Opinion ID: 706907
Heading Depth: 2
Heading Rank: 1

Heading: Initial License Proceedings

Text: 3 As required by the Act, the NRC considered potential antitrust problems during the initial license proceedings for the two plants owned by Licensees, the Perry Nuclear Power Plant and the Davis-Besse Nuclear Power Station. Toledo Edison Co., 10 N.R.C. 265 (1979), aff'g as modified 5 N.R.C. 133 (1977). Because the Commission's findings are relevant to the question of whether the license conditions can be retained even though the power produced by these stations turned out to be higher in cost than power from alternative sources, we discuss those proceedings in some detail. 4 In its order imposing antitrust conditions on the plants, the Commission first made extensive findings of fact about ongoing anticompetitive acts by the Licensees that were directed against smaller electric utilities in the region competing with Licensees for sale of wholesale and retail power. The three Licensees who are petitioners in this proceeding, along with two other neighboring electric utilities who did not join petitioners' suspension request, formed a regional power pool called the Central Area Power Coordination group (CAPCO). The purpose of CAPCO was to coordinate installation of generation and transmission in order to further reliability and to take advantage of scale economies. 5 N.R.C. at 152. Each CAPCO member dominated generation, transmission, and sale of electric energy within its particular service area, controlling between 94% and 100% of all generating capacity and transmission facilities, and accounting for between 94% and 100% of retail and wholesale sales. 5 N.R.C. at 153-54. This dominance was maintained, in part, by the companies' decision to operate as a unified system. CAPCO members coordinated their operation through connections among all of the utilities (interconnection); sharing of power reserves during times of shortage, maintenance outages, and construction; and exchange and sale of various types of power at low rates. 5 N.R.C. at 154-55. CAPCO companies also engaged in coordinated development, constructing shared generating units and transmission facilities according to a joint plan. 5 N.R.C. at 153. 5 Not only did CAPCO members realize the legitimate benefits of economies of scale and coordinated operation, but more importantly, they used this arrangement to forestall competition from other smaller utilities in the region. CAPCO members avoided competition among themselves, through either explicit agreements or failure to solicit customers of fellow CAPCO utilities. 5 N.R.C. at 143, 190-95, 214-17. They denied competing utilities membership in the power pool and refused to make available to competitors any of the benefits of interconnection, including sharing of reserves and exchanges of emergency or economy rate power. 5 N.R.C. at 144 n. 9, 224-25, 227-31. CAPCO utilities also refused to wheel power, or transport it from outside utilities across their transmission lines, to competing utilities inside CAPCO territory. 5 N.R.C. at 144 n. 9. Due to economic and regulatory constraints, competitors could not construct their own duplicative transmission lines and, without CAPCO's cooperation, could not obtain access to outside power sources. 5 N.R.C. at 156-58. These competitors were often left with only one option--buying power from CAPCO utilities for resale--but CAPCO companies would sell their power only if competitors agreed to rate-fixing and other unfair and anti-competitive terms. 5 N.R.C. at 167-68, 177-78, 180-82, 200-03. 6 After examining these facts, the Commission concluded that the market structure created by CAPCO members through their formation of an exclusive power pool gave them the ability to prevent competing utilities from gaining access to the benefits of coordinated operation and economy of scale which they themselves enjoyed, and that this ability had, in fact, been used to create and maintain a situation inconsistent with the antitrust laws. 5 N.R.C. at 238-41, 255; 10 N.R.C. at 281. The cooperative arrangement made this situation possible even though the power offered by CAPCO companies was higher in price than the power of competing smaller utilities. 5 N.R.C. at 166 (Rates and quality of service were and are the principal elements of competition between these utilities, with Cleveland traditionally offering lower rates and CEI greater reliability. (citations omitted)). 7 Pursuant to Sec. 105(c), the Commission also determined that a substantial nexus existed between this anticompetitive situation and the construction of the nuclear plants at issue: the significant increase in generating capacity provided by the plants 1 would strengthen CAPCO's dominance of the regional electric power industry. 5 N.R.C. at 238-39 (Within the [CAPCO territory], the generation of the nuclear units ineluctably will have a substantial effect on the supply and cost of power for each of the five Applicant companies.). Specifically, the new units would enhance Licensees' competitive position by produc[ing] economies of scale and ... provid[ing] for long term generation costs well under average system costs which could be obtained either compared to the cost of operating their present generating equipment or in comparison to new generation relying upon fossil fueled units. 5 N.R.C. at 143. Additionally, the Commission found a strong link between plans to construct new nuclear plants and plans to expand transmission facilities. The new plants would be cost-effective only if the CAPCO companies agreed to build additional shared high voltage transmission lines, and these extra transmission facilities, in turn, would make it even more difficult for smaller utilities to build alternative transmission systems. 5 N.R.C. at 156, 240. In sum, the Commission found, construction of the plants was calculated to further increase [Licensees'] dominance and thus maintained a situation inconsistent with the antitrust laws. 5 N.R.C. at 144. Although the Commission expected that nuclear power would be low-cost and thus particularly advantageous to Licensees, its conclusions also rested on the degree to which the existing market structure allowed Licensees to control competitors' power supply options. 5 N.R.C. at 238-41. 8 As a remedy, the NRC imposed antitrust conditions on the plants' licenses that were designed to ameliorate the competitive advantages conferred on licensees by ownership of the plants. 10 N.R.C. at 278. These conditions prohibited Licensees from making the sale of wholesale power or the coordination of services contingent upon agreements to allocate customers, forgo alternative power supplies, or refrain from participating in Commission antitrust proceedings. The conditions also required Licensees to connect their transmission lines with those of their competitors; wheel power for competitors; open up membership in CAPCO to competitors in the CAPCO territory; sell various types of power to competitors on the same terms offered to CAPCO members; share power reserves with interconnected facilities that generate their own power; and give competitors access to power generated by Licensees' nuclear plants. 10 N.R.C. at 296-99. 9