Full opinion text
MEMORANDUM OPINION ROBERT W. PORTER, District Judge. This case involves the interconnected group of electric utilities companies serving the vast majority of the electric consumers in the State of Texas. Plaintiffs, two intrastate Texas electric utility companies which are part of a holding company that also owns other interstate electric utility companies, have sued under § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, two other Texas intrastate electric utilities with whom plaintiffs are interconnected claiming that the defendants conspired to restrict their transmission of electric power to intrastate commerce. This conspiracy allegedly prevented plaintiffs from exchanging power with their interstate holding company counterparts through the use of defendants’ transmission lines, at an estimated loss to the holding company of 2.2 billion dollars over the next twenty years. Plaintiffs seek an injunction permanently restraining this alleged conspiracy, restraining any enforcement of any written or oral contractual provision prohibiting the flow of electric energy in interstate commerce, and restraining defendants from disconnecting their systems from the plaintiffs’ systems. Defendants have asserted a number of defenses, including: (1) the intrastate method of operation is specifically permitted by Federal Power Act 16 U.S.C. § 824(b); (2) defendants had no anticompetitive intent; (3) any actions by defendants had no anticompetitive effect upon the plaintiffs; (4) defendants’ conduct was reasonable; and (5) defendants acted independently and not in conspiracy. Defendants also question plaintiffs’ motive for filing this suit in an effort to undermine the credibility of the testimony presented by the plaintiffs. Defendants introduced'evidence suggesting that plaintiffs filed this suit to ensure the interstate exchange of power between the members of plaintiffs’ holding company. This exchange of power is required by federal law which permits utility holding companies only if they are integrated systems. The SEC, charged with enforcing this provision, had permitted the holding company to operate without continuous interstate flow of power until 1974, when various municipal power companies filed a suit with the SEC challenging the holding company status of plaintiffs’ holding company. Defendants note that this proceeding is only one of a number of proceedings instituted by the plaintiffs or which involve similar issues. These proceedings include: FPC Docket # E-9558 — CSW’s request to FPC to order maintenance of interstate operations with ERCOT; PUC Docket # 14 — Request by Defendants and others to PUC to have PUC order reestablishment of pre-May 4,1976, mode of operation; U.S. District Court, Western District Texas, Austin Division — Suit filed by CPL/WTU objecting to PUC interim order under Docket # 14 reestablishing interconnections in Texas as they were before May 4, 1976; SEC Docket # 3-4951 — Oklahoma cities filed motion with SEC requesting SEC review CSW holding company status; NRC Docket Nos. 50-498-A and 50-499-A — CPL’s request to NRC to conduct antitrust hearing as part of construction permit proceedings before NRC involving South Texas Nuclear Project; and FPC (FERC) Docket Nos. E-9593 and E-9578 — CSW’s request for joint hearings with PUC and proceeding to determine if TPL engages in interstate commerce. The Court held a seven week non-jury trial commencing October 2, 1978. The Court renders the following memorandum decision, supplemented with additional findings contained in an appendix. THE PARTIES All of the parties to this proceeding are electric utilities engaged in the generation, transmission, distribution and sale of electric energy. None of the parties’ facilities used in the generation, transmission, distribution or sale of electric energy are located outside the State of Texas. PLAINTIFFS West Texas Utilities Company (WTU) and Central Power & Light (CPL) are wholly ow;ned subsidiaries of Central and South West Corporation (CSW), a registered public utility holding company under the provisions of the Public Utility Holding Company Act of 1935. 15 U.S.C. § 79 et seq. CSW also owns all of the capital stock of Public Service Company of Oklahoma (PSO) and Southwestern Electric Power Co. (SWEPCO), electric utilities operating in the States of Oklahoma, Arkansas, Louisiana and portions of East Texas. WTU provides electric service to customers of central West Texas, an area including 167 communities, farms, ranches, and 18 electric cooperatives located in 53 counties. The cities of Abilene and San Angelo are the largest metropolitan centers served by WTU, and the company serves a total population of approximately 520,000. In 1977 WTU owned and operated 10 electric generating plants having a total net generating capability of 1,054 megawatts. That year the WTU system experienced a peak load of 758 megawatts for a reserve of 296 megawatts (see appendix C for a map of the WTU service area). CPL provides electric service to customers in the Rio Grande Valley and the Gulf Coast regions of Texas in an area that includes 212 communities and adjacent and rural areas, seven rural electric cooperatives and two municipal electric systems in 45 counties. The cities of Corpus Christi, Laredo and Victoria are the largest metropolitan centers served by CPL and the company serves a total population of 1,200,000. In 1977 CPL owned and operated nine electric generating plants having a total net generating capability of 3,044 megawatts. That year the CPL system experienced a peak load of 2,323 megawatts for a reserve of 721 megawatts (see appendix B for map of the CPL service area). WTU has historically operated its system as two divisions, with the “Northern Division” being interconnected with PSO, operating in the State of Oklahoma and the “Southern Division” interconnected with TESCO and other members of the Texas Interconnected Systems (TIS) and the Electric Reliability Council of Texas (ERCOT). The TIS is a voluntary membership organization consisting of the major bulk electric power suppliers in Texas, including DPL, TESCO, TPL, HLP, CPL, Austin, CPSB, LCRA, TMPA and WTU. The primary purpose of TIS is to ensure maximum reliable electric service through coordination of planning of operations. ERCOT was created in July, 1970 and is one of nine regional electric reliability councils forming the National Electric Reliability Council (NERC) (see appendix D). The northern division of WTU, through its interconnection with PSO, operated in electric synchronism with PSO and other members of the Southwest Power Pool (SWPP). The two divisions were designed so as to permit occasional interchange of power, in part to permit CSW to satisfy the provisions of the 1935 Holding Company Act. DEFENDANTS Texas Electric Service Co. (TESCO) is a wholly owned subsidiary of Texas Utilities (TU), a holding company which also owns all of the capital stock of Texas Power & Light (TPL) and 99.6% of the capital stock of Dallas Power & Light (DPL). TESCO provides electric service in North Central and West Texas, including the Cities of Fort Worth, Wichita Falls, Midland, Odessa, Arlington, Grand Prairie and 68 other incorporated municipalities, with a total population of approximately 4,000,000. TPL, not a party to this suit, provides electric service in portions of 51 counties in North Central and East Texas, including the Cities