Appendix — Alabama Power Co. v. Nuclear Regulatory Commission

S2-]7 i

~

IN THE

Supreme Court Of Che United States

OCTOBER TERM, 1982

NO.

ALABAMA POWER COMPANY,

Petitioner,

Uv.

NUCLEAR REGULATORY COMMISSION

and THE UNITED STATES OF AMERICA,

Respondents.

On Petition for a Writ of Certiorari to The United

States Court of Appeals For The Eleventh Circuit

APPENDICES C-G TO PETITION

S. EASON BALCH, Sr.*

RosBertT A. BUETTNER

ALBERT L, JORDAN

JoHN F. MANDT

Balch, Bingham, Baker,

Hawthorne, Williams & Ward

600 North 18th Street

Birmingham, Alabama 35203

(205) 251-8100

TERENCE H. BENBOW

Davip ]. LONG

Winthrop, Stimson, Putnam

& Roberts

40 Wall Street

New York, New York 10005

(212) 943-0700

Attorneys for

Alabama Power Company

May 2, 1983

*Counsel of Record

AFPFENDIX C

APPENDIX D

APPENDIX E

APPENDIX F

APPENDIX G

CONEEN TS

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APPENDIX C

UNITED STATES OF AMERICA

NUCLEAR REGULATORY COMMISSION

ATOMIC SAFETY AND LICENSING APPEAL BOARD!

Michael C. Farrar, Chairman

Richard S. Salzman

In the Matter of Docket Nos. 50-348A

50-3644

ALABAMA POWER COMPANY

(Joseph M. Farley Nuclear

Plant, Units | and 2) June 30, 1981

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DECISION

Opinion of the Board by Mr. Farrar:

This is the third antitrust case arising under Section 10Sc of the Atomic

Energy Act? to reach us on the merits. The first, Midland, involved a

nuclear plant being constructed by Consumers Power Company, which

serves most of Michigan’s lower peninsula. ALAB-452, 6 NRC 892 ( 1977).3

The second, Davis-Besse, dealt with a number of reactors proposed for

construction in Ohio and western Pennsylvania by several utility companies

serving the City of Cleveland and the rest of the “CAPCO” territory.

ALAB-560, 10 NRC 265 (1979).4 Unfortunately, our rulings in both

Midland and Davis-Besse did not come down until after the Licensing

Board’s two-step decision in the matter now before us.5 Necessanily, then,

that Board’s opinions, in general carefully and thoughtfully crafted, were

written before it had the benefit of any appellate guidance.®

*42 U.S.C. §2135(c).

ose and remanding Consumers Power Co. (Midland Units | and 2), LBP-75-39, 2 NRC

(1975).

‘Affirming as modified Toledo Edison Co. (Davis-Besse Units 1, 2 and 3), LBP-77-1, 5 NRC 133

(1977).

‘The first of the Board’s decisions (Phase I) dealt with what mught be called the question of

“lability” (LBP-77-24, 5 NRC 804 (April 8, 1977)); Phase II addressed the matter of remedies

(LBP-77-41, 5 NRC 1482 (June 24, 1977)).

*As already indicated, at that point our Midland and Davis-Besse decisions had not been

wnitten. And, to this day, neither the Commission itself nor the courts have spoken about the

merits of an NRC anutrust case: (1) Any need for further review of Midland was eliminated

when the parties reached a settlement while the case was on remand below. That settlement

was approved by the Licensing Board last August (LBP-80-21, 12 NRC 177); because the

parues were in agreement, we declined to review the matter (ALAB-610, 12 NRC 174 (August

26, 1980)). (2) In Davis-Besse, on the other hand, the Commission declined icants’ request

that it review our decision. The case was then appealed to the United States Court of Appeals

for the Third Circuit under the name Duquesne Light Co. v. NRC: the applicants later

withdrew their appeal and the case was dismissed on October 8, 1980.

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In those opinions, the Board below ruled that Alabama Power

Company’s construction and operation of the two-unit Farley nuclear

power plant would create and maintain “a situation inconsistent with the

antitrust laws” within the meaning of the statute unless certain remedial

conditions — including access for one of the intervenors by way of

purchases of “unit power”? — were included in the nuclear licenses. No

stay having been sought, the conditions imposed have been in force while

the parties’ cross-appeals have been pending before us.*

Alabama Power tells us in its appeal that none of its past conduct

warranted the finding of antitrust “liability”® and that, in any event, the

remedy selected was too drastic. Its opponents — the Alabama Electric

Cooperative (AEC), the Municipal Electric Utility Association of Alabama

(MEUA), the United States Department of Justice, and the NRC staff —

take the opposite tack. Their appeals argue that the applicant’s past conduct

was more egregious than the Board found and that a more sweeping

remedy is in order.'°

As we explain in this opinion, we find the Licensing Board’s rulings not

fully in accord with the principles laid out in decisions issued by us since

then. In terms of the positions taken by the parties here, the upshot is that

Alabama Power's opponents are entitled to a somewhat more favorable

result than they obtained below. Specifically, we find that AEC should be

afforded ownership access to the Farley units and that, while applicant

need not extend such access to MEUA, the municipals are entitled to access

to applicant's transmission system.

"The Board below defined unit power as “power purchased on a contractual basis in the form

of a percentage share of the output from a particular power plant. The cost of unit power

includes the owner’s cost of capital, costs of construction, cost of fuel and operation, and a rate

of return on investment.” 5 NRC at 1502.

*Unit | began commercial operation on December |, 1977; Unit 2 recently received its

operating license.

*That is, the finding that its activities under an unconditioned license to operate the Farley

plant would maintain a situation inconsistent with the antitrust laws specified in Section 105 of

the Atomic Energy Act.

This capsule description of the parties’ appellate positions is intended only to set the stage; it

does not, of course, even begin to hint at the precise nature of the questions presented in the

1,000 pages of briefs filed with us. In that connection, the record below consisted, inter alia, of

nearly 30,000 pages of transcribed testimony.

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I.

BACKGROUND AND SUMMARY

By amending the Atomic Energy Act in 1970, Congress gave this

Commission added duties to fulfill in connection with its licensing of

nuclear power plants. Since that time, it has had to consider, in addition to

safety and environmental matters, the antitrust ramifications of its licensing

actions.'' Specifically, as we said in Midland (6 NRC at 897, footnotes

omitted):

Under Section 105¢ of the Atomic Energy Act, it must review

applications for permits to construct commercial nuclear power

facilities to determine if the activities sought to be licensed would

create Or maintain situations inconsistent with the antitrust laws or

their underlying policies. Where such a result would follow, the

Commission may refuse a license (or rescind one previously issued) or

attempt to rectify the anticompetitive consequences by attaching

appropnate conditions to the license. As the Commission has reiterat-

ed, the Atomic Energy Act’s antitrust provisions reflect “a basic

Congressional concern over access to power produced by nuclear

facilities” and represent legislative recognition “that the nuclear

industry originated as a Government monopoly and is in great

measure the product of public funds [which] should not be permitted to

develop into a private monopoly via the [NRC] licensing process .. . .”

The governing statute provides the procedures by which this review is to

be accomplished; we have described its workings elsewhere.'? Here, the

''The Commussion’s responsibilities in the antitrust sphere pnor to 1970 were less definiuve.

See Cities of Statesville v. AEC, 441 F.2d 962 (D.C. Cir., in banc, 1969) and the history recited

in Toledo Edison Co. (Davis-Besse Unit |), ALAB-323, 3 NRC 331, 337-40 (1976).

"Kansas Gas and Elecinc Co. (Wolf Creek Unit 1), ALAB-279, | NRC 559 (1975).

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review was duly initiated when the Commission referred Alabama Power’s

construction permit application to the Attorney General of the United

States for his advice concerning its potential antitrust consequences. The

Department of Justice’s analysis led it to respond that the plant should not

receive an unconditional license and that an antitrust hearing should be

held. In that connection, petitions to intervene filed by AEC and MEUA

were granted by the Licensing Board (over the applicant’s opposition). The

entry of these two organizations alongside the statutory parties — the

Commission staff and the Attorney General — completed the lineup of

paticipants opposed to the award of an unconditional license to Alabama

Power.

For introductory purposes, the business operations of the utility parties

to the proceeding can be simply described."? The applicant, Alabama

Power, is a wholly-owned subsidiary of the Southern Company, a public

uulity holding company which also owns Georgia Power Conpany, Gulf

Power Company,'* and Mississippi Power Company, all of which function

under an interchange contract as the Southern Company Pool. Alabama

Power generates, transmits and distributes electricity in central and

southern Alabama (the eleven most northern counties in the State are

served primarily by the Tennessee Valley Authority).!’ At retail, it has

residential, commercial and industrial customers; it wholesales electricity to

sixteen municipalities with their own distribution systems (twelve of which

comprise the membership of the intervenor MEUA), to eleven rural

distribution cooperatives,"© and to the other intervenor, the Alabama

Electric Cooperative. The AEC, in turn, is a generation and transmission

cooperative whose membership is made up of four municipalities,'? two

industnal mills, and fourteen rural cooperatives.'

In terms of generating facilities, the applicant had in operation at the

"The Licensing Board's first decision contains a more complete descripuon of the parties’

Operations as well as of those of other enutes in the surrounding area. See 5 NRC at 820-33.

‘“Gulf Power operates in the Florida panhandle.

Southern's operating companies thus embrace a conuguous area covering not only the

Flonda and much of Alabama but also southeastern Mississippi and most of

Georgia. See DJ. Ex. 1008.

“Ten of these are members of the Alabama Electric Cooperative. See fn. 18, infra.

‘There are a total of 22 municipally-owned systems in the geographic area of interest — the

twelve in MEUA, the four in AEC, four others supplied at wholesale by Alabama Power but

not affiliated with either intervening organization, and two that purchase their power

requirements from TVA. The Licensing Board lists the town of Robertsdale, one of the

unaffiliated municipal systems, as purchasing wholesale power from Rivera Utiliues (see 5

NRC at 828); the town now gets its power from applicant. MEUA Bnef, 25; APCO Reply

Brief, 46-47.

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ume of tnal thirteen hydroelectne plants and eight fossil-fueled plants,

totalling over 6,000 megawatts in capacity.'? By comparison, the AEC had

two hydro and six fossil plants totalling 137 megawatts. The MEUA’s

members had no generating capacity.

We need not pause here to descnbe how the electne utility industry

generally functions, in Alabama and elsewhere, to produce a reliable

electric power supply. We went into that subject in detail in Midland,® and

the Board below — after finding that “the pnnciples of electric power

supply producton and coordination are generally applicable throughout

the electric utility industry” and “do not vary significantly among electnc

utilities regardless of differences in locations * * **” — covered the subject

quite thoroughly itself here. 5 NRC at 833-37.

The Licensing Board had to deal with numerous claims made by the

applicant’s opponents concerning alleged anticompetitive practices it was

said to have engaged in through the years. In order to evaluate those claims

in context, the Board first undertook to determine what product and

geographic markets were relevant. It concluded that the applicant's service

area constituted the relevant geographic market; the only product market it

held relevant was that for wholesale power. In this regard, the Board

rejected the notion that there was a market in either of the other suggested

products — i.e., retail power or coordination services.?! 5 NRC at 879-894.

Using its findings delineating the relevant market as a touchstone, the

Board found that the applicant possessed monopoly power in that market

(§ NRC at 896-901); it then reviewed the evidence beanng on the

applicant's alleged anticompetitive practices (5 NRC at 901-957). In all

instances but five, the Board exonerated the applicant. With respect to

those five transactions, however, it found the applicant’s conduct to have

been anticompetitive in nature and to have resulted in a situation

inconsistent with the antitrust laws. The upshot was the conclusion that the

{Throughout this decision, “_______._ Bnef™ refers to the appellate bnefs filed by the

partes on November 14, 1977; “_________ Reply Bnef™ refers to the responses filed on

Apni 14, 1978. The parties will be referred to in such citauons as APCO, AEC, MEUA,

Jusuce, and Staff.)

'*AEC supphes all the power requirements of its municipal and industnal members and three

of the rural co-ops, as well as some of the needs of five other co-ops (who are also customers of

Alabama Power); these constitute AEC’s “on-system” members. It has no direct physical

access to five co-ops in Alabama (who recerve all their power from the applicant) and to one in

Flonda (served by Gulf Power). These six are called its “off-system” members.

"Of the eight fossil-fueled plants, applicant owns six of them outnght, and shares in the

ownership and output of the two others. The capacity figure shown includes only applicant's

of the two shared facilites See 5 NRC at 821-22.

parucularly 6 NRC at 950-57.

‘\Based largely on its reyectuion of the retail power market, the Board concluded that MEUA

was not entitled to any access to the Farley units. See 5 NRC at 961.

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activities under the nuclear licenses would maintain that situation (5 NRC

at 957-961).

In other words, the Board held that the nuclear licenses had to be

conditioned to ameliorate the effects of the anticompetitive situation then

existing. The heanng then moved into its second phase, having to do with

the appropnate remedy. The Board heard additional evidence on that score

(but did not allow MEUA to participate”) and then rendered its second

and final decision. It imposed a number of conditions upon the license, but

rejected others which the applicant's opponents believed were necessary. In

terms of access to the nuclear facility itself, the Board held that allowing

AEC to purchase unit power was sufficient and that no ownership

participation was Called for.

As already indicated, ali parties appealed. Among them, they manage to

challenge — from both sides — nearly every significant holding made by

the Board below.»

In deciding the matter, we take up first — and reject — certain broad

arguments the applicant makes that, if accepted, would largely insulate its

actions from antitrust scrutiny (Part II). In Part III, we then consider the

questions raised as to the nature of the relevant markets. Although we are in

total agreement with the Board below on its determination of the market

for firm wholesale power, the principles we set out in Midland and Davis-

Besse — both handed down after the decision below — lead us to disagree

with the Licensing Board's rejection of the proposed markets for coordina-

tion services and retail power.

We proceed in Part IV to hold that the applicant has monopoly power in

these other markets as well as in the wholesale market. We turn then to that

aspect of the appeals which gives us the most difficulty: to what extent

the applicant has used its monopoly power in violation of the antitrust laws

or their underlying policies. The Licensing Board found it had done so only

in certain respects; we believe that in reaching that conclusion it cast the

applicant's activities in too favorable a light. With respect to MEUA, we

also had to reassess the findings below in light of our holding expanding the

relevant markets in the case. The additional violations we perceive and our

findings relating to MEUA are discussed in Part V. Finally, we turn in Part

VI to the question of what remedies are appropnate in light of our

additional findings on “liability” together with those violations already

perceived by the Board below.

“See 5 NRC at 1484 n. 5

As previously intimated (see fn. 17, supra), all parties filed concurrent brefs as appellants on

November 14, 1977 Betore their responsive briefs were due, we handed down Midland The

tume for filing the second set of brnefs was then extended to allow the pares to adjust ther

thinking to take Midland into account. Oral argument was held on March 8, 1979.

APPLICANTS ARGUMENTS AGAINST ANTITRUST SCRUTINY

The applicant raised three broad arguments against antitrust scrutiny.

First, it argues that there is no room here for any finding of “liability”

because it is so “pervasively regulated” that it cannot be held to possess

monopoly power in the relevant market. It next contends that Section 10Sc

of the Atomic Energy Act forbids a broad inquiry into its past activities for

findings of liability — that any remedial action taken against it must be

based solely on its predicted or potential future activities. Finally, it argues

that the Licensing Board was wrong in basing its findings of liability on

“anucompetitive conduct.” According to the applicant, Section 10Sc

requires that actual violations of the antitrust laws or the clear policy

underlying them be found. We deal with these arguments in order.

A. Pervasive Regulation

As noted by the Licensing Board,™ this proceeding arises under Section

l0Sc of the Atomic Energy Act, which requires the Commission to

determine in connection with its licensing of the Farley plant “whether the

activities under the license would create or maintain a situation inconsistent

with the antitrust laws as specified in subsection 10Sc.” The specified

antitrust laws are the Sherman Act,* Wilson Tariff Act,* Clayton Act,?’

and the Federal Trade Commission Act,* For the purpose of making the

required finding, the Licensing Board conducted an inquiry into the

applicant's activities. Measuring these activities principally against three of

the specified antitrust laws — the Sherman, Clayton and the Federal Trade

Commission Acts — and the policies underlying them, the Board found

that in five instances the activities engaged in by the applicant came within

the proscription of those laws and their policies. In reaching these

conclusions, the Board first conducted a market analysis (applying

recognized antitrust principles) and found that a market for wholesale

power existed in the applicant's area of operations. Proceeding further, it

then found that the applicant enjoyed monopoly power in that market.

#5 NRC at 812.

®15 U.S.C. §§ 1-7.

*ISUS.C §§ 8-11.

