[Federal Register Volume 70, Number 113 (Tuesday, June 14, 2005)]
[Notices]
[Pages 34458-34467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11596]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission


Order Accepting Filing, Requiring Compliance Filing Accepting and 
Suspending Proposed Tariff Sheets, and Establishing Hearing Procedures

Issued May 31, 2005.
Before Commissioners: Pat Wood, III, Chairman; Nora Mead Brownell, 
Joseph T. Kelliher, and Suedeen G. Kelly.

Allegheny Power System Operating Companies: Monongahela Power Company, 
Potomac Edison Company, and West Penn Power Company, all d/b/a 
Allegheny Power; PHI Operating Companies: Potomac Electric Power 
Company, Delmarva Power & Light Company, and Atlantic City Electric 
Company; Baltimore Gas and Electric Company; Jersey Central Power & 
Light Company; Metropolitan Edison Company; PECO Energy Company; 
Pennsylvania Electric Company; PPL Electric Utilities Corporation; 
Public Service Electric and Gas Company; Rockland Electric Company; and 
UGI Utilities, Inc.

[Docket No. ER04-156-006]

PJM Interconnection, L.L.C.

[Docket No. ER05-513-000]

Baltimore Gas and Electric Company; and Pepco Holdings Inc. Operating 
Affiliates: Potomac Electric Power Company, Delmarva Power & Light 
Company and Atlantic City Electric Company

[Docket No. ER05-515-000]

PJM Interconnection, LLC

[Docket No. EL05-121-000]

    1. In this order, the Commission acts on three filings related to 
PJM Interconnection, LLC's (PJM) Regional Transmission Expansion Plan 
(RTEP) process. With respect to the filing in Docket No. ER04-156-006, 
which proposes to continue PJM's current modified zonal rate design, we 
are establishing a hearing under section 206 of the Federal Power Act 
(FPA) \1\ to examine the justness and reasonableness of continuing 
PJM's modified zonal rate design. We accept the tariff sheets filed by 
certain PJM transmission owners (the PJM TOs) in Docket No. ER05-513-
000, subject to further compliance filing, to establish the general 
methodology for recovery of costs incurred under the RTEP process. And 
we accept and suspend, to become effective June 1, 2005, subject to 
refund and to the outcome of a hearing, the filing by another group of 
TOs in Docket No. ER05-515-000 to establish a formula rate for recovery 
of transmission costs, including RTEP costs. This order benefits 
customers by providing the needed infrastructure to support robust 
competitive markets and allows PJM's TOs timely recovery of just and 
reasonable rates for new transmission infrastructure.
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    \1\ 16 U.S.C. 824e (2000).

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[[Page 34459]]

Background

    2. PJM provides Point-to-Point service, Network Integration 
Transmission service, and a variety of ancillary services over its 
transmission system. PJM's existing modified zonal or ``license plate'' 
rate design is based on zonal transmission rates for the geographic 
zone delineated by each TO's transmission facilities and the customer 
loads within each transmission zone,\2\ and rates for Network 
Integration and Point-to-Point customers are both based on the embedded 
costs of a TO's transmission facilities. The rates for each TO's 
transmission zone generally remain in effect until it is amended by the 
TO or modified by the Commission.
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    \2\ See Midwest Independent Transmission System Operator, Inc., 
109 FERC ] 61,168 at P 10 n.14 (November 18 Order) (``Under a 
license plate rate design, the RTO's footprint is segregated into a 
number of transmission pricing zones, typically based on the 
boundaries of individual transmission owners or groups of 
transmission owners, and customers taking transmission service for 
delivery to load within the RTO pay a rate based on the embedded 
cost of the transmission facilities in the transmission pricing zone 
where the load is located. Thus, under license plate rates, 
customers serving load within the RTO pay for the embedded cost of 
the transmission facilities in the local transmission pricing zone 
and receive reciprocal access to the entire regional grid'').
    Additionally, PJM notes that, while currently the costs of 
existing facilities in each transmission owner's geographic zone are 
recovered from the load in that zone, in the future, facilities 
constructed under the PJM Regional Transmission Expansion Plan 
process may be located in one zone, but the costs of those 
facilities may be allocated to load in other zones. Thus, PJM 
asserts, its rate design is no longer a ``pure'' license plate rate 
design, but more accurately described as a modified zonal rate 
design. PJM January 31, 2005 filing in Docket No. ER04-156-006 at 2.
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    3. PJM also conducts its RTEP process, under which it identifies 
and designates upgrades to the systems of its TOs that are required to 
be constructed to maintain reliability and enhance competition. 
Previously, the PJM transmission owners had filed a new Schedule 12A to 
PJM's tariff to recover the costs of transmission enhancements 
designated by PJM pursuant to its RTEP. By order issued January 2, 2004 
in Docket No. ER04-156-000,\3\ the Commission accepted and suspended 
the proposed Schedule 12A subject to refund, initiated a hearing and 
instituted an investigation pursuant to section 206 of the FPA. 
Ultimately, the Commission accepted a settlement agreement in that 
docket which required that: (1) The PJM parties address by January 31, 
2005, whether the existing zonal rate design within PJM should be 
changed after May 31, 2005, and if so, what new rate design should be 
considered, and (2) the settling parties make a future filing 
addressing the harmonization of existing transmission rates with new 
transmission investment recovery proposals.\4\
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    \3\ Allegheny Power System Operating Companies, et al., 106 FERC 
] 61,003 (2004) (January 2 Order).
    \4\ This settlement (May 26 Settlement) was accepted by 
Commission order issued on August 9, 2004, in Allegheny Power Sys. 
Operating Companies, et al., 108 FERC ] 61,167 (2004) (August 9 
Order).
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    4. This order address three filings related to the recovery of the 
costs of upgrades designated through PJM's RTEP process. First, in 
Docket No. ER04-156-006, the PJM Settling Parties \5\ propose to 
fulfill the first settlement requirement by proposing to continue a 
zonal rate design for the PJM footprint. Second, in Docket No. ER05-
513-000, the PJM parties propose to fulfill the second settlement 
requirement settlement by submitting revisions to Schedule 12 of the 
PJM Open Access Transmission Tariff (OATT) to establish the procedures 
by which the PJM TOs may, if they choose, recover the costs incurred in 
constructing new transmission facilities. Third, in Docket No. ER05-
515-000, Baltimore Gas and Electric Company, Inc., Potomac Electric 
Power Company, Delmarva Power & Light Company, and Atlantic City 
Electric Company, (jointly, PHI TOs) submit tariff sheets to implement 
a transmission cost of service formula rate for determining the PHI 
TOs' wholesale revenue requirements.
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    \5\ For the purposes of this proceeding, the PJM Settling 
Parties shall be the following: Allegheny Power System Operating 
Companies: Monongahela Power Company, Potomac Edison Company, and 
West Penn Power Company, all d/b/a Allegheny Power; the following 
PHI Operating Companies: Potomac Electric Power Company; Delmarva 
Power & Light Company; Atlantic City Electric Company; and Baltimore 
Gas and Electric Company, Jersey Central Power & Light Company; 
Metropolitan Edison Company; PECO Energy Company; Pennsylvania 
Electric Company; PPL Electric Utilities Corporation; Public Service 
Electric and Gas Company; Rockland Electric Company; and UGI 
Utilities, Inc. and PJM Interconnection, L.L.C.
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A. Docket No. ER04-156-006

