UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Transcription

1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION PJM Interconnection, L.L.C. ) American Transmission Systems, Incorporated ) Docket No. ER MOTION FOR LEAVE TO ANSWER AND ANSWER OF AMERICAN TRANSMISSION SYSTEMS, INCORPORATED Pursuant to Rule 213 of the Commission s Rules of Practice and Procedure, 18 C.F.R (2014), American Transmission Systems, Incorporated ( ATSI ), respectfully submits this Answer in response to the motions to intervene submitted in this proceeding and to the protests submitted by American Municipal Power, Inc. ( AMP ) and Buckeye Power, Inc. ( Buckeye ) on November 21, This Answer responds to the requests for affirmative relief that AMP and Buckeye present in their pleadings, including their requests for suspension and modifications to ATSI s formula rate and protocols and AMP s request for rejection of ATSI s rate filing. ATSI is permitted to answer these requests for affirmative relief regardless of how the pleadings containing the requests are styled. 1 However, to the extent the Commission deems this Answer to be an answer to protests that is normally impermissible absent leave of the Commission, ATSI respectfully requests that the Commission accept this answer. The Commission has held that it will waive the prohibition in its rules to accept an answer to protests where the answer provides 1 AMP styles the portion of its protest in which it requests suspension of ATSI s filing as a motion. AMP at 32. ATSI is entitled to respond to this motion under Rule 213, even though AMP has embedded that motion in a protest.

2 information that assists the Commission in understanding the issues. 2 This Answer will aid the Commission s understanding and resolution of the issues presented in this case. It also will result in a more accurate and complete record that affords all parties the opportunity to respond to one another s positions. 3 The Commission should accordingly accept this Answer. As demonstrated below, AMP and Buckeye do not raise any issues or concerns that should prevent the Commission from accepting the rate filing submitted by ATSI on October 31, 2014 ( October 31 Filing ) without hearing, suspension, investigation, modification or condition. Notwithstanding the heated rhetoric that permeates the protests, the October 31 Filing proposes only a straightforward change in ATSI s transmission formula rate: the calculation of transmission rates based on forward-looking projections, subject to true-up to actual data. This structure bases rates on the current costs of providing transmission service, eliminates the lag in cost recovery that results when rates are based on historic costs, and, through the true-up mechanism, ensures that customers pay no more than ATSI s actual transmission costs. The use of projections subject to later true-up as the basis of charges under a transmission formula rate is not, as AMP and Buckeye contend, a novel approach. Rather, it is an approach that the Commission has accepted numerous times and one that is consistent with long-standing Commission policy. The objections that AMP and Buckeye raise to ATSI s transition to a forward-looking formula rate are factually and 2 Sunbury Generation, LLC v. PPL Electric Utilities Corp., 99 FERC 61,168 at 61,683 (2002). See also, Long Island Lighting Co., 82 FERC 61,129 at 61,462 (1998); Arizona Public Service Co., 82 FERC 61,132 at 61,491, n.24 (1998); Tennessee Gas Pipeline Co., 82 FERC 61,045 at 61,186, n.5 (1998); El Paso Natural Gas Co., 82 FERC 61,052 at 61,200 (1998). 3 Michigan Electric Transmission Co., 108 FERC 61,205 at P 21 (2004); Northern Border Pipeline Co., 81 FERC 61,402 at 62,845, n.16 (1997); Hopkinton LNG Corp., 81 FERC 61,291 at 62,382, n.4 (1997)

3 legally incorrect. They claim an unjustified entitlement to perpetual regulatory lag that denies ATSI current recovery of its costs of providing the transmission service customers receive. AMP and Buckeye also assert immaterial and unfounded allegations with respect to ATSI s projected investments in transmission infrastructure that will enter service in They improperly attempt to interject challenges to ATSI s current rate of return on equity ( ROE ), which ATSI has not proposed to change, into the Commission s consideration of the October 31 Filing. AMP s and Buckeye s arguments for a five-month suspension of the October 31 Filing, moreover, are unfounded and inconsistent with the governing West Texas standard. 4 Contrary to their claims, the October 31 Filing does not propose a substantially excessive rate increase or present any extraordinary factors that would warrant suspension for the maximum period. To the contrary, as the Commission has recognized in other cases, a proposal to adopt a forward-looking formula rate changes the timing of cost recovery to better match the provision of service, but does not alter the amount ultimately recovered. ATSI s proposal therefore cannot produce excessive revenues. The proposed true-up mechanism further ensures that ATSI will not collect excessive revenues, because it ultimately will recover no more than the cost of providing transmission service. Finally, the concerns that AMP and Buckeye raise with respect to specific calculations under ATSI s formula rate and its formula rate protocols are meritless and, in many cases, misplaced because they relate to aspects of the formula rate that ATSI does not propose to change in the October 31 Filing. 4 West Texas Utilities Co., 18 FERC 61,189 (1982) ( West Texas )

