City of Holyoke v. FERC
Case Date: 06/07/1993
Court: United States Court of Appeals
Docket No: 92-1165
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June 3, 1993 UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________ No. 92-1165 NORTHEAST UTILITIES SERVICE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1261 VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1262 MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1263 TOWNS OF CONCORD, NORWOOD AND WELLESLEY, MASSACHUSETTS, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ______________________ No. 92-1264 CENTRAL MAINE POWER CO., ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1316 CITY OF HOLYOKE GAS & ELECTRIC DEPARTMENT, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1328 CANAL ELECTRIC COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1336 THE AMERICAN PAPER INSTITUTE, INC., ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. __________________ No. 92-1340 BOSTON EDISON COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1510 VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________ ERRATA SHEET The opinion of this court issued on May 19, 1993, is amended as follows: On page 28, line 12 from the bottom, within block quote: change "single person with a least 75-percent" to "single person with at least 75-percent". On page 43, line 3 from the bottom: change "born" to "borne". UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________ No. 92-1165 NORTHEAST UTILITIES SERVICE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1261 VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1262 MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1263 TOWNS OF CONCORD, NORWOOD AND WELLESLEY, MASSACHUSETTS, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ______________________ No. 92-1264 CENTRAL MAINE POWER CO., ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1316 CITY OF HOLYOKE GAS & ELECTRIC DEPARTMENT, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1328 CANAL ELECTRIC COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1336 THE AMERICAN PAPER INSTITUTE, INC., ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. __________________ No. 92-1340 BOSTON EDISON COMPANY, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ No. 92-1510 VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL., Respondents. ____________________ PETITIONS FOR REVIEW OF ORDERS OF THE FEDERAL ENERGY REGULATORY COMMISSION ____________________ Before Torruella, Circuit Judge, _____________ Bownes, Senior Circuit Judge, ____________________ and Boudin, Circuit Judge. _____________ ____________________ Gerald M. Amero, with whom Catherine R. Connors and Pierce, ________________ ____________________ _______ Atwood, Scribner, Allen, Smith & Lancaster and Arthur W. ________________________________________________ __________ Adelberg, and Anne M. Pare, were on brief, for petitioner Central ________ ____________ Maine Power Company. Harvey L. Reiter, with whom William I. Harkaway, Kathleen L. ________________ ___________________ ___________ Mazure, and McCarthy, Sweeney & Harkaway, were on brief, for ______ ______________________________ petitioners Vermont Department of Public Service, Vermont Public Service Board, Rhode Island Attorney General, Rhode Island Division of Public Utilities and Carriers, Maine Public Utilities Commission and Massachusetts Department of Public Utilities. George H. Williams, Jr., with whom Morley Caskin, was on ________________________ _____________ brief, for petitioners Canal Electric Company, Commonwealth Electric Company and Cambridge Electric Light Company. J.A. Bouknight, Jr., with whom David B. Raskin, David L. ____________________ ________________ _________ Schwartz, and Newman & Holtzinger, P.C., and Robert P. Wax, ________ ___________________________ ______________ General Counsel, were on brief, for petitioner Northeast Utilities Service Company. Randolph Elliott, with whom William S. Scherman, General ________________ ____________________ Counsel, Jerome M. Feit, Solicitor, Katherine Waldbauer, and Eric ______________ ___________________ ____ Christensen, were on brief, for respondent Federal Energy ___________ Regulatory Commission. ____________________ Alan J. Roth, Scott H. Strauss, William S. Huang, Spiegel & _____________ ________________ _________________ _________ McDiarmid, Nicholas J. Scobbo, Ferriter, Scobbo, Sikora, Caruso & _________ __________________ __________________________________ Rodophele, Wallace L. Duncan and Duncan, Weinberg, Miller & _________ __________________ ____________________________ Pembroke, on brief for petitioner Massachusetts Municipal ________ Wholesale Electric Company. Charles F. Wheatley, Jr., Peter A. Goldsmith