UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) ) ) ) ) COMPLAINT OF AMERICAN ELECTRIC POWER SERVICE CORPORATION

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION American Electric Power Service Corporation v. PJM Interconnection, L.L.C. ) ) ) ) ) Docket No. EL COMPLAINT OF AMERICAN ELECTRIC POWER SERVICE CORPORATION Pursuant to Section 206 of the Federal Power Act ( FPA ), 16 U.S.C. 824e (2006) and Rule 206 of the Federal Energy Regulatory Commission s ( Commission or FERC ) Rules of Practice and Procedure, 18 C.F.R (2010), American Electric Power Service Corporation ( AEP ) hereby files this complaint in order to seek limited and discrete modifications to Schedule 8.1, Section D.8 ( Section D.8 ) to the PJM Interconnection, L.L.C. ( PJM ) Reliability Assurance Agreement ( RAA ). As more fully discussed below, this complaint is necessitated by the Commission s interpretation of the RAA in an order issued January 20, 2011, in Docket No. ER AEP filed a request for rehearing of that order, and on March, 24, 2011, the Commission issued a tolling order. If on rehearing the Commission reverses the January Order and agrees that AEP s interpretation of Section D.8 is correct, the relief sought in this complaint would be unnecessary. On the other hand, if the Commission either does not rule on the pending rehearing request or reaffirms its current interpretation of Section D.8, AEP urges the Commission to grant this complaint consistent with FPA Section 206. AEP demonstrates below why Section D.8 is unjust and unreasonable under the January Order s interpretation, and why AEP s proposed modification is necessary to make 1 American Electric Power Service Corp., 134 FERC 61,039 (2011) ( January Order ).

2 Section D.8 comport with the Federal Power Act. In support hereof, AEP respectfully states as follows: I. SUMMARY OF COMPLAINT AND REQUEST FOR RELIEF This complaint relates to Section D.8 of Schedule 8.1 to the PJM RAA and in particular the Commission s interpretation of that provision in the January Order. Section D.8 is one of several provisions that were added to the RAA in connection with PJM s Reliability Pricing Model ( RPM ). The RPM was designed to ensure the availability of necessary generation resources that can be called upon and delivered to maintain the overall reliability of the PJM markets. In conjunction with the development of the RPM rules, PJM also developed the Fixed Resource Requirement ( FRR ) alternative, under which a Load Serving Entity ( LSE ), referred to as an FRR Entity, has the option to submit an FRR Capacity Plan and meet a fixed capacity resource requirement rather than participate through the RPM capacity auction. Section D.8 sets out the appropriate compensation provided to an FRR Entity that is required to reflect in its FRR Capacity Plan retail load that switches to an alternative retail LSE. AEP s Ohio utilities (Columbus Southern Power Company ( CSP ) and Ohio Power Company ( OPC )) are FRR Entities, and since the implementation of the FRR alternative, they have recovered FRR wholesale charges assessed to Ohio alternative retail LSEs ( Competitive Retail Electric Service or CRES Providers). As provided under Section D.8, CSP and OPC currently are recovering the wholesale default charge based on the clearing price established through PJM s annual RPM capacity auctions. In Docket No. ER , AEP made a Section 205 filing proposing to increase those wholesale charges to more accurately reflect OPC s and CSP s respective FRR capacity costs

3 Several days after AEP submitted its Section 205 filing, the Public Utilities Commission of Ohio (the Ohio Commission ) issued an order that, as the January Order stated (at Paragraph 6), expressly adopted the use of the RPM auction price as its state compensation mechanism. In other words, the Ohio Commission essentially froze CSP s and OPC s wholesale FRR charges at the current level and initiated a proceeding to determine the appropriate level of those charges going forward. The January Order found that the Ohio Commission s order precluded AEP from making a Section 205 filing with this Commission because, according to the Commission, under Section D.8, an FRR Entity s Section 205 rights are conditioned upon the absence of a state compensation mechanism. January Order at P 10. The Commission further ruled that AEP had voluntarily relinquished its Section 205 rights by agreeing to an RAA settlement that included this condition. Id. at P 12. In its request for rehearing of the January Order, AEP acknowledged that Section D.8 provided the Ohio Commission with the right to establish retail FRR charges that will prevail. But, as AEP demonstrated, it has not done so. Instead, the Ohio Commission established interim wholesale FRR charges recovered from alternative retail LSEs. AEP argued that if the January Order meant that the right to establish state compensation mechanisms enables state commissions to establish wholesale FRR charges, the Commission s interpretation was contrary to the plain language of Section D.8. AEP further explained that the interpretation was inconsistent with the regulatory scheme under the Federal Power Act, under which this Commission not state commissions establishes wholesale service charges. AEP also demonstrated that the RAA drafters did not intend for FRR Entities or alternative retail LSEs to have voluntarily relinquished their Section 205 or Section 206 rights in the absence of a state compensation mechanism that established retail FRR charges