    5. The PJM Settling Parties state that, pursuant to their 
obligation under the May 26 Settlement, they propose that PJM's 
existing rate design not be changed at this time. The PJM Settling 
Parties state that currently, PJM's rate design is subject to the 
outcome of several ongoing proceedings:
     In Docket No. EL02-111-000, et al., the Commission is 
considering the long-term pricing structure (LTPS) for transmission 
between PJM and the Midwest Independent Transmission System Operator, 
Inc. (Midwest ISO).\6\
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    \6\ The long term pricing structure (LTPS) proceeding addresses 
the existing regional through and out rates (RTOR) between the 
Midwest ISO and PJM. In its November 18 Order at PP 61 and 62, the 
Commission eliminated rates for new RTOR service effective December 
1, 2004, and approved use of license plate rates for pricing RTOR 
service between Midwest ISO and PJM through January 31, 2008. Since 
the eliminated RTOR rates resulted in lost revenues to transmission 
owners, this action was accompanied by a Seams Elimination Charge/
Cost Adjustment/Assignment (SECA) charge. See Midwest Independent 
Transmission System Operator, Inc., et al., 105 FERC ] 61,212 
(2003).
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     In its November 18 Order, the Commission eliminated 
regional through and out rates between PJM and Midwest ISO, continued 
the existing PJM and Midwest ISO rates, and imposed transitional Seams 
Elimination Charge/Cost Adjustments/Assignments (SECA) charges through 
March 31, 2006, but further stated in that order that it was not 
altering ``the obligation of PJM Parties to file on or before January 
31, 2005, a reevaluation of the rate design for intra-RTO [Regional 
Transmission Organization] service and a proposed rate design to take 
effect on June 1, 2005.'' \7\
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    \7\ November 18 Order at P 42.
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     The Commission has directed the PJM and Midwest RTOs and 
their transmission owners to make a filing at least six months before 
February 1, 2008, to reevaluate the fixed cost recovery policies for 
pricing transmission service between the two RTOs and propose a rate 
design to take effect February 1, 2008.\8\
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    \8\ Id. at P 62.
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    6. Because of these proceedings, the PJM Settling Parties propose 
that the existing modified zonal rate design should be retained until 
the rate design within PJM can be considered as part of a wider 
regional evaluation. The PJM TOs argue that retaining the existing rate 
design will enhance rate stability, reduce uncertainty, and avoid 
unintended consequences, particularly at a time when the following 
region-wide changes are underway:
     The elimination of through and out rates between PJM and 
Midwest ISO, subject to the LTPS proceeding, and implementation of the 
SECA charge;
     The development of a joint and common market with Midwest 
ISO; and
     The cost allocation to customers of new transmission 
facilities that are built in one RTO but provide some benefits to 
customers in another RTO.
    7. They explain that retaining the existing rate design will permit 
the impacts of the changes already underway to be better understood and 
accommodated. For example, they note that PJM's OATT Schedule No. 12 is 
already transitioning away from a pure license plate rate design 
because it provides for separate cost assignments of new facilities to 
the customers or

[[Page 34460]]

zones that will benefit from these facilities. Further, over time, this 
``modified zonal rate design'' will evolve as some level of new 
facilities costs is allocated away from the zone of the transmission 
owner that builds the facilities and to the zone of the benefiting 
customers. The PJM Settling Parties also claim that retaining the 
existing rate design will give them the ability to coordinate 
consideration of any alternative rate design with the Midwest ISO 
transmission owners, and that a consistent and common rate design will 
facilitate the Commission's goal of creating a PJM-Midwest ISO joint 
and common market.\9\
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    \9\ Citing PJM Interconnection, L.L.C., et al., 109 FERC ] 
61,094 at P16 (2004).
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    8. The PJM Settling Parties also advise that there is no 
alternative to the modified zonal rate design that is agreeable to all 
or even a majority of the PJM Parties at this time, and that 
continuation of the existing rate design is not opposed by most PJM 
stakeholders based on the stakeholder process required by the 
settlement reached in Docket No. ER04-156-000.\10\ For the reasons 
discussed above, the PJM Settling Parties believe that it would be 
premature to change the intra-PJM modified zonal rate design at this 
time, and request that PJM be permitted to develop a new rate design, 
or explain why the modified rate design remains sound, in tandem with 
the similar evaluation of the Midwest ISO rate design to be in place by 
February 1, 2008.
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    \10\ Section 3(C) of the May 26 Settlement.
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B. Docket No. ER05-513-000

    9. The PJM TOs \11\ submitted revisions to Schedule 12 of the PJM 
OATT to establish the procedures by which the PJM TOs may recover the 
costs incurred in constructing new transmission facilities. The PJM TOs 
propose three options that each PJM TO may select to recover the costs 
incurred in construction of new transmission facilities. A PJM TO may 
elect:
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    \11\ In addition to those PJM TOs above, this filing would 
govern future rate filings by all of the PJM TOs that are listed in 
Attachment L to PJM's Tariff, including American Electric Power 
Service Corporation, Commonwealth Edison Company, Dayton Power and 
Light Company, Virginia Power and Light Company, and Duquesne Light 
Company.
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     Not to seek to recover the costs of new transmission 
facility construction from customers until such time that it proposes 
to revise its zonal transmission rates generally [Option 1];
     To file to establish a revenue requirement to recover the 
cost of constructing a specific new transmission facility pursuant to 
section 205 of the FPA and the Commission's rules and regulations, 
without revising its zonal transmission rates generally [Option 2]; or
     To establish the revenue requirement for new transmission 
facilities it constructs through the operation of a formula rate that 
is also applicable to its zonal revenue requirement, so that both the 
revenue requirement associated with RTEP projects and the revenue 
requirement for the TO's existing facilities will be determined through 
the formula [Option 3]. Under Option 3, the formula rate for the RTEP 
project will be collected separately from the rate for the TO's 
existing facilities.\12\
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    \12\ See PJM's Tariff, proposed Schedule 12--Appendix A. 
Specifically, Transmission Enhancement Charges for RTEP projects can 
be the product of a section 205 filing under Option Two, or the 
application of the formula rate to the costs of the required 
Transmission Enhancement pursuant to Option 3.
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    10. The PJM TOs request that the Commission grant waiver to permit 
them to file one day prior to the Commission's 120-day maximum notice 
period.\13\ In support of waiver of the notice period, the PJM Parties 
note that the Settlement provided that the instant filing would be made 
by January 31, 2005, to become effective on June 1, 2005.
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    \13\ 18 CFR 35.3(a).
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C. Docket No. ER05-515-000

    11. Baltimore Gas and Electric (BGE) and the public utility 
operating affiliates of Pepco Holdings, Inc. (PHI): Potomac Electric 
Power Company (Pepco), Delmarva Power & Light Company (Delmarva), and 
Atlantic City Electric (ACE) (jointly referred to as PHI TOs) filed 
proposed tariff sheets reflecting a new formula rate for determining 
the TOs' annual wholesale revenue requirement as set forth in 
Attachment H to PJM's OATT.\14\ The PHI TOs explain that the formula 
rate is only for them and it is not intended to affect the rates in 
Attachment H for any other TO's transmission zone.\15\
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    \14\ The proposed formula is comprised of PJM Tariff sheets that 
are designated as PJM Tariff, Attachments Nos. H-1 for ACE, H-2 for 
BGE, H-3 for Delmarva, and H-9 for Pepco.
    \15\ The PHI TOs note that ``the formula rate proposed here will 
provide a timely and effective means to ``harmonize'' the costs of 
new facilities with a company's embedded transmission revenue 
requirements.'' PHI TOs' filing, transmittal letter at 3. We 
therefore assume that, effectively, the PHI TOs are electing Option 
3, of the three options set forth in the PJM TOs' filing in Docket 
No. ER05-513.
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    12. The formula rate will calculate the rate for Network 
Integration Transmission Service (NITS) at 69 kV and higher voltage 
facilities. The PHI TOs propose to reflect in their rates: (i) their 
most recent historical FERC Form 1 costs and (ii) new transmission 
additions that have gone into service or cost projections of new 
transmission additions that are expected to go into service in the 
current year.\16\ The formula is proposed to apply to rate periods 
commencing each year on June 1 and continuing through May 31 of the 
succeeding year. Thus, on or before April 30, 2005, the PHI TOs will 
populate the formula inputs to include actual 2004 FERC Form 1 data, 
plus new transmission additions that are expected to go into service in 
2005, and the results will be posted on PJM's Web site. The PHI TOs 
explain that this timing will enable them to use actual Form 1 data 
from the preceding calendar year, and to calculate true-ups for all 
costs, including the one component of the formula that will consist of 
projections--i.e., transmission additions that are planned to go into 
service during the year of each rate update. They explain further that 
the projects that they anticipate constructing will be either (a) 
projects required by the PJM RTEP, or (b) if not in the RTEP, explained 
in the formula's supporting statements. Moreover, the formula will be 
trued-up annually to include actual plant additions for the relevant 
period, with interest as specified in section 35.19(a) of the 
Commission's regulations. Accordingly, the PHI TOs propose that the 
NITS rates posted on April 30, 2005 will become effective on June 1, 
2005. To the extent that the June 1 effective date requires waiver of 
the Commission's notice requirements under section 35.3,\17\ the PHI 
TOs respectfully request such waiver.
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    \17\ 18 CFR 35.3 (2004).
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    13. The PHI TOs note that they have twice attempted to deal with 
the question of rate recovery for new transmission investments in 
filings that were intended to implement PJM's RTEP process. First in 
Docket No. ER03-738-000, and thereafter in Docket No. ER04-156-000, the 
PHI TOs proposed that a single return on common equity be made 
applicable to all of the PJM TOs at this time.\18\ The PHI TOs advise 
that their proposed base return on equity (ROE) of 12.4 percent (before 
incentives) is supported by a Commission-approved discounted cash flow 
(DCF) model applied to their proxy group of Northeast transmission 
owning utilities and will be used in the individual capital structures 
of the PHI TOs. In addition, they note that the Commission has already 
held in two