"15 U.S.C. §§ 12-27, 44; 18 U.S.C. § 402; 29 U.S.C. §§ 52-53.

#15 US.C. §§ 41-49.

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The applicant vigorously objects to the finding that it possesses

monopoly power in the relevant market. In the portion of its brief devoted

to this issue,” applicant argues that to have monopoly power it must first

be shown that it has the power to control prices or to exclude competitors

from the relevant market. Detailing the extent to which it purportedly is

regulated, it insists that this “pervasive regulation” by the state and federal

governments precludes it from having either of the necessary powers.”

Applicant's contention is not new. We find that it merely attempts to put

in different clothing a ume-worn and discredited argument that seeks to

justify immunity from the antitrust laws. It is too late in the day for the

argument that state and federal regulation — even with respect to electric

utilities — bring with them a form of dispensation from the antitrust laws.

If any earlier doubt existed on this score, it was put to rest by the Supreme

Court several years ago. As observed by the Court of Appeals for the

Seventh Circuit in City of Mishawaka, Ind. v. Indiana & Michigan Electric

Co. (Mishawaka 1,pP' citing Cantor v. Detroit Edison Co.” it is a “now

settled axiom that after Otter Tail Power Co. v. United States, 410 U.S. 366,

93 S. Ct. 1022, 35 L. Ed. 2d 359, ‘there can be no doubt about the

proposition that the federal antitrust laws are applicable to electric

+

utilities.”

In recognition of this proposition, the applicant urges that it is not

arguing for immunity from the antitrust laws.” Rather, as we understand it,

*APCO Bnef, 5-13.

“In applicant's words: “Applicant will demonstrate that state and federal regulauon to a

substanual degree control all aspects of Applicant's growth and development, its markeung

practices, its operations, and its wholesale and retail rates. The existence of this regulauon

negates the inference of the Board that Applicant possesses either the power to control prices

or exclude competitors.” /d at 2. According to the applicant, the acuviues which are regulated

include: rates and charges, finance, entry into service area, withdrawal from service and

abandonment of facilities, acquisiton, merger and consolidauon, system extensions,

transmission and interconnections, coordination reliability and quantity of service,

arrangements with service organizauon and suppliers, accountng, and competition. /d at 5-13.

560 F.2d, 1314, 1321 (1977), cert. denied, 436 U.S. 922 (1978).

2428 U.S. 579, 596 n. 35 (1976).

*At oral argument before us, applicant's counsel was asked whether the applicant's assertion

that the Alabama Public Service Commission considered anucompetitive matters in dealing

with matters before it insulated the applicant from anutrust lability. Mr. Balch, applicant's

counsel, answered as follows:

“I don't believe we are contending that Applicant is immune from anti-trust liability. If

the board has the impression that we are considering that, | would like to state here and

now we are not contending that.”

App. Tr. 21-22. (“App. Tr.” refers to the transcript of the oral argument held before us on

March 8, 1979; “Tr.” refers to the transcnpt below.]

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the applicant is relying upon a facially different argument: that it cannot

be found to possess monopoly power. In the words of its counsel:

I am suggesting that if there is a federal agency or a state agency which

has the ultimate control over prices, that Alabama Power Company

cannot, as a matter of definition, have the power to control its prices.

This formulation of applicant’s argument does not aid its case. In

Midland, we were confronted with essentially the same argument and found

ourselves compelled to reject it. The applicant for a nuclear power license

there, like the applicant here, was seeking to avoid antitrust scrutiny of its

activities. One of the bases on which it attempted to do so was the

regulation to which some of its activities were subjected under the Federal

Power Act. Rather than claiming immunity from the antitrust laws because

of this regulation, it had argued that because the Federal Power Commis-

sion?’ might order it to interconnect with other utilities, the company ipso

facto lacked monopoly power. To that we responded.

We fail to perceive how a regulatory scheme that admittedly grants no

immunity from the antitrust laws, by its mere existence, alters the

character of what is otherwise monopoly power. Consumers’ argument

is an attempt to slip in via the back door a proposition the courts have

barred at the front, namely, that regulation for other purposes can

attenuate the antitrust laws. That argument has been rejected. Mt.

Hood Stages, Inc. v. Greyhound Corp. 555 F.2d 687, 691-92 (9th Cir.

1977); International T. & T Corp. v. General T. & E. Corp., 518 F.2d

913, 935-36 (9th Cir. 1975), and cases cited. The best that can be said

for it is that “the impact of regulation must be assessed simply as

another fact of market life.” /d at 936.

6 NRC at 1008.%

We know of no reason why that same response is not dispositive of the

applicant’s “pervasive regulation” argument here.” To be sure, the

*App. Tr. 34.

**Now the Federal Energy Regulatory Commission (FERC).

*Moreover, as noted in the margin of our Midland decision, “it is settled that even conduct

formally approved by a regulatory agency may be the basis of an antitrust violation where

agency approval conveys no exemption from the antitrust laws. United States v. Radio Corp. of

America, supra, 358 U.S. at 350-51; Cantor v. Detroit Edison Co., supra, 428 U.S. at 596-98;

California v. FPC, 369 U.S. 482, 489 (1967); United States v. Philadelphia Bank, supra, 374 U.S.

at 350-52; Litton Systems, Inc. v. Southwestern Bell Tel. Co., 539 F.2d 418, 422-24 (Sth Cir.

1976); City of Mishawaka v. Indiana and Michigan Electric Co., supra; Almeda Mall, Inc. v.

Houston Power and Light Co., supra, Trade Reg. Rep. par. 61,485 (S.D. Tex. 1977).” 6 NRC at .

1008 fn. 447.

In conjunction with its “pervasive regulation” argument, the applicant stresses that “the

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argument in Midland was made in terms of the Federal Power Commission,

while the asserted justification here is the increased restriction on the

activities of applicant as a result of both state and federal regulation. But we

see no significant difference in the two situations. What the argument boils

down to in either case is that government regulation somehow serves to

relieve the activities from close scrutiny under the antitrust laws. The law

on this point is well-settled against the applicant’s position. As Midland

makes clear, the applicant’s claim of the impact “pervasive regulation” has

on its activities is simply another factor which must be assessed in

examining applicant’s activities for conformance to the antitrust laws.

B. Scope of Inquiry

We turn now to the applicant’s second broad argument against granting

any antitrust relief. Specifically, it would have us set aside the Licensing

Board’s findings of liability — which formed the basis for that Board’s

remedial action — as founded upon a number of critical errors. Applicant’s

point seems to be that the Board roamed so far afield and delved so deeply

in conducting its inquiry into applicant’s activities that it went beyond the

permissible reaches of Section 105c of the Act. According to this argument,

the Act allows inquiry only into activities likely to occur in the penod after

the license is issued and not (as was done here) into the applicant’s past

activities.

The applicant argues that a rule barring consideration of past activities is

compelled by the narrow scope of Section 105c¢ inquiry intended by the

Joint Committee on Atomic Energy. Alluding to the Joint Committee's

statement that the licensing process should be used to “nip in the bud any

electnc utility industry, in its historical development, has been recognized as a natural

monopoly.” APCO Bnef, 19. Without ruling on the validity of the applicant’s statement, we

fail to see how a natural monopoly status aids the applicant’s central argument that it cannot

be found to possess monopoly power because the power to set prices or exclude competitors

lies elsewhere, in the state and federal regulatory agencies. By definition, a natural monopolist

has the power to exercise requisite control over prices or potential competitors. If anything, the

applicant's argument on this score is self-defeating.

**Accord, Davis-Resse, supra, ALAB-560, 10 NRC at 282-86.

Brief mention should be made here of the Public Utility Regulatory Policies Act of 1978

(PURPA) (Pub. L. No. 95-617, 92 Stat. 3117). Counsel for applicant sought to inject PURPA

into the proceeding at the oral argument before us (App. Tr. 242-45, 256); we declined to

consider the Act at that time but invited applicant to submit a written memorandum on its

importance to the case. Applicant sent us a memorandum on March 16, 1979; all the other

parties submitted responses. According to the applicant, the existence of PURPA should have

a “substantial impact on this Board’s deliberations,” including our decision on the existence of

monopoly power. APCO Memorandum, 4. We think otherwise. We have carefully reviewed all

the submitted materials; we are in complete agreement with the basic position of the

applicant’s opponents on this point. Nothing in PURPA causes us to change our findings on

monopoly power, applicant’s past conduct, or the appropriate remedies in this case.

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incipient antitrust situation,” the applicant contends that this “clearly

focuses on future, not past, activities.”2® In this same vein, the applicant

intimates that this is what the Joint Committee intended when it “made it

clear that the standard it was expecting a board to apply was that ‘it is

reasonably probable that the activities under the license would, when the

license is issued or thereafter, be inconsistent with any of the antitrust laws or

the policy clearly underlying these laws.’ ” (Emphasis supplied by the

applicant.)

In our judgment, the applicant has misapprehended the thrust of the

Joint Committee’s statements. It derives from them an intent which does

not give consideration to the statements in their entirety; nor does it give

recognition to the words of the statute to which the statements relate.

Properly considered, the statute could not reasonably support the position

the applicant advocates.

As already seen, Section 105c requires the Commission, in conjunction

with its review of a license application for a nuclear power plant, to “make a

finding as to whether the activities under the license would create or

maintain a situation inconsistent with the antitrust laws.” It is significant

that Section 105c is concerned with both a situation which would be created

when the license issued and a situation which would be maintained by the

license issuance. Although this latter finding does require an assessment of

the future, it equally clearly requires a review of the situation which

preceded the license. In other words, as we held in Wolf Creek,*! a

determination of the antitrust effects of granting a license can be made only

after the situation leading up to the grant has been ascertained.

Read with these words and meaning of Section 105c in mind, the

Statements of the Joint Committee take on a far different hue than that

painted by the applicant. The Joint Committee’s statement that the

licensing process should be used to “nip in the bud any incipient antitrust

Situation” can thus be seen as a endeavor to explain Section 105c’s

injunction against the use of a nuclear license to “create” a situation

inconsistent with the antitrust laws, and not, as the applicant insists, as a

limitation on the scope and level of antitrust inquiry. Similarly, the Joint

Committee’s statement that a “reasonably probable” standard shall apply

in making the antitrust determination called for by Section 105c, deals with

%APCO Brief, 44.

“/bid

“'Kansas Gas and Electric Co. et al. (Wolf Creek Station Unit No. 1), ALAB-279, 1 NRC 559,

567 (1975).

24d, 1 NRC at 572-73.

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the degree of probability which governs that determination.” Neither the

Joint Committee’s words nor any reasonable inferences from their context

fairly support the applicant’s suggestion that there exists a ban against

looking other than forward at the applicant’s projected activities under the

license. Indeed, both the statute and the Joint Committee’s statements

Strongly suggest otherwise. As we recognized in Wolf Creek, their

requirement of Commission assessment of the antitrust implications of

future activities of the applicant cannot be made in vacuo.“ Here, as

elsewhere, the past is prologue. Past conduct, good or bad, often indicates

what future conduct might be. This was recognized by no less than the

Supreme Court when it warned that “size carries with it an opportunity for

abuse that is not to be ignored when the opportunity is proved to have been

utilized in the past.”** This indicates that a meaningful assessment of the

issue before us — i.e., whether issuance of a license for construction and

operation of a nuclear power plant would create or mainiain a situation

inconsistent with the antitrust laws — cannot be made without first

considering the current and past activities of the license applicant. We have

little hesitance in construing Section 105c as permitting inquiry into the past

activities of the applicant; indeed, the statute and Commission decisions

require it. Wolf Creek, supra, 1 NRC at 573 and authorities there cited.

C. Standard for Finding of Liability

Applicant’s third broad argument concerns the standard utilized by the

Licensing Board in arriving at its finding on monopolization. As we

understand its position, the applicant seems to advance three grounds for

faulting the way in which the Board reached its findings. First, it says that

“the Board concluded that it need not find a violation of the antitrust laws,

but could be satisfied with a showing of ‘anticompetitive’ conduct which

need not have been bottomed on a specific violation.’ " It next states that

the Board considered not only “anticompetitive” conduct but conduct

which “tended” to be anticompetitive.” It then argues that in proceeding

on these premises the Board failed to base its conclusions on the antitrust

laws. In short, the applicant seems to be arguing that (assuming it is

wrong in its position that consideration of past activities is barred) under

Section 105c all that is cognizable are actual violations of the antitrust laws.

“Midland, supra, 6 NRC at 927 (quoting the Joint Committee Report); Wolf Creek, supra, |

NRC at 569-70.

“Wolf Creek, supra, 1 NRC at 572-73.

“United States v. Swift & Co., 286 U.S. 106, 116 (1932) (Cardozo, J.).

“APCO Brief, 44.

“Ibid.

“Id at 47.

1 ade

A-32

As we understand applicant’s argument, it believes this standard was

contemplated when “the Joint Committee made it clear that the standard it

was expecting a board to apply was that ‘it is reasonably probable that the

activities under the license would, when the license is issued or thereafter,

be inconsistent with any of the antitrust laws or the policy clearly

underlying these laws.’ "4

We find this argument without merit. In Midland, we addressed the

question, inter alia, of whether finding a “situation inconsistent with the

antitrust laws” necessanly depended upon a finding of actual violations of

those laws. We there ruled that Section 105c was not restricted to actual

violations:

The Licensing Board was correct in holding that proof of an actual

violation of the antitrust laws is not required to show the existence of a

situation “inconsistent with” them for Section 105c purposes. The

Congressional framers of the section (the members of the Joint

Congressional Committee on Atomic Energy) were onginally divided

between those who favored proof of an antitrust violation before

allowing Section 105c remedies to be imposed and those who thought a

showing of circumstances merely “tending” to such a violation should

suffice to allow that relief. An accommodation between the two views

was eventually reached. The members of the Joint Committee agreed

that proof of conditions which ran counter to the policies (underlying

those laws, even where no actual violation of statute was made out,

would warrant remedial license conditions under Section 105c. We

need not linger over the matter; this compromise is expressly

manifested in the report of the Joint Committee and is reflected in the

Commission’s decisions.°*!

These observations apply to applicant’s argument here as well. In this

respect, we find no evidence to support applicant's charge that the

Licensing Board considered conduct which “tended to be anticompetitive”

in making its five findings of monopolization. Our analysis of the Licensing

Board’s decision reveals that each of its findings of monopolization was

made on the basis that the acts in question were “anucompetitive.”

Finally, we turn again to Midland for the answer to the applicant’s

argument that the Licensing Board erroneously based its findings on mere

anticompettive conduct. The Licensing Board there had reasoned that a

“situation inconsistent with the antitrust laws” within the meaning of

“Jd. at 44 (emphasis deleted).

See 6 NRC at 907-14

*Id, 6 NRC at 908-09 (footnotes omitted). Accord, Wolf Creek, supra, 1 NRC at 570.

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Section 105c amounts to “anticompetitive conduct.” The Department of

Justice criticized that analysis, claiming that a focus solely upon conduct

without consideration of market structure would ignore essential elements

in such a situation. We rejected the Department’s argument:

We do not agree that the Licensing Board’s determination to

concentrate on the applicant’s conduct necessanly caused it to go

astray in the manner suggested by the Department. What an inquiry is

labelled is of lesser moment than how it is carned out. In our

judgment, evaluation of business “conduct” in a case like this one,

exploring charges essentially bottomed on Section 2 of the Sherman

Act and its underlying policies, requires the application of the same

monopolization and policy concepts as an investigation of an anticom-

petitive “situation.” This is so because, as with other statutes, actions

permissible under the antitrust laws in one situation may be proscribed

in another. An antitrust analysis of an applicant’s conduct must

therefore be undertaken in the context of the “situation” in which that

conduct occurred — in other words, against the background structure

of the relevant market. Of course that analysis of a utility’s conduct

must (among other things) be sensitive to judicial and FTC anttrust

rulings that the actions of a dominant business enterprise have to be

tested against a more stringent standard than applies to actions of

smaller concerns in highly competitive markets, and must also take

account of the general rule that electnc utilities are not exempt from

the Federal antitrust laws, particularly where they voluntarily enter

into commercial relationships governed in the first instance by business

judgment and not regulatory coercion.”

This analysis is dispositive of applicant’s argument here. We hold that, in

applying Section 105c to the instant case, the Licensing Board did not err in

the manner suggested by the applicant; our own antitrust scrutiny must go

forward.

Ill.

RELEVANT MARKETS

At the outset, we endorse — over the applicant’s objection — that

portion of the Licensing Board’s analysis which led it to conclude that the

market for wholesale power in the applicant's service area was a relevant

24d. 6 NRC at 912-13 (footnotes omitted).

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market for the purposes of this proceeding. For the reasons which follow,

however, we disagree with that Board’s holding that there are no other

relevant markets. As we explain, there are relevant markets both for

coordination services and retail power; the geographic bounds of both

markets also correspond to the applicant's service area.