and Wheatley & _________________________ __________________ __________ Ranquist, on brief for petitioners Towns of Concord, Norwood & ________ David J. Bardin, Noreen M. Lavan, Eugene J. Meitgher, Steven _______________ _______________ __________________ ______ R. Miles, and Arent, Fox, Kintner, Plotkin & Kahn, on brief for ________ ___________________________________ petitioner City of Holyoke Gas & Electric Department. James T. McManus, Michael E. Small, Wright & Talisman, P.C. _________________ ________________ _______________________ and Frederick S. Samp, General Counsel, on brief for petitioner __________________ Bangor Hydro-Electric Co. Steven Halpern on brief for petitioner Massachusetts _______________ Department of Public Utilities. Alan H. Richardson on brief for petitioner American Public ___________________ Power Association. Mitchell Tennenbaum, Senior Staff Attorney, on brief for ___________________ petitioner Maine Public Utilities Commission. Edward G. Bohlen, Assistant Attorney General, and Scott __________________ _____ Harshbarger, Attorney General, on brief for petitioner ___________ Massachusetts Attorney General. Julio Mazzoli, Special Assistant, and James E. O'Neil, ______________ ________________ Attorney General, on brief for petitioner Rhode Island Division of Public Utilities and Carriers and Rhode Island Office of Attorney General. Robert F. Shapiro, Lynn N. Hargis and Chadbourne & Parke, on _________________ ______________ __________________ brief for petitioner The American Paper Institute, Inc. Wayne R. Frigard on brief for petitioner Boston Edison __________________ Company. George M. Knapp, Roger B. Wagner, David A. Fazzone, John F. ________________ _______________ ________________ _______ Smitka, and McDermott, Will & Emery, on brief for petitioner ______ _________________________ Montaup Electric Company. Robert S. Golden, Jr., Assistant Attorney General, Richard _____________________ _______ Blumenthal, Attorney General, and Howard E. Shapiro, Special __________ ___________________ Assistant Attorney General, and Van Ness, Feldman & Curtis, on ___________________________ brief for intervenor Connecticut Department of Public Utility Control. Kenneth M. Simon, Larry F. Eisenstat, and Dickstein, Shapiro ________________ __________________ __________________ & Morin, on brief for intervenor Masspower. _______ Harold T. Judd, Senior Assistant Attorney General, John P. _______________ _______ Arnold, Attorney General, Glen L. Ortman, John S. Moot, and ______ _______________ _____________ Verner, Liipfert, Bernhard, McPherson and Hand, Chrtd., on brief _______________________________________________________ for intervenors The State of New Hampshire and New Hampshire Public Utilities Commission. Kenneth D. Brown on brief for intervenor Public Service _________________ Electric and Gas Company. Edward Berlin, Kenneth G. Jaffee, Martin W. Gitlin, and ______________ ___________________ _________________ Swidler & Berlin, and Cynthia A. Arcate, on brief for intervenor _________________ _________________ New England Power Company. ____________________ May 19, 1993 ____________________ BOWNES, Senior Circuit Judge. These petitions for BOWNES, Senior Circuit Judge. ____________________ review challenge the Federal Energy Regulatory Commission's ("FERC" or "the Commission") decision to conditionally approve the merger of Northeast Utilities ("NU") and the Public Service Company of New Hampshire ("PSNH"). Certain joint petitioners and intervenors1 contend that FERC erred when it: (1) held that the benefits of the merger outweighed its costs; and (2) failed to condition the merger on NU's waiver of single participant status ("SPS") in the New England Power Pool ("NEPOOL"). A group of public and private electric utilities, state commissions, state agencies, independent power producers, cogenerators and electric end users2 claim that FERC erred when it: (1) allowed the consummation of the merger upon the filing of, rather than upon approval of, a transmission tariff; (2) adopted ____________________ 1 Joint petitioners and intervenors include: Central Maine Power Company; Boston Edison Company; Bangor Hydro-Electric Company; the Towns of Concord, Norwood and Wellesley, Massachusetts; Maine Public Utilities Commission; Massachusetts Department of Public Utilities; Vermont Department of Public Service; Vermont Public Service Board; Rhode Island Attorney General; Rhode Island Division of Public Utilities and Carriers; Massachusetts Municipal Wholesale Electric Company; and, City of Holyoke Gas & Electric Department. 