ML19329A843

Reply Brief of DOJ to Applicants Appeal Brief in Support of Individual & Common Exceptions to 770106 Decision.Record Shows Applicants Monopoly Power Misacquired & Abused.Board Should Affirm Initial Decision.Certificate of Svc Encl

ML19329A843
Person / Time
Site:	Davis Besse, Perry
Issue date:	06/30/1977
From:	Berger M, Urban J JUSTICE, DEPT. OF
To:
References
NUDOCS 8001150736
Download: ML19329A843 (205)

Text

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UNITED STATES OF AMERICA

• NUCLEAR . REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY.AND LICENSING APPEAL BOARD -

e In the Matter of )

)

The Toledo Edison Company and )

The Cleveland Electr ic Illuminating ) Docket Nos. 50-346A Company ) 50-500A (Davis-Besse Nuclear Power Station, ) , 50-501A -

Units 1, 2 and 3) )

) .

The Cleveland Electric Illuminating ) Docket Nos. 50-440A Company, et al. ) 50-441A (Perry Nuclear Power Plant, )

Units 1 and 2) )

REPLY BRIEF OF THE DEPARTMENT OF JUSTICE TO APPLICANTS' APPEAL BRIEF IN SUPPORT OF THEIR INDIVIDUAL AND COMMON EXCEPTIONS

'TO THE INITIAL DECISION DAVID A. LECKIE MELVIN G. BERGER Assistant Chief Public Counsel Section JANET R. URBAN Antitrust Division Attorneys, Department of Justice June 30, 1977 80011507W A. ,

TABLE OF CONTENTS Page INTRODUCTION . . . . . . . . . . . . ............. 1 I. SCOPE OF APPELLATE REVIEW . . I......'....... 2 II. THE APPLICANTS. . . . . . . . . ............. 5 A. The Cleveland Electric Illuminating Company. .... 5 B. Duquesne Light Company e .

.......,...... 5 -

C. Ohio Ed ison Company. . . . ............. 6 D. Pennsylvania Power Company . ............

. 6 E. The Toledo Edison Company. ............. 7 III. DISCOVERY . . . . . . . . . .'. ............. 8, IV. DESCRIPTION OF THE INDUSTRY , . ............. 14 A. Generally. . . . . . . . . ............. 14 B. Principles Of Production And Coordination. ..... 16

1. Reserve Sharing . . . ............. 19 2 Coordinated Development ............ 21

3. Joint Transmission Arrangements (Wheeling). .. 24 C. Central Area Power Coordination Group. ....... 27 V. COMPETITION IN THE ELECTRIC POWER INDUSTRY. ....... 31 A. Generally. . . . . . . . . . . ............ 31 B. Sale Of Firm Power At Wholesale. .......... 34 C. Sale Of Power At Retail. . ............. 38 I ,

D. Competition In The CCCT. . ............. 42

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Page VI. LEGAL STANDARDS . . . . . . . . . . . . . . . . . . . . . 43 A. The Standard Of Section 105c Of The Atomic Energy Act 43

1. Generally . . . . . . . . . . . . . . . . . . . . 43 ,

2. The Standard of "Inco,nsistency" . . . . . . . . 43 B. The Antitrust Laws And The Policies Underlying Those Laws . . . . . . . . . . . . . . . . . . . . . . . 50

1. Agreements and Conspiracies Under the Sherman Act 51

a. Conspiracy Under the Sherman Act ,

. . . . . 51 .

. b. Per Se Offenses. . . . . . . . . . . . . . 54 (1) Group Boycotts or Concerted Refusals to Deal . . . . . . . . . . . . . . 55 (2) Territorial or Customer Allocations . 57

c. Rule of Reason . . . . . . . . . . . . . . 59-

2. The Law of Monopolization . . . . . . . . . . . 60

a. Generally. . . . . . . . . . . . . . . . . 60

b. Refusals to Deal . . . . . . . . . . . . . 66

. c. " Bottleneck" Monopolization. . . . . . . . 68 .

d. Other Exclusionary Practices . . . . . . . 70

e. The Relevant Markets . . . . . . . . . . . 70

3. Section 5 of the Federal Trade Commission Act . 76 C. Federal Regulation Of Electr ic Utilities -- Primary Jurisdiction Of Federal Agencies . . . . . . . . . 77 j D. State Regulation Of Electr ic Utilities -- The State Action Doctr ine. . . . . . . . . . . . . . . . . . 84 i

E. Collateral Estoppel. . . . . . .. . . . . . . . . . 89 r

l VII. APPLICANTS' MONOPOLY POWER. . . . . .. . . . . . . . . . 90 l

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ES2S VIII. APPLICANTS' ACTIVITIES. . . . . . . . . . .. . . . . . . 93 A. The Cleveland Electr ic Illuminating Company. . . . . 93

1. Competition For Retail Customers -- MELP. . . . 93 -

2 Acquisition . . . .. . . . . . .. . . . . . . 94

3. Denial of Coordinated Operation and Development 95

a. MOLP . . . . . . .. . . . . . . . . .. . 95

b. Painesville. . . . . . . . .. . .. . . . 107 B. The Duquesne Light Coripany . . . . . . . . . . .. . 107

1. Acquisitions. . . . . . . . . . . . . . . . . . 107 2 Denial of Coordinated Operation and Development 109

a. Refusal to Sell Wholesale Power. .. . . . 109

b. Refusal to ~ Enter Into an Interchange Agreement. . . . . . . . . . . . . . . . 115

c. Denial of Access to Nuclear Units. . . . . 116 C. The Ohio Edison Company And The Pennsylvania Power Company. , . . . . . .. . . . . . . . . . . . . . . 117

• 1. Nuclear Access. . . ... . . . . .. . ... . 117 -

2 WCOE Negotiations . . . . . . . . . . .. .. , 117

3. Acquisition . . . . . . . . .. . . .. . . . . 118 4 Refusals To Wheel . . . . .. . . . . . . .. . 120

5. Territorial Agreements. . . . . .. .. . . . . 122

6. Refusals To Deal. . . . .. . . . .. . .'.. . 124

7. Capacity Restr ictions . . .. . .. . . . .. . 126 8 Price Squeeze . .. . . . . . . . .. . . ... . 127

9. Pennsylvania Power Company's Conduct. . . .. . 128

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Page Toledo Edison. . . . . . . . . . . . . . . . . . . . 129 D.

129

. 1. Acquisitions. . . . . . . . . . . . . . . . . .

132

2. Territorial Agreements. . . . . . . . . . . . .

a. Ohio Edison. . .' . . . . . . . . . . . . . 133

b. Ohio Power . . . . . . . . . . . . . . . . 133

c. Consumers Power Company. . . . . . . . . . 134

d. Buckeye. . . . . . . . . . . . . . . . . . 137 ,

e. Wholesale Custcmers. . . . . . . . . . . . 138 Denial Of Bulk Power Services 140

3. . . . . . . . . .

a. Bowling Green. . . . . . . . . . . . . . . 140

b. Napoleon . . . . . . . . . . . . . . . . . . 141

c. The Buckeye Agreements . . . . . . . . . . 146

d. Waterville . . . . . . . . . . . . . . . . 149

4. Denial Of Joint Ownership In Large-Scale Generating Facilities . . . . . . . . . . . . 150 E. 152

.CAPCO. . . . . . . . . . . . . . . . . . . . . . . . ,

1. Responsibilities Of Power Pool Members. . . . . 152

2. Formation of CAPCO. . . . . . . . . . . . . . . 158 i

3. 162 P/N . . . . . . . . . . . . . . . . . . . . . .

4. Refusal To Admit Pitciarn To CAPCO. . . . . . . 164

5. Refusal To Admit MELP To CAPCO. . . . . . . . . 166

6. Denial of :luclear Access. . . . . . . . . . . . 171 NEXUS . . . . . . . . . . . . . . . . . . . . . . . . . . 175 IX. ,

The Standard To Be Applied . . . . . . . . . . . . . 175 l A.

Factual Nexus. . . . . . . . . . . . . . . . . . . . 177 B.

iv

Page X. RELIEF. . . . . . . . . . . . . . . . . . . . . . . . . . 182

'XI . PROFESSOR TURNERS THEORY . . . . . . . . . . . . . . . . 189 CONCLUSION . . . . . . . . . . . . . .* . . . . . . . . . . . . 190 m

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TABLE OF AUTHORITIES Page -

CASES:

Acme Products, Inc. v. National Labor Relations Board,~389 F.2d

. . . . . . . . . . . . . . 4 104 ( 8 th C ir . 1968). . . . . . . g Agrashill, Inc. v. Hammond Products Co. , 479 F.2d 269 (8th Cir.

1973), cert. denied 414 U.S. 1032. . . . . . . . . . . . . . . 66 American Tobacco Co. v. United States, 147 F.2d 93 (6th Cir.

1944) aff'd, 328 U.S. 781 (1946) . . .. . . . . . . . . . . . 51, 52, 60, 64 o 65, 66, 91 American Federation of Tobacco Growers v. Neal, 183 F.2d 869 70, 102 (4th Cir. 1950). . . . . . . . . . . . . . . . . . . . . . . .

Associated Press v. United States, 326 U.S. 1 (1945) . . . . . . 68, 69 Atlantic Refining Co. v. Federal Trade Commission, 381 U.S. 357 76 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic Books, Inc., 56 F.T.C. 69 (1959), aff'd, 276 F.2d 718 (7th 4

C ir . 1960) . . . . . . . . . . . . . . . . . . . . . . . . . .

Brown Shoe Co. v. United States,'370 U.S. 294 (1962) . . . .. . . 71, 72g 130 California v. Federal Power Commission, 296 F.2d 348 (D.C. C ir . f 1961), rev'd on other grounds, 369 U.S. 482 (1962) . . . . . . 46 ,

1 Cantor v. Detroit Edison Co. , 428 U.S. 579 (1976). . . . . . . . 32, 80j 84, 86 87, 88 147 C. Howard Hunt Pen Co. v. Federal Trade Commission, 197 F.2d-273 I

184 l (3d. C ir . 19 52 ) . . . . . . . . . . . . . . . . . . . . . . . .

l City of Mishawaka, et al. v. Indiana & Michigan Electr ic Co. ,

1975 Trade Cas. 160,318 (N.D. Ind. 1975) . . . . . . . . . . . 70 j City of Paris, Ky. v. Kentucky Utilities Co. , 41 F.P.C. 45 (1969) 82 City of Shakooee v. Northern States Power Co. , Civ. No. 4-75-591 (D. Minn. October 18, 1976). . . . . . . . . . . . . . . . . . 80, 81 Citizens Publishing Co. v. United States, 394 U.S. 131 (1969). . 96 vi

~ _ _ _ .

~

- Page Clinton Watch Co. v. Federal Trade Commission, 291 F.2d 838 (7th Cir. 1961), c e ,r,t . denied, 368 U.S. 952 (1962). . . . . . . . . 184 In re Coca-Cola Co., [1973-1976 Transfer Binder] Trade Reg. Rep.

(CChi) 121,010 (FTC, October 8, 1975) . . . . . . . . . . . . . 59 .

Commonwealth v. National Gettysburg Battlefield Tower, Inc., 454 Pa. 193, 311 A.2d 588 (1973) . . . , . . . . . . . . . . . . . . 27 Consolidated Edison Company of New York, Inc. (Indian Power Station, Unit 2), ALAB-488, 7 A.E.C. 323 (1974). . . . . . . . 3 Consumers Power Company (Midland Units 1 and 2), LBP-75-39, 2 N.R.C.I. 29 (1975) . . . . . . . . . . . . . . . . . . . . . 71 Continental T.V. Inc. v. GTE Sylvania, Inc., U.S.L.W.

(June 23, 1977). . . . . . . . . . . . . . . . . . . . . . . . 57 Cromwell v. County of Sac, 94 U.S. 351 (1876). . . . . . . . . . 89, 90 Dejoy Stores, Inc. v. Federal Trade Commission, 200 F.2d 865 (2d. C ir . 1952). . . . . . . . . . . . . . . . . . . . . . . . 184 Delli Paoli v. United States, 352 U.S. 232 (1957). . . . . . . . 54 Department of Environmental Resources v. Public Utility Commission 1

335 A.2d 860 (1975). . . . . . . . . . . . . . . . . . . . . . 27

>' Diener's Inc. v. Federal Trade Commission, 494 F.2d 1132 (D.C.

Cir. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Doherty, .Clif ford Steers & Shenfield, Inc. v. Federal Trade .

Commission, 392 F.2d 921 (6th Cir. 1968) . . . . . . . . . . . 183 Dolcin Corp..v. Federal Trade Commission, 219 F.2d 742 (D.C. C ir .

I 1954), cert.-denied, 3(d U.S. 981 (1955) . . . . . . . . . . . 184 Duke Power Company (Calawba Nuclear Stations, Units 1 and 2),

ALAB-355, 4 N.R.C. 397 (1976). . . . . . . . . . . . . . . . . 4 Eastern States Retail Lumber Dealers Ass'n v. United States, 234 U.S. 600 (1914). . . . . . . . . . . . . . . . . . . . . . 52 Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940) . . . 51, 55

. Fashion Or iginator 's Guild of Amer ica, Inc. v. Federal Trade l Commission, 312 U.S. 457 (1941). . . . . . . . . . . . . . . . 56 Federal Commun icat ions Commission v. RCA Commerications, Inc.,

346 U.S. 66 (1953) . . . . . . . . . . . . . . . . . . . . . .- 45, 46 vii

Page Federal Power Commission v.'Conway Corp., 426 U.S. 271 (1976). . 31, 63, 70, 79, 128 Federal Power Commission v. Southern California Edison Co. , 37 376 U.S. 205 (1964). . . . . . . . . . . . . . . . . . . . . . .

Federal Trade Commission v. Brown Shoe Co., 384 U.S. 316 (1966). 76 Federal Trade Commission v. Convent Institute, 333 U.S. 683 76 (194d) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Trade Commission v. Motion Picture Advertising Service 76 Co., 344 U.S. 392 (1953) . . . . . . . . . . . . . . . . . . . .

Federal Trade Commission v. National Lead Co., 352 U.S. 419 184, 186 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiberboard Paper Prod. Corp. v. East Bay Union of Machinists, Local 1304, 344 F.2a 300 ( 9 th C ir . 1965), cert. denied, 382 90 U.S. 826 (1965). . . . . . . . . . . . . . . . . . . . . . . .

Ford Motor Co. v. United States, 405 U.S. 562 (1972) . . . . . . 183 Fox v. United States, 381 F.2d 125 (9th Cir. 1967) . . . . . . . 53 Free v. Bland, 369 U.S. 663 (1962) . . . . . . . . . . . . . . . 37 Frey & Son, Inc. v. Cudahy Packing Co., 256 U.S. 208 (1921). . . 52 Gainesville Utilities Department v. Flor ida Power Corp. , 40 F.P.C.

19, 21r 1227 (1968), aff'd. 402 U.S. 515 (1971). . . . . . . . . . . .

83, 153 154, 155 Gamco, Inc. v. Providence Fruit & Produce Building, Inc., 194 F.2d 484 (1st Cir. 1952), cert. denied, 344 U.S. 817 (1952). . 68, 69 l

George R. Whitten Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 54) (1st C ir . 19 7 4 ) , cert. denied, 421 U.S. 1004 (1975) . 66 Georgia v. Pennsylvania Railroad Co., 324 U.S. 439 (1944). . . . 96 Giant Fcod, Inc. v. Federal Trade Commission, 322 F.2d 977 (D.C.

C ir . 1963), cert. denteo, 376 U.S. 967 (1964). . . . . . . . . 183, 18e Golden Grain Macaroni Co. v. Federal Trade Commission, 472 F.2d 882 ( 9 th C ir . 1972), cert. dentea, 412 U.S. 318. . . . . . . . 14 Goldf arb v. Virginia State Bar , 421 U.S. 773 (1975). . . . . . . 84, 85 0 l 86, 147

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Page Gordon Co. Broadcasting Co. v. Federal Communications Commission, 89 446 F.2d 1335 (D.C. Cir. 1971) . . . . . . . . . . . . . . . .

Grose v. Cohen, 406 F.2d 823 ( 4 th C ir . 1969) . . . . . .. . . . . 89 Gulf States Utilities v. Federal Power Commission, 411 U.S. 747 31, 78, (1973) . . . . . . . .. . . . . . . . . . . . . . . . . . . . 82 Hawaii Telephone Co. v. Federal Trade Commission, 498 F.2d 771 46 (D.C. C ir . 19 7 4 ) . . . . . . . . . . . . . . . . . . . . . . .

Hernandez v. United States, 300 F.2d 114 (9th Cir .1972) . . . . 53 .

/

Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229 (1917). . . . 53, 54 Illinois Natural Gas Co. v. Central Illinois Public Service Co. ,

314 U.S. 496 (1942). . . . . . . . . . . . . . . . . . . . . . 37 Indiana & Michigan Electric Co. v. Federal Power Commission, 365 f.2d 180 ( 7 th C ir . 196 6 ) , cert. denied, 385 U.S. 972 (1966). . 38 International Salt Co. v. United States, 322 U.S. 392 (1947) . . 183, 188 International Telephone & Telegraph Corp. v. General Telephone &

Electronics Corp., 351 F. Supp (0, Hawa ii 197 2 ) . . . . . . . . 72 International Telephone & Telegraoh Corp. v. General Telephone &

Electronics Corp., 51d F.2d 913 ( 9 th C ir . 19 7 5 ) . . . . . . . . 72 Interstate Circuit v. United States, 306 U.S. 208 (1939) . . . . 52 i Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., l 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062 (1970) 57 i Kansas Gas and Electric Company and Kansas City Power and Light Company (Wolf Creek Generating Station, Unit No. 1). . . . . . 43, 175 4 177, 188i Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959) . 55 Latin America / Pacific Coast S.S. Conference v. Federal Maritime Commission, 465 f.2c 542 (D.C. C ir . 1972). . . . . . . . . . . 46 l Lessig v. Tidewater Oil Co. , 327 F.2d 459 (9th Cir.), cert.

denied, 377 U.S. 993 (1964). . . . . . . . . . . . . . . . . . 66 Libbey-Owens-Ford Glass Co. v. Federal Trade Commission, 352 F.2d

', 183 415 (6th Cir. 1965). . . . . . . . . . . . . . . . . . . . . .

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Page Lorain Journal Co. v. United States, 342 U.S. 143 (1951) . . . . 66 Louisiana Power and Light Company (Water ford Steam Electr ic Generating Station, Unit No. 3-), CLI-73-25 (Waterford I), 6 A.E.C. 48 (1973) . . . . . . . . . . . . . . . . . . . . . . . 176 Louisiana Power and Light Comoany (Waterford Steam Electr ic Generating Station, Unit No. 3), CLI-73-25 (Waterford II),

6 A.E.C. 619 (1973). . . . . . . . . . . . . . . . . . . . . . 176 Louisiana Power and Light Company (Waterford Steam Generating Station, Unit No. 3), Memorandum of Board With Respect to License Conditions dated October 24, 1974, 8 A.E.C. 718 (1974) 154 -

Luteran v. United States, 93 F.2d 395 (8th Cir. 1937), cert.

den ied , 330 U.S. 644 (1938). . . . . . . . . . . . . . . . . . 53 Metropolitan Edison Company v. P.S.C., 127 Pa. Super. 11, 191 A. 678 (1937). . . . . . . . . . . . . . . . . . . . . . . . . 39 Mohawk Utilities, Inc. v. PUCO, 37' Ohio St. 2d 47, 307 N.E. 2d ,

261 (1974) . . . . . . . . . '. . . . . . . . . . . . . . . . . 38 Montana-Dakota Utilities Co. v. Williams Electr ic Cooperative, 263 F.2d 431 (dth Cir. 1959) . . . . . . . . . . . 5 . . . . . 58 Morgan v. United States, 304 U.S. 1 (1938) . . . . . . . . . . . 13 Morton Sa1t Co. v. United States, 235 F.2d 573 (10th Cir. 1956). 53 Municipal Electric Asscciation v. Securities and Exchange Commission, 413 F.2a 1052 (D.C. Cir. 1969) . . . . . . . . . . 82 Municipal Electric Association of Mass. v. Federal Power Commission, 414 F.2d 1206 (D.C. Cir. 1969) . . . . . . . . . . . . . . . . 82, 84 Nash v. Florida Industrial Commission, 389 U.S. 235 (1967) . . . 37 Nash v. United States, 229 U.S. 373 (1913) . . . . . . ., . . . . 51 i National Labor Relations Board v. Local 160 Int'l Hod Carriers, 268 F.2d 185 (7th Cir . 1959) . . . . . . . . . . . . . . . . . 4 National Labor Relations Board v. Mackey Radio & Telegraoh Co.,

304 U.S. 333 (1938). . . . . . . . . . . . . . . . . . . . . . 14 Neaderland v. Commissioner, 424 F.2d 639 (2d Cir. 1970), cert.

denied, 400 U.S. 827 (1970). . . . . . . . . . . . . . . . . . 90 X

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Page Northern California Power ^gency v. Federal Power Commission, 514 F.2d 184 (D.C. Cir. 1975), cert, denied, 423 U.S. 1037 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Northern Natural Gas Co. v, .eceral Power Commission, 399 F.2d ,

953 (D.C. C tr . 196d) . . . . . . . . . . . . . . . . . . . . . 33, 46 Northern Pacific Railroad v. United States, 356 U.S. 1 (1958). . 44, 55 58, 96 Nye & Nissen v. United States, 168 F.2d 846 ( 9 th C ir . 1948),

aff'd, 336 U.S. 613 (1949) . . . . . . . . . . . . . . . . . . 53 Otter Tail Power Company v. United States, 410 U.S,. 366 (1973) . 28, 31,,

. 2, 36, 58, 60, 61, 64,.

66, 67, 68, 69, 74, 78, 82, 83,

. 91, 92, 95, .' 54 Pacific Seafarers, Inc. v. Pacific Far East Line, Inc., 404 F.2d 804 'O.C. C ir . 19 6 8 ) , cert. cenied, 393 U.S. 1093 (1969) . . . 95 Packaged Programs, Inc. v. Westinghouse Broadcasting, 225 F.2d 708 (3d Cir. 1958) . . . . . . . . . . . . . . . . . . . . . . 66 Parker v.' Brown, 317 U.S. 341 (1943) . . . . . . . . . . . . . . 84, 85,~

147 Pennsylvania Water & Power Co. v. Consolidated Gas, Electr ic Light & Power Co., 184 F.2d 552 (4 th Cir . 1950 ) , cert. denied, 340 U.S. 906 (1950). . . . . . . . . . . . . . . . . . . . . . 58, 97 Pennsylvania Water & Power Co. v. Federal Power Commission, 193 F.2d 230 (D.C. C ir . 1951), aff'd 343 U.S. 414 (1952) . . . . . 46

Pettibone v. United States, 148 U.S. 197 (1893). . . . . . . . . 51 I

l Public Utilities Commission v. Attleboro Steam and Electric Co.,

273 U.S. 83 (1927) . . . . . . . . . . . . . . . . . . . . . . 36 Radiant Burncrs, Inc. v. Peoples Gas Light & Coke Co., 364 U.S.

656 (1961) . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Retail Clerks Union, Local 1101 v. National Labor Relations Board, 463 F.2d 316 (D.C. C ir . 19 } 2 ) . . . . . . . . . . . . . . . . . 89 Xi

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Page Retail Clerks Union v. National Labor Relations Boatd, 466 F.2d 4 380 (D.C. Cir. 1972) . . . . . . . . . . . . . . . . . . . . .

Riss & Co. v. Association of Amer ican Railroads, 187 F. Supp. 306 (D.D.C. 1960), rev'd on other grounds, 299 F.2d 133 (D.C. Cir . ) 53 cert. denied, 370 U.S. 916 (1962). . . . . . . . . . . . . . .

Schine Chain Theatres, Inc. , et al. v. United States, 334 U.S.

53 110 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . .

Shopping Centers Association v. PUCO, 3 Ohio St. 2d 1, 208 N.E.2d 37 923 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . .

Silver v. New York Stock Exchange, 373 U.S. 341 (1963) . . . . . 56, 77 Six Twenty-Nine Productions v. Rollins Telecasting, Inc., 365 F.2d 66 478 (5th Cir. 1966). . . . . . . . . . . . . . . . . . . . . .

Slumeger v. Coca Cola Co., 515 F.2d 835 ( 5 th C ir . 1975), cert.

66 denied, 424 U.S. 934 (1976). . . . . . . . . . . . . . . . . .

Flor ida , 373 U.S. 379 (1963) . . . . . . . . . . . . . 37 Sperry v.

4 Sprung v. Weinberger, 38*. F. Supp. 74 (D.N.J. 1974). . . . . . .

S. S. W., _Inc. v. Air Transport Ass'n of America, 191 F.2d 658 46 (D.C. Cir. 1951), cprt. den ied , 343 U.S. 955 (1952). . . . . .

Standard Distr ibutors, Inc. v. Federal Trade Commission, 211 F.2d 184 865 ( 2d, C ir . 1952) . . . . . . . . . . . . . . . . . . . . . . .

Standard Sanitary Manufacturing Corp. v. United States, 226 U.S.

55 20 (1912). . . . . . . . . . . . . . . . . . . . . . . . . . .

Stanley Works v. Federal Trade Commission, 469 F.2d 498 (2d Cir.

1972), cert. denied, 412 U.S. 928 (1973) . . . . . . . . . . . 130 Swift & Co. v. United States, 196 U.S. 375 (1905). . . . . . . . 53, 66 Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951).

58 Tipler v. E.I. duPont de Nemours & Co., 443 F.2d 125 ( 6 th C ir .

89 1971). . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Title v. Immigration and Naturalizatton Service, 322 F.2d 21 (9th 89, 95 C ir . 1963) . . . . . . . . . . . . . . . . . . . . . . . . . .

l Travelers Insurance Co. v. Wadsworth, 109 Ohio St. 440, 142 N.E.

26 300 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . .

xii

Page Twin City Sportservice Inc. v. Charles O. F inley & Co. , 512 F.2d 1264 (9th Cir . 1975) . . . . . . . . . . . . . . . . . . . . . 66 United Shoe Machinery Corp. v. United States, 258 U.S. 451 (1922) 95

- United States v. Aluminum Company of Amer ica, 146 F.2d 416 (2d C ir . 1945) . . . . . . . . . . . . . . . . . . . . . . . . . . 64, 72 United States v. Aluminum Company of America, 377 U.S. 271 (1964) 130 United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967). . . 57, 64 United States v. Bethlehem Steel Corp., 168 F. Supp. 576 (S.D.N.Y.

1958). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 United States v. Capparet, 508 F.2d 313 (9th Cir. 1974). . . . . 89 United States v. Central States Theatres Corp. , 187 F. Supp. 114 51 (D. Neb. 1960) . . . . . . . . . . . . . . . . . . . . . . . .

United States v. Chas. Pfizer & Co., Inc., 246 F. Supp. 464 (E.D.N.Y. 1965). . . . . . . . . . . . . . . . . . . . . . . . 71 United State's v. Citizens and Southern National Bank, 422 U.S.

86 (1975). . . . . . . . . . . . . . . . . . . . . . . . . . . 57 United States v. Columbia Steel Co., 334 U.S. 495 (1948) . . . . 56 United States v. Consolidated Laundr ies Corp. , 291 F.2d 563 (2d Cir. 1961) . . . . . . . . . . . . . . . . . . . . . . . . . . 65 United St*ates v. E.I. duPont de Nemours & Co., 351 U.S. 377 <

(1956) . . . . . . . . . . . . . . . . . . . . s . . . . . . . 71 United States v. E.I. duPont de_Nemours & Co., 353 U.S. 586 (1957) . . . . . . . . . . . .. . . . . . . . . . . . . . . . 91, 183 United States v. E.I. duPont de Nemours & Co., 366 U.S. 316 (1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973) ,

. . 33 United States v. General Electr ic Co. , 80 F. Supp. 989 (S.D.N.Y.

194a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 United State,s v. General Motors Corp., 384 U.S. 127 (1966) . . . 56 United States v. Greater Buffalo Press, 402 U.S. 549 (1971). . . 72  !

United States v. Griffith, 334 U.S. 100 (1948) . . . . . . . . . 64, 65, 65 l 1

xili 4

Page United States v. Grinnell Corp., 236 F. Supp. 244 (D.R.I. 1964),

affT d 364 U.S. 563.(1966). . . . . . . . . . . . . . . . . . . 61, 65, 71, 90, 183, 189 United States v. Gypsum Co., 333.U.S. 364 (194u) . . . . . . . . . 54 ,

United States v. Hyde, 225 U.S. 347 .(1912) . . . . . . . . . . . 54 United States v. International Business Machines, 1975 CCH Trade Cases 160,495 (S.D.N.Y. 1975). . . . . . . . . . . . . . . . . 65 United States v. Jerrold Electronics Ccrp., 187 F. Su[:p. 54 5 65, 130 (E.D. Pa. 1960). . . . . . . . . . . .  ; . . . . . . . . . . .

United States v. Kissel, 218 U.S. 601 (1910) . . . . . . . . . . 54 United States v. _Manton, 107 F.2d tt34 (2d Cir .1938 ) . . . . . . 53 United States v. Marine Bancorporation, 418'U.S. 602 (1974). . . 33 United States v. Masonite Corp., 316 U.S. 265 (1942) . . . . . . 52 United States v. McGann, 431 F.2d 1104 ( 5 th C ir . 1970), cert.

cenied, 401 U.S. 919 (1970). . . . . . . . . . . . . . . . . . 53 United States v. National Ass'n. of Security Dealers, 422 U.S.

69'4 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . 77 United States v. National Football League, 116 F. Supp. 319 (E.D. Pa. 1953). . . . . . . . . . . . . . . . . . . . . . . . 59 United States v. Few Orleans Insurance Exchange, 148 F. Supp. 915 (E.D. La. 1957). . . . . . . . . . . . . . . . . . . . . . . . SG United States v. Otter Tail Power Company, 331 P. Supp. 54 (D.

Minn. 1971), aff'd in part, 410 U.S. 366 (1973). . . . . . . . 61 United States v. Paramount Pictures, 334 U.S. 131 (1948) . . . . 65

~

United States v. Patten, 226 U.S. 525 (1913) . . . . . . . . . . 52 United States v. Perlstein, 126 F.2d 789 (3d Cir. 1942). . . . . 54 United States v. Philadelphia National Bank, 374 U.S. 321 (1963) 32, 45, 71, 72, 130 xiv l

t l

• e

Page United States v. Phillipsburg National Bank, 399 U.S.

350 (1970) 71, 91 United States v. Radio Corporation of America, 358 U.S. 334 (1959) . . . . . . . . . . . . . g . . . . . . . . . . . . . . 46 United States v. Reading Co. , 226 U.S. 324 (1912). . . . . . . . 55 United States v. Sealy, Inc., 388 U.S. 350 (1967). . . . . . . . 58 United States v. Smith, 482 F.2d.1120 (8th Cir. 1973). . . . . . 89 United S tates v. Socony-Vacuum O il Co. , 310 U.S. 1SO (1940). . . 51, 6 5 ,'

96 United States v. Stromberg, 268 F.2d 256 (2d Cir. 1959), cert.

den ied , 361 U.S. 863 (.1"59). . . . . . . . . . . . . . . . . . 54 United States v. Terminal Railroad Ass'n., 224 U.S. 383 (1912) . 68, 69 United States v. Topco Associates,'405 U.S. 596 (1972) . . . . . 58, 59, 96 United States v. Trenton Potteries Co., 273 U.S. 392 (1927). . . 51, 55, 96 United States v. United Shoe Machinery Corp., 110 F. Supp. 295 (D. M as 1953), af f 'd per cur tam, 347 U.S. 521 (1954) . . . . 64, 65, 91 United States v. United States Gypsum Co., 340 U.S. 76 (1970). . 183 United States v. Ward Bak ing Co. , 224 F. Supp. 66 (E.D. Pa. 1963) 53 Van Camp & Sons Co. v. Amer ican Can Co. , 278 U.S. 245 (1929) . . 91 Wheatley v. Shields, 292 F. Supp. 608 (S.D.N.Y. 1968). . . . . . 4 White Boge Co. v. International Paper Co., 1974-2 Trade Cas.

175,166 (4 th Cir .1974 ) . . . . . . . . . . . . . . . . . . . . 66 Wisconsin Electr ic Power Co. ( Po int Beach Nuclear Plant, Unit No.

2), ALAB-78, 5 A.E.C. 319 (1972) . . . . . . . . . . . . . . . 3 1 .

( Wisconsin Power & Light Co. v. Public Service Commission, 172 j N.W. 2d 639 (1969) . . . . . . . . . . . . . . . . . . . . . . 38 Xv

' = >

'* C

Page STATUTORY AND LEGISLATIVE MATERIAL:

Atomic Energy Act of 1954, Section 105c, 42 U.S.C. 52135c. . . . 43, 46, 47, 48, 50, 190-28 C.F.R. Section 50.60. . . . . . . . . . . , . . . . . . . . . 137 Cong. Rec. S. 19254 (daily ed. December 2, 1970) (Remarks of Senators Aiken, Metcalf and Hart). . . . . . . . . . . . . . . 48 Federal Trade Commission Act, Section 5, 15 U.S.C.'S41 et seg. . 50 e Joint Committee on Atomic Energy, Hea."inos on S. 3323 and H.R.

8852 to Amend the Atomic Energy Act of 1946, 83rd Cong., 2d Sess., Part 2 (1954) . . . . . . . . . . . . . . . . . . . . . 64 Joint Committee on Atomic Energy, Report on 1970 Amendments to Atomic Energy Act, S. Rep. No. 91-1247, 91st Cong., 2a Sess.

(1970); H.R. Rep. No. 91-1470, 91st Cong. 2d Sess., 14 (1970). 43, 44, 47, 191 Ohio Constitution, Article XVIII, S6 . . . . . . . . . . . . . . 41 Ohio Revised Code, Sections 4905.261, 4906.01, 4906.04, 4906.10. 26 66 P.S. Section 1122(g). . . . . . . , , . . . . . . . . . . . .

47, 42 Report of the Attorney General's National Committee to Study the -

Antitrust Laws, 1955 . . . . . . . . . . . . . . . . . . . . . 60 Sherman Act, 15 U.S.C. Section 1 et seg. --

. . . . . . . . . . . . 50, 51, 54, 60 MISCELLANEOUS Davis, Administrative Law, 3rd Edition, 1958 . . . . . .. . . . . 14, 89 Moore, Federal Practice and Procedure, 2d Ed. 1974 . . . . . . . 89 Shenefield, Antitrust Policy Within the Electr ic Utility Industry, 16 Antitrust Bull. 6dl. (1971). . . . . . . . . . . . . . . . . 58 Turner, The Scope of Antitrust and Other Regulatory Policies, 82 Harv. L. Rev. 1207 (1969) . . . . . . . . . . . . . . . . . 189  !

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J

System of Abbreviation

. The following system of abbreviations has been used:

1. ID refers to Initial Decision.

2. Tr. refers to transcript page number.

3. DJ refers to the Department exhibits.

4. NRC refers to the NRC Staff's exhibits. .

5. C refers to the City of Cleveland's exhibits.

6. App. refers to the Applicants' exhibits.

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L

UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION

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BEFORE THE ATOMIC SAFETY AND LICENSING APPEAL BOARD e

In the Matter of )

)

The Toledo Edison Company and )

The Cleveland Electric Illuminating ) Docket Nos. 50-346A Company ) 50-500A (Davis-Besse Nuclear Power Station, ) 50-501A '

Units 1, 2 and 3) )

)

The Cleveland Electric Illuminating ) Docket Nos. 50-440A Company, et al. ) 50-441A (Perry Nuclear Power Plant, )

Units 1 and 2) )

REPLY BRIEF OF THE DEPARTMENT OF JUSTICE TO APPLICANTS' APPEAL BRIEF IN SUPPORT OF THEIR INDIVIDUAL AND COMMON EXCEPTIONS TO THE INITIAL DECISION

. INTRODUCTION ,

On January 6, 1977, the Atomic Safety and Licensing Board (Licensing Board) issued an Initial Decision ( Antitrust) in the above-styled proceeding. The Licensing Board found that the issuance of an unconditioned operating license for Davis-Besse Nuclear Power Station, Unit 1, and unconditioned construction permits for the other four i

nuclear f acilities which are the subject of this proceeding, would create and maintain a situation inconsistent with the antitrust laws as defined by Section 105(c) of th; Ato.uic Energy Act (42 U.S.C.

i

S2135(c)). Therefore, the Licensing Board imposed a set of license conditions designed to eliminate this situation. 1/

On February 7, 1977, Applicants filed 643 exceptions to the Initial Decision, which exceptions covered virtually every aspect of the Initial Decision save the title of the proceeding. 2/ On April 14, 1977, Applicants' filed an Appeal Brief in Support of their Individual and Common Exceptions to the Initial Decision (Applicants' Brief or App. Brief). ,3/ The Department of Justice (Department) files this brief Because the znitial Decision is

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in recponse to Applicants' Brief. 4/ ,

clearly consistent with the record and well founded and rational, the Department submits that it should be affirmed by this Appeal Board.

I. SCOPE OF APPELLATE REVIEW In assessing the Licensing Board's factual findings for the pur-pose of this appeal, it is necessary to recall that the record in this proceed ing is enormous, S/ having taken over seven months to develop.

1/ Following the Initial Decision, the City of Cleveland filed a Motion for Clarification of License Conditions which was ruled on by _

the Lictising Board in its Memorandum dated February 4, 1977. On January 14, 1977, Applicants filed a Motion for an Order Staying, Pendente Lite, the Attachment of Antitrust Conditions which was denied by the Licensing Board in its Memorandum cnd Order dated February 4, 1977. This Appeal Board affirmed the Licensing Board's denial of a stay in its Memorandum and Order dated March 23, 1977 (ALAB-385).

2/ Simultaneously, the City of Cleveland filed six exceptions to the Inittal Decision. .

3/ On the same day, the City of Cleveland also filed a brief in support of its exceptions.

4/ The Department will not respond to the Brief in Support of Excep-tions of the City of Cleveland.

5/ The record consists of over 1,300 documentary exhibits, many of which are hundreds of pages in leng th , and over 12,000 pages of transcript which includes the testimony of 50 witnesses.

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m . __ ,__

' The Licensing Board observed the demeanor cf the witnesses, many of whom testified about disputed events in which they were partic-ipants. It expressly found that some of Applicants' witnesses lacked credibility while not making similar comments about wit-

- ness'es sponsored by the Department, Staff or City. 6/ The Licensing Board's Initial Decision reflects its careful and thorough study of the complex questions of fact central to this proceeding.

This Appeal Board has previously stated that it will defer to Licensing Board findings which have reasonable and, substantial basis ,

in the record, even if the Appeal Board might have reached a different result in the first instance. In this Board's words:

even though we may be clothed with legal authority to do so, it is (not] appropr ia te for us as a review-ing tribunal to substitute our . judgment on purely factual matters for that of the Licensing Board, Specifically, while it is our duty to reject or modify factual determinations which we conclude are not well founded and rational, we see no jus-tification for setting aside licensing board find-ings simply because, had we been the trier of f act, we might have round differently.

Wisconsin *Elec. Power Co. (Point Beach Nuclear Plant, Unit 2), ALAB-78, -

5 A.E.C. 319, 322 (1972) (footr.otes omitted). See also Consolidated Edison Company of New York, Inc. (Indian Power Station, Unit 2)

ALAB-188, 7 A.E.C. 323, 357 (April 4, 1974).

6/ The Licensing Board questioned the credibility of Mr. John Arthur ,

President and Cnief Executive Officer of Duquesne Light Co. (Tr. 8375; Memorandum and Order on Applicants' Motion for an Order Staying, Pendente Lite, the Attachment of Antitrust Conditions, at 7, n. *) and Mr. W. Royce Moran, formerly a Vice President of Tolado Edison Co.

(ID at 169, 176). The only Licensing Board comment on' the credibility of witnesses sponsored by the Department, Staff or City related to Mr. Lewis, who was specifically found to be credible (ID at 176).

3

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Thus, the Appeal Board does not necessacily review the record de novo but rather attaches . significance to the Licensing Board's evaluation of the evidence and disposition of the issues, especially where the credibility of witnesses is concerned. 7/ This approach -

to review was recently summed up by the Appeal Board in Duke Power Company (Catawba Nuclear Station, Units 1 aid 2) ALAB-355, 4 N.R.C.

397, 404 (1976), thusly:

That we are free of the substantial evidence rule does not imply that we make our appellate determinations -

on a clean slate without regard to the licensing board's '

opinion or that we necessar ily weigh each piece of evi-dence de novo. This is not th'e case. For example, though we have the r ight to reject or modify findings of the licensing boards, we have stressed before that we would not do so lightly, and where the credibility of evidence turns on the demeanor of a witness, we give the judgment of the trial board which saw and heard his testimony particularly great deference. Again, the decision below is "part of the record"; we may, indeed must, attach signif-icance to a licensing board's evaluation of the evidence and to its disposition of the issues. And in practice ue do so. . . [ footnotes omitted]. .

The size of the record, the complexity of the f actual issues involved and the credibility, or lack thereof, shown by a number of .

witnesses make it particularly appropriate that great weight and deference be afforded the Licensing Board's findings in this case.

7/ This approach is wholly consistent with well-accepted adminis-Where administrative hearing boards make f ind ing s -

tracive practice.

of fact ba' sed on first-hand assessments of the credibility of wit-nesses, those findings are entitled to. especially great weight. See Retail Clerks Union v. NLRB, 466 F.2d 380, 386 (D.C. Cir. 1972);

Acme Products Inc. v. NLRB, 389 F.2d 104, 106 ( 6 th C ir . 1968); NLRB

v. Local 160 Int'l Hod Carriers, 268 F.2d 185, 187 (7th Cir. 1959);

Sprung v. Weinberger, 3d6 F. Supp. 74, 77 (D.N.J. 1974); Wheatley v.

Shields, 292 F. Supp. 608, 610 (S . D.N. Y. 1968); Basic Books,Inc.,

56 F.T.C. 69, 84 (1959), aff'd 276 F.2d 718 (7th Cir . 1960).

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II. THE APPLICANTS A. The Cleveland _ Electric Illuminating Company

'ihe Cleveland Electr ic Illuminating Company ("CEI') is a verti-cally in'tegrated, investor-owned utility which serves in' an area in and surrounding the City of Cleveland of approximately 1,700 square miles (NRC 157, License App] ' cation, pp. 3, 5).' Presently, the only two municipal ganarating systems which remain in the territory served by CEI are the City of Painesville and the City of Cleveland ("MELP") s since CEI has acquired all other priv3te and public systems which for-merly served that territory (DJ 587, pp. 64-5). In 1973, CEI did not provide full or partial requirements wholesale electric service to any municipal or cooperative electr ic utility (DJ 587, pp. 64-5). 8/ In 1973, CEI's net generating capacity was 3896 MW served by 632 pole-miles of company-owned transmission line of 66 kv and above (NRC 157, 207).

B. Duquesne Light Co,mpan'y Duquesne Light Company ("DL") is an investor-owned vertically integrated electric utility which serves an area of 800 square miles in and around Pittsburgh, Pennsylvania, which is one of the most highly industrialized regions of the country (NRC 157; License Applications, pp. 3, 7; DJ 587, p. 14). Since its incorporation in 1912, DL has acquired other systems and merged subsidiaries to reach its present size (DJ 587, p. 74). Presently, the only municipal system remaining in the DL service area, and the only municipality to which the company sells at wholesale, is Pitcairn which, cefore it abandoned generating 8/ 1973 has been used as the test year in this proceeding since, at s the start of discovery, it was the most recent year for which complete data was available.

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its own power, had an estimated 2500 kv of generating capacity (DJ 587,

p. 74). There are no cooperatives in the DL service area, and DL

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is the on1y electric utility which generates, transmits and dis-tributes power to ultimate consumers (DJ 587, p. 4). .In 1973, DL had net generating capacity of 2518 UW served by 380 pole-miles of company-owned transmission of 66 kv or above (NRC 157, 207).

C. Ohio Edison Company Ohi'o Edison Company ("O'E") is a vertically-integrated investor-e owned utility serving an area of about 7463 square

• miles in central and northeastern Ohio (NRC 157; License Application, pp. 3, 9). In 1973, OE supplied the full bulk power requirements of 19 municipal electric utilities and the partial bulk power requirements of one municipal system (DJ 158, p. CE-26). cE was incorporated in 1930 as a consolidation of five private utilitb.. which themselves were formed by merger and acquisition (DJ 587, p. 66). As a result of acquisition of municipal generating plants by OE, and abandonment of U

municipal generatir.g plants by other municipalities, in 1973 there appeared to be only three generating municipal systems in OE's service area (DJ 587, p.- 68) . In 1973, OE had net generating capacity of 3650 MW served by 2795 pole miles of company-owned transmission line of 66 kv and above (NRC 157, 207).

D. Pennsylvania Power Company -

Pennsylvania Power Company ("PPC") , a wholly-owned subsidiary of OE, is a vertically integrated utility serving an area of 1515 square miles in western Per.nsylvania (NRC 157; License Application, pp. 3, 10). PPC supplies the bulk power requirements of five municipal l 6

systems (DJ 587, pp. 67-8). There are no cooperatives or generating municipal. systems in PPC's retail service area (DJ 587, p. 68). In 1973, PPC had net generating capacity of 608 MW served by 453 pole-miles of company-owned transmission line of 66 kv or above (NRC 157). PPC and OE are operated as a single integrated system ( App-. 214, White Tr.

9495-96). There would be only one company were it not for the fact that both Ohio and Pennsylvania require utility service at retail to be provided by domestic corporations (White Tr. 949,5-96). The two -

companies are operated without any significant policy differences other than those required by state law (White, Tr. 9650).

E. The Toledo Edison Company The Toledo Edison Company ("TE") is a vertically-integrated, investor-owned utility serving an area of about 2,500 square miles in and around Toledo (NRC 157; License Application p. 3; DJ 587,

p. 70). In 1973, TE supplied the full bulk power requirements of 13 municipal electric systems 9/ and the partial bulk power require-ments of two systems, Bryan and Napoleon, at wholesale (DJ 158, p.

TE-14). In 1975, both Bryan and Napoleon ceased generating power and became full-requirements wholesale customers of TE, thus, eliminating all self-generating municipal systems in TE's service area (DJ 576,

p. 128; Dorsey, Tr. 5251). In 1973, TE had net generating capacity of 1045 MW served by 493 pole-miles of company-owned transmission line of 66 kv or above (NRC 157, 207).

9/ One of TE's full-requirements wholesale customers, Bowling Green, In turn supplies full-requirements wholesale power to the Village of Tontagany (DJ 587, pp. 71-2).

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III. DISCOVERY Applicants' complaints regarding the alleged errors made by the Licensing Board during disc ~overy, which ostensibly denied them due process, (App. Brief at 1-12) are totally unfounded. 10/

From the time. CEI and TE fi. led their application with the NRC for a license for Davis-Besse Unit 1, thertby triggering antitrust review, Applicants were kept well informed by the Department about the allega-tions that had been made against them by third parties. Although the Advice Letter for Davis-Besse Unit 1, dated July 9, 1971, did not recom-mend a hear ing, it did contain some charges that were made by the City of Cleveland. Clearly, the "no hearing" advice was premised on CEI's assurance that it would not oppose the efforts of the Municipal Electric Light Plant of the City of Cleveland (MELP) to interconnect and coordi-nate. 11/ Thereafter, on April 30, 1973, the Department rendered its Advice Letter in Beaver Valley 'Jnit 2. Although this letter too did not recommend that a hearing be held, it did state numerou,s allegations 10/ Despite their alleged concern about due process, Applicants have attempted to deny the opposing parties due process by their citations  ;

to and reliance on materials not in evidence in this proceeding. Appli- i cants have cited and relied upon nonlegal publications, such as the National Power Survey and Coordination, Comoetition and Regulation in the Electric Utility Industry, which were not introouced into evidence in 1 this proceeding. Despite Applicants' asser tions to the contrary ( App.

Brief at 42, n . 44), many of the cited portions of these publications are in the nature of expert testimony on highly controversial matters which have little or no support from evidence in the record (See, for

• example, App. Br ief at 17, n. 20). Moreover, in many instances where Applicants have cited evidence of record which ostensibly supports the extra-record mater ial, the evidence was later discredited. Thus, Appli-cants' use of this material is merely an attempt to rehabilitate dis-credited evidence. Because the Department was not afforded the right ,

of cross-examination concerning these publications, they should be d is- l regarded. Administrative Procedure Act, S7(d), 5 U.S.'C. SS56(e).

(See also n. 177, infra).

11/ As - the Licensing Board found, CEI clearly did not intend to coord i-nate in any way with MELP and was determined to avo id a permanent parallel interconnection "like the plague" (ID at 68). See ID at 57-83.

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which had been made against the Applicants. 12/ Again, based on so-called assurances given to the Department, no hearing was recom-mended. 13/ The Perry Units 1 and 2 Advice Letter of December 17, 1973, reiterated the allegations made in the Beaver Valley letter

~ agaiInst all Applicants except CEI 14/ but then went on to recommend a hearing on the application.15/

The Matters and Issues in Controversy contained in Prehearing Conference Order No. 2 clearly applied to all Applicants. 16/ Applicants' discovery request of the opposing parties' and the , opposing par ties' ,

requests of Applicants clearly covered all of the Applicants. The Department's answers to Applicants' discovery requests, filed on 12/ The letter contained allegations relating to OE's dispute and set-tfement with the Wholesale Consumers of Ohio Edison (WCOE) (which OE subsequently modified in an anticompetitive manner , (ID at 129-36)),

CEI's activities with respect to MELP, Painesville and American Municipal Power-Ohio, Inc. (AMP-0), and TE's activities with regard to Napoleon and Buckeye Power, Inc. (Buckeye), all of which were litigated in this proceeding. ,

13/ For example, note OE's so-called " willingness to participate" in the WCOE study ( Advice Letter , p. 6), and the indication that CEI's negotiations with both Painesville and MELP f ace no obstacles and a '

final agreement would be formulated within a few months ( Advice Letter ,

p. 6). In light of our reliance on Applicants' assurances, later proved to be f alse, their classification of this letter as a " clean bill of health" ( App. Br ief at 4) is a gross misnomer.