4 The Commission should accordingly accept the formula rate changes proposed in the October 31 Filing without hearing, investigation, suspension, modification, or condition. I. BACKGROUND ATSI is an indirect wholly-owned subsidiary of FirstEnergy Corp. ( FirstEnergy ). ATSI is a transmission-only utility that owns, operates and maintains transmission facilities in Ohio and western Pennsylvania. ATSI makes its transmission facilities available on an open access basis under the PJM Open Access Transmission Tariff ( PJM Tariff ). ATSI recovers its transmission revenue requirements through a formula rate that is detailed in Attachments H-21 and H-21A of the PJM Tariff, and administered through formula rate protocols set forth in Attachment H-21B of the PJM Tariff. The annual transmission revenue requirement for a rate year, which currently runs from June 1 through the following May 31, is based on the cost of service data for the calendar year preceding the start of the rate year, as reported in the FERC Form No. 1 for that calendar year. The historic costs ATSI incurred during the previous calendar year as much as seventeen months before the beginning of the rate year thus serve as a proxy for ATSI s cost of providing transmission service during the rate year. 5 On October 31, 2014, ATSI submitted for filing revisions to its transmission formula rate and protocols set forth in Attachments H-21, H-21A and H-21B of the PJM 5 The current formula rate was accepted by the Commission on May 31, 2011 in Docket Nos. ER , et al. The current version of the formula rate protocols was negotiated and settled by the parties in that docket. The Commission accepted the settled protocols by letter order dated January 9,

5 Tariff. The proposed revisions will change ATSI s transmission formula rate from a historic to a forward-looking formula rate to eliminate the lag in cost recovery produced under its current formula rate. Under the revised formula rate, transmission charges during a rate year (which will now coincide with a calendar year) will be based on projections of ATSI s transmission-related costs during the period when the charges are collected, subject to later true-up. This change will permit ATSI to recover its annual transmission revenue requirement on a current basis, and the true-up will ensure that customers pay no more than ATSI s actual revenue requirement based on data reported in its annual FERC Form No. 1 report for the rate year. This will enable ATSI to recover major transmission expenditures closer in time to their incurrence, improving cash flow and enabling ATSI s rates to better match its costs of providing transmission service. In response to the October 31 Filing, a number of parties filed doc-less interventions, raising no objections or concerns and taking no issue with the filing. 6 Two intervenors AMP and Buckeye filed protests challenging certain aspects of the filing and requesting various forms of relief from the Commission. II. ARGUMENT ATSI does not oppose the intervention of any of the parties that have moved to intervene in this proceeding. However, the objections to the October 31 Filing that AMP and Buckeye raise are groundless. Neither intervenor presents any valid basis for rejection, investigation, suspension, or modification of the October 31 Filing. 6 These intervenors are: the Pennsylvania Office of Consumer Advocate, Industrial Energy Users- Ohio, Cleveland Public Power, Public Utilities Commission of Ohio and the Pennsylvania Public Utility Commission

6 1. ATSI s Transition to a Forward-Looking Formula Rate Is Just and Reasonable. AMP and, to a lesser extent, Buckeye take issue with ATSI s proposal to transition from a historic formula rate to a forward-looking formula rate, with AMP suggesting that the Commission reject the proposed transition. 7 AMP criticizes ATSI s proposal because it eliminates regulatory lag which, it claims, checks the incentive of transmission owners such as ATSI to over-invest in their transmission facilities. 8 The short and sufficient answer to AMP s contention is that regulatory lag is neither a desired feature of transmission rates nor an entitlement that shields transmission customers from the obligation to pay rates that reflect the actual cost of the transmission service they receive. The premise of AMP s position is contrary to Commission policy that rates should reflect the current cost of providing service and should not deter investments in needed transmission infrastructure. 9 It also ignores ample Commission precedent accepting forward-looking formula rates precisely to eliminate the regulatory lag that AMP touts as a positive attribute of rates based on historic costs AMP Protest at 3. Id. at See e.g., Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. 31,222, order on reh g, Order No. 679-A, FERC Stats. & Regs. 31,236 (2006), order on rehearing and clarification, 119 FERC 61,062 (2007); 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, Order No A, 139 FERC 61,132, order on reh g, Order No B, 141 FERC 61,044 (2012). 10 See e.g., Midwest Indep. Transmission Sys. Operator, Inc., 141 FERC 61,121 (2012) (approving forward-looking formula rate for Ameren Services Co.); Midwest Indep. Transmission Sys. Operator, Inc., 138 FERC 61,147 (2012) (granting Ameren Transmission Co. of Illinois forward-looking formula rate); Midwest Indep. Transmission Sys. Operator, Inc., 141 FERC 61,274 (2012) (accepting request of Montana-Dakota Utilities Co. for forward-looking formula rate); Midwest Indep. Transmission Sys. Operator, Inc., 138 FERC 61,043 (2012) (granting Missouri River Energy Services forward-looking test year); MidAmerican Energy Co., 137 FERC 61,250 (2011) (authorizing forward-looking formula rate); International Transmission Co., 116 FERC 61,036 (2006) (authorizing switch to forward-looking formula rate)

