Light Company (Surry Power Station Units 3 and 4), AEC Dkt. Nos. 50-434A and 50-435A, 38 Fed. Reg. 32596 (November 27, 1973): " Bulk power supply arrangements should be such as to provide net benefits both to Applicant and to the other participant (s), respectively. The benefits to participants in such arrangements need not necessarily be equal and the benefits realized by a small system.may be greater than those realized-by a large system." Duke Power Company (Oconee Units 1,2 and 3, McGuire Nuclear Station Units 1 and 2, Catawba Nuclear Station Units 1- and 2), AEC Dkt. Nos. 50-269A, 50-270A, 50-369A, 50-370A, 50-413A, 50-414A, 39 Fed. Reg. 17461 (May 16, 1974):
"Any particular bulk power supply transaction may afford greater benefits to one participant than to another. The benefits realized by a small system may be proportionately greater than those realized by a larger system. The -relative benefits to be derived by the parties from a proposed transaction, however, should not be controlling upon a decision with respect to the desirability of participating in the transaction.
Accordingly, Applicant will enter into proposed bulk power transactions of the types hereinaf ter described which, on balance, provide net benefits to Applicant. There are net benefits in a transaction if Applicant recovers the ' cost of the transaction . .. and there is no demonstrable net detriment to Applicant arising from that transaction." Illinois Power Comoany (Clinton Power Station Units 1 and 2), AEC Dkt. Nos. 50-461A and 50-462A, 39 Fed. Reg. 15898 (May 6, 1974): " . . . The arrangement should also be reciprocal as nearly as may be although it is recognized that, in any particular arrangement, the
' benefits may not be equal or identical for each party and that a smaller electric ~ system may realize benefits which are ' greater than those obligated to enter into an arrangement if it would realize no net benefits from the arrangement, or if the arrangement would result in. net burdens to the party."
Emphasis added to each excerpt.
,. _ _ , , .y ., -
y - - - - =* * * " - * -
- 119 -
46/ a prerequisite to a coordinated development agreement. Hence, it is neither reasonable nor " standard" in this in- , dustry for a system to enter .into a coordinated development arrangement without regard either to the availability of mutual benefits or to possible harm to the system and its customers. Nor, indeed, do the antitrust laws require even a collective enterprise to enter transactions without regard to harm which may result.--47/
- b. Discrimination.
The Staff next charges that the Company has dis-criminated against neighboring municipal and cooperative systems by failing to coordinate development with those systems and to grant them direct and preferential " access 48/ to nuclear power . "-- In addition to their claims of what is " standard" in the industry, the other parties support this charge by insisting, for in stance , that while the Company has agreed to coordinate development with Ontario 49/ Hydro,- it never of fered participation in its Ludington 50/ facility to its smaller neighbors.-- 46/ Finding of Fact 4.17. 47/ See cases cited at 101 n. 2, supra. 48/ Staff Brief, p. 87, t 49/ Staff Brief, p. 49. 50/ Intervenors Brief, p. 37n.
- 120 -
First, there is no bas'is whatsoever for the Staff's general and undocumented complaint that the Company has failed to grant smaller systems access to nuclear power "on the same 51/ basis as Consumers treats other privately owned utilities."-- The record establishes that, subject only to the imposition of license conditions to the contrary, the Midland Units will be owned and operated exclusively by Consumers Power Company. There are no arrangements of any kind which will entitle other entities to receive electric power directly from these particular 52/ units.-- Furthermore, there is no evidence of record that Consumers Power Company has built or is planning to build any nuclear facility on any other terms. Thus in granting " access to nuclear power" the Company has treated all systems, large
and small, in precisely the same manner. Next, there is no substance to the Staff's charge that the Company has refused to grant municipal and coopera-tive systems coordinated development "on the same basis as 53/ Consumers treats other privately owned utilities."-- The Company engages in coordinated development only in the con-54/ text of the Michigan Pool- -- and the Department of Justice has already approved the standards which govern the admission 51/ Staff Brief, p. 87. 52/ Findings of Fact 1.02 and 1.03. 53/ Staff Brief, p. 87. 54/ Finding of Fact 4.26. l
- 121 -
of additional parties to that arrangement.--55/ Similarly, the Staff is simply wrong when it asserts that the Company has
-56/
" agreed ... to coordinate ... development" with Ontario Hydro. -
Finally, the Intervenors' claim that they were not offered participation in the Company's Ludington Pumped Storage plant totally ~ lacks credibility.--57/ They cite no authority 'for this proposition and the record contains uncontradicted evidence to the contrary. In 1967, an officer of Consumers Power Company discussed with repre-sentatives of the Northern Michigan Electric Cooperative, the MMCPP's engineering consultants, and the staf f of the Michigan Public Service Commission the availability to other systems of unit power from Ludington. --58/ The Company A
--55/ Except for the Michigan Pool agreement, none of the Company's coordination agreements with either large systems or small ones provide for the parties to en-gage in coordinated development. At the same time, however, none of those agreements prohibit any party from engaging in coordinated development on mutually acceptable terms and conditions. See Finding of Fact 2.85 for extensive citations of the contracts.
56/ Staff Brief, p. 49. See Finding of Fact 2.85. 57/ Intervenors' Brief, p. 37n. 58/ Finding of Fact 4.56. Specifically, the Department's witness Steinbrecher specifically testified that "Mr. Campbell mentioned the oncoming Ludington facility to us during negotiations, and indicated that there might be peaking capacity available from that facility." Steinbrecher 1897. Mr. Campbell was at that time Vice President in charge of Marketing for Consumers Power Company.
- 122 -
received no response or other expression of interest from 59/ tne cooperatives, the MMCPP, or any other system.--
- c. Alleged Refusals to Deal.
The record of this proceeding is devoid of proof that neighboring municipal and ' cooperative systems ever requested coordinated development or participation in nuclear f acilities prior to the initiation of this proceed-ing. Undeterred, the Staf f nevertheless charges that the Company's alleged f ailure to grant non-discriminatory ac-cess to nuclear power constitutes an unlawful refusal to deal with municipal and cooperative systems.--60/ The charge is detailed in two parts. One concerns the Company's f ail-ure to accede to certain requests for access to Midland which have been made subsequent to the initiation of this proceeding. ne deal with tnis complaint shortly. The other part of the Staff's charge is that
" Consumers Power has never taken the initiative in of fe, ring nuclear power benefits to the small electric- utilities sys-61/
tems in the relevant market." -~ This, then, is an argument that, standing' totally apart from any other conduct, the Company's f ailure. to "take the initiative" in offering
- i 59/- Finding of Fact 4.56.
60/ Staff.Brief, p. 87. 61/ ' Staff.Brief,-p. 89. s-l
- 123 -
1 smaller systems direct and preferential access to its nuclear facilities constitutes an unlawful refusal to deal. This novel proposition, urged so tenaciously by the Staff, is completely foreign to this nation's antitrust laws.
"In a successful action for refusal to deal, it l is essential that the plaintiff show that he has made a 62/
demand or request on the defendant."-- Indeed, the plain-tiff's failure to make a demand on the defendent has been held to be fatal even when the plaintiff insists that the 63/ making of the demands would have been fruitless.-- 64/ This requirement is neither rigid nor mechanical.-- Nevertheless, exceptions have only been made on those rare occasions when it is proven that the failure is specifically attributable to conduct by the defendant which has the effect of an explicit refusal. Thus, a licensing board of this Com-mission held the failure to make numerous requests for access not to be f atal in Louisiana Power and Light Co., only where
--62/ Saunders v. National Basketball Ass'n., 348 F. Supp.
649, 655-656 (N.D. Ill. 1972). 63/ Royster Drive-In Theatres, Inc. v. American Broadcast- i ing-Paramount Theatres, Inc., 268 F.2d 246 (2d Cir. 1959), cert. denied, 361 U.S. 885; Milwaukee Towne Corp.
- v. Loew's, Inc . , 19 0 F. 2d 561 ( 7 th Cir . 19 51) , cert.
denied, 342 U.S. 909 (1952); Dahl, Inc. v. Roy Cooper Co., Inc., 448 F.2d 17 (9th Cir. 1971); 608 Hamilton Street Corp. v. Columbia Pictures Corp., 244 F. Supp. 193 (E.D. Pa. 1965). 64/ Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962). I l l
124 - /
"the self-expression of Applicant's representatives is so firm, so resolute, and so unyielding as to cause others 65/
to despair of further fruitful discussion or negotiation."-- The Department takes a tack which is only slightly different from the Staff's. It adds, more by assertion than by proof, the charge that the Company is responsible for this failure on the part of the smaller neighboring systems to make a request. Specifically, it is argued that the Company's " reluctance or outright refusal to join with the smaller systems in the elementary forms of coordination, such as reserve sharing" chilled "any realistic expectation that those systems could have had for the more 66/ advanced and sophisticated kinds of coordination."-- However, this claim of " chilling" cannot on its face apply to most of the potential coordinated development partners. The Department's " chilling" theory cannot account l for the failure of such systems as Lansing and Holland to seek participation in the Midland Plant, Consumers Power ) l I
--65/ Louisiana Power and Light Co., (Waterford Steam Generating Station, Unit 3), AEC Dkt. No. 50-382A, Memorandum of Board with Respect to Appropriate License Conditions which should be Attached to a Con-struction Permit Assuming Arguendo a Situation Incon-sistent with the Antitrust Laws (October 24, 1974), p.
21. 66/ Justice Brief, pp. 164-65. l
. . ._ - ~. -
i
- 125 -
Company has long engaged in reserve sharing and other forms of . coordination with those systems. --67/ Similarly, Mr. Wolfe testified that the Company of fered to coordinate with the Tra--
- ~~
verse City system in 1968.--68/ Thus it cannot be said that the Company's " reluctance or outright refusal" to coordinate operations with these ' three systems explains their failure
- to ask for access to Midland until 1971. Similarly, in 1967 the Company discussed with representatives of the MMCPP 69/
the availability of unit power from the Ludington plant. These systems have thus long been on notice that the Company
- would consider coordinating development.
Even if the Department's theory could be applied to these systems, there remains a hole in its logic. The Depart-ment argues that the Company, in agreeing to coordinate only 4 with self-sufficient systems somehow created in the minds of neighboring systems a sufficiently firm conviction that the Company would never- coordinate development (e.g. joint venture) even with a self-sufficient system, so that they were released 71/ from their normal obligation to inquire.-- However, the 67/ Exhibits 91; 11,112; 99; 100-103; 12,024.
--68/ Wol fe J 1564, 1767; Justice Brief, p. 153; Staff Brief, p.-100.
69/ .See pp. 121-122 i
-71/
We haverdemonstrated in detail that Consumers Power's ' refusal to coordinate operations and share reserves l [ with.non-self-sufficient systems has been-reasonable. . (cont.)
- 126 -
Department of fers no evidence that the system managers actually held that attitude at the time. Further, there was nothing in the Company's conduct from which a system could have concluded that if it was or became self-sufficient, and if it proposed a joint venture in a nuclear plant, the Company would have refused out of hand. Hence, this Board has been shown no evidence at all of such explicit conduct as "self-expression . . . so firm, so resolute, and so unyielding-as to cause others to despair of further fruitful discussion 72/ or negotiation."-- Finally, there is no merit in the Staf f's complaint that the Company has acted unlawfully in failing to accede to various requests--73/ for " access" to Midland which were made 71/ (cont.) We have further demonstrated that the other side's myriad complaints are without substantial foundation. Consumers Power Co. Brief, pp. 182-202; pp. 99-151 of this Reply. Hence, the neighboring systems could
-not properly have drawn negative conclusions regarding the Company's attitude on coordinated. development from those practices.
72/ Louisiana Power and Light Co., supra, p. 21. --73/ The Department cites MMCPP representative Wolfe's testi-mony to the effect that these requests were simply a part of the -scheme of this. litigation. Thus he declares that :in 1971 "it was felt that 'these particular requests should be documented and made clear for the record .... Justice Brief, p.'166. If it was ever unclear whether the Company acted reasonably in responding to these requests only in the due course of this litigation, the question has now been set to rest.
- 127 -
subsequent to the initiation of this proceeding. It is undis-puted that the ' Company's intention to construct the Midland facility was well publicized as early as 1967--74/ and that the size of the facility was established in that year.--75/ For reasons the Staff does not even try to explain in terms of any. conduct by the Company, the smaller systems did not request
" access" to Midland until four years af ter the size of these
-76/
units was fixed. - Furthermore, there is no evidence that the systems now seeking this access were or are willing or able to participate in a reciprocal coordinated development pro-gram. In these circumstances, it is undisputed that the granting of these requests could cost the Company and its customers 77/ as much as $141 million.-- Under these facts, the Company's 78/ failure to grant the requested " access" is plainly reasonable-- 74/ Exhibit 183; Supplemental Finding of Fact 1.06A 75/ Finding of Fact 1.08. 76/ Staff Brief, pp. 88-89; Finding of Fact 4.56, 22/ Finding of Fact 4.58.
--78/ Indeed,-the Department of Justice in a speech by one of its counsel in -this proceeding has acknowledged that those seeking unit access must request it "in a timely fashion,"
i.e. before_"a system is designed and built." Address of Donald I. Baker, then Director of Policy Planning and now Deputy Assistant Attorney General, Antitrust Division, Department of Justice, to American Public Power Association, National Conference, May 16, 1973, pp. 12-13.
- - - , , , -- , - - - - ,a---,
1 l
- 128 --
-79/
and therefore 'cannot constitute an unlawful refusal to deal.--
- 4. Wheeling.
The ' proponents of conditions on the Midland licenses charge the Company with a variety of' misdeeds in i ts conduct and policies concerning transmission services. The Staff attacks the Company for refusing to grant access to trans-mission services to municipal and cooperhtive systems "on the same basis" as it grants such access to larger, inves-80/ tor-owned utilities.~~ Sounding the same theme, the Inter- , venors-declare that the Company's coordination agreements with large utilities "almost uniformally [ sic] provide mutual access to transmission capacity" at "no charge", and that the' Company's agreement with smaller systems make "no provision for joint use of the transmission capacity or even for the 81/ purchase or sale of such capacity."~~ These charges represent the epitome of mischarac-terization. The Company and Detroit Edison may only be said to exchange transmission services to the limited extent that certain high voltage facilities, jointly financed by both parties pursuant to the Michigan Pool arrangement, may be used for transactions conducted on behalf of the Pool as a 79/ See pp._101-102, supra. 1 80/f Staff Brief, p. 87.
--81/- Intervenors' Brief, pp. 38-39. The emphasis is in the brief, as.is a footnote substantially retracting this unqualified charge.-
i
- 129 -
82/ whole.-- Apart from these jointly owned facilities neither system wheels for the other. The Intervenors' characteri-zatien of ' this arrangement as a general wheeling arrangement at no cost to the Company is thus obviously unfounded. In fact, the Company has transmission service arrangements with only two systems: Indiana & Michigan Electric Company and the MMCPP systems. --83/ Since the Com-pany is a party to no other wheeling agreements, it is simp-ly f alse to allege, as have the Intervenors, that the Com-pany's coordination agreements with large utilities "almost invariably provide mutual access to transmission capacity". It is likewise untrue that "[t]he basic MIIO agree-ments (and for the.most part Consumers Power Company's in-terchange arrangements) provide for no charge by any party 84/ for the use of the interconnected transmission facilities"-- or that the Company does not wheel for the smaller systems --82/ Article VI, paragraph 2, of the Electric Coordination Agreement between Consumers Power Company and The Detroit Edison Company specifies that "(s)ince such interconnections and all grid lines and switching sta-tions are deemed to be of equal benefit to both parties, annual costs thereof shall be shared by the parties hereto as nearly equally as practicable." The Planning Committee is then given responsibility for determining the applicable " equalization payments." Exhibit 71. 83/ Findings of Fact ~.2 84, 4.71. 84/ Intervenors' Brief, p. 38.
- 130 - "on the same basis" as it wheels for larger systems.--85/Quite the contrary, Consumers Power Company charges the MMCPP precisely the same rate that governs its wheeling arrangement 86/
with Indiana & Michigan.-- Having misstated the number and terms of the Com-pany's wheeling arrangements with other systems, the other parties then attempt to explain away the undisputed fact that the Company has never refused to wheel power for a smaller system and that until recent1.y it had never received a specific request for wheeling. The plain fact is that these arguments bear no resemblance to the record. The other parties argue that Consumers Power Com-pany wrongfully refused to wheel for the Southeastern Mich-igan Electric Cooperative in 1966. --87/ This incident, how-85/ Staff Brief, p. 87. --86/ Compare (1) Supplemental Agreement No. 2 to Intercon-nection Agreement between Consumers Power Company and Northern Michigan Electric. Cooperative, Inc., Wolverine Electric Cooperative,.Inc., City of Grand Haven, Michigan and City of Traverse City, Michigan [ Exhibit 12,023], Supplement F, sections 5 and 6 with (2) Operating Agreement among Consumers Power Company, The Detroit Edison Company, and Indiana & Michigan Electric Com-pany [ Exhibit 11,109], Amendment 4, Service Schedule D, sections 3.12(b) and 3.13, and Amendment 6, Service Schedule G, sections 3.12(b) and 3.13. --87/ Citing no authority, the Department of Justice places 4 these events in 1966. Justice Brief, p.-144. We I submit this is plain error. The only evidence bear-ing on this " request" is Mr. Paul's testimony and Mr. Bruce's letter of June 10, 1969. Paul 7936, Exhibit 125. The meeting they describe took place on June 5, 1969.
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ever, cannot accurately be characterized as a denial of a request for wheeling. The only evidence that wheeling was even discussed between the parties is a single document re-flecting a June,1969 meeting between representatives of the Southeastern cooperative and the Company's marketing department.--88/ In the course of discussing a number of other matters, someone asked whether Consumers Power Company would " wheel power from the Cazdinal Plant to Southeastern Michigan." The Company's representative responded simply that it "didn ' t have a policy or rate on wheeling" and that "such wheeling would involve other systems over--89/which we 90/ had no control . "-- Our adversaries' argument seeks to transform this isolated, preliminary and generalized verbal inquiry into 91/ a formal request to purchase transmission services. They , l 88/ Exhibits 275 and 1075.-
--89/ Both - the Staf f and the Justice Department substitute the word "under" for the "over" that plainly appears !
on transcript page 7936. Staff Brief, p. 93; Jus-tice Brief, p. 144. -90/ Paul 7936; Exhibit 125. The Department describes its l Exhibit 125 as an " internal memorandum". It is never- I theless plain on the face of this document that it is a letter from Mr. Bruce of Consumers Power Company to Mr._ Richard Stutesman of the Southeastern Cooperative. 91/ In a case similar to this, the Ninth Circuit has recently found such evidence insufficient to establish a con-certed refusal to deal. "All we have is evidence of preliminary negotiations. A demand and a refusal is a prerequisite to a claim of concerted refusal to deal." i Cleary v. National Distillers and Chemical Corp., 1974-2 1 Trade Cases 175,330 (9tn.cir. Oct. 29, 19/4) App. S-3. l
- 132 -
also mischaracterize the Company's response as a refusal to wheel, whereas in fact, its representative merely stated two. truths: the Company had no wheeling policy or rate and,in any event, the. transmission of power from the Cardinal Plant to the Company was dependent upon other systems which, it appears, could not have made it available.--92/ We submit that in the light of all the circumstances the response by the Company's marketing representative was truthful and sufficient. The Department of Justice, however, persists. Having called no witnesses on this matter, and having ig-nored the documentary evidence it placed in the record, the Department seeks to convert the Company's response into an announced policy never to wheel under any circumstances. It attempts this conversion through its claims -- based entirely on its own speculation -- as to what Southeastern next did that it would not have done but for its purported belief that the Company's response constituted an unquali-93/ fied refusal.-- We believe that this argument is so devoid of probative-value that it can properly be given no weight whatsoever. 92/ Under the Buckeye Pact, power from the Cardinal Plant could only be consumed wholly within the state of Ohio. Justice Brief, p. 136 n. 1. Since other systems were contractually prohibited from wheeling power from the plant systems in Michigan, any plan for Consumers Power to obtain Cardinal Plant power was inher-4 ently infeasible. 93/ Justice Brief, p. 146.
- 133 -
The other " evidence" of the Company's allegedly unqualified refusal to wheel for its municipal and coopera-tive neighbors is no less fanciful. The other parties ad-mit, except as to Southeastern in 1969, that prior to the initiation of this proceeding none of the smaller systems made a request, in any form whatsoever, for wheeling by 95/ Consumers Power Company.--94/ True to form,- they seek to convert this deficiency in their case -into evidence of wrongdoing by the Company. Their claim this time is that the failure of the smaller systems ever to ask for wheel-ing is itself evidence of how unqualified and notorious 96/ was the Company's policy against wheeling.-- Their only evidence for this startling proposition is the speculation of one witness, and the nearsay speculation of an unnamed person.--97/This evidence is fatally deficient because, 94/ Justice Brief, pp. 146-47; Staff Brief, pp. 95-96.
--95/ See pp. 120-22, supra, on refusals to deal alleged without evidence of requests.
96/ Staff Brief, p. 93, para. XI-59.
~~97/ The speculating witness was Mr. Wolfe who testified that he " felt it was futile" to ask for wheeling.
Wolfe 1729 cited in Staff Brief, pp. 94-95, and in Justice Brief, p. 147. The. hearsay speculation came in through Mr. Fletcher who testified that "[w]e have been assured by the Cooperatives with whom we are doing this study that Consumers Power will not wheel the power for us." Fletcher 4275-4276 cited in Staff Brief, pp. 95-96, and in Justice Brief, pp. 146-47.
- 134 -
as numerous courts have held, substantial evidence in-cludes more than uncorroborated hearsay and more than 98/ hearsay corroborated by a mere scintilla.- Even apart from this failure of proof, the charge is as legally in-sufficient as the claims that an. unlawful refusal to deal may be fully established solely by evidence of a failure 99/ to tender an unsolicited of fer .-- In the same vein, we are conf ronted with the claim that " Consumers refusals to grant access to transmis-sion services to smaller electric systems in its service area is evidenced primarily by the complete lack of trans-mission provisions in the contracts that Consumers has with 100/ these small systems." This passage is illustrative
--98/ Boyle's Famous Corned Beef Co. v. NLRB, 400 F.2d 154 (8th Cir. 1968); NLRB v. Imparato Stevedoring Corp., 250 F.2d 297 (3d Cir. 1957); Willapoint Oysters, Inc. v. Ewing, 174 F.2d 676, 690 (9th Cir. 1949), cert. denie{, 338 U.S. 860 (1949).
99/ See pp. 122-126, supra. 100/ Staff Brief, p. 93 (emphasis added). Cognate to this claim is the suggestion by the Staff and the Department that the Company's alleged unwillingness to wheel is somehow evidenced by Mr. Fletcher 's testimony that he was once told by his staff "that Coasumers has never wheeled f or small utilities. " Fletcher 4329 cited in Justice Brief, p. 147, and in Staff Brief, p. 96.
l
- 135 -
of the other parties' oft-repeated argument that a failure to ' initiate discussions and affirmatively offer particular services and terms constitutes a refusal to deal even though a request for those services and terms may never have been made. We submit that, particularly as applied to the facts of record here, this theory does violence to the English language, can claim no basis in law, and contravenes in every way the normal practices and ex-101/ pectations of businessmen. l Finally, it is alleged that Consumers Power Com- I 1
.I pany has not adequately responded to inquiries about the Company's wheeling policies which were made by Traverse City, the MMCPP and City of Coldwater af ter the 102/
initiaties cC this proceeding. Since issues relating to , 1 the Company's wheeling policies were central to the issues l raised in this proceeding, it is hardly surprising that the Company declined to discuss the matter once it was in liti-101/ The Intervenors', reference to Rosa Parks (Intervenors' Brief, p. 127] evidences yet another attempt to go beyond ; the facts of this case. We are only arguing that the other parties have not here shown a basis for their claim that the Company by its silence was affirmatively denying to other systems advantages that, in f act, those other systems chose not to seek. 102/ Staff Brief, pp. 92-93. l J
l l
- 136 -
gation. In effect, proposals to talk about wheeling at that juncture may be considered settlemeint overtures. We submit that the Company's unwillingness to engage in such off-the-record discussions of matters of controversy in this pro-ceeding cannot 'itself give rise to antitrust liability. i In sum, the briefs of our adversaries reveal no credible and substantial evidence that will support a find-ing that the Company's conduct concerning transmission (wheeling) services has been anticompetitive, discriminatory, or otherwise unreasonable.
- 5. Alleged " Pre-emptive" Coordination.
Confronted by the fact that the Company has coor-dinated with all of the self-sufficient smaller systems in its area, the Department also charges the Company with some-thing it chooses to call " pre-emptive coordination". Just as the Department earlier condemned the Company for refusals to coordinate with smaller systems, it now condemns the Com-pany for offering to coordinate with smaller systems for an allegedly improper purpose. The particular instances 103/ cited by the Department involve Holland and Allegan. 103/ Justice-Brief, p. 160.
- 137 -
The first basis for the Department's charge of
" pre-emptive coordination" involves the Company's 1966 de-cision to negotiate a renewal of its coordination agreement with the City of Holland -- a decision which according to the Department reveals with "particular clarity" the Com- '
pany's " monopolistic intent ... to preclude or limit the 104/ coordination opportunities of others." The only evidence cited for this conclusion is a memorandum written by a mid-die-level marketing department employee whom the Department deposed at length but did not choose to call as a witness. 105/ The document states that the " prime reason" for the Company's decision to coordinate with Holland was that if the Company did not act, Holland would interconnect with the Wolverine 106/ cooperative system. We submit that this document evidences nothing more than the Company's acknowledgment that, if it did not 104/ Justice Brief, p. 92. I l 105/ The Intervenors offered in evidence portions of Mr. Conden's deposition unrelated to this memorandum. j Exhibit 1016. I 106/ Exhibit 150. 1
-r- ? w
- 138 -
proceed promptly to negotiate the new contract with Holland, the Company stood to lose a beneficial coordination relation-107/ ship. Ironically, it is clear that,'if Consumers Power had for any reason failed to negotiate this contract renewal with the City of Holland, the Department would now be citing such failure as a wrongful refusal to deal and as 108/ evidence of monopolistic intent. This demonstrates how thinly stretched is the Department's theory that Consumers Power Company can neither coordinate on reasonable terms nor reasonably refuse to coordinate without being accused of monopolistic conduct. In other 'words, it is damned if it does coordinate and damned if it doesn't. The other charge in this regard is that the Company's acquisition of the Allegan system was an act of 107/-Holland has been a net seller of emergency power to Consumers Power Company since 1967. Helfman 7 after 3211. 108/ See Justice Brief, pp. 149-53.
- 139 -
/
" pre-emptive coordination" intended to block the growth of the MMCPP. It is also suggested that the acquisition was forced on a city that would have preferred a coordina-tion arrangement, and perhaps would most have preferred to become a member of the MMCPP. The truth of the matter is that on January 21, 1966, Ted Malila, then Mayor of 109/
Allegan, told Consumers Power Company that the City Council "would be glad to receive" an offer to acquire 110/ the system. The Company subsequently made such an offer at the same time it offered to sell the standby power about 111/ which the City had inquired. Subsequently, sale of the system was deemed by the City Council to be the best alter-native and its decision was approved by more than 60 percent of the electorate, by the Federal Power Commission and by the United States Court of Appeals. Citizens for Allegan County, Inc. v. FPC, 414 F.2d 1123 (D.C. Cir. 1969). Alt. hough the Company's personnel knew that Alle-gan was also considering interconnecting with the Wolverine cooperative at the time, there is no evidence that this 109/ Exhibit 1032. 110/ Exhibit 180. 111/ In response to questions from the Board, Mr. Paul tes-tified that " standby power" is one varie ty of wholesale l service. Paul 7981, 7912, 7978. l l l
- 140 -
knowledge motivated the Company's decision to purchase the Allegan system. Nor is there any evidence that the Company
" blocked" the Wolverine-Allegan interconnection as our ad-versaries allege. Rather, the record clearly indicates that Allegan exercised its free will and declined to pur-sue that alternative.
- 6. Restrictions on Interstate Connections.
Closely related to the charge of pre-emptive coor-dination are various denunciations of the Company's contrac-tual arrangements with certain small systems which are j said to have been unreasonably and unlawfully restricted from dealing with other systems. For its part, the Depart-ment charges that the " actual" and " anticipated effect" of this third party contractual provision was "to effect a preemptive coordination and block the future growth of the 112/ M-C Pool .... The Intervenors, for their part, go so f ar as to claim that "both the Holland and Lansing Agreements contained express provisions, required as a condition of interconnection, that they could not buy power 113/ from or sell power to other systems." 112/ Justice Brief, p. 159. 113/ Intervenors' Brief, p. 45.
- 141 -
The facts, however, are these: Prior to becoming subject to FPC jurisdiction in 1969, smaller systems with which the Company dealt agreed to obtain its written consent before interconnecting in such a way that the Company might 114/ become engaged in interstate commerce. According to un-contradicted testimony on the record, the only purpose of this provision was to prevent the Company from inadvert-115/ ently becoming subject to FPC jurisdiction. No party 116/ ever sought such written consent. Undeterred by these facts, the Department charges that, when the MMCPP approached Lansing in 1968 about either joining or interconnecting with the newly organized pool, the discussions collapsed because the existing contract be-tween _ Consumers Power Company and Lansing " precluded such 117/ interconnection." 114/ Finding of Fact 4.09; see also Justice Brief, pp.
-156, 157.
115/ Finding of Fact 4.09. ! 116/ The Department erroneously claims that Consumers Power Company refused a specific request by Bay City to inter-connect with another system in 1966. Justice Brief,
- p. 157n. In fact, the testimony on which they rely shows only that the Company refused to entirely remove j l
the clause when the entire contract was being renego-tiated. 117/ Justice Brief, p. 157.
e
- 142 -
The ' facts of record discredit this assertion in a number of respects. First, although the Department never of fered the Lansing contract in evidence, the provision it cites as " typical" refers only to " interconnection ... which might-result in either party . . . becoming engaged , directly or _ indirectly, in the transmission or sale at 118/ wholesale of electric energy in interstate commerce." During the hearing, the Department made much of the fact that the MMCPP is located in the northern part of Michi-gan 's lower peninsula , is bounded by water on three sides, 119/ and is therefore isolated from systems outside of Michigan. That being the case , there can have been no reasonable ap-prehension that Lansing's interconnection with the MMCPP would involve either Lansing or Consumers Power Company in "the transmission or sale at wholesale of electric energy in interstate commerce". Furthermore, Consumers Power Com-pany had in 1968 long been interconnected with the MMCPP. Thus Lansing's connection with that pool could not have ! involved Consumers Power Company in anything in which it 120/ was not already involved. l 118/ Justice Brief, note at pp. 156-57. 119/ Steinbrecher 1218. l 120/ Consumers Power Company was connected to the MMCPP through one of its member systems, Northern Michigan. Exhibit 64. l
i
- 143 -
In sum, there is no foundation for the charge that in 1968 Consumers Power Company's contract with Lansing precluded an interconnection between Lansing and the MMCPP 121/ system. The Department also contends that the Company's assertion that this provision's purpose was to avoid inadvertently becoming subject' to FPC. jurisdiction is belied by the fact that the Company's " interest in imposing that clause continued well after the time when 'it decided it 122/ was required to file - its rate schedules with the FPC. " This contention . falls with the exposure of the underlying facts. The Company has never asserted that the purpose of this provision was to avoid the need "to file its rate schedules" with the FPC. Rather, it sought to avoid inadvertently becoming subject to FPC jurisdiction. The significance of this distinction is demonstrated by a Company
-memo placed in evidence by the Department which shows that, although it began filing wholesale contracts with the FPC in 1966, the question of the FPC regulatory jurisdiction 121/ Nor is there any basis for the Intervenors' charge that the Holland or the Lansing contracts " contained express provisions, required as a condition of inter-connection, that they could not buy power from or sell power to other systems." Intervenors' Brief, p. 45.
This assertion simply does not survive comparison with the contractual language. 122/ Justice Brief, p.157-58 (emphasis added).
- 144 -
123/
.was.not resolved until 1970.
Thus the Department fails completely in its effort to prove that the Company's " interest in imposing" this clause long outlived the Company's bona fide justification
' for having it.. 'It has not alleged a single incident subse-quent to the resolution of the jurisdictional question in which another system asked that the provision be removed i or modified, in which the Company in any way sought to rely on the provision, or in which any other system felt cons-124/ , trained by it. Indeed, 'n the Department's Midland "ad-vice letter" of June 28, 1971, the Department set forth i
123/ Exhibit 172.- According to the memo, "The Federal Power Commission's investigation of the jurisdictional status of the Company and The Detroit Edison Company has been pending since July 1965. In August 1966, the Commission expanded the investigation to include the question of -whether or not both companies' whole-sale electric contracts are subject to the jurisdic-F tion of-the Commission. In view of the Michigan pool's interconnection with electric companies to the south,
.the question of the jurisdictional stctus of both companies has been resolved. Accordingly, Mr. Aymond has requested that I obtain the dismissal of the Fed-eral Power-Commission's investigation ....
"Following the expansion of 'the Commission's investiga-tion to the wholesale electric contracts of both com-panies in 1966, both companies filed with the Commis-sion all of their wholesale electric contracts ....
In such filings, the companies reserved the question of jurisdiction over the contracts." (emphasis added). 124/ The Department argues that - the third party provision remained in Lansing's contract until the superseding contract.became effective early in 1973. However, the Department neglects'to mention that the super-seding contract, from which it concedes the restric-tion was dropped, was signed on October 7,1970.. 1 Exhibit.ll,112. _ _ , _ . . . - - ~ , , . - .
s
- 145 -
publicly the Company's position that the third party interconnection provisions were inoperative and were being removed from all contracts as they came up for renewal. If the other parties have mischaracterized the ef fect of the third-par ty provision, the Department totally overreaches the record with its summary contention that " [e ] ven if the initial or primary purpose of the clause was to avoid FPC jurisdiction, another anticipated effect and the actual effect was to affect a preemptive coordination and block 125/ the future growth of the M-C Pool .... This charge is completely without foundation in the record of this pro-ceeding. Indeed, the Department partially concedes as much by its total failure to cite authority for its con-venient discovery of " anticipated ef fect. " Further, in view of the fact that the MMCPP was in no way involved in interstate commerce and that Consumers Power Company was 126/ already tied to that pool, we further su,bmit that there is no credible evidence that it was the " actual effect" of this provision to block the growth of the MMCPP.
- 7. -Admission standards of the Michigan Pool.
Finally, the complaining parties are broadly critical of Consumers Power Comp 3ny's conduct concerning 125/' Justice Brief,pp. 158-59. 126/ See p. 142, supra.
- 146 -
admission to the Michigan Pool. Thus, the Department charges that "[t]he record clearly shows that (the Company)
. .. has attempted to eliminate the Michigan Pool as a po-tential avenue by which small systems might attain coor-127/
dinating advantages." In this regard, reliance is placed on a 1967 document relating to Pool admission standards and the admission standards themselves which appe ar in the 1973 Pool agreement. The document on which the Department chiefly 128/ relies, an internal memorandum of a middle-level employee, i constitutes evidence of misconduct only if one accepts the dubious proposition that Consumers Power Company was obligated to coordinate fully with any and all systems -- without regard to generation deficiencies, technic 51 unreliability and the potentially adverse effects that such coordination might 129/ have on the Company and its customers. Furthermore, the
- Department concedes that the Company took no action on the 130/
document . in question. 127/ Justice Brief, p. 160. 128/ Exhibit 170. 129/ See pp. 100-103, supra, on the legitimacy of reasonable standards for admission into a collsetive enterprise. R 130/ Justice Brief, p. 163. 2 i
- 147 -
The memorandum is an internal document which was written by Robert Paul of the Company's marketing depart-ment. It proposes that Pool admission standards should be revised so as to exclude " undesirable third parties" and suggests .that one such party could be "the group consisting of Northern Michigan and Wolverine Electric Cooperatives and Traverse City and Grand Haven municipal systems [which] have just entered into a so-called new pooling agreement." i Thus, the document concludes, the Company should establish 1
"some definite minimum standards or levels of mutual bene-fits that must be available before third parties will be 131/
l considered."
.The proposal set forth in the document is reason-
} able. It is undisputed that unreliable systems with in-sufficient capacity are undesirable coordinating partners since they " lean" on and thus burden the other parties to ! 132/ these. arrangements. The document's expression of concern ; 4 about such " leaning" was not at all hypothetical since the l two cooperative members of the MMCPP had recently sought to coordinate with the Company despite generation defi-133/ iencies. Thus, this proposal that " minimum standards" for admission be established is hardly evidence of monopo-listic purpose. 131/ Exhibit 170. 132/ Finding of Fact 5.09.
' 133/ Finding of Fact 4.20-422.
l
- 148 -
The second defect in the Department's analysis is that the Company never took action upon the proposal set forth in the 1967 document. No admission standards were incorporated into the Pool agreement until 1973 and then the change was made at the behest of the Department 134/ of Justice. Moreover, from 1967 to 1973 neither the MMCPP or any other system requested admission to the 135/ Pool. The facts therefore' simply do not support the contention that it wcs the policy of the Company to block the growth of the MMCPP by unreasonably and with monopolistic intent denying their admission to the Michigan Pool. The other basis claimed by the Department for its charge that the Company has wrongfully sought to bar munici-pai and cooperative systems from participation in the Michi-gan Pool relates tv the admission standards of the Pool agree-ment which became effective in May,1973. In its brief the Department concedes that these changes were made at its 136/ behest. However, the Department's brief then launches 134/ Justice Brief, p.163. 135/- Finding of Fact 4.25. 136/ We are told that in its consideration of the Detroit Edison " Fermi" . application pursuant to Section 105c the Department sought and received a commitment from that system "to exert its best efforts to modify the third-party membership provisions of the pool agree-ment so that third parties who met reasonable objective criteria would be allowed to part.cipate." Justice Brief, p. 163. Mr. Mosley of Consumers Power Company ) (cont.)
- 149 -
into an exposition that is totally at odds with the record:
" Applicant and Detroit Edison promptly cancelled their 1962 power pool agreement and superseded it with a new arrangement.
Mr. Wolfe testified the new agreement, dated May 1, 1973, had changed two key pro-visions of the agreement to make them oner-ous for small systems seeking to utilize larger units. (Wolfe, direct, Tr. 1684-93).
"The provisions for coordinated devel-opment were eliminated, and provisions were substituted changing the pricing method for capacity exchanges. Where the result of the old agreement was to price such exchanges based on large scale units, the new agreement priced based on the capacity costs of the least efficient units and high cost energy. The re-serve sharing provisions were changed from equal percent reserves as a percentage of load, by adding another condition requiring each par ty to maintain its largest single unit of reserve, also onerous to small sys-tems. The effect of these provisions chilled even further any. request by a small sys-tem to join the Michigan Pool. While the small systems may have been interested in obtaining the advantages of the Michigan Pool, as a result of the foregoing and as a result of the provision for equal sharing so-called " grid lines" without regard to size, the burdens would apparently more than offset any benefits (Wolfe, direct, Tr.
1684-93)." Justice Brief, pp. 163-64. 136/ (cont.) testified: " Detroit was eager, thought it was appro-pria*e,.that the new [ Michigan Pool] contract incor-porate the substance of this agreement with the Justice Department, and asked us to consider these points; and we did. And we agreed for it to become a part of the new contract." Mosley 8515. We point the Board's attention to the similarity be-tween-the Department's insistence that the Pool agree-ment contain " reasonable objective criteria" for ad- . mission and Mr. Paul's 1967 proposal, so roundly condemned by the Department, that the Company estab-lish "some definite minimum standards."
- 150 -
We have set out this large extract from the Department of Justice's brief because we believe that it is highly mis-leading and cannot be accepted at face value. Despite appearances, this material is not drawn from the testi-mony of Mr. Wolfe or, for that matter, from any other part of the record. Indeed, all that Mr. Wolfe says on this
~
subject is that the addition of a largest unit requirement 137/ would tend to be " undesirable" to small systems. This portion of Department's brief is so totally lacking in record authority that it should be given no consideration 138/ at all by the Board. 137/ As to the merits of this assessment, we submit that a requirement that each pool member maintain reserves equal to its largest unit is " undesirable" only to a system which had hoped to " lean" on its coordinating partners. 138/ The Department's unsupported conjecture that the execution of a new coordination agreement between Consumers Power and Detroit Edison was causally linked to the addition of specific third party mem-bership criteria is flatly contradicted by the testimony of Mr. Mosley. Mosley 8607-8609. Mr. l Mosley testified as to several legitimate business reasons, having no relationship to the admission of l third parties, for eliminating the coordinated develop-ment (pool unit) provisions of the earlier agreement ! [8500-8505], and for amending the reserve requirement I to add another condition requiring each party to maintain reserves at least equal to its largest unit [8669-8670]. Also, Mr. Mosley stated he began discussing the need for a reserve require-ment at least equal to each party's largest unit with Detroit Edison as early as 1962, and certainly no later than 1967 [8671 and 8610-8611], and that dissatisfaction with the pool unit concept was first discussed in 1970 [8611].
7
- 151 -
In any event, the question is not whether other systems would prefer more liberal admission standards to have been established by the Pool; rather, it is whether the 139/ established standards are reasonable. It should be noted that the Department was not only responsible for formulating the Pool's admission standards; it also formally reviewed these provisions in March 1974 in light of the 140/ new Pool agreement and found no cause for complaint. Thus, the Department's charge of improper conduct concerning admission to the Michigan Pool falls of its own weight. B. Other Conduct. In addition to charges relating to the Company's coordination and wheeling practices and policies, the other parties complain of other alleged misconduct in
' the bulk power market. They argue: (1) that the Company has allocated bulk power markets through territorial 4
139/ See pp. 100-103 supra. 140 Attorney General's advice letter , Detroit Edison Co. (Greenwood Energy Center, Units 2 & 3), AEC Dkt. Nos; 50-452A and 50-453A (March 22, 1974), 39 Fed. Reg. 12373. I
~ -.-
- 152 -
agreements; (2) that the Company has acted improperly in acquiring other systems; and (3) that the Company has engaged in unlawful' tying through its refusal to "unbundle" wholesale electric service. We deal with each of these in turn.
- 1. Territorial Allocations.
One of the more extreme claims advanced in the briefs of our adversaries is that Consumers Power Company and four other bulk power suppliers have executed and enforced wholesale territorial allocation agreements. The Depart-ment claims there is " substantial evidence" of "territor ial allocation agreements" between the Company and the 141/ Company's investor-owned neighbors. Similarly, the Inter-venots unqualifiedly charge that " Consumers Power Company has territorial agreements or ' understandings' with dominant surrounding systems who might have had an ability to build duplicate transmission facilities or otherwise to complete 142/ [ sic) directly with Consumers Power Company. . . . " 141/ Justice Brief, pp. 45-46. 142/ Intervenors' Brie f, pp. 44, 52.
- 153 -
/ These allegations rest almost exclusively on un-sworn hearsay, on hearsay upon hearsay, and on unadorn id speculation. They are repeatedly denied in the sworn tes-timony of Company spokesmen. Despite massive discovery of the Company's files, they are unsupported by credible docu-mentary evidence. In short, the other parties have failed to offer " substantial evidence" of territorial allocation agreements sufficient to support a finding of fact.
- a. AEP System.
The first piece of the Department's alleged
" substantial" evidence concerns territorial allocations with the American Electric Power (AEP) system. Particular emphasis is placed on events occurring in the Village of Paw Paw in 1966. As evidence of an allocation agreement between the Company and AEP, the Department alleges only that "in 1966, following a tender of fer by American Electric Power to the shareholders of Michigan Gas and Electric, Applicant did make an of fer to the Village of Paw Paw .. .
but promptly withdrew it when it appeared competition 143/ had developed between it and AEP .... We submit that these facts, stripped of the rhetoric unsupported by ' the record, provide no evidence of an agreement not to com-pete. Rather, these facts show precisely the opposite: 143/ Justice Brief, pp. 142, 46.
- 154 -
the willingness of the Company to engage in bulk power supply competition with its investor-owned neighbors. The. facts involving the Paw Paw incident are not in dispute. In 1966, Paw Paw was served by Michigan Gas and Electric Company (MG&E) at wholesale rates which the 144/ Village believed to be too high. Hoping to improve its situation, Paw Paw asked Consumers Power Company to pro-145/ vide it with wholesale power. Negotiations began in early 1966, and on October 10, 1966, Consumers Power Com-146/ pany formally offered to serve Paw Paw at a rate which 147/ was "substantially less" than Michigan Gas and Electric's 148/ and which would have saved Paw Paw $50,000 per year. How-ever,.a month after the Company's formal offer, the American Electric Power system (which was soon to purchase MG&E) proposed a new contract which of fered "a savings to the Vil-lage of Paw Paw substantially in excess of the savings afforded by the contract of fered by Consumers Power 149/ Company." Paw Paw accepted that better of fer and following 150/ this action, Consumers Power withdrew its offer. i 144/ Sundstrand 3895-96. 145/ Sundstrand 3907. . 146/ Exhibit 141, l i 147/ Exhibit 136, p. 2. 148/-Sundstrand 3911. 149/ Exhibit 136, p. 3. l 150/ Exhibit 138.
- 155 -
The Village of Paw Paw has never, even in the con-text of this proceeding, complained that the Company's with-151/ drawal was in any respect improper. Furthermore, the record provides no support whatsoever for the Department's claim that the Company's withdrawal of its offer was somehow related to the possibility of competition with AEP. Rather, these events show that the Company was willing to engage in bulk power supply competition with investor-owned neigh-bors -- a willingness which belies the existence of terri-torial allocations. The complaining parties also claim to find evi-dence of a territorial allocation scheme between Consumers
, Power and the AEP system in events related to the South-eastern REA cooperative, the MMCPP systems, and the South Haven municipal system. These charges can quickly be dis-posed of. As to Southeastern cooperative, all the Depart-ment claims is that the Indiana and Michigan Company (an AEP subsidiary) declined to serve the cooperative on Sep-tember 20, 1960, and again on December 2,1965, and that on that latter date it informed Consumers Power Company 151/ In page 1 of his letter of January 31, 1967, Mr.
