EXHIBIT D-7
BEFORE THE
PUBLIC SERVICE COMMISSION OF WISCONSIN
APPLICATION FOR AUTHORITY TO TRANSFER )
OPERATING CONTROL OF WISCONSIN )
POWER AND LIGHT COMPANY'S )
TRANSMISSION SYSTEM TO THE )
MIDWEST ISO PURSUANT TO THE )
PROVISIONS OF SECTION )
196.485 (4), STATS. )
APPLICATION FOR AUTHORITY TO )
CONTRIBUTE WISCONSIN POWER AND )
LIGHT COMPANY'S TRANSMISSION )
FACILITIES TO THE WISCONSIN TRANSCO )
PURSUANT TO THE PROVISIONS OF )
SECTION 196.485 (5), STATS. )
Wisconsin Power and Light Company ("WPL" or "the Company") is a public
utility subsidiary of Alliant Energy Corporation ("Alliant Energy") and subject
to the jurisdiction of the Public Service Commission of Wisconsin ("PSCW" or
"Commission"). Alliant Energy was formed on April 21, 1998 as a result of the
merger between WPL Holdings, Inc., IES Industries Inc. and Interstate Power
Company ("IPC"). Alliant Energy is a registered public utility holding company
and is regulated by the Securities and Exchange Commission ("SEC") under the
Public Utility Holding Company Act of 1935, as amended. In addition to WPL,
Alliant Energy has two other direct subsidiaries, IPC and IES Utilities Inc.
("IES"), that are engaged in utility activities in other states. WPL also has a
wholly owned subsidiary, South Beloit Water, Gas & Electric Company ("SBWGE"),
that provides utility services in Illinois.1 The Alliant Energy Operating
Companies are engaged in the production, transmission, and distribution of
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1 For the purposes of this application WPL, IES, IPC and SBWGE shall be
collectively referred to as the "Alliant Energy Operating Companies."
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electricity for domestic, commercial and industrial use in the states of Iowa,
Wisconsin, Illinois and Minnesota.
WPL hereby applies for authority to transfer control of it's electric
transmission system 2 to the Midwest Independent System Operator ("Midwest
ISO") under Section 196.485 (4), Stats., upon WPL's notification to the PSCW
that the Midwest ISO is ready and able to operate as authorized by its Bylaws
and the Federal Energy Regulatory Commission ("FERC"); and, WPL's receipt of
concurrence from the PSCW that the Midwest ISO meets those conditions.
In addition, WPL hereby applies for authority to contribute certain
electric transmission facilities to the Wisconsin Transco ("Transco") under
Section 196.485 (5), Stats. This proposed contribution is in compliance with the
Reliability 2000 legislation ("R2K").3 A transmission facility is defined by
R2K 4 to mean (1) that the facility is not a radial facility and is designed to
operate above 130kv; (2) that facilities from 50kv through 130kv which aren't
radial are to be presumed transmission unless a person demonstrates to the PSCW
it is not transmission (based on FERC's seven factor test)5; and (3) radial
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2 The transmission assets which are the subject of this portion of the
Application are all networked transmission facilities above 100 kilovolts and
all networked transformers where the two highest voltages are above 100
kilovolts.
3 199 Wisconsin Act 9, Assembly Amendment to Assembly Substitute Amendment 1 to
1999 Assembly Bill 133.
4 Section 196.485(5), Stats.
5 In Order No. 888, Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services by Public Utilities; Recovery of
Stranded Costs by Public Utilities and Transmitting Utilities, FERC Stats. &
Regs. P. 31, 036 (1996), FERC established a "functional-technical" test that
evaluates facilities on the basis of seven indicators of local distribution.
These factors are: "(1) Local distribution facilities are normally in close
proximity to retail customers. (2) Local distribution facilities are primarily
radial in character. (3) Power flows into local distribution systems; it rarely,
if ever, flows out. (4) When power enters a local distribution system, it is not
reconsigned or transported on to some other market. (5) Power entering a local
distribution system is consumed in a comparatively restricted geographic area.
(6) Meters are based at the transmission/local distribution interface to measure
flows into the local distribution system. (7) Local distribution systems will be
of reduced voltage." (Id. at 31,771)
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facilities or those designed to operate at 50kv or less are presumed not to be
transmission, unless the contrary is demonstrated to the PSCW.
