UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New England Power Pool ))

Docket No. ER02-2330

ISO New England, Inc. )

ANSWER OF MAINE PUBLIC UTILITIES COMMISSION,

MASSACHUSETTS DEPARTMENT OF

TELECOMMUNICATIONS AND ENERGY, RHODE ISLAND PUBLIC

UTILITIES COMMISSION, RHODE ISLAND DIVISION OF PUBLIC

UTILITIES AND CARRIERS AND THE ATTORNEY GENERAL OF THE

STATE OF RHODE ISLAND

TO MOTIONS FOR CLARIFICATION

OF THE CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL,

ISO NEW ENGLAND, INC., NEW ENGLAND POWER POOL AND ISO NEW

ENGLAND, NORTHEAST UTILITIES SERIVCE COMPANY, NATIONAL

GRID AND UNITED ILLUMINATING COMPANY AND

VERMONT ELECTRIC POWER COMPANY

In accordance with Rule 213 of the Rules of Practice and Procedure of the Federal

Energy Regulatory Commission (“Commission”),1 the Maine Public Utilities

Commission (“MPUC”), the Massachusetts Department of Telecommunications and

Energy (“MDTE”), the Rhode Island Public Utilities Commission, the Rhode Island

Division of Public Utilities and Carriers and the Attorney General of the State of Rhode

Island2 (collectively MPUC) hereby submit their answer to the Motions for Clarification

1 18 C.F.R. § 385.213 (1999). This answer addresses only motions for clarification not requests for

rehearing and thus is permitted under the Commission’s rules. Louisiana Public Service Comm’n et al. v.

Entergy Services, Inc., 68 FERC ¶ 61,355 at 62,422-23 (1994).

2 As a member of NECPUC, an intervenor in this case, the Rhode Island Public Utilities Commission has

followed these proceedings but has not separately intervened. Nor have the Rhode Island Division of Public

Utilities and Carriers or the Attorney General of Rhode Island. In light of the requests for clarification

submitted in these proceedings however, it is apparent that Rhode Island’s particular interests may be

affected. Accordingly, pursuant to Rule 214, the Rhode Island Public Utilities Commission, the Rhode

Island Division of Public Utilities and Carriers and the Attorney General of the State of Rhode Island

(collectively “Rhode Island”) move to intervene out of time in these proceedings. Rhode Island submits

that there is good cause to grant it late intervention and that, since Rhode Island is joining in the answer

submitted by the other parties to this pleading, no party will be prejudiced by Rhode Island’s participation.

of the Commission’s September 20 Order in the above docket, New England Power Pool,

100 FERC ¶ 61,287 (2002) (“September 20 Order”) filed by the Connecticut Department

Of Public Utility Control (CTDPUC), ISO New England, Inc. (ISO-NE), New England

Power Pool (NEPOOL) and ISO New England, Northeast Utilities Serivce Company

(NU), National Grid and United Illuminating Company (UI) And Vermont Electric

Power Company. As shown below, these various motions would, if granted, (1)

undermine the principles of Locational Marginal Pricing (LMP) in New England by

retreating to an unnecessary, anachronistic and unfair system for the recovery of costs of

transmission upgrades, and (2) unreasonably further delay the implementation of LMP.

The Commission should reject these efforts to subvert the operation of market rules that

the Commission has already found, correctly, to be essential for the operation of a robust

and efficient wholesale electricity market.

I. The Commission’s Orders Relating to Standard Market Design in New

England Leave No Need for the "Clarification" Sought Here.

The Commission’s September 20 Order brings New England closer to the end of

an arduous and lengthy journey toward the implementation of a locational marginal

pricing congestion management system and a day ahead market. This journey began

with the Commission’s orders approving wholesale competition in NEPOOL, the

creation of ISO New England and the approval of the NEPOOL market rules. As early

as 1998, the Commission required NEPOOL to develop a congestion management system

and multi-settlement system. New England Power Pool, 85 FERC ¶ 61,379 at 62,462

(1998). NEPOOL continually delayed making the required filing due to the inability of

the various stakeholders to reach agreement on key points. Finally, on March 31, 2000,

the ISO submitted a system proposing (1) the implementation of a system of locational

marginal pricing (LMP) and (2) the implementation of a day ahead market.