14/ Again, the Department relied on so-called assurances which Appli-cints never intended to keep.

15/ Applicants' reading of the letter as recommending a hearing only against CEI has no basis in f act. The last sentence of the letter reads:

. Accordingly, the Department of Justice concludes that the Commission should hold an antitrust hearing on this application [ emphasis supplied] . ,

16/ During the Prehear ing Conference on June 25, 1974, Aoplicants c3ntinually objected to the framing of the issues in terms of all Applicants, but the Licensing Board, in f raming the issues to include '

all Applicants, obviously rejected Applicants' contentions. Thus, they were well aware of the scope of the issues.

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November 27, 1974, contained a list of allegations against all of the l l

Applicants (not just CEI), as well as all relevant documents pertaining thereto. 'T he Davis-Besse Units 2 and 3 Advice Letter of February 14, 1975, likewise contained allegations against all Applicants and recom-tended a hear ing.17/ Though Applicants were not forced to do so, on the issues in May 14, 1975, they agreed that not only the parties, but controversy in Davis-Besse 2 & 3 were the same as those in Davis-Besse 1 cnd Perry 1 & 2 (which had previously been consolidated) (Davis-Besne II and III, Tr. 4-12; 16-18). They further agreed thdt consolidation of all five applications was a good idea (Davis-Besse II & III, Tr. 7, 9), 18/

and indicated , in response to Licensing Board canvansing , that they 17/ Applicants were originally required to produce documents on October 31, 1974 (Board Order dated August 12, 1974), or some three and one half months prior to the scheduled render ing of the Davis-Besse 2 &

3 Advice Letter. Applicants requested an extension of time (Motion for Extension of Time, October 23, 1974) and then failed to produce docu-ments as required (Memorandum and Order on Applicants' Motion for an Order Staying, Pendente Lite, the Attachment of Antitrust Conditions, pp. 32-3; see also Motions to compel Discovery by DOJ December 9, 1974; NRC Staff, December 5, 1974; Cleveland, December 12, 1974; and the supporting br iefs of DOJ and NRC dated Januarythe 1974). After 2, Board '

Prehear ing Cor.ferences on January 3 and 31,1975, ordered Applicants to produce documents inIfWashington, D.C. as or iginally required, by February 10, 1975. these documents had been produced as required, the Department would have had two and one half to three and one half months to review them and incorporate add itional allegations '

into the Davis-Besse 2 & 3 Advice Letter. Applicantu' To allow unjustified Applicants to dilatory tactics, however , prevented this.

complain about the lack of notice of the allegations of the opposing parties in the Davis-Besse 2 & 3 Advice Letter would be to reward .

them for their dilatory tactics.

18/ See also Applicants' Apr il 18, 1975, Reply to the City of CIeveland's Petition for Leave to Intervene, paragraphs 4 and 5, and Applicants' June 18, 1975, Reply to the NRC Staf f's Motion on Consoli-dation. Despite Applicants' assertions that the July'30, 1975, order to consolidate added "an entirely new and unanticipated set of anti-trust allegations" (App. Brief at 5), the only fair reading of the l initial Davis-Besse 2 and 3 Prehear ing Conference and Applicants' Apr il 18, and June 18, 1975, plead ings is that Applicants, as well as all other parties, supported consolidation and expected it to take place.

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would need only very limited discovery (Davis-Besse II and III, Tr . 8, 11). 19/

~

On September 5,1975, all opposition parties were required to file a statement of the case to be presented. 20/ The Board thereafter re-quired all opposing parties to conform the introduction of evidence to 4 the allegations contained in these filings and excluded evidence 21/ not encompassed within these filings except upon a showing of good cause.

A showing of good cause was also prerequisite to amending the September 5 filings to add additional allegations. 22/ Thus, all Applicants had in their possession a complete list of allegations, aave those which were 19/ Applicants' assertions that the Licensing Board denied them a f air opportunity for discovery is curious indeed since in Davis-Besse 2 and 3, Applicants did not conduct any discovery against the Staf f (Tr. 1415) and reached agreement with the Department and the City on tne scope of discovery. No requests for discovery by Applicants were denied or limited by the Licensing Board.

20/ The Department's filing took the form of the answers, to Appit-cants' interrogator ies and document request of July 16, 1975. Appli-cants were apparently satisfied with the Department's response since they never filed a Motion ta Compel.

4

! 21/ See, for example, Tr. 7473-80 and 7499.

22/ In only two instances do Applicants specifically claim that the Licensing Board allowed the introduction of additional allegations without a showing of good cause or affording them any opportunity for discovery ( App. Brief, at 7-8) . Applicants' distortion of the facts with regard to Mr. Lewis' testimony about Orrville is an absolutely incredible misrepresentation of the record. Applicants were first informed of the scope of Mr. Lewis' testimony concerning Orrville on February 26, 1976 (Tr. 5591-5604). At OE's suggestion (Tr. 559.7),

Mr. Lewis did not, at that time, testify about Orrville (Tr. 5602).

The Board ruled that the Department could recall Mr. Lewis at a latcr date "after OE has had an opportunity to conduct such discovery as it cares to into this particular allegation" (Tr. 5602-03) (emphasis supplied). On Apr il 1, 1976, Mr. Lewis was recalled and testified abou?, Or rv ille. At that time, OE requested that Mr . Lewis turn over all his files relating to OE and Orrville, and the Board so ordered (footnote continued on next page) 11 1

l incapable of formulation prior to the hearing, and the details thereof more than three full months prior to the commencement of the hearing.

Applicants' complaint toout an alleged reformulatlon, on October 5, 1975, by the Licensing Board of the matter in controversy dealing with nexus ( App. Br ief, at 8-10) and the a,lleged prejudice which was suffered by Applicants because of this change is without substantial foundation. There are almost one dozen pleadings dated prior to October 1975 which state and restate the position on nexus taken by the opposing parties. 23/ On June 30, 1975, Applic' ants' position on nexus was rejected by the Licensing Board, and the position advanced by the opposing parties was adopted. 24/

In addition, prior to the commencement of the hearing, Applicants were supplied with: a list of witnesses and a brief description of the area about which each would testify; a list of documents which the 22/ (footnote continued from previous page)

(Tr. 8034-38). During Mr. Lewis' third appearance, on June 14, 1976, OE stated that it had received copies of the pertinent files (Tr. '

11,339-40, 11,358) proceeded to use them for cross-examination, and even introduced some of them in evidence (Tr. 11,340-98; App. 180-85).

Applicants' claim that they were not afforded any discovery is totally outrageous.

All other amendments to the September 5,1975, pleadings, includ-ing the Buckeye allegation referenced in Applicants' Br ie f , at 8 (Tr.

12,118-42) were a result of Applicants' untimely production of documents which should have been produced during discovery. ID at 7-8, Tr. 4472-75.

23/ See joint pleading of _ all opposing parties of June 14, 1974,

-Department filings of October 10, 1974; April 7, 1975; May 12, 1975; cnd September 29, 1975; NRC Staff pleadings of October 10, 1974; Apr il 7, 1975; and May 12, 1975; City of Cleveland Pleadings of October 10, 1974; March 21, 1375; and May 5, 1975.

24/ See Ruling of Board With Respect to Applicants' Proposal for Expediting the Antitrust Hear ing Process dated June 30, 1975, and see clso Licensing Board Orders of October 2, 1975, and November 20, 1975.

12

=

~~

cpposing parties were going to utilize in their direct case, 25/ and; e prehearing brief which detailed the allegations contained in the September 5, 1975,_ pleadings by citing to documents and witnesses.

• Wh'en the hearing commenced, Applicants knew as much about the case of the opposing parties as- those parties knew themselves. 26/

i If this were not enough discovery, OE-PPC were allowed to obtain 1

additional discovery from the Department af ter the hearing commenced, 2

olthough the Licensing Board found that good cause for such discovery .

had not been 'shown (Licensing Board Order dated December 16, 1975). 27/

4 l The discovery afforded Applicants in this proceeding gave them I detailed ' notice of the allegations of the opposing parties and the i

legal theories behind those allegations. As such, the due process requirements that Applicants be given a reasonable opportunity to know the allegations and an opportunity to defend against them have been fully satisfied. Morgan v. United States, 304 U.S. l', 18 (1938);

25/ Absent a showing of good cause, documents not included on those lists were excluded I' rom evidence. See for example, Tr. 1704-13 and 1865-72.

26/ Applicants' reference to " nuclear blackmail" in terms of manipu-lating the hear ing process to place Applicants in a so-called untenable position ( App. Br ief at 10) appears to be no more than an attempt to resurrect their earlier charge, which they subsequently retracted, that the NRC itself was responsible for a 2 1/2 year delay, and that the i opposing parties have also deliberately delayed this proceeding. See Applicants' Response to Request by the Department of Justice for Leave to Amend Pleadings, at 7, dated October 21, 197 5; Tr . 1322-2 8. Appl i-

. - cants have admitted that they had no bests for making this very ser ious l- charge against the NRC, Tr. 1322-28. The Licensing Board found that '

Applicants' charges of delay against the opposing parties had no basis, and stated that the charge of " nuclear blackmail borders on being irresponsible. Memorandum and Order on Applicants' Motion for an Order l

Staying, Pendente Lite, the Attachment of' Antitrust Conditions, at 32-4.

l 27/ The. discovery request was submitted two full months after the De-partment's September 5, 1975,- filing to which no objection had been made.  ;

\

l 13 y, . - -

NLRB v. Mackey Radio & Telegraph Co., 304'U.S. 333, 350 (1938); Golden Grain Macaroni Co. v..FTC,~472 F.2d 882, 885 (9th Cir .1972) , cert. den.

412 U.S. 918; Tashof v. FTC, 437 F.2d 707 (D.C. Cir . 1970 ) ; see also Davis, Administrative Law Text, Third Edition S8.02, 28/ .

IV. DESCRIPTION OF THE INDUSTRY A. Generally At the outset of the electric power industry, the area which a single plant could serve was limited by the short distance that ,

electric power could be carried with low voltage, . direct current e

( Kampiae ier DJ 4 50, p. 5 ; We in DJ 587, p. 52; Gerber App. 189, p. 8).

This caused a proliferation of plants as well as the utility systems and self-generating industrial firms which operated them (Kampmeier DJ 450, pp. 5-6; Gerber App. 189., pp. 8-9).

Over the years, technological advances in the electr ic utility industry have created substantial economies of scale in both the generation and transmission of electr ic power (Wein DJ 587, pp. 49-3];

Kampmeter DJ 450, pp. 20, 22-25, 38; Mozer NRC 205, pp. 14-16; Hughes NRC 207, p. 12; Tr. 3661, 3903; Gerber App. 189, p. 9; Tr. 11,534-37, 11,554-55, 11,589-90, 11,592; Williams Tr. 10,351, 10,530; Schaffer Tr. 8608; C 33, 35, 151).

For single generating units, the capital cost per kilowatt of capacity declines as the aize of the unit increases, up to some limit which depends on the state of technology. So also var iot , operating 28/ Applicants' complaints about the Licensing Board's rejection of their requests for certain procedural rulings ( App. Br ief at 10-11) were fully answered by the Licensing Board's Memorandum and Order of the Board with Respect to Applicants' Request for Certain Procedural Rulings dated February 9, 1976. See also Department, Staff, and City s pleadings of December 3,1975. .

14 e

}

. l costs, such as maintenance and supervision, decline with increasing unit size. Heat rate in thermal plants generally improves so that -

fuel costs decline. As more units are added to a plant, costs directly associated with the structure (i.ej, land, buildings, etc.)

also decline per unit of capacity (K,ampmeier DJ 450, pp. 22-23; Wein DJ 587, p. 49 ) . Today, the capital (i.e., capacity) and fuel costs of a 100 MW plant are approximately 60 per cent higher than those for a 1000 MW plant, while operating and maintenance costs are 300 per cent higher (Kampmeier DJ 450, pp. 22-23).

Economies of scale are alto marked in transmission, with the capability of a transmission circuit increasing approximately as the square of its rated voltago (Bingham Tr. 8155-56; Wein DJ 587, p. 50).

Since transmission costs today increase far less than the square of the voltage (Mozer NRC 205, pp. 14-15) and since higher voltage lines require less right of way to transfer the same amount of

• power (Caruso Tr.10,911; Wein DJ 587, p. 50; Firestone Tr. 11,173), the economies provided by high voltage transmissicn are substantial (Wein DJ 587, ,

p. 50; Mozer NRC 205, pp. 14-15; Firestone Tr . 11,172-73).

These developments in technology provide an economic reason and incentive to service increasingly larger loads (Gerber App. 189, p.

9, Tr. 11,531; Williams Tr .10,530) . Substantial economies of scale of generation and transmission were obtained throughout the industry by the acquisition of and merger with smaller vertically integrated companies, municipal and cooperative systems, and self-generating industr ial firms (Kampmeier DJ 450, pp. 6-8; Besse DJ 559, p. 64; Gerber App. 189, pp. 8-10). Through merger and acquisition, investor-owned systems diminished in number but grew in average size (Gerber 15 www- a

they served larger areas with bigger plants and more App. 189, p. 14); i DJ 450, pp. I complex long distance transmission networks (Kampme erthese i con-The internal system coordination made possible with n 7-8). f rom economies colidated systems enabled the merged utilities to benefit 189, pp. 8-12).

of scale (Kampmeier DJ 450, p. 8; Geyber App. f acquisi-Each of the Applicants is a product of this process o 161) and is therefore in a position tion and merger (ID at 57, 91, 109, in the benefits of scale economies (Wein DJ 587, p. 63) to participate '

B. Principles of Production and Coordination that power to be Most users of electr ic power want and expect possible.

available 100 per cent of the time, or as close thereto as is considered to be

" Firm power" is the term for power supply which (Wein DJ continuously available to meet the needs of such users.

587, p. 97; Kampmeier DJ 450, p. 37.) f d Generating units are subject to mechanical failure or " orceout They are a l so outage" which requires their removal f rom service.

Because generators are not .

of service periodically for maintenance. t maintain available 100 per cent of the time, electr ic utilities " inmus order to provide generation in excess of their loads, or " reserves, their users expect. (We in the continuity of service, or " firm power ,-

DJ 587, p. 60; Kampmeier DJ 450, p. 20.)

in isolation, "the single largest For very small systems operating This means the system

' unit down" standard of reserves is appropriate. ity equal to must set aside as reserves an amount of generating capac so as to insure that it the capacity of its largest generating unit, unit suffers a forced will be able to meet its load in the event that 16 e

!.

Applicants, as members of CAPCO, engage la reserve shar ing with each other (NRC 184, SS4.1-4 2, 5.1; NRC 202, Art. 5, 6; Firestone App.

122, p. 12; Fleger Tr. 8617; Schaffer 8537, 8542-43; Mozer NRC 205, p.

23; Hughes Tr. 3639), as well as coordinated maintenance (Fleger Tr. .

8617; Dempler Tr. 8674-75; Schaffer Tr. 8547-49; Mozer NRC 205, p. 21; Hughes Tr. 3639).

Applicants, as members of CAPCO, wheel power for each other 29/

(NRC 164, p. 18; NRC 185, Art. 1; Mozer NRC 205, pp. 33-35; Rudolph DJ 558, pp. 213-14; Masters DJ 567, pp. 44-45; Sull,ivan DJ 578, pp. ,

238-40; DJ 58 8 ) , both over joint f acilities ( i.e. , "CAPCO" transmis-sion") (Mozer NRC 205, pp. 33-35; Firestone App. 122, p. 11; Schaffer Tr. 8552, 8580-82, 8604-06) and over each Applicant's ind ividually-owned facilities (NRC 185, Art. 5; Mozer NRC 205, pp. 33-35; Firestone App. 122, p. 15; Schaffer Tr. 8552; Arthur Tr. 8380). Applicants also engage in coordinated operation with utilities outside the CCCT (Mozer NRC 205, pp. 24, 27-35, 37-46, Exhibits HMM-4, 7, 8; Masters DJ 467, pp. 116-19). The availability of transmission service in CAPCO allows

~

each momber of the Pool to engage in any advantageous transaction with non-CAPCO systems, even though the CAPCO member may not be directly interconnected with the non-CAPCO system. Thus, DL can secure energj from' Consumers Power Company by utilizing TE's interconnection with 29/ Applicants take issue with the Licensing Board finding that Appli-cants wheel for each other (App. Brlef at 121-24). It is clear that there is merely a semantic difference between what Applicants contend is wheeling and what the Licensing Board, FPC and Supreme Court in Otter Tall Power Comoany v. United States, 410 U.S. 366, 368 (1973),

defined as wheeling ano that pnysically there is no difference at all.

No matter how Applicants define the transmission services they perform for each other, the fact is that they have never agreed to provide that type of service for any party with which they compete.

28

Consumers, together with the CAPCO transmission operated by TE and OE 1

(Masters DJ 567, pp. 44-45; Frederickson DJ 573, pp. 177-78; Mozer NRC 205, pp. 33-35; Hughes Tr. 3690-91; NRC 224).

Applicants, individually, also provide transmission services -

(Masters DJ 567, pp. 37-38, 42-43; Lir.dseth DJ 568, p. 25; Frederickson nJ 573, pp.177-78; Mansfield DJ 572, p. 132; Keck DJ 575, pp. 105-06; Kozak DJ 579, pp. 16-19; Moran DJ 583, p.13; DJ 135, pp. 1-10 ; DJ 136, pp. 3-4; DJ 137; DJ 167, pp. 3-6; DJ 508, pp. 1-6, 17-18; DJ 507, pp. 1-90, 129-35; NRC 205 Mozer, pp. 31-43, Exhibits HMM-4, 7) and e receive such service from others (Masters DJ 567, pp. 37-38, 42-43; Keck DJ 576, p. 103; Sullivan DJ 578, pp. 150-52; Dempler Tr. 8860-61; DJ 135, pp. 12-19; DJ 137; DJ 167, pp. 6-8; DJ 507, pp.91-119; DJ 508, pp. 9-14; Mozer NRC 205, pp. 31-43, Exhibits HMM-4, 7).

CAPCO ongages' in a number of other complex power transactions:

(a) Limited Term Power: capacity and energy reserved for perieds normally covering a month or more. This has two variations -- that which is delivered from the suppliers' entire system and that which is a power entitlement from a specific unit (unit power).

(b) Short Term Power: capacity and energy reserved for

,eriods p of a week or more.

(c) Spinning Reserve Service: unloaded generating capability available upon demand. (This is provided under the Interchange Capacity Energy Schedule. )

(d) Emergency Service: ~ capacity and energy supplied in the event of breakdown or other emergency in the receiving party's system.

29 i .

e - . . .

(e) Scheduled Maintenance Power: energy supply in connection with scheduled maintenance, repair or over-hauling of generating equipment. *

(f) pconomic Service: energy supplied by mutual agree-k .,

ment wi.enever a savings in operating costs may be

\

realized by displacement of the receiver's scurce of energy by the supplier's source. The CAPCO Pool hds made provision fer the exchange of economy capacity as ,

well as economy energy.

(g) Interchange Capacity and Energy: capacity and/or energy available at the supplying party's discretion, when other service schedules do not apply.

(h) Payment-in-Kind: an acceptable means of payment for certain transactions between members.

(Wein DJ 587, pp. 106-07; DJ 5 88 ) .

The CAPCO agreements also provide for other types of coordinated activity (Mozer NRC 205, pp. 20-23) and the Applicants individually engage in coordination with private utilities and industrial firms which generate electric power (Mozer NRC 205, pp. 20-23; NRC 158, DL-St. Joseph Lead Co. contract, TE-Interlake, Inc. contract, answer 8 by each Applicant; DJ 153, p . 9 ; DJ Sll, p. 59; Dempler Tr. 8679-80, 8710; Moran Tr. 9944).

As the CAPCO members freely admit, their program of interconnec-tion and coordinated operation and development enables each member to avail itself of the greatest reliability and the largest economies of scale in both generation and transmission i - .;ters DJ 567, p. 36; l

, 30

Schaffer Tr. 8537; White Tr. 9712; Williams Tr. 10,369-70; Firestone DJ 575, p. 43). These are. economies and reliability which they could not obta in . ind ividually (Mozer NRC 205, pp.11-12, Tr . 3269-70; Hughes Tr. 3639; Masters DJ 567, pp. 32 f 57-689; #irestone. DJ 575, p. 43, Tr. 9228; Keck DJ 576, p. 32; Sullivan DJ 578, p. 27; Williams Tr.

10,351-52; Schaffer Tr. 8537; DJ 511, p. 304722; NRC 157, TE Annual Report, p. 3; C 151).

It is possible for a viable pool to consist of a large number of systems of widely varying size with significant disparities in the nature and extent of facilities, and engage in a program of coor-dinated operation and development which brings significant benefits to all of the participants (DJ 634-37; Slemmer Tr. 8964, 8968, 8970-74, 8978-81, 9049, 9051, 9073-74, 9108, 9128-29, 9162; Gerber Tr. 11,508, 11,511-31; Kampmeier DJ 450, pp. 25-30, Tr. 5829-31).

Absent access to the benefits of coordinated operation and develop-ment enjoyed by the members of CAPCO, small systems in the CCCT cannot remain competitively viable (Kampmeier DJ 450, pp. 41, 52; Wein DJ 587, p. ' 144 ; 3chwalbert DJ 577, p. 19; App. 120).

V.

COMPETITION IN THE ELECTRIC POWER INDUSTRY A. Generally The Courts have recognized that competition and antitrust prin-ciples have en important role in making regulation effective in the electric power industry. Otter Tall Power Co. v. United States, 410 U.S. 366 (1973);_ Gulf States Utilities v. Federal Power Commission, 411 U.S. 747 (1973); Federal Power Commission v. Conway Corp., 426 U.S. 271 (1976). The fact that an electr ic utility is subject to

~

31 O

e federal.or state regulation and is required to adhere to the tarif fs it has promulgated does not exempt it from the operation of the anti-trust laws. Otter Tail, supra; Cantor v. Detroit Edison Co., 428 U.S.

579'(1976). Speaking of another highly regulated industry, the Supreme Court established a principle which is easily applied to electric utilities: "The fact that banking is a highly regulated industry critical to the Nation's welfare makes the play of competition not less important but more so." United States v. Philadelphia National Bank, ,

374 U.S. 321, 372 (1963).

Likewise, the fact that competition may cause Applicants to suffer what they believe to be economic harm ( App. Brief at 45-50) does not require that Applicants be excused from competing. As the Court sa id in Otter Tail, supra:

Otter Tail argues that, without the weapons which it used, more and more municipalities will turn to public power and Otter Tail will go downhill. The argument is a familiar one. It was made in United States v. Arnold, Schwinn & Co.,

388 U.S. 365, a civil suit under Sl of the Sherman Act deal-ing with a restrictive distribution program and practices _

of a bicycle manufacturer. We said: "The promotion of self-interest alone does not invoke a rule of reason to immunize otherwise illegal conduct." Id. at 375.

The same may properly be said of S2 cases under the Sherman Act. That Act_ assumes that an enterprise will protect itself against loss by ooerating with super ior service, lower costs 1_and_ improved efficiency. Otter Tail's theory collides with the Sherman Act as it sought too substitute for c dpetition antIcompetitive uses of'~~

its dominant economic, power. 410 U.S. at 380 [ footnote omitted] [ emphasis supplied] .

32

This is as it should be since it is well recognized that competi-tion 30/ plays as important. a role in regulated industries as it does in those which are entirely subject to the forces of the market place (Wein DJ 587, pp. 16-17, 19-21, 44, 165-72; Kampmeier Tr, 5822-23; Hughes NRC 207, pp. 36-37, 40). 31/ Competition is clearly economically possible in regulated industries and* can be of great value in helping to achieve the very goals for which regulatory agencies were estab-lished by Congress and the States (Wein, DJ 587, pp. 16-17, 19-21, 44; Kampmeier Tr. 5822-23). Northern Natural' Gas Co. v. Federal Power ,

Commission, 399 F.2d 953, 959-61 (D.C. C ir . 1968 ) . Competition can provide a stimulus to efficiency and innovation that no regulator can mandate (Wein DJ 587, pp.165-67; Hughes NRC 207, pp. 36-40) . Indeed, -

some regulators do not make any attempt to examine the ef ficiency of the companies subject to their authority (Wilson Tr. 11,029-31).

30/ There are three different types of competition which are recognized and discussed in this proceeding. Besides actual competition, there is potential and yardstick competition. Potential competition involves those who are not now actual competitors in the markets but who may enter at some time in the future and who therefore exert a competitive ,

effect on those presently in the mar ket. See United States v. Marine Bancorporation, 418 U.S. 602, 623 (1974); United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973). Included among potential competi-tors are municipalities which might enter the electric power business.

Yardstick' competition exists by virtue of the comparison which would be made between the performance of one utility with that of another (Hughes Tr. 3675). CEI considers competition with other electric energy suppliers in designing its rates (Bingham Tr. 10,330).

31/ Applicants rely on Dr. Hughes' statement that what is at stake in this proceeding is less a -matter of encouraging competition and more a matter of freeing up options that power systems have so that they will tend to capture the benefits of coordinated. operation and development (App. Brief at 41-45). Despite Applicants' asser tions, to the contrary, there is no conflict between what Dr. Hughes has stated and the find-ings made by the Licensing Board. The evidence in this case clearly and overwhelmingly supports the Licensing Board's conclusion that Applicants have denied the benefits of coordinated operation and development to all nonapplicant entities in the CCCT.

33

t A regulatory agency is nost often in the position of arbiter for those conflicting interests.which are brought before it (Wein DJ 587,

p. 168). No regulatory staff can supervise or regulate every aspect of the regulated business (Wein DJ 587, pp. 168-69; Kampmeier Tr. 5980; Hughes Tr. 3753-54; Wilson Tr4 11',029-31, 11,119). Neither is ind ir ec t customer pressure adequate; customers generally cannot afford the pro-tracted litigation which regulatory hearings entail (We in DJ 587, p.

169; DJ 171; DJ 254; McCabe Tr. 1718; Luxenberg Tr. 6441-42). Moreover, regulatory relief may be limited in nature and scope (Wein DJ 587, pp. ,

165-72; Hughes NRC 207, pp. 8, 37, 44; Tr. 3716-19, 3724-25, 3935, 4017).

B. Sale Of Firnt Power At Wholesale -

Electr ic distribution systems, whether posseccing only distr ibu-tion f acilities or as part of a vertically integrated utility, re-quire a cource of firm bulk power (Kampmeier DJ 450, pp. 37, 40). 32/

Those distribution systems have two basic alternative means of obtaining their firm bulk power supply: they may buy their firm power at wholesale from another electr ic system that engages in the business of producing firm power for sale or they may themselves produce firm power if it is economically feasible to do so (Kampmeier DJ 450, pp. 31-32, 37; Mozer NRC 205, p. 49). A system should not be forced to choose one of these alternatives to the exclusion of the other; where a partial requirements firm power option is available, 32/ Contcary to Applicants' asser tion ( App. Br ief at 45-50 ), vertical integration is not now, nor has it ever been, a prerequisite to an electric utility's obtaining the benefits of economies of scale (Hughes Tr. 3899-3901; We in DJ 587, pp. 52-62, 108-10). These economies can be obtained through coordinated operation and develop-ment (See pp. 18-25, suora).

34

its firm power requirements and

~

a system may generate a portion of e

With access to purchase the rest (Mozer NRC 205, pp. 71, 74, 78).

a system has the benefits of coordinated operation and development, i f the ability to choose .the bulk power supply alternative, or m x o alternatives, which it believes to be most economic and ef ficient 3847-48).

(Kampmeier DJ 450, pp. 16-17, Tr . S867-7 0; Hughes Tr . industry is the One element of competition in the electric power i DJ sale of firm power at wholesale to distr ibution systems (Kampme er i . e ._ , at Wholesale power is firm power delivered in bulk, s 450, p. 40).

retail customers can use) ,

high voltages (compared to the voltages most The larger the loa,d, the more economical and to relatively large loads.

(We in DJ 537, p. 98 ) .

it is to deliver power at a higher voltage in the Applicants The supplying of firm power at wholesale into two categories: the respective service areas may be divided requirements of distribution systems operated by municipalities an loads) and " in-house" requir ements of the cooperatives (" independent"

(" captive" distribution systems operated by the Applicants themselves -

loads).

With a " captive" load, the wholesale function is performed by transmits and a single vertically integrated utility, which generates, distributes power to the . ultimate retail user; with an " independent" load, bulk powcr is sold by the generating and transmitting company to performs the function of breaking an independent utility which, in turn, (Wein DJ 587, pp. 98, ,

bulk and selling at retail to ultimate users.

the wholesale level for " cap- l 131.) There is no direct competition at '

tive" loads, L :t competition is possible in the sale of firm power at the bulk power requirements of municipal and coop-wholesale to meet 587, p. 132; Kampmeier DJ 450, pp. 32, 40).

erative systems (Wein DJ 6 35 Y

-_. .--x. -

_ _ __w.__.__- -

Any utility may compete as a seller of bulk power at wholesale if it has a low-cost bulk power supply and has a transmission capability which allows it to deliver that power to c wholesale purchasor; such a capability may exist either by virtue of the direct ownership of trans-mission facilities by the selling utility, or by access to the transmis-sion facilities of others (Kampmeier DJ 450, pp. 31-32, 37-41). Thus, any private, cooperative or municipal system which possesses these two characteristics can compete in the sale of wholesale firm power.

There are no legal or statutory barriers to wholesale competition.

There is no federal statute or regulatory pronouncement prohibiting such competition. As the Supreme Court said in Otter Tail Power Co.

v. United States, 410 U.S. 366, 374 (1972):

. . . The history of Part II of the Federal Power Act ind i-cates an overriding policy of maintaining competition to the maximum extent possible consistent with the public interest.

Contrary to Applicants' assertions ( App. Br ief at 50-56), the States of Ohio and Pennsylvania are without authority to raise bar-riers to wholesale competition. The Supreme Court, in Public Utilities ,

Commission v. Attleboro Steam & Electric Co., 273 U.S 83 (1927), "placed the interstate wholesale transactions of the electric utilities entirely beyond the reach of the states." S. Rep. No. 621, 74th Cong., 1st Sess.

17 (1935); see also H. Rep. No. 1318, 74 th Cong . ,1st Sess. 7-8, 27 (1935). It was to fill the jurisdictional gap resulting from Attleboro that Congress passed the Federal Power Act in 1935. As the Supreme Court subsequently stated, "[w] hat Congress did was to adopt the test developed in the Attleboro line which denied state power to regulate a sale 'at wholesale to local distr ibuting companies' and allowed state regulation of a sale at ' local retail rates to ultimate consumers. '"

l l 36 i

Federnl Powar Commission v. Southern' California Edison Co., 376 U.S.

205, 214 (1964); see also Illinois _ Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 504 (1942), Under the Supremacy ,

Clause of tne Constitution, state legislation and state regulatory policy cannot restrict the intended ef fect of valid federal legislation.

E.g., Nash v. Florida Industrial Commission, 389 U.S. 235 (1967); Sperry

v. Florida, 373 U.S. 379 (1963); Free v. Bland, 369 U.S. 663 (1962).

Nevertheless, Applicants point to the state utility statutes to support their argument that wholesale competition is legally precluded.

Whatever the' effects of these statutes on retail competition, 33/ they can have no effect on wholesale competition. 34/ Even if a state had 33/ Applicants also misconstrue the effects v Loe state statutes on retail competition. See pp. 38-41, . infra.

34/ Applicants cite two Ohio cases to support their argument that the ters

" consumers" as used in the Ohio Antipirating Statute, Ohio Revised Code, Section 4905.261, refers to purchasers of wholesale power (App. Brief at at 208). These cases, in f act, lend no support to Applicants' argument.

In Shopping Centers Association v. PUCO, 3 Ohio St. 2d 1, 208 N.E.

2d 923 (1965), the question was whether the Public Utilities Commission of Ohio had the authority to regulate sales to shopping centers when the shopping center resold by submetering a part of the power to its -

lessees. The regulation in question, filed by CEI, read: Red istr ibu-tion or submete4 ing lof electr ic energy] shall not be permitted with respect to aggregations of separate commercial or retail users such as those commonly known as shopping centers" (emphasis supplied) 3 Ohio St. 2d at 2. The Ohio Court held "we see no good reason why office buildings, apartment houses and shopping centers, which use electric energy in their .own operations, cannot fairly be classed as ' consumers' within paragraph (A), subd iv is ion (4) of Section 4905.03, Revised Code, even though by submeter ing these institutions resell a part of such electric energy to others connected with them in a business way" 3 Ohio St. 2d at 4 It is clear that both CEI, as the filing utility, and the Ohio Court recognized the dif ference between retail customers who sub-metered electr icity and wholesale customers. Neither referred to the shopping centers as wholesale customers, and the Court carefully couched its language so that it did not imply state jurisdiction over traditional wholesale for resale sales.

Mohawk Utilities, Inc. v. PUCO, 37 Ohio St. 2d 47, 307 N.E. 2d 261 (1974), is even less in point. The question in that case was (Footnote continued on next page) 37

cccum:d jurisdiction of wholesalo selec, that jur isdic' tion would be erroneous and would fall when challenged. "[A] history of unchallenged regulation by the State does not oust the (Federal Power] Comm iss ion of jur isdiction." Indiana & Michigan Electric Co. v. Federal Power Commission, 365 F.2d 180, 183 (7th Cir. 1966), cert. dente'd 385 U.S.

972 (1966). 35/

C. Sale Of Power At Retail Retail competition is competition for the loads of the ultimate consumers of electr ic power. It is generally divided into residential, commercial and industr ial retail sales. All retail sales, with one s limited exception, are sales of firm power. 36/ ( fein DJ 587, p. 97.)

Competition for retail customers exists between two distribution systems wherever one system is in a position to serve the retail cus-I tomer(s) of another or wherever two or more of these systems are in a position to serve a new retail customer. This competition takes two 34/ (Footnote continued from previous page) whether a land owner who had a contractual right to water se r v ice ,

but who did not use that service, was a " consumer" within the mean-ing of the statute. ,

In a decision construing a comparable state statutory provision also intended to prevent uneconomic duplication of f acilities, the Supreme Court of Wisconsin found the provisions applicable to retail sales but not to wholesale sales to municipal systems. Wisconsin Power

& Light Co. v. Public Service _ Commission, 172 N.W. 2d 639 (1969).

35/ Applicants argue that there is no potential for wholesale compe-tition in Pennsylvania because of that state's limitation of the con-demnation power of public utilities ( App. Brief at 53-54). Even if Pennsylvania could legally use its control of a public utility's power of eminent domain to raise barriers to competiiton for wholesale sales in interstate commerce, such barriers are easily overcome if wheeling services are available.

36/ Certain industr ial customers purchase interruptible power at retail (We in DJ 587, p. 97 ) . Of the Applicants, only DL appears to have a filed tar if f of fer ing interrupt ible power (URC 161; NRC 163; NRC 165; NRC 167; NRC 169, p. 414). There are no filed l ate schedules for interruptible service to residential or commercial customers in the CCCT (Wein Tr. 7186).

38

principal forms -- compatition for the franchise or opportunity of serving " blocks" of retail customers on a de f acto exclusive basis, and competition for individual retail customers, either residential, commercial, or industrial, at the boundary or in overlapping portions

] of the service areas of two or more distribution systems. Two util-ities may be in a position to compete for the f ranchise or pr ivilege of providing electric service to a municipality, or the municipality itself mcy wish to compete by condemning the previously franchised utility's facilities and providing its own. electric service (DJ 200, Attachments 5, Sa, 6, 8; Wein DJ 587, pp. 117-28, Tr. 6944-47, 6958-59). 37/ The municipal system may obtain a supply of bulk power 37/ Municipalities have the power of condemnation in both Pennsylvania and Ohio. 53 P.S. S$314, 46501; Ohio Constitution, Ar ticle XVIII, S4 The City of Cleveland, for example, has considered using this power to condemn CEI distr ibution f acilities ( App. 205, 206).

There is no evidence that a Pennsylvania municipality may not use its power of condemnation in the same manner. Pennsylvania law does not prevent such condemnation and, at most, requires that pr ior to condemna-tion of the facilities of a public utility, a municipality obtain a cer-tificate of public convenience and necessity (66 P.S. S1122(e)). The most recent ennunciation of the standards which must be met to obtain a certificate of public convenience and necessity is set forth in -

Metropolitan Edison Company v. P.S.C., 127 Pa. Super, 11, 141 A. 678 (1937). In that case, the Court noted that the Pennsylvania Commission had changed its policy f rom one of " regulated monopoly" to one of "regu-lated competition." 191 A. at 683. The Court then went on to hold:

The only justification for merger and consolidation of small plants into a large system is the ability of the large cor-poration to furnish better and more adequate service at lower rates. If the result of such merger and consolidation is to charge the public higher rates than those at which a local plant could furnish like service, then there is no reason or excuse for the continuance of its exclusive franchise, and competition, municipal or otherwise, may properly be per-mitted. 191 191 A. at 683.

Under the standard enunciated in Metropolitan Edison franchise compett-tion on the basis of rates is permissable in Pennsylvania. That such com-pe t it ion is a reality is evidenced by DL's fear that some of the munic i-palities within its service area would condemn DL's distr ibution system (DJ 251, 255). (Footnote continued on next page) .

39

either by (1) self generation, (2) purchase at wholesale from its former supplier, (3) ourchase at wholesale frcm another supplier or (4) any combination of the above. 38/

Competition for large loads is not limited to competition for new loads as Applicants contend (App. Brief at 60). Because of the size of these loads, the expenditure by a competing utility to con- ,

struct facilities needed to provide adequate service would be small in proportion to the revenue to be obtained (Moran DJ 583, pp. 21, 26).

In fact, the record demonstrates that in some areas there has been J competition for existing large loads (Dorsey Tr. 5256, 5253-54). In many other areas, competition for such loads, has been prevented by restrictive provisions which appeared in wholesale contracts with municipal systems (ID at 137-43, 171-72).

State statutes in both Ohio and Pennsylvania prevent actual and potential competition between investor-owned utilities, on the one hand, and other investor-owned or cooperative utilities, on the other hand for individual retail customers.

In Pennsylvania, the State has promulgated a plan certificating specifically defined retail service areas to private utilities and cooperatives thereby eliminating any possibility of competition for 37/ (Footnote continued from previous page)

Even if a municipality exercised its powers of condemnation to establish a mLa tcipal distr ibution system, competition for service to the municipality would still exist. This is so because the voters, who are the customers of the municipal system, can at any time abolish the municipal system upon a determination that they can obtain better rates or service from the former supplier (We in Tr . 6998) .

38/ Where all or a portion of the municipality's power is obtained l Irom a new supplier, wheeling by the former supplier would eliminate the need for wasteful duplication of facilities.

40 l

either n:w or existing retail customers. Municipalities are specifi-cally excluded from the operation of this law. Act No. 57, Session of 1975 (July 30, 1975).

Ohic. law prohibits the switching of existing retail customers of one private utility to another private utility or to a cooperative for a period of 90 days af ter disconnecting from the former supplier.

Ohio Revised Code, Section 4905.261. 39/ To avoid the prohibitions of the law, exceptional circumstances would have to be shown, or the two utilities would have to agree to the switch.

There are thus no legal barriers to either actual or potential com- -

petition between private and municipal (whether self generating or pos-sessing only distribution facilities) utilities for new or existing retail customers in either Ohio or Pennsylvania. Municipal utilities in Ohio may sell unlimited amounts of power within the municipality and, contrary to Applicants' asser tions, may sell an amount outside the municipality equal to 50 per cent of the amount supplied within. Ohio Constitution, Art. XVIII, h6.40/ Pennsylvania municipal utilities are 39/ No restrictions are placed on a customer switching from a private -

utility to a municipal utility, and vice versa.

40/ Applicants argue that retail (and wholesale) competition is pre-cluded because a full-requirements wholesale municipal customer has no surplus power and is therefore prevented by Article XVIII, Section 6 of the Ohio Constitution from selling power outs ide its corporate limits ( App. Br ief at 51, 196-98, 240). The question of whether a fuli-requirements wholesale municipal customer has surplus power has not been litigated in Oh io (Wh ite Tr . 9525-26, 9680-81). 'Mr. White, the only one of Applicants' witnesses to testify on this matter, stated that while he personally believed that a full-requirements wholesale customer does not have " surplus". power to sell outside its boundar ies, he was aware that his interpretation could be wrong (White Tr. 9525-26, 9683, 9688-89).

Mr. White also testified that OE had no company policy -with respect to that provision of the Ohio Constitution (White Tr. 9683-84). We would also note that Bowling Green, a full-requirements wholesale municipal customer of TE, serves outside its municipal boundar ies at re ta il and l wholesale (DJ 166, p. 11,059; Hillwig Tr. 2426) .

l l

41 I l i

not subject to any limitation on the amount of power they may sell.

They may compete for loads located outside the city, but all retail sales outside the municipality are subject to regulation by the State.

66 P.S. S1122(g).

D. Competition In The CCCT Contrary to Applicants' assertigns (App. Brief at 56-71), there have been opportunities for competition in the CCCT, and, Applicants' marketing employees have recognized the existence of this competition (It at 58-5'9, 91-93, 161-166). Applicants, however, have hindered com-e petition by effectively denying their competitors dccess to the bulk

. power supplies 41/ and factors of production needed for effective com-petition (see pp. 16-27, supra) 42/ or placing restrictions on the use of bulk power supplies when access was granted. Applicants' anticompe-titive activities are discussed in Section VIII of this Brief.

41/ Applicants' contention that little power from outside the CCCT has been available to entities within the CCCT (App. Brief at 65-71) is contradicted by the record.

Applicants admit that 30 MW of low-cost PASNY power has been available to Cleveland ( App. Brief at 68). That quantity might be -

increased to 180 MW (Hinchee Tr. 2673; C 164, p. 34).

In response to a request for bulk power made by Bowling Green, a spokesman for Ohio Power stated that the latter would be pleased to have a total power customer (Hillwig 2404-05).

TE's own' documents state that Buckeye power was less expensive than TE power (DJ 543).

With the benefits of coordinated operation and develop 2..ent available through its contractual arrangements with Ohio Power and

. AMP-0, Orrville will have excess power available for sale to other electr ic entities (Lewis Tr. 7973-75; App. 183, p. 3 of study and Table 6; App. 186, 550.06-0.07; App. 186a, 50.05).

42/ A wholesale customer of an Applicant is not in as good a position economically as an entity which has access to power supply options and 4~

the benefits of coordinated operation and development (See p. 181, n.

234, infra). Nor can municipal systems obtain economies equal to those of Applicants through construction of their own generation (See p. 180,

n. 233,. infra).

! 42

-n , - _ - , . - r - -

VI. LEGAL STANDARDG-A. 'The Standard Of Section 105c Of The Atomic Energy _Act

1. Generally

-Th'e present case ' arose unde'r Section 105c of the A'tomic Energy

~

Act of 1954, as amended. Section 10'5c of that Act instructs the Commission that:

it shall make a finding as to whether the activities under

'the license would create or maintain a situation inconsist-ent with the antitrust laws as specified in subsection 105a.

The language of the statute is clear; it is a situation which is-the focus of the inqu ir y. A situation is, by definition, a state or condition at a given point in time -- as opposed to specif ic anticom-petitive conduct.

It is the competitive " situation" as a whole (with an emphasis _ on the structure of the market, as the word

" situation" clearly suggests), not particular individual parts thereof, which we must measure. Alabama Power Company (Joseph M. Farley Nuclear Plant, Units-1 and 2),

LBP-73-2, 85,-86 (1973).

A' situation under.Section-105c is not linited to a specific anticompe- ,

titive act, rather- it may be comprised of " patterns of anticompetitive conduct." Kansas Gas and Electric Company and Kansas City _ Power and Lighg Company (Wolf Creek __ Generating _ Station, Unit No.1), ALAB-279, 1 N.R.C.I. 559,. 572 (1975).

2. The Standard of " Inconsistency" -

Section 105c prohibits the licensing of nuclear power facilities where the activities under such licenses would create or maintain a situation inconsistent with the' antitrust laws. The test is incon-sistency with the antitrust laws, not violation of those laws. In its Report on the 1970' Amendments to the Atomic Energy Act, the Joint 43 u

Committee on Atomic Energy stated the standard of Section 105c as follows:

The concept of certainty of contravention of the anti-trust laws or the policies clearly underlying these laws is not intended to be implic it in this standard; nor is mere possibility of inconsistency. It is . intended that the finding be based on reasonable probability of contravention of the antitrust laws or the policies under-lying those laws. It is in tended that, in effect, the Commission will conclude whether, in its judgment, it is reasonably probable that the activities under the license would, when the license is issued or thereafter, be incon-sistent with any of the antitrust laws or the policies

. clearly underlying these laws. S. Rep. No. 91-1247, 91st Cong., 2d Sess. (1970); H.R. Rep. No. 91-1470, 91st Cong., e 2d Sess., 14 (1970) (hereinafter " Joint Committee Report") .

The level of proof which is therefore required to show inconsistency with the antitrust laws is less than what would be required to establish violations of those laws in the courts.

The Supreme Court, in Northern Pacific Railroad v. United States, 356 U.S. 1 (1958), set forth the principles underlying the Sherman Act, and it is against this national commitment to the maintenance of unfettered competition that the consistency or inconsistency of the situation in Applicants' area must be measured. -

The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of

- our economic resources, the lowest pr ices , the highest

, quality and greatest material progress, while at the same time providing an environment conducive to the l

preservation of. our democractic, political and social I institutions. But even were that premise open to ques-l tion, the policy uneguivocally laid down bv the Act is i competition. And to th is end it prohibits "Every con-l tract, comb ina tion . . . or conspiracy in restraint of trade or commerce among the several States." 356 U.S. at 4 and 5 - [ Emphasis supplied] .

44 l

l j

Even conduct by Applicants which falls to rise to the level of a violation of the antitrust laws may nevertheless support a finding that there is a situation existing which is inconsistent with the antitrust laws. Indeed, when exclusionary conduct of 'any nature is found together with a high degree of market concentration -- the prevention of which is a goal of the antitrust . laws, United States v. Philadelphia Naitonal Bank, 374 U.S. 321, 363, 371 (1963) - such an inconsistency becomes manifest.

Applicants assert that the Licensing Board erred by not making find-l ' ings as to whether competition in the electr ic utility industry is in the public interest (App. Brief at 29-35). However, the cases on which Applicants' rely most heavily for this assertion arose under statutes in which Congress had mandated economic regulation of an industry by the regulatory agency concerned, and had required that agency to make its economic regulatory decisions ' guided by a "public interest" or "public convenience and necessity" test. For example, Applicants quoto exten-sively from Federal Communications Commission v. RCA Communications Inc. , -

346 U.S. 86 (1953) (App. Brief at 31). That decision reviewed an order of the FCC which had authorized new entry into the business of interna-tional radiotel( graph service -- entry which the FCC had a duty to regu-late 6nder the Federal Communications Act of 1934. The Court held that the national policy favoring competition would not, with'out more, per-mit the FCC to abdicate its duty to pass upon applications to provide 45 t

new service. In consider ing applications, the FCC was to employ the "public interest" standard. 346 U.S. at 92-3. 43/

There is a difference between a requirement to make findings under a '"public interest" standard on the one hand, and direct ' enforcement of the antitrust laws on the other hand. ,This difference was recognized '

by the Supreme Court in United States v. Radio Corporation of America, 358 U.S. 334, 350-52 (1959), which held that the question of whether en activity was in the public interest was not the same as whether the Sherman Act has been violated.

The role of the Nuclear Regulatory Commission under Section 105c(5) is that of an antitrust enforcer. The Commission is instructed that:

it shall make a finding as to whether the activities under the license would create or maintain a situa-tion inconsistent with the an'titrust laws .

[ emphasis suppliedj .

The Commission has no responsibility to adminiater an economic regula-tory scheme in the electric power industry. It is not authorized to 43/ Each of the other cases cited by Applicants likewise concerns '

decision-making by an ag?ncy with a legislative mandate to apply a scheme of economic regulation to an industry: Hawaii Telephone Co.

v. Federal Communications Commission, 498 F.2d 771 (D.C. C ir . 1974)

(Decided under the Commun ications Act of 1934, 47 U.S.C. S214(a));

California v. Federal Power Commission, 296 F.2d 348 (D.C. Cir. 1961) rev'd on other grounas, 369 U.S. 482 (1962) (Decided under Section 7(c) ot-the Natural Gas Act, 14 U.S. 5717); Pennsylvania Water &

Power Co. v. Federal Power Commission, 193 F.2d 230 (D.C. Cir. 1951) nff'd 343 U.S. 414 (1952) ( Dec id ed under the Federal Power Act, 16 U.S.C. S791(a) -et. seq.); Northern Natural Gas Co. v.

Federal Power Commission, 399 7.2d 953 (D.C. Cir. 196d) ( Dec id ea under Section 7 of the Natural Gas Act, 15 U.S.C. S717f(c)); Latin America / Pacific Coast S.S. Conference v. Federal Mar it ime Commission, 465 F.2a 542 (D.C. Cir. 1972) (Decided under Section 15 of the Shipping Act, 46 U.S.C. S814). Wh ile S .S . W. , Inc. v. Air Transport Ass'n of America, l 191 F.2d 658 (D.C. C ir . 1951), cert. den. 343 U.S. 955 (1952), was a pr iva te treble damage action, the question to be decided was whethec I

the CAB, under the Civil Aeronautics Act, 49 U.S.C. S401 et. sea.,

had primary jurisdiction over the complained of acts. --

46

act as doorkeeper to the electr ic power industry, controlling who shall be permitted to participate in electr ic power markets. It has no power to regula'et rates. It has no authority to pass upon mergers. In rhort,

_ it is not the NRC's function to act as sn economic regulator. Only in such role would it be relevant for the Commission to address the ques-tion raised by Applicants. Quite properly, therefore, the Licensing Board eschewed playing the role of economic regulator for the electr ic power industry.