I. MIDWEST ISO APPLICATION
A. INTRODUCTION AND BACKGROUND
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The Midwest ISO is a non-stock, not for profit corporation duly
incorporated in the State of Delaware on December 11, 1998. The Midwest ISO is
an independent system operator established pursuant to FERC orders in Docket
Nos. ER98-1438-000 and EC98-24-000. In addition its structure and operation were
conditionally approved by the FERC in In re Midwest Independent Transmission
System Operator, Inc., Docket ER98-1438-000, 84 FERC 161,230. order on
reconsideration, 85 FERC P. 61,250, order on reh'g, 85 FERC P. 61,372 (1998)
("FERC Midwest ISO Order").6 By letter dated November 22, 1999, Alliant Energy
advised FERC that it would be joining the Midwest ISO.7 Alliant Energy's filing
under Section 203 of the Federal Power Act to transfer its facilities to the
control of the Midwest ISO was filed with FERC on December 6, 1999.8
Currently, approximately 20 utilities with service territories over
portions of 11 states have committed to membership in the Midwest ISO.9 Its
members, each of whom is entitled to one vote, elected a Board of Directors on
December 1, 1998. (Exhibit 4 contains a list of the Directors). According to
Article 1, Section I., F, p. 2 of the Midwest ISO Agreement membership is open
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6 Attached as Appendix "A."
7 See Exhibit 1.
8 See Exhibit 2. The geographic maps and schematic diagrams originally included
with this filing have been omitted from the attached copy.
9 See Exhibit 3.
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to any Eligible Customer.10 An Advisory Committee consisting of 14
representatives from various stakeholder groups has been established to advise
the Midwest ISO Board of issues of concern and suggested recommendations.11
Exhibit 6 lists the members of the Advisory Committee.
The Commission has previously considered the Midwest ISO as it was
initially filed at FERC. The Commission identified what it called
"insufficiencies" in the Midwest ISO's structure under two of the statutory
approval areas - control area operation and independence of the Board of
Directors. Notwithstanding these insufficiencies the Commission opined that with
additional effort the Midwest ISO might remedy these concerns and meet the
statutory tests. Order Docket 05-BE-100 (June 19, 1998) ("PSCW ISO Order"). (See
Attached as Appendix "B.")
WPL submits that the organization of Midwest ISO has been changed to
overcome the "insufficiencies" noted by the Commission. This belief is based in
part on recent action by the Commission. Specifically, in its open meeting on
July 29, 1999, the Commission in Docket No.6630-EI-107, approved Wisconsin
Electric Power Company's request to transfer operational control of certain
transmission assets to the Midwest ISO. (See Appendix "C")
In the FERC Midwest ISO Order, the FERC required a number of modifications
to the Agreement organizing the Midwest ISO. Midwest ISO members have
incorporated the conditions required by FERC into the Midwest ISO Agreement and
have filed the revised Agreement with the FERC.
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10 Exhibit 5 contains copies of both the Midwest ISO Agreement and the related
agency agreement (Appendix G of the Midwest ISO Agreement) that were executed by
Alliant Energy.
11 Exhibit 5; Article 2; Section VI., A. 1, p. 28.
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As a result, the Midwest ISO, as amended, satisfies the requirements of
Section 196.485(4), Stats., as set forth in the PSCW ISO Order, therefore the
PSCW should approve transfer of control over WPL's transmission assets to the
Midwest ISO.
The transfer of control as requested herein is independent of the
accounting treatment of the affected assets. A Midwest ISO Tariff has been filed
at the FERC, and final FERC approval is anticipated well in advance of the
transfer of control of Alliant Energy's facilities to the Midwest ISO. On
November, 26, 1999 the Presiding Administrative Law Judge in Docket Nos.
ER98-1438-000 and EC98-24-000 issued his Initial Decision approving the Midwest
ISO Tariff . (See Appendix "D".)
B. WPL'S TRANSFER OF TRANSMISSION SYSTEM CONTROL MEETS THE REQUIREMENTS OF
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SECTION 196.485 (4), STATS.
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R2K modified Section 196.485 (4), Stats. by requiring wpl to become a
member of the Midwest ISO by June 30, 2000. Arguably the deficiencies raised
discussed in the PSCW's ISO Order have been obviated by the Wisconsin
Legislature in the adoption of R2K. Even without the passage of R2K, WPL
believes that the Midwest ISO satisfies all the statutory requirements of
Section 196.485 (4), Stats. and meets the objectives laid out in the PSCW ISO
Order.