On June 28, 2000, the Commission issued an Order Conditionally Accepting

Congestion Management and Multi-Settlement Systems. ISO New England, Inc., 91

FERC ¶ 61,311 (2000) (June 28 Order). Among other things, the Commission directed

the ISO to:

_ explore ways to implement LMP more quickly than its projected

implementation time frame which would have had LMP in place between

January and June 2002 and

_ file a revised default allocation mechanism for the costs of transmission

expansion that assigns cost of upgrades to those who benefit to the extent they

can be identified whether an upgrade is classified as an “economic” or a

“reliability” upgrade.

In a subsequent order, the Commission found that NEPOOL had failed to comply

with the Commission’s June 28 Order regarding a transmission cost allocation

methodology that allocated costs of transmission upgrades to those who benefited from

the upgrade assuming beneficiaries can be identified:

The June 28 Order required ISO-NE to assign expansion costs to those

parties who benefit from their expenditure, to the extent those parties can

be identified. For costs that cannot be directly assigned, we directed ISONE

(or NEPOOL) to develop an objective, non-discriminatory default

mechanism for allocating transmission and expansion costs similar to the

mechanism now in place for PJM.

NEPOOL in its compliance filing, continues to insist that any cost

associated with a quick fix project or a NEMA upgrade will automatically

be regarded as a pool-wide expense that cannot be directly assigned. We

reject NEPOOL’s classifications as unsupported according to the

principles in the June 28 Order. NEPOOL describes quick fix projects

and NEMA upgrades as projects that typically promote reliability by

reducing the likelihood of congestion on its system. NEPOOL does not

explain how the NEMA and quick fix projects provide system-wide benefits

that cannot be directly assigned to beneficiaries, nor does it explain how

assigning costs for NEMA and quick fix projects to the pool corresponds

to an objective, nondiscriminatory default cost allocation mechanism.

ISO New England, 95 FERC ¶ 61,384 at p. 62,439 (2001) (emphasis added). The

Commission directed NEPOOL to make a filing that is compliant with the June 28 Order.

Id.

In spite of this language, NEPOOL persisted in incorporating the socialization of

transmission upgrades in its compliance filing. The Commission accepted this

socialization on an interim basis only until the implementation of LMP, and

acknowledged that socialization of the costs of all transmission projects classified as PTF

is inconsistent with a an LMP pricing methodology:

NEPOOL has chosen to use the distinction between PTF and non -PTF

facilities as its default cost allocation mechanism. This is not identical to

the mechanism used in PJM, but it is not entirely dissimilar. Further, the

Commission is mindful that whatever mechanism is selected for New

England now, that mechanism will be superseded once a standard market

design is applied to the future Northeastern RTO. Thus, for this interim

period until that market design is put into place, the Commission will

accept NEPOOL’s distinction between PTF and non-PTF facilities as a

default cost allocation method for upgrades. The Commission recognizes

that, as TransEnergie points out, this mechanism does not send price

signals that would encourage the siting of new generation in congested

areas. For this interim period until the development of a standard market

design for the Northeast, however, all congestion costs will be socialized

in any case: the financial incentive to site new generation in congested

areas will not become meaningful until the imposition of LMP begins to

allocate the costs of congestion to the parties who cause it. Thus, LMP

and an appropriate default cost allocation method go hand in hand to use

market forces to relieve congestion, and since we are currently in an

interim period until LMP can be fully developed for New England, it

makes sense also to accept NEPOOL’s proposed PTF/non-PTF distinction

solely for that same interim period.