4 For these reasons, unless reversed on rehearing, the January Order s interpretation of Section D.8 renders that provision unjust and unreasonable. To remedy that outcome, AEP proposes modifications that conform Section D.8 to the FRR parties original intent and make it consistent with the FPA and longstanding Commission and judicial precedent. AEP requests that the Commission make the requested relief effective as of the date that the Commission rules on this complaint. AEP further requests that the Commission permit the CSP and OPC rate schedules filed in Docket No. ER to become effective, subject to whatever further proceedings the Commission deems appropriate, on the same date as the relief granted herein. As discussed below, the sole basis for rejection of those rate schedules was the Commission s determination that CSP and OPC were precluded from seeking rate changes under the current version of Section D.8. If the Commission modifies Section D.8 to enable FRR entities to exercise their Section 205 rights in the absence of state compensation mechanisms that establish retail FRR charges, AEP s Section 205 filing should be reinstated. AEP originally submitted that filing in November 2010, and interested parties had, and availed themselves of, the right to intervene and raise their concerns. AEP has served this complaint on every party to Docket No. ER , so this complaint provides adequate notice of AEP s efforts to seek an effective date as permitted under the law. II. BACKGROUND A. The PJM Capacity Market and FRR Alternative As explained in the attached affidavit of Mr. Dana Horton, AEP s Director of RTO Policy, which AEP submitted with its request for rehearing in Docket No. ER ( Horton Affidavit ) (Attachment 1 hereto), the primary feature of the PJM capacity market is the RPM. The RPM implements an auction mechanism designed to establish forward capacity prices. The - 4 -

5 RPM also includes the FRR alternative, under which LSEs have the option to submit an FRR Capacity Plan and meet a fixed capacity resource requirement as an alternative to participating in the RPM capacity auction. The RAA sets forth the rules implementing the FRR alternative, including the compensation provision at issue here. On behalf of its generation-owning utility affiliates in PJM, each of whom participates through the FRR alternative, AEP was actively involved in all phases of the deliberations leading up to the adoption of the FRR alternative, including the development of the compensation provision. Horton Affidavit at 6. As discussed below and in the Horton Affidavit, Section D.8 was drafted to ensure that each FRR Entity would have the opportunity to be fully compensated for the costs of meeting the FRR obligations associated with retail load that switches to an alternative retail LSE. To that end, the parties intended that, unless a state compensation mechanism established retail charges to compensate for the FRR obligations, FRR Entities would have their full Section 205 rights to establish wholesale FRR charges to be recovered from alternative retail LSEs; alternative retail LSEs were provided corresponding Section 206 rights. In Ohio, which has adopted and implemented retail choice, CSP and OPC each has served as an FRR Entity since the RPM was put in place in June The CRES Providers, who are the alternative retail LSEs, sell directly to Ohio retail customers. CSP and OPC supply capacity associated with the retail loads served by the CRES Providers. Although the CRES Providers have had the option to provide their own capacity, none has chosen this option. So, currently all CRES Providers rely on either CSP or OPC to meet the CRES Providers FRR capacity obligations. And because the Ohio Commission has never adopted retail charges paid by retail switching customers to compensate CSP and OPC for providing FRR capacity, CSP and OPC have been compensated (since 2007) by the CRES Providers through wholesale charges - 5 -

6 that reflect the capacity price in the unconstrained portions of the PJM Region, as determined in accordance with Attachment DD to the PJM Tariff; 2 i.e., the RPM auction price. B. AEP s November 2010 Filing in Docket No. ER On November 24, 2010, AEP submitted tariff sheets to revise the amounts that CSP and OPC recover for supplying capacity associated with the CRES Providers FRR capacity obligations. CSP and OPC determined that the PJM capacity auction prices were not permitting them to recover their costs, which is why, consistent with express provisions in the RAA and the rights conveyed under the FPA, they submitted an alternative basis to more accurately calculate and recover their costs. CSP and OPC proposed cost-of-service tariffs that tracked each company s most recent FERC Form 1. In response to AEP s efforts to establish just and reasonable wholesale capacity rates, the Ohio Commission issued an Entry on December 8, 2010, which provided that in light of the change proposed by the Companies, the [Ohio] Commission will now expressly adopt as the state compensation mechanism for the Companies the current capacity charges established by the three-year capacity auction conducted by PJM, Inc. [sic] during the pendency of this review. 3 In other words, the Entry provides for the Ohio Commission rather than this Commission to review the wholesale charges assessed to CRES Providers and, based on the outcome of that review, for the Ohio Commission rather than this Commission to establish the appropriate wholesale charges going forward. This was a sudden shift, because at no point during the development of the FRR alternative did any party, including the Ohio Commission or any CRES 2 RAA Schedule 8.1, Section D.8. 3 In the Matter of the Commission Review of the Capacity Charges of Ohio Power Company and Columbus Southern Power Company, Case No EL-UNC, Entry at 2 (Dec. 8, 2010) (emphasis added)

7 Provider, ever suggest that the Ohio Commission had the authority to establish such wholesale charges. C. The January Order The January Order rejected AEP s Section 205 filing on the grounds that the Ohio Commission s Entry established the state compensation mechanism referenced in the RAA. According to the order, because Section D.8 of Schedule 8.1 of the RAA provides that a state compensation mechanism will prevail in allocating capacity costs to retail LSEs, and because the Ohio Commission has adopted such a state mechanism, AEP s filing must therefore be rejected. 4 While the January Order acknowledged the provisions in Section D.8 preserving an FRR Entity s Section 205 rights, the Commission stated that, when read in context, the preservation of Section 205 rights was negated by an adverbial phrase regarding the presence of a state compensation mechanism. 5 The Commission further ruled that by executing the RPM settlement package (which included the FRR provisions in the RAA), the AEP companies voluntarily relinquished their ability to exercise the express rights set out in Section D.8. 6 AEP filed a timely request for rehearing of the January Order. On March, 24, 2011, the Commission issued a tolling order. III. DISCUSSION AEP submitted its filing in Docket No. ER because CSP and OPC had determined that the current compensation mechanism is not permitting them to recover their costs. Since the Commission rejected that filing, the Ohio Commission established a proceeding 4 January Order at P 8. 5 Id. at P Id. at P