of Irving, Waco, Tyler, Mesquite, Richardson, Killeen, Temple, Sherman, Denison, Paris, Lufkin, Brownwood and 249 other incorporated municipalities. DPL provides electric service primarily in Dallas County. TESCO, TPL and DPL are separate corporate entities with their own officers and boards of directors (see appendix B for a map of the TESCO, TPL and DPL service territories, and Appendix C for a more accurate depiction). Houston Lighting and Power (HLP) is a wholly owned subsidiary of Houston Industries, Inc., and serves an area of approximately 5,000 square miles in the Texas Gulf Coast region in which are located Houston, Galveston and 152 smaller cities and towns. In 1977, the peak load for the HLP system was 8,645 megawatts, with a total net generating capacity of 10,170 megawatts for a reserve of 1,525 megawatts (see appendix B for a map of thé HLP service territory). ELECTRICITY Electricity is consumed the instant it is produced, and electric generators are designed to respond instantaneously to changes on demand. For example, each time an electric appliance is turned on, demand for electricity increases; and, conversely, every time an electric appliance is turned off, demand decreases. Each minute increase or decrease in demand requires the generators producing the electricity to produce more or less electricity as required. Once electricity is produced the producer loses all effective control over it, since electricity moves by the forces of physics over wires connected from the generator to its point of consumption following the path of least resistance and in total disregard for who owns the path or who produced the electricity. Electricity is unique as a commodity because it cannot be seen, branded, traced, accumulated, stored or confined and is consumed the instant it is produced. Electric utility companies are also unique in that they must be ready to meet demand for services continuously, although electricity cannot be stored or inventoried. To provide this service, electric utilities must maintain reserve generating capacity in the form of both installed capacity and spinning reserve. While this reserve can be maintained by each individual company, the electric utilities in the United States have developed interconnections between each other in order to assure greater reliability in the case of sudden emergencies, to permit the reduction of the total amount of installed reserves among the interconnected companies and to permit the exchange of electric power between interconnected or adjacent utilities. Electric interconnections between non-affiliated companies is an accepted industry wide practice but requires careful study and evaluation before they are installed. Interconnections between non-affiliated electric utilities give added assurance to both systems that an adequate, efficient and reliable source of electric power will exist, particularly in times of electrical emergency. When two or more electric generators are electrically connected with each other, the laws of science require each generator to spin at exactly the same speed or frequency. Generators so connected are said to be operating in synchronism or in parallel with each other. This is true no matter who owns the generators and whether the generators are located adjacent to each other or are physically separated by several hundred miles. An important characteristic of electricity is man cannot force electricity to follow any specific path without disconnecting all undesired paths from the generator; thus, when interconnections are closed, electrical disturbances in one generator or transmission line instantaneously impact upon all interconnected generators. Also, the only effective assurance that power will not flow across Texas state lines, if Texas companies wish to preserve their intrastate status, is to either have no interconnections with any utilities that operate in interstate electrical transmissions (which would include severing ties with Texas electric utilities that transmit or receive power across state lines) or make sure that any points of interconnection between intrastate Texas electric utilities and interstate electric utilities remain open, preventing power flow between the two systems. Various types of electric energy exchanges may be agreed to by interconnected utilities. These exchanges include: (1) “Ecomomy Energy”: Electric energy which one utility sells to another utility at a cost less than the receiving utility can generate its own electricity; (2) “Emergency Energy”: Electric energy which one utility receives from another when the receiving utility is unable to provide its own system needs due to an unforeseeable failure of equipment, or “outage” on its system; and (3) “Wheeled EnergyElectric energy which one utility transmits to another utility (or to itself) over the transmission lines of a third, intermediate utility which charges a fee for such services. INTERCONNECTIONS BETWEEN THE PARTIES Interconnections between electric utilities in Texas began as early as 1924 with interconnections between TESCO and WTU. These two companies, along with TPL and DPL, later formed the North Texas Interconnected System (NTIS). An emergency interconnection between HLP and Gulf States Utilities (GSU) was first made in 1928 (the Huffman tie), but this interconnection did not operate closed as a matter of normal operation until World War II, at which time HLP began operating continuously interconnected with CPL, LCRA, City of Austin and the CPSB to help alleviate capacity shortages brought on by the war. This action lead to the formation of the South Texas Interconnected System (STIS). While defendants were indirectly interconnected with each other in the 1940’s, there was little, if any, coordination between the systems and STIS and NTIS until the 1960’s. On or about August 26, 1935, solely because of the passage of the Federal Power Act, and solely to avoid becoming subject to FPC jurisdiction, WTU opened its interconnections with PSO. Both TESCO and WTU then believed that operation in interstate commerce in a manner which would subject them to the consequences of FPC jurisdiction was not in the best interest of their customers. There is no evidence in the record to suggest that TESCO and HLP reached any agreement or were even interconnected in 1935, or that DPL, TPL and TESCO reached any agreement when TESCO made its determination to avoid interstate commerce. TESCO’s determination in 1935 was its unilateral effort to serve its customers in the most advantageous manner. Interconnections were reestablished between TESCO and WTU pursuant to a written agreement which, as amended from time to time, was continued in effect until cancelled on May 11,1976. This agreement required both WTU and TESCO to give prior notice in the event either wished to commence operation in interstate commerce so as to permit the other to choose the type of operation in which it desired to engage that is, in intrastate or interstate commerce. In 1962, HLP and TPL built a direct tie to connect their systems as the next major step in the evolution toward interdependence and Cooperation. Soon thereafter, NTIS and STIS were joined into the Texas Interconnected Systems (TIS) in 1967. At the time TIS was formed, all of its members operated and wished to continue operating on an intrastate basis (see appendix E). In 1970 ERCOT was formed, consisting of the members