A. Coordination Services Market

1. The Product Market. In the electric utility business, there is a common

practice among the companies of interchanging power and energy and

sharing responsibility for building new generating facilities to achieve

economic benefits unattainable by an individual utility acting alone.

Generally known as “coordination,” the practice includes various arrange-

ments among utilities for reserve sharing, emergency exchange of power

and energy, economy exchange of power and energy, maintenance

scheduling, seasonal capacity exchange, and Staggered construction. The

simple purpose of these arrangements is to allow producers of firm power®

to lower their costs of production.

In the proceeding below, Justice, AEC and MEUA claimed that the sale

or exchange of such power and energy and associated services compnised a

relevant market for antitrust purposes — namely, a “coordination services”

market separate from the wholesale and retail power markets.* Although

taking a somewhat different position, the staff also claimed that there was a

market for such services.** Not surprisingly, the applicant denied the

existence of such a market.»

The Licensing Board rejected the proffered coordination services market

on the ground that it “clearly would include a vanety of factors that in no

way could be close substitutes for one another.” 5 NRC at 886. Although

“We defined firm power in Midland as “essenually a uulity commitment to supply electric

energy to a customer on demand for as long as needed. One contracung for firm power

(whether at retail or wholesale) is buying not merely energy, but assurance that (barring some

extraordinary unforeseen circumstance) the utility will make that power availatte without

interruption when called for.” 6 NRC at 950.

“Justice and MEUA referred to it as a “regional power exchange” market. Justice Prehearing

Brief Below, 55-58; MEUA Prehearing Brief Below, 28-31. AEC denominated it as the “bulk

power supply services market.” AEC Prehearing Brief Below, 24. We first adopted use of the

term “coordination services” market in our Midland decision. We use that term here as we

think it best describes the practice which makes up that market. For a detailed discussion of

the factors which make up the coordination services market, see Midland 6 NRC at 902-03,

949-77.

**The staff's original position was that the elements of the coordination services market

combined with the market for firm wholesale power to form a single bulk power services

market. Staff Prehearing Brief Below, 52-54. However, it no longer adheres to this position. In

view of our Midland decision, the staff now concedes that a separate market for coordination

services exists. Staff Reply Bnef, 43-44.

**See APCO Proposed Findings, 447-57.

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the Licensing Board expressly recognized that in some cases a number of

diverse services could be clustered and treated as a single market (citing

United States v. Philadelphia National Bank,*” it apparently thought that

United States v. Grinnell Corporation precluded that treatment here.

Interpreting Grinnell as requiring the factors making up the proffered

market to be “reasonably interchangeable” with each other, the Board

found that they were “not usually close substitutes for one another” and,

hence, “not in the same market.” Jd. at 887.

On appeal, the parties essentially adhere to their original positions. The

applicant supports the Licensing Board’s decision, its principal

post-Midland argument being that the existence of a coordination services

market in the area involved here lacks evidentiary support.*® The other

parties oppose the conclusion reached by the Licensing Board. Their

argument basically is that not only is there evidence indicating the existence

of such a market, but that a finding to that effect is required by Midland

and applicable judicial decisions. We agree with this position.

a. Because the Licensing Board decision turned on what it

considered to be the teaching of Grinnell, we begin our analysis with a

detailed review of that case. Grinnell involved the question of whether the

defendant company had monopolized the market for accredited central

station service®! in violation of Section 2 of the Sherman Act. The District

Court had treated the entire accredited central station service business as a

single market.* The company argued, however, that the individual central

97374 U.S. 321 (1963).

$8384 U.S. 563 (1966).

%APCO Reply Bnef, 23-38.

“Justice Bnef, 135-149; Jusuce Reply Bnef, 14-20; Staff Bnef, 10-20; Staff Reply Brief, 42-44;

AEC Bnef, 83; AEC Reply Bnef, 11-13; MEUA Bnef, 41-46.

*'Central station service, simply put, protects premises by installing thereon fire or burglary (or

both) detection devices which automatically transmit an electric signal to a central station

which is manned 24 hours a day. Upon receipt of a signal, the central station, where

appropnate, dispatches guards to the protected premises and notifies the police or fire

department directly. An accredited central station service is one which has been approved by

insurance underwriters. 384 U.S. at 566-67.

*Among the various central stauon services offered were the following:

(1) automatic burglar alarms;

(2) automatic fire alarms;

(3) sprinkler supervisory service (any malfunctions in the fire sprinkler system — e.g.,

changes in water pressure, dangerously low water temperatures, etc. — are reported

to the central station); and

(4) watch signal service (night watchmen, by operating a key-triggered device on the

protected premises, indicate to the central station that they are making their rounds

and that all is well; the failure of a watchman to make his electrical report alerts the

central station thai something may be amiss).

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Station services are so diverse that, under du Pont,® they cannot be lumped

together to make up the relevant market.

In upholding the lower court’s decision, the Supreme Court declared:

But there is here a single use, i.e., the protection of property, through

a central station that receives signals. It is that service, accredited, that

is unique and that competes with all the other forms of property

protection. We see no barrier to combining in a single market a

number of different products or services where that combination

reflects commercial realities. To repeat, there is here a single basic

service — the protection of property through use of a central service

station — that must be compared with all other forms of property

protection.

384 U.S. at 572.

The Court went on to say:

Burglar alarm service is in a sense different from fire alarm service;

from waterflow alarms; and so on. But it would be unrealistic on this

record to break down the market into the various kinds of central

station protective services that are available. Central station companies

recognize that to compete effectively, they must offer all or nearly all

types of service. * * * We held in United States v. Philadelphia Nat.

Bank, 374 U.S. 321, 356, that “the cluster of services denoted by the

term ‘commercial banking’ is a distinct line of commerce.” There is, in

our view a comparable cluster of services here.

Then, specifically addressing du Pont, the Court explained:

There are, to be sure, substitutes for the accredited central station

service. But none of them appears to operate on the same level as the

central station service so as to meet the interchangeability test of the du

Pont case. Non-automatic and automatic local alarm systems appear

on this record to have marked differences, not the low degree of

differentiation required of substitute services as well as substitute

articles.

Id. at 572-73.

The Supreme Court in Grinnell did not, as the Licensing Board

apparently thought, lay down a rule that a market could never be

Id. at 566 n.4.

© United States v. E.1. du Pont de Nemours & Co., 351 U.S. 377 (1956) (the cellophane case).

1049

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comprised of products and services which were not interchangeable with

each other. For, in holding that the combination of services comprising the

central station service constituted a relevant market, the Court expressly

indicated that it was following the course it had adopted in Philadelphia

National Bank. In that case, the Court found that the cluster of clearly

diverse products (vanous kinds of credit) and services (such as checking

accounts and trust administration) denoted by the term “commercial

banking”* comprised a product market “sufficiently inclusive to be

meaningful in terms of trade realities.” 374 U.S. at 356-57.

To be sure, the Court in Grinnell did take note of its ruling in du Pont

that products and services which consumers may reasonably interchange

for the same purposes make up a relevant market. But in Grinnell, the

“interchangeability” with which the Court was concerned related to

whether there were in the market place available alternatives to overall

central station service itself; the Licensing Board’s application of the

“interchangeability” test here would indicate a contrary belief that the

individual products and services making up the central station service had

to be interchangeable with each other. In other words, the fact that central

Station service was made up of various products and services which were

not interchangeable did not prevent the Court from holding the central

Service itself to be a relevant market. In this respect, the Court’s action was

not novel. It did no more than follow an avenue it had opened up in

Philadelphia National Bank some three years earlier.®

b. Owing to the erroneous view it took of Grinnell, the Board below

rejected the proffered coordination services market on grounds we cannot

uphold. We must then take the next step and ascertain for ourselves

whether such a market exists in terms of “commercial or trade realities”

and, if so, what that market’s dimensions are. Fortunately, that work has

been made easier by our prior decision in Midland. Notwithstanding the

“More specific examples of banking “products” identified by the Court were: unsecured

personal and business loans, mortgage loans, loans secured by securities or accounts

receivable, automobile installment and consumer goods installment loans, tuition financing,

bank credit cards, revolving credit funds. Examples of banking services included: acceptance

of demand deposits from individuals, corporations, governmental agencies, and other banks;

acceptance of time and savings deposits; estate and trust planning and trusteeship services;

lock boxes and safety deposit boxes; account reconciliation services; foreign department

services (acceptances and letters of credit); correspondent services; and investment advice. 374

U.S. at 326 1.5.

**For other cases holding that a bundle of products and services can constitute a relevant

market, see United States v. Connecticut National Bank, 418 U.S. 656 (1974); United States v.

Marine Bancorporation, Inc., 418 U.S. 602 (1974); United States v. Phillipsburg National Bank,

399 U.S. 350 (1970); United States v. United Shoe Machinery Corp., 110 F. Supp. 295 (D. Mass.

1953), aff'd per curiam, 347 U.S. 521 (1954); Credit Bureau Reports, Inc. v. Retail Credit Co., 358

F. Supp. 780 (S.D. Texas 1971), aff'd 476 F.2d 989 (Sth Cir. 1973).

1050

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fact that Midland involved other utilities in a different part of the country,

we find its teachings useful here for the reason expressed by the Licensing

Board based on its analysis of the evidence in this case:

The principles of electric power supply production and coordination

are generally applicable throughout the electric utility industry

(Mayben, Direct, pp. 3-9). These principles do not vary significantly

among electne uulities regardless of differences in locations, although

they may change to a certain extent depending on corporate policy and

financial requirements (Mayben, Direct pp. 8-9; Tr. 5,576-5,586; FPC

National Power Survey, Part 1, Chapter 17 “Coordination for Reliabili-

ty and Economy,” December 1971).

5 NRC at 834.

In Midland, we traced in painstaking detail the operations of the electric

uulity industry. We discussed the manner in which utilities interact with

each other in planning for and constructing the necessary transmission and

distribution facilities and in Operating them. We explained how, because of

the peculiar characteristics of electnicity, utilities buy, sell and exchange

surplus bulk power and associated services to improve the efficiency and

reliability of their operations. For reasons there discussed, we concluded

that there existed a separate coordination services market consisting of

these types of transactions. We stated:

[Cjoordination arrangements usually compnise several differing types

of surplus power transactions and associated services... . [ T]}hese

various power transactions are not reasonably interchangeable with

wholesale power. But neither are they necessarily interchangeable with

one another. All, however, serve an essentially similar function. That

function is facilitating production of firm bulk power at lower cost and

with greater reliability by making profitable use of otherwise surplus

generating capacity. These arrangements constitute a “bundle of

services” which merits recognition as a distinct market similar to the

way various services offered by commercial banks fall in one and the

same product market. United States v. Philadelphia National Bank,

supra, 374 U.S. at 356.

6 NRC at 975.

We know of no compelling reason for reaching a different conclusion

here. As will be seen, the evidence in this proceeding reveals that the same

*See 6 NRC at 949-74.

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kinds of transactions found to occur in Michigan take place in Alabama as

well.°’

The Southern Company Power Pool Intercompany Interchange Contract

(D.J. 3009), to which applicant is a party, provides the contractual

framework within which the members of the Pool engage in coordination

services transactions. Although not every type of service available under the

agreement is specifically identified, the terms of the agreement, viewed in

light of the manner in which the utility industry generally operates, leave

little room to doubt that the various coordination services activities are

actively pursued by the utilities involved.

For proof of the validity of this observation, we need but cite applicant’s

own admission contained in the power pool agreement:

* * *

WHEREAS, each of the POWER COMPANIES and their respective

customers achieve substantial economies through the common planning,

development, and coordination of their operations which they have

successfully practiced for many years, and

WHEREAS, such common planning, development, and coordination

provides certain advantages to POWER COMPANIES and their

respective customers including:

(a) The staggering of the construction of new generating facilities so

that each of the respective POWER COMPANIES can construct and

install for their respective territorial loads the opumum size generating

facilities which produce maximum economies of scale;

(b) An opportunity for each of the respective POWER COMPA-

NIES to dispose of surplus energy and capacity that may be available

from time to ume due to the staggered construction of generating units,

seasonal vanations in demands for electric power, and vanations in

patterns of the diversity of loads imposed from time to time on the

respective POWER COMPANIES;

(c) An opportunity to utilize the seasonal and diversity patterns of

other utilities not contiguous to each of the respective POWER

COMPANIES for the outlet of surplus capacity and energy which may

*’We found in our Davis-Besse decision a similar market to exist in the terntones served by the

utilities there involved. 10 NRC at 287, 301-02.

“in referring to the exhibits and tesumony submitted below, we have followed the system of

notation used by the Licensing Board. See 5 NRC at 820 n.4.

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be available from time to time, together with the opportunity, because

of such variation in seasons and diversity of loads, to acquire from

other utilities energy at a low cost and thus avoid or defer the

construction of generating capacity to meet seasonal loads;

(d) The opportunity to pool reserves thus reducing the magnitude of

reserve Capacity required by the respective POWER COMPANIES in

order to assure reliable service to their respective customers and

(e) Improvements in the reliability of electric service through the use

of transmission interconnections which provide the respective POWER

COMPANIES with the opportunity to call upon one another as well as

other utilities with which they, or any of them, are interconnected to

provide backup service in case of emergencies or breakdowns in excess

of the reserves carried by the respective POWER COMPANY:

« * *

D.J. 3009, pp. 2-3 (emphasis supplied).

Other evidence confirms that the applicant engages in various “coordina-

tion services” transactions. It participates in Joint ownership arrangements

as, for example, with the Georgia Power Co. over the Gaston coal-fired

generating plant (D.J. 1002); it shares reserves with the other companies in

the Southern Pool (D.J. 603, 604, 605, and 3009); it engages in short-term

capacity exchanges with neighboring utilities ‘Mississippi Power and Light,

D.J. 3002; Duke Power Co., D.J. 3003; South Carolina Electric & Gas Co.,

D.J. 3004; Tennessee Valley Authority, D.J. 3007; and Florida Power

Corporation, D.J. 3008); it participates in seasonal capacity exchanges with

TVA and with the Florida Power Corporation (D.J. 3007, 3008, 3009, 603,

604, and 605); and it exchanges emergency, maintenance and economy

energy with other utilities (D.J. 3002, 3003, 3004, 3007, 3008, 3009, 603, 604,

and 605),

Even without our Midland decision as precedent, we would reach the

same conclusion here. As we have emphasized, court decisions teach that,

for antitrust analysis purposes, a relevant market must reflect commercial

or trade realities.” Guided by that rule, our review of the record in this

proceeding persuades us that there exists a coordination services market

“See, ¢.g., Phillipsburg National Bank, supra, 399 U.S. at 360; Grinnell, supra, 384 U.S. at 571-

16; Philadelphia National Bank, supra, 374 U.S. at 356-57.

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comprised of the types of transactions for the sale and exchange of power

and energy and associated services discussed above.”

c. The applicant does not disagree with the applicability of the

“trade realities” rule to the matter at hand. Indeed, it specifically endorses

that rule’s controlling effect here.”' It does, however, dispute the conclusion

advocated by its opponents. Its position essenually is that, whatever may be

said of the electric utility industry generally, the evidence in this record

simply is insufficient to show a coordination services market exists in the

area of interest here.”

To support this position, the applicant challenges the testimony of Mr.

Mayben and Dr. Wein, Justice’s two principal witnesses. At the core of its

attack is the proposition that these witnesses possess no factual knowledge

of the operations of the utilities in Alabama (beyond the terms of certain

contracts and rate schedules furnished them) and that, consequently, their

testimony lacks foundation and is entitled to no weight.”

We cannot accept applicant’s position. To begin with, we disagree with

its thesis regarding the state of the witnesses’ factual knowledge of the

operations of the utilities involved. Both Mr. Mayben and Dr. Wein have

expertise in the utlity field.* Beyond that, Mr. Mayben had studied not

“In Midland, we excluded from the coordination services market there involved

“developmental coordination” — i.e., the construction of power plants on a staggered basis or

as joint ventures by two or more uulities with the intention of sharing the power generated by

them — but included within that market the purchase and sale of “unit power” from such

plants. 6 NRC at 976. Similarly, we do not include “developmental coordination” within the

coordination services market held to exist here.

"In applicant's own words:

“The touchstone of market analysis is idenufying patterns of trade and commercial

realities in a designated area.”

APCO Reply Brief, 37.

“Applicant also advances another argument. Avowedly to show the “lack of commercial

reality” of the coordination services market, the applicant explains in detail how it is part of an

“untegrated public uulity system” with three other utilities which form the Southern Company,

a holding company approved by the SEC; and how AEC gained by obtaining its deficit power

and energy requirements from applicant rather than from the four-company power pool.