2 This group of petitioners and intervenors includes the joint petitioners and intervenors listed in n.1, supra (with _____ the exception of Central Maine Power Company), and: The American Paper Institute, Inc.; American Public Power Association; Canal Electric Company; Commonwealth Electric Company; Cambridge Electric Light Company; Massachusetts Attorney General; and, Montaup Electric Company. -6- transmission access conditions that gave "native load" customers a priority over other customers; and (3) endorsed "opportunity cost" pricing principles. The Holyoke Gas & Electric Department ("Holyoke") argues that FERC erred when it failed to: (1) conduct an appropriate review of the environmental impact of the proposed merger; and, (2) make findings regarding allegations of anticompetitive consequences of the merger that were unique to Holyoke. Finally, Northeast Utilities Service Company ("NUSCO") asserts that FERC's orders changing the terms of three rate schedules filed in conjunction with its merger application were arbitrary, capricious, and an abuse of discretion. For the reasons which follow, we reject petitioners' arguments and affirm the Commission's decisions with the exception of the Commission's decision to change the terms of the Seabrook Power Contract which we remand for consideration under the "public interest" standard. I. BACKGROUND. I. BACKGROUND. A. Parties to the Approved Merger. A. Parties to the Approved Merger. Northeast Utilities ("NU") is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). 15 U.S.C. 79 et seq. (1988). Northeast Utilities __ ____ Service Company ("NUSCO") is a service company subsidiary of -7- NU and supplies centralized administrative and support services to NU's operating companies.3 Prior to the merger, Public Service Company of New Hampshire ("PSNH") was the largest electric utility in New Hampshire, supplying electric service to some 375,000 retail customers, approximately three-quarters of the State's population, in every county in the State. PSNH also provided wholesale service to the New Hampshire Electric Cooperative, three New Hampshire municipalities, and one investor-owned utility, Vermont Electric Power Company. PSNH had the largest ownership share, approximately 35.6 percent, of Seabrook Unit No. 1, a nuclear generating facility declared to be available for service on June 30, 1990. B. The Merger Proposal. B. The Merger Proposal. On January 28, 1988, PSNH filed a voluntary petition in the United States Bankruptcy Court for the District of New Hampshire for reorganization under Chapter 11 of the Bankruptcy Code. 11 U.S.C. 1101 et seq. (1988). __ ____ PSNH alleged that it was unable to recover in its rates the outlays it had made in the construction and operation of the Seabrook nuclear power plant. On April 20, 1990, after ____________________ 3 NU's operating companies are Connecticut Light and Power Company (CL&P), Western Massachusetts Electric Company, Holyoke Water Power Company (HWP) and HWP's wholly-owned subsidiary, Holyoke Power and Electric Company (HP&E). These companies are wholly-owned subsidiaries of NU and are public utilities supplying retail and wholesale electric service in Connecticut and Massachusetts. -8- sifting through several competing reorganization plans, the bankruptcy court approved NU's proposal to merge with PSNH and to acquire and operate all of PSNH's power facilities. See In re Public Service Co. of New Hampshire, 963 F.2d 469, ___ _________________________________________ 470 (1st Cir.), cert. denied, Rochman v. Northeast Utilities _____ ______ _______ ___________________ Service Co., 113 S. Ct. 304 (1992). ___________ NU's proposal contained a two-step process: first, PSNH would emerge from bankruptcy as a stand-alone company bound to a merger agreement with NU; second, PSNH would be merged with an NU subsidiary created solely for the acquisition (NU Acquisition Corporation), with PSNH emerging as the surviving entity. After the merger, PSNH would be a wholly-owned subsidiary of NU and would transfer its ownership interest in Seabrook to a newly formed NU subsidiary, North Atlantic Energy Corporation ("North Atlantic"). The second step would occur only after all necessary approvals were received from the relevant regulatory agencies. C. Procedural History. C. Procedural History. On January 8, 1990, NUSCO, on behalf of NU and NU's operating subsidiaries, filed an application with FERC under section 203 of the Federal Power Act ("FPA"), 16 U.S.C. 824b (1988), seeking authorization for PSNH to dispose of all of its jurisdictional facilities and concurrently to merge with, and become a subsidiary of, NU. In connection with -9- this application, NUSCO filed four rate schedules with FERC pursuant to 205 of the FPA: the Seabrook Power Contract,4 the Sharing Agreement5 and two Capacity Interchange Agreements.6 The Commission consolidated