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FERC rejects proposal for allocating costs of Lake Erie loop flow fix

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FERC rejects proposal for allocating costs of Lake Erie loop flow fix

Ruling on an administrative law judge's almost four-year-oldinitial decision, FERC on Sept. 22 foundthat the costs of equipment regulators installed on the transmission system ofInternational Transmission Co.cannot be assigned to the NewYork ISO and the PJMInterconnection LLC.

However, while FERC agreed with Judge Steven Sterner that theMidcontinent Independent SystemOperator Inc. and the ITCHoldings Corp. subsidiary failed to show that either NYISO or PJMwill benefit from the installation of the phase angle regulators, or PARs, atissue, the agency reversed several important aspects of the initial decision.

Perhaps most significantly, the commission disagreed withSterner's findings that Federal Power Act Section 205 only permits costs to beassessed to entities with which a utility has a customer or contractualrelationship. Citing Order 1000 — the agency's 2011 landmark final rule ontransmission planning and cost allocation — FERC said neither Section 205 norSection 206 of the FPA "'state or imply that an agreement is aprecondition for any transmission charge.'"

The commission also took issue with Sterner's finding thatprecedent requires it to reject unilateral filings by a utility to impose loopflow costs on neighboring utilities, explaining that in the past it has simplyexpressed a preference for interconnected utilities to resolve loopflow-related issues among themselves.

PARs at the Bunce Creek station on the Michigan-Ontarioborder are designed to ensure that power flows around Lake Erie over itsscheduled route rather than over the path of least resistance. In 2008, loopflow — the difference between scheduled and actual flow on a path or interface— in the region created problems significant enough for NYISO to temporarilyshut down certain pathways around Lake Erie that were being used to schedulecircuitous transactions.

Based on the contention that the NYISO and PJM contribute tothe loop flow problem and would benefit from its mitigation, MISO and ITC inOctober 2010 proposed to allocate 30.9% and 19.5% of the PARs revenuerequirement to those two grid operators, respectively.

That proposal set off a firestorm of controversy; nevertheless, FERC in December2010 accepted it,subject to refund, and set the matter for a trial-type evidentiary hearing.Almost two years later, Sterner in a 374-page initial decision that the cost of thePARs cannot be passed on to NYISO or PJM for several reasons.

While FERC rejected most of those reasons, it neverthelessfound that one — the lack of demonstrated benefits flowing to NYISO or PJM fromthe operation of the PARs — was enough to rule that the cost allocation proposalhad not been shown to be just and reasonable. Moreover, some evidence suggeststhat NYISO or PJM might actually be harmed by the operation of the PARs undersome circumstances, the commission said.

FERC also noted that neither NYISO nor PJM participated inthe planning decision processes for the PARs. Commission precedent may notmandate that a joint planning effort precede regional cost allocation, but thelack of such an effort "is an important factor for the commission toconsider in this proceeding," according to the order.

MISO and ITC accordingly were given 30 days to submit tariffrevisions eliminating provisions that authorize the allocation to NYISO andPJM. They also were directed to provide appropriate refunds. In April, NYISOand PJM said theyalready had billed market participants approximately $15 million and $9million, respectively, to pay for the PARs. (ER11-1844)