[[Page 34461]]

separate dockets that the 50 basis point adder is warranted for all PJM 
TOs because the TOs have already given up operational control of their 
transmission facilities to PJM.\19\
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    \18\ PJM Interconnection, L.L.C., 104 FERC ] 61,124 at P 72 
(2003) (RTEP Order).
    \19\ Id. at P 74.
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    14. The PHI TOs are also proposing to apply a 100 basis point adder 
for new transmission investment that is placed in service in accordance 
with the RTEP process. The PHI TOs state that according to the 
testimony of their witness Dr. Avera, the proposed base ROE, the 100 
basis point adder, and the 50 point RTO membership adder all fall 
within the zone of reasonableness as determined by an accepted 
Discounted Cash Flow (DCF) analysis.
    15. The PHI TOs advise that they are including abbreviated 
Statements AA through BL in support of this filing and they request 
waivers of section 35.13 of the regulations,\20\ including waiving the 
full Period I and Period II data, and 35.13(a)(2)(iv) to determine if 
and the extent to which a proposed change constitutes a rate increase 
based on Period I-Period II rates and billing determinants. In support 
of waiver, they note that the revenue requirements resulting from the 
formula will be derived using the billing determinants published 
annually by PJM.
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    \20\ 18 CFR 35.13 (2004).
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Notice of Filings and Responsive Pleadings

    16. Notice of the filings in Docket Nos. ER04-156-006, ER05-513-
000, and ER05-515-000 was published in the Federal Register,\21\ with 
comments, protests, or interventions due on or before February 22, 
2005. Motions to intervene or motions for late intervention were filed 
by the entities listed in Attachment A to this order.\22\ In Docket No. 
ER04-156-006, the PJM Settling Parties and COST filed answers. In 
Docket No. ER05-513-000, answers were filed by COST and the PJM TOs. In 
Docket No. ER05-515-000, answers were filed by COST, ODEC and the 
Easton Utilities Commission, and the PHI TOs filed two answers.
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    \21\ 70 FR 797-798 (2005).
    \22\ The comments and protests filed by certain of those parties 
will be discussed below.
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A. Docket No. ER04-156-006

1. Endorsements and Protest of Modified Zonal Rate Design
    17. PJM ICC and Joint Consumer Advocates generally support the PJM 
Parties' proposal to retain existing modified zonal rates, because this 
approach avoids potentially significant cost shifting and issues with 
levelization of transmission rates that would arise should PJM's 
current rate design be accepted.\23\ Joint Consumer Advocates state 
that considering the significant costs shifts that already attendant to 
the SECA rate design, that the Commission accepted in Midwest 
Independent Transmission Operator, Inc., et al.,\24\ maintaining 
existing license plate rates provides stability during this transition 
period resulting from the elimination of regional through and out 
rates. Joint Consumer Advocates point out that this stability is an 
essential element of the rate structure approved by the Commission in 
Docket Nos. EL02-111-000 et al.
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    \23\ ``A levelized rate is designed to recover all capital costs 
through a uniform, nonvarying payment over the life of the asset, 
just as a traditional home mortgage payment does.'' Regional 
Transmission Organizations, Order No. 2000, FERC Stats. & Regs. ] 
31,089 at 31,193 (1999), order on reh'g, Order No. 2000-A, FERC 
Stats. & Regs. ] 31,092 (2000), appeal dismissed sub. nom. Public 
Utility District No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001).
    \24\ 109 FERC ] 61,168 (2004).
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    18. ODEC protests the proposal to permit separate rates of the PHI 
Operating Companies within PJM's modified zonal rate design. ODEC 
states that it does not protest the modified zonal rate, but rather the 
proposal to continue separate rates for each of the PHI Operating 
Companies in Docket No. ER05-515-000 and states that the filing in 
ER04-156-006 will continue the separate modified zonal rates for these 
three PHI Operating Companies. ODEC states that PHI Operating Companies 
have failed to justify their continued departure from a single rate. 
ODEC requests that the Commission reject this aspect of the proposal, 
or, in the alternative, include the issue in the proceedings in Docket 
No ER05-515-000.
    19. AEP protests the existing modified zonal rate design because it 
believes that waiting until February 2008 for the PJM and Midwest RTOs' 
LTPS process to implement a regional rate design is too long. AEP notes 
that Schedule 6 of the PJM Operating Agreement and Schedule 12 of the 
PJM Tariff will directly assign costs across zones and will arguably 
regionalize the cost of new facilities in PJM. However, AEP notes that 
the costs of the Extra High Voltage (EHV) facilities (500 kV and above) 
are spread among the preexisting PJM members, but complains that the 
status quo proposal would not extend that same treatment to the 
substantial EHV transmission owned by AEP and other new entrants. AEP 
advises that the majority of costs will stay within a single zone based 
on the expansions planned for 2005, 2006 and 2007.\25\ AEP's also 
advises that prior to the elimination of out and through rates as of 
December 1, 2004 in the LTPS proceeding, AEP was able to collect up to 
40 percent of its costs associated with its transmission facilities 
from external transactions.\26\ AEP complains that apart from a short 
SECA surcharge lasting only through March 2006, no regionalization of 
costs has been forthcoming from that proceeding. AEP also complains 
that a substantial gap exists between SECA expiration in March 2006 and 
any chance for regionalization of rate design in 2008.\27\ Accordingly, 
and because things have significantly changed since the May 26, 2004 
Settlement, AEP requests that the Commission suspend and investigate 
the status quo proposal, and set the matter for hearing.
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    \25\ According to AEP, the Commission has presently approved 
$1.66 billion of revenue requirements for PJM and, with Total RTEP 
Baseline Reinforcements of $574 million, AEP estimates that the 
revenue requirement associated with these additions is $20 million 
or less than 2 percent of total revenue requirements (see attachment 
to AEP protest).
    \26\ According to AEP's filing in Docket No. ER05-751-000, AEP 
projects SECA revenue of $163.8 million for 2005.
    \27\ According to AEP, the Commission has consistently indicated 
that license plate pricing should be regarded as a temporary 
expedient pending the development of a regional rate design.
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B. Docket No. ER05-513-000

1. Harmonization
    20. COST, Joint Consumers Advocates, DE PSC, Municipalities and 
PPANJ contend that the PJM Parties have not complied with the 
Commission's directives to harmonize the rate treatment of new and 
existing facilities. COST states that it understands harmonization to 
mean that there will be no over-recovery of costs when the existing 
rates and any proposed new rates are in effect simultaneously, i.e., 
that the existing and new rates together produce overall charges that 
are just and reasonable.
    21. Joint Consumer Advocates protest the TOs' attempt to bring an 
overbroad category of new transmission investment within Schedule 12, 
stating that new transmission investment that has not been subject to 
the regional planning process or approved by PJM should be excluded 
from recovery under Schedule 12. DE PSC points out that the proposed 
three-option Schedule 12 would allow a TO to recover incremental 
transmission costs, file piecemeal surcharge requests, or file formula 
rates without making a single filing to the Commission, and that while 
it would support a formula rate for PHI,