As to quick fixes and NEMA upgrades, given that the Commission

is now revisiting this particular issue for the third time, what has become

apparent is that (a) NEPOOL and/or ISO-NE are unwilling or unable to

state any more clearly than they already have why quick –fix and NEMA

upgrades benefit the entire pool, and (b) even parties such as

TransEnergie, who oppose pool support for quick-fix and NEMA

upgrades, do not dispute that these upgrades will benefit the entire pool.

In fact, because these quick fixes and NEMA upgrades have relieved

congestion in New England and congestion costs are currently being

socialized across the pool, all of the participants have benefited from the

quick fix and NEMA upgrades.

The Commission also notes that in its February 23 Order, it has

already ruled that the costs of quick fixes should be recovered “in the

same manner as congestion costs are currently recovered,” i.e. socialized

throughout the pool. Since the February 23 Order, circumstances have not

changed—LMP has not yet been implemented, and congestion costs

continue to be socialized. Under these circumstances, in order to bring

closure to this contentious issue, the Commission will allow socialization

of quick fix and NEMA costs during this interim period.

ISO New England, Inc., 98 FERC ¶ 61,173 at 61,647 (2002) (emphasis added).

Upon the motion for clarification filed by the MPUC and the Vermont

Department of Public Service (VDPS) asking that the Commission clarify that it meant

that the interim period would be over upon implementation of a standard market design in

New England if that happened before one was implemented as part of a Northeastern

RTO, the Commission stated:

The Commission grants the request filed by MPUC/VDPS, and finds that

the interim default cost allocation mechanism for transmission cost

upgrades should be reviewed when LMP in New England is proposed, but

in an appropriate Section 205 or Section 206 proceeding. We agree that

continuation of NEPOOL’s socialized cost allocation methodology may be

inappropriate once LMP is implemented, as LMP does not socialize costs,

but allows parties to see and respond to market signals in planning and

locating transmission upgrades. Accordingly, we will require ISO-NE

and/or NEPOOL to propose a revised default cost allocation methodology

in ISO-NE’s or NEPOOL’s SMD filing consistent with an LMP scheme.

ISO New England, Inc., 100 FERC ¶ 61,029 at 61,078 (2002) (emphasis added).

When neither ISO-NE nor NEPOOL filed the required revised cost allocation

methodology for transmission upgrades as part of their SMD filing as required by the

Commission’s July 3, 2002 order, the MPUC protested the filing and asked the

Commission to order the ISO-NE or NEPOOL to file a new cost allocation methodology

consistent with an LMP scheme. September 20 Order at 100 FERC at 62,285-86. The

Commission granted the MPUC request:

The Commission will grant the Maine Commission’s request. Now that

NEPOOL is implementing LMP, parties will be able to see more readily

which areas would most benefit from transmission upgrades, and what

party or parties will most benefit. It is, therefore appropriate to require

those parties to bear the costs of these new upgrades. NEPOOL has in fact

stated that it anticipates eliminating the socialization of the costs of

transmission upgrades to provide for a mechanism for cost allocation that

is consistent with LMP. As we have previously stated in our CMS/MSS

orders, we will require ISO-NE to develop a mechanism which, in

situations where the parties cannot agree as to who benefits from the

upgrade, provides an objective non-discriminatory default cost allocation

mechanism that is consistent with cost causation.

Id. at 62,286.

In the same order, the Commission agreed with the MPUC, the ISO and numerous

other parties that argued in support of Option One for the assignment of the costs of

Reliability Must Run (RMR) contracts. Under this option, RMR costs are assigned to the

reliability region in which they occur. The Commission concluded that localized

allocation (as opposed to socialization) of RMR costs is consistent with an LMP system:

In a single settlement market, with system-wide pricing and lacking

congestion management, socialization of the RMR fixed costs was deemed

appropriate as a temporary allocation method. This was reinforced in an

order dated June 14, 2002 accepting proposed tariff revisions to NEPOOL

Market Rule 17. We agree, however, with those intervenors who assert

that socializing costs of RMR agreements obscures price signals and

distorts market results.

We reject CTAG’s assertion that the benefits of RMR agreements

inure to the grid and should be treated similarly to transmission costs.