The "public interest" comes into play under the Atomic Energy Act only after the Commission has made an affirmative antitrust f ind ing under Sectien 105c(5). Section 105c(6) reads:

In the event the Commission's finding under paragraph (5) is in the affirmative, the~ Commission shall also con-sider, in determining whether the license should be issued or continued, such other factors, includ ing the need for power in the affected area, as the Commission in its judg-ment deems necessary to protect the public interest. On the basis of its findings, the Commission shall have the authority to issue or continue a license as applied for, to refuse to issue a license, to rescind a license or amend it, and to issue a license with such conditions as it deems appropriate

[ emphasis supplied] . -

In commenting on this provision, the Joint Committee on Atomic Energy said:

While the Commission has the flexibilitv to consider and weigh the var ious interests and objecti"es which may be involved, the committee does not expect that an affirmative finding under paragraph (5) would normally need to be over-riden by Commission findings and actions under paragraph (6).

The Committee believes that, except in an extraordinary sit-uation, Commission-imposed conditions should be able to l eliminate the concerns entailed in any af firmative f ind ing l under paragraph (5) while, at the same time, accommodating j the other public interest concerns found pursuant to paragraph l (6). Normally, the committee expects the Commission's actions l under paragraph (5) and (6) will harmonize both antitrust and such other public interest considerations as may be involved

)

[ emphasis supplied] [ Joint Committee Report at 31 (1970)].

e 47

It was the intent of Congress that the Commission impose condi-tions to eliminate the concerns entailed in findings of antitrust incon-sis tency -- i . e. , conditions sufficient to eliminate the situation incon-sistent with the antitrust laws. The sole . exception to this mandate is an " extraordinary situation."

This aspect of Section 105c(6) was discussed on the Senate floor in debate on the 1970 amendments. Senator Aiken placed in the record a letter from Assistant Attorney General McLaren and read approvingly a portion which included the following explanation of Section 105c(6): 1 The Committee's intent seems clear: if AEC finds that a situation " inconsistent with the antitrust laws" would result from activities under a license, it may either (1) deny the license or (2) condition grant of the license on action by the applicant (s) to eliminate the inconsistency.

If there is an urgent need for power in the area, attaching antitrust conditions to the license may be the preferable course of action for AEC to take in the public interest. For example, applicants for a license for a joint venture nuclear power plant could be granted a license by AEC to construct a vitally needed facility; however, grant of the license would be conditioned upon applicants' affording access to low cost power from the nuclear facility on reasonable terms to a Ltil-ity theretofore excluded from participation, if exclusion of the latter would subject it to unreasonable competitive dis- ,

advantage (Congressional Record, December 2, 1970, S. 19254].

Senator Metcalf said he had been concerned that Section 105c(6) raised the possibility of exemption from the antitrust provisions of the act if the AEC .deterCined that the need for power or other factors overrode antitrust considerations. Af ter reading into the record a response from Assistant Attorney General McLaren to his inquiry on the matter ,

Senator Metcalf concluded:

I am satisfied that no exemption from the antitrust prov!.sions of the Atomic Energy Act can be inferred from the language of subsection 105(c)(6). The interpretation given by the Department of Justice of this subsection makes l

48 l

L L

it clear that AEC will be given the appropriate power to stop the monopolization of nuclear generating facilities and open the door to participation in such plants to all utilities when monopoly is a threat [ Congressional Record, December 2, 1970, S. 19255].

Senator llart expressed similar views:

It seems to me that the clear intent of this lan-guage in subsection 105(c)(6) is to enable the Atomic Energy Commission to expedite the licensing of nuclear power f acilities while, at the same time, taking those steps necessary to cure adverse antitrust findings under the provisions of the act. If an adverse antitrust find ing is made by the Commission, it may issue or con-tinue a license when there is a "need for power in an area," but this issuance or continuance must be accom-panied by appropriate conditions in the license which require the coplicant to cure the adverse antitrust f ind ing s. If the applicant or holder of the license does not cure the antitrust find ing s , then the AEC may suspend or revoke the license regardless of the "need for power in the affected area."

Under no circumstances would the Commission be relieved of its responsibility to require applicants for licenses to conform to the antitrust prov is ions of the act and the antitrust laws generally [Congres-sional Record, December 2, 1970].

The legislative hist ory of the 1970 amendments suggests no contrary interpretation of this provision.

In the context of this proceeding, there is no serious conten-tion that any such extraordinary situation exists which would make it infeasible both to impose corrective antitrust license conditions and to permit licensing of the subject nuclear units. 44/

We are not, of course , saying. that the Licensing Board should have applied the antitrust laws in a fashion which ignores the 44/ See pp. 185-90, infra.

l l 49 L .

k- - m ._ mm_ _ . . . .

-~ c -- -

realities of Applicants' business. The Licensing Board should have, and did, make findings as to the relevant markets (ID at 44-56),

the opportunities for or barriers to competition (ID at 229-39) 45/

and the appropriate legal standards to be applied (ID at 17-28).

Finally, the Licensing Board carefully examined the reasonableness of Applicants' activities in light of the antitrust laws and Appli-cants' defenses (See Memorandum And Order On Applicants' Motion For An Order Staying, Pendente Lite, The Attachment Of Antitrust Cond itions (February 3, 1977), Slip Opinion at 12-13) . 46/ ,

B. The Antitrust Laws And The Policies Underlying Those Laws Clearly, agreements or conspiracies which constitute per se vio-lations of the antitrust laws give rise to a " situation inconsistent with the antitrust laws." In addition, cases concerning monopolization under Section 2 of the Sherman Act, 15 U.S.C. S2, delineate a var iety of practices, many of which are not per se illegal, but which have been condemned an exclusionary when practiced by persons possessing or attempting to acquire monopoly power. Practices which are violative of Section 5 of the Federal Trade Commission Act are also cognizable under Section 105c of the Atomic Energy Act.

45/ The subject of competition was also included within the findings concerning Applicants' activities. See, e.g., ID at 99-101, 116-17, 119-21, 162-65, 190-92. ,

46/ For specific discussions of the reasonableness of Applicants' activities, see, e.g., ID at 60-61, 72,97-101, 129-36, 143 ( f ind ing that evidence does not support assertion of opposing parties that OE's municipal wholesale contracts were unreasonably long), 145, 146-7, 149-50, 150-53, 153-60, 169, 180-84, 198-99, 209-11, 214-15.

s 50

1. Agreements and Conspiracies Under the Sherman Act _

' Section 1 of the Sherman Act, 15 U.S.C. 51, provides in per tinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among

• the several States, or with foreign nations, is declar ed to be illegal. . . .

a. Conspiracy Under the Sherman Act A conspiracy was defined by the Supreme Court in P6ttibone v.

United States, 148 U.S. 197, 203 (1893) as:

. . . a combination of two or more persons , .by con- -

certed action, to accomplish a criminal or unlawful purpose, or some purpose not in itself cr iminal or unlawful, by criminal or unlawful means. . . .

Under the Sherman Act, the agreement is the gist of the of fense. That is, the agreement itself constitutes the complete violation; no overt acts in furtherance of the conspiracy need be alleged or proved.

United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224-50, n. 59 (1940); United States v. Trenton Potteries Co., 273 U.S. 392, 402 (1927); Nash v. United States, 229 U.S. 373, 378 (1913). Moreover, since no overt act need be shown, it is no defense in an antitrust -

conspiracy case that the enforcement of the illegal agreement was inconsistent or ineffective, Ethyl Gasoline Corg., v. United States, 309 U.S. 436, 458 (1940), or even that no steps were taken to carry out the illegal agreement , United States v. Central States Theatres Corp., 187 F. Supp. 114 (D. Neb. 1960). On the other hand, proof concerning the accomplishment of the objectives of a conspiracy may be persuasive evidence of the existence of the conspiracy itself.

American Tobacco Co. v. United States, 328 U.S. 781, 809 (1946);

51 i

=r - - . _ _ _ . - --- a -- -. Ox -. -n _

Eastern States Retail Lumber Dealers Ass'n v. United States, 234 U.S.

600, 612 (1914).

Although the essence of the offense is the agreement, it does not have to be a formal agreement but may, in f act , consist of little more than shared expectations of conduct by persons with a common objective.

American Tobacco Co. v. United States, 328 U.S. at 809; United States

v. Masonite Corp., 316 U.S. 265, 275 (1942); Interstate Circuit v.

United States, 306 U.S. 208, 227 (1939). No exchange of.words is required. Frey & Son, Inc. v. Cudahy Packing Co.,.256 U.S. 208, 210 -

(1921). The agreement may be built up bit by bit over time without consultation among the conspirators. American Tobacco Co. v.. United States, 328 U.S. at 809-810; United States v. Masonite Corp., 316 U.S.

~

at 275; Interstate Circuit v. United States, 306 U.S. at 227.

In American Tobacco Co, v. United States, 147 F.2d 93, 107 (6th Cir. 1944), aff'd, 328 U.S. 781 (1946), the Court of Appeals noted:

t No formal agreement is necessary to constitute an unlawful conspiracy. Almost always, the crime is a matter of inference , deduced from the acts of the per-sons accused, which are done in pursuance of an apparent -

criminal purpose. The agreement may be shown by a concert of action, all the parties working together under stand-ingly, with a single design for the accomplishment of a common purpose. It is the common design which is the essence of the conspiracy or combination; and this may be made to appear when the parties steadily pursue the same object (citations omitted] .

The conspiracy must be viewed as a whole. United States v. Patten, 226 U.S. 525, 544 (1913). Lines of proof may interweave and support each other and " wholly innocent acts" may be "part of the sum of the acts" which make up an illegal conspiracy. United States v. American L Tobacco Co., 147 F.2d 93, 107 (6th Cir. 1944), aff'd, 328 U.S. 781 L

52

(1946); Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 119 (1948); Swift & Co. v. United States, 196 U.S. 375, 396 (1905).

Once the existence of an agreement or conspiracy has been estab-

~

• lished, 'only slight additional evidence is necessary to connect any particular party to it. Hernandez v. United States, 300 F.2d 114, 121-22 (9th Cir. 1972). 47/ For example, if it is found th'at any party was present at any meeting "while the criminal scheme was being formed,

[such evidence] goes f ar beyond the minimum evidentiary requirements ,

. in conspiracy cases." United States v. Ward Baking Co., 224 P. Supp.

66, 70 (E.D. Pa. 1963).

Circumstantial evidence alone may " connect" a defendant. Justice Sutherland, speaking for the court in United States v. Manton, 107 F.2d 834, 839 (2d Cir .1938 ), stated that:

It is not necessary that 'the participation of the accused should be shown by direct evidence. The connection may be inferred f rom such f acts and cir-cumstances in evidence as legitimately tend to sustain that inference. Indeed, often if not generally, direct proof. of criminal conspiracy ~

is not available and it will be disclosed only by a development and collocation of circumstances.

In Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229 (1917), the Supreme Court clar ified the rule of what is required to connect as follows:

, 47/ See, e.g., United States v. McGann, 431 F.2d 1104 (5th Cir . ) , cert.

Henied, 401 U.S. 919 (1970); Fox v. United States, 381 F.2d 125, 129 (9th Cir. 1967) [and cases cited therein); Morton Salt Co. v. United States, 235 F.2d 573, SR0 -(10th Cir . 1956); Nye & N issen v. United 1 States, 168 F.2d 846, .a (9th Cir. 1948), aff'a, 336 U.S. 613 (1949);  !

Luteran v. United States, 93 F.2d 395, 398 ( 8 th C ir . 1937), cert. l deniec, 303 U.S. 644 (1938); Riss & Co. v. Association of Amer ican Railroads, 187 F. Supp. 306, 313 (D.D.C. 1960), rev'd on other grounds, 299 F.2d 133 (D.C. Cir.), cert. den ied , 370 U.S. 916 (1962).

1 l'

l 53

In order that the declarations and conduct of third parties may be admissible in such a case, it is nec-essary to show by independent evidence that there was a combination between them and defendants, but it is not necessary to show by independent evidence that the combination was cr iminal or otherwise unlawf ul. The element of illegality may be shown by the declarations themselves. 245 U.S. at 249. See also, United States

v. Costello, 352 F.2d 848, 853 p.2 (2d Cir. 1965).

Any act, statement or declaration of one conspirator in f urther-ance of the conspiracy and during its pendency is admissible against each co-conspirator, provided the latter is " connected" to the con-e spiracy. Delli Paoli v. United States, 352 U.S. 2'3 2 , 237 (1957);

United States v. Gypsum Co., 333 U.S. 364, 388-89 (1948). This rule not only permits the admission into evidence of what would otherwise be hearsay statements, but also permits substantive liability to be imputed to one conspirator from the acts or declarations of another.

Hitchman Coal & _ Coke Co. v. Michell, 245 U.S. 229 (1917).

Noraally a conspiracy is not presumed to have ended simply because an important overt act in furtherance of it is accomplished.

United States v. Kissel, 218 U.S. 601, 609 (1910); United States v. _

Hyde, 225 U.S. 347, 369 (1912). Once the conspiracy is established, it is presumed to continue until the contrary is shown. United States

v. Stromberg, 268 F.2d 256, 263 (2d Cir . 1959 ) , cert. denied, 361 U.S.

863 (1959); United States v. Perlstein, 126 F.2d 789 (3d Cir. 1942).

b. Per Se Offenses -

The Supreme Court has found that certain types of agreements and conspiracies are per se violations of Section 1 of the Sherman Act.

This condemnation includes those prcctices f . . . which because of the ir pernicious ef fect on compe-l tition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without I 54 L .

elaborate inquiry as to the precise harm they have caused or the business excuse for the ir use. Northern Pacific Ry. v. United States, 356 U.S. 1, 5 (1958).

A specific intent to restrain trade is therefore not an element of a per se offense. What the conspirators intended is not relevant or $

material if the result of tha conspiracy is a per se violation of the Sherman Act. As the Supreme Court said in United States v. Read ing Co., 226 U.S. 324, 370 (1912):

of course, if the necessary re ult is mater ially to restrain trade between tne States, the intent with which the thing is done is of no consequence.

1 Similarly, a per se violation cannot be excused or justified because the conduct ef fectuating the conspiracy is reasonable or because the conspiracy was motivated by good intentions, business necessity, or a desire to benefit the public. Ethyl Gasoline Corp. v. United States, States, 309 U.S. 436, 461 (1940); United States v. Trenton Potteries Co., 273 U.S. 392 (1927); Standard Sanitary Manufacturing Corn. v.

United States, 226 U.S. 20, 49 (1912). 48/

(1) Group Boycotts Or Concerted Refusals To Deal In Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212 (1959), the Supreme Court daclared:

Group boycotts, or concerted refusals by tradets to deal with other traders, have long been held to be in the forbidden category. They have not been saved by allegations that they were reasonable in the specific circumstances, nor by a failure to show that they " fixed or regulated pr ices, parcelled out or limited production,

~

or brought about a deterioration in quality."

48/ Although the Licensing Board found certain of Applicants' activ-ities to constitute per se violations, it also found most of them to be unreasonable under the rule of reason test as well.

l 55  ;

i

_- - w~ -

-- w -

n__ ._ .. _ a

The Cour t has sinco reaffirmed its application of the per se rule to group boycotts, Radiant Burners, Inc. v. Peoples Gas Light & Coke Co.,

364 U.S. 656 (1961)'(per curium); 'nited States v. General Motors Corp. ,

384 U.S. 127 (1966); and has applied it in a regulated industry context, Silver v. New York Stock Exchange, 373 U.S. 341, 347 (1963). 49/ Appli- l cants, nevertheless rely on lower court authority to contend that the per se doctrine has only limited effect when a group boycott is alleged and that the Licensing Board erred in applying the per se rule here ( App.

Brief at 107). 50/ However, those cases cited by Applicants have

,niformly u held that the per se rule is applicable to group boycotts "

49/ In Silver suora, two broker-dealers brought an action against the 5ew York Stock Exchange, claiming that the collective refusal of the Exchange to continue direct wire connections to the broker-dealers vio-lated the Sherman Act. The question of the Exchange's justification for its action arose because Congress, in enacting the Securities Exchange Act of 1934, had contemplated that the self-regulation man-dated by that Act would include barriers to exchange membership. The Court held that unless the action of the Exchange was within its author-ity under the Secur ities Exchange Act, it would constitute a group boycott and, as such, a per se violation of the Sherman Act (373 U.S.

at 347-49). Thus, the question was not whether the group boycott was reasonable, but wheth'r it was exempted from antitru'st scrutiny by the Secur ities E::cha de Act (373 U.S. at 342-43). See also Fashion Originator's Guild cc America, Inc. v. FTC, 312 U.S. 457 (1941),

and United States v. Columbia Steel Co.7'334 U.S. 495, 522 (1948).

50/ As one Court noted:

Even if you do not apply the per se rule to a group boycott you must view it with very dark suspicion because of the c ommercial re ,traints and tendency toward monopoly inherent in such combinations.

United States v. New Orlebns Insurance Exchange, 148 F. Supp. 915, 920 (E.D. La. 1937). The,d commer c ial restra ints and tendency toward monopoly" in this pr.dcced ing ar e, at the very least inconsistent with the antitrust laws and the policies under.ying those laws.

l

' Further, although holding that a group boycott constitutes a per se violation of the antitrust laws, the Licensing Doard went on to condemn many of Applicants' boycott ac t iv it ies in terms of the reasonableness of i -

those activities (ID at 188-215). Thus, even if Applicants were correct in their centention that a per se rule should not be applied to group bo i

OLycotts, the ir activities have not, and cannot pass muster under a rule teason approach.

56

when there is~ a purpose either to exclude.a person or group from the market, accomplish some other anticompetitive cbjective, or both. 51/

Among the anticompetitive objectives which invoke the use of the per se rule are those situations where the group boycott is coupled with, for exabple, a desire 'to put someone out of business, a des' ire to impair their ability to compete, and monopolization or attempted monopolization.

Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke 5 Liquors, Ltd., 416 F.2d 71, 76-77 (9 th C ir . 1969 ) , ,cer t. den.,396 U.S. 1067 (1970). All of those objectives have been found in this procee,d ing. Hence, even -

were this Appeal Board to rely on those cases cited by Applicants, application of the per se rule to the group boycott under considera-tion .would not only be proper but mandated by the applicable law.

(2) Territorial Or Customer Allocations Territorial or customer allocations among or between competitors have also repeatedly been condemned by the Supreme Court as per se vio-lations of Section 1 of the Sherman Act. SlA/ United States v. Citizens and Southern National Bank, 422 U.S. 86 (1975) 52/ United States v.

51/ See also Barber, Refusals to Deal Under the Federal Antitrust Laws, 103 U. of Pa. L. Rev. 847 (1955) at 076-77.

51A/ The recent Supreme Court decision, Continental T.V. Inc. v. GTE l Sylvania, Inc., U.S.L.W. (June 23, 1977), which partially reversed i United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), held that vertical customer or territortal allocation agreements are to be judged by the rule of reason rather than the per se rule. In Sylvania, the Court specifically pointed out that hor izontal restr ictions continue to be per se violations of the antitrust laws (Slip Opinion at 21, n.

28). All of the customer or terr itor ial allocation agreements with which we are concerned in this proceeding are, of course, horizontal.

52/ In Citizens and Southern National Bank, supra, a t' 118, the Court stated: ,

1 Market division is a per se offense under the Sherman Act.

(Footnote continued on next page.)

57

Topco Associates, 405 U.S. 596, 608 (.1972); United States v. Sealy, Inc., 388 U.S. 350 (1967); Northern Pacific Ry. v. United States, 356 U.S.1 (1958); Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951). The Court has classified such agreements as "[o]ne of the classic examples of a per se violation of 51. . ." United States v. Topco Associates, 405 U.S..at 608. The per se rule has been applied to the electric utility industries by the Supreme Court, Otter Tail Power Co. v. United States, 410 U.S. 366, 378 (1973), as well as by Courts of Appeals; Montana-D; ,ta Utility Co. v. Williams Electric Cooperative, 263 F.2d 431 ( 8 th C ir . 1959 ) ; Pennsylvania Water & Power Co. v. Consolidated Gas, Electric Light & Power Co.,

184 F.2d 552, 558-59 ( 4 th Cir . '19 50 ) , cert. denied 340 U.S. 906.

Appl ican ts ' contention that there are reasons for not applying the per se rule to territorial agreements among companies in regulated industries 53/ was specifically rejected in Montana-Dakota Utility Co. ,

supra. In that case, the 8th Circuit found that when quasi public businesses, i.e. , electr ic utilities, have entered into territorial agreements, there is greater reason to utilize the per se rule than _

52/ (Footnote continued from previous page. )

. "This Court has reiterated time and again that

' [h] or izontal territorial limitations . . . are naked restraints of trade with no purpoce except ctiflir.g of competition (citations omitted].'"

Curiously enough, Applicants cite this case for the proposition l

that courts routinely eschew the per se approach in regulated indus-l tries (App. Brief at 36).

1 53/ Applicants rely on Shenefield, Antitrust Policy Within the Electric Utility Industry, 16 Antitrust Bull. 681 (1971), to bolster the ir argu-ment that the Ler se rule should not be applied to electric utilities (App. Brief at 37-32). Mr. Shenefield's arguments were, of course, formulated prior to the Supreme Court decision in Otter Ta ll, supra, '

l and were, in ef fect, r ej ected in that case.

58 l

l J

n_ _ ._ _

if pr ivate businesses were involved. The Court summed up thusly:

In determining the relative freedom to contract and i

~ the validity of contracts which tend to restr ict trade, l the courts have definitely distinguished the limited power of corporations impressed with a public trust and duty, from the greater f-reedom allowed to pr iva-te ,

enterprise. By the great weight of author ity in this ,

country, the rule has been promulgated and consistently 1

applied that contracts between cuasi-oublic corporations, having for their object the d iv ts ton of territory between such companies, are against oublic colicy, and beina so, are absolutely void, untempered oy any aoplication of the " rule of reason" lemphasis suppliea] 263 F.2d at 434.

Applicants also contend that certain cases 54/ have held that ter- ,

ritorial agreements which have the effect of increasing competition should not be subject to the per se rule. 55/ This contention was specifically rejected by the Supreme Court in Topco, supra, where it stated:

the Court has consistently rejected the notion that' naked restraints of trade are to be tolerated because they are well intended or becaune they are allegedly developed to increase competition [ citations omitted). 56/

c. Rule of Reason Agreements which are not per se violations of the Sherman Act -

may nevertheless violate that Act if they are found to be unreasonable restraints of trade. This rule of reason was stated in the Report of 54/ Applicants apparently rely on United States v. National Football League, 116 F. Supp. 319, 321 (E.D. Pa. 1953), and In re Coca-Cola Co.

[1973-1976 Transfer Binder] Trade Reg. Rep. 121,010 (FTC, October 8, 1975).

55/ Even if this were the proper legal standard, Applicants would not prevail because the Licensing Board found that Applicants' territorial agreements decreased competition. (ID at 119-24, 137-41).

56/ 405 U.S. at 610. In.Topco, the territorial agreement was held to Se a per se violation by the Supreme Court despite a District Court find ing that the agreement actually -increased certain competition.

59 s

the Attorney General's National Committee to Study the Antitrust Laws as follows:

In short, the teachings of Standard Oil and American Tobacco can be summarized in these terms:

e e- *

(2) Construing both sections, the Rule of Reason as the general rule of construction in all Sherman Act cases requires interpreting the Act in the light of a broad public policy favoring compett-tion and condemning monopoly. While Standard Oil gave the courts discretion in in ter pr'e t ing the word "every" in Section 1, such discretion' is confined to ,

consideration of whether , in each case the conduct being reviewed under the Act constitutes an undue restraint of competitive conditions, or a monopoli-zation, or an attempt to monopolize. This standard permits the courts to decide whether conduct is sig-nificantly and unreasonably anticompetitive in character or effect; it makes obsolete once prevalent arguments, such as, whether monopoly arrangements would be socially preferable to competition in a particular ind us t r y ,

because, for example, of high fixed costs or the risks of " cut-throat" competition or other similar unusual conditions [1955 Attorney General's Report at 10-11].

2. The Law of Monopolization

a. Generally Setion 2 of the Sherman Act, 15 U.S.C. 52, reads as follows:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states or with foreign nations, shall be deemed guilty of a felony . . . .

The offense of monopolization consists of monopoly power in the rel-evant market -- in economic terms, the power to fix pr ices or to exclude competition -- coupled with policies or conduct designed to acquire or i preserve that market power. Thus, the Supreme Court held that:

the material consideration in determining whether a monop-oly exists is not that pr ices are raised and that compet t-tion actually-is excluded but that powar exists to raise prices or to exclude competition when it is desired to do so.

American Tobacco v. United States, 328 U.S. 781, 811 (1946).

60

in United. States v. Grinnell Corp. ,

More recently, the Court stated 384 U.S. 563, 570-71 (1966):'

The offense of monopoly under $2 of the Sherman l the possession of monopoly Act has two elements: (1) 1 power in the relevant market and that (2) the as power willful distin-acquisition or maintenance of  ;

guished from the growth or development of a superior  !

product, business acumen or his, tor ic accident.

in The first element of the offense, possession of monopoly power a relevant market, can be inferred "from [a] predominant share of the at 571, or from control over a " bottle-market," see Grinnell, 384 U.S. e to ex-neck" f acility which affords the controlling company the power clude competition or set prices. See United States v. Otter Tail Power Company, 331 F. Supp. 54, 61 (D. Minn. 1971), aff'd in part, 410 U.S.

366, 371 (1973).

Co._, 331 F. Supp. 54 (D. Minn.

In United States v. Otter Teil Power found af ter defining the geographic market, 1971), the District Court, that:

On this basis it may be concluded that Otter Tail .

services approximately 91% enough certainly of the relevant geo-to justify the graphical market,the defendant possesses monopoly inference that 331 F. Supp. at 59 power in that area. i The District Court also analyzed the extent of Otter Tail's transmiss on lines in terms of the total transmission lines in the area and 331 F. Supp.

in transmission.

' that Otter Tail .had a strategic dominance at 59-60.

After accepting this 91 per cent figure (410 U.S. at 370), the k Supreme Court went on to hold:

1 The record makes abundantly clear that Otter Tall l used its monopoly power in the cities in its service l area to foreclose to competition destroy a or gain a competitive competitor, all in viola-advantage, or The tion of the antitrust laws [ citation omitted).

61 .

District Court determined that Otter Tail has "a strateg ic dominance in the transmission of power in most of its service area" and that it used this domi-nance to foreclose potential entrants from outside sources of supply, 331 F. Supp. at 60. Use of monop-oly power "to destroy threatened competition" is a .vio- ,

lation of the " attempt to monopolize" clause of S2 of the Sherman Act [ citation omitt9d ]. 410 U.S. at 377.

Applicants argue that because they are regulated by state and fed-eral agencies, they cannot be found to have the ability to set prices or to exclude competition, and thus cannot be found to possess monopoly e

power (App. Brief at 83-88). Applicants' argument'must fail for sev-eral reasons. Despite Applicants' strong desire to discount Otter Tail, supra, the Supreme Court in that case found monopoly power in an elec-tric utility based on that utility's market shares and " strategic domi-nance in the transmission of power" (see discussion above). The market structure in this case is similar to that in Otter Tail: Applicants individually possess market shares of not less than 90 per cent of the wholesale and retail sales within their service areas, and jointly possess market shares of not less than 90 per cent of the wholesale -

and retail sales within the CCCT. In addition, Applicants individually control not less than 90 per cent of the generation and transmission within their service areas and jointly control not less than 90 per cent of the generation and transmission within the CCCT. (ID at 32-34).

Thus, Applicants clearly meet the tests set forth in Otter _ Tail, supra, for possession of monopoly power by an electr ic utility. 57/

57/ Despite the ir insistence that the electr ic utility industry must Be judged differently than other industr ies, Applicants choose to rely on cases arising in other industr ies for their assertion that market shares are not su f f ic ient to show monopoly power. This reliance is <

misplaced in the face of Otter Tail, supra, which used a market shares and dominance test for an electric utility.

l

. 62 I , __

. 1 Even if this Appeal Board were to discount the presumption of I monopoly power which arises 'from the possession of overwhelming market sharca, Applicants would still be shown to possess monopoly power.

,The record in this . case shows, without doubt, that not only do Appli-cants' possess the power to exclude competition but that they have continually used this power. As to the ability to control prices, while- admittedly Applicants do not have the total freedom to set any rate they wish, the control of rates, and certainly the ability to initiate rate changes lies with them (Wilson Tr. 11',005-07, 11,011-12, 11,040-41). Concerning the control over rates by a regulatory agency, the Court in FPC v. Conway, 426 U.S. 271, 278 (1976), held that "there is no single cost-recovering rate, but a zone of reasonableness." Thus, so long as they remain within the " zone of reasonableness" Applicants may retain control over the rates set. 58/ In addition, Applicants, through their control of access to coordinated operation and develop-ment, can and have controlled the cost of bulk power to non-applicant entities in the CCCT. ,

Once it is established that a company possesses monopoly power, that company's conduct in the market place is judged by a different, stricter standard: it cannot willfully act to maintain or expand that power without violating the antitrust laws. The willful maintenance 58/ The deficiencies of the regulatory scheme itself increases Appli-cants' control over rates. A regulatory staff cannot supervise every aspect of the regulated business (Wein DJ 587, pp. 168-69; Kampmeier Tr. 5980; Ilughes Tr . 3753-54 ; ' Wilson Tr . 11,029-31, 11,119). Nor can indirect customer pressure force this supervision, since customers generally cannot afford the protracted litigation which regulatory hear ings entail (We in DJ 587, p. 169; DJ 171; DJ 254; McCabo Tr. 1718; Luxenberg Tr. 6441-42).

63 L

i-of monopoly power can be established merely by showing that "transac-tions neutral on their face" have an exclusionary effect on the market, without a specific showing of anticompetitive motivation. See United .

States v. Aluminum Company of America, 148 F.2d 416, 432 (2d Cir. )

4 1945); 59/ United States v. United Shoe Machinery Corp., 110 F. Supp.

295, 346 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). A firm possessing monopoly power may violate Section 2 even though the i

particular acts of anticompetitive conduct which co,ntributed to its s market position have ceased. United States v. Aluminum Company of America, supra at 432, 437.

That a monopoly results from a defendant's conduct is sufficient for a finding of monopolistic intent. United States v. Griffith, 334 i

i U.S. 100, 105-06 (1948); United States v. Paramount Pictures, 334 U.S.

131, 173 (1948); United Shoe, 110 F. Supp. at 346. The existence of a business motivation or justification cannot ' legitimate the misuse of monopoly power. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 375 (1967);. Otter Tail Power Co. v. United States, 410 U.S. 366, 380 (1973). None of the transactions engaged in by a defendant need be illegal in and of themselves if they are part of a course of conduct which maintains a monopoly. See American Tobacco v. United States,

supra; Alumimum Company of America, 148 F.2d at 431-32; United Shob, 110 F. Supp. at 342 It follows, therefore, that inaividual elements

~

of an anticompetitive situation may not be singled out for evaluation en a piece-by-piece basis; for a group of activities, each perhaps i

59/ This case was very much in the minds of the framers of the 1954 Ktomic Energy Act. Joint Committee on Atomic Energy, Hear ings on S. 3323 and H.R. 8862 to Amend the Atomic Energy Act of 1946, 83rd Cong., 2d Sess., Part 2, at 441-43, 495-98, 629, 641-42 (1954).

64

- - ~ _ _ - _ .--

lawful standing alone, may comprise a monopolization in violation of the antitrust laws. See United States v. International Business _ Machines, 1975 CCH Trade Cases 160,495 (S.D.N.Y. 1975). Thus, the key question is whether Applicants, who possess monopoly power, have dngaged in business

practices which raise " unnecessary ' barriers to competition." United States v. United Shoe Machinery Corp. , 110 F. Supp. 295, 344-45 (D.

Mass. 1953), aff'd per curiam 374 U.S. 521 (1954).

Section 2 of the Sherman Act also prohibits conspiracies and combi ,

nations to monopolize. Amgrican Tobacco Co. v. United States, 147 F.2d 93, 111 (6 th Cir . 1944 ) , aff'd, 328 U.S. 781 (1946). A combination or conspiracy to monopc .ize would include an agreement or understanding which was intended to, or by its inherent nature would, control prices or exclude competitors in any relevant market. 60/ It is not necessary that the agreement was intended to, or by its inherent nature would, exclude all possible competition. American Tobacco Co. v. United States, 328 U.S. 781, 788-89 (1946); United States v. Consolidated Laundries Corp., 291 F.2d 563 (2d Cir. 1961); United States v. Jerrold Electronics '

Corp., 187 F. Supp. 545, 567 (E.D. Pa. 1960); United States v. General Electric Co., 80 F. Supp. 989, 1016 (S.D.N.Y. 1948). The intent to exclude competition or control prices can be inferred from the conspir-acors' course of conduct if they possess a predominant share of a market in relation to their competitors. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966); United States v. Paramount Pictures, 60/ An agreement or conspiracy which violates Section 1 may also violate Section 2. See United _ States v. Socony-Vacuum _0il Co., 310 U.S. at 220,

n. 59; United States v. Gr if fith, 334 U.S. at 106. The law governing agreements and conspiracies under Section 1 is equally applicable to a  ;

conspiracy under Section 2.

65

- -. -- .~ = .. = _ - . -. - - , -.

1 at 107, United States v. Griffith, 334 U.S.

334 U.S. 131, 174 (1948); '

328 U.S. at 796-97.

n. 10 (1948); American Tobacco v. United States, in order to violate It is not necessary to have monopoly power f

the attempt to monopolize or conspiracy to monopolize provisions o All that is required is that the exclusionary effects of Saction 2. b bility" the market power being used be shown to create a " dangerous pro t a

l that the attempt would succeed in achieving monopoly of the re evan 781, 784 l American Tobacco Co._ v. United States, 328 U.S.

6 carket.

375,'396 (1905). 61/

(1946);

Swif t & Co. v. United States,'196 U.S.

l

b. Refusals to Deal It is well established that selective refusals to deal by a single firm can be exclusionary and, therefore, violate Section 2 of the Sh A company tvith a lawful Act, if that firm possesses monopoly power.

monopoly in one market may not expand that monopoly into anothe Lorain Journal Co. v. United States, b'r selectively refusing to deal. i Eastman Kodak Co. v. Southern Photo Materials Co.,

342 U.S. 143 (1951); .

Six Twenty-Nine_ Productions v. Rollins Telecasting,_

273 U.S. 359 (1927);

1966); Packaged Programs., Inc._ v.

Inc. , 365 F.2d 478 (5th Cir.

Westinghouse Broadcasting, 225 F.2d 708 (3d Cir .1958) .

in this proceeding on refusals to The cace most clearly in point is Otter Tail Power Co. v. United States, suora.

' deal by a monopolist 61/

See also, Slumeger v. Coca Cola Twin CityCo., 515 F.2dInc.

Soortservice 835v.(5thCharles Cir. 1975 934 (1976);

cert. den. 424 U.S.

&'Co., 512 F.2d 1264 (9th Cir. 1975); George (1stR.CWh itten , J cert.

ir . 1974), r.,

07 Finley Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547 white Boge Co. v. Internati l

l 1004 (1975); Hammond den. 421 U.S. 175,188 ( 4 tn Cir . 19 7 4 ); cert. Agrashill, TY74-2 Trade Cas. cen. Inc._414 U.S. V, 1032; Products Co., 479 F.2d 269 (8th Cir. 1973),

j -

cert.

- Co._, - 327 F.2d 459, 4742 75 (TEh C ir . ),

Leg v. Tidewater 993 Oil (1964).

den. 377 U.S.

L 66 .

[  %

l 1

Otter Tail involved the application of both the monopolization and attempt to monopolize provisions of Section 2 to an integrated electr ic power company which generated, transmitted and distributed electric power in adjacent parts of Minnesota, North Dakota and South Dakota. Otter Tail had the only subtransmission system in this area. It distributed electr icity in some 465 towns in its service area and sold power at wholesale to 17 other municipalities, which engaged in distribution.

The District Court found that Otter Tail possessed monopoly power in the relevant market and maintained this market power by refusing to deal.

When municipalities Otter Tail served at retail (pursuant to a limited duration franchise) desired to set up their own distribution systems, the company refused to sell power to these systems at wholesale and further refused to sell transmission services so that power could be moved across its system from other suppliers. 62/ Since, in most instances, there was no other way for such a town to purchase power, it was left with two choices: (1) either abandon its plan and renew Otter Tail's franchise or (2) establish a high cost, isolated genera- .

tion system. The Distr ict Court found that Otter Tail's refusals to deal constituted illegal monopolization and attempted monopolization under Section 2 of the Sherman Act. It enjoined Otter Tail from refusing to sell or to wheel power for municipal systems in its own area.

The Supreme Court affirmed this portion of the District Court decision.

62/ Otter Tail was also a party to a territorial allocation agreement with the U.S. Bureau of Reclamation. The substance of this agreement was that Otter Tail would not wheel power for the USBR to cities where it held a franchise to serve at r e ta il . The agreement was another mani-festation of Otter Tail's policy of refusing to deal in transmission services.

67

c. " Bottleneck" Monopolization Unilateral refusals to ' deal may also violate Section 2 of the Sherman Act in cases where there is no demonstration of a firm's monopoly of sales in a relevant market. Control by a company (les) of a " bottleneck" resource -- i.e. , a facility or service which cannot practicably be duplicated and to which access is a significant factor in a firm's competitive ability -- is sufficient to establish monopoly power. A refusal to deal or to grant access to a " bottleneck" factor of production which has an effect on competit' n in a final product market constitutes monopolization in violation of the Sherman Act.

Associated Press v. United States, 326 U.S. 1 (1945) (refusal to grant access to news services affecting competition in newspapers); United States v. Terminal Railroad Ass'n., 224 U.S. 383-(1912) (refusal to grant access to a railroad bridge affecting competition in transcon-tinental railroad service); Gamco, Inc. v. Providence Fruit & Produce Bu ild ing , Inc., 194 F.2d 484 (1st Cir. 1952), cert. denied, 344 U.S. 817 '

(1952) (refusal to grant access to a fruit market thereby affecting com-petition in the wholesale fruit business); Otter Tail, suora (refusal to grant access to subtransmission thereby affecting competition in retail electr ic sales) .

The competitive advantage af forded by the " bottleneck" service need not be indispensably necessary to competitive survival; it is sufficient that without it the excluded competitor is at a " competitive disadvan-tage." Associated Press v. United States, 326 U.S. at 17-13. This was stressed by Judge Learned Hand for the three-judge Distr ict Court in Associated Press, in a passage quoted with approval by the Supreme Court:

Most monopolies, like most patents, give control over only some of the means of production for which there 68

10 a cubotituto; the possessor Gnjoys an advantage over his competitors, but he can seldom shut them out altogether; his monopoly is measured by the handicap he can impose . . . . . And yet that advantage alone may make a monopoly unlawful. 326 U.S. at 17, n. 17.

Thus, possession of a " bottleneck" service or f acility may generate monopoly power even though other. alternatives are available. As the Court of Appeals stated in Gamco, 194 F.2d at 487:

(A] monopolized resource seldom lacks substitutes; alternatives will not excuse monopolization. . . .

To impose upon plaintif f the additional expenses of developing another site, attracting buyers and tran-shipping his fruit and produce by truck is clearly to extract a monopolist's advantage. ,

In denying its competitors access to a " bottleneck" resource, the (

controlling company violates Section 2 of the Sherman Act, even though no subsequent diminution of competition can be shown. Gamco, 194 F.2d at 487; see also Associated Press, 326 U.S. at 13.

Such a denial by a group of controlling companies violates Sec-tion 2 even when it is brought.about by the veto power of an ind iv id-ual company, Associated Press v. United States, supra, or because unanimous approval would be required to grant access, United States

v. Terminal Railroad Ass'n, supra.

An electric utility which refuses to grant its competitors access to a " bottleneck" resource will thereby violate Section 2 of the Sherman Act. In Otter Tail, 310 U.S. at 377, the Supreme Court found that the defendant electric utility possesses "a strateg1c domineace in the transmission of power in 'most of its service area" -- i.e.,

it controlled a subtransmission network which was a bottleneck to entering the relevant market. Otter Tail's refusal to' grant access to this " bottleneck facility" was deemed a violation of Section 2 of the Sherman Act. The subtransmission network to which the competing municipal systems were denied access was owned solely by Otter Tail.

[

69 -

l w -:

Thus, a single firm " bottleneck" is as fully snbject to scrutiny and sanction under Section 2 of the Sherman Act as is a " bottleneck" con-trolled by a group of companies. Denial of access to a " bottleneck" f acility cannot be justified on the basis that the competition has a -

tax advantage or has lower costs of doing business, American Federation of Tobacco Growers v. Neal, 183 F.2d 869, 872 ( 4 th Cir . 19 50 ) .

d. Other Exclusionary Practices In addition to refusals to deal and conduct violative of Section 1 of the Sherman Act, there are other exclusioinary practices which, e when engaged in by a company possessing monopoly power , violate Sec-tion 2 For example, one such practice is a " rate squeeze." A " rate" or " price squeeze" occurs when an electric utility which sells power at retail (to ultimate consumers) and at wholesale (to systems which compete with it at retail) employs a discriminatory dual rate structure which restrains competition at retail. It is clear that a rate squeeze can restrain competition in the retail sale of electric power. Federal Power Commission v. Conway, 426 U.S. 271 (1976). A finding of monopo-lization under Section 2 may be based solely upon a showing of monopoly power, a history of acquir ing competing systems, and the employment of a rate squeeze. City of Mishawaka, et al. v. Indiana & Michican Electr ic Co., 1975 CCH Trade Cases V60,318 (N . D. Ind. 1975). 63/

i

e. The Relevant Markets The existence and extent of monopoly. power cannot be determined in a vacuum; it must be established and measured in the context of a 63/ Although certain conclusions reached in City of Mishawaka may be in conflict with the opinion in Federal Power Commiss ion v. Conway, suora, the Distr ict Court's conclusion that a rate squeeze was exclustonary s conduct suf f icient to violate Section 2 is not with in the scope of po~

tential conflict and, indeed, complements the Supreme Court's holding in Conway.

70

relevant product and geographic market or markets. E.g., United States tr . Grinnell Corp., 384 U.S. 563, 570-71 (1966).

The method for definition of a relevant product market is'well established. "[C]ommodities reasonably interchangeable by consumers C

for the same purposes make up that 'part of the trade or commerce,'

monopolization of which may be illegal." United States v. E. I.

duPont de Nemours & Co., 351 U.S. 377, 395 (1956). For products to be deemed interchangeable, two factual questions must be answered in the affirmative: (1) whether the physical characteristics of products are

~

such that they can be used for the same purpose, (2) whether a purchaser is willing to substitute one product for the.other. United States v.

Chas. Pfizer & Co., Inc., 246 F. Supp. 464, 468 (E.D.N.Y. 1965).

It is well established that a " cluster" or " bundle" of services may constitute a relevant product market. United States v. Phillipsburg National Bank, 399 U.S. 350 (1970); United States v. Grinnell Corp.,

384 U.S. 563 (1966); United States v. Philadelphia National Bank, 374 U.S. 321 (1963); Consumers Power Company (Midland Units 1 and 2), _

LBP-75-39, 2 N.R.C.I. 29, 45 (1975). 64/

64/ Applicants assert that the fact that the var ious services included In the bulk power services and regional power exchange markets are not reasonably interchangeable renders those markets untenable ( App. Br ief at 94-95) citing United States v. E.I. duPont de Nemorus & Co., 351 U.S.

377, 404 (1956), as support therefor. However, in United States v.

Phillipsburg National Bank, supra, and United States v. Philadelphia l

National Bank, supra, the Supreme Court adopted commercial banking as the relevant proouct market despite the fact that the services included i therein were not interchangeable, i.e., loans, deposit accounts, estate and trust plann ing , safe deposit boxes, account reconciliation services, investment advice, checking accounts, etc. (Philadelphia National Bank, 1 374 U.S. at 326-27 (n. 5)). What Applicants are incorrectly attempting l to do is to subdivide a line of commerce into its constituent parts while ignor ing the broader line of commerce which is economically significant. See United States '. Phillipsburg National Bank, supra at 360; Brown Shoe Co. v. United States, 370 U.S. 294, 326 (1962).

(Footnote continueo on next page.)

. 71 m

It is equally well established that the "in house" requirements of a vertically integrated firm are included in the relevant product market when determining whether that firm has monopoly power. United States v. Aluminum Company of America, 148 F.2d 416, 424 (2d Cir .1945 );

United States v. Greater Buffalo Press, 402 U.S. 549, 555 (1971). 65/

A relevant geographic market -- i.e., the geographic extent of a product market -- must " correspond to commercial realities of the ind us-try and be economically significant." Brown Shoe Co. v. United States, 370 U.S. 294, 336-37 (1962). Stated differently l "[T]he area of effec-tive competition in the known line of commerce must be charted by care-ful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies." United States

v. Philadelphia National Bank, 374 U.S. 321, 359 (1963).

-~/

64 (Footnote continued from prev.ious pag'e)

The record establishes that not only Applicants but many other electr ic utilities (DJ 588) as well as MELP (ID at 200-03) and Pitcairn (ID at 195-200) view the services offered by CAPCO as a " bundle," thus reflecting the commercial reality necessary to establish a market ..

(United States v. United Shoe Machinery, 110 F. Supp. at 303). The fact that some of the services in this " bundle" may be available else-where does not render the cluster of services an inappropr ia te mar ket.

United States v. Phillipsburg National Bank, supra at 360.

65/ Applicants' conclusion that " captive" wholesale sales must be excluded from the wholesale mar ket ( App. Br ief ct 96 ) i's not ' supported by their cited authorities. While the District Court in Internaional Telephone & Telegrauh Coro. v. General Telephone &__ Electronics Coro.,

351 F. Supp. 1153, 1175-77 (D. Hawa ii 1972) , did exclude captive sales from the relevant market, the 9th Circuit reversed on this point.

518 F.2d 913, 930 ( 9 th C ir . 1975). Other cases cited by Applicants hold only that "in-house" or " captive" requirements of nonparties to an acquisition may be omitted from the relevant market when con-sidering the effect on competition of the acquisition. They do not hold that such captive sales should always be left out of the relevant market.

72 l

h

. The Licensing Board found (ID at 47) that there are three appro-priate product markets for .use in this proceeding: the retail distr ibu-tion firm power market, in which electric distribution systems supply firm power to ultimate consumers; the " regional power exchange" market, .

in which producerc of firm electric power transact with one another for necessary inputs or factors of produ*cing firm power in bulk; and the

" bulk power services" market (Wein DJ 587, pp.97-101; Hughes NRC 207, pp. 17-20).

Another product market, the wholesale-for-resale firm power market, in which producers (or wholesalers) of firm electric power in bulk supply the power to the distribution systems (Wein DJ 587, pp.97-101),

is also of significance. If this market is combined with the regional power exchange market, one would obtain the bulk power services market (Hughes NRC 207, pp. 17-20; Wein Tr. 7015-17, 7020). The first two markets can properly be considered appropriate submarkets of the " bulk power services" market (Hughes Tr. 4098-99; Nein Tr. 7015-17, 7020).

Retail distribution firm power is a distinct product, not reason- .

able interchangeable with other products, and is therefore a relevant context in which to conduct a market for analysis in this proceeding (Wein DJ 587, pp. 97-98; Tr. 6625-26, 6884-87, 7004-13). Likewise, wholesale firm power is a distinct product which constitutes an appropriate market or submarket in which to measure monopoly power (Wein DJ 587, pp. 97-98; Tr. 7004-12, 7015-17, 7020-28). This market includes both " captive -- i.e. , the in-house requirements of a verti-cally integrated utility -- and "ncn-captive" wholesale firm power ,

(Wein DJ. 587, p. 98; Tr. 6992). The " regional power exchange" market is another distinct. product market which is relevant in this proceeding 73 L _

. _ _ _ =

(Wein DJ 537, pp.99-107; Tr . 7012-31; DJ 588). This market includes the factors of production which are required to produce firm power (Wein DJ 587, pp.99-100; Tr. 7013, 7018-19, 7023-24, 7027). These factors of prtduction may properly be considered sep: cately from wholesale firm power (Wein Tr. 7013, 7015-17, 7020-22, 7025-26), and there is no reason to separate the cluster or bundle of services com-pr ising the " regional power exchange" into individual product markets (Wein Tr. 7013-16; see pp. 71-72, supra). Electr iq utilities agree -

with one another to offer and receive a range of power exchange services as such services may become available or be needei (Wein DJ 587, pp.88-107; Tr. 7015-16, 7028-29; DJ 588).,

The appropriate geographic markets for analysis of retail sales are the CCCT and the respective retail service areas of each of the CAPCO companies. These are the geographic areas where the respective Applicants sell or could reasonably compete to sell electr ic power at retail (Wein DJ 587, pp. 112-31, 137-39; Tr. 6890-917; C 1). 66/

Similarly, the CCCT and each of the Applicant's respective ser-vice areas define the geographic markets for sales of firm power at 66/ Applicants contend that the Licensing Board erred in defining the stascaphic market for the sale of firm power at retail as being coin-cident with the service area of each of the Applicants '( App. Br ief at 89-92) and set forth their own definition of a few "open" markets and a large number of " closed" markets. (Interesting enough, this defin i-tion is not supported by Applicants' expert economist Dr. Pace (App.

190).) Appl ic an ts ' market definition coincides in many respects with one market advanced by the United States in Otter Tail. While the Distr ict Court in that case concluded that there is some logical basis for consider ing each town as a separate geographic market, it found that the relevant geographic market coincided with Otter Tail's retail service area. Otter Tail, supra, 331 F. Supp. at 58-59, aff'd 410 U.S.

at 369-70. However, even if Applicants' "open" and " closed" areas were found to constitute geographic markets, that does not preclude the finding that there are larger geographic markets which are relevant to this proceed ing. See p. 72, supra.