consideration of the merger application and rate schedules, accepted the rate schedules for filing and suspended their effectiveness, and set for hearings before an administrative law judge ("ALJ") the questions of whether the Commission should grant the 203 application and approve the rate schedules. See ___ Northeast Utilities Service Co., 50 F.E.R.C. 61,266, reh'g _______________________________ _____ granted in part and denied in part, 51 F.E.R.C. 61,177 _____________________________________ (1990). In its order, the Commission directed the parties to ____________________ 4 The Seabrook Power Contract is a life-of-the-unit power sales agreement between PSNH and North Atlantic entered into concurrently with NU's acquisition of PSNH and the transfer of PSNH's share of Seabrook to North Atlantic. Under the contract, PSNH agreed to purchase North Atlantic's entire share of Seabrook capacity and energy, according to a cost- of-service formula rate. The contract was intended to ensure that North Atlantic would recover all of its costs from PSNH regardless of whether or not Seabrook actually operated. 5 The Sharing Agreement allocates the benefits and obliga- tions from the integrated operation of PSNH and the current NU system, as well as the joint planning and operations of these systems. This agreement established a formula for sharing the expected post-merger benefits that would accrue to NU and PSNH operating companies as a result of operating efficiencies and the ability to take single participant status under the NEPOOL agreement. 6 The two Capacity Interchange Agreements provide for the sale and purchase of energy between PSNH and Connecticut Light & Power Company (CL&P) over a ten-year term. -10- address the effect of the proposed merger on NU's market power and "whether any transmission conditions are necessary to eliminate any adverse effect of the proposed merger and, if so, what specific conditions should be imposed." 50 F.E.R.C. at 61,834-35. On December 20, 1990, the ALJ issued its Initial Decision approving the 203 application and the rate schedules with certain modifications and conditions. Northeast Utilities Service Co., 53 F.E.R.C. 63,020 (1990). _______________________________ The Commission, in Opinion No. 364, issued on August 9, 1991, affirmed in part and reversed in part the ALJ's decision, conditionally approving the 203 application and the rate schedules. Northeast Utilities Service Co., 56 F.E.R.C. ________________________________ 61,269 (1991). On January 29, 1992, after considering additional filings by the parties and oral argument on transmission pricing issues, the Commission issued Opinion No. 364-A, affirming its conditional approval of the 203 application and rate schedules. Northeast Utilities Service ___________________________ Co., 58 F.E.R.C. 61,070 (1992). ___ Petitions for review of Opinions No. 364 and 364-A were filed in this court and in the District of Columbia Circuit Court. The Judicial Panel on Multidistrict Litigation consolidated these petitions for review in this court, where further petitions for review were filed. 28 U.S.C. 2112(a) (1988). Subsequently, in Opinion No. 364-B, -11- the Commission denied a request for rehearing of Opinion No. 364-A. Northeast Utilities Service Co., 59 F.E.R.C. 61,042 _______________________________ (1992). A petition for review of Opinions No. 364-A and 364- B was filed in this court, where it was consolidated with the earlier filed petitions. We review the Commission's orders under the jurisdiction established by 16 U.S.C. 825l. II. STANDARD OF REVIEW. II. STANDARD OF REVIEW. On review, we give great deference to the Commission's decision. U.S. Dep't of Interior v. FERC, 952 ______________________ ____ F.2d 538, 543 (D.C. Cir. 1992). FERC's findings of fact are reviewed under the "substantial evidence" standard of review. 16 U.S.C. 825l ("The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive."). Therefore, [w]e defer to the agency's expertise, particularly where the statute prescribes few specific standards for the agency to follow, so long as its decision is supported by "substantial evidence" in the record and reached by "reasoned decisionmaking," including an examination of the relevant data and a reasoned explanation supported by a stated connection between the facts found and the choice made. Electricity Consumers Resource Council v. FERC, 747 F.2d ________________________________________ ____ 1511, 1513 (D.C. Cir. 1984). "Pure" legal errors require no deference to agency expertise, and are reviewed de novo. __ ____ Questions involving an interpretation of the FPA involve a de __ novo determination by the court of Congressional intent; if ____ -12- that intent is ambiguous, FERC's conclusion will only be rejected if it is unreasonable. Chevron USA v. Natural ___________ _______ Resources Defense Council, 467 U.S. 837, 842-45 (1984); ___________________________ Boston Edison Co. v. FERC, 856 F.2d 361, 363 (1st Cir. 1988). _________________ ____ III. DISCUSSION. III. DISCUSSION. A. Conditional Approval of the Merger. A. Conditional Approval of the Merger. 