156 FERC ¶ 61,202
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Norman C. Bay, Chairman;
Cheryl A. LaFleur, Tony Clark,
and Colette D. Honorable.
Midwest Independent TransmissionDocket Nos. ER11-1844-001
System Operator, Inc.ER11-1844-002
OPINION NO. 550
ORDER ON INITIAL DECISION AND
DISMISSING REHEARING AS MOOT
(Issued September 22, 2016)
1. This case is before the Commission on exceptions to an Initial Decision1 issued on
December 18, 2012. The Initial Decision addressed issues relating to a filing by Midwest
Independent Transmission System Operator, Inc. (MISO)2 and International
Transmission Company (ITC) (collectively, Joint Applicants) that proposed revisions to
MISO’s Open Access Transmission, Energy, and Operating Reserve Markets Tariff
(Tariff) to establish a methodology to recover costs of ITC’s Phase Angle Regulating
Transformers (PAR) located at Bunce Creek on the Michigan-Ontario, Canada border.3
In this order, we affirm in part, and reverse in part, certain determinations of the
Presiding Administrative Law Judge (Presiding Judge), and we dismiss the remaining
determinations of the Presiding Judge as moot. Consistent with these conclusions, we
find that Joint Applicants have not demonstrated that their proposal to allocate costs of
the ITC PARs to entities outside of MISO, including to entities in the New York
1 Midwest Indep. Transmission Sys. Operator, Inc., 141 FERC ¶ 63,021 (2012) (Initial Decision).
2 Effective April 26, 2013, MISO changed its name from “Midwest Independent
Transmission System Operator, Inc.” to “Midcontinent Independent System Operator,
Inc.”
3 See Midwest Indep. Transmission Sys. Operator, Inc., 133 FERC ¶ 61,275 (2010) (Hearing Order).
Docket Nos. ER11-1844-001 and ER11-1844-002- 2 -
Independent System Operator, Inc. (NYISO) or PJM Interconnection, L.L.C. (PJM)
regions, is just and reasonable. We also dismiss requests for rehearing of the Hearing
Order as moot.
I.Background
A.Lake Erie Loop Flow
1.ITC PARs
2.Loop flow issues have been common and volatile in the Lake Erie region. In the
1990s, unscheduled flows increased between Ontario and Michigan, as well as Ontario
and New York, culminating in numerous transmission line relief and curtailment events
in 1998. In response, Detroit Edison Company (Detroit Edison) and Ontario Hydro (a
predecessor company to Hydro One Networks) developed plans to modify existing
interconnection facilities between Ontario and Michigan to improve electric reliability
and address Lake Erie loop flow problems. On December 8, 1998, Detroit Edison
submitted a request to the U.S. Department of Energy to amend its Presidential Permit.
One requested modification was the installation of an 850 mega volt ampere (MVA) PAR
at the Bunce Creek station switchyard on the Michigan-Ontario interface (Original
PAR).4
3. On June 29, 2000, the Commission authorized a series of DTE Energy Company
intra-corporate transactions which, among other things, resulted in the transfer of
ownership, operation, and control of certain Detroit Edison transmission facilities to
ITC.5 As a result of this corporate restructuring, Detroit Edison and ITC jointly applied
to the U.S. Department of Energy to rescind Detroit Edison’s Presidential Permit and
issue a new Presidential Permit to ITC. The new permit, issued on April 19, 2001,
transferred Detroit Edison’s international transmission facilities to ITC, including the
Original PAR.6
4 Initial Decision, 141 FERC ¶ 63,021 at P 88 (citing Ex. ITC Tab F at 6).
5 See DTE Energy Company, The Detroit Edison Company, and International Transmission Company, 91 FERC ¶ 61,317 (2000).
6 Initial Decision, 141 FERC ¶ 63,021 at P 89 (citing Dep’t of Energy, Presidential
Permit, Int’l Transmission Co., Order No. PP-230-2 (Apr. 19, 2001) (Presidential
Permit)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 3 -
4. In March 2003, the Original PAR failed while in service, and the tower supporting the Canadian side of the Bunce Creek transmission line collapsed due to inclement
weather. ITC ordered replacement facilities for the Original PAR after service on the Bunce Creek line was restored.7 Because of the failure of the Original PAR, ITC chose a different design for the new PARs, opting for two 700 MVA units connected in series (ITC PARs) instead of a singular 850 MVA unit (i.e., the Original PAR).8
2.NYISO Proceedings
5.Beginning in January 2008, a small number of market participants submitted
transactions to NYISO to export power to PJM, scheduled as circuitous flows around
Lake Erie. The scheduled pathway exited NYISO, crossed through both the Independent Electricity System Operator of Ontario (IESO) and MISO, and ultimately sank in PJM.
This scheduled pathway benefitted from lower market prices at the NYISO/IESO border, compared to the more congested NYISO/PJM border. However, approximately 80
percent of the power flows associated with this scheduled pathway flowed directly across the NYISO/PJM border.9
6. In July 2008, NYISO proposed requiring the use of more direct routing by
prohibiting the scheduling of external transactions over eight circuitous pathways.
NYISO stated that its proposal was a temporary solution until adequate controls were in place to ensure that actual and scheduled flows more closely aligned. In August 2008, the Commission accepted NYISO’s temporary solution.10 The Commission noted that it had initiated a non-public investigation into the Lake Erie loop flow problem and
encouraged affected parties to consider all appropriate long-term solutions, including market solutions and the installation of operational controls such as PARs, to ensure that actual and scheduled flows more closely aligned.
7. In July 2009, the Commission reaffirmed these directives, requiring NYISO and
interested entities to develop long-term comprehensive solutions to the Lake Erie loop
flow problem.11 The Commission also directed public disclosure of the Enforcement
7 Replacement of the tower and transmission line was completed in 2006. Id.
P 91.
8 Id. (citing Ex. ITC Tab F at 9).
9 N.Y. Indep. Sys. Operator, Inc., 132 FERC ¶ 61,031, at P 2 (2010) (July 2010
Order).
10 N.Y. Indep. Sys. Operator, Inc., 124 FERC ¶ 61,174 (2008).
11 N.Y. Indep. Sys. Operator, Inc., 128 FERC ¶ 61,049, at P 6 (2009).
Docket Nos. ER11-1844-001 and ER11-1844-002- 4 -
Staff Report resulting from the non-public investigation into the Lake Erie loop flow
problem. Further, the Commission required NYISO to submit a report addressing its
proposed solutions to the Lake Erie loop flow problem, including, among other things, a
proposed solution addressing interface pricing and congestion management. In
September 2009, the Commission clarified that NYISO should report on the status of all
solutions to the Lake Erie loop flow problem, including the installation of PARs.12
8. In January 2010, NYISO filed its status report, which recommended the
implementation of four market initiatives. The report also stated that the ITC PARs
installed on the Ontario-Michigan border would be available for service in early 2010.
The report noted, however, that ITC would not execute the operating agreements required
to make the ITC PARs operational until an agreement addressing the allocation of costs
associated with the ITC PARs was in place. NYISO opposed paying for a portion of the
ITC PARs because they were not developed pursuant to a Commission-approved regional
planning process. NYISO also noted that a regional study would be initiated during 2010
to identify PARs and other devices capable of influencing Lake Erie loop flow. In the
July 2010 Order, the Commission found that the initiatives described by NYISO
represented a workable framework for minimizing the occurrence of Lake Erie loop flow.
The Commission noted, though, that some issues were not fully addressed in NYISO’s
report, such as the equitable allocation of the ITC PARs costs. The Commission
requested further information on several matters, including implementation of the ITC
PARs.13
B.Procedural History
1.Joint Applicants’ Filing and Hearing Order
9.On October 20, 2010, pursuant to section 205 of the Federal Power Act (FPA),14
Joint Applicants proposed revisions to the MISO Tariff to establish a methodology to
allocate and recover the costs of the ITC PARs among MISO, NYISO, and PJM.15 Joint
Applicants asserted that an initial transfer distribution factor (DFAX) analysis, based on
2015 projections, supported allocating 49.6 percent of the ITC PARs revenue
requirement to MISO, 19.5 percent to PJM, and 30.9 percent to NYISO, based on each
12 N.Y. Indep. Sys. Operator, Inc., 128 FERC ¶ 61,239 (2009).
13 July 2010 Order, 132 FERC ¶ 61,031 at PP 40-42.
14 16 U.S.C. § 824d (2012).
15 Specifically, Joint Applicants proposed the addition of Attachments SS and SS-1, as well as a new Schedule 36, to MISO’s Tariff.
Docket Nos. ER11-1844-001 and ER11-1844-002- 5 -
region’s alleged contribution to the loop flows over the Michigan-Ontario interface that
would occur if the ITC PARs were not operational. Joint Applicants further stated that
each Regional Transmission Organization (RTO) would determine how its individual
share of the ITC PARs revenue requirement would be recovered from load within its
region.16
10. Numerous parties submitted motions to intervene and notices of intervention,
including: Exelon Corporation (Exelon); NYISO; Ontario Power Generation, Inc.; PJM;
Maryland Public Service Commission; Old Dominion Electric Cooperative; Dayton
Power and Light Company; New England Power Pool Participants Committee; Rockland
Electric Company; American Municipal Power, Inc. (AMP); Connecticut Department of
Public Utility Control (Connecticut DPUC); Consumers Energy Company; New York
Transmission Owners (NYTO)17 and New York Municipal Power Agency; Baltimore
Gas and Electric Company; Duquesne Light Company; Pepco Holdings, Inc.;
Consolidated Edison Solutions, Inc. and Consolidated Edison Energy, Inc. (Consolidated
Edison); American Electric Power Service Corporation; Illinois Commerce Commission;
New York State Public Service Commission (New York Commission); PSEG
Companies;18 Indiana Utility Regulatory Commission; FirstEnergy Service Company;
Connecticut Municipal Electric Energy Cooperative; Michigan Public Service
Commission; Allegheny Power; MISO Transmission Owners (MISOTO);19 New York
16 Hearing Order, 133 FERC ¶ 61,275 at PP 10-11.
17 NYTOs include: Central Hudson Gas & Electric Corporation; Consolidated
Edison Company of New York, Inc.; Long Island Power Authority; New York Power
Authority; New York State Electric & Gas Corporation; Niagara Mohawk Power
Corporation d/b/a/ National Grid; Orange and Rockland Utilities, Inc.; and Rochester Gas and Electric Corporation.
18 PSEG Companies include Public Service Electric and Gas Company; PSEG Power LLC; and PSEG Energy Resources & Trade LLC.
19 MISOTOs include: Ameren Services Company, as agent for Union Electric
Company d/b/a Ameren Missouri, Ameren Illinois Company d/b/a Ameren Illinois, and
Ameren Transmission Company of Illinois; American Transmission Company LLC; City
Water, Light & Power (Springfield, IL); Dairyland Power Cooperative; Duke Energy
Corporation for Duke Energy Indiana, Inc.; Great River Energy; Hoosier Energy Rural
Electric Cooperative, Inc.; Indiana Municipal Power Agency; Indianapolis Power &
Light Company; MidAmerican Energy Company; Minnesota Power (and its subsidiary
Superior Water, L&P); Montana-Dakota Utilities Co.; Northern Indiana Public Service
Company; Northern States Power Company, a Minnesota corporation, and Northern
States Power Company, a Wisconsin corporation, subsidiaries of Xcel Energy Inc.;
Northwestern Wisconsin Electric Company; Otter Tail Power Company; Southern
(continued ...)
Docket Nos. ER11-1844-001 and ER11-1844-002- 6 -
Association of Public Power; Massachusetts Department of Public Utilities
(Massachusetts DPU); Detroit Edison; DC Energy Midwest, LLC; New England
Conference of Public Utility Commissioners (NECPUC); ISO New England, Inc. (ISONE); IESO; Wisconsin Electric Power Company; PJM Transmission Owners (PJMTO);20 and Dominion Resources Services.21
11. Numerous parties submitted protests and comments, including: NYTOs and New York Municipal Power Agency; NYISO; New York Commission; PSEG Companies, who also submitted a request for summary dismissal and motion to consolidate; PJM; Massachusetts DPU; PJMTOs; NECPUC, who also submitted a motion for summary
rejection; AMP.; New England States Committee on Electricity (New England States Committee); Consolidated Edison; New England Power Pool Participants Committee (New England Participants); Connecticut Municipal Electric Energy Cooperative;
Michigan Public Service Commission; MISOTOs; Detroit Edison; and ISO-NE. Joint Applicants, MISOTOs, and NYTOs submitted answers.
Illinois Power Cooperative; Southern Indiana Gas & Electric Company (d/b/a Vectren
Energy Delivery of Indiana); Southern Minnesota Municipal Power Agency; Wabash
Valley Power Association, Inc.; and Wolverine Power Supply Cooperative, Inc.
20 PJMTOs include: American Electric Power Service Corporation, on behalf of
its affiliates Appalachian Power Company, Columbus Southern Power Company, Indiana
Michigan Power Company, Kentucky Power Company, Kingsport Power Company,
Ohio Power Company and Wheeling Power Company, AEP Appalachian Transmission
Company Inc., AEP Indiana Michigan Transmission Company Inc., AEP Kentucky
Transmission Company Inc., AEP Ohio Transmission Company Inc., and AEP West
Virginia Transmission Company; Exelon; Jersey Central Power & Light Company,
Metropolitan Edison Company, Pennsylvania Electric Company, Monongahela Power
Company, The Potomac Edison Company, West Penn Power Company, and American
Transmission Systems, Inc.; Pepco Holdings, Inc., on behalf of its affiliates Potomac
Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric
Company; Old Dominion Electric Cooperative; PPL Electric Utilities Corporation, PPL
EnergyPlus, LLC, PPL Brunner Island, LLC, PPL Holtwood, LLC, PPL Martins Creek,
LLC, PPL Montour, LLC, PPL Susquehanna, LLC, PPL University Park, LLC, Lower
Mount Bethel Energy, LLC, PPL New Jersey Solar, LLC, PPL New Jersey Biogas, LLC,
and PPL Renewable Energy, LLC; Public Service Electric and Gas Company; and
Virginia Electric and Power Company, doing business as Dominion Virginia Power.
21 On March 24, 2011, Monitoring Analytics, LLC filed an out-of-time motion to intervene, which the Presiding Judge granted on April 21, 2011.
Docket Nos. ER11-1844-001 and ER11-1844-002- 7 -
12. In the December 30, 2010 Hearing Order, the Commission found that Joint
Applicants’ filing raised issues of material fact that could not be resolved based on the
record before the Commission. Accordingly, the Commission accepted the proposed
Tariff revisions for filing, suspended them for a nominal period, made them effective
January 1, 2011, subject to refund, and set them for hearing and settlement judge
procedures.22
2.Requests for Rehearing and Motions to Stay
13.Requests for rehearing of the Hearing Order were filed by NYISO, NYTOs,
New York Commission, PJM, PJMTOs, AMP, Joint Rehearing Parties23 and MISOTOs.
Several parties argue that because there is no customer or contractual relationship
between NYISO or PJM and Joint Applicants, the Commission has no authority under
section 205 of the FPA to accept the filing.24 Some parties maintain that the Commission
erred by accepting Joint Applicants’ proposal despite conflict with the interregional cost
allocation proposal in the Order No. 1000 Notice of Proposed Rulemaking,25 which
proposed that cost allocation among neighboring RTOs is a consensual matter.26
NYTOs argue that the Commission should not have accepted Joint Applicants’ filing
because doing so would prejudge the Order No. 1000 final rule and they ask the
Commission to either reject Joint Applicants’ filing without prejudice to refile after the
22 Hearing Order, 133 FERC ¶ 61,275 at PP 1, 44.
23 Joint Rehearing Parties include: ISO-NE; the New England Participants;
NECPUC; Exelon; the New England States Committee; the Massachusetts DPU; and the Connecticut DPUC.
24 Joint Rehearing Parties Request for Rehearing at 6-7; PJM Request for
Rehearing at 4-5 (citing Commonwealth Edison Co., 129 FERC ¶ 61,298, at P 17 (2009)
(Commonwealth Edison), on reh’g, 132 FERC ¶ 61,268 (2010)); NYISO Request for
Rehearing at 5-10 (citing Midwest Indep. Transmission Sys. Operator, Inc., 131 FERC
¶ 61,173 (2010); Commonwealth Edison, 129 FERC ¶ 61,298); NYTOs Request for
Rehearing at 5-6 (citing In re Permian Basin Area Rate Case, 390 U.S. 747, 822 (1968)
Permian Basin); Commonwealth Edison, 129 FERC ¶ 61,298); PJMTOs Request for
Rehearing at 9.
25 See Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Notice of Proposed Rulemaking, FERC Stats. & Regs.
¶ 32,660 (2010) (Order No. 1000 NOPR).
26 NYTOs Request for Rehearing at 6-7; New York Commission Request for Rehearing at 6-9; AMP Request for Rehearing at 3-6.
Docket Nos. ER11-1844-001 and ER11-1844-002- 8 -
issuance of the final rule on Order No. 1000 or to hold this proceeding in abeyance
pending the issuance of the final rule. Several parties also argue that the cost allocation proposal violates Commission precedent in which the Commission has rejected unilateral filings proposing to compel charges on a neighboring utility without consensus.27
14. In addition, PJM argues that, because the ITC PARs replace failed equipment that
was planned, developed and placed into service to meet local system needs, the ITC
PARs should not be allocated to PJM and NYISO and the Commission should have
dismissed Joint Applicants’ proposal. Similarly, NYTOs state that under Commission
precedent, Joint Applicants may not request payment after-the-fact from non-customers
without agreement. PJM and PJMTOs argue that the only agreement between MISO and
PJM under which MISO may allocate costs to PJM is their Joint Operating Agreement
(JOA); however, they argue the JOA does not permit unilateral section 205 amendments
or allocations. PJM also contests Joint Applicants’ exclusion of IESO from the cost
allocation proposal arguing that it is inconsistent with the principle of cost causation.