Sundstrand is plainly not speaking of the Company's 1966 offer. Exhibit 136.
- 156 -
151a/ of its decision. We submit that these facts reflect only a unilateral refusal to deal on I&M's part and offer no evidence whatsoever of a territorial agreement. I&M's decision is fully and consistently explained by technical considerations, and it cannot be converted into evidence of an illegal agreement simply by the fact that I&M chose to inform Consumers Power Company of the decision it had reached. Our adversaries ' contentions concerning the MMCPP incident are equally ethereal. Here, the evidence is noth-ing more than Mr. Steinbrecher 's statement that I&M once de-clined to sell power to the MMCPP and that "it's my under-standing that the reason for the refusal was the fact that Indicna-Michigan did not want te supply power which would be distributed in the area where power is supplied by the 152/ Applicant." Even if this were creditable testimony, it does not in its terms allege the existence of an agreement. In fact, however, this testimony does not even rise to the doubtful dignity of hearsay; rather, it is pure and unadorn-ed speculation. In such an administrative hearing as this, evidence having such negligible probative value is insuf-153/ ficient to support a finding of f act. 151a/ Justice Brief, p. 140. 152/ Quoted in Justice Brief, p. 141. 153/ See Consolidated Edison Co. v. NLRB, 305 U.S. 197, 777-230 (1938), in -which Chief Justice Hughes em-(cont.)
- 157 - ,~
The complainants also cite in support of the al-leged territorial allocation agreement between Consumers Power Company and AEP certain documents concerning the City of South Haven in the early 1960's. Indeed, this evidence is the only support adduced by the Intervenors to support their charge that Consumers Power Company "has territorial agreements or ' understandings' with dominant surrounding 154/ ' systems" to limit wholesale competition. This evidence consists of AEP internal memos and deposition testimony from another proceeding, none of which make any reference at all to a territorial allocation arrangement. We submit that the charges relating to South Haven were put complete-ly to rest by Dr. Gutman, called as an expert by the Inter-venors, who assessed all of the South Haven evidence and clarified his own direct testimony in the following way: 153/ (cont.) phasized that statutory provisions designed to assure " flexibility in administrative procedure [do] not go so far as to justify orders without a basis in evidence having rational probative force. Mere uncorroborated hearsay or rumor does not constitute substantial evidence." 154/ Intervenors' Brief, p. 44. The Department contends that this evidence "strongly suggests the existence of a gentleman's agreement" but concedes that the evidence here is less persuasive than it is elsewhere. J,ustice Brief, p. 143n. i l l
- 158 -
Mr. Clark: I would like to know if you have any evidence of collusion between. Consumers Power Company and Indiana and and Michigan Electric Company. 155/ The Witness [Dr. Gutman]: No. Responding one page later to a question from Chairman Gar-finkel, Dr. Gutman again said: "I want to make it clear 156/ that I do not have any evidence of collusion." In sum, it is contrary to the record in this case and to basic notions of common sense to propose a finding that the Company and the AEP systems have since 1960 executed and enforced bulk power territorial alloca-tion arrangements,
- b. MG&E.
The other parties also charge that Consumers Power Company was a party to a territorial allocation 157/ agreement with Michigan Gas and Electric Company. Both the Department and the Intervenors point to a letter written on March 1,1960 concerning the Company's efforts 158/ to serve the Village of Constantine. Here again, i l 155/ Gutman 4844. ) 156/ Gutman 4845 (emphasis added). 157/ Justice Brief, pp. 45-46; Intervenors' Brief, p. 52. 158/ Exhibit 157.
= .. _ _ - .. .-
- 159 -
i however, no mention is made of a territorial agreement. Rather, the document makes clear that its author was merely considering whether the ' Company could serve a wholesale load 1 then served by another. Here, as elsewhere, our adversaries seek to convert evidence of the Company's willingness to compete for wholesale loads into evidence of an agree-ment not to compete. The second cited incident involving the Company and the Michigan Gas and Electric Company occurred in Paw Paw in the early 1960's. At this time, Paw Paw was dissat-isfied with its service from MG&E, and Warren Sundstrand, one of its representatives, informally made overtures to 159/- the Company. Because the service by the Company would have required a significant investment in transmission facilities and because there was some legal doubt as to the Company's right to serve without MPSC approval, the 160/ Company did not offer service at that time. According to Mr. Sundstrand, the Company's representative referred at the time to "more or less of a gentleman's agreement 159/ Sundstrand 3895, 3900-3901. 160/ Paul 7892.
- 160 -
that .no long as one . company wanted to serve a municipality 161/ that the other company.would not compete with it." This-statement, of course, conflicts with the sworn testimony
-162/.
of Company of ficials. We submit that Mr. Sundstrand's isolated recollection must be discounted since, as we pre-viously discussed in 'this part, several years thereafter the Company did agree to serve Paw Paw's bulk power needs despite MG&E's presence.
- c. Toledo Edison and Detroit Edison.
The last of the complainants' " evidence of ter-ritorial allocation agreement" concerns the efforts of the Southeastern REA cooperative to obtain an alternative bulk power supply source in 1965. Here, the facts are not in dispute. The Southeastern cooperative is located in both Michigan and Ohio and, at the time, purchased 75 163/ percent of its needs from Consumers Power. The cooperative's service area was located adjacent to Toledo Edison Company (an I 161/ Sundstrand 3903. l 162/ Aymond 6071; Paul 7950. 163/ Paul 7898; Exhibit 11,307; Attachment JDP-2, Schedule ! 2,.p. 2,. after 7239. ' l i 1 l
- 161 -
t Ohio electric utility) and Detroit Edison, and in 1965 164/ it approached each of .these ' systems to request service. ; I Toledo Edison declined.to serve, but Detroit Edison agreed , to supply most of Southeastern's needs, so that Consumers 163/ Power's share.of Southeastern's needs fell to 17 percent. To explain Toledo Edison's refusal to serve, opposing counsel did not call a single witness. Rather, 4 they rest their case entirely on the unsworn hearsay contained in the memoranda of two REA field agents. These
- documents constitute the grossest kind of hearsay, and 166/
i
' hearsay upon hearsay. Such vague and unsupported
, 164/ Exhibit 128. The Department announces that South-4 eastern sought'a new bulk power supplier because
- the Company was " terminating its power supply con-4 tracts." Justice Brief, p. 46. The fact is that the Company merely proposed to revise its existing
. contract with Southeastern in order to raise its rates to conformity with the Company's other whole-sale contracts. Baul 7900. There is no evidence that Southeastern protested to either the Michigan
' Public Service Commission or-the Federal Power Com-mission. 165/ Paul 7900; Exhibit 11,307; Attachment JDP-2, Schedule 1,p 2, after 7239. 166/ The Badner report, dated February 14-17, 1966, for example, explains Toledo Edison's decision not to sell in Michigan by observing that- the company "did not appear to be too concerned" over FPC jurisdiction and conflict with~the Buckeye Pact, but'that they
' "seemed disturbed and concerned over the thought of invading" Consumers Power Company's territory. Quoted
- in Justice Brief, p. 138.
u 1 w e w -, e-- ,.,-e
,,----g a ,-e -
, _ , _ . -- .,,,,.,-n ...n.w .>.m. ,a- n,-. n- .+,.--,,n-, eg.w,e-,-r
- 162 -
l hearsay ' evidence is not sufficiently substantial to 167/ support a finding of fact in a hearing such as this. The Department's brief attempts to strengthen this obviously deficient evidence by intimating that the first two reasons allegedly offered by Toledo Edison were shams intended to disguise its territorial agreement with Consumers
- . Power Company. In fact, the first two reasons explaining the refusal are perfectly valid. Although, as the Depart-ment's brief emphasizes, Toledo Edison would become subject to FPC jurisdiction by 1970 because of its pending inter-state interconnections, that prospect was three or four years away at that time. In 1966, FPC jurisdiction represented- a significant and legitimate concern for Toledo Edison.
The second reason for Toledo Edison's refusal
-- that relatir.1 to the Buckeye Pact -- was equally valid.
As the Department concedes, the Buckeye Pact provided that power from the Cardinal Plant (a joint venture involving 167/ See n. 98 on-p. 134,-supra, and accompanying text, and n. 153 on p. 156, supra.
. . , - - - , - , - . , , ,r _, . _ . _- _ _ r. ,
- 163 -
. Ohio investor-owned and cooperative systems) could not be transmitted out of Ohio. Thus the Buckeye Pact proscribed 168/
the scheme proposed by Southeastern. The Department's suggestion that the contract's explicit provisions could be avoided by transferring the power at the state line is absurd' on its face. The Southeastern cooperative sits astraddle the state line and serves loads in both Ohio and Michigan. If power could be sold at the state line, as the Department proposes, Southeastern in Michigan had no need to buy from Toledo Edison; it could simply have bought Buckeye power from Southeastern in Ohio. Thus, Toledo Edison had valid reasons for uni-laterally refusing to serve Southeastern cooperative in Michigan. Under these circumstances, the Department's speculation that these explanations were a sham to cover an unlawful territorial agreement cannot be sustained. ,
-Surprisingly, our opponents also cite the 1966 incident involving the Southeastern cooperative as evidence of a territorial agreement not to compete between Consumers Power Company and its coordination' partner, The Detroit Edi-son Company. It is uncontroverted that when Southeastern cooperative sought alternatives to th? wholesale service 168/ P.ogers 5587, 5624; Exhibit 128.
-,v e - m ---
,, - , - , , n, , - - , - - 4 e
- 164 -
from Consumers Power, The Detroit Edison Company agreed to provide such service in 1966. This would seem to put to rest any claim that the Company and its pooling partner had a bulk power territorial arrangement. However, accord-ing to our opponents' briefs, a contrary conclusion is in order because Detroit Edison allegedly did not offer as 169/ low a rate as it should have, and because Detroit Edison advised Consumers Power that it had agreed to take over 170/ most of Southeastern's bulk power business. We submit that this indictment, like the other allegations of improper 171/ territorial allocations, falls of its own weight. In sum, the record is devoid of any credible evi-dence to support a finding that the Company had bulk power territorial arrangements with the AEP systems, Michigan Gas and Electric Company, Toledo Edison Company, The De-troit Edison Company, or any other electric system. 169/ Justice Brief, p. 140. 170/ Justice Brief, p.141. 171/ Another of the Department's baselesr allegations concerning Southeastern's partial switch of bulk power suppliers was that Consumers Power made efforts to deter REA from financing the subtransmission line required to interconnect with Detroit Edison. Justice Brief, pp.121 and 146. Nothing whatever in the record is cited to support this charge.
. . _ __ _ . ~ . . - . .. _.
t l l
- 165 - l
- 2. Acquisitions. !
Proponents of license' conditions also charge that I
' the Company is guilty of misconduct -- or at least of wrong-
. i ful purpose -- in ' its acquistion of smaller neighboring l 4 systems.
- The only misconduct which appears to be charged in this area relates to the Company's alleged " pre-emptive coordination" with Allegan through the acquisition of that 172/
- system. We have already responded in full to that charge.
, Apart from this, the Company is not accused of any specific wrongdoing. with regard to the acquisition of smaller sys-173/ tems.
- 172/ See pp. 138-140 supra.
173/ On the subject of the Company's acquisitions, the Department of Justice seeks to relitigate an evi-dentiary issue resolved at hearing and in substance proposes to' reopen the record to add two previously excluded documents. The Board properly excluded Department of Justice Ex-hibit Nos. 15 and 17. Those documents, which purport-ed to chronicle some of' the history of Consumers Power Company and to detail certain ancient acquisitions, would have been of little or no value in resolving the critical issues of this case. Their introduction into evidence would not have served to fill .in gaps in tes-timony, but _would merely have triggered further dis-pute over collateral issues; it would have expanded.
- an already lengthy proceeding.
In United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150 (1940), the Supreme Court approved the trial ~ court's exclusion of evidence concerning market
. conditions in the' oil industry in 1934. In language applicable to the case at bar, Justice Douglas writing forj the Court explained:
(cont.)'
- 166 -
There remains, however, a sweeping charge of monop-olistic intent based on a single document from among the 173/ (cont.) While the offer was not wholly irrelevant to the issues, it was clearly collateral. The trial court has a wide range for dis-cretion in the exclusion of such evidence
... . Admission of testimony showing the
market conditions late in 1934 would have opened an inquiry into causal factors as involved and interrelated as those present during the indictment period... . As.once stated by Mr. Justice Holmes, one objection to the introduction of collateral issues is a ' purely practical one, a concession to the shortness of life.' 310 U.S. at 230. None of the cases cited by the Department of Justice at page 101 of its brief dispute the principle that a trial judge or a hearing board has broad discretion to exclude collateral evidence. In each of those cases the court considered past practices in the industry in question or past conduct of the company in question, because under the particular circumstances of the case such evidence was believed to be relevant and material. In the-two district court decisions--United States
- v. United Shoe Machinery Corp., 110 F. Supp. 295 (D.
Mass. 1953), aff'd per curiam 347 U.S. 521 (1954);and Independent Taxicab Operators' Ass'n of San Francisco
- v. Yellow Cab Co., 278 P. Supp. 979, (N.D. Cal. 1968)
-- the trial court elected to discuss past industry practices, but in neither case did the court indicate that it was under any compulsion to do so. In the appellate decisions cited by Justice the reviewing court simply noted that the trial court or administrative agency had not acted improperly by admitting evidence as to distant events. Nowhere is there any indication that' the trial judge or hearing board was required or encouraged to hear such evidence or that refusal to hear such evidence would be error.
Taken together , the Socony-Vacuum case and the cases cited by the Department stand for the proposition that the (cont.)
- 167 -
26,000 pages which were produced from the Company's files. It will be recalled that the document, discussed in our main brief (pp. 210-12), contained notes for a speech made to company personnel by R. L. Paul, a middle level marketing 174/ department employee. The notes stated, inter alia, that the Company should acquire its wholesale customers and that 173/ (cont.) trial court or hearing board has broad discretion to admit or exclude evidence of past practices. As indi-cated above, we believe that, because of the nature of the inquiry and the dubious value of the documents in question, the Hearing Board properly exercised its l discretion by rejecting Department of Justice Exhibit Nos. 16 and 17. However, even if the Board could also properly have admitted the tendered evidence at trial, it would clearly be prejudicial for the Board to con-sider the disputed documents at this late date. Be-cause the cut-off date for discovery and evidentiary purposes was 1960, Applicant hcd no opportunity at trial to make its own record of pre-1960 practices and conditions. Consideration of the Justice docu- i ments without opportunity for Applicant to respond l or question would be highly unf air. j '174/ Paul's duties consisted of selling bulk power to large I commercial accounts and to wholesale customers. Paul I 7805. He did not report to an officer of the company, ; but instead to a higher middle-management level l person, R. L. Conden, who, in turn, reported to the Company's Vice President for Marketing, then Mr. B. G. Campbell. Paul 7950. Campbell and Conden were deposed by the Department but deposition testimony relevant to this subject was not offered and neither individual was called as a witness. Mr. Campbell continued working for the Company until his death on March 26, 1974 -- long after the Department indicated who it intended to call as witnesses (see its letters of July 13 and 30, and September 4, 1973) and three months af ter the close of the Department's case on January 20, 1974. l l
- 168 - " marketing activity" was directed to this end. Mr. Paul testified that the activities to which he referred were carried out essentially on his own, and that the Company, as far as he was aware, had no acquisition policy but pro-175/
ceeded on an ad hoc basis. Moreover, there is no evidence that the document was known to Mr. Paul's supervisors, ap-176/ proved by them, or circulated within the Company. Finally, there is not an iota of evidence that the Company attempted to carry out a policy of acquiring all of its neighboring 175/ Paul 8043-46. Mr. Paul's testimony on this matter was on the morning of March 6,1974. Well into the next day's hearing, Judge Clark asked Mr. Paul a series of general questions concerning the witness' role in mak-ing and transmitting Company policy. Mr. Paul explain-ed that, though he did not make Company policy, he would not transmit something as company policy unless he be-lieved it was the policy enunciated and approved by management. Paul 8268. No reference was made by either Judge Clark or Mr. Paul to exhibit 188 in this exchange. Hence, Mr. Paul cannot be taken by this general answer to recant his specific testimony of the previous day that (1) he was not seeking to convey Com-pany policy in exhibit 188, and (2) the Company had no general policy of acquiring its neighbors. 176/ In contradiction of the record, the Department of Jus-tice has sought to convey the impression that the notes for Paul's speech were circulated within the Com-pany and received the approval of management. Justice Brief, p. 89. However, Mr. Paul denied that the speech ever received management approval or that his superiors were even aware of it. Paul 8244-45.
- 169 -
177/ entities. Hence, no specific monopolizing intent can be ascribed to the Company from the document.
- 3. The " tying" of the components of wholesale service.
In this brief, the Intervenors prasent a new argu-ment neither set forth in their pre-trial brief nor de-veloped on the record: that Consumers Power Company is engaging in an illegal " tie-in" because it is unwilling to provide coordination-type services at wholesale to entities without generation sufficient to engage in 178/ electrically reciprocal transactions. In substance, the argument is an attempt to recast in legalistic terms the Intervenors' quarrel with the terms of the Company's bulk power arrangements and with the Company's insistence on obtaining some net benefit from the coordination trans-actions into which it enters. That insistence' is what the Intervenors characterize as a refusal to "unbundle" wholesale service. 177/ See Consumers Power Co. Brief, pp. 205-212.
-178/ Intervenors' Brief, pp. 56, 68-74, 109.
- 170 -
In attempting to force their coordination agreements into the tie-in mold, the Intervenors pass over the obvious and central fact that coordination transactions are inherently reciprocal and that this reciprocity, f ar more than any ultimately offsetting cash payments, is vitally important to the coordinating util-ities. As we have set forth in our principal discussion 179/ of Consumers Power's coordination policies, the re-flection of those pia 7tices k the Company's policies is consistent with general utility practice, accepted 180/ 181/ as reasonable by the industry, by the FPC and, 182/ in other contexts, by the Staff and the Department 183/ of Justice. As the Supreme Court noted in Fortner Enter-prises, Inc. v. United States Steel Corp., 394 U.S. 495, 506 (1969), the principal case on which the Intervenors 184/ rely, it is a full defense to a tie-in allegation i i 179/ Consumers Power Co. Brief, pp. 182-202; pp. 99-151 of this Reply. 3 I 180/ Findings of Fact 4.14-4.17. 181/ See Consumers Power Co. Brief, pp. 187-190. 182/ Staff Brief, p. 149. 183/ See p. 117 n. 45, supra. 184/ See Intervenors' Brief, pp. 66, 71-73. l l l
4f 'a
- 171 - ~.
to show that the challenged arrangement " serves legitimate business purposes." Surely, it is not a " pernicious" and " unreasonable" tie-in for a utility to insist on receiving. mutual coordination commitments as payment for assuming coordination obligations when that mutuality is 185/ vital to its " legitimate business purposes."'-- A tie-in is fundamentally different from a coordination agreement. In a tie-in, a seller having effective control of a desirable product -- as through 186/ 187/ a patent or complete ownership -- refuses to sell that product unless another product, also available 185/ In the leading case of United States v. Jerrold Electronics Corp., 187 F.Supp. 545, 557 (E.D. Pa. 1960), aff'd per curiam, 365 U.S. 567 (1961), a company introducing a technically sophisticated new product was held to be justified in insisting that it install and service the product because of the drastic impact poor operating experience by the first customers wou.1d have had on the overall acceptance of the product. "The crucial question," the court held, "is whether Jerrold could have accomplished the ends it sought without requiring the [ tying] contracts." Applied to Consumers Power's coordination policies, the answer to that question is plainly "no. " See also Dehydrating Process Co. v. A. O. Smith Corp., 292 F.2d 653 (1st Cir. 1961), cert. denied, 368 U.S. 931. 186/ International Salt Co., Inc. v. United States, 332 U.S. 392 (1947). 187/ Northern Pacific Railway v. United States, 356 U.S. 1 (1958).
- 172 -
from others, is purchased as well. Prominent cases have , involved pairing a desirable patented salt dispenser with 188/ 189/ salt, desirable real estate with rail shipping, 190/ and advantageous financing with prefabricated houses.
.In each of those cases, simple sales for cash were in-volved, no reasons for tying other than exploitation were put forward, and, as the Supreme Court stressed, the arrangements could be "because of their pernicious effect-on competition and lack of any redeeming virtue.. .conclu-191/
sively presumed to be unreasonable. . . ." This analyais
~
is wholly inapplicable to coordination agreements pro-viding for reciprocal dealings in a service, such as electric power . The attempt to view various types of coordi-nation transactions as distinct products artificially l 188/ International Salt, supra. 189/ Northern Pacific, supra. 190/ Fortner Enterprises, supra. 191/ Northern Pacific, supra at p. 5.
- 17 3 --
tied together by Consumers Power as wholesale service cannot be sustained for another reason as well. Ob-viously, there-must be two distinct products in order 192/ for there to be a tie-in. And, in United States v. Jerrold Electronics Corp., 187 F.Supp. 545, 559 (E.D. Pa. 1960), aff'd per curiam, 365 U.S. 567 (1961), the court noted that , "as a general rule, a manufacturer cannot be forced to deal in the minimum product that could be 192/ In American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 280 (2d Cir. 1967), the court noted:
"Indeed, it is axiomatic that a tie-in analysis begins with the question of separability -- the requirement that the tying and tied products be different, or, stated simply, that the forced purchase be of a second distinct commodity."
The court also quoted Professor Turner, then the head of the Antitrust Division of the Department of Justice, to the ef fect that "[t]he requirement that they [the tying and tied products] be 'different' obviously cannot be dropped out. Every manufactured item is a combination of various materials and com-ponents. There are obvious cases in which we would say either that there is no tie-in because the object of theLsale is a single product, or that if there is a tie-in, it should not be deemed illegal per se or even illegal at all." Turner, The Validity of . Tying Arrangements Under the Antitrust Laws, 72 '
-Harv. L. Re v . 50, 67-68 (1958) (brackets added by the Court). 1
. Earlier, the Supreme Court had rejected the notion that advertising in a morning newspaper could be tied to advertising in an evening paper in the
. same city. The Court stressed: "The common case of the adjudicated unlawful- tying arrangements is
-the forced purchase of a second distinct commodity with the desired purchase of a dominant ' tying' product..." Tilnes Picayune Publishing Co. v. United States, 345 U.S. 594, 614 (1933) (empnasis addea).
- 174 -
sold or is usually sold. " The court then set forth four 193/ standards, followed in a number of other cases, for determining whether what is being sold is a single product or two tied products: (a) whether other sellers offer only the package or sell components as well; (b) whether the accused seller varies the content of the package; (c) whether the accused seller states prices -in terms of the package or of the components; and (d) whether the seller provides all components of the package or receives significant components in finished form from others. None of these four tests supports the concept that Consumers Power's firm wholesale service is actually a series of tied products. There is no evidence of record or other suggestion that other utilities sell non-firm power at wholesale except in the context of elect'rically 194/ reciprocal coordination arrangements. Consumers Power's wholesale power is obviously of unvarying character, priced as a unit, and furnished entirely as a finished product by the Company. 193/ American Manufacturers Mutual Insurance Co., supra, 388 F.2d at 282; Baker v. Simmons Company, 307 F.2d 458, 468 (1st Cir. 1962); Dehydrating Process Co. , supra, 292 F.2d at 655; N. W. Controls, Inc.
- v. Outboard Marine Corp., 333 F. Supp. 493, 501 (D.
Del. 1971); Kugler v. AAMCO Automatic Transmissions Inc., 337 F.Supp. 872, 874 (D.Minn. 1971), att'd, 460 F.2d 1214 (8th Cir. 1972). 194/ Supplemental Finding of Fact 4.19A.
l l
- 175 - , 'l ~
Indeed, -in following this approach, the Fourth f Circuit' has _ held l specifically that - electrical service-is a single product: "It seems-to us that VEPCO sold only 195/ one product -- electricity." Consequently, there is-no basis in the law for separating the components of whole-
. sale electric service, terming each a separate product and then claiming it is a per se violation of the anti-4 trust laws to insist that these supposedly separate pro-ducts be purchased together.
- In sum, the Intervenors' simplistic tie-in approach inappropriately seeks to treat reciprocal coordination -as a type of wholesale service and mischarac-terizes coordination-type transactions as " bundled" pro-ducts within that service. It ignores that, under the law, a transaction with interrelated elements is not a t -
tie-in if it serves " legitimate business purposes" and 3 , that tie-ins must involve " distinct commodities." As a result, the invocation of tie-in principles clouds rather than illuminates the issues regarding Consumers Power's ! coordination policies raised in this proceeding. Further-
; more, the Intervenors again fail to demonstrate any improper conduct. by the Company.
195/ Washington Gas Light Co. v. Virginia Electric-and Power Co., 438 F.2d 248, 253 (4th Cir. 1971). Is i n
,w .- w ----r-- _e , ~ , , - -,- , w-, , - , ,m, -
c-s- w +- ~ -
- 176 -
, VI. The license conditions proposed by our adversaries are discriminatory, put the company at an unfair disadvantage vis-a-vis public power neighbors, and will increase costs to Consumers Power Company's customers. The recent LP&L antitrust Hearing Board's memoran-dum regarding appropriate relief in the event of a finding of antitrust inconsistency sets forth useful guide-lines for f ashioning relief. The decision emphasizes that the purpose of remedial license conditions is not to punish the applicant for alleged wrong-doing in the past, or in the future to put it at a " competitive disadvantage" vis-a-vis 1/ the intervenors or other neighboring systems. - Rather, the purpose of the license conditions is to remedy an "imbal-ance in competition" -- a goal which the LP&L Hearing Board recognized could be frustrated by the artificial tax and financing cdvantages of public power systems.--la/ The license conditions proposed in the main briefs of our adversaries fail to recognize these principles; in fact, were the Company compelled to abide by their license conditions, the Company's customers would be substantially
-1/ Louisiana Power & Light Co. (Waterford Steam Generating Station Unit 3), AEC Dkt. No. 50-382A, Memorandum of :
Board ~with Respect to Appropriate License Conditions Which Should Be Attached to a Construction Permit Assuming Arguendo a Situation Inconsistent with the Antitrust Laws (October 24, 1974), p. 35. la/ Id. l l l
e - 177 - and inequitably burdened and the competition which present-ly exists would be greatly diminished. In the following paragraphs we explain why these consequences will result.-2/ A. Proposed License Conditions.
- 1. Eligible Entities.
The relief proposed by the other parties to this proceeding would require Consumers Power to grant unit access, coordination, and transmission services to electric system
" entities" which are not selfsufficient in generation capacity -- indeed in some cases to systems which have no generation 3/
facilities at all.- As we explain in our main brief, the relief sought is contrary to common sense, industry practice, and FPC standards.-4/ The very term " coordination" imparts.give-and-
-2/ The Staff Brief, pp. 147-48, seeks to elevate to the level of a substantive argument the fact that some other antitrust proceedings have been settled.
Plainly, those settlements reflect the licensing pressures faced by AEC applicants, particularly those whose applications are not " grandfathered," Section : 105c(8), 42 U.S.C. 52135(c)(8), and particular circum- 1 stances existing in other areas. Moreover, those settle-ments vary substantially in their terms and in many cases are quite different from the relief sought in this proceeding.
-3/ Intervenors' Brief, App. A, p. 1, 11; Staff Brief, p. 149; Justice Brief, pp. 151-52.
4/ Consumers Power Co. Brief, pp. 185-92, 228-33. i
- 178 -
take, or reciprocal dealings; since coordination arrangements are. premised on the assumption that all parties have the ability 5/ to offer reciprocal services, coordination with a system which is not self-suf ficient inequitably burdens the other parties to the arrangement.-6/ It is submitted that it would clearly be absurd for the relief here sought to apply to systems such as Bay 7/ City which own no generation facilities or Alpena Power which, according to the Department's brief, owns only two " ancient hydro units" totalling 7 mw capacity to serve a system whose 5/ Finding of Fact 4.17.
-6/ See also the Federal Power Commission's statement in l its recent coal-by-wire order:
" Operation of an electric power system, whether on a power pool or on an owner- )
organization. service area basis, normally employs a balanced net planned interchange, i.e., zero net unplanned flows. This con-cept requires each operating organization to provide adequate generation to carry its . own load, including any planned import or l export power plus a designated reserve l margin." ) New England Power Pool Participants, FPC Dkt. No. RM 74-22, Order Permitting Withdrawal of Petition for Emergency Relief (Docket No. E-8589) and Accepting Rate Schedules, Permitting Withdrawal of Rate Schedules, Disposing of Procedural Matters and Terminating Proceedings, at p. 22 (August 26, 1974). 7/ Exhibit 11,307; Attachment JDP-2, Schedule 1, p. 1, after 7239.
- 179 -
peak load is 70 mw.~8/ Rather,_these systems require firm bulk power supply, and therefore should bear the full costs of providing that supply. Significantly, no party has proposed that unit access, coordination and wheeling arrangements be made available to retail customers. Indeed, one of the spokes-men for the MMCPP Pool, the manager of a cooperative, testified at the hearing that he would not wheel power from another system to serve one of the cooperatives' customers.-9/ Despite the Board's requests in this regard, the briefs of our opponents--10/ fail to explain why non-self-sufficient entities like Bay City and Alpena should obtain preferential unit access or wheeled firm power from a third system and at the same time a compa-rably situated retail customer must take power at average cost-based rates, in most cases from the supplier designated by the Michigan Public Service Commission. Therefore, any relief relating to unit access, coordination or transmission arrangements should be con-fined to self-suf ficient entities, i.e., electric utilities 1 I 8/ Justice Brief, p. 45. 9/ Finding of Fact 4.70. 10/ Justice Brief, pp. 256-57; Staff Brief, p. 12.
- 180 -
which own sufficient generation capacity to meet their peak loads.
- 2. Unit Access.
In its recent memorandum in the LP&L Waterford antitrust case, the Hearing Board noted that there are three forms of access to nuclear units: unit power purchases, joint ownership, or wholesale power purchases.--11/ The duty of Hearing Boards in Section 105c cases is, as the LP&L Hearing Board , held, to fashion " adequate" relief, not " maximize conceivable 12/ possibilities."- Thus, for example, in the Duke Power Company 12a/ antitrust case, the Hearing Board approved settlement license conditions providing for wholesale sales, but did not require that the applicant provide unit sales or ownership interest arrangements in any nuclear unit . In this framework, we submit that a condition 1 requiring unit power sales is particularly inappropriate. As we explained in our main brief, such a condition would require the ' Company to finance construction of generation capacity that -will not serve its customers, without giving it the reciprocal right to purchase unit power from the other 11/ LP&L Hearing Board Order,-supra at p. 32. 12/ Id. at 8 and 12. 12a/ Duke Power Company (Oconee Units 1, 2, &3, McGuire Units 1& 2) AEC Dkt. . Nos . 50-269A, 50-270A, 50-287A, 50-369A, 50-370A, Order on Joint Motion of the Regulatory Staff of the Atomic Energy Commission and the Department of Justice to Place' Conditions on Oconee and McGuire Licenses (May 24, 1974).
r
- 181 -
13/ entity. Given the well-documented capital difficulties 14/ which currently beset Consumers Power,- these additional financing burdens could jeopardize the Company's ability to satisfy its public utility responsibilities to its customers and its contractual obligations to other systems. Further, unit power sales will discriminate in favor of the purchaser against the company's other , no less worthy customers. As between the unit purchase and whole-sale' purchase arrangements, we have previously explained why only the latter alternative provides for equitable, non-discriminatory access to nuclear generation. Assuming that the capacity of Midland Units will be equal to approximately 15/ 22% of the Company's projected peak load in 1980,- 22% of the Company's wholesale and retail service will in effect be supplied by the Midland Units. It would clearly discriminate against the Company's retail customers and put the Company at an unfair competitive disadvantage were Bay City to derive more than 22% of its power purchased from Consumers Power from Midland, since under these circumstances Bay City's I retail customers would be receiving more Midland power than the Company's retail customers. Thus, access to nuclear units l 1 l l 13/ Consumers Power Company Brief, pp. 219-20; Finding of Fact 5.04. 14/ Findin'gs of Fact 3.27, 3.28. 15/. Stafford and Lapinski 9169, 9244; Mosley 8528-29.
- 182 -
through wholesale sales assures that all parties derive a fair and non-discriminatory share of a .given unit, while the unit power sales and joint ownership schemes proposed by our adversaries do not.--16/ 17/ As we explained in our main brief- and have reiter-ated in Section IV-B of this Reply, the Company is required by regulatory action and under its own commitment to pro-vide wholesale service in all circumstances in which it would be proper for it to do so. Therefore, if the Board were to find an antitrust inconsistency which requires nuclear unit access, the Company would not oppose the imposition of a license condition that the Company offer wholesale service to all present or future systems with whom the Company does not have a coordination agreement on the common sense terms outlined in the Company's commitment.--18/
16/ Pace 25.after 7239; Findings of Fact 2.74, 2.75, 5.03. 17/ Consumers Power Co. Brief, pp. 120-23.
--18/ See pp. 77-78 supra. These terms are that such service be technically and economically feasible, and that it can be furnished without jeopardizing the Company's ability to provide economical, dependable and satisfactory service to its customers or to satisfy its obligations to other electric systems with which it is interconnected.
- 183 -
Such wholesale service and license conditions would, we submit, completely remedy any allegedly inconsistent anti-trust situation which may be deemed to exist in the Company's 19/ service area.-- In a document, introduced by the Department of Justice, setting forth coordination principles (Exhibit 167), the following passage explains how wholesale service provides access to the benefits of coordination:
"In many _ instances, it is advantageous for the small system to buy wholesale energy from a pool. In doing so, they share in the benefits of the pool because of their ability to purchase power at low _ cost." (p. 39008)
Similarly, the antitrust Hearing Board in the LP&L case ex-plained how wholesale service can provide access to nuclear generation facilities: The price of firm bulk power re-flects the average cost of power for the entire system of the seller. The i cost of power from a nuclear plant owned by the seller would be included ; in the average. In the_ sale of firm bult power , the seller must supply the power regardless of shutdowns, i i --19/ The Department claims that wholesale power is inadequate access to large-scale generation because smaller systems have no " control" over their bulk power supply. (Justice Brief, p. 170.] However, the unit power purchasers obviously have little control over the costs of the unit in question, while minority owners of a unit are likewise unlikely to have such control. [Slemmer 19 after 8838.] Thus, the Department's control argument appears wholly unfounded.
l
- 184 -
~'
scheduled or unscheduled. In other words, the cost of backup power and the obligation to supply it is factored into the price. Transmission cost over seller's system is also factored into the price of firm bulk power. One situation in which the sale of firm bulk power might be considered adequate access to nuclear power would be a situation in which all or substantially all of seller's power is generated by nuclear units.20/ In the event that the Board concludes that nuclear unit access through wholesale purchases is not adequate to remedy an inconsistent antitrust situation, direct access should be conditioned upon the opportunity by the Company to participate on a colaparable basis in the future units of those systems granted access. According to the well-accepted principles governing electric utility system bulk power arrangements, direct participation in the specific units of another system is premised upon the expectation that the participating system will construct units in which
--20/ LP&L Hearing Board Order supra, p. 32. Nuclear generation capacity is only used to satisfy base-load requirements which constitute only a part of a utility's bulk power needs. [Mayben 2558] Thus, with present tech-nology, it is inconceivable that all of a utility's generation will be nuclear. When the Midland Units come on line, the Company's nuclear capacity will com-prise approximately 40% of its total generation capacity, while approximately 60% of the Company's total capacity is base-loaded. [Mosley 8532, 8617; Exhibit 1005, p.
22] Thus, when the. Midland Units come on line, a substan-tial part of the Company's base load capacity will consist of nuclear units.
+
- 185 -
the first system may participate on a comparably reciprocal 21/ basis.-- The reciprocity principle of unit participation is particularly important at the present time, given the 22/ Company's difficult financial condition- and the rising costs of financing and constructing generation units.--23/Under 24/ these circumstances, as we explained in our main brief,- it would be prohibitively expensive and patently inequitable to compel the Ccmpany to engage in non-reciprocal unit access arrangements. Therefore, any license conditions com-pelling the Company to grant direct unit access should spe-cify that those granted access must agree to construct, with-in a reasonable time, generatica units in which the Company is afforded the opportunity to participate in a comparable amount and on comparable terms and conditions.
--21/ Findings of Fact 4.17, 4.54, 5.04; Slemmer 18, 25-26 after 8838.
22/ Finding of Fact 3.28. 23/ See pp. 19-21, especially n. 22, supra. 24/ Consumers Power Co. Brief, pp. 216-22.
- 186 -
25/ We have explained in our main brief- and in Section 26/ V-A-3 of this Reply-~ why ownership or unit power access to the Midland Units should be denied as untimely. As to future units, our adversaries propose that the Ccmpany be compelled to grant access to- all . nuclear units which it may jointly or severally own in the next fifty or so years. There is no evidence on the record to support the position that such relief is necessary. And, in any event, this proceeding involves only the Midland Units; other nuclear units that may be constructed by the Company will be subject to their own antitrust review under Section 105c. Thus, this Board has no jurisdiction to compel access to units other than Midland. Finally, if the requisite " nexus" finding is made and the Board concludes that there is an antitrust inconsis-tency which requires relief, access to the Midland f acility is the maximum relief which can and/or should be granted. 25/ Consumers Power Co. Brief, p. 219. 26/ See pp. 112-27. 1 1 b
,-m , - , - - , - - - - _
- 187 -
27/ As our main brief explained,- most of the other areas of relief proposed by our adversaries are within the juris-diction of the Federal Power Commission and the Michigan Public Service Commission and should be resolved by them. In addition, there is a fundamental contradic-tion in our adversaries' position that the operation of the Midland Units will have grave antitrust consequences for " nexus" purposes, but that permitting fair and adequate access to these units is insufficient to remedy these alleged antitrust inconsistencies. If the requisite " nexus" exists between the units and an inconsistent antitrust situation, providing fair access to that unit would appear, by definition, to be sufficient -relief. Despite the Atomic Energy Commission's explicit holding that parties seeking the imposition of antitrust conditions must "specify the relationship between the specific relief sought and the ' activities under the 28/ license,'"- the other parties seek to ignore the nexus requirement in arguing for expansive relief. The Justice 30/ Department--29/ and the Staf f- simply assume, without authority 27/ Consumers Power Co. Brief, pp. 31-34, 227-228.
--28/ Louisiana Power & Light Co., (Waterford Steam Generating Station, Unit 3), Memorandum and Order of the Com-mission,' February 23, 1973, RAI 73-2, 48, at p. 50.
29/ Justice Brief, p. 232. 30/ Staff Brief, p.182.
- 188 -
or explanation -- and despite their seemingly - irreconcil-able position that an inconsistency for licensing purposes is less than a' violation -- that the scope of AEC licensing power under Section 105c is at least as expansive as the remedial power of a district court after a determination of an anti-trust violation. Regarding the same proposition, the Intervenors rely primarily on a number of cases involving the FPC, principally Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153 (D.C. Cir. 1967).--31/In that case , a utility had built hydroelectric projects without obtaining FPC licenses. When Niagara Mohawk sought licenses for these projects in 1962, the FPC granted licenses specifying effective dates of 1941 and 1949, thus subjecting the licensee to retroactive annual charges and certain other liabilities. In rejecting the Company's complaint that those provisions could not have been made effective retroactively, the court held that under those facts "the Commission does have statutory authority to assign an effective date earlier than the date of the issuance of the license
. . ." 379 F.2d at 157.
l 31/ Invervenors' Brief, pp. 87-88. l I
189 - The narrow issue to which the passage the Inter-venors quote was addressed was whether the FPC had authority to impose a specific license condition directly tied to a specific failure to adhere to a statutory licensing requirement. That is far different from the unrestricted Commission power, advocated by Intervenors in the present case, to impose license conditions to eliminate alleged antitrust ebuses in the Lower Michigan electric power industry. Moreover, in the Niagara Mohawk case only FPC legal authority was at issue; the reasonableness or appropriate-ness of the order' was apparent and was undisputed by the applicant. The other cases cited by the Intervenors are even further removed from the question of the character of nexus requirement applicable to license condition 32/ proposals in this proceeding.--
--32/ The Intervenors' Brief, pp. 84-85, relies by analogy upon the language in Gulf States Utilities Co. v.
FPC, 411 U.S. 747, 760 (1973), that the FPC " serves the important function of establishing a first line of defense.against those competitive practices that might later be the subject of antitrust proceedings," but that statement has nothing at all to do with the kind of relief the FPC could order and, indeed, im-plies that a comprehensive remedy for "those com-petitive practices" might have to await the " anti-trust proceedings." Five of the cases they cite -- United Gas' Improvement Co. v. Callery Properties, Inc., 382 U.S. 223 (1965); FPC v. sunray ox ull Company, (cont.)
- 190 -
Within the context of their district court analogy, the other parties, notably the Staf f, cite a number of decisions supposedly in support of the view that a. court has unlimited power to order virtually any relief it chooses.--33/ Thus, they quote International Salt Co. v. United States, 332 U.S. 392,'401 (1947), to the effect that antitrust relief shall " pry open to competition a market that has 34/ been closed by defendants' illegal restraints,"- and United States v. E. I. duPont de Nemours & Co., 353 U.S. 586, 607-608 (1957) (duPont - GM), for the conclusion that relief shall include the steps "necessary and appro-32/ (cont.) 391 U.S. 9_(1968); Atlantic Refining Co. v. Public Service Commission of New York, 360 U.S. 378 (1959); FPC v. Hunt,.376 U.S. 515 (1964); and Texaco v. FPC, 773 F.2d 149 (5th Cir. 1961) -- deal with the power of the FPC to prescribe a price as a condition of a certificate of public convenience and necessity granted under Section 7 of the Natural Gas Act. Another of the cases, Admiral-Merchants Motor Freight, Inc. v. United States, 321 F.Supp. 353 (D. Colo, 1971) (three judge court), aff'd, 404 U.S. 802, upheld an ICC order denying a rate increase directing repayment of interim rates as a condition of granting an extension of time. Most puzzling of all is the citation of Russell v. Farley, 15 Otto 433 (1882), in which the Court held that, as a condition of granting an injunction to stay proceedings at law, a court may require the plain-tiff to enter an understanding as to damages in the event that the injunction proves to have been wrongfully granted. 33/ See Staff Brief, pp. 182-185. 34/ Id. at 182-83 (emphasis added).
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priate in the public interest to eliminate the effects of the acquisition of fensive to the statute."--35/These broad maxims must be viewed in the specific context of the varying relief objectives confron' ting a court in each case, , Here, the principal thrust of the other parties' case
- is that nuclear generation, in the form of the Midland plant, is so significant a resource that the antitrust laws should be extended to impose an affirmative duty on a large utility to share that resource with its smaller neighbors. As we have noted in detail elsewhere, we believe that position to be unsound factuaily and legally. But assuming arguendo that the Hearing Board were to accept it, its proper impli-cations would be far different from those the other parties would suggest. Under that assumption, any impact of a denial of Midland access on . Consumers Power 's nearby neighbors will, by definition, be prospective since the Company itself will not enjoy any benefits from the units until they come on line five years from now.
35/ Id. at 183 n. 152 (emphasis added).
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( That circumstance stands in stark contrast to the situations that confronted the courts in cases like duPont-GM and International Salt. In the duPont case, the Court faced the unusual challenge of undoing the impact of an illegal arrangement that had been in effect for 38 years at the time the Court wrote. In International Salt, the defendant had entered into at least 790 illegal tie-36/ in transactions,- causing the Court to stress the problems 37/ of dealing with widespread consummated antitrust violations.-- In a more relevant setting, reviewing the action of an administrative agency which had blocked the con-summation of a merger, Chief Justice Warren, writing for the unanimous Supreme Court, stressed that:
"Our duty is to give ' complete and efficacious effect to the prohibitions Of the statute' with as little injury as possible to the interests of private parties or the general public . . . .
[T]he choice of remedy is as important a decision as the initial construction of the statute and finding of a violation. The court or agency charged with this choice has a heavy responsibility to tailor the remedy to the particular f acts of each case so as to best effectuate the remedial objectives just described." Gilbertville Trucking Co. v. United States, 371 U.S. 115, 130 (1962). In that case, the Supreme Court reversed the 36/ 332 U.S. at 394-95. 37/ 332 U.S. at 400.
- 193 -
ICC because the Commission had not shown that its choice of a broad remedy was necessary or appropriate. In another leading administrative agency anti-trust case, the United States Court of Appeals for the District of Columbia Circuit, through then-Circuit Judge Burger, reversed an FTC order to the extent it required the sale of certain facilities used in the operation of a company ordered divested, Reynolds Metals Co. v. FTC, 309 F.2d 223, 230-31 (D.C. Cir. 1962). The present Chief Justice held:
"If ever after-acquired property may be subject to a government order to sell, an even greater necessity, totally absent on the present record, must be shown.
Inasmuch as there is a failure on this record to demonstrate (1) any nexus be-tween continued possession of after-acquired property, such as the Torrance plant, and the violation of Section 7 [of the Clayton Act], and (2) that restoration of the competitive status quo compels divestiture of such pro-perty that part of the Commission's order. . . cannot be sustained."38/ 38/ Id. at 231 (first emphasis in the original, others supplied). To similar effect is Papercraft Corp. v. FTC, 472 F.2d 927 (7th Cir. 1973), striking down an FTC order prohibiting a divesting firm from competing for the customers of the divested company. The court there stressed that questions of propriety are particu-larly raised when the remedy selected is "an untried and blunt instrument" which is itself anticompetitive in effect. 472 F.2d at 933.
- 194 -
Thus, the case law refutes the blanket claim of our adver-saries that there are no parameters to the Board's authority in draf ting remedial license conditions. In the context of this proceeding, these parameters, we submit, encompass relief confined to access to the Midland Units to be licensed -- not to the collateral matters raised by our adversaries.
- 3. Coordinated Operations.
