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Constellation Protests SECA Compliance Filing

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October 19, 2010

Constellation Energy has protested the Seams Elimination Charge Adjustment compliance filing (ER10-2283 et. al.) of the PJM transmission owners due to establishment in the compliance filing of SECA sub-zones in the AEP-East zone for "Wolfhills" and "Bristol, Wolfhills" that, "neither appear to have been directed by the Commission nor make any sense if they are referring to Wolf Hills Energy, LLC because it is not a load-serving entity but the owner of an approximately 250 MW natural gas-fired electric generating facility located near Bristol, Virginia."

"The PJM transmission owners provide no explanation for the creation of SECA sub-zones for Wolfhills and Bristol, Wolfhills other than a brief statement made by J. Stephen Henderson in his affidavit that he made a '[c]orrection of a 10 MW Craig- Botetourt Electric Coop ('CBEC') load in the American Electric Power ('AEP') zone that was shifted from the Blue Ridge Power Authority ('BPRA') sub-zone to Bristol sub- zone.' Presumably, Mr. Henderson is referring to the Bristol, Wolfhills sub-zone but his reference to a 'Bristol' sub-zone leaves open some doubt. In any event, unlike the other changes made in the PJM Compliance Filing, the PJM transmission owners cite no directive from the Commission in its Order on Initial Decision for the creation of SECA sub-zones for Wolfhills and Bristol, Wolfhills," Constellation said.

"Further, there is a lack of clarity over which party the PJM transmission owners are referring to when they created the SECA sub-zones for Wolfhills and Bristol, Wolfhills. One possible explanation is Wolf Hills Energy, LLC ('Wolf Hills'), which owns an approximately 250 MW natural gas-fired electric generating facility located near Bristol, Virginia. However, Wolf Hills is not an LSE but an exempt wholesale generator ('EWG') that was granted market-based rate authorization by the Commission. As an EWG, Wolf Hills cannot make retail sales of electric energy. Neither Wolf Hills nor any affiliate had a contractual relationship to serve the load of Craig-Botetourt Electric Coop during the relevant test (2002-2003) or transition (December 2004-March 2006) periods. Also, Wolf Hills did not establish a generation-only control area and no LSE filed a shift-to-shipper claim against Wolf Hills. Therefore, any transactions with a Wolf Hills 'sink' can only conceivably be related to station power for its electric generating facility. For these reasons, the creation of SECA sub-zones for Wolf Hills, if that is what the PJM transmission owners intend, simply does not make any sense and the PJM transmission owners have not provided an adequate explanation," Constellation said.

"Absent an adequate explanation, the Commission should direct the PJM transmission owners to remove the Wolfhills and Bristol, Wolfhills sub-zones from the PJM Compliance Filing," Constellation added.

Integrys Energy Services and Direct Energy, in separate but similarly argued pleadings, also noted that the PJM and Midwest ISO transmission owner compliance filings do not identify, "the effects of the filing on LSEs and the effects of the filing on those LSEs who have settled with one or more TOs and on those who have not."

"Of course, the vast majority of the LSEs in the Combined Region with payment obligations are affiliated with the Transmission Owners collecting from those LSEs and have, not surprisingly, settled. The Compliance Filings must be accompanied by and the TOs should be ordered to develop a refund report that provides sufficient details regarding the re-allocated and changed rates, refund amounts, and surcharged amounts. In addition, the Commission should order the Filing Parties, or the RTOs as applicable, to provide the refunds required by the compliance filing immediately upon issuance of a Commission order on the compliance filings. These refunds must be accompanied by appropriate interest," Integrys Energy Services said.

Integrys Energy Services also provided a summation of FERC's introduction and handling of SECA:

"After a series of compliance filings, filed in purported compliance with previous orders, the Commission imposed the SECA, refused the stay requests by a number of LSEs, permitted no mitigation and allowed Transmission Owners ('TOs') to collect the SECA based on unverified 'lost revenues.' As the Commission noted, '[i]n response to an admonition from Congress, that Congress expected the Commission to review its SECA policies and take expeditious and appropriate remedial steps, on January 26, 2006, the Commission directed the Presiding Judge to issue an initial decision by August 11, 2006.'"

"Caught in the mess of untangling the RTO choices of the Alliance companies are entities like Quest/ESI, LSEs established to compete with incumbent utilities for commercial and industrial customers in states where retail markets have been opened. Retail LSEs like Quest/ESI engaged in transactions during 2002 and 2003 when retail market competition was in its infancy. They relied on the stability and risk/reward features of 'bundled delivery' contracts for energy used to serve their retail customers. Under these contracts, wholesale power marketers would provide, at the delivery point, energy and transmission at a fixed price, delivered to the area where the load was served. The energy supply and price risk and the transmission rights and rate risk were placed on the supplier. This arrangement provided the financial certainty necessary to serve customers, because retail LSEs participating in newly open retail markets did not have the standard regulated utility mechanisms to recover or defer costs or otherwise manage cash flow," Integrys Energy Services added.

"Retail LSEs were blindsided by the Commission's orders implementing the SECA because the SECA mechanism was a charge on load, not on transmission rates which were paid by the Supplier under the bundled delivery Contract arrangement. Thus, retail LSEs found themselves liable for the SECA charge based on their past - not present -- purchasing activities. Adding insult to injury, because these LSEs were competing against incumbent utilities, retail LSEs, especially Quest/ESI, imported proportionally more power across the seam (either into Midwest ISO or intra-PJM) than incumbent utilities with their own generation located in their own service territories," Integrys Energy Services said.

"Retail LSEs like Quest/ESI also paid a disproportionate share of SECA charges because, while their incumbent utility competitors paid a SECA, utilities also received off-setting SECA revenues as TOs. In addition, these incumbent utility LSEs were able to simply flow through the SECA charges to their native load customers under regulatory recovery mechanisms, something retail LSEs generally could not. Thus, SECAs for retail LSEs were disproportionately large and caused significant damage," Integrys Energy Services noted.

Integrys Energy Services further noted that the 2006 Initial Decision was favorable to Quest/ESI and Direct Energy, as it substantively agreed with many of the, "deficiencies in the methodology devised and employed by the TO filing parties."

"Then the matter sat before the Commission for four years until, in response to the Petition for Writ of Mandamas filed by Quest/ESI and Direct Energy in the DC Circuit in case No. 09-1302, on May 21, 2010, the Commission issued its Order on Initial Decision. In its Order, the Commission reversed the Presiding Judge on nearly every substantive issue. In many cases, the Commission contradicted and in others ignored evidence in the record without anything but a cursory and conclusory statement of disagreement," Integrys Energy Services said, which has sought rehearing of that order.

Certain PJM transmission owners filed comments stating that the Midwest ISO tariff must identify the new retail suppliers who are bearing the shifts in the SECA obligations of Quest Energy LLC/WPS Energy Services Inc. and CMS Energy Resource Management Company for certain loads located in the International Transmission Company (MECS/ITC) zone of the Midwest ISO.

MISO TOs had said that they were unable to identify the new competitive load serving entities of this load; however, host utility Detroit Edison stated that it would provide data to identify the new suppliers to the Midwest ISO under a mutually-agreeable confidentiality agreement.

"Notwithstanding any confidentiality claims raised by Detroit Edison or others, these new suppliers must be identified in Schedule 22 Attachment B of the Midwest ISO tariff, consistent with the identification of all other suppliers of sub-zonal load. If the new suppliers are not named in the filed rate, the PJM TOs could be adversely harmed by challenges to the Midwest ISO's efforts to collect SECA obligations from the unnamed entities," certain PJM TOs said, a group which included some nine transmission owners.

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