7 For example, in explaining its acceptance of a similar forward-looking formula rate proposal in International Transmission, the Commission noted that the combination of a forward-looking formula rate and a true-up mechanism is a just and reasonable rate structure because it enables a transmission owner to continue its plan of funding necessary transmission infrastructure projects, especially large multi-year capital projects that will relieve congestion and improve reliability. 11 The Commission also took note of the benefits of a forward-looking formula rate, stating, the lag [created by using historic data] has a negative impact on cash flow (i.e., [the utility] has to wait to begin recovering this year s presumably higher costs until June 1 of next year). 12 Finally, the Commission noted, using estimated costs is not a departure from ratemaking practice, and while rates will initially increase, customers will ultimately only pay the cost of service they would have paid on the lagging basis. 13 The same considerations apply here. As described in the testimony included in the October 31 Filing, ATSI is making substantial investments in its transmission facilities in ATSI s investments include new facilities that PJM, the regional transmission organization ( RTO ), has included in a regional transmission expansion plan ( RTEP ) and the replacement or enhancement of facilities whose condition presents undue risks of failure. AMP, Buckeye, and other transmission customers will begin to use and benefit from these new facilities immediately upon their entry into service. Adopting a forward-looking revenue requirement will permit ATSI to continue 11 International Transmission Co., 116 FERC 61,036 at P 19 (2006) ( International Transmission ) Id. at P 27. Id. at P 19 (footnote omitted). October 31 Filing, Exhibit No. ATS-4 at (Direct Testimony of Jeffrey J. Mackauer)

8 its plan of funding necessary transmission infrastructure projects that will improve system reliability and security. It also will permit ATSI to cover its cash flow requirements associated with providing transmission service in a manner that ensures that customers will only pay the cost of service they would have paid on the lagging basis. ATSI s forward-looking formula rate proposal is nothing novel. It would simply base transmission rates during any given year on the costs of facilities in service and expenses incurred that year to provide transmission service. As the Commission noted in International Transmission, basing rates on projections is not a departure from ratemaking practice and, indeed, has been embodied in the Commission s regulations for over four decades. 15 In numerous past cases, the Commission has applied this unremarkable principle to permit transmission owners to change their transmission formula rates from a historic to a forward-looking formula. 16 ATSI s filing in this proceeding is indistinguishable from the filings the Commission accepted in those cases. The Commission has thus made it clear that rates based on projections of the current costs of providing service are just and reasonable. AMP s claimed entitlement to pay rates that incorporate a regulatory lag simply does not exist. It amounts to an unjustified demand that customers be permitted to use the new transmission facilities that ATSI installs without even beginning to pay for those new facilities for up to seventeen months and to continue to pay rates that do not reflect the full costs of those facilities for an additional twelve months. Certainly, AMP s disagreement with the well-settled Commission precedent in favor of basing transmission formula rates on projections does 15 International Transmission at P 19; see also Order Amending Section of the Regulations Under the Federal Power Act, Order No. 487, 50 FPC 125 (1973), aff d, American Public Power Association v. FPC, 522 F.2d 142 (D.C. Cir. 1975). 16 See supra, n

9 not constitute a patent deficiency in ATSI s rate filing, which AMP is required to identify in order to justify its request for rejection of the filing. 17 The Commission should accordingly deny that request. 2. AMP s and Buckeye s Complaints Concerning ATSI s Projected 2015 Transmission Investments Are Both Immaterial and Unfounded. AMP and Buckeye complain about ATSI s projected transmission spending for In particular, AMP suggests that ATSI s plans for investments in new facilities in addition to those PJM identifies in its RTEP process are complex and unclear. 18 Their allegations are beyond the scope of this proceeding, as well as unfounded. First, AMP s and Buckeye s allegations and speculation about ATSI s projected transmission investments are beside the point. AMP and Buckeye disregard the fact that this filing concerns only ATSI s transition to a forward-looking formula rate, not the specific elements of ATSI s projected spending in Those elements will be addressed in the two review processes established in the revised protocols. 19 As described in the October 31 Filing, ATSI has proposed revised protocol provisions to review the projected transmission revenue requirement ( PTRR ) for each rate year, as well as special procedures applicable to Rather than simply posting the 2015 PTRR on PJM s website, ATSI provided it as part of the October 31 Filing on an informational basis. And, even though the revised protocols are not yet in effect, on 17 United Gas Pipe Line Co. v. FPC, 551 F.2d 460 (D.C. Cir.1977); Municipal Light Boards of Reading and Wakefield, Mass. v. FPC, 450 F.2d 1341 (D.C. Cir.1971), cert. denied, 405 U.S. 989 (1972); Southwest Power Pool, Inc., 136 FERC 61,097 (2011). 18 AMP Protest at For 2014, ATSI plans to have additions totaling $614 million, comprising $162 million in PJM RTEP projects and $452 million in Reliability Enhancement projects. 19 Intervenors comments regarding the annual review processes are addressed in section II.6, below

10 November 24, 2014, ATSI held an open meeting by conference call to discuss the 2015 PTRR with interested parties. At the open meeting, which was attended by representatives from AMP and Buckeye, ATSI provided additional information on the 2015 PTRR and answered questions posed by the participants. To the extent questions arose that ATSI was not able to answer on the call, ATSI is following up with the interested parties. Most importantly, under the revised protocols, ATSI will submit an Annual Update in an informational filing with the Commission by May 1, The Annual Update will show the calculation of ATSI s actual transmission revenue requirement based on ATSI s actual costs and revenues for the 2015 rate year, as well as a true-up of actual revenues to the projected revenues for that year. Customers will have an opportunity to review and provide input on the May 1, 2016 Annual Update informational filing under the revised protocols (which maintain the procedures and timelines that apply to review of Annual Updates under the existing protocols). In particular, the revised protocols provide that ATSI will hold a second open meeting concerning its 2015 costs, and will also respond to reasonable discovery requests concerning its actual 2015 costs. Interested parties will have an opportunity to challenge recovery of any costs at that time. In light of the other opportunities that ATSI s formula rate provides for review of ATSI s projected and actual costs, it is neither necessary nor appropriate to interject issues relating to ATSI s projected transmission investments in 2015 into this proceeding, which concerns only ATSI s proposal to change the timing through which its cost of providing transmission service will be recovered through its formula rate