RMR costs represent the known (and short-term) costs of addressing

congestion in identified regions during a specified time period. We find

VPPSA’s concern for stability inapplicable here as the Commission’s

orders establishing the current allocation have characterized the current

allocation methodology as a “stopgap” and “interim” measure until

NEPOOL and ISO-NE were able to implement a new market design

including LMP.

* * * *

Braintree would wait until sufficient infrastructure to support competition

exists to localize RMR costs. We find, however, that without proper price

signals to attract transmission projects and generation resources,

infrastructure improvements will be slow or not forthcoming at all.

* * * *.

We find that RMR fixed costs represent costs of relieving

congestion in specific regions and therefore should be reflected in the cost

of energy in those regions. Numerous commission orders, noted by the

intervenors, indicated that the socialization of costs is inconsistent with an

economically efficient market.

Id. at 62,270. Accordingly, the Commission directed ISO-NE to adopt Option one for the

allocation of RMR costs.

II. The Commission’s Orders Regarding Cost Allocation Reject PTF

Classification as a Basis for Allowing Socialization Except as an Interim

Measure Until LMP Implementation.

NEPOOL, ISO-NE, the CTDPUC, NU, National Grid and UI (hereinafter "the

complaining parties") ask the Commission to clarify that (1) allowing socialization of

transmission upgrades is consistent with an LMP cost allocation system and (2)

transmission upgrades constituting pool transmission facilities or that improve reliability

and relieve congestion will continue to be socialized across pool participants. See, e.g.,

CTDPUC Request at 2. Contrary to these requests, however, the Commission has already

rejected PTF classification as a basis for socialization once LMP is implemented, and the

Commission has already rejected the distinction between a reliability and an economic

upgrade. ISO New England, Inc., 95 FERC ¶ 61,384 at 62,435 (2001). The Commission

has, instead, required that costs of transmission upgrades be allocated to the parties that

benefit from the upgrade or cause the need for the upgrade (in proportion to the benefits

they receive), as long as these parties can be identified. Id.

Parties that suggest that socialization, as a default mechanism after LMP

implementation is still an open question ignore the clear language and holdings of the

Commission’s orders on this question. The Commission has required NEPOOL to file a

different cost allocation methodology from the current socialization of PTF designated

facilities. While the Commission orders do not rule out that, following an appropriate

determination (for example, that the particular project cannot be shown to benefit any

particular zone or region as opposed to the system as a whole), socialization might be

appropriate, the Commission has clearly rejected the current “socialization by default”

approach as inappropriate in an LMP environment.

In its June 13, 2001 Order, the Commission stated:

The June 28 Order required ISO-NE to assign expansion costs to those

parties who benefit from their expenditure, to the extent those parties can

be identified.

* * * *

NEPOOL in its compliance filing continues to insist that any cost

associated with a quick fix project of NEMA upgrade will automatically

be regarded as a pool wide expense that cannot be directly assigned. We

reject NEPOOL’s classification as unsupported according to the

principles in the June 28 Order.

ISO New England, Inc., 95 FERC ¶ 61,384 at 62,436 (2001)(emphasis added).

The Commission further ruled in a subsequent order that the current cost

allocation methodology would be “superceded” upon the implementation of LMP and

that “LMP and an appropriate default cost allocation method go hand in hand to use

market forces to relieve congestion,” ISO New England, Inc., 98 FERC ¶ 61,173 at

61,646 (2002) (June 13 Order), and that a new cost allocation methodology would be

required upon implementation of LMP. Therefore, the Commission clearly has already

rejected NEPOOL’s refrain that cost causation principles are addressed by simply

socializing costs that are designated as PTF. Further, the Commission has specifically

ruled that socialization of a transmission upgrade, without any determination of who

benefits from the upgrade, is inconsistent with an LMP pricing scheme. ISO and

NEPOOL’s motions for clarification amount to nothing more than a continuation of their

defiance of the Commission’s June 28, 2000 and subsequent orders. See June 13 and

September 20 Orders, supra.