8 in which it will review the cost-of-service formulas proposed by CSP and OPC for the wholesale transactions contemplated under the RAA. So, the Ohio Commission, rather than this Commission, will review the appropriateness of these wholesale charges, including the interpretation and use of cost-of-service data taken directly from CSP s and OPC s respective FERC Forms 1. And the January Order leaves unclear whether CSP and OPC have any recourse to seek this Commission s review of the wholesale rates ultimately established by the Ohio Commission. Moreover, as sanctioned by the January Order, the Ohio Commission s Entry requires that the current wholesale FRR compensation mechanism stay in place during the pendency of the Ohio Commission s wholesale rate proceeding. As such, CSP and OPC lost their Section 205 rights to establish an earlier effective date for their proposed rate change. This is not an outcome that is contemplated or consistent with the Federal Power Act. If a CRES Provider elected to purchase energy through bilateral transactions or through the PJM markets, those would be wholesale transactions subject to this Commission s jurisdiction. No one could reasonably argue that a state commission would have the authority to establish a state compensation mechanism to set the pricing for such transactions. A CRES Provider s election to meet its FRR capacity obligations through capacity supplied by FRR Entities is no different than its election to meet its energy requirements through other wholesale transactions that are subject to this Commission s exclusive jurisdiction. In response to AEP s request for rehearing, FirstEnergy argued that the RAA does not make the dramatic transfer of authority that AEP posits, because [t]he states are not suddenly permitted to set wholesale rates. 7 FirstEnergy goes on to declare that Ohio is in a better 7 Motion for Leave to Answer and Answer of FirstEnergy Service Company, Docket No. ER at 7 (March 9, 2011)

9 position than the Commission to figure out appropriate compensation for retail switching customers in Ohio, and that if Ohio has spoken as it has its retail rate governs. Id. at 8, emphasis added. If, as FirstEnergy posits, the Ohio Commission in fact had implemented a regime under which CSP and OPC were directly compensated by retail customers, AEP would fully agree that such a regime would be the type of state compensation mechanism that was contemplated, and that will prevail, under Section D.8. But the Ohio Commission has not established retail rates assessed to retail customers. Indeed, as the January Order confirms, the Entry expressly ruled that the current level of wholesale charges paid by CRES Providers will stay in place until the Ohio Commission completes its review of such wholesale charges. And this is where AEP and FirstEnergy part company. The Ohio Commission has no more authority over wholesale FRR charges assessed to CRES Providers than it does over other energy or capacity sales made to CRES Providers. FirstEnergy also stated that, If Ohio cedes the field as it could then AEP can seek a FERC rate. Id. If FirstEnergy meant that if the Ohio Commission cedes its right to set retail FRR charges, then AEP can seek wholesale FRR charges from this Commission (as AEP attempted to do in Docket No. ER ), then AEP is in complete agreement and the tariff modification proposed herein accomplishes precisely that result. On the other hand, if FirstEnergy is suggesting that FRR charges assessed to CRES Providers are the type of retail charges that can be adopted through a state compensation mechanism, then the statement makes no sense, as the Ohio Commission can no more cede the [retail rate] field than this Commission may occupy it

10 A. The January Order s Interpretation of Section D.8 Renders the Provision Unjust and Unreasonable Section D.8, as currently on file, includes two key phrases (italicized below) that are at the heart of the January Order and the subject of this complaint: In a state regulatory jurisdiction that has implemented retail choice, the FRR Entity must include in its FRR Capacity Plan all load, including expected load growth, in the FRR Service Area, notwithstanding the loss of any such load to or among alternative retail LSEs. In the case of load reflected in the FRR Capacity Plan that switches to an alternative retail LSE, where the state regulatory jurisdiction requires switching customers or the LSE to compensate the FRR Entity for its FRR capacity obligations, such state compensation mechanism will prevail. In the absence of a state compensation mechanism, the applicable alternative retail LSE shall compensate the FRR Entity at the capacity price in the unconstrained portions of the PJM Region, as determined in accordance with Attachment DD to the PJM Tariff, provided that the FRR Entity may, at any time, make a filing with FERC under Sections 205 of the Federal Power Act proposing to change the basis for compensation to a method based on the FRR Entity s cost or such other basis shown to be just and reasonable, and a retail LSE may at any time exercise its rights under Section 206 of the FPA. (Emphasis added). The January Order (at P 10) ruled that the first italicized adverbial phrase (referencing the existence of a state compensation mechanism) qualifies the remainder of that sentence and therefore conditions the right to make a section 205 filing. In other words, according to the order, regardless of whether the state-approved capacity compensation comes through retail charges incurred by switching customers or through wholesale charges incurred by alternative retail LSEs (as in the Ohio Commission s Entry), the first italicized adverbial phrase trumps the express preservation of the Section 205 and Section 206 rights in the second italicized adverbial phrase