APCO Reply Brief, 32-37; see also App. Tr. 79-92. Far from showing a lack of commercial

reality, the fact that AEC and the applicant engage in such arrangements and that AEC finds it

economical to do so indicates the very opposite — that there is a market for bulk power to

meet deficit requirements.

?APCO Reply Brief, 23-38.

“Mr. Mayben is a professional engineer registered in some thirteen states. Since 1965, he has

been a partner and supervising executive engineer with R. W. Beck and Associates unvo'ved in

providing consultant engineenng services to vanous utilities. His work expenence has included

the design of power generating stations, high-voltage transmussion lines and substations; and

power supply planning with particular concern with power pooling and coordinated supply.

He has served as the pnncipal Systems Engineer to the Missoun Basin Systems Group

(MBSG), a power planning and power pooling Organization, whose electne utility members

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only the terms of the power pool and other agreements entered into by the

utilities in Alabama and in the neighboring areas, but the rate schedules on

file with the Federal Power Commission (now Federal Energy Regulatory

Commission); in addition, and perhaps most important, he had analyzed

the pool operating minutes — which detail the actual transactions that take

place.’*> Dr. Wein, in turn, based his testimony on the existence of a

have generation and transmission facilities covering a multi-state area in the Upper Missoun

River Basin. Since 1967, he has also worked extensively in the development and

implementation of an ongoing bulk power supply program for the Nebraska Public Power

Distnct, a uulity which has the bulk power responsibility for a major portion of the State of

Nebraska. Mayben, Direct, 1-5.

Dr. Wein’s background 1s equally impressive. He is a professor at the Graduate School of

Business Admunistrauion at Michigan State University, a position he has held since 1959. From

1961 through 1963 he was on leave while serving as Chief Economist and Head of the Office of

Economucs of the Federal Power Commission (now Federal Energy Regulatory Commission).

Thereafter, he, along with others, established the Insutute of Public Utilities at Michigan State

University in 1965. Before becoming a professor at Michigan, he was Associate Professor of

Economics and Industnal Administration at the Carnegie Institute of Technology, a

consulting economist for industry, pnncipal economist of the Antitrust Division of the Justice

Department (where he also served as special advisor to the Attorney General on antitrust

problems in the steel industry), pnncipal economust in the Office of Price Administration, a

semor staustician with the Army Aur Forces, a principal economist in the War Production

Board and a junior economist in the U.S. Commerce Department. He holds a masters degree

in economics from Columbia University and 2 Ph.D. in economics from the University of

Pittsburgh. Wein, Direct, 1-16.

*On cross-examination, Mr. Mayben explained the basis for his knowledge of the operations

of APCO in the following manner:

Q. Mr. Mayben, am I correct in my understanding that the knowledge which you have

of such portion of the so-called regional power exchange market denominated by you is

based upon transactions reflected in certain rate schedules on file with the Federal Power

Commission which were furnished to you by the Department of Justice?

A. Yes, that information was used in my preparation of this proposed Exhibit 101.

Q. Does your knowledge of such portion of the regional exchange market come from

any other source of information which you can specify?

A. Yes. It comes from my expenence in working with clients who are engaged in

regional exchange acuviues and my ability to interpret contracts as to the types of

transactions which customanly occur under interconnection agreements which have

interchange type service schedules to them.

Q. Other than this general knowledge, Mr. Mayben, is there any other source for the

particular regional power exchange market which you assert here?

A. Well, of course, | did examine the pool Operaung Committee Minutes, and

informauon there led me to believe that in fact there were transactions taking place

pursuant to the contracts that the Department of Jusuce provided to me.

Tr. 1721-22.

A-43

coordination services market in large part on what he learned from Mr.

Mayben concerning the manner in which utilities operated.”* Considering

”*Dr. Wein explained the basis for his testimony as follows:

MR. MILLER: Just a minute. Your were asked about Mr. Mayben.

THE WITNESS: That's right. I asked him then whether the structure of the

industry — of course I know some of that myself, but I wanted to get his view, as to

whether wholesale power was a reasonable type of transaction, one which occurs in

Alabama, and of course I asked about the [Midland] case, because we were both

associated there, too.

Yes. He thought that there are wholesale transactions and he described the kinds

of conditions under which wholesale transactions take place.

Of course, there was a question of retail, where does wholesale leave off and retail

begin. That sort of thing. That’s the sort of thing I asked Mr. Mayben to do.

In the [Midland] case, I asked him to do another.

MR. MILLER: I don’t think you were asked about that.

THE WITNESS: I'm sorry. I sort of mix these things up.

BY MR. BALCH:

Q. Did you ask Mr. Mayben to undertake this analysis or investigation without

any further delineation or instructions?

A. Which analysis and investigation?

Q. You said you asked him to find out what kind of transactions take place.

A. He didn’t have to make any analysis or investigations. He knew. He just told

me and explained to me what they meant. Then I read up about it.

CHAIRMAN GLASER: Well, did he tell you what the source of his knowledge

was?

THE WITNESS: Well, he said the source of his knowledge was, he was an

engineer, had negotiated many contracts and he knows the business. I didn’t know

beyond that.

BY MR. BALCH:

Q. Did you assume that the same kind of transactions would take place in the

southeast as have taken place perhaps in the northeast or the Missouri Basin?

A. All I asked him were the kinds of things that would take place in a power pool.

Then | asked him, did it make much difference whether it would be in Alabama or

any other place and he said, the importance might change. Some might have more

sorts of transactions. Some might have less sorts of transactions. But in effect, the

transactions, all could be classified under very common classification.

Q. Dhd he choose the transactions from which his analysis would be made, or did

you choose the transactions from which the analysis would be made?

A-44

the universality of these utility practices, confirmed by the Board below and

by us in Midland,” we find no merit to the applicant’s position that the

testumony of Mr. Mayben and Dr. Wein lacks factual foundation.

An even more compelling reason requires rejection of applicant's

argument. Although expressed in terms of a failure of the other side’s proof,

the unstated premise underlying the argument is that applicant in fact does

not engage in the kind of coordination activities to which Mr. Mayben and

Dr. Wein testified. The critical failing of this premise is that it runs directly

counter to the very words subscribed to by the applicant and the other

parties to the Southern Company power pool agreement — an agreement

which has continued in effect for some 30 years.” In that agreement, the

signatonies not only specifically admitted to having “successfully practiced

for many years . . . common planning, development, and coordination of

their operations,” but also to a desire to “continufe] . . . coordinated

operation.””? Applicant would now have us disregard those words as no

more than wasted ink. This we cannot do.

To sum up, we are satisfied from our review of the record that, for

purposes of this proceeding, a coordination services market exists in the

general area of applicant’s operation. We need only to determine its

geographic dimensions to complete our analysis of that market. We turn

now to that task.

2. The Geographic Market. In the proceeding below, Justice took the

position that a coordination services market “by its very nature does not

lend itself to precise geographic market definition. Electric utilities with

access to this market range far and wide in search of useful power exchange

transactions; they are not restricted to specific geographic limits or certain

identified utiliues with whom they may deal.”® For these reasons, Justice

maintained that precise definition of the geographic boundaries of this

entire market is not necessary to a consideration of monopolization

charges; it suffices to focus attention on a separate economic entity or

submarket within the broader market.®!

In Midland, Justice took a similar position. On that occasion, we said:

A. I think we sort of jointly agreed on what the transactions were.

Tr. 13,358-60.

"See 5 NRC at 833-37 (Farley below); 6 NRC at 1066-67 (Midland); see also pp. 1050-1051,

supra.

"The power pool agreement bears an onginal date of October 16, 1950. This gives an

indication of the extended penod dunng which applicant has been involved in coordination

activities. See DJ. 3009.

"Id. at pp. 2-4.

“Justice Preheanng Bnef Below, 57.

"Id at 58.

1057

A-45

We agree with Justice’s legal position. Where a discrete submarket

exists within an overall geographic market, monopolization of the

submarket is itself an antitrust violation. Brown Shoe Co. v. United

States, supra, 370 U.S. at 336-37; Case-Swayne Co. v. Sunkist Growers,

Inc., supra, 360 F.2d at 455-59; In re Luria Brothers and Co., supra, 62

FTC at 612-14. A submarket must correspond to commercial realities

and be economically significant, Brown Shoe, supra, and its existence is

a question of fact that must be “charted by a careful selection of the

market area in which the seller operates and to which the purchaser

can practicably turn for suppliers.” United States v. Philadelphia

National Bank, supra, 374 U.S. at 359.

6 NRC at 977.

Those same observations guide us here. The record in this proceeding

discloses that the applicant engages in exchanges of power directly or

through other Southern Pool members with surrounding electric utilities,

including Mississippi Power & Light Co., Florida Power Corp., Duke Power

Co., South Carolina Electric & Gas Co., and TVA (Mayben, Direct, 54-55;

D.J. 101, 3002, 3003, 3004, 3007, 3008; Wein, Direct, 62-64). Thus, at first

impression there might seem to be support for a finding of a broad

geographic market encompassing the areas in which these utilities operate.

But we need not pause to look for a precise definition of the geographic

boundanies of such an overall market. For that is not the market relevant to

our inquiry. For purposes of this proceeding, we must focus on that market

area, within the overall market, to which the smaller utilities in Alabama

can practically turn for suppliers.

The record in this proceeding discloses that the area within which AEC

and the other utilities comprising MEUA® may seek coordination services

is limited to applicant’s service territory and nearby environs — central and

south Alabama. Applicant owns all transmission lines in the area over 115

kv and controls all transmission facilities to utilities outside that area. 5

NRC at 900-01; D.J. 1000; D.J. 1006; D.J. 1008; AEC X CRL-IA; St.

John, Direct, 7, 39; Harris Tr. 25,455-59. As a result, it has the power to

grant or deny access by AEC and the other utilities to the kind of

coordination services engaged in by APCO. For these reasons, we conclude

“While MEUA mught arguably be considered a participant (or potential participant) in the

coordination services market, we think it worth repeating a point we made in Midland: for a

uulity without any generating capacity of its own, “{cloordination power services are not useful

to it and for its purposes are not functionally interchangeable with wholesale power. In short,

@ven the nature of coordinauon power, [non-generators) literally cannot substitute

coordination power for wholesale power as a long-term source of firm electnc power.” 6 NRC

at 963. As the Board below noted, none of the members of MEUA owns or operates any

generating faciliues. 5 NRC at 827.

A-46

there exists, for purposes of our antitrust analysis, a re/evant coordination

services market in central and south Alabama, the area within which AEC

and the other smaller utilities are confined tor access to that market in

terms of “commercial or trade realities.”

B. Retail Market

In the proceeding below, Justice and both intervenors submitted that the

retail market for firm power constituted a relevant market within which to

examine applicant’s conduct. The product market was defined as the

supply of firm power to the ultimate consumer;* the geographic market

was seen as corresponding to central and southern Alabama, “the area

where applicant sells or could reasonably compete to sell at retail.’8

The Licensing Board agreed that “[rJetail firm power is clearly a distinct

product market.” 5 NRC at 887. Citing Oster Tail Power Co. v. United

States,* the Board further found that the economic viability of retail

distribution systems is worthy of antitrust protection. /d. at 889. It

nevertheless rejected the proposed market. While conceding that some

competition exists “in the interstices of the service areas of retail

distribution systems,” the Board found that the local distribution of retail

power is a natural monopoly and that the rivalry among retail sellers is

insufficient to bind all of central and south Alabama into one geographic

market. /d. at 888. And, while it determined that the hundreds of individual

local markets would have been proper subjects for examination, the Board

Saw no purpose in examining such “natural monopoly” situations for

antitrust violations. The Board concluded: “Competition berween retail

distribution systems, if it is of only infra-marginal proportions, is presum-

ably outside of the scope of antitrust remedy.” /d. at 889 (emphasis in

onginal).

The Board sought to bolster its conclusion by referring to Otter Tail. In

that case, the Board wrote, “the focus [was] upon the retail distribution

entity as a buyer (or potential buyer) in the wholesale power market.” Every

anticompetitive practice in the case was said to have taken place at the

wholesale level. The relief decree “in every facet, affected retail distribution

systems in their access to and role as buyers in the market for bulk

wholesale power.” This led the Board to wnite that there is a “market which

“The NRC staff argued below the relevance of only one market — that for “bulk power supply

and bulk power supply services.” Staff Proposed Findings, 27 (43.02). On appeal, the staff

changed its position in light of our decision in Midland, it now maintains that separate markets

exist for coordinated services and for wholesale power. Staff Reply Bnef, 42-45; see also, fn. 55

supra. The staff made no mention of the retail market either below or on appeal.

“See, ¢.g., Jusuce Proposed Findings, 62 (44.01).

See, e.g., Justice Proposed Findings, 65 (44.07).

410 U.S. 366 (1973), affirrung in part and remanding in pari, 33\ F. Supp. 54 (D. Manan. 1971).

A-47

is singularly relevant for the licensing of nuclear facilities to generate

electricity: the market for wholesale power.” /d. at 889-890.

Justice, AEC, and MEUA all excepted to the Board’s rejection of the

proffered retail market.” On appeal, they argue that the Board was

factually incorrect when it failed to find sufficient compeution at retail to

jusufy grouping central and south Alabama into one geographic market.

Moreover, they cite both Otter Tail and our decision in Midland as

requiring reversal of the rejection below of the retail market.

1. The Market in Otter Tail. We begin our analysis by taking issue with

the Licensing Board’s interpretation of Otter Tail. As the Board stated, the

violations in that case took place at the bulk power level; the remedies were

applied at that level as well. But the marker involved in the case was the

retail market. It was this market that the defendant was attempting to

monopolize; the remedies were designed to effectuate competition at the

retail level, not the wholesale level. The district court’s decision in Orter Tail

puts any doubt about this to rest. See 331 F.Supp. 54, 58, 61 (D. Minn.

1971).

In the case now before us, applicant is allegedly attempting to

monopolize (or has succeeded in monopolizing) three separate markets. It is

further claimed that an unconditional license to operate the Farley facility

assertedly will have anticompetitive effects on all three markets. In such a

situation, we do not read Oster Tail as mandating that we restrict ourselves

to an analysis of the wholesale market. To the contrary, we see that case as

standing for the proposition that the markets relevant for analysis are all

those in which anticompetitive effects may be felt.

2. The Product Market. Beyond its espousal of the view that the bulk-

power market is the “singularly relevant” market in NRC antitrust

actions,® the Licensing Board appeared to have one fundamental problem

with the proposed retail market: it simply did not believe there was

sufficient actual (or potential) competition at retail to jusufy antitrust

analysis. The advocates of the market contend that the Board was factually

incorrect in its assessment of the amount of competition at retail; they see

the retail situation in Alabama as nearly identical with the situation we

found in Midland to exist in Michigan.” Applicant, on the other hand,

argues that the potential for retail competition in Michigan was far greater

"Jusuce Excepuons, pp. 2-3 (Exceptions 6 and 7); AEC Exceptions, pp. 2-3 (Excepuons 5 and

6); MEUA Exceptions, pp. 1-2 (Exceptions 4, 5 and 6).

“A view not shared by us in Midland (6 NRC at 949-97) and Davis- Besse (10 NRC at 270, 301-

02); in both cases all three markets offered here were found relevant.

“Jusuce Brief, 148-49; Justice Reply Bnef, 24-28; MEUA Brief, 6-17.

A-48

than in Alabama; it sees no inconsistency between the Licensing Board’s

decision and Midland.™

In assessing the extent of retail competition, it is important to consider

the nature of the industry involved. Most retail consumers of electricity are

locked into a particular supplier; the residents of Birmingham, for example,

must currently look to applicant for their electric needs. As the Supreme

Court said in Otter Tail (410 U.S. at 369): “[eJach town . . . generally can

accommodate only one distribution system, . .. making each town a natural

monopoly market for the distribution and sale of electric power at retail.”

Clearly we are not dealing with a product that is susceptible to intense

competition for every sale.

This is not to say that retail competition is either impossible or

unprotected by the antitrust laws; Oster Tail, Midland, and City of

Mishawaka v. American Electric Power Co. (Mishawaka I1)*' are cases that

all hold otherwise. Although competition for individual users already taking

electric service from a supplier may be unlikely to occur,” competition can

take place for certain new loads or for the right to be sole distributor in a

municipal area. There can also be “yardstick competition”;™ the

existence of a potential competitor may have an effect on the actions of

another distnbutor.

In Alabama, franchise, individual load, and yardstick competition are all

present to some degree. In terms of franchise competition, Alabama law

prohibits utilities from serving within municipal cOrporate limits without

the permission of the municipal government.*% An examination of a list of

applicant's franchises (prepared in 1973) reveals that applicant had 313

®APCO Reply Brief, 38-44.

*'465 F. Supp. 1320 (N.D. Ind. 1979), aff'd in part and remanded on other grounds, 616 F.2d 976

(7th Cir. 1980), cert. denied, 449 U.S. 1096, 66 L.Ed. 2d 824 (1981).