11 Second, AMP s and Buckeye s allegations regarding ATSI s planned transmission investments are unfounded. In testimony included in the October 31 Filing, 20 FirstEnergy s Director of Transmission Planning and Protection, Jeffrey Mackauer, describes the processes through which ATSI identifies the transmission investments required to provide reliable service to its transmission customers. Those processes include participation in the RTEP process in which PJM identifies new transmission facilities required to address planning criteria violations and to improve market efficiency. Approximately $492 million of the new transmission facilities that ATSI projects will enter service in 2015 relates to Baseline Projects identified in PJM s RTEP process for one of these purposes. This is approximately 58 percent of the total $845 million of investment in facilities that are projected to enter service in Mr. Mackauer explains that ATSI also must make transmission investments to address reliability, equipment condition, system performance and operational flexibility needs that are typically not considered in the PJM RTEP planning process. He refers to the process through which ATSI and other FirstEnergy transmission owners identify these investments as the Reliability Enhancement process. 21 The fact that ATSI s Reliability Enhancement projects were not identified as Baseline Projects through the PJM planning process 22 in no way suggests that they are unnecessary or provide no benefit to transmission customers. Although PJM is primarily responsible for addressing regional reliability needs and market efficiency needs through its planning process, ATSI and other transmission owners in PJM also play an important role in maintaining and October 31 Filing, Exhibit No. ATS-4. October 31 Filing, Exhibit No. ATS-4 at AMP Protest at

12 enhancing the reliability and efficiency of their transmission facilities. In particular, transmission owners perform condition-based assessments of their existing facilities at all transmission voltage levels so that they can continue to provide reliable transmission service. Further, PJM s Operating Agreement specifies that local transmission owners also are responsible for planning and reliability at lower transmission voltage levels. 23 And the Commission has recognized in Order No that transmission planning takes place both at the regional RTO level and at the local, transmission owner level. 24 It is thus part and parcel of good utility practice, rather than the aberration that AMP and Buckeye decry, for ATSI to identify additional investments necessary to maintain or enhance reliability, replace or upgrade equipment due to its condition, enhance system performance and improve operational flexibility of its transmission facilities. The bulk of the investment in new facilities that ATSI identifies as needed in the Reliability Enhancement process involves facilities that replace or enhance existing transmission facilities that present an undue risk of failure, excessive maintenance requirements or prolonged outage due to condition (i.e. age near or beyond its normal service life, the unavailability of spare parts or manufacturer support for obsolete equipment, reliance on outmoded analog or electromechanical devices, or similar reasons). 25 ATSI and other FirstEnergy transmission-owning subsidiaries identify these projects through a clear methodology, applying guidelines described in Mr. Mackauer s 23 Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., Schedule 6, Section 1.3(d) and 1.5.4(e). See also, PJM Manual 14B: PJM Region Transmission Planning Process at 8 ( The analysis of OATT transmission facilities below 100kV and not under PJM operational control is led by the Transmission Owner (TO.) ) Order No. 1000, FERC Stats. & Regs. 31,323 at PP 6, 7, 68 and 79. October 31 Filing, Exhibit No. ATS-4 at

13 testimony. These condition-based projects constitute the lion s share of investment in Reliability Enhancement facilities projected to enter service in ATSI projects that these condition-based projects account for approximately three-quarters of the investment in Reliability Enhancement projects that will enter service in 2015, and approximately one-third of ATSI s total projected investment in facilities that will enter service in Combined, ATSI s projected investment in projects that PJM identified in the RTEP process and the condition-based projects ATSI has identified comprise approximately 90 percent of ATSI s total investment in transmission facilities projected to enter service in The remainder of ATSI s projected investment consists of projects that enhance system performance in order to increase transmission system reliability, and add operational flexibility in order to increase both transmission system capacity projects and physical security projects. 27 Intervenors claims that the justifications for ATSI s projected transmission spending are unclear or dubious are accordingly unfounded, even assuming they were relevant to the Commission s consideration of ATSI s October 31 Filing. AMP and Buckeye speculate that ATSI s proposed transmission capital spending is driven more by financial results than by sound engineering. 28 AMP also claims that ATSI is over-investing due to the so-called Averch-Johnson effect. 29 These claims 26 Similarly, facilities identified in PJM s RTEP process and replacements for facilities ATSI has identified as presenting an undue risk of failure or prolonged outage comprise approximately 90 percent of ATSI s projected investment in facilities entering service in October 31 Filing, Exhibit No. ATS-4 at AMP Protest at 3-9. Buckeye similarly speculates that there is a corporate decision to focus on rate-regulated transmission investments rather than continuing to invest in generation resources. Buckeye Protest at AMP Protest at AMP misstates the underpinnings of the Averch-Johnson effect, claiming that it encourages over-investment when a regulated entity s return exceeds its cost of borrowing. Id. However, this theory only applies when a utility expects to earn a return above its cost of