Thus, while the MPUC does not object to a short period (consistent with the

extended deadline for SMD NOPR comments) to reach stakeholder consensus on how the

mechanism should assign costs to the areas that benefit from the transmission upgrade,3

NEPOOL and ISO should not be given another opportunity to avoid compliance with

Commission Orders by reiterating the claim, already rejected by the Commission, that a

cost mechanism that simply socializes all transmission upgrades (or even all PTF

facilities) is consistent with an LMP pricing scheme. Because this issue has been

addressed in the June 28, 2000 Order and subsequent orders on compliance filings, there

is a need only for compliance, not clarification. 4

3 Since filing its motions for clarification, ISO-NE has set up a “stakeholder” forum to try to develop

consensus on a new cost allocation methodology for transmission expansions. We view this as a useful

first step; though a failure to reach consensus cannot excuse a failure to comply with the Commission’s

orders.

4 In this regard, there is no merit to the claim that there must be yet another section 205 filing and

Commission order finding the current scheme to be unjust and unreasonable. The Commission’s June 28

Order found the ISO’s proposed cost allocation methodology unreasonable and also found that the existing

cost allocation methodology was reasonable only until the implementation of LMP. June 28 Order, 91

FERC at 62,060. A new proceeding would accomplish nothing more than another unwarranted delay in

complying with the Commission’s orders.

III. The ISO’s Regional Expansion Plan Makes Clear That Any SWCT

Transmission Upgrade Is For The Purpose Of Relieving Congestion And

Improving Reliability In Southwestern Connecticut.

The CTDPUC argues that the Commission’s September 20 Order would localize

the costs of projects “that benefit all pool participants.” CTDPUC Request at 13.

According to Connecticut, the cost of transmission upgrades “that support the regional

grid – by solving market imperfections, reducing market power by eliminating congestion,

providing long-term options to customers and generators, and enhancing customer choice

of supplier and source – should continue to be socialized by the pool.”

The CTDPUC simply misapprehends prior Commission orders. The Commission

has never found that transmission upgrades, whose primary purpose is to relieve

congestion or to improve reliability within a specific zone, benefits the whole region so as

to justify socializing the costs of the project across the region. Instead, the Commission

has suggested that LMP will make it much easier to identify who benefits from upgrades.

September 20 Order, 100 FERC at 62,286. The ISO’s draft RTEP-02 well illustrates this

concept. In reference to the SWCT 345kV project, the RTEP02 states:

[T]his reliability Upgrade is required to provide an adequate transmission

infrastructure in the southwestern region of Connecticut. . . .Although

Phase 1 and Phase II result in little NEPOOL wide LOLE improvement

and little reduction in forecasted congested costs, those reliability and

congestion analysis modeling efforts do not reflect the myriad problems

internal to SWCT that this project is designed to solve.

RTEP 182 (emphasis added). The CTDPUC filing itself indicates that the ease with

which the beneficiaries can be identified: “LMP alone is projected to cost Connecticut

$125 to $375 million per year until transmission fixes are in place.” CTDPUC Request at

16.5 Clearly, a transmission upgrade that will significantly reduce or eliminate these

congestion costs provides a major benefit to Connecticut consumers.

While the possible Southwest Connecticut transmission upgrade presents the easy

case in identifying beneficiaries, there may be cases in which where there are both

primary beneficiaries and secondary beneficiaries (those who receive a much smaller

benefit). In such circumstances, it is the ISO’s responsibility to identify such primary and

secondary beneficiaries and to allocate the costs of the upgrade accordingly. While the

MPUC does not suggest that this is an easy task, it is nevertheless, as the Commission has

determined, one that is crucial to ensuring that price signals are consistent with an LMP

market.6 The ISO’s compliance filing required by the Commission’s September 20 Order

should establish criteria for making such determinations. Further, in light of its failure to

comply to date, the ISO should be ordered to issue its proposal no later than January 15,

2003 (even if the stakeholder process has not reached any consensus) so that the new cost

allocation system can be in place when LMP is implemented as ordered by the

Commission.