™ Although such competition is rare, we found in our Davis-Besse decision that street-to-street,

head-to-head competition took place in a good part of the City of Cleveland. 10 NRC at 274.

While there is less of it in Alabama, the Board below found such competition in the Town of

Samson. 5 NRC at 888.

"The fact that local distribution may be a natural monopoly does not mean the identity of the

monopolist cannot change. In Orter Tail, for example, the sole competition found by the Court

was for the control of local distribution ;

““Yardstick competition” is a form of competiuon in which two sellers (in this case,

distributors of retail power), not directly competing against each other for sales, have their

pricing policies (and any other practices deemed relevant by purchasers) compared. As it

relates to the retail distribution of electricity, a local distributor's performance is measured

against that of other nearby utilities. I" yardstick competition exists in the area, the local

distnbutor will have to compare favorabi’ with the other utilities or it will be replaced. If this

form of compeuuon is not present, the loc: | distributor need not be concerned about meeting

the price and services of other utulites.

Farley Direct, 46; 562-64; Alabama Constitution of 1901, § 220.

A-49

different franchises in 273 municipalities. Of those, only 26 franchises in 24

locations are terminable; the balance are perpetual.*

In terms of its retail sales, in 1973 applicant made 51% of such sales in

municipalities where it holds perpetual franchises, 9% in muncipalities

where it has terminable franchises, and 40% outside of municipalities

(where no franchises are required).%” Perpetual franchises in Alabama are

not exculsive;* municipalities may offer competing franchises to other

utilities. Under the terms of the Booth Act,” however, municipalities may

not establish a municipally-owned system without first offering to purchase

the facilities of the existing franchisee. Should the franchisee decline the

offer, the municipality may establish its own competing system, but the

onginal franchise (unlike in Michigan and in the states served by Otter Tail)

would still be in effect.! Thus, in the vast majority of its service area,

applicant can be subjected to head-to-head competition, but it cannot

necessanly be replaced. Due in no small part to the economic difficulties

inherent in establishing a competing system, no municipality in applicant's

service area has ever set up a distribution system to compete against one of

applicant’s franchises. !?!

Alabama Power has acquired some other distribution systems since 1950,

but it takes pains to point out that none of these acquisitions has been at the

expense of municipally-owned systems.'® The primary acquisition was that

of the Birmingham Electric Company (by merger) in 1952.'® Other

acquisitions included Liddell Power Company (a privately-owned utility

largely operating in Camden, Alabama) in 1955,! the electric facilities of

West Point Manufacturing Company (a textile company that previously

provided electric service to its former “mill villages”) in 1960,'% and the

*APP.X JMF-82. Of the terminable franchises, three ( Bay Minette, Brewton, and the

transmission franchise in Dothan) are listed as “terminable;” the other franchises expire in a

certain number of years (usually thirty years after issuance). While our arithmetic does not

Square with applicant's tesumony that it holds franchises in only 261 municipaliues (Crawford

Dnrect, 30), the discrepancy may be based on the limited nature of some of the franchises listed

un JMF-82.

"Crawford Direct, 119. In comparison, 45% of Consumers Power’s retail sales were made

under perpetual franchises. Midland, 6 NRC at 933.

“See Bessemer v. Birmingham Electric Co., 248 Ala. 345, 27 So. 2d. 565 (1946).

“Title 48, Alabama Code §§ 342-347.

‘There is some quesuon as to whether a municipality possesses the authority to condemn an

established distnbutor's property. See App. Tr. 151.

''The town of Ozark miuated a proceeding under the Booth Act in 1956 in an attempt to

establish its own distnbution system. Applicant elected not to sell its facilities and the town

never constructed a competing system. See Alabama Power Co. v. Alabama Public Service

Commussion, 267 Ala. 474, 103 So. 2d 14 (1958).

®@APCO Reply Bnef, 39

Farley Direct, 227-32.

Id at 246-47.

id at 270-71

A-50

electric facilities of Mount Vernon Mills (another textile company) in

1968.'% Dunng this same ume period, the company sold small amounts of

its distnbution system in areas into which the cities of Bessemer, Sylacauga, :

and Opelika extended their corporate limits.'” In addition to these

transactions, applicant has been approached at times by towns requesting

that it supply retail service in lieu of the service then being provided by ;

cooperatives.'* In other instances, unincorporated rural communities

presently served by cooperatives have considered incorporating and

extending a franchise to applicant.'®

As menuoned earlier (see pp. 1062, supra), there is no head-to-head

competition for most electric loads. Nonetheless, all the parties agree that

there is some competition for individual loads.""° This competition occurs

in: (1) the town of Samson (served by both applicant and Covington

Electric Cooperative, which compete on a house-by-house basis); (2)

outlying areas annexed by a municipality where another supplier currently

serves at retail;'!' (3) rural areas either where competition for individual

loads 1s permitted (in certain circumstances) by non-duplication agreements

or where rural systems are located near each other and have not signed any

such agreements; and (4) outlying areas where a municipally-owned system

wishes to expand.' Applicant argues that the opportunities for such head-

to-head competition are “minimal.”'? While we can agree that there 1s not

head-to-head competition for the great percentage of retail sales in the area, ‘

we do not believe such competition can be ignored.!"4

Jd. at 322-23.

Id at 247-51.

‘See, e.g, DIX 4012-24 (Town of Samson); DJX 4205-16 (Fulton); DIX 4319 (Cho); DJX

4320 (Red Level); DJX 4321 (Goshen).

'™See, e.g., DIX 4185 (Pennington); DJX 4317-4318 D (Rivernew).

See, e.g., APCO Reply Bnef Below, 228; Justice Proposed Findings, 41-45 ($92.35-2.45).

{“______—. Reply Bnef Below” refers to the parties’ responses below to the proposed

findings of fact.}

‘In such a situauon, the system franchised by the municipality (or, uf the case may be, a

municipally-owned system) can compete in the annexed area with the preexisting distnbutor.

Head-to-head competition can result or the nonfranchised system can sell its facilities to the

other system.

‘Vin Alabama, there does not appear to be any legal limit to the extent mumcipally-owned

systems may expand outside municipal corporate limits, subject to the grant of a franchise

should the system wish to provide service in another incorporated area. In Michigan, by

contrast, the expansion of municipal systems beyond municipal corporate boundaries is

lumuted, Midland, 6 NRC at 940. ;

'MAPCO Reply Bref Below, 228.

‘In this context, we note the following dialogue between applicant's president, Joseph Farley,

and counsel for the Department of Jusuce (at Tr. 20,804-05)

Q: Don't your franchises substanually protect you against the loss of your retail

business”

1063

A-51]

There is also yardstick competition taking place in Alabama. The

Licensing Board wrote: “possibly the yardstick most often used in

measuring the performance of any retail distribution system in central and

south Alabama is that of another distribution entity in the same area.”!!5

The presence of yardstick competition plays a significant role in franchise

and individual load competition; when one utility cannot meet another’s

rates or service, it can lose customers.!!6

In sum, retail competition is not completely absent from central and

southern Alabama. Nor has applicant shown us any legal prohibitions

barring greater competition. To be sure, the economic barriers to increased

competition are substanual. The same was true in Midland where we found

the retail market relevant. We repeat what we said there:

This is not to suggest that competition to distribute electric power in

lower Michigan is totally free and open, or even that major market

changes are in the offing. But because this potential competition

manifests itself only periodically and is more limited than that found in

some unregulated markets, it is not for those reasons less deserving of

antitrust protection. To accept Consumers’ position on the relevant

[Mr. Farley}: No sir, they are non-exclusive and there is an awful lot of load that is

outside of municipal corporate boundanes, parucularly industnal business today tends to

locate outside the municipaliues rather than in the middle of urban areas.

Q: So the fact that you have franchises that are to a great extent perpetual to serve in

municipaliues doesn’t give you the feeling of being protected against losing business in

those areas where you are franchised, Mr. Farley?

A: No sur, they are perhaps of some protection but as I have pointed out to you in the

first place we expenenced all the 1! counties of northern Alabama in which we had

franchises and municipalities and we saw what happened there, that we were not

protected there in any sense. We also know that a great deal of growth, industrial and

commercial growth at this point in ume tends to be outside of municipal corporate

boundanes. Municipalities are finding it at least in our area harder and harder to extend

thew corporate limits and the tendency, as | said, is for a lot of the major industrial

growth and some of the commercial growth to be outside of the municipal franchised

arcas.

Q: Are you saying there is a possibility of compeuuon for such growth to serve such

growth electncally, us that nght?

A: Well, yes, sir, even when both systems are there. At retail if a load is over a certain

size, 200 megawatts, under the tanffs that have been filed without, | might add, protest

from the cooperatives, it's either party's business.

"5 NRC at 888.

‘See, eg, DJX-4329E (Vanity Fair Mills chooses service from Clark-Washington

Cooperative because its bid was lower than applicant's); DJX-4319 (town of Cho

interest in service from APCO because cooperative service is more ve); DJX-203 (City

of Dothan challenges applicant's service to the town of Taylor by clauming Dothan’s mumcipal

system could provide better and cheaper service).

A-52

retail geographic market would in effect nullify that protection. That

result is simply out of line with the recent Supreme Court decisions in

this area.

It must also be kept in mind that Consumers was not born with a 77%

or 100% portion of that retail market. Rather, it acquired its large share ‘

in no small part by the same slow competitive processes that it now

Suggests are too unlikely and remote for us to consider.

6 NRC at 988-89 (footnotes omitted).

We note too that, in similar circumstances involving the wholesale

market in this case, the Licensing Board found the proposed market

relevant for antitrust analysis. The Board recognized the obstacles to

wholesale competition:

A municipality served by Applicant under a franchise cannot shift

easily to AEC; an AEC member cannot shift readily to Applicant for

wholesale power. Clearly we are talking about competition at the

margin here. As Applicant’s witness Crawford testified in response to a

question as to whether there was competition for wholesale loads:

“The answer to that question is a qualified yes.” (APP.X BJC-A

(Crawford) p. 131). :

5 NRC at 895.

The Board nonetheless concluded the market was relevant:

Yet one of the lessons of economics is the importance and efficacy of

marginal adjustments. In economic matters, tails often do wag dogs. In

this market setting, it is precisely because buyers are often locked into

one seller, and a selier limited to a definite geographic area for its retail

customers, that the “tail wag” should be preserved. It represents one

outlet for the limited competition possible in electric power supply. It is

the very type of competition that, in regulated or quasinatural

monopoly settings, the antitrust laws should be especially zealous to

maintain, either to mitigate any undesirable effects of the market

structure or the shortcomings of regulatory authonties. The preserva-

tion of this nvalry would seem to require the existence of a number of

different buyers and sellers (although not at the expense of economic

efficiency).

Id. at 895-96. °

A-53

We think the same analysis holds true for the retail market. Competition

in the market may be limited, but it is nevertheless entitled to protection

under the antitrust laws,!!”

3. The Geographic Market. There remains the task of defining the

geographic boundanes of the retail market. The Licensing Board concluded

that no relevant geographic market could be found; it specifically rejected

applicant's service area as the relevant market. (5 NRC at 888-89), We

disagree.

In determining relevant markets, courts must “delineate markets which

conform to areas of effective competition and to the realities of competiuve

pracuce.” Sargent-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701, 710

(7th Cir. 1977), cert. denied, 439 U.S. 822 (1978), quoung L.G. Balfour Co. v.

F.T.C., 442 F.2d 1, 11 (7th Cir. 1971). The District Court in Mishawaka /1,

Supra, 4 monopolization case involving a large Midwestern uulity, found the

application of this “practical approach” to be “relatively simple.” The court

explained its determination that defendant’s service area constituted the

relevant market:

“The geographic location of the market is usually determined by an

examination of the areas in which the particular firm actually competes

or operates. If it concentrates its sales and service in one area, this area

will normally be the relevant market.” E. Kintner, An Antitrust Primer,

A Guide To Antitrust And Trade Regulation Laws For Businessmen, pp.

102-103 (2d Ed. 1973).

Here, defendant | & M has a clearly defined service area in Indiana

and Michigan within which it sells electnc power and energy at retail

pursuant to franchises granted by the municipalities and townships. I

& M has tanffs on file for those areas in the Public Service

Commussions of Indiana and Michigan, pursuant to which it offers to

sell electricity at retail to all interested buyers. Moreover, as the

defendants have stated, no other public uulity 1s allowed to sell electric

energy at retail within this area.

465 F. Supp. at 1325.

Applicant protests the use of its service area to denote the geographic

scope of the retail market. Its argument is two-pronged: __if the test is “the

area where applicant sells or can reasonably extend its retail sales,” the

whole state should be included in the market. If, on the other hand,

"See, Muliand, supra, 6 NRC at 968

A-54

“commercial reality” is used as a guidepost, the market should be broken

down into small submarikets where competitive conditions are simular.''*

We have no trouble in rej:cting the contention that the whole state

constitutes the appropriate geographic market. We think the Board below

applied the correct pnnciple in rejecting the same argument applied to the

wholesale market:

The entire state of Alabama would be an appropnate geographic

market area only if wholesale suppliers in northern Alabama (TVA is

the obvious entity involved here) could compete for retail loads in

central and southern Alabama and Applicant could sell in the eleven

northernmost counties of the state as well. Such is not the case.

5 NRC at 893. The Board noted that applicant does not attempt to sell

power in the northern counties and that TVA is legally prohibited from

selling power in most of the rest of the state. /bid'' Given these

circumstances, we see no reason to utilize the political boundanes of the

state as the geographic limits for the retail market.

It is certainly true, as the applicant points out,’ that the competiuve

situation differs in vanous parts of applicant's service area. But the same

was true in Otter Tail; the different states involved had different franchise

limitations and regulatory requirements, and certain municipalities had

greater access than others to alternative transmission lines.'?! Nonetheless,

the Distnct Court in that case rejected the argument that each town in the

defendant's service area be regarded as a separate geographic market.'”

In Midland as well, the applicant argued that its service area could not be

considered a relevant geographic market. In that case, the applicant

proposed that an “open/closed” distinction be made; areas where compet-

tion was considered highly improbable were to be excluded from consider-

ation." The applicant here offered the same argument to the Board

below." We need not rehearse in detail the reasons why we rejected this

argument in Midland.'* We do think it worth repeating that, although

'MAPCO Reply Bref, 42-44. See also, APCO Reply Bnef Below, 209-34.

'"TVA is prevented by statute (16 U.S.C. § 831n-4(a)) from supplying power in areas not

receiving power from TVA before July |, 1957. Pror to that date, the only systems receiving

power from TVA in south and central Alabama were the municipally-owned ones operating in

the cities of Bessemer and Tarrant City. 5 NRC at 828, 829, 893.

‘®See APCO Reply Brief, 43.

"See 410 U.S. at 371.

‘2331 F. Supp. at 58-59. The Distnct Court's market definiuon was apparently accepted by the

Court. See 410 U.S. at 369-70.

‘See 6 NRC at 978-79.

‘See APCO Reply Bnef Below, 228.

‘See 6 NRC at 963-90

A-55

different competitive factors might justify the division of a market into

various submarkets:

“submarkets are not a basis for the disregard of a broader line of

commerce that has economic significance.” This is especially true

where the charge is that a firm has monopolized that broader line of

commerce. [Applicant’s] arguments in effect seek to focus our attention

on those areas where door-to-door competition is now taking place and

to have us ignore those areas where the company has already acquired

dominance. To do so would be to manifest tacit acceptance of

[applicant’s}] present market position as sacrosanct. This is simply not

the case, legally or factually. '%

We adhere to the approach taken in Outer Tail, Midland, and Mishawaka

11. Those cases indicate that where a firm operates in a discrete service area

and is charged with monopolizing retail sales in that same area, the service

area may constitute the relevant geographic market for the purpose of

antitrust analysis.

We add one last point. In many cases, the identification of a relevant

geographic market is a crucial factor in the case because of its importance

in determining a firm’s market share (and hence, whether the firm possesses

monopoly power). Although we find applicant’s service area to be the

relevant geographic market for the retail product market, our finding of

monopoly power in the retail market is not solely dependent on market

shares. See pp. 1071-1074, infra.

IV.

MONOPOLY POWER

Our determination that there are three relevant markets involved here

must be followed by consideration of whether the applicant possesses

monopoly power in these markets. This is so because business practices

undertaken by those with dominance in the market may not be acceptable

even though they would be legitimate if undertaken by those less

powerful. '?’

"6 NRC at 990, quotung United States v. Greater Buffalo Press, 402 U.S. 549, $53 (1971) and

United States v. Phillipsburg National Bank, 399 U.S. 350, 360 (1970).