Section 196.485(4), Stats., provides that except as provided in the
statute, a transmission utility may not transfer control over or divest its
interest in its transmission facilities to an independent system operator or
independent transmission owner unless, each of the following requirements is
satisfied:
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1. The independent system operator or independent transmission owner is
the sole provider of all transmission service to all users of its
transmission system in this state, including the provision of retail
transmission service to users that are public utilities.
2. The independent system operator or independent transmission owner has
authority over transmission facilities that is sufficient for the
independent system operator or independent transmission owner to
ensure the reliability of its transmission system.
3. The independent system operator or independent transmission owner has
sufficient authority to carry out the duties specified in sub (3).
4. Each transmission utility in the transmission area that is a public
utility shall become a member of the Midwest independent system
operator no later than June 30, 2002, and shall transfer operational
control over its transmission facilities to the Midwest system
operator. Each such transmission utility that has not contributed its
transmission facilities to the transmission company shall elect to
become part of the single zone for pricing purposes within the Midwest
independent system operator and any phase-in plan prepared under
subsection (a)(4).
The Midwest ISO meets each of the criteria and WPL therefore requests the
Commission to so find and thereby authorize such transfer at such time as the
Midwest ISO demonstrates, in the manner provided in Article 2, Section X., B. at
p. 41 of Exhibit 5,12 that it is prepared to assume control of its members'
transmission assets.
1. SOLE TRANSMISSION PROVIDER
The Midwest ISO will be the sole provider of all transmission services to
all users of WPL's transmission system in this state. It will calculate
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12 The Company will provide the PSCW, on a continuing basis, with information
regarding the Midwest ISO's preparations to begin providing service, including
information on the results of the "technical demonstration" of the ISO's ability
to accept the transfer of assets and begin operations; its position regarding
ability of the Midwest ISO to begin operation; and the certification of its CEO
that all necessary features are in place to ensure reliable grid operations.
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available transmission capability ("ATC"), maintain Open Access Same-time
Information System ("OASIS") information, receive, approve, schedule and confirm
transmission service requests and provide or arrange for ancillary services
under its tariff. The Midwest ISO will also function as the system security
coordinator for its transmission-owning members.13
The Transmission Owners of the Midwest ISO 14 will retain ownership of
their transmission facilities, and will physically operate and maintain these
facilities, subject to the Midwest ISO's direction. Under the Midwest ISO
Agreement, the Transmission Owners that are currently control area operators
will continue to operate their control areas for local generation control and
economic dispatch purposes. However, the Transmission Owners will follow the
directives of the Midwest ISO for redispatching generation, curtailing load, and
providing reactive supply, voltage control or other ancillary services.15
Adherence to the Midwest ISO operating instructions is assured through a
system of substantial penalties and sanctions.16 In addition, the FERC has
mandated additional safeguards to ensure that the Midwest ISO will effectively
control the operation of the networked transmission system and provide
non-discriminatory access. These include the following:
o a requirement the Midwest ISO file a detailed summary of its operating
and emergency procedures no later than 60 days before control of any
facilities is transferred.
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13 Article 3, Exhibit 5.
14 As will discussed, supra, it is anticipated that WPL's transmission assets
subject to the Midwest ISO's control will be owned by Transco when the Midwest
ISO begins operations.
15 See Apppendix E of the Midwest ISO Agreement, attached as Exhibit 7.
16 Article 3.Section V., Exhibit 5.
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o a requirement for ongoing monitoring to determine if the maintenance
of existing control areas creates competitive or reliability problems,
a reporting requirement and an obligation to propose cost effective
cures.
o a requirement that the chief executive officers of the transferring
utilities sign a certification that they are satisfied that the
Midwest ISO is ready to commence reliable operations. In re Midwest
Independent Transmission System Operator, Inc., supra at p. 62,182.
The transfer of operational control of the Transmission System from the
Transmission Owners to the Midwest ISO will occur on what the Midwest ISO
Agreement refers to as the "Transfer Date". This will not occur until the
Midwest ISO can demonstrate, through a technical demonstration, that it is
functionally able and ready to take over the provision of transmission service
under the Midwest ISO Tariff. Based on the foregoing, the Midwest ISO will be
the sole provider of transmission service as required by Section
196.485(4)(a)(1), Stats.
2. RELIABILITY
Recently, there have been significant reliability problems in the Midwest.