of TIS as well as various municipalities and rural electric cooperatives; although the names “ERCOT” and “TIS” are sometimes used interchangeably, the two groups do have functional differences. TIS consists of only the bulk power systems whereas ERCOT includes all of the members of TIS and small municipal and REA cooperatives. ERCOT reports to NERC, while TIS coordinates bulk power systems. Membership in ERCOT is available to any electric utility which owns, controls or operates an electric power system in Texas, and ERCOT promotes reliable operations of power systems in Texas by providing a means to communicate and coordinate the planning and operation of its members. TIS is operationally coordinated with all of the generators in TIS operating in synchronism with each other so that if there is a loss of any individual generator, all of the other generators in TIS respond automatically to compensate for the loss. Historically, all members of TIS and ERCOT, while maintaining interconnections among themselves, have not, except in times of emergency, maintained interconnections with electric utilities operating outside of the State of Texas. The maintenance of interconnections among WTU, CPL, TESCO and HLP and other systems in Texas was mutually beneficial and permitted the interconnected parties to reduce the total amount of installed reserves and to exchange electric power in times of sudden emergencies. These interconnections also assured a greater degree of electric reliability for all participating companies. The interconnecting electric systems comprising TIS and ERCOT are large enough to take advantage of all economies of scale and at the same time not too large to be unmanageable. The larger an interconnected system becomes, the greater the opportunity for cascading blackout and other operating difficulties. The interconnection agreements between WTU and TESCO preserved the right of system self-determination, that is, the right to decide whether to operate in interstate commerce subject to the consequences of FPC jurisdiction or to operate in intrastate commerce subject only to state and local regulatory authority. The interconnection agreement between WTU and TESCO did not require either party to continue to operate in intrastate commerce, to maintain interconnections with each other or any TIS or ERCOT member and was cancellable at any time by either party for any reason without penalty. It also did not restrict either WTU or TESCO from providing electric service anywhere. It has been the common understanding among the members of TIS and ERCOT that each individual system member believed it to be in the best interest of its customers to operate solely in Texas. It was also commonly understood among the members of TIS and ERCOT that if a system chose to engage in interstate commerce, it would give prior notice to all other members in order to permit each other system the right to choose whether to operate solely in Texas or to operate in interstate commerce as it determined was in the best interest of the customers. The coordination in TIS and ERCOT has resulted in perhaps the most reliable and lowest cost electric power in the nation. The president of plaintiff company CPL, R. W. Hardy, believes ERCOT and TIS have been and are models of efficiency and reliability. INTRASTATE OPERATION Since August 31, 1935, when Title 2 of the Federal Power Act became effective, any electric utility which owns or operates facilities used for the transmission of electric energy in interstate commerce has been subject to the regulatory powers of the Federal Power Commission (FPC), now the Federal Energy Regulatory Commission (FERC) (as used hereinafter FPC shall include FERC), set forth in Title 2 of the Federal Power Act, 16 U.S.C. §§ 824 to 828C. Generally these regulatory powers include the power to order an electric utility to interconnect with another electric utility under certain circumstances (16 U.S.C. § 824a), the power to oversee the disposition of certain utility assets (16 U.S.C. § 824b), the power to regulate the issuance of an electric utility securities (16 U.S.C. § 824c), and the power to regulate rates for the transmission and sale of electric energy at wholesale in interstate commerce (16 U.S.C. § 824d). The record indicates that the defendants began consulting with each other regarding their intrastate operations in the 1960’s. These consultations were necessitated by a variety of factors. First, HLP and TES-CO’s affiliate TPL built a direct interconnection in 1962. Second, the standards of jurisdiction under the Federal Power Act changed drastically during the 1960’s so that defendants became concerned with jurisdiction even though they had no facilities crossing state lines. Third, these concerns were confirmed when the FPC advised the defendants in the 1960’s that they were in fact subject to the FPC jurisdiction under the Federal Power Act. The FPC’s effort to assert jurisdiction was followed by its continuing effort through the early 1970’s to promote the interconnection of TIS with the South West Power Pool (SWPP), which is the group of utilities operating to the north and east of TIS. The only means to ensure freedom from federal regulation and the adverse electrical, economic, operational and administrative consequences flowing therefrom is not to operate interconnected with any facility used for the transmission or sale of electricity in interstate commerce. As a result of the events listed aboye HLP and TESCO have, from time to time, consulted with each other to determine whether there were points of interconnection which presented the potential for the interstate flow of electricity. Defendants were particularly concerned for many years with the points of interconnection between WTU and its affiliate PSO because of the very peculiar nature of the interconnection. Mr. Hardy, the current chief executive officer of CPL and previously the president of WTU, testified that these interconnections were designed to give CSW the ability to transfer power between its subsidiaries in order to qualify under an exemption under the Public Utility Holding Company Act. Defendants had in fact expressed concern over these interconnections through the years but were reassured by CSW that it desired to operate its two Texas subsidiaries on an intrastate basis and that the operational split of its subsidiaries presented no threat to its holding company status. There were installed over the years at strategic locations between the northern and southern divisions of WTU various devices to prevent interstate flow of electricity under circumstances which would render TESCO jurisdictional and to protect against synchronous operation of TESCO with WTU’s northern division, PSO and other members of SWPP. There was never any dispute between WTU and TESCO as to the object of avoiding synchronous operation. Some disputes did develop with respect to the use of interlocks as opposed to power flow relays in order to make certain that the FPC could not order synchronous interconnections of TESCO with SWPP, but these differences were always resolved to the mutual satisfaction of the parties. In order to insure the validity of the securities issued by TESCO and others, the interlock devices which were owned by TESCO were inspected and tested periodically through the years. These inspections and tests did not interfere with the operations of WTU