74

wholesale since these are the areas in which the respective Applicants sell or could reasonably compete to sell firm power in bulk to electr ic distribution systems, including supplying their own " captive" loads (Wein n1 587, pp. 112, 131-39;.Tr. 6976-7012, 7040-45; C 1).

The relevant geographic markeg for the " regional power exchange" product market is the CCCT -- i.e., the entire CAPCO service area (Wein DJ 587, pp. 112, 139-44; Tr. 7030-46). 67/ The geographic extent of the '" regional power exchange" market may be viewed aIs the locus of e

all gateways to and from the interconnected transmission network, to which are tied load cen,ters, generation points, bulk power substations, and other facilities (Wein DJ 587, pp.142-43, Tr.' 7031-32) . It is not necessary for purposes of the proceeding to p'. ace definite boundaries on the " regional power exchange" market, nor is it necessary to ascertain the geographic region within which particular types of power exchange transactions occur , because the relevance of the " regional power exchange" market to this proceeding lies in the availability or non-availability of access to this market to smaller electr ic -

utilities in the CCCT (Wein DJ 587, pp. 145-47; Tr. 7031-33, 7035).

Thedb are two types of geographic markets for the " bulk power services" product market. The first is comprised of the service areas of the individual Applicants -- comparable to the geographic mar kets for sales of firm power at wholesale; the second consists of the entire CCCT and is caextensive with the geographic extent of the

" regional power exchange." (Hughes NRC 207, pp. 20 ,23).

t

! 67/ Applicants' reliance on App. 104 to allegedly demonstrate that

! sales and purchases of electr ic power between OE and Ohio Powr.c exceed the magnitude of similar transactions among the CAPCO companies (App.

Brief at 97, n. 116) is cur ious indeed since it was Applicants who l

contended that the figures in this exhibit were inaccurate (Tr. 7264).  !

I 75 -

)

3. Section 5 of the Federal Trade Commission Act Section 5 of the Federal Trade Commission Act, 15 U.S.C. S45 i (FTC Act), is among those statutes specified as an antitruct law in Section 105a of the Atomic Energy Act. Section 5 provides that:

" Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declar ed unlawful ."

Conduct which is violative of the Sherman Act may also be chal-lenged by the Federal Trade Commission under Section 5 of the FTC Act. .

Federal Trade Commission v. Cement Institute, 333 d.S. 683 (1948). In that case, the Court specifically rejected the assertion that, because i

a practice was cognizable under the Sherman Act, the FTC lacked juris-  ;

diction under the FTC Act.

An act or practice which falls short of a violation of the Sherman Act may nevertheless violate Section 5 of the FTC Act. In Federal Trade Commission v. Motion Picture Advertising Service Co.,

344 U.S. 392 (1953), the Court stated:

The " Unfair methods of conapetition" which are -

condemned by S5(a) of the Act, are not conf ined to those that were illegal at common law or that were condemned by the Sherman Act. . . . It is also clear that the Federal Trade Commission Act was designed to supplement and bolster the Sherman Act and the Clayton Act . . . to r. cop in thei r incipiency acts and practices which, when full blown, would violate those Acts . . . as well as to condemn as "unf air l methods of competition" existing violations of them. '

l 344 U.S. at 394-95, This holding was confirmed in Federal Trade Commission v. Brown

. Shoe Co., 384 U.S. 316 (1966), and Atlantic Refining Co. v. Federal l

l Trade Commission, 381 U.S. 357 (1965), both of which upheld the FTC's proscription of conduct which had the same effect as, but was not a violation of, the Sherman and Clayton Acts.

76

C. Federal Regulation Of Electric Utilities -- Primary Jurisdiction of Feceral Agencies .

The term primary jurisdiction has been used to describe both the concept of exclusive agency jurisdiction -- where the courts, because of a regulatory statute have no jurisdiction over certain activities --

and the concept of primary jurisdictfon -- where an agency is given "first crack" at solving a dispute which may later becor.e the subject of an antitrust action.

The simplest form of exclusive jurisdiction arises where an agency .

i has been given specific statutory authority to immunize a transaction from the application of the antitrust laws. An example of this type of exclusive jurisdiction is the Interstate Commerce Act, Section 5(11)

(49 U.S.C. 55(11)) which immunizes mergers approved by the Interstate Commerce Commission from antitrust scrutiny by the federal courts.

Neither the Federal Power Act nor the Public Utility Holding Company Act contains such an immunization provision.

Immunization may also be found through an " implied repeal" of the antitrust laws. Such repeals by implication are not f avored, S ilver

v. New York Stock Exchange, 373 U.S. 341, 357 (1963), and "can be jus-tified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory system." United States v. National Association of Security Dealers, 422 U.S. 694, 719-20 (1975). Repeal of the antitrust laws will be implied only if necessary to make the regulatory statute work, and then to the minimum extent necessary.

Silver, 373 U.S. at 357. Thus, to determine whether a regulatory statute repeals by implication the antitrust laws, it is necessary to look to that statute.

77

The Supreme Court has held that regulation by the Federal Power Commission does not exempt an electr ic utility from application of the cntitrust' laws. Otter Tail Power Co. v. United States, suora; Gulf States Utilities Co. v. Federal Power Commission, 411 U.S. 747, 758-59 (1973). .

In discussing its reasoning behind that holding, the Court, in Otter Tail, said:

There is nothing in the legislative history which reveals a purpose to insulate electr ic power cpmpanies '

from the operation of the antitrust laws. To the con-trary, the histor of Part II of the Federal Power Act indicates an overr iding policy of maintaining com-petition to the maximum extent possible consistent with the publ*ic interest. As or iginally conceived , Part II would have included a " common carrier" provision making

! it "the duty of every public utility to . . . transmit energy for any person upon reasonable request. . . .

In add ition, it would have empowered the Federal Power Commission to order wheeling if it foi nd such action to be "necessary or desirable in the public interest"

[ legislative citation omitted) . Thesc orovisions were eliminated to preserve "the vol ur c..ry action of the utilities" [ legislative citat smitted).

It is clear , then, that Congress reje ?ted a per-vasive regulatory scheme for controlling th6 interstate -

distribution of power in favor of voluntary commercial

, relationships. When these relationships are governed in the first instance by business judgment and not regu-latory coercion, courts must be hesitant to conclude that Congress intended to override the fundamental national policy embodied in the antitrust laws (citation omitted].

This is particularly true in .this instance because Congress, in passing the Public Utility Holding Company Act, which included Par t II of the Federal Power Act, was concerned

• with " restraint of free and independent competition" among public utility holding companies. See 15 U.S.C. S79a(b)(2)

[410 U.S. at 373-74].

Thus, the Court found that the scheme of Federal regulation of electr ic utilities is not sufficiently pervasive to insulate electr ic utilit ies 78

from the operation of the antitrust laws. That this is true is emphasized by Congressional. passage of the Atomic Energy Act which gave the NRC broad antitrust jurisdiction over activities under nuclear licenses. .

OE argues that it is protected from a finding that it is engaged in a price squeeze since both its wholesale and retail rates are regulated (App. Brief at 76, 255-56). 68/ Prior to the Supreme Court decision in Federal Power Company v. Conway Corp., 426 U.S.

271 (1976), the FPC believed that because its jurisdiction was limited -

to an examination of a utility's wholesale rates, it did not have the authorlty to examine an allegation of price squeeze (Conway at 275) .

In Conway, however, the Court held the FPC, in determining whether a wholesale rate was just and reasonable, must look at "the tendered allegations that the proposed rates are discriminatory and anticompe-titive in effect." 426 U.S. at 279. The Court reasoned that because there is no single cost recovering rate, but rather a " zone of reason-ableness", both the retail rates and the proposed wholesale rate may

- fall within this zone of reasonableness, but nevertheless create a price squeeze. While the FPC may not set retail rates, it may look to them in determining whether the proposed wholesale rate is just and reasonable and whether tne rate discrimination can be eliminated by setting the wholesale rates at the lower end of the zone of reason-ableness.

The Conway decision did not comment as to whether , despite FPC jurisdiction, a price squeeze allegation would be cognizable by an 68/ For a discussion of the legal elements of a pr ice squeeze and thth cpplication t1 OE, see p. 70, supr a and pp. 127-28, infra. l l

l 79 l

antitrust court. Logic requires that it would. Fir st , because rates are set within a zone of reasonableness, a price squeeze may exist despite rate regulation by state and federal agencies. Because the FPC may not set retail rates, and because it is not required to go below the " zone of reasonableness" in approving wholesale rates (see Conway at 278-79), it is possible that despite its best efforts, the FPC would not be able to eliminate a price squeeze. The only body with jurisdic-tion to eliminate a price squeeze and to give relief which would elim- ,

inate the past effects of a price squeeze is an antitrust court. 69/ -

. Of more importance is the fact that the Court in Conway noted that it may be the utility's own decision "to depress certain retail revenues in order to curb the re tail competition of its wholesale cus-tomers." 426 U.S. at 279. Because a utility has the power to exercise this type of control over 12s rates, the regulatory scheme is not so pervasive as to require an impliad repeal of the antitrust laws.

In City of Shakopee v. Northern States Power Co., Civ. No.

4-75-591 (D. Minn. October 18, 1976), 70/ decided af ter Conway, and cognizant of that case, the District Court held that the FPC does not have exclusive jurisdiction in a . suit by Shakopeo which alleged that Northern States Power Co. (NSP) had set its wholesale rates so as to create a price squeeze in violation of Faction 2 of the Sherman Act. Relyin<, on Cantor v. Detroit E J iso. .Co., 428 U.S. 572 (1976),

the Court held that it was not necessary .ar ae functioning of the 69/ While the FPC can require that prospective rate changes be made, It does not have the authority to order broad antitrust relief (see pp. 82-84, infra).

70/ A copy of this Opinion is attached hereto as Appendix A.

1 80 l

wholesale regulatory scheme that NSP be granted immunization from the antitrust laws. The Court found that it would not be necessary to involve itself in the satting of rates if Shakooee should be found entitled to relief, and that In the event that Shakopee proves itself entitled to relief, it would in no way disrupt the regulatory process fer this Court to uphold an award of damages for past anti-competitive conduct or to enjoin specified future anticom-petitive conduct on the part of NSP in making and promoting its rate applications (Slip Opinion at p. 8).

It is clear, as the above discussion shows, that neither the FPC s

nor the SEC may immunize Applicants' conduct 'from antitrust scrutiny.

Applicants, however, appear to argue something other than exclusive jurisdiction in the strictest sense. The ir argument, if we understand it correctly, is that the NRC should refrain from making findings con-cerning activities which could be scrutinized by other regulatory agencies. They argue that those ot?.er agencies have expertise in the regulation of electr ic utilities and that therefore the NRC should defer to their judgment in matters within their jurisdiction ( App.

Brief at 72-77).

This argument must fail for several reasons. First, the NRC is the only agency which has jurisdiction over the nuclear plants which ,

are tb subject of this proceeding. It is the only agency with the authority, to determine whether the isstance of an unconditioned license will create or maintain a situation inconsistent'with the antitrust laws. No other agency may look at Applicants' past and present activities as a whole, in relation to those nuclear plants ,

and determine what competitive effect those plants will have on the situation in Applicants' service area.

81 ,

4

Second, the NRC is the only agency with pure antitrust j ur isd ic~

tion. While the FPC and the SEC must take antitrust into consideration, both operate under a "public interest" standard, 71/ and antitrust ,

4 considerations are not the determinative f actor in the ir findings.

O_tter Tail Power Co. v. United States, 410 U.S. 366, 373 (1973);

Gulf States Utilities v. Federal Power Commission, 411 U.S. 747 (1973);

Municipal Electric Association v. Securities and Exchange Commission, 413 F.2d 1052, 1059 (D.C. CIr. 1969); Municipal Electric Association of ,

Mass. v. Federal Power Commission, 414 F.2d 1206 (d.C. Cir. 1969). 72/

Finally, even were the FPC or the SEC to find that antitrust prob-lems required relief, neither agency has the authority to order relief sufficient to eliminate a situation inconsistent with the antitrust laws. The FPC has no power to order wheeling. Otter Tail Power Co.

v. UniFcd States, 410 U.S. 366 (1973); City of Paris, Ky. v. Kentucky tiilities Co. , 41 F.P.C. 45 (1969). Nor does the Federal Power Act specifically authorize the FPC to order pooling or coordinated develop-Power is available through an FPC-ordered interconnection only I

ment.

insof ar as such power sales do not require installation of additional 71/ The dif ference between a "public interest" standard and an anti-trust , standard is more fully discussed at pp. 45-50, suora.

7}/ The fact that the SEC, in Municipal Electric Association v. SEC, supra, was given authority to examine the question of mun te tpal access to nuclear plants does not contradict the' argument that the NRC is the only agency with antitrust jurisdiction over nuclear plants which are the subject of this proceeding. In Municipal Electric Association, the SEC had jur isdiction over the nuclear plants because of the par ticular method of financing used by the sponsors of the plants. There is no guarancee that that financing method will be used by other electr ic utilities, while it is guaranteed that the NRC will have jur isdiction over every nuclear plant sought to be licensed.

l l

l 82 l l

generation or impair the utility's ability to render adequate service to its customers. 16 U.S.C. 824a(b); Gainesville Utilities i Department v. Florida Power Corp., 402 U.S. 515 (1971); Otter Tail Power Co. v. Federal Power Commission, 473 F.2d 1253 (8th Cir.1973) . ,

j Thus, those elements of coordination necessary for pooling and coor-dinated development (Dempler DJ 570, pp. 148-49; Schaffer Tr. 8537; see pp. 18-1s, supra) cannot be ordered by the FPC. 13/ The lack of access to the elements of coordination was found by the Licensing Board to be.a significant part of the situation inconsistent with the antitrust laws and the license conditions ordered were intended to insure that those elements of coordination would be available (ID at 251-64). 74/

73/ Cases relied on by Applicants ( App. Brief at 78-79) do not support the contention that the FPC has broader powers than stated above. Those cases concern the authority of the FPC to order an emergency interconnec-tion or to require the sale of wholesale firm power under an arrangement slightly dif ferent from the arrangement under which the power was already being provided.

74/ The fact that the FPC may have the authority to investigate certain matters (App. Brief at 81-82) is meaningless if the FPC does not have the author ity to order appropr iate relief. As the D.C. Circuit noted, "we question the wisdom of requiring the Commission to investigate that which it has no authority to remedy." Northern California Power Agency v. FPC, 514 F.2d 184, 189 (D.C. Cir. 1975), cert. cen. 423 U.S. 1037. In addition, the FPC investigations cited by Applicants all involved disputes between parties to agreements which were already on file with the FPC ( App. Br ief at 81) . In the present case, however, many of Applicants anticompetitive activities concerned refusals to enter into any agreements with non-Applicant entities or the enter ing into secret agreements among themselves.

Applicants 'themselves acknowledge that the FPC has limited juris-diction over them (C 55, p. 3; DJ 2 4 4, p . 2; App. Brief at 97, n. 115 (if utilities agree to participate in coordination . . . FPC approval '

of the terms and cond it ions is necessary)) .

83 O

4 As to the SEC, although Municipal Electric Association, supra, did hold that the acquisition in' question could be approved with conditions which eliminated its exclusionary effect, the conditions in question were 4

' limited to access to the plants ' involved. There is no authority which in any way indicates that approval of an acquisition by the SEC could be conditioned so as to eliminata all of the activities which caused, or the lasting ef fects of, a situation inconsistent with the antitrust laws.

D. State Regulation Of Electric Utilitie's -- The State Action Doctrine ,

The theory that state action may serve as a defense in antitrust actions had its genesis in Parker v. Brown, 317 U.S. 341 (1943). Since that time, the doctrine has been explained and limited, most recently by Goldfarb v. Virginia State Bar, 421 U.S. 733 (1975), and Cantor v.

- Detroit Edison Co., 428 U.S. 579 (1976).

In Parker, the Supreme Court held that an anticompetitive California raisin marketing program which " derived its authority and its efficacy from the legislative command of the state" was not

~

a violation of the Sherman Act because it was ordered and enforced by a state commission operating under the mandate of an anticompetitive state statute:

Here the state command to the Commission and to the program committee of the California Prorate Act is not rendered unlawful by the Sherman Act since in view of the latter's words and history, it must be ,

taken to be a prohibition of individual and not state action [317 U.S. at 352].

Thus, the Court found that the Sherman Act was designed to redress anticompetitive behavior of private parties and was not intended

- by . Congress to apply to the sovereign legislative acts of a state, regardless of. whether those acts might be anticompetitive.

84

The Court emphasized in Parker , however , that anticompetitive conduct will be considered state action only if such conduct is com-pelled and mandated by the state through legislative direction:

It is the . state which has created the ' machinery for establishing the prorate program . . . . [I]t is the state, acting through the Commission, which adopts the program and which enforces it with penal sanctions, in the execution of its governmental policy . . . . The state itself exercises its leg- -

islative author ity in making the regulation and in prescribing the conditions of its application . . . .

The state in adopting and enforcing the pro-

• rate program made no contract or agreement and entered into no conspiracy in restraint of trade or to establish monopoly, but, as sovereign, imposed the restraint as an act of government which the Sherman Act did not undertake to prohibit . . .

[317 U . S . at 352] [ citations omitted).

A state's mere approval of private restraints of trade, however ,

cannot qualify as " state action" under Parker:

[A] state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declar ing that their action is lawful, Northern Securities Co. v. United States, 193 U.S.

197, 332, 344-47 . . . [317 U.S. at 351].

In Goldfarb *.. Virginia State Bar, 421 U.S. 773 (1975), the Supreme Court furtner explained the extremely narrow range of the Parker exemption.

The Court struck down a minimum fee schedule for lawyers published by a county bar association and enforced by the Virginia State Bar. In claiming a Parker exemption, the State Bar argued that its role of issuing fee schedule reports and ethical opinions on fee schedules simply implemented the ethical codes of the State Supreme Court relating to fees. The Count'y Bar asserted that its role ,in developing the minimum fee schedule was " prompted" t

85

1 by the actions of the State Supreme Court and State Bar on the question of fee betting. Neither stratagem worked.

In beginning its analysis of the Parker claim, the Court said: -

The threshold inquiry in determining if an anti-competitive activity is state action of the type the Sherman Act was not meant to proscribe is whether the activity is required by the State acting as sovereign

[421 U.S. at 790] [ citations omitted] .

Since neither the laws of Virginia nor the Rules of the State Supreme Court commanded the anticompetitive activities of .the defendants, the -

Court ~ saw no need to pursue its f actual inquiry further:

Respondents have pointed to no Virginia statute requir-ing their activities; state law simply does not refer to fees . . .; although the Supreme Court's ethical codes mention advisory fee schedules they do not direct either respondent to supply them, or reguire the type of price floor which arose from respondents- activ it ies

, [421 U.S. at 7901 [ emphasis added].

At most, according to the Supreme Court, the only legitimate conten-tion available to the defendants was that "their activities comple-mented the objective of the [ State Supreme Court's] ethical codes." .

But:

[i]n our view that is not state action for Sherman Act purposes. It is not enough that, as the County Bar puts it, anticompetitive conduct is " prompted" by state action; rather, anticompetitive activities must be com-pelled by direc : ion of the State acting as sovere.ign (421 U.S. at 791.

The most recent Supreme Court decision in the area'of state action is Cantor v. Detroit Edison, 428 U.S. 579 (1976). Cantor underscored the significance of Goldf arb's holding that state authorization and approval of pr ivate anticompetitive activity does not confer a " state i action" exemption for the private actors. In Cantor, the Supreme Court 86 f .

considered whether the Michigan Public Service Commission's approval of an electr ic utility's tarif f, which contained a provision tying the sale of light bulbs to electric power service, immunized the utility from Sherman Act liability for that tying arrangement. The Supreme Court recognized that public utilities in Michigan were pervasively regulated by the Michigan Public Service Commission and that by state law the light bulb tie-in embodied in the tariff must remain in ef fect until the state commission authorized a change in the tar if f. In effect, the Court recognized that Commission approval of Detroit -

Edison's tariff included implicit approval of the tie-in program.

428 U.S. at 585.

Cantor , a retail druggist, cued on the theory that Detroit Edison was using its monopoly status to eliminate competition in the unregu-lated light bulb market. Despite state approval and enforcement of the tariff, the Supreme Court held that this was not the kind of state action which entitled Detroit Edison to an exemption from Sherman Act liability. 75/

In Cantor, a majority of the Supreme Court joined Justice Stevens in recognizing two possible circumstances under which the " state action" exemption might attach to private conduct. First, "if a private citizen has done nothing more than obey the command of his state sovereign, it would be unjust to conclude that he had thereby of fended federal law" (428 U.S. at 592). Second , "if a sta te is already regulating an area of the economy, it is arguable that Congress l

75/ A plurality of four members of the Court found that Parker was not  ;

controlling since Parker stood solely for the proposition tnat state i officials were exempt from Sherman Act prosecusion. 428 U.S. at 591-92. l 1

l 87 1

did not intend to superimpose the antitrust laws as an additional, and perhaps, conflicting regula' tory mechanism * (428 U.S. at 592).

As to the first circumstance, Justice Stevens opined:

Such an assumption would not decide this case, if,'in-deed, it would decide any actual case. For typically cases of this kind involve a blend of private and public decision making. The Court has' already decided that the state authorization, approval, encouragement, or partic-ipation in restrictive private conduct confers no anti- ,

trust immunity . . . . In each of these cases the initi-ation and enforcement of the program under attack involved a mixture of private and public decision making. In each case, notwithstanding the state participation in the deci- ,

sion, the private party exercised sufficient 'f reedom of choice to enable the Court to conclude that he should be held responsible for the consequences of his decision. . . .

There is nothing unjust in a conclusion that respondent's participation in the decision is suf ficiently significant to require that its conduct implementing the decision, like comparable conduct by unregulated businesses, conform to applicable federal law [428 U.S. at 592-94] [ footnotes omitted].

On this basis, the Court rejected Detroit Edison's contention that imposition of antitrust liability would be unfair , for the inclusion of the light bulb program in Detroit Edison's tariff was at the insistence of the utility: "[t]here can be no doubt that the option to have, or not to have such a program is pr imar ily respondent's, not the Commis-sion's." 428 U.S. at 594.

Af ter disposing of this unfairness defense, the Court emphatically rejected the argument that Congress could not have intended to super-impose antitrust standards on conduct already being pervasively regu-lated under a different state "public interest" standard, giving three reasons: (a) merely because certain conduct is subject both to state and federal regulation does not mean there is an inherent conflict between the state and federal requirements; (b) even assuming a con- i flict, the federal interest need not inevitably yield to that of the 88 1

)

]

state; (c) assuming arguendo that Congress did not intend to extend the Sherman Act to economic areas primar ily regulated by the state, "that assumption would not foreclose the enforciment of the antitrust laws in an essentially unregulated area such as the market for electr ical ,

light bulbs." 428 U.S. at 595, E. Collateral Estoppel The doctrine of collateral estoppel prevents the relitigation of a particular issue, even though that issue may have been or iginally liti-gated as part of a cause of action different from that of the subsequenc

~

proceeding while the related doctrine of res judicata prevents the relitigation of an entire claim or cause of ' action. Cromwell v.

County of Sac, 94 U.S. 351, 352-353 (1876). While it is clear that the doctrines of res judicata and collateral estoppel may be applied in admin'istrative hear ings, the courts have held that their applice-tion should be less strict than w6uld be the case in the federal dis-trict courts. United States v. Smith, 482 F.2d 1120, 1123 (8th Cir.

1973), 2 Davis, Administrative Law, S18.03 (1958). See also: Title ,

v. Immigration and Naturalization Service, 322 P.2d 21 (9th Cir. 1963);

Grose v. Cohen, 406 F.2d 823 (4th Cir. 1969); Tipler v. E. I. du Pont de Nemours and Co., 443 F.2d 125 (6th Cir. 1971); Gordon Co. Broadcasting Co . v . FCC , 446 F.2d 1335 (D.C.'Cir. 1971); Retail Clerks Union, Local 1401 v. NLRB, 463 F.2d 316 (D.C. C ir . 1972); United States v. Smith, 428 F.2d 1120 (8th Cir. 1973); and United States v. Caoparet, 508 F.2d 313 (9 th Cir . 1974 ) . Naturally, the party plead ing collateral estoppel has the burden of proving that all the requirements of that doctrine are l present. 1B Moore, Federal Practice and Procedure 14.08[1] at 954 (2d Ed. 1974).

89 L 1

The four essential elements necessary'to invoke the doctr ine of collateral estoppel are: (1) the existence of an identity of iss'ues between the prior and subsequent proceedings, Neaderland v. Commissioner, 424 F.2d 639, 642 (2d Cir . ), cert. denied, 400 U.S. 827 (1970); 76/

(2) the existence of a final decision, Fiberboard Paper Prod. Corp. v.

East Bay Union of Machinists, Local 1304, 344 F.2d 300, 306 ( 9 th C ir . ) ,

cert, den. 382 U.S. 826 (1965); (3) on an issue which was essential to the judgment rendered, and (4) an identity. of par ties, Cromwell v. County of Sac, 94 U.S. 351, 352-53 (1876).

VII. APPLICANTS' MONOPOLY POWER The existence of monopoly power can be established either by demon-strating strategic control over a " bottleneck" facility, or by inference from a large share of the sales of 'the relevant product in the relevant geographic market. Otter Tail, supra; Grinnell, supra. The Supreme Court has inferred monopoly power from a market share as low as 68 per cent. 77/ Otter Tail Power Company v. United States, 410 U.S. 366, 76/

The Court stated that collateral estoppel is confined, however, to " situations where the matter raised in the second proceeding is identical in all respects with that decided in the first proceeding and where the controlling f acts and applicable legal rules remain unchanged." Commissioner of Internal Revenue v. Sunnen, 33 U.S. 591, 599-600, 68 S. Ct. 715, 720, 92 L. Ed. 896 (1948).

Even if the issue is identical and the facts remain constant, the adjudication in the first case does not estop the parties in the second, unless the matter raised in the second case involves substantially "the same bundle of legal pr inciples that co7tr ibuted to the render ing of the first judgment" Id. at 602, 68 S. Ct. at 721.

77/ Appl ican ts ' assertion that monopoly power in a regulated ind us t r y should not be inferred f rom market shares conveniently overlooks the fact that in Otter Tail the Supreme Court accepted the analysis of the Distr ict Court which inter red possession of monopoly power solely from a 91 per cent market share. Applicants cite no cases in the electr ic power ind us-try, and indeed there are none, which regard large market shares as an (Footnote continued on next page.)

90 -

1 l

. 1 781, 370,.377 (1973)

[91%]; American Tobacco v. United States, 328 U.S.

Supp.

United Shoe Machinerv, 110 F.

795 (1946) [68-80%); United States v.

$21 (1954) [75-85%).

Mass. 1953), aff'd oer curiam, 347 U.S. -

295 (D. f relevant In an antitrust proceeding, there may be a large number o In order for a violation to be estab-Carkets,(Pace App. 190, p. 27). in a lished, the requisite market power need only be demonstrated it is not necessary eingle relevant product and geographic market --

in every market in which the defendant participates.

to show such power 78 U.S. 245, 253 e.g._,

Van Camo & Sons Co._ v. Amer ican Can Co. ,' 2 586, See , 353 U.S.

Co._,

E. I duPont de Nemours &

(1929); United States v.

168 F.

594-95, n.13 (1957); -United' States v. Bethlehem Steel Corp. , is 1958). If the requisite market power Supp. 576, 595, n. 38 (S.D.N.Y.

the existence of less comprehensive demonstrated in a relevant market, See United States v. Phillipsburg or narrower submarkets is immaterial.

350, 360 (1970).

National Bank, 399 U.S.

i In the retail markets, each of the Applicants has overwhelm ng for 95 per cent in 1973, collectively they account .

monopoly power and, Applicants have in the CCCT (ID at 33). 78/

of the retail sales made in the sale of firm power at even greater individual monopoly power 77/ '(Footnote continued from previous page.)Further, as in otter Tail, Insuf f icient indication of monopoly power.

f the strate-Applicants possess an extraordinar ily pp.

large supra,

' share, and p. 92, 99.3%, o transmission network (see 61-62, ~

gically dominant infra). i ercent-CEI, 78/

In 1973, each of the Applicants in itsaccounted respectivefor the follow service area:ng p age of retail99.93%;

sales of OE, firm power 94.17%; PPC, 96,95%; TE, 94.55% k (ID at 33)

Power, 96.41%; DL, in Retail Inc. and and wholesale sales,

~

n. ***);

and generating capacity o 587, pp.

which OE and TE serve (ID at 33, includes

• r the 75-76).

market shares or dominance of those companies

) Buckeye sales and generating capacity.

2 l

91

wholesale 79/ where their combined wholesale sales in 1973 constituted 97.06 per cent of such sales in the CCCT (ID at 33-34). 80/

The record demonstrates that Applicants, individually and collec-tively, possess complete dominance over generation. Their admission '

that "each of the Applicants dominat6 the generation of bulk power in their service areas" (Tr. 440-41) is reinforced by the evidence. 81/

In 1973, they collectively accounted for 95 per cont'of all generation (ID at 32-33). Applicants' individual and collective dominance over e transmission facilities is demonstrated by the fact that they control virtually all -- 99.3 per cent -- of the transmission f acilities of 66 kv and above within the CCCT (ID at 33; Guy NRC 133, p. 28). 82/

79/ In 1973, each of the Applicants accounted for the following per-contage of wholesale firm power sales in its respective service area:

CEI, 96.41%; DL, 100%; OE, 98.86%; PPC, 100%, TE, 98.60% (ID at 33-34).

80/ Applicants' assertion that the Licensing Board erroneously in-cIuded captive wholesale sales in their market shares for wholesale sales have been previously answered (pp. 35, 72, suora).

Applicants fur ther asser t that the Licensing Board erred in exclud- ~

ing the noncaptive Buckeye wholesale sales f rom the corresponding wholesale sales figures of OE and TE ( App. Br ief at 96 ) . Since it was proper to include captive sales in the wholesale sales market shares, the inclusion of Buckeye sales would only change the total figures in a meaningless manner (See DJ 587, pp. 75-76). However, even if we assume arguendo that noncaptive sales should be separated from captive sales, it would still be improper to include the Buckeye noncaptive sales because provisions in the Buckeye agreement raise barriers to such sales which make it extremely dif ficult, if not impossible, for municipal systems to obta in that power (See ID at 177; pp. 144-48, infra). Because of_these restrictions, the Buckeye power should be excluoed f rom this market as power from cooperatives was excluded from the market share calculations in Otter Tail, 331 F. Supp. 54, 59 (1971).

81/ In 1973, CEI controlled 94.11% of the generating capacity in Its service area; DL 99.90%; OE, 96.61%; PPL, 100% (OE-PPC combined 97.08%) and Mrs, 95.68% (ID at 32-33).

82/ CEI controls 96.8% of such f acilities located within its service area; DL, 100%; OE, 99.8%; PPC, 100.0%; OE and PPC, 99.8%; and TE 99.2% (Hughes NRC 207, table between pp. 26 and 27; Guy NRC 133, p. 28).

92

Thus, Applicants' monopoly power is demonstrated by their over-whelmingly large shares of the sales in the wholesale and retail pouer markets. Their dominance in large-scale generation, the ir control

.over. strategically dominant transmission networks, and. their control of the only vehicle for coordination .in the CCCT -- the CAPCO Pool --

constitute domination over every f actor of production necessary to coordinated operation and development in the CCCT. These factors, taken together, give Applicants absolute control over access to the O

" Reg ional Power Exchange" and " Bulk Power Services" within the CCCT.

(Wein DJ 587, pp. 143-44; Hughes NRC 207, pp. 27-29.) Further evidence of Applicants' monopoly power is demonstrated by the fact that Appli-cants have very effectively utilized their dominance in all the above f actors to exclude competition and to deny the benefits of coordinated operation and development to their competitors or potential competitors.

VIII. APPLICANTS' ACTIVITIES The Licensing Board's findings with respect to the individual and joint activities of the Applicants are correct and should be af firmed. -

A. The Cleveland Electric Illuminating Company

1. Competition For Retail Customers -- MELP CEI and the Municipal Electr ic Light Plant ("MELP") of the City of Cleveland historically have competed on a " customer-to-customer and street-to-str eet basis in a sizeable portion of the City" (NRC 70) for all classes of retail custcmers (See, e.g. , DJ 340-41, DJ 346; Rudolph DJ 558, pp. 58-59, 120-22; Loshing DJ c60, p. 14; Farling DJ 563, pp.

l 36-37; DJ 604-05; C 11-14, 19, 90, 160). Rates and quality of service were and are the principal elements of competition between these utilities. CEI has been aware of MELP's ability to attract customers 93 t

i through lower rates (Rudolph DJ 558, pp. 120-21; Besse DJ 559, p. 57; Loshing DJ 560, pp. 17-18, 128; Maugans DJ 565, pp. 21-23; Wyman DJ 566, p. 67; Gould DJ 569, pp. 22-23; DJ 340, 344, 347), and has ,

engaged in cutthroat competition (Wein Tr. 6622-23) to counter this rate advantage by giving free promotional allowances in areas where it is in competit;on with municipal systems while not giving such allowances in no.ncompetitive areas (Rudolph DJ 558, pp. 16-17 and chart following p. 245; Wyman DJ 566, pp. 60-61; B ingham Tr. 10,323-25). ,

CEI believes it can offer customers more reliable power than the isolated MELP system, because of the benefits of coordinated operation and development available to CEI through its interconnections (DJ 329, DJ 352; Rudolph DJ 558, pp. 124-27, 150-51; C 11, 13-14, 154-56; Williams Tr. 10351). CEI recognized tha t its relatively greater reliability would convert MELP customers to CEI service (DJ 344-45, 348-50; 352, 378-79; Rudolph DJ 558, pp. 122-24; Besse DJ 559, pp. l 60-61; Losi.;ng DJ 560, pp. 21-22, 132; Farling DJ 563, pp. 36-37; Maugans DJ 565, p. 23; Wyman DJ 566, pp. 62, 110-11; Lindseth DJ 568, '

pp. 60-61; Gould DJ 569, pp. 22-24, 94-96; C 11, 13-14, 19, 157-60).

2 Acauisition CEI has a history of expansion through acquiring competing uti]ity systems (Rudolph DJ 558, p. 31; Besse DJ 559, p. 64).

The acquisition of MELP is a CEI company goal (DJ 509, pp. 4044, 4049-50; DJ 510, pp. 4055A, 4064A; Rudolph DJ 558, p. 31; Besse DJ 559,

p. 55; Loshing DJ 560, p. 11; DJ 329, 331; C 71). CEI has made a

" continuing study" over the years concerning the acquisition of MELP (Loshing DJ 560, p. 10), and has examined every aspect from the engi-neering ramifications (C 134-35; DJ 354 ) to legal and tax considera?_ v.is 94

_ _1 _ _- a

e j

-(DJ 355; C 74, p. 25; Tr. 7430). 83/ CEI has offered to discuss the purchase of the MELP plant with Cleveland's Mayors ( DJ 296-98; 328; C 71). CEI deliberately implemented its attempts to deny MELP the benefits of coordinated operation and development in order to exacer-bate MELP's financial and reliability difficulties and to force the sale of MELP to CEI ( DJ 331) .

3. Denial of Coordinated Operation and Development

a. MELP , ,

Because CEI believed that interconnection would make MELP more com- c

. petitive, the company opposed any interconnection with MELP except upon terms which would eliminate competition, 84/ MELP's service area is 83/ See, generally, Rudolph DJ 558, pp. 65-66; DJ 207; Loshing DJ 530, pp. 10-11, 15, 82; DJ 328-29, 331, 346, 349, 353-55, 366, 599, 601-02; C 72, 75, 92-93, 104, 113-20, 124, 128-30, 134-35; NRC 143).

84/ CEI asserts that the Department is collaterally estchped from con-testing .certain facts relating to the MELP-CEI interconnection because these facts were allegedly litigated before the FPC in a proceeding involving Section 202(b) of the Federal Power Act (App. Br ief at 154-57).

The Licensing Board correctly rejected this contention (Tr. 11,751-52) since CEI had not met its burden of establishing the applicability of the collateral estoppel doctrine (See pp. 89-90, supra). _

CEI has not shown that ther e is an identity of issues. It is well established that:

Absent a special consideration, a determination arising solely under one statute should not automatically be bind-ing when a similar question arises under another statute

[ citations omitted) . Th is is because the purposes, r equ ir e-

'me n t s , perspective .and configuration of dif ferent statutes ordinar ily vary. Tepler v. E. I. du Pont deNemours and Co.,

443 F.2d 125, 128-29 (6th Cir. 1971).

See also United Shoe Machinery Corp. v. United States, 258 U.S. 451 (1922); Title v. Immigration ana Naturalization Service, 322 F.2d 21 (9th Cir. 1963); Pacif ic Seaf arers, Inc. v. Pac iT IC Par East Line, Inc., 404 F.2d 804 (D.C. Cir 1966), cert. den. 393 U.S. 1093 (1969).

" Although antitrust considerat ions may be relevant" in FPC proceedings under Section 202(b) "they are not determinative", Otter Tail , Power Co. v. United States, 410 U.S. 366, 373 (1973), as they arc in the (Footnote continued on next page)

, 95

completely surrounded by the CEI service area, and thus is electrically isolated from utilities other than CEI (Hinchee Tr. 2726-27). CEI recognized that MELP could not feasibly interconnect with any other utility (DJ 295, 568), and it was CEI's of ficial policy through at

'least 1968 to precond'ition its interconnection with MELP upon a pr ice-

~

fixing agreement ( DJ 330 ) . CEI offered MELP an interconnection con-tingent upon " rate equalization" upon numerous occasions, beginning in 1962,(DJ 293-99, 341; DJ 56 0, pp. 24, 233-34; Lindseth DJ 568, pp. 13-15; DJ 621; C 6, 71, 96,99-100, 111). 85/ ,

84/ (Footnote continued from previous page) present proceeding. In fact, antitrust considerations played a very minor role in the FPC proceedings (App. 18-24) with one of the key issues in 'the present proceeding, wheeling, being held to be "outside the scope" of the FPC proceeding (App. 20, p. 15).

Furthermore, CEI has not demonstrated that the facts which the Department is allegedly estopped from contesting were necessary to the pr ior decision. Indeed, despite the fect that the FPC found for CEI on the antitrust issues, MELP was given all of the relief it requested (App. 20, pp. 16-17).

CEI's citation to certain of legislative history of Section 105c

( App. Br ief at 156) in support of its collateral estoppel argument conveniently ignores comments on the very same page of that legisla- .

tive history. These comments demonstrate that the NRC, not the FPC or SEC, was to be the primary forum for the airing of antitrust issues and that the NRC was not to be bound by "past FPC . . . decisions."

Prelicensing Antitrust review of Nuclear Powerplants. Hearings Before Joint Committee on Atomic Energy, 91st Congress, 1st Sess., at 135 (1969) (testimony of Walter B. Comegys).

85/ " Price fixing" encompasses any arrangement, tacit understand ing or concer t of action, designed to raise, depress, fix, peg or stabilize rates or pr ices. United States v. Sacony Vacuum Oil Co. , 310 U.S. 150, 221 (1940). Such an agreement or conspiracy has long been held to be a per se violation of the Sherman Act, United States v. Topco Associates, 405 UTS. 596, 611 (1972); Citizens Publishing Co. v. United States, 394 U.S. 131, 136 (1969); Northern Pacific Ry. v. United States, 356 U.S. 1 (1958); United States v. Socony-vacuum oil Co. , suora; United States v.

Trenton Potteries Co., 273 U.S. 392, 237-98 (1927), even where the particular rates involved have been held to be reasonable by the regu-latory agency 'having jur isd iction, Georgia v. Pennsylvania Railroad Co.,

324 U.S. 439 (1944). Pr ice fixing has also been held to be a per se (Footnote continued on next page) l 96 I

1

. \

l Another CEI motivation for its early offers to interconnect with MELP was the company's desire to forestall MELP's expanding its generating plant through the addition of a 75 MW unit (DJ 293, 295, 297), since this unit would, generate less costly power and make MEIP more competi-tive (DJ 312-13); CEI suggested to MELP that interconnection would make the proposed plant expansion unnecessary (DJ 293, 295, 297). 86/

Contrary to CEI's assertions (App. Brief at 156), MELP expressed an interest in interconnection with CEI as early as 1965 (DJ 297). 87/

m Notwithstanding this " expressed keen interest" in interconnection (DJ 299), MELP rejected CEI's pr ice-fixing proposals in 1965 and 1966 (DJ 85/ (Footnote continued from previous page) violation in the electr ic utility industry, Pennsylvania Water & Power Co. v. Consolidated Gas, Electric Light & Power Co., 184 F.2d 552, 558-59 (4th Cir. 1950).

Even if this attempt to fix prices is not a per se violation of the Sherman Act, it cer tainly meets the Atomic . Energy Act Section 105(c) standard of " inconsistency" with the antitrust laws (See pp.

43-45, infra). In addition, such an of fer of rate equalization, coupled with the abuse of monopoly power and manifest anticompetitive intent of CEI, constitutes an attempt to monopolize prohibited by Section 2 of the Sherman Act, as well as an unfair trade practice .

under Section 5 of the FTC Act (See p. 76, supra).

Dur ing this period, CEI also sought to achieve rate equaliza-tion with MELP by promoting free street lighting for Cleveland which would, in effect, force MELP to raise its rates (Loshing DJ 560, pp.99-104, 168, 233-35; C 68, 95, 112).

86/ CEI contends that the Department's expert, Dr . We in , niade the

' selling of inputs to a competitor at a pr ice which is so low as to be unprofitable to the seller, or which yields (below average) profit

. . .", a necessary element of this "foresta11ing" behavior (App. Br ief at 158-59). The most cursory glance at this testimony (Wein, DJ 587, pp. 32-34) reveals that Dr. Wein considered the unprofitable pr icing of inputs by a firm with monopoly power to be only one form of prevent-ing or foresta11ing the " opportunities for its competitors to increase their productive capacity to supply final markets." Id. p. 32.

i 82/ "The City has long desired an interconnection between MELP and l

CEI . . ." Mayor Locher to Ralph Besse, president of CEI, February 17, l 1965 ( DJ 297 ) .

97

297, 621; Besse Tr. 12,277)'. CEI remained aware of MELP's continued desire for an interconnection (C 49, p. 7.; C 50, p. 5), but did not modify its policy of requiring rate-fixing as a precondition to in te r -

connection (DJ 330). 88/

In order to secure MELP's customers, CEI sought to weaken MELP's reliability through the denial of co*ordinated operation and development.

CEI recognized the value of reliability in competing for customers (DJ 345; C 13-15, 19, 157), and knew that its denial of coordinated opera-tion and development would impair MELP's reliability (DJ 331, 350, 352, ,

356, 378; Rudolph DJ 558, p. 150-51; Besse DJ 559, p. 127). "A strong permanent interconnection would give MELP the system reliability it so sorely needs" ( DJ 331) . 89/ CEI b'elieved that MELP's loss of customers due to blackouts would erode MELP's revenue base. (Loshing DJ 560, p.15; Gould DJ 569, pp. 110-12; C 72, 85) and force it to raise its rates, thereby eliminating any rate competition with CEI. (DJ 331; Hinchee Tr.

2804).

In 1969, MELP requested an interconnection for standby power for the purpose of shutting down one of its generators to install pollution control equipment (DJ 331-33). Contrary to Applicants' assertion (App.

Brief at 100), at that time, MELP wanted a permanent, synchronous intar-connection in order to achieve the full benefits of coordinated opera-tion and development (DJ 331, 333, 337; C 127; Titus Tr. 7505). CEI assumed that the FPC would eventually order it to interconnect with 88/ In August of 1967, CEI's chief executive informed the other Applicants that CEI was "on notice to interconnect" with MELP (C 50,

p. 5). '

89/ Clement T. Loshing, CEI treasurer, to Lee Howley, June 17, 1969, with copies to all CEI officers.

l

. 98 l

+ 1

MELP (DJ 331, 334; DJ 509, p. 4043-47; Rudolph DJ 558, pp. 65, 70-71; Besse DJ 559, pp. 126-27; Loshing DJ 560, p. 136-37; C 84, p. 10; C 90, pp. 9-10; C 91, p. 12; C 108-09, 128), and offered MELP an 11 kv load transfer arrangement which would provide " limited, temporary help with-out parallel operation" (DJ 331, May 29, 1969 memo, p. 2). The load transfer arrangement 90/ was designed to avoid the favorable " impact that a strong interconnection would have on financial and reliability factors" of MELP's system ( DJ 331, p. 1). 91/ CEI .was aware of MELP's dissatisfaction with a mere load transfer (DJ 331, May 29, 1969 memo),

and fearing that the outstanding request would " tr igger the permanent interconnection question" before the FPC, developed policy alternatives consistent with its goal of eliminating MELP as a competitor ( DJ 331). 92/

MELP was forced to accept the load transfer arrangement due to a generating outage during December of 1969 (Hauser Tr. 10,539). In January of 1970, CEI and MELP agreed to a three-phase plan: phases one and two dealt with the implementation of load transfer, and phase three consisted of an agreement to conduct joint studies which would 90/ "A kind of Rube Goldberg way of feeding them [MELP]" (Lester DJ 561, p. 26).

91/- CEI believed that it could benefit from parallel interconnection with MELP (Lester DJ 336; DJ 561, pp. 27-28). Also, CEI had the capacity at that time to provide full backup for the 75 MW MELP unit

( DJ 331; C 119, 125-26, 132-33, 138, 140).

92/ ". . . there are three courses of action open to us: ,

(1) Avo id an interconnection and run the risk of an FPC dictated in ter connec t ion , hoping that the financial and service problems will eliminate MELP as a competitive threat. (2) Take the tnitiative in establishing an interconnection with proper standby charges, to gi"e them reliability but increase the financial pressure on them. (3) Make an al) -out effort to purchase MELP now while the reliabilir / and financial pressures are still present." ( DJ 33., p. 4.)

99 c

lead to a permanent interconnection (NRC 195; App. 198). 93/ CEI deliberately delayed the establishment of such a tie by insisting that the " permanent" connection be "nonsynchronous" (App. 200). 94/ In Spring of 1971, CEI's engineers admitted to Commissioner Hinchee -

that there had been no "real engineer ing invest ig ation" since the January 1970 agreement (Hinchee Tr. 2667-68, 2778-80). This forced MELP to file a complaint with the FPC in May 1971, requesting an interconnection order (App. 18; Hinchee Tr. 2668-69).

CEI devised a plan for a 69 kv nonsynchronous. tie at 40 mva chich -

would provide MELP with relief that could not "be proven inadequata with relative case", but which would enable CEI to continue to avoid permanent parallel operation "like the plague" ( DJ 334, 338) and

" maximize the burden" on MELP (Rudolph DJ 558, pp. 92-93). CEI sub-mitted this plan to the FPC (Hauser Tr. 10,566), which approved it as a temporary connection on March 8, 1972. (App. 19). 95/

CEI delayed completion of the 69 kv in ter t ie , thereby perpetuating the inequities of the 11 kv load transfer arrangement and further delay-ing a permanent interconnection (C 141). CEI delayed construction for 16 months (App. 100-01; Hart Tr. 4722) arguing that MELP had not 93/ Appl ican ts ' contention that MELP proposed the three phase inter-connection plan is true only insofar as MELP desired the third phase, a permanent parallel interconnection. App. 198 indicates that MELP merely acquiesced to CEI's reoffer of the p eviously unacceptable load transfer plan which had been " dusted off" in the face of the MELP's emergency (Hauser Tr. 10,539) and potential FPC intervention ( DJ 334).

94/ CEI was aware that " Phase III" contemplated a permanent parallel Interconnection (aJ 336, 338; Lester DJ 561, pp. 27-28; App. 199; Hinchee Tr. 2768). Nonparallel ties are not considered to be true interconnec-tions (Hinchee Tr. 2770). Mr. Hauser characterized the 69 kV nonsyn-chronous tie as " temporary" (Tr. 10,564).

95/ MELP sought a synchronous, permanent interconnection before the FPC (App. 18).

l .

100 L

~

this per iod, CEI held MELP's paid for the construction; throughout in question without making any purchase order for the entire amount 179, 180, App. 99; Hart attempt to negotiate it. 96/ (DJ 7, Tr. 4722). Completion of the 69 kv construction was additionally delayed by CEI's refusal to furnish MELP necessary engineering data (Hinchee Tr. 2772-73).

in such a way as to maximize CEI operated the 11 kV load transfer the financial burden on MELP and to minimize service reliability for When MELP needed power from CEI, the load transfer ,

MELP's customers. 564,

- was operated so as to cause an outage on MELP's system (Titas DJ pp. 90-93; Mayben C 161, p. 10; C 82; App. 134, 159; Hauser Tr.

10,649-51; Hinchee Tr. 2626, 2665, 2761-63), although no outage need CEI imposed administrative have occurred ( Firestone DJ 575, p. 54 ) .

increased the length delays on the implementation of load transfor that of time MELP customers were without power. 97/ CEI was aware that MELP's (DJ outages resulted in the conversion of customers f rom MELP to CEI funds at 96/ The City is required to and does set aside sufficient -

the time a purchase order is issued to cover the order; these is outstanding (DJ 7;funds DJ 180; remain set aside while the purchase order Hart Tr. 4722).

the 97/ Even under CEI's operating procedure which required an outage, load transfers could have been ef fectuated with only a threeCEI, to five howeverg seccnd service interruption (Hinchee Tr. 2665-66, 2761-62).