14 ignore ATSI s obligations as a transmission owner to invest in facilities that PJM designates it to construct and to make the additional investments required to maintain the reliability of its existing transmission system. 30 They also disregard the evidence ATSI provided explaining the planning and engineering factors driving its transmission investment decisions. More broadly, AMP s and Buckeye s claims ignore the Commission s recognition of the need for investment in the Nation s transmission infrastructure and its adoption of policies that seek to overcome the substantial impediments and disincentives to that investment. 31 The Commission has emphasized the importance of overcoming the factors that have led to historical underinvestment in transmission infrastructure, and has encouraged modernization and proactive behavior designed to promote the reliability of the transmission system. 32 In particular, the Commission has approved the use of forward-looking formula rates as one regulatory tool to overcome disincentives to investment. 33 AMP s and Buckeye s speculation about financial motivation and corporate strategy is simply irrelevant. This case concerns whether ATSI may base its formula rate capital, which presupposes a failure of regulatory oversight. See Mid-Tex Elec. Coop. v. FERC, 864 F.2d 156, 158, n.1 (D.C. Cir. 1988). Given the regulatory requirement that the Commission provide stockholders the opportunity to earn a fair return on invested equity, a utility s after-tax return on rate base will always exceed the cost of borrowing. 30 The Commission has recognized that regional planning processes, as well as regulatory review of investment costs, provide adequate safeguards against over-investment. See Conn. Dep t of Pub. Util. Control v. FERC, 593 F.3d 30 (D.C. Cir. 2010) (citing Bangor Hydro-Elec. Co., Opinion No. 489, 117 FERC 61,129 at P 123 (2006)) See e.g., Order No. 679 and Order No Id. Congress also recognized the importance of transmission investment and the attendant risks of development when it enacted section 219 of the Federal Power Act ( FPA ) as part of EPAct 2005, 16 U.S.C. 824s (2012). 33 See e.g., MidAmerican Energy Co., 137 FERC 61,250 at P 70 (2011) ( forward-looking formula rates, if properly designed and supported, as is the case here, would be acceptable to avoid lag in cost recovery for the Projects. ); International Transmission at P

15 on the current cost of providing transmission service, including the investments ATSI is making to maintain and enhance the reliability of service. The fact that ATSI will be permitted to earn a return on those investments at a rate established by the Commission in no way supports AMP s and Buckeye s position that they are entitled to rates that understate ATSI s cost of providing service and fail to reflect the costs of facilities that its customers use. 3. The Intervenors Cannot Inject the Issue of ATSI s ROE Into This Proceeding by Including Unlabeled Complaints in Their Protests. ATSI s October 31 Filing does not propose any change in the authorized ROE used in the formula rate. This rate is percent, and was authorized by the Commission in Docket No. ER ATSI s existing and revised protocols both provide that the ROE will remain a stated value until changed pursuant to a section 205 or 206 filing. 34 Although AMP acknowledges that ATSI s current ROE may only be challenged by AMP through a [s]ection 206 complaint, [and] such a complaint may not be embedded within [a] protest, 35 AMP and Buckeye nevertheless attack ATSI s existing ROE and ask the Commission to investigate it; they also cite ATSI s current ROE as a principal reason to suspend the proposed formula rate changes for the maximum five-month period. 36 Both of these requests are unfounded Protocols, Section 1. g(i); Revised Protocols, Section 1.a. AMP Protest at 15; see also Buckeye Protest at This admission is compelled by the Commission s recognition that its review of proposed changes under FPA section 205 does not extend to separate and discrete provisions that the filing utility has not proposed to change. Duke Energy Carolinas, LLC, 123 FERC 61,201 at P 10, n. 9 (2008); see also, e.g. ISO New England Inc. and NEPOOL Participants Committee, 118 FERC 61,163 at P 29 (2007) ( The Commission finds that these requests are outside the scope of this proceeding and amount to a collateral attack on an existing rate methodology that has been found to be just and reasonable by the Commission. ); International Transmission at P Buckeye Protest at 11-13; AMP Protest at

