City of Groton v. Connecticut Light & Power Co.

• Decision Date: 27 August 1980
• Docket Number: Civ. No. 15609.
• Citation: 497 F. Supp. 1040
• Court: U.S. District Court — District of Connecticut
• Parties: CITY OF GROTON et al. v. CONNECTICUT LIGHT & POWER CO. et al.

497 F. Supp. 1040

CITY OF GROTON et al. v. CONNECTICUT LIGHT & POWER CO. et al.

Civ. No. 15609.

United States District Court, D. Connecticut.

August 27, 1980.

COPYRIGHT MATERIAL OMITTED

Charles F. Wheatley, Jr., Philip B. Malter and James Howard, Wheatley & Wollesen, Washington, D. C., for all plaintiffs.

John J. Ryan and John A. Milici, Norwalk, Conn., for plaintiffs, Norwalk II and III.

Palmer S. McGee, Jr., Albert Zakarian, April Haskell, Dean M. Cordiano, Day, Berry & Howard, Hartford, Conn., for defendants.

MEMORANDUM OF DECISION

BLUMENFELD, District Judge.

In February of 1973, several Connecticut municipalities filed a complaint against the investor-owned utilities that supplied them with electric power, alleging a variety of antitrust violations. Now, over seven years later and after a seven-week trial, the time for a ruling on the merits is at hand.

I. The Parties

When the suit was begun, there were six plaintiffs, all towns in Connecticut. Each of these towns possessed its own electrical distribution network, and each purchased power at wholesale from the defendant, Connecticut Light & Power Co. ("CL&P"). The state granted each town a charter which provided it with the exclusive right to sell power at retail to customers within its geographic limits. Three of the municipalities, the City of Norwich ("Norwich"), the Town of Wallingford ("Wallingford"), and the Second Taxing District of Norwalk ("Norwalk II"), also had a limited capacity for generation which, while inadequate to supply all of their towns' residential and commercial needs, was capable of supplementing their wholesale purchases of bulk power.¹

The defendants include Northeast Utilities, Inc. ("NU"), a holding company incorporated in Massachusetts, and its wholly-owned subsidiaries. In 1966 CL&P, a Connecticut corporation, joined with Hartford Electric Light Company ("HELCO"), another Connecticut utility corporation, and Western Massachusetts Electric Company ("Western Mass"), a Massachusetts utility, to form NU. NU now owns all of the common stock in CL&P, HELCO and Western Mass. NU also owns all of the stock in Northeast Utilities Service Company ("Service Co."), a service company for the entire system which provides, among other things, financial planning and accounting services to the subsidiary companies. Although all of these companies, except Western Mass, have been named as defendants, the evidence at trial established that the plaintiffs' dealings and transactions were solely with CL&P.

Both CL&P and HELCO provide retail service in Connecticut pursuant to exclusive state franchises. The franchise areas of municipalities, CL&P, and HELCO contain no overlapping areas. All of the municipals' franchise areas except for that of Wallingford are totally surrounded by the franchise areas of CL&P and HELCO.

II.

A. History of the Contractual Relationships Between the Plaintiffs and CL&P

In 1948, CL&P was supplying all of the municipalities with electrical power pursuant to contracts with each of them. The City of Groton ("Groton"), the Third Taxing District of Norwalk ("Norwalk III"), the Borough of Jewett City ("Jewett City"), and Wallingford were total-requirements customers, i. e., they purchased all of their power from CL&P. In Norwich and Norwalk II, CL&P supplemented the power the towns were able to generate on their own.

During the 15-year period between 1948 and 1963, these supply contract arrangements were changed only slightly. For a brief period following World War II, both Norwich and Norwalk II were able to become totally self-sufficient. Similarly, in the early 1950's, by constructing the Pierce Generating Station, Wallingford was able to change its status from a total-requirements customer to one able to generate all the energy it needed. In all three of the generating communities, however, the growth of demand for electricity soon outstripped the capacity for self-generation and all three looked to CL&P to supply their supplemental needs. As of 1962, CL&P was supplying all the needs of Groton, Norwalk III, and Jewett City, and all the supplementary requirements of Wallingford, Norwich, and Norwalk II.