Hauser, corporate required the approval of each load transf er by Mr.than solic itor , rather by operating per i.e., whether CEI with all the information he used to.make theits decision, capacity (Titas DJ 564, had capacity and whether MELP was utilizingThis procedure necessitat pp. 52-62).

phone (Hauser Tr. 10,541-43; Titas DJ 564, pp. 52-62) and resulted in in length up to two outages to MELF customers of per iods f rom minutesMr. Hauser on cross-examinatio hours (Titas DJ 564, pp. 91-93).

i unable to explain why his approval was necessary Furthermore, 10,684-89).

for what was essentially when MELP an engineer ing decision (Hauser Tr. CEI rejected this suggested that radio be used rather than telephone, 6

s a

time-saving proposal without explanation (Hinchee Tr . 2761-62),

l i

• 101

344-50; DJ 352; Besse DJ 559, p. 60; Loshing DJ 560, p.132-33; Farling DJ 563, pp. 36-37; Wyman DJ. 566, p. 62; Gould DJ 569, p. 24, 94-95; C 11-12, 14-15, 19; C 158, p. 59), and sent salesmen to solicit the af-fected MELP customers after these outages (DJ 352; Hinchee Tr. 2691-95).

CEI operated the 69 kv interconnection as a load ' transfer point, even though it could easily have been operated in parallel with MELP's system (Lester DJ 561, pp. 27-28; C 140; App. 45). 98/ In the summer of 1969, due to a strike, CEI could not continuously generate all of its own power needs and was in need of outside ass,istance (Hauser Tr. .

10,692). MELP offered emergency power to CEI and requested that the 69 kv switch be energized and lef t closed so this power would be avail-

able to CEI ( DJ 3; Hinchee Tr. 2692-95, 2727-26). Parallel operaticn of the 69 kv service would have been beneficial to CEI (DJ 336; Lester DJ 561, pp. 27-28), 99/ but CEI ref used the offer ( DJ 4 ) which deprived MELP of true benefits of this potential coordinated operation. In add i t ion , administrative delays, s imilar to those attending operation of the 11 kv load transfers, of as long. as 12 hours1.388889e-4 days <br />0.00333 hours <br />1.984127e-5 weeks <br />4.566e-6 months <br /> were involved in implementing the 69 kv service (Hinchee Tr. 2670-71). In December 1972, CEI withheld 69 kV service from MELP during a blackout in-order to coerce MELP's execution of a street lighting contract with 98/ In fact, this 69 kv tie had been test operated in parallel (App.

15, p . 4 ) . The Applf. cants rely on the f act that the FPC ordered non-synchronous operation in order to excuse the anticompetitive injury to MELP resulting f rom this mode of operation. However, the FPC's order did not prevent synchronous operation ( App.19, 20).

99/ CEI contends that MELP's offer was worthless since MELP was purchasing power from CEI for the entire per iod (Hauser Tr. 10692-93).

However, for 75 days during the 122 day strike MELP took no power from CEI (Hauser Tr. 10,737-38; App. 134).

102 .

CEI (Kudukis Tr. 7496-98; Hauser Tr. 10,572-73). This tie-in sale is another example of CEI's abuse of monopoly power.

Contrary to Applicants' assertion (App. Br ief at 161-62 ) , MELP was forced to take power over the 11 kv and 69 kv load transfer points on conditions that prevented the municipal system from performing necessary maintenance on its generating units. MELP was unable to purchase main-tenance power from CEI over the 11 kv or 69 kv ties (Hinchee Tr. 2798, 2801). The 11 kv load transfer points were not energized until MELP e

was utilizing all of its capacity (Hinchee Tr . 267d; Hauser Tr. 10,688).

The 69 kv load transfer point was not energized until all 11 kv load transfer points had been energized (C 145; Hinchee Tr. 2670). MELP was thus prevented from taking units out of service for maintenance (Hinchee Tr. 2797-98) which caused deter ioration of its system and diminished the reliability of its service, thereby causing severe competitive injury (Mayben C 161, pp. 13-14; Hinchee Tr. 2666, 2692-93).

Although Mr. Hauser maintains that CEI sold maintenance power over

, the 69 kv tie, that testimony (Hauser Tr. 10,898) is contradicted by -

CEI's refusal to even activate the 69 kv line unless the City was uti-li. sing all of its generation (App. Br ief , p. 161, n. 190; C 145; Hinchee Tr. 2797), as well as the testircony of CEI's president that CEI did only what was raquired by the FPC (Rudolph DJ 558, p . 118 3 The FPC order provided only for the sale of emergency power (App'. 21, 22). CEI has never filed with 'he FPC a rate schedule for the sale of maintenance power. CEI refused load transfer service to MELP several times, pur-portedly due to a lack of CEI generation (Hauser Tr. 10,698-700; App.

103

134), 100/ but CEI-made no attempt to obtain power for MELP from other utilities with which it was. interconnected (Hauser Tr. 10,700-04).

CEI and MELP reached an agreement for a permanent in ter connect ion (NRC 204) only after over five years of negotiation under " Phase III".

~ '

This agreement requires MELP to carry a reserve margin of .70 per cent which places an " unusual and unjustiliable burden" on MELP (Mozer NRC 205, pp. 50-52). This agreement also makes it possible for CEI to supply emergency power to MELP without seeking lo,wer cost alternatives through the company's interconnections (Kampmeier DJ 450, pp. 45-46) . .

. The extremely limited coordination provided for in this agreement effectively denies MELP the full benefits of coordinated operation and

~

development (Kampmeier DJ 450, pp. 45-46; Mozer NRC 205, pp. 50-57).

Because MELP was isolated electrically from utilities other than CEI, (see p. 96, supra) and because it was able to obtain only emergency power from CEI (see p. 103, supra), it.was essential that MELP have power wheeled to it from sources other than CEI over CEI's transmission system (Hinchee Tr. 2621-22).

However , CEI has denied MELP the benefits of coordinated operation and development by refusing to wheel power. 101/ AMP-0 obtained 22.7 MW 102/ of cheap hydroelectric power from the Power Authority of the State of New York ("PASNY") Niagara project, which . had been allocated to the State of Ohio (DJ 8, 11, 393; Hart Tr. 4694-708, Hinchee Tr.

.100/ On at least one occasion, Mr. Hauser asked CEI personnel to find an excuse to disconnect a certain load transfer paint (C 79).

101/ CEI has the ability to wheel (DJ 358), and has wheeled in i the past ( DJ 3 80-8 2, Rudolph DJ 558, p. 213-14; Lindseth DJ 568, p. l 25). Wheeling is an industry practice that is becoming more common  !

today (Williams Tr. 10,495). j 102/ As much as 180 MW of PASNY power may ultimately be available for use in Ohio (Hinchee Tr. 2673; C 164, p. 34).

104 l l

l 2677). PASNY power could have been purchased and delivered to Cleveland for less than the cost of MELP's own generation ( DJ 8). This power was to be made available to the City of Cleveland by AMP-O (DJ 8, 11; C 167; Hinchee Tr. 2676-77). AMP-O secured agreements f rom other utilities to

- wheel this power from the project to a CEI interconnection point (DJ 395-97; Hart Tr. 4695-96; Hinchee Tr! 2697). From May 1973 to the present, CEI has repeatedly refused to wheel PASNY power to MELP (DJ 291; DJ 50 8, Exhibit P; Rudolph DJ 558, p. 215; App. 75-76, 78-81, 84, 86-94, 96-97) because "[e] conomic studies ' clearly indicate an arrange-ment to transmit the PASNY power would provide . . . [MELP] energy at a cost which would be injurious to (CEI's] competitive position" (NRC 70). 103/ CEI has also advised MELP that it would not consent to third-party wheeling on any terms (DJ 291). 104/

103/ CEI contends that MELP has not yet obtained PASNY power (App. Brief at 173-74). The record shows that, pursuant to an agreement between AMP-O and Allegheny Electr ic Cooper ative, the cooperative will ' receive l' AMP-O's PASNY allocation until transmission can be arranged to MELP (C 166). Allegheny has successfully defended this agreement in the FPC (C 167). Furthermore, CEI has never contended that its refusal to wheel PASNY power was based on the fact that such power was not available (NRC 70). e 104/ CEI contends that it is not aware of a requirement that it make its transmission lines available to MELP to provide MELP access to an asset which CEI itself cannot obtain (App. Brief at 175-76). However, it is well established that restraints of trade are to be judged on the merits of the transactions themselves and not on the particular status of the entities involved. The fact that a municipality may have some tax advan-tage or otherwise have access to a resource which a competitor does not have does not justify a restraint of trdde. As the Court sa id in Amer ican -

Federation of Tobacco Growers v. Neal, 183 F.2d 869, 872 (4th Cir. 1950):

A restraint of trade involving- the elimination of a competitor is to be deemed reasonable or unreasonable on the basis of matters affecting the trade itself, not on the relative cost of doing business of the persons engaged in competition. One of the great values of competition is that it encourages those who <

compete to reduce costs and lower price; and thus pass on the savings to the public; and the bane of :uonopoly is that it per-petuates high costs and uneconomic practice at the expense of the public.

105

Although 'CEI maintains that i: c' hanged its policy with respect to wheeling after this proceeding began, the company continued to raise impediments to wheeling. MELP sought to obtain power from other utilities and had contacted Buckeye Power, Inc., Richmond, ,

Indiana, and Orrville, Ohio, which indicated that surplus power was available (DJ 177-78, 193; Hart Tr. 4690-91, 4702-06, 4709-13); CEI has not agreed to wheel this power (Hart Tr. 4707-09, 4713-14, 4924).

CEI has professed a present willingness to wheel any power, except that _which would be unavailable to CEI because of legal or con- ,

spir ator ial imped iment" (App. 75, 78, 80-81, 84, 96-97). Except for statements that CEI would require "a like quantity" of power "at a like price" (Hart Tr. 4708; App. 78, 80, 84) or an " equally open" market (App. 96-97), MELP has been unable to ascertain the nature and limits of this restraint in spite of repeated requests for an explana-tion (App. 86; Hart Tr. 4708-09). 105/

105/ CEI contends that it is feasible for MELP to build a competing transmission system to reach other sources of power (App. Brief at 174-75), notwithstanding the company's earlier position (formulated "

for purposes other than litigation) that it would not be feasible for Cleveland, Painesville and Orrville to construct transmission linking their systems (Lindseth DJ 568, pp.155-58; DJ 295). Mr. Pandy testified to the " prohibitive cost" of such transmission today (Tr. 3174).

Mr. Caruso testified that it would be more economical for MELP to build a radial transmission line to a Pennsylvania Electric Company substation located inside Pennsylvania in order to receive PASNY power, than to continue to purchase emergency power from CEI (App. 162). Such a line would be duplicative of and adjacent to existing CEI transmission facilities (Caruso App. 162, pp. 14, HEC-2) which have surplus capacity available (DJ 358).

The economic and environmental infeasibility of such a line is man-ifest (See pp. 26-27, supra). Further, Mr. Caruso's " savings" are based on comparing the cost of construction with the high cost of the emergency power sold to MELP by CEI (Mayben C 161, p. 14, Tr. 7715-16), rather l than with the cost of a bulk power supply available through coord inated l operation and development or even the cost of wholesale firm power.

(Footnote continued on next page.)

106

b. Painesville The acquisition of the Painesville municipal system is also a CEI company goal (DJ 509, pp. 4045, 4050; DJ 510; DJ 600; DJ 3 61, 363-64, 36-68, 371; C 73; NC 143, p. 24). CEI has stud,ied the cost and revenue impact of the acquisition of Painesville (DJ 560, p. 115-16; DJ 366-68; DJ 362-63). CEI also sought to achieve its goal of acquir ing Painesville through denying Painesville the benefits of coordinated operation and development (DJ 364, 371). Because the section of the Initial Decision dealing with Painesville (ID at 83-90) anticipated and adequately answered Applicants' contentions about CEI's terr itor ial allocation proposals, refusal to interconnect except upon unf air terms, refusal to wheel ard denial of access to nuclear power, the Department will not br ief these matters f urther.

Since the mid-1960's CEI has had a territorial agreement with OE with respect to new customers (DJ 488; Rudolph DJ 558, p. 53). This territorial agreement, and its effect on the consumers in the areas in which it operates, is fully discussed by the Licensing Board at ,

pages 118-21 of the Initial Decision. -

B. The Duquesne Light Company

1. Acquisitions DL is a product of acquisitions of and mergers with other utilities (see p. 5, supra). It is DL's company philosophy "to try to purchase 105/ (Footnote continued from previous page)

Mr . Caruso's line is unacceptable for still other reasons. The Department is aware of no legal authority which would permit an Ohio municipality to exercise a right of eminent domain in Pennsylvania.

Finally, the reliability of a 75 mile radial line over wh ich MELP must receive at least a fifth of its power requirements is highly question-able (Kampmeier DJ 450, p. 39-41; DJ 435; App. 237, Firestone notes; Eppard Tr. 5453-54).

107

mucicipal systems because they can be a potential threat to the wellbeing of the Company . .- ." (DJ 321, p. 2). 106/

Dince 1960, DL has acquired three of the remaining four municipal systema located within its service area (NRC 158, pp. DL-13, 27, 28; Wein DJ 587, p. 74), successfully utilizing the same general philosophy and methods in affecting each of the acquisitions (DJ 321). A key element in this overall plan was the denial of coordinated operation and development to the municipal system in. question ( DJ 321, p. 4).

DL continued to employ this tactic of refusing to engage in coor- ~

dinated operation and development in its attempt to acquire its only surviving municipal competitor. In July 1966, DL's representatives, with the knowledge of the Company's chief executive, indicated to Pitcairn that DL sought to acquire the municipal system, rather than engage in coordinated operation with it (DJ 242-43).

'In December 1966, Mr. Fleger, President of DL, was informed that it was Mr. O' Nan's 107/ opinion that " careful handling" of Pitcairn's requests for coordinated operation could induce Pitcairn to sell the -

system; Mr. Gilfillian 108/ agreed that the acquisition "would clean up the remaining municipal electr ic system in our service area" (DJ 245). The next day, Mr. Fleger agreed that DL should try to acquire 106/ Although Mr. Gilfillian denied on the stand that this was DL's philosophy (Gilfillian Tr. 8518-20), the language quoted above was part of a speech given by Mr. O' Nan on behalf of DL at an industry meeting in St. Lou is in January 1968 and approved in advance by Mr . Gilfillian (Tr . 5490 ) . Further, tir . Gilfillian stated that he had no reason to believe that DJ 321 is inaccurate (Tr. 8517).

107/ Mr. O' Nan was DL's Manager of Governmental Sales and was directly responsible for dealing with municipal systems (Tr. 5490).

108/ Mr. Gilfillian was then and is now a Vice President of DL (Tr.

5490).

1 108 i

Pitcairn and suggested that the same procedure followed in acquir ing another municipal system, Aspinwall, be used ( DJ 2 4 6 ) .

Thereafter, DL' repeatedly brought up the subject of acquir ing ,

Pitcairn in ' conv~ersations with Mr. McCabe concerning the municipal system's . requests for coordinated operation and development (McCabe Tr. 1684-85, 1751; NRC 13), and even suggested to him that sale of the system would involve .a large le. gal fee (McCabe Tr. 1684-85, 1751).

Approaches by DL were made to members of City Council (McCabe Tr.

1686; NRC 57; DJ 248) and other Pitcairn representatives (DJ 251) .

DL's repeated refusals to engage in coordinated operation and development placed Pitcairn in an isolated generating position (McCabe Tr. 1652) which detracted from system reliability and eliminated the opportunity to benefit from economics of scale (McCabe Tr.1653) . The municipal system escaped the intended acquisition only by filing suit against DL in two forums (McCabe Tr.1647, 1653-54).

2. Denial of Coordinated Operation and Development

a. Refusal to Sell Wholesale Power In 1965 and 1966, DL repeatedly refused to sell Aspinwall whole-sale power for resale, 109/ thereby denying the municipal system the 109/ .DL contends that it did not refuse to sell power at wholesale In that it was always willing to sell emergency power under " Ra te M" to any municipal system ( App. Br ief at 269-70). Such a willingness does not negate DL's ref usal to sell firm power at wholesale to

. municipal systems. DL has acknowledged that there is a difference between -firm wholesale power and emergency power (Gilfillian, Tr .

8478, 8480). Indeed, Mr. Gilfillian's letters (NRC 16, 19), internal DL memoranda (NRC 14, 15), as well as correspondence between DL and 1 Pitcairn (NRC 18; DJ 2, 247), clearly distinguish between emergency power under " Ra te M' and firm wholesale power. Mr. McCabe testified that Pitcairn inquired about emergency power only because DL would not sell the municipal system any other type of wholesale power (Tr.

1641-42, 1824-25). Obviously, neither DL nor its municipal competitors considered emergency power to be ' a substitute for firm wholesale power.

109

benefits of coordinated operation and development. At least as early as October 1965, the Borough Manager of Aspinwall requested that DL sell it firm wholesale power for resale 110/ (DJ 168). DL's position on such'a sale, as expressed by its President, Mr. Fleg er ', was:

We should make clear at all tim'es that we will not provide electricity for resale. We will use whatever means are possible to resist this includ-ing court action, if necessary . . . (DJ 169).

In April 1966, Mr. Donaldson, the So'licitor of Aspinwall, again' asked whether DL would be willing to sell either full or partial require ments' firm power to Aspinwall (DJ 170).

Mr. Fleger indicated that

[W]e should reply to Donaldson emphet.ically that we will not sell power to Aspinwall for resale to their residents by the Boro. It should be an unequivocal "no" so there is no misunderstanding [DJ 171].

This refusal was communicated to Aspinwall by telephone (DJ 173; and by letter (DJ 172, 174). A further request in August 1966 was also re-fused (DJ 201). DL realized that " time is on our side. A 'no' means Aspinwall would have to litigate and probably can't wait that long" (DJ 171). This memo went on to say that "Aspinwall is asking for some-thing no other municipality can get from us -- power on a wholesale basis to resell" (DJ 171). DL " informed counsel for Aspinwall" that "we will fight them tooth and nail" if Aspinwall made any effort to force DL to sell at wholesale (DJ 173).

The crippling ef fect of DL's denial of coordinated operation and development to Aspinwall 111/ may be observed in its acquisition of 110/ No other electr ic utility in the vicinity of Aspinwall was will-ing to sell power at wholesale to municipal systems in DL's service area (NRC 25-29).

111/ The predicament faced by the Aspinwall system is typical of what happens to small isolated generating systems which are denied coordinated operation and development.

~

110

the Aspinwall municipal system. Contrary 'to DL's asser tion (Br ief pp.

272-73), the Aspinwall system was in good condition financially and physically prior to acquisition by DL in 1967 (App. 120, pp. 5, 8-9, 16, 19, 20-23). It had generated revenue more than sufficient to finance current operations and debt service costs between 1955 and 1964 (App. 120, p. 9) and substantial capital improvements had been made between 1961 and 1964 (Flynn Tr. 12,370; App. 120, p. 16). A conculting engineer 'who surveyed the system to determ.ine its condition (Tr. 12,316) concluded that no expenditures were required to rehabilitate the sys-tem's generation (App. 120, pp. 20-3) and only $25,000 was required to repair certain distr ibution facilities. 112/ This could have been paid out of Aspinwall's 1965 s'rplus u (App. 120, p. 18; Flynn Tr. 12,369). 113/

Having been denied access to coordinated operation and development, Aspinwall f aced the prospect of continued isolated generation, the 112/ The preparers of this report were satisfied that the information given to them by the consulting engineer was accurate (Tr. 12,316).

113/ The testimony of DL's witnesses concerning the condition of Aspinwall's system was conf used and self-contradictory. After stating that municipal systems are generally reluctant to spend money on main-tenance, Mr. Sedlak, who co-authored the report containing the data set out above, said that Aspinwall was one of the best municipal systems f rom this standpoint (Tr. 12,325). He also testified that Aspinwall's failure to spend the required money on replacement of .

obsolete equipment and maintenance had led to the deter iorating con-dition of the system (Tr. 12,326-27). This position is emphatically contradicted by his report (App. 120) which recommended no expenditures for maintenance or replacement of generating equipment and only limited replacement of distr ibution f acilities. Mr. Sedlak admitted that he had no expertise in this area (Tr. 12,316).

Mr. Flynn, the report's other co-author, testified erroneously on other sections of the report. He stated that Aspinwall had unwisely purchased a generating unit which had only four years of service left (Tr. 12,376) when, in fact, the unit had only been used for four years (App. 120, p. 4). Mr. Flynn noted the deterioration of Aspinwall's switch gear system (Tr. 12,376), but the report found that system to be well maintained (App. 120, p. 5).

111

g-projected cost of which was substantial due to rapid increases in operating costs and the absence of economies of scale ( App. 120, pp.

8-23, 26, 29). Indeed, it was estimated that new generation would -

cost Aspinwall $255 per kw ( App.120, pp. 22-3) at a time when DL had just put a jointly-owned large-scale

• unit on line at a cost of $123 per kw ( DJ 63 8, p . 432a-1) and when DL's average system imbedded cost of generation and transmission was about $181 per kw (DJ 638, p. 402, 1.

42 (column g divided by DL's total generating capacity. )) The only e alternative left open to Aspinwall was to sell the system to DL 114/;

this sale occurred on June 29, 1967 (NRC 158, p. DL-28). 115/

114/ The alleged approval of the sale by the FPC and Pennsylvania PUC (App. Br ief at 273) do not constitute immunization from the antitrust laws (see pp. 77-81, supra). The decisions in question give no ind i-cation that DL's anticompetitive conduct was considered as part of the proceedings ( A 262, 263).

115/ To the extent that Applicants may urge that dif fer ing conclusions

( App. Br ief at 272-73) should be drawn from the Pennsylvania Economy League study (App. 120), the following points should be taken into account:

1. Institutional Bias. It is supported pr imar ily by contr ibu- -

tions (Tr. 12,300) and DL has been a major contributor since at least 1959 and the League's seventh largest contr ibutor every year since 1967 ( DJ 629-30; Sedlak Tr. 12,347-53). Contributors elect the League's directors (Tr . 12,353). Since 1961, DL's president has sat continuously on the Executive Committee of the League's Western Division (DJ 631), the very body which reviews League reports (Tr.

12,320). League staff therefore never knew when the ir reports would be reviewed by an interested company (See, e.g., Tr. 12,320-23).

j Mr. Harley, another DL Director , was also on the Executive Committee l (DJ 631; NRC 157) as was the President of West Penn Power Company l (DJ 631). No representatives of municipalities or rural electr ic cooperatives serve on the Western Division Executive Committee (Tr.

12,354-55). S ince 1960, the League has inevitably recommended the sale of municipal systems (Tr. 12,358-59). It is hardly surprising chat DL pushed Pitcairn to request a League study (DJ 242-43) or that League studies were considered an important part of DL's overall acquisition plan ( DJ 321 ) .

2. Incompetence of League Personnel. Neither of the report's co-authors had educational or work exper ience related to electr ical eng ineer ing (Tr. 12,295-97, 12,312, 12,344-45, 12,361). The consult-ing engineer who helped prepare the report was not presented for (Pootnote continued on next page.)

112

Between 1966 and 1968, DL repeatedly refused to sell Pitcairn whole-sale power for resale at retail, thereby denying it the benefits of coordinated operation and development. As early as August 1966, DL refused .a request by Pitcairn to . sell it firm wholesale . power which Pitcairn would then distribute through its own system (DJ 242, 243).

In October 1966, DL again refused to supply wholesale firm power to Pitcairn when requested to do so by Pitcairn's consulting engineer

( DJ 244). DL's position was that it would not sell wholesale power and, indeed , would resist with all its resources any effort to force such a sale ( DJ 245). 116/

Numerous other requests for wholesale firm power made dur ing 1968 were also refused by DL (McCabe Tr. 1616-19, 1625, 1643-33, 1654-55; NRC 13-16, 19, 57; DJ 2, 249).

These refusals, and other conduct discussed subsequently, led .

Pitcairn to file an antitrust action and an FPC complaint against DL (McCabe Tr. 1647, 1653-54). 117/ It was only as part of the 115/ (Footnote continued from previous page) cross-examination (Tr. 12,312-16). Indeed, the engineer's evaluation of the system differed markedly from what Messrs. Flynn and Sedlack understood the report to say. Only one per cent of the League's reports have dealt with electr ic systems (Tr. 12,303-04),

3. Underlying Assumptions. DL supplied inf orma t ion to the League for the report (DJ 168-69). (Although the League staff was allegedly unaware of such contacts (Tr. 12,317-18)). The report d id not consider any bulk power supply alternative except isolated genera-tion (Tr. 12,362-65); interconnection, purchase of firm power at whole-sale, joint ownership of generation, or economies of scale were omitted from consideration (Tr. 12,381-86); no effort was made to determine a proper plan for the future of the system (Tr. 12395).

116/ DL knew that its resources were greater than those of Pitcairn and that, histor ically, prolongea litigation has been one of the best weapons in antitrust situations ( DJ 254).

117/ The Company's suggestion that these actions were filed only for Earassment conflicts with DL's assessment that Pitcairn had a very good chance of winning in the FPC and a 50/50 chance of prevailing in the antitrust action ( DJ 254, 260).

I 113

settlement of these actions that DL agreed to sell firm power at wholesale to Pitcairn (McCabe Tr. 1655, NRC 21-4). But even after DL was constrained to sell Pitcairn power , it refused to operate in parallel with the ~ municipal system (McCabe Tr.1658, 4169, 4176). 118/ DL then demanded that, 'if parallel operation were allowed, protective equipment be installed which Pitcairn's con-sulting engineer found to be grossly excessive.for the intended pur- .

pose (McCabe Tr. 4177). Because of the unduly high cost involved, ,

Pitcairn was required to cease generation and take all its power requirements from DL (McCabe Tr. 4177; App. 48).

DL was not prohibited from selling wholesale firm power by state law. DL has admitted that, at the present time, it is the Federal Power Commission, not the State of Pennsylvania, which has exclusive regulatory jurisdiction over wholesale sales to municipal systems. 119/ In fact, the Commission had asserted jurisdiction over wholesale sales by DL at a time when the Company was refusing to make such sales to Pitcairn (App. 263, pp. 3-4).

In any event, utility sales for resale are not prohibited by any Pennsylvania law or regulation of general applicability (see pp. 36-38, supra). 120/ PPC has made sales for resale to municipal systems in its service area pursuant to tariffs filed with the FPC in 1938 (DJ 67-70) and 1966 (NRC 106-10). DL was aware that at least one Pennsylvania 118/ -DL's Mr. Stark' admitted that he did not attend all of the DL-Pitcairn meetings and that he was not in a position to kncw if such a refusal took place (Stark Tr. 8951).

119/ Contrary to DL's contention (App. Br ief at 271), Pennsylvania has no jur isdiction over wholesale sales (See pp. 36-38, supra).

l

[ 120/ DL's promised witness on this point (Tr. 8424-25) never made i an appearance.

I 114

utility sold power to a municipal system for resale (DJ 168). The only arguable restriction on such sales by the company has been DL's Rule 18, 121/ which apparently does not prohibit such sales when DL .

wishes to make them under its Rate M (Gilfillian Tr. 8474-75, 8499).

It is clear that Rate M could have been amended to provide for firm power sales (Gilfillian Tr. 8476-77, 8507-09) or that a new rate could have been filed for this purpose. 122/

b. Refusal to Enter Into an Interchange Agreement c DL refused to enter an interchange agreement with Pitcairn. in mid-1966, _ DL received a letter from Pitcairn in which Pitcairn expressed the desire to discuss an interchange (Gilfillian Tr. 8488-89). No such agreement was entered (Gilfillian Tr. 8488-91).

On January 23, 1968, Mr. McCabe met with DL representatives and, among other things, requested that DL and Pitcairn enter into an inter-change agreement similar to that which DL had with other electr ic utilities (McCabe Tr. 1627-28); this request was refused by DL (McCabe Tr. 1627-28). The January 23 meeting was followed by a written request 121/ DL's attempted business justifications for Rule 18 (Gilfillian Tr. 8426-30) are specious and anticompetitive. DL's determination that there should be no municipal " middlemen" between the company and the con-sumer runs afoul of every antitrust principal as well as Pennsylvania law which authorizes such systems. DL's concern that a group of retail customers would aggregate their load and ins ist that DL serve them at wholesale is spurious since DL would have no duty to serve the aggregated load unless the group of custcmers became. a public utility and, if they became a public utility, they would be prevented from serving at reta il in DL's area (Gilfillian Tr. 8426-30).

122/ DL could not possibly be charged with discr imination for granting PItca irn's request since Pitcairn was the only system so situated (DJ 245). The fact that DL was required by state law to _ adhere to a tariff which the Company had promulgated (App. 264, pp. 724-25) does not insulate D1 from antitrust l iab il ity . -Cantor v. Detroit Edison

~-- ~

Co., 428 U.S. 579 (1976). Admittedly, Rule 15~id not reEuired U ~a~ny order of the Public Utilities Commission (Gilfillian Tr . 8476-77).

115

(App. 114), which was discussed within the company and with outside counsel (NRC 14, 15, 19; DJ 249 ) before a wr itten refusal wns trans-mitted to Pitcairn (NRC 16; .McCabe Tr. 1627-28). 123/

c. Denial of Access to Nuclear Units DL refused Pitcairn's request for participation in a nuclear unit.

As early as November 1967, Mr. McCabe first voiced Pitcairn's interest in participation in DL's newly announced joint generation program (DJ

~

247, p. 2). At a February 21, 1968, meeting, Mr. McCabe formally requested access to a Beaver Valley unit, which request was refused by DL (NRC 17; McCabe Tr. 1636-38, 1839-40). 124/ Pitciarn's interest in nuclear units continues unabated to the present (McCabe Tr. 1716), 125/;

123/ DL's arguments that interchange agreements must display "mutu-ality" in every particular, and 'that the refusal to enter into such an agreement was justified because Pitcairn's cost of generation was so high that it precluded a mutually beneficial arrangement, (G ilf ill ian Tr. 8439) should be given short shrift. Mr. Dempler's testimony in support of these arguments is highly suspect. The study which he originally testified was made for his own use (Dempler Tr. 8716-17, 8723), turned out to have been prepared specifically f or l it ig a t ion (Dempler Tr. 8888) with the probable assistance of counsel (DJ 608-10; Tr. 8750-52). See also Mr. Dempler's cross-examination at Tr. 8665-729, -

8748-82, 8901-08.

DL's suggestion that Pitcairn's generation costs were high is disingeneous since DL had ref used to allow Pitcairn access to any type of -coordinated operation or development which would have lowered the municipal system's costs (ID at 93-106, 195-200; pp. 19-27, suora).

124/ DL's contention that inclusion of such a small system as a par-ticipant in a nuclear unit would be impractical is clearly contraverted by the existence of NEP00L wherein many municipal systems of extremely small size have shares of nuclear units (DJ 634, pp. I-l and I-2). DL was aware that New England utilities had allowed municipal systems to par t ic ipa te in nuclear plants and char,acterized this as "a dangerous precedent" (DJ 255, p. 2).

125/ Pitcairn has not requested access to any specific plants since l the request for access to Beaver Valley, because Pitcairn is unwill-ing to commit itself to the extensive litigation that would be l necessary to obtain access (McCabe Tr. 1717-18).

116

but at the close of the record DL had not communicated any change in its l

policy on nuclear access - t'o its municipal competitor (McCabe Tr.

1717-19). 126/

C. The Ohio Edison Company And The Pennsylvania Power Company 127/

1. Nuclear Access Applicants contest the reliance of the Licensing Board on the testimony of Mr. William Lyren for the finding that OE refused to made baseload power, including nuclear power , available to WCOE if that power e was to be sold to industrial customers of OE ( App. .Br ief at 214-16). 128/

While Mr. Lyren admittedly was somewhat confused as to the contents of the current wholesale contract with OE, his testimony concerning nuclear access was also based on meetings and discussions with OE. This testi-mony was reconfirmed af ter Mr. Lyren's confusion concerning the whole-sale contract had been eliminated (Lyren Tr. 2014, 2030-31, 2335-38).

2. WCOE Negotiations OE used the joint power supply study with WCOE to deny the members of WCOE the benefits of coordinated operation and development, to -

eliminate competition with those systems, and to preserve its monopoly position in its service area (ID at 129-36).

126/- The evidence is uncontrover ted that Pitcairn has the ability to f inance nuclear par ticipation (McCabe Tr . 1718, 1746-50) and that Pennsylvania law raises no barrier to nuclear ownership by municipal systems (DJ - 261) .

127/ Because of the common ownership and policies of OE and PPC, as well as their integrated operation, they are discussed collectively

-(See pp. 6-7, supra).

128/ Applicants make reference to the finding of the Licensing Board at page 224 ' of the Initial Decision. The same finding , with add it ional record citations, is also made at pages 52-53 of the Initial Decision.

'117

.a. -

a

~

It is clear that the joint power supply study contemplated access to nuclear f acilities. _ In NRC 222, Counsel for OE stated "it is impl ic it in our [WCOE's] negotiation with Ohio Edison that participation in any of the company's future nuclear generation f acilities is contemplated -

in our settlement agreement goals." 08, despite its current protests, must ~a lso ' have contemplated that WCOE would have access to nuclear generation when it proposed that WCOE be required to participate in all of the eleven CAPCO units (NRC 44, Append ix Letter dated June 17, 1975). Under those circumstances, where both part,ies to the negotia- -

tions were operating under the expectation that nuclear access was included in the study, we find absurd OE's suggestion that WCOE should nevertheless have made a specific request for nuclear accese .

Applicants assert that their negotiating posture was not unreason-able and that they negotiated in good faith with WCOE (App. Brief at 220, n. 251). OE, however, apparently forgets the fact that it possess monopoly power and dominance with respect to generation, transmission 4

and sale of electric power (ID at 32-34; see also pp. 90-93, supra).

Where a company possesses monopoly power, activities neutral on their face which nevertheless have an exclusionary effect on the market are suf f ic ient for a finding of monopolization (see pp. 63-65, supra).

Thus, OE's negotiating posture, which might arguably be appropriate if assumed by a company wfthout monopoly pcwor, is clearly improper when assumed by a company which -is "the only game in town" .

3. Acquisition It has been the policy of OE to acquire municipal systems (DJ

- 423), and since 1965, OE has acquired the systems of Lowellville, 118 l i

t J

Norwalk, Hiram and East Palestine (Wein DJ 587, p. 67; White Tr.

9541). 129/

We find it difficult to understand OE's disagreement (App. Brief at 223-25) with the Licensing Board's limited finding w,ith regard to the acquisitions of Lowellville, Hiram and East Palestine systems (ID at 113). We have already discussed the opportunities for competition between municipal systems and Applicants (see pp. 34-42, supra), and, it appears incontestable that if no municipal system exists there can be no competition to supply it. Finally, in light.of the uncontested findir.g that prior to 1965 there was a pattern to consolidation through merger (ID at 109), it follows that later acquisitions are a continua-

. tion of that pattern. Illustrative of OE's policy of acquisition was the acquisition of Norwalk (ID at 109-13). OE was willing to purcha$e Norwalk's generation f acilities only if Norwalk also sold its distribu-tion facilities (DJ 429, 433-34). 130/ OE also told Norwalk that if the plant were shut down, OE would not bid on it in the future (DJ 429), thereby using its monopoly power to eliminate one of the options that is, becoming a distribution system -- otherwise open to Norwalk.

129/ As we have already discussed, SEC approval of these acquisitions does nos immunize them from antitrust scrutiny (See pp. 78-81, supra).

130/ While DJ 422 refers to the purchase of Norwalk's steam generating units, DJ 433 and DJ 434 refer to the purchase of "the generating sys-tem." Thus, the Licensing Board's find ing that "OE refused to buy Norwalk's generators unless the distr ibution system was included" (ID at 110) is well supported by the record.

The coal-fired steam units which belonged to Norwalk are still being used on OE's system and are listed as OE generation on the com-pany's system map (App. 172; Firestone Tr. 11,180).

119 k----

4. Refusals,To Wheel In addition to th'e other restr ictions placed on the joint power supply study, OE further denied the members of WCOE the benefits of coordinated operation and development among themselves and with systems located outside of OE's service area by refusing to engage in third-party wheeling for the municipal systems which make up WCOE. In 1972, Ohio Edison refused to consider third-party wheeling as a part of coordinated operation and development with WCOE (White Tr. 9593),

although such wheeling is necessary for municipal systems to derive ,

the full benefits of coordinated operation and development (Kampmeier DJ 450, pp. 38-39, Tr. 6079-81; Mayben Tr. 12,576).

In 1974, in response to a specific WCOE request for wheeling (White Tr. 9598; NRC 31-32) and the naming of specific sources of power avail-able to WCOE (DJ 628; Cheesman Tr. 12,182), OE again refused to consider third-party wheeling (Cheeseman Tr . 12,162-63, 12,257; Mayben Tr.

12,560-61; Lyren Tr. 1905; White Tr. 9600-01; NRC 32; DJ 440). 131/ In subsequent meetings between representatives of WCOE and OE, requests for third-party wheeling of power from specific sources were again rejected by OE (Cheesman Tr. 12,250; Firestone Tr. 11,307). 132/ OE also re-fused to transport power between WCOE members (Cheesman Tr. 12,166-67),

or from WCOE members to other electr ic utilities (Mayben Tr. 12,570).

131/ WCOE's belief that third-party wheeling was to be included in the joint power supply study was based on meetings with OE, documents that had been received by WCOE, and the FPC settlement agreement itself (Mayben Tr. 12,530; Cheeseman Tr. 12,191).

132/ Mr . White testified that OE was unwilling to make a general commit ment to wheeling, but would have considered a specific request for wheel ing on its merits. Even absent the evidence of record wh tch shows that WCOE discussed specific sources of power with OE, Mr. White's profess ion that a specific wheeling request would have been considered lack credenc

-(Footnote continued on next page.)

120

. Beg inn ing in at least 1965, Ohio Edison refused a specific request to wheel power from Buckeye Power, Inc, to Buckeye's member distr ibution cooperatives (White Tr. 9554-56, 9607, 9725-26; DJ 532). 133/ OE refused to sign the power Delivery Agreement and, not untti June 20, ,

1968, six months af ter the Power Delivery Agreement was signed (NRC 188),

d id it enter an agreement with Ohio Power, which provided for the delivery of Buckeye power to the member cooperatives located within OE's service area (DJ 507, p. 16). Testimony that this refusal was due to insuf ficient compensation under the Power Delivery Agreement (White ,

Tr. 9555-56) is in conflict cith the company's representations to Buckeye that OE might receive less revenue under the agreement with Ohio Power than under the Power Delivery Agreement ( DJ 532). OE's refusal to wheel Buckeye power pursuant to the Power Delivery Agreement r esul ted in the elimination of Buckeye as a source of bulk power supply for the cooperative distr ibution systems . located within OE's service area for a per iod of' at least six months (DJ 616; DJ 136, p. 4).

i The Licensing Board found that OE refused a request by Orrville, Ohio, for wheeling servic s (ID at 128). Th is f ind ing is based upon an evaluation of Mr. Lewis' testimony af ter extensive cross-examination by counsel for OE. 134/ Despite Applicants' opinion that Mr. Lewis' 132/ . (Footnote continued from previous page. )

Despite numerous discussions of third-party wheeling with WCOC, Mr. White never informed WCCE of his purported position (White 9706-07). Nor did WCOE have any rennon to believe that specific proposals for wheeling would have been considered outside of the scope of the study (Cheesman Tr. 12,180-81).

133/ The origins of the Buckeye program and OE's impetus for par tic ipa-t ion in it are discussed at pages 125-27 of the Initial Decision. The Buckeye Agreement is also discussed at ID, 177-82 and pp. 137-38, 144-48, infra.

134/ For a discussion of' th' nistory of Mr. Lewis' appearances in this proceed ing, see p.11, n. 22, gupra.

l 121 l

testimony was " entirely unsatisfactory ( App. Br ief at 231, n. 260 ), the Licensing Board, as the trier of f act, had the opportunity to evaluate his demeanor and specifically found his testimony to be " generally reliable" (ID at 176, n. *).

5. Territorial Agreements' Despite the filing of Exception *s on the matter OE has apparently ,

decided not to contect the Licensing Board's findings that it entered into terr itor ial allocation agreements with other investor-owned util-ities, municipal wholesale customers and rural electr ic cooperatives (ID at 114-24, 136-41). 135/ Instead, OE chooses to argue that com-pe t it ion in the utility industry is not in the public interest, that it (OE) was economically and legally precluded from competing, and that in any event ter r itor ial agreements which no longer exist cannot contribute to a situation inconsistent with the antitrust laws (App.

Brief at 234-38).

Applicants' arguments concerning the public interest and barr iers to competition are discussed elsewhere. 136/ Only OE's arguments con-cerning the ef fect of the agreements remain.

We would start out by stating that the record does not support OE's contention that terr itor ial agreements with investor-owned utilities no longer exist. OE took no action which would have had the ef fect of 135/ We find it interesting that one of OE's par tners in a terr itor ial agreement has argued that it did not exist ( App. Br ief at 181-82, 191-92).

The findings with regard to the terr itor ial agreements between OE and CEI, and OE and TE are discussed at p. 107, suora, and p. 133, infra.

136/ Reference is made to the following portions of this Br ief:

pp.

31-34, 38-42, 45-46, 57-59, suora.

l 122 L

either informing its market allocation partners that OE was withdrawing from the agreements or causing its par tners to cease adher ing to the terms of the agreements (White Tr. 9750, 9752). 137/ Although the ter-ritorial agreements took the form of signed agreements and signed terr i-tor ial maps (ID at 114-15), Mr. White's only action towards climinating them was a verbal communication to Mr. Zimmerman who was then to commu-nicate with the Division Managers (White Tr. 9747-48). He did not in-form the other parties to the agreements that OE would no longer adhere to them (White Tr. 9752-53). Such action is not suf f ic ien t to insure <

that written agreements, actively enforced, will no longer be followed.

The effects of the territorial agreements, both those between OE and other invastor-owned utilities and OE and its wholesale customers, are well documented by the Licensing Board (ID at 119-24, 138, 140-41). 138/

These ef fects continue today and are part of a situation inconsistent with the antitrust laws. Freedom from competition by other investor-owned utilities has allowed OE to acquire and maintain monopoly power.

As the Licensing Board correctly found:

As Ohio Edison expanded its transmission end dis-tribution lines under unlawful protection from com-petition, it irreversably carved out for itself strong competitive advantages tending to exclude entry into its market by outsider s (ID at 123].

137/ Although Mr. White testified that OE has no terr itorial agreements tocay, his knowledge on this point is questionable since he was unaware of an unwritten terr itorial allocation agreement with Newton Falls (Craig Tr . 2910-11; White Tr. 9696).

138/ OE faults the Licensing Board for taking a per se approach to ter-ritor ial agreements. However, despite the f act that a per se approach is entirely correct (see 99 57-59, supra), the Licensing Boar d went beyond this approach to examine Applicants' " rule of reason" defenses and the effects of the agreements (ID at 119-24, 138-41).

123 l

j

Likewise the effects of the agreements between OE and its whole-sale customers. 139/ Under those agreements, OE not only prevented municipal competition dur ing the terms of the contracts, but, by sur round ing the municipalities with OE distribution lines, permanently -

pre-empted the ability of tne municipal utilities to competitively extend their systems (DJ 410, 616; White Tr. 9719-20). By 1973, when the anticompetitive provisions were finally eliminated, the cumulative effect of decades of contractual restraints on market structure was so pervasive that OE was not aware of a noticable increase in competition -

(White Tr. 9537). There is also evidence that the restrictive contract provisions have been perpetuated by less formal agreements (Craig Tr. 2910-11).

6 Refusals To Deal '

OE argues that its insistence on a " prepayment deposit" concept as a prerequisite to interconnection with Newton Falls and other municipalities does not amount to a refusal to deal. Rather, argues OE, it is simply requiring "that the expense be borne by those who would most benefit" (App. Brief at 244). OE's argument completely ignores the finding which was actually made. The Licensing Board, in discussing similar arguments previously made, sa id :

It is not the allocations of the costs to the munici-

'i palities which is tne essence of the charge. It was the coupling of financing responsibilities with the, requirement that Ohio Edison own the facility and receive prepayment for the construction, which made the proposal functionally useless to Orrville and of dubious and temporary benefit to Norwalk [ID at 149].

139/ We would note that even if an agreement between a municipal dis-tr ibut ion system an.1 its sole source of power can be " freely agreed upon by the contract ing par ties" (App. Br ief at 238), such agreement is not a defense to a Section 1 violation. In fact, the agreement to restrain trade is the violation.

124

The coupling of prepayment.by the municipality with ownership of

/ -

the line by OE made OE's offer impossible of acceptance (ID at 147-49).

Such an offer is, perhaps, more subtle, but in effect no different than an outr ight refusal to deal. ,

The Licensing Board correctly (ound that the refusal of OE and PPC to set rates for high votcage power constitutes an unlawful refusal to deal which restrains competition between those utilities-and their municipal wholesale' customers '(ID at 153).

By taking power at a high voltage, a municipa'l system is better able to compete with its wholesale supplier (Urian Tr. 4978). A municipal customer, however, cannot incur the debt necessary to build f acilitics to take power at high voltage without knowing in advance what the rate for that power would be (Urian Tr. 4979-80, 5000-01). 140/

While OE referred inquiring municipal systems to its retail industrial rate as an indication of what the municipal discount might be, it would not guarantee that discount and stated that it might be appropr iate to design a wholly new munici,,a1 wholesale rate, rather than taking the ,

existing rate and applying a discount ( DJ 419, 421; White Tr. 9737-38).

Nor did PPC give inquiring municipal systems any indication of the level of a high voltage rate (Urian Tr. 5002-03; Luxenberg Tr. 6410).

While Applicants' conduct should be measured against the standards of the antitrust laws and not the Federal Power Act, ,141/ it ^ ' a 'A be 140/ Not only would it be impractical to undertake substantial system alterations without the assurance that those alterations are finan-cially justified, but, in Pennsylvania, a municipality cannot legally enter into a debt unless it is able to show it can obta in revenues to support that debt (Urian Tr. 4979-80).

141/ See pp. 81-83, suora.

125

noted that the Federal Power Commission held that PPC should " publish and make ef fective a rate for high voltage service ( aJ 626, pp. 3-4, 6, 10-11; DJ 627 ) . The FPC further ordered that this rate, effectively a percentage discount, could be changed only in the event of a general rate filing which altered the c rgq for the primary service upon which the discount was based ( DJ 626. p.10; DJ 627 ) .

7. Capacity Restrictions OE-character izes the capacity restr iction contained in a whole-

, sale contract with Newton Falls as a device for pr'otection of the OE system (App. Brief at 248-50). The facts, however, do not support that characterization. The Licensing Board has already noted several prob-lems with Applicants' argumer ts (ID at 145). We would also point out that capacity limitations we' not included in OE's 1965 wholesale contracts (DJ 44-65). It was not until OE had " outsmarted" itself (DJ 613) and was forced to eliminate the restrictive allocation provisions f rom the 1965 contracts (see ID at 140-41) that it felt the need to require a capacity limitation provision which would have the effect of -

restr icting the growth and competitive ability of the municipal sys-tems. 142/ That fact does not support a conclusion that the capacity limitation was a protective device, but rather supports the conclusion that it was a substitute for the territorial allocation provisions which OE was forced to drop. -

142/ OE's assertion that the capacity restr iction was included as a protectivo device is further contradicted by the f act that in 1976, af ter Mr. Craig of Newton Falls had testified in this proceeding (Craig Tr. 2861-62, 2876-77), OE was able to devise a contractual provision which enabled it to protect its system without restr ic t ing municipal growth (NhC 216; App. 230-31).

f 126 l

E

8. Price _Sgueeze OE and PPC have restricted the ability of their wholesale municipal customers to compete with them for industrial customers by setting their retail industr ial power rates lower than their municipal wholesale power rates (Kampmeier DJ 450, pp. 34-35; Craig Tr. 2953; Lyren T.r 2046).

That such a " price squeeze" by an electr ic utility is subject to anti-trust scrutiny is clear (see pp. 79-81, supra). 143/

Appl ican ts , both because of legal precedent and their unique ev'. cess to the necessary information, have the burden of showing that the price squeeze caused by the dif ferential in their wholesale and industria) rates is cost justified (ID at 159 n. *). 144/ Applicants have not dsne this.

Applicants relv for their cost justification on a study by Mr. Wilson .which shows that using a peak responsibility cost of service allocation OE's wholesale customers had a higher peak responsibility than its industrial customers (Wilson Tr. 11,046). However, in 1973, the test year for the purpose of this case (Kampmeier DJ 450, p. 34). -

OE did not use a peak responsibility method for rates regulated by the PUCO (Wilson Tr. 11,101). 145/ Thus, Mr. Wilson's study does nothing to justify cost allocations for the year which was the basis of the allegation.

143/ OE once again repeats Applicants' arguments concerning the alleged ef fects of regulation on the ir ability to set rates. These arguments are dealt with at pp. 33-34, 63, supra.

144/ We note that OE makes no attempt to dispute the Licensing Board's allocation of the burden of proof.

145/ As we understand Mr. Wilson's testimony, prior to 1975 an average and excess method was used in the PUCO wh Lle a peak responsibility method was used in the FPC (Wilson Tr . 11,101, 11,103).

l 127 L

Another failure of Mr. Wilson's limited study is that it considers only the demand charges.

These demand charges represent only 50 to 60 per cent of the cost of serving a customer (Wilson Tr. 11,047). Under OE's rates, a municipality will pay more for energy than a comparably sized industry (Kampmeier DJ 450, pp. 34-35), and the fuel adjustment provisions are dif ferent in the industrial retail and municipal whole-sale contracts, with no constant differential between them (Kampmeter DJ 450, p. 34; Wilson Tr. 11,120-29). OE has done nothing to cost justify the difference in energy charges or the difference in fuel adjustment clauses.

Finally, as the Licensing Board found, citing Federal Power Commis-sion v. Conway Corp., 426 U.S. 271 (1976), "two rates may fall vithin a zone of reasonableness, yet together they may have anticompetitive impact and antitrust sign'ificance" (ID at 155-56). OE has introduced no evidence which shows where its industr ial and wholesale rates fall within this zone of reasonableness. We have net been told whether the two rates are at the same ends of this zone or, if they are at different .

ends, that their placement is justified.