'" Midland, supra, 6 NRC at 913, citung United States v. Alurunum Co. of America, 148 F.2d 416

(2ad Cw. 1945); American Tobacco Co. v. United Siates, 328 US. 781, 812-14 (1946); United

States v. United Shoe Machinery Corp, \10 F. Supp. 295, 342-46 (D. Mass. 1953),

curiam, 347 U.S. 521 (1954); of US. Steel Corp. v. Fortner Enterprises, 429 US. 610, 612 fa. |

(1977).

A-56

As we did with the Licensing Board’s decision that the wholesale market

is a relevant one (see pp. 1046-1047, supra), we adopt as our own that

Board’s decision that the applicant does indeed have monopoly power in

the wholesale market.'28 Because, however, that Board believed no other

markets to be relevant, it had no occasion to examine the extent of the

applicant’s control of those markets. We do so now.

A. Coordination Services Market

Once again we look to the teachings of Midland to help us determine

whether the applicant here possesses monopoly power in the coordination

services market. As we there explained (6 NRC at 998):

The nature of the coordination services market does not. . . lend itself

to an easy calculation of market shares. A utility is both buyer and

seller in this market. Whether in any given time period it is a net buyer

or a net seller is in part fortuitous, depending on operating conditions

in its own and its neighboring power supply systems. Justice therefore

undertook to show Consumers’ possession of monopoly power in this

market directly, by proving that its control of access to the market and

its domination of power generation and transmission within it gives the

company that power. This is a valid approach. (Emphasis in original).

Applicant’s domination of power generation and transmission in its area

of service is evident. The applicant is a vertically and horizontally

integrated electric utility engaged in the generation, transmission and

distnbution of electricity.'22 As observed by the Board below, applicant’s

generating capacity in 1974 was 6,246 MW; it had additional planned

capacity scheduled to be operative in 1979 of 2,380 MW.'™ It generates all

of the power for its retail power needs. Disregarding the federally-owned

capacity utilized in central and southern Alabama, applicant in 1974 held

approximately 98% of the generating capacity in that area.'?!

In contrast, AEC had generating capacity in 1974 of only 137 MW, and

a total planned capacity, scheduled for 1979, of 557 MW. It generates only

a portion of the power requirements of its members.'? As mentioned

'8Applicant has excepted to the Licensing Board's treatment of its in-house distnbution of

bulk power as sales in the wholesale market. APCO Brief, 38-40. For the reasons given by the

Board below (5 NRC at 890-92, 894-96) and by us in Midland (6 NRC at 990-97), we agree that

such in-house distribution properly belongs in the market.

'295 NRC at 820.

'Jd at 821-22, 898.

31d at 898-99.

'2Jd. at 824-27, 898-99.

1069

A-57

previously (see p. 1037, supra), none of the members of MEUA owns or

operates any generating facilities. !33

As for transmission, the applicant owns all transmission lines in the

market over |15kv and controls all transmission facilities providing access

to utilities outside the market area. With respect to lower voltages, applicant

is also dominant. AEC owns 995 miles of generally low voltage transmission

lines, only 15% of the amount owned by the applicant.'* For their part, the

members of MEUA own only 71 mules of low voltage lines."

Although the above is only a rough description of the generating and

transmission facilities in central and south Alabama, the dominant position

of the applicant in either activity is readily apparent. Its dominance,

particularly over the transmission facilities in south and central Alabama,

places the applicant in a unique position to controi access to the market for

coordination services. By refusing to “wheel” power,'% it is able as a

practical matter to prevent the other utilities operating in the area from

coordinating with the larger utilities outside it. This was aptly demonstrated

at the hearing below.

During the course of the hearing, the question of how AEC might best

coordinate its power generating expansion plans with the purchase of power

from the applicant to meet AEC’s projected power needs came up for

consideration. In this connection, it was brought out that AEC was in the

process of installing two 210 MW generating units on the Tombigbee River.

This prompted the question of how the surplus capacity in those units, were

they to be completed, could be disposed of by AEC if the applicant did not

purchase it. The possibility of some third utility was suggested. But to

dispose of the surplus capacity, it was conceded by applicant's witness that

the transmission facilities of the applicant would have to be used.""” If, for

whatever reason, the applicant decided not to accommodate AEC, the

cooperative would not be able to dispose of its Surplus generaung

capacity. !38

The applicani, however, claims in its brief that AEC is already connected

to the system of the Georgia Power Company at the Walter F. George Lock

and Dam. It argues that “there is no reason why AEC cannot, if it so

desires, engage in power supply transactions with Georgia Power or

through Georgia Power's system with Duke Power Company, South

'3Id. at 827.

41d at 900-01.

94d at 827.

“Wheeling” is a term of art in the electnc power industry, defined as the “transfer by direct

transmission or displacement [of] electnc power from one uulity to another over the facilues

of an intermediate utility.” Oster Tail Power Co. v. United States, supra, 410 U.S. at 368.

'Harmns, Tr. 25,443-44.

81d, 25,444-45.

1070

A-58

Carolina Electric and Gas, Savannah Electric or Flonda Power Corpora-

tion, all of which are interconnected with Georgia Power's system.” It

also claims that AEC owns major transmission lines in close proximity to

existing lines of Gulf Power Company and has other lines only a short

distance from the South Mississippi Electric Power Association’s system.

The applicant suggests AEC can interconnect with these utilities and

through them with others.'© On the other side, Justice points out that

“AEC has no interconnection to any utility other than Applicant.”'*! This

means that without the use of applicant’s facilities, additional costly

transmission lines would have to be built before AEC is able to coordinate

power supply activities with Georgia Power.'*? From the standpoint of the

nation’s resources and the economy of the ratepayers that would be

affected, constructing new lines when adequate facilities exist results in

waste and places an additional, unnecessary burden upon ratepayers. In

any event, there is no assurance that the other utilities mentioned would

engage in the arrangements for the different type of coordination services

which would be made possible were interconnection physically avail-

able.' We reject the applicant’s position. [t simply has failed to rebut the

showing that its predominant control of transmission and generation gives

it monopoly power over the sale of coordinated services in the relevant

market area.

B. Retail Market

We wrote in Midland that the retail market lends itself to traditional

market share analysis, with market shares being determined by calculating

the amount of electric energy in megawatt hours (MWh) each utility sold to

its retail customers. 6 NRC at 1009-1010. Applying these methods of

determining market shares to the case at bar, the retail market in southern

and central Alabama was divided (in 1972) as follows:

9A PCO Bref, 29.

Ibid

‘\Jusuce Reply Bnet, 30. We accept the validity of this statement inasmuch as applicant's own

witness has testified that in any disposition of surplus power by AEC from its planned

Tombigbee units, the transmission facilities of the applicant will have to be used. Harns, Tr.

25,444.

'?An eight-mile extension of a 115 kv line with switching and other equipment to permit

interconnection would cost from about $500,000 to $750,000. Brownlee, Tr. 25,663.

‘According to AEC’s counsel, AEC has “no idea whether Georgia [Power] would be willing

to engage in it.” App. Tr. 106.

'“Wein, Direct, 67; Foltz, Tr. 12,841-43.

1071

A-59

MWh sold (x 1000) % of market

Alabama Power 21,657 88

Company

Municipal Systems 1,610 7

Distribution Coopera- 1,335 5

tives

Alabama Electric Co- 62 0

operative

Applicant’s share of 88% is clearly sufficient in normal circumstances to

warrant the inference of monopoly power.'* Applicant argues, however,

that reliance on market shares is misplaced in this case. It claims that the

economic characteristics of the industry (and its attendant regulauon) result

in higher market shares than would be found in a more conventional

industry. Moreover, we are told, state and federal regulation of applicant's

activities prevent it from possessing monopoly power.'®

These arguments are nearly identical to those made by Consumers

Power, and rejected by us, in Midland.” We have carefully reviewed that

earlier ruling and its application to the facts of this case. We conclude that

applicant’s argument must fail; we find it possesses monopoly power in the

retail market.

In the first place, the economic setting of the industry supports the

finding that applicant possesses monopoly power. We have noted earlier

that, while competition is legally permitted in Alabama, the economic

indeed.'*

barriers to the entry of new competitors in the industry are high

As we pointed out in Midland, high entry barriers reinforce the inference of

monopoly power suggested by high market shares.'”

More importantly, applicant’s dominance of transmission and genera-

tion facilities further bolsters the finding of monopoly power. As the Board

below noted, this dominance enables applicant to influence its present and

45See Midland, 6 NRC at 1010-11 and cases there cited.

\APCO Brief, 35-37; APCO Reply Bnef, 52-53. Applicant advanced these arguments in the

context of monopoly power in the wholesale market (no retail market having been found

below). Although we deal with them here in the context of the retail market, our discussion

and the arguments themselves apply with equal force to both markets.

476 NRC at 1011-19.

\“4#See p. 1062, supra.

16 NRC at 1012-13, ciung Weber v. Wynne, 431 F. Supp. 1048, 1054-56 (D.NJ. 1977); United

States v. United Shoe Machinery Corp., supra, 110 F. Supp. at 343-44, Golden Grain Macaron

Co., 78 FTC 63, 163 n. 9, 180(1971).

1072

IME? (eet whulesale power

Foros: | NRC at 42-46 fh

Tae ae creas such &

a> em the APSE wee

apRsa TE 5s

CVS Lea Ee alae cu . .

ea son ome the power, Bast “=e

Slate SE Ee | |

= Z a EE ees ppURdint S initial retusa

or" me — Oe my 5 :

2 ee oe a Teed aid from (OGRA

by * ee mene cease seamneeneneen:remmamanienr }

oS mule see CRN Lit ga hor, ©

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an 2k a aa, ime

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mae eee — a “ ’

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o ite charges (hat 1 tas

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on liners Wnt,

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transac Lots

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———k—S —E ee > ee IRA Y Misuse Cf ifs

mo peters 4 waa _ —_ = ™ Sia

— So eae bearing OF eae

meus WhO RAVE peritese

Clam an ee es

leslimoar a OZ - ~ a :

mmon: Getta oe ieee ent waned the evidence &

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'S5FGpe i. TE CE SEE SFOS rehunds (6 4 “ree

TERRES eo ee we anutrust laws Come

lo the joe

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= agree agreements wit a

unc

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—_ . nm

meskes ee ee ht hucwer -&

AGS

We DANS TART W_ VE HOT somewhat different perspectee dram Ghat af

the Larenniag Banned TR MRS principally from two faesers. Tite Gis =

that BARKS WS ERcanry Board — which found the appikcame ap pemeerss

ROROPRY PORTE DA wre market for wholesale power — we Eawe Gaund

LRAT AARROWK NW @engpy power in the coordination serwaes ami seta

POWRE RNAS HW watt, PS means that we must look apeom Ge appiucent’s

CORRE BF BAT AF A AQAA business enterprise wieidime cummapaily

POWNT QLNE WAS GAEL saage of acuvities in which it engages amd gudier =

WRT & WORE J Be wat ofa less dominant bussmess comee=m As we

SRARAT OB BRN ANea paiokal and FTC rulings tesck tac “wie aus

Of a BORAWAR PARRA VAOEPAWE have lO be tested agasmst 2 mare start

SLARRATG VAR VVRAVS & ACHR of smaller concerns as lugitiy commeinee

markes.S |

TRE ANT HAAN AANLLAY, CUL view of the record is taze Ge comfiemoe

PAWAT NE VRE SE aa SRW atl BOL with the eye focused oniy am saaizaed

SEQIRONT AY BRAT VO} were undependent of each other. For Ge cours

RAVE LWEONE

he AVANT VE VARY the evidence 45 4 whole to gue tie zanias

> de Rah Ravale of has proof, rather than mgndy com — se

ans NNO QASS WNT WANG the slate clean after conssdermg each peex=

oferta

Tr BAY CARRRAAA,_ BL applicant's opponents accuse Ge Lerman

Board, & GaAneag NE We Ae oF their claims of misuse by Ge appicenn af

JS PRORQDA PORTE ab gang: thadequate aliention te Ge pattems af

ANIOOAVRAAT LANTHAE wateated by the record. We apee wah Ger

PONOR OB ACP

Oat OWR CARN af tae record With these two pruseagies 2c Ge Game

BUBAROT WHOA GATE T woadd de permissible for us to frac amy cumin af

QRORAT AIRGRT VASHNTS af misconduct to have Geem gart of ap

ARLRORPRNS_ PACT aad tas subject (0 obloguy. Bat waging Ge

PeCONE AS RD SRT PART & BALL of judgment. We must coop and

Board heard the witnesses anc evaluzcet ther

AOTNPT WAT AS ERRAGKE ,

dank we Dave Only the printed word om He cake Tae

ae,

GERMAAMT aL HK

before WS. BA VRS CECUAARTES, we are unpersuaded thas Giese = sound

most Of the comciusuems seacined

CALS WH DAWA VE OW jadgmeat on |

delow, TR Wacky maands ale, as We have said before, Gus ze=mcys

TaNndtand See SNATR RT

ead ak DER Vang, CE Sees © Bape Gar Corp, $37 F.2d 196, 19? Ge Cx. FG

dad WLS | ita

1076

A-64

principal fact finders." We thus accept the Licensing Board's findings

except in two areas where the record compels findings of a ctuation

inconsistent with the antitrust laws: the first deals with the 2pphcant’s

selective use of low wholesale rates to discourage AEC from comstructing its

own generating stations; the second concerns the applicant's refusal to

extend an ownership interest in the Farley plant to AEC. We now deal with

these matters in order.

1. Low Wholesale Rates. The Licensing Board examined four instances in

which APCO was alleged to have lowered its wholesale rates for the

purpose of preventing AEC from installing generating units. The Board

rejected the allegations, finding no anticompetitive conduct in each

instance. Specifically, the Board concluded:

(1) A 1941 rate reduction to a number of utilities, which came at a

time when certain distnibution cooperatives were formine AFC

and were seeking an REA loan to construct new zeneraton and

transmission facilities, was legitimately motivated by applicant’s

desire to reduce its number of different wholesale rates and not to

forestall self-generation by AEC. 5 NRC at 38-09.

(2) A 1946 rate reduction offer to AEC, made after APC apphed for

an REA loan to construct a new steam plant and seneaated

transmission lines, was to allow applicant to continue sell 2

wholesale power to AEC and “to dissuade AEC from proceeding

with its plans to construct [a generating plant and transmission]

which applicant considered uneconomical and wasteful duplica-

tion of its existing facilities;” was made im good faith with the

encouragement of REA; and was not anticompetitive in intent or

motive. /d. at 910.

(3) A 1950 offer to AEC of a rate reduction, after AFC had azain

taken action to obtain REA funds for the construction of another

version of its earlier planned steam plant “had the distinct

purpose of improving the reliability of ABCs electric system.” and

did not represent “anticompetitive conduct with the clear purpose

of maintaining a monopoly in self-generation.” Jd at 911.

(4) A 1958 rate reduction to cooperatives and mumicipals (the so

called “Coosa” reduction) was essentially forced upon applicant as

a condition of applicant’s receiving licenses to develop bydroelec-

‘See Catawba, supra, 4 NRC at 404.

1077

A-65

tne projects on the Coosa River, and was not anticompetitive. Jd

at 912-13.

With respect to the Coosa rate reduction, we are saushed with the

findings made below. We do, however, take a different view of the three

earlier reducnons. We believe they were insututed for the purpose of

prevenung AEC trom developing its own generation, and as such were

inconsistent with the anutrust laws.

As @ preliminary matter, we address the Licensing Board's treatment of

the Noerr-Penningion doctnne. That doctrine, established by the Supreme

Court in Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc,

365 U.S. 127 (1961); and United Mine Workers of America v. Pennington,

381 U.S. 657 (1965), essentially renders immune from anutrust: hability

acuons which seek to influence legislatures, courts, and other governmental

bodies even though they are undertaken for anucompetinve Purposes, A

third case, Califorma Motor Transport Co. v. Trucking Uniimited, 404 U.S.

508 (1972), hmuted the doctnine somewhat by providing that sham attempts

to influence official action are not immune.'*! As the Board below

recognized in an order issued during the Phase | heaning,'* evidence of

conduct designed to influence governmental action can be used for two

purposes. First, a party 1s always free to show that the conduct falls Within

the sham exception to Noerr-Pennington. Second, according to the princi.

ples set out in Pennington footnote 3, a party Can USE EXemMpt activities as

evidence of general anticompetitive intent in order to shed hight on

nonexempt actvities. "©

In thas case, there is no question that applicant actively used legal and

administrative proceedings in attempts to prevent AEC trom installing its

own generation.“ Applicant's opponents argued below that this use of the

legal process fell within the sham exception (and thus was itself inconsistent

with the antutrust laws), and that, even if such activity is exempt from

‘For example, good-faith hugatuon may be exempt from anutrust Hability, but the repetiuve

filing of trvolous legal claums for the sole purpose of harming a compeutor is not, See. ¢ a, 404

U.S. at SU3: Oerer Taud, supra, 410 U.S. at 380.