PJM argues that any cost allocation that spreads 100 percent of the costs among only
three of the four regions contributing to loop flow and excludes one of the primary
beneficiaries is unjust and unreasonable on its face, and the Commission should dismiss
the proposal.28
15. Additionally, both NYISO and NYTOs requested that the Commission stay the
hearing and settlement judge procedures until the Commission acted on requests for
rehearing. New England Power Pool Participants Committee, New England States
Committee on Electricity, ISO-NE, and New England Conference of Public Utility
27 PJM Request for Rehearing at 9 (citing So. Cal. Edison Co., 70 FERC ¶ 61,087, at 61,250 (1995) (SoCal Edison)); PJMTOs Request for Rehearing at 7 (citing Midwest
Indep. Transmission Sys. Operator, Inc., 133 FERC ¶ 61,221, at P 439 (2010), clarifying order on rehearing, 137 FERC ¶ 61,074 (2011); Ill. Commerce Comm’n v. FERC,
721 F.3d 764 (7th Cir. 2013) (Illinois Commerce Commission II), cert. denied sub nom.
Schuette v. FERC, 134 S.Ct. 1277 (2014) and cert. denied sub nom. Hoosier Rural
Energy Co-op., Inc. v. FERC, 134 S.Ct. 1278 (2014); SoCal Edison, 70 FERC at 61,250); MISOTOs Request for Rehearing at 9 (citing SoCal Edison, 70 FERC ¶ 61,087; Ft.
Pierce Utils. Auth. v. FERC, 730 F.2d 778, 784 (D.C. Cir. 1984); Order No. 1000 NOPR, FERC Stats. & Regs. ¶ 32,660 at P 164).
28 PJM Request for Rehearing at 11 (citing Illinois Commerce
Commission v. FERC, 576 F.3d 470 (7th Cir. (2009) (Illinois Commerce Commission I)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 9 -
Commissioners; PJMTOs; and PJM supported requests to stay, while Joint Applicants
submitted a motion in opposition. The Commission denied requests for stay.29
3.Hearing and Settlement Judge Procedures and Initial Decision
16.Settlement conferences began on May 6, 2011. However, on December 13, 2011,
NYISO filed a motion to dismiss or for summary disposition of Joint Applicants’ filing
or, in the alternative, request for expedited action on rehearing requests, arguing that Joint
Applicants’ filing is inconsistent with the policy enunciated by the Commission in Order
No. 1000,30 which the Commission issued subsequent to the Hearing Order. NYTOs,
New York Commission, PJM, and the New York State Division of Consumer Protection
submitted answers supporting NYISO’s motion to dismiss. On December 28, 2011, Joint
Applicants submitted an answer opposing NYISO’s motion. NYTOs submitted an
answer to Joint Applicants’ answer, and NYISO submitted an answer in support of
NYTOs’ answer. Settlement discussions were terminated on December 20, 2011.
17. The hearing commenced on August 13, 2012, continued until a recess was taken
on August 20, 2012, recommenced on September 10, 2012, and continued until
September 13, 2012. On October 16, 2012, Joint Applicants, PJM, PJMTOs, NYISO,
NYTOs, MISOTOs, and Commission Trial Staff (Trial Staff) filed Initial Briefs; on
October 31, 2012, those parties filed Reply Briefs. The Presiding Judge issued the Initial
Decision on December 18, 2012.31 The Presiding Judge ordered that, subject to the
Commission’s review on exceptions, within 30 days of the issuance of the final order in
29 Midwest Indep. Transmission Sys. Operator, Inc., 134 FERC ¶ 61,185 (2011). In that order, the Commission also denied Organization of PJM States, Inc. and New York State Consumer Protection Board’s late-filed motions to intervene but stated that they may direct any requests to intervene in the hearing and settlement judge procedures to the appropriate presiding officer or settlement judge. Id. P 10 n.13.
30 See Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, FERC Stats. & Regs. ¶ 31,323 (2011), order on reh'g and clarification, Order No. 1000-A, 139 FERC ¶ 61,132, order on reh'g and clarification, Order No. 1000-B, 141 FERC ¶ 61,044 (2012), aff'd sub nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. Aug. 14, 2014).
31 See Initial Decision, 141 FERC ¶ 63,021. The parties in the proceeding
developed a Joint Statement of Issues containing 11 issues that the Presiding Judge ruled on in the Initial Decision, which are listed in the Appendix of this order.
Docket Nos. ER11-1844-001 and ER11-1844-002- 10 -
this proceeding, all parties shall take appropriate action to implement all the rulings in the
Initial Decision.32
4.Brief on Exceptions and Briefs Opposing Exceptions
18.On January 17, 2013, Joint Applicants filed a Brief on Exceptions which listed 26
exceptions to the Initial Decision. On February 6, 2013, PJM, MISOTOs, Trial Staff,
PJMTOs, NYTOs,33 and NYISO filed Briefs Opposing Exceptions.34
II.Discussion
A.Procedural Matters
1.Motions to Lodge
19.On December 11, 2012, Joint Applicants submitted a motion to lodge a
Commission order from a proceeding in Docket No. ER12-1761-001 concerning a filing
by PJM to revise its Open Access Transmission Tariff to “establish terms and conditions
for recovering from end users costs allocated to PJM under the . . . MISO Tariff[] for the
portion of the revenue requirement” for the ITC PARs.35 Joint Applicants argued that the
order was directly relevant to the obligations of NYISO and PJM to pursue deficiencies,
if any, in their customers’ payments of PARs-related charges.36 The Presiding Judge
denied this motion to lodge in the Initial Decision.37 Joint Applicants did not except to the Presiding Judge’s denial of the motion.
20. On May 23, 2013, Joint Applicants submitted a motion to lodge slide 12 of a 2012 State of the Markets Report issued by the Commission’s Office of Enforcement on
32 Id. P 925.
33 NYTOs filed errata to their Brief Opposing Exceptions on February 7, 2013.
34 Relevant arguments will be discussed below.
35 See PJM Interconnection, L.L.C., 141 FERC ¶ 61,200 (2012). This
Commission letter order accepted a compliance filing involving, inter alia, modifications
to Rate Schedule 10 (Michigan-Ontario Interface) in PJM’s Open Access Transmission
Tariff.
36 Joint Applicants December 11, 2012 Motion to Lodge at 1.
37 Initial Decision, 141 FERC ¶ 63,021 at P 923.
Docket Nos. ER11-1844-001 and ER11-1844-002- 11 -
May 16, 2013. Joint Applicants claim that language on slide 12 confirms that the nature of Lake Erie loop flow is such that physically controlling flows at the Michigan-Ontario interface also serves to control flows at other interfaces around Lake Erie.38 Specifically, Joint Applicants note that slide 12 states as follows:
For years, loop flow around Lake Erie has caused difficult-to-manage congestion
and reliability costs in the four surrounding regions, New York ISO, Ontario’s,
Independent Electricity System Operator, MISO and PJM. Full PAR control on
the interface was the culmination of more than 20 years of various projects.
Since the complete system of PARs on the Michigan-Ontario interface have gone
into service, loop flows have decreased compared to earlier periods. Early reports
indicate that congestion costs in Michigan are lower with fewer binding
constraints and the interchange capacity across the Michigan-Ontario interface has
been boosted.
NYTOs, PJMTOs, NYISO, and Trial Staff submitted answers opposing Joint Applicants’
motion to lodge. PJMTOs argue that it is inappropriate to lodge new items for the
Commission’s consideration since the hearing before the Presiding Judge has been
completed and the record is closed. Further, PJMTOs argue that Joint Applicants fail to
identify any changes in conditions of fact or other criteria that would warrant reopening
the record under Rule 716 of the Commission’s regulations.39 Finally, PJMTOs argue
that Joint Applicants have conceded that the report “does not specifically address
congestion costs and constraints in locations around Lake Erie other than Michigan.”40
PJM filed an answer supporting Joint Applicants’ motion to lodge and state that, to the
extent that the excerpt in the report, singled out by Joint Applicants, is pertinent to the
Commission’s consideration in the ITC PARs cost allocation proceeding, it would be
relevant only because it is consistent with the Presiding Judge’s findings in the Initial
Decision.41
21. On April 7, 2014, Joint Applicants submitted a motion to lodge two PARs
performance evaluation reports. Joint Applicants state that these reports confirm that the PARs installed on the Ontario-Michigan interface are effectively and consistently
38 Joint Applicants May 23, 2013 Motion to Lodge at 2.
39 18 C.F.R. § 385.716 (2016).
40 PJMTOs June 5, 2013 Response to Motion to Lodge at 2 (citing Joint Applicants May 23, 2013 Motion to Lodge).
41 PJM June 7, 2013 Answer to Motion to Lodge at 4.
Docket Nos. ER11-1844-001 and ER11-1844-002- 12 -
controlling and reducing Lake Erie loop flow and are thus necessarily benefitting all the
RTOs around Lake Erie, including both NYISO and PJM. On April 22, 2014, NYISO,
PSEG Companies, Trial Staff, NYTOs, and PJM submitted answers opposing the motion
to lodge. NYTOs argue that Joint Applicants have failed to show “a change in core
circumstances that go to the very heart of the case,” and have, therefore, failed to
demonstrate “extraordinary circumstances” that clearly outweigh the “administrative
chaos” and disruption to the proceedings that would result if the Commission were to
grant the motion.42 NYISO and Trial Staff argue that Joint Applicants fail to demonstrate
extraordinary circumstances to support reopening the evidentiary record in this docket.
22.We reject Joint Applicants’ May 23, 2013 and April 7, 2014 motions to lodge
because, as explained below, the documents that Joint Applicants request to be added to
the record do not help Joint Applicants in supporting their cost allocation proposal.43
2.Motions to Strike
23.On February 25, 2013, Joint Applicants filed a motion to strike a portion of PJM’s
Brief Opposing Exceptions.44 Joint Applicants claim that PJM has impermissibly sought
to challenge the Presiding Judge’s ruling that the MISO/PJM JOA was not the exclusive
vehicle for cost allocation between MISO and PJM. Joint Applicants further argue that
PJM should have raised its challenge in a Brief on Exceptions and that failure to do so
has effectively waived all objections to aspects of the Initial Decision. According to Joint
Applicants, PJM’s challenges are effectively raising new arguments in PJM’s Brief
Opposing Exceptions.45 On March 12, 2013, PJM filed an answer opposing Joint
Applicants’ motion to strike. PJM asserts that Commission policy disfavors such
motions, further contending that its arguments relating to the JOA—which PJM states is a
central issue in the proceeding—are a reiteration of its previous position and responsive
to arguments raised by Joint Applicants in their Brief on Exceptions. PJM also argues
that it had no reason to file a Brief on Exceptions because it was not aggrieved by the
42 NYTOs June 6, 2013 Answer to Motion to Lodge at 1.
43 See infra PP 133-134.
44 Specifically, Joint Applicants request to strike pages 18-21 from PJM’s Brief
Opposing Exceptions that involve arguments concerning the MISO/PJM Joint Operating Agreement.
45 Joint Applicants February 25, 2013 Motion to Strike at 3.
Docket Nos. ER11-1844-001 and ER11-1844-002- 13 -
Initial Decision, further noting that nothing precludes the Commission from addressing any and all aspects of the Initial Decision.46
24. We find that Joint Applicants’ motion to strike is moot in view of other
determinations in this opinion, and we will dismiss it. As discussed below, we find that we do not need to decide the merits of whether the JOA is the exclusive vehicle for cost allocation, because we find that Joint Applicants have not justified their proposal to allocate costs of the ITC PARs at issue in this proceeding outside of MISO.47
B.Substantive Matters
25.Before addressing the substantive matters presented in the Initial Decision and the
briefs on and opposing exceptions, we note as a threshold matter that, although the parties argue whether Joint Applicants’ proposal is consistent with Commission policies adopted in Order No. 1000, the polices adopted by the Commission in Order No. 1000 do not
apply to Joint Applicants’ filing because that filing pre-dated the issuance and the
effective date of Order No. 1000.
26. As discussed below, we reverse the Presiding Judge’s determinations, in part, and find that FPA section 205 and Commission cost allocation policies predating Order No. 1000 did not bar Joint Applicants from making their filing. Nonetheless, we affirm the Presiding Judge’s determinations, in part, and find that Joint Applicants have not
demonstrated the proposed cost allocation to be just and reasonable. We dismiss the remaining determinations of the Presiding Judge as moot.
1.Customer or Contractual Relationship
a.Presiding Judge’s Findings
27.The Presiding Judge found that FPA section 205 only permits assessment of costs
to entities with which that utility has a customer or contractual relationship.48 The Presiding Judge explained that FPA section 205(c) provides:
Under such rules and regulations as the Commission may prescribe,
every public utility shall file with the Commission . . . schedules
46 PJM March 12, 2013 Answer Opposing Motion to Strike at 5-7.
47 See infra P 135.
48 Id. at P 367 (citing NYISO Initial Br. at 17; NYTOs Initial Br. at 16; PJMTOs Initial Br. at 7; Trial Staff Initial Br. at 6-7).
Docket Nos. ER11-1844-001 and ER11-1844-002- 14 -
showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission, and the classes, practices, and regulations affecting such rates and charges, together with all
contracts which in any manner affect or relate to such rates, charges, classifications and services.49
28. The Presiding Judge explained that FPA section 205 permits a utility to assess
costs under two circumstances: (1) where the entity assessed is taking jurisdictional
service from the utility (“charges for any transmission or sale subject to the jurisdiction of the Commission”); or (2) where the entity assessed is a party to an agreement authorizing the utility to assess the costs (“together with all contracts which in any manner affect or
relate to such rates, charges, classifications and services”). The Presiding Judge
continued that, therefore, FPA section 205 authorizes a utility to assess rates or charges
only to its customers or to parties to a contractual agreement for jurisdictional services.
The Presiding Judge stated that filed and accepted tariffs govern the rates, terms, and
conditions of service between a public utility and parties with which the utility has such a customer or contractual relationship.50
29. The Presiding Judge noted that FPA section 205 also mandates that “all rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission . . . shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful.”51
30. The Presiding Judge explained that in addition to the clear language of the statute, Commission precedent supports the proposition that FPA section 205 filings can only lawfully govern the rates, terms, and conditions of service between a public utility and its customers, not third parties.52 The Presiding Judge agreed with the proposition that
Permian Basin conveys the principle that, absent a matter that would impair its financial ability to continue to provide public service, the Commission does not have the authority to abrogate existing contract arrangements.53
49 16 U.S.C. § 824d(c) (2012).
50 Initial Decision, 141 FERC ¶ 63,021 at P 369.
51 16 U.S.C. § 824d(a) (2012).
52 Initial Decision, 141 FERC ¶ 63,021 at P 371.
53 Id. P 372 (citing Permian Basin, 390 U.S. at 822 (“[T]he regulatory system
created by the [FPA] is premised on contractual agreements voluntarily devised by the
(continued ...)
Docket Nos. ER11-1844-001 and ER11-1844-002- 15 -
31. The Presiding Judge also explained that in Morgan Stanley Capital Group
Inc. v. Public Utility District No. 1 of Snohomish County, the Supreme Court explained
that the Court previously held in United Gas Pipe Line Co. v. Mobile Gas Service Corp.
that the requirement that all new rates be filed with the Commission “is merely a
precondition to changing a rate, not an authorization to change rates in violation of a
lawful contract (i.e., a contract that sets a just and reasonable rate).”54 The Presiding
Judge explained that the Court then went a step further, describing the standard the
Commission uses to evaluate whether a contract rate is just and reasonable, stating:
[W]hile it may be that the Commission may not normally impose
upon a public utility a rate which would produce less than a fair
return, it does not follow that the public utility may not itself agree
by contract to a rate affording less than a fair return or that, if it does
so, it is entitled to be relieved of its improvident bargain.. In such
circumstances the sole concern of the Commission would seem to be whether the rate is so low as to adversely affect the public interest— as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory.55
32. Continuing, the Presiding Judge stated that the Court went on to clarify the
Mobile-Sierra standard, explaining that it is not “different from the statutory just-and-
reasonable standard,” but rather “the term ‘public interest standard’ refers to the differing application of that just-and-reasonable standard to contract rates.”56
regulated companies; it contemplates abrogation of these agreements only in circumstances of unequivocal public necessity.”)).
54 Id. P 376 (quoting Morgan Stanley Capital Group Inc. v. Public Utility District
No. 1 of Snohomish County, 554 U.S. 527, 532-533 (2008) (Morgan Stanley) (citing
United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 339-344 (1956)
(Mobile))).
55 Id. (quoting Morgan Stanley, 554 U.S. at 533 (citing FPC v. Sierra Pacific Power Co., 350 U.S. 348, 354-355 (1956) (Sierra))).
56Id.
Docket Nos. ER11-1844-001 and ER11-1844-002- 16 -
33. The Presiding Judge also explained that, although Trial Staff and NYISO relied on
Midwest Independent Transmission System Operator, Inc. and the decision on rehearing,
neither case is dispositive of the facts of this case.57 Further, the Presiding Judge noted
that NYISO, at the time, was seeking appellate judicial review of portions of Order No.
1000-A. Accordingly, the Presiding Judge declined to rely upon these cases.58
34. The Presiding Judge found that Joint Applicants have not met their burden of
proving that they have authority to make a unilateral filing to impose costs on those
outside of their region who are neither customers nor participants in an agreement to
share costs.59 The Presiding Judge also found that Joint Applicants have failed to prove
that NYISO or PJM are taking jurisdictional service from Joint Applicants or that Joint
Applicants are assessing costs to NYISO or PJM pursuant to an agreement authorizing
such.