Because we deem unit access to be a fully adequate remedy to any alleged antitrust inconsistency and because we also believe such relief to be the out'er boundary of the Commission's jurisdiction under Section 105c, relief relating to coordinated operations (such as emergency support, economy energy and maintenance power ) is, in our view, both un-necessary and unlawful. However, in the event that the Board chooses to impose license conditions in any of these areas, the proposals of the Department of Justice and the Intervenors must be rejected for several reasons. First, the coordinated operation proposals of the Department of Justice and the Intervenors fail to include the provision that such operations should provide the Com-pany with net benefits; i.e., the benefits derived from the proposal should significantly exceed the costs. Notably,
- 195 -
r 39/ , the Staff's proposal- does recognize this principle 40/ which, as we explained in our main brief,- is fundamental to bulk power arrangements between electric systems. Although the Department of Justice rhetorically terms this position " exacting the advantage of its monopoly position," it has found no antitrust inconsistency, and no need for a Section 105c hearing, in many other utilities' 40a/ coordination policies containing comparable terms. Second, the proposed license conditions of all of our adversaries are deficient because they fail to provide the Company with assurance that its coordinating partners possess either the willingness or the capacity to offer reciprocal coordination arrangements. Even if a system is self-suf ficient it may not be able to provide reciprocal transactions to the extent that it receives them; for example, its generation or transmission facilities may be inadequate to permit it to provide an equal share of coordinating 39/ Staff Brief, p. 149. 40/ Consumers Power Co. Brief, po. 186-92. 40a/ See p. 117 n. 45 supra.
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services, such as emergency back-up or maintenance power, so as to repay its coordinating partner. Under these circum-stances, it " leans" on its coordinating partner and unfairly burdens that partner.--41/ Therefore, any license condition providing for coordinated operations should provide that the Company may insist that its coordinating partner maintain the ability to offer it comparable, equally reliable coordinating services. Third, we have previously explained why the so-called " equal percentage" reserve sharing should have no 42/ place in license condition formulas. - None of our opponents' relief proposals appears to press explicitly for equal percentage reserves as such. However, the Department urges that the Board " essentially" follow the specific Gainesville terms (though not, we submit, the FPC's approach in reaching that re sult ) .--43/ The Intervenors propose that the reserve 44/ formula not be related to the size of generation units,-- and the Staff proposes that proper reserve levels should 45/ be established in AEC enforcement actions.-- 41/ l'inding of Fact 4.35. 42/ Findings of Fact 4.45, 5.09. 43/ See Consumers Power Company Brief, pp. 197-99. 44/ Intervenors' Crief, pp. 127-34. 45/ Staff Brief, pp. 156-57. i
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All of those proposals should be rejected: as we have explained, the method of determining reserve levels 46/ varies with each case;- the precise relief ordered in the Gainesville decision is applicable only to thht case and could inequitably burden the Company if utilized here. Most
, important, again as our main brief explained, whether a given reserve sharing arrangement is appropriate is within the ex-47/
clusive jurisdiction of the Federal Power Commission,- so that license conditions in this regard should provide only that the FPC should establish the appropriate standards if the parties are unable to agree about reserve arrangements.
--46/ Findings of Fact 4.43, 5.08, 5.09, Consumers Power Company Brief, pp. 197-202. --47/ Consumers Power Co. Brief, pp. 27-35, 119-24. The Department of Justice's treatment of the FPC's role
' in this crea demonstrates its utter disregard for that agency's responsibilities and authority. The Department acknowledges that the FPC has authority to -order coordinated operation and that no effort has been made to obtain this relief through the FPC. Justice Brief, pp. 234-35. But, the Department argues that there is no conflict because the FPC's policy is expressed in the Gainesville case and other FPC proceedings. It is, of course, the FPC's on-going development and implementation of policy that is protected
-tnr the doctrine of primary jurisdiction, not its position in a particular case. Justice's position is comparable to an : assertion that the AEC should require a licensee to pay a sum of money into the Treasury on the basis of an IRS Revenue Ruling cited to it. Obviously, the absurdity of Justice's position is underscored by the highly general terms in which Gainesville is couched.
See LP&L Hearing Board Order, supra, pp. 43-44. l
- 198 - -
Finally, the rates at which coordinated services 46/ are arranged should not, as the Intervenors propose,- be established by the AEC. Not only is such rate-making be-49/ yond the jurisdiction of the AEC,- but also no record exists which would permit the establishment of such rates. It would also be inappropriate for this Board or the AEC to dictate rate guidelines--e.g., rates "no higher than those charged to any other utility"--to other regulatory authorities. It is self evident that charging different rate levels to different systems often may be justified or required by particular circumstances or by an evaluation of the entire 50/ coordinatiop arrangement as a package.-- 4 Therefore, any reserve-sharing license conditions imposed by this Board should provide only that, if the parties are unable to agree upon fair reserve-sharing or other arrange-ments for coordinated operations, the terms should be resolved by the Federal Power Commission. ' 48/ Intervenors' Brief, App. A, pp. 6-7.
--49/ -LP&L Hearing Board Order, pp. 42-43 (" supervision over rates.is the particular province of the Federal Power Commission.")
50/ Slemmer 9 after 8838; Findings of Fact 4.43, 5.08. __._i___ _ _ . _ _ _ _ _ _ _ ___ ._____.______i_. .
- 199 -
- 4. Transmission Service.
As with coordinated operations, our main brief explained why relief providing for transmission services is both unnecessary and b'e yond the jurisdiction of the Commission's authority under 51/ Section 105c.- Even in the event that the Board disagrees, the license condition proposals of our adversaries relating to transmission (other then the self-evident obligation to deliver Midland power ) should be rejected. The other parties to this proceeding have argued that the Company's smaller neighbors need access to the Company's transmission system in order to engage in coordinated Sla/ 52/ development. Yet, at least the Staff acknowledges- that coordinated development by smaller systems can be conducted under the Company's present wheeling policies. The wheeling license conditions which the other parties propose, however, would permit access to the Company's transmission system under all circumstances -- not simply to deliver power f r o.a the Midland Units or assist other systems in constructing nuclear capacity and coordinating development. Most significantly the open-ended proposals of our adversaries would allow another 51/ Consumers Power Co. Brief, pp. 225-28. Sla/ See e.g. Justice Brief, pp. 103-112. 52/ Staff Brief, p. 74.
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system to " pirate" or " cream skim" the Company's non-generating wholesale customers, which the Company has made a considerable investment to serve.--53/ Such actions were condemned by nearly all of the system managers and expert witnesses who testified in this proceeding and are clearly contrary to the public policy 54/ of avoiding wasteful duplication of facilities.- The license conditions compelled by the Board should clearly not facil-ita te such activity. Similarly, the Company should not be compelled to provide transmission services which jeopardize its ability to furnish economical, dependable end satisfactory service to its customers, to satisfy its obligations to other elec-tric systems, or to engage in coordinated transactions with other systems, .a proposed license conditions relating to transmission offer the Company no protection in these vital 5_5/ areas. 53/ Findings of Fact 4.69, 4.70, 5.10, 54/ Findings of Fact 2.42, 2.43.
--55/ That this concern is not illusory is evidenced by the Federal Power Commission's statement in its recent coal-by-wire ordec:
" Capacity and energy transfers between electric power systems are a function of the system operating condition at a par-ticular time. To attempt any transfer of capacity or energy through other than these dispatch communication channels is an in-vitation to a system blackout or other major system disturbance. This is true because power system conditions are dynamic l ' cont.)
l
)
- 201 -
Finally, as the Hearing Board in the LP&L case explicitly recognized, neither this Board nor the AEC has jurisdiction over transmission rates; rather, these are 56/ the "particular province" of the Federal Power Commission!- Thus, the proposal of the Department of Justice that rates for transmission services for less-than-five-year periods be incrementally priced is not only totally without support in the record, but also invades the province of the FPC. Indeed, the FPC is currently conducting rate-making pro-ceedings to determine whether such transmission rates 55/ (cont.) and subject to many inte?aal and external forces which could require major system ad-justments. These adjustments require detailed knowledge of the involved system and some knowledge of the inteiconnected systems." New England Power Pool Participants, FPC Dkt. No. RM74-22, Order Permitting Withdrawal of Petition for Emergency Relief (Docket No. E-8589) and Accepting Rate Schedules Permitting Withdrawal of Rate Scedules, Disposing of Procedural Matters and Terminating Proceedings, at p. 23 (August 26, 1974), App. S-ll.
--56/ LP&L Hearing Board Order, pp. 42-d3 ("supetvision over rates is the particular province of the Federal Power Commission.")
. - - - , , , -m--,.- ,,- w< v
- 202 -
57/ should be incrementally priced 7 so that AEC intervention in this area would be particularly inappropriate. Therefore, any license condition relating to trans-mission services should: (1) provide for services necessary to deliver power from Midland should the Board impose this form of direct access; (2) be otherwise limited to transmission necessary for interconnected systems to engage in coordinated development to facilitate the construction of nuclear units; (3) provide that such transmission services should not jeopardize the Company's service reliability, obligations to other systems, or coordinating opportunities; (4) provide that such services not facilitate " pirating", " cream skim-ming" or other resource waste and misallocation; and (5) be provided under terms approved by the Federal Power Commission. B. The Impact of License Conditions. Perhaps the most striking deficiency in the briefs of our adversaries is their failure to assess the overall impact of their proposed license conditions. Conditions which provide for coordination with unreliable or non-self-sufficient 52/ Amendment of Regulations Under the Federal Power Act, FPC Dkt. No. RM75-3, Notice of Proposed Rulemaking to Amend Regulations Under the Federal Power Act Covering Emergency Actions Pursuant to Section 202(c) of the Federal Power Act, at p. 7 (August 26, 1974).
- 203 -
systems, transmission services which permit " pirating" of existing loads or service areas, and unit access without reciprocal opportunities will increase the costs of electric service to the Company's customers. The Board must ask itself whether the principles of the antitrust laws are served by the license conditions which have the primary impact of increasing the cost of power to Consumers Power's customers, so as to decrease the cost to the customers of its smaller neighbors -- most of whom already enjoy lower rates. The Department of Justice explicitly, and presumably the other parties as well, propose to put the Company at a grave competitive disadvantage, in order to restructure the electric 58/ utility industry and thus, in their view, to promote competition.-- We agree that the license conditions proposed by our adversaries could well restructure the electric utility industry in Michigan, but the result will eliminate rather than promote competition. Although Consumers Power Company is the largest electric supplier in its area, in accordance with well-accepted economic factors and governmental policies, Lower Michigan's electric industry is presently highly pluralistic. Within and adjacent to the Company's service area, numerous smaller systems -- 58/ Justice Brief, pp. 74-86.
- 204 -
all but two of them publicly-owned municipal systems or REA cooperatives -- operate and thrive. During the period under scrutiny since 1960, the Company and its public power neighbors have operated in relative equilibrium -- indeed, the public power systems have generally enjoyed lower rates and higher growth rates than the Company.--59/This equilibrium is to a large extent the result of the public power systems' artificial tax and financing advantages which have offset whatever economies of scale a large company such as Consumers Power possesses.--60/ The license conditions proposed in this proceeding -- even if the deficiencies noted in Subsection A were corrected -- would upset this equilibrium without saving natural resources 61/ or maximizing resource allocation.-- Certainly, at the very least, the license condi-tions proposed by our adversaries would result in both Con-sumers Power and its public power neighbors obtaining their bulk power from the same source -- nuclear units constructed 59/ Findings of Fact 2.17-2.19. 60/. Finding of Fact 2.20; Stelzer 7 after 7224. The Department of Justice recognizes the existence of this equilibrium as well. See Justice Brief, p. 241 et seg. 61/ Stelzer 18 after 7224.
4 - 205 - by Consumers Power Company. This, of course, hardly serves to promote bulk power supply competition since all systems will share whatever benefits or burdens result from the shared units. Thus, whether or not the result is a bulk power cartel in Lower Michigan, or the misallocation of resources, the license conditions proposed in the name of competition will be contrary to the public interest. It is, of course, in the self-interest of the Intervenors and other proponents of public power to press for the type of license conditions which have been proposed here. But we ask the Board to look beyond such provincial concerns to the adverse consequences of destroying the equilibrium which presently exists. One consequence is that, because the rates charged for power produced by subsidized facilities will not reflect the true resource cost of such power, customers will be encouraged to wastefully over-utilize 62/ these facilities.- Another adverse result is that this over-utilization will, in turn, encourage the construction of inherently uneconomic facilities -- the excess costs of 62/ Stelzer 17-18 after 7224.
- 206 -
p3/ which are ultimately borne by the taxpayer. As the LP&L Hearing Board recognized, bulk power arrangements which permit public power systems to exploit their subsidies offer such systems a competitive advantage 64/ but do not promote " resource" savings.- Certainly there is nothing in the antitrust laws, Section 105c of the Act, or any other expressions of national policy to substantiate the view that these public power systems should be permitted to utilize their artificial advantages at the expense of cus-tomers of private utilities such as Consumers Power Company or at the expense of the type of pluralistic competitive equilibrium which presently exists in Lower Michigan. In the event that the Board were to find there exists an anti-trust inconsistency requiring the imposition of license conditions, we would urge the Board not to create a "com-petitive imbalance" by adopting oor opponents' license proposals, but rather to provide for the maintenance of such balance by requiring only that the Company make whole-sale service available to all present or future systems under the equitable terms and conditions previously discussed. p3/ Stelzer 7017, 7125-7126. f4/ LP&L Hearing Board, supra, p. 35. '
-207-(
Appendix A - The Role of Regulation in Assuring Efficiency As we note in Section IV-B of this reply brief, the question of whether rate regulation is effective in assuring Consumers Power Company's efficiency is, we submit, unrelated to any relevant issue in this proceeding. However, since the Department of Justice addresses the point at length and draws broad conclusions which we believe to be unsupportable at least with regard to Lower Michigan, we review their allega-tions in this brief appendix. The only evidence to which the Department points is extremely general and conclusory, referring indiscriminately to regulation nationally. Indeed, three pages of the Justice Brief are devoted to a quotation from Leland Olds' 1954 testi-mony about two 1937 papers describing state utility regulation 1/ 3 in the early Thirties.- ' Examination of the actual conduct of regulation ! in Michigan flatly contradicts the Department's broad con-
-1/ Justice Brief, pp. 131-33. The Department also relies on the generalized characterization of utility regula-tion on a national basis by Professor Wein, who nowhere claims a specific familiarity with regulation by the Michigan Public Service Commission.
.s -208-tention. First, it has been clear since 1917 that the Mich-2/
igan utility commission- could directly assure the efficient operation of a regulated utility as well as supervise its 3/ finances.- More recently, in carrying out its responsibility to regulata all " matters pertaining to the formation, operation 4/ or direction of . . . public utilities ,"- the Michigan Pub-lic Service Commission has instructed the Company and its own staff "to establish mutually acceptable performance goals, particularly in the areas of construction planning and management, full utilization of plant capacity and other 5/ critical items of general operations."- In appropriate instances, the MPSC has engaged in very detailed supervisien of the Company's operations. For example, the Commission has recently required that Consumers Power and The Detroit Edison Company submit daily l l
-2/ Then termed the Railroad Commission and now known as the Public 3ervice Commission. ,
)
i 3/ See village of Williamston v. Williamston Illuminating Do!, 1917C PUR 121 (Mich. Railroad Comm'n, 1917), App. 3 2. 4/- MSA 22.13(6), App. I-24. 5/ Consumers Power Co., 3 PUR 4th 321, 341 (MPSC 1974), App. I-12. f l 1 i
-209-reports of projected and actual generation capacity, and 6/
availatle and anticipated fuel supplies.- In fact, the very report of the General Account-ing Office that the Justice Department cites in its blanket 7/ attack on the adequacy of regulation- points to the Michi-gan Public Service Commission, as one of three among the 41 state commissions responding to its survey that sought to assure adequate consideration of alternative equipment manu-facturers and other suppliers by the utilities under its supervision. As the Comptroller-General told a Senate sub-committee, in singling out the MPSC's ef fect in this regard:
"The Michigan commission 'is much concerned in this area and its latest Detroit Edison Order has ordered the company and the Com-mission staff "to establish . .. performance goals ... in the area of construction plan-ning."' In addition, the Commission is in the process of staffing a newly established Performance Evaluation Unit which will have as some of its major functions the develop-ment of standards for review of accomplish-ments in the area of construction planning and execution and in the purchasing of equip-ment."8/ -6/ Consumers Power Co. and Detroit Edison Co., MPSC Case U-4128, Order to Show Cause Why Emergency Procedures Should Not Be Implemented Granting Interim Effect, Requiring Publication and Setting Public Hearing, p. 2, (January 20, 1974) App. S-5. -7/ U.S. General Accounting Office, Report to the Subcommit-tee on Budgeting, Management and Expenditures, Committee on Government Operations, United States Senate, Survey of Federal and Electric Utility Procurements of Power Equipment (B-174317, August 1, 1974) cited at Justice Brief, pp. 128-29. -8/ U.S. General Accounting Office, supra at p. 34. GAO found no ccmparable effort on the part of any other state.
-210-Thus, whatever may be the situation in other states or what-ever l it may have been in other eras, it is plainly incorrect to contend that regulation in Michigan is not today directed toward improving utility efficiency.
Moreover, regulation is not the only factor assur-ing the maximum efficiency of Consumers Power Company opera-tions. The Company has not been able to attain the rate of 9/ return permitted it by the MPSC for some years.- Consequent-ly, the Company has as much incentive to operate efficient-ly to increase earnings as any business firm. In addition, yardstick notions, admittedly imprecise and skewed, inevitably serve as a goad to the Company's managers. 9/ Findings of Fact 3.27, 3.28. e r*v,twwwr-
i
- 211 -
1 Respectfully submitted, Wm. WarfieTd Ross Keith S. Watson Thomas W. Brunner Gerafd B. Wetlaufer Attorneys for Consumers Power Company WALD, MARKRADER & ROSS 1320 Nineteenth Street, N.W. Washington, D.C. 20036 HAROLD P. GRAVES,
-JAMES B. FA LAH E E ,
WAYNE A. KIRKBY Of Counsel Consumers Power Company 212 West Michigan Avenue Jackson, Michigan 49201 November 25, 1974
Table 1 Recent Nuclear Plant Cancellations or Deferrals l i l l
Cancelled or Capany Plant & Unit Lererrea Time AEC Dkt. No. I Alabama Power Co. Alan Barton 1, 2,3,4 Deferred 2 yrs. 50-524, 50-525, 50-526, 50-527, Baltimore Gas & Electric Co. Calvert Cliffs 2 Deferred 1 yr. 50-318 Boston Edison Conpany Pilgrim 3 Deferred indefinitely 50-472 Carolina Power & Light Ca pany Shearon IIarris 1,2,3 Deferred 1.5 yrs 50-400, 50-401 50-402 Carolina Power & Light Capany Shearon IIarris 4 Deferred 2 yrs. 50-403 The Detroit Edison Cmpany Greenwood 2,3 Deferred 1 yr. 50-452, 50-453 The Detroit Edison Ccrpany Fermi 2 Deferred 1 yr 50-341 The Detroit Edison Cmpany Fermi 3 Deferred indefi- Project #478 nitely Duke Power Cm pany Perkins 1 Deferred 2 yrs. 50-488 Duke Power Cmpany Perkins 2 Deferred 3 yrs. 50-489 Duke Power Ccatpany Perkins 3 Deferred 4 yrs. 50-490 Duke Power Capany Cherokee 1 Deferred 2 yrs. 50-491 Duke Power Cm pany Cherokee 2 Deferred 3 yrs. 50-492 Duke Power Capany Cherokee 3 Deferred 4 yrs. 50-493 Dusquesne Light Ctxtpany Deaver Valley 2 Deferred 2 yrs. 50-412 Florida Power Corp. Florida Power 1,2 Postponed indefi- Project #530 nitely
s Cancelled or Conpany Plant & Unit deferrc6 Tine ABC Dkt. No. ieorgi9 Power Ca pany Alvin W. Vogtle 1,2 beferred ct 1:. de finitely
. 50-424, 50-425 Larceller ieorgia Pcuer Conpany Alvin W. Vogtle 3,4 Cancelled Sept. 1974 50-426, 50-427 iulf States Utilities Ca pany Blue Hills 1,2 Deferred 2 yrs. 50-510, 50-511
'ersey Central Power and Light Cmpany Forked River 1 Deferred 1 yr. 50-363 ' nsas Gas & Electric Conpany a Wolf Creek Deferred 1 yr. 50-482 etropolitan Edison Ca pany 'Ihree Mile Island 2 Deferred 1 yr. 50-320 btropolitan Fdison Conpany Portland 5 Deferred 1 yr Project #473 ew York State Electric and Gas Smlerset 1,2 Deferred 2 yrs. Project #507 Corporation brtheast Utilities Montague 1,2 Deferred 1 yr. 50-496, 50-497 orthern States Power Cm pany Tyrone 1 Deferred 3 yrs. 50-484 orthern States Power Capany Tyrone 2 Deferred indefi- 50-487 nitely hio Edison Capany Erie 1,2 Deferred 1 yr. Project #512 ennsylvania Power & Light Cm pany Susquehanna 1,2 Deferred 1 yr. 50-387, 50-388 ptomac Electric Power Ca pany Douglas Point 1,2 Deferred 2 yrs. 50-448, 50-449 l ublic Service Electric & Gas Conpany Atlantic 1 Deferred 5 yrs:. 50-477 ablic Service Electric & Gas Cmpany Atlantic 2 Deferred 65 mos. 50-478
Can lled or Conpany Plant & Unit Deferred Time AEC Dkt. No. 'Public Servi Electric & Gas Conpany Hope Creek l Deferred 7 nos. 50-354 Public Servi Electric & Gas Cm pany Hope Creek 2 Deferred 1 yr. 50-355 Public Service' Electric & Gas Cmpany Salem 2 Deferred 32 mos. 50-311
'Ibledo Minnn Conpany Davis Besse 2,3 Deferred 1 yr. 50-500, 50-501 Virginia Electric & Power Ccmpany North Anna 3,4 Deferred 9 nos. 50-404, 50-405
> Virginia Electric & Power Ccmpany Surry 3,4 Deferred 9 nos. 50-434, 50-435 3 a 1 t
M M E m 2 w r= 1 3 k O o 2 z O E O 05 i l l 1 9 i l l
CONSUMERS POWER COMPANY I Supplemental Proposed Findings of Fact 1.06A Consumers Power Company's intention to con-struct'the Midland facility was publicized as early as 1967. [ Exhibit.183] 4.02A Consumers Power Company has, for the life of the Midland Units, committed itself to provide wholesale service to any present or future customer with which the Company does not have a coordination agreement, provided that such service is technically and economically feasible and can be furnished
;
without' jeopardizing the Company's ability to furnish econo-mical, dependable and satisfactory service to its customers or to satisfy its obligations to other electric systems with which it is interconnected. [ Consumers Power Co. Reply Brief, pp. 77-78] 4.12A There is no substantial evidence that Consumers Power Company has engaged in wholesale territorial allocation agreements or arrangements with other electric systems. 4.12B There is no factual basis for concluding that Consumers-Power Company's wholesale service unreasonably ties together a group of products or services. 4.19A There is no substantial evidence that utilities depart from these principles by offering coordination-type I
services without assurance of reciprocity. 4.27A There is no substantial evidence that Consumers Power Company has unreasonably refused to deal with other systems in matters involving coordinated operations, coordinated development (including the development of nuclear facilities) or wheeling. 4.31A There is no substantial evidence that Consumers Power Company has engaged in " pre-emptive coordination" for the purpose of blocking coordination among municipal and cooperative systems. 4.71A There is no substantial evidence that Consumers Power Company has unreasonably discriminated against any other systems in matters involving coordinated operations, coordinated development (including the development of nuclear facilities) or wheeling.
~
9 4 E m Z m O t~ E m
=
5 b
2
/-
INDEX Supplementary Legal Materials i 1. Abbott Securities Corp. v. New York Stock Exchange, 1974-2 Trade Cas. 175,324 (D. D.C. October 30, 1974).
- 2. Village of Williamston v. Williamston Illuminating Co.,
] 1917 C. P.U.R. 121 (1917).
- 3. Cleary v. National Distillers and Chemical Corp. , 1974-2 Trade Cas. 175,330 (9th Cir. October 29, 1974).
- 4. Consumers Power Co., 3 P.U.R. 4th 321 (MPSC January 18, l 1974).
- 5. Consumers Power Co. and Detroit Edison Co. , MPSC Case U-4128, !
Order to Show Cause Why Emergency Procedures should Not Be 1 Implemented Granting Interim Effect, Requiring Publication ' and Setting Public Hearing (January 28, 1974). l
- 6. United States v. Falstaff Brewing Corp., 1974-2 Trade Cas.
I 175,314 (D. R.I. October 23, 1974).
- 7. City of Hazel Park v. Municipal Finance Comm'n, 317 Mich. 582, 27 N.W.2d 106 (1947). l k 8. Industrial Communications Systems, Inc. v. Pacific Telephone
& Telegraph Co., 1974-2 Traf , Cas. 175,291 (9th Cir.
October 4, 1974).
- 9. Jack Winter, Inc. v. Koratron Co., 1974-2 Trade Cas. 175,270 (N.D. Cal. March 6,.1974).
- 10. Monticello Heights, Inc. v. Morgan Drive Away, Inc., 1974-2 Trade Cas. 175,282 (S.D. N.Y. September 30, 1974).
- 11. Ameydment of Regulations Under the Federal Power Act, FPC Dkt. No.- RM75-3, Notice of Proposed Rulemaking to Amend Regul-ations Under the Federal Power Act Covering Emergency Actions Pursuant to Section 202 (c) of the Federal Power Act (August 26, 1974).
- 12. New England Power Pool Participants, FPC Dkt. No. RM74-22,
. Order Permitting Withdrawal of Rates Schedules, Disposing of Procedural Matters and Terminating Proceedings (August 26, 1974).
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1-S8.028 Court Decisions tse stt:44 Abbott Secun' ties Corp. so. New York Stack Erclege [1 75,324] Abbott Securities Corp., et al. v. New York Stock Exchange. , U. S. District Court, District of Columbia. Civil Action No.177S.72. Filed October 30, 1974. Sherman Act Exemptions-Primary and Exclusive Jurisdiction-Securities Exchange Practices-
" Totality of Restraints" on Independent Brokers.-There was no jurisdiction for an anti-trust court to determine the reasonableness of the totality of competitive restraint. Allegedly imposed upon independent broker. dealers alleging that they were excluded from economic access to the NYSE, since the SEC had the power to review the Exchr.nge's conduct. Since it was a fact that the issue of economic access for non-members was inextricably inter-twined with the practice of fixing commission rates, and that the SEC had review juris-diction of the conduct, the eschange was immune from the operation of the antitrust laws for the alleged conduct. (The alleged restraints included a non member minimum commis-sion schedule and rules prohibiting rebates to non members, commission spli' ting with non-members, and customer directed give.ups.) See i1392.
Exemptions-Primary and Exclusive Jurisdiction--Securities Exchange Practices-Monopolization-Retention of Institutional Business Commissions-Intent-Nonteview-ability by SEC.-An allegation by independent brokers that the stock exchange and its members intended and conspired to retain 100% of the brokerage commissions earned on institutional and investment company portfolio transaction brokerage orders by monopo-lizing the market was conduct not reviewable by the SEC and would, if proved, subject the exchange to antitrust liability. Plaintiffs had sought judicial review of an SEC direction that the exchange promulgate a rule prohibiting customer directed give-ups, and took the position here that, at the time the rule was promulgated, defendant considered giving them, and could have given, plaintiffs direct access to the floor, as was eventually done, but chose not to do so in an exercise of discretion " tainted by anticompetitive purpose and impact." The exchange's intent at the time the choice was made is a question of fact to be determined by trial.See i1392. For plaintiHs: Carl L Shipley and John Barry Donohue, Jr., Washington, D. C. For defendant: William E. Jackson, Washington, D. C. Memorandan Opinion reciprocal business arrangements permitted WApov, D. J.: Plaintitis, forty-seven in- by the Exchange and customer directions dependent broker. dealers in the securities such as where a secunties broker sur-industry, all members of the National As. rendered a portion of his commission on a sociation of Securities Dealers and all non- transaction to another broker at the direc-members of the defendant New York Stock ti n pf the customer placing the order. The Exchange (Exchange), allege in their com- ".cipient broker was usually not connected plaint that during the period frcem December *!h the particular transaction but was 5; 1968 to April 2,1972, defendant and its bemg compensated by an investrnent com-members conspired to deny and did deny pany customer for other services such as to plainti6s economic access to the floor o'f sales of mutual fund shares or research the exchange, by participating in a group performed by the broker for the investment , boycott, in an attempt to monopolize the c mpany. This. practice was discontinued portfolio brokerage cos.. nission business, by th. xchange on December 5,1969. On Th~ actie ::, ;%d63 assert, are in vio. september 24, 1971, the Exchange adopted lation of the provisions of the Sherman * "'* pohey by agreeing to allow hmited Antitrust Act,15 U. S. C. Il I.7. Plaintids ce n nuc access to the Exchange market d(mand treble damages. Jurisdiction of this through a 40% member discoun t. This Court is; based on the Clayton Act, 15 pohey became eticctive April 2,1972. ' U. S. C. I 15 and 28 U. S. C. $ 1337. This case is presently before the Court
' Prior to December 5,1968, plaintiRs had n plainfiEs* motion for summary judgment economic access to the New York Stock n the issue of liability, their memoranda Exchange securities market, even though of points and authorities in support thereof, they were not members. This access was the opposition of defendant thereto, and made possible through a practice known as defendant's cross-motion for summa.y judg-the "give.up". This practice enabled plain. ment, and its memoranda of points and tiffs and other non. member securities authorities in support thereof. Defendant dealers to carn substantial income through has filed the afddavit of Donald L Calvin, 1 75,3.24 .
@ 1974, Commerce Clearing House, Inc.
x 1
2-I see 11 in-H Cited 1974-2 Trade Cases 98.029 Abbott Securitics Cort. v. Netu York Stock Exchange vice president in charge of defendant's court, to determine the reasonableness of government relations, and thirty three ex. the totality of competitive restraints im. hibits thereto, in support, of en opposition' to plamtiffs,its motion motion. Theand posed upon plaintiEs during the time alleged, insofar as the Securities and Exchange Com-Court has heard oral arguments on these mission had the power to review such Ex. change conduct. Cordon t, New York Stock [ Claims] Eschange [1974-2 TaArit Cast.s 175,148), From a reading of the complaint and the 498 F. 2d 1303 (CA21974): Silrcr v. New other documents 61ed in the case it appears fork Stork Exchanac [1963 Ts40s Casts to the Court that plaintiEs seek to hold f 70.787], 373 U. S. 341, 358-J61 (1963). defendant liable under the antitrust laws on Since it is a fact that the issue of economic two grounds. First, plaintiEs allege that access for non member broker-dealers is the totality of competitive restraints' im. inextricably ir.tertwined with the practice of posed upon them during the period from fixing commission rates, ser para. 8 of the December 5,1968, the eEective date of thd first amended complaint: and see Cordon, Exchange's rule prohibitinir customer-directed entra. 498 F. 251 at 1310, and further that give-ups, until April 2,1972, the date when the SEC had review jurisdiction of this the 40% non member broker-dealer discount conduct pursuant to I19(b) of the 1934 became eEcctite, were unreasonable. Second. Securities Exchange Act, we find, as a plaintiEs allege that it was the intention of matter of law, that defendant is immune defendant scrurities Exchange and its mem. from the operation of the antitrust laws for bers to retain 100% of the brokerage com. this alleged conduct and that it is en. missions earned on institutional and investment titled to judgment as a matter of law in company portfolio transaction brokerage this regard. orders by monopolizing the market, and that defendant and its members conspired (Rctention of Brokerage] to do so by participating in a gwsp boycott However, we find that plaintiEs* second and denying plaintiffs economic access to allegation of conduct on the part of the the Exchange floor durmg this period of Exchange and its members, i.e., that de-time. Plamtiffs claim that defendants are fendants and its members intended and liable as a matter of law. conspired to retain 100% of the brokerage commissions earned on institutional and in. IO#[#"###l vestment company porttolio transaction Defendant bases its opposition and motion brokerage orders by monopolizing the market, on three defenses. First, defendant con. is al%ged conduct not reviewable by the tends that the rules which plaintiffs chal. SEC, and will, if proven, subject defendant lenge, which rules had the cumulative eEcct to antitrust liability. Our Court of Appeals of foreclosing economic access to the Ex. referred to the possibility of this type of change floor to non-member broker-dm! cts, liability attaching to an exchange in the constituted government mandated action to case of Indc/cndent Broker-Dralers' Trade which the antitrust laws are inapplicable: Association - Sccuritics and Exchange Com. second, that the Securities and Exchange mission. # - 2d 132 (CADC 1971).' In 1 Commission had review jurisd.. tion over discussing as possibilities of an antitrust the self regulatory conduct being challenged. action based on exchange self-regulatory, thereby immunizing the Exchange from anti-competitive conduct, the Court said: antitrust liability; and third, that the con. ,,It is c nee vable that an antitrust action
- d. uet.fied in response to an antitrust cla.ofcouldthebeExchange grounded on wasthereasonable considerationa,nd justi im. that in a particular case, notwithstand-ing a formal request by the SEC, the l Totality of Restraints-Jurisdiction l Exchange and its memhers had a choice It is the op. . inion ,of this Court that it and exercised discretion that were [ sic]
tainted by anti-competitive purpose and lacks j,urisdiction, sitting as an antitrust impact which could not be justified by
- These restraints included a non-member min- of the 1934 Act on a non-member broker-dealer lmum commission sebedule. which treated non- discount, and that sinm the SEC was holding member broker dealers and individual investors hearings on the matter. and excretsing its alike, and rules prohibiting rebates to non. jurisdietlo't. Its delay in granting access was in members. commission splitting with non-mem- deteremt10 the regulatory approach.
bers. and customer-directed gne-ups. 8 Independent Broker-Deulers' Trade Assocla-
'The Exchange asserts that it had a leeftt. tion is the trade association of plaintiffs herein.
mate concern regarding the errect et 13(alts) Trade Regulation Reports 1 75,324 j:,
- 3-S8.O30 Court Decisions sse ::.it-r4
. Fairfeld County Bmrage Distributors v. Narragansett Breuing Co.
the regulatory approach." 442 F. 2d at eventually done in April of 1972, but chose W n.ll.* not to do so in an exercise of discretion In latchnhat Bro &tr-Dealers' Trade .4ssoci. " tainted by anti-competitive purpose and stion, plaintiffs sought' judicial review of impact," ( e., to retain 100% of the broker. SEC action, ic., the action of the Commis, age commissions. Defendant denies this
- sion in directing the New York Stock Ex. a"*"sh an I auerta that its conduct was change to promulgate a rule prohibiting reasonable and " justified by the regulatory customer-directed give.ups. PlaintitTs herein approach." Defendant's intent at the time take the position that at the time the rule the choice was made is a question of fact prohibiting customer-directed give ups was to be determined by a trier of fact. There-promulgated, defendant considered giving fore we find that there exist genuine issues them, and could have given them, direct of material fact that preclude judgment as access to the floor of the Exchange as was a matter of law for either party.
[f 75,325) Fairfield County Beverage Distributors, Inc. v. Narragansett Brewing Co. U. S. District Court, District of Connecticut. Bridgeport. Civil No. B-87. Filed July 19,1974 Sherman Act Territories-Beer Distribution-State Liquor Controls-Constitutional Antitrust Im-munity.-A brewer's imposition and enforcement of territorial restrictions in the distribu-tion of its products, although clearly within the type of restrictions prohibited by Schu~nn per se rules, did not violate Sec. I of the Sherman Act, since the state's regulation of liquor, reserved to it under the Twenty first Amendment of the U. S. Constitution, made the brewer's actions immune from the prohibitions of the Sherman Act. Although the state liquor control law did not require that the brewer set up limited territories within the state, it permitted and apparently encouraged the establishment of restricted t,erritories. See i 620, 3050. For plaintiff: Thomas E. Afinogue, Jr. and Joel E. Kanter, Bridgeport, Conn. For defendant: David M. Reilly, Jr., of Reilly, Pecle, Radite & Lasala, New Haven, Conn. [ Opinion) a distributor of them violated Section 1 of the Sherman Act, 15 U. S. C. I 1. By LttwsAno, Cir. J.:
- This is a private acticvi for treble damages under the antitrust laws. agreement of the , parties a bench trial
* "C*'"
Plaintiff Fairfield County Beverages Dist- fendant,ed solelyunder s liability with the the Sherman question of Actde-ributors, Inc. (Fairfield) is a wholesale was held on May 8, .1974. distributor of soft drinks and beer to retail outlets in Connecticut. From June 1966 to . [ Stoic Liquor Regulate.ss] December 1968 Fairfield was the wholesale distributor in certain parts of Fairfield Fairfield has been in the wholesale dis-County of the beer products manufactured tribution of soft drinks and beer since 1953, by defendant Narragansett Brewing Com- In the spring of 1966 Fairfield was distrib-pany (Narragansett). Narragansett is a uting soft drinks throughout the Fairfield brewer of several brands of beer and is County area and was distributing certain located in Cranston, Rhode Island. private label beers to chain stores throughout Fairfield claims that territorial itstrictions Connecticut. Under the applicable Connec-placed on its distribution of Narragannett ticut liquor laws and regulations Narragan-products during the period in which it was sett was an out-of. state shipper which could e The majority in Sdt'er recognized this type more. Individual members of an exchange would of Itabluty. 373 U. S. at 358 36t. and Justice be liable if it were shown that they had cen-Stewart, dissenting as to the result reached by spired to use the exchange's machinery for the the majority. thought that this type of exchange - purpose of suppressing competition. [ citations conduct was a violation separate and disunct omitted) App 4 cation of the antitrust laws to from the ordinary concerted action of an ex- such conduct would rest on the presence of an change. Ile said: independent vlotauon. not, as the present c.se
- Tor example. en exchange would be llable does. simply upon concerted activity by the under the antitrust laws if it conspired with exchange and its members." .TT3 U. S. at outsiders. or it it attempted to use its power 371 n. 5.
to monopolize. tcttauons omittedI rurther-
- Situng by designauon.
s- 1 75,325 @ l974, Commerce Clearing House, Inc.
4
;
- SS,042 Court Decisions .
us 11.t14e
. Cleary v. National DhtWers and Chemical Corp.
.to continue discovery in order to determine VaugAs :. Rosas, 484 F. 2d 820, 823 (D. C.
the factual premises underlying the claimed Cir. 197J), cert. denied, 94 S. Ct. 1564 exemptions or to determine the Federal (1974). Accordingly, the Court of Appeals ' Trade Commission's procedures in promul- set forth rules regarding agency indexing gating the rule would be a means of cir- of documents so that the arguments by the cumventing the protection a6orded by requesting side might be more effective.' Exemption 5. See Washington Rescarch Pro. In addition, there is the possibility that in irrt, Inc. v. H. E. W., Civil Action No. camera review might be undertaken. The 74-1027 (D. C. Cir., Sept. 12,1974) (slip court feels that these procedures, if carefully at 16).' followed by all sides, should allow the The District of Columbia Circuit has court to resolve correctly the claimed ex-recognized that a party arguing that a claim emptions in this case, not withstanding of exemption should be disallowed in a plaintids' list of disputed " factual presump-particular case is faced with considerable tions." See Supplemental itemorandum, difficulty. supra at 4-7. [I]t is anomalous but obviously inevi. Accordingly, it is by the court this 3rd table that the day of October,1974, interest in obta, ming party with the isgreatest disclosure at a Ordered that defendants' motion to quash loss to argue with desirable legal preci* pla ntiffs' subpoena of Roger J. Fitzpatrick sion for the revelation of the concea, led and the same information. Obviously the party seekinghereby and for.a protective is, granted; and order it is b.e' further disclosure cannot know the precise con-tents of the documents sought; secret Ordered that there shall be no further information is, by definition, unknown to discovery in this case; and it is further the party seeking disclosure. In many, Ordered that plaintiffs respond to defend-if not most, disputes under the FOIA, resolution centers around the factual na. ants' motion to dismiss or m the alternative ture, the statutory category, of the in, for summary judgment on or before No-formation sought, vember 18th,1974. [f 75,330] Peter L. Cleary v. National Distillers and Chemical Corp. and McMinn-ville Sunshine Dairy Inc. U. S. Court of Appeals. Ninth Circuit, No. 72-2460. Dated October 29, 1974. Appeal from U. S. District Court, District of Oregon. Sherman Act Boycotts-Agreements to Refuse to Sell-Dalry Equipment-Lack of Firm Offer to Buy-Hearsay Evidence of Conspiracy A dairy operator charging that a dairy equip-ment distributor and a competing dairy conspired to prevent him from purchasing a l hydrocarbon detection device (a " snifter") did not offer sufficient evidence to present i the case to the jury. Evidence that the operator contacted the distributor and expressed l a desire and need for the device, that he was given the "run around" by the distributor, that the distributor sold snifters to other dairies in the area, that the competitor's snifter was installed w the same day it entered into a lease contract with the distributor, and that after the plaintiff operator sold his dairy to another party the plaintiff received an oder from the distributor to lease a snifter, was wholly inadequate to sustain the charges. There was no evidence that the plaintiff had made a firm demand or cffer to 1 buy a snifter, and the only evidence of conspiracy was properly rejected b'y the trial court as hearsay. See 1 720, 2460. For appellant: George Af. Joseph (argued), of Bemis, Breathouwer & Joseph, Portland, Ore. For appellees: Cleveland C. Cory (argued), of Davies, Biggs, Strayer, j Stoel & Boley, Portland, Ore., for' Nstional Distillers; Harry W. Devlin (argued), . McAfinnville, Ore., for afcitinnville Sunshine Dairy. a Nothing stated herein should be taken to mental consideravons concern facts in the public I 1Adicate that the court has determined that recurd or facts which, on payment of fees. the the Federal Trade Commission's claim of prtvi- Commission wilt deliver to plaintiffs. Thus, it lese in the instant case has been property raised. appears un!!kely that the memoranda formed That dectston must await proper briefing and the sole basis for the Commission's dectslon. argument by both sides. Compare American Mail Line Ltd. v. Culick,411
- The court has had no occasion at this June- F. 2d 696 (D. C. Cir.1969). See alsn WasMug-ture to consider whether the Index provided by tos Researer Project, Inc. v. H. B. W., supra at the acency in this mse is adequate. However. 17: INolic AreMtects J Engiacers. Inc. v. Re-from the fam of the Index it appears that all negotiottom Bd.. Civil Action No. 73-2093 (D. C.
Items in the Memoranda whJch refer to environ- Cir. Oct. 8.11rl4) (stip at 54. A 1 75,330 @ 1974, Commerce Clearing House, Inc.
i (. nse 8184-74 9S,043 Cited 1974-2 Trade Cases . Cloory v. National Dktillers and CAemkal Cor9 Before: KLutwur and Sware, Circuit Judges, and JAnstaow,*. District Judge. Opinion First of all, appellant prssented no evi.
- Psa CualAM: (ICary appeals from a ' '
directed verdict in favor of appe!!ees in a ' iftn. '" N. ".sn.e made M we han a edence a 6rm demand or oder trehle damage suit under the Sherman Act, puhmmary negot,iations. A gmad and i
- 15 U. S. C. Il1 et s.eg.. Appellant alleges Rfusal certedHrefusal a prerequisite to deal.toRoysicr a claimDrwe of, con. In that p
Chenu,appelleu cal Corporation' (National) Nationaland , Distillers Mc. 7 ands MmB dust Em fl959 Mmnville Sunshine Da,ry, i Inc. (Sunshine), TaAos Cases f 69,377),268 F. 2d 246 (CA 2 combmed to restra,i,n trade by preventmg 1959), cert. denied 361 U. S. 885 (1959); him from purchasmg from National, a MWu 7m (~e s. M's M D9% hydrocarbon detect 1951 TaApr. Casts 162.891),190 F. 2d 561 ' . daary busmess assnifter. a ;on devi,ce known m the (CA 7 1951); cert. denied 342 U. S. 909 (1952). A plaintif can have no relici when t The sole issue on appeal is the suffi- his failure to obtain a desired product is i ciency of the evidence supporting appel- attributable to his own failure to make a i tant's claim that appe'len engaged in a request. DaAl, Inc. v. Roy Cooper [1971 1-concerted refusal to deal. We 6nd appel- TaAoE cases .f 73,704), 448 F. 2d 17,19 tant's evidence, taken as a whole, is insuffi- (CA 91971). eient and, therefore, affirm. ! Furthermore, a claim of concerted refusal In considering a motion for a directed to deal obviously cannot stand unten there j i verdict, the court must give the party is evidence of concert. An individual dis- ' 4 against whom : the motion is made the tributor acting alone has the right to deal j benent of all reasonable evidentiary infer- with whomsoever he pleases. Ricclietti v. ences. Continental Orc Co. v. Union Carbide Mekter Brau. Inc. (1970 TaAos CAss= dr Carbon Corp. [1%2 TaAos Casts f 70,361), f 73.326),431 F. 2d 1211 (CA 91970), cert. ~' 370 U. S. 690,699 (1962); laderendent fron denied 401 U. S. 939 (1971). Unless there Works,Inc. v. United States Steel Corp. (1963 . is evidence of an agreement or other concerted TmAnt Cases f 70,848], 322 F. 2d 656, 661 action by appellees, appellant's claim is (CA 9 1963), cert. denied 375 U. S. 922. baseless. Klor's,Inc. v. Broeduwy-Hole Stores This is no less true in an antitrust case. (1959 TaAne Casts f 69,316], J59 U. S. 207 i However, if there is no substantial evidence (1959); Dahl, Inc. v. Roy Cooper, supre, at 19. to support the claim, the court must direct The only evidence presented by appellant a verdict. Chhholm Bros. Form Equip. Co. which might establish an agreement or con-
- v. Int'l Herte,rict Co. [1974-1 Tasos Casas spiracy between appellees is hearsay, which 175,096),498 F. 2d 1137 (CA 91974). Such was properly rejected by the district court.
a result is dictated by the facts in this case. The proponent of a conspiracy must lay a {. Appellant's proof consisted of; (1) that - proper foundation of independent evidence he contacted National and expressed a before hearsay evidence can be admitted. desire and a need for a snifter; (2) that he Flia hoft Co. v L73//ord [1957 TnAnt Casas 4 was given the "run around** by National; f 68,'674),246 F. 2d 368 (CA 91957), cert. (3) that National sold ' snifters to other . denied J55 U. S. 835. - Here, there was no dairies, including Sunshine, in appellant's such independent evidence presented. In area; (4) that Sunshine's snifter was in. Bese circumstances. appellant's allegations i stalled on the same day it entered into a d concerted action must fail. lease contract with National; and (5) that Our study of the recora and the law con.