‘SL BP-?S-69, 2 NRC 822 (1975).

381 LS. at 670 a. 3. The footnote reads as follows:

“tt would of course sull be within the province of the tnal Judge to admit this evidence,

if he deemed ut probauve and not unduly prejudicial, under the “established judicial rule

of evadence that tesumony of pnor or subsequent transactions, which for SOME reason are

barred trom forming the basis for a suit, may nevertheless be introduced if it sor

reasonably to show the purpose and character of the particular Wransaction under

scruuny.”

See S NRC at 90248.

1078

A-66

antitrust liability, the Board should denve trom it evidence of applicant’s

antucompetitive intent. The Board found the activity protected.'6 It further

ruled that “there is no room for application of Penningion footnote 3

regarding the admissibility of immunized transactions to shed light on the

‘purpose and character’ of nonimmunuized transactions, because the

challenged litigation was both immunized and itself not anticompetitive

under the antitrust laws,”

We can readily agree with the Board's determination that the use the

applicant made of administrative and judicial process is protected under

Noerr-Pennington, The Board's handhng of Pennington footnote 3 is quite

another matter. We read that footnote as plainly allowing the admission of

evidence concerning “immunized” transactions where such evidence sheds

light on nonimmunized transactions.’ As applicant itself admitted,

protected Noerr-Pennington matenal may be used “to show purpose or

character of other evidence under scruuny.”'*

We now turn to the matter of applicant's low wholesale rates. The

Licensing Board was unable to find that the rate reductions “represented

anitcompetitive conduct with the clear purpose of maintaining a monopoly

in self-generation.”' We think applicant's otherwise protected use of

judicial) and administrative proceedings sheds a good deal of light on those

rate reductions, It seems clear to us that applicant was strongly opposed to

AEC’s installation of generation, Nor do we doubt that the institution of

low rates could have served to undermine AEC’s efforts in this regard. All

this added to the mung of the reductions in question (each occurred at a

tume when AEC was senously pursuing new self-generation options) leads

us to the compelled inference that the reductions were motivated with the

intent of discouraging AEC’s selt-generaton.

interestingly enough, the Board below agreed that a purpose of the 1946

reduction was to prevent AEC from pursuing a proposal to build a 23 MW

plant at Gantt, Although the Board found that the 1941 and 1950

reductions were motivated by applicant's desire to lower the number of

rates in its rate structure and to improve the reliability of AEC’s system (see

p. 1072, supra), we find the tuming of the reductions more than a

0 en RT NI TO

Wd. 4 WLM, POA

1d. at 41 (relerence omitted).

“tee Scherley Industries, Inc. v. New Jersey Wine and Sporit Wholesalers Ass'n, 272 F. Supp.

472, 66 (NJ. 1967), wherein the Distnct Court wrote:

in 4 foxtnote to the Pennington opinion, the Supreme Court did leave open the use of

evidence on protected lobbying acuvity in the manner Schenley proposes, namely, to

demonsuate anucompetiuve intent.

4A¥CO Keply Brief Below, 286.

$5 ME adit

1079

A-67

coincidence. We can agree with the Licensing Board that the applicant's use

of the governmental processes available to it was conduct protected under

Noerr-Pennington. But the full circumstances Surrounding applicant's rate

reductions, including its history of legal opposition to AEC generation,

compel the conclusion that the reductions were part of a long campaign to

forestall AEC from installing its own generating capacity.

Our only difficulty in reaching this conclusion stemmed from unease at

adopting the notion that AEC could suffer a legally cognizable injury trom

having a low rate offered, not to one of its competitors, but to itself. Unlike

the usual situation, where the offended party is helpless in the face of pnce

concessions offered either to its compeutors or to its potential customers,

AEC here had the power to defuse the applicant’s tactic. It simply could

have declined to let the Opportunity to purchase power at a reduced rate

deter it from building its own generating capacity.

The short answer to our concern is that. Owing to the applicant's

monopoly position, AEC had no practical alternative to accepung the

reduced rate and dropping its plans for expansion. Not only its own short

term fiscal health — a critical matter to a business lacking a monopolist’s

power — was at stake; but a refusal of the applicant’s offer would have

brought down upon it the objections of the REA and others who might

point out that the insistence on going ahead appeared to involve an

unnecessary duplication of effort.

What we are left with, then, is the conclusion that these lowered rates

were the opening salvo in the pattern adhered to through the years in which

the applicant sought to forestall AEC from installing its own generaung

capacity, and to keep AEC as a Caplive customer — even at the cost of

short-term profit — rather than allow it to develop as a competitor, thus

assuring applicant’s long-term health. As already indicated, it might be

possible to build on this to find that a great many more instances of

anticompetitive conduct fit into this same pattern. We decline, however, to

do so. giving due deference to the analysis of the Board below.

One final matter remains. The Licensing Board found, in regard to the

1946 reduction, that applicant was Properly motivated by a desire to

prevent “uneconomic and wasteful duplication.” (5 NRC at 910.) In the

first place, we do not understand why AEC’s construction proposal

necessanly involved a duplication of applicant's facilities. Applicant has

built numerous generating facilities; if its chief concern was duplication, it

could have staggered AEC’s proposed construction in with its own plans.

More important, we do not believe an Ostensible desire on the part of a

monopolist to avoid “wasteful duplication” constitutes a legitimate defense

under the antitrust laws to charges that the monopolist has prevented

Prospective Competitors from entering a market. The argument that it does

1080

is merely another version of the regulated industry defense we addressed

earlier (see Pp. 1039-1042, supra). An electric utility may prefer to avoid

competition, but it cannot accomplish this goal through anticompetitive

means. !70

2. Denial of Ownership Access ty Farley

a. The other count on which the record compels us to disagree with

the Licensing Board Involves the 4pplicant’s alleged denial of ownership

access to the Farley units. The Board below declined to find that the

applicant had denied such access to AEC. According to that Board, there

was no “hard evidence substantiating” such a charge; that on the contrary

Mr. Farley, applicant’s President, “made it quite clear in his testimony

before the Board that Applicant does not take the position that it would not

sell ownership.” 5 NRC at 929,

With all due deference to the Licensing Board, we construe the record

differently. Our assessment of all the Surrounding evidence persuades us

that although the applicant never explicitly stated it was absolutely rejecting

the possibility of selling an Ownership share in Farley to AEC, it fully

intended not to make such a sale unless forced to do so.

From at least 1969, it was applicant's policy to maintain sole ownership

in the Farley plant. This was made clear in an internal confidential]

memorandum of the company circulated among the officers and attorneys

representing it in negotiations with AEC.171 That memorandum Stated in

ownership in the SEALA nuclear Plant.”'” This policy remained essentially

unchanged over the years." Thus, it is not surprising to find that even

"See also Davis-Besse, supra, 10 NRC at 323-27.

'ID.J. 6040; Vogtle, Cross, Tr. 23,135,

IRD J. 6040, p. 4. “SEALA” was the earlier name for the Farley plant.

the applicant filed Amendment No. 13 to the license 4pplication for construction of the Farley

units. The amendment stated: “The plant is planned to be wholly owned by Alabama Power

Company and is not planned for COMSIFUCHON OF Operation as a Jott venture with any other

enuty.” See Justice Brief, 79. In this regard, James H. Miller, Jr, a senior vice-president of

Alabama Power who Parucipated in various hegoUauions and discussions with AEC

concerning interconnections and joint ownership Parucipation in Farley, testified:

CHAIRMAN GLASER: Mr Miller the company has never been in favor of a joint

Ownership arrangement with AEC to your knowledge; has it?

THE WITNESS: Not to my knowledge, no. sir.

Miller, Tr. 21,476.

A-69

though AEC expressed interest in acquiring a share in the Farley plant as

early as 1971,'"4 some two years later applicant was still arguing for the sale

of unit power.'”> To be sure, applicant’s representatives met with AEC on

repeated occasions to discuss the subject of access to Farley power,"* but

the meetings did not progress much beyond the exploratory stage. During

this period, the applicant’s main efforts were directed not so much towards

seeking an acceptable agreement on the joint ownership of the plant but in

getting AEC to agree to the purchase of wholesale or unit power. The result

was that when these hearings began in late 1974, the parties were far from

reaching agreement on joint ownership of Farley, even in principle.'!” The

effect of applicant's actions was to deny AEC reasonable access to Farley.

In holding that the applicant acted to deny AEC an ownership in the

plant, we have fully considered the testimony of Mr. Farley. But unlike the

Board below, we find in it no support for the proposition that the applicant

did not have a position against selling an ownership share in the plant.

Rather, we find it to point forcefully the other way.

For its conclusion that the applicant had no position against selling an

ownership interest in Farley to AEC, the Board below relied on two

statements made by Mr. Farley at the hearing. On one occasion, Mr. Farley

was asked whether his company was willing to provide the municipalities

‘Letter from AEC to Mr. Farley dated Apmil 27, 1973. App. Exh. BMG-21.

"As late as November 26, 1973, AEC’s overtures toward acquiring an ownership interest in

the Farley plant were being met by a recitation of claimed barners against any kind of jount

ownership arrangement. AEC Exh. 32. It is significant that the existence of problems claumed

to be serous obstacles to joint ownership of the Far!ey plant were not raised until some two

years after AEC’s expression of interest in the plant. In 1974, the applicant was still resisung

the sale of a share in Farley to AEC. On October 29 of that year, applicant's counsel Mr. Balch

wrote to AEC’s counsel Mr. Boskey outlining the applicant’s understanding of the positions of

the parties expressed at a meetung which had been held earlier among representauves of both

organizations. In that letter, applicant’s counsel conunued to urge that “the most fruitful

approach to this matter from Alabama Power’s point of view is to consider a unit power

approach which avoids the complex problems which would arise from any attempt at this time

to restructure the ownership of the Farley units.” App. Exh. 173 at pp. 11-12. Earlier, on

August 16, 1973, Mr. Farley had wntten to AEC urging that it purchase “power from a mix of

the company’s generation under applicable rate schedules and, thereby, in effect, have access

to the Farley plant.” The letter went on to indicate that, inasmuch as AEC indicated a desire to

participate specifically in Farley, the applicant invited discussions to explore the possibility of

unit power purchase by AEC. AEC Exh. 30.

'%5 NRC at 929.

‘By late 1974, the partes had not yet reached the stage of negouating over firm proposals. On

June 20, 1974, AEC wrote to Mr. Farley to raise several matters including the desire for a

meeung lo resume discussion on a joint ownership arrmngement for the Farley plant. AEC Exh.

35. Mr. Vogtle responded for the applicant. On the subject of joint ownership, the response

was no more than a bland invitation to discuss the matter at the next meeung with the request

that AEC “furnish any definitive proposal to the Company for review” before the next

meeting. AEC Exh. 36. By October of that year the applicant was continuing in its pursuit of a

unit power arrangement with AEC. See fn. 175, supra.

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and AEC access to Farley units by means of ownership participation. Mr.

Farley’s response was:

The matter as to ownership has been discussed with representatives of

the cooperatives and to a certain extent, the municipals, and the

company 1s in this position, that we have not taken the position that we

would not sell ownership.'"8

Later in the hearing, Mr. Farley was again asked about the request of AEC

for an ownership share of the Farley plant. In response to this question by a

Licensing Board member, the following transpired:

[MR.FARLEY]: We have been in negotiations with the Cooperative

in ways that have certainly been explored here in this heanng

heretofore. I don’t consider the sale of the company’s property or

ownership in the plant or something of that nature quite in the same

light that I do the offering of the utility service or utility coordination.

We have not, obviously, reached agreement with the cooperative on

the sale of a portion of the plant but it is not inconceivable that we

might.

MR. MILLER: What does that mean, Mr. Farley?

THE WITNESS: _ It means, sir, that as of this point in time, as I have

answered questions heretofore, Mr. Miller, that we don’t have a policy

that we would not sell a portion of a plant because we may. We think

it’s got all kinds of problems with it.'79

True enough, one could read these statements to convey the thought that

the applicant has no position against the sale of an ownership interest in the

plant.'® But to succumb to this would be to be misled by the applicant’s

Judicious phrasing of its answers in the double negative. That tactic cannot

obsure the fact that the company has steadfastly avoided indicating directly

that it would share ownership. When other testimony of Mr. Farley is

considered, it clearly appears that the applicant did not intend to sell. This

becomes even more patent when Mr. Farley’s statements are viewed

alongside the company’s dealings with AEC after the ume in 1971 when

AEC expressed interest in acquiring an ownership interest in the plant.

‘’Farley, Cross, 19,185.

Farley, Cross, 20,599.

'At another instance dumng the heanng, Mr. Farley was asked about the company’s policy

toward joint ownership of the plant with others. To this, Mr. Farley's reply was that “there just

simply isn’t a policy on it.” Farley, Cross, 19,198-99, We find this answer inconsistent with the

1969 policy statement and the acuon subsequently taken by the applicant.

1083

A-7]

The crucial testimony came after the exchanges relied on by the

Licensing Board. Mr. Farley was asked by counsel for the Department of

Justice whether the applicant was willing to offer ownership participation in

the Farley plant to AEC. Mr. Farley responded:

I find it difficult to answer the question yes or no....

When asked by the Licensing Board Chairman for an explanation, Mr.

Farley replied:

If this Board were to impose a license condition which were to be

upheld that the Company should sell an interest in the nuclear plant,

then we’ll sell an interest in the nuclear plant.'*!

Thus, when pressed on the point of the applicant’s willingness to enter

into a joint ownership agreement with AEC, Mr. Farley's testimony was

that the company would do so — but only under compulsion by this

agency. Stated in more direct terms, Mr. Farley was saying in effect that the

applicant had no intention of voluntarily entering into an arrangement with

AEC for joint ownership of the plant.

Mr. Farley’s last statement is even more revealing when considered in

the context of the 1969 statement in which the policy of the company is

expressed as being “unalterably opposed to sharing in the ownership of the

plant with AEC or with any one or more of the cooperatives.”'® Viewed in

that light, it becomes clear that the company had a position: to resist to

the last selling an ownership share of the plant to AEC,'®

b. Our inquiry does not end here. The next step we must take is to

determine whether applicant’s conduct respecting its refusal to sell an

ownership interest in the Farley plant constituted anucompeulive action.

For the reasons which follov., we hold that it does.

In Part IV of our decision, we found that the applicant possessed

monopoly power in the wholesale and retail markets for electncity in

'*'Farley, Cross, 27,949-50.

'®2See p. 1081, supra.

‘©The question of whether applicant denied MEUA ownership access is a much closer one.

Nothing in the record indicates that applicant would have viewed an ownership request from

MEUA more favorably than that from AEC. On the other hand, after reviewing the tesumony

of Mr. St. John carefully, it seems clear to us that MEUA did not pursue ownership access as

actively as did AEC. See Tr. 4547-98. We are particularly concerned with the timing of

MEUA's request, which appears to have come well after this proceeding got under way. Tr.

4551-4580.

We believe resolution of uuis matter is unn to our disposition of the case. We can

assume that if a timely request was made, it would have been rejected. The key issue remains

whether MEUA is entitled to ownership access. We discuss that point later (see pp. 1124-1125,

infra).

1084

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central and south Alabama and in the coordination services market in that

area. Being possessed of monopoly power, the applicant is precluded by

Section 2 of the Sherman Act from willfully using it to preserve or extend its

monopoly, to foreclose actual or potential competition, to gain competitive

advantage or to destroy competitors, Moreover, it is not only full-fledged

violations of the antitrust laws that are of concern in these licensing

proceedings. Section 10S5¢ of the Atomic Energy Act, which governs the

proceeding here, condemns as well conduct which runs counter to the

policies underlying those laws,'™

Viewed against these limitations on permissible conduct by one who is a

monopolist, we have no hesitancy in concluding that the applicant’s actions

in denying AEC a joint ownership share in Farley constituted anucompeu-

tive behavior. The evidence leaves no doubt in our minds that the actions of

the applicant in this regard were deliberately directed toward avoiding

sharing in the ownership of the plant for fear that granting AEC an

ownership interest in the plant would lead to erosion of the applicant’s

wholesale and retail business. As candidly put by Mr. J. H. Miller, Jr.,

applicant’s senior vice-president;

Should intervenors be allowed to acquire a portion of the Farley

Nuclear Plant, extending the utilization of subsidized financing, it

could bring about an inherently unfair competitive position between

them on the one hand and Alabama Power on the other. It could, in

fact, in the long-term place Alabama Power's competitive position in

jeopardy to such a point that Alabama Power would no longer be

viable.

Miller, Direct, 150.'*

'4 Midland, supra, 6 NRC at 1019; see pp, 1044-1046, supra.