35. First, the Presiding Judge found that Joint Applicants do not provide transmission
service or make wholesale sales of electric power to PJM or NYISO, so there is no
customer relationship that justifies the filing. The Presiding Judge explained that FPA
section 205 provides a mechanism whereby utilities establish rates and charges for
transmission service and wholesale sales of electricity, subject to the Commission’s
approval. The Presiding Judge continued that, in contrast, FPA section 205 does not
authorize a utility to charge entities that do not take jurisdictional service from the utility
or that are not party to a contract with that utility, which provides for such assessment of
costs.60
36. The Presiding Judge explained that while it can be argued that controlling loop
flows in a manner that benefits all is equivalent to providing a transmission service, Joint
Applicants have not demonstrated that the ITC PARs will be operated in such a manner.61
The Presiding Judge stated that proposed Schedule 36 “provides for recovery of a portion
of the revenue requirement associated with [the ITC PARs] at the Bunce Creek Station on
the Michigan-Ontario interface.”62 However, the Presiding Judge explained that the
57 Midwest Indep. Transmission Sys. Operator, Inc., 131 FERC ¶ 61,173 (2010), order on reh’g, 136 FERC ¶ 61,244 (2011).
58 Initial Decision, 141 FERC ¶ 63,021 at P 377.
59 Id. P 378 (citing 16 U.S.C. § 824d (2012)).
60 Id. P 380.
61 Id. P 381.
62 Id. (citing Ex. ITC Tab A, Proposed Schedule 36 § I).
Docket Nos. ER11-1844-001 and ER11-1844-002- 17 -
proposed tariff sheets do not encompass a charge for transmission service, but instead
charge PJM and NYISO for the cost of facilities installed for the express purpose of
denying PJM and NYISO use of the MISO transmission system. Moreover, MISO chose to operate the ITC PARs on a “flow to schedule” basis, which prevents unscheduled
flows of energy from PJM and NYISO across the Michigan-Ontario interface.63
37. The Presiding Judge agreed that Joint Applicants seek to charge for the installation
of physical devices that prevent the flow of unscheduled energy across the Michigan-
Ontario interface.64 The Presiding Judge also agreed that, although Joint Applicants
describe the ITC PARs as being necessary to address Lake Erie loop flow, they do not
seek compensation for the loop flows on the MISO or ITC transmission systems.65 The
Presiding Judge explained that Joint Applicants constructed the electrical equivalent of a
barrier that prevents NYISO and PJM from accessing MISO’s system, and Joint
Applicants seek to charge NYISO and PJM and their customers for the cost of that
barrier.66
38. Second, the Presiding Judge found that there are no contractual relationships
between Joint Applicants and NYISO or between Joint Applicants and PJM that support the proposed cost allocation.67
39. The Presiding Judge explained that the only agreement providing for allocation of
costs among MISO and PJM is the JOA.68 The Presiding Judge continued that the JOA
precludes allocation of costs associated with the ITC PARs to PJM both because its
procedures were not followed and because of the application of the Mobile-Sierra
doctrine.69 The Presiding Judge explained that under the Mobile-Sierra doctrine, the
63 Id. P 381.
64 Id. P 382 (citing PJMTOs Initial Br. at 6-7).
65 Id. (citing PJMTOs Initial Br. at 9).
66 Id. (see Ex. PJM-1 at 4:17-18 (explaining that loop flows “are an accepted part
of operating an interconnected transmission grid”); PJMTOs Initial Br. at 7; PJM Reply
Br. at 26).
67 Id. P 384 (citing Hearing Tr. 91:14-92:25; Ex. PTO-1 at 23:12-14; Ex. NYT-1
at 5-6).
68 Id. P 385 (citing Ex. PTO-1 at 23:12-15).
69 Id.
Docket Nos. ER11-1844-001 and ER11-1844-002- 18 -
Commission is bound to enforce the rates, terms, and conditions of all Commission-
accepted agreements and may modify such an agreement “only if it ‘adversely affects the public interest.’”70 The Presiding Judge continued that PJM argues that the Commission repeatedly has recognized its “obligation under the FPA to enforce the provisions of
parties’ agreements” and, therefore, the Commission “will hold parties to the language they drafted and agreed to.” The Presiding Judge also explained that PJM argues that the Commission may amend such agreements “only in circumstances of unequivocal public necessity” and “has no discretion to accept a FPA section 205(e) rate filing that
contravenes a private contract.”71 The Presiding Judge concluded that the installation of the ITC PARs was a local decision made without any interregional involvement and
without following the procedures outlined in the JOA.72
40. The Presiding Judge also explained that NYTOs argue that, despite the absence of
any customer or contractual relationship, Joint Applicants seek to have the Commission
force NYISO and PJM and their customers to pay for facilities that pre-exist the JOA.73
The Presiding Judge continued that NYTOs argue that these are the very same costs that
MISO refused to allocate to its customers outside of the ITC zone, but now seek approval
to impose on non-customers outside of the ITC region. Moreover, the Presiding Judge
explained that NYTOs assert that Joint Applicants’ filing runs afoul of Opinion No. 49474
because, with respect to pre-existing facilities, the fact that such facilities might provide
some benefit outside a particular transmission zone does not justify reallocating the costs
across regions.75 The Presiding Judge explained that in Opinion No. 494, discussed infra,
the Commission determined that broad cost allocation is not warranted where “existing
70 Id. (citing PJM Initial Br. at 9 (citing Midwest Indep. Transmission Sys.
Operator, Inc., 122 FERC ¶ 61,090, at P 47 n.41 (2008) (quoting Sierra, 350 U.S. at
355))).
71 Id. (citing PJM Initial Br. at 10).
72 Id.
73 Id. P 386 (citing NYTOs Initial Br. at 2).
74 PJM Interconnection, L.L.C., Opinion No. 494, 119 FERC ¶ 61,063 (2007),
order on reh’g, Opinion No. 494-A, 122 FERC ¶ 61,082, order denying reh’g, 124 FERC ¶ 61,033 (2008), Illinois Commerce Commission v. FERC, 576 F.3d 470 (7th Cir. 2009), order on remand, PJM Interconnection, L.L.C., 138 FERC ¶ 61,230 (2012), order on reh’g, 142 FERC ¶ 61,216 (2013).
75 Initial Decision, 141 FERC ¶ 63,021 at P 386 (citing NYTOs Initial Br. at 15).
Docket Nos. ER11-1844-001 and ER11-1844-002- 19 -
facilities represent sunk costs that were built primarily by individual utilities to serve their own internal needs and were financed by those utilities.”76
41. The Presiding Judge explained that Joint Applicants could have availed
themselves of the benefits of the JOA, but they did not, and that Joint Applicants also
could have filed for a transmission service rate to account for the purported extra costs of the unscheduled loop flows, but they did not.77 The Presiding Judge concluded that Joint Applicants have not demonstrated that the ITC PARs are backbone facilities that benefit the entire multi-regional footprint.78 Moreover, the Presiding Judge agreed with NYISO that Joint Applicants are not proposing to charge NYISO for its unscheduled use of
MISO’s transmission system.79 Thus, the Presiding Judge concluded that not only is there no customer or contractual relationship that justifies the proposed cost allocation, but Joint Applicants also seek to allocate pre-existing sunk costs.
b.Joint Applicants’ Brief on Exceptions
42.Joint Applicants state that the Presiding Judge erred in finding that contracts are a
prerequisite to transmission charges under the FPA. Joint Applicants explain the
Presiding Judge’s finding that FPA section 205 only permits the assessments of costs to
entities with which the utility has a customer or contractual relationship is directly
contrary to the Commission’s holding in Order No. 1000 that “[n]either section 205 nor
section 206 of the FPA state or imply that an agreement is a precondition for any
transmission charges.”80 Joint Applicants continue that Order No. 1000 states:
76 Id. (citing NYTOs Initial Br. at 15 (quoting Opinion No. 494, 119 FERC ¶ 61,063 at P 50)).
77 Id. P 387.
78 Id. (citing Opinion No. 494, 119 FERC ¶ 61,063 at P 80).
79 Id. (citing NYISO Initial Br. at 25).
80 Joint Applicants Brief on Exceptions at 13 (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 533).
Docket Nos. ER11-1844-001 and ER11-1844-002- 20 -
On the contrary, the Commission’s jurisdiction is clearly broad
enough to allow it to ensure that all beneficiaries of service provided by specific transmission facilities bear the costs of those benefits regardless of their contractual relationship with the owner of those transmission facilities.[81]
43. Joint Applicants note that because neither ITC nor MISO has a customer or contractual relationship with either NYISO or PJM regarding the ITC PARs, the Presiding Judge’s finding that the existence of such a relationship is necessary as a prerequisite to the imposition of charges under the FPA negatively influenced Joint Applicants’ filing and the Presiding Judge’s findings on several other issues, and accordingly, the Initial Decision should be vacated.82
c.Briefs Opposing Exceptions
44.PJMTOs, PJM, NYTOs, NYISO, MISOTOs, and Trial Staff (the Opposing
Parties) state that they oppose Joint Applicants’ argument that the Presiding Judge erred in finding that contracts are a prerequisite to transmission charges under the FPA.83 NYISO also states that this legal finding has no relation to the factual findings, and as such, the Commission should reject Joint Applicants’ argument that the legal finding prejudiced the entire Initial Decision.84
45. PJMTOs, NYTOs, and Trial Staff explain that Joint Applicants mischaracterize
the Presiding Judge’s finding that only contracts are a prerequisite to transmission
charges. PJMTOs, NYTOs, and Trial Staff explain that the Presiding Judge applied a
two-pronged analysis and held that FPA section 205 permits a utility to assess costs under
two circumstances: (1) where the entity assessed is taking jurisdictional service from the
utility or (2) where the entity assessed is a party to an agreement authorizing the utility to
assess the costs. PJMTOs, NYTOs, and Trial Staff state that under the first prong, the
proposed allocation is not authorized by FPA section 205 because it does not involve any
transmission service or sale subject to the jurisdiction of the Commission. PJMTOs,
81 Id. (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 531).
82 Id.
83 PJMTOs Brief Opposing Exceptions at 5-6; PJM Brief Opposing Exceptions at
37; NYTOs Brief Opposing Exceptions at 15-17; NYISO Brief Opposing Exceptions at
9-11; MISOTOs Brief Opposing Exceptions at 9; Trial Staff Brief Opposing Exceptions
at 14-16.
84 NYISO Brief Opposing Exceptions at 9-10.
Docket Nos. ER11-1844-001 and ER11-1844-002- 21 -
NYTOs, and Trial Staff continue that under the second prong, there is no contractual relationship among the parties that would support the proposed cost allocation. These parties conclude that the Presiding Judge correctly found that Joint Applicants did not meet the requirements under the two pronged analysis.85
46. NYTOs state that the fundamental issue addressed by the Presiding Judge was not
whether Joint Applicants can charge other regions for the costs of the ITC PARs only if
they have a customer or contractual relationship, but rather whether Joint Applicants have
carried their burden to show that the tariff they filed establishes any service commitment
that gives the Commission jurisdiction. NYTOs state that if there is no transmission
service involved, a utility may not collect charges under FPA section 205. NYTOs
explain that Joint Applicants’ tariff lacks the requisite service commitment because Joint
Applicants have not taken exception to the Presiding Judge’s finding that the whole
purpose of the ITC PARs is to deny transmission service to NYISO and PJM by ensuring
that no flows of energy from the NYISO region move on ITC’s transmission facilities.86
Additionally, NYTOs explain that Joint Applicants’ Department of Energy-approved
operating guide does not show a commitment to operate the ITC PARs to provide
transmission service for NYISO or PJM, and NYISO and PJM and their customers are
not parties to that agreement.87
47. PJMTOs, MISOTOs, and Trial Staff state that the Commission should reject Joint
Applicants’ arguments as to Issue 1 because the Presiding Judge did not undermine Order
No. 1000.88 MISOTOs explain that, while Order No. 1000 stated that FPA section 205
provides the Commission with jurisdictional authority to approve the allocation of costs
to parties who benefit from a service even when there is no specific contract allowing for
such allocation, Order Nos. 1000 and 1000-A held that the cost of facilities constructed in
one region cannot be allocated to other regions absent their consent.89 Trial Staff
85 PJMTOs Brief Opposing Exceptions at 6-8 (citing Initial Decision, 141 FERC ¶ 63,021 at P 369); NYTOs Brief Opposing Exceptions at 15-16; Trial Staff Brief
Opposing Exceptions at 15-16.
86 NYTOs Brief Opposing Exceptions at 15-17 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 381-382).
87 Id. at 17.
88 PJMTOs Brief Opposing Exceptions at 2-3; MISOTOs Brief Opposing Exceptions at 9-10; Trial Staff Brief on Exceptions at 16.
89 MISOTOs Brief Opposing Exceptions at 9-11 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 657).
Docket Nos. ER11-1844-001 and ER11-1844-002- 22 -
explains that Order No. 1000’s holding that an agreement is not a precondition for
transmission charges is not triggered because neither NYISO nor PJM take transmission service from MISO or ITC. Trial Staff continues that Joint Applicants repeatedly stated that Order No. 1000 does not apply in this case.90
48. NYISO states that the Commission held in Order No. 1000 that “[n]either section
205 nor section 206 of the FPA state or imply that an agreement is a precondition for any
transmission charges.”91 NYISO continues that in Order No. 1000-A, the Commission
rejected on rehearing arguments that “the costs of new transmission facilities can only be
allocated within a preexisting contractual relationship,” reasoning that “[r]ather than
contractual relationships, the benefits received by users of the regional transmission grid
provide for a basis for how costs should be allocated.”92 NYISO explains that the
customer or contractual relationship issue is currently unresolved, as it is pending in
judicial review,93 and the Presiding Judge’s finding related to this issue was made with
full awareness of the current posture of Order No. 1000 and 1000-A.94
d.Commission Determination
49.We reverse the Initial Decision as it pertains to the Presiding Judge’s finding that
FPA section 205 only permits assessment of costs to entities with which the utility has a
customer or contractual relationship. Consistent with the subsequent conclusion of the
D.C. Circuit in its decision affirming Order No. 1000, we find that a customer or
contractual relationship is not a prerequisite to the allocation of transmission charges.
50. In Order No. 1000, the Commission rejected the argument that the FPA limits the
allocation of transmission costs to beneficiaries that have a customer or contractual
relationship with the entity that is collecting costs. The Commission stated that “[n]either
90 Trial Staff Brief on Exceptions at 16.
91 NYISO Brief Opposing Exceptions at 10 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 533).
92 Id. (citing Order No. 1000-A, 139 FERC ¶ 61,132 at P 564).
93 The oral argument in the Order No. 1000 appeal occurred on March 20, 2014.
As cited above, the United States Court of Appeals for the District of Columbia (D.C.
Circuit) issued its opinion after the issuance of the Initial Decision and the submission of
briefs on and opposing exceptions. See S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41.
94 NYISO Brief Opposing Exceptions at 11 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 330, 336, 377).
Docket Nos. ER11-1844-001 and ER11-1844-002- 23 -
section 205 nor section 206 of the FPA state or imply that an agreement is a precondition
for any transmission charges.”95 Additionally, the Commission found that nothing in the
language of FPA section 205 or section 206 “precludes flows of funds to public utility
transmission providers through mechanisms other than agreements between the service
provider and the beneficiaries of those transmission facilities.”96 The Commission stated
that, on the contrary, “the Commission’s jurisdiction is clearly broad enough to allow it to
ensure that all beneficiaries of services provided by specific transmission facilities bear
the costs of those benefits regardless of their contractual relationship with the owners of
those transmission facilities.”97
51. In affirming Order No. 1000, the D.C. Circuit likewise rejected the argument that
FPA section 206 unambiguously forecloses the Commission from mandating the
allocation of costs beyond pre-existing commercial relationships. The D.C. Circuit held
that “[n]o such limitation exists in the statutory text.. Section 206 nowhere limits cost
allocation to entities with preexisting commercial relationships. To the contrary, it
empowers the Commission to fix ‘any rate’ ‘demanded, observed, charged, or collected
by any public utility for any transmission . . . subject to the jurisdiction of the
Commission,’ and ‘any . . . practice’ ‘affecting such rate.’” 98 The D.C. Circuit added
that “[t]he use of ‘any’ to describe ‘rate,’ ‘public utility,’ and ‘transmission’ bestows
authority on the Commission that is not cabined to pre-existing commercial relationships
of any given utility.”99
52. We agree with NYISO that the Initial Decision should not be vacated based on the Presiding Judge’s finding on this issue. Contrary to Joint Applicants’ statement that this finding negatively influenced the Presiding Judge’s view of the entire record and thus the outcome of the Initial Decision, we find that Joint Applicants’ proposed cost allocation is unjust and unreasonable for other reasons, discussed infra.
95 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 533.
96 Id.; see also Order No. 1000-A, 139 FERC ¶ 61,132 at P 570.
97 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at PP 530-531.
98 S.C. Pub. Serv. Auth. v. FERC, 762 F.3d at 84 (citing section 206(a) of the FPA (emphasis supplied by the Court)).
99 Id.
Docket Nos. ER11-1844-001 and ER11-1844-002- 24 -
2.Pre-Order No. 1000 Commission Precedent on Allocating Loop
Flow Costs to Neighboring Utilities Absent a Consensual
Arrangement
a.Presiding Judge’s Findings
53.The Presiding Judge found that, although the policies adopted by the Commission
in Order No. 1000 - including interregional cost allocation principle four,100 - do not apply to the ITC PARs or to Joint Applicants’ filing since the installation of the ITC PARs and the rate filing both pre-dated the issuance and the effective date of Order No. 1000, the Commission’s pre-Order No. 1000 policy with respect to interregional cost allocation was “the same as that found in cost allocation principle four of Order No. 1000.”101 The Presiding Judge further found that:
The Joint Applicants have violated this policy in that the proposed cost
allocation for the interregional transmission facility (the ITC PARs) is not limited to the transmission planning region in which the PARs are located and the Joint Applicants have not engaged in any consensual negotiation to resolve the alleged loop flow problem.[102]
54. In so doing, the Presiding Judge found that under pre-Order No. 1000 policy, the
Commission has rejected unilateral filings by a utility to impose loop flow costs on
neighboring utilities and instead has required consensual resolution, which the Presiding
100 Interregional Cost Allocation Principle 4: “Costs allocated for an interregional
transmission facility must be assigned only to transmission planning regions in which the transmission facility is located. Costs cannot be assigned involuntarily under this rule to a transmission planning region in which that transmission facility is not located.”
Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 657.
101 Initial Decision, 141 FERC ¶ 63,021 at P 411 (citing Permian Basin, 390 U.S. 747, Sierra, 350 U.S. 348, Illinois Commerce Commission I, 576 F.3d 470, and Am. Elec. Power Serv. Corp., 49 FERC ¶ 61,377 (1989)).
102 Id. P 412.
Docket Nos. ER11-1844-001 and ER11-1844-002- 25 -
Judge found to be absent in this case.103 Citing Indiana Michigan Power,104 the Presiding Judge quoted the Commission:
While the Commission has left open an option for utilities to seek
compensation for unscheduled power flows if the problem cannot be
resolved through mutual agreement, this was not intended as an alternative
to a good faith attempt at working out the problem. Rather, it was intended
as a last resort to address situations that could not be resolved consensually.