even though the testing of the interlock device did result in an annual flicker of certain loads on WTU’s northern division. It would take the annual testing of the interlocks for 240 years for any loads on WTU’s northern division, however, to be interrupted for a total of one minute. It has been the common understanding and agreement among all the electric utilities and TIS that if one of the members of the TIS decided to commence interstate operations, it would provide prior notice to the other members so that each could independently decide whether to exercise its unilateral right to disconnect and remain in an intrastate mode. This understanding was, for example, reflected in the WTU-TESCO contract which was subject to immediate cancellation by telephonic notice. Plaintiff gave no notice prior to their commencement of interstate operation on May 4, 1976, because they feared defendants would exercise their right to disconnect. Each defendant has indicated that it will engage in an interstate mode of operation when there is shown to be advantages to the customers of the defendants that outweigh the advantages of the present intrastate system of operation. There is considerable evidence of each defendant’s past and present efforts to evaluate the benefits and costs of an interstate mode of operation. In fact, one of plaintiffs’ own witnesses, Mr. Arey, was retained by TESCO and its affiliates in 1966 to study interconnection with SWPP, and he concluded that TESCO and all the other members of TIS would be better off operating on an intrastate basis. In contrast to plaintiffs’ assertion that the defendants have acted unreasonably in operating intrastate, Mr. Arey testified that it would not have been unreasonable for defendants to continue intrastate operations based on the results of his study. The wisdom of TESCO’s determination to avoid synchronous interstate operations is illustrated repeatedly by the failure of all attempts by the Texas companies to operate in synchronism with the vast electrical system outside Texas. Synchronous operation of the Texas utilities and interstate utilities during 1942 to 1945 resulted in numerous system outages both in Texas and in other states. Some of these outages occurred because of trouble as far away as Alabama, Tennessee and Mississippi. Synchronous operations of the Texas utilities in interstate commerce during 1942 to 1945 were unsatisfactory and were tolerated only because of the emergencies of World War II. In 1957, HLP and GSU tested whether their systems could operate in synchronism. The resulting electrical disturbances were so severe that the test had to be abandoned. In 1968, the FPC encouraged HLP, TPL and GSU to test synchronous operations through the GSU-HLP Huffman tie. The 1968 test also proved totally unacceptable and was abandoned. From August 28, 1976, to January 22, 1977, plaintiffs attempted to operate in synchronism with the SWPP. Such operations resulted in serious reliability problems and at least nine system separations, two of which occurred because of generation difficulties in Mexico. Moreover, CSW has publicly acknowledged in a prospectus filed with the SEC that the TIS, including WTU and CPL, cannot operate in synchronism with PSO and SWEPCO and other members of SWPP without critical operating problems. TESCO and HLP have stated that while they believe that intrastate operation is in their best interest and in the best interest of their customers, if it appeared advantageous to commence synchronous operation with SWPP, they would be among the first to undertake that mode of operation. Until such time as there is advantage to their customers from interstate operation, defendants prefer to avoid the cost of regulation which would inevitably result from interstate operation. This preference can hardly be regarded as unreasonable since defendants obviously received no benefits from any such regulation. Indeed, plaintiffs’ economic expert admitted that it was in defendants’ own best interest to avoid FERC regulations. Events Leading to Filing of Plaintiffs’ Complaint Both plaintiffs, WTU and CPL, told the Department of Justice in 1973 that they did not want to interconnect with SWPP because the interconnection would degrade the reliability of TIS. Moreover, plaintiffs have admitted that intrastate operation was in their best interest until 1974. Plaintiffs’ change in attitude in 1974 coincides with the date of the filing of the complaint against plaintiffs’ parent holding company, CSW, in the Securities and Exchange Commission (SEC). Five months after WTU and CPL advised the Department of Justice that they did not wish to interconnect with PSO and other members of SWPP and after advising the Department of Justice of their continued desire to limit their business to the State of Texas and intrastate commerce, a complaint was filed with the SEC alleging that CSW was not a single integrated electric utility system within the meaning of the 1935 Act. In response to this petition, CSW hired Power Technologies, Inc. (PTI) to perform a study concerning alternate modes of integrating the holding company. In the summer of 1974, Mr. S. B. Phillips, Jr., chairman of the board of CSW, invited TU to participate in the study. Mr. Phillips informed TU that the study would include modes of operation which integrated the CSW companies with synchronous operation with the SWPP. At such meeting the chief executive officer of CSW told the chief executive officer of TU that if he did not cooperate in proceeding with synchronous operation between ERCOT and SWPP, CSW would force such mode of operation upon ERCOT companies, including TESCO and HLP, against their will. TU declined to participate in the study commissioned by CSW because the CSW study was limited to examining how best to integrate the CSW companies for the purpose of complying with the 1935 Act and would not include examination of whether ERCOT should be connected with SWPP. The preliminary results of the PTI study were presented to the CSW board of directors at a meeting on October 16, 1975. At that meeting, CSW, on the advice of its counsel, adopted a policy to integrate its affairs by causing its four subsidiaries to operate in synchronism while at the same time maintaining all interconnections with non-affiliated companies, including TESCO and HLP. At the time such decision was made by CSW, no reliability studies had been conducted, the economic study was not complete and no effort was made to evaluate the impact of synchronous operation on other companies in SWPP or TIS/ERCOT. Following completion of the PTI report, it was personally delivered by CSW to TU. Again, CSW advised TU that TU would either cooperate in the implementation of synchronous operation with SWPP, or it would be forced upon TU against its will. At no time did WTU or CPL or their parent, CSW, approach TESCO or HLP on the basis of conducting studies to determine the best mode of operation for electric utility systems in Texas or elsewhere but on the contrary, continuously insisted that synchronous operation would be instituted whether it was in their best interest or not. In late December, 1975, CSW’s chairman of the board delivered a copy of the PTI report to the president of HLP, inviting HLP’s cooperation in the implementation by CSW of a Mode 4 operation, but stated that CSW was committed to an interstate mode of operation and CSW would force HLP’s