ML20059G100

Requests NRC Expeditious Disposition of Matter Re Ohio Edison 870918 Application to Suspend Antitrust License Conditions.Doj Position in Inconsistent W/Prior Analyses & W/Pertinent NRC Case Law.Jd Pace Affidavit Encl

ML20059G100
Person / Time
Site:	Perry
Issue date:	07/24/1990
From:	Charnoff G SHAW, PITTMAN, POTTS & TROWBRIDGE
To:	Murley T Office of Nuclear Reactor Regulation
Shared Package
ML20059G102	List: ML20059G100 ML20059G135
References
A, NUDOCS 9009120132
Download: ML20059G100 (8)

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SHAW, PITTMAN, PoTTs &LTROWBRIDGE A pan,NtasMin sNCLUDING poort$SIONAL Componattowa 2300 N STRt.ET, N. W.

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GERALD CHARNorr, P.C. July 24, 1990 g Mr. Thomas E. Murley Director, Office of Nuclear Reactor-Regulation United States Nuclear Regulatory' Commission Washington, D.C. 20555 Re: Application of Ohio Edison Company to Suspend Antitrust License Corditions (Perry Nuclear Power Plant, Unit 1),.

NRC Docket No. 50-440A ,

Dear Mr. Murley On June 13, 1990,- the Department of Justice ("DOJ") advised the NRC to dismiss the Application to suspend the-antitrust con-ditions appended to the operating license of the Perry nuclear power plant that was filed on September 18, 1987 by Ohio Edison Company ("OE"). This letter addresses DOJ's patently erroneous conclusion that "the costs of operatingLnuclear plants do not negate, as a matter of law, a finding that construction and oper-ation of a nuclear plant.' creates or maintains:a situation-incon-sistent with'the antitrust laws.'"' DOJ" Letter at 2.

Specifically, DOJ's position ignores the following facts:l/

(1) the legislative history of Section 105c clearly; indicates that the statute was' intended:to assure that all utilities could share in the benefits of low-cost nuclear power; (2) as'a matter of economic reasoning, a generating facility with higher costs than competing facilities cannot provide its owner with the mar-ket power necessary to engage in anticompetitive behavior; and (3) DOJ's own past practice and the NRC's regulatory.interpreta-tion of the statute both' recognize *at cost is a-critical factor in a section 105c analysis.-

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$$ U We note that DOJ has m.scharacterized OE's position. OE's m Application is premised on the position that Perry provides MO no cost competitive advantage,.not that.the plant provides?

88 some small competitive advantage that is somehow not suffi-0jC

. ciently "significant." See DOJ-Letter at 2, 3.

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! Letter-to Thomas E. Murley

'Julyc24, 1990 i Page 2 of 8 (l') Lealslative History.

DOJ is. incorrect in'its implication that'the legislativet history of Section 105c fails to. support OE's position. ~ As.OE illustrates at pages 7-15 of its Application, the. concern trig - -

gering Congress's grant of antitrust oversight to the NRC was to assure that.all utilities.could share in the benefits of theEnew,, (

low-cost nuclear technology. DOJ refers only to the Joint Com- .  ;

mittee Report,:but' ignores the remainder of the legislative his ' <

tory of Section 105c.2/ e Report men '

tions,the cost of nuclear In-fact, power, the Joint Committg/-and the ,

albeit indirectly,2 . l other substantial legislative history is1 replete with statements; illustrating that Congress presumed that nuclear power plants! . ,

would be a primary source of low-cost power,; and that-access to; ,

nuclear tive advantage power wouldin the significantly.1/

marketplace. increase a utility's competi--

For example, Roland W. Donnem, the Director of' Policy Planning in the Antitrust Division of the.DOJ, testified before' the Joint Committee.that:

With regard to the establishment of a:

large-scale nuclear power plant,.it is neces-sary to first determine the extent to which such plants might afford the participants-therein decisive competitive advantage over their competitors. . . . .. [Alecess'to this  ;

low-cost power may well be decisive in any competitive race.2/

2/ The Department cited the Joint Committee Report, H.R. No.

91-1470, 91st Cong., 2d Sess. (1970) (reorinted La 1970=U.S.

l Code Cong. and Admin. News 4981) at pp. 2 and 3 of its letter.

2/ See 1970 U.S. Code Cong, and Admin. News at 4983, 4988, and 4989.

A/ OE quoted many of these examples at-pages 7-12 of its l Application.

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l- E/ Prelicensing Antitrust Review of Nuclear Powerplants, Hear-ings Before the Joint Comm. on Atomic Energy, Part 1, 91st Footnote continued on next page.

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Letter to Thomas E. Murley .