9. Pennsylvania Power _Comoany's Conduct Applicants contest the f ind ing that PPC's wholesale municipal con-tracts contained restrictions on the resale of power ( App. Br ief at 256-57). Rather, they argue that the contracts were amell'orative of more restrictive state law which allocates customers and terr itor ies. Appli-cants . argument can be disposed of easily. There is no state policy to amel io r a te . The Pennsylvania statute establishing retail service areas for public utilities and electr ic cooperatives specifically excluded 128 l

m -

municipalities from the operation of that law ( Act No. 57, Session of 1975 (July 30, 1975)).

Applicants also contest the findings made concerning PPC's refusal to set high voltage rates and PPC's pr ice squeeze activities. Applicants' arguments are dealt with in the sections concerning similar findings made against OE. 146/

D. Toledo Edison

1. Acquisitions TE has a company policy of acquiring and elim,inating competitors, '

which is ef fectuated by denying its competitors the benefits of coor-dinated operation and development (ID at 161-86). The present TE is an amalgamation of at least 190 companies which have been acquired by mergers and acquisitions (DJ 587, p. 70). 147/ It is an informal company policy for TE to try to acquire municipal systems (Schwalbert DJ 577, pp. 7-8; Kozak DJ 579, pp. 24-25; Cloor DJ 582, pp. 13-14; Moran DJ 583, pp. 54-55; DJ 166).

In a 1974 memo, TE personnel noted that "(s) ince other pr ivate or public utility systems can serve the municipalities, we should con-tinue our practice of purchasing municipal systems. We should concen-trate on those systems that have generating capabilities" (DJ 166, p. 2) 146/ Pr ice squeeze is discusses at pp. 127-28, supra, and the refusal to set high voltage rates is discussed at pp. 125-26, supra.

147/ TE claims that the only permissible inference that can be drawn f rom the TE acquisitions which occurred pr ior to the September 1, 1965, discovery cutof f date is that they were the result of natural scale econ-omics and other natural forces ( App. Br ief at .185-86 ) . This claim is not well taken as it was Applicants who preverted discovery by the opposing parties with regard to those acquisitionr Because no evidence was introduced, TE's early acquisitions must ce viewed as completely neutral events which cast no light on TE's .condt c prior to September 1, 1965.

129

(emphasis added). In another 1974 memo, Mr. Schwalbert, a TE Vice President who had shepherded the company's acquisition program since 1962 (DJ 133-34, 141; Schwalbert DJ 577, pp. 2-6), in the course of informing a new district manager of his duties, stated " acquisition of municipals is an objective high op our list" (DJ 541, p. 1).

Since 1965, TE has acquired two self generating municipal systems, Clyde and Waterville (Wein DJ 587, p. 71; NRC 158, p. TE-37; DJ 137, pp. 4-5) and the distribution system of Liberty Center (Wein DJ 587,

p. 71; DJ 137, 139, 139A). 148/ TE's role has not' been that of a 148/ Applicants have urged that their acquisitions of small systems are de minimis and therefore are of no significance in this proceeding (App. Br ief at 189, n. 220). While Applicants' proposition might have some validity if it were applied to an industry which was not h ighly concentrated, their argument was rejected by the Supreme Court in United States v. Aluminum Co. of America, 377 U.S. 271, 279 (1964),

when it quoted approvingly f rom United States v. Philadelphia National Bank, 374 U.S. 321, 365 n. 42 (1963), thusly:

[I] f concentration is already great, the importance of preventing even slight increases in concentra-tion and so preserving the possibility of eventual deconcentration is correspondingly great.

~

See also, Stanley Works v. FTC, 469 F.2d 498 (2d Cir. 1972), cert, den.

412 U.S. 428 (1973). Indeed, in Brown Shoe Co. v. United States, 370 U.S. at 321-22, the Supreme Court concluded that level of concentra-tion in an industry was an important f actor which Congress wanted the Courts to consider in determining if Section 7 of the Clayton Act was being violated.

As the Court, in United States v. Jerrold Electronics Coro. , 187 F. Supp. 545, 566, lamented:

This determination (whether a particular acquisition was violative of Section 7 of the Clayton Act] is extremely dif ficult to make when each acquisition forecloses only a small segment of the market. The Court is f aced with the proposition of deciding when the defendant has gone too far where each acquisition lessens competition almost immeasurably. Yet at some po int, the cumulative effect of these acquisitions will reach prohibited propor t ions.

l See also Brown Shoe Co., supra, at 333-34.

l 130

public benefactor which had no in te r est in acquir ing its competitors unt il inv ited to do so. 149/ The company has organized a " citizens' committee" to promote such acquisitions (DJ 541, August 7, 1973 draft,

p. 5); it prefers to organize " independent" public support for its O

acquisition attempts (DJ 554). TE's scheme of monopoli:ation is further revealed by its denial of coordinated operation and develop-ment to acquire a competitor (DJ 504), since an isolated system is easier to acquire (Schwalbert DJ 577, p. 19). The company was also willing to pay premium prices for competing systems (Wein DJ 587, e

~

pp. 77, 79-80; DJ 59 5, pp. 30011908-10). 150/

Since 1960, TE has had written or publicly announced proposals to purchase the municipal systems of Bryan, Clyde (acquired in 1965 ) ,

Edgerton (twice), Elmore 151/, Liberty Center (twice, acquired in 1974), Napoleon (twice), P ioneer , Stryker (acquired in 1963 ) and Waterville (twice, acquired in 1968 ) and has of fered to make system surveys which might lead to the purchase of every other municipal system in its service area (NRC 158, pp. TE-33-34, 14; DJ 552; Wein 149/ TE's representatives are instructed to solicit such inv ita-tions (DJ 541), which they do (DJ 553).

150/ TE's claim that it is the basic natural monopoly setting of th is industry, rather than its [TE's] anticompetitive practices, wh ich have caused small municipal systems to go out of business ( App. Br ief

p. 185) is belied by TE's own conduct which is inconsistent with that pr emise . If TE's assertion was true, then the natural economic forces of the market place would, over the long run , dr ive all of the .small, inefficient municipal systems out of business without any assistance from TE. As the Licensing Board noted, even if such systems were on the way to - obliv ion , it was not Applicants' duty to hurry them along (ID at 113). If TE really believed its " natural monopoly- argument, all it need do is sit back and wait for the laws of economics to operate. TE, - however , opted to assist the demise of small systems with anticompetitive conduct.

151/- It.should be noted that the wr itten proposal to purchase the Elmore system (DJ 552) was not d isclosed by . TE in its answer to the 20 ques-tions of the Attorney General for Antitrust Review (NRC 158, TE-34).

131

DJ 587, p. 71). Thus, since 1960, TE has attempted to acquir e each of the municipal electr ic systems in its service area. No generating municipal- competitors remain.

2. Territorial Agreements

'TE has misused its dominance and market power to deny the bene-fits of coordinated operation and development to the municipal systems and ccoperatives located within its service area by entering in to territor ial agreements with other generating entities, thereby elim- -

inating competition in supplying bulk power to those municipal and cooperative systems. 152/ Evidence of TE terr itor ial agreementc was 152/ Mr. Moran's testimony that he did not know of and probably would be aware of any territor ial agreements with other electr ic utilities (Tr. 9904-05) is hardly probative in view of the evidence of record, as well as his admissions that there may have been occasions when he was not aware of such agreements (Moran Tr. 10,002-09) and that he was not close to distr ict operations (Moran DJ 583, p. 17). The person who was familiar with tm e agraements, Mr. Schwalbert, TE's Vice

' President for Districts (DJ 132, p. 8), who ordered the distruction of TE documents relating to ter r itor ial agreements (DJ 617) and was present at a ceremony where such agreements were signed by TE (DJ 516),

did not testify.

Throughout the section of Applicants' Brief dealing with TE con-duct, TE has relied extencively on testimony by its pr imary witness, Mr. Moran. However , Mr . Moran's . testimony contained numerous incon-sistencies, erroneous statements and glaring memory gaps which led the Licensing Board to comment adversely on his credibility (ID at 169, 176). In assessing his credibility and assigning weight to his testi-mony, the following facts should also be taken into account: (1) he minsunderstood the legal framework within which TE operated. For example, he testified that the Ohio anti pirating statute was a constitutional provision which applied to municipal electr ic systems (Moran Tr. 10,053-56), when it is, in fact , a statutory provision (Statement of Counsel for Applicants Tr. 10,054) which does not apply to _ municipal systems (Stipulation Tr. 6896-98). (2) He testi-fied that, as Vice President in charge of TE's rate function (Moran Tr. 9920, 9829), he would not expect TE's wholesale contracts with smaller customers to have a twelve-month ratchet clause (Moran Tr.

10,039), but all of TE's full requirements wholesale contracts con-tain such a clause (NRC 111-12, 114-20, 122-25) whether the customer is large like Bowling Green with a 33.1 MW peak or small like Haskins with a 0.35 MU peak (NRC 158, p. TE-14). See also footnotes 161, 162, 168, 169,.171, 175, 177, 178, 179, 183, 186, and 192.

132

)

~

destroyed in 1970 or 1971 at the direction of Mr. William Schwalber t, a TE Vice President ( DJ 617 ) . No evidence has been presented which ind icates . tha t these terr itor ial agreements have been abandoned (See

p. 54, supra). .

a. Ohio Edison Beg inn ing in at least 1965, TE entered into and enforced a terr i-torial agreemant with OE ( DJ 513-17, 519, 533-35, 537-40). 15,3j

b. Ohio Power TE and Ohio Power Company have had a territorial allocation agree- .

ment since at least the early 1960's. Each of these companies has refused to sell power at wholesale to distribution systems which were being served by the other (DJ 512, 'Attachments 4, 4a, 4b, 8). Contem-poraneous with these refusals, the agreement was formalized by a territorial map, which may have been prepared by TE as early as 1962 (DJ 536; Tr. 8123). 154/

153/ TE's argument that there have been few opportunities for compett-tion between TE and OE or OP (App. Brief at 193) is d isingenuous. If few competitive opportunities existed between TE and OE, such an agree- _

ment would not have been required by the two companies.

TE also argues that insufficient evidence was introduced to support a finding that TE engaged in territorial agreements with OE and OP (App.

Brief at 190-92). We find this argument somewhat amazing in light of the fact that TE and OE ordered all documents relating to terr itor ial agreements destroyed (DJ 617; White Tr. 9747).

We would also note that OE has not actively d isputed the past existence of terr itor ial agreements in what it was found to have participated ( App. Br ief at 234-38).

The lasting effect of these agreements is discussed at pp. 122-23 of the Initial Decision.

154/ Applicants misstate the testimony of Messrs. Kozak and Keck with  ;

regard to the TE-Ohio Power Terr itorial agreement (App. Br ief at 190,  !

n. 221). Each of them merely stated that he was not aware of a terr i-torial agreement. See footnote 152 for comments on Mr. Moran's lack ]

of knowledge about ter r itor ial ag reements.

133-

k L

c.

Consumers Power Company

(" Consumers"), which serves in TE and Consumers Power Company to that served by TE in Ohio, have been Mich igan in an area adjacent since at least 1966 to parties to a ter r itor ial allecation agreementis suggested by and con- 5 The existence of this agreement the cresent. Southeast Michigan sonant with the wholesale contracts between 155/ and both TE and theCon-Rur al Electr ic Cooper ative (SE Michigan)the resale or use sumers; these contracts prohibit in the area served by the other r from one company by SE Michigan (DJ 16, pp. 1, 4; DJ 107, pp. 4, 8). 156/

is TE's refusals to sell SE Other evidence of this agreement its load. In in Ohio to serve the Michigan portion of submit a proposal for the sale of Michigan power 1965, SE michigan requested that SM: Coop load (DJ power to the Coop to serve the Michigan portion of the 108B), but TE refused (DJ 108A). t with rep-In February 1966, Messrs. Schwalbert and Keck of TE me ion Administra-resentatives of SE Michigan and two Rural Electrificat to discuss the coop-tion representatives, Messrs. Darling and Badner , in Michigan that TE sell it bulk power f or use erative's renewed request 1966 February 14-16 and February 14-17, (Darling Tr.

5188-90; DJ 108,

-in southeastern Michigan and of northwestern its load in 155/ SE Michigan is located 75% of its load in Michigan and 25%

Ohio and has about Ohio (DJ 86). in 1968 by the Buckeye Agree-The TE contract was superceded In 1972, one such prohibition in the 156/ 137-38, infra).

ments (See pp.

Consumers' contract (DJ 16, p. 4) was deleted 1). (DJ 16, 11t the remaining restraint was not removec (DJ 16, p.

134 i

• * *" Nw w *dme -

' M'm% M %w

Reports). 157/ A compar ison of the cost to SE Michigan of bulk power showed that TE would be the lowest cost supplier (Darling Tr. 5188-90; DJ 108, F'obruary 14-16, 1966 Report).

TE refused, giving three reasons: (1) a desire to avoid FPC j ur isd ic t ion , (2) a conflict with a Buckeye Power agreement, 158/

and (3) a terr itor ial agreement between TE and Consumers (DJ 108, February 14-16 and February 14-17, 1966 Reports). The evidence ind i- .

cates, however, that e

. . . the company did not appear to be too concerned over items 1 and 2 outlined above. Conversly they seemed disturbed and concerned over the thought of invading the territory of the Consumers Power Company.

In the past, it was believed that the company avoided serv ice in Michigan primar ily because of FPC jurisdic-tion. Today this is not the case. In fact it is almost cer tain the company will interconnect with the Consumer Power Company sometime in 1969 or 1970. . .

[DJ 108, February 14-17, 1966 Report, p. 2]. 159/

At a September 1966 meeting to discuss the renewed request (Darling Tr. 5195-96; DJ 108, September 13-14 and September 12-14, 157/ The reports contained in DJ 108 represent impar tial, mutually consistent, independently prepared records which were prepared imme-diately after the meeting -- in one case, from notes taken at the meeting (Darling Tr. 5194). Applicants' assertion that these reports, which document statements made by Messrs. Schwalbert ar.d Keck, c^n-stitute hearsay (App. Br ief at 191, n. 222) is rebutted by Federa t Rule of Evidence 801(d)(2) which states that admissions by a party-oppcc.ent are not hearsay.

158/ TE's refusal to supply power at wholesale in 1966 because of a confilet with the Buckeye Agreements, which were not executed until 1968, would appear to evidence a conspiracy which antedates App. 248 and which was not brought to the attention of the Department in con-

~

nection with Ohio Power Company's request pursuant to the Business

( Review Procedure. See n. 165, infra.

159/ The TE-Consumers Interconnection Agreement was signed in March I9F6 (Kock DJ 576, p. 148), so TE knew that FPC yar isd ict ion would be asserted in the immed iate future. See also Darling at Tr. 5192-93.

i 135

1966 Reports), 160/ TE refused again 'on the ground that the company did not want to violate its agreement with Consumers (Darling Tr. 5195-97; DJ 108, September 13-14 and September 12-14, 1966 Reports). 161/

Again in June 1971, SE Michigan repeated its request and empha- ,

sized that it, and not TE, would transmit power across the state line (DJ 84-86; DJ 108, June 2.3-25, 1971 heport). At this time, TE was clearly subject to FPC jur isdiction (Moran Tr. 9903; Keck DJ 576, pp.

155-56). Although TE had promised a rapid reply, it was slow in answering (DJ 108, July 21, 1971 Report) and finally on August 10, ,

1971, TE again refused the request stating that it did not want to serve in Michigan. 162/

In March 1974, SE Michigan again repeated its request (DJ 88) and, in May, it made yet another formal request for wholesale power ( DJ 89).

Although TE has agrood to negotiate (Williamson DJ 581, pp. 44-46), no 160/ These reports also consist of impartial, mutually censistent, inoependently prepared records which were executed immediately af ter the meeting (Darling Tr. 5197).

161/ Mr. Moran's lack of knowledge concerning this agreement may '

be credible in view of the f act that he d id not attend these meetings, that he did not know who made the request (Tr. 9981, 9984) or who responded for TE (Tr. 9983-84), and that the TE people concerned did not report to him (Tr. 9981-82). See also n. 152, supra.

Although Mr. Schwalbert denied the existence of this agreement, he was testifying solely f rom memory of a ten-year-old conversation with the knowledge that he and his employer were charged with violat-ing the antitrust laws.

162/ TE has claimed that a capacity limi' tion prevented it from serving SE Michigan in 1971 and that the cocperative was so informed (Moran Tr. 9984, 10,090-91; see also App. Brief at 191-92, n. 222).

However, TE's response to the request does not mention a capacity limitation problem (DJ 87). Furthermore, if a capacity limitation was the problem in serving the cooperative, it was a problem which could 'have been remedied. No suggestion by TE of such a possibility appears in the record.

136 l

agreement had been signed at the close of the record more than two years since the most recent request (Statement of Counsel Tr. 11,920). 163/

Since the most economical way to operate and develop the SE Michigan system would be to operate it as an integrated system, and not as two isolated systems, TE's refusals prevented this mbst advantageous method of operation (DJ 108, May 29-30, 1975 Report; Darling Tr.

5189-90) and denied the Cooperative economies of scale and diversity of denand, thereby anticompetitively raising its cost of bulk power. 164/

d. Duckeyr. ,

TE and OE are parties to agreements whidh deny the benefits of coordinated operation and development to their competitors and which eliminate competition. The Buckeye Agreements (NRC 188, 190), to which OE and TE are party, are part of a combination and conspiracy to restrain the sale of electric power at wholesale, as well as a misuse of dominance and monopoly power by OE and TE. 165/

163/ Mr. Bosch's contrary statement that TE had agreed is contra-dicted by both counsel and Mr. Williamson (DJ 581, pp. 44-46).

164/

TE asserts that the Licensing Board erred in denying TE's motion -

to dismiss cortain allegations on the basis of collateral estoppel

( App. Br ief at 191). However, TE has chosen not to reargue this issue, but rather to refer this Board to TE's tiotion to Dismiss (See App.

Br ief at 75, n. 85). For this reason, we will not repeat our argu-ments as to why collateral estoppel is not applicable, but rather will refer this Board to our Memorandum of the Department of Justice in

- Rosponse to Applicants' Individual Motions to Dismiss at 40-45 which we hereby incorporate by reference.

165/. Applicants'. apparent argument that they entered the Buckeye Agree-ments in detr imental reliance on a letter from the Department of -

Justice (App. 248), written pursuant to the Business Review Procedure (28 C.F.R. 550.60), is without mer it. F irst y only the entity actually requesting such a letter may rely thereon (App. 248, Attachment, y "3";

28 C.F.R. S50.60). The letter was requested solely by Ohio Power Company,'not OE or TE (App. 248, 284-89; Tr. 11,905). Second, even the requesting entity was on notice that the letter stated the Depar tment's then-present intention not to institute criminal proceedings and records (Footnote continued on next pagc.).

l l

137

~

h The Power Delivery Agreement, to which TE is a pa r ty (NRC 188 ) , (

(NRC l'90), both of cnd the Ohio Edison-Ohio Power Company Agreement signatories which define the terms and conditions under which their will transmit power on behalf of Buckeye,166/ contain provisions the terms of the Buckeye which require that all power transmitted under Agreements be consumed wholly within the State of Ohio (NRC 188, and definition of " Delivery provision 11-1; NRC 190, provision 14(iv)

Points Energy", p. 1).

This territorial limitation has prevented SE .

for the Michigan portion of its e 111chigan from obtaining Buckeye power is served by Buckeye (Bosch load although the Ohio portion of the load (DJ 580, pp. 30-33; DJ 86, DJ 88; DJ 90; DJ 108, June 23-25, 1971 and December 12, 1973 Reports).

e. Wholesale Customers TE's wholesale contracts with municipal systems restrained compett-tion. 167/ TE vicus its municipal wholesale customers not only as .

165/ (Footnote continued f rom previous page. ) civil or criminal action as might be the right to take such further

p. 3 and Attachment, 5 "8"; 28 C.F.R. S50.60).

appropr iate ( App. 248, Finally, the Business Review Procedure places the req "under an affirmative obligation to make full and true disclosure with respect to the busineas conduct for which review Thereisisrequested" absolutely(App.

no evi-248, Attachment, 9 "4"; 28 C.F.R. S50.60). of the fact dence that the requesting entity informed the Department illegal combinat ion and con-that the Buckeye Agreements were part of an spiracy, ID at.181; see pp. 147-48, infra, that they contained competi-tive restraints not required by law, see pp. 36-38, supra, and thatIDsome at of the signator ies to the agreements had terr itor ial agreements, 114-24, 166-70, and were engaged in other anticompetitive Absent suchpractices disclosure which limited the free flow of power in Ohio.

(see App. 284-89), a claim of good f aith reliance is hardly credible.

is a generation and transmission entityinwhich 166/ Buckeye Power, Inc.

is owned by 27 rural electr icFor distra ibution cooperatives br ief synopsis located of Buckeye and how Ohio (DJ 80; NRC 188, 190).

it operates, sco App. 284.

the restr ictive prov ision 167/ . The last of the contracts containing were to expire, by their own terms, at the end of 1976.

138

-- M n customers but as competitors for retail customers (DJ 166, pp.

1-2). 168/ In order to eliminate this competition, TE inserted provision number 8, 169/ which allocated customers, in its contracts with each of its full-requirements wholesale municipal customers 170/ (Moran DJ 583, .

pp. 82-3). The very ex!stence of these provisions rectrained competi-tion (Hillwig Tr. 2372, 2375, 2417; $1oran Tr. 9978, 9980, 9998-99).

In 1969, TE enforced the restrictive provision in its contract with <

168/ Exhibit DJ 166, a document prepared by those, most familiar with TE's municipal competition (Moran Tr. 9997) and one Mr. Moran was aware of (Tr. 10,089-90), completely refutes his testimony that there is no opportunity for such competition (Tr. 9909).

169/ Mr. Moran's somewhat inconsistent testimony to the effect that Bowling Green requested this restraint and that the restraint appears in other TE wholesale contracts because the other agreements were modeled after the Bowling Green contract (Tr. 9876, 9976) is refuted both by the direct testimony of an impartial witness

. (McKnight Tr. 11,995-96) and the f act that Bowling Green was the last of TE's wholesale customers to sigr. a contract containing such a restriction.

170/ Bowling Green (NRC 45, Ill), Bradner (NRC 112), Haskins (NRC 118), Liberty Center (NRC 119), Montpelier (NRC 120), Pemberville (NRC 123) and Woodville (NRC 125) contained such provistens and the whole-sale contracts with Custar (NRC 114), Edgerton (NRC 115), Elmore (NRC -

116), Genoa (NRC 117), Oak Harbor (NRC 122), and Pioneer (NRC 124) which were in effect at the close of the record contain these provi-sions. Applicants contend that they no longer have the power to insert ter r itor ial agreements into their wholesale contracts because all of their municipal wholesale customers are now taking power under a tar iff filed with the FPC which does not conta in a terr itor ial agree-ment and that any amendment thereto, will first have to undergo care-I ful scrutiny by the FPC. Th is is simply incorrect. Cer ta inly, the filings of the former contracts, some of which were in ef fect until December 31, 1976, did not prevent TE from including such restr ictive pr ov is ions . The fact that the FPC accepts an agreement for filing and allows it to become effective does not constitute approval of that agreement. 10 C.F.R. S35.4.

TE's attempt to chastise the Licensing Board for incorrectly assert-ing that the wholesale contract with Genoa was in ef fect as of the date of the Initial Decision ( App. Br ief at 195, n. 225) is mere quibble since the contract expired only six days pr ior to the issuance of the Initial Decision.

139

Edgerton (DJ 551). 171/ It was not until Bowling Green (Hillwig Tr. 2378-84; NRC 46-47; Moran Tr. 9880, 9885-86, 10,046) and Napoleon (DJ 311, p. 19; DJ 147; Dorsey Tr. 5279-80) strongly objected to this restraint, that it was removed f rom the ir contracts ( App. 35-36, 38-42, 259-60). 172/

3. Denial Of Sulk Power Services

a. Bowling Green TE denied Bowling Green bulk power services by refusing to wheel power on at least two occasions. In June 1972, Mr. Hillwig, on behalf 0 or Bowling Green, requested that TE wheel power for Bowling Green (Hillwig Tr . 2388) . TE refused to wheel because, according to Mr. Moran, the TE representative at that meeting, TE was dissatisfied with an existing contruct between TE and Ohio Power Company which pro-vided for TE's wheeling of Buckeye Power (Hillwig 2388, 2390, 2394; NRC 49; App. 17, Moran Tr. 10,014-18).

At a meeting on August 27, 1975, Mr. Smart, a TE Vice President, refused a request to wheel power 173/ made on behalf of Bowling Green 171/ Mr. Moran erroneously testified that he would be aware of any enforcement and that none had occurred (Tr. 9998).

172/ Applicants assert that their wholesale contracts were pro-competitive because they were an attempt to ameliorate the more restr ic-tive state constitutional provision which, they assert, would pt event a full-requirements wholesale custoner f rom selling power outside the city limits ( App. Br ief at .197-98 ) . As noted earlier , Applicants' interpretation of this constitutional provision is incorrect, see pp.

36-38, 41, suora. In addition; TE has introduced no evidence that indicates that this was the reason for inclusion of these provisions, while there is evidence that they were included to prevent competition.

173/ TE's assertion that at the time the request was maue, Bowling Green d id not have a specific source of power in mind is incorrect since at that time, Ohio Power had expressed interest in serving Bowling Green (Hillwig Tr . 2404-05). However , Ohio Power did not have a transmis-sion line to Bowling Green and the city could not afford to build one (Hillwig Tr. 2405-07). Thus, without wheeling by TE, Bowling Green would be unabic to obtain power f rom Ohio Power (Hillwig Tr . 2405-07).

140

(Hillwig Tr. ' 2401-03). 174/ TE's refusal was based on the adverse impact wheeling would have on the company's future load growth

~

and the financing of nuclear units (Hillwig Tr. 2402, 2446). TE power is wheeled by the Bowling Green system without restriction or charge (Hillwig Tr. 2367-68, 2415; Moran Tr. 4887-89, 10,072). 175/

In determining whether or not to engage in a particular trans-action which is being requested by a competitor, i.e., wheeling , TE considers the effect that transaction might have upon that competitor (Moran Tr. 10,021-28). In deciding how to respond. to Bowling Green's -

1972 request for wheeling, TE wanted to study and discuss the request in its home of fice and that study included consideration of the com-petitive effect of TE's response (Moran Tr. 10,028-29).

b. Napoleon Contrary to TE's contentions, the Licensing Board's findings that TE denied Napoleon bulk power services by its refusal to wheel power for, or operate in continuous synchronism with, Napoleon and then finally agreed to wheel, but only under anticompetitive conditions, .

is fully supported by the evidence of record (ID at 175-82).

174/ Mr. Smart testified that TE was unable to calculate a " postage stamp" wheeling rate and that he had never heard of the concept before the request was made (Tr. 10,149-50). TE is party to the Buckeye Agreements (NRC 188) which provide for "costage stamp" wheeling (White Tr. 9555) and Mr. Smart in a br ief flied with the FPC pr ior to that meeting had urged the rejection of testimony concerning such a rate (NRC 219-21). Rate aside, TE could have agreed in pr inciple to wheel, as it d id in CAPCO (Smart Tc . 10,102, 10,104-5) -- no such agreement was made (See also Smart Tr. 10,121-22, 10,150).

1,75/ Mr. Moran's testimony that Bowling Green does receive com-pensation pursuant to an unwritten contract to which Mr. Moran was not a party (Tr. 10,048-49) was ref uted by one of the alleged par ties to the agr eement (McKnight Tr . 11,997-98) who would not have had author ity to enter such a contract (McKn ight Tr . -11,997-98, 12,006),

i i

141

On three occasions, TE has refus'ed to wheel power for Napoleon, thereby denying this competitor the benefits of coordinated operation and development. In July 1971, Mr. Lewis, a consulting engineer for Napoleon (Tr. 5606-07), was assigned the task of conducting a bulk ,

power supply survey to determine the most economical means of meeting i the City's bulk power requirements (Lowis Tr. 5606-07, 5612). 176/

After studying a number of alternatives, Mr. Lewis recommended that Napoleon purchase seasonal power from Buckeye (through Tri County Cooperative) (Lewis Tr. 5612-14). The Buckeye power could be delivered ,

to Napoleon either by TE wheeling the power to the existing TE-Napoleon interconnection (which would be designated a " Buckeye Delivery Point")

~

or by having Napoleon build a ten mile 69 kv transmission line to an existing substation owned by Tri County Cooperative (Lewis Tr. 5614; NRC 127). 177/ In furtherance of this plan, Mr. Lewis met with TE 176/ At the time of these meetings, TE was considering purchasing the Napoleon system and had submitted a bid for the system (Moran Tr.

9923, 10,074; Lewis Tr. 5609-11, DJ 142). In February 1972, TE withdrew its bid (DJ 144).

177/ Mr. Lewis' af f idav it (NRC 127) is clearly the best evidence of

~

what happened at the three meetings at which TE refused to wheel or i

operate in continuous cynchronism (see p. 144, infra) and the two meetings at which TE denied access to large-scale generating units (see pp. 150-51, infra). It was prepared by Mr. Lewis within 16 months of the meetings (in January 1973), from notes taken at the meetings (Lewis Tr. 5615-16). It was not prepared for litigation (Lewis Tr. 5619).

The Licensing Board made a specific finding that Mr. Lewis was a credib'le witness (ID at 176). On the other hand, Mr. Moran, on whose testimony TE relles, testified from memory over four years after the meetings, at a time when litigation was in progress. He repeatedly confused the meetings referred to in NRC 127 (Moran Tr. 9940, 9942) and did . not remember what was discussed (Moran Tr. 9857-58, 9917),

noting that the meetings were "a long way back" (Moran Tr. 9914-15, i see also Tr. 9924-26). It is not surprising that the Licensing Board l f0und his testimony to lack credibility (ID at 169, 176).

l (Footnote continued on next page.)

142

reprocentatives, Mr. Cloer , TE 's Distr ict Manager , and Mr . Moran, a TE Vice President (DJ 134, p. 8), and was told by TE on at least three occasions that the company would not wheel Buckeye power and would oppose efforts by Napoleon to obta in Buckeye power (NRC 127). On one of these occasions, a March 6, 1972, meeting, Mr. Cloor ' stated that '

TE would not establish a delivery point to enable the Tri County Cooperative to steal TE's customer (NRC 127, pp. 3-4). TE was also concerned that if Napoleon constructed 3 ten-mile line to the Tr i County Cooperative, Napoleon might serve customers,along that line ,

. (Moran Tr. 10,065-66). 178/

117/ (Footnote continued f rom previous page. )

The probative value of NRC 127 is fur ther demonstrated by Mr. Moran's admission that Mr. Cloer made injud icious and inflamatory remarks (Tr. 9941). TE's argument that Moran, not Cloer, was the Company's sole spokesman is belied by Moran's f a ilure to disagree with Cloor (Moran Tr. 9921), h'i s f a il ur e to limit Clocr's authority (Moran Tr. 9921-22) and his failure to restrain Cloer (Moran Tr. 9921).

TE's belated attack on Mr. Lewis' credibility ( App. Brief at 203) is not supported by any evidence of record. All documents concerning Mr. Lewis' testimony (including his af fidavit) were turned over to Applicants on November 27, 1974 (Response of Department of Justice to Appl ican t s ' First Request For Production of Documents and Answers to ,

Interrogatories, at 9-11, items 34, 49 and 50), more than one year prior to Mr. Lewis' appearance at the hear ing. Applicants also had full opportunity to cross-examine Mr. Lewis on the or ig ins of his af f idav it. Applicants should not be perm itted , nearly one year after the close of the record, to make unsubstantiated charges which the opposing parties have no opportunity to rebut.

178/ Mr. Moran of TE agreed on deposition that the company's posit ion was accurately stated in Mr . Lewis' af f idav it , NRC 127 (Moran DJ 622, pp. 42-3), but attempted to repud iate h is deposition testimony and qualify his acceptance of the company's position stated in NRC 127 as referr ing only to the establishment of the delivery point ten miles away (Moran Tr. 9924-29); the statement in NRC 127 with wh ich Mr . Moran agreed on deposition (DJ 622, pp. 42-3) referred only to the establish-ment of a delivery point at the present interconnection between TE and Napoleon. There is no dispute that TE opposed the delivery point ten miles from Napoleon (Moran Tr. 9847-48).

143

On at least three occasions between September 1971 and March 1972, TE representatives stated that TE would not operate its system in continuous synchronism with the Napoleon system, if Napoleon entered into' an agreement with Tri County Cooperative to purchase Buckeye power (NRC 127). No technical or engineer ing reasons for these refusals were given to Napoleon's consulting engineer (Lewis Tr. 5635-39). 179/

TE further denied the full benefits of coordinated operation and development to Napoleon by agreeing to wheel Buckeye power only on ,

anticompetitive terms pursuant to the Buckeye Agreements. In conform-ity with the Buckeye Agreements, Napoleon was required to disconnect its system for 90 days from that of TE and operate in isolation 180/

before it could secure power from Buckeye (Dorsey Tr. 5262, 5282, 5284; NRC 128). 181/ TE ind icated that it would not wheel Buckeye 179/ Mr. Moran could not recall two of the discussions of this matter (Tr. 9917-18). He agreed with NRC 127 on the remaining d is-cussion, but stated that TE wished to protect itself against Napoleon secur ing power f rom a " third source" (Tr. 9849, 9935). He testified inconsistently as to whether he had mentioned this concern to Lewis -

(Tr. 9849, 9937, 10,091-92), but he was sure that Lewis had not men-tioned a " third source" and he had no reason to believe that one existed (Tr. 9937). He admitted TE's concern could have been allevi-ated by a simple contractual provision (Tr. 10,068). His recollec-tion of his deposition testimony on this topic (Tr. 10,009-12) is completely false (DJ 622, pp. 50-1).

180/ The provision in question requires that before a municipal electric system which is a wholesale customer of an investor-owned utility can obtain Buckeye power, it must disconnect from the investor-owned utility and operate as an isolated system for 90 days (NRC 188, def inition of Buckeye Power Requirement (p. 3); NRC 190, definitions of Delivery Points Energy (p.1)) .

181/ TE felt that the restr ictive provisions in the Buckeye Agree-ments were so strong that they prohibited Buckeye from competing for or securing TE's. customers (DJ 146).

144 L'

power unless Napoleon completed a 90-day period of isolated operation (DJ 145, 148; NRC 128-29, 131). Napoleon agreed to do so (Dorsey Tr.

5264; DJ 149 ) , although such operation would result in a ser ious reduc- .

tion in the municipal system's reliability and leave it totally without reserves during peak loads (Dorsey Tc. 5264-66). 182/ Napoleon informed its customers of the impend ing isolated operation and received numerous complaints (Dorsey Tr. 5266-68; DJ 302-07).

The risks of isolated operation were such that Napoleon made a written' request that TE waive the 90-day cutoff requirement (NRC 130, Tr. 5269), but such a waiver was refused (NRC 131, Tr. 5269). TE took the position that it would emphatically resist any such waiver in Napoleon's case (DJ 150). Napoleon was therefore very concerned about the possible need to reconnect with TE if an emergency arose on the municipal system during the 90-day cutof f (Dorsey Tr. 5270; Moran Tr.

9861). Napoleon suggested a simple method of disconnecting the systems which would require only 15 minutes to reconnect in case of an emer-gency, but TE insisted on a cumbersome method which would require at .

least four to five hours to reconnect (Dorsey Tr. 5273; Moran Tr.

9861, 9947; DJ 309-10). 183/

182/ 'The cost of secur ing additional reserves was prohibitive (Dorsey Tr. 5268-9).

183/ Hr. Moran's attempt to justify TE's obstructionistic position by citing " safety" considerations (Moran Tr. 9861, 9945-6) is belied by his irrational rejection of less cumbersome alternative methods of l

l resolving TE's purported concern (Tr. 9946, 9948-49.,9954). His l

final reversal of position consisted of admitting TE could have been l~ protected simply by Napoleon's assurance that no city employee would enter the substation -- an alternative never mentioned to Napoleon i

1 (Moran Tr. 9954).

145

'"I,111 lonal expenne for - Tm'il it (cc or Although TE would incur no I."wis Tr.

' ( Dor sey Tr . 52W,- Mi maintenance by whoeling Buckoy" I".wos lhnt ifapoleon pay nel,Illlonal com-5 62 0, DJ 148), the company demsn'l'"l Icvel of servien (llitC 129; pensa t ion in order to mainta in l ho n.unn vaused TE to ,

l< l i n e n to pay would havo App. 252; Dorsey Tr. 5275-76). u l lab il ity

' increased flapoleon'n reduce its service which would ha'7" cubstan-Thin payment would linvn (Dorsey Tr. 5275, 5278, 5290 'il),

tially reduced the benefits or "'"H'llnated operation to lJnpolcon C

, e (Dorsey Tr. 5263-64).

c. The Buckeye Agenom"fild lill unded to and do deny municipal The Buckeye Agreements was" the benofits of coordinated systems, which compete with Tl! un,l uli, Thu linckeye Agreementu wore entered into operation and development. 1H1/

of a stateside by pr ivate utilities in order lo in nvent the construction onoperatIves which von ht have transmission grid by rural einolI l

"uned utilities in Ohlo (Keck DJ 576, diluted the dominance of invent"f ll11-19; DJ 200, Attachmonts 5, 11-14, PP. 183-84; Mansfield DJ 572, pp.

Power Company was concerned that, ,.

16). As early as January 1961, oblo trannmins ton system, If Buckeye constructed and owno.1 a 'l"neration and its wholesale ennl ainers (DJ 200, Ohio Power would be in danger og loning l'nbr uary 1962, Oh io l'ownr recognized thas Attachments 11-14, 16). 184A/ I t ',,

independoni We might forestall the conni notlon of anto the ex tent. or G & T system.by offerinel lo """l'e r a te innt all a generating null allowing the cooperativen lo lo Applicants' confontlon that 184/ For the Depar tment's rent'"n'"' by the Depar tment- or ,instice, the Buckeye Agreements were art *8 "'"'I see p. 138,.n. 165, suora.

f ll"' "'hn ins ton of DJ 200tfin W ceW isncenot 184A/ Applicants' exception lo ooso,1 i t ut es hear say "v . on on the grounds that th is exh ili t i ,nis eement to walve hoa,n.iy and well taken in vibw of Applienni .,e '3"p u nm n t s . Soc Appenalix He authenticity objections on til"""

l14 l

or units in one of our own stations and then delivering the power to the cooperatives over our own facilities, with either Buckeye providing the transmission to load centers which we do not reach or the other utilities in Ohio wh ich now 3upply cooperatives agreeing also to wheel power ( D) 200, At tach:aent 12, p. 5].

Ohio Power was aware that, to successfully forestall the construction of an independent cooperative generation and transmission system, it would need the cooperation of the other Ohio utilities (DJ 200, Attach ment 12, p. 5 and Attachment 14, p. 3; Keck DJ 576, pp. 183-84). Some time before August 1962, Ohio Power engaged in discussions concerning ,

Buckeye with other Ohio utilities, including TE and OE ( DJ 80; Schwalbert DJ 577, pp. 40-42), and informed them that the plan ultimatalY effectuated by the Buckeye Agreements would' prevent the cooperatives from building a transmission network (Mansfield DJ 572, pp.118-19).

In 1968, TE and OE entered into formal agretments with Ohio Power which forestalled the construction of an independent cooperative generation and transmission system and which are substantially identical to the scheme conceived by Ohio Power and discussed with OE and TE in 1962 (App. 284, pp. 1-6, 8; DJ 200, Attachment 12, p. 5). Even though this objective was realized, Ohio utilities -- including TE and OE --

still feared the loss of municipal wholesale customers to the coopera-tives and inserted a 90-day cutof f provision (See pp. 144-45, supra) in the Buckeye Agreements which prevented such competition (Schwalber t DJ 577, pp. 44-46; DJ 491-93; Mansfield DJ 572, p. 171). 185/ This restr ictive provision makes it impractical for municipal systems to obtain Buckeye power (Schwalbert DJ 577, p. 46). Str ic t dherence 185/ TE actively participated in draf ting this provision (DJ 77) .

147

to the restriction has been insisted upon by both.TE (DJ 81) and OE (a7 78-79).

The highly anticompetitive impact of this restraint is not specu-lative in view of the number of municipal systems which are or have been interested in securing bulk power from Buckeye -- Bryan (Eppard Tr. 5453, 5455-55a; DJ 316-20 ) , 186/ Cleveland (Hart Tr. 4705-06, 4714; DJ 177; App. 75 and 79), Newton Falls (Craig Tr. 2927, 2937,

- 2953; NRC 84), Norwalk (DJ 425-27) and Napoleon ~.-

Applicants' contention that the 90-day disconnect requirement in the Buckeye Agreement was merely a requirement of Ohio law ( App. Brief at 206-08) is in error since a state may not raise barriers to wholesale competition. See pp. 36-38, supra. Indeed, if Ohio law prohibited such sales, it would not have been necessary for Applicants to place this restraint in the Buckeye agreements. Applicants' contention that the insertion of the 90-day disconnect provision in the Buckeye Agreements was in direct furtherance of a state policy to minimize unnecessary or uneconomic duplication of facilities (App. Brief at ,

207-09) is also incorrect since, as stated earlier, the state law regarding the 90-day cutoff specifically does not include municipal systems. See p. 41, supra. Any Ohio policy against the construction of duplicate facilities would have been satisfied had TE agreed to wheel Buckeye power to Napoleon rather than requir ing Buckeye to construct a new transmission line.

186/ TE was aware of this possibility (DJ 82), Mr. Moran's testi-mony to the contrary notwithstanding (Tr. 9973).

l 148 I

Similarly, Applicants' reliance on Parker v. Brown, 317 U.S.

341 (1943) (App. Brief at 208-09), to immunize the Buckeye Agreements from antitrust attack is belied by the decisions in Goldfarb v.

Virginia State Bar, 421 U.S. 773 (1975), and Cantor v. Detroit Edison Co., 428 U.S. 579 (1976). (See pp. 84-89, supra.)

e

d. Waterville The Licensing Board's findings that TE refused to sell wholesale power to Waterville, thus leading to the. demise of the system (ID at 182-84) are supported by the evidence. .

In 1966, TE knew that Waterville was an isolated, self-generating municipal system which was having problems with reliability and voltage variations (Cloer DJ 582, p. 12) and had reached a critical condi-tion where it was unable to supply all of its industr ial customers with power on certain days (DJ 615). At that time, Waterville informed -

TE that it was interested in negotiating for a bulk power supply on a long-term basis (DJ 615) . 187/ At a November 8, 1966, meeting, TE's spokesman 188/ informed Mr. Bucher of the Waterville Board of Public .

Af f a ir s ( DJ 504) that it was TE's intent not to interconnect with and sell firm wholesale power to Waterville in an attempt to force the 187/ TE's assertion that two of the three Waterville City Council members were opposed to the idea of negotiating a long-term bulk power supply contract is contradicted by the document it cites in support of that contention (DJ 615 ) which states that those council members have changed their mind and have agreed to pass a. resolut ion author iz-ing such negotiation.

188/ Mr. Cloer was TE's spokesman in thr- sd tp < .y's dealing s with Waterville (Cloer DJ 582, p. 7), as well 3, t._'p District Manager

.(Cloor DJ 582, p. 4; DJ 138, p. 1).

149

sale of the system but that, as a political tactic, TE would publicly announce other reasont for its conduct ( DJ 504). 189/

At a March 1967 public meeting, TE's spokesman again stated that the~ company would 'not sell firm power at wholesale to W'aterville (DJ 619). In June 1967, Waterville's consulting engineers again requested that TE sell Waterville either full or partial requirements firm

. wholesale power (DJ 505); TE again refused (DJ 506). In 1968,,

Waterville sold its system to TE. 190/ ,

s

4. Denial Of Joint Ounershio In Large-Scale Generating Facilities The Licensing Board's findings that TE denied joint ownership in large-scale generating facilities to Napoleon and other municipal-ities 191/ are well founded (ID at 185-a6).

In meetings on September 2, 1971, and March 6, 1972, called for the announced purpose of examining future bulk power supply alternatives for 189/ A memorandum of this meeting, which expressly and concisely spelled out TE's position on Waterville, was sent by Mr. Cloer to -

Mr. Schwalbert, who at that time was Assistant to the Senior Vice President and General Manager (DJ 138, p. 1).

190/ TE's interpretation of Waterville's asserted reasons for the sale ( App. Br ief at 186-67) are disingenious cince the citation to "D-582 (Cloer) 35 (8-9)" does not relate to Waterville.

191/ TE'; objection to the Licensing Board's finding that TE denied access to large-scale generating facilities to other municipal,ities besides Napoleon (App. Brief at 210, n. 241) is not well ta k er. . The company position for denial of access enunciated by Mr. Moran, i.e.,

that' municipal wholesale customers were to be treated like ind us t r ial customers, with the same rates, would apply equally to all wholesale municipal customers. For a reiteration of this TE position, see NRC 47; DJ 150, Moran DJ 583, p. 52.

150

_ - - - - - - -- m - . __

_-7 ,, - - - -.~ ~ m

192/, TE's representative 193/ refused requests Napoleon (Moran Tr. 9843)

(Lewis Tr . 5606-07) for by Mr , Lewis, Napoleon's consulting engineer facilities (NRC 127, pp. 6-8). The cccess to large-scale generating the units would only qualification placed on these requests was that TE's be greater than 300 to 400 MW in side (Lewis Tr. 5628). 194/

resulted alleged willingness to consider this venture now 195/ has not in any agreement. 196/

1 He first 192/ Mr. Moran's testimony on this topic changed twice. recall this ma stated thatrecall he d at id which not meeting it was discussed (Moran Tr. meeting the first 9857-58).

could not the discussion occurredrevert at to his original He later testified thatStill later , he appeared to (Moran testimony Tr. (Tr.

9915).

9940).

193/ Mr . Cloer , TE's Distr ict Manager and Mr . Moran , a TE Vice President (DJ 134, p. 8).

is no substance to Applicants' claimThere that the wasrequest no suchdid limi-194/ There not include nuclear units (App. Brief at 211).

tation in Mr Appl. Lewis' reauestontoMr.

icants ' reliance TEDorsey's and 'there is noisevidence testimony totally to contrary.

irrelevant since Mr. Dorsey did not wellbegin af tertothe work for Napoleon meetings until took place.

(Dorsey Tr. 5249),

December 1972 TE's reason for the denial of access would apply to In any event, nuclear as well as fossil fuel units.

it has af firmatively committed itself to grant TE's assertion that entities access to nuclear units, through App. 44 (App. 44 is Brief at 211) totally in-does not represent a change in position since App. this " commitment" adequate (See pp. 182-83, infra) and, in any event, (Dorsey Tr. 5313).

has not been communicated to Napoleon 195/ TE's argument that its purported 253 and policy 254),indur1974 ing a(See App.

per iod Brief at af ter 211, n. 243, citing DJ 151; App.in response to adver ne antitr ust adv ice this proceeding had commencedlegitimates earlier refusalsInto addition, engage in TE's from the Attorney General,is clearly without substance.

coordinated development is nothing more than a solicitation letter reliance on App. 253, which self-serv ing statements, is misplaced.

containing unsubstantiated, if in this matter may be questioned since, 196/ Indeed , TE's sincer ity it would have la obtain TE were to taKe part in such a joint venture, and CAPCO has not the approval of all CAPCO members (Schaffer Tr. 8557) in to a j o int gener-i been notified of TE's purported willingness to enter 10,066-67).

ation program with municipal systems (Morsn Tr.

E. CAPCO The Licensing Board correctly found that a collateral and well-understood result of the formation of CAPCO was to deny to competitive entities in the CCCT access to coordinated operation and development (ID at 188). 197/ Appl icants , howev,er, argue that the ir refusals to grant CAPCO membs. ship to municipal systems were not the result of anti-competitive intent, but rather of sound business judgment (App. Brief 102-13, 145-54, 274-80). In examining Applicants' arguments and our rebuttal to those arguments, two f acts should be k'ept in mind: (1) most, if not all, of the mater ial relied on by Applicants to justify the ir refusals were generated well after the denials of access occurred; (2) even assuming arguendo that Applicants' concerns about problems caused by admitting small systems contr ibuted in part to their refusals, Applicants made virtually no attempt to find solutions to those prob-lems. Applicants' pooling expert testified that such problems can readily be solved (See pp. 155-56, infra).

1. Responsibilities Of Power Pool Members The Department agreeG with Applicants that whenever there is a coordination arrangement, there must be some equitable distribution of responsibilities ( App. Brief at 103, n. 121) and that the appropr iate l cr iter ia for distr ibuting these responsibilities are contained in Gainesville Utilities Department v. Florida Power Ccrporation, 40 FPC l

l 197/ Applicants have suggested that CAPCO was formed because of the FPC policy which encouraged pooling (App. Brief at 13-16). However, the evidence shows that CAfCO was formed for the benefit of the member . utilities (Fleger Tr. 8617; White Tr. 9813-15; Mansf ield DJ 572, p. 135; Williams Tr . 10,351) without any government pr odd ing (C 121, pp. 7-8). In fact, CAPCO would have been more in line with the FPC policy which urged coordination if municipal systems had been included in the pool (Hughes Tr. 4089-90; Besse DJ 559, pp. 126).

152

1227 (1968), aff'd 402 U.S. 515 (1971). In that case, the FPC stated its position on this matter.

As a general proposition we note that whenever two electr ic systems with generating capacity undertake to ' interconnect and operate in parallel it is necessary .

for them to consider the nature of their respective electrical resources and individual system utility responsibilities, both as a means of evaluating the particular services to be rendered between the con-necting systems and in order to ensure that appropr ia te compensation is afforded, either throuah service ex-changbs or financial payment. Matket d ispar it ies - ,

between two (or more) systems in the reliance placed upon the network should be reflected in the terms and .

conditions of the interconnection ar rangdment thro ugh appropr iate provisions. Each participant should bear its proportionate share of that responsibility. In our judgment, a orereauisite to viable. cad effective interconnected operations among all electric systems is an ecuttacle sharing of the resconsibilities of interconnected oceration. Each par _ticipant should bear its proportionate share of that responcibility.