5The projections for net congestion costs with FTR/ARR revenue allocation are significantly lower in the

2003 through 2007 period than the gross congestion costs cited by CTDPUC, ranging from a low of $24.4

million to a high of $53.million. RTEP02 Table 7-11.

6 NU suggests that because the relief of the transmission constraint might benefit more distant customers,

the cost of the upgrade should be socialized even when the direct beneficiaries are easily identified.

However, as the Commission has recognized, “[n]ow that NEPOOL is implementing LMP parties will be

able to see more readily which areas would most benefit from transmission upgrades, and what party or

parties will most benefit.” September 20 Order, 100 FERC at 62,286 (emphasis added). In so finding, the

Commission has recognized that rate design determinations do not and cannot predict every possible

beneficiary but still assign costs on the basis of causation with the information available. When it is clear

which parties benefit most, noncompliance with the Commission’s requirement that costs be assigned to

those that benefit from a project is not cured by the suggestion that there may be unidentified beneficiaries

at some point in the future.

IV. There is No Basis For Grandfathering the proposed SWCT Transmission or

Other Proposed Transmission Upgrades.

The ISO seeks clarification “that a cost allocation mechanism that is ultimately

approved by the Commission be prospective in nature only.” By this, the ISO means that

“the Commission should not apply future changes to cost allocation mechanisms to those

upgrades which are pending in state siting processes at the time the Commission either

issues a final Order in this proceeding that would change the cost allocation mechanisms

or issues a final Order in the SMD rulemaking that would change the cost allocation

mechanisms, which ever occurs first.” Request for Rehearing and Clarification of ISO

New England at 18. ISO suggests that costs of projects, such as the SWCT transmission

expansion that is currently before a siting agency (albeit temporarily in suspension due to

a legislatively imposed moratorium on certain transmission project siting ) should be

socialized, even if the project is not yet underway, because the “regulatory uncertainty

surrounding the allocation of costs of newly developed transmission upgrades and

proposed transmission upgrades under regulatory review may hinder the development of

new transmission . . . ” Id.

Similarly, the CTDPUC argues that to the extent the Commission eliminates

socialization of transmission upgrade costs, “the Commission [should] clarify as a

transition measure, that costs of already identified cost-effective transmission upgrades in

Southwestern Connecticut (SWCT), the Northeast Massachusetts Area (NEMA) area,

Southern Maine and Northwestern Vermont will be socialized across the pool.” CTDPUC

Request at 14-15. The CTDPUC argues that since the Commission approved socialization

of NEMA, the SWCT project should “receive the same treatment.” Like ISO, CTDPUC

argues that socialization will help the SWCT project to proceed “under a stable framework

as the region transitions. into SMD and LMP and RTO or seams reduction between

regions.” CTDPUC Request at 15.

These attempts to shoehorn currently contemplated projects into the anachronistic

(and no longer supportable) pre-LMP world of socialized costs should be rejected. First,

the ISO’s and CTDPUC's statements that grandfathering the SWCT and other projects on

the drawing board in other states are necessary for these projects to move forward is

purely conjectural. If a transmission project is economic, i.e., the project’s benefits to a

specific area such as reduced costs and/or improved reliablity, exceed the projects costs,

then the area that will benefit from the project by having the reduced costs and/or

improved reliability has an incentive to invest in it.7 Of course there may be other local

non-economic concerns or perceived externalities that create opposition to the project.

However, the answer to these local concerns is not to shift the cost of the project to

consumers who will not benefit from it. If the state regulatory or legislative bodies do

not approve the siting of the project, then, under the current allocation of state and federal

jurisdiction, ultimately these state authorities are responsible for the ramifications of their

decisions.