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. July 24,.1990 '

1Page 3 of 8 Mr. Donnem's views, expressly stated by the DOJ to be "the views ~ i of the antitrust' division,"5/ included the following: J (T]he conclusion that all sectors of the electric utility: industry should-have ade- l quate access to low cost power is, I think, 1 compelled byLthe policy of the antitrust

, laws. .. .'. ,

Whatever p'articipation device is employed, two basic. principles should be ,

observed. First, the small and munidipally '

owned companies must be afforded the same- ,

i oppprtunity to' receive the low cost oower for the same uses as'the larger participating: N systems. -For example,-if the larger partici-'

pants use the low cost power for existing requirements, then it must be-available to all for that use. . . .. Only in this way are the competitive occortunities ecualized .

and decisive competitive advantaae avoided.2' 1

Similarly, Walker B. Comegys, Acting. Assistant Attorney Gen-eral, Antitrust Division of the DOJ, was quoted in the Farlev .

licensing board decision as-follows:

I We have not wished to take the. position that i where competitive policies require that smaller firms have access to a laroe low-cost cover facility the access must always be i furnished by ownership share in the new L plant. . . . . We do think that adequate-access implies the same opportunity to a receive low cost cover.for.the_same uses as 4

Footnote continued from previous page.

1 Cong., 1st Sess. 9 (1970) (hereinafter " Joint Committee I")

(emphasis added). OE quoted-this statement on p. 8 of its application.

5/ Joint Committee I at 118.

2/ Id. at 10 (emphasis added).

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' Letter to' Thomas E. Murley i July.24, 1990 L Page 4 of 8 y l

those who have the unioue'l'ov cost facility.E/' ;r

. . :i Sounding the same theme, AEC General Counsel Hennessey. told the Committee that: <

The problem. centers on:theivery large plants that do provide the most economical source of enerov . . . and an opportunity for the small j publicly owned. utilities 7to'have access to that newly avai'lableJcheap source of oover.2/

And again, S. David Freeman l-Director.of the Energy Policy , :l Staff-of the U.S.. Office of. Science and Technology, testified to Congress that' nuclear power's growth will:be due primarily'to the fact that it offers' low-cost power to utilities.

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. . . . Since nuclear plants come: only -in .

large sizes, it-is particularly important that preconstruction antitrust. review.be, implemented to assure that smaller, utilities are not frozen out of the generation end of' the power business. . . . .(T]he question-of fair and reasonable access to the benefits of fiedlow-cost by wholesale power is not univg/r sally satis-purchases._12 In sum, the legislative bistory of Section~105c clearly dem- ,

onstrates t' hat the linchpin underlying.the need for-NRC. antitrust oversight was the universal assumpt-lon that there were competi-tive advantages available1 from' low-cost nuclear power.

(2) Economic Reasonino.

Appended to this' letter is an affidavitLby Dr. Joe D. Pace, an economist with National Economic Research Associates and an-

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l E/ Id. at 128 (emphasis added).

2/ Id. at 75'(emphasis added). OE quoted Mr. Hennessey's i

statement on p. 9 of its application. ,

1 lE/ Id. at 106 (emphasis added); quoted on p. 11 of OE's I application.

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. 4 SHAw; PITTMAN, PoTTs & TROWBRIDGE A PARTNERSHIP lNCL.UDsNO PMQFESSIONAL COf4PORATIONS Letter.to Thomas E. Murley j o July 24, 1990 'l page 5 of 8 expert in utility antitrust matters. Dr. Pace explains why DOJ's advice makes no sense from an economic perspective. Dr. Pace concludes that DOJ's " Advice Letter (is] devoid of economic rea-soning. It misses the mark by failing to consider whether con- -

trol'of a high-cost nuclear unit could ever logically be said to I create or maintain a situation inconsistent with the antitrust laws and thus create a basis for NRC-imposed license conditions."Al/

(3) DOJ and NRC Past Practigig-DOJ has itself clearly indicated that the cost of nuclear power is pertinent to the analysis of the-antitrust implications of granting a nuclear license. 12/ Prepardd by the NRC in' con-sultation with DOJ, Appendix L of'10 C.F.R. Part 50, "Information Requested by the Attorney General for Antitrust Review (for)

Facility License Applications," requires an applicant for a i nuclear license to disclose' specific cost information, including "the most recent average cost of bulk power supply experienced by ,

applicant" (item 11.11), and "the most recent estimated cost of applicant's bulk power supply expansion program of which the sub-ject unit is a part" (item II.12).

Furthermore, DOJ has used the cost information required by Appendix L to conclude that absent an economic advantage result-ing from low-cost nuclear power, anticompetitive conduct by a licensee is not subject to NRC oversight. For example, DOJ's 1 initial conclusion that an antitrust hearing was not required in connection with the licensing of Unit 1 of the Davis-Besse 3 l

11/ It is telling that the DOJ letter, while it concludes-that  !

cost is not a determinative consideration, does not indicate  ;

what factors it does consider significant in evaluating '

whether, at this point in time, Ohio Edison's ownership interest in Perry would tend to create or maintain an anticompetitive situation.  !

12/ Indeed, if cost is not relevant, this would raise an equal protection issue, in that there would be no. rational basis for distinguishing between utilities. owning nuclear power plants and those that do not, or between Ohio Edison and the owners of Davis-Besse and Zimmer. See discussion, below, of-

, the DOJ's 1971 Advice Letter regarding Davis-Besse Unit 1, and its 1972 Advice Letter regarding Zimmer.