In doino so, each interconnectino system will meet its utility responsioilities and there will be no economic

~

penal. ties for Deing the last one on the interconnected network. 40 F.P.C. at 1233 tempnas ts suppliedj .

From this basic premise, Appliennts go on to explain their net benefits theory (App. Brief at 102-13). However , as we understand

• l Applicants' position, there are at least four major aspects of their net benefits analysis which have been rejected by adjudicative bodies or Applicants own expert on pooling.

F ir st , Applicants focus on the benefits that each party will receive rather than the burdens incurred by engaging in the coordination transaction. This view was rejected by the FPC in Gainesville. In analyzing the appropr iate cr iter ia for shar ing the responsibilities of interconnected operation, the FPC ctated:

The reasoning of both Florida Power and the Examiner is inconsistent with what we have determined to be the approprtate analysis of the baste tssues here presented: j sharing the resconsibtltttes of interconnected operations.  ;

I 153 l i

u -v, .

As we have explai.ned, that sharing must be based upon, and follow the procortionate buroens each system places upon the interconnectea system networks, not tne benetits each expects to recetve. Benerits receivea in any given situl-tion may approximate these responsibilities or they may not. . . . 40 F.P.C. at 1237 lemphas Ls supplieOj .

Second, in evaluating the benefits which each party derives from the coordinating transaction (rather than looking at the burdens im-posed), Applicants apparently subtract from their benefits the business they will lose to the system with which they coordinate due to that system's increased ability to compete. This concept was rejected by the Licensing Board in Waterford which in fashioning license conditions defined the word " cost" in a manner which made it abundantly clear that possible loss of retail or wholesale sales by the larger system which-would result from the smaller system's increased ability to compete for customers was not to be considered in determining the " cost" of the transaction. Louisiana Power & Light Company (Waterford Stecm Electric G.enerating Station, Unit No. 3), Memorandum of Board, 8 A.E.C. 718, 741 (1974). This portion of the opinion was affirmed by this Appeal Board, ALAB-258,.1 N.R.C. 45 (1975). Refusals to deal by a monopolist cannot .

be justified by the monopolist's fear of loss of customers due to increased competition. See Otter Tail, supra at 380.

Third, Applicants' net benefits theory appears to require that the benefits accruing to both sides of the transaction be equal. This view was implicitly rejected by the FPC which held that benefits received by a party to a coordinated transaction do not have to be related to the burdens that party imposes on the other system, Gainesville Utilities Department v. Florida Power Corp., suora at 1237. This, of course, is in keeping with the FPC policy that there should be "no economic penalties for being the last one on the interconnected networ k" 154

- ._. . ~ b

~_. -

< Gainesville Utilities Department v. Flor ida Power Corp. , supra at 1233.

Applicants' expert on pooling agrees with the policy enunciated in Gainesville. Mr. Slemmer described the concept of mutuality as meaning "we [the pool members) want to.do the best job we can in operating the pool. That is the mutuality of in te,r e s t" (Slemmer Tr. 8986). It makes no dif ference from an engineering st:.ndpoint if one pool member takes more than it puts into the pool (Slemmer Tr. 8988-89) and the mere fact that one pool member has the ability to provide more emergency support e

than the others does not mean that the others are "" leaning" or "r iding" on him (Slemmer Tr. 9032-34). Any reserve defects a pool member has can be made up by purchases from other pool members or from outside the pool  !

(Slemmer Tr. 9033-34) as money is adequate compensation for services (Slemmer Tr. 9021, 9043). Clearly, non-Applicant entities in the CCCT could provide the mutuality Applicants claim is required to make CAPCO word Lastly, Applicants apparently asser t that another basic requirement of coordinating transactions is that the par tias must be able to provide like services. However, as noted above, Mr. Slemmer testified that -

money is an adequate substitute for like services (Slemmer Tr. 9021, 9043) and the FPC agrees, Gainesville, 40 F.P.C. at 1233; Mid-Continent Area Power Pool Agreement, FPC Docket No. E-7734, Opinion and Order (June 15, 1977) Slip Opinion, pp. 15-16.

Mr. Slemmer does not' feel that coordination arrangements should be denied smaller or publicly-owned electric systems (Tr. 9054) and was aware of viable power pools which include both investor-owned and publicly-owned systems (Tr . 9108 ) . 198/ In fact, Mr. Slemmer testified 198/ See DJ 634-37 (NEPOOL Agreement, which contains many small publicly-owned systems as well as a few large investor-owned systems). See also Mid-Continent Area Power Pool Agreement, supra; pp. 20, 31, supra.

155

_ _. _ - - - _ _ ~ . __m ,_ _

that an arrangement could be made for coordination between Applicants and municipal systems operating in the CCCT which would provide each party with significant net benefits (Slemmer Tr. 9121). CEI's eng ineer ,

Mr. Masters, stated that even if a small system could not provide emergency support for a large system, there could be an incentive for the large system to enter into an interconnection arrangement with the small system (Masters DJ 567, pp. 168-69).

The record in this proceeding is replete with examples of benefits to Applicants from having even limited coordinated operation and development with small systems. CEI's interconnection with Painesville might reduce CEI's CAPCO commitments (Masters DJ 567, p. 195).

Napoleon's generation is being operated to provide peaking power for.

TE, and TE is considering a similar arrangement with respect to Bryan's generating capacity (DJ 300; Kampmeier DJ 450, p. 44; Keck DJ 576, pp.

229, 231-33; Kozak DJ 579, pp. 20-22; Dorsey Tr. 5751-52). 199/ TE well knows that a small system can add to the economics and reliability -

of a large system (Moran Tr. 9996-97, 10,064-65). In addition, Bowling Green wheels power for TE without charge (Hillwig Tr. 2367-68, 2414; Moran Tr. 4887-89, 10,072).

In 1974, the City of Orrville wrote to Ohio Edison asking to dis-cuss a power pooling arrangement. Orrville at the time had 25 MW of load and 65 MW of generating capacity permitting Orrville to make 40 MW of capacity available to the pool ( App. 174). Thus, Orrville offered the pool 15 MW more than Duquesne obtains from its interconnection 199/ Leasing of Bryan's generating capacity to provide peaking capacity for TE would produce the same results as a purchase of power from Bryan (Bosch DJ 580, pp. 13-14).

156

I agreement with St. Joe Lead and for which Duquesne receives CAPCO credit (Dempler.Tr. 8710-11).

A system which could only contribute peaking units to the pool would be a benefit to the CAPCO pool (Schaffer Tr. 8566). An entity which brought as much as 10 MW capacity tq the pool would change the CAPCO members' commitments for reserve capacity (Dempler Tr. 8857).

The acT isition of MELP's generation by CEI would reduce CEI's CAPCO requirements (DJ 354) .

Small utilities could have aided Applicants b'y contributing capital at a time when Applicants were defering units because they were unable to raise capital for construction costs (Moztr Tr. 3609). Small ut il-ities could contribute benefits through peak diversity (Mozer Tr. 3609).

Small utilities could have contributed to economies of scale when the 900 MW Davis-Besse No. 1 was planned by permitting an increase in size to 1100 MW (Mozer Tr. 3608).

Mr. Firestone admitted that load growth over that needed to make feasible installation of the largest available units increases the fre-quency of installation of units, thereby increasing the total savings re-sul t ing f rom taking advantage of economies of scale (Firestone Tr. 9406).

Apparently mutuality was no problem in 1962 when Mr. Lindseth offered to interconnect with MELP with schedules for emergency support, firm power , economy energy and wheeling to the City's public load ( DJ 293). Since then, MELP has added 125 MW of new generating capacity which presumably increases mutuality. Perhaps the pr ice-fixing requirement attached to the 1962 offer provided the mutuality.

In 1967, CEI negotiated un interchange agreement over a 100 MW intertie with Union Carbido (DJ 606). Either CEI believed a 100 MW 15_7

I 1

intertie was large enough to provide mutuality or it was willing to forgo mutuality in an effort to forestall installation of additional i generation by Union Carbide.

During the summer of 1973 when CEI was admittedly having diffi-culty meeting its peak load and was curtailing sales to its interrupt-ible customers, MELP offered to sell peak load power to CEI (Hinchee Tr. 2725).

In addition, MELP could provide beneficial support to the metro-s politan transmission grid through a program of sta@gered construction of peaking units with CEI (Mayben Tr. 7765-66).

2. Formation of CAPCO Mr. Lindseth, who, as CEI's chief executive officer, took part in all of the discussions concerning the formation of the present CAPCO, testified (Lindseth DJ 568, pp. 26-28):

Q. Was the possible inclusion of municipal systems discussed at any of the meetings?

A. If you mean by the phrase of municipal systems broadly noncorporate type utilities, there was -

a discussion of, I believe, a group of cooper-atively owned systems at one or even possibly more than one of those meetings.

Q. Now what was the nature of these discussions?

A. Whether the nature of the CAPCO arrangement was such that other than utility companies should be members.

I Q. .And what was the conclusion? I l

A. The conclusion was that that did not conform to the concept of CAPCO, and,they were not inv ited as I recall to par ticipate.

Q. If you recall, on what basis was that decision reached?

158

A. Well, I do not remember the details of the dis-

- cussion or consideration, but CAPCO was an organization of utility companies, and hence should be an organization of utility companies.

Thus, CAPCO was clearly conceived as an organization that was to ,

be limited to investor-owned utilities. 200/

Mr. Besse confirms that CEI had no desire to coordinate with municipal sys,tems: He stated that CEI desired to avoid Federal inter-vention in coordinating activities which, it was feared, would permit small systems to coordinate, thus reducing the gap in costs between investor-owned utilities and small systems (Besse DJ 559, pp. 126, 132-33). Mr. Mansfield shared this belief that investor-owned utilities should not coordinate with public power groups (Mansfield DJ 572, pp.

10-11).

Mr. Fleger , on the other hand, merely states that Applicants never considered including municipal systems in CAPCO because it was necessary that rn agreement on the pool be reached prior to an October 25, 1967, deadline for order ing a new generator (App. Brief at 21). 201/ Thus, 200/ The various reasons advanced by Applicants for the exclusion of publically-owned systems ( App. Brief pp. 12-25) do not appear in Mr. Lindseth's answer. Nor are those reasons contained in documents which were prepared at the time of the formation of CAPCO. Obv io usly ,

those reasons are afterthoughts.

201/ If Mr. Fleger's reason were the only reason, then~there would be no objection to allowing additional members into CAPCO af ter its formation. However, Applicants assert that one reason for refusing Pitcairn's request for pool membership (a request which came a scant three months after CAPCO was formed) was that it would require nego-tiation and redraf ting of CAPCO contractual agreements (App. Brief at 109). Certainly the latter excuse is unreasonable in view of the arbitrary exclusion from CAPCO prior to formation due to alleged time pressure.

153

there appears to be unanimous agreement, albeit for allegedly different reasons, that publicly-owned systems would be excluded from CAPCO. 202/

At the time the decision was made not to include municipal systems, Applicants knew that competing municipal systems had an interest in pool-ing (DJ 239; DJ 279, p. 7; C-49, p.,7; C-50, p. 4; C-51, p. 4) 203/ and were concerned that the FPC might force CAPCO to admit public power systems (DJ 279, p. 7; C-50, p. 4; C-52, p. 2; DJ 280, p. 2). 204/ This 202/ Appl ican ts ' offhand dismissal of full-requirements wholesale cus- ,

tomers from consideration for membership in CAPCO because they allegedly could not meet certain responsibilities of pool members ( App. Brief at 16-17) is alrectly contradicted by the testimony cited to support Appli-cants' contention. This testimony clearly states that entities which do not have the capacity or reserves which are needed to become pool member may satisfy their pool obligations by purchasing these things.

Furthermore, Mr. Slemmer, Applicants' expert on pooling, would not exclude nongenerating electr ic utilities from pool membership (Tr.

0036-37) for it is possible for utilities without generation or trans-mission to of fer benefits to the pool (Tr. 9039) and any dispar ities in benefits can be made up by payment of money (Tr. 9043).

Appl ican ts ' similar dismissal of municipal systems with genera-tion from pool membership is also contrad icted by Mr. Slemmer who would not exclude gnerating entities even if they did not have tr ans-mission (Tr. 9038-39).

203/_ For example, on August 20, 1967, the CAPCO Chief Executives engaged .

in lengthy discussion regarding possible municipal intervention before the FPC to seek to join the pool (C-49, p. 7). On that occasion, Mr. Besse of CEI noted that "his company was on notice that the City of Cleveland will ask us for an in te r connec t ion . " At that same meeting, Mr. Marnfield of Ohio Edison ard Penn Power stated that the municipal-ities o_ Hiram, Oberlin and Cleveland might file objections to the CAPCO arrangement before the FPC and try to get into the pool (C-50, p. 4).

204/ Appl ican ts ' assertion that their concern was not that municipals should join the pool, but that they might delay FPC approval is not supported by logic. DL wanted a decision on the pool by October 25, 1967, the last day upon which it could cancel the 900 MW un it it had ordered (Attachment to C-50). DL, however , did not insist upon FPC approval pr ior to October 25 and, in f act, Applicants d id not arrange to meet with the FPC until November 1, 1967 (C-52), after the cr itical date. Moreover, as the cited documents ind ica te , Appl i-cants viewed the major obstacle to FPC approval as being related to

the exclusion of municipal systems

If they had ao decire to exclude such systems, intervention before the FPC by those systems to gain access to t's pool would create no problem.

160

concern caused them to meet and jointly formulate 205/ a sham explana-tion for the present and future exc1'usion of such systems from the pool (C-52). 206/

It .was also suggested that CAPCO be structured in such a way as to avoid FPC jurisdiction in order to prevent the admission of municipal systems (C-55, p. 3).

Applicants adopted a pooling agreement which allows each of them, acting ind ivid'ually, to exclude .its competitors from CAPCO and the ben-efits of coordinated operation and development which it provides. The Memorandum ot Understanding which established CAPCO (NRC 184) requires unanimity in all important CAPCO decisions (DJ 284; Arthur Tr. 8370; Schaffer Tr. 8608-09; Williams Tr. 10,358), including modifications of the CAPCO allocations of generation and transmission (NRC 184, pp. 4-10, Appendix A). Since the admission of a new member would require such modifications, the agreement effectively gives each of the Applicants 205/ If.it were not the intent of Applicants to e.Nelude municipal sys-tems from CAPCO membership, why was it necessary to formulate a joint explanation for their exclusion (C-S2)? Why did not Applicants tell '

the FPC that there was not enough time to include such bodies as Mr. Fleger claims, and that these systems were welcome to join at a later date?

206/ The sham explanation presented to the FPC, that public power systems could cbtain all the benefits of CAPCO through wholesale power purchases, is clearly invalid (See pp. 181-82, n. 234, infra). Further, at the time this explanation was formulated, DL was refusing to sell power at wholesale to Pitcairn or anyone else and had stated its intent not to make such sales in the future (ID at 93-95,99-102).

Indeed, DL argues that for it to make such sales at that time would have been a cr iminal violation of state law (Motion of Applicant Duquesne Light Company for an Order Dismissing Specific Allegations, filed Apr il 20, 1976, at page 17). CEI was refusing to interconnect with - MELP without a pr ice-fixing agreement (ID at 60-61), and TE had refused to sell wholesale power to a municipal system in what proved to be a successful attempt to acquire it (ID at 182-84). If Applicants i

had legitimate reasons for excluding publicly-owned systems, why did they have to espouse such transparently-falt a reasons?

161 c - l

the power to veto the admission of one of its competitors (DJ 186-87; Arthur Tr. 8370-77). 207/ .

The Memorandum of Understanding further denies the benefits of coordinated operation and development to Applicants' competitors by pr eclud ing individual Aiolicants from engaging in coordinated opera-tion and development witt non-CAPCO utilities without the consent of all of the Applicants (NRC 184, pp. 4-10, Append ix A; Schaffer Tr.

8557-58).

3. P/N ,

Applicants jointly adopted an allocation formula which functioned as a device to exclude small competing systems from CAPCO. The CAPCO capacity allocation formula was not adopted until Applicants had con-ducted a study which showed that the effect of the formula on a small system, modeled after MELP, would be to require that system to bear an inordinately high reserve burden (C-46; DJ 27 8; Kampme ier DJ 450, p.

44). 208/ Such a reserve burden would create an economic disincentive to join the pool (Keok DJ 576, p. 135).

After the signing of the Memorandum of Understanding, allocations were to be determined by application of the P/N formula (Schaffer Tr.

207/ Mr . Williams' testimony during Applicants' direct case concerning provisions for compulsory arbitration (Tr. 10,470-72) is in conflict with the provisions of Exhibit NRC 184 which do not provide for arbitra-tion. Thus, the Memorandum of Understanding, without more, was an exclusionary device incon-istent with and violative of the antitrust laws. There is no evider.~e of record which would tend to show that Applicants' exclusionary policy has been abandoned.

208/ A system with the characteristics of MELP would have to bear a re-serve' burden between 55 per cent (DJ 278) and 63 per cent (C-46), while a group of small systems, such as WCOE, would be required to carry 283 per cent reserves (Checsman Tr. 12,236). This should be contrasted with the normal range of 15 per cent to 40 per cent.

162

c _.

t 8597). The first allocations were made arbitrar ily, however, in order to lessen the burden that direct application of the formula would other-wise impose (C-49, pp. 10-11; DJ 279, pp. 10-11; C-30, C-44, pp. 12-13; C-4.8, p. 4). 209/ While providing for a transition period for themselves,.

Applicants sought to adopt a set formula to apply to municipal systems which would not permit such a transition period (C-48, p. 7).

Notwithstanding the significant reserve burden on small systems already imposed by the CAPCO allocation formula, Applicants modified the formula to further increase the burden. In 1972, and again in Apr il 1973, DL circulated a proposal recommending a change in the method of representing units in CAPCO. calculations (C-57; DJ 283). In support of its proposal, DL urged that the then-existing method would encourage the entry of new pool members and could result in favorable allocations to such new members (C-57, p. 5; DJ 283, p. 5). 210/ After Applicants had been notified of MELP's request for CAPCO membership (DJ 97-8, 181, 183),

CAPCO adopted a modified form of DL's proposal which eliminated the po-tential benefits to new members of the prior method of calculation (DJ -

372; Masters DJ 567, pp. 126-30; Schaffer Tr. 8592, 8609-11). Ag a in ,

Applicants allowed themselves a transition period so that the change in method would not have an adverse impact on them (Schaffer Tr. 8612).

209/ As Applicants install more joint units, the P/N method as applied to them will yield results approximating equal percent of peak load (Firestone Tr. 9282-33; Williams Tr . 10,463).

210/ As an example of a situation unacceptable to CAPCO, the proposal points to the ef fect of the existing method on a distr ibution only sys-tem, with 100 MW of load, which requested a share of the next baseload unit after Beaver Valley Unit 2 (C-57, p. 5; DJ 283, p. 5). This example could easily encompass the request of a group of municipal systems, such as WCOS.

163

4. Refusal To Admit Pitcairn To CAPCO the CAPCO companies cted The Licensing Board correctly held that stand collectively and jointly in discussing and agreeing upon a common 196). 211/ .

in refusing Pitcairn's request for membership in CNPCO (ID at arguments with Because the Licensing Board answered all of Applicants' regard to Applicants' joint action in refusing to admit Pitcairn to CAPCO (ID at 195-203, n. 191-96), the Department will not further br ief that. matter. e Applicants' business justification for their refusals to deal with Pitcairn -- that Pitcairn 212/ did not have any 345 kv transmission The CAPCO memorandum of understanding

-- is unsupported by the record. '

does not require interconnection at 345 kv (Tr. 2787, Dempler Tr.

8793-94), nor is there an engineer ing reason for such a requirement (Dempler Tr. 8786-88, 8793-94, 8796-97). At the time Pitcairn was refused CAPCO membership, allegedly on this basis, neither DL nor TE 8784-85, had a 345 kv interconnection to any CAPCO company (Dempler Tr.

Moran Tr. 10,061). 213/ Indeed, even a complete inability to step up .

generating resources to 345 kv does not appear to be an obstacle to None of DL's wholly-owned ex isting CAPCO membership or participation.

211/notDespite did Applicants' contention that the in itial DL r esponse , NRC 6, constitute a refusal, DL's answers to inter r ogator ies (DJ 16'/ ,

p. 9), and Mr. Fleger (Tr. 8624), the author of the letter in '

quest ion ,

both state that it was a refusal.

sup-The testimony by Mr. Dempler , which constitutes Applicants' 212/ for port nearly all of their alleged The reasens studyforwhich denying pool he or member iginally ship testified to Pitcairn, is highly suspect.

was made for his own use (Dempler Tr. 8716-17, 8723), turned8888) out towith have been prepared specifically for litigat son (Dempler Tr. See also the probable assistance of counsel ( DJ 608-10; 8665-729,Tr.8748-82, 8750-52).8901-08, Mr . Dempler 's cross-examination at Tr.

213/ DL was not to have such a 345 kv interconnection for two more

- years (Dempler Tr. 8785-86).

164 I

or planned generation resources will be stepped up and in trod uced in to the CAPCO network, but DL is and will be credited for this generation (Dempler Tr. 8850-51, 8853, 8856). 214/

Mr. Slemmer believes that electr ic utilities with ' generation but with no transmission beyond their own digtr ibution lines can be contributing members of a power pool (31emmer Tr. 9038). Even Mr. Dempler admitted that, so long as an electr ic utility was willing to pay for its share of the CAPCO 34'5 kv transmission, the lack of 345 kv transmission facilities c of its own would not be an obstacle to CAPCO membe'rship (Tr. 8788, 8796).

Applicants also attempt to justify their collective refusal to deal

.on the ground that Pitcairn's generation reserves are too small to con-tribute to the pool. Applicants, however, receive CAPCO credit for units (including a seasonal unit available only in the winter) r ang ing in size from 2 to 8 MW (Dempler Tr. 8736, 8782-83, 8856; Firestone Tr. 11,318; Bingham Tr. 10,299; Moran Tr. 10,063). 215/ Indeed, the size of the unit has no effect on whether the CAPCO member is given credit for it (Firestone Tr. 11,312). Furthermore, DL's emergency rate M, which it offered to Pitcairn, would have required that Pitcairn pay over $70,000 for use of any energy up to 1.6 MW in emergency situations. DL claimed that to supply Pitcairn's load of 1.6 MW would require a significant 214/ TE had no 345 kv interconnection until 1970 and no 345 kv in te r-connection with another CAPCO company until 1972 (Moran Tr. 10,061).

Power from OE's generating units at West Lorain, Edgewater , Berger, Toronto, Niles, New Castle, and some Sammis units is not stepped up to 345 kv (Firestone Tr. 11,329). Power from OE's units at Mod River, Gorge, Norwalk and East Palestine is not even stepped up to 138 kv.

215/ TE receives CAPCO credit of 7-8 MW for a unit which is never stepped up to more than 23 kv (Moran Tr. 10,063), and CEI gets credit for a 4 MU diesel unit ( B ingham 10,299 ) . OE receives CAPCO cred it for a 2 MW unit ( Firestone Tr. 11,318). If OE elects to continue

. operation of its 1 MW unit at East Palestine, it will receive CAPCO cr ed it for it (Firestone Tr. 11,317).

1 15

amount of capacity. Yet DL now claims that if Pitcairn, with its 3.0 MW capacity, joined CAPCP, CAPCO and DL would receive no benefit. The Licensing Board correctly found DL's position to be unreasonable and likewise rejected .this alleged justification (ID at 97-99).

Applicants' justification that , inclusion of Pitcairn in CAPCO would create complexity without any c ompensating advantages is also without evidentiary support. Applicants can point to no studies which would demonst' rate that municipal systems cannot contr ibute bene fits to CAPCO e

members and Applicants' expert, Mr . Slemmer , made 'it rather clear that a study would have to be made before such a conclusion is reached (Tr.

9122).

5. Refusal To Admit MELP To CAPCO Applicants' response to MELP's request for CAPCO membership dis-plays the same consensual nature found in the denial of Pitciarn's request. On April 4, 1973, MELP sent a letter to CEI requesting

. admission to CAPCO (DJ 381). CEI circulated this request, together with its response (DJ 183), to each of the Applicants (DJ 97). The request was then discussed at the April 27, 1973, CAPCO Executive Committee meeting ( DJ 98, p. 9; White Tr. 9512).

On August 3, 1973, MELP sent each of the Applicants a detailed proposal for pool membership and participation in nuclear units (DJ t

100, 185). At an August 8, 1973, CEI meeting, which was attended by the company's ranking policy makers, "[I] t was decided that the com-pany should refuse to agree to Cleveland becoming a member of CAPCO" (DJ 291, p. 3). This decision was communicated outside the company on August 17, 1973 (DJ 291, p. 4). MELP repeated its request for CA?CO membership in a September 18, 1973, letter to all Applicants (DJ 102) 166

and in a September 25, 1973, meeting with CEI. Despite the fact that a ' decision had already been made, CEI refused to give MELP a definite response to its request (DJ 291, pp. 8-14).

When MELP became adamant about receiving an answer, a special CAPCO ~

Executive Committee Meeting was called (DJ 103). At this meeting, held on December- 7,1973, MELP's request was again discussed (DJ 104; White Tr. 9514-16; Arthur Tr. 8349), and it was decided that all of the Appli-cants would communicate their responses to CEI prior to the next MELP-CEI meeting (DJ 104). Thereaf ter, each of the Applicants did so (White Tr. '9515-16; C-61; Williamson DJ 581, p. 18; C-63; stipulation Tr.

7433). DL, in addition, mailed a copy of its response to MELP (DJ 105, 187). 216/

On December 13, 1973, MELP met with CEI. At this meeting, Mr. Howley handed out a copy of DL's response (DJ 186; Hart Tr .

4745-46) and announced that DL's letter reflected the fact that the CAPCO companies d id not think it made sense for MELP to become a nem-ber of CAPCO (DJ 291, p. 18). This was the jointly-formulated CAPCO ,

response to MELP's request (Rudomph DJ 558, p. 245). 217/ Mr. Howley 216/ DL urges that it acted unilaterally in responding to MELP's request. However, DL knew that each CAPCO member had a veto power over important CAPCO decisions, such as the admission of a new member, and that it could therefore make its decision binding on the other CAPCO members (DJ 187, Arthur Tr. 8370-77). CEI was also aware of the veto power each company had over the adm.ission of a new member (Williams Tr. 10,437).

217/ Further evidence that the CAPCO companies jointly-formulated a response to MELP's request is the f act that prior to the December 7, 1973, CAPCO Executive Committee meeting, both DL (Arthur Tr. 8,392) and CEI (Williams Tr . 10,434) had not formulated the ir position an this matter.

167

added CEI's oral and wr itten denials of MELP's request (DJ 188; DJ 291, pp. 18-22; Hart Tr. 4795). 218/

Applicants' attempted business justifications for the ir concerted refusal to deal with MELP are not supported by the reco'rd. 219/ Although-the CAPCO letter of refusal claimed 2that there would be no advantage if MELP joined the pool (DJ 186-87), neither DL (Arthur Tr. 8349), OE (White Tr. 9808) nor CEI (Williams Tr. 10,441) conducted an engineering or economic study to determine the effect upon them of MELP's admission to CAPCO. 220/ Mr. Slemmer testified that he could not imag ine Appli-cants turning down a request for membership without f ir st studying the matter (Slemmer Tr. 9122, 9152).

Another DL reason for refusing MELP's request, that MELP's genera-tion, transmission and distr ibution were dissimilar to that of the CAPCO companies, was totally discredited on cross-examination of Mr. Arthur 218/ DL informed MELP that, because the municipal system was located next to CEI, its needs could be more appropr iately dealt with by CEI (Arthur Tr. 8361). DL itself engages in transactions with nonadjacent

~

utilities ( Arthur Tr. 8363-69).

219/ Even if Applicants had legitimate concerns about the difficulties MELP's membersh ip in CAPCO would create, there is no evidence that Applicants at any time attempted to find alternate solutions to the problems allegedly created by M8LP or attempted to negotiate with MELP in an attempt to find solutions to their alleged problems. This negates Applicants' claim that they were negotiating in good f aith.

220/ CEI claims that it " studied all conceivable benefits to Cleveland f rom full par ticipation in CAPCO" and cites two documents, DJ 292 and C 146 in support thereof (App. Br ief at 147). These documents dated January 1974, which in actuality are merely different copies of the same document, cannot be used to justify MELP's exclusion from CAPCO since they were prepared after the refusal to admit MELP. Furthermore, Applicants contradict their earlier assertion that these documents prove that CAPCO studied benefits MELP would r ece ive from CAPCO mem-bership by -asser ting that they set "forth nothing more than what the author anticipated Cleveland might argue in this proceed ing" (App.

Brief at 147, n. 174). Obv iously, both asser tions cannot be cor rect.

See p. 170, n. 222 infra.

168

(Arthur Tr. 8378-85) who eventually admitted that he had no basis for making _some of the statements he had made in DJ 186 and 187 (Arthur Tr. 8384~).

Applicants claim that MELP's requests for CAPCO membership and par t ic ipa t ion in nuclear units were inconsistent. Mr. Williams was, however, unable to state that MELP was ever informed that its proposal was inconsistent as claimed (Williams Tr. 10,430-31). Mr. Hauser's notes of the CEI-MELP meeting on October 25, 1973, which discussed .

these matters, do not reflect that MELP was informed of the alleged "

inconsistency (DJ 291). S i'm il ar ly , this problem was not raised in CEI's August 13, 1973, response to MELP's request (App. 25). Further, Mr. Williams eventually admitted that MELP's proposals should be read in the alternative (Williams Tr. 10,485) which would eliminate any inconsistency which may have existed.

The problems which Applicants claim caused them to reject MELP are not insoluble as Applicants allege them to be. 221/ The real reason for denial of membership in CAPCO is that Applicants wanted to 221/ A number of MELP's alleged problems were found, by the Licensing Board to be the results of CEI's anticompetitive behavior. Thus, the deterioration of MELP's generating equipment was due in large par t to CEI's anticompetitive practices with respect to denial of coordinated operation and development (ID at 60-85). To allow CEI and the other Appl ican ts to justify refusal of CAPCO membership on the ground that MELP had a deter iorated system would be tr.ntamount to a cour t giving mercy to a defendant who had been convicted of killing both parents on the grounds that he was an orphan.

Applicants' assertion that MELP is not able to meet the financial commitment necessary to join CAPCO (App. Br ief p. 110) is indeed inter-esting in view of their asser tion that MELP is financially capable of

~

spending huge amounts of money to construct transmission lines which duplicate those of CEI (App. Dr ief at 174-75). No one has ever urged

, that CEI must give MELP a free ride into CAPCO. If Applicants really believed that MELP was incapable of paying its fa ir share, the best course of action would have been to allow it to become a member and require the posting of some security to insure payment.

169 ,,

L. _.._ - - _ . -

deny MELP the many benefits it would obtain through CAPCO membership which were not available through the participation and interconnection arrangements then being offered by CEI' (DJ 292). 222/ This would, of 222/ A memorandum prepared in January 1974 identified the advantages MELP would obtain as a member of CAPCO as follows (DJ 292):

The first advantage that occurs to me is an intang ible one, that is , " prestige . " It may be that the Municipal Light Plant man-agers feel that membership in CAPCO would be to their advantage in securing new customers and capturing existing CEI customers.

~

A second benefit of CA'PCO membersh'ip would be arrange-ments for back-up power f rom the CAPCO Group under the e terms and provisions of the CAPCO Operating Agreement, as contrasted with reliance only on a single CAPCO Company (CEI) for back-up power under terms and con-ditions which would be subject to FPC jurisdiction.

The Municipal Light Plant officials may be distrustful of r ece iv ing a " f a ir shake" from the FPC, part cularly i

in view of the recent FPC action involving our rates for load displacement ser v ice . MELP officials may feel more comfortable with back-up arrangements under which they will be paying the same rates and be subject to the same conditions as other utilities in the CAPCO Group.

CAPCO membership by MELP would allow MELP to participate in economy interchange transactions, and allow them to parti-ipate in coordinated maintenance scheduling. Presumably there would be more opportunity to participate in the economy interchanges as a member of the CAPCO Group than simply .

under a two-party contract with CEI.

Finally, membership in CAPCO by MELP would provide them with access to transmission to all of the CAPCO Companies, rather than simply transmission from the particular plants where they have an ounership interest or are buying unit power, to the city's load center. Access to this CAPCO transmission would, in turn, better provide access to alternative bulk power sources for the city, such as Niagara, Card inal , or AEP. It could also, perhaps, better provide access to bulk power from new generation which might be planned by the mu-nicipal systems of Ohio, sim ilar to the Cardinal generating facilities which have been constructed by the co-ops.

The advantages of .CAPCO membership discussed in this document would , of course, apply with equal force to any municipality.

This document also contradicts Applicants' assertions that any benef its wh ich Applicants' derive from CAPCO membership are passed through to their wholesale customers and that bulk power was not available from outside the CCCT.

170

course, make it easier for CEI to accomplish its long-time goal of ,

acquiring the system.

6. Denial Of Nuclear Access MELP requested participation in and access to nuclear power in order to obtain the benefits of coordinated operation and development, but was never given a meaningful offer by CEI. In 1971, CEI refused MELP's first request to participate in the company's nuclear generation (Hinchee Tr. 2702-06). On April 13,'1973, MELP again requested access to the Perry, Davis-Besse and Beaver Valley nuclea'r units, either

• through the.. purchase of unit power or by ownership participation (DJ 182). 223/ This was followed by a request for information relating to participation and access on April 27 (DJ 184). MELP's specific proposal for participation, together with a suggested meeting date, was sent to CEI (with copies to all other Applicants) on August 3 (DJ 185). On August 8, 1973, CEI's top executives met and decided to deny MELP access to the Davis-Besse and Beaver Valley Nuclear Plants (DJ 291, p. 3).

CEI's executives also agreed to obtain clearance from other CAPCO 223/ Contrary to Applicants' assertions, MELP's interest in nuclear access is spread throughoat the record. For example, MELP told Mr. Mozer that it wanted additional interconnection points with CEI to accomplish delivery of nuclear power (App. 45). Dur ing negotiations for a firm power contract with CEI, MELP wanted a provision included which would permit MELP to reduce contract demand if par ticipation in nuclear facilities was accomplished (App. 82). A preliminary prospec-tus for a $9.8 million bond issae stressed HELP's interest in nuclear f ac il it ies (App. 102, p. 22, p. A-13). The City of Cleveland's Capital Improvements Study proposes an expenditure of $100,000,000 to finance participation in nuclear units and labels this expenditure "necessary" (App. 206). MELP representatives met with sever al under wr it ing f irms to discuss financing participation in nuclear facilit ies (Har t Tr.

4898-99). Mr. Mayben, MELP's co'nsult ing eng ineer stated that MELP is interested in access to nuclear facilities (Mayben Tr. 7825), and Mr. Kudukis has confirmed this (Rudukis Tr. 12,744). F inally, there is no evidence of record which indicates that CEI ever informed its CAPCO partners that MELP was making its request in bad faith.

171

companies for their plan to allow MELP to participate in the Perry Units and such approval was forthcoming ( DJ 291, pp. 3-4). On September 10, MELP again requested participation in nuclear units (App.

61). However, by .the beg inning . of December 1973, _MELP had still not received a substantive response to l'ts requests . 224/ On December 7, 1973, at a special CAPCO Executive Committee meeting, MELP's request for nuclear _ access was discussed. 225/ It was agreed that other Applicants would co cmunicate their position to CEI prior to December 10, 1973 (DJ 104), and they did so (C 61; DJ 581, p. 18; C 63, Stipulation Tr. 7433).

Thus, the response to MELP's request for nuclear access was jointly formulated, and CEI was to proceed with the negotiations in accordance with what had been authorized at the special Executive Committee meet-ing (C 65, p. 1; see also Rudolph DJ 558, p. 245). 226/ Finally, on December 13, 1973, at a meeting between MELP and CEI represent,atives, MELP received a response to its repeated requests for nuclear access.

224/ Mr. Rudolph, president of CEI, did acknowledge the request c#

Apr il 13 (DJ 183) by suggesting contact with CEI's attorneys. As of .

September 14, 1973, CEI had not discussed its position on participa- '

tion with MELP ( DJ 291, p. 6). Although representatives of CEI and MELP met on October 25, 1973, at which time MELP's requests were ampl if ied , CEI merely set a date for a later meeting without respond-ing directly to the requests (DJ 291, pp. 8-14). By that time, a decision on participation had been made (on August 8, 1973) and the approval of the other Applicants had been obtained.

225/ Applicants' contention that only MELP's request for CAPCO membership was discussed at this meeting (App. Br ief at 149) is in error. The minutes of the meeting (DJ 104) clearly include a d iscus-sion of nuclear access. At that meeting, Applicants authorized a proposal f or nuclear access to be presented to MELP, Mr. Arthur's December 10, 1973, letter wh'ich was an outgrowth of the meeting, .

also deals with nuclear access (paragraph 3). j 226/ The record clearly discloses that various offers of access to MELP as well as Painesville were made by CEI with the knowledge i of the Appliacants (C 62, C 64-66). j l

172 l

Mr. Howley spoke for CAPCO and handed MELP representatives a letter (DJ 186) 227/ which he stated represented the positions taken by CAPCO (DJ 291, p. 18). This letter denied access to the CAPCO nuclear units citing the impossibility of replanning and renegotiating existing agreements to include a new particip* ant (DJ 186, 187, paragraph 3).

CEI offered a counterproposal which was replete with the following unconscionable, restraints and anticompetitive provisions: (1) CEI was to have a "right of first refusal" on nuclear power which was surplus c

. to MELP's immediate needs (DJ 188; DJ 291, pp. 18-?2) -- th is would have prevented MELP from selling this surplus or using it to engage in coordinated operation with any other utility (Mayben Tr. 7612, 7618), 228/ (2) MELP could not sell power to retail or wholesale customers "below cost" (DJ 188, DJ 291, pp. 18-21) with CEI being the one to determine what constituted " cost" (Hart Tr. 5408; see 227/ A copy of that letter was also :aailed to MELP by DL (DJ 187).

228/ Appl icant s ' attempted justifications for the inclusion of a right of first refusal (App. Br ief at 150-52) totally ignore the reasons why such a provision is objectionable under antitrust law.

Even if we assume that on December 13, 1973, MELP did not want to use nuclear power to enter into coordination arrangements with anyone else (Applicants' assertion that this was a fact is not supported by any evidenct i. the r ight of first refusal would still restrain MELP for it would not allow it to enter into such arrangements in the future.

Applicants' comment on the price to be paid by CEI for the nuclear power under the right of first refusal is totally ir relevant since no matter what price it would pay (and there is no evidence on what pr ice CEI would pay) it would still be able to prevent MELP f rom coordinating with others. To urge that a r ight of f ir st r-#usal is not objectionable because MELP's share of a nuclear unit would come from a CEI share of that un it is bootstrapping at its best, since it was Applicants, not MELP, who decided that any nuclear access to 60 af forded MELP would come from CEI's share of the un it.

173

Hauser Tr. 10,762-63). 229/ This would give CEI control over MELP rates (Hart Tr. 4884-85); (3) pr ior to beg inning negot iat ions over access, MELP had to withdraw all formal and informal requests for antitrust review of CEI's conduct, as well as drop its opposition to CEI's practices and policies in all administrative hear ings and proceedings (DJ 188; DJ 291, pp. 18-22). 230/ These conditions were 229/ Applicants' alleged justification for requir ing that MELP agree .to fix pr ices as a precondition to gaining access to nuclear un its is amusing. If, as Applicants assert, the law relating to selling below cost does not apply to MELP, then if. MELP entered ,

into a price-fixing agreement as required by CEI, that agreement would clearly not be immunized under the antitrust law. Further-more, if MELP had entered into a convenant with its bond trustee by way of indenture not to sell below cost, why was an additional agree-ment not to sell below cost needed by CEI? ' Clearly, CEI's interpreta-tion of the bond indenture is in error (Hart Tr. 5407).

230/ Applicants' assertion that MELP's requested nuclear access was made solely for the purpose of executing greater leverage in its disputes with CEI ( App. Br ief at 143-45) is not supported by the record. ,

Contrary to Applicants' assertions, Mr. Kudukis did not state that, MELP d id not want to participate in nuclear units and that the request for access was merely a bargaining ploy. Mr. Kudukis testified that at the time of the March 4 and 5, 1974, meetings, he f avored par ticipat ion in the nuclear units via unit power purchase rather than through .

ownership participation because unit power purchase would be the most expeditious way to obtain nuclear power (Kudukis Tr. 12,274).

Mr. Gaul himself corroborates Mr. Kudukis' testimony. During the course of this proceeding, Mr. Hauser draf ted an af fidavit about Mr. Kudukis' testimony (App. 279) which he asked Mr. Gaul to sign (Hauser Tr. 12,468). As drafted by Mr. Hauser, the af fidavit stated that MELP did not want ownersh ip or~ unit power access to nuclecr f ac il-ities. Mr. Gaul, in the course of making changes in the af f idavit to "make sure it was absolutely correct" (Gaul Tr. 12,244), deleted any assertion that Mr. Kudukts had stated that MELP had no interest in unit power participation. Bo th Mr . Gaul and Mr. Kuduk is agreed that Mr. Kudukis' presentation at these meetings was not a full statement.

of MELP's positions and that the subject would be discussed at greater length in subsequent committee meetings (C 186).

MELP's continuous efforts to obtain nuclear power support a find-ing that its interest in nuclear access always has been genuine. See P. 171, n. 223, suora.

I

. 174

- .-- - . . - ~ . - . . .O

In spite of subsequent proposals between rejected by MELP (DJ 189). '

February 1974-and July 1975 (DJ 192; App. 63, 66, 68, 71-72, 74),

nuclear access remained conditioned on a "right of first refusal" by CEI.'131/ Even if ' a "'r ight of f ir st r e f usal" had not been insisted upon, MELP would not have been able to sell surplus nuclear pows.

of MELP's proposal (DJ 177; NRC 141A, due to CEI's rejection-(App. 97)

Schedule A; App. 79) that the company " wheel out" power ( i . e ._ , transmit than MELP). To date, power f rom the nuclear units to an entity other "

7 no meaningful offer of access has been made by CEI..

i IX. NEXUS A. The Standard To Be Applied In order to find that the activities under the license will inconsistent with the antitrust laus, create or maintain a situation i

I a relationship or " nexus" must be shown to exist between the activi-ties under 'the license and the situation inconsistent with the anti-

~

The requisite nexus is present when those activities trust laws.

either create a new situation or maintain a perexisting situation. .

Kansas Gas and Electric Company and Kansas City Power and Light Company Unit No. 1), ALAB-279, 1 N . R.C. I .

(Wolf Creek Generating Station, 559, 568-69 (1975) (Wolf Creek).

Guidelines for determining nexus were delineated by the Commission l

in the two _ Waterford opinions. (Louisiana Power and Licht Company 231/ to Applicants' proposed license conditions (App. 44), wh ich pur-port set for th Applicants' o f f er of nuclear par ticipation to of non-CAPCO entities within the CCCT, provide an unfettered right resale of surplus nuclear power (App. 44, p. 5). S ince these ~ cond i-tions were ; filed in this proceeding as an attachment to Applicants' droposai f or Exped iting the ilear ing Process on Maren 14, 1975, itin appears that either CEI's negotiations with McLP were con before this ! Commission.

175

{Waterford Steam Electr ic Generating Station, Unit 3), CLI-73-7, 6 A.E.C. 48 (1973) (Waterford I) and Louisianq Power and Light Company (Waterford Steam Electr ic Generating Station, Unit 3), CLI-73-25, 6 A.E.C. 619 (1973) (Waterford II)). ,

While the Commission held that mere commingling of nuclear power is not sufficient to authorize an examination of all of an Applicant's activities (Waterford II, 6 A.E.C. at 621), activities under the

. license "in most circumstances would not be limited to construction and operation of the facility to be licensed", Waterford I, 6 A.E.C. ,

at 49. Examination of a denial of access to transmission would be appropriate where the transmission had been built in conjunction with the nuclear f acility to be licensed, and the propr iety of pooling arrangements and physical interconnections could certainly be con-sider ed in an appropriate case. Waterford II, 6 A.E.C. at 621.

Most importantly, the Commission held that:

In our view, the proper scope of antitrust rev iew turns upon the circumstances of each case. The relation-ship of the specific nuclear f acility to the applicant's total system or power pool should be evaluated in every '

case. 6 A.E.C. at 621. 232/

232/ The Waterford cases concerned the acceptability of municipal pe t it ions to intervene in the proceeding and were decided without the benefit of evidentiary records. Waterford II, 6 A.E.C. at 620.

Because of this, and because of the Commission's use of words such as " generally" or "in appropr iate cases", we do not believe that the Commission intended to promulgate hard and fast rules which would limit the scope of examination in every case. Rather, we believe that the most important teaching of the Waterford opinions is that the scope of antitrust review must be determined on the " circumstances of each case," af ter an evaluation of the relationship of the nuclear f acility to the Applicants' total system or power pool.

The circumstances of the present case, as amplified by the mas-sive evidentiary' record, give more than ample suppor t to the Licensing Board's f ind ings of structual nexus and nexus basco on restraints on specific outputs. As found by the Licensing Board, (Footnote- continued on next page.)

176

In Kyns'as Gas and Electric Comoany dnd Kansas City Power and Light Comoany (Wolf Creek Generating Station, Unit No. 1), ALAB 279 1 N.R.C.I. 559 (1975) (Wolf Creek), the Appeal Board had the opportu-nity to discuss and refine more ' fully the nexus standard. In Wolf Creek, the Appeal Board held:

Accordingly, we conclude that the legislative history of section 105c does not support the Appli-cant's argument that the Commission must consider the operations of each nuclear plant in isolation when making its prelicensing antitrust r ev iew. On the -

contrary, the Commission's statutory obligation is to weigh the anticompetitive situation -- which to us means that operations in an "a ir tight chamber" were not intended. . . . Electr ic utilities are no more free than others to eng. age in those pracitces; the ir unjustified refusals to wheel power to or to in te r-connect < t th smaller entities in the field have regu-larly been called to account as violative of antitrust policies. It was a key purpose of prelicensing review to ". . . nip in the bud any incipient antitrust situa-tion." We can therefore perceive no valid reason why the Commission should wear blinders when confronted by such matter.s. No statute should be construed to render it ineffective. 1 N.R.C.I. at 572-73.

[ citations omitted} .

B. Factual Nexus .

The Licensing Board has found that a situation ' inconsistent with the antitrust laws exists. This finding is amply supported by the

, record in this proceeding.

The "ac c tv'it ies under the license" include the integration of approximately 5100 MN of nuclear power into Applicants' respective systems for marketing in Ohio and Pennsylvania 'DJ 495) . To market 232/ (Footnote continued f rom previous page. )

(t} he one-system concept utilizing nuclear generation for base load power will have such a pronounced effect on the overall economics of generation and trancmission within the CCCT as to make the generation of these nuclear plants a substantial, if not the dominant force in power production planning [ID at 220},

177 )

w this nuclear power, it must be used .in conjunction with other forms of generation (Williamson DJ 561, p. 38; Masters DJ 567, pp. 55-56, 59; Kampmeier DJ 450, pp. 51-52; DJ 557; Mozer NRC 205, pp. 62-64, 70-80; Ilughes NRC 207, pp. 30-32) . If the units which are the subject of this proceeding were operated physically and contractually isolated from an Applicant's system, or from the CAPCO Pool, at most only 50 per cent of the power available from those units could be marketed as firm power , the remaining power of necessity being held in reserve ,

under the " single largest unit down sta.1dard (Kampmeier DJ 450, pp.

19-21). The feasibility of these large-scale nuclear units depends on the availability of other generation for reserves (Mozer NRC 205, 1

p, 12, Tr. 3,350-52). Other forms of coordinated operation and 4 development, such as maintenance power and emergency power, must also be available if Applicants are to be able to practically con-struct and market power from these large nuclear units (Keck DJ 576, p. 32; Masters DJ 567, pp. 32, 57-58; Sullivan DJ 578, p. 27; llughes NRC 207, pp. 30-32; Mozer NRC 205, pp. 8-9, 11-12, Tr.

3,350-52; Firestone Tr. 9228) .

In order to engage in reserve shar ing and other necessary forms or coordinated operation and development, Applicants' nuclear plants must be connected to their other generation facilities through cn extra high voltage transmission network (Master s DJ 567, pp. 36, 59; NRC 157, p. DL-7; Kampmeier DJ 450, p. 52; Mozer NRC 205, pp. 9, 13-14, 17 18, 25-26, 60, 63-66, Exhibit IIMM- 1 ) . Construction of extra high f

l l voltage transmission is usually part of a generation expansion plan (Caruso Tr. 10,916-17). and Applicants have constructed transmission lines associated with the installation of Beaver Valley 2, Perry 1 178

and 2 and Davis Besse 1, 2 and 3 (Mozer NRC 205, pp. 9, 13-14, 17-18).

"The CAPCO transmission agreement recognizes the need for a CAPCO system of bulk transmission lines to enable the parties to transfer power from jointly owned units to the systems of the owning parties"

( Firestone App. 122, p. 11) . .

The econ?mir feasibility of the subject nuclear plants also depends on the Applicants' ability to transmit power from a single nuclear unit to multiple load areas for the purpose of load growth pooling (Mozer NRC 205, pp. 10-11, 13-14, 17-18, 25-27; Masters DJ 56'7, pp. 36, 59). "

The marketing of power from the subject nuclear plante J11 enable Applicants to lower their average cost of power. It is undisputed that the power available from the subject nuclear units is expected to be the cheapest base load power available to serve new and growing loads (Kampmeier DJ 450, p. 52; Williamson DJ 581, pp. 36-38; sullivan in 578, pp. 210-11; Kekela DJ 574, p. 123; Masters DJ 567, pp. 55-56; r

DT 285, pp. 10-14; DJ 92-94, 98; Dempler Tr. 8873; Smart Tr. 10,129; Mozer NRC 205, p. 61; Hughes NRC 207, pp. 30-32; C 38; C 152, 153). 233/ ,

233/ in view of the current requirements for effluent controla on fossil plantc, the supposedly high capital cost of nuclear plants is not signif-icantly greater than that of coal plants, and the overall cost is lower

( DJ 511, p. 92). There is also evidence of record which ind icates that within Ohio, because of antipollution legislation, it would be difficult for a municipality to install any new coal-fired generating capcity (Pandy Tr. 3119).