While the Commission should reject ISO-NE’s and CTDPUC’s attempts to have

the SWCT project grandfathered, there is no need to revisit a cost allocation methodology

that has already been approved for specific projects, such as the NEMA upgrades, that are

now nearing completion. As the Commission noted, socialization of such projects was

consistent with the socialization of congestion costs. ISO New England, Inc., 98 FERC ¶

7 Conversely, under a socialization price scheme if the project is a multi-state transmission project, a state

that would receive no benefit from the project but would have to pay a share of the costs of the project

would have no incentive to approve the siting of the project.

61,173 at 61,647 (2002). Where these projects reduced congestion costs at a time that

these costs were still socialized, the projects did provide a benefit to the entire region.

Moreover, the investment and other decisions related to these (completed or nearly

completed) projects were made at a time when both the certainty and timing of LMP

were less clear. By contrast, projects such as the SWCT or other upgrades that are in the

planning or siting stage will be completed well after LMP has taken effect and thus

consumers in states where such projects are built will reap the benefits of cost reductions

under LMP, and the many siting and investment decisions that remain to be made with

respect to these projects can and should be made in anticipation of the price impacts of

LMP. Thus, it is wholly inappropriate to “grandfather” socialization of the costs of the

SWCT or any other planned upgrade that will benefit consumers in a specific area.

The CTDPUC’s concerns are clear enough. Now that the transition to LMP is

finally nearing, it seeks to avoid the cost responsibility that is part and parcel of an LMP

system. While its concern is understandable, the CTDPUC’s wish to avoid price impacts

that are caused by its consumers is neither consistent with an LMP pricing scheme nor

just and reasonable for those consumers who have been subsidizing the higher costs of

supplying power in load pockets.8

Further, the need for infrastructure in SWCT is not new. Interestingly, it appears

that the 345 kV loop was first proposed to Connecticut regulators in the 1970s but not

8 Consumers in all New England states have been paying congestion costs of approximately $90 million per

year since 1999. Thus, this is not a case, as the CTDPUC suggests, of other states getting to benefit from

socialized costs while Connecticut is unfairly deprived of such treatment due to the timing of the project.

Even if the timing of the project were not in the control of Connecticut regulators and politicians, this

argument would still fail. Consumers in areas without congestion paid higher costs caused by consumers in

other regions. Further, the Commission’s approval of socialization of the NEMA project was based on its

determination that it would benefit the whole region by reducing congestion costs that were socialized

under the system then in effect.

pursued at that time. Connecticut Department of Public Utility Control, Investigation into

Possible Shortages of Electricity in Southwest Connecticut during Summer Periods of

Peak Demand, Docket 02-04-12 (July 3, 2002) (“CT. Report on Shortages”) at 4. And,

contrary to the representation made in the CTDPUC filing that the Department became

aware of the SWCT load pocket only in the last two years, the Department recognized

that the southwestern corner of the state “appeared to require some reinforcements in the

near future” no later than 1999. Id. at 5. In addition, the CTDPUC acknowledges that

peak demand in SWCT Connecticut has increased by over 25% over the past decade. Id.

at 6. Thus, if the situation in Connecticut can be compared to “the Perfect Storm,” as

suggested by the CTDPUC, it is a storm that Connecticut politicians, regulators, and

electric utility companies have known about for years. Rather than preparing for the

storm, the political representatives of the consumers that the CTDPUC asks the

Commission to protect from LMP price impacts (at the expense of all other consumers in

New England) 9 have delayed siting approval of the proposed project with the June 3,

2002 enactment of a moratorium on the approval of any application for electric

transmission lines from Bethel to Norwalk until February 1, 2003.

In comparison to Connecticut's non-response to its congestion problems, consider

how Massachusetts has responded to its own congestion problems. While SWCT and

9 As the Commission must also be aware, Connecticut’s per capita income is the highest in the country and

Fairfield County in SWCT is among the 10 wealthiest counties in the country in terms of per capita income.

