Commission Watch

Is the "pathway concept" the answer to Virginia's qualms?
Fortnightly Magazine - July 1 2003

Is the "pathway concept" the answer to Virginia's qualms?

PJM, at its annual meeting, announced a plan to integrate ComEd into PJM by Oct. 1, pursuant to FERC's April 1 order, despite Virginia's saying no to membership by American Electric Power (AEP) or any other jurisdictional utility, according to PJM spokesman Ray Dotter. PJM introduced the "pathway concept" as a way to work around that state while the jurisdictional issues are being fought at FERC. (May 16 was the deadline for filings at FERC on whether the integration can proceed.)

If AEP does not become a PJM member, Exelon, ComEd's parent, and other market participants would use firm transmission capacity that they have purchased from AEP to link PJM and ComEd. "So folks who are not using their firm transmission capacity can contribute that to an aggregation that would function as sort of a virtual transmission line" Dotter explained.

He added that it is not a single line, but the combination of capacities over whatever lines are between ComEd and PJM, and that pathway would be operated and managed by PJM as a dynamic transmission line. The line would be subject to the same constraints as an actual transmission line.

It will be a two-way link so that power can flow in both directions.

So far, a few hundred megawatts are available from ComEd and Exelon, but PJM believes others might also contribute. For example, if a plant goes down for maintenance, that capacity for a month's down time could be used.

Financially, Dotter compared the situation to subletting office space. "Think of a firm transmission right as leasing transmission capacity, and when it is not needed participants would in a sense sublet it through PJM to others to flow power back and forth," he explained. PJM is in the midst of developing a stakeholder plan and business rules for how it would work. The Market Implementation Working Group is discussing how the pathway might operate, and details are being worked out. July 15 is the target date for a FERC filing on how the integration would work, including the pathway.

Meanwhile, AEP spokesman David M. Hagelin says AEP is moving ahead with the state approval process and is "not waiting per se." He added that the decision to delay joining PJM was made for AEP, not by AEP. "We will comply with Virginia law," he says. Hagelin says AEP considers FERC's April 1 order a "green light" to join PJM, rather than a mandate to do so. Hagelin noted that AEP's intention still is to join PJM (for its ECAR assets), "but it is clear that the timeline will be later than we had projected."

Virginia-FERC SMD Dust Up: How PJM Got Caught in the Mix

The trouble for PJM started after it had an agreement in place for AEP and ComEd to join the RTO. Virginia, leery of competitive efforts, decided it was time to slow down. Back in March, the Virginia Corporation Commission first said it was moving forward with AEP's request to transfer control of its transmission facilities to PJM, but the commission asked for supplemental information and said it wanted to consider the application after FERC's proposed standard market design (SMD) was finalized. (This happened before the future of SMD was cast into doubt. See )

The state commission expressed fears over reliability, and it directed AEP to provide a cost-benefit study showing results of joining the RTO from the perspective of the parent company, the Virginia company, other AEP corporate entities, shareholders, customers, and Virginia ratepayers as a whole .

But the Virginia legislature got involved early in April, passing House Bill 2453, which delayed the date by which incumbent electric utilities with transmission must join a regional transmission entity (RTE). It pre-empted the state's restructuring law, which required utilities to join an RTE by Jan. 1, 2001. Now, utilities such as AEP and Dominion Virginia Power are not allowed to join an RTE prior to July 1, 2004, and may only transfer management and control of transmission assets to the RTE by Jan. 1, 2005, subject to state commission approval.

Prior to giving permission, the state commission must find that approval will: (1) ensure that consumers' needs for economic and reliable transmission are met; and (2) meet the transmission needs of electric generation suppliers that do not own, operate, control, or have an entitlement to transmission capacity.

The problem is that AEP, one of the largest investor-owned electric holding companies in the United States, operates in 11 states and would provide the link for PJM to expand its footprint and reach ComEd in Illinois through Virginia, Kentucky, Indiana, West Virginia, and Ohio.

FERC Jurisdiction

But the FERC issued an order April 1 accepting filings by AEP, ComEd, Dayton Power and Light Co., and Dominion Virginia Power (called the "New PJM Cos.") to further the process of their joining PJM. The facilities' integration was to take place in phases, with AEP notifying FERC it would not transfer facilities to PJM until May 1, 2003, at the earliest.

Protests were filed at FERC against the Virginia law by the Pennsylvania, Ohio, and Michigan commissions, asking FERC either to direct AEP to join an established RTO, or to require AEP to enter into an operating agreement with a third party, such as PJM, thereby contractually transferring control of its transmission. The commissions argued that individual states should not be allowed to interfere with the national goal of creating a strong wholesale energy market.

Exelon, parent company of ComEd, filed in support of the commissions, arguing that Virginia's enactment of the legislation will affect transfer of interstate transmission operations and development of wholesale energy markets, which are matters beyond any single state's jurisdiction. Exelon also argued that the Virginia legislation is prempted by FERC's exclusive jurisdiction over wholesale transmission in interstate commerce, and it may prevent customers of utilities in other states from obtaining benefits of RTO membership.

FERC in its April 1 order found that transfer of ComEd's and AEP's facilities to PJM control is consistent with the public interest, and the commission approved the transfer. FERC rejected the Virginia commission's request for dismissal based on its new state law, as well as Virginia's claim that it cannot decide on allowing AEP to join PJM until FERC has issued its SMD rulemaking. FERC said the filings "are validly before the commission, and we are accepting these filings under the FPA, and are not determining the effect of state law." FERC said it found no reason to delay AEP's and ComEd's entry into PJM until it completes its SMD rulemaking.

Michigan May Mandate RTO Membership for AEP Subsidiary

Taking the opposite view from Virginia, the Michigan Public Service Commission is irate that AEP subsidiary Indiana Michigan Power Co. (IMP) has not yet joined an RTO or any FERC-approved transmission entity. On May 28 it directed the utility to file a report by June 30, 2003, on the status of it compliance with section 10w of the state's 2000 restructuring act requiring each investor-owned utility in Michigan to join either an RTO or other multi-state transmission entity.

On April 16, the PSC had issued an order asking IMP to show cause by May 17 why it had not violated section 10w. IMP answered and pointed to the development and subsequent collapse of a stand-alone RTO by the Alliance companies, which include AEP. IMP also said it encountered added obstacles to complying with section 10w and asked that it not be penalized.

The PSC, in its May 28 order, said it believes IMP has had adequate time to comply with the law, and the commission directed it to report on why it should not be found in violation of section 10w and be penalized, which includes being ordered to join a multi-state RTO mandated by the commission. (Case No. U-13360, May 28, 2003, Mich. P.S.C.) -L.A.B.

In Brief . . .

Pennsylvania: Rate Cap Expiration Awaited

PPL Corp., an electric utility serving much of central Pennsylvania, will seek a rate increase to take effect as soon as its restructuring plan rate cap expires on Jan 1, 2005. The announcement adds to the debate over the success of the Pennsylvania electric restructuring program, and it follows a recent decision by the state PUC to require assignment of customers to competitive power providers in the Philadelphia area in order to boost market development. Up to this point, the PUC has maintained that the move to a competitive market has aided consumers across the state by keeping rates low. PPL would be the first utility to seek an increase in regulated distribution rates since the initiation of the restructuring experiment in 1997.-P.C.

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