. after appellant sold his dairy to another vinces us that the district court did not err
! party, appellant received an offer from in granting appellees' motion for a directed National to lease a snifter. This evidence is verdict. i wholly inadequate to sustain appellant's claim. . Judgment Affirmed. 1
- The Honorable William J. Jameson. Senior United States District Judge for the District of 30eatana. sitting by designadon.. ,
iK- Trade Regulation Reports 1 75,330
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WILLLutSTON v. WILLIA 11STON ILLU311NAT!30 CO. 121 MICHIGA.T MAILROAD COM3tISSIO.V. VILLAGE OF WILLI.DISTON v. WILLIA 3!STON ILLD!INATINt; CO3fPANY. [D-1M3.] Estee~Juris tletten af Com nesanion ~ Munfelpal franchlee.
- 1. An elretrie utility cannot, af ter the evpiration of ten yeara from the granting of its francini.e. cimim immunity from rt.te re.rula.
tion 1,y the state thro.:gh a C..mmission by virtue .if a twest.r.sve year mnencipal franthite tisin;r maximuni rates. whste time power of the munic!pntity to e.utract for en ekrtrie supply uan simiteel to ten yvers, tho ;h the muni.ipality h.,4 power to authorize the accre rccupancy of its streets for a period of tw nty five years. e Seresee - Electricity ~.4 derguary. .
- 2. E!*etrie eersiee is inadequate a r.ere there la insi Sc!cnt estrer.t to meet the demande during the early eu.ine when street, comn.ercial, and reaidential fighting as heir.g furni-hni-it age aring ti. t the iights are Jim sud un tesdy,- inn adsgacte wrvies insuhes 1+th ign.ntity end quality regardless of the rescaue. ,
Rates-Tawuriniacs slossenenne rate- 33rtered or ft:t roten.
. 3. A municipal iranchise natuing a masivoum ammint per year for each elettric errect Ir.mp and a masi.num .unoont per emndhe power p.tr week for incandment lights does not prevent the partice frem :icopting an avraitable plan plering street lighting upon a metered rate has. nor prevent the utility from supplying residential or commerud !ishting upon a flat or metered riste basis.
Estes-Clannen ~ Tiret und snetered- Optional.
- 4. A utility H.ould not furnish ti. same character of service upon both a flat and a metered rate lasts regardless of the fact that leth charges riight be e.gual nd aquitable.
Mrvlee~ Etcetriesty-liceerre e.gulpnant to assure continnorna eerr. kw.
- 5. An electrie utility having a drenand for cumnt for lighting an]
power purpows that riq.ures a canetant u.e of Ita eqmpment n.aubl 19etall reserve equipn.ent to se4ure continuous service in case of acci. dent to the machir. cry. Betee= Trenchior untueing snarinnuns entes-btulireg scorte.
- 6. A municipal franchtee raming a maximum rate doe
- not prevent the utility from be.ir.g its rates upon a sliding scale, Roten ~ Electrielty ~ 5 tiding sentr~ Minine uns charge .Suterentergen.
- 7. Electr'c rates should ue bset upon a sliding scale with a pr.,p.r minimum charg:e. as this method, in tonne tien wit's a metered turrei.t.
lasures uniformity, remoses discriminatica, and aneures the utility re-muneration icr all service rendered. P.U.3.191;C.
e 9- w 124 MICHIGAN RAIIROAD COMMISSIO.V. ice is poor, or that the operation of the plant has resulted in a not protit as claimed, but on the contrary that the net earnings are not su8Icient to care for reason;tble per ecut of deprecintion, let alone a return upon the inve<unent, and as to giving power acrv-ice defendant is willing to do this whenever contracts for such nerrice can h secured that wi!! sho v an carning of SCO per month. It appears that the following were the chief factors to he determined: . (1) Ha4 the Commission jurisilietion! (2) Is the servico furni.hed by the defendant r.dequatel (3) Are the demands of the petitioner rea:ouablef
, (4) Are rates charged remunerativef ,
4 Answering these in order: [1] First. The jurisdictional que< tion would appear to be ; most important, for if the Commi< ion has no power to inue an enforceable order, consideration of the other questions involved would be. useless. The Commission, however, with full know!- edge of its powers under Act 10ri, and after a careful study of the franchi.-e granted by complainant. is convinced it has juris-diction and will so hold. The legislature of 1W5 pwed an act entitled "An Act to , Proyide for the Imorporation ui Villages within the State of - Miebigan, and Derining Their Powers und Duties." Section 8 ~ of chapter 1:! of said act, under the caption "Ughting," reads as follows: ' The council ma,v contract from year to year or for a period of time not e"eceding ten years, with any person or per<ons i or with any duly authorimi corporation he tl.e supplying of such village or the inhabitants thereot', or both, with gaa, electric or other light, upon such terms or condi: ions as may be agreed; cnd may grant to such per.on, persons or corporation the right to the use of the streets, alleys, wl.arves and public grounds, as shall be necessary to enable auch person, persons or corporation l to construct and operate proper works for the supplying of such light upon such terms and conditions as eball be specified in such contract." It appenr4 from the record and exhibits tiled that on April 21, - 1896, or the year following the passage end approval of above act, complainant's conesel passed an ordinance known and re-P.U.R.1317C.
- l
{Pages 125 - 128 deleted.] l
- 10 -
TrILLIAMST0N v. WILLIA 11STON ILLU1!!NATING CO. 129 takes to contract for the purchase of'eurrent, in which case a ten-year term appears to be the limit of time for which such contracts may be made. The Comminion cannot concur in the opinion of the defend-ant, nor do we bellere such construction 01 the statute permissi-ble, for the language employed is not ambiguous, bitt states plain-ly that "any such village is authorimi to contract with any person, persons, or duly organized corporation for the supplying af such village or the inhabitants thereef," etc., and for this pur-pase authority is grantsd for the occupacey of the stree's, alleys, places, etc., for the purpose of constructing a pole line and all the necessary apparatus to enable said person, permns, or cor-poration to furnish such service. If the defendant was selling current, end not distr:buting it, there would be no necessity for authority to occupy the streets, alleys, etc., of complainant; or if the village were buyiny, it we,uld require no per:uinaion to oe-cupy its own streets. al;eys, etc. If defendant's con.<tructi.m nt the act be accepted, and it be assumed that the village de hny and itself distribute for street. lighting purposes, it would be practically itapossible for each resident to do the same; and if the term " villa # is taken to inean all the citizens and ;he vi!! age shor.id distribute thereto, then the words, "or the inhabitants thereof or both," are superduous. We think a fair and reason-able construction to be put upon the laugnuge employed is that the term " village" mearn for street or pitblic lighting, and the term " inhabitants thereof" means residential and entamercial lighting, and that the act contemplates the evnetruction and operation of a municipal plant, or :he granting of a franchise to nome person, person 3, or corporation to furnish such service en-tire, and as evidence of tha construction accepted by defendant's ~ predecesaors (and which we believe ecttleo this question), defend-ant as neigcce is now actus!!y i.ccupying with its p.sles, wires, etc., the streets, alleys, and places of complainant. and furnishing curren: and distributing the same. [2] Second. "Is the service furnished by defendant ade-
.ptate!" Relying upen the record and accepting the statement 4 of the officers of said village and other residents testifying for the complainant, it appears, iirst, that the lights are not steady:
mad, that they are not bright enough (one witness testifying P.U.R.13170. 9
11 - 130 MICHIGAN RAILROAD COMMISSION. that with the light from a tbree-bulb ebandelier it is difficult t., read a newspaper); third, that for some two hours during the evening when street, commercial, and residential lighting is be. Ing furnished, there was not current enough to meet the demands, and that this was due to a lack of boiler capacity, defenilant operating but one boiler, and this beiag ' secondhand and too small. From the record we gather that defendant does operate one boiler and one engine for lighting purposes, ami that for early evening lighting defendant has contracted for power from a mill operated by water wheel, and after said mill ha closed for the day the power from the wheel operates a generatur , supplying current for lighting. When more currect is demandel than this wheel power produces, then defendant operates the steam engine and shuts off the water wheel. It is assumed that this change is what causes the lights to flicker for a moment, but little attention was given to this phase of the cornplaint, as the length of time such conditions obtain are so short as noc to be material. Testimony was otTered by complainant to show that the wires beyond the veries of transformers farthest from the pcwer house were small and lacking in capacity, and, having come in contac: with limbs of trees, the insulation was worn through, and is case of wind and rain touch current was lost by reason of this condition; that the plant was not able to develop enough entrent to overcorne this loss and give goal service. and Mr. Thomas. general manager of the Michigan Power Company, after an ex-amination of the plant, testitied that the plant is lacking in ca-pacity. Defendant's witne<s, while admitting come cf complainant's allegations, still contends that the service is regular and good. Howeser, it develops that such witrasses reside or do busine s within a short dierance of the power plant, and not far from the line of transformers nearest, said plant, and the burden of corn-plaint appears to be as to residential and commercial rather thaa street lighting, and this may be understood when reference is had to the new street lighting sy6 tem installed by the defendant.
' Relying upon tne request made and the statements of the com-plainant, the .-crvice is not adequate, and if reference is had to the following language found in the last paragr:.ph of 3 6 of the P.U.R.101;C.
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- 12 e WILLIA 3!STON v. WILLIAMSTON ILLI;MINATING Co. 131 franchise, "Provided, further, that the lights furnished shall be equal in porter, brilliar:cy. simdiness, and durability to any first-class c!ectric light furnished by reputtable companies fcr the same purpose in iny city or ri!lage/'--it would appear that the terms thereof had not at all times in the past, and were not on the date of the filing of this ecmplaint, being compiled with, and as the question of adequacy inwives both quantity and quality regard-less of the revenue produced, it would appear that the claim of inadequacy had been sustained.
[3,4] Third. "Are the demands of pctitioner reascnablei" Referring to the praver we rind complainant asks: (a) That defendant ceno discriu.ination; (b) that defendant furnish twenty-four hour service; (c) that defendant furnish adequate enrrent for Loth power and lighting; (d) that the charge for current used . hall be based upon a sliding scale, and that such charges be reasonable. (a) Counsel for complainant contends that all current fur-sished by defendant, both for public and private u!e, should be metered. We and, however. that $ ti of the franchise and the
<creral contracts made with coiuplainanCs council since April dl,1506, and which it would appear expressed the public wish, demands a Hat rate for street lighting and a gisen amount per lamp per year which shou:d not be exceeded ; and of the incandes-eent lights not w exceed a given amount per candle power per week.
- The general custom appears to be to base the charge for street lighting upon a tlat rate per lamp per year, and there does not appear to have been sudicient evidence produced to convince the Commission that complainant will suffer from a continuance of the present custom, although no objcetion would be orfered by the Commission to the adoption of any equitable plan agreeable to the parties in interest whereby the future char:res for street
.ighting should be upon a metered basi's. Neither do we think auch sptem of measurement prohibited by the franchise, which names simply a maximum per lamp per year which should not be exceeded; neither would there appear to be any question as to rhe right of defendant ta supply res;dential or commercial light- '
in:: upon a Bat or metered rate basis. However, the advisability . ! "f having in effect at the same tirae different teethods of measur- ! P.U.R.1917c. '
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133 MICHIGAN RAILROAD CO3I11ISS10N. ing current as a basis for the charge to be made would appear to be decidedly questionable, regardless of the fact that both such ebarges might be equal and equitable. In the absence of an application of some uniform and generally necepted method of measurement, there is ground for suspicion that discriraination is being practised, and this condition has ahrays been considered provocative of trouble: for the customer whose current is measured and all used charged for never believes that he uses as much current or uses it as long as his neighbor who enjoys the flat rate, and the result is a growing impatience and an ever-increasing dissati< faction among customers. which same is not conducive to the best interest of either customer or utility, and, therefore, should not be c.natinued: and if. as claimed by complainant, this system in vozue in the present case results in some customers paying 5 and G eents par kw. hr. and others 10 cents or any higher rate per kw. hr. for a like service, it wouhi result in discrimination forbidden by the statute. and =bould be discontinued at once. The ruero fact that some cu3tomers believe it to be to their advantat:e to be on a flat rate is not s'if-ficient excuse for continuing different rates under like condi-tions, thus violatiug the law, but rather suggests that the flat rate is lower and less expensive. (b) As to the twenty-four hour service. It would appear that this is a question that would adjust itself; for if the rate charged would produce a revenue justifying continuous service, it should be given, if tiiere is demand for it. On the other hand,if twentf four hour service is demanded by complainant and the rate origi-nally agreed upon or now char:ed was for a less service, and nct now remunerative for twenty 4att hour service, then if a larger nervice is given the rate should be incr~ased correspondingly. The contract executed between the defeudant and the village of Wil-liamston ca June 30,1910, so far as the street lighting is con-cerned, called for lights from dusk ou each and every evening un-til 12 o' clock midnight, standard time, on all nights that lights are needed, and this need is to be determined by the cennmon council of the complainant. The rate originally charged was based upon what is known as the " moonlight schedule." It is therefore evident, if continuous service is given, that there will be an increase in expense, and naturally an increased charge. P.U.R.M17C.
l 1 WILLIAMSTO.V v. WILLIAMSTO.N ILLt*MLNAT1.NG CO. 133 However, we believe the public know about how much and what quality of service it needs, and the proper thing for any public utility to do is to place itself in a position to comply with the public demands and then charge a reasonable rate therefor. [5] (c) In this cocncetion, complainant also asks that defend-ent furnish current for power use. There appears from the record to have been considerable controversy as to the actual demand, defendant contending that numerous erforts had been made to sceure contracts for power but without success, while complain-ans contends that with only a secondhand boiler and one engine, defendant was not in a position to furnish such power and guar-antee continuous or uninterrupted service, having made no pro-vision to care for customers while une.ble to operate due to acci-dent, repairs, or other causes, and that customers could not atiord to go to t9e expense of equipping their respective plants to use electric power without some assurance that defendant would be fully able to care for their needs; otherwise contracts could have inn sceured easily. . Defendant states that it will giro current for power whenever contracts for the use of such power can be secured whose revenue per month would be Mo, notwithstanding the fact that said
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amount would not meet the additional expense incurre l.
- If defendant was in a position to assure the customers first-class service, this proposition would appear upon its fa* to be reasonable. The fact, however, that such service, to;; ether with the lighting service demanded by the te ms of the franchisc, muld require the etmstant use of the single unit plant operated by defendant, suggests the necessity of additional boiler and en-
;:ine capacity to assure a continuous service in case of accident to the machinery either at night or during the day.
[6,7] (d) " Easing the charge upon a sliding scale." Umier a previous heading we have called attention to the section of the franchise relative to the manner of determining theu c' arge: we soll are of the opinion that the lan;nuge of the section citcd mming only the mraimum charge which may not be exceedad dm not attempt to state what charge less than the maximun2 d.ould be made nor by what method determined. An examination of the records in this department shows that er 60 per cent of the corporations furnishing e!cetric lighting I' t!.IL1017C.
s IM MIcalcAN a.uz.aoin cointIssrox. base their c'harge upon a sliding scale. It would, therefore, ap. paar to be the latest and more approved method, and if adopted by defendant should not prose to its disadvantage, especially un-der the protection of the application of a proper minimum; and this method, in connection with a metered current, would in-
;
sure uniformity, remove discrimination, and assure defendant remuneration for all service rendered. [8] "A rea3onable rate." Thus far the discussion has de-veloped that compiainanta desire, firtt a better quality of serv-ice; second,'a greater quantity. Complying with these demands l will necessitate a largely increased investment by defendant, ' therefore, the question now to be considered is the rate or charge that should be made in order to produce a reasonable return upon the property invested a id in ute. - From the records we tiud that defendants purchased the origi-nal bond issue of its predecessor amounting ta $10,000, the pro-ceeds from which,it is stated were expended upon the property. I.ater an authorization of $20,000 i.n bonds was secured by de-fendant after the purchase of the property and an order permit g ting the sale of $12,000 of such amount. 310.000 to be used to ' refund the original $10.000 is3ne and $3,000 to be used for the improvement of the property, leaving $5,000 of such bond issue in the treasury of the company. Defendant shows that siure acquiring the property it has ex-pended approximately $1.000 for charging the street lighting system and $6,000 for new machinery, additional distributiou system, etc., or a total of $7,000. Therefore, if we may assume that the proceeds of the original bond usue of $10,000 were ex-pended upon the property, and in addition thereto the $7,000 above mentioned, it would <ho v an investment of approximately
$17,000 without taking into account whatever may have been realized from the 3:Je of the stock and expended upon the prop-erty in the first instam e.,'or in bills or accounts payable for ma-terial used that might properly be charged to capital account if not included in the above item of $7.000.
It is admitted that the plant has been partially rebuilt and coa-siderably added to by detendant since its purchase in 1900; how-ever, the record contains no information as to the original cost of i the plant, or any changes or additioss that may have been made P.U.R.1917C.
.. e een m
16 - WILLu3tSTON v. WILLu31STON ILLI*111NATING CO. 135 thereto prior to its sale to defendant, nor of the price defendant paid for the same at such time, nor at what price defendant ob-tained the original boud iane of $10,000. Therefore, as to the actual investment this information is of litt'e value. A study of the report tiled by defendant shows particularly two items that would suggcot that much of the original invest-ment was not now in use. Particular reference is made to the item of " abandoned property," as shown in a more recent state. ment as obsoletc equipment, amount $5,079.30. and the item of "other suit.ense," $13,550.30. We are inclined to believe, how-ever, after a careful analysis, although the report does not so state, that this latter, item covers property of valua and in use at the present time. The records in the odiec of the State Tax Comn.ission, to-gether with information furnished by defendant. show the prm>- erty to have 1,een a sessed at $9,000 (personal $3.000 and real estate 45,000), but upon just what percentage of cash value the assessment was made this dapartment is'not udvi.3ed, but the best information uttainable leads us to believe upon a basis of 00 per cent, and if thi. Le true it would make the uetual cash value of the property $3,553.35, as per defendant's own tigures. By exhibit 21, Sled at the hearing, defendant shows a platit in-restment as of December 31,1915. of $29,947.12, but the s:ime includes the following items: '%ndoned property, $5.075.06," and gcod will. 810,900." De.lucting the-e amounts there re. mains $13,505.76 as representing p operty actually in use. To this there might be ailded the items of ' tools and implements, 140.22," " furniture and dstures, $13.13," and " power hou. e sup-plies, $15," or a total of $71.35. making a grand total of $13.- 340.11. However, this re: ult is obtained by accepting without 'luestion the figures submitted, and which defendant admits rep-resent the first cost or value new, being what is known as the inoo% value. Defendant at the same time admits that no amount had ever been charged o:f for depreciation, and while it must be muccded that the proper amount chargeabir to depreciation is ceditioned largely upon the per cent of ediciency in which the Pl ant has been maintained, there are, however. certain parties f .such a property which continue to depreciate and cea-e'only
":m replaced by new; and the distribution line and eieetrical ' (* 2.1917C.
l 134 MICHIGAN RAILROAD COM2.11MION. apparatus having been in service several years, is would appear that, applying an averege depreciatien charge of 01 per cent for four years, or $1,051.60, would not be unreasonable, thus leaving the net amount of property as actually,in use as of a value of 811,085.51, or approximately S1:!,000. As previously stated, defendant in its annual report filed De. eember 31, 1915, claims $10.270.40 .ns the netw 2 plant invest ment; however, there are itetus, such us ' going concern value,'
" good will," etc., which may very prop:rly be considered in fix.
ing the value of a utility for rate-making purposes. which might not be considered in fixing a value for taxation purposes; there-fore, if to such actual value of the plant as reportcd there te
. added $1,720.00, it will bring the value up to $19,000. es abcre
[ stated. It is claimed no additions have been made to the "value of the property" by reason of the inercased valne of copper or other material. No consideration is being given to the same by the Commission, for the reason that, while material may sary as to cost from time to time, we believe that present valnes are nct based upon normal conditions, and w~e feel, further. that if a proper depreciatien account had been kept, that the n=nunt would more than otTset any appreciation that has taken place. [9] Defe:. dant in reporting to the secretary of state places a value of $3,500 upon the land used in the business, thus lear-ing $4,500 as the balaree of the $8.000 reported to the State Tax Commission to be treated as machinery, distribution system, sup-plies, e'te., without allowing anything for real c5 tate not used in the business. If this value of the land in um be accepted as correct, then upon the basis of the S19.000 valuation there would be real estate, $3.500, and ma:hinery, distribution system, etc.. 88,500, the defendant evidently not reporti:g the power house and the equipment therein as a part of the real estate, but treat-ing it more as personal. Upon this basis the present earnings of defendant after paying operating expenses with the following: 5% interest on t he bard Iwue of 't10,0Co . . . . . . . . . . . . . . . . . . . . 3500.08 6% deprceintion on 39,5o0 ....... ...... .................. 510.04 Or a total of .. ........................................31,010.00 Defendant's report shows as to earnings and operating expenses as follows. for too year 1015: Total intmn=e . . . .................... . . . . . . . . . . . . . . . . . 3 6,180.27 Total operating expense including the itezne of insurance, taxes, etc. 4,20441 P.t!.R.1017C.
18 - WILLIAMSTON v. WILLIA 31STON ILLUMINATING CO. 137 Imoving a credit difDrence of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07s.86 which would be reduent by the item of Interest on un funded deb t, a.s per report . . . . . . . . . . .. . . .. . . . . . . 87.93 Leavin;r . . . . . . . . . . ... ............................ 1.987.93 Fromi this ded ucting the . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 1,010.00 previously inentioned I,vad interest and d.rpreelation. Lohrte Det etrutagt of .. ................................... III.03 to apply as the return on the investment of $19,000. This rep- - resents approximatdy Ti per cent, and this amount would uat appear to be greater than should be enjoyed from the operation of such a utility, a large portion of which is subject to rapid de. preciation through exposure to the elements and by obsolescence. Answering the question, "Are defendants rates reasandle? " we beliere for the character of equipment employed and servico given the rate as a whole produces a reasonable return, but that, in view of the evidence produced at the hearing, complainant 4 are entif!ed to a batter service, especially in residence lighting, than they now enjoy. In some cases the commercial rate charged by lightin; com. panies .is less than the residence rate, or is the same with a lar. ger cash discount for prompt payment, but in must instances the rate of 10 cents per kw. hr. obtains throughout the state. As to street lighting, a somewhat lower rate than 800 per year per are lamp is male but this is usually where the current is furnished several towns from a central plant, and not where a local power plant is ins:alled ; however, this price seems to repre-sent Se average charge. At the second hearing counsel for complainant summed up complainant's objections, as follows: (1) Objects as to placing the great burden upon the consumer of compelling him to go to the expense of purchasing transformer aid other equipment, and thcu they may not secure power or cur-rent for power.
-(2) Objects to the right of the c6mpany "to single out mills, pool rooms, etc., and gire them a special rate."
Referring to them in the order we find-(1st) No undue burden would be placed upon the citizens of Williamston from the fact thst, before any installation of equip. ment by such parties for the tue of such power had been made. the extra boiler and engine herein referred to will bare been placed by defendant. I'I'.kl017C.
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t 138 ' MICHIGAN RAILRO.iD COMMISSION. (2d) Discrimination means different rates to different cas. temers for like kind of service. If all " mills" and all "poo; rooms" are charged the same, then there is no diverimination unless it be shown that they are charged a ditYerent rate than other consumers when the service rendered and electricity coa. sumd are practically the same, and in such case the rates an always subject to attack. From the evidence submitted it would appear that defendant should make the following changes: First, additional steam capacity through the installation of a se~and boiler, which would al=o make it possible to furnish cur-rent for power during the day and guard against interruption cf service, either day or night, caused by accident, necessary re-pairs, etc. Second, another engine to carry the day load if twenty-four hour service is given. Third, additional wire capaelty either through the furnishir.g of larger virt between the outside line of transformers and re6 dences, or the placing of a new-protected wire, and care tahr. that it should not come in contact with the limbs of treen so as ts wear off the insulation. Fourth. twenty-four hour service, if desired by complainant . with sufEcient increase in rates, if shown to be necessary, to meet the additional espense incurred. Fifth, current for power, with protection against interruptd service which the additional engine and boiler would give when contracts yielding an earning coual to the additional expene involved have been secured, such expense not to exceed $60 per mouth. It is understcod that since the hearing an additional boiler and ' engire have %cn purchased and are on the premises ready for installation. Further, that defendant has submitted and file.1 new schedule of ratca, providing for twenty-four hour lightit.g service and for all-day power service. Some difference of opinion appears to exist as to the new sched-ule of rates for street lighting. Iloverer, no definite inforum
- tion as to results appears obtainable, and it is the opinion of th*
Commission that they should be given a fair trial when, if n<t deemed reasonable, the matter may upon application receive fur-P.U.B 19tTC. s
w(LLI.utSTO.V v. WIT f TA"'if0N ILLU311NATINC CO. I?J
. ..csideration, and when the changes herein enumerated have
,, spleted, that the Corr. mission are to be notified when the
.. :! of rs:es Sled shall beeonae efective.
.u on ler in accor dance w ti h above kill this day issue.
9 e
21 - e,^ RE CONSUMERS POWER CO. MICHIGitN PUBLIC SERVICE CO313flSSION Re Consumers Power Company ! Interveners : Cities of Grand Rapids, Wyoming, and Kalamazoo, Michigan Industrial Energy Users Group. West Michigan Environ- ! mental Action Council. Inc. Case No. U-4J32 ~ I January 18, 1974 i l ArrLicAitou by electric company for atsthority to increase i rates and charges; granted with modifcation,r. Rates, $1201 - Test year - Electric com- Return, $ 87 - Electric company, pony. [MICH.] A 7.53 per cent rate of return [MICH.] The' calendar year was adopted was found to be fair and reasonable for an as the most appropriate test period for an electric company. [6] p. J28. electric company. (lI p. 324 g,,,,,,,,,,,,_g,,,,,,,,,,,,,,_57,,_ Voluakn, $ 25 - Year.end fgures - Elec- tric company. tric company. [MICH.) An electric company's interest [MICH.] The use of a year.end rate expense resulting from a tax savings she"Id base was found to be fair and reasona5!e accrue to the ratepayers. [7] p. J30 for an electric company. (2) p. 325. g ,,,,,,,,g4g _ g ,,,,;,,, _ gg,,,,;,,,,_ Return, $ 26.1 - Capital structure - Electric !^"1 company. [MICH.] An electric- company's dona- [MICH.] An appropriate capital struc- tions were excluded from its operating ture for an electric company was found to charges for rate-making purposes. [8] p. consist of 50.39 per cent long term debt, 330. 31.57 per cent common stock, 9.48 per cent preferred stock, 7.44 per cent deferred Valuation. $ 118 - Reacqurred securines - taxes, and 1.12 per cent short. term debt. Electric company. [3} p. 326. [MICH.] In determining an electric
,,,p,,7 s profit on reacquired securities Return $26.4 - Common equity - Electric the interest cost. the premium amortization, company. the discount and expense amortization are
[MICH.] A 12.12 per cent rate of re- a!! recognized for rate-making purposes. turn on common equity was found to be (9) p. 331. fair .nd reasonable for an electric com. Revenues, $ $ - Interest ens reacquired securi-pany. (4} p. 327. ties - Electric company. Espenses, $ '20 - Investment in esploration [MICH.] In determining operating in-company - Electric company. come, an dectrse company's profnt on re-
** ***** *'" E
[MICH.] An electric company's invest- $* ment in an crploration company which could not be ascribed solely to common Espeares, $ 26 - Advertising - Electric equity should not be distinguished from company, any other lawful investment. (5) p. 328. [MICH.] An electric company's adver- [21] 321 3 PUR 4th [Pages 322 - 341 deleted.]
MICHIGAN PUBLIC SERVICE COMMISSION mission will find it exceedingly dif- the cost of producing and supplying fi: ult ta continue to allow for earn- electric energy. The more kilowatt-ings erosion as has been done in this nours that were sold, the less they rate order. cost. Large generating plants cost Second, the commission should find less per unit of output than did small a way of measuring the impact of ris- generating plants. Technology was ing costs per unit of capacity on those able to lower costs with each passing fixed costs, especially capital costs year. Transmission and distribution which are unavoidable, and build facilities to move the energy from these into the rate relief process so the production plants to the customers as to eliminate their tendency to ac- were more fully utilized as more cus-celerate earnings attrition. tomers with greater usage began to Consequently, the commission in use electric energy. Service to large this opinion and order is proposing cus:omers did result in economies of that a procedure for the granting of scale and did justify the " declining rate increases be developed by the Price" rate structure. staff and implemented which respon- This is no longer the situation. sibility recognizes the higher revenue Costs of building and operating an requirements associated with the electric system have turned around. higher investment levels per kilowatt The incremental cost of producing of large generating facilities at the the next unit is higher than the ex-time that these facilities become avail- isting costs. Every additional uni: able for service. Recognizing that of electric energy that must be pro-tlus is' a signiScant departure from vided will increase the overall cost past rate-making procedures. the com- of supplying energy. The underlying mission deems it desirable and in the reascns behind this very proceeding public interest that all cor.cerned par- attest to this point of fact. Costs are ties have the opportunity to present rising not only due to increases stem-definitive alternative proposals and to ming from labor and materials that present their views in an open public are generally recognized but also due hearing. An order will be issued by to the construction of new facilities this commission in the near future to serve rising public demand for elec-setting forth a proposed definite pro- tric energy. Construction costs, in-posal, prescribing the procedures to cluding facilities to meet emerging be followed in subsequent hearings environmental standards, are higher. and setting forth hearing dates. Interest rates to finance this capita! g expansion are also higher. Another justification that has been Rate Structure advanced for " declining 1.; ice" ratt
" Declining price" rate structures structures is that the rate design has have been prevalent in the electric not recognized the full cost of serv-power industry almost since its in- ing a minimum use custorr.er in the ception. This was the natural re- minimum monthly charge and that sult of a general downward trend in it was therefore necessary to recover 3 P U R 4th 342
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.r.
1
RE CONSUMERS POWER CO. higher charges in the top part of the The public interest requires, and
, rate structure. The commission re- the commission intends that utility jects this contention. This reason- price structures should reflect the ing basically resulted from the as- critical needs of the times. It is not sumption that the " minimum system" intended that arbitrary departures be
. concept or some equivalent concept made from existing rate structures.
for the apportionment of distribution Rather, rates must be based upon rea-facilities was just -and - reasonable. sonable cost responsibility and be de-The commission does not believe this signed to redect current costs of pro-to be the case. Distribution systems viding service. This is critical if are constructed to meet customer de- efficient use of available energy is to mands for energy and should be ap- be promoted.
- portioned accordingly. Future cost As a matter of record in these pro-
, studies should recognize this princi- ceedings, a " Bat" rate schedule for l Pc. the residential class of customers is Therefore, the way in which rate in the public interest. This means structures are . designed _ must be a rate schedule con <isting of a month-l changed. This commission must be ly service charge and a dat charge responsive to the changing needs of ner kilowatt hour. The maximum al-society in its decision making. His- lowable service charge would be lim-4 torical costs of utility plant (with ap- ited to those costs associated directly propriate adjustments to meet pro- with supplying service to a customer. jected changes) is important for Only costs associated with metering, proper consideration of the total rev- the service drop and customer billing i enues to which a utility is entitled, are includable since these are the It is, however, a fundamental respon- costs that are directly incurred as the sibility of this commission to look result of a customer's connection to beyond the revenue-producing aspects the electric system. Metering would of a rate structure if it also is to continue to be employed to measure meet the requirements of sound public use. The flat charge per kilowatt-policy. Today, the rate structure hour would cover all of the other costs must be designed to enhance basic incurred in the supply of kilowatt- , public policy objectives in areas of hours. As evidenced by the record in consumerism, environmental protec- this proceeding, this is reasonab!e i tion, public health and safety and con- since there is no significant variation , servation of natural resources. in load factor with volume of con-Promotional rate structures are out sumption. of date. Society cannot be served by This form of rate structure for resi-utility rate designs that act to increase dential customers is realistic in terms the difficulties already being experi-- of the cost to the utility of supplying-enced. To promote ever-increasing electric energy. It is also realistic, ! usage and waste of electric energy, or as a further . step, to encourage cus-( any energy for that matter, is self- tomers with large usage to take' a defeating. harder look at their energy needs be-343 J PUR 4th I o
MICHIGAN PUBLIC SERVICE COMMISSION cause they will have more of an eco- only past practices or requests by ap. nomic incentive to conserve electri- plicant undisputed on the record. city. Further, by lowering the price Before the commission can consider in the smaller consumption ranges, making changes in the structure of the low income and low use consumer, the commercial and industrial rate who uses electricity for basi neces- schedules, it must have facts to con-sities of modern living, will be pay- sider the impact of the changes on the ing a fairer price for his energy needs. economy of the state. The commis-A " flat" rate schedule for residen- sion would not like the cost of elec-tial consumers has been incorporated trical service to be a disincentive to in the rate schedules approved by this economic growth of Michigan or to opinion and order. This represents result in the loss of jobs. The com-a further studied move toward a real- mission will conduct special inquiries istic recognition of " current" costs into this matter over the next year. in the design of electric rates. Un-der these rate schedules, the customer Fuct Cost Adjustment Clause using 200 kwh per month will receive The " revenue requ.irement" por' tion an increase of 6.5 per cent. The cus- of these proceedings considered as , tomer using 1.000 kwh to 3,000 kwh ne item of expense the cost to apph,- per' month will receive an increase of cant of fuel for its electric generation
. 7.1 per cent to 8.3 per cent. during the test year. It also con-The residential space heating cus- sidered the revenues that would be obtamed through the fuel cost adjust-tomer,s rates were increased to br.mg ment clauses c ntained .m the various its relative rate of return up and at the same time changed to correspond rate schedules at the test year fuel with the revision in the residential cost level. This commission has de-schedule. The lower price applicable termined 49.3 cents per milh.on Btu to over 600 kwh use per month on to be the test year cost of fuel and has this rate schedule was climinated for ffset this expense with fuel clause usage during the summer season so as revenues that would automatically be to allow all residential customers with brained on an annual basis at this air-conditioning equipment to be level. It is therefore consistent with treated alike. the final rate schedule levels approved The comme;cial and industrial by this commission to include a " mill rates. in total, were adjusted upward Per kwh" base cost of fuel equivalent by approximately the overall percen- to the fuel cost of 49.5 cents per mil-tage increase in revenues granted ap. li n Btu in the fuel cost adjustment plicant. Although some " flattening" clauses.
of these rates occurred as an inherent The fuel clause approved by this result of increasing prices where the commission in Case No. U-4262 did relative returns were the lowest. no not recognize the cost of fuel burned attempt _ was made to deviate from as the result of energy lost in the de-past rate design for these customers. livery process from generating plant Changes in these schedules reflect to customer. These losses during the 3 PUR 4th 344
RE CONSUMERS POWER CO. year 1972 amounted to 9.1 per cent. basis pending the issuance of this Inclusion of this factor from a tech- order, was designed to produce addi-nical viewpoint is proper. The com- tional annual electric revenues in the n.ission therefore finds that due to amount of approximately $25 million. the rapidly increasing cost of fuel, The collection of revenues by appli-it is reasonable to recognize this cant under the interim electric rates factor in the development of the fuel during the period from November cost adjustment factor. 10, 1973, to the date of this order is The commission finds that: hereby confirmed and applicant's bond
- a. Jurisdiction is pursuant to 1909 filed with the commission to assure PA 106. as amended, MCLA 460- refund is hereby canceled. .
.551; 1919 PA -119. as amended, h.An.merease in apph. cant's an-MCLA 460.51: 1939 PA 3, as nual revenues in the amount of $5,-
amended, MCLA 460.1 1%9 PA 975,773 ver and above the revenue 306, as amended. MCLA 24.201: and increase granted to apphcant in .the the Commission's Rules of Practice rder granting partial and immediate and Procedure,1954 Administrative rate relief is just and reasonable and Code. Supplement No. 54, R 460.11. in accordance with the findings and
- b. The statutory requirements of c nelusi ns e ntained in this opmmn
! 81 of 1959 Pa 306, as amended, and order.
regarding familiarity with the ree- i. The electric rate schedules at-ord, have been complied with. tached hereto as Exhibit A [omitted
- c. A rate base for applicant's elec- hereit,] will increase applicant's an-tric operations of $1.557,548,000 is ""*I '. eetric Perating revenues as just and reasonable. authorized by this opimon and order
- d. An overall rate of return of 7.53 and will result in just and reasonable .
rates and charges for the sale of elec-per cent, includmg a return on com-
, , tricity ara should be made effective mon equity of 12.12 per cent, is just and reasonable. for service rendered on and after Jan-gg, 1974,
- e. The adjusted net operating in- .
come for the test year in this case J. All e ntenti ns of the parties not should be $102,434,000. bI". specifically determined should
* '*3'# * * * * # *missi n having
- f. Applicant is experiencing an an- . ,
nual revenue deficiency of $30,975,- given fuH consideration to all evi-773 and an increase in applicant's f*"** N. record and arguments made electric revenue in that amount is rea- in anaving at the findings and con-sonable and in accordance with other clusi ns set forth in this opinion and findings and conclusions contained in rder. this order. RAI.I.S, Commissinner, Concurring
- g. The order granting partial and in part, dissenting in part: I concur immediate rate relief issued by the with my colleagues insofar as they commission on November 9,1973, find a revenue deficiency of $30,191,-
approving elactric rates on an interim 773, but I do not support the addi-345 3 P U R 4th
1 1 l l MICHIGAN PUBLIC SERVICE COMMISSION tional award attributable to advertis- understanding the arguments of the ing and public relation expenses. various conflicting parties, careful re-My concurrence in no way includes view of the underlying policy consid-acceptance of the views expressed by erations and the applicable law, and the majority on pages 338-343, .ru- Precise drafting of the resulting con-pra, entitled " earnings erosion." My clusions. finding of revenue deficiency for ap- p,,,. ff g, pg, plicant,s jurisdictional electric opera-tions was based upon normal account. The positions of the company and ing and rate-making methods, as ap. the other participants concerning al-plied to a year-end rest period. These Iowance of advertising expenses with-methods have been applied in many in the cost of service are diametrically past cases deciued by this commission Opposed. Consumers Power Com-and other such regulatory bodies. Pany stated that it " maintains its ad-The company's electrie operations vertising expenses are reasonable and were defined by evidence on the rec. legitimate business expenses and ord and measured by accepted stand. should, with one minor exception, all ards. be recognized as a legitimate cost of service." Staff, the intervener attor-Conscreution Rates ney general and intervener West My colleagues and I in today's or. Michigan Environmental Action der have unanimously eliminated the Council. Inc.. Join in opposition to quantity discounts for residential cus- recognition of such expenditures, the tomers. This decision marks another attorney general maintaining that the step away from a rate design which sums show an absence of concrete as-induces the uneconomic use of elee. sistance to the ratepayer, and tricity, and which I fought to re- WMEAC advancing numerous , form since I became a member of the grounds for objection. commission. What are the arguments advanced Under today's conditions, the by the parties in support of their con-quantity discounts for residential cus. flicting positions? The company is tomers are not cost-Justified and: clear and forthright, as evidenced by
-discriminate against low-income the testimony of the assistant con-customers troller S. N. Spring, in asking that
-waste scarce fuel resources the customer pay for "communica-
- subsidize the deterioration of ti ns with the public that are geared our water and air primarily toward discussion of the
-contribute to the erosion of a general activities of the utility as op-utility's earnings. p sed to specinc energy utilization."
In addition to its own emplovee's ' Advertising and Consultant Expenses characterization. the company spon-
. The process of analysis, decision sored the testimony of Professor making. and explanation of a con- John Marston, identified as an expert tested issue in rate making requires in the fields of advertising and public 3 PUR4th 3g
7 i RE CONSUMERS POWER CO. relations. Applicant's brief de- to communicats to the public. They scribes Professor Marston's testi- include: (1) a continuing increase mony as supporting Consumers' ad- in electric demand over the next few vertising, "articulat(ing) the in- years, requiring additional generating creasing need of the business capacity;. (2) the impossibility of community to communicate its prob- building future . coal-dred plants, due lems to its customers." to environmental requirements; and
- The company quotes with obvious (3) unreasonable delays in the con-approval Marston's views as to "rea- struction of nuclear plants caused sons an electric company should ad- by unenlightened environmentalists.
vertise . . . : These themes have been carefully "It (the electric industry) is faced documented by the interveners. with a multitude of complex prob. What are the expressed views of terrs. It is these problems which an the majority of this commission la electric company advertises. There the order in regard to the factual ar-is no need for advertising its product guments of the parties? " Applicant i per se, for one of the problems is contends that, save for a $40,000 ex-
- providing enough of the product." ception, all of its advertising expendi.