Utilities that choose to interconnect bear the responsibility to exercise all
appropriate measures to resolve loop flow and other operational problems
on a mutually acceptable basis, including dispute resolution mechanisms
clearly delineated in their contracts, before filing a transmission service rate
with the Commission. Even if utilities’ contracts do not contain specific
provisions requiring attempts at mutual resolution, as here, we expect
utilities to make such attempts before filing a loop flow transmission rate. If, in the event good faith negotiation proves unsuccessful in resolving a
loop flow problem, and a Commission filing is made, the Commission will consider all potential remedies (including options that the parties neglect to present to the Commission), and will select the remedy that in its view best reflects the public interest.[105]
55. The Presiding Judge found that Joint Applicants failed to overcome the
requirement of voluntary cost sharing between different regions, especially where the
sunk cost (the ITC PARs) is not located in the region being asked to pay. The Presiding
Judge found that in the instant case, and contrary to the Commission’s holding in Indiana
Michigan Power, Joint Applicants made a unilateral filing without a showing that they
engaged in a “good faith effort” to work out their problems with NYISO and PJM prior to
their filing.106
103 Id. P 391 (“the Commission has rejected unilateral filings by a utility to impose loop flow costs on neighboring utilities and has required ‘good faith’ negotiation.”).
104 Indiana Michigan Power Co. and Ohio Power Co., 64 FERC ¶ 61,184 (1993) (Indiana Michigan Power).
105 Initial Decision, 141 FERC ¶ 63,021 at P 395 (quoting Indiana Michigan Power, 64 FERC at 62,554) (emphasis in original).
106 Id. P 404 (citing Indiana Michigan Power, 64 FERC ¶ 61,184).
Docket Nos. ER11-1844-001 and ER11-1844-002- 26 -
b.Joint Applicants’ Brief on Exceptions
56.Joint Applicants assert that, prior to Order No. 1000, the Commission never had a
policy that prohibited involuntary interregional cost allocation in appropriate cases. That policy prohibition, they argue, was established for the first time in Order No. 1000, and it is inextricably linked to the new transmission planning reforms adopted in that order.107 They argue that, prior to Order No. 1000, there were no binding policy distinctions
between regional and interregional cost allocation, and involuntary interregional cost allocations in appropriate circumstances were not barred.
57. In addition, Joint Applicants contend that they did attempt in good faith prior to
the filing to negotiate a consensual cost sharing arrangement with NYISO and PJM with
respect to the ITC PARs, but that attempt was rebuffed.108 They also contend that the
Commission’s decision setting the filing for hearing shows that they attempted in good
faith to negotiate a cost-sharing agreement.109 Joint Applicants contend that the Presiding
Judge’s erroneous view of binding Commission policy negatively influenced the rest of
the Initial Decision.
c.Briefs Opposing Exceptions
i.Involuntary Cost Allocation
58.The Opposing Parties argue that the Presiding Judge correctly relied on
Commission precedent.110 Trial Staff argues that the Presiding Judge did not rely on
Commission policy per se but rather on Commission cases in which it rejected unilateral
107 Joint Applicants Brief on Exceptions at 14 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 539).
108 Id. at 15 (citing Hearing Order, 133 FERC ¶ 61,275 at P 8; Ex. S-4, NYISO’s
Broader Regional Markets Report filed on January 12, 2010 in Docket No. ER08-1281,
transmittal letter at 14-15 and Attachment E). According to Joint Applicants, the exhibit
recounts ITC’s efforts a full year prior to the submission of the instant rate filing to
commence discussions of interregional allocation of the costs of the ITC PARs and the
rebuff of that proposal.
109 Id.
110 Trial Staff Brief Opposing Exceptions at 17-18; NYISO Brief Opposing
Exceptions at 12-14; NYTOs Brief Opposing Exceptions at 19-21; PJM Brief Opposing Exceptions at 22-25; PJMTOs Brief Opposing Exceptions at 9-11; MISOTOs Brief Opposing Exceptions at 12-15.
Docket Nos. ER11-1844-001 and ER11-1844-002- 27 -
filings by a utility to impose costs related to loop flow on neighboring utilities in the
absence of good faith negotiations to resolve loop flows. NYTOs assert that the Initial Decision was not “premised” on a single policy finding; rather, it is supported by an
expansive record that, NYTOs contend, time and again illuminates Joint Applicants’
evidentiary failings.
59. NYISO argues that Joint Applicants gloss over the actual content of paragraph 411
of the Initial Decision. NYISO argues that, in that paragraph, as well as in paragraphs
391-400, the Presiding Judge reviewed the cases cited in the parties’ briefs and
appropriately found - citing American Elec. Service Power Corp. and Indiana Michigan
Power - that the Commission’s pre-Order No. 1000 policy was, like Order No. 1000 cost
allocation principle four, premised on consensual arrangements between neighboring
utilities. In support, NYISO cites a 1995 order involving the Western Systems
Coordinating Council (WSCC), in which the Commission accepted for filing a plan
addressing loop flow that was developed by the signatories to the WSCC Agreement to
address a longstanding problem.111 NYISO states that the plan called for the use of
controllable devices owned by five of the member utilities and included a cost allocation
and compensation methodology. The plan was approved by 57 of the 64 WSCC
members. In noting favorably the collaborative development and approval of the plan,
the Commission contrasted attempts to impose charges on neighbors through section 205
filings, stating: “The Commission has consistently rejected unilateral filings by single
utilities proposing to impose charges, terms and conditions on a neighboring utility that,
according to the filing utility, is responsible for loop flows.”112
60. NYTOs argue that the Commission, against that backdrop of rejection of such
unilateral filings, reaffirmed this approach in Order No. 890 while recognizing the
potential for “free rider problems.”113 NYTOs state that Order No. 1000 again reaffirmed
111 See S. Cal. Edison Co., 70 FERC ¶ 61,087 (footnote omitted) (S. Cal. Edison), subsequent order approving loop flow plan, 73 FERC ¶ 61,219 (1995).
112 NYISO Brief Opposing Exceptions at 12-13 (citing S. Cal. Edison, 70 FERC at 61,250).
113 NYTOs Brief Opposing Exceptions at 19 (citing Preventing Undue
Discrimination and Preference in Transmission Service, Order No. 890, FERC Stats. &
Regs. ¶ 31,241, at P 561, order on reh’g, Order No. 890-A, FERC Stats. & Regs. ¶
31,261 (2007), order on reh’g, Order No. 890-B, 123 FERC ¶ 61,299 (2008), order on
reh’g, Order No. 890-C, 126 FERC ¶ 61,228 (2009), order on clarification, Order No.
890-D, 129 FERC ¶ 61,126 (2009) (“[W]e recognize that there are free rider problems
associated with new transmission investment” . . . but “continue to believe that regional
solutions that garner the support of stakeholders, including affected state authorities, are
preferable.”)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 28 -
this policy and rejected MISO’s argument that the Commission should change its policy as it applies to interregional cost allocations. NYTOs also noted that, regarding Joint Applicants’ free rider concerns, the Initial Decision found that Joint Applicants had failed to establish that PJM and NYISO are free riders.
61. NYISO contends that Joint Applicants do not cite a single case from the pre-Order No. 1000 period where the Commission approved non-consensual charges imposed by
one utility on another to address loop flow issues. NYTOs assert that the record is
undisputed that Joint Applicants have not proposed to use the ITC PARs to provide
transmission service to NYISO or PJM. As a result, NYTOs state that MISO witness
Mr. Chatterjee confirmed that the cost allocation cases cited in his testimony are not
analogous to the situation here as the Presiding Judge found114 and that MISO correctly
admitted that its attempt to force other regions to pay for the costs of facilities that are not in their regions is a case of first impression.
62. Regarding Joint Applicants’ claim that “the Commission never had a policy that prohibited interregional cost allocation” and “involuntary interregional cost allocations in appropriate circumstances were not barred,” PJMTOs and MISOTOs argue that Joint Applicants neither cite any Commission decisions to support their claim nor attempt to distinguish or refute any of the several cases cited by the Initial Decision.115
ii.Lack of Good Faith Effort to Negotiate
63.The Opposing Parties argue that the Presiding Judge’s finding of a lack of a “good
faith effort” by Joint Applicants to work out the problem with NYISO and PJM was
supported by record evidence. For example, NYISO states that ITC admitted in
discovery that it did not ask NYISO to contribute to the cost of the ITC PARs until after
it had already begun its efforts to construct the ITC PARs.116 NYISO further argues that
Joint Applicants do not assert that Detroit Edison (ITC’s predecessor) sought any
agreement to share costs with NYISO or PJM prior to the construction of the Original
PAR, of which the ITC PARs were simply replacements. NYISO states that the
December 23, 2009 letter from ITC (included as Attachment E to the January 12, 2010
NYISO report on Broader Regional Markets) that asks for contributions from NYISO and
others explicitly states in the first paragraph that ITC has already “installed new PARs.”
114 NYTOs Brief Opposing Exceptions at 20 (citing Chatterjee Cross Examination, Tr. 220:24-223:3).
115 PJMTOs Brief Opposing Exceptions at 10-11; MISOTOs Brief Opposing Exceptions at 13.
116 NYISO Brief Opposing Exceptions at 13-14 (citing Ex. NYT-11 at 1).
Docket Nos. ER11-1844-001 and ER11-1844-002- 29 -
Further, ITC’s request for NYISO to contribute was made after the completion of
MISO’s planning process, after the construction of the ITC PARs was essentially
complete, and over two years after ITC assumed a contractual obligation to construct the
ITC PARs. NYISO contends that ITC moved forward with the construction of the ITC
PARs without any assurance that the ITC PARs were candidates for multi-regional cost-
sharing, according to NYISO. Thus, NYISO argues, planning and building new
transmission facilities without the involvement or consent of the neighboring regions,
then demanding payment from those regions after the facilities were constructed and the
costs sunk, does not constitute a “good faith effort” to consensually resolve an
interregional cost sharing issue. Regarding the matter being set for hearing, NYISO
notes that the portion of the Hearing Order cited by Joint Applicants is part of the
Background section of the order, in which the Commission recounted statements made by
various parties but made no rulings.
64. PJM asserts that Joint Applicants provide no support whatsoever for their
contention that they ever approached or engaged in negotiations with PJM about cost
allocation for the ITC PARs. PJM states that Joint Applicants cite to a report by NYISO but do not mention PJM.117 PJM adds that its unrebutted testimony shows that neither MISO nor ITC ever approached PJM to discuss an allocation of the costs to PJM prior to Joint Applicants filing their cost allocation proposal.118 Trial Staff notes that, at hearing, Joint Applicants presented no witnesses to testify to the timing of any negotiation
sessions with PJM and/or NYISO.119
65. PJM argues that the Commission’s policy of requiring good faith negotiation
before bringing a unilateral rate filing before the Commission is based on the
fundamental premise that “[i]nadvertent or unauthorized power flows are an unavoidable
consequence of interconnected utility operations”120 and “that fact alone traditionally has
not entitled the interconnected neighboring transmission system to the Commission’s
ordering compensation.”121 Rather, PJM states that the Commission has found that
117 PJM Brief Opposing Exceptions at 22-23 (citing Hearing Order, 133 FERC ¶ 61,275 at P 8).
118 Id.
119 Trial Staff Brief Opposing Exceptions at 18.
120 PJM Brief Opposing Exceptions at 24 (quoting Am. Elec. Power Serv. Corp.,
49 FERC, at 62,381 (emphasis added)).
121 Id. (quoting Am. Elec. Power Serv. Corp., 93 FERC ¶ 61,151, at 61,474 (2000) (emphasis added)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 30 -
“[u]tilities that choose to interconnect bear the responsibility to exercise all appropriate
measures to resolve loop flow and other operational problems on a mutually acceptable
basis.”122 According to PJM, the Commission has “directed the utilities themselves, in
the first instance to work to resolve such issues.”123 Moreover, PJM asserts that only “as
a last resort to address situations that could not be resolved consensually”124 will the
Commission consider unilateral cost allocations if the proponent can demonstrate that the
loop flow places “a burden on its system.”125 PJM states that it and MISO did resolve
consensually how to resolve loop flows and cross-border allocations when they entered
into the JOA.
d.Commission Determination
66.We reverse the Initial Decision with respect to the Presiding Judge’s conclusion
that certain pre-Order No. 1000 Commission precedent with respect to allocation of loop flow costs to neighboring utilities absent a consensual resolution precludes Joint
Applicants’ proposal.
67. In American Elec. Power Service Corp., the Commission expressed a preference for voluntary resolutions of certain operational issues, such as loop flow. The
Commission explained that:
Inadvertent or unauthorized power flows are an unavoidable consequence
of interconnected utility operations. Interconnected utilities must, and do,
work closely to ensure that the operation of one system does not jeopardize
the reliability of a neighboring system, nor diminish the neighbor's ability
to utilize its system in the most economical manner.. The Commission,
however, does not and, indeed, could not oversee the operation of utility
systems.. It is, in the first instance, for the interconnected parties as the
owners and operators of utility systems to establish mutually acceptable
122 Id. (quoting Indiana Michigan Power, 64 FERC at 62,554 (emphasis added)). 123 Id. (quoting Am. Elec. Power Serv. Corp., 93 FERC at 61,474).
124 Id. (quoting Pa. Elec. Co., 65 FERC ¶ 61,304, at 62,402 (1993)).
125 Id. (quoting Am. Elec. Power Serv. Corp., 49 FERC at 62,381).
Docket Nos. ER11-1844-001 and ER11-1844-002- 31 -
operating practices. In addition, if Allegheny can demonstrate that this transaction is a burden on its system, Allegheny can file a transmission service rate for Commission consideration which would account for any unauthorized loop flows.[126]
68. However, the Commission has explained that “[t]he Commission’s authority is not
limited in principle by cases where the Commission expresses a preference not to
exercise that authority.”127 Thus, while the Commission has made clear its preference
that interconnected utilities strive to resolve loop flow-related issues among themselves
rather than resort to unilaterally filing proposed solutions with the Commission, a public
utility is legally permitted to make a unilateral filing to address loop flow.128
69. We also disagree with the Presiding Judge’s application to this case of Indiana
Michigan Power. In that case, the Commission determined that, in light of the terms of existing interconnection agreements between the parties, the filing was at best premature and inconsistent with the parties’ contractual commitment to resolve technical and
operating problems of that kind according to mutually acceptable practice.129 The
Commission further found:
The interconnection agreements provide for synchronous operations along
with different types of energy transactions such as coordination, sale and
purchase, interchange and energy transfer, as defined in specific service
schedules among the parties. All of the agreements contain provisions
clearly stating that mutual agreement is necessary to change the terms and
conditions of the various service schedules, and to provide for new or
supplemental service.[130]
70. Thus, the Commission’s determination in Indiana Michigan Power turned on the
applicants’ failure to follow procedures set forth in the relevant contracts requiring that
the contracting parties resolve technical and operational difficulties by mutual agreement.
126 Am. Elec. Power Serv. Corp., 49 FERC at 62,381.
127 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 539.
128 While we agree with the Presiding Judge that Cost Allocation Principle 4 of Order No. 1000 is consistent with principles set forth in Commission orders prior to Order No. 1000, we interpret those cases differently, as discussed above.
129 Indiana Michigan Power, 64 FERC at 62,552.
130 Indiana Michigan Power, 64 FERC at 62,552..
Docket Nos. ER11-1844-001 and ER11-1844-002- 32 -
That determination is consistent with the Commission’s preference for interconnected
utilities to resolve such issues between themselves, as stated in American Elec. Power
Service Corp., and did not preclude Joint Applicants from proposing to allocate the ITC
PARs costs.
3.Pre-Order No. 1000 Commission Precedent on Relationship
between Joint Transmission Planning and Cost Allocation
a.Presiding Judge’s Findings
71.The Presiding Judge agreed with PJM that Joint Applicants’ proposal was
inconsistent with the Commission’s policy dictating that cost allocation must follow
transmission planning.131 PJM asserted that the intent of this policy was to ensure that
the parties who are to pay for facilities are involved in the determination of whether such
facilities “are necessary to meet [their] reliability and economic needs.”132 The Presiding
Judge agreed with PJM that, while the Commission permits regional cost allocation for
new transmission facilities to “influence[] the incentive to invest,” with regard to
facilities constructed prior to the advent of regional transmission planning processes, the
Commission has held that “[t]hese transmission facilities were developed by the
individual companies to benefit their own systems and their own customers.”133 The
Presiding Judge also found that the proposed cost allocation was created long after the
decision to construct the Original PAR was made. Further, the Presiding Judge found
that neither NYISO nor PJM participated in the planning decision processes for either the
Original PAR or the ITC PARs, nor did NYISO or PJM have any notice that they might
be allocated costs for the ITC PARs. The Presiding Judge found, therefore, that Joint
Applicants’ request for an allocation of costs to NYISO and PJM as beneficiaries was
barred.134
131 Initial Decision, 141 FERC ¶ 63,021 at PP 621-622 (citing PJM Initial Br. at
29-30).