1. Background. __________ In reaching his decision to approve the NU-PSNH merger, the ALJ found that the merger would produce significant benefits. Specifically, he found that: (1) PSNH would emerge from bankruptcy as a viable utility on a solid financial footing, 53 F.E.R.C. at 65,211; (2) improved management techniques and economies of scale would reduce the operating costs of Seabrook by some $527 million,7 id. at ___ 65,212; (3) application of NU operating procedures to PSNH's fossil steam plants would save $100 million, id. at 65,213; ___ (4) reductions in administrative and general expenses would save $124 million, id.; (5) NU's record of buying lower- ___ priced coal on the spot market would save $39 million, id.; ___ and (6) the merger would yield $360 million in savings for NU because of its ability to elect "single participant status" ____________________ 7 This, and all other dollar amounts are net present values unless otherwise noted. -13- in the New England Power Pool (NEPOOL), a power pool comprised of most of the utilities in New England. Id. ___ The ALJ also found that unless several conditions were imposed, the merger would have short- and long-term anticompetitive consequences because of the merged company's increased market power over key transmission facilities in both the New England region and the Rhode Island and Eastern Massachusetts submarket ("Eastern REMVEC"). 53 F.E.R.C. at 65,214-19. Under the authority of 203(b) of the FPA, 16 U.S.C. 824b(b), the ALJ approved the merger subject to several conditions, including the following: (1) the merged company must offer firm (non-interruptible) transmission service for a minimum of 30 days and a maximum of 20 years, 53 F.E.R.C. at 65,220-21; (2) non-firm service must be offered for a one-day minimum term, id. at 65,220; (3) the ___ merger would be consummated concurrently with the filing of a compliance tariff which fully reflects all of the terms and conditions set out in the ALJ's Initial Decision, id. at ___ 65,221; (4) NU must implement its New Hampshire Corridor Proposal,8 thereby making available 400 MW of transmission ____________________ 8 The New Hampshire Corridor Transmission Proposal allows New England utilities to purchase long-term transmission rights from NU-PSNH in order to connect with power sources in northern New England and Canada. See 53 F.E.R.C. at 65,225. ___ -14- capacity for wheeling9 by utilities in both northern and southern New England, id. at 65,225-27; and (5) the merged ___ company's veto power on NEPOOL's Management Committee would be restricted for the ninety day period immediately following consummation of the merger, id. at 65,230-31. ___ In Opinion No. 364, the Commission affirmed the ALJ's finding that the merger, with appropriate conditions, was consistent with the public interest. 56 F.E.R.C. at 62,011. It held, however, that the $364 million cost-shift between NU-PSNH and other NEPOOL members should not have been counted as a benefit of the merger because it simply shifted costs dollar-for-dollar among the membership without any net savings.10 56 F.E.R.C. at 61,997. The Commission also held that, in evaluating the costs and benefits of the merger, the ALJ correctly attributed the benefits resulting from the merger to the merger even if those benefits could have been achieved by other means.11 Id. at 61,994-96. ___ This conclusion was reiterated on rehearing in Opinion No. 364-A. 58 F.E.R.C. at 61,186-87. ____________________ 9 "Wheeling" is defined as the "transfer by direct trans- mission or displacement [of] electric power from one utility to another over the facilities of an intermediate utility." Otter Tail Power Co. v. U.S., 410 U.S. 366, 368 (1973). ____________________ ____ 10 This issue is discussed in Part III(B), infra. _____ 11 This issue is discussed in Part III(A)(3), infra. _____ -15- Petitioners and intervenors argue that FERC erred, as a matter of law, in holding that the benefits of the merger outweighed its costs. -16- 2. The Statutory Standard. ______________________ FERC's authority to consider the merger applications of utilities is set forth in 203(a) of the FPA, 16 U.S.C. 824b(a): the Commission "shall approve" a proposed merger of utility facilities if, "[a]fter notice and opportunity for hearing, . . . the Commission finds that the proposed disposition, consolidation, acquisition, or control will be consistent with the public interest." Id. The ___ Commission has the additional authority to grant approval for such transactions "upon such terms and conditions as it finds necessary or appropriate to secure the maintenance of adequate service and the coordination in the public interest of facilities subject to the jurisdiction of the Commission." 