16 It is plainly improper of AMP and Buckeye to ask the Commission to initiate an investigation of ATSI s ROE without completing the requisite predicate procedural requirement, namely, the filing of a section 206 complaint. Moreover, the Commission has discretion in deciding whether or not to initiate its own investigation pursuant to section 206 of the FPA, 38 which it should exercise in this case by declining to initiate an investigation because ATSI s filing involves only a proposal to move from a formula rate based on historic costs to a forward-looking formula rate. This course would be consistent with the Commission s practice in similar cases. In International Transmission, 39 for example, the utility filed a forward-looking formula rate proposal but did not propose a change to its ROE. The Commission denied intervenors request for an investigation into the utility s unchanged ROE and capital structure, finding their assertions that the use of projections would change the utility s financial risk profile to be too general and unsupported to warrant initiation of a section 206 investigation. The Commission reasoned that the purpose of the utility s proposal was to keep its cost recovery more current, not to reduce its risk of non-recovery of actual costs. 40 This case is no different. 37 ATSI will address intervenors inappropriate attempts to use ATSI s existing authorized ROE to support their claims for five-month suspension of the proposed changes to ATSI s formula rate in section II.4, below. 38 See, e.g., Ocean State Power v. FERC, 84 F.3d 1453 (D.C. Cir. 1996); General Motors Corp. v. FERC, 613 F.2d 939, 944, 945 (D.C. Cir. 1979); New England Power Co. v. Algonquin Gas Transmission Co., 76 FERC 61,143 (1996) (discussing the Commission s discretion under Section 5 of the Natural Gas Act); ISO New England, Inc., 111 FERC 61,096 at P 31 (2005) (discussing the Commission's discretion under section 206 of the FPA). Cases under the Natural Gas Act and the Federal Power Act are read in pari materia. See, e.g., FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353 (1956); Arkansas- Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, n.7 (1981) International Transmission at P 9. International Transmission at P 35. See also Michigan Electric Transmission Company, LLC and Midwest Indep. Transmission Sys. Operator, Inc., 117 FERC 61,314 at P 22 (2006) (same); Michigan Electric Transmission Company, LLC and Midwest Indep. Transmission Sys. Operator, Inc., 116 FERC 61,164 at P 12 (2006)

17 Even if their request for initiation of an investigation into ATSI s authorized ROE could properly be made in their protests and it cannot Buckeye and AMP fail to support their requests. First, Buckeye s citation of the particular ROE that the Commission found appropriate for utilities in another region in Opinion No. 531 is not determinative of whether ATSI s ROE has become unjust and unreasonable. 41 Second, the analysis that AMP attaches to its protest offers no support for its attack on ATSI s authorized ROE. 42 Though AMP s analysis purports to apply the Commission s findings in Opinion No. 531, it is actually inconsistent with that decision insofar as it presents only a mechanical application of the discounted cash flow ( DCF ) approach and ignores the Commission s holding that DCF estimates must be critically evaluated in light of the results of alternative methods and benchmarks in order to establish a fair ROE. 43 AMP s analysis is thus deficient and therefore offers no support for AMP s sub rosa complaint against ATSI s ROE because it fails to compare its conclusion to the results of the risk premium, Capital Asset Pricing Model, and expected earnings approaches that the Commission relied upon in Opinion No AMP s reductive analysis thus has no support in Commission precedent and should be rejected in this case. 41 Buckeye Protest at 15 (citing Martha Coakley, Mass. Attorney Gen., et al. v. Bangor Hydro- Electric Co., et al., Opinion No. 531, 147 FERC 61,234 at P 142, order on paper hearing, Opinion No. 531-A, 149 FERC 61,032 (2014)) AMP Protest at 16. See Martha Coakley, Mass. Attorney Gen., et al. v. Bangor Hydro-Electric Co., et al., Opinion No. 531, 147 FERC 61,234 at PP 142, 146, order on paper hearing, Opinion No. 531-A, 149 FERC 61,032 (2014). 44 Opinion No. 531 at P

18 4. A Five-Month Suspension Is Not Warranted. AMP and Buckeye urge the Commission to suspend ATSI s filing for five months. 45 However, they fail to justify their requests for a five-month suspension under the applicable West Texas standard. Both intervenors disregard the Commission s focus in suspension decisions under West Texas on the increase in revenues resulting from the proposed rate change. 46 Their complaints about recoveries under portions of the formula rate that ATSI does not propose to change and about transmission spending that ATSI ultimately will recover regardless of whether it adopts a forward-looking formula are simply irrelevant to suspension under the West Texas standard. As the Commission has found, a rate filing that proposes a change to a forward-looking formula rate, such as ATSI has proposed in this case, affects only the timing of cost recovery: customers will only pay the cost of service they would have paid on the lagging basis. 47 There is accordingly no reason to suspend the filing for the maximum five-month period. In West Texas, the Commission stated that, as a general matter, it would suspend rate proposals for only one day instead of the five month maximum unless its preliminary analysis indicates that... more than ten percent of the increase appears to be excessive... [or] extraordinary factors indicate that wholesale customers may suffer Buckeye Protest at 14-15; AMP Protest at 16, See, e.g., Arizona Public Service Co., 145 FERC 61,086 at P 14 (2013) ( It is our policy to suspend a requested rate increase for the maximum period in those cases where our preliminary analysis indicates that 10 percent or more of the requested increase appears to be excessive. citing West Texas.); Southern California Edison Co., 114 FERC 61,018 at P 14 (2006) (The Commission explained that its preliminary analysis indicated that the proposed rate increases may be substantially excessive, thus warranting imposition of the maximum suspension period). 47 International Transmission at P