In 1962, CL&P began to negotiate with all six towns for a new contract. At this time, at least some of the municipal systems were again considering the installation of new equipment as a step toward total self-generation. The evidence at trial established that the negotiations over the new contract were intensive and thorough. Both sides had the benefit of counsel and consultants. Both the municipalities and CL&P conceded some points and provided some inducements in order to obtain agreement on others.

In 1963-64, new agreements ("1963 contracts") were finally reached with each of the towns. These contracts were ten-year, full-requirement contracts. The charge to the municipalities for the supply of electricity was to be based on two components. A "demand" charge was leveled to recoup fixed costs, and an "energy" charge was computed to recover variable costs. This form of rate was not uncommon in the industry at the time and, in fact, it was the same rate structure as had been used in prior CL&P—municipal contracts.² The evidence suggests that initially both the municipalities and CL&P were fairly satisfied with the terms and rates embodied in the contract.

This satisfaction was short-lived, however. In 1965 and 1966, the municipalities began to agitate for a modification of the contract that would reduce their rates. Acting together, they hired a new consultant, Mr. Alexander Wiskup, who, after he arrived in 1965, performed what he considered a "quickie cost of service analysis." His figures led him to believe that a substantial reduction in the rates charged to the towns was warranted. CL&P countered by offering a smaller rate adjustment. Unable to reach a compromise, the municipalities then filed a complaint before the Federal Power Commission ("FPC"). In June of 1967, after further negotiations, the FPC secured the parties' agreement to a modification ("1967 contract"), which provided for an annual billing reduction of approximately $260,000. The modification also changed several other provisions in the 1963 contracts. It reduced the previously required three-years advance notice of cancellation to one year and clarified the municipalities' right to install new generating equipment without being in breach of the contract. The 1967 contract also provided for the establishment of a Joint Advisory and Review Committee composed of representatives of the municipalities and the private utilities. This committee was established to discuss various additional modifications desired by the municipalities.

As part of the negotiations leading up to the 1967 contracts, CL&P offered to replace the 1963 contracts with a new rate form. On October 11, 1967, a meeting was held with CL&P officials and representatives of the municipalities at Haddam Neck, Connecticut. There the company unveiled its new proposal, referred to at trial as the "Haddam Neck" proposal, which included two separate contracts. Under the terms of the first, each municipality was to pay CL&P for its total system demand. That is, each municipality would pay CL&P as if it had purchased all of its electricity from CL&P even if it had some capacity for self-generation. Then, in the second contract, CL&P would contract to buy all of the generating capacity which each of the municipalities owned. CL&P would have the right to direct when each of the municipals' generating systems would have to operate. The plaintiffs deemed this arrangement to be unsatisfactory and turned down the offer.

In 1968, the parties entered into yet another contract ("1968 contract"). Under the terms of the 1963 contracts, the municipalities had been given a certain credit for the generating capacity that they had available. In order to earn the credit, they had to operate their generating units for two hours a day during three months of the year. For the remaining nine months of the year the municipalities were allowed to shut down their generators completely. In the 1968 contract CL&P agreed to purchase this "excess" capacity. That is, it purchased the right to call on the municipalities during these nine months to operate their units for the benefit of CL&P. While the 1968 agreement was in effect, CL&P only rarely availed itself of this prerogative.

Acting together in the context of the Joint Advisory and Review Committee, the municipalities continued to complain both about the level and the structure of the rates in the 1963 agreements which had already been modified once as a result of the 1966-67 FPC proceedings. In late 1969 and early 1970,³ these complaints prompted three proposals referred to at trial as Alternatives 1, 2, and 3. These proposals were all drafted by CL&P, and the municipals offered counter-proposals. Again, the parties failed to reach any agreement. While the provisions of these rates are not particularly relevant to this proceeding, it is worth noting that all of the Alternatives were based on the same demand/energy rate structure contained in the 1963 agreements.

The next significant interactions between these parties came with the circulation of Offers of Power by the Maine Yankee and Vermont Yankee Nuclear Power Corporations in August 1970. CL&P and other major investor-owned utilities had decided to construct two large nuclear plants in Maine and Vermont. By order of the Securities and Exchange Commission, these companies were obligated to offer other New England utility systems an opportunity to participate in the nuclear projects. Participation was made possible through "entitlements." Purchase of an entitlement enabled a utility system to receive a certain percentage of all the power generated by the plant for 30 years. When the power plant was operating, the participant would receive its percentage share. When the unit was "down," i. e., not...