11 In Docket No. ER , AEP argued that such an interpretation of Section D.8 is at odds with the Federal Power Act and inconsistent with the intent of the original provision. 8 The Commission did not address these concerns or whether Section D.8 remains just and reasonable under that interpretation. Because it focused only on the syntax of the provision and the interrelationship between the two italicized adverbial phrases, the January Order made no distinction between state compensation mechanisms that set retail rates and those that purport to set wholesale rates. However, the Commission expressly noted that it did not address whether the AEP Ohio Companies may challenge this provision of the RAA under section 206 of the FPA. January Order at P 12 n.11. Through this complaint, AEP is invoking its right to challenge this provision. At the outset, AEP notes that by seeking to have the Commission revise Section D.8, AEP does not waive the arguments raised in its request for rehearing of the January Order. Nor does AEP concede that the order s interpretation of Section D.8 is correct. However, because the Commission has not ruled on rehearing and has issued a tolling order that defers that ruling indefinitely, this Section 206 complaint is necessary to protect CSP s and OPC s statutory rights. 1. The January Order adopts an interpretation that is inconsistent with the Commission s jurisdiction under the FPA If the January Order s interpretation of Section D.8 is permitted to stand, the Commission will have ceded to state commissions the authority to establish the appropriate wholesale charges for FRR Entities that supply capacity on behalf of alternative retail LSEs. This is plainly at odds with the Federal Power Act and decades of judicial precedent affirming this Commission s 8 For these reasons, AEP argued that the January Order was the type of unexplained and unsupported departure from precedent that courts often find not to be reasoned decision making. See, e.g., Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970)

12 exclusive wholesale ratemaking jurisdiction. 9 The Commission recently reiterated that its authority under the FPA includes the exclusive jurisdiction to regulate the rates, terms and conditions of sales for resale of electric energy in interstate commerce, and that efforts by a state commission to set the rate for the wholesale sale of electric energy are preempted by the Commission s exclusive jurisdiction. 10 The January Order s interpretation thus truncates FRR Entities rights to submit filings under Section 205 (and, by extension, alternative retail LSEs rights to make filings under Section 206). In Atlantic City Elec. Co. v. FERC, 295 F.3d 1, 11 (D.C. Cir. 2002) ( Atlantic City ), the court made clear that even ISO/RTO provisions that implement bedrock regulatory principles cannot be the basis for denying [public utilities] their rights provided by a statute enacted by both houses of Congress and signed into law by the president. 11 The Atlantic City court indicated that utilities may, by contract, voluntarily give up some of their Section 205 rights under Mobile-Sierra but must do so explicitly. 12 Although the January Order found that AEP had voluntarily relinquished its Section 205 rights, such that it could not rely upon 9 See FPA Section 201(b), 16 U.S.C. 824(b) (2006); e.g., Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 374 (1988) ( Congress has drawn a bright line between state and federal authority in the setting of wholesale rates ); FPC v. Southern Cal. Edison Co., 376 U.S. 205, (1964) ( Congress meant to draw a bright line easily ascertained, between state and federal jurisdiction, making unnecessary such case-by-case analysis. This was done in the Power Act by making FPC jurisdiction plenary and extending it to all wholesale sales in interstate commerce ); U.S. v. Cal. Pub. Utils. Comm n, 345 U.S. 295, 308 (1953) ( Congress interpreted [Attleboro] as prohibiting state control of wholesale rates in interstate commerce for resale, and so armed the Federal Power Commission with precisely that power ). 10 Cal. Pub. Utils. Comm n, 132 FERC 61,047 at P 64 (2010) (citations omitted). 11 Atlantic City, 295 F.3d at Id. at The court did not, however, hold that utilities could agree to allow state commissions to assume this Commission s authority to set wholesale rates

13 Atlantic City, the attached Horton Affidavit (discussed immediately below) confirms that AEP never agreed to relinquish those Section 205 rights. Moreover, just as AEP never voluntarily gave up its Section 205 rights, there is no basis in the record of the RAA proceedings to support a ruling that any alternative retail LSE agreed to restrict its Section 206 rights unless a state commission established a retail rate regime. Indeed, it is quite likely that many alternative retail LSEs were not even in business in 2007 and thus had no opportunity to participate in the FRR settlement discussions. Although the Commission has ruled that it will not find that an entity has given up its statutory rights absent a clear waiver, 13 the January Order s interpretation of Section D.8 does exactly that. 2. The January Order s interpretation also is inconsistent with the original intent of the FRR provisions As discussed in the Horton Affidavit, AEP s representatives participated actively in all phases of the development of the FRR alternative and the tariff language ultimately adopted, including the compensation arrangements at issue here. Mr. Horton (who was a member of the AEP negotiating team (Horton Affidavit at 3)) explains that the development of the FRR alternative was driven in large part by AEP s concerns with the proposed RPM rules as they would apply to AEP. At the time that the FRR alternative was submitted for Commission review in 2006, AEP was the only PJM LSE that planned to use that alternative. So, AEP was particularly active in the development of the FRR compensation provisions and can accurately represent the intent of the FRR compensation arrangement. 13 Central Maine Power Co., 128 FERC 61,143 at P 38 (2009); Sithe/Independence Power Partners, L.P. v. Niagara Mohawk Power Corp., 76 FERC 61,285 at 62,458 (1996) (holding that [w]aivers of rights under Section 206 of the FPA, as voluntary relinquishments of statutory benefits, must be stated explicitly ), reh g denied, 81 FERC 61,071 (1997), remanded on other grnds sub nom. Sithe/Independence Power Partners L.P. v. FERC, 165 F.3d 944 (D.C. Cir. 1999)