The brief of the applicant makes tures are institutional in nature. reference to " institutional advertis. Based upon the record before us, and l ing, such as that carriui out by the in addition to our belief that illusive l company," a characterization very definitions are counter-productive, the
- carefully enunciated by Mr. Spring c mmission cannot agree with this j_ in his ample and well-reasoned testi- (c mPany) Positm, n., Why?
mony. The volumitwus evidence in Policy and Law i the record supports - Spring and What are the underlying poliev l Marston s view of the overwhelmmg i considerations and the applicable law 1 ' majority of the company's advertis- in regard to advertising? Applicant i mg expenditures. In the absence of cites at length portions of the opinion l any other testimony, it is uncontra- in New England Teleph. & Teleg. dicted that the bulk of the company's Co. v Massachusetts Dept. of Pub. advertising. is indeed " institutional." Utilities (1971) - Mass , 92 l All parties to the proceeding accept PUR3d 113, 275 NE2d 493, 517. ! this characterization o. the com- In that case the Department of Pub-pany's advertising and the rationale lic Utilities spoke to the question of
- supplied by the company. is similarly institutional advertising, advertising clear. ; Additional. complementary " designed to improve the image of characterization of the company's in- the company, rather than to inform stitutional advertising content is pro- customers of new service or of other
- vided by intervener West Michigan information which might be helpful Environmental Action Council, Inc. or economical." The department of WMEAC l summarizes the " prob- public utilities found that the expense
~ lems"- that the company has chosen was not a proper cost of service, while 347 3 PUR 4th
+
, r- -
,- w , - -.,.m r, , , . ,
. , ,,, a -,, ,,-.~,,,,w ,, ..e,., ,
28 - MICHIGAN PUBLIC' SERVICE COMMISSION the court held that that disallowance stances of employee helpfulness are of was erroneous.- Consumers cites the significant benefit to customers." action of the Massachusetts court and Re Southern California Edison Co. several other jurisdictions . as the (Cal 1971) 90 PUR3d 1,19. proper view to'be taken in regard to The order fo!!ows neither position avowed institutional advertising. generally adopted in other jurisdic-The views of the staff and the in. tions, and is contrary to the accepted tervener attorney general can be sum. context in which the controverted is-marized in terms of requiring adver- sues were argued by the parties. The tising to be of measurable benefit to order abhors " narrow definitional the ratepayer. They jointly assert terms," " illusive definitions," and that institutional advertising cannot, " specific labels." Instead. contrary by its very nature, be of benefit to the to t!"e apparent ease with which the customer, and therefore it may not be parties used these definitions to make found as a cost of service. 'The in. their respective cases, the order of tervener West Michigan Environ. today resolves th: conflict by provid-mental Action Council, Inc., adds ad. ing classes of permitted expenditures. ditional considerations to this view, This approach is doubly unfor-maintaining that such advertising is tunate. for this order represents not barred by the terms of the agreement only the findings of the commission incorporated in the immediately prior in this proceeding. but is advisory as Consumers rate case,- Case No. U- to future conduct. It is my belief that 4174, and that it is inequitable for a reading of the description of Class the rarepayer to pay for the advocacy 5. "These criteria include factual data of com roversial environmental posi. and information which describe any tions and policies. program or activity which will ob-Controversy over advertising ex. jectively benefit the ratepayer, includ-penditures is 'at least four decades old ing demand / supply studies and spe-and precedents have been developed Cific Pl ans or identifiable projects to going both ways on the issue. How. Provide adequate supplies of utility ever, in mv view the California Pub- services," encompasses cractly the lic Utilities Commission in 1934 complained of conduct in this case; adopted a general rule worthy of note. that is. the company's comprehensive That commission stated that it would Program of institutional advertising. approve ratepayer paid advertising It is certainly the company's view that that was of real benefit to the cus, such construction will " objectively tomer, and reasonable in cost. The benefit the ratepayer" and its adver- . California commission has applied tising to date has indeed included ref-that concept ever since, and in a re- erences to both " demand / supply stud-cent case it approved an expenditure ies" and " plans to provide adequate of $11.5 million for " informative" supphes of utility services." advertising while rejecting $1.4 mil- Proper Reic of Customer lion, stating: "There's serious -ques. Paid Advertising tion that . . . descriptions of in- As noted above, it is my view that 3 P U R 4th , 34g
/
RE CONSUMERS POWER CO. advertising to be paid for by the cus- energy consumption. Our regulated tomer should be of real benefit to the utilities can play a key role in such customer and reasonable in cost. efforts, since their suggestions to con-General categories of such advertising serve the product they are selling have been labeled " informational" have a special ring of authenticity. and " conservational." It would be To be effective, such etTorts will have beneficial to all concerned if the com- to be of long duration, since not only mission adopted this simple and easily new patterns of dressing and heating understandable standard, one which will have to evolve, but new building has proven acceptable in other juris- concepts will have to be adopted. dictions for decades. This society-wide effort will have the In support of customer paid adver- greatest chance of success if we adopt tising the company sponsored expert standards that are understandable, witness Elmer White, executive sec- noncontroversial and capable af sus-retary of the Michigan Press Asso- tained application in the years ahead. ciation. Mr. White stated that "Peo-ple served by a utility have a right C* 8" and a need to know about 'he t ser- This commission should not re-vices." I wholeheartedly support Mr. quire the ratepayer to pay for ex-White's view, and advocated such penses which are not of demonstrable utility advertising before the com. benefit to the ratepayer, which were parable broadcasting group, the Mich- not prudently incurred, or which were igan Association of Broadcasters, at not reasonable. I agree with the po-their annual conference this past sum- sition of WMEAC that it is inequi-mer. I will continue to advocate such table for the rarepayer to pay for the informational advertising, with ref- advocacy of controversial environ-erence to the entire range of com- mental policies. I would like to em-munications media in our state. phasize that this dxs not limit in Particular emphasis should be any way the expenditures made by the placed upon conservation advertising, company from their shareholder's since conservation can make real in- funds. funds that come from permitted roads upon our need for new and profits on the shareholder's invest-costly generating facilities. Recently, ment, the company has initiated such ecm- I am unable to conclude that the mendable conservation advertising. I expenses in question were indeed of am a member of a task force created demonstrable benefit to the ratepayer. by the Michigan Association of and I therefore nnd that they should , School Administrators to prepare not be paid for by the public. I find , curriculum guides for energy educa- the documentation of such expendi- l tion, and I would hope that similar tures provided by staff to be sup-long-range efforts could be made in ported in the record, and therefore all the mass media to educate Michi- adop: the recommendation of the gan's adults to the need to reduce staff. 349 3 PUR4th
4 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the joint application of ) CONSUMERS POWER COMPANY and THE DETROIT ) EDISON COMPANY for approval of emergency ) Case No. U-4128 procedures. )
)
At a session of the Michigan Public Service Commission held at its offices in the city of Lansing, Michigan, on the 28th day of January, 1974. PRESENT: Hon. William G. Rosenberg, Chairman Hon. Lenton G. Sculthorp, Commissioner Hon. William R. Ralls, Commissioner " ORDER TO SHOW CAUSE WHY EMERGENCY PROCEDURES SHOULD NOT BE IMPLEMENTED GRANTING INTERIM EFFECT, REQUIRING PUBLICATION AND SETTING PUBLIC HEARING l. HISTORY OF PROCEEDINGS On November 21,1973, The Detroit Edison Company (Edison) and Consumers Power Company (Consumers), collectively. referred to as " Applicants," filed a " Petition for Supplement and Amendment of Emergency Procedures Order" which order was approved by the Commission on July 10, 1972 in Case No. U-4128 for the purpose of establishing emergency procedures in the event that a shortage of electrical power occurred within tha Edison-Consumers service areas or in the service areas of other interconnected elsetric utilities. At that time, the major concern of the Commission was directed toward potential electrical power shortages _ occurring from excessive peak _ summer
31 - loads resulting from extended periods of high degree days and causing " brownout" or " blackout" conditions within the state. The application herein, however, concerns the potential existence of electrical power shortages within the State of Michigan caused by a different set of circumstances; namely, the effect of the " energy crisis" upon the ability of Applicants to meet the ciectric power demands of the customers. In part, the application herein was initiated in response to legitimate concerns that impending curtailments of crude oil, middle dis-tillate fuels and possible shortages of other fossil fuels would shortly impinge upon Applicants' ability to meet customer demand and that existing approved emergency pro-cadures were impractical to meet potential long-range shortages. 11. COMMISSION STAFF ACTIVITY Subsequent to the filing of said application, the Commission Staff (Staff) immediately instituted an inquiry into the nature and extent of potential electrical energy shortages and the need for and substance of any appropriate emergency procedures. Pursuant to said inquiry, the Staff has had several meetings with operational _. personnel of Applicants, adopted certain procedures currently effective and recommended expanded emergency procedures which the Commission adopts today. The Staff has implemented, with the full cooperation of Applicants, detailed re-porting procedures which apprise the Commission daily of available electrical generation capacity of the Michigan Power Pool, the status of available and anticipated fuel supplies
- of both Edison and Consumers, projected and actual peak demands of the coordinated system, availability of. purchased power, percentage of system operating reserve and the cperating status of all system generating units having a rated capacity of at least
-Pcge 2
- qg
200 megawatts. In addition, Applicants have voluntcrily agreed to immediately notify the Commission of any major change in these essential factors. Ill. CASUAL EFFECT OF CAPACITY SHORTAGES The Staff has determined that any shortage in avallasle electrical energy gen-erating capacity necessary to meet the demand of Applicants' customers will, under current circumstances, be occasioned by one or more of the following factors: (1) Shortage or interruption of supply of fucis for electrical energy generation; or (2) Unavailability of firm or stand-by power from established intarr.onnected electrical networks; or (3) Short-term shortages of generating capacity caused by temporary equipment failure, unanticipated excessive peak demand or severe weather occurrences; or (4) Long-term outages or reduction in actual operating levels of generating capacity caused by equipment failure; or (5) Short-term excessive peak demand caused by extended weatner excesses. it is essential to note that the potential inability to meet customer demand is not cue only to the current " energy crisis" by may be occasioaed by a variety of events. The Commission therefore finds that the public interest requires the adoption of emergency operating procedures designed to protect the health, safety and welfare of all Michigan residents in the event of shortages of electrical energy generation ca-pacity caused by any possible identifiable circumstances. IV. STATUS OF CURRENT GENERATING CAPACITY Due to the establishment of the reporting mechanisms hereinbefore mentioned,
-Page 3_ -[ Balance deleted.]-
JYL-LWf:T
33 -
/
SS,006 Court Deessions sse :.t:44 Matssuhita Electric Corp. of America v. Frwhter
' [1 75,314] Matsushita Electric Corp. of America v. Fruchter.
New York Supreme Court, New York County. Vol.172 N. Y..I. J. No. 37, p.15. Dited August 21,.1974. New York Fair Trade Law Fair Trade-Contempt-Violation of Preliminary Injunction-Fact Questions-Reference to Special Referee.-A motion to punish a seller for contempt for willful viola-tion of a preliminary injunction raised factusi issues that could not be determined by aflidavits; hence, the issue of whether defendant sold or offered for sale the products at prices below the fair trade price was referred to a special referee, and decision on the motion was held in abeyance. See 16362.34. (Order) offered for sale Panasonic products at prices BaucHNAUstw, J.: Motion by plaintiff to below the minimum retail selling prices punish defendant for contempt for willful **** **"."*# * ** . h*
- violation of a preh.minary m3
. .. Law. Decision on the motion is held m unction en- abeyance pending receipt of the referee's tered iri this action on Jan. 30, 1974, raises. report, together with his recommendations.
factual issues which cannot be determined Serve a copy of this order on the office by affidavits. The issue is referred to Spe- of the referee, Room 308-M, within ten days cial Referee, Hon. Lloyd L Paperno, to of publication so that a hearing date may hear and report whether defendant sold or be set. [1 75,315] United States v. Falstaff Brewing Corp., et at U. S. District Court, District of Rhode Island. Civil Action No. 3523. Dated October 23,1974. Case No.1859, Antitrust Division, Department of Justice.
. Clayton Act Acquisitions-Market Extension-Potential Competition-Competitive Conditions in Relevant Market-Concentration as Evidence of Lack of Competition.-A brewer was not a potential competitor waiting in the wings that could have exerted a beneficial influence on existing competition in the relevant market, since there was no evidence tending to show that co opetition in the market was other than vigorous. There was no showing that one or another firm had control over prices or other competitive indicia, and prices had remained constant despite rising costs. Therefore, the level of competition could ncit have been affected by the existence of a potential entrant on the fringe of the market. A conten-tien that market concentration per se was evidence of lack of competition was rejected. See f4350.
Acquisitions-Market Extension-Evidence of Potential Entry or Effects on the Edge of the Market.-Even if the relevant market for beer could have benefited from the existence of a potential entrant, it was not shown that an acquiring brewer was so posi-tioned on the edge of the market that it exerted a beneficial influence on competitive i conditions. There was no testimony of any sellers in the market that the brewer was considered by them to be a potential competitor, and a rational evaluation of the objective l ' facts known generally to firms selling in the market wa. ranted the conclusion that the brewer would probably not have entered the market. Relevant evidence on this issue in-c!uded the brewer's general interest in the market, the distance of its brewery from the market, the availability of an adequate distributor system, its prior acquisition discussions, its financial capability and incentives to enter, and the objective evidence of vigorous competitive conditions in the market. See 14350. AcquisitionwMarket Extension-Elimination of Bene 6cial Effects on the Edge of the Market-Lack of Substantial Lessening of Competition-Post-acquisition Evidence-Even if an acquiring brewer had been exerting some beneficial influence on competition by its position on the edge of the market, the elimination of this influence would not have been enough to violate Sec. 7 of the Clayton Act. The opinion of the court in U. S. v. Phi #ips (' Patro/ cans Co. (1973-2 TaADE cases T74,789) was CIcarIy dastinguishabIe on its facts and l' 1 75.314 @ 1974, Commerce Clearing House, Inc.
34 -
'se I 11-11?*' Cited 1974 2 Trade Cases 98,007
. U.S.v.Falstof Brewing Corp.
post-acquisition evidence, although not employable to validate what is otherwise an illegal merger, established that after the acquisition competition remained intense and was not lessened in any manner or form. Beer prices remained stable despite rising costs and the acquired firm's share of the market and profits declined in spite of its best eRorts. See 14350- . Opinion that contained in the original record of D4y, D. J.: In th.is action the Govern-said trial. The sole issues for determination ment seeks to set aside the acqu,ntion i by this Court are whether the defendant the defendant Falstad Brewing Corporat,by ioa was a potential competitor w.liting in the (hereinafter Falstag) of the assets of Nar- wings, exerting a beneficial influence on ex-ragansett Brewing Company (hereinafter isting competition in said New England market, and, if so, whether the acquisition Narragansett) on the ground that,said ac-quisition was a violation of Section 7 of of Narragansett would probably lead to a the Clayton Act, as amended,15 U. S. C. substantial lessening of competition in said Ilit because it eliminated substantial po- **'k* ** tential competition in the production and (Concentration Data) sale of beer in the New England beer The parties had stipulated as to the con-market.' centration figures and the market shares After a trial following extensive and pro. of the firms selli,ng in said market at the longed dis:overy proceedings by the parties, time of the acquisition of Narragansett by I found that Falstad was not a potential the defendant. Based upon these stipula-
- entrant into said market by any means or tions, the Supreme Court found that:
way except by the acquisition of Narra- "While beer sales in New England in-gansett. I further found that it is not prob- creased approximately 9.5% in the four able that said acquisition may substantially years preceding the acquisition, the eight lessen competition in said New England largest sellers increased their share of beer market and entered judgment in favor those sales from approximatrly 74% to 81.2%. In 1960 approximately 50% of the of the. defendant. . United States v. Falstof sales were made by the four largest Brewing Corporation, et al. [1971 TRADE sellers; by 19M, their share of the market Casts 173,733), 332 F. Supp. 970 (D. C. was 54% and by 1%5, the year of acquisi-R. I.1971). The Government appealed di- tion, their share was 61.3%. The number rectly to the Supreme Court under the of brewers operating plants in the geo-Expediting Act, 32 Stat. 823,15 U. S. C. graphic market decreased front 32 in 1935 1 29. The Supreme Court vacated said to 11 in 1957, to 6 in 1964. judgment and remanded said action to this "Of the Nation's 10 largest brewers Court for further proceedings consistent in 19M, only Falstad and two others did with its opirion. United States v. Falstaf not sell beer in New England; Falstag Brewing Corp. et al. [1973-1 Taaos Casts was the largest of the three and had the T 74,377], 410 U. S. 526 (1973). Its man-. ci sest brewery. In relation to the New date on remand was for " proper assessment -England market Falstag sold its produ,ct of FalstaK as an on-the-fringe potential in western Oh,o, i to the west, and in Washington, D. C. to the south." 410
, competitor", Ibid. 537. U. S. 527, 528.
Following said remand the Government Upon these facts the Government con-did not seek to present any additional evi- tends that' the defendant's acquisition of dence and by stipulation of counsel for the Narragansett created a " reasonable likeli-
. parties and the order of this Court, the hood that competition in the New England evidence in this action has been limited to market would be substantially lessened".
- Section 7 reads in pertinent part as follows: whole or any part of the assets of another cor-
No corpo.ation engaged in commerce shall poration engaged also in commerce. where trt acquire, directly or indtrectly, the whole or any any line of commerce in any section of the part of the stock or other share capital and no country, the effect of such acquisition may be corporation subject to the jurtsdiction of the substantially to lessen competition, or to tend Federal Trade Commission shall acquire the to create a monopoly."
Trade Regulation Reports . 1 75,315
98.008 . Court Decisions sse . it-st44
- U.S. v. Falstaf Brewing Corp.
In this case the Government has also con- istence of vigorous competition among the tended that concentration per se is evidence sellers in said market, of lack of competition in the market. In mY The Government contends that the de-opinion a better approach was that taken cline in the number of brewers operating by the late Mr. Justice Harlan in his con- breweries in said market indicates de-curring opinion in F. T. C. v. Proctcr 6- creased competition therein. Those brewers Ca=Me Co. [1%7 TaAns Casts T72,061], who ceased to do business in said market 386 U. S. 586 (1967) wherein he stated at were too inefficient to compete with other page 594*. firms who in the words of Dr. Horowitz were " fighting for their share of the t{e market" ust market". is as notthe total number of determinative of ,its sellers in operation, the percentage of sales made No evidence was presented by the Gov-by any group of sellers is similarly not ernment which would tend to show that conclus,ve. The determinative issue is, in-i competition in said market was other than stead, how the sellers interact and estab- Vigorous. Furthermore, there was rio show-lish ,the pattern of market behavior. ,The ing by the Government that one or another sign 6cance of concentrat?on analysis is that it allows measurement of one eas,ly firm in the market determined variable to serve as an open-i or other competit. ivehad. co.n. indicia. In trol the over ab- prices ing ke to the pattern of market be. sence of such a showing, the Government havior.y (Emphasis supplied). has failed to prove that Falstaff was a
" potential competitor with any influence
[ Competitive Condition of Market ] on the competitive conditions in said market". Beyond evidence of concentration, Government presented no evidence mg tend,the [ Edge of the Market $fects] to prove " deviation from competitive norms- Even if this Court were ia conclude in the New England beer market. Dr. Horo, that said New England beer market could witz, an economist, testifying in behalf of have benefited from the existence of a the defendant, stated unequivocally that potential entrant therein, the burden rested there is no necessary relationship between upon the Government to prove in the words concentration and the level of competition of Mr. Justice White that "Falstaff was so in said market. On the contrary, he stated positioned on the edge of the market that it a number of factors which should be 'consid- exerted beneficial influence on competitive cred in ascertaining the level of competition, conditions in thzt market". 410 U. S. 526, viz, pricing behavior, willingness to inn <>- 53?-533. Mr. Justice White suggested two vate and keep up w;th technological changes, alternative methods of proving such effect. stability of market shares and quality of The first method would be to present evi-product. dence of how Falstaff was in fact perceived In his testimony he pointed out that since by companies then selling beer in said 1955, while the market shares of the leading market. The only testimony relating to sellers in said New England market had this issue was that of Carl Haffenreffer, th,e increased, it was only as the result of the f rmer Executive, Vice-President and Di-rapidly increasing shares of Schlitz and An- rect r f Marketmg of Narragansett. He heuser. Bush. The shares of other leaders testified as follows: in said market had varied which was con- "They (Falstaff] were no threat. We sistent with ccmpetitive conditions. In certainly didn't consider them any threat addition, prices remained constant in spite to us. We had much greater threats to of rising costs, another indication of strong concern ourselves with." Haffenreffer, competitive forces in said market in his App. 31 opinion. Although counsel for the Govern- The Government presented no testimony ment requested and was granted permission of any sellers in said market in 1965 or to have two economists of his choice sit previous thereto that Falstaff was con-with him at counsel table to assist him dur- sidered by them to be a potential com-ing the trial of this case, neither of said petitor in said market, economists was called as a witness to refute The second method requires this Court the testimony or opinions of Dr. Horowitz. to determine whether a national beer mer-The evidence further showed that tech- chant selling in said market could have nological innovations were being studied and reasonably concluded that Falstaff might undertaken by Falstaff before and after said build a new brewery in New England to acquisition which are indicative of the ex- supply said market. Relevant evidence on 1 75,315 @ 1974, Commerce Clearing House, Inc.
J 36 - f - tse 1111-74 Cited 1974-2 Trade Cases 98,009
' U.S. v. Felstaf Brewing Corp.
this, issue to be evaluated includes Falsers interested in said New England market and general interest in said market, the dicance that it did not intend to construct a of its brewery from said market, its prior brewery therein for the purpose of entering acquisition discussions, its financial capa- that market. bility and incentives to enter said market, and also the objective evidence of competi- [ Production Catobility] tive conditions in said market, including a An obvious condition precedent to the lack of price increases desp,ite rismg co;ts construction of a brewery was adequate and the mability of those then sclhng in said market penetration. Since the statistics market to exercise market control. relating to Falstaff's sales and capacity It is this Court's opinion that a rational were generally available in the beer busi. evaluation of the objective facts known gen- ness, all sellers in said New England market erally to firms selling in said market prior at the time 'of said acquisition of Narra-to and at the time of said acquisition by gansett by Falstad must have known that Falstad warrants the conclusion that Fa!- Falstaff was then operating its brewery at staff would probably not have entered said full capacity and therefore could not begin market and hence its existence on the edge any penetrution of said market by shipping thereof could not have any pro-competitive to said market any excess production which efect on behavior in said market. it did not possess. Horowitz, App. 234. It is clear that the defendant had never pggg,, gy,,,g concealed the fact that it was interested m becoming a national brewer. That fact can. Each of the brewers then selling in said not be said to warrant the inference that market must have known that an adequae FalstaK's interest was directed primarily distribution system was a condition prece-or solely to ssid New England market. The dent to entry therein (Horowitz, App. 234) acquisition of Narragansett did not make and that such a system was unavailable FalstaK a national brewer. Horowitz, App. (Haffenreffer, App. 375). Falstaff had not 291. Its decision to become a national even made tentative offers to distributors brewer did not require that it enter the already selling in said market in response New England market. to unsolicited inquiries (App. 46, 470-535). in fact, Falstad had not undertaken the Pferger Negotiationr] most fundamental steps necessary for an The evidence establishes that between
* **I"* '"I'Y N * " **N
1960 and 1964 Dawson, Ballentine, Liebmann and Narragansett initiated negotiations @"*"#i"8I with Falstaff with the objective of being Without an acceptable level of sales in acquired by Falstaff. The evidence estab- said market, Falstaff could not re:sonably lishes that Dawson's o'fer was rejected anticipate any profit therefrom. Under such summarily by FalstaK and the proposals bY circumstances, it is unlikely that Falstaff Ballentme and Liebmann eventually were non-productive and were terminated. Griese- could have borrowed the money to build dieck, App. 138, 300 To some extent a brewery or undertaken to do so. .Its these negotiations were matters of public Presi dent testified: record. If these negotiations with Ballen- "In the first place, we had no sales in tine and Liebmann may be deemed to give New England, and for us to have at-rise to any inferences as to Falstaff's intent tempted to finance a brewery of the size or objective, they reflect an interest in the of which we believed necessary, above a New York hfarket, not the milh n barrels, there was no way that 4 market. Any beer seller havm.New England we could estimate to any degree of cer-g knowledge of r.asd negotiations would conclude tint tainty what kind of sales we would gen-erste after we built the brewery, and Falstad was not interested in building a therefore it would have been rather a brewery as a rneans of entering said New difficult thing for us in my opinion to England mark However, although Bal- borrow the, money. Certainly we never lent.ine and Licomann sold m. the New muld have justified it to our stockholders, England market, their primary market was because we did find ;t very difficult to open in major metropolitan markets
~ in the New York-Philadelphia metropolitan where entrenched rules were already do-area. Under the circumstances, these dis- ing business without a decent distributor cussions should haveindicated to its com- system. That is, the reason why we did petitors that Falstaff was not primarily acquire, it was the distributorship purely and simply." Griesedieck, App. 296.'
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SS,010 Court Decisions sse at-stas U.S. v. Falstaf Brewing Corp. [Smalle< Acquisition] The record of this case shows that Fal.
. The Government. in .
its brief on rernand staff acquired the assets of Narragansett contends that Falstaff could have a,cquired on Jnly 15, 1965. The instant action was some other smaller brewery m said New Aled on July 13,1%5 and service of process England market at a sigmficantly smaller was made on Falstaff on July 21,1%5 at St. cost and expanded it as success m said Louis, Missouri, where its' principal place of. market permitted. In support of this con- business was located. After extensive and tention it cites Dawson s Brewery Co., in prolonged discovery' by the parties, the New Bedford, Massachusetts and Diamond trial of this action . began on October 15, Spring Co. in Lawrence, Massachusetts, 1970. both of which were for sale and had made [ Post Argm.si. tion
. Esidence]
overtures for their acquisition to FalstaK. It is well settled that post acquisition The evidence establishes that one of them evidence in a case such as this may prop-was in bankruptcy at the time of said erly be considered in determining whether oKer to Falstag. Additionally,it must have the probable effect of said merger will be been evident ta other brewers in said market that neither of said brewers pos- a substantial lessening of competition in said New England beer m sket. United sessed an adequate distributor organization. States v. Pabst Brewing Co. [1966 TaADE It is inconceivable that other brewers in said market could have considered it proba- CAsrs 171,790), 384 U. S. 546 (1966); PTC v. Consolidated Poods Corp. [1%5 TaADE ble that Falstaff would consider their ac-quisition as a possible means of entry into Casts 171,432], 380 U. S. 592 (1%5); said market. United States v. E. I. Du Pont de Nemours
& Co. (1957 TaADE Cast.s 168,723L 353 It is this Court's opinion that a review U. S. 586 (1957).
the light of of theall the evidence, economic situation mviewed sai in,d market in [PAillips Petrolcum Cast] 1%5, confirms the statement of the said In its supplemental memorandum filed Carl Haffenreffer and the opinion of Dr. with this Court, the Government relies Horowitz that Falstaff exerted no influence on the level of prices or on the substantial- heavily upon the opinion of the Court in United States v. Phillips Petroleum Company ity of competition in said market. The [1973 2 TaADE CAsr.s T 74,789],367 F. Supp. Government produced no evidence during 1226 (D. C. Cal.1973). In that case the said trial that any of the brewers selling in Court had two issues for decision, viz., said market in 1965 viewed Falstaff as a (1) whether the defendant was a likely potential entrant therein. potential entrant into the Caliform,a market, and (2) whether the defendant therein was flessem.ag of Co*#ttition) waiting in the wings or,in the words of the Court, whether it had any " edge" effect on If, in fact, Falstaff by its existence was corapetition in said market. This' Court exerting some beneficial influence on com- has already found in favor of Falstaff on petition in said beer market, that in and and the first of these issues and it is not within of itself would be insufficient to prove a the scope of said remand. violation of said Section 7. As Mr. Justice White said: In Phillips the Court held that the criteria to be weighed in ascertaining whether Phil.
" Surely, it could not be said on this IIps had a pro-competitive edge effect were record that Falstaff's general interest in (1) was Phillips in the relevant line of the New England market i :.s unknown and if it would appear to rational beer Commerce; (2) had it previously indicated merchants that Falstaff might well build its interest in entering the California motor a new brewery to supply the north- gasoline market; (3) were there objective eastern market then its entry by merger economic facts indicating Phillips' capabil-became suspect under i 7. 410 U. S. 533. ity to enter unilaterally; (4) were there
. {
Even if Falstaffs entry into said New obj.ective economic facts m. dicatmg Phillips. l England market by merger became suspect, incentives to enter said market: (5) was Phi!!ips recognized by others selling in said the burden rested upon the Government to California market as a potential entrant prove that the probable result thereof would therein, and (6) were there objective econ-be to shbstantially lessen competition in said market. Brown Shoe Co., Inc. v. Uniteddegree omic of facts relating to the structure and concentration in said markets and States (1962 Ta4De Casas T 70,366),370 U. S. barriers to entry therein. " Die Court found 294 (1962). from the evidence adduced at trial that , 1 75,315
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l 1 j
38--
.;
see n.st.74 Cited 1974-2 Trade Cases U. S. v. Fal?4f Brewing Corp. 98.011 Phillips had a well de6ned goal of nation- as shoe by the evidence presented during wide marketing- and had explored every said trial. possible means of entering ,said market. In Phillips, the Court found that the either by a large acquisition, gomt venture, a foot-hold acquisition or a unilateral entry. entry by Humble Oil and Renning Com-By virtue of its acquisition ,of the, jVestern pany into the California motor gasoline 11anufacturing and hfarketmg Division of market was evidence of the feasibility of Tidewater Oil Company for the sum of unilateral entry for a company with suffi-
$366,000,000, Phillips (1) would have achieved cient capability and motivation. Said Court national marketing status, (2) would have found there was no uniqueness in said entered a market regar California market. The Court noted that able than other areas m,ded whichasitmore had pro the 6t*said entry by Humble demonstrated that strongest representation and where prices service stations and other retail outlets had been more , stable, and (3) would have could be obtained in sufficient numbers to l gamed, opportunities for vertical integration, support subs;antial entry into said market i meludmg exploitation of its Alaskan crude without resort to's major acquisition. It i od reserves, product exchanges and poten- also found that Phillips could have supplied !
, tial itself with gasoline in California through busm, ess.enlargement of its highly petrochenucal four alternative methods until it could complete construction of an oil refinery. ( l The evidence in said case further estab- At the time of its acquisition of Narragan-lished that Phillips had a history of entering sett, Falstaffs breweries were operating at markets de novo or unilaterally. It had approximately 1007, capacity and could not a record of internal growth which made support its entry into sa:d New England it a leading international company with mstket pending the erection and completion substantial interests in many parts of the of a new brewery in said market. world. The evidence further established that Phillips was, engaged m busmess,in in Phillips, the Government presented California before it acquired said , Division substantial evidence that other companies
. from Tidewater. It exploration and in the California market regarded Phillips l production mterests m, sai had,d state and was as a potential entrant therein and that I engaged there m the rnanufacture and market. Phillips had engaged in several well pub-eng of many plastic products, and in the licized efforts to gain control of Union Oil packaging and marketmg of fertilizers, Company which was then doing business i full imes of rubber carbon, high-purity in said market. In the instant case, no )
hydrocarbons and many specialty chenucals, evidence wa., presented to the effect that ' Phillips was the second largest industrial other ccmpanies then selling beer in the I firm located west of the hiississippi-sur- New England market reg 1 passed only by Standard Oil of Califomia. a potent;al entrant there.m.arded Falstaff as l The underwriters of Phillips in its ac- )Vhile it is true that post-acquisition quisition of said Division from Tidewater evidence cannot, be employed to validate did not consider said acquisition for the what is otherwise an allegal merger, such i sum of $366,000,000 to be a particularly evidence may properly be used to confirm large one for a company of Phillips' size trends m the relevant market perceived at and concluded that super-imposing said as. the time of the merger. In this case, the sets acquired from Tidewater on Phillips' post. acquisition evidence establisnes that af-balance sheet did not have a great effect. ter said acquisition of Narragansett by In the instant case the evidence estab. Fals*W competition remained intense in lished that FalstaR's primary method of said New England market and that sud entry into new markets had been by ac. acquisition did not lessen competition in quisition. Falstaff was not and is not a said market in any manner or form. On nation-wide brewer. It possessed no unique the contrary, said post. acquisition evidence research or managerial talent in comparison establishes that beer ' pricer remained stable with other brewers. It was not active in in spite of rising costs, that Narragansett's said New England market prior to its share of said market declined, and its acquisition of Narragansett. Its payment profits declined despite its best eRorts and of $35,000,000 for the assets of Narragansett the competition in said market became represented a substantial investment for it more intense. It is this Court's opinion that which in the absence of its distributor United States v. PAillips, sutra, is clearly organization could not have been financed distinguishable on its facts from this case. Trade Regulation Reports 1 75.315 l
39 - 98,012 Court Decisions iso 111144 U. S. v. Comburtion Engineering, Inc. [ Established Facts) (7) At the time of said acquisition and The ev.dence i presented in this case t.nd for the foreseeable future, the defendant the reasonable mferences to be drawn there- could not have entered said New England from establis'4 the following facts, viz: market by shipping beer from its existing plants which were then operating at near (1) The relevant cographic market **P*** *Y* consists of the New ifngland states, i.e., (8) Although Falstaff had publicly in-Connecticut, Maine, Massachusetts, New dicated its desire to tecome a national Hampshire, Rhode Island and Vermont, brewer, its acquisition of Narra (2) In July 1%5, when Falstaff ac- n t make it a nationaf >rewer.ga'sett did quired Narrag,ansett, the sales of Nar- (9) Firms selling in said market prior ragansett were almost exclusively in said to said acquisition were aware that the New England Market. procurement of an adequate distributor (3) At the time of said acqinsation system would have been extremely dif-Falstaff did not sell any beer m said ficult if the defendant attempted to create market and had one out of the then existing wholesale acceptance therem,. Itnosold branditsrecognition products no or distributors. closer to New England than Toledo, Ohio . (10) The only evidence presented dur-on the west and Washington, D. C. on the' ing said trial establishes that at the time south. of said acquisition, competitors selhng in said market did not view the defendant, (4 beer),In 1964, the eight largest sellers of Falstaff, as a potential or probable en-m the New England, market sold 81.2% of - the beer sold m said New trant in said market. England market. In 1960 the eight . (11) Under the conditions then exist-largest sellers of beer therem, sold 74% . ing m said market, no rational beer seller of the beer sold in said market. In 1%5, in said market would have regaded Narragansett was the largest seller of Falstaff as a beer with approximately 20% of the the time of sa,potetial, , entrant therem at id acquisition. market. (12) The acquisition of Narragansett (5) Since the date of said acquisition, by Falstaff did not result in the elimina-Narragar.'ett's share of said market has tion of a potential competitor so posi-fallen and its profits have declined. Com. tioned on the edge of said market that petition in said market has remained in. it exerted a beneficial influence on com. tense. Said merger has had no adverse petitive conditions therein, effect on the level of compet,ition,in said hy he fac haNr Since the Government has failed to estab-iave rc j lish by a fair preponderance 'of the evidence constant in spite of rising costs. that said acquisition of Narragansett lpy (6) At the time of sa.d i acquisition in the defendant would probably lead to a 1965, none of the firms selhng lycer in substantial lessening of competition in the said market had control over prices or production and s. ale .of b.eer in said Ne.w other indicia of competition and therefore England market in violation of $ 7 of said the level of competition would not be Clayton affected by the existence of a potential entered m ,Act, judgment favor must be and of the defendant, will be Falstaff entrant on the fringe of said market. Brewing Corporation. [1 75,316] United States v. Combustion Engineermg, Inc. and American Collo'd Co. U. S. District Court, Eastern District of Pennsylvania. Civil No. 73 2500. Filed, but not entered November 2,1974. Case No 2349, Antitrust Division, Department of Justice. Sherman Act Price Fixing.-Customer and Territorial Allocation-Chromite Sand-Consent Decree.
-Two importers, processors, and sellers of chromite sand would be prohibited by a consent decree from agreeing to fix prices or a!!ocate customers or territories. See 11610,4630.
For plaintiff: Baddia J. Rashid, John J. Hughes, Warren Marcus, William A. DeS Miller, 175,31 Attys.,
~3 Dept. of Justice, Antitrust Div., Philadelphia, Pa., and Robert E. J. Curran,
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40 - 106. Mich. 27 NORTH WESTEEN REPORTER, Od SERIES court on a motion 9 dismiss plaintirTs dec- of whether he was rightfully or wrong. laration. No testimony was taken. fa!!y discharged. Plaintiff is entitled to a [2] It is a well established rule that determination of this issue. The trial the right of an insurance agent to commis- c urt was in error in dismissing plaintiff's sions on renewal premiums depends uport declaration upon motion and without trial, the contract existing between the agent and The cause is remanded to the circuit the inst.rance company, or one of its gen- court cf Wayne county for a trial of the
'eral agen:s. See 11asden v. Travelers' Ins. issues raised in the pleadings. Plaintiff Co., 8 Cir., 52 F.2d 75, 79 A.LR. 469, at i.uy recover costs.
page 475. . In Locher v. New York Life Insurance CARR, C. J., and BUTZEL, BUSH-Co., 200 Afo. App. 659, 208 S.W. 862, 866, NELi, BOYLES, REID, NORTH, and it is said: DETH3fERS, JJ., concur. -
"So that the decided weight of authority '
leads to the conclusion that, unless it is e expressly stipulated or clearly to be gath-ered by the contract, the agent's right to
* %""""N commissions on renewals is to continue on renewals failing in after the tcrm of his employment, he is not entitled to commis-317 Mich. 5S2 sions on renewals received or falling in after the expiration of his agency. The CITY OFFINANCE HAZEL PARK v. MUNICIPAL COMMISSION.
right of the agent to ecmmissions on re-Motion No. 352. newals collected or falling in after the end of his agency, can rest only on expecss Supreme Court of Michigan. terms in his contract, or be necessarily April 17. INT. drawn from an interpretation of that con-tract as a ivhole. This must be so, for the f. Municipal corporations C=73 right to comirissions on renewals rests, in Where by amendment to home rule city part, on the consideration of the services charter tax limit for city purposes was in-by the agent to the company tn keeping creased to 1.8 per cent. instead of consti-the poh,cies written 1,y him alive. tutional limit of 1.5 per etnt. and if sewer bonds approved by voters were sold, city See, also, Security Life Ins. Company might not be able to pay principal and in-of America v. AIcCray,124 Ark. 202, IS6 terest thereon in addition to necessary mu-S.W. 819. nicipal expenses unless annual tax rate The right of an agene to co!!ect renewal exceeded 1.8 per cent., SIunicipal Finance premiums after his d;scharge without Act providing that no charter Irmitation cause came up in Kyselka v. Northern As. should prevent col!cction of full am nt surance Co. of Stichigan,194 Alich. 430, of taxes to pay a bond issue approved by 160 N.W. 559, 562. We there said: electors, and not the charter provision,
" Defendant cannot through a formal w uld control. Ccmo. Laws 1929 and Comp.
discharge for an insufficient reason deprive Laws Supp.1940, g 2223 et seq.; Comp. Laws plaintiff of the just fruits of his labors Supp.1945, 9 26S9-21 et seq.; Const. art. for upwards of four years , 10, g 21, as added in 1933. See, also, Kyselka v. Norti.ern Assur- 2. statutes e=>219 ance Co. of hiichigan, .'.'0S 5tich. 47,175 An administrative construction of a N.W. 386. doubtful provision in the law, though not (3] In the case at bar, the agreement contro!!ing, is considered and given weight _ Fy the courts. provided thac at would be in ettect as long as the field organizer should exert his best 3. Menicipal corporations C=>79 e fforts in his emplujment. The discharge Home rule city, which by electoral of plaintiti brings into issue the gr.estion vote had adopted an amendment increasing i
' CIR OF BAZEL PARK v. 3ICNICIPAL FINANCE CO31311SSION Silch. 107 Cue me z7.N.W.t.1106 its charter tax limit from 15 mills for city tem bonds in the form submitted to it by purposes to IS mills, could not insert in said city. Order to show cause was issued, notice of sale of sewage bonds, a provision defendant's answer and return has been that bonds would be general oMigations filed, and arguments heard in open court.
of city payable from ad valorem taxes with- Brie' nave been filed by counsel for both in 18 mills charter tax limit but was re- parties, and also, by leave of court, briefs quired to insert provision that bonds were have been filed as amici curi:e by the cor-payable without limitation as to rate or poration counsel of Detroit, by counsel for amount, since provision of Municipal Fi- a taxpayer of the plaintiti city, and by nance Act forbidding any limitation was re- couasel engaged in giving opinions to quired to be read in to city's charter and municipalities and purchasers as to the controlled the 18 mill limitation. Comp. validity of municipal bonds. Laws 1929 and Comp. Laws Supp.1940. gi The facts are not in dispute. The plain-2228 et seq.,2230,2241,2694; Comp. Laws tiff is a municipal corporation in the coun-Supp.1945, i 26S9 21 et seq.; I 2689-91a; ty of Oakland,. State of Michigan, incor-Const, art. 8, {} 20, 21; art.10, ! 21, as porated under the provisions of Act No. added in 1932. 279, Pub. Acts 1909, as amended, city home-rule act,1 Cemp. Laws 1929, g 222S et seq., as amended, Comp.LawsSupp.1940, 9 2223 Mandamus proceeding by the City of et seq., Stat. Ann. I 52071 et seq pursuant Hazel Park, a Michigan municipal corpora- to electoral vote on September 22, 1941. tion, against the Mumcipal Finance Com- Its original charter was adopted at an
' mission, a State of Michigan Commissian, clection held on January 5,1942, and con-to compel defendant to approve a certain tained a tax limitation of 15 mi!!s for city form of notice of sale of sewage disposal purposes. On April 1,1946, section 12.9 of system bonds in the form submitted to the the city charter was amended so as to pro-defendant by the plaintiff. vide for an extra 3-mill tax levy in addi.
Writ denied. tion to the 15 mills above mentioned, where Before the Entire Bench. such additional levy may be necestary in order to meet maturing bond principal and Carl A. Braun, of Pontiac, for plaintiff. interest. At the same election on April 1,
~
Eugene F. Black, Atty. Gen., Edmund 1945, the electors of the city of IIazel Park E. Shepherd, Sol. Gen., of Lansing, .nd approved the issuance of said $416,000 G. Douglas Clapperton, Asst. Atty. Gen., general obligation bonds for additions and for defendant. extensions to the city sewage disposal Bodman, Longley, Bogle, Middleton & synem. On November 13, 1946, the city Armstrong, of Detcoit, amicus curi:e. for e uncil authorized the issuance of the ab ve-menti ned bonds. Pursuant to the Paul E. Worley, a taxpayer of Hazel Park, requirements of Act No.202, Pub. Acts 1943, as amended, Comp.LawsSupp.1943, 6 2689-Miller, Canfield, Paddock & Stone, of De- 21 et seq., Stat. Ann.1946 Cum.Supp. l troit, amici curin 5.3188 (1) et seq., application was made to William E. Dowling, Corporation Coun- the defendant municipal finance commission set of City of Detroit, Paul T. Dwyer, fur permission to issue said bonds, :tud for Chief Asst. Corporation Counsel, and John approval of the form of the notice of sale G. Dunn, Asst. Corporation Counsel, all of thereof. The municipal finance commission Detroit, amici curia granted permission for the issuance of the bonds, but refused to approve the form of BOYLES, Justice. the notice of sale as submitted by the city.
~
Plaintiff has filed a petition asking that It did, however, approve a notice of sale a writ of mandamus he issued directing the identical in form to that adopted by the defendant State municipal scince commis- city except tor the deletion of the follow-sion to approve a certain form of notice ing sen:ence: "The bonds will be the gen-of sale of $416,000 sewage disposal sys- eral obligations of the city payable from
e -- 108 Mich. 27 NORTII WESTERN REl'ORTER, 2d SERIES ad valorem taxes whhin the 1.8% charter may be ine eased for a period of not to tax limit for city purposes," and the inser- exceed five years at any one time, to not tion of the followint: sentence in licu there- more than a total of five per cent of the of t "The honds will be the general obliga- assessed valuation, by a two-thirds vote of r tions of the city payable f~om ad valorem the electors of any assessing district, or taxes without limitation as to rate or when provided for by the charter of a smount." municipal corporation: Provided further, The defendant municipal finance com. That this limitation shaft not apply to taxes mission takes the position that the Michigan levied in the year 1932." Constitation (1903), art.10, i 21 as added Plaintiff, . relying mainly on what was in 1932, does not create a tax limitation for said by this court in School District of City cities and villages but that they are ac. of Pontiac v. City of Pontiac, 262 Mich, cepted therefrom, and that the provision in 338, 247 N.W. 474, 7S7, contends that the Act No. 202, chap. 7, $ la, Pub. Acts 1943, said 15-mill tax limitation amendment as as added by Act No. 300 Pub. Acts 1945, construed by this court places city and vil-Comp. Laws .Supp.1945, j 26d9-91a, Stat. lage taxes within the 15-mill. tax limitation, Ann.1946 Cum.Sep ,. ] 5.3153 (45a), requir- but provides that as to such municipalities ing payment of maturing den 1 principal and the limitation may be increased when pro-interest from unlimited taxes na:withs:and- vided for by the present or future charter of ing any charter tax limitation, is not re- such municipal corporation. Plaintiff relics puanant to the Constitution but is applicable on that part of the opinion in the Pontiac to the city of Hazel Park and oder cities case, supra, wh. rein it was said, (at page and villages. 351 oi262 Mich., at page 479 of 247 N.W.): The plaintiff city of Hazel Park denies "At the expense of repetitiorr, we state this contention and seeks in this action to a: pin that (disregarding the exception of secure a writ of mandamus requiring the taxes levied for payment of debts), we municipal nnance comminion to approve think the amendment must be construed as the form of notice of sale as submitted, though it read: which noti:e provides that the bonds wiIl be paya'ule from ad valorem taxes withm, "The total amount of taxes assessed
- the 1.8 per cent charter tax bcut for city imt prpy for a!! purposes in any one purposes. year shall not exceed 1% per cent. of the assessed valuation of said property: Pro-Counsel for the plaintiff phrases the ques- vided that this limitation may be increased tion before us for decision as follows: "Do for a period of not to exceed sve years at the provisions of section 21 of article 10 of any one time, to not more than a total of the Michigan Ccnstitution include city and 5 per cent of the assewed va! cation, by a village taxes within the 15 mill tax limita- cwo-thirds vote of the electors of any as-tion but with the right of any such munici- sessing district, or (that this limitation may pality to increase such limitation by a pres. be increased) when provided for by the ent or future charter provision?"
(present or future) charter of a municipal Section 21 of article 10 of the State Con. corporation. stitution, generally referred to as the 15-mill "In the foregoing reference has been tax limitation, was adeted at the general made to the so-called home rule c' ties, but election November 8,1932, effective Decem. we think the same result would follow as ber 8,1932. It is as follows: "The total to cities having special charters with like amount of taxes assessed against property provisions as to the exercise of the power for all purposes in any one year shall not of taxation. The result of the above con-exceed one and one half per cent of the struction is that the 1932 amendment neither assessed valuation of said property, except increased nor decreased the charter power taxes lesied for the payment of interest and of a city to Icvy taxes for its municipal principal on obligations heretofore incurred, purposes." which sums shall be separately assessed in Simenton v. City of Pontiac, 26S Mich. all cases: Provided, That this limitation 11, 253 N.W. 608, is not contrary to the
43 - CITY OF HAZEL PARK v. SfIJNICIPAT. F'INANCE COM311SSION M!cA 109 ca. n.v.w.34 aos conclusions reached in School District cf and sought to so frame the amendment as City of Pontiac v. City of Pontite, supra. to be in accord with such exisung condi. In the Simonton case it was held that the tions. This led to embodying in the amend-city of Pontiac was bound to take care of ment the above quoted provision as the first its debt service for 1934, by the provisions exception to its general limitation on tax-of Act No. 273. Pub. Acts 1925; that the ation." 15-mill amendment (Const.[1003), art.10 Said opinion then refers to what is con-p 21) did not apply. The defendant munics" sidered as the second exception, as follows pal finance commission refers to and relies (at page 348 of 262 Mich., at page 478 of on the following provision in the Municipal 247 N.W.h
- Reading further in the amend.
Finance Act, Act No. 202, chap. 7, I la, ment it clearly appears it also occurred to Pub. Acts 1913, as added by Act No. 300, those interested in its framing and adoption Pub. Acts 1945: "No limitation in any stat- that certain conditions might already exist ute or charter shall prevent the levy and or might thereafter arise in consequence collection of the full amount of taxes re- of which the electors of ar.y assessing dis-quired by this section for the payment of trict might conclude that the 1% per cent. debts, but nothing h,etei . shall authorize constitutional limitat2on was unduly restrie-the levy of a tax for any other purpose tive. * *
- Hence the provision in the exceeding the existing statutory or charter amendment that the specified limit might be tax hmitation. increased for a period not exceeding five The similar provision in the earlier stat- years at any are time to the maximum ute. formed the basis for decision in the limit of 5 per cent. of the assessed valua.