The transmission system was originally designed and constructed by individual
utilities to cover their respective service territories. As wholesale markets
have developed, expanded and continue to expand, larger quantities of
electricity have been wheeled from state to state. The transmission systems of
the individual utilities were never intended to carry such large quantities. In
addition to the designated problems, no single entity has the authority or the
ability to control the entire system -- a serious deficiency when trying to
confront loop flows that can result from transactions occurring several states
away. Regional organizations are therefore imperative.
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The geographic breadth and authority of the Midwest ISO permits it to
address reliability in several ways. While the Transmission Owners will continue
to operate their respective control centers and balance load and generation in
their control areas, the Midwest ISO will operate a single
transmission-reliability control area for the Midwest ISO region, which includes
a security center to control the operation of the Transmission System.17 The
Midwest ISO will have real time information over the entire geographic area it
serves; authority to direct switching, generation redispatch and selective
transaction curtailment as necessary to address constraints and resolve
reliability problems; and the ability to resolve long-term problems through
regional planning and construction of new facilities.18 It will also have
authority over those non-transferred facilities it deems necessary to maintain
system reliability.19
a. THE PSCW'S CONCERNS OVER BOARD INDEPENDENCE HAVE BEEN ADDRESSED BY THE
FERC.
When it first reviewed the Midwest ISO, the PSCW expressed concern that the
Board's structure might deprive the ISO of the necessary authority to fulfill
its responsibility of ensuring reliability in a fair and non-discriminatory
manner. FERC expressed concerns similar to those raised by the PSCW. FERC was
concerned that the qualifications for election to the board of directors
together with the limitations placed on the board's ability to act in certain
circumstances resulting from the Transmission Owners' retained rights were not
consistent with the degree of independence FERC required from an ISO's board of
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17 Article 3, Section I, Part B. of Exhibit 5. Also see Appendices B and E to
the Midwest ISO Agreement. Appendix B is attached as Exhibit 8.
18 Exhibit 7.
19 Exhibit 8.
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directors. (FERC Midwest ISO Order, p. 62,151). To resolve these concerns, FERC
determined:
o that no board member should be a participant in a pension plan of any
member or any affiliate of a member or user. (FERC Midwest ISO Order,
p. 62,153) This was later modified to permit participation in defined
benefit plans. 85 FERCP. 161,250.
o that the standards of conduct should be revised to prohibit a board
member from having direct financial interest in any affiliate of any
owner, member, or user of the transmission system. (FERC Midwest ISO
Order, p. 69,153)
o that while transmission owners could initiate action to unseat the
board of directors, any final decision in this regard had to come from
the entire ISO membership. (FERC Midwest ISO Order, p. 62,151)
o that the pricing and revenue distribution methodology should remain as
stated during the six-year transition period in order to meet concerns
of cost recovery and cost shifting. However, FERC encouraged both the
ISO board and the transmission owners to work towards an agreed
superseding pricing proposal before the end of the six-year transition
period. (FERC Midwest ISO Order, pp. 62,167-68)
o that the provision allowing the board to be unseated if it failed to
enact ISO bylaws appended to the Agreement, or enact bylaws contrary
to the ISO Agreement, be omitted. (FERC Midwest ISO Order, p. 62,151)
o that the provision allowing for the entire board or a board member to
be removed for noncompliance with its obligation to avoid damage to
the Transmission System be amended to state the specific type of
damage envisioned under this provision (e.g., physical damage). (Id.)
o that the withdrawal for the reasons set forth in Articles V and VIIIA
of the Agreement would be permitted provided, however, that notice of
such withdrawal be filed with FERC and could become effective only
upon FERC's approval. (Id.)
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With these conditions FERC stated that the Midwest ISO satisfied its
principles regarding independence and provided the Midwest ISO Board with
sufficient authority to ensure system reliability. On December 31, 1998, the
Midwest ISO made and filed amendments to the Midwest ISO Agreement as to each of
FERC's concerns. Exhibit 9 contains the amendments to the Agreement filed with
FERC addressing these requirements. WPL believes that these FERC required
amendments answer the Commission's concern about Board independence and, as a
result, the modified Midwest ISO does comply with the PSCW ISO Order.
b. THE PSCW'S CONCERNS REGARDING CONTROL AREA OPERATION HAVE BEEN ADDRESSED BY
THE FERC
The PSCW also expressed concern that Midwest ISO members that continued to
operate control areas might enjoy some advantage over members which did not
operate control areas.20 The Midwest ISO was the first ISO proposal reviewed by
FERC whose anticipated member utilities were not already participating in a
power pool. Under the Midwest ISO, current control areas will be maintained with
the ISO having authority to direct the transmission operations of each control
area without having to physically operate switches; and, current operators will
continue to operate their control areas for generation control and economic
dispatch purposes. Because the Midwest ISO was neither a control area operator,
nor could it become one until 18 months after operations began, the PSCW
expressed concern that the Midwest ISO could impermissibly deny transmission
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20 PSCW ISO Order p. 7.