Applicants, however , continue to argue that municipal systems may be able 'to build small coal-f u ed plants and obtain power at a cost closely approx imating the cost of the power which Applicants will get f rom the nuclear f acilities being licensed (App. Brief at 132). The Department would first point out that Applicants have nowhere asser ted that such a plan was feasible, but only that it may be feasible.

This is, in fact, supported by Applicants' own expert witness (Gerber Tr. 11,562-64). Even ,Qpl icants ' argument concer n ing the oossibility of a municipality economically constructing and operating a small coal-f ired plant is not supported by the record. Numerous assumptions (Footnote continued on next page.)

179 w m _ __ --_____-.a _.. _ . .. _ . _ , _ _ , . _ _ _ _ . . _ ~

This nuclear generating capacity will also be environmentally clearner as well as more reliable due to the uncertain future availability of oil, gas and environmentally acceptable coal (NRC 157, p. TE-3; DJ 98; DJ 157, DJ 511, pp. 40-41, 90-92; Keck DJ 576, pp. 123-24).

Without the benefits of coordin*ated operation and development, the municipal systems located within Applicants' service areas will be unable to construct or utilize nuclear generation (!!ughes Tr. 4092; see pp. 178-79, supra). Because of their pronounced economics of 1 . scale, nuclear plants are seldom, if ever, built in small sizes (see 3

p. 18, supra). A small utility cannot construct the required major

i. .

transmission facilities (Mozer NRC 205, p. 9; see pp. 25-27, 179, supra). Only a large system or a group of interconnected and coor-dinated systems can practically use nuclear power (Kampmeier DJ 450, p. 25; see pp. 16-31, supra).

To the extent that Applicants are able to reduce their average cost of power while preventing the ir actual and potential competitors from doing so, they enhance and maintain their dominance and monopoly

~

233/ (Footnote continued from previous page. )

made by Applicants' expert to reach that conclusion are speculative and of questionable reliability. Thus, Mr. Gerber in reaching his conclusion used cost data which was admittedly inaccurate (Gerber Tr.

11,544, 11,559-60), did not consider the impact of inflation although recognizing it as an important cost factor (Gerber Tr. 11,582, 11,549)

and admitted that it was d if ficult to make that type of cost projection with a high degree of accuracy (Gerber 11,548).

To the extent that Mr. Kampmeier may have agreed with Applicants' g contention, his agreement was based in part on cost figures provided by Applicants, some of whien are unsuppor ted by evidence of reccrd.

Mr. Kampmeier later testified that if the hypothetical 100 MN coal-f ired plant was to burn western coal, and was to be built to meet current pollution control standards, the cost of power from the 100 M.. coal-

, fired unit would be higher than the cost of power from a large nuclear unit (Kampme ier Tr . 6119-23, DJ 511, pp. 91-92; Pandy Tr. 3119).

. 1 180

1

p. 52; power to the detr iment of their competitors (Kampmeier DJ 450, Hughes NRC 207, pp. 30-32). 2_34/

nuclear The unrestr icted marketing of power from the subject ther efore,' mainta in the ex isting situation inconsistent units will, with the antitrust laws. .

their proposed license conditions ( App. 44)

Applicants argue that laws would eliminato any situation inccasistent with the antitrust any economies which are obtained from the '

234/ Applicants argue that to municipal systems in the CCCT nuclear plants will be passed on This argument through those systems purchases of wholesale power.

f a ils f or sever al reasons.

F ir st , Applicants' arguments assume that rate regulation is so any benefits accruing to Applicants will be exact as to insure that wholesale customers. As we have properly passed on to Applicants' rate making .is not a precise science and whole-already pointed out, sale rates, at best, are set to fall somewhere " zone of within a " zonethe reasonableness", of reasonableness". Even withalways in that reflect a utilities' cost to serve.

rates which are set do not As many as 50 different cost allocation result (Kampmeter See pp. 63, 79-80, supra.

methods exist, each of which may cause a dif ferent Tr. 6126-31; Hughes Tr. 4128; Wilson Tr. 11,102; DJ 455; App. 163-65). to an Experts may also arr ive at dif ferent conclusions 11,122), and with respect inaccur acies appropr iate cost of equity (Wilson Tr .immediately change to reflect changes -

can occur because rates do not in costs (Hughes Tr. 4129).

Second, even if Applicants' rates were to accurately reflect suitedthefor ir cost of service, the blend of power supply alternatives best a par ticular wholesale customer would 4077-78,not4136-67).

neceesar ily be the blend choosen by Applicants (Hughes Tr.

Third, direct par ticipation in nuclear units Th iswill is trresult in theas ue because least expensive long-range bulk power supply.

the incremental cost of now capacity continues to rise, the capacity in a nuclear un it purchased tocay will at some time in the futuro be less expensive than the average system7265-80, 6627-33, cost .upon 7286;which the wholesale DJ 596; App. 105).

rates are based. (We in Tr .

lacks Finally, and perhaps most importantly, a wholesale customer 5632, Wein Tr. 7204-06) control over its bulk power supply (Lewis Tr.

its supplier. The record in th is and is essentially at the mercy of a capt ive wholesale customer , without pr oceed ing shows clearly that o th~e r sources of bulk power, may be subjected to continuing anticom-its supplier.

' petitive behavior on the part of 181

- .~ ._

found to exist. Application of the policy contained in App. 44 "would neither prevent nor climinate anticompetitive activities under the license" (ID at 251). The language used in App. 44 is ,

unclear and ambiguous, thus leaving room for disputes on interpretaion (Kampmeter Tr. 6143-48; Mozer Tr. 33,26). The reserve requirements are extremely burdensome and would require a previously nongenerating system to maintain 100 per cent reserves (Kampmeier Tr. 6142-48; Mozer Tr. 3327-28; Hugh'es Tr. 4095-97). 'A smal'1 system with generating capacity,. such as MELP, would be required to maint' a in 45 per cent re-serves while CAPCO reserves were only 25 per cent (Mayben Tr. 7609-10).

j App. 44 also does not provide for wheeling out excess power from the l

nuclear units for possible cale or exchange with other systems (Kampmeier l

Tr. 6143, Mayben Tr. 7600-01). See also Kampmeter Tr. 6142-48; Mayben l Tr. 7600-13; Mozer Tr. 3320-35; Hughes Tr. 4094-97. 235/

X. RELIEF Once monopolization has occurred, the suspension of some of the exclusionary practices used to monopolize does not necessarily con- -

stitute a neutralization or elimination of either the monopolizat ion or monopoly power which has been misacquired or abused. "The relief 235/ An alternate basis for establishing the required nexus existed by viitue of Applicants' attempts to place unreasonable restr aints on the disposition or use of power to be generated by the licensed f a c il it ie s .

These restraints include restr ictions on the sale of power to customers of OE (ID at 52-53, 132-33), insistence of a right of first refusal and a price-fixing agreement by CCI as a condition to granting access to the licensed facilities to MELP (ID at 81-83, 224, 227), j o int denial of access to nuclear units through denial of CAPCO membership to Pitcairn and MELP (ID at 195-203), joint denial of MELP's request for access to nuclear units (ID at 204-11), individual denial of access to nuclear units by DL (ID at 103-05) and TE (ID at 185-86) and adop' tion of wheeling policies which would not perm it non-Applicant entities in the CCCT from selling surplus power from the nuclear plants to other entities (ID at 78-83, 130-33; App. 44).

182

in.an antitrust case must be ' ef fective to redress the violations' and 'to restore competition.'" Ford Motor Co. v. United States, 405 U.S. 562, 573 (1972), quoting United States v. E.I. duPont de Nemours

& Co. , 366 U.S. 316, 326 (1961). The Court is not limited to imposing relief which will merely restore the status auo ante. Ford Motor Co.

v. United States, 405 U.S. at 573, n. 8. Rather, the relief should be directed to eliminating the ef fects of the illegal activities. Ford Motor Co. v. United States, 405 U.S. at 573, n. 8; United States v.

E.I. duPont de Nemours & Co., 353 U.S. 586, 607-08 (1957); United States v. United States Gyosum Co., 340 U.S. 76, 88 (1970), and should act to " pry open to competition a market that has been closed by defend-ants' illegal restraints." Ford Motor Co. v. United States, 405 U.S.

at 577-78, quoting International Salt Co. v. United States, 322 U.S.

392, 401'(1947). In United States v. Grinnell Corp., 384 U.S. 563, 577 (19G6), the Court held:

We start from the premise that adequate relief in a ,

monopolization case should put an end to the combina-tion and deprive the defendants of any of the benefits of the illegal conduct, and break up or render impotent the monopoly power found to be in violation of the act.

The fact that a monopolist has discontinued an anticompetitive or exclusionary. practice does not obviate the need to remedy the monopol iza t ion. Diener's Inc. v. Federal Trade Commission, 494 F.2d 1132 (D.C. Cir. 1974); Doher ty, Cl if ford, Stects & Shenf ield, Inc.

v. Federal Trade Commission, 392 F.2d 921 (6th Cir. 1968); Libbey-Owens-Ford Glass Co. v. Federal Trade Commission, 352 F.2d 415 (6th

.C ir . 1965); G iant Food, Inc. v. Federal Trade Commission, 322 F.2d 977 (D.C. .C ir . 1963), cert. den ied , 376 U.S. 967 (1964); Clinton 4

183

Watch Co. v. Federal Trade Commission, 291 F.2d 838 (7 th Cir . 1961) ,

cert. denied, 368 U.S. 952 (1962); Dolcin Corp. v. Fadoral Trade Commission, 219 F.2d 742 (D.C. Cir. 1954), cert. denied, 348 U.S. 981 (1955); Standard Distributors, Inc. v. Federal Trade Commission, 211 F.2d 7 (2d Cir. 1954); Dejoy Stores / Inc. v. Federal Trade Commission, 200 F.2d 865 (2d Cir. 1952); C. Howard Hunt Pen Co. v. Federal Trade Commission, 197 F.2d 273 (3d Cir. 1952).

Without binding relief, there is no assurance that the anticom- ,

petitive practice will not recur in the future. Clinton Watch Co.

v. Federal Trado Commission, 291 F.2d 838 (7 th Cir. 1961); Giant Food, Inc. v. Federal Trade Commission, 322 F.2d 977 (D.C. Cir. 1963). The Court held in Federal Trade Commission v. National Lead Co. , 352 U.S.

419, 430 (1957), that in some instances "the Cour t is obliged not only to suppress the unlawful practice but to take such reasonable action as is calculated to preclude the revival of the illegal practices" .

In order to remedy the continuing effects of Applicants' anti-competitive conduct, license conditions must be fashioned which will not only eliminate Applicants' present ant icompetitive behavior , but which will " pry open to competition a market which has been closed by defendants illegal restraints." Applicants must also be prevented from future misuse of their dominance and market power (Hughes Tr. 4073).

To remain viable and become competitive, the small systems located within the CCCT must have access to the benefits of coord inated opera-

. tion and development which are available to Applicants (see p. 31, supra). These small systems can obtain the full range of power supply options necessary for an economic and reliable bulk power supply only 18'4

through arrangements with the Applicants (Mozer NRC 205, pp. 70-71, Exh ib it IIMM-10 ) .

Before discussing Applicants' specific objections to the license conditions ordere,d by the Licensing Board, it is necessary to point out certain truisms which Applicants have chosen to igno r e . We read ily admit that under the license cond itions, Applicants' normal methods of doing business will most likely have to suffer some readjustment.

Th is is only to be expected since Applicants' " normal" business activ-ities. include and have included engaging in activities which will create and maintain a situation inconsistent with the antitrust laws.

Further, honest negotiations between Applicants and non-Applicant entities in the CCCT might have produced results which accomplish the same goals as the license conditions, but which are more satisfactory to Applicants. But, the record in this proceedir.g shows beyond doubt that Applicants have continuously and steadfastly refused to deal with the non-Applicant entities in any way but one which was intende; to, and, in fact, d id have ant-icompetitive results. Even now, Appl ican t s ' -

only alternati.ve to the relief ordered is Applicants' Exh ib it 44 which has been found to be totally unsatisfactory and to itself contain anticompo* itive provisions (ID at 237-38; see also pp. 181-82, guara).

Applica 4ts cannot now complain that the license conditions are not the best solution when their own activities nave prevented any other solution.

In the same vein is Applicants' compla int that the Licensing Board l l

f ailed to make findings that the relief is in the public interest. We have already discussed the public interest aspect of Section 105c(6) (See pp. 45-50, supra) and will not repeat that discussion here. We would onlyi i

point out that Applicants' interest and the public interent do -not 185

I

f. necessarily coincido. 236/ .

We would also again point out that despite their agreement that the proceeding would encompass the

issues of a

" situation inconsistent" and " relief"

,- (Tr. 1076-79) and the ir knowledge of the relief proposed by the opposing parties (See e.g.,

DOJ Find ings of Fact and Conclusions of Law at 147-50) Applicants ,

d ' id not toatte show that certain relief wcs not in the public interest until the proceedings on the Moticn for a Stay.

It is absurd to suggest that the Licen. sing Board should. have engaged in the exercise of invent ~

ing defenses for Applicants for the purpose of fin. ding those defenses unreasonable. e Such a mtggestion is even more absurd in light of the fact, discussed below, that Applicants are unable to show that any of the license ~ conditions are not in the public interest.

Applicants begin their discussion of relief with a parade of speculative horrors, all without evidentiary support (App. Brief at 286-93). _237/

He can see no useful purpose th engaging in our own game of "what if" and joining Applicants i n the ir unsuppor ted specula-tion about the future.

In Federal Trade Commission v. National Lead Co., 352 U.S. 419 (1957),

the Supreme Court was faced with the type -

of speculation in which Applicants now engage.

The Court held:

Respondents pose hypothetical say may rise up to plague them. situations which they would not be good judicial However, "we th ink it Brother332 Jackson adm in istrat ion," as our late States, U.S. said in I nternacional Salt Co. v. United paragraph of the order 392, 401 (1947), to strike the contested to meet-such conjectures. The .

236/ We might add that the record in statement if ever, coincide. that Applicants' interest anothis case would substantiate the the public interest rarely, 237/ Un Applicants have never allegednote that particularly thatwheeling to the with respect prov is ion, to engage in third party, or any otherthey lack the transmission capacity type of wheeling.

'186

_m -'

__,p &_=

6 g y.g

-4g

• Commission has reserved jurisdiction to meet just such con t ing enc ies. As actual situations arise they can be presented to the Commission in evidentiary form rather than as fantasies. And, we might aco, if there is a burden that cannot be made lighter af ter application

, to the Commission, then respondents must remember that those caught . violating the. Act must expect some fencing in [ citation omitted]. 352 U.S. at 431 (emphasis supplied] .

Applicants should not be relieved of any obligations under the license conditions until such time as they can show this Commission "in

- evidentiary form" that their " fantasies" have become, o& are about to become, realities. 238/ .

Applicants next argue that the Licensing Board should have designed individual relief for each Applicant ( App. Br ief at 293-94) . This argu-l ment is without merit. The Licensing Board found that " Applicants have a prolonged history, both individually and collectively, of misuse of their dominant position uithin the CCCT and their respective service areas to achieve an'ticompetitive results . . ." (ID at 16). To close of f one road to monopolization while allowing the prov'en monopolist to pursue another would be absurd. When faced with a contention like that of Applicants, the Supreme Court held:

The short of the contention is that since the company never has threatened to violate any decree entered in this case to restrain future use of the illegal leases, it feels that the provision invalidating the objectionable leases should end the matter and that, a' to any add itional provisions, appellant is entitled to stand before the cour t in the same position as one who has never violated the law at all -- that the injunction should go no farther than the 238/ It is not, of course, suggested that if ser ious problems ar ise under the license conditions, Applicants must wa it unt il the ir systems collapse before asking for relief. We are, however, conf iden t that if any real problems (as opposed to hypothetical proolems) should ar ise, Applicants will have suf ficient time to request amendment of the license conditions. Th is is par ticularly true since all of Applicants' fears concern activities which require advance planning on the par t of Applicants and non-applicant entities.

187

-- - --_-~n. . - -

violation or the threat of violation. We cannot agree that the consequences of proved. violations are so l imited . . . .

When the purpose to restrain trade appears froc a clear violation of law, it is not necessary that all of the untraveled roads to that end be left open and that only the worn one be closed. The usual ways to the prohibited goal may be b. locked against the proven transgressor and the burden put upon him to br ing any proper claims for relief to the cour t's attention. . . . International Salt Co. v. United States, 3 3 2 'U . S . 392, 400 (1947).

Finally, Applicants arguo P at the Licensing Board exceeded its author ity. by requir ing relief which is not, dependent on non-Applicant entities choosing to participate in the subject nu, clear units and by requiring access to future units ( App. Br ief at 294-97) .

! In the event of an affirmative finding under Section 1.05c(5), the Commission has the authority to " issue a license with such conditions es it may deem appropriate" (Section 105c(6)). The question of relief under Section 105c(6) dif fers f rom that of nexus under Section 105c(5) .

Once a finding of nexus has been made -- i.e., that the license activ-ities would create or maintain a situation inconsistent with the anti-tr00t laws -- the focus shif ts to the relief " appropriate" to eliminate

~

that situation. The only question to be considered at this stage is one of appropriateness; whether the proposed license conditions are appropr iate to eliminate the situation inconsistent with the antitrust ,

laws. That the term " appropriate" is not a limit on the scope of relief was made crystal clear by the Appeal Board decision in Wolf Creek, suora:

F.nction 105c(6) simp 1; directs the Commission to place ppropr ia te" conditions on licenses where necessary to rectify anticompetitive situations. This is an invocation of tne Commission's descretion not a limita-tion on its power s. Ilad Congress intended to do the

-latter, it would have sa id so in unmistakable terms.

1 N.R.C. at 571.

1 i

188 1

i

The relief. ordered by the Licensing Board is that which is neces-sary to -eliminate the situation inconsistent with the antitrust laws.

It is appropr iate because it eliminates that situation, is not contrary to the public interest, and does not place any undue or inequitable .

burdens on Applicants. More limited relief would be inappropr ia te f

because it would not g ive non-Applidant entities access to the full range of power supply options and thus would not cure the situation inconsistent. ,

XI. PROFESSOR TURNER'S THEORY The Appeal Board has requested that the parties address the ques-tion of whether , under the Atomic Energy Act, the possession of monopoly power, without a finding of villful maintenance or acquisition of that power is suf ficient to permit the attachment of license conditions.

Mr. Dcnald Turner, in The Scone of Antitrust and Other Regulatory Policies, 82 Harv. L. Rev. 1207 (1969), espoused the view that:

there is sound legal ground for inter pre t ing section 2 of the Sherman Act to apply to monopoly power that has been persistently maintained over a substantial per iod of time, except where based solely on economies of ~

scale 239/ or where it arose out of and still depends upon the same unexpired patents. Turner at 1225.

[ Footnote supplied.] 240/

4 239/ While the electric utility industry is subject to economies of

, " scale, these economies can be obtained through coordination :mong utilities (Kampmeier DJ 450, pp. 9-15 Mayben C 161, p. 16).

240/ In the Gr innell case, the District Court invited the Supreme Court to hold.tnat com inance in a mar ket establishes a rebuttable presumption of violat ton of Section 2. United States v. Grinnell

, Corp., 236 P. Supp. 244 (D.R.I. 1964), aff'o 384 U.57 563 (1966).

The Court refused to reach this position -- essentially a half-way step to the Turner thesis -- saying:

Since the record clearly shu; s that this monopoly power was consciously acquired, we have no reason to reach the fur ther position of the Distr ict Court that once monopoly power is shown to exist, the burden is on the defendants to show that their dominance is due to skill, acumen, and the like, i 189

While it is possible that an applicant's possession of monopoly pdu'cr stand ing alone could war rant a finding of antitrust i nco n s i s t'-

ency under Section 105c(5) of the Atomic Energy Act, this situation is unlikely to ar ise. Antitrust hearings are invar iably tr iggered not by an applicant's mere benign possession of monopoly power but by the alleged misuse of that power against competitors and potential competi-tors, e.g., denial of access to nuclear generation, refusal to share reserves, refusal to wheel, refusal to engage in other coord inating transactions. In any event, it is not necessary to adopt Professor Turner's thesis to justify an affirmative finding under Section 105c(5) in the present proceeding. The record below shows without doubt that Applicants' monopoly power has been misacquired and abused.

CONCLUSION For the fo?;egoing reasons, the Department urges the Atomic Safety and Licensing Appeal Board to affirm the Initial Decision of the Atcmic Safety and Licensing Board in this proceeding.

Respectfully submitted, David A. Leckie ILb T M '.io's /, $< ~

Assistant Chief, Melv in G. Berger v /v Public Counsel Section Attorney, Antitrust Division l Antitrust Division , Department of Justice l

l

! 2.h 'tI 4 {

/anet R. Urban i A'ttorney, Antitrust Division l Department of Justice Washington, D.C.

June 30,-1977 4

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APPENDIX A 4

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LNTIED STA'!ES DISTRIC? CL*RT l DISTRICT OF FT0aSJTA

^

KCRI11 DIVISIGl CITY O? S!!NCPIE, FCONA, a )

• runicipal coqoration, )

)

g Plafntiff, ) Civ. No. 4-75-591 l

)

)

vs. ) l r.

}; 1SDRNu'M 74:3 OEDER

)

IDRTIERI SIA".TS P::'.IR CCr2R;Y, a )

Minnesota coricration, ) ,

) .

Defendant. ) .

- s

. J. Ieroy Thilly, EIC70TI, SLHR, CUFM & 5'IELD,131. West Uilsen l Strcot, Padisca, Wisconsin 53703 .

I I

Philip 1.. I'rass, Assistant C'ity Attorney, KPISS & IW;T4WI,1221 East Fourth Avenue, Shakcpee, tiinnesota 55379 Joe A. Walters, Jams A. Rubenstein, O'CGO AR & IWO!7?I, 28th l Floor, IDS Center, 80 South Sth Street, tunneapolis,1:I 55402

)

I. I!?rRXX.;CIIGI l

' This matter is before this Court u;x:n Defendant 1:nre vn States PO = Co.'s l (!;SP) notion pursuant to Pule 12(b), Fed. R. Civ. P. to dimus this antitrust action upon the ground that the Federal Pcwnr Ccrnission (ITC) has exclusia.t jurisdiction to hear the issues herein presented and to grant any relief which may la appropriate. For the reasons hereafter db m_ed this Court has detemined that this rotion rust be denied. -

II. F7CIS .

The City of Shakcpec (Shicpce) charges that 13P has used its :cnopoly position in the sir,lesale pcuer market to ncncpolize, and attenpt to rencpsli::c, interstate tra63 and ccrrerce in the distributien and sale of electrical pcwer at retail to large inlustrial custcrccrs, in violatica of C2 of the Shenvn T.ct, 15 U.S.C. 52. Specifically, Shakepee charges !GP with purposfully Enintai.-ivj l

' a " dual rate structurn" for the wholocale and retail sale of electr.ic p2*r rilog 0CT 19.1776 19 z_

Harry A. Staten. Clerk g, yn a A' ~ Y T'

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u.- r_hi_

,comm e

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Wich rakes it igrssibic for EhPopec to ccrpate with !:SP for largo ish s trial I

custcrers in the ShAcpec area.

USP supplies electrical pcwcr to cunicipalitics, like Chdepw at a rate sich is set by the F?C ( holesale rate). Shakepee, en turn, tells this pcwer to its residents, inclu. ding large industrial custerers.

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NSP also solls pwer dircetly to large industrial custcrers in a porticn l

of Shakepee t.tcrc the servico zones of NSP and Shakepec overlap. The rate d ich i

these largo industrial custcrers of ::SP pay in set by the !d.innesot3 Public Utilitics Ccrr.issica (PCC) (retail rate). This "rctail" rate is lower than b the " wholesale" rate Shakepce r:ust pay to buy the sann pcwer directly frcra. N3P.

Therefore, without even considering Shakepce's adds! cost; of tranrissien, it is igessibic for Snakepec to sell power to those large industrial castcrer' in the overlap ene, at a rato ctrpetitive with p,SP's rate.

Shakopec clairs that the effects of this dual rate structure includ:s, but

~

is not limited to, a loss to it of the lusiness cf 'tha large industrial cc te l crs in the overlap zone. Mditionally, ChAcpce charges th;t n~.: industr/ will

! not locato in Sha';cpee if it rust pay a highcr power rato. Finall'f, exicting industrial custcrers are ' ressuring Shakepco nct to expend its servica area a .d to get out of the ;c.ur business allcgether. Shakopee thus corplai .s that it faces alternatively, a loss of cxisting and ncra _ tv er limiting, or abandoning, its pcuer busiross. The clirination of Shakepec from the ;ccar I

{

l lusiness wald, of course, leave NSP as the caly supplier in the Sh&cp2e 1.uvr e

jnurket. l 1

9 In arguing against antitzest liability, N;P pointe cut that bcSt the

%holewle" anci " retail" Iwer rates are set by gcr arr ental regulatory a;:ncies,'

! the FTC and lu', rcrpectively. ..arefore, NSP argues, it is the rengonsibility r

of tha PUC or FPC to rcredy the anticcrpetitive effects, if any, ci this dual j rate structure. Furtherrore, sincu Sh#,c;cc has choran to limit its attack Icrc'to the conducc cf NSP in applying for and winning approval of the -tolesale rate, N3P argues that t"c TTC has exclusivo jurisdictica cver the anticccpetitivt conduct charged herein.

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i III. IM It is no longer op.n to question that dual rate structures in the sale and distribution of electrical power can be found to have an anticcrpetitive effect.

, 96 S.Ct.1909 (1976) (Comray) . The ITC v. Conway Corn._, _U.S.

__ question rcruining is khother cr not the FPC has the exclusive juricd

' This court has mke that determination, to the exclusion of the antitrust laws.

coacluded that no such exclusive jurisdiction exists in the FK: because no

' antitrust in: unity can be inplied for the type of conduct ccrplained cf here.

In Commy the Suprcre Court hold that the ITC has a duty to consider legaticas by a power ccrpany's stolesale custa,crs (ceven nuticip111

• two electrical cooperatives) that prc;:c:ed stolesale ratca, which are within

. the comission's jurisdictica, are discri::tinatory and ronempetitive when considered in relation to the pqer a:rpany's retail rates, shich are not

• within the cxrmissien's jurisdiction.

There is nothing in the language of Conway

• Sich suggests that FPC j Ind:h.4, pricr to Cenwy the FPC had refuced to censid:r

> diction is excit.aive.

any anticcrpetitive effects in setting the violc. sale rates. '

The Suprcre coart has, on r.iny occasicas, repeated the prep:s I

in: unity from the mtitrust laws "is not favored and can be justified caly by convincing shcaing of clear repugnancy betwen the antitrust Icws and the ,

U.S. _, 96 S.Ct.

rc='ulatory syste:n." Cantor v. D?troit Edisen Cb. ,

3110, 3120 (1976) (Cantor); United states v. tJaticel Association of See:ritics sce also, United States v. Fhiln:51 chia Dealers, 422 U.S. 694, 720 (1975);

United States v. Perden Co._, 303 U.S. {

pational P.ank, 37'. U.S. 321, 348 (1963);

188, 197-206 (1939).

[ "cince our decisio?

V.act recently in Canter, the Suprcnc CJart stated that:

in 0* toe Tail mer Co. v. United States, 410 U.S. 366, 93 S.Ct.1022, 35 2d. 359 [1973] [0tter Taill_1, there can to no doubt about the prepocitio I The Defendant in orcL,;tQ T mado an anraent for antitrust im:nity cimilar in enny respects tc t.3P's argt:.2nt, that since the ITC has the duty under the R&ral Pcu.:r h:t to consid.:r anticmpetitiveCiter conduct in retting rates, its to.cr to do so in cxcluatw.

Tail Peer Co. argual that ctnce the 17C had the autlark/ uncer the Fa!.zral Pc5xer Act to remcbi the Ccr.pla.ined of violat.ica by cr& rin (continued) i

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the federal antitrust laws are applicabic to electrical utilities." U.S. at

, 96 S.Ct. at 31202 . The Court went cn to say that it "has consistently e

li refused to find that regulations give rise to it. plied exc.'ptions [f tm the 3 l.

antitrust icws) without first determining that exc::pticn was necessarf in crdar l to rake the regulater/ act work, 'and even then cnly to the rrdni::tn extent a necessary.'" U . S .' , 9G S.Ct. 3120 (footnote anitted) (caphasis

[ surplied) .

I

.I 1(continued) an involuntarf interconnecticn of pmer, that therefore, the juris-dicticn of tha FPC cver the allv;od anticcrpetitive conduct wa.: -

exclusive. The St.prc: o Ccurt, in rejecting this arp.:rnt, stated h as follaes: {

"There is nothing in the icgislative histcry [cf the redaral Pcmr {

. . Act) khich reveals a purpose to insulate electric rwer ccrpanics l frcn the operation of the antitrust Izt.es. To the ccatrarf, the history of Part II of the Federal Pcxicr Act indicates an cvorrialing policy of raintairing capetition to the mxi.in extent rcssible,

.! ccnsistent with the public interest." 410 U.S. at 373-374, 93 S.Ct.

l at 1028.

4 The cases citcd by !CP turc not in cppcsite. :1~'tana-CalofaUtilitic:

Co. v. !!crt!recstem Public Fer.*icas Cc . , 241 U.S. 246 (1%1) was r.c g

. cn antitzust a tica cnc werefore is r i cuthority for i. plying z.nti-trust ir.runity. The Plaintiff pcNer .trp:ny rerely wanted a refund g frcn Defe . dant pcuer cx.repany because it believed that it was charg:d an excrssivo rate.

Similarly, !*.cImn v. El Pa o ?htural Gas Co. , 357 P. Su p. 3~;9 (S. D.

Tex.1972) while cla. rung sa antitrust violatica, is an actica

,, attacking the rate itself, not a diserininatorf applicatica process.

l In any event, the continuing valility of this cose is quest.icnc.ble

q. in light of Otter Ta:1 and Canter.

I city of Taca'a v. Treayers of Tacrea. 357 U.S. 320 (195S) and North Carolina v. ITC, 333 F. 5:pp.1116 i.ii.D. N.C.1975) involva pro E u?al

. avenu-s for attacking iTC orders, not antic rpetitive cer. duct in the a

rpplicatico process.

I i

j For a general discussica cf antitrust i manity and its relaticaship

. to c.:clusive jurisdicticn, coc this Ccur+'s Opinica in Intematicnal

[ gavel Arrangers v. tQstern Airlir.es, 40J P. Sepp. 431 Tu. mnn. FTf5) .

2The Chief Justico cypressly concurred in this portion of the Ccurt's Opin!on heroin qucted er diccussed U.S. at , 9G S.Ct. at

.3123.

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l Finally, the ccurt mada it clear that the sxu test c' " necessity" is to te !

applied to exception frm the antitrust laws in the caso of either federal er state regulation. U.S. , 96 S.Ct. 3120 Text and n.36.

Canter and 5ttr=r Tail foreloced any argunent that the public utilities enjoy any general excration frcm the antitrust les as nr/ exist in the cccur-itics field. Sco_, United St.1tos v. !!atic.a.311scociation of Securitv D?alors, f supra; Cerden v. ::cw York Stock Cxchr.ge, 422 U.S. 659 (1975).

I!owver, while no general excepticn can be found, this Court rmat deternLa.e I

whether or not, based cn the specific facts of this case, it is "necusca:y" to ,i the fmeticning of the whole. sale regulatory schcen for I;SP to be i.nuni cd frcn j antitrust liability. This Court ccncludes that no such necessity exicts a .d j

. i that there is, in fact, little or not cpparent conflict between applying tha antitrust laws to the typ2 of conduct cceplained of here and the cmooth and efdicient functiening of thn ITC's regulatory rchene.

i Cantor is authority for the prepos:.tica that anti-ccrpetitivo c::ndu' cc by  :

a rey.tlated pesur ccrqwrf in applying fer a tariff rato, is subject to the j

. antitrust laas. -

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cantor involved anticxrpetitive ccnduct in the prcretion and proposing of l retail power rates. The rato proposed by the defendant pcwcr ccqmy includad as one of its costs, the fumiching to custcccrs, free of additicnal charge, replacc xnt electric light bulbs. The state regulatcry agenc/ cpproved this i

. j lightbulb exchange progran as part of the tariff rate. Charged with an unlmtful tie-in under the antitrust lac, the power ccrpr.y relied en the fact that enoa

, l tha stato apprcr/cd the lightbulb exchanga program, as part of tio tazaff appli-

. cation, the ccrpany was bound by state law to continuo to supply thosa lightbulb l nt least until a ncw tariff was applied for and cpprcried. Therefore, the ccrpe.n; argued, it was 1.nune frcn the ep2 ration of the antitruct leo u .dcr the state j 3Acconi, Califomia v. ITC, 369 U.S. 482 (1962) .

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action doctrine of Parker v. D: 7c, 317 U.S.'341 (1943)4.~ W Supre.u Court, after cctting dc'm the test of " necessity" applic61c to both state and federal

, regulatory schcnes 5 , found that no such " necessity" for antitrust i:se:nity was presented, becauso even though rcx;uircd by state las, the lightbulb pecgram %:s

, "the product of a decision in dich both the respondent [pcuer ccenyl and the e

Ctrnission participated." U.S. at , 96 S.Ct. at 3118. The Court sent

, cn to say:

Respendent could not ruintain the la p exchange program without 'he t approval of the Camtission, and now ry not c

abandon it without such approval. .!:everthe: css, the:o can be no doubt that the option to have er not to have such a program is primarily rcepcndents, not the ccrnis

, sicn's. ID. (Footnote Cnitted)

• The reasoning of the Canter decision appears to be that if an antic::rpat- (

itive practice is the product, at least in part, of the a:npany being regulned, ;

and could be avoided if the crpny etese to do so, then the anticnTotitive

, condition is in reality the kerk of that cwpany and is not "necessary" to the functioning of the rcqulatory schme and will not be irrunized frco abtitrust liability. As the Court in Canter ex;4ained, approval cf tha pre x: sed tariff di >

not increase the p:ver ccupany's risk of violating the icw, U.S. at ,

96 S.Ct. at 3121. Similarly, the FPC 4pproval of Wolesale rates proporM by ::Sf 7

has not increased t:SP's risk of violating the antitrust laws. k k

Mn Suprcre Ccurt in Canter li'w.eise rejected an analgous attark h

' based on Fastern Py. Prestdrits Ccnfcrenco v. ::Trr !bter Freicht 365 U.S. 12f Tl W1). s+2 also, catted Mino 1:ccr:crs v. rennt:n::cs, 3S1 U.S. 657 (1965) . ~

U.S. at , 96 S.Ct. at JTIL t;ule the trajority sought to c2Tt'inquish tWrr on thu grounds that it did not involve exc ption for private acticn taken in ccrpliance with

, the state law, thic Court :=st a2rce with the logic of the disNnters in Centor that the mjoritics decisicn substantially restricts tha l right of a ptbl2c utility to engage in antiwgotitive condu 0 in tbo petitionir.g procces. U.S. at , 96 S.Ct. at 313 2. Attc Cantor and? Califerais retcr Tranr. ort Co. v. Tn:c%im. Unlinitcd

• IJ.S. 509 (lJTl), tha so-called ::str-Penntncten c.cctrine 1.tst u viewd as severely limited.

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Sio, *discuscion sunra, at paces 4' and 5".

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It is sufficient to defcat this rotion that tha evidence niy prove that ::SP could casily have avoided the alleged ienopoly pcnition bf tailoring its ap- a t

i plications to allos for capetitive " wholesale" and "rctail" power rates. If .e thh is not proved, then the conclusion would to that 1:SP has not in fact engaged f

, in anticcrpatitive cceduct in n*L*.9 its rate applications, not that such conduct; 0

is imsmo frcn antitrust liability.

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, 1o reaningful distincticn can be made between the purpcsful cen&ct charged i here, which results in discriminatcrf and antictrpetitive Foer rates, and similar cmduct, as in canter, which results in an un1wful tic-In. ::cither lI situation is "necessarf" to the functioning of the regulatory scheno6, 6Georgia v. Penm*1vania R. Co. , 324 U.S. 439 (1945) relied on by both Shakep2e and ;5P, cccf not nandato a dimissal of the prayer for dr.2ges. In that case, Cecrgia was permittcd to =lintain an f action to enjoin a conspirac/ bco n n cu..&n carriers to fix 0 shippin) raten in a nr.ner which discrirjncted ag1 inst Gecrgia prtducts. In United States v. P.Hio Corncratien of k urica, 353 U.S. 334 (1953) the Ccart hac cccasica to explain its cccisicn in cromia, nct to remit a recc/cr of d: ages, as based cn its y um/1T132? sass to interfere with rato structures and rcqulatcr/

scheres which regaire usert skill to a&tinister. H:.mver, the

' Court went en to say that where there is' "no rcreasi'.4 reculater.'

schcen, and no rate rtr"-tu o to three cut ci rad .oq, cpcraalc actico, bf the feccral Ccurts c.rt worr. no =1scnict." _ 353 U.S. at 350 (frenote cnitted) (erphasis rupplicd).

1.part frcm the fact that in Center the Suprcm Court has shcun a villingness to interfere with rato structures which centain anti-ccrpetitive ccrponents, in the caso at rar, there is no parvasiva rcqu3atory schcm or rato stracturo to throa cut of balanca. The discrininatica alleged here is not tctween rates si.: b/ c .2

• Icgulatorf agency, as wu the care in C.2cmia, but rather is bet **cen the "wholesalo" rato set by the HC and the " retail" rate

, over which t?c FPC has no juritdiction. Put si:mly, under these ciretrr.stantes, antitrust i.ranity is not "necessarf to the functioning of the regulater/ prccess because the discriminaticn is " external" to that process. Tha ITC does not ccatrol both ends of the discriminatorf cendue. -

Furthermre, the fact that the FPC can censider the anticcrpetitivo effcct af its wholesale rate does not displace the antitrast Ic.s anyuc e2 can does similar power residing in the Interstate Cctrerce Comtissin1. United Staten v. Padio Corocration of ,Wrica, curra,

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.358 U.S. at. 351-352.

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Finally, it does not appear that it sculd be necescarf for this Court to beccre involved in the pzsccss of sett.ing rates in order to grant full and fair relief to Chikcpee.

In the event that Sh.fr: opec proves itself cntitico to it. would in no way disrupt the regulstery process for this Court to t@ hold an award of danuges for past anticrrpetitive conduct or'to enjoin speciffel future e antictrpetitivo cceducte en the part of 1:SP in raking and prtreting its rate applications. In conclusion, this Court can find no reason for irrxnizing the 7

omduct alleged herein frcxn antitrust liabilitr .

This Court finds ::SP's rc: wining arger.nts for di nis:,al to N without rcrit. Therefore, for the reasons h ectcfere discussed, this rotien to digiss tust be, and heruby is, denicd.

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IT IS SO CPTIFID.

Dated: , 1976.

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'ai G11cs \i. Lt:a

[htitcd Sectcs Distri : Jud;;e t

0 1

e 7In c recent lecter to the Ccurt, !!CP's counnel argues tlnt byeare Shakerce has n:u brought its anti-ctqvtitive allagations to th>

FPC in an imndM Petitica to Inte vena dated Oc:.c'f r 6, 1P6,!CP'n notico to disaics is further strengthr.td. In licht of the dice: sion in thir. :1corandtra and Order, t.SP's argrent is not relevant to the legal issuo before this Court. Sp3, discuccicn stpra, ruge 3.

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0 APPENDIX B e

e

O O .

SHAW, PITTM AN. OTTS & TROWDRIDGE 010 SCVC N T CCNTH STRCCT.N.W.

WAS H I N G T O N, 0. C. 2 O O O O C AMSAt O POf fS STEPH f N L. *A8' t # .2021296 3880 Situent Mama AuctmekiCa (C Onc t ,L. Pe f f m AN

.fmOws,40GC ,#CD CRASN(4 C A B L C "S M AWL Aw" Sf t PM E N O. POf f S E RN EST L. eLang, Je tggga e40:43 6&m ALD CMamm0FF CARLETON S.JONtt PoesLLap O. DOSte:Ca TMOM AS A gaatte SRACRLCY SH AW ,

O.feMOfMf M ANLON JAMES fMOW AS LINH ANT OF Cow = S EL (f CeGE M. #CG E AS JR. STCvEPs L. a8(L72(4 (muCC w Cau4CM'LL OCAst D AuktCa L(SLtC A. NtCMOLSON.Ja. SMCLDON J WEISCL' asanflN O.KAALL CitS AS CTH ** PtosOLCf 0N KsCHARO J. aCNOALL R(wlERT w. Amse AND 1 JAfE.$stegno LaomtesCE STONCH 0 C ASS ARA M. ROSMOf f t $7tPHth e. nuf fL tm (ConG E v. ALL ( as, JS ,

wM. .. Ao,0 0 .c,NOLOS JAf w NTM.SC.RNSf[tN O . ..OwN

,RE D A. Lt?'LE GLCNN A. $MifM* FebruarJ" 10, 1976

......m...

Janet R. Urban, Esquire

• United States Department of Justice Washington, D. C. 20530

.Re: The Toledo Edison Company and TheSCleveland Electric Illuminating Company (Davis-Besse Nuclear Power Station, Unit 1)

NRC Docket No. 50-346A; The Cleveland Electric Illuminating Company, et al.

(Perry Nuclear Power Plant, Units 1 and 2)

URC Docket Nos. 50-440A and 50-441A; .

The Toledo Edison Company, et al.

(Davis-Besse Power Station, Units 2 and 3)

NRC Docket Nos. 50-500A and 50-501A

Dear Ms. Urban:

In your letter to me of January 29, 1976, you suggest the possible use of a certificate from Mr. George Patterson attesting to the authenticity and business nature of certain documents as a substitute to having him appear in the above proceeding to testify pursuant to a Department of Justice subpoena.

After reviewing the documents referenced in the attachment to your letter, I am prepared to accept your proposal on behalf of Applicants insofar as it concerns the following documents only:

Nos. 18000102, 18000044, 18000028, 18000030, 18000024, 18000003, 18000005, 18000006, 18000002, 18000001, 18000035, 40000001, 40000002, 40000003,'40000004, 40000005, 40000007. In lieu of Mr. Patterson's appearance in this proceeding as a government witness, it is agreed that the Department may introduce these documents into evidence (subject to any relevance objections that Applicants may have) pur-cuant to an affidavit stating that they are true copies of genuine and authentic documents that were found in the files of American

-Janet R. Urban, Esquire February 10, 1976 Page Two Electric Power Company or Ohio Power Company; that they were kept in the regular course of business; and that it was a regular practice of the business to make or retain the documencs.

- In agreeing.to this procedure, it is understood and agreed that Applicants do not waive any rights to adding Mr. Patterson to their witness lists at some future time if they should determine that his appearance is necessary. ,

Sincerely yours, m m O (b . b .A k \(_o Q.

Wm. Bradford Reynolds Counsel for Applicants WBR:ats cc: Albert Bador, Esq.

All Parties 4

0 a

UNITED' STATES OF AMERICA NUCLEAR REGULATORY COMMISSION 9

BEFORE THE ATOMIC SAFETY AND LICENSING APPEAL BOARD e

In the Matter of ) i

)

The Toledo Edison Company and )

The Cleveland Electric Illuminating ) Docket Nos. 50-346A

- . Company -

) 50-500A l (Davis-3 esse Nuclear Power Station, ) 50-501A ,

Units 1, 2 and 3) ) .

)

The Cleveland Electric Illuminating i Docket Nos. 50-440A Company, et al. ) 50-441A (Perry Nuclear Power Plant, )

Units 1 and 2) )

QERTIFICATE OF SERVICE I hereby certify that copies of REPLY BRIEF OF THE DEPARTMENT OF j JUSTICE TO APPLICANTS' APPEAL BRIEF IN SUPPORT OF THEIR INDIVIDUAL AND .

1 COMMON EXCEPTIONS TO THE INITIAL DECISION have been served upon all of the parties listed on the attachment hereto by deposit in the United i

States mail, first class, airmail or by hand this 30th day of June 1977.

s

) y ( )- . l 1. ~ll A

/ Janet R. Urban VAttorney, Antitrust Division .

Department of Justice

.4 . . - , - . . . , . . . ,_ . . - . - --

UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Appeal Board In the Matter of )

) -

THE TOLEDO EDISON COMPANY and )

THE CLEVELAND ELECTRIC ILLUMINATING ) Docket No. 50-346A COMPANY )

(Davis-Besse Nuclear Power Station, )

Unit 1) )

)

THE CLEVELAND ELECTRIC ILLUMINATING )

COMPANY, ET AL. ) Docket Nos. 50-440A

• (Perry Nucleaf Power Plant, )

50-441A -

Units 1 and 2) ) '

}

fHE TOLEDO EDISON COMPANY, ET AL. )

(Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A 50-501A Uni ts 2 and 3) )

SERVICE' LIST .

Alen 3. 'to - t hhe l. , Esq.

Ivan W. Smith, Esq.

th i r m w , r. voic Safety and Atomic Safety and Licensing Nard Lic.asing ,.ppec1 Joard U.S. Nuclear Regulatory Commissi.-

3.S. Nuclear Regulatory Commission . Washington, D. C. 20555 Fashington, D. C. 20555

- John M. Frysiak, Ecq.

Jerome E. S t. 2 man, Esq. Atomic Safety and Licensing Boer' Ato.aic Sa fvAy -and Licensing U.S. Nuclear Regulatory Commise z .

Appeal Board Washington, D. C. 20555 .

U.S. Nuclear Regula' tory Commission Washiagton, D. C. 20555 Atomic Safety and Licensing Board Panel

' Richard S. S 12 man, Esq. U.S. Nuclear Regulatorv Com:aiscion

^

Atomic Safety and Licensing Washington, D. C. 20555 Appeal Beard U.S. Nuclear Regulatory Commission Dccheting & Service Section Washington, D. C. 20555 Office of the Secretary U.S. Nuclear Regulatory Commission Atomic Safety and Licensing Washington, D. C. 20006 Appeal Board Panel U.S. Nuclear Regulatory Commission Joseph Rutberg, Esq.

Washington, D. C. 20555 Benjamin H. Vogler, Esq.

Roy P. Lessy, Jr., Esq.

. Douglas V. Rigler, Esq. ,

Office of the Executive Chairman, Atomic Safety and Legal Director Licensi g Board U.S. Nuclear Regulatory Cou n , s.d on t

Foley, Lir ac<., Hollabaugh and Jacobs Washington, D. C. 20555 Chania Bu.'id'..g - Suite 206 815' Conns. E.At 'nue, N.W.

Washfagtot r 1 23006 L

f . Terence H. Benbow, Esq.

A. Edward Grashof, Esq.

' Gerald Charnoff, Esq. Steven A. Berger, Esq.

Wm. Bradford Reynolds, Esq. Steven B. Peri, Esq.

Robert E. Zahler, Esq. Winthrop, Stimson, Putnam & Roberts Jay H. Bernstein, Esq. ,' 40 Wall Street ~

Shaw, Pittman, Potts & New York, New York 10005 Trowbridge l 1800 M Street, N.W.

• Thomas J. Munsch, Esq.

Washington, D.C. 20036  ;

General Attorney Duquesne Light Company -

435 Sixth Avenue Reuben Goldberg, Esq. Pittsburgh, PA 15219 David C. Hjelmfelt, Esq. , ,

Michael D. Oldak, Esq. Esc.

Goldberg, Fieldman & Hjelmfelt David McNeil Reed Smith Olds,icClay Shaw &F Suite 650 Union Trust Building 1700 Pennsylvania Ave., N.W. Box 2009 Washington, D. C. 20006 Pittsburgh, PA 15230 i neeat t' Cant nella, Esq.

Lee A. Rau, Esq.

.'.m :f Lt.w Joseph A. Rieser, Jr., Esq.

nchart u. Hart, .jsq .

1.it Ass't ?iA* etor of Law Reed Smith Shaw & McClav '

Suite 900 City of i. level 2nd 1150 Connecticut Avenue, N.W.

213 City-Ha?.1 Washington, D. C. 20036 Cleveland, Chio 4413 4 James R. Edgerly, Esq.

Frank R. Clokey, Esq. Secretary and General Counsel Special Ass't Attorney General Pennsylvania Power Company Room 219 One East Washington Street Towne Houca Apartments New Castle, PA 16103 .

Harrisburg, PA 17105 John Lansdale, Esq.

Ec.1ald H. Hauser, Esq. Cox, Langford & Brown h Victor F. Greenslade, Jr., Esq. 21 Dupont Circle, N.W.

William J. Kerner, Esq. Washington, D. C. 20036 The Cleveland Electric Illuminating Comoany- -

Alan P. Buchmann, Esq.

55 Public Scuare Squire, Sanders & Dempsey ,

Cleveland, dhio 44101 1800 Union Commerce Building Cleveland, Ohio 44115 Michael M. Briley, Esq.

Paul M. Smart, Esq. Edward A. Matto, Esq.

Fuller, Henry, Hodge & Snyder Richard M. Firestone, Esc. -

P. O. Box 2088 .

aren H. ndkins, c sq.

Toledo, Ohio 43603 Antitrust Section 30 E. Broad Street, 15th Ficor Russell J. Spatrino, Esq. Columbus, Ohio 43215 Thomas A. Kayubs, Esq.

Ohio Edison Co npany Christooher R. Schraff, Esc.

47 North Main SLicet Assistant Attornev General' Akron, Ohio 14308 Environmental Law'Section 361 E. Broad Street, 8th Floor Columbus, Ohio 43215

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