19 irreparable harm absent a five month suspension. 48 Neither of these factors is present in this case. First, ATSI s proposed revisions to its formula rate do not cause a substantially excessive increase in its revenues. To the contrary, ATSI s proposal changes only the timing of ATSI s cost recovery. ATSI s current historic formula rate already allows ATSI to recover a return of and on its transmission investment and its operation and maintenance expenses, subject to review and challenge through its Annual Update process. In this filing, ATSI is not proposing to change the ultimate basis of its recovery of those costs: they will continue to be based on the actual costs reported on ATSI s FERC Form No. 1 and supporting company records. 49 Instead, ATSI is proposing to change only the timing of recovery by moving to a forward-looking formula rate that bases initial calculations under the formula rate on projections of costs during the period that customers receive service. As the Commission recognized in addressing a similar proposal in International Transmission, while rates will initially increase, customers will ultimately only pay the cost of service they would have paid on the lagging basis. 50 Indeed, the new true-up mechanism ensures that rates will not over-collect costs and will ultimately be based on the same costs that ATSI s current formula allows it to recover. Even under the current historic formula rate, customers would eventually pay the costs identified in the October 31 Filing. As a result, AMP s and Buckeye s claims that ATSI s proposal produces significant revenue increases for ATSI at the expense of its West Texas at 61,375. Revised Protocols, Section 1.d. As explained in the October 31 Filing, certain elements of ATSI s costs will be projected based on the average of thirteen monthly balances, rather than year-end Form No. 1 entries. October 31 Filing, Exhibit No. ATS-1 at 12 (Direct Testimony of Milorad Pokrajac). 50 International Transmission at P

20 customers are simply wrong, and present no valid basis for suspending ATSI s proposal for the maximum five-month period. Similarly, AMP s attempt to quantify and support its claim of an excessive rate increase 51 improperly attributes to ATSI s proposal all of AMP s complaints about calculations under ATSI s existing formula rate. AMP cites existing components of ATSI s formula rate that are unchanged by this filing with which it apparently disagrees e.g. ROE, the allowance for cash working capital in accordance with established Commission policy, the calculation of capital structure and accumulated deferred income taxes. 52 ATSI does not propose to change the provisions of the formula rate that base each of these items on the actual amounts ultimately recorded in FERC Form 1 and company records (or, in the case of ROE, the ROE authorized by the Commission, which ATSI does not propose to change). Thus, even if AMP s objections to these components of the calculation under the formula rate were well founded (which is not the case), its calculation still does not demonstrate that there is any rate increase that is excessive by more than 10 percent or any other amount. In short, because ATSI did not propose any changes to these components, they cannot factor into a suspension analysis. Further, even if ATSI s proposal to adopt a forward-looking formula rate constituted a rate increase for purposes of suspension analysis, whether a rate increase is excessive, depends not on the size of the increase but on whether it is more than is AMP Protest at Id. ATSI addresses AMP s complaints about these elements of ATSI s costs infra in section II.5 of this Answer

21 proper or necessary. 53 Nothing in either protest shows that any portion of the change in ATSI s rates resulting from the transition to a forward-looking formula rate is more than is proper or necessary, let alone substantially i.e., 10 percent more than is proper or necessary. The testimony included in the October 31 Filing demonstrates that the opposite is true. The rates that customers will pay in 2015 under the revised formula rate are based on projections of ATSI s costs of providing service for that year, which will be trued-up to actuals. The projections are based on the detailed and reasonable budgetary and planning processes discussed in the testimony submitted with the October 31 Filing. 54 And, ATSI s planned transmission expansions and enhancements in 2015 are proper and necessary to ensure the safety and reliability of its transmission system. 55 As noted above, the factors driving ATSI s investments in transmission facilities entering service in 2015 are clearly described in its filing. There is nothing excessive about basing rates on projected investment in these projects, and the amounts projected to be spent on these projects cannot be excessive because they are subject to true-up to actual amounts. Intervenors complaints about ATSI s projected transmission investments are simply irrelevant to the suspension analysis (and indeed to this proceeding). Second, there are no extraordinary factors and no resulting irreparable harm to wholesale customers in this case that would warrant a five-month suspension. AMP s 53 Excessive is defined as exceeding what is usual, proper, necessary or normal in Merriam- Webster.com. Retrieved November 30, 2014, from 54 See October 31 Filing, Exhibit Nos. ATS-6 (Direct Testimony of Marlene A. Barwood) and ATS- 4. See also, section II.5, infra. 55 October 31 Filing, Exhibit No. ATS-4 at

22 and Buckeye s claims of rate shock 56 are inaccurate and overblown. They are inaccurate because they ignore the fact that ATSI s transmission costs will be trued-up to actuals, which ensures there can be no over-collection of costs. The claims of rate shock also overstate the impact of ATSI s proposed adoption of projections as the initial basis of charges under its formula rate. Instead of focusing on the impact of ATSI s proposal on the timing of cost recovery, which is shown in the October 31 Filing in Statement BG/BH, 57 intervenors purported rate increase calculations appear to combine the impact of several factors in addition to ATSI s proposal, including the change to a rate year that coincides with the calendar year, a change in rate design prescribed in a Commission decision earlier this year in Opinion No. 533, and ATSI s planned increase in transmission spending. 58 But ATSI s transmission costs would be recovered under the rate design prescribed in Opinion No. 533 with or without this filing. Even if ATSI s formula rate were not modified as proposed in the October 31 Filing, transmission customers would pay the costs identified in the October 31 Filing under the current historic formula rate. Indeed, under the current historic formula rate, the costs for 2014 would appear in rates as early as June 2015; a little more than six months from now. 59 Finally, Buckeye argues that suspension would allow time for customers to obtain additional information and address any concerns regarding the PTRR, and would permit AMP Protest at 32-33; Buckeye Protest at 15. See October 31 Filing, Exhibit ATS-8 and Transmittal Letter at See AMP Protest at 2, 34, Buckeye Protest at 10. AMP s comparison of projected rates in 2015 to rates for below-138 kv service in 2014 appears to ascribe to ATSI s proposal in this case the impact of the Commission s rate design decision in Buckeye Power, Inc. v. American Transmission Systems Incorporated, Opinion No. 533, 148 FERC 61,174 (2014), reh g pending. 59 AMP also argues that the Commission has the discretion to factor a just and reasonable ROE into its determination of whether the proposed rate is more than 10% excessive. AMP Protest at 16. However, AMP s reference to current ATSI s ROE is misplaced because, as discussed, suspension analysis focuses on the rate increase, not on the existing rates or existing rate components