'SThe testimony of Mr. Farley was to the same effect:

Q. [Mr. Leckie, Justice Counsel]; You were concerned, though, in the time penod 1969

to 1971 with the possibility that your wholesale business might be eroded if you were

to sell a share of the Farley Unit to Alabama Electric and/or to the municipal

systems?

[By Mr. Farley]. We were concerned that the differenuals through these facts and

financing costs might cause a problem, yes, sir,

. Were you concerned with a possible erosion of retail business at that ime?

Yes, sir, because all along has been the concept in Alabama Electric Cooperative’s

request that we wheel for them where ever they want. And that would include retail.

That thread has been through many of our discussions and negotiations and that

remained then and it remains now,

A-73

Although the possible future loss of business is undoubtedly of legitimate

concern to any business enterprise, it cannot be used by a monopolist to

justify conduct designed to preserve or enhance its dominant position in the

competitive market. At the very least, if not a violation of the antitrust laws,

such conduct runs counter to the policies underlying those laws.

That observation unquestionably applies to the situation here. Appli-

cant’s 1969 policy statement and the tesumony of its two senior officers

leave no doubt as to the company’s short and long-range objectives in

refusing to share in the ownership of Farley: the preservation of its

dominant power in the wholesale and retail markets for electncity in central

and south Alabama. That objective, as we have seen, is one that is

condemned by Section 10S¢ and the antitrust laws referred to therein. This

being so, it follows that action undertaken by the applicant toward that end

is no less unacceptable under the law,

B. MEUA’s Appeal

MEUA was denied a remedy below because the Board found that there

was no “significant actual or prospective competituon between [MEUA and

applicant] at the retail distribution level.” 5 NRC at 961.'* Implicit in this

denial was the Board’s view that MEUA was also not a competitor in the

wholesale market.'*?” MEUA's appeal is thus essentially double-barreled; it

contends both that the rejection of the retail market was incorrect and that

it was wrongfully excluded from the wholesale market.

As we explained earlier (see pp. 1059-1068, supra), we disagree with the

Licensing Board's rejection of the retail market. Before we analyze the

effect of this finding on MEUA's case, we turn to the claim that the

Licensing Board erroneously excluded MEUA from the wholesale market.

CHAIRMAN GLASER: _ In fact, hasn't it been the case that the company’s been

concerned about Alabama Electric Cooperauve taking away Alabama Power Company’s

customers since the inception of the cooperative?

THE WITNESS: Well, sir, | wouldn't say, Mr, Chairman, since the incepton of it

because this didn't really get to be, well, several years — in the early days of its — in the

late '40’s, perhaps, would be a better ume. | think the cooperative was organized about

'41 or '42, or something like that and it was some years after that before the west —

CHAIRMAN GLASER; _ In any event, for the last 20 years the company has been

concerned about it?

THE WITNESS: Yes, sir.

Farley, Cross, 20,802-04,

'%In the ensuing discussion, the term MEUA refers to both the organizauon collecuvely and

its members singularly,

'8See 5 NRC at 1484 n. 5.

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1, Wholesale Market. Although the Licensing Board determined that

there was a relevant wholesale market in central and southern Alabama, it

excluded MEUA from the remedial hearing on the grounds that MEUA

was not an actual or potential competitor in the market.'*® MEUA, Justice

and staff dispute this ruling, arguing on appeal that the municipals are

potential competitors. They argue that this is true because the municipals

are on the edge of the market, that applicant’s activities in the past have

discouraged their entrance, and that such entrance is feasible if the

municipals are granted a share of the Farley facility." MEUA relies on a

second string to its bow. In the alternative, it argues that its members are

currently in compeution in the wholesale market. We deal with this latter

argument first.

a, MEUA advances two bases on which it would have us find that

it is presently in actual competition in the wholesale market. It first notes

that although it now does not engage in selling power at wholesale, one of

its members, Riviera Uulities,'® at one me provided wholesale service in

Baldwin County, It then claims that Riviera was forced out by applicant’s

anticompetitive conduct, To prevent the applicant from benefiting from its

wrongdoing, MEUA’s argument is that we should look upon the market in

terms of the situation existing at the ume Riviera engaged in wholesale

service and not the present. Secondly, MEUA argues that its decision to

purchase wholesale power instead of supplying its own needs through self-

generauon Is a form of present wholesale competition.

We need not devote much attenuon to the argument that the exercise of

a decision to “make-or-buy” is an indication that actual competition for the

sale of wholesale power exists. All MEUA’s decision to buy tells us on the

record of this case is that it is a wholesale customer of the applicant.

Without any generating capacity of its own, we simply do not believe that

MEUA as a buyer of electricity at wholesale is in actual competition with a

selling ently,

The question of MEUA’s past role in the market 1s a more complicated

matter, Although Riviera Utilities lost its last wholesale customers during

the course of the proceeding below,'?! there is no dispute that Riviera at one

time provided wholesale service to other retailing entities. Indeed, in its

description of wholesale competition, the Licensing Board included

Ibid.

WMEUA Bnef, 22-41; Justice Bnef, 54-61; Staff Bref, 23-26, 40-42.

Riviera Utilities is the name of the municipally-owned uulty in the town of Foley.

IMEUA Bnef, 25; 5 NRC at 828,

1087

A-75

references to competition between Riviera and applicant.'? Nonetheless,

the Board excluded MEUA from the market without explanation.

Although the Licensing Board did not deal directly with Riviera’s role in

the wholesale market, it did limit sellers in the market to “those entities

generating and providing bulk electric power to distnbution entities.” 5

NRC at 890. Riviera, it should be pointed out, was not a generating entity.

MEUA challenges any suggestion that generation is a precondition to being

in the market; it claims the market should include all entities selling bulk

power to distribution systems.'® The fact that Riviera no longer sells power

at wholesale, we are told, is not relevant, if Riviera is excluded from the

market, “any monopolist would be immune from anttrust liability upon

accomplishing destruction of its rival,”!*

We can agree with MEUA up to a point. Theoretically, ownership of

generation need not be a prerequisite to entrance in the wholesale market.

And certainly any destruction of a competitor is a fact we could hardly

ignore, But our assessment of the record simply does not comport with that

of MEVA.

The town of Foley acquired Riviera Utilities in 1941.'% Riviera at the

time had three wholesale customers in south Baldwin County: the towns

of Robertsdale and Fairhope, and the Baldwin County Electric Member-

ship Cooperative. It supplied its wholesale and retail power requirements, in

1941 and at all times afterwards, through wholesale purchases from

applicant. Eventually, all of Riviera’s wholesale customers decided to take

service from applicant instead.

Although MEUA would have us believe that applicant was responsible

for Riviera’s loss of its wholesale customers, the record indicates otherwise.

We find that Foley’s role was purely that of a middleman; it purchased

power from one party and sold it at a markup to another. Its wholesale

customers were prevented by contractual barner from dealing with

applicant directly; when the barriers were removed, the customers elected

to receive their power from applicant. In this regard, it should be noted that

applicant charges uniform wholesale rates throughout the state; it did not

lower its rates to attract the new business. Applicant further claims'!* —

and the record does not indicate otherwise — that it received no additional

revenue from its new customers; it simply sold the same amount of power

at the same price without going through a middleman. When questioned

25 NRC at 895, citing, inter alia, St. John, Direct, 10-14; DJX 4298, 4301, 4308-4311; Tr.

23,477-23,487.

M™MEUA Brief, 24,

Md. at 26.

1A PCO Reply Brief, 45.

iA PCO Reply Brief, 46 n, 312.

A-76

about the loss of Riviera’s wholesale customers, Mr. St. John was unable to

point to any conduct on applicant's part in taking over service to Riviera’s

customers that could be considered wrongful.'” Nor did he indicate that

Riviera sought cheaper sources of bulk power elsewhere (if any were in fact

available). In these circumstances, we are simply unwilling to say that

applicant contributed to the destruction of its wholesale rival. Common

sense would seem to indicate that a wholesale supplier that does nothing

more than buy power from one supplier and sell it at a higher price to

distributors will be unable to remain in existence if their customers can deal

directly with the supplier.'% Riviera having lost its customers through

operation of market forces, we find no basis for faulting the applicant in

this regard. This being so, whatever the competitive situation may have

been when Riviera was a seller of wholesale power, the fact is that MEUA

is not now an actual competitor in the wholesale market.

b. As mentioned earlier, Justice, NRC Staff, and MEUA all argue

that MEUA is a potential compeutor in the wholesale market. Our

attention is directed to any number of court decisions dealing with potential

competition as it affects mergers under Section 7 of the Clayton Act.'®

Applicant questions the propnety of relying on merger cases to determine

whether MEUA’s members are potential competitors at the wholesale

level. We need not decide this issue, for we do not believe MEUA

qualifies as a potential entrant even under the principles enunciated in the

cases it cites,

The reasoning for our rejection of the notion that MEUA is a potential

entrant to the wholesale market is founded upon our assessment of its

ability to enter the market. We accept, for the purposes of argument,

MEUA’s contentions that it is eager to enter the market, that it is in a

similar line of commerce, that actual penetration of the market is

unnecessary, and that MEUA is the most likely new entrant.”! Nonethe-

less, we read the cases as requiring a showing that MEUA is either (1)

capable of entering the market on its own, or (2) currently influencing

competitive conditions in the market. MEUA has not made either showing.

See Tr, 3683-94,

\%In this connection, see New England Power Co. v. Federal Power Commission, 349 F.2d 258,

260 (Ist Cir, 1965), wherein the F.P.C. noted that the prevailing industry practice was for the

middleman to be eliminated and that the Commussion could see no reason why the middleman

in the case should not be eliminated.

'\WE.g., United States v. Marine Bancorporation, 418 U.S. 602 (1974); United States v. Falstaff

Brewing Corp., 410 U.S. 526 (1973); Federal Trade Commission v. Proctor & Gamble Co., 386

U.S. 568 (1967); United States v. Penn-Olin Chemical Co. 378 U.S. 158 (1964); and United

States v. El Paso Natural Gas Co., 376 U.S. 651 (1964).

20A PCO Reply Brief, 48 n. 322.

*»!See MEUA Bnef, 31-41.

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A look at the cases helps illuminate the nature of these requirements. In

Marine Bancorporation,* the acquisition of a Spokane, Washington bank

by a Seattle bank seeking to penetrate the Spokane market was allowed; the

Supreme Court found that the purchase did not eliminate the Seattle bank

as a potential competitor in the Spokane market because the bank lacked

other feasible means of entering the market. The Court thus allowed the

acquisition to take place. 438 U.S. at 632-639.

In Falstaff, the Supreme Court reversed and remanded a decision

approving a national brewery’s purchase of a New England brewery. The

District Court found conclusive the testimony of witnesses for the acquinng

firm indicating that it would not have entered the New England market by

any other means. The Supreme Court thought otherwise:

The specific question with respect to this phase of the case is not what

Falstaff's internal company decisions were but whether, given its

financial capabilities and conditions in the New England market, it

would be reasonable to consider it a potential entrant into that market

....[IJfit would appear to rational beer merchants in New England

that Falstaff might well build a new brewery to Supply the northeastern

market then its entry by merger becomes Suspect under § 7. The

District Court should therefore have appraised the economic facts

about Falstaff and the New England market in order to determine

whether in any realistic sense Falstaff could be said to be a potential

competitor on the fringe of the market with likely influence on existing

competition.

410 US. at 533-534,

In Procter & Gamble,™ the acquisition of a bleach manufacturer by a

company specializing in household products was disallowed. The Supreme

Court found, infer alia, that the acquisition would eliminate the acquiring

company as a potential competitor in the market for bleach. There was no

evidence indicating that the acquiring company intended to enter the

bleach market de novo; however, the Court found it to be a potential

competitor on the ground that de novo entry was feasible and that the threat

of de novo entry exerted “considerable influence on the market.’ ” 386 U.S.

at 580-581.

In the two other cases relied upon by MEUA, Penn-Olin and El Paso,

the potential competitors were substantial forces. In Penn-Olin, the court

2@See fn. 199, supra.

203] bid.

24] bid.

203 bid.

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found both merging companies capable of entering the market indepen-

dently and noted that even if only one company entered the market, the

other could have exerted a procompettive influence by virtue of its position

on the edge of the market. 378 U.S. at 173-176. In El Paso, the acquired

company (Pacific Northwest) was found to have the capability to enter the

California market and to have been “a substantial factor in the California

market” through its attempts to enter the market. 376 U.S. at 658-661.

All these cases have a common thread: in each case the test for

determining whether a company would be considered by the Court to be a

potential competitor in a relevant market involved whether it had a present

capability of entering that market or was reasonably viewed by others in the

market as having the capability of entering it at any time it desired.

In the case at bar, MEUA seeks to establish its capability of entering the

market through rather cunous, indeed circular, reasoning. MEUA in the

past has forsaken generation because of the costs involved. In this regard,

the Board below found that the municipality of Dothan had not senously

considered installing generauon (5 NRC at 930-31); we agree with this

finding. No solid evidence was shown to indicate that MEUA is

considering building its own generation in the near future; the best that

could be said for MEUA’s members is that they might possibly be

interested in installing peak-shanng units.2” Nor did MEUA identify any

other potential bulk power supplier it has considered dealing with in order

to reduce its dependence on applicant’s generation. MEUA’s potential

entrance in the market seems instead to hinge on access to Farley. If it is

allowed to purchase a share of the plant, we are told, MEUA will be able to

compete at wholesale with applicant. In fact, MEUA’s counsel admitted

at the Phase II hearing that access to Farley is “a sine qua non of it being

likely or feasible for [MEUA] going into the wholesale market.” Tr. 27,022.

Like the Licensing Board, we are left unmoved by this reasoning. The

ultimate issue in this case is whether this agency should mandate that

applicant accord intervenors access to the Farley facility. In terms of

potential competition, we believe MEUA’s capability to enter the market

must be assessed without regard to the Farley facility. And the record

indicates that, without access to Farley, MEUA does not have the

Tr. 3635; 27,029-30.

See Tr. 3878-3888, 3907-3909. At the time of the hearing below, it appeared that MEUA had

made no real studies addressing the installation of peak-sharing generation. Tr. 3907.

206M EUA Brief, 30-31.

In this regard, it is useful to explore what MEUA’’s role in the market would have been if the

Farley facility were never built. MEUA’s counsel was questioned about this at the Phase II

hearing; while his response was necessarily speculative, it is certainly clear that MEUA’s

entrance into the market would have been far more difficult than that of the potential

compeutors in the cases it cites. See Tr. 27,030-27,033.

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capability to enter the wholesale market. We simply can not accept

MEUA’s argument that if it is granted access to Farley, it could compete in

the wholesale market — and that therefore it is a potential competitor in the

market and is entitled to such access.

Nor can MEUA claim recognition as a potential competitor in the

market for wholesale power on the basis of the second test — that it is

currently influencing competitive conditions in the market. MEUA con-

tends that applicant was aware of the municipal systems’ desires to install

generation and reacted to this desire by pursuing a course of anticompeti-

tive conduct.?9 According to MEUA’s argument, the applicant inserted

anticompetitive conditions into its wholesale contracts in order to prevent

AEC and MEUA from installing generating units. But the Licensing Board

found no evidence to support this charge. (S NRC at 932). Applicant may

have been aware of MEUA’s desire to enter the market and that MEUA

would encounter difficulties in installing generation,?!' but it does not

necessarily follow that applicant’s conduct was dictated thereby. If a

company does not possess the capability to enter a market, it must be

assumed, absent evidence to the contrary, that its activities or even its

presence do not affect competitive conditions in the market 22 Given these

circumstances, we cannot conclude that MEUA exerted an appreciable

influence on the wholesale market.2"3

2. Retail Market. Because the Licensing Board found the retail market

not to be a relevant one, it did not address the competitive situation at retail

between MEUA and applicant. Before the question of remedy for MEUA

can be addressed, we must first examine this retail situation and how it has

been affected (if at all) by applicant’s past conduct.

a. MEUA is composed of the municipal systems of the following 12

cities: Alexander City, Dothan, Fairhope, Foley, LaFayette, Lanett,

Luverne, Opelika, Piedmont, Sylacauga, Troy, and Tuskegee. All twelve

purchase the bulk of their power supply from applicant; eleven receive

additional power from SEPA.2!* 5 NRC at 827-828.

7}0MEUA Bref, 32.

7"\MEUA Brief, 29.

22 Marine Bancorporation, supra, 418 U.S. at 639-640.

We note here that our finding that MEUA is not likely to install its own generating capacity

in the future, coupled with the fact that its members have produced no power in the recent

past, lead us to the conclusion that MEUA should not be considered a participant in the

market for coordination services in central and southern Alabama. Nothing we have seen in

the record below changes our view that non-generating utilit

This text is long and has been trimmed here. Open the source document for the complete record.