Simontc.n case. tion by a two-thirds vote of the electors of The 15-mill amendment was first een- the assessing district- * *
- and such strued by the court in Schoc! District of provision constituted a second exception to City of Pontiac v. City of Pontiac, supra the general taxation limitation contained
[262 Mich. 338,247 N.W. 476]. The school in the amendment." district sought to enjoin the city from adop-Having thus eliminated the above two tion of a proposed budget. After hold ng exceptions (which are not essential to a that the is. mill amendment was legally c ns deratiors of the precise question be. adopted, the cou t censidered the question
**What is its proper construction in the ' ' * " * " * *" *" * #** d '
b *
- North discussed a third exception, as fol.
particulars hereinafter notedt" Mr. Justice North, writing for the court, discussed and I Ws (at pages h351 of M Ech, at construed three exceptions to the general PE' limitation that the total amount of taxes "This brings us to what a fair reading for all purposes shall not exceed 1% per of the amendment indicates is a third ex-cent of the assessed valuation sa any one ception to the general limitation of taxa-year. The first exception was discussed as tion which exception the framers and fo!!aws (at page 348 of 252 Mien., at page adopters of this amendment seemingly 478 of 247 N.W.): "At the outset the deemed essential, and which we think gave framers of the proposed amerdment and rise to including in the amendment the later the people who considered its adop. words '* *
- cr when provided for by tion were confronted with the legal proposi. the charter of a municipal corporation.' At tion that contractual obligations could not this point consideration was evidently given be impaired and therefore the general ex. to the well known fact that in compara-ception to the proposed limitation of taxa. tively recent' years there had developed in tion was made by excepting ' taxes levied this state the so-called 'home-rule' feature
~
for the payment of interest and principal of our government. Provision therefor on obligations herstofore incurred.' We are was embodied in the Constitution of 1998, not here conserned with this prticular I;mi- Article S. 1120.21. This was followcd by tation, except to note that in drafting the the Icgislative enactment of the Home Rule amendment, as well as in its ado!. tion, the bill. .ht No. 2 9, Pub. Acts 1909, [1] people were mindful of existing conditions Comp. Laws 1929, I m et seq. In, the n
44 - 7 110 inch. U NORTH WESTERN REPORTER, Od SERIES meantime many cities in Michigan have for a period of not to exceed five years at been chartered under the above. cited con- any one dme, to not more than a total of stituticnal provision and leei:lative enact- 5 per cent. of the assessed valuation, by a ment. Under the constitutional provision, two-thirds vote of the electors of any as-by the Home Rule Act.it was sought fun- sessing district, or (that this limitation msy damentally to place in the hands of the be increased) when provided for by the electors of the cities chartered thereunder (present or future) charter of a munici-increased power of local governmental pa! corporation. control. To tids purpose the Home Rule
. In the foregoing reference has been Act permitted a charter provision author-mng taxation for local mumcipal needs to made to the so-called Home Rule cities, I;ut the extent of 2 per cent, of the assessed we think the same result would follow as valuation of taxable property (1 Comp. to cities having special charters with like Laws 1929,12230). * *
- Under con- provisions as to the exercise of the power stitutional provisions and withm, the speci- of taxation. The result of the above con-fled limitations this taxing power had a1- struction is that the 1932 amendment nei-ready been delegated to vanous cities in ther increased or decreased the charter
, Michigan; and, as noted above, this fact power of a city to legy taxes for its mu-was well known. Surely it would be a nicipal purposes."
strange governmental ooeration, wholly In the above case, the charter of the city inconsistent with the ordinary methods of of Pontiac (a home-rule city) authorized accomplishing that result (if not entirely the city to levy annually a tax on real and without precedent), that the charters of the personal property not to exceed 2 per cent various cities of this state should be sum- of the assessed valuation, for the sole use taarily amended by a constitu:ional provi- of the city. The question presented was sion which in spirit, if not in letter, was whether the 15-mill amendment limited diametrically opposed to the recently de- the annual tax for all purposes on property veloped policy of Home Rule government in the city (except debt service) to 1% per inthisstate. This being true we are fu!Iy cent of the assessed valuation; or di.i the convinced that the tramers and adopters city still have the power to tax up to 2 per of this constitutional ameridment found cent for municipal purposes. The city themselves confronted with a condition claimed it was not limited by the 15. mill which' prompted this third exception to the amendment, but that the city charter limi-general limitation of the exercise of the tation of 2 per cent was still in full force taxing power in cities already constitution. and etTect. The plaintiff school district ally vested with the pcwer to 1ix in excess contended that (except for debt serytce al-of the proposed limitation. 'l s meet this ready incurred) the amendment limited situation, the quoted phrase w. s embodied taxation to 1% per cerit, notwithstanding and for that rcason it should be held to the charter provisions. As to that, the mean that 'this limit may be increased' in opinion upheld the position taken by the the cities whose charters already empewer city. them to levy a tax for municipal purposes n'e have reviewed the above opinions at in excess of the amount which the city length, mainly be, ause excerpts from said might levy under the terms of the !?32 opinions form the basis for claims now amendment. * * * .\t the expense of made by both the plaintirT and the defen.l-I I repetition, we state again that (distrgard- ant, and counsel for emici curiae in the in-ing the exception of taxes levied for pay- stant case, that each supports their pres-ment of debts) we think the amendment ent divergent positions. Furthermore, the must be construed a.s though it read ? above School District v. City of Pontiac
~
The total amoant of taxes assessed case gave impetus to a statement ir. ssi-against property for a!! pu poses in any cne labus 7 which reads as follows: " Cities year shall not exceed 1% per cent. of the chartered as home-rule cities (Const., art. l assessed valuation of said property: Pro- S, il 20,21; 1 Comp. Laws 19.!9, { 2228 et I vided that this limita ,a may be increased seq.), cities having special charters with '
crrr or nAzEL P.Utg v. Mt'NICIPAL FINANCE COMMISSION Mich. 111 cite as 27 .N.w.2d 104 tax limitation prosision, and cities of defendant city claimed that constitutional fourth class and villages organized under provisions and legislative enactments lim-Constitution, art. 8, 9 21; 1 Comp. laws ' iced "the rights of taxation for city pur-1929. I 1465 et seq., having adopted their poses to 2 per cent for any one year. The own tax limitation, are not subject to 15- city based its contention on sections 20 mill property tax limitation provided for and 21 article 8, of the Michigan Consti-in amendment to Constitution (article 10, tu; ion (1908), and sections 3 and 5 of the i 21), except that if any part of said 15 home-rule act, Act No. 279, Pub. Acts 1909 mills should be allocated to them by Itgis- 1 Comp.I2ws 1929 [] 2230. 2241,a Stat.. lature, it must be included in total amount Ann. lj 5.2073, 5.2084. Under the consti-assessable for city or village purposes under tutional provisions referred to, each city charter limitation." has the power to adopt or amend its char.
. Subsequently Mr. Justice .Butzel, writ- I'#' *"d
- P"'8 I*** ""d 'd "* '* ' #* *~
mg for the court ir Simonton v. City of ing to its municipal concerns, ." subject to Pontiac, supra, said (at page 20 of 26S the Coristitution and general laws of this Mich., at page 611 of 255 N.W.): "Neither state." The home. rule act referred to pro. does the Is..rm!! amendment, () 21, art.10, vides that no city shall have power to of the Constitution) include home rule " increase the rate of taxation now fixed . cities within its scope, School District of by law," except by affirmative vote or a City of Penn.ac v. u..ty of Pontiac, 262 majority of the electors, and that the m, . Mich. 333, 247 N.W. 474, 737. g , og gg g cause such rate to exceed two per centum Counsel for amici curiae now attempt by of the assessed value of the real and per-a literal interpretation of this statement to sonal property in such city." The Pom:2e support their claim that the plaintirT city of city charter provided that the tax for the Hazel Park in no way comes within the purpose of defraying the general expenses purview of the 15-mill amendment. Th* and liabilities of the city should not exceed above statement in the Simonton case thus 2 per cent of the assessed value of the is read too literally. While it applies to property in said city in any one year. The hone-rule citi:s as therein stated, it is more plaintiff bondholders claimed that the ques-proper to say that the 15-mill limitation in tion of levying and collecting taxes for the amendment does not apply to cities city purposes and payment of their bonds whic1. come within the exceptions noted was controlled by Act No. 273, j 5, Pub. therein. A more conservative statement Acts 1925, as amended,1 Comp. Laws 1929, was written by Mr. Justice North, in Coun- 12o94, as amended by Act No.142, Pub. ty of Micomb v. City of Mt. Clemens. 271 Mich. 3M, 333, 260 N.W. S35, as fo!!ows: Acts 1931, Comp. Laws Supp.1940, g 2694, "The city of Mount Clemens is under the Stat. Ann. $ 5.3175, since repealed by Act Home Rule Act No. 202, Pub. Acts 1943. It provided as
* *
- and therefore follows: "Whenever any money shall be its power of taxation is not limited by the bdrrowed by any municipality it shall be fifteen. mill constitutional amendment, being section 21 of article 10 of the Constitution the duty of every officer or official body charged with any duty in connection with (1908)." ,
the determination of the amount of t:'xes In Simonton v. City of Pontiac, su. to be raised or with the levying of such pra, the plaintiff, representing bondholders, taxes, to include in the amount of taxes sought mandamus to compel the city of levied each year an amount suRicient to Pontiac to levy and collect sudicient taxes pay the annual interest on all such loans to pay the amo mts due bondholders. The any instalment's of the principal thereof, city had proposed a tax budget for 1"34 falling due before the time of the io!!ow-which would practically eliminate the pos. ing year's tax collection, and all payments sibility of making any substantial pay- required to be made to sinking funds. In ments on outstanding debt service. The any municipality having any debt now Inis section was amendeu by Act No. %:9. Pub..Lets 1935, Comp. Laws supp.1940, I ml.
- - 46 -
112 -meh. 27 NORTII WESTERN REFOltTER,2d SERIES outstanding and unpaid, a tax shall in like' 261 Mich. SS6, 246 N.W. 849, 90 A.L.R.
/
manner be levied each year, suf6cient to 833, we hcid that the Legislature might pay the interest on such debt falling due modify the charters of municipal corpora-
~
before the time of the fo!!owing year's tax tions at will and that the state still re-collection, to pay any principsi instalment tained authority to amend charters and of serial bonds falling due before the time en!arge and diminish their powers. City of the following year's tax collection and of Kalama:oo v. Titus,208 Stich. 252,175 se deposit into a sinking fund annually N.W. 4S0; Clements v. McCabe,210 Mich. an amount which with the increment there. 207,177 N.W. 722; Atttorney General, of will be sufficient to pay the principal [ex rei. Lennane], v. City of Detroit, 225 of sue" debt ut maturity or within the Mich. 631,1% N.W. 391. In Doyle v. term or refunding bonds authorized to be E!cetion Commission (of City of Detroit,] issued * *
- No lin.itation in any 261 Mich. 546, 246 N.W. 220, we again statute or charter sha!! prevent the levy held that the general law passed by the and (.ollertion of the full amount of taxes 1931 session of the Legislature did not required by this section for the payment of infringe upon the right of municipal home
, debts, but nothing herein sha!! authorize rule and was not unconstitutional; that, the levy of a tax for any other purpose it being a general law, the home rule char-exceeding the existing tax limitation." ter of the city of Detroit was subject Referring to the Michigan Constitution chereto and not infringed thereby. Nei-(1908), Mr. Justice Butzel, writing for ther does the 15-mill amendment (section the court in the Simonton case, said (at 21, articlc 10, of the Constitution) include pages 18-21 of 268 Mich., at page 611 of home rule cities within its scope. School 255 N.W.): District of City of Pontiac v. City of Pon.
"The power to limit the rate of taxa. tiae, 262 Mich 338, 247 N.W. 474. 787.
tion ar.d restrict debts was ! cit to the While the case of Hammond v. P! ace, Legislature, where it would be subject to 116 Mich. 623,74 N.W.1002,1003. 72 Am.
.such changes as might be necessary by St. Rep. 543, was decided before the pres.
changing conditions. Volume 2 Proceed, ent Constnution and the Icgisiative acts ings and Debates of the Constitutional hereinbefore referred to, nevertheless the Convention, p.1432. general principles therein ste.ted still ap-
"Section 21 of Article 8, of the Constitu. PI Y' . In that case the plaint i Is obtained tion, hereinbefore quoted, expressly states a writ of mandamus to compel the assessor that the charter that might be adopted by
- levy up n the tax roll the amount of a city was subject to the Constitution and pla.mtiti's judgment, which representect the general laws of the state. The Legisla. am unt due on matured bonds. The de-
- ture, in the exercise of this pcwer thus fendant centended that such a levy would reserved, adopted Act No. ?73. Pub. Acts cause the tax rate to exceed the 3 per of 1925 ([I Comp. Laws 1920, [ 2694, as cent, pro ided in the charter of the city.
amended by Act No.142, Pub. Acts 1931',]s It stressed the fact that owing to the hereinbefore quoted), which specifically change in conditions and tne moving away stated that no limitation in any statute of large industries, the city was in very or charter shall prevent the levy and cc!- great financial distress and unable to meet lection of the full amount of taxes re- its obligations. The court said: quired solely for the payment of debts, "'The contention means this: That the and made it necessary for the city to in- municipality may avoid its legal obliga-clude in the amount of the taxes levied tions by the reduction of its valuation, atd each year a sum sufficient to pay the an. making its running expenses equal to the nual interest and the installments of prin. limit of taxation. This is practical repudi-cipal on its obligations falling due before atiots. Whether the valuation of the prep- ! the time of the following tax collection. erty o this city at $33,000 was reached
* *
- l In Harsha v. City of Detroit, by the same methods as were severely con-i i
e Tide certion was last amended by Act No. 2, Pub. Acts 1937. Ex.Sess., and repealed by Act .%. 002. Pub. Acts atHO. 1 I l
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l 1 e - -= - w - ---py , , , , - - . - y , - g
47 e 7 - CITY OF IIAZEL PAIIK v. 5t!'NICIPAL FINANCF, COTDIISSION 3Ilch. 113 cite as 2* N.W.rd too demned by this court, speaking through [1] We do not overlyk the fact that Justice Cooley, in Watt!cs v. City of in the instant case,I,y an amendment to the Lapeer, 40 alich. 624,-we do not know, charter of the plaintifi city, the maximum . since there is no explanation in the record. of taxes for city purposes in any one year Whether, however, this singular result was increased to 1.8 per cent (instead_ of would follow from a strict c.onstruction the constitutional limit of 1.5 per cent) on of the limitation clause in its charter, we the assessed valuation of the property in need not determine. Possibly in contem- the city. But we also assume that under plation of such re>ults, a special statute that limitation, if these bonds be issued and was enacted, providing for the asseument sold. the result will be that the city will not of judgments rendered against municipal- be able to pay the principal and mterest 2 sties. 3 How. Ann.St. I 8218. This >t.itute thercon and in addition raise suticient prnvides that judgments rendered against money by taxation to defray.the necessary municipalities shall be assessed by the municipal expenses, unless the annual tax assessing officers upon its taxable property, rate should exceed 1.8 per cent. Under and the amount thereof added to the other such circumstances the charter limit of municipal taxes. It was enforced in Ship. 1.8 per cent does not control, inasmuch as py v. Sfason, 90 3[ich. 45, 31 N.W. 353. every municipal charter is subiect to the , It c!carly provides for the payment of Constitution and generallaws of this State. judgments, exclusive of the limitations to The AIunicipal Finance Act, supra,is a gen-taxation established by municipal charters.' eral law of the State, and applies here. It
- e e e e e provides that no limitation in any statute "As the city was bound to take care of or charter shall prevent the levy and col-its debt service for the year by the provi. lection of the full amount of taxes re-sions of Act No. 273, Pub. Acts of 1925, quired to pay the bond issue which has been we need not discuss plaintitis' further con- approved by the electors of Hazel Park and tention that section 4 of chapter 10 (Pon, the municipal finance commission.
tiac charter), also irnposed this duty upon "The legislature shall provide by a gen-the city." eral law for the incorporatica of cities, The above (Simonton) opinion does not and by a general law for the incorporation rest decision on the ground that the obliga- of villages; such general laws shall limit tions were incurred prior to the erTective their rate of taxation for municipal pur-date of the 15-mill amendment, and there- poses, and restrict their powers of borrow-fore would be within the first exception ing money and contracting debts." Const. noted by Sir. Justice North. in School Dis- (1908), art. 8, { 20. trict of City of Pontiac v. City of Pontiac, "Under such general laws, the electors supra, namely, that the 13. mill amendment of cach city and vilbge shall have power does not apply to taxes levied for the pay. and authority to frame, adopt and amend ment of interest and principal on obliga- its charter and to amend an existing char-tions " heretofore incurred, i. e., before ter of the city or village heretofore granted December 8,1932. It is possible that the or passed by the legislature for the govern-decision in the Simonton cac might have ment of the city or village and, through its been grounded on said exception. IIow. regularly constituted authority, to pass all ever, we feel that the principles there laid laws and ordinances relating to its munici-dowa without limiting decision therein to pal concerns, subject to the Constitution the first exception, apply equally to the and genera! laws of this state." Const. situation now before us in the instant case. (1908), art. 8. $ 21. Apparently these decisions in the Pontiac "31unicipal corporations are state agen-cases were planted on a construction of the cies, and, subject to constitutional restric. third exception referred to by 31r. Justice tions, the Legislature may modify the cor-North in the Schoct District v. City of porate charters of municipal corporations Pontiac case, i. e., "when provided for by at will. 12 C.J. [p.] 1031. Powers are the * *
- charter of a municipal cor- granted to them as state agencies to carry Poration." . on local government. The state still has 27 N.W.2d-4
e 48 e C' . 114 litch. 27 NORTII WESTERN ItEPORTER,2d SERIES authority to amend their charters and en- Icetion." Simonton v. City of Pontiac, large or diminish their powers. [1] Cooley, supra, 268 Alich, page 19, 255 N.W. page Const. Lim. (Sch Ed.), [p.) 393, * *
- 6:1.
The Legislature may regulate the amount of "Had the charter proIrided the bonding. municipal indebtedness and the rate of limit might be raised or lowered by any taxation of cities. It ic expressly author- different vote than that prescribed by the imed by section 20, art. 8, of the Constitu- statute, it obviously would have been of no tion so to dc. Its powers are plenary. It force. Or had the charter been silent as to may incre- 'e decrease the limit of bond- the requisite majority, and this controversy ed indebteune.. and the rate of taxation for had arisen, a constructi",n of the charter municipal purposes, subject to the prchibi would have required us to read into it tion in the Constitutions of this state and the legislative provision. This being true, of the United States that such legislation when the Legislature amended the act by shall not operate directly upon contracts so . requiring a three. fifths vote instead of a as to impair their obligation by abrogating two-thirds vote, the amendment was auto-or lessening the means of their enforce- matically read into the charter, an.1 is now ment. Unite' States ex rel. WolJ 3. New a part of it." City Commission of the Orleans,103 ( ' 358. 26 L.Ed. 395. There City of Jackson v. Vedder,209 Alich. 291, is no constitut< aal provision against chang- 294,176 N.W. 557,558. ing the limit of bonded indebtedness or limiting the rate of taxation for municipal " Defendants claim the charter was not purposes which in cities under the Home amended and, therefore, whether the spe-Rule Act * *
- obtained wt.:n plain. cial assenment bonds should be included tur acquired her bond. * *
- in the debt limitation or not is governed by the charter provision. The statutory pro.
"The power vested by the Constitution vision of 1925 did not require any incorpo. -
of this state in the Legulature to limit the ration in the charter for it was a general at: of taxation of cities ' for municipal law and is to be read into the charter. purposes and restrict their powers of bor- * *
- rowing money and contracting debts is com-plete in itself and unrestricted." Harsha "It is to be noted that the home rule act a
- v. City of Detroit. 2613Iich. 5S6, 591, 592, for villages is one of general grant of SW,246 N.W. 849, 850,90 A.L.R. 853. rights and powers, subject, however, to stated restrictions and thereunder the char-
" Article 8 [l 31,] of the Constitution, ter may carry any provisions deemed proper hereinbefore quoted, expressly states that for the municipal government not contrary the charter that might be adopted by a c:ty to the Constitution or any general statute.
was subject to the Constitution and general Scc City of Pontiac v. Ducharme,278 31ich. laws of the state. The Legislature, in the +74, 270 N.W. 754; Toebe v. City of exercise of this power thus reserved, Stunising,232 3Iich.1, 275 N.W. 74. No adopted Act No. 273, Pub. Acts 1925 (1 election is required for special asstssment Comp Laws 1929, i 2694, as amended by bonds for general village improvements of Act No.142, Puh. Acts 1931.2 hereinbefore public moment and need. Nor is an election quoted), which specifically s:sted that no necessary for an issue of bonds for the limitation in any statute or charter shall village portion of local improvements, if
prevent the levy and collection of the full within the designated percentage, or in the amount of taxes req. sired solely for the refunding ci such honds. Under the village payment of debts, and made it necessary home rule act the charter as adopted by the for the city to include in the amount of the electors must conform to the provisions of taxes levit.d each year a sum suiticient to the Constitution and applicable statutory pay the annual interest and the installments laws of the State but, under modern legis-of principal on its obligations falling due lation the charter adopted is supplemented 1 before the time of the following tax col- by specific statutory provisions to supply { 2nis section was lest amended try Act 4 See 1 Comp. Laws 1020, f 1763 et ' 1 No. 2. Pub. Acts 1937. Ex.Sess and re. seq., Stat. Ann. $ 5.1511 et seq. pealed by Act No. N.!, Pub.Aets ISC. l 1
+
1
- 49 -
CITY OF HAZEL PARK v. MI'NICIPAL FINANCE COMM!bSION Mich._. 115 i Che as st N.Y.*.*t les the needs for municipal operation." Calla- and general laws of the state. The act of han v. City of Berk!cy,307 Stich. 701,708- 1877. as amended, is a general law of the 710,12 N.W.2d 431, 433,14 N.W.2d 87. state. The Home Rule Act of 1909 as "Because of a contention to the contrary amended ([1] Comp. Laws 1929, 9 2223 et in an amicus curiae brief, we also note seq. as amended), requires permissible char-that our opinion in the instant case ncither ter provisions to conform with the Const - , overrules nor enntlicts with L*tica Stat, tution and general laws of the state. Savings Bank v. [ Village of] Oak Park. 279 "It was evidently the purpose of the Leg. Stich. 56R,273 N.W. 271, because the sub islature in authorizir.; and regulating such ject matter involved in the cited case was libraries by general law to remove the purely local (the purchase of a town hall same from politics and factional disturb-site), but in the instant case the controversy ance. instead of being of local concern only is "The provisions of thestatute could not one of State. wide concern since it pertains be abrogated by the cl.arter provisions and, to debt limitations in all Michigan Home therefore, the city commission acud with-Rule Cities." Id. (On application for re out authority in the premises. Ecstcdor v. hearing), 307 Mich. 713,14 N.W.2d 87. City of Eaton Rapids, 27J Mich. 426,429, "In Dawley v. In.; ham Circuit Judge,242 263 N.W. .t16,417. Mich. 247,218 N.W. 7&L we held that the
*In support of its contention that the Legislatute may pass a general act directly conferring upon lerisistive bodies of cities, Jackson City counsel had the power tu f.x having home-rule charters, powers in ad. ex parte gas rato in Jackson, plaintiff to dition to those enumerated in the charter. some extent relies upon the fact that in 1914 Jackson adopted a Home Rule city The purpose of the above act was to pro- charter, and that charter contained the fol-vide a uniform method throughout the lowing provision: -
state for the summoning and impaneling of jur:es in mum,espal courts of record for ,,,Section 5. Subject to the limitations the trial of condemna: ion cases. It follows of the charter and of the general laws, the that secticas 23 and 52 of the above act City Commission shall have power: *** repeal and amcitd the provisions of { 6' To regulate the prices to be charged for title 8, c.1, or, the charter of the City of gas, heat or electricity, by all persons own. Detroit in so far as tne prousions of sec- ng or operating in the streets and public tson 6 relate to the summoning and impanel places , . ,, of the city, wires, pipes and conduits, ing of a jury." .In re Widening Michigan
- Avenue, Roosevelt to Livernois Aves. 281 . , PlaintirTs contention u not tenab!e. By Mich. 95,100, 274 N.W. 723, 725. tne express tenus or the charter the quoted
,"Section 36 of the 'Hcme Rule Act' pro-*provision *
- is ' Subject to the limitations v dest of the general laws' of the State, As hereinbefore noted, in '1939 the legis-
"'No provision of any city charter shall lature passed a general law, Act No. 3, conflict with or contravene the provisions of any general law of the state.' Pub. Acts 1939, by which it is provided:
"'Sec. 6. The Michigan public service "The 'Home Rule Act'is one of the gen- commission is hereby vested with complete eral pursuantlawstoofits the pr - state, and charters adopted power and jurisdiction to regulate all public it. aions must square with utilities in the state except any municipally Crary v. Marquette Circuit Judge.197 owned utility and execpt as otherwise re-Mich. 452, 454,163 N.W. 905, 906,166 N.
W. 954. strit.ted by law. It is hereby vested with power and jurisdiction to regulate allrates, "If the statute controls, then the . harter fares, fees. charges,' etc. . 4 provisions to the contrary etYect are void "This provision in the general laws of the and the decree must be af?irmed. State, to which Jackson's Home Rule char.
"The Constitution (of 1908 ) art. 8,6 21, ter was subject, supplanted any contra-permits adoption of home. rule charters by vening charter provision. City Ccamis-cities subject, however, to the Constitution sion of [the City of] Jackson v. Vedder, 4
.'r
1 l 1 l 50 - l l
' ilg 1tich. 27 NOltTH WESTERN REPOltTElt 2d SERIES 209 Mich. 291,176 N.W. 537; Harsha v. in the iaw is considered and given weight '
City of Detroit, 261 afich. 586, 246 N.W. tf the courts. ! 849, 90 A.LR. 853; and Simonton v. City of Pontiac, 268 alich.11, 255 N.W. 608, "It is well settled that the construe. tion placed upon starntory provisions by any 611. In the latter case it is said: particular department of government for
"'In Harsha v. City of Detroit,261 Mich. a long period of time, although not binding 586,246 N.W. 849. 90 A.L.R. 833. we held upon the courts, should be given consider-that the Legis:sture might modify the char- able weight." Aller v. Detroit Police De-ters of municipal corporations at will and pr.rtmen: Trial Board, 309 31ich. 382, 386, that the state still retained authority to 15 N.W.2d 676. 677. See, also. Board of amend charters and enlarge and diminish Education of Union School District of their powers.' City cf Owosso v. Coc.irich. 208 Mkh. 646.
"We quote the following from the syllabi 175 N.W.1009 and Thoman v. City of in the Harsha case: Lansing, 315 Mich. 566, 24 N.W.2d 213
"' Rule that corporate charters in which (3] The construction given the Si:non-no power of amendment or repeal is retain-ed, when accep:ed, constitute contracts be- ton case, supra. and to tlie Municipal Finance Act as .qplied to the instant situa-tween State and corporation, applies to tion, supports our conclusion herein. The private corporaticas unly.
Simonton case has been considered as con-
"' Municipal corporations are State trolling as to bonds issued by municipalities, agencies, and, subject to constitutional re- and has been followed by the municipal strictions, legislature may modify corpo- Enance commission. Under Act No. 273, rate charters of municipal corporations at Pub. Acts 1925, and its successor, Act No.
will. 202, Pub. Acts 1943, the municipal finance
"' Powers are granted to municipal corpo- commission is charged with the duty to de-rations as State agencies to carry on local termine whether proposed riunicipal bonds government, and State has authotuy to comply with the provisions of said act.
amend their charters and enlarge or dim. The present ruling of the commission. ' inish their powers.'" City of Jackson v. which plaintitT seeks to avert in this pro-Consumers Power Co.,312 Mich. 437,449 ccedi'ig, conforms to the provisions of the 450, 20 N.W.2d 263, 268, 62 P.U.R..N.S. c.ct and the practices of the commission. 48, We agree with the position taken by the See, also, Chemical Bank & Trust Co. v. commission in this case. County of Oakland,2'>4 Mich. 673. at pages The provision in the Municipal Finance 686,687, 231 N.W. 393, at p.ge 400, where Act, supra, that no limitation in any statute the court said: "It is claimed the questions or charter shall prevent the levy ar.d col-here involved car.not be litigated in this lectica of the full amount of taxes to pay , case (mandamus). There is no cuestion the bond issue, must be read into plaintiff's raised but what the county of Oakland charter, and controls the instant case not-received and expended plaintitTs money; it withstanding the 1.8 per cent tax limitation issued its tax anticipation notes therefor; in the charter. If the city of Hazel Park, it has had the use and benefit of the money; in accordance with the authorization by its su:h money remains unpaid. It now says it electors, continues its present plan to issue should not repay it because it violated the and sell bonds amounting to $416.000 to law in receiving it There is no dispute finance the proposed public improvernent as about the amount, the manner in which it a general obligation of the city, it must ex-was borrowed, the corporate records under-pect to pay the obligation incurred thereby; lyisig the loan; the amount is liquidated and 'such payment does not depend on ac-and due,'and the tax should be spread to tion taken, or to be taken, by the electors pay it. The writ will issue, 'vith costs." to amend the city charter. [2] While not controlling, administra- We conclude that the 15. mill censtitution-tive construction of a doubtful provision al limitation does not apply here, but on the
- 51 -
FREDERICK r. FIItMT L10f *IDATING COftPOttATION i;n. = n .v.w.:.s an 311ca. 117 contrary the exceptions, as construed here- ant and appellee First Liquidating Corpor. in, control decision. The writ is demed, ation. but without costs as a pubhc question is Friedman, SIcyers & Keys, of Detroit, involved. (Sylvan Rapaport, of Detroit, of counscl), for defendant and appellee Atassachusetts CARR, C. J., and BUTZEL BUSH 51ut. Life Ins. Co. N' ELL, SHARPE, REID, NORTH and DETH11ERS, JJ., concur. Irwin L Cohn, of Detroit (John Sklar, of Detroit, of counsel), for defendants and appellees Aferchants Apparel B!dg., Inc., etal.
. {? - m.9 BOYLES, Justice.
This is an action in ejectment brought by the plaintiE in the circuit court for 31T Mich. 637 Wayne county whereby the plaintiE seeks FREDERICK v. FIRST 4.lOUIDATING to obtain possessien of certain !ards and CORPORATION et al. premises in Detroit. Three separate mo-No. 2.t. tions to dismiss the declaration were died, Bupreme Cours of 311chigan. by the defendant Fir.t Liquidatirig Cor-Aprl! 27, ASIT. poration, the Afassachusetts 1[utual Life Insurance Company, and by the defendant Jedgment C=6*2 Imuis H. Schostak. All of said mo: inns Where all ass (ts of estate were dis, were substantially on the same grounds. pased of ira comprcmise agreement and by Plaintid appea!s from an order granting final order of probate court assigning resi. the motions and dismissing his suit. due of estate, asserted property rights of In his declaration plaintid (by next minor, who was represented in compro- friend) alleges that he is consned in a mise proceeding by guardian, were b tred school for epileptic and feeble-minded chil-by orders of the probate court. under the dren in 3fissouri: that upon the death of du: trine of res judicata, as well as by the his mother in 1924 he became vested with Ettb ment agreement. ownership in fee sirr.ple of an undivided 46
~
% per cent of an undivided one. half of lot 10, section 9, of Governor and Judges Appeal from Circuit Court, Wayne Coun- plan, Detroit Wayne county, Alichigan.
ty; Lila 11. Scuenicit, Judge. Ile bases this upon a c! aim of ownership Ejectment by Pompey mrxhausen Fred. in his grandfather, August Erxhtusen, crick, by John L. King, next friend, against yd a Mse in de w:H or, sad August the First Liquidating Corporation, the 31as- " **'* uchusetts Etual Life Insurance Company, The record here ennetusively establishes Louis H. Schostak, and others, to obtain that in 1926 and 1927 appropriate proceed-Poisession of certain lar.ds and premises. ings were had in the probate court for From an order granting motions by the Wayne county,in the estate of aic August nained defendants to dismiss the declara. Lrxhausen, deceased, whereby the execu. t:on, plaintiti appeals. tor of said estate, under license of said Afirmed. court, mortgaged said lands and real es. Before the Entire Bench. tate to psy debts, charges and expenses. Said mortgage was duly confirmed by order Don Whone Ilarlan, for plaintiE-appel of said probate cotut January IS,1927, and executed forthwith to the Dime Sav-Bodman, Longley. Bogle, Sliddicton & ings Bank as mortgagee. In Fcbruary, Armstrong, of Detroit (Grant E. Arm. 1928, the parties interested in said estate atrong, of Detroit, of counsel), for defend. petitioned the probate court for authority
n,52-ses se.as.r4 Cited 1974-2 Trade Cases 9 7, S C 9
. . industrial com,msmications v. Pacifc Telephone & Telegraph it is clear, therefore, titat such a complaint In view of all of the above considerations, cannot survive a motion for summary judg- It is Ordered that Dciendant. Ford's Mo-ment unless some evidence of both ele- tion for Summary Judgment be, and hereby
,ments is produced in opposition. is, granted.
[1 75.291] I'ndustrial Communications Systems. Inc., and Intrastate Radio Telephone, lac., of Los Angeles v. Pacific Telephone & Telegraph Co. anst General Telephone Co. of California. U. S. Court of' Appeals, Ninth Circuit. No. 73 1032. Dated October 4,1974. ' Appeal from U. S., District Court, Central District of California. Sherman Act Private Suita-Injunction Actions-Threatened Loss or Damage-Injury from Pro-posed Business Entrant-Lack of Final Regulatory Approval.-A suit charging that telephone companies' proposed entry into the one-way radio signaling business was pursuant to a conspiracy in violation of the antitrtrst laws and th'at the ves: tere threatened established industry members with serious and irreparable injury presented a justiciable controversy, despite the lack of final regulatory approval of the proposed enterprise.'
' The existing businesses demonstrated " threatened" loss or damage within the meaning of Sec.16 of the Clayton Act and stated a claim on which relief could be granted.
See 19028. ' Private Suits-Stay Pending State Agency Decision-Primary Jurisdiction-Im-munity-A suit charging that telephone companies' proposed entry into the one-way radio signaling business was pursuant to a conspiracy to violate the antitrus6 'aws was stayed pending final regulatory action on the matter. The doctrine of primary jurisdiction applied, since telephone corporations were comprehensively regulated by the state utilities commiss%, the possibility of judicial-administrative conflict was to be avoided, the agency's exp .tise could aid a court's resolution of the dispute, and the agency was to be given the first opportunity to determine if regulatory policy could be reconciled with application of the antitrust laws. The contention that the stay was inappropriate because neither the FCC nor the state utilities commission had the authority to determine whether the challenged activities were in violation of the antitrust laws was rejected. Also rejected was the assertion that the telephone companies were immune from antitrust attac' ! 1 965, ,190, because 9214. of their extensive regulation by the federal and state agencies. See For plaint'ffs-appellants: James G. Rourke, of Rourke & Holbrook, Santa Ana, Cal. For defendants. appellees: Cat, Charles W. Bender, of O'Melveny & Myers, Los Angeles, Cal.Anthonie M. V) l Before: CAarsa and Hursramr.a. Circuit Judges, and ScnwAcxr,' District Judge. Opinion (" General") seek to sustain the Order of CAarra, Cir. J.: This is an appeal from di:minal on three grounds. (1) non-justici-the Order of the district court, dismissing ability; (2) :he complaint failed to state a the complaint of appellants Industrial Com. claim upon which relief could be granted; munications Systems, Inc. (" Industrial") and ,(3) the California Public Utilities Com-and Intrastate Radio Telephone, Inc. of mission ("PUC") has primary jurisdiction Los Angeles (" Radio") on the ground that i the dispute. Although we conclude that it failed to present a justiciable case or the case was justiciable and the complaint controversy. Appellees Pacific Telephone stated a claim upon which relief could be and Telegraph Company (" Pacific") and granted, the federal court case should have General Telephone Company of California, been stayed pending the outcome of the 4
.
- H; -. .ble Robert H. Schnacke. United Statae Distrtet Judge. Northern District of *
.Canfornla situng by designation.
Trade Regulation Reports 1 75,291
" ^" --nn. --. , , . _ _
53 - S 7, 8 'O O Court Decisions ses ms.r. Industrial Commamications s. Pacifc Telephone & Tclegraph PUC proceedings. under the doctrine of On June 21 D2, Industrial requested
- primary jurisdiction. We reverse and re- the FCC to withhold any action on the mand with' instructions that the district radio license applications of General and court stay this case pending the outcome Pacific, and on June 26, 1972, Industrial of the PUC proceedings. Radio filed a complaint with the PUC chal-lenging the tariRs 61ed with Paci6c's and Facts General's Advice Letters. The complaint Industrial and Radio are engaged in the alleged in pertinent part that the rates and one way signaling business in the Los An- c nditi ns of service General and Pacific seles area. One-way signaling is a means s ught t establish were unfair, anticom-for informing a person while he is away petMw, and, constituted an unlawful con-from his telephone that someone is attempt- inct. can nati n a e nsp ucy in ing to contact him. A subscriber to a sig. ' "I'* "I I *b II was further alleged that naling service is assigned a number and Industrial and Rad.io ,would surer prompt a small radio receiver that he carries with and irreparable injury if the proposed tarids him. To contact the subscriber, one tele- *"* P'""N '*d ' N* ** D*
phones the signaling utility, waits for a f 11 wmg day, the PUC suspende #****"'d t h e tone, and then dials the subscriber's number. tari s proposed lay General, and Pacific The utility's transmitter emits a radio beam and commenced an ,investigat:on to deter-keyed to that subscriber's receiver and the "* n sonaWness and lawfulnus of receiver emits a " beep" tone. Thus in- ta ~ formed that someone is attempting to con- The complaint proceeding and the PUC tact him, the subscriber telephones a pre- investigation were consolidated and, on determined contact point, such as his office, November 10,1972, a full PUC hearing was and obtains the message. The basic tech- commenced, with one of the issues to be alcal equipment required to provide one- determined stated as follows: way radio signaling service is the radio transmitter and the means to connect it ,,E*"IdI permit the .t be .m thetariffs pubh.c mterest to with the telephone network. roposed filed by Pa-
,c ific and eneral to become eHective, Industrial and Radio pay to Pacific and public interest being deemed to include General a raonthly charge for this di.1 in, but not limited to relevant, consideration terconnection under contracts terminable OI MI4,ed anti-competitive impact of such by either party on thirty days' notice. In- **
dustrial and Radio compete with each other On December 1,1972, the hearing examiner for one-way signaling service subscribers adjourned the hearings to a future date and are also subject to such competition to set by the Commission. from other radio common carriers in the Los Angeles area. [ Antitrust Suit] On November 1,1971 the FCC granted Industrial and Radio also filed their com-construction permits to both Pacific and plaint in the district court, alledng that General to build radio transmitters to be Pacific and General were combining, con-used for providing one-way radio signaling spiring, and threatening to commit viola-service in the Los Angeles area. These tions of the antitrust laws by proposing permits authodred the construction by both to enter the one-way radio signaling busi-Paci6c and General of facilities to "be ness in Los Angeles. The complaint fur-operated in coordination" with one another ther alleged that their one way signaling on the same frequency, business would suEer serious and irreparable On June I and June 2,1972, respectively, injury unless General and Pacific were General and Pacific each filed sn " Advice enJ med from entering the market. g Letter" with the PUC. These Advice Let- Upon motion by Pacific and General, the ters presented revised tariR sheets to the district court dismissed the complaint on PUC containing information and rates the ground that, since the PUC had not covering the proposed institution of one- yet approved the defendants' tariHs nor
~
' way signaling service in Los Angeles. On had the FCC granted the defendants the June 2J.1972 General and Pacific each requisite radio licenses, "(t]he dispute as pre-applied to the FCC for a radio license to sented is, therefore, hypethetical and ab-operate A transmitters they had built stract. It lacks sufficient immediacy and pursuant to tne construction permits issued reality to warrant, at this time,; mible dis-on November 1,1971. harmony between this Court and the agen.
~ 1 75,291
@ l974, Commere s Cle'aring House, Inc.
L
t- 54 - H e so.as H Cited 1974-2 Trade Cases S7,891 Industrial Communications v. Pacifc Telephone Er Telegrapk cies charged with the primary regulation no oprortunity to prove tha acts threatening
.of this area of ioapetition." This appeal violation of the antitrust laws.' We 6nd, ensued.'
and Zenith Corp. v. Ha citine, supra, so re-y* quires, that the plaintids have demonstrated "a signincant threat of injury from an TA< Case ts /usticiabic impending. violation of the antitrust laws." The United States Constitution limits the The dispute is therefore justiciable. jurisdiction of the federal courts to the Our 6nding that the plaintifTs have prop-adjudication of " cases or controversies." erly a!!eged an impending iiolation of the U. S. Const., Art. III, $ 2. This limitation antitrust laws which, if proved. would en-bars federal courts from giving advisory title them to equitable relief, likewise man-opinions or from considering hypothetical dates the conclusion that the complaint cases. See Actaa Life Ins. Co. v. Haworth, states a claim upon which relief can be 300 U. S. 227,240 241 (1937). In the usual granted. Whether the violation alleged case, then, acts which merely threaten in- can be proved is not relevant at'this stage jury to one or s~eral parties will not sup- of the proceedings, port the 6nding of a case or controversy sufficient to give the courts jurisdiction. II. However, the authorizing statute in this The PUCHas Primarylurisdiction case, Section 16 of the Clayton Act, 15 of theDistuft U. S. C. ,126, provides with a suit for "mjunct, aggrieved parties ive relief, in any Although the district court dismissed the Court of the United States havmg j,un,sdic- complaint as nonjusti 'able, it also noted tion over the parties, against threatened loss that determination of the dispute could er damagt by a tiolation of the antitrust result in " disharmony bstween this Court leers. (Emphasis added.) The " relief and the agencies charged witit the primary against threatened conduct that ,w,! d cause regvlation of this area of competition." loss or damage is to be granted by courts Paci.ic and General contend on appeal, of equity, smder the rules governing such as they did below, that if the d'smissal
. proceedmgs. was erroneous, the district court proceed-ings should at least have been stayed The Supreme Court, interpreting Section pending proceedings by the Fl*C which 16 of the Clayton Act, has specifically held has primar that a listty need not prove the fact of We agree. y jurisdiction of thne dispute.
injury in order to be entitled to injunctive relief against parties conspiring to violate There are in reality two prongs to the the antitrust laws. Zenith Corp. v. Ha:<ltme contention that the PUC or FCC, not the (1969 TaAce Cases 172,800), 395 U., S.100 federal courts, has jurisdiction over this (1969). Rather Section 16 "authonzes in- case. Mrst, Pacific and General contend junctive relief upon the demonstration of that the extensive regulation of telephone threatened injury. That remedy is char- companies by the FCC under the Federal acteristiolly available even though the Communications Act, 47 U. S. C. $5151 plaintiR nas not yet suffered actual mj,ury et scq., precludes any antitrust actions
. . . he need only demonstrate a sigm6 cant against them. We reject this contention threat of injury from an impendmg viola- both because our conclusion that the PU(3 tion of the antitrust laws ., . . Id. at 130 has primary jurisdiction warranting a stay
'(citations and' footnotes omitted). in this case renders a broader holding superfluous, and because the relevant case Industrial and Radio have properly al-leged a combination by Pacine and General law would appear to indicate that telephone to enter the one.way radio signalling busi- companies are not from antitrust unconditionally actions. See c.g., Otter immune Tail ness in 1.os Angeles, in violation of the Power Co. t. United Starts (19731 Tupe antitrust laws. They have also alleged that Cases 174.373], 410 U. S. 366. 372 (1973);
such entry into the market would cause United States t. Philadcithia National Bank them serious and irreparable harm. Re- [1963 TEAne Cases 170.8121, 374 U. S. 321, cause the dismissal came at the pleading 350-351 (1963) (" Repeals of the antitrust stage of the proceedings, they have had laws by implication from a regulatory stat-
- Plaintiffs hase Indicated that they expect to show. Inter alks, that Pacine and General Southern Calltornia Region unJess in conform-have adopted an agreement whereby "Neither ance with the joint plans or defer not!41ne the l
j company uti Ale for personal signalling sys. other company of its intention to proceed ajone." Appellant's Opening Brief, at 5 n. 3. tem construction permits within their mutual Trade Regulation Reports 1 75,291
.m
- 55 -
S 7, S 9 2 . Court Decisions ses mas.r4 Industrial Communications v. Pacific Telephone & Telegraph ste are strongly disfavored, and have' only cation by wire or radio" (47 U. S. C. I152 been found in cases of plain repugnancy (a)), regulation of wire or radio communi. between the antitrust and regulatory pro- cation between points in the same state
. visions"): International Tct. & Tct. Co. v. 'is reserved to the appropriate state com-Centrol Tct. Co. [1972 TaAce Casts 174,0%), mission (47 U. S. C. I153(c)). Under this 351 F. Supp.1153,12021203 (D. Hawaii dual regulatory system, the FCC exercises 1972). But cf. United States u Radio Cor- regulatory authority over the initial issu-peration :.of America [1959 TaApe Cases ance of radio licenses but defers questions f 69,284], 358 U. S. 334, 349 n.17 (1959). regarding rates, " economic impact" and In Radio Corporation of Amedca, supra, ed for ,ervice" to the state agency, e at 349 n.17, the Court noted that " Con.
- gress has provided that certain actions of telephone and telegraph compames may (g,,,t .g,g,f,,g,,)
be exempted from the antitrust laws by " Telephone corporations" are compre-the Commission. [47 U. S. C.] $ 221(a) hensively regulated under. the California and $ 222(c)(1)." These exemptions, how- scheme. No telephone corporation can be-ever, have been specincally and narrnwly gin construction of a line, plant, or system drawn, and pertain solely to consolidations in an area unless it has first obtained from and mergers. They do not authorize or the PUC a certincate of public conven-suggest a blanket exemption from the ience and necessity covermg that area. antitrust laws with respect t.o the regu- Calif. Peb. Util. Code i1001. If the PUC latiork of rates, practices, or services. finds that any practices, facilities, equip-The second prong of appellees' primary ment, or service of a telephone corpora, tion jurisdiction argument is that under that are, unreasonable, inadequate, or insufficient, doctrine a court should stay proceedings t is empowered to order the company to , which are properly within the jurisdiction furn,sh or construct, whatever facilities, i of, and are in fact preseistly under con- equipment or service is needed. Calif. Pub. sideration by, an agency with extensive Util. Code $ 761. The PUC's regulatory regulatory powers over the subject matter authority over rates, practices, and services and parties involved. We agree and con, is likewise both pervasive and contmumg. clude that the reasons for applying the Calif. Pub. Util. Code $$ 455, 489, 728, I doctrine of primary jurisdiction are appli- 729. And, in addition to its extensive i cable to this case. specifically enumerated powers, the PUC ' Whether or not the doctrine of prhnary is vested with omnibus authority to do jurisdiction applies depends on the extent all things necessary to the exercise of,its and amount of regulatory powers vested $'"p*," (g';'g *j,,"g 70l. pubhc utilities. In the governmenta: agencies involved. In instances where the companies or activities For over a decade, the PUC has per-were fully regulated, the doctrine of pri- vasively regulated all " elements which mary jurisdiction applied. See For East affect the relationship between a radio-Con /crence v. United Starcs [19521953 Taane telephone utility and the public," Kidd v. Casts 167,241), M2 U. S. 570 (1952); Radio Poor, 64 Cal. PUC 237, 240 (1%5), and Corporation of Amedca, supra, at M6-M7: "a consideration of . . . [ antitrust ques-
. United States Navigation Co. v. Cunard S. S. tions] is an essential part of the Commis-Co., 284 U. S. 474, 483-485 (1932). At the sion's function. . . . [T]he Commission
.other end of the spectrum are those cases must take into account the antitrust as-concerning the broadcasting industry, where pects of applications before it." Northern the lack of statutority mandated control California Potrer Agency v. PUC,5 Cal. 3d rendered the doctrine inapplicable. See 370, 379, 486 P. 2d 1218, 1224, . % Cal.