23 ATSI and its customers to establish guidelines for future PTRR postings. 60 However, this does not constitute an extraordinary circumstance and, in any event, a suspension is not required in order for the parties to address these concerns. As noted above, on November 24, 2014, ATSI held an open meeting to discuss the 2015 PTRR with interested parties. Prior to that meeting, ATSI provided the parties with a detailed list of projects whose costs are included in the 2015 PTRR. At the open meeting, which included representatives from Buckeye, ATSI provided additional information on the 2015 PTRR and answered questions posed by the participants, including questions related to the 2015 project list. Thus, ATSI has already given interested parties ample opportunity to obtain information on the 2015 PTRR. Further, ATSI s PTRR for 2016 will not be posted until November 1, 2015, so suspension will not affect the process for review of that PTRR. In sum, the requests for a five-month suspension have no basis. They amount to unjustified pleas to continue for an additional five months the unjustified regulatory lag embedded in the current historical rate structure, which give customers free use of new facilities. Those requests should be denied. 5. AMP s Concerns With Respect to ATSI s Formula Rate Are Either Misplaced Or Meritless. AMP cites a number of alleged flaws and deficiencies in ATSI s formula rate. 61 However, five of these alleged deficiencies concern elements of ATSI s existing formula rate that ATSI is not proposing to change. AMP alleges that ATSI s capital structure should exclude Account 219 Accumulated Other Comprehensive Income, and that Buckeye Protest at 15. AMP Protest at

24 ATSI s rate base adjustment for Account 190 ADIT should exclude both charitable contributions and FAS ARO accretion expenses related to ADIT. 62 AMP also claims that ATSI s rate base calculation should include an adjustment for unfunded reserves, and that its cash working capital allowance should be set to zero absent a reliable lead-lag study. 63 Finally, AMP asserts that ATSI s formula rate template includes certain placeholders for common plant and payments in lieu of taxes, which are unnecessary and should be deleted. 64 All of these alleged flaws concern elements of ATSI s existing formula rate that ATSI is not proposing to change in this proceeding. To the extent AMP takes issue with these unchanged elements of ATSI s existing formula rate, it must submit a complaint under section 206 in a separate proceeding. 65 As AMP itself acknowledges, Commission precedent precludes the initiation of a section 206 complaint through a protest to a section 205 filing. 66 Further, with respect to the cash working capital allowance, AMP s claims are not only out of place but also inconsistent with Commission policy. AMP argues that the cash working capital allowance should be set to zero absent a reliable lead-lag study. 67 AMP ignores long-standing Commission precedent that permits the use of one-eighth of 62 Id. at 16. With respect to the exclusion of ARO accretion expenses, to the extent ATSI s filing does not comport with current Commission policy, ATSI will make corrections in its Annual Update filing, including a true-up with interest, as necessary Id. at 18. Id. at See supra, n. 35. AMP Protest at 15. As explained in section 4, above, these concerns have no bearing on the appropriate suspension period, if any, for ATSI s filing. 67 AMP Protest at

25 allowable transmission O&M expenses as the basis for cash working capital without the need for a lead-lag study. 68 The remainder of AMP s alleged deficiencies concern elements of ATSI s projected spending in For example, AMP asserts that ATSI s transmission operation and maintenance expenses are unsupported and result in excessive revenues, and that its administrative and general expenses for regulatory expenses are overstated. 69 AMP also claims that ATSI s property tax expense is unsupported and results in excessive revenues. 70 These formula rate items are specific projected amounts included in the 2015 PTRR, and thus are subject to the review provisions of the revised protocols. Moreover, these amounts are subject to the true-up mechanism set forth in the revised protocols. The Commission has determined that such a true-up mechanism is sufficient protection for transmission customers because it will ensure the customers pay no more and no less than actual costs. 71 As a result, it is unnecessary for the Commission to address these alleged deficiencies in this proceeding. Finally, there is no basis for AMP s claim that ATSI s property tax expense results in excessive revenues because the projected property tax expense reflects an effective property tax rate higher than the average effective property tax rate in past years. 72 AMP s comparison to averages in past years ignores the impact of the decline in the value of taxable property over the operating life of each facility. The projected 68 Trans-Elect NTD Path 15, LLC, 117 FERC 61,214 at P 39 (2006); Commonwealth Edison Co., Opinion No. 165, 23 FERC 61,219 at 61,469 (1983); Louisiana Power & Light Co., 14 FERC 61,075 at 61, (1981); Carolina Power & Light Co., 6 FERC 61,154 at 61,296 (1979) AMP Protest at 19. Id. at International Transmission at P 19. AMP Protest at