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. SHAW; PITTMAN, PoTTs & TROWBRIDGE A PARTN!RSH4P INCLUDING PROFESS @NA4, CORPO8tATCNS Letter to Thomas E..Murray July.:24, 1990 Page 6 of 8 y

nuclear plant was based upon a finding that the plant would not f provide its owners with'a significant cost advantage:-

[B]ased on data submitted to us-by Toledo Edison ~and CEI, it appears that the estimated costs of producina cover at the Davis-Besse plant vill be about the same as the. . a applicant's averace system costs and hiaher i than the estimated production costs of at least one of the similar-sized fossil fuel .

plants being constructed by CAPCO members.

Davis-Besse, therefore, will apparent 1v not aive Toledo Edison or CEI a sianificant cost ,

advantaae which could then be'used to impose i a price saueeze on wholesale customers, l l

36 Fed. Reg. 17888, 17889 (Sept. 4, 1971).  ;

Similarly, DOJ's antitrust advice' letter concerning the- ,

I Zimmer nuclear plant indicated that no antitrust hearing-would be necessary unless the municipalities requesting:such a hearing made a prima facie showing that it would be more economical to purchase delivered unit power from Zimmer than it would be to purchase firm interconnection power from the utilities owning that plant. "The critical question . . . is whether the Zimmer  !

unit should be regarded as an . . . ' essential resource' -- that  ; .

is whether, as a matter of factual analysis, the municipal sys- j tems seeking access to it have no reasonably comparable alterna-tive for meeting their bulk power requirements." .37. Fed. Reg, .

i 14247,.14248 (July 18, 1972). Thus, DOJ's most recent advice .

regarding OE's Application represents an abrupt and inexplicable  !

departure from its prior position. In. addition, NRC has also supported the conclusion that cost is the essential inquiry in a Section 105c proceeding. In Consumers Power Co. (Midland Plant, Units'l and 2), ALAB-452, 6 N.R.C. 892 (1977), the Appeal-Board agree (d) with the Department of Justice that "The advantage. accruing to Applicant from.its. -

l ability to integrate low-cost nuclear genera-tion is manifest. Its averaae cost is reduced and to the extent Applicant is able  ;

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to do this while denyino its competitors the

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3 Letter to Thomas E. Murley July 24, 1990  :

Page 7 of 8 i

same advantace, its competitive position vis-a-vis-these systems improves."12/

In short, DOJ's position, as set forth in its June' 13, 1990 letter to NRC, is inconsistent with itsfovn prior analyses, as-well as with pertinent NRC case law.

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• r In summary, there is no merit to the DOJ analysis, as. set .

forth in its June 13, 1990 letter. In contrast, OE's Application stands on its merits, and-OE urges that it be granted. If, how-  !

ever, the NRC Staff is not so inclined, OE hereby requests a hearing, to be held in two sta Stage one would address only the following legal issue:li/ ges.

If the Perry Nuclear Power Plant does not:

afford OE a lower average cost'of bulk power 7 supply than would non-nuclear generation options OE could have exercised in the same time frame (see-App. L), can OE's ownership- ,

share of Perry create or maintain an anticompetitive situation such that NRC is authorized to impose or retal., antitrust license conditions?

.Should this issue be resolved in10E's favor, the remaining-issue would be whether Perry's actual costs are such that the plant does not afford OE a lower average cost of bulk power supply.than would non-nuclear generation options OE could have. exercised in the same time frame. This issue should be resolvable by 11/ Midland, 6 N.R.C. at 1018 (quoting-the Department of Justice's Reply Brief on Appeal)-(emphasis added),

ll/ Cf. Memorandum and Order Granting PetitionLto' Intervene, C_leveland Electric Illuminatino Co. (Perry Nuclear Power Plant, Unit No. 1), LBP-90-15 (June 11, 1990), slip op.1at 8 i (finding that 10 C.F.R. 5 2.714 permits contentions to. raise purely legal issues,.and that under $,2.714(e) such conten-l tions are to be decided on the. basis of briefs and oral arguments).

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Letter to Thomas'E. Murley. z July 24, 1990 r A

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stipulation,-since it-is beyond dispute that the-costs.for Perry- U are far higher than.the' costs would have been for a contemporane- Lj ously: built coal plant.

Finally, because this matter has been.pending for a very -

'i long time, we respectfully request the NRC's expeditious disposi ~

tion of the matter at this time.

Sincerely, 9 y 0/1m Ass Gerald Charnoff-Counsel:for. Ohio Edison Company -  !

Enclosure cc: -Anthony J. Alexander, Esq., OE Hon. James F. Rill,-DOJ.

Alison L. Smith,.Esq., DOJ  :

Mark S. Schechter, Esq., DOJ Janet Urban, Esq. DOJ .

!' Joseph Rutberg, Esq.,'NRC S 213 MSS $456.90

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