14 As Mr. Horton explains, the drafters of the FRR provisions intended Section D.8 to set out a straightforward compensation model. First, the drafters intended to defer to a state compensation mechanism for those states in which FRR Entities would be compensated through state-approved retail charges assessed directly to switching retail customers. Horton Affidavit at 8. Second, the drafters intended that, in the absence of such a state-approved retail compensation mechanism, FRR Entities would be compensated by alternative retail LSEs (i.e., the CRES Providers) through wholesale rates approved by this Commission. The drafters intended that the applicable RPM clearing price would be the default mechanism, but FRR Entities would have the right to propose, pursuant to Section 205, revised charges to enable them to recover their costs. Id. at 7. As Mr. Horton relates, there was no discussion during the PJM stakeholder process about state commissions assuming this Commission s wholesale ratemaking authority over such wholesale charges. AEP never advocated or intended that result. Id. at 11. The FRR compensation arrangement purposefully was designed to comport with the clear jurisdictional line to which this Commission consistently and steadfastly has adhered. State commissions set retail rates paid by retail customers; this Commission sets wholesale rates by alternative suppliers. No party in Docket No. ER was able to identify a single pleading even suggesting that PJM and the stakeholders intended to transfer the Commission s wholesale ratemaking authority to state commissions. Indeed, in the 2006 RPM settlement filing that included the FRR alternative, PJM stated that the settlement raised no policy implications: [t]he issues settled in this proceeding do not require the Commission to examine or change any existing policy or procedure, and that [t]he Settlement Agreement does not involve issues of

15 first impression Similarly, while the January Order references (in footnote 10) three Commission orders approving the overall RPM settlement (including the RAA amendments setting out the FRR alternative), there is not a single policy discussion (much less an approval) of a provision that ceded to state commissions the authority to establish rates for wholesale transactions. Mr. Horton further explains that the drafters never intended for FRR parties to surrender or voluntarily relinquish their Section 205 or 206 rights other than in situations where states had adopted a retail rate mechanism. Indeed, that concept was never discussed during the negotiations and development of the FRR alternative. Horton Affidavit at Similarly, there is no suggestion in any filings by PJM, any state commission, FRR Entity, or alternative retail LSE acknowledging or agreeing to a waiver of Section 205 and 206 rights. And PJM s settlement filing made no mention that parties had relinquished their Section 205 or 206 rights if state commissions asserted the right to establish wholesale charges, even though this would have been required under the Chief Judge s rule. The Commission s orders approving the FRR alternative likewise are silent as to this alleged waiver. Opponents may argue, as they did in Docket No. ER , that the Commission should disregard the Horton affidavit. While parties strenuously argued in favor of the status 14 See PJM Interconnection, L.L.C., Docket Nos. ER and -001, and EL and -001, Explanatory Statement of Settling Parties Resolving All Issues, (Sept. 29, 2006) (elibrary Accession No ). The Commission requires that settlement filings include a description of the issues underlying the settlement and the major implications, whether any of the issues raise policy implications, and whether the settlement involves issues of first impression. See Chief Administrative Law Judge s October 15, 2003 Notice to the Public. 15 Considering that the question of PJM members Section 205 rights had then recently been the subject of considerable controversy leading up to the D.C. Circuit s ruling in Atlantic City, it is inconceivable that AEP or any other public utility would have agreed to relinquish those rights without any discussion of the matter

16 quo in order to prevent CSP and OPC from even seeking to increase their FRR charges, no party argued that the PJM stakeholders intended that state commissions could establish wholesale rates or that any party relinquished its statutory right to seek changes to such wholesale rates. And while parties argue that Mr. Horton s observations should be rejected as after-the-fact and selfserving, no party came forward with its own evidence, contemporaneous or otherwise, challenging the accuracy of the Horton Affidavit. 3. AEP is not collaterally attacking the January Order Opponents may allege that this complaint should be rejected as a collateral attack on the January Order. That is not the case. Indeed, the entire premise of this complaint is that the January Order s interpretation of Section D.8 will prevail. Under that circumstance, and consistent with the Commission s observation in footnote 10 of the January Order, this complaint asks that the Commission review Section D.8 to determine whether it remains just and reasonable in light of that interpretation. The key factor for purposes of applying the law on impermissible collateral attacks is that the January Order never ruled on the justness and reasonableness of Section D.8. The order simply applied the Commission s interpretation of that provision as currently drafted and, per footnote 10, left for another day the question of whether the provision could be challenged under Section 206. Because the issue of justness and reasonableness has not been addressed, the doctrine of collateral estoppel cannot apply. Collateral estoppel prohibits a party from bringing a different claim on an issue that has already been decided provided the issue was actually litigated and