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capacity to other transmission users.21 This concern led the Commission to
determine that the Midwest ISO did not meet its first ISO principle and to
forcefully raise this issue with the FERC.
The FERC specifically addressed the concerns expressed by the PSCW
regarding control area operations. The FERC noted that while it did not want to
impose a single operational arrangement on all utilities seeking to form
regional transmission entities, it believed any entity created must assure that
fair competition (including open access) and reliability must be primary
objectives of the organization.22 FERC analyzed the provisions of the Midwest
ISO regarding control area operations in its discussion of FERC's ISO principles
3, 4 and 5. It concluded that, providing the Midwest ISO met certain additional
conditions, which it imposed in its Conditional Order Approving the Midwest ISO,
the above-stated goals would be achieved and the PSCW's concerns addressed.
Specifically, FERC conditioned its approval on the following:
o the Midwest ISO monitor the competitive and reliability effects of
allowing current control area operators to continue to perform some
control area functions, not only in its 18 month assessment but also
on an ongoing basis. If concerns in this regard arise, it is the
obligation of the ISO to resolve them. In the event the ISO cannot
resolve, the ISO is obligated to report the problem to FERC and other
appropriate regulatory authorities. (FERC Midwest ISO Order, p.
62,160)
o the Midwest ISO shall include in its ongoing, as well as its 18 month
assessment a report on the effectiveness of the proposed system of
fines and penalties and their ability to ensure compliance with the
ISO's orders and instructions. (FERC Midwest ISO Order, p. 62,161)
------------------------
21 Id.
22 FERC Midwest ISO Order, p. 62,159.
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o the Midwest ISO file no later than 60 days prior to the transfer date
a detailed summary of operating and emergency procedures. In the event
of any dispute in this regard, the ISO's decision would prevail
pending alternative dispute resolution (ADR). (FERC Midwest ISO Order,
pp. 62,159-82)
o the Midwest ISO provide a current list of transmission facilities to
be transferred to the ISO and also keep a record of which operating
entity has control over each facility. (FERC Midwest ISO Order, p.
62,182)
o the Midwest ISO develop a streamlined ADR process for disputes
relating to ATC determination and facilities ratings. (Id.)
Detailed operating procedures and ongoing monitoring will expose any
discriminatory practices affecting access to transmission. It will also expose
any deficiencies in the Midwest ISO's ability to have its instructions followed.
It is then the obligation of the Midwest ISO to remedy such practices and/or
deficiencies. Available remedies include the ability to combine control areas or
alter division of control area operations. If the Midwest ISO cannot implement
an effective remedy, it is required to report the discriminatory practice and/or
operational deficiency to FERC and all other regulatory bodies. FERC would then
take the necessary steps to bring the Midwest ISO back into compliance with its
ISO principles. Thus, the conditions imposed by FERC allow the Midwest ISO to
promptly resolve issues that might otherwise deny nondiscriminatory open access
to transmission as required by the PSCW.23 In addition, the conditions permit
the Midwest ISO to become a single control area operator at any time it deems
necessary and cost effective to do so. Consequently, the amended ISO possesses
sufficient authority to be able to ensure system reliability, consistent with
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23 PSCW ISO Order, p. 7.
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the requirements of the PSCW ISO Order at Wis. Section 196.485(4)(a)(2), Stats.
3. SUFFICIENT AUTHORITY TO BUILD NEW FACILITIES
The Midwest ISO Planning Staff will develop a long-range plan to address
regional transmission needs and analyze the performance of the transmission
system under a wide variety of contingency conditions. The Planning Staff shall
take into consideration a wide range of inputs, while seeking to coordinate or
consolidate plans of individual stakeholders to produce a more cost-effective
development plan. Disputes between Owners and the Midwest ISO Planning Staff may
be resolved through the Dispute Resolution process provided in the Midwest ISO
Agreement. Any plan will have as one of its goals the satisfaction of all
regulatory requirements. Once the Midwest ISO plan is approved by the Midwest
ISO Board, the affected Owner(s) are required to make a good faith effort to
design, certify, and build the designated facilities to fulfill the approved
Midwest ISO Plan.24 The Midwest ISO therefore meets the requirements that it
have authority to order construction of facilities under Section 196.485(3)(a)
and (b), Stats. and, under Section 196.485(4)(a)3, Stats.. Neither the PSCW nor
FERC expressed any reservations concerning the authority of the Midwest ISO to
engage in planning and order construction of new facilities.