cooperation if HLP’s cooperation was not voluntarily forthcoming. On December 31,1975, CSW filed the PTI report with the SEC and advised the SEC that it was committed to proceeding with the integration of its four subsidiaries by sewing together the electric systems comprising ERCOT and SWPP. CSW advised the SEC that Mode 4, the preferred mode of operation, would permit the CSW companies to utilize the transmission system of other member companies of ERCOT, which, in turn, would integrate the four CSW companies in a manner required by the 1935 Act. CSW further advised the SEC on December 31, 1975, that if defendants did not cooperate in such an interconnection, other options for securing the necessary cooperation would be considered. This representation was consistent with the other threats made by CSW against the defendants prior to such stay. Prior to December 31, 1975, the plaintiffs never advocated nor did they desire to operate in interstate commerce in synchronism with SWPP. Prior to the attack on CSW’s holding company status, neither WTU nor CPL attempted to or desired to undertake synchronous operations with PSO or other members of the SWPP. For 40 years prior to December 31, 1975, WTU, CPL and CSW believed that the nature of their operations, including the maintenance by WTU of its northern division electrically isolated from the southern division, was in their best interest and in the best interest of their customers. On January 30, 1976, the SEC ordered that an evidentiary hearing be held to consider, among other things, whether the electric utility facilities of the subsidiaries of CSW were capable of being economically operated as a single integrated and coordinated system within the meaning of the 1935 Act. TU and HLP intervened in the SEC proceeding announced by the January 30, 1976 notice, and a pretrial hearing was scheduled for May 12, 1976. TESCO advised the SEC that the mode of operation proposed by CSW would radically alter the mode of operation of TU and the other members of TIS and would pose a threat to reliability of service and would impose unreasonable and uneconomic burdens upon TU and TIS customers and investors. Such a change in mode of operation would result in an unjustifiable risk to such customers and investors. TESCO further advised the SEC that it appeared that CSW’s proposal was being made merely as a scheme by CSW to save its holding company. CSW embarked on a secret and clandestine maneuver on May 4, 1976 to save its holding company status by utilizing the facilities of the defendants against their will. At a secret meeting of CSW executives and attorneys in the latter part of April, 1976, CSW’s vice president and chief engineer memorialized a legal plan to save CSW’s holding company and confirmed the lack of any other motivation for the action subsequently taken on May 4, 1976. In the darkness of night on May 4, 1976, WTU performed a midnight wiring of electrical circuits charged with 69,000 volts of electricity between WTU and PSO, a procedure which placed WTU, and therefore all members of TIS and ERCOT, in interstate commerce. At trial WTU attempted to justify the establishment of this new radial line as part of its plan to implement Mode 4 operation. In fact, plaintiffs’ own witnesses testified that the existence of this radial line was not in any way contemplated nor a necessary part of any plan to implement Mode 4 and although some of plaintiffs’ witnesses stated that the radial line was necessary in order to ensure reliable electric service to the communities in Oklahoma, I find that the evidence is to the contrary and that the midnight wiring was done without any legitimate business purpose. By installing the radial line, often referred to as the “midnight- wiring”, WTU maliciously and willfully violated its long standing agreement with TESCO by failing to notify TESCO of the commencement of interstate operation and for the purpose of requiring TESCO and HLP to operate in synchronism with SWPP. This is also evidenced by the fact that this suit was filed on May 3, 1976, along with an application for a temporary restraining order, in an attempt to force the defendants into interstate operations without the defendants’ voluntary consent. At the time of the midnight wiring, defendants had evaluated the PTI report. Upon being notified of the midnight wiring TESCO concluded independently that it was done in furtherance of a plan to force the synchronous interconnection of ERCOT and SWPP against their will and in furtherance of the threats earlier made. TESCO had concluded that the implementation of Mode 4 would downgrade its reliability and would cost a significant amount of money with no corresponding benefits to it or to its customers. Based upon TESCO’s prior evaluation of the mode of operation which was in its best interest and the best interest of its customers, the threats made, the purpose of the PTI study and its knowledge with respect to the adverse effects of interconnected operation gained over a long period of time, it had no reasonable alternative other than to disconnect from the plaintiff and from other electric utilities if it was going to be in a position of exercising its own choice as to the best mode of operation in the future. HLP had also reached the same conclusion, although independent of TES-CO. Both defendants had to act quickly after the midnight wiring of May 4, 1976 occurred if they were to preserve their intrastate mode of operation. The longer the defendants remained interconnected with WTU, with the plaintiffs and other utilities which were connected in interstate commerce, the more likely it would be that the FPC would assert jurisdiction over the companies. In severing connections with plaintiffs on May 4,1976, defendants acted independently and defensively in pursuing the only action that would allow them to preserve their ability to decide for themselves the manner in which they would conduct their operations. The purpose of the actions .of WTU and PSO on May 4,1976 was to force TESCO and HLP into interstate commerce and subject TESCO and HLP to federal regulation against their will. The motive behind the actions of WTU and PSO on May 4, 1976 was to preserve CSW’s corporate structure and CSW’s status as a regulated holding company under the 1935 Act. Any economic benefit realized by WTU as a result of the establishment of the radial feed into Oklahoma on May 4, 1976 was minimal at best, and was not a justification in itself for establishing the radial tie. THE COURT’S DECISION The Court has spent the last eight weeks reviewing both -the record in this case, which is over 3,500 pages of testimony and about 1,000 exhibits, the court’s notes and recollections and the law that applies to this case, and I think I have a pretty fair understanding of what this case is all about. Plaintiffs have advanced a number of theories of recovery, and there is a lot of evidence, so from that standpoint it is a complicated case; but I think many of the key questions in this case are simply questions of law. This case, as it has been presented over the past two and one-half years, really boils down to a single, preliminary question of law, that is, whether or not it is a violation of § 1 of the Sherman Act for an electric utility to exercise the freedom of choice provided by Congress in § 201(b) of the Federal Power Act [16 U.S.C. § 824(b)] and decide to confine its