Radio Carloration of America, supra, at Rptr.18, 24 (1971). 348-349 (Radio and television broadcasters .
"are not included in the definition of com- [/udicial-Administrative Conflict) mon carriers . , as are telephone and
, telegraph companies. Thus the extensive Where, as here, a regulatory agency controls . . . of the Commumcations Act possesses such extensive authority and control over a particular subject matter,
, . . do not apply ); Fedcral Commum,co-tions Comm n v. Sanders Bros. Radio Statson, 3,,, where and consideration of the same sub-
,,,,,,g, ,,,gg, y,q,,, gy,, ,g,,,,
309 U. S. 470, 474 (1940). . and the courts, the possibility of a judicial-Because the jurisdiction of the FCC is administrative conflict should. be avoided. ! limited to " interstate and foreign communi- Carter v. American Tel. 6. Tel. Co. [1966 l 1 75,291 @ l974, Commerce Clearing House, Inc. - t l l
l i 56 -
)
i Me SNe44 Cited 1974-2TradeCases ' S 7s 8 9 3 - l Industriel Communications v. Pacifc Telephonc & Tescoraph
. 1 TaASE cases 171,8621, 365 F. 2d 486, 495 Co., supra, at 493-494,497. "[T]he problem l (5 Cir,1966), cert. denied 38$ U. S.1008 is not one of application of the antitrust (1967) ("the occassion for facing such a laws but is one o' accommodation of the possibility ought not to be forced until antitrust policy to the regulatory policy.
it is inescapably necessary*'). . . . . The courts are obviously well equipped to make initial decisions involving applica-tion of the antitrust policy. But, before the (Agency Esrcrtitel 1 Another reason for, de' ferring to the PUC particular regulatory agency has defined the ) is the need to, obtam the benefit of that particular case, the regulatory courts arepolicy in the not well particular equipped to agency's expertise in ascertaining, interpreting and distillmg the facts and circumstances make initial decisions involving accommo-underlymg the legal issues. Where an cgency dation of the,, antitrust policy to the regu- < is charged with responsibility for regulatmg y,y p,g;cy, 3 Datn, Administrative Lato I a complex industry, it ,s much better equip
- I 19.05, at 25 (1958 ed.). See MCI Communi- l i
ped than the courts, "by specialization, by cations Corp., supra, at 222. I insight gained through experience, and by' in a case involving facts virtually identical more flexible procedure," to gather the rele- to the facts in the present case, the district ) vant facts that underlie a particular claim court stayed the federal action pending <.e-involving that industry. See For East Co . termination by the FCC, ference v. United States [1952-53 TaAne "after giving du'e consideration to che Casts 167,241], 342 U. S. 570, 575 (1952). likely competitive effects whether grant ng In the present case, the PUC's review of [defendarit's] application will serve 'de the nature of the market, the quality of public interest, convenience, and neces-present radiotelephone utility service, the competitive impact of defendant's entry into sity's'] ant If the FCC should application, denyComplaint the instant (defend. I
;
the market, and various other issues would will be disnussed as moot. If the FCC ' be an invaluable aid to the district court. should grant [ defendant si application, Cf. MCI Communicosions Corp. v. Amcrica" m whatever form, then plaintiff can renew Tel. & Tel. Co., 4% F. 2d 214, 223-224 (3 its request to this Court for immediate i injunctive and/or declaratory relief." Radio Cir.1974). Broadcasting Co. v. Beu Tel. Co. of Pa., \ Finally, adjudication of p necessarily require determ.this. 325 F. Sugar. See also ter168,170 (E. D. Tel. Pa.1971). l mation ofcase a keywouldCo., supra.
- v. Amerscan & Tel threshold issue which is present in most antitrust cases involving regulated indus- We endorse th.is p tries-whether the regulatory policy in the the present case., rocedure with respect to particular case can be reconciled with appli- Therefore, we reverse the order dismissing cation of the antitrust laws, and if not, the complaint in this action and remand whether the scope and nature of the regu- with instructions to stay the action pending latory control exercised in the particular the final cutcome of the PUC proceedings case precludes application of the antitrust and then to proceed in a manner consistent laws. See Carter v. Amedcas Tel. & Tcl with this opinion.
P a The contention by Industrial and Radio appraised by specialized compe'.ence serve as that because nc!ther the PUC por the FCC has a premise for legal consequences to be judicially the authority to determine whether Pacific's and defined.' ['Ite doctrine applies] *even !! the General's activities will violate the antitrust court thinks that the arrangement. alleged to l laws. a stay of the federal action is inappro- violate the antitrust laws cannot be legally i priate, is without merit. In Carter, supm, the approved by the agency
- for 'the court should l court stated: still allow the agency first to pass upon the
**That the ultimate decision of the FCC may question.' " 365 F. 2d at 499 (cf tations omitted).
not be an end to the matter is neither unex- See South westem Nugar a Motsases Co. v. pected nor deelsive. For the doctrine app!!es River Terminals Co., 360 IL S. 411, 420 (1959). even though the facts after they have been l Trade Regulation Reports - 1 75.291 l 7-,
I i l 57 - Hf to st H Cited 1974d Trade Cases 37,73'3 Jack Winter,Inc. v. Koratron Co.,Inc.
;
III. IV.
. linspection and Compliance} (Monetary Penalty}
It is further Ordered that for th se It y Further Mend t!2at the Debh,
. of determining or securing comph.e ance purpo.th wi Associated hiilk Producers, Inc., pay to this Final Judgment, and subject to any the Plaintiff, State of Texas, the sum of
~ legally Mcognised privilege:
Two Hundred Thirty Thousand Dollars ($230,000.00) to be due and papble as (1) Duty authorized representatives of follows: the Texas Attorney General's Office shall A. One Hundred Thousand Dollars
.upon written request of the Attorney ($100,000.00) cash or check payable to the General or the Assistant Attorney , Gen-
, eral sn charge of the Antitrust Division, State of Texas at the office of the Attorney and on reasonable notice to Defendant Austin, Gene.ralTrav.he of t State of Texas, City of made to its principal office, be permitted is (a) access, during the office hos.rs of tion of this Fm, al County, Texas, upon execu-Judgatent; Defendant to all books, ledgers, accounts, B. The remaining One Hundred Thirty correspondence, memoranda, and other records and doct?ments in the possession Thousand Dollars ($130,000.00) shall be or in the control of Defendant relatimr t payable in thirteen (13) equal monthly any of the matters contained in this Final installments o Ten Thousand Dollars Judgment, and (b) subject to the reason. ($10,000.00),ithw.f each such installment due abic convenience of Defendant and with- and payable on or before the fifth day of out restraint or interference from Defendant, each month beginning November of 1974 to intervieweach Defendant, officers, or employees of whom and the De-of and continuing for the next succeeding fendant may have counsel present, re- twelve (12) months until fully paid. Earding any such matters. (Retention of Jurbdiction] (2) Defendant, upon such written re. Jurisdiction is retained by this Court for quest of the Attorney General or the the purpose of enabling any of the parties Assistant Attorney General in charge of to this Final Judgment to apply to this the Antitrust Division, shall submit such Court at any time for further orders and reports in writing to the Texas A'torney direction as may be necessary or appropri-General with respect to matters contai,ned in this Final Judgment, as may from time ate for the construction or carrying out of to tinne be nquested, this Final Judgment, for the amendment or modification of any ci the provisions No information obtained by the means hereof, for the enforcement of compliance provided in this paragraph sha!! be divulged therewith, and for the punishment of viola-by any representative of the Texas Attorney tions thereof. General's Office to any person other than It s further Ordered that a!! Writs of a duly authorized representative of the Injunctior. herein granted shall be issued plaintiff, except in the course of legal pro. ceedings to which the State of Texas is without bond, and it is Agreed that party for the purpose of determining or se- hereon Defendant's Counsel whose names appear shall accept service on behalf of curing compliance with whis Final Judgment Defendant of all Writs of Injunction her*in or as otherwise required by law. granted. [175,270] Jack Winter, Inc., Plaintiff v. Koratron Co., Inc., Countercla[mant v. Jack Winter, Inc., Counterclaimant Defendant, and All Cases Consolidated for Trial. U. S. District Court, Northern District of California. Civil No. 49,392 and other
' ' cases, Nos.
47,273, 49,558, 49,671, 49,913, 50,063, 50,827, 50,854, 51,281, 51,301, 51,653, 51,654, 51,691, C-70-1252, and C-70-1443-CBR. Filed 11 arch 6,1974. Sherman Act Patent Practiceo-Secret Agreement Not to Contest Validity or Sue for Infringement
-Sherman Act Liability.-A secret agreement between competing manufacturers of permanent press fabrics under which one manufacturer, who held a patent for its fabric process, agreed not to bring any action against the other manufacturer or users of its fabrics for rnyalties or infringement under its patent, and the other manufacturer agreed to disclose its process and not to attack the validity of the patent, did not amount to a horizontal division of the product market in violation of Sec. I of the Sherman Act. The Trade R'egulation Reports 1 75,270 4
[Pages .97,734 - 97,753 deleted.]
58 - J set 10-31 74 Cited 1974-2 Trade Cases S7,753 Jack Wp'nter, Inc. v. Koratron Co., Inc.
-B. 92 of the Sherman Act 'Chroumalloy American Corp. v. Alloy Sur-Adversaries have also raised the claim facts Co.,339 F. Supp. 859,874,876 (D. Del.
that Koratron, either individually or in con- 1972): SC3f v. Radio Corporation of Amer. cert with Koracorp, engaged in activities a 970 TaAos CAsrs f 73,343),318 F. Supp, in violation of $ 2 of the Sherman Act." 433,446-450 (S. D. N. Y.1970). Two general claims are asserted by Ad- In the instant case, Adversaries have al-versaries. leged a serious breach of the duty of dis-First, Adversaries claim that in procur. closure by Koratron and its predecessor ing both the '432 and the '915 patents, Kora, in coanection with both the '432 and '915 tron had perpetrated a fraud on the Patent patents. Specifically, in the case of the OEce by failing to disclose certain in. '432 patent, Adversaries alleged (a) that formation to that omce. By licensing such Koratron failed to disclose to the Patent a fraudulently procured patent, Koratron Office the filing of patent application serial is charged by Adversaries with attempting No. 149,454, and the use, more than one to monopolize and actually monopolizing > ear before the filing date of the application the durable press industry in violation of which issued as the '432 patent, of the 5 2 of the Sherman Act. process described in that application to Second. Adversaries claim that Kora- make garments sold under the names tron and Koracorp, individually or in con- ** Tub,ny!" i and "Nylura", hereafter referred cert with one another, monopolized and to as the "Tubinyl process": (b) that attempted to monopolize interstate and ex- Koratron failed to disclose the Plectset port trade in the manufacture, processing, process, includmg the commencement of and sale of resin-impregnated fabrics, re, garment manufacture after resin impregna-lated textile materials, and durable press ti n and before curing; and (c) that Kora-garments in violation of $ 2 of the Sherman IT .n submitted certain fabric samples which, Act. This was accomplished, Adversaries it is claimed, were maccurately described claim, by the Dan River agreement and and which, therefore, exaggerated the sm-also by implementation of a national and portance of oven-curing in achieving the international licensing program of the '432 desired result. patented process and related trademarks. In connection with the '915 patent Ad-(1) The Claim of Fraud Upon the Patent versaries contend that Koratron failed to Ofice disclose that the delaying catalyst, magne-The Court has already noted the burden sium chloride hexahydrate and the tech-upon a patent appheant to make a full and nique of pre-setting the resin in the garment ! complete disclo,sure of the facts and car- ope seams and crease areas during the pressing l cumstances relatmg to the claimed mvention og915, ration, theboth were two publicly allegedlyknown novel and features in to the Patent Office. Precuton Instrument commercial use by Koratron and others in M/s. Co. v. Automotive 31, Afachms Co.,324 U. S. 806, 818 (1945). Lacking independent connection with the '432 patent. investigative facilities of its own, the Patent These omissions or non-disclosur,es by ! Office must rely to a great extent on the K ratron are alleged by Adverst. ries to candor of the applicant in disclosing those constitute, a fraud upon the Patent Office. i facts and circumstances. See Beckman In- thereby giving rise to a $ 2 violation of the struments, Inc. v. Chemironics, Inc. [1970 Sherman Act, in light of the alleged ex- i t TaAos Casts 173,138),439 F. 2d 1369,1378- clusionary market power of Koratron in 1 1380 (5 Cir.), cert. denied, 400 U. S. 956 the relevant market, under Walker, Inc. v. (1970), rehearing denied, 400 U. S.1025 Food 3fachinery [1%5 TnADE CASES T 7),- (1971). Where such candor has been found 625), 382 U. S.172,177 (1965), and Cata-lacking, the courts have been empowered to phote Corp. v. DeSoto Chemical Coatings, declare the patent at least unenforceable, Inc. [1971 TnAns Casts [g 73,750],450 F. 2d and in some cases, invalid. Afonsanto Com. 769,771-73 (9 Cir.1971). pony v. Rohm & Haas Company, 456 F. 2d in Walker Process, the Supreme Court 592, 600-601 (3 Cir.), cert denied,407 U. S. held that allegations that a patent had been 934, rehearing denied,409 U. S. 899 (1972); obtained by knowingly and willfully mis-
""Every person who shall monopollre, or attempt to monopollrc or combine or conspire consictlon not esceeding thereof, shall be punished Afty thousand dollars, orbyby tlne im-with any other person or persons, to monopollze prisonment not exceeding one year. or by any part of the trade or commerce among the both said punishments. In the discretton of poveral states, or with foreign nations, shall the court. 15 U. S. C.11. See also 15 U. S. C.
be deemed guilty of a misdemeanor. and, on i 15. ' Trade Regulation Reports 1 75,270
l 59 - 97,754 Court Decisions 147 to ::.74 Jech Winter, Inc. v. Korotron Co., Inc.. representing facts to the. Patent Office, an As the Ninth Circuit noted'in Cataphore attempt by the patentee to - enforce the Corp. v. DeSoto CArmical Coatings, Inc., , patent, for example, by a licensing system apra [1971 TaADE. Casts 173,750], 450 F.
.or a similar attempt by an assignee who 2d at 772: .
h'as knowledge of the facts, constitute a violation of $ 2 of the Sherman Act if the term {is used in Walker, cari mean no less*'[ C]nowing a other elements of an antitrust violation are than clear, convincing proof of inten-present. These additional elements include tional . fraud involving affirmative dis-the possession of monopoly power in the honesty, 'a deliberately planned and care-fully executed sel relevant mark.et. Both Mr. J.ustice for the majonty ar.d Afr. Justice Harlan in Clar.k the Patent Offlee.jeme to defraud * *
- Hasel-Atlas Glass Co.
a concurring opinion were careful to limit v. Nortford-Empire Co., 322 U. S. 238,. the decision to cases involving the procur- 245 * * * (1944)/* ing of patents by ** knowing and willful" Adversaries have not met ,this, burden and misrepresentations to the Patent Office, and have not established a'i 2 violation based on to negate specifically its application to cases the procurement of the '432 patent. involving puents invalid for some reason With respect to Adversaries
- claim that other than atlual fraud. In order to find Koratron failed in the '915 application to a violation of $ 2 in enforcing a patent pro-cured by nondisclosure, it must be shown disclose that the allegedly novel delaying
'that there was knowing and willful non- catalyst, magnesium chloride hexahydrate, was disclosure of material facts, and good faith both publicly known and in commercial use by
- would furnish a complete defense. Walker Koratron and others, the Court finds that Process, supra, at 177. the specific catalyst was never claimed to be an invention and thtt the patent itself The Court has already found that there did not so indicate. It was recognized by was no fraud on the Patent Office in Kora- all that the use of that catalyst was pub-tron's procurement of the '432 patent. As licly known before the '915 application was indicated above (see pp. 63-69) [Part E] the filed. The invention which was claimed was evidence does not establish that such non- the pre settiag step, and the use ci the disclosure as did occur, regarding either catalyst as an adjunct to that process was Tubinyt or Pleetset, was the result of an never claimed to be an independent in-intentional or willful plan to defraud the vention.
Patent Office or that Koratron acted in Finally, Adversaries claim that Koratron bad faith before the Patent Offi,ce. Afore-over, even if there had been any intentional intentionally failed to disclose to the Patent misrepresentats,ons directed toward over- Office that resin pre-curing of creases and coming the prior art, since the Court has seams during pressing had been used com-found that the '432 process is legally patent
- mercially by Koratron and others in con-able over the prior art, neither the Tubinyt nection with the '432 patent long before nor th the '915 patent was conceived. It must be niatern,eal to Plectset the issuancereferences could of the patent. Corn- have been recognized, however, that the ' application sep Glass Works v. Anchor Rockmg Class for the '915 patent cited the '432 patent Corp., supra [1966 TaAns CAsss 1 71,834 , 253 and thus cannot be said to have :oncealed F. Supp. at 469. The court m Cormng ] Glass anything about that patent from the Patent focused specifically on this materiality re- Office. The evidence shows that while quirement in the context of an alleged some pre-curing undoubtedly occurred when Walker Process violation and concluded that garments 'were pressed prior to the final
,[i]f one were entitled to a patent under cure under the '432 process, early in the the legal tests of patentability, there is n life of the '432 patent it was not thought allegal monopoly resulting from the state- pessible to obtain a complete cure of the ments on which to base an anti-trust ac- resins using the hot. head press then in use tion " Sim: .by Koratron. The innovative feature of the Adversanes,1arly, proof is the Court has msufficient found that 915 process was the intentional full cure -
to establish that the fabric samples sent,to the ,Pa, tent of the resin in the creast and seams by ONice by Koratron, and their descriptions means of a hot-head press prior to the final were misrepresentative, cure of the completed garment. Adversaries have not established that Koratron actually While not in any way wishing to appear practiced this full pre-curing of selected to condone the nondisclosure that did oc- areas of the garment under the '432 patent cur, this Court is not prepared to find it to long before the '915 application was con-have been knowingly and willfully dom. ceived and then willfully withheld such a 1 75,270 @ 1974, Commerce Clearing House, Inc. O
+
60 - 1 e4r so.* r4 Cited 1974-2 Trade Cases Jack Winter, inc. v. Koratron Co., inc. S7.755 penetice from the Patent Office. As a re- the percentage shares which have been sult, Adversaries have failed to prove a held to be monopoly shares. See United
$2 violation based on the issuance of the States v. CrineclJ Corp. [1966 Taxos CAsss
'915 patent.
171,789),384 U. S. 563,571 (I966) (87%): (2) Licensing Practices and Dan River intemtional Bozing Club v. United States g8**'"# [1959 TaApe Casts !69,231],358 U. S. 242, Adversaries claim that Koratron has vio-
. 249 (1959) (81%); American Tobacco Co.
lated ,$ 2 of the Sherman Act through its v. United States [1946-1947 Tasos cases licensing practices an,d the Dan River agree- 157,468), 328 U S. 781, 797 (1945) (over
/ ment by monopohzmg or attemptmg to 67%, over 80%); United States v. Aluminum monopolize the manufacture, processmg and Co. of America,148 F. 2d 416, 429 (2 Cir.
sale of resin,-impregnated fabrics, related 1945) (90 % ). Cf; United States v. DuPont textile materials, and durable press gar * & Co. [1956 TaADE cases T 68,369),351 U. S. ments. 377, 379, 381, 404 (1956).
"The offense of' monopoly under 12 of Market share is, of course, not the only the Sherman Act has two elements: (1) the potential eviderice of monopsly or monop-olization. Since monopoly power consists possession of monopoly power in the, re,le- og .'a power of controlling prices or un-vant market and (2) the willful acquisttion or maintenance of that power as distinguished reason' a bly restricting competition," Uni'cd from growth or development as a conse- States v. DuPont & Co. [1956 TmAcc Casts quence of a superior product, busmess 168,369),351 U. S. 377,389 (1956), evidence acumen, or historic accident." United Stat #3 of that power is pertinent. But evidence of
- c. Crinnell Corp. [1966 TaAna Cases 171,- knowing and willful acts which were in-789), 384 U. S. 563, 570-571, (19,66). "The tended to exclude competition is insufficient existence of such power ordmarily may be to show monopolization in the absence of mferred from the predommate share of the proof of "the exclusionary power" of such market." 384 U. S. 563 at 571, acts "in terms of the relevant market for the product invclved." Walker, Inc. v. Food
[ Absence of Monopoly] Machinery [1965 TaADE cases { 7),625),382 U. S.172,177 (1965). Considering the evi. In applying this market-shere test to this dence presented on Koratron's licensing case, the Court does not find monopoliza- practices and its share of the relevant tion by Koratron. In the pre-trial order, market, the Court concludes that Adver-Adversaries defined the relevant market for saries have failed to prove that Koratron i2 purposes as the " manufacture, process- possessed such exclusionary power and thus
'ing and sale of resin-impregnated fabrics, violated $ 2 of the Sherman Act by monop-related textile materials and durable press olization of that market.
garments * * *." They presented no evi-dence at trial, however, of Koratron's share of that market. They did offer evidence of (Assempt to Monopolist) Koratron's market share of a submarket: An attempt, to monopoh.re trade and com-the market for men's and boys' dress and merce also violates $ 2. In this Circuit, the casual slacks. Even if the Court accepted definition of the this evidence as defining a relevant sub, wired for a findm,grelevant market of an attempt is not re-to monop-market, the only evidence offered which olize. Lesss,g v. Tidewater Oil Company bears on the question of Koratron's per- !!9M ThoE cases i70,993},327 F. 2d 459, centage share supports an inference that it was 474 (9 Cir. IN4), cert. denied, 377 U. S. at most 42%." This figure does not approach 993 (1964)." See also Industrial Bldg. Ma-
"Th!s maximum figure is based upon Kora.
tron's estimate that M 1969 durable press gar. C4sas f 71.6251. 382 U. S.172 (1965). this Court need not address the question whether Walker menta constituted 75% of the market for men's Process, in effect, has overruled Lessig. al-and boys was
- dress receiving andpaymeurs royalty casual slacks from and that it though such an argument onds support in 56.4%
of the sales of dumble press men's and boys' dictum in Walker Process. There the Supreme dress and casual slacks made from the post. Court stated at 38213. S.177:
"To establish monopoltration or attempt 11 cure proassa. See p. 90 !Part VI El. supra. The monopollze a part of trade or commerce unda, Court finds that this evidence on market is wry unclear and that it would be insuffielent share 12 of the Sherman Act, it would then be
** necessary for a finding of monopolization even !! the per- of the illegal to appraise the exclusionary power centage derived from Lt were higher. patent claim in terms of the
. relevant market for the product involved. With-as"trmed by this Circuit f. dowing the decisionSince out a definition theofdeelslon in there that market Lessig has is no been re-way l to measure Food Machinery's ability to lessen
' la Walker, Inc. v. Food Afochinery (1965 TaA&E or destrJy competition." Trade Regulation Reporta i 1 75,270 1 I l l
61 -
~
g7,75S . Court &cisions t47 384344 Jock' Winter, Inc. v. Korotron Co., Inc. terials, Inc. v. litterchemical Corp. [1971 mark commented t% "[t]he Cornwell dictum TnAna CAsss i73,399),437 F. 2d 1336,1344 cannot be read to require proof of any (9 Cir.1970). In Lcssig, supra, the Court particular degree of market power as an also rejected the notion that probability independent and necessary element of at-of actual monopolization was a necessary tempt to . monopolize, for such a requ:re-element of an attempt to monopolize. 327 ment would be contrary to the holding in, F, 2d 459, at 474. In industrial B!dg. Ma- Lessig, more recently reaffirmed in industrial terials, supra, Lessig was interpreted as hold- Building Materials, supra, and Moore, supra," ing that "[i]n an attempt to monopolize 489 F. 2d at 12, n. 3. On the question of the situation, only intent to monopolize is in relevance of market power for a showmg issue, and no proof as to relevant market is of attempt to monopolize, the Court ex-eequired." 437 F. 2d 1336, at 1344 plained at 489 F. 2d 12-13: Recent decisions by the Ninth Circuit "Certainly market power may establish have, however, moved away irom that Spar- dangerous probability tan interpretation of Lessig. In Cornwell f,4,,,,;,g g,;gg;,, y,.,,However,
,;,y,, ,,4 lessig, y,,,,,
Quality Tools Co. v. C. T. S. Company [1971 supra, hold that dangerous probability TaADE cases 173,620}, 446 F. 2d 825, 832 may also be shown through proof of (9 Cir.1971), cert. deried, 404 U. S.1049 specific intent to set prices or exclude cornpetition in a portion of the market (1972), Judge Hufstedar, writing for the without i Court, said in dicta that the elements of specific m,egitimate tent must be business purpose.byThis accompamed an attempt to monopolize were specific in. Predatory conduct directed to a:complish-tent and " sufficient market power to come 8"
*' [*the unlawful purpose. Ordinarily spe-dangerously close t.o success." Judge Huf- be m.ferred intent from is difficult stedler, again writmg for the Court, has suchtoant prove and will competitive very recently stated that "an attempt to conduct. Therefore evidence of market monopolize.under section 2 does not re- power may be relevant, but it is not indispensable where a substantial claim quire proof of monopoly power. Proof that of restraint of trade is made."
there is a ' dangerous probability of success' The requirement in this Circuit, there-is certainly enough. [ citing Lessig, supra) fore, is that somed.*ng more than specific Evidence of market power is relevant, but not indispensable to a lessig claim." Moort intent is required to establish an attempt to monopolize. Either a dangerous prob.
- v. Jas. H. Matthews (r Co. [1973-1 TaADE ability of success must be demonstTated, cases 174,263, 74,348], 473 F. 2d 328, 332 by a showing of market power or other (9 Cir.1973). Finally, in Bushis v. Stenocard Corporation [1972 TaAna Casts 173,8%),460 evidence, or the claim of an attempt to F. 2d 116,121 (9 Cir.1972), the Court in- monopolize must in turn be based upon a timated, in referring to Lessig and Industrial substantial claim of restraint of trade. Cf.
Bldg. Materials, that something more than Dobbins v. Kauesaki Motors Corporation, mere specific intent was required: U. S. sf. [1973-2 TsAnt Casts 1 74,609), 362 F. Supp. 54,58-60 (D. Ore.1973).
"In both of those cases, the attempted In this case, the Court's finding that monopolization claim was founded upon Koratton's licensing practices constituted a substantial cl< rim of restraint of trade from which we indicated the specific in, illegal tying arrangements itself shows
- tent required for a claim of attempt to that Adversaries' claim of an attempt to monopolize could be mferred. No such monopolize is founded upon a substantial foundation is present here. claim of restraint of trade." The great The rule in this Circuit has been clarified ccmmercial combined with success of the tying these illegal '432 process, arrange-
. by Ha!! mark Industry v. Reynolds Metals Co. ments, convinces the Court that there was '
[1973-2 Ta^or. Casts 174,828), 489 F. 2d a dangerous probability of success" in -
- 8,1113 (9 Cir.1973). The Court in Halt- that attempt to monopolize.
" Koratron will be given an opportunity to ** On this point the Court follows Hallmark prove that its tying arrangements were justi- Industry v. Reynolds Metals Co. D973-2 TsAns Aable under the rule of Jc-rold Eltetronics Casta 1 74.828). 489 F. 2d 8. 12.t3 t9 Cir.
and that the customer restrictions imposed upon 1973). and Moore v. Jas. H. Matthews 4 Co. Its licensed textile mills and manufacturers of (1973-t TsAns Casts t 74.263. 74.348). 473 F. 2d sundries were not unreasonable restraints of 328. 332 (9 Clr.1973), in holding that evidence trade. See pp. 92-99 (Part VII A]. supra. It other than market power can establish & Koratton can show that these practices. during dangerous probability of success. Moreocr. the entire period in which they were followed. where. as here, a patent which has acl.seved did not constitute tilegal' restraints of trade, the great commercial success is used in an attempt Court will reconsider its Onding of an attempt to moMpolize. dangerous probability of success to monopolize. een annost, be presumed. 1 75,270
@ 1974, Commerce Clearing House, Inc.
62 - sei 1o.2174 Cited 1974-2 Trade Cases 97.757 Jack Winter, Inc. v. Karatron Co., Inc The Court aiso liads that the evidenceprivilege is being used to subvert that establishes that Koratron had the specific policy." Laitram Corporation v. King Crab, intent to monopolize, "to destroy com- lac. [1%5 TaAos Casts 171,568], 245 F. petition or build monopoly * * *." Times. Supp.1019,1020 (D. Alaska 1%5). See also Picayune v. United States [1953 TaADC CASES 167,494], 345 U. S. 594, 626 (1953). See TaAos 3fortchCasts 8 alt i56,176], Co. v. Suppiger J14 U. S.Co. [1940-1943 488, 491-also Lessig v. Tidcuatcr Oil Company [1964 493 (1942). Although an antitrust violation Taaos Casts 170,993), 327 F. 2d 459, 474 involving a patent comes clearly within the (9 Cir.1964), cert. denied, 377 U. S. 993 patent misuse doctrine, a showing of such (1964). Specific intent includes "[a]n evil motive to accomplish that which the stat- a violation and actual lessening of competi-tion is not required. Zenith Corp. v. Hascitine ute condemns * * *." Screws v. United States, 325 U. S. 91,101 (1945) (plurality 140 [1%9 TaAoE (1969); CAsrs .172,800], Transwrap 395 Co. Corp. v. Sto&ss U. S.100,
' opinion of Douglas, J.). Cf. Walker, Inc. [1946-1947 TaAoE cases 157,532], 329 U. S.
- v. Food Afachinery [1965 TaAce CAsss i71,- 637,641 (1947): Aforton Salt Co. v. Suppiger 625), 382 U. S.172,177 (1%5); Kearney Co. [1940-1943 TaAos CAsrs f 56,176], 314
& Trecker Corp. v. Giddings & Lewis, Inc. U. S. 488, 494 (1942); Berlenbach v. Ander.
(1971 TaAnt cases 173,735), 452 F. 2d 579, son and Thompson Ski Co. [1964 TaAoE cases 598-599 (7 Cir. 1971), cert. denied, 405 171,057], 329 F. 2d 782, 784 (9 Cir.1964), U. S.1066 (1972). cert. denied,379 U. S. 830 (1964). Generally, The Court finds that the tying arrange- patent misuse will consist of efforts to ments and Koratton's enforcement of enlarge the scope of a patent beyond its them," the Dan River agreement" and the legally defined limits in terms of products Swede consent decree" are persuasive and or processes covered and to extend the convincing evider ce that during the time in question Koratron possessed the specific seventeen. year enforcement period.'" intent to extend unlawfully, in an attempt A court of epity *can thus deny the to monopohze, the power legally granted enforcement of the patent which has been to it through the issuance of the '432 . misused until the abusive pract>.ces are ter-patent. These practices and agreements, minated and the effects of those practices considered together, render it highly un. likely that Koratton was merely exercising dissipated. B. B. CArmical Co. v. Ellis (1940-innocent business judgment as to how it 1943 TaADE cases f 56,177], 314 U. S. 495, could best compete in the market place. 498 (1942); Aforton Salt Co. v. Suppiger Co. [1940-1943 TaAnt Casts 156,176], 314 U. S. ! Therefore, the Court concludes that Kora. 488, 493 (1942). Once the practices and tron did violate { 2 of the Sherman Act I by attempting to monopolize trade and their effects are purged, the patent once I commerce during the years in question. again is enforceable. There is no set time period for purging; the time will vary with VIII. Patent Mrsesa the facts of each case. See Ansul Company y,.Uniroyal, Inc. [1%9 Taxon Casts T 72,957], The rule of patent misuse developed from
.the traditional equitable principle of " clean 306 F. Supp. 541, 560 (S. D. N. Y.1969),
hands", that a party may not invoke the modified (1971 TaAce Casts (73,568,73,638], equitable jurisdiction of a court unless he 448 F. 2d 872 (2 Cir.1971), cert. denied, has demonstrated m his prior actions con- 404 U. S.1018 (1972). The question of. duct reyor "the doctrm,d reproach. In the patent field, whether a purge has' been accomplished is e of misuse rests upon the a factual matter and is "largely discretion-principle that the holder of an exclus'ive ary 'with the trial court." Prekrmed Line
. l j
patent privilege granted in furtherance of Products Co. vc Fanner 3ffg. Co. [1964 TaAos public policy may not claim protection of j his grant by the court when such patent1964), Casas 171,026), 328 F. 2d 265, 279 (6 Cir. cert, denied, 379 U. S. 846 (1964). i
" See pp. 83-90 (Part VI. A DI. suprs.
" See pp. 69 74 (Part V AI. supra. Salt Co. v. Suppiger Co. [19401943 TRADE CASES
" See pp. 70. 72-73 [In Part V A1. espro. 156.1761, 314 U. S. 488. 492 (1942). See also l '
B" "[T]he pubtle polley which f ncludes in- Brulotte v. Thps Co. [1964 TaADs CAssa f 71,2871. ventions within the granted monopoly excludes 379 U. S. 29. 32 t1964) (use et royalty agree-ment projecting beyond patent expiration date fmn it all that is not embraced in the inven-
'tlon. It equally forbids the use of the patent to per se unlawful); Solez Laboratories, Inc. v.
secure an exclusive right or limited monopoly Plastic Contact Lens Co., 268 F. 2d 637, 641 17 Clr.1959) (use of court's Sndings and opin-mot granted by the Patent Of!!ce and which it i Is. contrary to public polley to grant." Norton lon to mislead trade concerning patent rights). l Trade Regulation Reports - 1 75,270 [ Balance deleted.]
63 - se to *t-74 Cited 1974-2 Trade Cases 97,859 Monticello Hdght ,Inc. v. Morgan Drits if way,Inc. [f 75,282]
- Monticello Heights, Inc. v Morgan Drive Away, Inc., National Trailer
, Convoy, Inc., Transit Homes, Inc., Ralph H. Miller, Bill R. Privitt, Victor Demaras, E. Wayne Thompson, Orlando L. Thee, and Jack H. Hobson. U. S. District -ourt, Southern District of New York. No. 73 Civ. 3806. Filed September 30,1974. Clayton and Sherman Acts Exclusive and Primary Jurisdiction-Motor Carrier Rates-Conspiracy-Inability to Prove Damages-Proof of Legal Right to Lower Rate.-A motor home seller's antitrust damage claim that transporters violated the SI erman Act with respect to rate fixing was dismissed, since, in light of the exclusive remedy for rates in the Interstate Commerce Commission, it could not demonstrate any legal right to be charged a rate lower-than that set by the carriers absent a challenge before the ICC. Where there is no legal right there can be no legal injury. Even if the firm can show that but for the actions of the defendants other carriers would have entered the industry and would have charged lower rates, it would still not have shown that it had su.Tered a legal wrong by virtue of the defendants having charged the rates they did. Furthermore, the damages would be speculative, since, even if the right to be charged rat-s lower than those of defendants were shown, plaintiff would have to show not only the lower rate but also that the lower rate would have conformed to the Interstate Commerce Act. Thus, even if the allged conduct was far broader than the conspiracy to fix rates, the claim must be dismissed for inability to prove damages, which were tied inescapably to the rates. See i1381,9302. Industry Exemptions-Motor Carriers-Injunctive Relief.-Injunctive relief against carriers' continuing or renewing an alleged combination or conspiracy with regard to rates approved by the Interstate Commerce Commission was subject to two questions: (1) whether the alleged conduct was beyond the regulation, supervision or other jurisdic-tion of the ICC, so that it falls without the proviso of Sec.16 of the Clayton Act and (2) whether the conduct goes beyond those actions immunized from the application of the antitrust laws by the Reed-Bulwinkle Act, which allows rate agreements between two or more carriers to be robmitted to the ICC for approval and exempts approved agree-ments from the antitrv t laws. See i1381. Exclusive and Primary Jurisdiction-Damages-Recovery as Preferential Rebate-Class Action-Keogh Decision.-Even if the reasoning of Krogh v. Chicago & Northwestern Railuey Co. (U. S. Sup. Ct. 1922), 260 U. S.156 with regard to preventing a damage action because a recovery might amount to a preferential rebate were overcome by main-taining a class action, the other reasons in the decision (absence of legal right to damages and speculativeness) compelled dismissal of a ret 61er's damage claim directed at an alleg:d conspiracy among carriers. See { 1381. For plaintiff: Sidney B. Silverman, of Silverma & Hames, New York, N. Y. For defendants: John C. Christen, of Cleary, Gottlieb, Steen & Hamilton, New York, N. Y., for Morgan Drive Away, Inc.; John L Altieri, Jr., of Mudge Rose Guthrie & Alexander, New York, N. Y., for National Trailer Convoy, Inc.; Gasperini, Koch & Savage, New York, N.Y., for Transit Ilomes, Inc. Opmion and Order Civil Procedure, to dismiss the action on
' Paracr, D. J.: This action is a private anti. the ground that the complaint fails as a trust suit in which plaintiff, Monticello matter of law to state a claim for relief Heights, Inc. seeks treble damages and under the antitrust laws and that the injunctive eclief against corporate and in. Court therefore lacks jurisdiction. For the dividual defendants pursuant to 15 U. S. C. reasons stated herein, defendants' motion i I, et seq., the Sherman Act, and in ' par. to dismiss is granted as to the claim for ticular Sectiars 1-3 thereof, and 15 U. S. C. damages. Decision is reserved on plaintiff's $$ 11 and 1:.'s et seq., the Clayton Act, and claim for injunctive rc f. 1 particularly Section 4 thereof. The Court's l Jurisdiction is alleged to be based on Sec. Background i tions 4 and 16 of the Clayton Act, 15 Plaintiff, Monticello Heights, Inc. (Monti.
U. S. C. Il 15 and 26. l cello"), sells mobile homes at retail and oper-
'Ihe defendants have moved, pursuant ates a mobile home park in Monticello, I to Rule 12(b) of the Federal Rules of New York. Defendants Morgan Drive '
Trade Regulation Reports 1 75,282 l
- 64 -
S 7, S 8.g Court Decisions ser art 44
, Monticello Heights,Inc. v. Morgan Drive Ausy,Inc.
Away Inc., National Trailer Convoy, Inc., the rates would have' been if competition and Transit Homes, Inc. ("the corporate had not been eliminated." Krogh v. Chicago defendants") are the three largest companies & N. li", Ry. Ca., supra, at 160. A unanimous engaged in the business of transporting Supreme Court held that even if the chal. mobile homes from place of manufacture lenged rates, resulted from an illegal con-to retailers. They are members of the 11o. spiracy the plaintiff had not stated a cause bile Housing Carriers Conference, Inc. of action under the antitrust laws. The. ("Af MCC"). Defendants Ralph H. Aliller, Court affirmed the lower court's dismissal Bill R. Privitt, E. Wayne Thompson, Victor of Keogh's complaint. Noting that the gov-Demaras, Orlando L. Thee, and Jacic H. ernment was not barred from proceedinr Hobson ("the individual defendants") were against the defendants, the Court observed officers and directors of the corporate de- that "[ijt does not, however, follow that fendants at all times relevant to this action. Keogh, a private shipper, may recover When in the course of its business, hionticello damages under [the antitrust laws] be-purchases mobile homes from manu. cause he lost the benefit of rates still lower, facturers, it uses the services of the de- which but for the' conspiracy, he would lendants to transport the homes from the have enjoyed." Id. at 162. manufacturers' plants to its showroom. It has done so since 1964 The Court advanced three principal ar. guments forits conclusion. First, the Court Monticello alleges that the defendants reasoned that "[a] rate is not necessarily have engaged in monopolization, combina- illegal because it is the result of a cona tion, and conspiracy t) unreasonably re- spiracy in restraint of trade in violation of strain interstate trade and commerce in the Anti-Trust Act. What rates are legal the sale of for-hire transportation of mobile is determined by the Act to Regulate Com-homes in violation of Sections 1 and 2 of merce." Id. That act allowed for a cha!!enge the Sherman Act,15 U. S. C. ti l-2. Spe- of rates in proceedings before the Interstate cincally, defenaants are charged with fixing Commerce Commission ("ICC") and pro-and stabilizing rates for the transportation vided for recovery of any damages resulting i of mobile homes, inducing and coercing from unreasonably high or discriminatory' l other. motor carriers to charge the same rates. The Court found that this remedy i rates as defendants and relinquish their was intended by Congress to be exclusive. right to charge lower rates, excluding Id. Further, the rates challenged by Keogh, potential ~ entrants from the business of for- reflected in the published tariff of the rail. ; hire transportation of mobile homes, hinder- roads, had been approved by the Commis- 1 ing the growth of other parties engaged in sion. These rates, said the Court, established ) the business, and discouragingand eliminat- the legal rights of the shipper as against i ing competition between defendants for the the carrier. The shippe'r had no legal right I services ot ' drivers and field organization to be charged a lesser rate. Id. at 163. I personnel. Afonticello claims that because Thus, imposition of the existing rate had done I of these actions on the part of the defend. the plaintiff no legal injury within the mean-ants, potential competition ha.s been ex- ing of the antitrust laws. . cluded from the industry. As a result, plaintiff, has been for defendants The Court nex.t noted that if a s. ingle services atforced to pay' high and non- shipper were allowed to recover in a pri-unreasonably competitive rates. - vate antitrust suit "for damages resultmg )
;
from the exaction of a rate higher than ' Defendants contend that two Supreme that which would otherwise have prevailed, Court cases, Krogh v. Chicago & N. W. Ry. the amount recovered might, like a rebate, Co., 260 U. S.156 (1922), and Crorgia v. ! Fran.ryhenia R. Co. IlM4-lM5 TsAos CAsrs operate to give him a preference over his 1 trade competitors." Id. Such an effect wuld ' 157,345), 324 U. S. 439 (1944), require the negate the paramount purpose of Congress conclusion that plaintiff's allegations are under the antitrust and commerce acts-to l insufficient to state a cause of action. In Keoph, a manufacturer of excelsior and flax prevent unjust discrimination. l tow claimed that eight railroads and twelve F.mally, the Court observed that damages individuals. through membership in the resulting from the injury alleged by Keogh Western Trunkiine Committee, had com- ware purely speculative. They rested on the j hined and conspired to maintain unreason-ably high and r.on-competitive freight rates hypothesis that any lower rate which might have been charged would conform to the for transportation of thn=e products It was requirements of the Act to Regulate Com-alleged t!'st the rates "were hig!er than merce. This hypothesis could not be veri. 1 M,282
@ l974, Commerce Clearing' House, Inc.
i. i
.o 65 -
- (
ser so st-74 Cited 1974 2 Trade Cases S 7, S 81 Monticello Heigkrs,Inc. v. Morgon Drive Away,Inc. , 6ed, eveh by submission of the question authority of K to the Commission. railroads there,yogh Like the and Crorgia. the motor carriers here are
. ms on e broa Ytmay est gat and "),49 5 ti s an7tetul decide whether a rate has been, whether tion by the Interstate Conunerce Conunission.
j it is; or whether at would be discrimina. There is no dispirte that the rates these '
' tory. But by no conceivable proceeding defendants may charge are determined pur-could the quotion whether a hypothetical suant to that Act.
1ower rate would under conceivable con. ditions have been ' discriminatory, - be Mont submitted to the Commission for deter, age cla,icello asserts, however, that i,ts dam-ims differ *from those dismissed m mination. And that hypothetical question Krogh and Crorgia in important respects, is one with which plaintiff would neces- compelling a contrary result here. The
- marily be cor. fronted at trial." Id., supra, Court disagrees.
at 164. Moreover, a lower rate, even if approved by ' the Commission, might not have benented brought ui a a cfass ac n nder Ru e the plaintiff at all because the savings might 23 of the Federal Rules of Civil Procedure have been passed on to customers or ulti- on behalf of itself and all other retail mate consumers. 14. at 164-65. Thus, the dealers of mobile homes who were serviced requirement of the antitrust by the defendant's'during the period from ' vate plaintiff be someone ,1aws , mjured that,a pri- 1959 to date. Any recovery would benefit m his I busmas or propeny" had nM been satis 6ed. plaintiff and its competitors uniformly. ' . Monticello argues, therefore,'that the Krogh ' The Keogh reasoning was specincally af- Court's objection that a recovery for the Armed by the Supreme Court in Crorgia v. Pasuntyhenis R. Co., supra. There the State plaintiff would act as a rebate to give him l of Georgia had moved in the Supreme Court a preference over his trade competitors, see i for leave to institute an original action against 163, isKrogh overcome v. Chicago & N. W. Ry. Co., supn, at in this case. E railroads for violation of the Sherman Act. The State alleged that The Supreme Court has recently spoken railroads had conspired to 6x' arbitrary ,the defendant and favorably of the class action device as a non-competitive rates and charges" and hr.d vehicle for consumer antitrust suits. See generally donunated and coerced other Houvii v. Standard Oil Co. [1972 TaAos i railroads in restramt of trade. Georgia CAscs f 73,8621,405 U. S. 251 (1972). How- ! sought damages under the antitrust laws ever, this device cannot save Monticello's on beha!f of its citizens. The Court rej,ected suit, even assuming that it would effectively the clann stating. solve the rebate problem, a question the Court does not decide. It fails to meet
?We think it clear from the Krogh case the principal grounds for the Krogh deci-alone that Georgia may, not recover dam-even if the conspiracy alleged were sion, i.s., that Congress had supplied an exclusive remedy under the commerce act
, to exsst. , , , for the challenge of allegedly unreasonable
. "' Die legal rights of a shipper against a rates and that i,s the absence of such a challenge the shipper had no legal right to ured by lishe tarfff. h be charged a rate lower than that set by rate until suspended or set aside was for the carriers and approved by the Commis.
all purposes the legal rate as between sion. Id. at 162. shipper and carrier and may not be varied or enlarged either by the contract or Monticello points out'that it has alleged tort of the carrier. conduct far broader than the conspiracy to
, , fut rates charged in Krogh and Crorgia. It "The reasoning and precedent of that *** #'** " ' ' * " " * * * * * ' ' #"I
- case apply with full force here." 14. at c ntenti n that coercive action such as that 453. attributed to the defendants here falls out.
It is against the background of these cases s de any exemption from the antitrust laws that y ed m canien wie respect to nte.