132 Id. P 621 (citing PJM Initial Br. at 29 (citing Opinion No. 494, 119 FERC ¶ 61,063 at P 44)).
133 Id. P 634 (citing PJM Initial Br. at 32 (citing Opinion No. 494, 119 FERC ¶ 61,063 at PP 42, 53)).
134 Id. P 623 (citing PJM Initial Br. at 31).
Docket Nos. ER11-1844-001 and ER11-1844-002- 33 -
72. The Presiding Judge also agreed with NYISO that Joint Applicants were seeking to impose a “super-regional postage stamp rate” on entities outside the MISO footprint.135 Both the Presiding Judge and NYISO noted that in Opinion Nos. 494 and 494-A, the
Commission made a clear distinction between “zonal” license-plate rates and “postage
stamp” rates, with the distinction centering around pre-existing facilities and associated sunk costs and the construction of new or planned facilities.136 The Presiding Judge
pointed to the Commission’s determination in Opinion No. 494 that using a license-plate rate design137 was essentially the same as allocating existing system costs to the parties
for whom the investment was originally made.138
73. In addition to reviewing Opinion No. 494, the Presiding Judge agreed with NYISO
and PJM that AEP applied in this case. The Presiding Judge explained that, in AEP, the
Commission provided three reasons for rejecting AEP’s assertion that its existing high-
voltage facilities provided regional benefits and that, therefore, the costs for the facilities
should be allocated on a regional basis within both MISO and PJM: (1) AEP’s facilities
were not “planned to address regional needs of either the [MISO] or PJM wholesale
market, and therefore they [were] not comparable to new facilities that were planned
pursuant to each RTO’s regional planning process;” (2) AEP’s facilities “were created
principally to serve the customers of the transmission owners on whose system they are
located and were not the product of centralized regional planning;” and (3) “AEP
undertook financial responsibility for the existing projects they planned before it was
known whether any cost sharing policy would be adopted.”139 The Presiding Judge noted
that Mr. Chatterjee attempted to distinguish the current filing from AEP but found that
135 Id. P 635 (citing NYISO Initial Br. at 47).
136 Id. (citing NYISO Initial Br. at 47-48 (citing Opinion No. 494, 119 FERC
¶ 61,063 at P 1 n.2, P 18; Midwest Indep. Transmission Sys. Operator, Inc., 114 FERC ¶ 61,106, order on reh’g, 117 FERC ¶ 61,241 (2006); and American Electric Power Service Corp. v. MISO, 122 FERC ¶ 61,083, at P 18 n.30 (AEP I), order on reh’g, 125 FERC ¶ 61,341 (2008) (AEP II))).
137 Under a license-plate (or zonal) rate design, a customer pays the embedded cost
of transmission facilities that are located in the same zone as the customer. A customer
does not pay for other transmission facilities outside of the zone, even if the customer
engages in transactions that rely on those zones. Opinion No. 494-A, 122 FERC ¶ 61,082
at P 1 n.2.
138 Initial Decision, 141 FERC ¶ 63,021 at P 636 (citing Opinion No. 494-A, 122 FERC ¶ 61,082 at P 26 n.28).
139 Id. P 652 (citing AEP II, 125 FERC ¶ 61,341 at P 42; PJM Initial Br. at 33).
Docket Nos. ER11-1844-001 and ER11-1844-002- 34 -
Mr. Chatterjee’s testimony was unsupported and contrary to Commission precedent.
Thus, the Presiding Judge found that the ITC PARs were pre-existing facilities planned to
meet the needs within MISO.140
b.Joint Applicants’ Brief on Exceptions
74.Joint Applicants argue that the Presiding Judge erroneously interpreted the
Commission’s policy regarding interregional cost allocation in Opinion No. 494 and AEP
as barring the proposed cost allocation.141 Joint Applicants argue that both Opinion No.
494 and AEP are limited to their specific facts and are readily distinguishable from this
proceeding. First, Joint Applicants argue that, unlike the instant case, Opinion No. 494
and AEP involved requests under section 206 of the FPA to modify existing rates, thus
requiring a different burden of proof. Further, Joint Applicants argue that the ITC PARs
are relatively small, discrete facilities, located at a single substation, that were neither in
service nor approved by the U.S. Department of Energy when the cost allocation proposal
was filed, whereas all facilities involved in Opinion No. 494 and AEP had been in service
for many years.
75. Joint Applicants also argue that Opinion No. 494 and AEP involved large numbers of facilities that would have resulted in large, abrupt cost shifts if there had been a
reallocation of costs. In this case, Joint Applicants argue that the proposed cost allocation would involve such small cost shifts that they would be virtually lost in the rounding in NYISO’s and PJM’s rates. Further, Joint Applicants assert that those costs would be
more than offset by the benefits received from the physical loop flow control. Joint
Applicants also argue that the facilities involved in Opinion No. 494 and AEP provided only ancillary benefits to the surrounding regions. In this case, Joint Applicants argue that the facilities are fundamentally different because they are designed to provide direct benefits to address Lake Erie loop flow, an interregional issue.142
c.Briefs Opposing Exceptions
76.The Opposing Parties agree with the Presiding Judge’s finding that the
Commission’s decisions in Opinion No. 494 and AEP barred Joint Applicants’ cost
allocation proposal. The Opposing Parties disagree with Joint Applicants’ argument that Opinion No. 494 and AEP are distinguishable from the instant case because of the
140 Id. P 653 (quoting Ex. MSO Tab D at 25:3-13, 26:4-15).
141 Joint Applicants Brief on Exceptions at 15 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 643, 652)).
142 Joint Applicants Brief on Exceptions at 17.
Docket Nos. ER11-1844-001 and ER11-1844-002- 35 -
different burdens of proof under sections 205 and 206 of the FPA. NYISO argues that
the guidance that the Commission provided on cost allocation issues in those cases is just
as relevant to determining whether Joint Applicants’ proposed cost allocation is just and
reasonable in this proceeding.143 Similarly, PJMTOs assert that Joint Applicants
incorrectly focus on burdens of proof in these cases, instead of how these cases illustrate
the general principles that costs of pre-existing facilities must be allocated to those for
whom the facility was constructed, and new transmission investments must go through a
regional planning process before costs are allocated.144 NYTOs argue that Joint
Applicants overlook the fact that the Commission ruled that joint planning is a
precondition to cost allocation for new facilities apart from the rate design change
issue.145 Trial Staff asserts that it is well-established that a party filing a rate adjustment
with the Commission under section 205 of the FPA bears the burden of proving the
adjustment is lawful,146 and MISOTOs assert that Joint Applicants failed to satisfy this
burden.147
77. Several parties also dispute Joint Applicants’ claim that the instant case is
distinguishable from Opinion No. 494 and AEP because the ITC PARs facilities are small and the Joint Applicants’ cost allocation proposal would not involve large cost shifts.
MISOTOs, PJMTOs, and Trial Staff argue that the relatively small cost impact of a
proposed cost allocation does not justify a proposal that is otherwise contrary to
Commission policy.148
143 NYISO Brief opposing Exceptions at 16.
144 PJMTOs Brief opposing Exceptions at 13.
145 NYTOs Brief opposing Exceptions at 22.
146 Trial Staff Brief opposing Exceptions at 19 (citing Al. Power Co. v. FERC, 993 F.2d 1557, 1571 (D.C. Cir. 1993)).
147 MISOTOs Brief opposing Exceptions at 14 (citing 16 U.S.C. § 824a(e) (2012); Allegheny Power v. FERC, 437 F.3d 1215, 1219 (D.C. Cir. 2006); 18 C.F.R.
§ 35.13(e)(3) (2016)).
148 Id. Brief opposing at 14-15 (citing Joint Applicants Brief on Exceptions at 16-
17; La. Pub. Serv. Comm’n v. Entergy Servs., Inc., 113 FERC ¶ 61,282, at P 73 (2005));
PJMTOs Brief opposing Exceptions at 15-16; Trial Staff Brief opposing Exceptions at
19-20.
Docket Nos. ER11-1844-001 and ER11-1844-002- 36 -
78. Several parties agree with the Presiding Judge that the ITC PARs should be
classified as pre-existing facilities.149 NYISO asserts that, even though the Commission’s
license-plate rate design decisions are not limited to transmission facilities that have
already been placed into service,150 the key issue is not whether the underlying
transmission facility is already in service before a postage stamp cost allocation method
takes effect, but rather whether the developer of a transmission facility moved forward in
its effort to develop and construct that facility without any assurance that the project
would be a candidate for regional or interregional cost-sharing.151 In this case, NYISO
argues that there was no postage stamp rate in place for allocating costs across the MISO,
PJM, and NYISO region in 1998 when Detroit Edison assumed the obligation to
construct the Original PAR, or in 2007 when ITC assumed the obligation to construct the
ITC PARs. NYISO and Trial Staff also point out that ITC did not ask NYISO to
contribute to the cost of the ITC PARs until October or November of 2009, after it had
already begun its efforts to construct them, further supporting their contention that the
ITC PARs are appropriately classified as pre-existing facilities not eligible for cost
allocation outside of the local zone.152 Opposing Parties provide further arguments that
the ITC PARs were existing facilities ineligible for a regional cost allocation.153
d.Commission Determination
79.We disagree with the Presiding Judge’s interpretation of Opinion No. 494 and
AEP and find that this precedent does not preclude the regional allocation of costs for
existing facilities or facilities not developed as part of a joint transmission planning
process.
149 See, e.g., PJM Brief opposing Exceptions at 28-29 (the Presiding Judge
correctly found that the ITC PARs are not new devices, but merely replacements for a pre-existing facility and, in turn, Joint Applicants’ proposal violates the Commission’s policies with regard to cost allocation for existing facilities as evidenced in Opinion No. 494 and AEP); PJMTOs Brief opposing Exceptions at 14-15 (noting that MISO classified the ITC PARs as a “like-for-like replacement” of the original PAR and determined that they are not eligible for cost sharing in MISO under the MISO Tariff).
150 NYISO Brief opposing Exceptions at 16-17 (citing Midwest Indep. Transmission Sys. Operator, Inc., 117 FERC ¶ 61,241 at P 96).
151 NYISO Brief opposing Exceptions at 16-17 (citing Midwest Indep. Transmission Sys. Operator, Inc., 117 FERC ¶ 61,241 at PP 86, 96).
152 Trial Staff Brief opposing Exceptions at 21.
153 See infra P 96.
Docket Nos. ER11-1844-001 and ER11-1844-002- 37 -
80. The Presiding Judge takes the position that Commission precedent, as articulated
in Opinion No. 494 and AEP, makes clear that zonal or license-plate cost allocations are
the only just and reasonable rate designs for existing facilities or facilities not planned
through a transmission planning process of appropriate regional scope. For instance, the
Presiding Judge asserts that, “Opinion No. 494 clearly states that the Commission does
not permit the involuntary allocation of pre-existing costs that were not incurred through
joint planning.”154
81. We disagree with the Presiding Judge’s interpretation of Commission precedent
pre-dating Order No. 1000 for two reasons. First, we note the importance of context
when considering Opinion No. 494 and AEP. Those decisions followed Order No. 2000,
in which the Commission expressed reservations regarding the continued use of zonal or
license-plate rates on a long-term basis, even for existing facilities.155 The Commission
permitted RTOs to use zonal or license-plate cost allocations for a limited, transitional
period, followed by a reevaluation of the appropriateness of such cost allocations for
existing and new facilities in their regions.156 In Opinion No. 494 and AEP, the
Commission found that zonal or license-plate rates continued to be just and reasonable
for existing facilities in PJM and across the MISO-PJM seam, beyond the initial
transition period envisioned in Order No. 2000. This precedent did not make claims that
zonal or license-plate cost allocations were the only just and reasonable rate designs for
existing facilities or for facilities not planned through a regional planning process.
82. Second, Opinion No. 494 and AEP present a more nuanced view than is reflected
in the Initial Decision. The Commission stated in Opinion No. 494 that, based on the
record in that proceeding, it could not find that sunk costs must be shared equally among
all customers in order to produce just and reasonable rates.157 The Commission found
that the record demonstrated that a license plate rate design for existing facilities was
consistent with the principles of cost causation, further adding that, in PJM, new
investments go through the PJM planning process, which in contrast to the investments in
154 Initial Decision, 141 FERC ¶ 63,021 at P 643 (citing Opinion No. 494, 119 FERC ¶ 61,063 at PP 42, 44).
155 Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs.
¶ 31,089 (1999), order on reh’g, Order No. 2000-A, FERC Stats. & Regs. ¶ 31,092
(2000), aff’d sub nom. Pub. Util. Dist. No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001).
156 Order No. 2000, FERC Stats. & Regs. ¶ 31,089 at PP 523-525. 157 Opinion No. 494, 119 FERC ¶ 61,063 at P 42.
Docket Nos. ER11-1844-001 and ER11-1844-002- 38 -
existing facilities, helps to ensure such projects are necessary to meet reliability and economic needs of the region.158 Of significance, the Commission stated that:
With respect to the allocation of existing or sunk costs, on the record
developed here, we conclude that, while other cost allocation
methodologies may also be just and reasonable, we cannot find that the
continued use of the existing zonal or license plate rate design is unjust and unreasonable . . . There is no identifiable threshold at which a particular rate design becomes unjust and unreasonable.[159]
83. Thus, in Opinion No. 494, the Commission emphasized that it based its
determinations on the record developed in the proceeding and that multiple just and
reasonable rate designs were possible for existing facilities. The Commission also found that a regional transmission planning process can help ensure that facilities meet regional needs, thereby providing a basis for regional cost allocation. However, the Commission in Opinion No. 494 did not find that a regional planning process is a prerequisite for
regional cost allocation. The Commission made similar statements in AEP, finding that the Commission should balance a variety of factors when determining whether a
proposed rate design is just and reasonable and further noted that its decision applied in the context described in that proceeding.160
84. Accordingly, we find that, contrary to assertions made by the Presiding Judge and
several Opposing Parties, Opinion No. 494 and AEP did not mandate that joint planning
precede a regional allocation of costs for existing facilities. This precedent did not bar
Joint Applicants’ filing of the proposed cost allocation for the ITC PARs, and it permits
consideration of a broader cost recovery of the ITC PARs beyond the local zone.161
158 Id. PP 42, 44.
159 Id. P 41 (citing Consolidated Edison Co. of New York, Inc. v. FERC, 165 F.3d 992 at 1003 (D.C. Cir. 1999)) (emphasis added).
160 AEP I, 122 FERC ¶ 61,083 at PP 82-83, 95.
161 Because of our finding here concerning the interpretation of AEP and Opinion No. 494 (i.e., that existing facilities are not required to be allocated on a license plate
basis), we find the issue of whether the ITC PARs is a new facility or a replacement
facility to be moot.
Docket Nos. ER11-1844-001 and ER11-1844-002- 39 -
4.Justness and Reasonableness of Proposed Cost Allocation
85.As discussed above, a customer or contractual relationship is not a prerequisite to
the allocation of costs of transmission facilities. Recognizing the Commission’s ability to allocate costs in the absence of a pre-existing contractual relationship, a question remains of when the Commission should do so, consistent with its responsibility to ensure that rates are just and reasonable.
86. In order to address this question in this case, we find that the pre-Order No. 1000
Commission precedent discussed above is instructive. First, American Elec. Power
Service Corp. and Indiana Michigan Power reflect the Commission’s preference for
consensual resolution of loop flow cost issues. In this case, Joint Applicants have not
reached any agreement with NYISO or PJM over allocation of the cost of the ITC PARs.
Second, Opinion No. 494 and AEP reflect the Commission’s belief that projects that are a
result of joint transmission planning are more likely to have benefits that could warrant
regional cost allocation. In this case, as discussed in more detail below, Joint Applicants
have not supported their proposed cost allocation with such joint planning efforts.
87. Despite the absence of these factors that could have supported Joint Applicants’ proposed cost allocation, we also examine whether there is sufficient evidence in this record to conclude that Joint Applicants’ proposed cost allocation is just and reasonable. For the reasons discussed below, we find that Joint Applicants’ proposed cost allocation has not been shown to be just and reasonable.
a.Lack of Regional Planning Process
i.Presiding Judge’s Findings
88.The Presiding Judge found that there was no credible, persuasive evidence in the
record demonstrating that the ITC PARs were subject to a regional planning process or
were planned to address regional, rather than local, needs. The Presiding Judge disagreed
with Mr. Chatterjee’s testimony that the Original PAR and the ITC PARs were part of a
regional planning process that would justify, pursuant to Opinion No. 494 and other
Commission policy, the proposed cost allocation.162 Further, the Presiding Judge noted
that ITC admitted that it did not ask NYISO to contribute to the cost of the ITC PARs
until after it had already begun its efforts to construct them.163 Additionally, the
Presiding Judge found that merely because the Commission and many parties may have
said that the issue of Lake Erie loop flow is worthy of interregional attention did not
162 Initial Decision, 141 FERC ¶ 63,021 at P 646.
163 Id.
Docket Nos. ER11-1844-001 and ER11-1844-002- 40 -
mean that NYISO, PJM, or their stakeholders directly and financially would benefit from the Joint Applicants’ operation of the PARs, nor did it serve as evidence to support the
conclusion that the facilities were the product of an interregional planning effort
involving NYISO and PJM, as Mr. Chatterjee contended.164 The Presiding Judge also
found unsupported Mr. Chatterjee’s argument that the Commission itself had identified
Lake Erie loop flow as an issue to be resolved to ensure just and reasonable rates and
address free rider problems. Rather, the Presiding Judge found that the Joint Applicants’ own evidence demonstrated that ITC built the ITC PARs strictly for ITC’s local needs
and that neither PJM nor NYISO were “free riders” engaged in activities that caused Joint Applicants to incur the ITC PARs costs.165
89. The Presiding Judge agreed with PJM that the Commission’s policy regarding
previously allocated facilities costs is reflected in its approval of the JOA’s cross-border
cost allocation provisions of the JOA. The Presiding Judge found that the Commission
expressly exempted pre-planned facilities in accordance with the “settled expectations” of
the parties.166
90. The Presiding Judge also noted PJM’s point that, in evaluating competing cost
allocation proposals submitted by MISO and PJM for cross-border projects under the
JOA, the Commission selected MISO’s proposal because “its approach most closely
matches the actual modeled flow in the planning model” and that the decisions “on which
cross-border facilities needed to be built are based on that model, and the cost allocation
reasonably should parallel the planning model used to determine if the facilities should be
built.”167 The Presiding Judge further noted PJM’s point that MISO witness Mr.
Chatterjee admitted that the cost allocation model that MISO used in that proceeding did
not match the planning model used to determine whether the ITC PARs should be
installed.168 The Presiding Judge also found credible the portion of Mr. Chatterjee’s
164 Id. P 647.
165 Id. PP 648-649. 166 Id. P 660.
166 Id. P 640 (citing PJM Initial Br. at 34 (citing Midwest Indep. Transmission Sys. Operator, Inc., 113 FERC ¶ 61,194, at P 35 (2005) and Opinion No. 494, 119 FERC ¶ 61,063 at PP 50-57)).
167 Id. P 621 (citing PJM Initial Br. at 30 (citing Midwest Indep. Transmission Sys. Operator, Inc., 122 FERC ¶ 61,084, at PP 1, 24 (2008))).