[[Page 34462]]

which serves many Delaware customers, that is just and reasonable, DE 
PSC is mindful of the fact that PHI may switch to these other options 
under Schedule 12.
    22. With respect to Option 1, COST contends that the Commission's 
January 16, 2004 order on rehearing in Docket No. ER04-156-002\28\ was 
premised on the understanding that the Applicant TOs would be 
revisiting their existing rates in conjunction with the January 31, 
2005 filings and that Option 1 fails to consider whether the TO's 
existing rates are just and reasonable. COST maintains that when an 
Applicant TO is willing to forgo revenues associated with new 
facilities, that establishes a prima facie presumption that the TO is 
over-earning under its current rates.
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    \28\ Allegheny Power System Operating Companies, 106 FERC ] 
61,016 (2004).
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    23. COST, Joint Consumer Advocates and DE PSC contend that Option 2 
does not accomplish the goal of harmonization, because it fails to 
consider both the rates in Schedule 12 and the TOs' old base rates, and 
therefore violates the Commission's longstanding policy against ad hoc 
and piecemeal ratemaking.\29\
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    \29\ Citing, Carolina Power & Light Co. v. FERC, 860 F.2d 1097 
(D.C. Circuit), and Florida Power and Light Co. v. City of Miami, 92 
F.2d 180, 183 (5th Cir 1938) (Federal appellate court rejecting a 
proposal to add new facilities costs atop an existing point-in-time 
rate base).
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    24. COST admits that Option 3 could accomplish harmonization in 
theory, and commends the few PJM TOs who are pursuing it. Nevertheless, 
COST and Joint Consumer Advocates contend that the proposed surcharge-
then-revenue-credit mechanism does not harmonize with the RTEP cost 
allocation process and does nothing to ensure that the existing rates 
of those customers paying the surcharge have been harmonized, 
especially when those existing rates are already over-recovering costs. 
COST and NCEMC state that ``Responsible Customer'' zones to which new 
facility costs are allocated should be filed with the Commission, not 
merely posted on the PJM web site. NCEMC states that not filing such 
designations with the Commission deprives such ``Responsible 
Customers'' of an opportunity for Commission review of whether such 
designation would result in unjust and unreasonable rates.
2. Other Issues
    25. COST and NCEMC advise that the PJM Parties are proposing to 
delete the requirement that Schedule 12 designate the ``Responsible 
Customer'' that must pay the Transmission Enhancement Charge, which 
deprives the ``Responsible Customers'' of an opportunity for review by 
this Commission of such designation and contradicts PJM's August 25, 
2003 compliance filing in Docket Nos. ER03-738 and RT01-2, which 
assured the stakeholders that those designations would be subject to 
this Commission's review. COST explains that some Responsible Customers 
are not members of PJM and, for such customers, filing of the 
``Responsible Customer'' designation with this Commission is essential.
    26. Detroit Edison and Wisconsin Electric are also concerned that 
certain language in the newly-filed Schedule 12 (b) could be read to 
impose certain costs on customers outside of PJM, and protest this 
language to the extent that it permits PJM to impose charges in MISO 
and elsewhere outside the PJM footprint. Furthermore, Detroit Edison 
states that the Commission required in the November 18 Order that PJM, 
MISO, and their transmission owners ``develop a proposal for allocating 
to the customers in each RTO the cost of new transmission facilities 
that are built in one RTO but provide benefits to customers in the 
other RTO.'' Detroit Edison states that the Commission thus recognized 
that the development of any cross-border transmission pricing in the 
Combined Region must include parties from both PJM and MISO.

C. Docket No. ER05-515-000

1. Rate of Return on Equity
    27. The majority of protestors contend that the proposed 12.4 
percent ROE is excessive and that the PHI TOs have not shown it to be 
just and reasonable. As an initial matter, COST, Joint Consumer 
Advocates, DEMEC, the Municipalities and PPANJ complain that the 
proposed ROE of 12.4 percent is based what the PHI TOs' own witness 
identifies as an ``adjusted'' midpoint return on equity of 11.5 
percent, which includes an unprecedented 90 basis point adjustment that 
projects increases in yields on 10 year Treasury notes. Municipalities 
and Joint Consumer Advocates note that this sort of projection is not 
shared by other analysts.
    28. COST, DEMEC and Municipalities assert that the PHI TOs 
consultant's unreasonable proxy group parameters and composition must 
be set for full evidentiary investigation and hearing.
2. ROE Incentive Adders
    29. Protestors contend that the inclusion of a 50 basis point adder 
and a 100 basis point adder, which are not tied to performance, have 
not been justified, should not be approved, and would not result in 
just and reasonable rates. Protestors note that in a prior proceeding 
the Commission directed the TOs to support why the 100 basis point 
adder is needed to incent investment in transmission facilities and to 
address whether the proposed adder should apply to all types of 
transmission expansion or if it should be more narrowly focused on 
transmission expansions that utilize innovative technologies that 
result in lower costs, and that the TOs have failed to demonstrate why 
their incentive rates are necessary. Municipalities and Joint Consumer 
Advocates further state that the PHI TOs' requested 50 basis point 
adder did not have any bearing on the PHI TOs' decision to join PJM, 
and that PJM's current TOs sought PJM membership years ago based on the 
understanding that membership alone would compensate them enough to 
justify the costs of participation. Because of this, Municipalities and 
Joint Consumer Advocates state that approving the 50 basis point adder 
incentive would serve no useful purpose, nor would it provide customers 
with any additional benefits. Joint Consumer Advocates state that 
further, the basis point adders distort the cost benefit analysis and 
evaluation of alternative competitive solutions by either not being 
included in the analysis, or imposing additional costs on the solution.
    30. COST also contends that the filing is inconsistent in its 
treatment of capital structure costs and securitization debt. 
Specifically, COST states that PHI TOs have improperly sought to 
exclude stranded cost securitization bonds from Atlantic City 
Electric's (ACE) capital structure.
3. Other Revenue-Related Issues
    31. COST and Municipalities state that the TOs' proposal to retain 
fifty percent of the revenues received from ``secondary uses'' of the 
transmission assets (such as rents from telecommunications equipment), 
rather than netting their entire secondary use revenue to their 
transmission cost of service, is unjust and unreasonable, since it 
forces ratepayers to pay for the full costs of these transmission 
facilities plus a substantial return, while the TOs alternately receive 
additional revenues on these same facilities already paid for by the 
ratepayer
    32. DE PSC complains that the PHI formula does not assure the 
proper functionalization of costs such as generation step-up 
transformers, capacitors and reactive equipment. DE PSC also points out 
that revenues from secondary uses of transmission assets

[[Page 34463]]

should be credited in full to costs, but are not credited in the 
proposed PHI formula.
    33. Municipalities and Joint Consumer Advocates state that the 
formula is flawed because it does not clearly exclude cost recovery for 
non-transmission plant items such as generation interconnection 
equipment, dual purpose substations, or non-utility business expenses. 
Municipalities also complain that the basis of the projected rate 
divisors used in the formula rates appears in none of the filings, and 
the source is simply indicated as ``PJM Data''. Municipals state that 
this reference is too vague to satisfy the criteria for a formula rate 
that the data can be immediately auditable.
    34. FirstEnergy Companies supports the PHI formula, but states that 
it would be inappropriate for FirstEnergy Companies to adopt a similar 
rate design because: (1) Their zonal stakeholders are not in favor of a 
change to a formula rate, (2) there is no Commission precedent that 
indicates that adoption of a formula rate is mandatory, and (3) under 
the PJM Tariff and the TOs' Agreement, each transmission owner has the 
right under section 205 of the FPA to propose to change its zonal rate 
and therefore, the PHI formula rate should have no effect as to the 
rate design of the remaining PJM zones.
    35. PPANJ asserts that the proposed formula fails to compensate for 
the use of customer-owned transmission plant. PPANJ states that its 
member Vineland Municipal Electric Utility (VMEU) owns transmission 
facilities that are integrated with those of ACE and provide benefits 
to ACE and the PJM system, and that VMEU agreed to allow its 
transmission facilities to be dispatched by PJM, but the formula 
proposed by ACE does not provide for any credit to VMEU for the cost of 
VMEU's facilities. PPANJ asserts that this omission violates the 
Commission's policy that customers are entitled to a credit for certain 
transmission plant under the control of the RTO, which requirement is 
included in the PJM OATT,\30\ and that the Commission has recently 
interpreted this section as requiring credit for customer-owned 
transmission facilities that are integrated with those of the 
transmission provider.\31\
---------------------------------------------------------------------------