**. the **'
Court must consider the present makmg activity under 49 U. S. C.15b. tar Damages Clai" . . See, e.g., Otter Tail Power Co. v. United
. Monticello correctly admits that if its States ,[1973-1 Taros Cases 1 74,373], 410 complaint alleged solely an agreement, con- U. S. 366 (1973): California Motor Transport Co. v. Trucking Unlimited (1972 TaApe CAscs certed action and conspiracy to fix rates T 73.795), 404 U. S. 508 (1972); Eastern l for services, it should be dismissed on the Railroad Presidents Conference v.Norrr Trads Regulation Reports t 1 75,282
66 - S7,362 , Court Decisions
- 88F ' 864174 Monticetto Heights,ine. v. Morgan Drit c Ascay,Inc.
Freight,'ine. l1%l Tnnes Casts 1 60,927), country." Krogh t. Chicago & N, W. Ry. 365 U. S.127 (1961). For the purposes of Co, sutra, at 164. plaintlR's damage claim, however, these ' cases are beside the point. While it is true The Court went to state, as indicated at that Afonticello is challenging more than pages 6 7, supra, that such a hypothetical the rates charged by the defendants and determination could not be made by the more than the wey in which those rates Court or the Commission. This reasoning have been determined, it. is equally true applies with equal eHect to the instant case, that the damages Stonticello claims to have ,' suRered are inescapably tied to the rates f,j,,,,g'7, g,ff,f being charged. In order to demonstrate the Afonticello has also asked for equit'able damage to its' business or property neces- relief enjoining the' defendants frc,m con. mary for a treble damages action under tinuing, renewing, or engaging in any other Section 4 of the Clayton Act, Stonticello combination or conspiracy having a similar must depend on the claim that but for the cRect on commerce as the acts charged defendants' conspiratorial activity, however here. Krogh and Ccorsia do not dispose of ' broad, it would have been able to obtain this claim. As the Court noted in Georgia, mobile home transportation at lower rates, a plaintiR may, without challenging the It is because of this dependence on rate rates charged by carriers, seek "to dissolve determinations that h!ontice!!o's damage an illegal combination or to confine it to claim fails. the legitimate area of collaboration." Crorgia hionticello has not demonstrated, and s. Pennsylsenia R. Co., supra, at 460. "So Indeed cannot demonstrate, any legal right I ng as the collaboration which exists ex. to be charged a rate lower than that set by C.eeds lawful limits and continues,in opera-the A!HCC and approved by the ICC. tion, the only effective remedy hes m dis. Where there is no legal right thera can be 50.!ving the combination or m confining it no legal injury. Even should hionti ello within legitimate boundaries." Id. at 461-62. show, as it has oReted to do, that but for the actions of the defendants, other car- Two questions exist respecting the pro-priety of injunctive relief in this case. The tiers would have entered the industry and first is whether the alleged conduct of the would have charged lower rates, it would still not have shown that it had suRered a defendants is beyond the " regulation, super-legal wrong by virtue of the defendants vision, or other jurisdiction of the Interstate having charged the rates they did. As to Commerce Commission" so that it falls plaintiR's damage claim, defendants have without the proviso of Section 16 of the met the high standard required for dismis- Clayton Act,15 U. S. C. $ 26, which limits a private party's right to injunctive relief. sal, s.a., they have shown that "plaintiR The second question is whether the defend-can prove no set of facts in support of his
,clainn which would entitle him to relief." ants' conduct goes beyond those actions Contcy tr. Gibson,355 U. S. 41, 45-46 (1957).
immunized from the application of the antitrust laws hv the Reed-Bulwinkle Act, There is a further reason for dismissitw 49 U. S. C. 5 50. That Act, passed after the
.htonticello's damage claim. As was the decision in Crorgia, allows rate agreements case in Krogh, even if plaintiR could dem. between two or more carriers to be sub .
onstrate a right to be charged rates lower mitted to the ICC for approval and exempts than those of the defendants, the damages approved agreements from the antitrust alleged here are entirely speculative. In laws. Thus far, defendants have specifically order to recover, the plaintiR would have foresworn reliance on this section as a de. to show not only that a lower rate would fense to plaintiff's charges in this action. have been charged, but also that such lower rate would have conformed to the ICA. As Unless defendants' conduct falls without stated by the Court m A oph, the primary jurisdiction of the ICC and "lU)nless the lower rate was one which without the exemption of 49 U. S. C. 6 5b, the carrier could have maintained legally, Afonticello's claim for injunctive relief, like che changing of it,could not conceivably its damage claim, must be dismissed. The give a cause of act3on. To be legal a rate parties shalt have thirty days from the entry must be non-discriminatory. . . . [Ilt is of th.is .orde.r in. whi.ch to make f.urther possible that no lower rate from St. Paul submissions, if thry wish to do so, directed on tow and excelsior [the products in. solely to the question of the propriety of volved in that casel could have been injunctive relief in this action. legally maintained without reconstituting the whole rate structure for many articles Wherefore, th.is Court enters judgment moving in an important section of the granting defendants'. motion to dismiss the 1 75,282 c 1974, Commerce clearing House, Inc.
67 - 1*? 80 21-74 Cited 1974-2 Trad: Cases 97,883 Supermarket Services,Inc. st. Harts Mountain Corp. complaint pursuant to Rule 12(b) Fed. R. relief pending receipt of any submissions Civ. P., as to the damage claim. Decision within thirty days of the entry of this order. Is reserved on plaintiff's claim ter in;unctive So Ordered. , , . [f 75,283] Supermarket Services, Inc. v. Hartz Mountain Corp. U. S. District Court, Southern District of New York. No. 74 Civ. 4267 (HFs/). Filed October 8,1974. Sherman Act Private Suits-Preliminary Injunctions-Substantial Probability of Nese-Existing Questaons of Law and Fact.-A distributor-servicer of pet supplies whose distributorship was cancelled asserted!y for initiating a cost plus wholesaling program with its customers was granted preliminary injunctive relief. The manufacturer who cancelled 'the distributor alleged that, since the retailer customer, under the terms of the distributor's new program, could do his own servicing of supplies, there was a complete change in the nature of the distributor's business with a decrease in emphasis on services-the key to the manufac. turers success. While the evidence did not establish a clear likelihood of success upon the merits at trial, suf5cient serious questions of law and fact were raised relating to (1) the original contract between the parties which contained no specification of territory of primary responsibility that was later altered, (2) the seemingly precipitous termination of the contract, (3) the true nature of the new progran. initiated by the distributor-servicer and its economic impact on the manufacturer, (4) the manufacturer's informing the dis-tributor's customers of the canec11ation, and (5) whether vertical, horizontal, or both types of restraints were employed by the manufacturer. See 19312. Private Suits-Preliminary Injunctions--Irreparable Injury-Distributorship Cancel-lation-Loss of Sales in Other Product Lineo-Unascertainable Damages-Loss of Good Will and Reputation.-Although a cancelled distributor-servicer's lost sales to old customers could be calculated, the fact that the distributor (cancelled by a manufacturer for initiating a cost.plus wholesaling program with its retailer-customers) would lose the mnufacturer's line of goods could possibly lead to the distributor's termination by retailers in other product lines it distributed. In addition, damages due to lost sales to new customers could not be calculated because it would be impossible to calculate either how many stores would not take the new pricing program because the manufacturer was not available, or the amount of orders that would be placed with the distributor both for the manufacturer's products or other lines. Since some of the distributor's customers were informed by the manufacturer of the cancellation, the possibility existed that the distributor's business reputation and good will were irreparably harmed. Aforeover, the distributor's reputation in the industry as a dependable distributor was jeopardized. The distributor was not able to fdl orders because its inventories in the manufacturer's products were drastically reduced as a result of the cancellation. See 19312. Private Suits-Prelmunary Injunctions-Balancing of Equities.-A manufacturer of pet supplies who cancelled a distributor-servicer for initiating a new cost-plus wholesaling price program failed to establish that the equities were in its favor where it claimet! that, ifit was forced to reinstate the distributor, other distributors would initiate such a program. The manufacturer claimed that the program resulted in improper servicing of its products and subsequent loss of business. However, the cancelled distributor was forced to seek a relationship with a new pet supply manufacturer with perhaps not as complete a line of products. The distributor was also faced with the loss of three major customers as a result of the cancellation. Aforeover, the manufacturer had informed the distributor's customers of the cancellation, making the possibility of damage to the distributor's business reputation and good will serious and imminent. The equities were thus tipped in the distributor's favor. Furthermore, it did not become impossible for the mar.ufacturer to have a con 6 dent and cooperative relationship with the distributor with whom it had done business for eleven years after only six days of disagreement which led to the action brought. See 19312. For plaintiff: Willkie Farr & Gallagher, New York, N. Y. (fauis Craco and David L. Foster, of counsel). For defendant: Kayr, Scholcr, Fierman, Hays & Handler, New York, N. Y. (David Klingsberg and Robert Fink, of counsel). Trade Regulation Reports . 1 75.283
UNITED STATES OF AMERICA / FEDERAL POWER COMNESSION (18 CFR Part 32) Amendment of Regulations Under the ) Federal Power Act; Part 32 - ) Interconnection of Facilities; ) Docket No. RM75-3 Emergencies; Transmission To Foreign ) Country ) NOTICE OF PROPOSED RULEMAKING TO AMEND REGULATIONS UNDER THE FEDERAL POWER ACT COVERING EMERGENCY ACTIONS PURSUANT TO SECTION 202(c) 0F THE FEDERAL POWER ACT (August 26, 1974) This notice is issued pursuant to the Administrative Procedure Act, 3 U.S.C. 551 et seg. (1970), and the Federal Power Act, 16 U.S.C. 791(a) et seq. (1970), particularly-Sections '202(c) and 309 thereof,16 U.S.C. 824a(c) and 825h. (1) It sets forth proposed regulations by which the Commission would administer the emergency electric power transfer authority as set forth in Section 202(c) of the Federal Power Act. Presently, the Commission's Regulations under the Federal Power Act do not set forth specific regula-tions governing the filing of applications for such emergency relief. (2) Section 202(c) states as follows: During the continuance of any war in I which the United States is engaged, or whenever the Commission determines that an l j DC-S r.
)
l 1
Docket No. RM75-3 - 2- ^ emergency exists by reason of a sudden increase in the demand for electric energy, or a shortage of electric energy or of facilities for the generation or transmis-sion of electric energy, or of fuel or water for generating facilities, or other causes, the Commission shall have authority, either upon its own motion or upon complaint, with or without notice, hearing, or report, to require by order such temporary connections of facilities and such generation, delivery, interchange, or transmission of electric energy as in its judgment will best meet the emergency and serve the public interest. If the par' ties affected by such order fail to agree upon the terms of any arrangement between them in carrying out such order, the Commission, after hearing held either before or after such order takes effect, may prescribe by supplemental order such terms as it finds to be just and reasonable, including the compensation or reimbursement which should be paid to or by any such party. (3) To accomplish this purpose, the accompanying.regula-tions propose to create a.new subpart of Part 32 of the Com-mission's Regulations under the Federal Power Act (18.CFR Part 32), il 32.60 - 32.66.- The sections set forth application content and procedural filing requirements for requested Commission actions under Section 202(c). (4) " Emergencies" as employed in the proposed regulations are of two basic types: emergencies as determined by the Com-mission by reason of one or more of the following factors a sudden increase in demand for electric energy a shortage of electric energy a shortage of facilities for the generation or transmission of electric energy i
, Docket No. RM75-3 .
d - a shortage of fuel or water for 4 generating facilities a shortage of electric energy or facilities for other, but related, types of causes 4-emergencies occasioned during wars in which the United States may be engaged. (5) Recent events, particularly those of the 1973 Arab
. oil . embargo, underscore the need for regulations of this type to deal with emergency conditions and especially with respect i
' to emergency conditions associated with shortages of petroleum fuel oil, natural gas and coal stocks for electric generation i purposes. Operational arrangements linking the various electric
utility control dispatching centers are organized, and most l major centers are able, _ electrically, to transfer substantial ' i blocks of power and energy among systems under normal and various types of emergency conditions. 1 ! (6) This is not to say that limiting constraints of an operational character are not present. They are, and they must , be recognized. Also, fuel stock inventories and the ability of i utilities to replace such inventories can not be ignored. The Commission recognizes, as a public service responsibility j of each electric system, the duty to secure for itself adequate ) i supplies of fuel. ' However, when " diligent best efforts" fail, emergency concitions may arise. Under the latter cir- ; cumstances, it is to be expected that utility systems may ' j seek relief pursuant to Section 202(c) of the Federal Power
- Act.
(7) The Commission's rate schedule files contain a ; plethora of . arrangements covering intersystem transactions for general-or special types of emergencies. Federal Power l Commission Order No. 496, issued November 29, 1973, 38 F.R. ) 33641, requested the Nation's electric utilities to undertake a Nation-wide effort, upon a. cooperative voluntary basis and using' normal electric utility operating channels, "* *
- to maximize the .use of coal and nuclear fuel electric generating caphcity and hydroelectric generating capacity nationally.* * *."
. (mimeo ed., p. 4). The request is restated in the Commission's order issued concurrently herewith, New England Power Pool
! Participants. et al., Docket No. .RM74-22, et al. We are not here concerned with those day-to-day voluntary operations.
- -. .,, _ - , ..,m...,_._.,. . _ , , _ , _ .._,.,.-my,.-.., - , _ _ , .._ . . . . ,
-Docket No. RM75-3 i .
-(8) While the proposed regulations would apply to all j types of .Section 202(c) emergencies , what the Commission is here primarily concerned with is a marshalling of facilit i,es to effect large-scale inter-regional transfers of power and
- -
- j. energy which electric utilities in one section of the Nation may request from utilities in another section or sections to
) assist in offsetting massive coal stock shortfalls, a recur- )' rence of. petroleum fuel shortages involving electric utility fuel needs, the continuing shortage of natural gas,.or a shortage of water for hydroelectric power. generation. With-4 out Commission action,-it is possible'that concerned utilities and state public service commissions will not find mutually acceptable operational arrangements or pricing bases upon which to conduct needed electric transfers. Initially, such was the case in New Englerd Power Pool Participants, supra. (9) The Commission recognizes increasing immediate con-cerns of a number of coal burning electric systems as to coal supply availability. The forthcoming expiration of major coal mine labor employment contracts and the prospective labor negotiations involving coal mining operations, make electric utility fuel stocks a matter of first importance. There is also'the forthcoming period in which labor negotia-tions are to be conducted in the petroleum refinery sector of the economy. The effects of air quality requirements under ' environmental _ laws may also be relevant, insofar as they limit i the quantities and types of fuel which legally may be used. See Federal Power Commission Bureau of Power staff report on Potential-Effects of Air Quality Regulations on the Bulk Electric Power Supply, FPC Press Release No. 20080. Currently, the Commission's Bureau of-Power is engaged in a Nation-wide review of- electric utility fuel supply matters, including
' potential orders of magnitude of electric transfers which may
' become ne~cessary if certain fuel stock and electric utility operational conditions materialize. This work, undertaken at Commission initiative, is being coordinated with the Nationa!. Electric Re1.iability Council and the results of Commission analyses will be made available to all concerned governmental authorities -- Federal, state and local, the operating utili-ties and the general public. This work is to be completed at an early date. (10) Commission action in this docket will assist in
. facilitating the resolution of potential operational or economic i' differences in advance, and thereby to preclude possible delays in the implementation.of needed large-scale inter-regional
transfers of electric power and energy in fuel or water shortage
-conditions. Accordingly, the Commission' proposes to establish l
general criteri'a governing Commission action in fuel or water i l l
-.-,m. - , ,m-,. ,-- _ , , , - . . , , - , , , - m.- %,., , - y or py-,, ,-- . . - - , - y
Docket No. - RM75-3 - supply shortfalls, which systems.may be expected to observe and which may justify Commission determination of an emergency, , and to articulate ratemaking principles under which this Com-mission would test the basis of rates and charges therefor. In this manner, the. Commission proposes to relate governmental policies to utility operations for the guidance of all con-j cerned. The Commission's experience in New England Power Pool Participants, supra, warrants this initiative through the general rulemaking proceduresl,/.
.(11) With' respect to fuel inventory and energy supply inadequacies, the Commission solicits the comments and sug-gestions of all parties and interests relative to what should
- be the " normal" fuel inventory practices, as well as the following criteria upon the basis of which the Commission
, would be expected to act. Under currently foreseeable fuel conditions, these criteria will assist the Commission in assessing the comparable status of various utilities which may-be experiencing fuel supply problems for purposes of ascertaining the degree to which a system may, in fact, be ; said to have an emergency condition with respect to fuel l supply. In future periods, they will be of major assistance in assessing the degree to which particular utilities have, 1 in fact, made, or attempted to make, provision for adequate fuel supply when advancing claimed emergency circumstances.
i Also, such data will be helpful to all governmental econot.ic regulatory authorities in assessing, through cost allocations, the cost incidence of fuci supply acquisition, retention and j utilization when prescribing electric utility rates and i charges, either at the bulk power supply or the retail power supply levels. .The acquisition of fuel supplies involves l- substantial cost factors impacting upon regulatory authority of this commission and the regulatory authority of numerous state commissions. The following criteria are proposed. 1 An inadequate utility system fuel inventory or energy supply may be judged to exist when one or more of the following conditions prevails, and load reduction to ultimate consumers will be necessary unless the utility receives assistance: 1/ The Commission regards the expansion of regional fuel
- ~
stocks and of the interregional energy transmission systems to be important factors directly relevant to the exercise of authority under Section 202 (c) , emergency energy transfers. Also they bear directly upon the maintenance of an adequate and reliable bulk power supply.- Consequently, the Commission is concerned Footnote continued on next page E
,gg- , y , . - = - - . , ,.--y. .. . ,-, . ,,.y,9 ,
Docket No. RM75-3 - 6-(1) system coal stocks are reduced to 30 days (or less) of normal burn days and a continued downward trend in stocks is projected; (2) system residual oil stocks are reduced to 15 days (or less) of normal burn days for residual oil and a continued ' downward trend in stocks is projected; (3) system distillate oil stocks are reduced to 15 days (or less) of normal burn days for distillate oil and a continued downward trend in stocks is projected; (4) system natural gas deliveries which cannot be replaced by alternate fuels have been or will be reduced 20 percent below normal requirements and no improvement in natural gas requirements is projected within 30 days 2/; 1/ Footnote continued from preceding page not only with the criteria for invoking Section 202 (c) but, in a broader sense, it is dealing with means for encouraging and promoting the increased fuel stocks and transmission capabilities which will make such emergency energy transfers more effective in meeting major regional fuel or water shortages. Comments are solicited from all parties regarding effective means for the accomplishment of this general purpose. 2/ Criteria governing this Commission's statutory duties and responsibilities arising under the Natural Gas Act, 15 U.S.C. 717(a) et seq., must be referred to when con-sidering this Commission's natural gas allocation pro-gram, and not the provisions set forth herein with respect to 202(c) of the Federal Power Act. l
Docket No. RM75-3 (5) water supplie required for power gen-eration hav" . en or will be reduced 20 percent t low normal requirements and no improvet ac in water supplies is projected within 30 days;
.(6) all po-sr and energy which is available for purchase, through diligent best i efforts, and which can be transferred j to the system is-being received; and i
! (7) the projected energy deficiency upon applicant's system -- without emergency authorization by this Commission -- will equal or exceed 10 percent of applicant's then normal net energy for load based upon the use of all of its otherwise available resources. In the administration of this regulation, the Commission contemplates that fuel emergency energy transfers from other , systems to an applicant would not require reductions in net energy for load on those systems of more than 10 percent below normal at any time during or subsequent to the transfers and would not result in the dropping e~ loads of ultimate con-sumers served by such systems. The foregoing criteria do not preclude an electric-system from seeking to claim a fuel emergency when it has < ! fuel stocks greater than those indicated. The Commission, ! however, would expect any such claims to be factually support- l able.
~
Comments are requested on this point. (12) Alternate ratemaking theories are set forth below for comment. They are allocated costing (variable and fixed), ! incremental costing plus incentive, incremental costing and l share-the-savings method. Comments and suggestions on each of these methods is' requested, along with any other proposals which interested ~ parties may wish to recommend. The Commission intends.to decide, as a part of this rulemaking, whether it should -prescribe a single method of pricing for fuel emergency transfers here under consideration or whether it should recog-nize~ alternate methods and, if so, which ones. i
Docket No RM75-3 The Commission is cognizant of work currently being undertaken on inter-regional' power transfer pricing by the National Association of Regulatory Utility Commissioners' i Subcommittee .<xt Electricity. . The comments of state _regula-tory agencies, their national association and the Federal Energy Administration, will be of major assistance to the Commission in this rulemaking. Certain authority to allocate fuel oil and coal has been conferred ,,.. the Federal Energy Administration. That Administration also has certain statu-tory ' authority relative to the conversion of electr generat-ing facilities to coal-fired. operation. See Emergency Petroleum Allocation Act of 1973, 87 Stat. 627, and related statutes, and the Energy Sttpply and Environmental Coordination Act of 1974, 88 Stat. 246. The Natural Gas-Act, 15 U.S.C. 717(a), confers authority upon this Commission to allocate the natural gas supplies of an interstate pipeline among its customers. See Federal Power Commission v. Louisiana Power
& Light Co., 406.U.S. 621 (1972).
As shown by the following tabulation of state regulatory authority -- which tabulation was prepared by this Commission's staff based upon a 1973_ letter questionnaire survey of state public service commission jurisdiction -- state commissions are directly involved and affected. This tabulation was furnished to each state commission by letter of this Commis-sion's Chairman in September 1973. i l l (table deleted]
d Docket ~No. RM75-3 (13) The proposed amendments-to Part 32 of the Commis-sion's Regulations under th'e Federal Power Act, by establish-ing new 88.32.60 -32.66, are as follows: APPLICATIONS FOR COMMISSION EMERGENCY AUTHORI-ZATION PURSUANT TO SECTION 202(c) 0F THE FEDERAL POWER ACT 32.60 Contents of application; filing fee.
-Every application under section 202(c) of the Federal Power Act shall be accompanied by the fee prescribed in Part 36 of this sub-chapter and shall set forth the following information:
(a) The exact legal name of the appli-cant and of all persons named as parties in the application. (b) The name, title, and post office address of the person to whom correspond-ence in regard to the application shall be addressed. (c) The person named in the applica-tion, whether or not a public utility subject.to the act. Section 202(c) includes all entities which own or operate electric generation, transmission or distribution facilities, regardless of whether they are investor owned, publicly owned or. cooperatively owned. All are subject to Commission emergency authority conferred by this section. (d). The State or States in which each entity named in the application operates, together with a brief description of the business of and territory, by counties and States, served by such entity. (e) Description of the proposed inter- I connections or operations, showing proposed location, capacity and type of emergency services requested. (f) Reasons why the proposed inter-connection of facilities or operations
'will be in the public interest.
(g)- What steps, if any, have been taken to secure voluntary interconnection and operations under the provisions of the act. W ^
i Docket No.-RM75 ! i l 32.61 Definition of emergency. Emergency'as used in this subsection shall be, as defined in section 202(c) of the Federal Power Act. f ' 32.62 Fuel emergency and energy supply inadequacies. Applications for emergency authoriza-tion by.the Commission by reason of a i claimed fuel emergency shall be accompanied by a detailed statement of the~ firm amounts of electric power and energy received from , 'and delivered to other systems under exist-ing contracts, a showing that no additional power and energy can be purchased dispite diligent best efforts, a listing of proposed sources and amounts of additional energy requested to be made available by Commission action, and an analysis of the additional energy transfer capabilities of existing
- and proposed temporary interconnections which could be completed within 30 days.
Additionally, such applications for emergency authorization shall be' accompanied by a show-ing that without assistance by the Commission under Section 202(c), the applicant will experience reductions in net energy avail- l able for its system load of more than 10 percent of normal load, some portion of which will require the applicant to drop loads to ultimate consumers. An inadequate utility system fuel inven-i ' tory or energy supply may be judged to exist when one cnr more of the following conditions prevails, a-d load reduction to ultimate consumers witl be necessary unless'the 4 utility' receives assistance:= (1) system coal' stocks are reduced
'to 30 days.(or less) of normal )
j burn days and a continued down-ward trend in stocks is projected; l 1 r ., -, - . . , . -- -
Docket No. RM75-3 / (2) system residual oil stocks are reduced to 15 days (or less) of normal burn days for residual oil and a continued downward trend in stocks is projected; (3) system distillate oil stocks are reduced to 15 days- (or less) of normal burn days for distillate oil and a continued downward trend in stocks is projected; (4) system natural gas deliveries which cannot be replaced by alternate fuels have been or will be reduced 20 percent below normal requirements and no improvement in natural gas requirements is projected within 4 30 days 3/; (5) water supplies required for power generation have been or will be reduced 20 percent below normal requirements and no improvement in water supplies is projected within 30 days; (6) all power and energy which is available for purchase, through diligent best efforts, and which can be transferred to the system is being received; and (7) the projected energy deficiency upon applicant's system -- without emergency authorization by this commission -- will equal or exceed 10 percent of applicant's then normal net energy for load based upon the use of all of its otherwise avail-able resources, in the administration of this subsection, the Commission contemplates that fuel emergency energy transfers from other systems to sn applicant would not require reductions in net energy for load on eb>se systems of more than 10 percent below normal at any time during or subsequent to the transfers and would not result in the dropping of loads of ultimate consumers served by such systems. 3/ See' footnote 2,/, supra..
__ ~
- Docket No. RM75-3 .
32.63 Rares and charges. Applications for emergency authoriza-tion.of the Commission shall be accompanied by a proposal of the applicant to compensate the generating or transmitting systems for the emergency services requested. These proposals shall be specific. Where the applicant proposes to compensate systems for emergency services at rates and charges on file with the Commission pursuant.to Part 35 of the Commission's Regulations under the Federal Power Act, the application shall identify such rate schedules by filing elec-tric utility and FPC rate schedule designation. Where the applicant proposes to compensate the generating or transmitting systems at rates and charges not on_ file with the Com-mission, the applicant shall propose quanti-tative unit (kilowatt or kilowatthour) rates and charges, or coat-of-service formula type rates and charges for the emergency services requested. Where the applicant proposes a cost-of-service type rate or charge, the cost allocation methods proposed shall be clearly identified. 7 Where the applicant posits a fuel emer-gency as the basis for seeking Commission authorization pursuant to Section 202(c) of the Act, the Commission will prescribe rates and charges upon the following bases:
/_Ilternate Methods For Comment, See Paragraph (12), supra _f f
I l i i I
Dsckst ND. RM75-3 g" Allocated Costing Method:
-The allocated costing method would permit the generating and transmitting systems to recover the following costs:
1 (1) an allocable. portion of invettment1 costs of production plant,. ! including return on investment, de-preciation, income taxes, property and other taxes related to plant investment and insurance.
.(Comments should be submitted indiccting how the allocable portions would be determined).
(2) an allocable portion of investment costs of transmission plant, including return on investment, depre-ciation, income taxes, property and
! other-taxes related to plant investment and insurance.
- l. (Comments should be submitted indicating how the allocable portions would be determined) .
(3) incremental costs associated with tlic generation.of fuel emergency service. leeremental costs mean such operating and maintenance expenses incurred that would not.have been otherwise incurred if such service
; had not been furnished. Such expenses include the incremental expenses incurred in the production of the energy so furnished, including incre-mental fuel expense, incremental operating' labor and supplies, incre-mental maintenance labor and supplies, and-incremental administrative and general expenses.-
i i I
-s.--y -
Docket No._RM75-3 ' (Comments should be submitted to indicate how the generating systems would determine the incremental costa, e.g., the actual weighted average cost _of-frel consumed to g arate the energy, or the replacement cost of the fuel consumed. If the replacement cost is to be used, the generating system should comment as to how such cost will be determined, and how the interests of the_other existing customers will be preserved and the selling utility not unduly enriched). (4) the incremental costs incurred in tha transmission of fuel emergency service, including operating labor and supplies, incremental main-tenance labor and supplies, incremental administrative and general expenses, losses, and any other related costs. (Comments should be submitted to indicate the nature of "any other related costs" and how such costs would be determined). Incremental Costing Plus Incentive: (1) incremental costs associated with the furnishing of fuel emergency service. Incremental costs mean such operating and maintenance expenses incurred that would not have been otherwise incurred if such service had not been furnished. Such expenses include the incremental expenses incurred in the production of the energy so furnished, including incremental fuel expense, incre-mental operating labor and supplies, incre-mental maintenance labor and supplies, and incremental administrative and general expenses. , l I I
)
- Docket No. RM75-3 15 -
(Comments should be' submitted to indicate how the generating system would determine the incremental costs, e.g., the actual weighted average cost of fuel consumed to generate the energy, or the replacement cost of the fuel consumed. .If the replace-ment cost is to be used, the generating system should comment as to how such cost will be determined, and how the interests of the other existing customers will be preserved and the selling utility not unduly enriched). (2)L the incremental costs incurred in the transmission of fuel emergency service, including incremental operating labor and
- supplies, incremental maintenance labor and supplies, incremental administrative and general expenses, losses and any other related costs.
(Comments should be submitted to indicate the nature of "any other related costs" and how such costs would be determined). (3) as an incentive factor to the generating and transmitting systems to utilize their facilities for the generation and transmission of such energy, these systems would be permitted some reasonable compensation for their investment in produc-tion and transmission plant by way of return and associated income taxes but not to the same extent that they are compensated there-for for non-emergency on-peak service. (Comments should be submitted to indicate how the generating and transmitting systems would determine the return and income tax components). l I l 1 4 t 1
Docket.No. RM75-3 . Incremental Costing: (1) . incremental costs associated with the furnishing of. fuel emergency service. Incremental costs mean such operating and maintenance expcases incurred that would not have been otherwise incurred if such service had not been furnished. Such expenses include the incremental expenses incurred in the pro-duction of the energy so furnished, including incremental fuel expense, incremental operat-ing labor and supplies, incremental maintenance labor and supplies, and incremental adminis-trative and general expenses. (Comments should be. submitted to 1.dicate how the generating system would determine the incremental costs, e.g., the actual weighted average cost of fuel consumed to generate the energy, or the replacement cost of the fuel consumed. If the replacement cost is to be used, the generating system should comment as to how such cost will be determined, and how the interests of the other existing customers will be preserved and the selling utility not unduly enriched). (2) the incremental costs incurred in the transmission of fuel emergency service, including incremental operating labor and supplies, incremental maintenance labor and supplies, incremental' administrative and general expenses, losses, and any other related costs. (Comments should be submitted to indicate the nature of "any other related costs" and how such costs would be determined. p Y _ _ . , , --n ,
Docket No. RM75-3 Share-the-Savings Method: The share-the-savings method would take into account the following factors: (1) incremental costs of genera-tion, including: (a) incremental fuel costs (b) start-up costs (c) incremental operation, maintenance and adminis-trative costs (2) decremental costs of generation replaced cn the receiving system. The price for fuel emergency service would be equal to the supplier's incremental generation costs, plus one-half of the difference between the costs to the purchaser (the supplier's incremental cost plus the sum of the transmis-sion charges, by intermediate transmitting systems) and the purchaser's decremental costs. (Comments should be submitted to indicate how the generating system would determine the incremental costs, e.g., the actual weighted average cost of fuel consumed to generate the energy, or the replacement cost of the fuel consumed. If the replacement cost is to be used, the generating system should comment as to how such cost will be determined, and how the interesta of the other existing customers will be preserved and the selling utility not unduly enriched). 32.64 other information. The Commission may require additional information when it appears to be pertinent in a particular case.
l
Docket No. RM75-3 18 - 32.65 Form and style; number of copies. An original and six conformed copies of an application under 88 32.60 to 32.66 shall be filed and shall conform, in all other respects, to the requirements of 58 1.15 through 1.17 of this chapter. Persons designated as potential sources of emergency power and energy assistance in an application filed pursuant to this subsection shall, at the time of applica-tion, be served with the application. The persons so designated and served shall submit their answers to the Commis-sion within 10 days of the date of filing of the application unless otherwise directed by the Commission's Secretary, and as part thereof, they shall analyze the impact of the required power and energy transfers upon their capabilities to provide for loads on their own systems. 32.66 Required exhibits. There shall be filed with the applica-tion and as a part thereof the following exhibits: , 1 Exhibit A. Statement of the estimated l capital cost of all facilities of the applicant, required to establish the inter-connection and to perform interconnected I system operations so that emergency ser-vices might be received by it; and the ; estimated annualized cost of operating such l
' facilities to receive the type of emergency 1 service requested. To the extent known by applicant, similar data shall be supplied relative to the facilities and operations of each entity from which applicant seeks emergency services.
l
Docket No. RM75-3
~
Exhibit B. A general or key map on a scale not greater than 20 miles to the inch showing, in separate colors, the ter-ritory served by each entity named in the application, and the location of the facili-ties to be used for the generation and transmission of electric power and energy requested, indicating on said map the con-nection points between systems. (14) .Any interested person may submit to the Federal Power Commission, Washington, D.C. 20426, not later than October 16, 1974, data, views and comments, in writing, concerning the matters herein proposed. Written submittals will be placed in the Commission's public files and will be available for public inspection at the Commission's Office of Public Information, Washington, D.C. 20426, during regular business hours. An original and fourteen (14) conformed copies should be filed with the Commission. Submissions to the Commission should indicate the name and address of the 4 person to whom correspondence in regard to the proposal should be addressed, and whether the person filing them requests a conference at the Federal Power Commission to discuss this proposal. The Commission will consider all sub-missions before taking action on the matter herein proposed. (15) The Secretary shall cause prompt publication of this notice to be made in the Federal Register. By direction of the Commission. l l (SEAL) ! Kenneth F. Plumb, l Secretary. l l l
UNITED STATES OF AMERICA + % c
^
FEDERAL POWER COMMISSION (, )
.Before Cr.mmissioners: John N. Nassikas, Chairman; Albert B. Brooke, Jr., Rush Moody, Jr., -
William L. Springer, and Don S. Smith.
) Docket No. RM74-22
- .New England Power Pool Participants,)
et al. ) Docket No. E-8589 j Appalachian Power Company, et al. ) Docket Nos. E-8550 et al. 1/
) (Coal-by-Wire) 4 ORDER PERMITTING WITHDRAWAL OF PETITION FOR EMERGENCY RELIEF (DOCKET NO. E-8589) AND ACCEPTING RATE SCHEDULES, PERMITTING WITHDRAWAL OF RATE SCHEDULES, DISPOSING OF PROCEDURAL MATTERS AND TERMINATING PROCEEDINGS (Issued August 26, 1974)
New England Power Pool Participants (NEPOOL), on January 10, 1974, filed a petition in Docket No. E-8589, seeking an " emergency" order of the Commission pursuant to Section 202(c) of the Federal Power Act, 16 U.S.C. 824a(c), directing certain electric utilities to provide them with available electric power and energy, pursuant to the petroleum fuel conservation policy expressed in Commission Order No. 496, issued November 29, 1973, 38 F.R. 33641, and Order No. 497, !' issued December 7, 1973, 38 F.R. 34318. i In furtherance of the. Commission's fuel conservation ! policy' expressed in those orders, the Commission's Chief, Bureau of Power, by letter'of December 4, 1973, requested the l l
- cooperation of the National Electric Reliability Council in 1
.a voluntary program under which utilities in each council area would' prepare contingency schedules of emergency power transfers.
The last. mentioned activity was in progress when the NEP00L _ petition wasifiled. !t - 1/- 'See Appendix A hereto for designations of all rate l- schedules, the names lof all filing utilities and their l respective docket numbers. ir-56
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\^
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l i ,C Docket No. RM74-22 et al. - 20 - We agree with the comments of a number of conference participants, filing electric utility systems, state commis-sion personnel, the FPC's conference staff and other conference participants. These proceedings are rate hearings to determine the prices for services already rendered upon a voluntary basis to meet a specific problem -- residual oil chortages along the Atlantic coast occasioned by the Arab oil embargo of 1973. Legally, the Commission has determined that it lacks the jurisdiction to order wheeling or displacement of energy under its "public utility" regulatory jurisdiction. See for example, Order Denying Rehearing, Southern California Edison Co., issued June 5, 1974, Docket No. E-8570. Interstate electric utilities are not common carriers under the Federal Power Act. (1973). See Otter Tail Power Co. v. U. S. , 410 U.S. 366, 375-6 The spot market concept of Richmond for wholesale electric transactions presupposes legal authority under the Federal Power Act to direct electric systems to operate as power wheeling, displacement common carriers, which they are not. Moreover, even if the Comm'.ssion possessed the requisite regulatory authority to d! rect those changes, the operational and electrical dispatch changes which would be required to implement a Nation-wide spot market in bulk power supply, can not be performed by the electrical control and operating equipment which is now in place and operational in the various power pools and electrical control areas. The Commission's emergency authority to direct power and energy transfers -- not exercised in this instance because the Commission did not find the prerequisite emergency -- would necessitate the use of this same in-place equipment. Any physical restructuring of a power pool or system dispatch organization would necessitate extensive engineering studies of existing facilities and establishing requirements for new control facilities. New detailed operating procedures would be required, as well as the development of many trained system operations personnel. Following these actions, it would be possible to establish new electrical divisions to control the Nation's interconnected electrical networks, however, procurred. new hardware and control equipment would have to be without highly A power supply technical system can not operate reliably controls. Unless proper controls and procedures are in use in a power pool, there will be system disturbances or blackouts on a regular basis.
. -_ _ .. _ _ . ~ . . _ . _ .
Docket No. RM74'-22 et al. - 21 -
." l The electric power supply systems in the eastern, t southern and midwestern regions of the United States normally :
operate together inLa synchronous manner to form a series of i large interconnected electric power grids. Geographically, l these1 interconnected systems extend from Maine to Florida and' inland as far as Oklahoma, Nebraska and the Dakotas and ' l include most power facilities in seven of the nine electric reliability councils. The far western states tend to operate as a separate series of power grids with weaker ties to the ; East. The interconnected systems in most of Texas operate as an electrically isolated power grid. Ownership of com- ! ponents of these systems is divided among investor owned utilities, agencies of the Federal Government and various i publicly owned utility organizations and cooperatively owned systems, System reliability is accomplished under this Commis-sion's administratively established adequacy and reliability program pursuant to Section 202(a) of the Federal Power Act, and Order series.383, the latest being Order No. 383-3, 49 FPC 700 (1972). This program is voluntary, but it is the policy of the Commission t. hat all electric systems shall have the opportunity to participate in the adequacy and reliability
- . matters consistent with their needs. .See Order series 383.
Development of these power supply systems has been in + an orderly manner; load growth, equipment, fuel, sites and economic principles being major factors in determining the type and location of facilities to be constructed. The supply ; of electrical energy to the consumer is, in general, by a l t utility operating in a designated service area. Growth of load within such service area requires facility expansion since each utility'is normally required to supply all load 4 in its territory.. Th'is requirement causes area planning of facility expansion to be' a major function of electric utility organizations, not the electric loads of another area or to operate an electric system as a transport or common carrier. Planning involves'specifying facilities to supply the maximum j expected load on a particular system. Economic and reliability considerations make it desirable to interconnect these individual service areas. System inter-l connections are generally'of mutual benefit for the inter-connecting parties, provided there is required coordination of operations between such systems. Generally, electric
- utilitiesL throughout the country operate their systems in this manner.
Power pools are formed primarily for economic 5L ~ ~ , - - , o _.- w ,. , ., ~ ,_
. - , - . . . , , . ---c.. .- .-- , ..mr_, - . . . . . -.- .
Docket No. RM74-22 et a1. ..,
;
and reliability reasons and operate within the framework of i adequacy and reliability factors. A power pool or a large
~
operating utility employs a considerable. amount of highly sophisticated control equipment, which is custom designed for its particular application and is the result of lengthy. plan-ning, specification and ordering periods. A major change in , power pool-dispatching or in system operations requires con-siderable lead time so that the proper control equipnent can
-be ordered and installed.
Operation of an electric power system, whether on a power
- pool or on an owner-organization service area basis, aormally
, employs a balanced net planned interchange, i.e., zero net
- ~ unplanned flows. This concept requires each operating organi-zation to provide adequate generation to carry.its own load, including any planned import or export power plus a cesignated reserve margin.
Control of a multi-unit interconnected electric power system in this manner is accomplished at system operations , or dispatch. centers. Communications to the power generating
! centers within the system and to the dispatch centers of adjoining organizations are a vital link in the operation of the power systems 16/.
! lj/ As a basic indicator of adequate generation, a dispatch center monitors system frequency and seeks to maintain a constant 60 cycles. Over-generation will cause the frequency to increase while under-generation causes the frequency to decline. Controlling system frequency requires detailed coordination with adjoining power dispatch centers, since under-generation on one system causes electrical power flows into that system, to I maintain stable system operations. As a part of this )
coordination, voltage and power flow are monitored at l key locations on each system. Results of this monitoring program require-technical interpretation by individuals with appropriate training and experience to obtain the exact operating condition of the electric power system. ,
.ne current total system status exists at no other loca-tion.- Operating procedures require that changes in total system stattts be immediately communicated to the
' system dispatch center via automatic monitoring devices
'or' personal contact'means.
Docket No. RM74-22 et al. - 23 -
. Capacity and energy transfers between electric power systems are a function of the systen operating condition at a particular time. To attempt any transfer of capacity or energy through other than these dispatch communication t channels is an invitation to a . system blackout or other major system. disturbance. This is true because power system condi-tions are. dynamic and subject to many internal and external forces which could require major system adjustments. These adjustments require detailed knowledge of the involved system and some knowledge of the interconnected systems.
Anticompetive allegations of Richmond and Congressman
- Harrington do not alter these physical facts or the legal
constraints by enlarging the statutory authority of the Com- ' mission to direct public utilities to conduct wheeling, dis-
placement or common carriage operations. Administrative agencies do not gainsay statutory limitations through the procedural meant by which objections are framed. The anti- i ! competitive objections which the City and Congressman Harrington l urge to the settlement rates and charges incorrectly assume we possess such authority.
;
As noted supra, Order No. 496, by its terms, is a volun-l' tary program. It was created to meet the supply conditions of the Arab oil embargo and not to equalize fuel costs or to change basic long-term fuel supply arrangements. The Commission, as a part of that program, directed its staff to work with the pools,
councils and state commissions on a cooperative procedure basis. The conference staff did so, and that is basically how the 819,930 mwhs were moved to the East Coast this past winter with an assocsated oil saving of over a million 2 barrels of residual oil 17/. 1[/ ' During the period January 1974-May 26, 1974, an aggregate of 819,930 mwh were-generated by the participating systems and transmitted to PJM, NYPP and NEPOOL, largely through the interconnecting' transmission lines of the Allegheny Power System, the~American Electric Power System, the
. Carolina-Virginia Systems, the PJM Systems and the NYPP.
The approximate split of energy was 50 percent to PJM, 2:5 percent to New York Pool and 25 per ent to NEPOOL. Footnote continued on next page 3
----: - - , .m, , ..--c ,-- ..,n - , , --,....me m..g ~
,..cm,-., -,q-. , ~ ,w,--
Docket No. RM74-22 et al. - 24 -
-f.
The Commission has not found an " emergency" within the meaning of f 202(c) of the Federal Power Act as requested by NEPOOL's petition in Docket No. E-8589. The Commission is not acting pursuant to its emergency authority in this order. The proffered settlement rates and charges have been 4 tendered pursuant to the Commission's normal interstate rate. 4 regulatory authority, El 205, 206, 16 U.S.C. 824d, e, over public utilities 18/. NEPOOL, the originator of. the 8 202(c) proceeding in Docket No. E-8589, requests our approval of the settlement rates and seeks to terminate that, and all other ! litigation in the above dockets, as do the other pools, affected 2 electric utilities and state public service commissions. The anticompetitive issues raised in these proceedings spring from the aforementioned contractual dispute between Richmond, Indiana, and Indiana & Michigan Electric Company 4 and offers by the City to sell fuel conservation power to the company or others. From that initial dispute, the City, and to some degree Congressman Harrington, presents a series of arguments directed chiefly against the American Electric
; Power (AEP) and Allegheny Power Systems (APS). The City I claims these systems have engaged in illegal conduct in the 17/ Footnote continued from preceding page 1
Some of the transmission was accomplished through the ! CAPCO systems and the Ontario Hydro system. (See i
' Appendix C). Upon an aggregate basis, these mwh trans-late into-approximately 1,320,000 bbls. of residual oil.
Not all of this transmitted energy will ultimately be classified as " fuel conservation energy" when transmitted. There are some amounts of economy interchange and other classes of service. Other than through scheduling, it is basically impossible to separate fuel conservation energy from other energy going through tieline meters. 18/ The Commission's statutory authority to act in emergency situatiens pursuant to Section 202(c) of the Federal Power Act is not limited to "public . utilities" (i.e., interstate investor owned ~ systems). The companion notice of. proposed
.rulemaking, issued concurrently herewith, would apply to
.all types of utility systems however owned, investor owned, publicly owned or cooperatively owned, Docket No. RM75-3.
(balance deleted]
I t^ l UNITED STATES OF AMERICA ATOMIC ENERGY COMMISSION l In the Matter of )
) Docket Nos. 50-329A LCONSUMERS POWER COMPANY ) and 50-330A (Midland Plant, . Units 1 and 2) )
CERTIFICATE OF SERVICE I hereby certify that copies of REPLY BRIEF OF CONSUME RS POWER COMPANY, dated November 25, 1974, in the , above captioned matter , have been served on the following by deposit in the United States mail, first class or air mail, this 25th day of November, 1974: Hugh K. Clark., Esquire Dr. J. V. Leeds, Jr. Chairman. P. O. Box 941
- Atomic Safety and Licensing Board Houston, Texas 77001 Atomic Energy Commission Washington, D. C. 20545 Joseph J. Saunders, Esq.
Public Counsel Section Robert Jablon, Esquire Antitrust Division 2600 Virginia Avenue, N. W. Department of Justice Washington, D. C. 20037 Washington, D.C. 20530 Robert Verdisco, Er. quire Antitrust Ccunsel for
- AEC Regulatory Staff-Atomic Energy Commission
- Washington, D. C. 20545
. Wallace E.-Brand, Esquire Antitrust Public Counsel Section P. O. Box 7513
, Washington, D. C. '20044 Atomic Safety ;and Licensing Board Atomic Energy Commission Washington, D. C. 20545 Th0 mas W. Brunner d D i
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