16 U.S.C. 824b(b). As the Commission noted when it reviewed the Initial Decision of the ALJ, [m]erger applicants need not show that a positive benefit will result from a proposed merger. The applicant must fully disclose all material facts and show affirmatively that the merger is consistent with the public interest. It is sufficient if the "probable merger benefits . . . add up to substantially more than the costs of the merger." 56 F.E.R.C. at 61,994 (quoting Utah Power & Light Co., 47 _______________________ F.E.R.C. at 61,750 (1989) (footnotes omitted); see also _________ Pacific Power & Light Co. v. Federal Power Commission, 111 __________________________ _________________________ F.2d 1014, 1016 (9th Cir. 1940). We review the record, therefore, to determine whether the Commission's finding that -17- the probable benefits of the NU-PSNH merger were substantially more than its costs was supported by substantial evidence. 3. Discussion. __________ Petitioners make two claims with regard to FERC's evaluation of the costs and benefits of the NU-PSNH merger. First, they argue that the Commission should not have included resolution of PSNH's bankruptcy as a benefit of the merger because: (1) PSNH actually emerged from bankruptcy on May 16, 1991, the effective date of the Reorganization Plan ("RP"); and (2) prior to gaining the bankruptcy court's approval of the two-step RP, PSNH had to show that it would be financially viable as a stand-alone entity because regulatory approval for the second step of the RP (merger with and into NU) was not assured. These two facts, however, do not imply that it was error for FERC to consider the "resolution of PSNH's bankruptcy" as a benefit, indeed as a principal benefit, of the merger. It is true that PSNH, as a technical matter, "emerged" from bankruptcy prior to FERC's consideration of the proposed merger. The ALJ and the Commission did not hold otherwise. The ALJ stated, and the Commission summarily affirmed the fact that "[t]he merger is part of a plan which __________________ enables a reorganized PSNH to emerge from bankruptcy." 53 F.E.R.C. at 65,211 (emphasis added); see also 56 F.E.R.C. at ___ ____ -18- 61,993. Like the state regulators who approved the two-step merger plan, the Commission evaluated the plan as a whole, anticipating "the merger not `stand alone' PSNH as the ultimate destiny for the reorganized company." 53 F.E.R.C. at 65,211. "All parties to the reorganization contemplated [stand alone] status as an interim step en route to the merger." Id. It was the entire plan, which admittedly had ___ two sequential and severable steps, that allowed PSNH to emerge from bankruptcy. There is no evidence that the state regulators would have approved a plan to allow PSNH to emerge from bankruptcy that included only the first "stand alone" step. Indeed, there is evidence to the contrary. FERC also found that "resolving" PSNH's bankruptcy meant more than simply the emergence of PSNH from the protection of bankruptcy court. FERC held that the final resolution of PSNH's bankruptcy included the treatment of its creditors and stockholders who stood to lose approximately $250 million in the absence of the merger. As the ALJ observed, the Commission "regard[s] the right of these public bondholders as of primary importance after the consumers have been protected." 53 F.E.R.C. at 65,211 (quoting In re Evans, _______ ___________ 1 F.P.C. 511, 517 (1937) (approving an acquisition involving the reorganization of a bankrupt utility)). The Commission also held that it was in the public interest to approve the creation of a stronger, more viable merged entity, rather -19- than leaving PSNH in a "weakened", "stand alone" state. This holding was sufficiently supported by evidence in the record. Petitioners also claim that, given the bankruptcy court's "feasibility finding" required by 11 U.S.C. 1129(a)(11),12 the Commission was estopped from reaching the conclusion that a "stand alone" PSNH would be "weak." We disagree. The bankruptcy court and FERC evaluated the merger proposal under different standards. The bankruptcy court was required to determine the likelihood of further liquidation or reorganization proceedings were the plan to be approved. FERC was obliged to determine whether the plan was "consistent with the public interest." It was not inconsistent for FERC to find that although