UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION


Before Commissioners: Joseph T. Kelliher, Chairman;


Nora Mead Brownell, and Suedeen G. Kelly.


Indiana Municipal Power Agency Docket
No. ER05-971-000


ORDER ACCEPTING RATE SCHEDULE

(Issued July 14, 2005)
1.

In this order the Commission accepts the Indiana Municipal Power Agencys
(IMPA) proposed rate schedule for providing cost-based Reactive Supply and Voltage
Control from Generation Sources Services (Reactive Power) and denies a request to set
the case for hearing.
Background
2.

Providers of Reactive Power in PJM Interconnection, L.L.C. (PJM) are permitted
to recover their costs of providing Reactive Power in accordance with Schedule 2 of
PJMs Open Access Transmission Tariff (OATT). On May 16, 2005, IMPA, a member
of PJM, filed an initial Rate Schedule No. 2 and supporting cost data to establish its
revenue requirement for providing Reactive Power in PJM. IMPA states that it filed its
monthly reactive power revenue requirements in accordance with Schedule 2 of PJMs
OATT for such Commission approval as may be required. IMPA states that its proposed
rate schedule sets forth a cost-based rate that represents IMPAs fixed cost revenue
requirement for providing Reactive Power capability. IMPA further states that it may
receive additional compensation from PJM for reductions in real power that are for the
purpose of increasing the amount of reactive power support to the transmission system,
known as lost-opportunity costs.
3.

IMPA explains that the tendered Reactive Power revenue requirement consists of
fixed plant costs for the plant facilities in or near Anderson, Indiana and Richmond,
Indiana that are needed to be capable of providing Reactive Power to the PJM control
area. To determine an annual revenue requirement, IMPA states that it developed an
annual fixed charge to apply to the total amount of plant investment associated with
providing Reactive Power service. IMPA states that it used an overall rate of return Docket No. ER05-971-000


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based on a proxy derived from the capital structure and return on equity for the
American Electric Power Service Corp. (AEP), the owner of the transmission system
with which the IMPAs combustion turbine stations interconnect. The resulting proposed
monthly charge to PJM is $40,750, subject to reduction depending upon the resolution of
the proceeding in Docket No. ER05-751 in which AEPs proposed return on capital is
under review.
1

4.

IMPA also requests that the rate schedule and its revenue requirements for
Reactive Power become effective on July 1, 2005.
Notice Of Filing And Responsive Pleadings
5.

Notice of IMPAs filing was published in the Federal Register, 70 Fed. Reg.
29,731 (2005), with interventions or protests due on or before June 6, 2005. AEP, on
behalf of certain operating companies of the AEP System
2
(collectively, AEP), filed a
motion to intervene and protest out of time on June 10, 2005. IMPA filed an answer to
AEPs motion to intervene and protest on June 14, 2005.
6.

AEP states that it is the largest transmission load serving entity in the AEP zone
and will bear a significant portion of the cost of paying IMPA. AEP asks the
Commission to set IMPAs proposed rate schedule for hearing, on the grounds that
IMPAs proposal appears to be unjust and unreasonable and that the revenue requirement
is not adequately supported. AEP argues that IMPAs annual revenue requirement is
flawed. One example of the difference between IMPAs analysis and AEPs analysis
regards Accessory Electric Equipment Allocator on Line 9 of Exhibit IMPA-2, Schedule
1. AEP states that IMPAs proposal suggests that 41.59 percent of IMPAs costs were
assigned to power production. AEP states that when it calculated its own costs for
reactive power service, its allocator for Accessory Electric Equipment was 15 percent. In
short, AEP argues that IMPAs allocation is too high and is unsupported.
7.

AEP also compares IMPAs Generator/Exciter Auxiliary Load and total plant
auxiliary load with the loads levels supported by Rolling Hills Generating, LLC (Rolling
Hills) for their plant.
3
AEP argues that IMPAs revenue requirement calculation claims

1
See American Electric Power Service Corp., 111 FERC ¶ 61,305 (2005).
2
Appalachian Power Co., Columbus Southern Power Co., Indiana Michigan
Power Co., Kentucky Power Co., Kingsport Power Co., Ohio Power Co., and Wheeling
Power Co.
3
See Rolling Hills Generating, L.L.C., 109 FERC ¶ 61,069 (2004). Docket No. ER05-971-000


3
Generator/Exciter Auxiliary Load level many times the levels supported by Rolling
Hills. Likewise, AEP argues that IMPAs Remaining Cost of Production Plant numbers
are three times that which AEP has supported for its generators. AEP asserts that IMPA
has not provided sufficient support to reasonably understand the numbers provided and
why they vary from similar generators and therefore asks the Commission to set the case
for hearing to investigate IMPAs cost of service.
8.