The balance of the requirements incorporated in Section 196.485(4)(a)(3),
Stats. deal with ensuring Midwest ISO has a formal agreement to coordinate its
activities with those of any other ISO in the MAIN region; and with providing
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24 Article 4. Section I. C., Exhibit 5.
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transmission on a non-preferential and competitive basis. With the exception of
the requirement to coordinate with other ISO's in the MAIN region (there are
none), these matters are addressed in FERC ISO principles 1-4 and 6-11. With the
exception of its concerns over independence and control areas, which have now
been addressed, the PSCW expressed no further reservations regarding Midwest
ISO's compliance with these ISO principles. With the conditions it imposed, FERC
found that the Midwest ISO satisfied its ISO principles.
C. CONCLUSION
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The Midwest ISO, as conditionally approved by FERC, meets the requirements
of Section 196.485(4), Stats. Modifications to the ISO Agreement and By-laws
since the PSCW order in Docket No. 05-BE-100 have addressed the concerns
expressed in that order. Additionally, as previously noted, R2K requires WPL to
join the Midwest ISO. Consequently, the PSCW should issue an order that the
Midwest ISO meets all the requirements of Section 196.485(4), Stats. and further
that WPL is authorized to transfer control of its transmission assets to the
Midwest ISO at such time as the Midwest ISO is prepared to take operational
control of member facilities under its Bylaws.
For all of the foregoing reasons, the PSCW should approve the transfer of
the operating control of WPL's transmission assets to the Midwest ISO.
II. TRANSCO APPLICATION
A. INTRODUCTION AND BACKGROUND
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R2K authorizes public utility affiliates within holding company systems in
eastern Wisconsin to transfer ownership of their transmission facilities to a
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new single-purpose Transmission Company i.e. Transco.25 Other utilities,
including retail or wholesale cooperatives, may contribute their transmission
facilities.26 In order to be in compliance with other provisions of Wisconsin
law, WPL will be legally compelled to contribute its transmission facilities to
Transco. In exchange for its transmission facilities WPL will receive capital
stock in Transco.27 Transco will plan, construct, operate, maintain, and expand
its transmission facilities to provide adequate, reliable transmission services
charging a single fee for use of the Transco system.28 Transco's statutory
mission directs it to support robust competition in energy markets, with no
favoritism towards any participant, while meeting the needs of users who are
dependent upon it. Under the provisions of R2K, Transco will transfer
operational control to the Midwest ISO.29
Transco does not currently own or operate any facilities subject to either
the jurisdiction of the Commission or the FERC. However, upon the grant of
Commission authorization of the transfer proposed here, Transco will own and
operate all transmission facilities of WPL subject to either the jurisdiction of
the Commission or the FERC. The determination of whether existing facilities
currently serve a transmission function, and thus should be transferred to
Transco, will be based on application of FERC's seven factor test as specified
in R2K.
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25 Section 196.485(5), Stats..
26 Section 196.485(6), Stats.
27 Section 196.485(5), Stats.
28 Section 196.485(3m), Stats.
29 Id.
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Transco will be a corporation or limited liability company, subject to
FERC's jurisdiction for rates and access.30 Transco will have a Board of
Directors consisting of 5 to 14 members (or managers if an LLC). At least 4
directors/managers would be elected by majority vote of the shareholders and
could not be persons employed by or engaged in natural gas or electric
businesses; the remaining directors would be appointed based on minimum
ownership criteria. Each contributor of at least 10% of Transco's facilities
(including smaller parties that aggregate their shares to reach 10%) will
appoint one Board member.31
Transco will have the exclusive duty to provide transmission service in
those areas in which transmission facilities have been contributed.32 In areas
where control of transmission facilities are transferred to the Midwest ISO,
Transco will not have a duty to provide service.33 R2K prohibits Transco from
directly serving retail customers and further prohibits Transco from bypassing
distribution systems.34
As previously noted, for purposes of transmission asset transfers, a
transmission facility is defined by R2K 35 to mean (1) that the facility is not
a radial facility and is designed to operate above 130kv; (2) that facilities
from 50kv through 130kv which aren't radial are to be presumed transmission
unless a person demonstrates to the PSCWit is not transmission (based on FERC's
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30 Id.