PSNH was capable of surviving as a stand alone entity, it would not be "consistent with the public interest" to prevent a merger that would result in an even stronger utility. The principles of estoppel simply do not apply in a case such as this, where the issues litigated and the standards applied in the two proceedings are so different. ____________________ 12 The Bankruptcy Code provides that: (a) The court shall confirm a plan [of reorganization] only if all of the following requirements are met: (11) confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan. 11 U.S.C. 1129(a)(11). -20- Even were petitioners correct in their asseveration that FERC improperly counted the resolution of PSNH's bankruptcy as a benefit of the merger, "the Commission's error would be immaterial in light of the overwhelming excess of other benefits ($791 million) over the costs (0) still attributable . . . to the acquisition." City of Holyoke Gas ___________________ & Elec. Dep't v. S.E.C., 972 F.2d 358, 362 (D.C. Cir. 1992). _____________ ______ Second, petitioners argue that FERC erred as a matter of law in weighing as merger benefits results or alleged savings that were, or could be, achieved by "alternate means." Specifically, petitioners contend that FERC's failure to apply the "alternate means" test contradicted general agency policy and general antitrust principles. It is undisputed that utilities are "not immune" from antitrust laws. Otter Tail Power Co. v. U.S., 410 U.S. ____________________ ____ 366, 372-75 (1973); Town of Concord v. Boston Edison, 915 ________________ ______________ F.2d 17 (1st Cir. 1990), cert. denied, 111 S. Ct. 1337 _____________ (1991). At issue in this case is whether FERC is required by statute, or otherwise, to engage in "standard" antitrust analysis before passing on 203 merger applications. In claiming that FERC has such an obligation, petitioners rely on a statute governing agency approval of bank mergers (the -21- "Bank Merger Act") which states that the agency with jurisdiction over a proposed bank merger,13 shall not approve (A) any proposed merger transaction which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or (B) any other proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effects of the transaction in meeting the convenience and needs of the community to be served. . . . (6) The responsible agency shall immediately notify the Attorney General of any approval by it pursuant to this subsection of a proposed merger transaction. 12 U.S.C. 1828(c)(5)-(6). The Supreme Court, interpreting the Bank Merger Act, has held that before a bank merger which is injurious to the public interest may be approved, "a showing [must] be made that the gain expected from the merger cannot reasonably be expected through other means." U.S. v. ____ Phillipsburg Nat. Bank & Trust Co., 399 U.S. 350, 372 (1970). __________________________________ Petitioners claim that the language of the Bank Merger Act is sufficiently similar to the statute governing FERC's approval ____________________ 13 Jurisdiction varies depending on whether the resulting entity is a national bank, a state member bank, a state nonmember bank, or a savings association. -22- of proposed mergers, 16 U.S.C. 824b(a), because both contain a "public interest" standard, to require FERC to use the "alternate means" test which bank regulators must use in evaluating proposed bank mergers. We disagree. As with any matter of statutory construction, we first examine the language of the statute. Under 16 U.S.C. 824b(a), the Commission is required, after notice and opportunity for hearing, to approve a proposed merger of utility facilities if it finds that the proposal "will be consistent with the public interest." That is all the statute says. There is no explicit reference to antitrust policies or principles. There is no evidence that Congress sought to have the Commission serve as an enforcer of antitrust policy in conjunction with the Department of Justice and the Federal Trade Commission. The Bank Merger Act reveals a quite different intention. There, Congress explicitly set out standards for approval of bank mergers that incorporate principles embodied in the Sherman and Clayton Acts. 12 U.S.C. 1828(c)(5). By requiring the reviewing agency to notify the Attorney General of any decision to approve a proposed bank merger, 12 U.S.C. 1828(c)(6), Congress expressed its desire to have bank regulators serve as pre-screening bodies of mergers which, because of their importance or character, in most cases also deserve the attention of the Department of Justice. -23- The Bank Merger Act carries with it the implicit presumption that mergers are to be disapproved (the agency "shall not approve" a bank merger "unless it finds that the anticompetitive effects are clearly outweighed in the public interest" by the benefits of the merger, 12 U.S.C. 1828(c)(5)). The FPA, on the other hand, requires the Commission to approve any merger that is "consistent with the public interest." 