    \30\ Citing Section 30.9 of the PJM Tariff.
    \31\ PPANJ cites to Southwest Power Pool, Inc. 108 FERC 61,078 
(2004) at Par. 19, order on remand from East Texas Electric 
Cooperative, Inc. v. FERC, 331 F. 3d. 131 (D.C. Cir. 2003) (``The 
Commission stated that the intent of section 30.9 of the pro forma 
tariff was that, for a customer to be eligible for a credit, its 
facilities must not only be integrated with the transmission 
provider's system, but must also provide additional benefits to the 
transmission grid in terms of capability and reliability, and be 
relied upon for the coordinated operation of the grid'').
---------------------------------------------------------------------------

    36. Protestors state that the proposed formula rate must have 
customer safeguards in order to produce just and reasonable results. 
DEMEC contends that adequate customer safeguards are necessary in order 
to assure transparency in the proposed formula rate and to ensure that 
all affected entities are afforded adequate due process. Further, if 
the formula rate proposal is accepted for filing, COST requests that 
the Commission require the adoption of its procedural protocols to give 
affected customers an adequate opportunity to review and verify that 
the appropriate amounts are being input to the formula. Municipalities 
argue that the TOs should be required to notify their customers of 
specific accounting changes and policies that may ultimately affect the 
rate charged. NCEMC expresses concern that the proposed formula rate 
permits the PHI TOs to recover incremental transmission investment 
without requiring them to file to revise their Network Integration 
Transmission Service rates reflecting this change. NCEMC states that 
this approach may result an over-recovery of costs and may result in a 
transmission customer paying both a portion of the incremental 
transmission investment and the embedded cost transmission rate, which 
would be inconsistent with the Commission's long-standing prohibition 
against ``and'' pricing.\32\
---------------------------------------------------------------------------

    \32\ NCEMC cites Inquiry Concerning the Commission's Pricing 
Policy for Transmission Services Provided by Public Utilities Under 
the Federal Power Act, FERC Stats. and Regs. ] 31,005, at 31,146 
(1994).
---------------------------------------------------------------------------

4. Waiver of Filing Requirements
    37. COST, DEMEC, DE PSC, Municipalities and PPANJ oppose the 
request for waiver of Period I and Period II cost of service 
information. Municipalities, COST and DEMC argue that they cannot fully 
assess the proposed formula because neither Docket Nos. ER05-513 nor 
ER05-515 includes sufficient data. Specifically, they note that the TOs 
are proposing a major change in how rates are set but that ER05-513 
includes only a concept with no data and ER05-515 contains limited and 
stale data for the year prior to the proposed effectiveness of the 
formula.\33\ COST and DEMEC also note that many of inputs to the 
formula come not directly from the Form 1 filings, but from adjustments 
to those numbers as evidenced by the multitude of ``notes'' to the 
formula. Municipalities request that the Commission require the TOs to 
submit annual informational filings for the rate year reflecting the 
most accurate, available data providing, inter alia, information 
supporting the data not otherwise available in the FERC Form 1,\34\ and 
not merely post the results on PJM's website. COST and DE PSC assert 
that the Commission should reject the formula rate filings, or in the 
alternative, set them for hearing.
---------------------------------------------------------------------------

    \33\ E.g., Municipalities advise that the TOs admit that the 
data is not accurate for at least one who will undergo substantial 
reclassification. Citing ER05-515-000 transmittal letter, n.8.
    \34\ Citing Southern Company Services, 99 FERC ] 61,069 (2002) 
(requiring projections of formula rate billing determinants and 
revenues); Florida Power & Light Co., 67 FERC ] 61,326 at p. 62.147 
(1994) (requiring filing of Period I and Period II data to adopt 
formula rates).
---------------------------------------------------------------------------

Discussion

A. Procedural Matters

    38. Pursuant to Rule 214 of the Commission's Rules of Practice and 
Procedure, 18 CFR 385.214 (2003), the notices of intervention and the 
timely, unopposed motions to intervene serve to make the intervenors 
parties to this proceeding. Given the early stage of this proceeding, 
the absence of any undue prejudice or delay, and their interest in this 
proceeding, we grant the untimely, unopposed motions to intervene. Rule 
213(a)(2) of the Commission's Rules of Practice and Procedure, 18 CFR 
385.213(a) (2) (2003), prohibits an answer to a protest unless 
otherwise permitted by the decisional authority. We are not persuaded 
to allow the answers, and accordingly we will reject them.

B. Analysis

1. Docket No. ER04-156-006
    39. The PJM Settling Parties have made the compliance filing 
required by our order, and seek continuation of PJM's current zonal 
rate design. However, the Commission has previously recognized that in 
an RTO or ISO environment, it is no longer clear that a zonal rate 
design is necessarily just and reasonable. We recently found, in 
evaluating two competing rate proposals for a new transmission rate 
design to supersede through and out rates, that neither proposal, 
including the zonal rate design, had been shown to be just and 
reasonable and might be unjust and unreasonable.\35\
---------------------------------------------------------------------------

    \35\ Midwest Independent Transmission System Operator, 110 FERC 
] 61,107 at P 3 (2005), citing November 18 Order. See also New PJM 
Companies, 108 FERC ] 61,140 at P 40 (2004) (``the Commission has 
accepted license plate rate designs for new RTO entrants on a 
transitional basis, and * * * we [recently] reaffirmed our 
commitment to retaining revenue neutrality for companies that join 
RTOs. This does not mean, however, that the Commission must find any 
license plate rate, or any rate mechanism submitted by a company 
with proposed revisions to their cost of service just and reasonable 
simply because the company claims that it maintains revenue 
neutrality'').

---------------------------------------------------------------------------

[[Page 34464]]

    40. We also view the arguments put forward by AEP as potentially 
demonstrating that modified zonal rates are, in fact, not just and 
reasonable in a situation such as that faced by AEP and other new PJM 
entrants now. AEP alleges that it has provided significant new 500 kv 
transmission capacity to the PJM system, and it anticipates that under 
modified zonal rates the majority of costs for that contribution will 
be recovered from load in AEP's transmission zone, despite the fact 
that it is now serving all PJM members. AEP further alleges that, once 
the SECA mechanism previously adopted by the Commission expires,\36\ it 
will no longer be able to collect a significant portion of the charges 
for external transactions that it is now recovering through the SECA.
---------------------------------------------------------------------------

    \36\ In an order issued on November 30, 2004, the Commission 
expanded AEP's, ComEd's and DP&L's ability to recover lost revenues 
resulting from the integration with PJM through the SECA transition 
methodology, which expires on March 31, 2006. Midwest Independent 
Transmission System Operator, Inc., 109 FERC ] 61,243 at P 9 (2004) 
(November 30 Order).
---------------------------------------------------------------------------

    41. The Commission therefore finds, pursuant to its authority under 
section 206, that PJM's current modified zonal rate design may not be 
just and reasonable, and may be unjust, unreasonable, unduly 
discriminatory or preferential or otherwise unlawful. We therefore set 
PJM's modified zonal rate design for hearing, and we will require PJM 
and all of its TO members (not just the PJM Settling Parties who made 
the filing in Docket No. ER04-156-006) to address the justness and 
reasonableness of the zonal rate design in that hearing.
    42. Pursuant to section 206(b) of the FPA, the Commission must 
establish a refund effective date that is no earlier than 60 days after 
the publication of notice of the Commission's intent to institute a 
proceeding, and no later than five months subsequent to the expiration 
of the 60-day period. The Commission will establish a refund effective 
date of 60 days from publication of notice of the Commission's 
initiation of a hearing. The Commission is also required by section 206 
to indicate when it expects to issue a final order. The Commission 
expects to issue a final order in this section 206 investigation within 
180 days of the date this order issues.\37\
---------------------------------------------------------------------------