31 Id.
32 Section 196.485(1m), Stats.
33 Id.
34 Section 196.485(3m), Stats.
35 Section 196.485(5), Stats.
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seven factor test)36; (3) radial facilities or those designed to operate at 50kv
or less are presumed not to be transmission, unless the contrary is demonstrated
to the PSCW.
Transco is obligated to honor existing collective bargaining agreements
contributing utilities have with those non-supervisory employees who are subject
to transfer to Transco. Initially, Transco is authorized to contract with the
transferring transmission utilities for operational and maintenance services.37
R2K mandates that the Transco is to "begin operations no later than November 1,
2000."38
B. DESCRIPTION OF WPL'S TRANSMISSION FACILITIES TO BE CONTRIBUTED TO WITC
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WPL currently owns and operates 100 miles of 345 kV, 700 miles of 138 kV,
and 1,767 miles of 69 kV transmission facilities as the Alliant Energy - East
area. WPL proposes that essentially all of these facilities be transferred to
Transco. The original cost of the facilities transferred to Transco is
approximately $256,674,000 dollars ($235,588,000 for lines and substations, and
$21,086,000 for the Stoughton Systems Operation Center).39 After the proposed
contribution, Transco will own and operate these facilities.
The preliminary list of the transmission facilities to be transferred from
WPL to Transco is contained in Exhibit 10. Essentially Transco will acquire from
WPL transmission facilities currently operating at voltages of generally 345 kV
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36 See footnote 5.
37 Section 196.485(3m) , Stats.
38 Id.
39 The designation and quantification of transmission facilities to be
contributed to Transco is based upon a preliminary assessment of the facilities
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that appear to meet the R2K definition of "transmission facilities."
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and 138 kV (the "bulk transmission system") and 69 kV facilities (the "area
transmission system"). The transmission facilities proposed to be transferred
include:
(1) transmission lines (including towers, poles, and conductors) and
transmission substations;
(2) Transformers providing transformation within the bulk transmission
system and between the bulk and area transmission systems;
(3) Lines providing connections to generation sources and step-up (plant)
substations;
(4) Radial taps from the transmission system up to, but not including, the
facilities that establish the final connection to distribution
facilities or retail customers;
(5) Substations that provide primarily a transmission function; and
(6) Voltage control devices and power flow control devices directly
connected to the transmission system.
(7) The Stoughton Systems Operation Center.
The transmission facilities include all the facilities currently recorded
on the books of WPL as "transmission" facilities with the exception of certain
34.5 kV facilities. Because of the historical evolution of WPL's system, there
are certain geographic areas where 34.5kV facilities have served a transmission
function. The facilities transferred to Transco do not include distribution
facilities used to provide retail service. Distribution facilities include all
facilities with voltages below 50 kV including the final circuit connection to
substations providing transformation or connection to any retail customer
regardless of voltage level. WPL currently provides transmission service to
certain wholesale customers at delivery points of less than 50 kV. In order to
ensure continuity of service to such wholesale customers who decide to take
service under the Transco Tariff, WPL and Transco may have to enter into an
agency agreement. Such an agreement may provide Transco the use of certain WPL
distribution facilities necessary to continue transmission service to WPL
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wholesale customers served at delivery points whose voltages are less than 50
kV. Transmission service to wholesale customers over these distribution
facilities will be made available under the Transco Tariff and associated
distribution costs are anticipated to be recovered in the rates on a direct
assignment basis as a distribution adder.
C. TRANSCO'S OPERATION OF THE TRANSMISSION SYSTEM
----------------------------------------------
As noted earlier, Transco is under a statutory mandate to transfer control
of its facilities to the Midwest ISO. Transco will have operational control of
the transmission facilities, procure, offer and arrange for ancillary services,
operate the OASIS in conformance with Order No. 889 40, and administer the
Transco OATT, including all requests for service under the Transco OATT. Transco
will also be responsible for maintenance of the transmission facilities, and
will initially contract with WPL to perform the maintenance. Transco will also
assume responsibility for transmission system planning.41
Transco will offer all ancillary services required by FERC in Order No.