16 U.S.C. 824b(a). Antitrust considerations are, of course, relevant in FERC's consideration of the "public interest" in merger proposals. The statute, however, does not require FERC to analyze proposed mergers under the same standards that the Department of Justice or bank regulators must apply. Although the Commission must include antitrust considerations in its public interest calculus under the FPA, it is not bound to use antitrust principles when they may be inconsistent with the Commission's regulatory goals. See ___ Otter Tail, 410 U.S. at 373 ("[a]lthough antitrust ___________ considerations may be relevant [in determining the public interest], they are not determinative"). In Town of Concord, _______________ this court observed that indiscriminate incorporation of antitrust policy into utility regulation "could undercut the very objectives the antitrust laws are designed to serve." 915 F.2d at 22. Therefore, "antitrust analysis must sensitively `recognize and reflect the distinctive economic -24- and legal setting' of the regulated industry to which it applies." Id. (quoting Watson & Brunner, Monopolization by ___ _______ _________________ Regulated "Monopolies": The Search for Substantive _____________________________________________________________ Standards, 22 Antitrust Bull. 559, 565 (1977)). _________ Petitioners may rest assured that were FERC to approve a merger of utilities which ran afoul of Sherman Act or other antitrust policies, the utilities would be subject to either prosecution by government officials responsible for policing the antitrust laws, or to suit by private citizens meeting the requirements of standing. See Otter Tail, 410 ___ __________ U.S. at 374-5. B. FERC's Failure to Condition Merger on NU's Waiver B. FERC's Failure to Condition Merger on NU's Waiver of Single Participant Status. of Single Participant Status. Petitioners argue that the Commission erred in failing to condition the merger on waiver by NU and PSNH of "single participant status" ("SPS") in the New England Power Pool ("NEPOOL"), thereby preventing the imposition of a $364 million cost shift from NU and PSNH to the other members of NEPOOL. 1. Background. __________ NEPOOL is a power pool comprised of most of the utilities in New England. The association is governed by the New England Power Pool Agreement ("the Agreement") which establishes a "comprehensive interconnection and coordination arrangement" among its members in order "to achieve greater -25- reliability and economies in the production of electricity." Groton v. FERC, 587 F.2d 1296, 1298 (D.C. Cir. 1978). ______ ____ Section 202(a) of the Federal Power Act encourages such voluntary interconnection and coordination of electricity generating facilities in order to achieve economies of scale. 16 U.S.C. 824a; see also 16 U.S.C. 824a-1 (regarding ___ ____ pooling agreements). The Agreement was approved as a filed rate schedule by FERC's predecessor, the Federal Power Commission. 53 F.E.R.C. at 65,213. Under its terms, each member is required to supply the pool with resources ("Capacity Responsibility") according to a formula based upon the relationship of the member's peak load to an estimate of aggregate peak load of all members. NU experiences its peak load in the summer, and PSNH experiences its peak load in the winter. By aggregating these two, complementary, peak loads, NU-PSNH can achieve a lower Capacity Responsibility than would be the case if the two utilities remained separate. Because the overall capacity requirements of NEPOOL will not change as a result of the merger, the Capacity Responsibilities of other members must rise to make up for the savings accruing to NU-PSNH. The ALJ accepted the "undisputed" estimate that "single participant status" (SPS) will result in a shifting of some $360 million in costs from NU-PSNH to other members of the pool. Id. ___ -26- -27- 2. Discussion. __________ Petitioners offer six arguments to support their claim that FERC erred in failing to condition the merger on waiver of SPS by NU and PSNH. First, petitioners claim that the Commission did not properly interpret the provision of the NEPOOL Agreement which governs the election of SPS. We agree with the Commission's finding that the Agreement both specifically allows for the election by NU-PSNH of SPS, and encourages such elections. Section 3.1 of the Agreement provides in relevant part that: All Entities which are controlled by a single person (such as a co |