168 Id. P 622 (citing PJM Initial Br. at 30 (citing Hearing Tr. 634:12-14)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 41 -
testimony highlighting that Joint Applicants’ method for allocating the costs of the ITC PARs to PJM and NYISO did not follow MISO’s planning method for including the ITC PARs in the 2006 MISO Transmission Expansion Plan (MTEP06).169
91. The Presiding Judge agreed with PJMTOs that, while Joint Applicants proposed to
allocate 23.8 percent of the costs of the ITC PARs to PJM, they had not demonstrated
that PJM or NYISO would receive any benefits from installation and operation of the ITC
PARs.170 The Presiding Judge found credible Trial Staff’s argument that any potential
benefit from the ITC PARs would accrue primarily to ITC because both the Original and
ITC PARs were intended to relieve thermal overload on the ITC system. Further, the
Presiding Judge found credible and persuasive PJMTOs’ assertion that Joint Applicants’
use of the ITC PARs may actually harm PJM “by increasing west-to-east congestion on
PJM’s system and requiring the operation of more expensive eastern generation closer to
the eastern loads.”171
92. Additionally, the Presiding Judge found that Joint Applicants did not support their
contentions regarding the Presidential Permit. The Presiding Judge found that Joint
Applicants’ argument that both the Original PAR and the ITC PARs were specifically
approved by the Department of Energy for interregional purposes was plainly
unsupported. The Presiding Judge found misleading Joint Applicants’ assertion that “the
Presidential Permit for the Original PAR acknowledged that its purpose was ‘to provide
enhanced control over the inadvertent power flow between Michigan and Ontario and, by
extension, around Lake Erie.’”172 The Presiding Judge emphasized that the words “by
extension, around Lake Erie” were found in Detroit Edison’s filing and were not in the
Presidential Permit from the Department of Energy. The Presiding Judge also found that
the premise that the Original PAR was permitted to address thermal concerns at the
Michigan-Ontario flowgate was not the equivalent of it controlling loop flow around
Lake Erie.173 The Presiding Judge disagreed with Joint Applicants that, because
NYISO’s witness Mr. Yeomans agreed that loop flow is “very similar” at each of the
various interfaces around Lake Erie, “controlling loop flow at the Michigan-Ontario
169 Id. (citing Hearing Tr. 364: 12-14).
170 Id. P 627 & nn.2033-34 (citing PJMTOs Initial Br. at 35); see also Id. PP 628-
630).
171 Id. P 630 (citing PJMTOs Initial Br. at 35 (citing Ex. PJM-1 at 38:6-17)).
172 Id. P 661 (quoting Joint Applicants Reply Br. at 16 (citing Ex. MSO-4 at 2) (emphasis in original)).
173 Id. P 663.
Docket Nos. ER11-1844-001 and ER11-1844-002- 42 -
interface necessarily also controls it elsewhere around the lake.”174 The Presiding Judge found that Joint Applicants offered no support for this logical leap.
93. Relying on principles articulated in Order No. 890 to resolve cost allocation
disputes, which the Commission discussed and expanded upon in Opinion No. 494, the
Presiding Judge concluded that: (1) the proposed cost allocation did not “fairly assign []
costs among participants, including those who cause them to be incurred and those who
otherwise benefit from them; (2) did not “provide [] adequate incentives to construct new
transmission;” and (3) was not “generally supported by state authorities and participants
across the region.”175
ii.Joint Applicants’ Brief on Exceptions
94.In addition to their other arguments distinguishing the instant proceeding from
Opinion No. 494 and AEP,176 Joint Applicants contend that, while the facilities in
Opinion No. 494 and AEP had never been the subject of interregional review, the
Original PAR and ITC PARs were discussed among the utilities around Lake Erie and were specifically addressed and endorsed in several interregional studies over many years.177 Joint Applicants assert that, although a formalized interregional planning process did not exist at the time, the ITC PARs were subjected to what sufficed as “interregional planning” at the time.178
95. Joint Applicants also disagree with the Presiding Judge’s finding that the Original
PAR was constructed to benefit Detroit Edison and its customers and built strictly for
local concerns. Instead, Joint Applicants assert that the fundamental purpose of the
Original PAR was “to improve the reliability of the bulk power system by controlling
circulating loop flows around Lake Erie that would otherwise interfere with the ability to
carry out scheduled transactions.”179 Joint Applicants point to the Department of Energy
174 Id. P 662 (quoting Joint Applicants Reply Br. at 16 (citing Ex. NYI-1 at 12 n.3,
37 n.9)).
175 Id. P 651 (citing Opinion No. 494, 119 FERC ¶ 61,063 at P 38 (quoting Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 559)).
176 See supra PP 74-75.
177 Joint Applicants Brief on Exceptions at 17-18. 178 Id. at 18.
179 Id. at 41 (citing Ex. ITC Tab 4 at 4-5 (emphasis added)).
Docket Nos. ER11-1844-001 and ER11-1844-002- 43 -
Presidential Permit issued in 2001 authorizing the Original PAR as acknowledging that
Detroit Edison had claimed in its application that approval of the Original PAR would
“provide enhanced control over the inadvertent power flow between Michigan and
Ontario and, by extension, around Lake Erie.”180 Joint Applicants argue that, contrary to
the Presiding Judge’s findings, the words “by extension, around Lake Erie” are present in
both Detroit Edison’s filing and the Department of Energy permit itself. Joint Applicants
argue that, more importantly, the point at issue is that Detroit Edison intended the
Original PAR to serve not only local needs but also loop flow around Lake Erie. Further,
Joint Applicants argue that, since loop flow is “very similar” at each of the various
interfaces around Lake Erie, controlling loop flow at the Michigan/Ontario interface
necessarily and unavoidably has the effect of controlling it elsewhere around the lake.
Joint Applicants argue that this fact is supported by NYISO and PJM’s support for the
installation and activation of the ITC PARs at that location for that purpose. According
to Joint Applicants, NYISO and PJM would have no other interest in the ITC PARs.181
iii.Briefs Opposing Exceptions
96.In addition to arguments discussed above, NYISO and PJM assert that MISO
treated the ITC PARs as existing facilities for purposes of the MTEP06 planning process,
and as a result, the ITC PARs were like-for-like replacements of the Original PAR and
ineligible for cost sharing under the MISO Tariff at Attachment FF.182 NYISO notes that
the ITC PARs were approved for construction in the MTEP06 and that the cost of the
ITC PARs did not qualify for region-wide cost sharing as a baseline reliability project;
rather, the cost was allocated to ITC’s customers under a license-plate rate. PJM argues
that Joint Applicants cannot circumvent local cost allocations by replacing the Original
PAR with the ITC PARs. Also, PJMTOs assert that there is a several-year disconnect
between the planning for the ITC PARs and the post hoc allocation of their costs to
180 Id. (quoting Ex. MSO-4 at 2 (emphasis added)).
181 Id. at 42.
182 NYISO Brief opposing Exceptions at 17-18; PJM Brief opposing Exceptions at
32-33 (citing Ex. PJM-11, Ex. PJM-6); PJMTOs Brief opposing Exceptions at 14-15
(citing Ex. PJM-6 throughPJM-11; Tr. 297:1-15, 304:11-19, 304:1-3, 559:19-560:2);
NYTOs Brief opposing Exceptions at 46 (citing Initial Decision, 141 FERC ¶ 63,021 at
PP 451-453).
Docket Nos. ER11-1844-001 and ER11-1844-002- 44 -
NYISO and PJM, and even MISO witness Mr. Chatterjee’s testimony and a MISO email to ITC corroborate that MISO’s policy does not permit the ITC PARs costs to be
allocated outside of the ITC zone.183
97. Contrary to Joint Applicants’ argument that the Original PAR and ITC PARs were
installed to meet interregional purposes, several parties argue that the record
demonstrates that the ITC PARs were designed and installed to meet local purposes and
benefit Joint Applicants’ own customers. For example, NYISO argues that the 2001
Presidential Permit for the Original PAR recited the contents of Detroit Edison’s
application stating that “Detroit [Edison] claimed that the combined effect of these two
proposals would be to provide enhanced control over the inadvertent power flow between
Michigan and Ontario, and by extension, around Lake Erie.”184 NYISO states that
nowhere in the “Discussion,” “Finding and Decision,” or “Order” sections of the
Presidential Permit is there a finding that the Original PAR was being installed to meet an
interregional need, nor does Detroit Edison’s claim actually state that the “enhanced
control” is being sought for anything other than Detroit Edison’s own purposes.185
98. PJM also agrees with the Presiding Judge that the ITC PARs were constructed to benefit local ITC customers and were not planned regionally, barring any cost allocation to PJM.186 According to PJM, the record belies Joint Applicants’ claim that the ITC
PARs were designed and intended to address interregional needs as well as local needs because (1) the Original PAR was planned in the late 1990s by Detroit Edison and Hydro One (the predecessor company to Ontario Hydro) to resolve local needs and was not the product of a Commission-approved transmission planning process; and (2) the ITC PARs have the identical purpose as the Original PAR and were approved by MISO as “like-for-
like” replacements in the MISO planning process.187
99. PJM, PJMTOs, and NYTOs argue that the purpose of the Original PAR was to
address local needs. PJM states that ITC witness Mr. Capra’s testimony supports the
notion that the fundamental purpose of the Original PAR was a local need to facilitate the
183 PJMTOs Brief opposing Exceptions at 14-15 (citing Ex. PJM-6 through PJM--
11; Tr. 297:1-15, 304:11-19, 304:1-3, 559:19-560:2).
184 NYISO Brief opposing Exceptions at 71 (quoting Ex. MSO-4 at 2).
185 Id.
186 PJM Brief opposing Exceptions at 25 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 655, 659).
187 Id. at 26 & nn.103-04.
Docket Nos. ER11-1844-001 and ER11-1844-002- 45 -
ability to carry out scheduled transactions that would be scheduled within Michigan.
Further, PJM argues that ITC’s agreement to pay for the facilities without contribution
from others is further demonstration that ITC was furthering local needs. According to
PJM, if ITC believed that the facility served regional needs, then ITC would have sought
contributions from others before, not after, the facilities were planned and fully
constructed.188 Further, NYTOs agree with the Presiding Judge that the record shows
that ITC and Hydro One built the ITC PARs to encourage economic transactions between
Michigan and Ontario and to meet local reliability needs in Michigan.189 Specifically,
NYTOs and PJMTOs argue that the main impetus to build the Original PAR came from a
Michigan Public Service Commission directive to expand available transmission
capability within the state by at least 2,000 MW in compliance with a state statute
enacting retail choice in Michigan.190 According to PJMTOs, when ITC planned to
replace the Original PAR with the ITC PARs, the original planning purpose - to expand
transmission capability to meet state law requirements - did not change.191 Trial Staff
argues that, as in Opinion No. 494, the fact that the ITC PARs are used today in ways that
differ from when the facilities were first constructed does not provide a basis for finding
that a license-plate rate design is no longer just and reasonable.192
100. PJM also dismisses Joint Applicants’ argument that the ITC PARs were installed
to address interregional needs because controlling loop flow at the Michigan/Ontario
interface “necessarily and unavoidably has the effect of controlling it elsewhere around
the Lake.”193 Rather, PJM argues that Joint Applicants’ statement is unremarkable since
operation on one system will always affect flows on neighboring systems. According to
188 See PJM Brief opposing Exceptions at 27, 30-31.
189 NYTOs Brief opposing Exceptions at 45 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 448-450, 727).
190 PJMTOs Brief opposing Exceptions at 32-33; see NYTOs Brief opposing Exceptions at 45 (citing Ex. ITC Tab F at 4:21-5:3).
191 PJMTOs Brief opposing Exceptions at 33.
192 Trial Staff Brief opposing Exceptions at 20-21 (citing Opinion No. 494, 119 FERC ¶ 61,063 at P 51).
193 PJM Brief opposing Exceptions at 27-28 (quoting Joint Applicants Brief on Exceptions at 42).
Docket Nos. ER11-1844-001 and ER11-1844-002- 46 -
PJM, the fact that the impact of the ITC PARs may extend beyond ITC’s zone does not mean that the facilities were planned and designed to meet external needs.194
101. Several parties argue that Opinion No. 494 and AEP are applicable in this case and
demonstrate the lack of evidence in the record showing that Joint Applicants’ facilities
were planned to address the regional needs of either NYISO or PJM. First, NYISO
challenges Joint Applicants’ statement that the transmission facilities in AEP had never
been the subject of any interregional review. NYISO states that, in response to AEP’s
argument that it “in fact did coordinate the development of its [high-voltage] system with
other utilities in the region,” the Commission explained “AEP has not shown that the
level and type of coordination it says occurred in the development of its existing high-
voltage facilities is comparable to the RTO regional planning processes currently in
place.”195 Agreeing with the Presiding Judge, PJMTOs assert that merely because many
of the participants in this case, as well as the Commission, may have said that the issue of
controlling Lake Erie loop flow is worthy of interregional attention does not mean that
NYISO, PJM, or their stakeholders directly and financially benefit from Joint Applicants’
operation of the ITC PARs, nor does it serve as evidence to support the conclusion that
the facilities were the product of interregional planning efforts involving NYISO and
PJM.196 Also, Trial Staff argues that Joint Applicants did not approach PJM at all for
interregional planning purposes and only approached NYISO about cost sharing in 2009,
after the ITC PARs had been planned and the decision to replace the failed Original PAR
had been unilaterally reached by ITC.197 Finally, NYTOs agree with the Presiding Judge
that the ITC PARs were not built as a result of coordinated interregional transmission
planning and that ITC did not negotiate a cost sharing arrangement pursuant to such a
plan.198
102. Finally, MISOTOs argue that Joint Applicants failed to address the fact that the
Presiding Judge did not rely on Opinion No. 494 and AEP alone in determining that the
proposed cost allocation was improper. MISOTOs state that the Presiding Judge relied
on a multitude of factors, including his determination that the decisions previously relied
upon by Joint Applicants did not support their proposal and justified its rejection; that the
194 PJM Brief opposing Exceptions at 28.
195 NYISO Brief opposing Exceptions at 19 (citing AEP I, 122 FERC ¶ 61,083 at
P 98).
196 PJMTOs Brief opposing Exceptions at 16.
197 Trial Staff Brief opposing Exceptions at 21.
198 NYTOs Brief opposing Exceptions at 23.
Docket Nos. ER11-1844-001 and ER11-1844-002- 47 -
allocation of costs is inconsistent with MTEP06, and MISO’s determination that the costs
were appropriately allocated to the ITC zone alone; and that neither NYISO nor PJM
participated in the planning or MTEP process for the Original PARs or ITC PARs.199
iv.Commission Determination
a.Lack of Regional Planning Process
103. With respect to whether the ITC PARs are the result of joint transmission planning
so as to warrant regional cost allocation, as the Commission held in AEP and Opinion
No. 494, cost allocations must be shown to be just, reasonable, and not unduly
discriminatory or preferential, as well as consistent with the principles of cost causation.
Opinion No. 494 and AEP provide guidance on how joint planning efforts can help make
this demonstration.
104. Engaging in a joint planning process helps ensure that costs are being allocated to
those who benefit or incur costs and that the projects are necessary to meet reliability and
economic needs within a region or across regions.200 We disagree with Joint Applicants
that the development of the ITC PARs resulted from a meaningful joint planning effort.
As the Presiding Judge correctly recognized, merely acknowledging that an issue is
worthy of interregional attention does not mean that the ITC PARs were a product of
planning efforts involving NYISO or PJM. Further, Joint Applicants do not show that the
level and type of coordination Joint Applicants claim occurred between NYISO, PJM,
and Joint Applicants in the development of the ITC PARs were comparable to regional
planning processes. Although Joint Applicants argue that the ITC PARs were included in
the MTEP06 planning process, MISO concedes that NYISO was not invited to participate
in the MTEP06 and did not do so.201 Similarly, PJM argues that it was not given the
opportunity to participate in the MTEP06.202 Thus, neither NYISO nor PJM participated
in the planning decision processes for either the Original PAR or the ITC PARs.203 This
199 MISOTOs Brief opposing Exceptions at 15 (citing Initial Decision, 141 FERC ¶ 63,021 at PP 378, 394-400, 451-453, 572-574, 622-623).
200 Opinion No. 494, 119 FERC ¶ 61,063 at P 44; AEP I, 122 FERC ¶ 61,083 at
P 96.