17 determined, and the determination was essential to that judgment. 16 The issue of the justness and reasonableness of Section D.8 was not litigated or determined in the January Order, and the Commission expressly left open the question for a future Section 206 challenge. 4. AEP did not waive its Section 206 rights to file this complaint Some may argue that, under the January Order, AEP not only waived its Section 205 rights to seek revised FRR rates, but also waived its rights under the just and reasonable standard of Section 206 to challenge the justness and reasonableness of Section D.8. That also would be incorrect. The Settlement Agreement that included the FRR provisions made clear that no party waived its Section 206 rights. For example, Section III states: Nothing contained in the Settlement Agreement shall be construed as affecting in any way PJM s right unilaterally to make application to the FERC for a change in rates, terms and conditions under section 205 of the Federal Power Act and pursuant to the Commission's Rules and Regulations promulgated thereunder. Nothing contained in the Settlement Agreement shall be construed as restricting any rights of the other parties under the Federal Power Act, including rights under section Entergy Services, Inc., 127 FERC 61,226 at P 10 n12 (2009) (citations omitted). See also Cargill Power Markets, 132 FERC 61,079 at P 21 (2010) ( Because the July 2009 Order expressly declined to reach the merits of Cargill s claims concerning its rejected transmission service requests and alleged PNM queue violations, the Commission has not considered the merits of Cargill s complaint previously and, therefore Cargill is not estopped from raising the issues set forth in its complaint ); Alabama Rivers Alliance v. FERC, 325 F.3d 290, 295 n.7 (D.C. Cir. 2003) (petitioners were not estopped from seeking review of a Commission determination under the Clean Water Act because the prior Commission order had not considered whether the requirements of that provision were satisfied); Connecticut Light & Power Co. v. FPC, 557 F.2d 349, 353 (2d Cir. 1977) ( the [collateral estoppel] doctrine is operative only as to facts that were actually litigated and decided ). 17 PJM Interconnection, L.L.C., Docket Nos. ER and -001, and EL and -001, Settlement Agreement and Offer of Settlement, Section III (Sept. 29, 2006) (elibrary Accession No )

18 Likewise, Section V of the Settlement Agreement provides: The Commission s review of any proposed modifications to this Settlement Agreement shall be based on the just and reasonable standard and not the public interest standard. 18 B. AEP s Proposed Revision to Section D.8 Restores the Parties Original Intent and Renders the Provision Just and Reasonable For the reasons discussed below, AEP proposes that, if the interpretation in the January Order is permitted to stand, Section D.8 be revised as follows: 19 In a state regulatory jurisdiction that has implemented retail choice, the FRR Entity must include in its FRR Capacity Plan all load, including expected load growth, in the FRR Service Area, notwithstanding the loss of any such load to or among alternative retail LSEs. In the case of load reflected in the FRR Capacity Plan that switches to an alternative retail LSE, where the state regulatory jurisdiction requires switching retail customers or the LSE to directly compensate the FRR Entity for its FRR capacity obligations, such state compensation mechanism will prevail. In the absence of a state compensation mechanism in which switching retail customers directly compensate the FRR Entity, the applicable alternative retail LSE shall be responsible for compensating an FRR Entity at the basis for compensation accepted or approved by FERC. Unless FERC has accepted or approved another basis for compensation, the alternative retail LSE shall compensate the FRR Entity at the capacity price in the unconstrained portions of the PJM Region, as determined in accordance with Attachment DD to the PJM Tariff. Consistent with the foregoing sentence, provided that the FRR Entity may, at any time, make a filing with FERC under SectionsSection 205 of the Federal Power Act proposing to change the basis for compensation to a method based on the FRR Entity' s cost or such other basis shown to be just and reasonable, and a retail LSE may at any time exercise its rights under Section 206 of the FPA. 18 Id. at Section V. 19 Section D.8 is part of PJM s tariff, and ultimately PJM will have to file whatever revised tariff language that the Commission approves. However, in Attachment 2 hereto, AEP has included clean and redlined sheets demonstrating how this tariff section would appear if the modifications proposed herein were adopted by the Commission

19 These modifications reestablish three core elements of the FRR capacity compensation mechanism intended since the inception of the FRR alternative: First, state compensation mechanisms refer to those state-approved retail charges that are assessed directly to switching retail customers. In other words, consistent with the traditional scope of their jurisdiction, state commissions may establish retail charges assessed to retail customers. Second, in states that do not establish such retail charges, alternative retail LSEs will be responsible for compensating FRR Entities under arrangements subject to this Commission s exclusive wholesale ratemaking authority. Absent Commission approval of an alternative basis for compensation, alternative retail LSEs will pay the RPM auction price. Third, consistent with its statutory rights, in the absence of a state compensation mechanism (as clarified above), an FRR Entity may, at any time, file with this Commission under Section 205 a proposal to change the basis for compensation to a method based on the FRR Entity s cost or such other basis shown to be just and reasonable. Correspondingly, a retail LSE may at any time exercise its rights under Section 206 of the FPA. In addition to reinstating the original core elements of the FRR compensation model, these modifications comport with the Federal Power Act by enforcing the Commission s exclusive authority to establish wholesale rates and preserving the FRR parties FPA rights to seek changes to those rates. The modifications also recognize and respect a state commission s exclusive authority to establish retail rates a state compensation mechanism that requires switching retail customers to directly compensate the FRR Entity for its FRR capacity obligations will prevail. Finally, AEP s proposed modifications eliminate the confusion that the Commission perceived in the January Order. If AEP s proposal to modify Section D.8 is approved, there no