facilities and operations solely within a single state. Plaintiffs have made much of the argument that this is a group boycott, that they are not talking about just one electric utility deciding to operate in intrastate commerce, but a group of utilities, and the defendants’ concerted action means that interstate utilities cannot connect to them, specifically that the plaintiffs cannot connect to the defendants and remain in interstate commerce. In this context I do not perceive a difference between one utility deciding to operate intrastate, or a group of utilities, independently or even in concert, deciding to operate intrastate. Congress must have been aware of the unique characteristics of the electric utility industry at the time it adopted the Federal Power Act and must have been aware that the operation of a totally intrastate electric utility system could have potential antitrust considerations. Congress gave the electric utilities a choice: intrastate operation or interstate operation. If taking advantage of the intrastate option violates the Sherman Act, then the provision of the Federal Power Act becomes meaningless. Congress can rewrite the Federal Power Act and eliminate that provision; I cannot. Therefore, I do not think that the actions of the defendants violate the Sherman Act, § 1. I want to emphasize one factor which I took into account in evaluating the credibility of the witnesses, which I must do in this case as the trier of fact. I mentioned that this case turns primarily on questions of law, but I certainly recognize that there are significant factual issues in this case, particularly the testimony concerning the alleged economic savings and increased reliability to CSW if Mode 4 is implemented. I think it is a fair statement of the law that when a court considers an antitrust case, the focus of the court’s inquiries should be upon the actions of the defendants, not the plaintiffs. Stated another way, for purposes of determining whether or not the defendants have violated the Sherman Act, the motive of the plaintiffs in bringing the suit is irrelevant to a determination of the plaintiffs’ claim. There has been a lot of testimony in this case concerning CSW and the plaintiffs’ bad motives in bringing this case, and I think that I should make clear that I have not considered that testimony in making my determination on the merits. On the other hand, I do think that that testimony can be relevant to my evaluation of the credibility of the witnesses, particularly when that testimony is essential to plaintiffs’ factual support for the Sherman Act claims, such as the testimony regarding competition and the alleged savings to the plaintiffs from Mode 4 operation. In the same regard, I think I must carefully consider testimony that was given in documents that were prepared after the SEC challenged CSW’s holding company status and after the May 4, 1976 wiring into Oklahoma. Certainly the plaintiffs’ alleged motive in bringing this case merely to integrate CSW’s holding company and avoid divestiture is not conclusive in my evaluation of the credibility of certain witnesses, but I think that the defendants have amply demonstrated in this record, as I have found earlier in this opinion, that the plaintiffs had this motive available to them, and used it, other than the motives plaintiffs have advanced, for filing this lawsuit, and, more particularly, for developing testimony that would support the alleged Sherman Act violations. Group Boycotts Concerted refusals to deal, or “group boycotts”, are per se illegal under the Sherman Antitrust Law. Fashion Originators Guild of America, Inc. v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941). The principle of the group boycott cases is that where businessmen concert their actions to deprive others of access to merchandise which the latter wish to sell to the public, we need not inquire into the economic motivation underlying their conduct, because exclusion of traders from the market by means of combination or conspiracy is so inconsistent with the free market principles embodied in the Sherman Act that we will not consider any alleged justification. United States v. General Motors, 384 U.S. 127, 146, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966). “Group boycotts . . . have not been saved by allegations that they were reasonable in the specific circumstances, nor by failure to show that they ‘fixed or regulated prices, parcelled out or limited production, or brought about a deterioration in quality’ ”. Klor’s v. Broadway-Hale Stores, 359 U.S. 207, 212, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959) (quoting from, Fashion Originators, 312 U.S. at 466-468, 61 S.Ct. 703). It is of no consequence under the Sherman Act that each party acted in its own lawful interest and it is unnecessary to find an explicit agreement to find the Sherman Act conspiracy. United States v. General Motors, 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966). It is the intent to eliminate competition that determines the illegality of a joint refusal to deal. The court must examine the purpose and intent of the alleged conspirators, not to determine whether or not the defendants engaged in a refusal to' deal to achieve purported beneficial results brought about through the elimination of competition, but rather to discover whether or not the purpose and intent was anticompetitive. For example, in Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951) the court stated, quoting from United States v. Socony Vacuum Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129: “Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price[s] of a commodity in interstate or foreign commerce is illegal per se”; and in Eastern States Retail Lumber Dealers Association v. United States, 234 U.S. 600, 606, 34 S.Ct. 951, 952, 58 L.Ed. 1490 (1914) the Court stated: “. . .it appears that the defendant associations have for their object, among other things, the adoption of ways and means to protect such trade and to prevent the wholesale dealers from intruding therein.” Other group boycott cases also indicate that the Court must consider whether or not the alleged group boycott had the requisite anticompetitive purpose. Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) (holding that a bylaw was “plainly designed in the interest of preventing competition”); Radiant Burners Inc. v. Peoples Gas, Light & Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966); Binderup v. Pathe Exchange, 263 U.S. 291, 44 S.Ct. 96, 68 L.Ed. 308 (1923) (“[t]he alleged purpose and direct effect of the combination and conspiracy [were] to put an end to these contracts . . . and ‘restricts the liberty of a trader to engage in business.’ ” at 312, 44 S.Ct. at 101). The plaintiffs need not show specific intent on the part of the defendants to restrain trade; in an antitrust case, it is unlikely that there will be an express agreement in violation of the antitrust laws, and therefore circumstantial evidence assumes a heightened importance that may sustain a finding of a conspiracy. Coughlin v. Capitol Cement Co., 571 F.2d 290 (5th Cir. 1978); In re Yarn Processing Patent Validity Litigation, 541 F.2d 1127 (5th Cir. 1976). The Fifth Circuit has recognized three types of group boycotts that are per se violations of the antitrust laws; (1) horizontal combinations among traders at one level of distribution, whose purpose is to exclude direct competitors from the market (e.g., Eastern States Retail Lumber); (2) vertical combinations among traders at different marketing levels, designed to exclude from the market direct competitors of some members of the combination (e.g., Klors v. Broadway-Hale Stores, Inc.); and (3) combinations designed to influence coercively the trade practices of boycott victims rather than to eliminate them as competitors (e.g., Fashion Originators). E. A. McQuade Tours, Inc. v. Consolidated Air Tour Manufacturing Co., 467 F.2d 178 (5th Cir. 1972). “In all of these cases, the touchstone of per se illegality has been the purpose and effect of the arrangement in question. Where exclusionary or coercive conduct has been present, the arrangements have been viewed as ‘naked restraints of trade’ and have fallen victim to the per se rule. On the other hand, where these elements have been missing, the per se rule has not been applied to collective refusals to deal. Id. at 186-7. Where exclusionary or coercive conduct is not present, the court should apply the rule of reason test to determine whether there is a violation of the Sherman Act. Hatley v. American Quarter Horse Association, 552 F.2d 646 (5th Cir. 1977). I must exercise extreme caution in applying a per se label to conduct that allegedly violates the antitrust laws. “To outlaw certain types of business conduct merely by attaching the ‘group boycott’ and ‘per se’ labels obviously invites the chance that certain types of reasonable concerted activity will be proscribed”. Worthem Bank & Trust v. National Bank Americard, Inc., 485 F.2d 119, 125 (8th Cir. 1973). While it is true that the Supreme Court has outlawed group boycotts as per se illegal, “a multitude of lower courts have continued to evaluate alleged boycotts under a ‘rule of reason’ analysis rather than by the per se doctrine employed by the Supreme Court in the aforementioned cases. As one commentator has observed, ‘the law in Washington, however, is quite different from the law in the rest of the country.’, Woolley, Is A Boycott A Per Se Violation of the Antitrust Laws, 27 Rutgers L.R. 773 (1974)”, Cullum Electric & Mechanical Inc. v. Mechanical Contractors Association of South Carolina, 436 F.Supp. 418, 428 (D.C.S.C.1976), and the Fifth Circuit closely scrutinizes group boycott allegations. See E. A. McQuade Tours, Inc. v. Consolidated Air Tour Mfg. Co., 467 F.2d 178 (5th Cir. 1972); Sulmeyer v. Coca Cola Co., 515 F.2d 835 (5th Cir. 1975); Hatley v. American Quarter Horse Association, 552 F.2d 646 (5th Cir. 1977); Coughlin v. Capitol Cement Co., 571 F.2d 290 (5th Cir. 1978); Pinder v. Hudgins Fish Co., Inc., 570 F.2d 1209 (5th Cir. 1978). As I read them, then, there are three types of group boycott cases recognized by the Fifth Circuit, and a requirement that the alleged boycott have an anticompetitive purpose, with exclusionary or coercive conduct; I don’t think this case fits any of those descriptions. First, there has been ample testimony in the record (for instance, the testimony of Hardy and Price) that there is no direct competition between CPL and either HLP or TESCO, and no direct competition between TESCO and HLP with WTU, except de minimis competition in certain areas duly certified to TESCO and WTU. So this case does not fit within the first two McQuade categories of group boycotts that involve direct competition. Second, the key to the third category of group boycott cases cited in McQuade was the “coercion practiced indirectly on a rival method of competition . . ” 467 F.2d at 187. In Fashion Originators, cited by McQuade as an example of this third category, a group of garment manufacturers refused to sell original designs to stores that stocked copies of those designs made by other manufacturers, and thus there was a conspiracy to eliminate the copiers from the market. Here, except in certain multiply certified areas I mentioned earlier, there is no direct competition between plaintiffs and defendants. Defendants can’t conspire to deprive plaintiffs of a market they do not share and, under the Public Utility Commission of Texas’ (PUC’s) certification procedure, they cannot share since utilities are certified for only certain areas. I will discuss this competitive aspect of the ease in more detail later in this opinion. Third, I must examine the purpose of the alleged boycott. HLP and TESCO’s purpose in remaining in intrastate commerce was to avoid FPC jurisdiction. The second purpose was to serve the best interests of their customers by providing reliable, economical power. On this record after hearing all the testimony, I do not find that the purpose was in any way anticompetitive or coercive because plaintiffs do not meet their burden of showing any anticompetitive or coercive intent. If I am to find a Sherman Act violation in this case, I must also find a contract, combination, agreement or conspiracy in restraint of trade. As I understand the pleadings and the evidence, the plaintiffs are claiming that over a period of some 40 plus years, at least since the adoption of the Federal Power Act in 1935, the defendants have been engaged in a combination and conspiracy, the essence of which is recorded in certain contracts between the defendants, to restrict the flow of power in the defendant companies to intrastate commerce. To analyze this allegation properly, it is important to understand that unilateral refusals to deal, without more and “[i]n the absence of any purpose to create or maintain a monopoly”, are lawful under the Sherman Act. United States v. Colgate, 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992, 997, (1919); United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960). A manufacturer has a right to select its customers and to refuse to sell its goods to anyone for reasons sufficient to itself, and “(i)nherent in this right is the opportunity to show unilateral as opposed to conspiratorial conduct at trial.” Coughlin v. Capitol Cement Co., 571 F.2d 290, 301 (5th Cir. 1978). I recognize, as did the Fifth Circuit in Coughlin, that the so-called Colgate Doctrine has been carefully circumscribed by the Supreme Court. 571 F.2d at 301 n.22. The doctrine does not apply to a case where there is an agreement between the seller and a purchaser to maintain resale prices, United States v. Bausch & Lome Optical Co., 321 U.S. 707, 64 S.Ct. 805, 88 L.Ed. 1024 (1944), and United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960), and a producer secures adherence to prices by means which go beyond his mere declination to sell to a customer who will not observe this announced policy. See Parke, Davis & Co. and Federal Trade Commission v. Beech-Nut Parking Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307. “However, the post-Colgate decisions of the Supreme Court do not in any way limit a manufacturer’s right to attempt to disprove the existence of concerted action.” Coughlin, 571 F.2d at-301, n.22. I do not think that the plaintiffs have proved concerted action in this case. They have established that both HLP and TES-CO want to remain in intrastate commerce and that they both wish to do so to avoid FPC regulations. Plaintiffs also established that TESCO and HLP took measures, such as flying the Red River (as Mr. Robinson testified), or checking the power flow relays and points of interconnection, to protect against inadvertent interstate flows of electricity. I