    \37\ The Commission is not consolidating this proceeding, which 
involves PJM's internatl rate design, with the LTPS proceeding in 
Docket No. EL02-111-000, which addresses rate design between PJM and 
MISO. However, if the parties believe that these proceedings are 
interrelated, either for purposes of settlement or hearing, they can 
file motions for consolidation of proceedings before the 
Administrative Law Judge (ALJ) in each proceeding.
---------------------------------------------------------------------------

2. Docket No. ER05-513-000
    43. The Commission will accept the PJM TOs' filing in Docket No. 
ER05-513-000, to become effective on June 1, 2005. This filing 
establishes general parameters under which TOs can file to recover the 
costs of reliability expansions. Protesters have raised questions 
primarily with respect to Option Two, insofar as this option will 
enable TOs to file to recover only the costs of RTEP expansions.
    44. In their protests regarding the PJM TOs' Option Two, the 
protesters argue, in essence, that Option Two would not harmonize a 
TO's revenue recovery for its existing facilities with its revenue 
recovery for a new project built through the RTEP process, in that the 
combination of these two methods of revenue recovery could create a 
potential for over-recovery of the TO's overall costs for all of its 
facilities, and that there can be no rate proposal for the recovery of 
the costs of new transmission investment without an examination of 
whether the existing transmission rates already recover more than the 
applicant's cost to provide service over its existing facilities.
    45. The Commission will accept Option Two, because, this option 
provides full recovery of all reasonably incurred costs related to the 
regulated solutions and development undertaken pursuant to the PJM RTEP 
process and it provides the necessary incentives for transmission 
owners to build RTEP upgrades quickly, which will benefit all 
customers.\38\ In a recent order regarding the New York Independent 
System Operator (NYISO), we accepted a rate mechanism that is limited 
to the recovery of transmission-related costs incurred to meet a 
reliability need included in New York's Comprehensive Reliability Plan, 
separate from the transmission service charge and the transmission 
adjustment charged.\39\ This option also is consistent with our April 
2004 Policy Statement on Matters Related to Bulk Power System 
Reliability, in which we assured public utilities that the Commission 
will stand by its policy to approve applications to recover prudently 
incurred costs necessary to ensure bulk electric system 
reliability.\40\
---------------------------------------------------------------------------

    \38\ The filing in Docket No. ER05-513-000 does not address the 
question of ROE adders with respect to Option Two, and the 
Commission therefore will not address here whether such adders are 
appropriate in light of the incentive already provided by Option Two 
to construct upgrades.
    \39\ New York Independent System Operator, Inc., 109 FERC ] 
61,372 at P 28 (2004), order on reh'g, 111 FERC ] 61,182.
    \40\ Policy Statement On Matters Related To Bulk Power System 
Reliability, 107 FERC ] 61,052 (2004).
---------------------------------------------------------------------------

    46. Protesters object to this option because of a concern that it 
may permit certain transmission owners to continue to overrecover their 
cost-of-service. However, this option provides just and reasonable cost 
recovery for the RTEP upgrades, and provide the necessary incentive for 
TOs to complete quickly the construction of RTEP projects that are 
essential to the efficient operation of PJM. As we said in the NYISO 
proceeding, if a concern arises regarding over-recovery of transmission 
costs, such parties are free to seek relief by filing a complaint with 
the Commission pursuant to section 206 of the FPA.\41\
---------------------------------------------------------------------------

    \41\ See New York Independent System Operator, 111 FERC ] 61,182 
at P 24 (2005).
---------------------------------------------------------------------------

    47. In adopting Option 2, however, we recognize that we do not have 
before us an actual proposal as to how costs will be recovered under 
this option. Depending on the form of such a filing, we may need to 
impose certain reporting requirements or true-up mechanisms with 
respect to such a filing.
    48. Additionally, while we accept Option Three, we will require the 
PJM TOs to make a compliance filing, within 30 days of the date of this 
order, providing that any TO selecting Option Three must also make an 
informational filing with the Commission one year from the date its 
formula rates go into service, and each year thereafter, providing a 
detailed list of the costs it has incurred, and the revenues it has 
received, to provide service.
    49. Finally, we will also order the PJM TOs to make a compliance 
filing, within 30 days of the date of this order, restoring the 
requirement that under Schedule 12, PJM must designate the 
``Responsible Customer'' that must pay the Transmission Enhancement 
Charge in such a way as to allow customers to obtain Commission review 
of those designations.
3. Docket No. ER05-515-000
    50. Our preliminary analysis indicates the PHI TOs' filing in 
Docket No. ER05-515 has not been shown to be just and reasonable, and 
may be unjust, unreasonable, unduly discriminatory or preferential or 
otherwise unlawful. Accordingly, we will accept that filing and 
nominally suspend it to become effective on June 1, 2005, subject to 
refund, as requested, and subject to the outcome of a hearing.

[[Page 34465]]

    51. In West Texas Utilities Company,\42\ the Commission explained 
that when its preliminary examination indicates that the proposed rates 
may be unjust and unreasonable, and may be substantially excessive, as 
defined in West Texas, the Commission would generally impose a five-
month suspension. It is recognized, however, that shorter suspensions 
may be warranted in circumstances where suspension for the maximum 
period may lead to harsh and inequitable results.\43\ Such 
circumstances exist here where the Commission has, in fact, urged 
transmission owners to move from stated rates to formula rates, and 
where customers would also benefit from the incentive provided by these 
rate changes to the PHI TOs to commence construction of RTEP upgrades. 
Accordingly, the Commission will exercise its discretion to suspend the 
revisions to the PHI TOs' rates for a nominal period and permit the 
rates to become effective June 1, 2005, subject to refund and the 
outcome of the hearing established in this order.
---------------------------------------------------------------------------

    \42\ 18 FERC ] 61,189, at 61,374 (1982) (West Texas).
    \43\ California Independent System Operator Corporation, 105 
FERC ] 61,406 (2003).
---------------------------------------------------------------------------

    52. As noted above, protesters raise numerous issues regarding the 
reasonableness of the proposed rates that are best addressed in the 
hearing we order below. At the hearing, the PHI TOs will be required to 
support and justify the justness and reasonableness of their proposal.
    53. Among the issues that we are setting for hearing are the 
request for the 100 basis point transmission investment ROE adder and 
the 50 basis point adder for RTO membership, and we here provide 
specific directives for the parties to address with regard to these two 
issues. The Sponsoring TOs have provided support for the 100 basis 
point adder for all transmission facilities constructed under the RTEP. 
Consistent with our rehearing order in ISO New England,\44\ we direct 
the parties and the presiding judge to develop a record, in this case, 
addressing the pros and cons of applying a 100 basis point adder for 
investments that, among other things: (i) Are approved through the RTEP 
process; (ii) are capable of being installed relatively quickly; (iii) 
include the use of improved materials that allow significant increases 
in transfer capacity using existing rights-of-way and structures; (iv) 
utilize equipment that allows greater control of energy flows, enabling 
greater use of existing facilities; (v) has sophisticated monitoring 
and communication equipment that allows real-time rating of 
transmission facilities, facilitating greater use of existing 
transmission facilities; or (vi) is a new technology and/or innovation 
that will increase regional transfer capability.
---------------------------------------------------------------------------

    \44\ Id. at P 206.
---------------------------------------------------------------------------

    54. With regard to the 50 basis point adder for RTO membership, we 
note that in a prior order regarding ISO New England, we recognized the 
need to provide appropriate incentives for transmission expansions in 
RTOs, and granted the New England Transmission Owners a 50 basis point 
adder on their ROE for Regional Network Service (RNS) revenue.\45\ 
Here, however, as the protesters point out, PJM's current TOs became 
PJM members many years ago, so that the 50 basis point adder will not 
specifically serve as an incentive to those TOs to join an RTO. We 
therefore direct the parties to consider at hearing whether an adder is 
appropriate here.
---------------------------------------------------------------------------