201 NYTOs Initial Br. at 14 (citing Ex. NYT-9, Ex. NYT-10 at 1, Ex. NYI-45 at 1, and Ex. NYI-10 at 1).
202 PJM Initial Br. at 31.
203 Initial Decision, 141 FERC ¶ 63,021 at P 623.
Docket Nos. ER11-1844-001 and ER11-1844-002- 48 -
lack of a meaningful, inclusive planning process is important to consider when evaluating whether the cost allocation proposal for the ITC PARs properly assigns costs to NYISO and PJM. While Opinion No. 494 and AEP did not mandate that a joint planning effort precede a regional cost allocation, we find that the lack of a joint planning effort is an important factor for the Commission to consider in this proceeding.
b.Lack of Benefits to NYISO and PJM by
Operation of ITC PARs
i.Presiding Judge’s Findings
105. The Presiding Judge found that Joint Applicants failed to show that NYISO or
PJM will be benefited by the operation of the ITC PARs.204 First, the Presiding Judge
found that Joint Applicants failed to produce any credible benefits analysis to support the
proposed cost allocation.205 The Presiding Judge found that the study performed on
NYISO’s behalf by Dr. David Patton estimating that, between October 2008 and
November 2009 “loop flow had caused a total of approximately $430 million in pricing
inefficiencies in the four control areas around Lake Erie,” is inaccurately portrayed by
Joint Applicants, because the purpose of the study was not to estimate the impact of
unscheduled power flows on congestion costs, but to determine the potential benefits that
improved scheduling and coordinated congestion management could provide.206
106. The Presiding Judge found that the three studies cited by Joint Applicants in which
PJM had some participation took place in 2007, 2008, and 2009, after the installation of
the ITC PARs had been approved and included in the MTEP06 and after ITC had already
committed to pay for the ITC PARs on its own. The Presiding Judge found that Joint
Applicants did not demonstrate that those three studies are relevant for cost allocation
purposes.207
107. The Presiding Judge found that although Joint Applicants contend that Lake Erie
loop flow changes direction frequently, none of the studies cited provide any guidance on
expected loop flow direction in the future; moreover, each predates NYISO’s tariff
204 Id. PP 732-749.
205 Id. P 732.
206 Id. P 733.
207 Id. P 735.
Docket Nos. ER11-1844-001 and ER11-1844-002- 49 -
revisions prohibiting the scheduling of circuitous transactions from NYISO across the
Michigan-Ontario interface, which stemmed much of the counterclockwise loop flows.208
108. Second, in addition to not producing a credible benefits analysis, the Presiding
Judge found that Joint Applicants have failed to prove that benefits accrue to NYISO or
PJM from the ITC PARs to justify the proposed cost allocation.209 In this regard, the
Presiding Judge found that Joint Applicants have failed to show that the ITC PARs
provide reliability benefits to New York or PJM. The Presiding Judge explained that
NYISO is correct in pointing out that when challenged on the benefits analysis, Joint
Applicants switched theories and claimed the ITC PARs were instead a reliability project
for which cost causation, not beneficiary pays, principles apply. The Presiding Judge
also found that Joint Applicants’ assertion that the ITC PARs provide reliability benefits
is flawed because (1) when MISO included the ITC PARs in MTEP06, MISO rejected
the notion that the ITC PARs were a reliability project; (2) Joint Applicants conceded
they have not performed any studies of reliability impacts of the ITC PARs; (3) Joint
Applicants have not produced any evidence that NYISO or PJM contributed to the
decision to construct the ITC PARs; and (4) the overwhelming weight of the evidence
shows the costs were incurred to avoid curtailment of scheduled economic energy
imports to Michigan from Ontario.210
109. The Presiding Judge found that the following scenarios, pointed out by NYTOs, in
which the New York transmission system could be harmed bear note. First, if the
Michigan-Ontario PARs are operated to reduce counterclockwise loop flows, constraints
on the New York transmission system could develop. Second, if the Michigan-Ontario
PARs are not successfully operated to conform actual power flows to scheduled power
flows, but are still declared to be “regulating” for purposes of the North American
Electric Reliability Corporation Interchange Distribution Calculator, New York may not
be able to use Transmission Loading Relief to obtain relief from the unscheduled Lake
Erie loop flows. Third, New York may also be harmed if MISO and IESO do not
accurately anticipate power flows and move the Michigan-Ontario PARs in a direction
that exacerbates unscheduled flows, or if the Michigan-Ontario PARs are operated in a
manner that regularly causes unscheduled power flows over the New York transmission
system. The Presiding Judge found that that these concerns, coupled with Joint
Applicants’ failure to put forth credible, persuasive evidence concerning future flows,
208 Id. P 737.
209 Id. P 740.
210 Id. P 742.
Docket Nos. ER11-1844-001 and ER11-1844-002- 50 -
caused him to accept NYTOs’ scenarios of unintended future harms as credible threats to NYISO’s system.211
110. The Presiding Judge also found that PJM derives no benefit from the ITC PARs,
but is harmed by the flow-to-schedule operation of them. The Presiding Judge found that
PJM would have incurred an annual harm of $11.4 million in 2010 and $16 million in
2011 had the ITC PARs been so operating.212 The Presiding Judge found that the ITC
PARs would reduce costly redispatch that would be required under market-to-market
coordination between PJM and NYISO. Additionally, the Presiding Judge found that
contrary to ITC witness Shavel’s testimony that PJM would benefit from the operation of
the ITC PARs, there would likely be no costs to PJM at all from NYISO, and that under
the recently accepted market-to-market coordination process between PJM and NYISO,
each RTO is granted a “firm flow entitlement” on monitored flowgates, meaning PJM
would be able to place loop flows on NYISO’s system similar to those it has placed in the
past, without having to redispatch.213 Therefore, the Presiding Judge found that Joint
Applicants have failed to produce evidence to prove NYISO and PJM will benefit from
operation of the ITC PARs.214
ii.Joint Applicants’ Briefs on Exceptions
111. Joint Applicants assert that one of the most important factual issues is the extent to
which NYISO and PJM benefit from the physical control of loop flows provided by the
ITC PARs and that the Presiding Judge improperly found that NYISO and PJM will not
derive sufficient benefits from ITC’s PARs to justify the proposed cost allocation to
them.215 Joint Applicants argue that the Presiding Judge failed to properly consider the
numerous prior reports and regulatory filings in which, prior to the filing of this cost
allocation proposal, both NYISO and PJM recounted the numerous problems caused on
their systems by Lake Erie loop flow and endorsed the installation and activation of the
ITC PARs to help control loop flow. Joint Applicants contend that Joint Applicants’
2007 and 2008 loop flow studies, NYISO’s filings at the Department of Energy in the
211 Id. P 744.
212 Id. P 745. “Flow to schedule operation” refers to MISO’s assertion that the
PARs were being operated to hold actual flow to scheduled flow. See Ex. MSO-3 (Rebuttal Testimony of Mr. Mallinger) at 8:11-12.
213 Id. PP 746-747.
214 Id. P 749.
215 Joint Applicants Brief on Exceptions at 5, 26.
Docket Nos. ER11-1844-001 and ER11-1844-002- 51 -
PARs Presidential Permit proceeding, and NYISO’s filings at the Commission in Docket
No. ER08-1281 emphasized the need for and importance of the ITC PARs for helping to
control loop flow.216 Joint Applicants argue that these prior statements by NYISO and
PJM add up to an admission that NYISO and PJM will benefit substantially from the
physical control of loop flow that the ITC PARs would provide.217 Joint Applicants also
contend that the Presiding Judge improperly disregarded the testimony of ITC’s witness
Shavel and MISO’s witness Mallinger confirming that loop flow-related problems would
necessarily be eliminated or ameliorated by physical loop flow control.218
112. Joint Applicants argue that the record contains evidence of the costs that
uncontrolled loop flow can impose on NYISO and PJM. Joint Applicants contend that,
among other things, on August 16, 2010, NYISO filed a study with the Commission in
Docket No. ER08-1281, which was prepared by NYISO’s independent market advisor
Dr. David Patton, estimating that loop flow had caused a total of $430 million in pricing
inefficiencies in the four control areas around Lake Erie between November 2008 and
October 2009, including approximately $140 million in NYISO and $70 million in PJM.
Joint Applicants assert that NYISO’s witness Pike initially confirmed that the $430
million figure represented “the cost of congestion” caused by loop flow during that
period, but later argued that to determine congestion costs, the forward and reverse loop
flows should be netted, which would substantially decrease the congestion costs. Joint
Applicants also argue that even if the netting argument is accepted, which it should not
be, the remaining costs to NYISO and PJM of $18 million and $4 million, respectively,
still exceed the ITC PARs costs proposed for allocation. Additionally, Joint Applicants
contend that although the Presiding Judge stated that the purpose of the Patton study was
to estimate the benefits of improved scheduling and coordination and not to estimate
congestion costs, the Presiding Judge ignored that the Patton study states that the first
step in estimating the value of coordinated scheduling is to estimate pricing inefficiencies caused by loop flow.219
216 Id. at 33.
217 Id. at 34.
218 Id. at 34-35.
219 Id. at 36 (citing Initial Decision, 141 FERC ¶ 63,021 at P 733).
Docket Nos. ER11-1844-001 and ER11-1844-002- 52 -
iii.Briefs Opposing Exceptions
113. PJMTOs, PJM, NYTOs, NYISO, and Trial Staff argue that the Presiding Judge
correctly found that Joint Applicants failed to show that NYISO or PJM will be benefited by the operation of the ITC PARs.220
114. PJMTOs assert that the Presiding Judge correctly found that the Joint Applicants
failed to make a sufficient showing that the ITC PARs will benefit NYISO and PJM such
that the costs associated with the PARs should be allocated to NYISO and PJM.
PJMTOs argue that rather than make such a showing, Joint Applicants instead claim that
“it is self-evident that the physical elimination or reduction of loop flow that the PARs
will provide will similarly eliminate or reduce” the problems caused by loop flows.
PJMTOs contend that Joint Applicants point to historical problems caused by loop flows,
but fail to present any evidence of the benefits to PJM that would result from the
termination of loop flows. PJMTOs continue that although Joint Applicants propose to
allocate 23.8 percent of the costs of the ITC PARs to PJM, Joint Applicants have not
demonstrated that PJM or the PJMTOs receive any benefits at all from installation and
operation of the ITC PARs. Additionally, PJMTOs argue that Joint Applicants have
neither evaluated the economic impacts of the planned operation of the ITC PARs, nor
assessed or determined the physical or economic impacts of the ITC PARs on PJM’s
transmission system.221 PJMTOs also contend that the possibility that MISO may benefit
from the elimination of loop flows on its system does not constitute a benefit to PJM and
PJMTOs.222
115. PJM argues that Joint Applicants presented no evidence quantifying any benefit to
PJM and that neither MISO nor ITC ever evaluated the economic impacts produced by
the planned operation of the ITC PARs. PJM contends that as to the impacts on PJM, the
record contains only PJM witness Bresler’s study of the impact of the ITC PARs, and that
study shows that PJM will be harmed, not benefited, by the flow-to-schedule operation of
the ITC PARs,223 which would cost its market participants millions of dollars
220 See, e.g., PJMTOs Brief Opposing Exceptions at 26-28; PJM Brief Opposing Exceptions at 49-60; NYTOs Brief Opposing Exceptions at 33-35; NYISO Brief
Opposing Exceptions at 51-59; Trial Staff Brief on Exceptions at 41-44.
221 PJMTOs Brief Opposing Exceptions at 26-27.
222 Id. at 28.
223 PJM Brief Opposing Exceptions at 50.
Docket Nos. ER11-1844-001 and ER11-1844-002- 53 -
annually.224 Against this, PJM argues that Joint Applicants provided only generalized statements that the surrounding areas would benefit.
116. PJM asserts that the various studies upon which Joint Applicants rely do not
provide a basis for cost allocation to PJM. PJM argues that Joint Applicants failed to
perform any studies of their own demonstrating an identified need for the ITC PARs, the
harmful flows that give rise to that need, the system conditions under which that need
arises, or that the ITC PARs would provide any benefit to others.225 PJM continues that
the studies upon which Joint Applicants primarily rely were produced by NYISO or its
consultants and that PJM was never approached about sharing costs for the ITC PARs
until Joint Applicants submitted the instant cost allocation proposal. PJM argues that
Joint Applicant’s reliance on NYISO’s filing with the Commission cannot support a cost
allocation to PJM because the filing and associated Patton study is the product of NYISO.
PJM contends that the three regional studies cited by Joint Applicants in which PJM had
some participation took place in 2007, 2008, and 2010, which occurred after the
installation of the ITC PARs had been approved and included in the MTEP06 and after
ITC already undertook to pay for the ITC PARs on its own.226 PJM argues that any PJM
statements in these reports were in the context only of indicating lack of opposition to
Joint Applicant’s installation of already planned and approved projects and have no
bearing on cost allocation.
117. NYTOs argue that Joint Applicants failed to show that the ITC PARs enhance
service reliability and have not provided a credible measurement of the benefits
associated with that service.227 NYTOs contend the record shows that the only reliability
benefit the ITC PARs provide is the reduction of thermal overloads on the ITC system,
further asserting that the Presiding Judge correctly found that “Joint Applicants have
failed to show that the ITC PARs provide reliability benefits to New York or PJM.”228
NYTOs argue that Joint Applicants fail to cite record evidence to contradict the Presiding
Judge’s findings and failed to show that NYISO or PJM “caused” ITC to install the ITC
PARs as they now contend. NYTOs also argue that with no credible reliability theory to
support Joint Applicants’ inter-regional cost allocation plan, the only alternative cost
224 Id. at 51-53.
225 Id. at 53-56.
226 Id. at 55.
227 NYTOs Brief Opposing Exceptions at 33.
228 Id. at 33-34 (citing Initial Decision, 141 FERC ¶ 63,021 at P 742).
Docket Nos. ER11-1844-001 and ER11-1844-002- 54 -
allocation theory is based on the beneficiary pays approach, which Joint Applicants contend is not their theory either.229
118. NYISO asserts that Joint Applicants have not performed, and did not submit, any
studies that quantify the expected benefits to NYISO and its customers from the
operation of the ITC PARs, and the data that NYISO submitted in Exhibit NYI-66 proves
that the ITC PARs have not controlled Lake Eric loop flow in the manner Joint
Applicants claimed the ITC PARs would.230 NYISO argues that MISO witness
Chatterjee admitted that MISO did not perform a study of the “benefits” of the ITC PARs
to NYISO or PJM and that ITC admitted that it did not create any documents relating to
the economic or reliability benefits of the ITC PARs. Additionally, NYISO contends that
MISO and ITC stated that they did not perform assessments of studies to identify specific
reliability criteria that are potentially violated by Lake Erie loop flow.231
119. NYISO argues that its statement indicating support for the construction and
operation of the ITC PARs were all made before the ITC PARs entered service and were
premised on untested MISO and ITC claims regarding loop flow control capabilities of
the ITC PARs.232 NYISO contends that because all of these documents were produced
before the ITC PARs entered service, it was not possible for NYISO to know how
effective the collective operation of the ITC PARs would be, or what impact the
operation of those facilities would have on the New York Control Area.233
120. NYISO argues that Joint Applicants offered testimony from MISO witness
Mallinger and ITC witness Shavel that identified areas in which generalized benefits,
such as reductions in transmission congestion and system losses, might occur if the ITC
PARs operate perfectly at all times, to the limits of their purported control capability.
NYISO contends that the Mallinger and Shavel testimonies did not address or attempt to
discount their claimed benefits to reflect any trade-offs that occur between and among the
Independent System Operators (ISOs) and RTOs that surround Lake Erie. NYISO notes
that, for example, a reduction in counterclockwise Lake Erie loop flow that might benefit
MISO could, simultaneously, harm NYISO, assuming both transmission systems are
229 Id. at 34-35.
230 NYISO Brief Opposing Exceptions at 52. 231 Id. at 53.
232 Id.
233 Id. at 54.
Docket Nos. ER11-1844-001 and ER11-1844-002- 55 -
experiencing congestion on transmission facilities that are impacted by Lake Erie loop flow at the same time.234
121. NYISO argues that Joint Applicants did not submit any evidence supporting their
claim that the ITC PARs will control 600 MW of Lake Erie loop flow nearly 100 percent
of the time. Additionally, NYISO asserts that Exhibit NYI-66 demonstrates that the ITC
PARs did not effectively conform actual power flows to scheduled power flows during
the first 104 days of operation (from April 5 to July 18, 2012), and that the ITC PARs
were frequently a cause of additional Lake Erie loop flow during that time period.235
NYISO also argues that Joint Applicants assert that the Patton study, which was
performed for NYISO, estimated that between October 2008 and November 2009, “loop
flow had caused a total of $430 million in pricing inefficiencies in the four control areas
around Lake Erie.” However, as NYISO witness Pike explained, the “$430 million is not
a cost incurred by the ISOs and RTOs around Lake Erie” but rather it “is an estimate of
the total gross value of the over-priced and under-priced loop flow for the specific period
. . . without regard to whether the loop flow was increasing or decreasing congestion
costs or whether that loop flow was circulating around Lake Erie, or not.”236
Additionally, NYISO argues that the Patton study suggests that there may be times when NYISO, PJM, MISO, and IESO can better coordinate interregional transaction
scheduling and dispatch to increase economic efficiency by taking advantage of
beneficial loop flows, and that operating the ITC PARs on a strict flow-to-schedule basis could actually prevent these potential benefits of interregional coordination from being realized.237 NYISO contends that because the direction and magnitude of loop flow can vary significantly from hour-to-hour, day-to-day, year-to-year, a one year snapshot like the Patton study does not present a valid basis for reaching any conclusions about the expected long-term impact of loop flow on congestion costs.238
122. Trial Staff argues that Joint Applicants have presented no evidence that NYISO or
PJM will enjoy “substantial benefits” from the presence of the ITC PARs.239 With regard
to Joint Applicants’ contention that the Presiding Judge ignored the numerous reports and
234 Id.
235 Id. at 55-56.
236 Id. at 56.
237 Id. at 57.
238 Id. at 58-59.
239 Trial Staff Brief Opposing Exceptions at 41.
Docket Nos. ER11-1844-001 and ER11-1844-002- 56 -
regulatory filings in which NYISO and PJM recounted the problems caused by Lake Erie loop flow on their systems and endorsed the prompt installation of the ITC PARs to help control loop flow, Trial Staff asserts that Joint Applicants mischaracterize this issue.
Trial Staff argues that the Presiding Judge did consider three studies produced by Joint Applicants as evidence that PJM and NYISO will receive benefits from the operation of the PARs. However, Trial Staff states that the Presiding Judge found the studies
irrelevant to the issue of cost allocation because they were undertaken in 2007, 2008, and 2009, after the decision to install and pay for the PARs had been made by ITC and after the installation had been approved in MTEP06.240
123. Trial Staff notes Joint Applicants’ contention that the Patton study concluded that
Lake Erie loop flow caused a total of $430 million in pricing inefficiencies in the control
areas around Lake Erie, and that this conclusion translates into an acknowledgement by
PJM and NYISO that they will benefit from the elimination of those flows by a similar
magnitude. However, Trial Staff argues that the Presiding Judge considered the study
and found that the purpose of the study “was not to estimate the impact of unscheduled
power flows on congestion costs, but to determine the potential benefits that improved
scheduling and coordinated congestion management could provide.”241
124. Trial Staff points out that Joint Applicants do not address the Presiding Judge’s
findings that the cited reports are irrelevant or mischaracterized. Instead, Trial Staff
states that Joint Applicants continue to present them as evidence of benefits that accrue to
PJM and NYISO by virtue of the operation of the ITC PARs. Additionally, Trial Staff
notes that Joint Applicants do not address the Presiding Judge’s observation that on
rebuttal, MISO witness Chatterjee claimed, “because the Joint Applicants view the PARs
as a reliability project, their cost allocation is not based on a beneficiary pays theory.”