think the evidence, however, shows that each of the companies, including the plaintiff companies, who, interestingly enough, did not object to this intrastate arrangement and apparently wanted to participate in that type of operation until around 1974-75, decided that for one reason or another, the intrastate method of operation which would avoid FPC jurisdiction was the method of operation that each wanted to pursue. Plaintiff companies apparently did this because they saw high immediate costs of interconnecting interstate rather than remaining intrastate (see Px 19) although plaintiffs apparently made no long- range study, as they now have, to determine the long range economic costs and savings of interstate vs. intrastate operations. The evidence also shows that each of the companies, including plaintiffs and defendants, have always had the opportunity for withdrawing from the intrastate method of operation in connecting interstate. None had elected to do so until May 4, 1976 (except in the war years, and other unusual situations), and there was ample evidence that the only objection defendants had to plaintiffs’ withdrawal from intrastate operations and connection to interstate operation on May 4, was that the defendants were not permitted to make their own independent decision about whether or not to join the plaintiffs in that decision; the decision was forced upon them. For a period of time on that day defendants were involuntarily drawn into interstate operation because of the midnight wiring. I think one of the most damaging pieces of evidence to plaintiffs’ conspiracy theory is the fact that when, on May 4, the defendants were involuntarily placed in interstate commerce, they each disconnected from all other utilities, not just WTU and GPL, in order to isolate their systems because they were not sure whether or not these other utilities, who had not participated in the midnight wiring, would remain in interstate commerce. If there was an agreement, combination or conspiracy by defendants among themselves to remain in intrastate commerce, it certainly would not have been necessary to disconnect from everyone and isolate their systems. TESCO clearly did not know whether HLP would remain in interstate commerce; and HLP did not know whether TESCO would remain in interstate commerce either. Even though up to May 4, 1976, each defendant thought the other defendant was committed to intrastate operation, there was clearly not a firm understanding or a joint conspiracy to that effect or the disconnections would have been unnecessary, as between the defendants. A lot of contracts have been introduced in this case, and the plaintiffs claim that these contracts evidence the agreement by the defendants to remain in intrastate commerce. Some of the contracts have clear indications of intention that the parties will remain in intrastate commerce; others have clauses which indicate that the contracts are cancellable on certain notice if the parties wish to enter interstate commerce. The plaintiffs were parties to some of these contracts and never complained about them, perceiving them to be in their own best interest for nearly forty years before suddenly objecting to their character. Justice Brandéis once observed that all contracts were really restraints of trade and thus violated the Sherman Act, if the Act were carried to illogical extremes. These contracts do restrict the flow of electricity to intrastate commerce, but I do not find that they force the plaintiffs to remain in intrastate commerce. Plaintiffs have the choice of abiding by the contracts and remaining in intrastate commerce, or deciding to go into interstate commerce and cancel-ling the contracts. I think it is significant that different contracts were negotiated between the different parties with different provisions relating to the intrastate flow of electricity over the years. Here I think is a situation that is covered by the Supreme Court’s ruling in Colgate: None of the defendants are doing anything more, and have done nothing more, than decline to sell to any utility, not just plaintiffs, who are engaged in interstate electrical operations, or to connect with that type of utility. No one has forced the plaintiffs to remain in intrastate commerce; they are free to leave that mode of operation whenever they choose to do so. And each of the defendants is free to do so, also. The contracts do not limit that freedom; they merely make clear to the parties to the contract that the exchange of electricity provided for in the contract is premised on the intrastate character of that electricity. The contract provisions only preserve each party’s right to operate on an intrastate basis. See 16 U.S.C. § 824(b). An effort to avoid FPC regulation is “not unlawful, is indeed not immoral — not even if it fails.” Hartford Electric Light Co. v. FPC, 131 F.2d 953, 960 (2d Cir. 1942). See also Connecticut Light & Power Co. v. FPC, 324 U.S. 515, 518-19, 65 S.Ct. 749, 89 L.Ed. 1150 (1925), and on remand, Connecticut Power & Light Co., 6 F.P.C. 104, 110 (1947). Competition The Sherman Act requires that the Court find, when evaluating this case under the rule of reason, anticompetitive effect, and when looking at this case as a group boycott or one of the other per se theories, I must look to see if there was an anticompetitive purpose. In addition, the Court must look at the competitive impact of the alleged Sherman Act violations to determine the scope of the requested injunctive relief. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). To determine an agreement or act’s anti-competitive purpose or its impact on competitive conditions, the court must have a thorough understanding of the competition between plaintiffs and defendants, including the geographic and product market in which they compete. Northwest Power Products, Inc. v. Omark Industries, 576 F.2d 83 (5th Cir. 1978); Dougherty v. Continental Oil Co., 579 F.2d 954 (5th Cir. 1978). Although decided in a slightly different context, the cases decided under § 7 of the Clayton Act are helpful in identifying the types of competitive interests which are protected by the antitrust laws. In United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974) the Supreme Court affirmed the District Court’s decision that the economic reality of the coal industry at the critical time was such that United Electric Coal Co. was not in a position to compete with anyone because its reserves were limited and were also totally committed to long term contracts with utilities. In addition, in United States v. Marine Bancorporation, Inc., 418 U.S. 602, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974) the Supreme Court held that NBC (a Seattle bank) was not a competitor of WTB (a Spokane bank) because NBC did not market goods and services in the Spokane bank’s area of operation. The Court held that the “relevant geographical market” was the area in which the relevant product was, in fact, marketed by the alleged competitor. “The proper question to be asked . is not [whether] the parties ... do business or even where they compete, but where, within the area of competitive overlap, the effect of the merger on competition will be direct and immediate, (citations omitted) This depends upon ‘the geographic structure of [the] supplier-customer relations’ . . . ” United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963). Where two depa