    \45\ ISO New England, 106 FERC ] 61,280 at P 245-46 (ISO-NE) 
(2004) (``We agree with the ROE Filers that their voluntary proposal 
to establish RTO-NE and their commitment to transfer the day-to-day 
operational control authority over their transmission facilities to 
RTO-NE, warrants a 50 basis point incentive adder to the ROE 
component recovered in RTO-NE's transmission rates for Regional 
Network service. Accordingly, we will accept this incentive adder 
with respect to these facilities without suspension or hearing''), 
order on reh'g, 109 FERC ] 61,147 (2004).
---------------------------------------------------------------------------

    55. In Docket No. ER05-515-000, the PHI TOs request waiver of 
Statements AA through BL and waivers of section 35.13 of the 
regulations,\46\ including waiver the full Period I and Period II, and 
35.13(a)(2)(iv) to determine if a proposed change constitutes a rate 
increase based on Period I-Period II rates and billing determinants. 
Protestors request that the Commission deny waiver of the cost-of-
service statements required under 18 CFR Sec.  35.13. They also state 
that they need customer protection mechanisms to ensure adequate review 
of the inputs to formula and request that the Commission direct the PHI 
TOs to file the April 30, 2005, rate update with the Commission.
---------------------------------------------------------------------------

    \46\ 18 CFR 35.13 (2004).
---------------------------------------------------------------------------

    56. We will grant waiver of our requirements as to the filing of 
the requirement of section 35.13 to provide full Period I and Period II 
data, and 35.13(a)(2)(iv). The filing by the PHI TOs is to establish a 
formula rate using Form 1 data and, therefore, it is not clear that 
full Period I and Period II data are needed to evaluate this proposal. 
However, to the extent that parties at the hearing can show the 
relevance of additional information to the evaluation of this proposal, 
the ALJ can provide appropriate discovery of such information.
    57. The applicants seek waiver of the requirement that rates be 
filed 120 days prior to the proposed effective date, stating in support 
that the settlement in Docket No. ER04-156 provided specifically that 
any section 205 rate filing would become effective on June 1, 2005. The 
early filing provided all parties with additional time to review the 
filings. The Commission will grant the requested waiver.

The Commission orders:

Docket No. ER04-156-000

    (A) The Commission accepts the PJM Settling Parties' filing in 
Docket No. ER04-156-000 as satisfying those parties' obligation to 
reevaluate the PJM rate design.

Docket No. ER05-513-000

    (B) The Commission accepts the PJM TOs' filing in Docket No. ER05-
513-000, to become effective June 1, 2005, subject to the conditions 
and compliance obligations discussed in the body of the order.
    (C) The Commission further requires the PJM TOs to make a filing 
within 30 days of the date of this order, providing that, as discussed 
above, any transmission owner selecting Option Three must make an 
informational filing with the Commission one year from the date its 
formula rates go into service, and each year thereafter, providing a 
detailed list of the costs it has incurred, and the revenues it has 
received, to provide service.

Docket No. ER05-515-000

    (D) In Docket No. ER05-515-015, the PHI TOs' proposed Schedule 12 
and Attachments H-1, H-2, H-3 and H-9 to PJM's OATT are hereby accepted 
for filing and suspended to become effective on June 1, 2005, subject 
to refund, and to the outcome of a hearing, as discussed in the body of 
the order.
    (E) The Commission will grant waiver of the requirement that 
parties file new rates no more than 120 days before the rates go into 
effect.
    (F) The Commission grants waiver of the requirement of section 
35.13 to provide full Period I and Period II data, and 35.13(a)(2)(iv) 
to determine if and the extent to which a proposed change constitutes a 
rate increase based on Period I-Period II rates and billing 
determinants.
    (G) Pursuant to the authority contained in and subject to the 
jurisdiction conferred upon the Federal Energy Regulatory Commission by 
section 402(a) of the Department of Energy Organization Act and by the

[[Page 34466]]

Federal Power Act, particularly sections 205 and 206 thereof, and 
pursuant to the Commission's Rules of Practice and Procedure and the 
regulations under the Federal Power Act (18 CFR Chapter I), a public 
hearing shall be held in Docket No. ER05-515-000 concerning the 
justness and reasonableness of proposed formula rates in Attachment H 
to the PJM OATT, as discussed in the body of this order.
    (H) A presiding administrative law judge, to be designated by the 
Chief Administrative Law Judge, shall convene a prehearing conference 
in the Docket No. ER05-515-000 proceedings, to be held within 
approximately fifteen (15) days from the date of this order, in a 
hearing room of the Federal Energy Regulatory Commission, 888 First 
Street, NE, Washington, D.C. 20426. Such conference shall be held for 
the purpose of establishing a procedural schedule. The presiding judge 
is authorized to establish procedural dates and to rule on all motions 
(except motions to dismiss), as provided in the Commission's Rules of 
Practice and Procedure.

Docket No. EL05-121-000

    (I) Pursuant to the authority contained in and subject to the 
jurisdiction conferred upon the Federal Energy Regulatory Commission by 
section 402(a) of the Department of Energy Organization Act and by the 
Federal Power Act, particularly sections 205 and 206 thereof, and 
pursuant to the Commission's Rules of Practice and Procedure and the 
regulations under the Federal Power Act (18 CFR Chapter I), a public 
hearing shall be held in Docket No. EL05-121-000 concerning the 
justness and reasonableness of PJM's modified zonal rates, as discussed 
in the body of this order.
    (J) A presiding administrative law judge, to be designated by the 
Chief Administrative Law Judge, shall convene a prehearing conference 
in the Docket No. EL05-121-000 proceedings, to be held within 
approximately fifteen (15) days from the date of this order, in a 
hearing room of the Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, D.C. 20426. Such conference shall be held for 
the purpose of establishing a procedural schedule. The presiding judge 
is authorized to establish procedural dates and to rule on all motions 
(except motions to dismiss), as provided in the Commission's Rules of 
Practice and Procedure.
    (K) Any interested person desiring to be heard in the proceedings 
in Docket No. EL05-121-000 should file a notice of intervention or 
motion to intervene with the Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426, in accordance with Rule 214 of 
the Commission's Rules of Practice and Procedure (18 CFR 385.214) 
within 21 days of the date PJM makes the filing directed in Paragraph 
(B) above.
    (L) The Secretary is directed to publish a copy of this order in 
the Federal Register.
    (M) The refund effective date established pursuant to section 
206(b) of the FPA will be 60 days following publication of this order 
in the Federal Register as discussed in Ordering Paragraph (L) above.

By the Commission. Chairman Wood concurring in part with a separate 
statement attached. Commissioner Kelliher dissenting in part with a 
separate statement attached. Commissioner Kelly dissenting in part 
with a separate statement to be issued later.

Linda Mitry,
Deputy Secretary.

Appendix A

Docket No. ER04-156-006

Interventions

Maryland Public Service Commission
Public Utilities Commission of Ohio
PJM Interconnection, LLC
Exelon Corporation
Allegheny Energy Supply Company, LLC
International Steel Group, Inc.
North Carolina Electric Membership Corporation
Borough of Chambersburg, Pennsylvania
D.C. Public Service Commission
Consumers Energy Company (Consumers)
Dominion Virginia Power (Dominion)