20 longer can be any conflict between the provision describing the scope of state compensation mechanisms and the provision preserving Section 205 and Section 206 rights. If a state adopts a compensation mechanism that establishes retail charges, that mechanism will prevail and there will be no wholesale charges subject to Sections 205 and 206. Conversely, if no such state compensation mechanism exists, this Commission will have exclusive authority to establish wholesale charges that can be changed pursuant to Section 205 or Section 206. C. AEP Has Satisfied the Burden under Section 206 Section 206 establishes a two-step analysis under which the Commission must first determine that the existing rate or term has become unjust and unreasonable, and then it must fix a just and reasonable replacement rate or term. See, e.g., California Indep. Syst. Operator Corp., 111 FERC 61,337 at P 27 (2005); see also Tenn. Gas Pipeline Co. v. FERC, 860 F.2d 446, 454 (D.C. Cir. 1988) ( Once [FERC determines a rate is unjust], the Commission is required to reach a further determination: the just and reasonable rate to be fixed in place of either an unlawful proposed or existing rate. ). When confronted with evidence demonstrating that provisions have become unjust and unreasonable, the Commission is required under Section 206(a) to revise those provisions to ensure a just and reasonable outcome. 20 As the foregoing discussion confirms, under the January Order, Section D.8 is patently unjust and unreasonable, in that it is inconsistent with the scope of the Commission s ratemaking authority under the FPA and deprives parties of their rights under the FPA. Perhaps recognizing these flaws, the January Order took the unusual step of expressly raising the possibility (at P 12 n.11) that the AEP Ohio Companies may challenge this provision of the RAA under section 206 of the FPA.... AEP has proposed modifications to Section D.8 to correct these flaws and 20 See Southern California Edison Co., 41 FERC 61,188 at 61,492 n.20 (1987)

21 thereby render the provision just and reasonable and consistent with its original intent. As such, AEP has satisfied the two-prong burden under FPA Section IV. REQUESTED REMEDIES For all the reasons discussed above, AEP requests that the Commission permit the relief requested under this complaint to be made effective upon the date of the Commission s order. AEP also requests that the Commission permit the rate schedules originally filed in Docket No. ER to be made effective on that same date, subject to whatever additional procedures the Commission deems appropriate. For example, as AEP discussed in that docket, the Commission may accept the filings subject to refund and establish an evidentiary hearing preceded by settlement judge procedures. This remedy will place CSP, OPC, the Ohio Commission, and other interested parties in essentially the same position in which they would have been had Section D.8 not been interpreted to preclude AEP from making the Section 205 filing in the first place. The key issue under Section 205 is that customers be given their statutory notice (no less than 60 days) before new rates are put into effect. During the notice period, customers are entitled to protest the filing and challenge the level of the proposed rate increase. That has already taken place. AEP submitted its filing in November 2010 and, pursuant to the notice published in the Federal Register, interested parties submitted their protests (certain parties filed 21 Even if the Commission does not agree with the exact tariff modifications proposed by AEP, it must still act to reform Section D.8. As the D.C. Circuit recently confirmed, in the context of Section 206 where FERC finds a provision is not just and reasonable, [i]t is the Commission s job not the petitioner s to find a just and reasonable rate. Maryland Pub. Serv. Comm n and New Jersey Bd. of Pub. Utils. v. FERC, No (D.C. Cir., February 8, 2011), slip op. at 4 n

22 multiple pleadings). No party can reasonably argue that it will have been deprived of its statutory notice or its right to fully air its complaints with AEP s Section 205 rate filing. If the Commission ultimately granted rehearing in Docket No. ER , no party could argue that AEP would not be entitled to an immediate effective date. Indeed, the D.C. Circuit has recognized under similar circumstances that requests for rehearing put parties on notice that the Commission may reverse its earlier ruling. See, e.g., Public Utilities Commission of California v. FERC, 988 F.2d 154, (D.C. Cir. 1993). The relief that AEP seeks through this complaint the right simply to submit a Section 205 filing on behalf of CSP and OPC puts AEP and the parties in the position as if the Commission granted rehearing in the pending Section 205 proceeding. V. REQUIREMENTS FOR COMPLAINTS UNDER RULE 206(B) A. Rule 206(b)(1): Clearly identify the action or inaction which is alleged to violate applicable statutory standards or regulatory requirements; Rule 206(b)(2): Explain how the action or inaction violates applicable statutory standards or regulatory requirements Absent the modifications to the PJM RAA proposed herein, Section D.8 will cede to state commissions the authority to establish wholesale charges for FRR Entities that supply capacity on behalf of alternative retail LSEs. Such a result would be at odds with the FPA and decades of judicial precedent affirming the Commission s exclusive wholesale ratemaking jurisdiction. Moreover, FRR Entities rights to submit filings under FPA Section 205 (and, by extension, retail LSEs rights to make filings under Section 206) would be unlawfully truncated. See Sections I, III