888.42 Since Transco owns no generating facilities, it will purchase the
necessary ancillary services from third parties. Transco will be free to
purchase ancillary services from unaffiliated generators, and will do so on a
non-preferential basis; consistent with at least cost procurement strategy and
locational constraints. WPL expects Transco will enter into agreements to
purchase ancillary services from generators connected to the transmission area.
------------------------
40 Order No. 889, Open Access Same-Time Information System (Formerly Real-Time
Information Network) and Standards of Conduct, FERC Stats. & Regs. P. 31, 035
(1996)
41 Sections 196.485 (1) (ge) ,196.485(1m) and (3m) of the Wisconsin Statutes.
42 Order No. 888, Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services by Public Utilities; Recovery of
Stranded Costs by Public Utilities and Transmitting Utilities, FERC Stats. &
Regs.P. 31, 036 (1996)
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It is also anticipated that Transco will contract for must run operations from
generators connected to Transco's transmission system. Transco will not however,
engage in the purchase and sale of energy other than to obtain necessary
ancillary services required by its customers.43
In short, upon receipt of the necessary regulatory approvals, Transco will
commence providing open access transmission service to those existing open
access customers served by WPL under the existing Alliant Energy's OATT, and any
other eligible customer requesting transmission service from Transco. WPL will
become a transmission customer of Transco under Transco's Tariff. It is
anticipated that where WPL is responsible for providing transmission service
agreements or tariffs predating Order No. 888 ("grandfathered transmission
agreements"), Transco will make the Transco transmission system available to WPL
pursuant to Network Integration Service and Operating Agreements under the
Transco Tariff, in order to provide transmission service under the grandfathered
transmission agreements.
D. FINANCIAL ASPECTS OF THE TRANSACTION
------------------------------------
It is anticipated that a Bill of Sale will be entered into between WPL and
Transco covering the conveyance of the transmission facilities. Schedule A to
that document will list the facilities transferred. The "transmission
facilities" transferred to Transco under the Bill of Sale include WPL's rights
and interest in any contracts under the Alliant Energy OATT. The transmission
------------------------
43 Id.
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facilities will be sold by WPL to Transco at a net book value (original cost
less accumulated book depreciation)44 of approximately $152.1 million as of
December 31, 1998. Transco will finance the purchase of transmission facilities
by issuing capital stock to WPL.45 The accounting entries for WPL will be
provided later. At the present time, WPL contemplates the following entries:
Dr. a/c 108 Accumulated Provision for Depreciation
Dr. a/c 111 Accumulated Provision for Amortization
Dr. a/c 123 Investment in Associated Cos.
Dr. a/c 102 Electric Plant Purchased or Sold
Cr. a/c 102 Electric Plant Purchased or Sold
Cr. a/c 101 Electric Plant in Service
Cr. a/c 107 Construction Work in Progress
Cr. a/c 182 Regulatory Assets
The legal structure for Transco has not yet been determined. Accordingly,
WPL does not yet know the extent to which tax-related accounts will be passed
through to the Transco. Specific Accounts for which the treatment has not yet
been determined are as follows:
a/c 190 Prepaid Income Taxes
a/c 255 Accumulated Deferred Income Taxes
a/c 282 Deferred Income Taxes
The costs associated with the start-up of Transco are expected to be
significant. However, at the present time, WPL has not been able to quantify
these costs.
E. CONCLUSION
----------
WPL's proposed contribution of certain electric transmission facilities to
Transco meets the requirements of Section 196.485(5), Stats. Consequently, the
PSCW should issue an order that WPL's Section 196.485(5), Stats. Application
------------------------
44 Section 196.485(5), Stats.
45 Id.
22
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meets all the requirements of Section 196.485(5), Stats. and further that WPL is
authorized to contribute the appropriate transmission facilities to Transco at
such time as the Commission finds that Transco is prepared to take possession of
those facilities.
For all of the foregoing reasons, the PSCW should approve WPL's
contribution of certain electric transmission facilities to Transco.
Respectfully submitted,
WISCONSIN POWER & LIGHT COMPANY
By:
--------------------------------
Kent M. Ragsdale
Alliant Energy
200 First Street SE
P.O. Box 351
Cedar Rapids, IA 52406-0351
Phone: (319) 398-7765
Fax: (319) 398-4533
Ritchie J. Sturgeon
Alliant Energy
222 West Washington Avenue
Madison WI 53703-2793
Phone: (608) 252-3951
Fax: (608) 252-4820
ATTORNEYS FOR WISCONSIN
POWER & LIGHT COMPANY
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