Comments/Protests

PJM Industrial Consumer Coalition (PJM ICC)
Pennsylvania Office of Consumer Advocate, Maryland Office of 
People's
Counsel, and the Office of the People's Counsel for the District of 
Columbia (Joint Consumer Advocates)
Delaware Public Service Commission (DE PSC)
Old Dominion Electric Cooperative (ODEC)
The Detroit Edison Company (Detroit Edison)
Exelon Corporation
Customers and Officials for Sensible Transmission (COST);
    Allegheny Electric Cooperative, Inc,
    American Municipal Power-Ohio
    Blue Ridge Power Agency
    Borough of Chambersburg, Pennsylvania
    Central Virginia Electric Cooperative
    City of Dowagiac, Michigan
    City of Hagerstown, Maryland
    City of Sturgis, Michigan
    Craig-Botetourt Electric Cooperative
    Delaware Municipal Electric Corporation, Inc.
    Delaware Public Service Commission
    Harrison Rural Electrification Association
    Indiana Municipal Power Agency
    Old Dominion Electric Cooperative
    PJM Industrial Consumer Coalition
    Public Power Association of New Jersey
    Southern Maryland Electric Cooperative
    Town of Easton, Maryland
    Town of Front Royal, Virginia
    Town of Thurmont, Maryland
    Town of Williamsport, Maryland
    Virginia Municipal Electric Association No. 1
American Electric Power Service Corporation (collectively AEP)
    Appalachian Power Company, Columbus Southern Power Company,
    Indiana Michigan Power Company, Kentucky Power Company, 
Kingsport
    Power Company, Ohio Power Company, and Wheeling Power Company

Docket No. ER05-513-000

Interventions

Maryland Public Service Commission
Public Utilities Commission of Ohio
PJM Interconnection, LLC
Allegheny Energy Supply Company, LLC
International Steel Group, Inc.
Borough of Chambersburg, Pennsylvania
Consumers
PJM Industrial Customer Coalition
D.C. Public Service Commission
Pennsylvania Public Utilities Commission
PEPCO Holdings, Inc., and its operating affiliates; Potomac Electric 
Power Company, Atlantic City Electric Company, Delmarva Power & 
Light Company (PHI Companies)
UGI Utilities, Inc.
PPL Electric Utilities Corporation (PPL)
New Jersey Board of Public Utilities (NJBPU)
Muni-Coop Coalition;
    Blue Ridge Power Agency
    Central Virginia Electric Cooperative
    City of Dowagiac, Michigan
    City of Sturgis, Michigan
    Craig-Botetourt Electric Cooperative
    Harrison Rural Electrification Association
    Indiana Municipal Power Agency
    Old Dominion Electric Cooperative
    Virginia Municipal Electric Association No. 1
International Steel Group
ODEC
FirstEnergy Companies (Jersey Central Power & Light Company, 
Metropolitan Edison Company, Pennsylvania Electric Company)
Dominion Virginia Power (Dominion)
Baltimore Gas and Electric Company

Comments/Protests

Joint Consumer Advocates

DE PSC
North Carolina Electric Membership Corporation
American Municipal Power--Ohio, Inc. (AMP Ohio)
Southern Maryland Electric Cooperative
North Carolina Electric Membership Corporation (NCEMC)
Wisconsin Electric Power Company
Detroit Edison
City and Towns of Hagerstown, Thurmont, and Williamsport, Maryland, 
and Town of Front Royal, Virginia (Municipalities)
Delaware Municipal Electric Corporation (DEMEC)
Maryland Office of People's Counsel

[[Page 34467]]

Easton Utilities
Public Power Association of New Jersey (PPANJ)
Customers and Officials for Sensible Transmission (COST);
    Allegheny Electric Cooperative, Inc,
    American Municipal Power-Ohio
    Blue Ridge Power Agency
    Borough of Chambersburg, Pennsylvania
    Central Virginia Electric Cooperative
    City of Dowagiac, Michigan
    City of Hagerstown, Maryland
    City of Sturgis, Michigan
    Craig-Botetourt Electric Cooperative
    Delaware Municipal Electric Corporation, Inc.
    Delaware Public Service Commission
    Harrison Rural Electrification Association
    Indiana Municipal Power Agency
    Old Dominion Electric Cooperative
    PJM Industrial Consumer Coalition
    Public Power Association of New Jersey
    Southern Maryland Electric Cooperative
    Town of Easton, Maryland
    Town of Front Royal, Virginia
    Town of Thurmont, Maryland
    Town of Williamsport, Maryland
    Virginia Municipal Electric Association No. 1

Docket No. ER05-515-000

Interventions

Maryland Public Service Commission
Exelon Corporation
PJM Interconnection, L.L.C.
Pennsylvania Public Utilities Commission
PPL Electric Utilities Corporation
Rockland Electric Company
Allegheny Energy Supply Company
Public Utilities Commission of Ohio
Allegheny Power
PJMICC
D.C. Public Service Commission
Borough of Chambersburg, Pennsylvania
Muni-Coop Coalition
PSEG Companies
UGI Utilities, Inc.
ISG Sparrows Point/International Steel
NJBPU
Virginia State Corporation Commission
Wisconsin Electric Power Company
New Jersey Ratepayer Advocate
Constellation Energy Commodities Group
Dominion

Comments/Protests

Southern Maryland Electric Company*
Allegheny Electric Cooperative*
    FirstEnergy Companies
DEMEC
DE PSC
Detroit Edison
Municipalities
Joint Consumer Advocates
Maryland Office of People's Counsel
ODEC
Easton Utilities*
COST
PPANJ

    WOOD, Chairman, concurring in part:
    In Docket No. ER05-513, I believe that a better policy outcome 
would have been for the Commission to show a strong preference for 
formula rates, similar to the Parties' proposed Option Three. Under 
Option Three, formula rates will decrease as existing assets 
depreciate and the rates will increase when TOs construct new 
transmission assets (and this is exactly how all TOs in the Midwest 
ISO recover the costs incurred in the construction of new 
facilities.) One major benefit of formula rates is that they provide 
TOs with a relatively simple way to recover new transmission 
investment in the year that the facility is placed in service, 
without having to wait for the next rate case, while efficiently 
protecting customers from overcharges by reflecting decreased costs 
(due, for example, to depreciation of existing plant). However, 
since the Three Option proposal set forth by the PJM TOs is not 
unjust or unreasonable per se, I will concur with respect to this 
issue.
    In Docket No. ER05-515, the issue of the 50 basis point adder is 
a policy determination which, unlike the situation of the Midwest 
ISO in Docket No. ER02-485, has had proper notice and received 
substantial commentary from parties to this proceeding. Based on 
these pleadings, I believe that the existing record supports the 50 
basis point adder for RTO membership without having to reexamine 
this issue in a hearing. However, since some parties have raised 
general questions about the adder, I see no harm to err on the side 
of caution and to permit further inquiry into the 50 basis point 
adder at the hearing. For these reasons, I concur on this issue.
Pat Wood, III,

Chairman.

    Joseph T. KELLIHER, Commissioner dissenting in part:
    I disagree with the Commission's decision to set the PHI TOs' 
request for a 50 basis point adder for RTO membership for hearing 
insofar as the proposal would extend the incentive to existing 
members of PJM. The purported purpose behind the 50 basis point 
adder is to provide an incentive for transmission owners to join an 
RTO.\47\ However, under the proposal, the 50 basis point adder would 
be given not only to new PJM members, but also to transmission 
owners who were already members of PJM when this policy was 
announced. I fail to see how granting a 50 basis point adder to 
existing members of PJM, some of whom joined over fifty years ago, 
accomplishes the goal of creating an incentive for new members to 
join. Self-evidently, a 50 basis point adder is not necessary to 
entice existing members of PJM to join, since they already are 
members. Nor do I see any nexus between providing an incentive to 
longstanding members of PJM and the goal of providing an incentive 
for non-members to join an RTO. Instead, this strikes me as merely 
providing a windfall to existing members of PJM, many of whom 
decided long ago to sign up as members.
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    \47\ Proposed Pricing Policy for Efficient Operation and 
Expansion of the Transmission Grid, 102 FERC ] 61,032 at P 24 (2003) 
(``Under this proposed policy, any entity that transfers operational 
control of transmission facilities to a Commission-approved RTO 
would qualify for an incentive adder of 50 basis points on its ROE 
for all such facilities transferred.'').
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    In my view, the PHI TOs have failed to demonstrate the justness 
and reasonableness of providing longstanding PJM members with a 50 
basis point adder that is designed to serve as an incentive for 
other transmission owners to join the RTO, and I see no point in 
setting the matter for hearing on the issue of whether the proposal 
is appropriate here. I would reject the proposal outright. 
Accordingly, I dissent in part from the order.

Joseph T. Kelliher.

[FR Doc. 05-11596 Filed 6-13-05; 8:45 am]
BILLING CODE 6717-01-P