23 B. Rule 206(b)(3): Set forth the business, commercial, economic or other issues presented by the action or inaction as such relate to or affect the complainant. Absent the modifications sought for Section D.8 of the PJM RAA, CSP and OPC will be precluded from exercising their Section 205 rights to establish just and reasonable FRR charges. See Sections I, III.A-B. C. Rule 206(b)(4): Make a good faith effort to quantify the financial impact or burden (if any) created for the complainant as a result of the action or inaction. As indicated in the November 24, 2010, rate schedule filing submitted by AEP in Docket No. ER , the inability to seek changes under FPA Section 205 could preclude CSP and OPC from fully recovering their FRR capacity costs. Based on September 2010 data, AEP estimated in Attachment B of that filing that CSP and OPC were underrecovering by as much as $200 per MW-day, and the more recent RPM clearing prices are even lower than those shown in the attachment. D. Rule 206(b)(5): Indicate the practical, operational, or other nonfinancial impacts imposed as a result of the action or inaction, including, where applicable, the environmental, safety or reliability impacts of the action or inaction. Not applicable. E. Rule 206(b)(6): State whether the issues presented are pending in an existing Commission proceeding or a proceeding in any other forum in which the complainant is a party, and if so, provide an explanation why timely resolution cannot be achieved in that forum. The issues set forth in this complaint are the subject of the Commission s January Order in Docket No. ER AEP filed a timely request for rehearing of that order, and the Commission has since issued a tolling order

24 F. Rule 206(b)(7): State the specific relief or remedy requested, including any request for stay or extension of time, and the basis for that relief. If the Commission does not grant the specific relief sought by AEP in its request for rehearing in Docket No. ER , AEP requests that the Commission find that (i) the current version of Section D.8 has become unjust and unreasonable, and (ii) the proposed replacement tariff language included in Attachment 2 hereto is just and reasonable. AEP requests that, in conjunction with these rulings, the Commission require PJM to submit a compliance filing to implement tariff sheets with the proposed tariff language. AEP further requests that the Commission permit the rate schedules originally filed in Docket No. ER to be made effective on the same date that the Commission orders PJM to implement the proposed revised tariff language. See Sections I, III, IV. G. Rule 206(b)(8): Include all documents that support the facts in the complaint in possession of, or otherwise attainable by, the complainant, including, but not limited to, contracts and affidavits. See Attachment 1 (Horton Affidavit), and Attachment 2 (proposed tariff language). H. Rule 206(b)(9)(i): State whether the Enforcement Hotline, Dispute Resolution Service, tariff-based dispute resolution mechanisms, or other informal dispute resolution procedures were used, or why these procedures were not used. Enforcement Hotline and dispute resolution procedures were not used. AEP informed both PJM and the Ohio Commission that it would be submitting this Section 206 complaint. I. Rule 206(b)(9)(ii): State whether the complainant believes that alternative dispute resolution (ADR) under the Commission's supervision could successfully resolve the complaint. AEP does not believe that ADR could successfully resolve the complaint, as the issue is a purely legal one that does not particularly lend itself to ADR

25 J. Rule 206(b)(9)(iii): State what types of ADR procedures could be used; Rule 206(b)(9)(iv): State any process that has been agreed on for resolving the complaint. Not applicable. K. Rule 206(b)(10):Include a form of notice of the complaint suitable for publication in the Federal Register in accordance with the specifications in (d) of this part. The form of notice shall be on electronic media as specified by the Secretary. A form of notice is included in Attachment 3. L. Rule 206(b)(9)(11): Explain with respect to requests for Fast Track processing pursuant to section (h), why the standard processes will not be adequate for expeditiously resolving the complaint. Not applicable

26 VI. CORRESPONDENCE AND COMMUNICATIONS Correspondence and service regarding this complaint should be sent to the following individuals, who should be placed on the official service list in this proceeding: Monique Rowtham-Kennedy Senior Counsel Regulatory Services American Electric Power Service Corporation 801 Pennsylvania Ave N.W., Suite 320 Washington, DC (202) James R. Bacha Assistant General Counsel Regulatory Services American Electric Power Service Corp. 1 Riverside Plaza, 29 th Floor Columbus, OH (614) jrbacha@aep.com Steven J. Ross Heather M. Horne Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, DC (202) sross@steptoe.com hhorne@steptoe.com A copy of this filing has been e-served on PJM, the Ohio Commission, and the parties on the official service list in Docket No. ER In addition, a link to the filing will be posted at This site posts information applicable to Ohio CRES Providers. AEP seeks any necessary waivers to permit this approach to service, which reflects the Commission s efforts to reduce the use of paper in compliance with the Government Paperwork Elimination Act

27 VII. CONCLUSION Wherefore, AEP respectfully requests that the Commission grant the relief requested for the reasons stated herein. Respectfully submitted, Steven J. Ross Heather M. Horne STEPTOE & JOHNSON LLP 1330 Connecticut Ave., N.W. Washington, DC /s/ James R. Bacha James R. Bacha Assistant General Counsel Regulatory Services American Electric Power Service Corporation 1 Riverside Plaza, 29 th Floor Columbus, OH Monique Rowtham-Kennedy Senior Counsel Regulatory Services American Electric Power Service Corporation 801 Pennsylvania Ave N.W., Suite 320 Washington, DC Counsel for American Electric Power Service Corporation Washington, DC April 4, 2011 Attachments