Trial Staff states that the Presiding Judge found that this testimony is inconsistent with
the MTEP06, in which “MISO rejected the notion that the ITC PARs were a reliability
project.”242
240 Id. at 42-43.
241 Id. at 43-44 (citing Initial Decision, 141 FERC ¶ 63,021 at P 733).
242 Id. at 44 (citing Initial Decision, 141 FERC ¶ 63,021 at P 742).
Docket Nos. ER11-1844-001 and ER11-1844-002- 57 -
iv.Commission Determination
a.Lack of Benefits to NYISO and PJM by
Operation of ITC PARs
125. With respect to whether, notwithstanding the lack of joint planning, there is
sufficient evidence in this record to conclude that Joint Applicants’ proposed cost
allocation is just and reasonable, based on the factual record in the Initial Decision, we
affirm aspects of the Presiding Judge’s finding that Joint Applicants failed to show that
NYISO or PJM will benefit from the operation of the ITC PARs. Moreover, to the extent
that Joint Applicants may have demonstrated some benefit to NYISO or PJM from the
operation of the ITC PARs, we find that any such benefit does not outweigh the
considerations discussed above that counsel against Joint Applicants’ proposal.
Therefore, we find that the proposed cost allocation has not been shown to be just and
reasonable.243
126. First, we find that the Presiding Judge properly found that Joint Applicants failed
to produce any credible benefits analysis to support the proposed cost allocation and
failed to prove that benefits accrue to NYISO or PJM from the ITC PARs to justify the
proposed cost allocation.244 We agree that Joint Applicants failed to show that the ITC
PARs provide reliability benefits to NYISO or PJM and that - as NYISO witness Pike,
NYTOs, and PJM witness Bresler provide - NYISO and PJM may actually be harmed by
the planned operation of the ITC PARs.245 For example, a reduction in counterclockwise
loop flow that may benefit MISO might, at the same time, harm NYISO if both
transmission systems are experiencing congestion on transmission facilities that are
affected by loop flow. Additionally, we find unconvincing the testimony of ITC witness
Shavel and MISO witness Mallinger stating that PJM and NYISO will benefit from the
ITC PARs because general benefits, such as reductions in transmission congestion and
system losses, might occur if the ITC PARs operate perfectly at all times. We note that
these testimonies do not address any trade-offs that might occur between and among the
ISOs and RTOs that surround Lake Erie.246
243 See Initial Decision, 141 FERC ¶ 63,021 at P 723. 244 See id. PP 732, 740
245 See id. PP 742-744.
246 See id. PP 756-747.
Docket Nos. ER11-1844-001 and ER11-1844-002- 58 -
127. Second, we find that the Presiding Judge properly considered the numerous reports
and regulatory filings in which NYISO and PJM acknowledged that they would benefit
from the ITC PARs. The Presiding Judge found that the 2007, 2008, and 2009 studies
cited by Joint Applicants, in which PJM participated, were conducted after the
installation of the ITC PARs had been approved and included in the MTEP06 after ITC
had already committed to pay for the ITC PARs on its own. We find that NYISO’s and
PJM’s statements in these reports and regulatory filings were premised on untested MISO
and ITC claims regarding loop flow control capabilities and made without full knowledge
of the operational instructions for the ITC PARs. Accordingly, Joint Applicants’ reliance
on these statements as a credible benefits analysis for its proposed cost allocation is
insufficient.
128. Third, we find that the Presiding Judge properly accorded weight to the Patton
study, which estimated that between October 2008 and November 2009, loop flow had
caused approximately $430 million in pricing inefficiencies and that this cost was not
incurred by the ISOs and RTOs around Lake Erie. We agree that the purpose of the study
was not to estimate the impact of unscheduled power flows on congestion costs but rather
to determine the potential benefits that improved scheduling and coordinated congestion
management could provide.247 Additionally, as NYISO explains, the study suggests that
there may be times when NYISO, PJM, MISO, and IESO can better coordinate
interregional transaction scheduling and dispatch to increase economic efficiency by
taking advantage of beneficial loop flows, and operating the ITC PARs on a strict flow-
to-schedule basis could actually prevent this potential interregional coordination from
being realized. Moreover, the estimated cost of congestion calculated in the study was an
intermediate step in the process of determining potential production cost savings that
could be achieved by implementing an identified set of market improvements.248
129. Moreover, with respect to the Joint Applicants’ May 23, 2013 motion to lodge
slide 12 of a 2012 State of the Markets Report issued by the Commission’s Office of
Enforcement,249 Slide 12 merely demonstrates that ITC has benefitted by “congestion
costs in Michigan [that] are lower with fewer binding constraints and the interchange
capacity across the Michigan-Ontario interface has been boosted.” However, Slide 12
does not analyze the degree to which NYISO and PJM benefit, if at all, from the ITC
247 See id. P 732.
248 See NYISO Brief Opposing Exceptions at 57. 249 See supra P 22.
Docket Nos. ER11-1844-001 and ER11-1844-002- 59 -
PARs. Thus, slide 12 is not dispositive on the issue of benefits to NYISO and PJM, and we deny the motion to lodge.250
130. Similarly, with respect to the Joint Applicants’ April 7, 2014 motion to lodge a
performance study and related report, which we deny above, the documents do not help
Joint Applicants support the proposed cost allocation. The performance study and related
report show that the ITC PARs, “in conjunction with controls already operational
elsewhere on the system,” have helped to limit the flows over the Michigan-Ontario.
But, the study was performed to address a Joint and Common Market initiative to
evaluate the ability of the ITC PARs to have actual flow equal scheduled flow. In fact,
the study and related report note that the study should be considered “a limited scope
study that addressed a specific [Joint and Common Market] Initiative.” Similar to the
studies submitted by the Joint Applicants during the proceeding, as discussed above, this
study and related report do not produce any credible benefits analysis to support the
proposed cost allocation and failed to demonstrate that NYISO, PJM accrue benefits from
the ITC PARs. While it shows Lake Erie flow is decreased, during the hearing it was
shown that a reduction in counterclockwise loop flow that may benefit MISO might, at
the same time, harm NYISO if both transmission systems are experiencing congestion on
transmission facilities that are affected by loop flow.251 Thus, the performance study and
related report are not dispositive on the issue of benefits to NYISO and PJM, and we
deny the motion to lodge.
131. Therefore, for the reasons discussed above, Joint Applicants’ proposed cost
allocation has not been shown to be just and reasonable. Accordingly, we reject it.
132. Pursuant to our determination in this order, within 30 days of the date of this
order, Joint Applicants are required to submit a compliance filing making any necessary
changes to the Tariff. In addition, Joint Applicants shall refund all amounts collected
pursuant to their October 20, 2010 filing in excess of rates in effect prior to January 1,
2011, with interest at the rate prescribed by section 35.19a of the Commission’s Rules of
Practice and Procedure, 18 C.F.R. § 35.19a (2016), and then file with the Commission a
refund report, within thirty (30) and sixty (60) days, respectively, of the date of the
issuance of this order, unless there is a timely request for rehearing in these dockets. In
250 See, e.g., California Indep. Sys. Operator Corp., 137 FERC ¶ 61,062, at P 13
(2011) (denying motion to lodge where the proffered document did not assist in the
Commission’s decision-making); Maritimes & Northeast Pipeline, L.L.C., 93 FERC
¶ 61,117, at 61,339 (2000) (the Commission granted the motion to lodge but held that it
was not persuaded that the information contained therein was dispositive on the issue).
251 See Initial Decision, 141 FERC ¶ 63,021 at PP 742-744.
Docket Nos. ER11-1844-001 and ER11-1844-002- 60 -
that event, the refunds and refund report must be submitted within thirty (30) and sixty
(60) days, respectively, of the Commission's final disposition of any such rehearing request.
5.Remaining Issues
133. In their Brief on Exceptions, Joint Applicants argue that the Presiding Judge
erroneously found that Joint Applicants failed to comply with the Commission’s
regulations by not providing cost of service data.252 In view of our determination that the proposed cost allocation has not been shown to be just and reasonable, we find that this issue is moot and we need not address it.
134. Joint Applicants also argue that the Presiding Judge erroneously found that the proposed allocation of ITC PARs costs to PJM is precluded by the JOA. In view of our determination that the proposed cost allocation has not been shown to be just and
reasonable, we find that this issue is moot and we need not address it.
135. Joint Applicants also argue that the Presiding Judge erroneously found that Joint
Applicants failed to show that the benefits of the ITC PARs were roughly commensurate
with the proposed costs to be allocated.253 Concerning the ITC PARs cost allocation
proposal, Joint Applicants argue that the Presiding Judge’s findings of fact were
erroneously found.254 In view of our determination that the proposed cost allocation has
not been shown to be just and reasonable, we find that the issues of fact regarding the
contributions to loop flow, the DFAX study, whether the filing creates a service
obligation of MISO and ITC to NYISO or PJM or their customers, whether the ITC
PARs will control Lake Erie loop flow, and the impact of MISO’s January 2012
testimony on PJM’s cost responsibility to MISO (see Issues 6-10 in the Appendix) are
moot and we need not address them.
136. Finally, Joint Applicants argue that the Presiding Judge erroneously found that
Joint Applicants failed to satisfy the elements of the judicial estoppel doctrine raised
against NYISO’s challenge of the efficacy of the ITC PARs. In its Initial Brief, NYISO
argued that the PARs, including the ITC PARs, will experience outages. According to
NYISO, Joint Applicants’ failure to address the possibility of such outages in the
proposed tariff revisions was one of many reasons that their proposed charge to the
252 See id. PP 667-668. This issue is subsumed within Issue 4.
253 See Appendix, Issue 5.
254 See Appendix, Issues 6-10.
Docket Nos. ER11-1844-001 and ER11-1844-002- 61 -
NYISO’s customers was unjust and unreasonable.255 To support its argument, NYISO reviewed the outage history of the PARs between Ontario and Michigan and stated that “the history of [these] PARs indicates that they are prone to failure.”256
137. In their Initial Brief, Joint Applicants argue that NYISO is estopped from
challenging the efficacy of the PARs because NYISO’s position is inconsistent and
irreconcilable with the position it took regarding the PARs both before the Commission
in Docket No. ER08-1281-000257 and before the Department of Energy in the ITC
Presidential Permit proceeding.258 Joint Applicants contend that NYISO violated the
doctrine of judicial estoppel by deliberately changing positions “according to the
exigencies of the moment.”259 According to Joint Applicants, NYISO touted the
capability of the PARs and their benefits in the exigent circumstances proceeding and
filed two sets of comments in support of the PARs in the Presidential Permit proceeding
at the Department of Energy, never suggesting the PARs would not work as proposed.260
138. The Presiding Judge found that Joint Applicants failed to allege, or convincingly
prove, both that they relied on NYISO’s prior testimony in the exigent circumstances or
Presidential Permit proceedings and changed their position in this proceeding as a result
of that reliance. Further, the Presiding Judge found that in none of the statements cited
by Joint Applicants from those proceedings did NYISO take a position on the justness
and reasonableness of recovering the costs of the ITC PARs through rates charged to
NYISO and PJM customers or on the effectiveness of the ITC PARs.261
255 NYISO Initial Br. at 150-153.
256 Id. at 150.
257 The Commission required NYISO to submit status reports addressing its
progress in developing long-term, comprehensive solutions to the occurrence of the Lake Erie region loop flows. See N.Y. Indep. Sys. Operator, Inc., 128 FERC ¶ 61,049.
258 Joint Applicants Initial Br. at 22-28, 33.
259 Id. at 39 (citing Mo. Interstate Gas, LLC, 122 FERC ¶ 61,136, at P 29 (2008), vacated sub nom. Mo. Pub. Serv. Comm’n v. FERC, 601 F.3d 581 (D.C. Cir. 2010) and New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001) (quoting United States v.
McCaskey, 9 F.3d 368, 378 (5th Cir. 1993))).
260 Id. at 39-40 (citing Ex. ITC-3 at 10-11 and the attached July 21, 2008, exigent circumstances filing at 4 n.11, 7 n.30, 26-27, Ex. ITC-26 at 7-8, Ex. ITC-23 at 17, Ex. ITC-14 at 4, and Ex. MSO-7).
261 Initial Decision, 141 FERC ¶ 63,021 at PP 892-893.
Docket Nos. ER11-1844-001 and ER11-1844-002- 62 -
139. In their Brief on Exceptions, Joint Applicants argue that the Presiding Judge
erroneously found that the doctrine of judicial estoppel does not apply to the facts of this
case. Joint Applicants argue that the Presiding Judge failed to address NYISO’s attack of
the PARs operating plan and instead focused on NYISO’s claim that the PARs are prone
to failure. Joint Applicants contend that there could not be more inconsistency than that
between NYISO’s “specific, unconditional support for the operating plan before [the
Department of Energy] and its attack on the plan as discriminatory in this case.”262
Further, Joint Applicants argue that the Initial Decision failed to recognize that the
essence of the judicial estoppel doctrine is whether a party has taken a position on an
issue in one case and thereby gained a benefit, and then sought to take a contrary position
on the same issue in a subsequent case to “fit the exigencies of the moment” and gain
another separate advantage.263
140. The Commission has said “the doctrine of judicial estoppel applies only where, as
a result of prior testimony, parties have relied upon that testimony and changed positions
by reason of that testimony.”264 At no point in Joint Applicants’ Brief on Exceptions do
they argue that they relied upon NYISO’s prior testimony made in the exigent
circumstances and the Department of Energy Presidential Permit proceedings. Further,
Joint Applicants never argue that they changed positions by reason of NYISO’s
testimony. Thus, Joint Applicants have failed to make the required allegations under the
doctrine of judicial estoppel. Accordingly, we affirm the Initial Decision on this issue.
141. In view of our determinations on the Initial Decision herein, we will dismiss the requests for rehearing as moot.
The Commission orders:
(A) The Initial Decision is hereby affirmed in part, and reversed in part, and the remaining determinations of the Presiding Judge are dismissed as moot, as discussed in the body of this order.
(B) Joint Applicants are hereby directed to submit a compliance filing to revise
the MISO Tariff within 30 days of the date of this order, as discussed in the body of this
order.
262 Joint Applicants Brief at 24-25.
263 Id. at 25 (referencing New Hampshire v. Maine, 532 U.S. 742 (2001)).
264 San Diego Gas & Elec. Co. v. Sellers of Energy and Ancillary Servs., 115 FERC ¶ 61,230, at P 33 n.59 (2006).
Docket Nos. ER11-1844-001 and ER11-1844-002- 63 -
(C) Joint Applicants are hereby ordered to make refunds of all amounts
collected pursuant to their October 20, 2010 filing in excess of rates in effect prior to
January 1, 2011, with interest at the rate prescribed by section 35.19a of the
Commission’s Rules of Practice and Procedure, 18 C.F.R. § 35.19a (2016), and then to
file with the Commission a refund report, within thirty (30) and sixty (60) days,
respectively, of the date of the issuance of this order, unless there is a timely request for
rehearing in these dockets. In that event, the refunds and refund report must be submitted
within thirty (30) and sixty (60) days, respectively, of the Commission's final disposition
of any such rehearing request.
(D) Joint Applicants’ motions to lodge are hereby denied, as discussed in the body of this order.
(E)Joint Applicants’ motion to strike is hereby dismissed as moot, as discussed
in the body of this order.
(F)The requests for rehearing of the Hearing Order are hereby dismissed as
moot, as discussed in the body of this order.
By the Commission. ( S E A L )
Nathaniel J. Davis, Sr.,
Deputy Secretary.
Docket Nos. ER11-1844-001 and ER11-1844-002- 64 -
APPENDIX
Issues Addressed by the Initial Decision
ISSUE 1: Whether the FPA and applicable Commission policies thereunder permit MISO and ITC to make, and the Commission to approve, the October 20, 2010 filing (as amended on January 31, 2012)?
ISSUE 2: Whether the JOA between MISO and PJM precludes allocation of costs associated with the ITC PARs to PJM?
ISSUE 3: Whether there are any other customer or contractual relationships or
interregional plans, or lack thereof, that are relevant to the proposed cost allocation?
ISSUE 4: Whether the allocation of the costs of the ITC PARs to NYISO and PJM, and
the level of such allocations, is just, reasonable, and not unduly discriminatory or
preferential under the FPA and the applicable Commission policies, orders, and precedent
thereunder (including but not limited to the policies, if applicable, contained in Order No.
1000)?
ISSUE 5: Whether any allocation of costs of the ITC PARs to NYISO and PJM and their
customers (or others) is appropriate based on cost causation/incurrence and/or beneficiary
pays principles or on other considerations and, if so, is the proposed cost allocation
roughly commensurate with: (a) the extent to which NYISO and PJM and their
customers (or MISO, IESO, or others) caused ITC to incur the costs of the
installation and operation of the ITC PARs (and, to the extent relevant, the reasons for
which Detroit Edison/ITC incurred costs for installation of the Original PAR); and/or
(b) the extent to which NYISO and PJM and their customers (or MISO, IESO, or others)
will benefit from (or be harmed by) the installation and operation of the ITC PARs?
ISSUE 6: What is the extent of the contributions to loop flows of MISO, IESO, NYISO, PJM, and others, and do they represent a basis for MISO/ITC to allocate the costs of the ITC PARs to PJM and NYISO?
ISSUE 7: Whether Joint Applicants’ DFAX study provides an adequate basis for the proposed cost allocation?
ISSUE 8: Whether the filing creates a service obligation of MISO and ITC to NYISO or PJM or their customers and, if so, what is the nature of the obligation?
ISSUE 9: Whether and to what extent will the PARs control Lake Erie loop flow,
including whether, if any of the ITC PARs (or the Hydro One PARs) are unavailable,
bypassed, or not being operated in a manner that is consistent with the Presidential Permit
Docket Nos. ER11-1844-001 and ER11-1844-002- 65 -
issued to ITC by the Department of Energy, NYISO, PJM, or their customers nonetheless should be required to pay the charges at issue in this proceeding?
ISSUE 10: Whether, if the costs of the ITC PARs are allocated to PJM, the cost
responsibility assigned to PJM by MISO’s January 2012 testimony, which increases
PJM’s allocation above the amount allocated by the MISO/ITC filing, may be imposed on PJM?
ISSUE 11: Whether, if the costs of the ITC PARs are allocated to PJM or NYISO, PJM or NYISO is responsible (respectively) for paying MISO in the case of a PJM or NYISO customer’s failure to pay PARs-related charges?265
265 The Presiding Judge determined that this issue was moot in view of his finding that it was unjust and unreasonable to allocate the costs of the ITC PARs to NYISO and PJM. Accordingly, the Presiding Judge also denied Joint Applicants’ December 11, 2012 motion to lodge. Initial Decision, 141 FERC ¶ 63,021 at P 923. Joint Applicants did not except to the Initial Decision on this issue.