Finally, AEP asserts that there is a substantial question regarding which
customers should be charged for the reactive power service provided by IMPAs units.
According to AEP, the generators at issue are not connected to the AEP transmission
system, but are more closely associated with the Public Service Company of Indiana, a
Cinergy affiliate and Midwest Independent Transmission System Operator, Inc.
(Midwest ISO) transmission owner and Midwest ISO zone. AEP states that to reach the
AEP system, reactive power from the IMPA generators would have to travel through the
IMPA and municipal system transformers, plus several miles of municipal/IMPA
distribution lines. However, AEP argues, the IMPA generators are connected
immediately to adjacent Cinergy lines.
9.

IMPA filed an answer to AEPs protest. IMPA states that AEP was properly
served with the original filing and that its data is adequately supported. Regarding the
Accessory Electric Equipment Allocator, IMPA directs the reader to other lines in the
study which provides input for the disputed figure. IMPA also objects to AEPs
characterization of other generators as being comparable. Also with regard to the
disputed Line 9, IMPA explains that the number is not an allocation to power production,
but that it identifies the share of accessory electric equipment that supports the
generator/exciter system and is allocated to reactive to the same partial extent as the
generator/exciter itself. IMPA defends its data regarding the Remaining Production Plant
Investment Allocator by stating that this is supported in Schedule 1, Attachment B.
10.

As for AEPs charge that the Cinergy zone of Midwest ISO may benefit more than
does AEPs from the reactive power capability that IMPA maintains within the AEP zone
of PJM, IMPA responds that the instant filing does not cover IMPAs Midwest ISO
Reactive Power costs. Rather, it is limited to reactive facilities that are located within the
AEP transmission zone, connected to AEP-owned transmission lines through generation-
outlet lines whose voltage AEP classifies as transmission, operated as resources dedicated
to the PJM market and subject to PJMs real and reactive power dispatch instructions. In
response to AEPs argument that the portion of IMPAs reactive investment located
within AEP should be excluded from the AEP-zone reactive rates, IMPA responds that
AEP is charging IMPA and other AEP-zone customers for reactive power capability from
units that are actually remote from the AEP-owned transmission area and, through its
network operating agreement with IMPA, AEP required IMPA to manage the power
factor of its Anderson and Richmond loads. In addition, IMPA argues that because Docket No. ER05-971-000


4
Midwest ISOs Schedule 2 employs a license-plate structure, it would be difficult or
impossible to recover Anderson and Richmond reactive costs from Midwest ISO-area
load.
Discussion
Procedural Matters
11.

Given the early stage of this proceeding, the interest, and the lack of prejudice to
other parties, the Commission will grant AEPs motion to intervene and protest. Rule
213(a)(2) of the Commissions Rules of Practice and Procedure, 18 C.F.R.
§ 385.213(a)(2) (2004), prohibits an answer to a protest unless otherwise ordered by the
decisional authority. The Commission will accept the IMPAs answer because it has
provided information that assisted us in our decision-making process.
Analysis
12.

The only issue before the Commission is IMPAs recovery of its reactive power
annual revenue requirement from PJM pursuant to Schedule 2 of PJMs OATT. PJMs
OATT governs how PJM allocates these costs. Schedule 2 of the OATT provides that the
Zonal Generation Owner Monthly Revenue Requirement, which is used to determine
charges for Reactive Power, is the sum of the monthly revenue requirements for each
generator located in a zone. Under Schedule 2 of PJMs OATT, it is required to make a
tariff filing with the Commission showing the zone from which the revenues are to be
recovered. Accordingly, the Commission finds that whether IMPAs revenue
requirements are recovered from the AEP zone is beyond the scope of this filing.
4
This
issue should be addressed at the time PJM makes it tariff revisions reflecting the addition
of revenue requirements applicable to IMPA, pursuant to Schedule 2 of its OATT.
Further