Bureau of Economic Analysis (September 2002). Further Connecticut has the highest residential average

monthly consumption (711kwh per month) of the five New England States. In comparison, the average

monthly residential consumption of the other New England states ranges from 479 kWh for Maine to 599

kWh for Vermont. Energy Information Administration Electric Sales and Revenue 2000, Table 1, US

Average Monthly Bill By Sector, Census Division and State, 2000. In a June 2002 report, the CTDPUC

acknowledged" “[i]t is generally accepted that strong economic growth in SWCT and the proliferation of

air conditioning in residential and commercial settings is driving the peak demand for electricity. The

installation of air conditioning is commonplace in remodeling and new construction and this trend is

expected to continue.” CT Report on Shortages at 6. If the Commission backs away from its commitment

NEMA both have experienced significant congestion, Massachusetts has faced up to

difficult choices about siting new generation within NEMA. The Massachusetts Energy

Facilities Siting Board has approved over 2500MW of new generation in NEMA since

1999. In addition, since NEPOOL's restructuring, five new gas-fired generators have

been constructed and are operating in Maine.

V. The Commission Provided Clear Warnings that the Socialization of

RMRcontract costs would be allowed only on an interim basis until LMP

implementation.

The CTDPUC argues that the Commission should revisit its ruling on cost

allocation of RMR contracts and clarify or revise the Order to extend the interim cost

allocation methodology now in place—socialization—for an additional five year period.

According to the CTPDUC, a five-year transition period is needed because this time frame

“will give Connecticut a fair opportunity to build transmission upgrades and to target its

conservation and load management efforts to SWCT,” all at the expense of other

consumers. CTDPUC Request at 10. In other words, the CTDPUC believes that it is fair

to implement locational marginal pricing and related changes such as localization of

RMR contract costs-- only if consumers in other regions subsidize the cost of supplying

energy to the SWCT load pocket and subsidize the cost of transmission improvements that

will allow cheaper power to be imported into the area. Once these improvements are

built and prices are reduced (at the expense of consumers in other states), the CTDPUC

has no problem with the implementation of LMP.

Connecticut’s proposal is unfair to consumers in other regions which have been

paying for the high congestion costs in the SWCT region for over two years. Further,

to allowing market forces to drive economic behavior under these circumstances, it is difficult to imagine

that commitment ever being honored.

consumers in other states paid the costs of the 2002 SWCT load response program and

consumers in areas that do not have load pockets are currently paying the costs of

reliability must run contracts even though the benefit of these contracts go solely to the

consumers in the load pocket served by the RMR resource. Connecticut’s proposal

unfairly extends the subsidization of Connecticut consumers by consumers in other New

England states.

VI. The Implementation of Locational Marginal Pricing in New England Should

Not Be Delayed Any Longer.

The implementation of LMP is about three years overdue. See New England

Power Pool, 85 FERC ¶ 61,379 at 62,462 (1998). While the ISO has worked diligently to

develop a workable system once it became clear that NEPOOL would not be able to reach

consensus on a plan, the result of the delay is that transmission congestion uplift has cost

New England electricity consumers approximately $90 million per year. Moreover, with

the socialization of these costs, the signals for market responses to congestion--

generation, merchant transmission, and demand response--have been absent.10 Now

Connecticut seeks to expand the transition period for an additional five-year period while

it upgrades its transmission system. Under the CTDPUC proposal, LMP may be

implemented except that Connecticut will be exempted from paying a locational marginal

price.11 The Commission should reject the CTDPUC’s self serving proposal and move

10 Contrary to the assertion of the CTDPUC, the proposal to build a transmission upgrade to relieve the

SWCT load pocket is not a “market” response. CTDPUC Request at 9. It is a regulatory response that may

be inconsistent with actual market responses such as load response programs.

11 Alternatively the CTDPUC suggests that if its consumers have to pay a locational marginal price, they

should not also have to pay their own transmission upgrade costs, the cost of their reliability must run

contracts or the cost of their load response programs. The reason why the CTDPUC’s requested relief is

inconsistent with an LMP pricing scheme and otherwise unfair to consumers in other states is discussed

above.

forward with the implementation of an LMP congestion management system on March 1,

2003.

Respectfully submitted,

MAINE PUBLIC UTILITIES COMMISSION

By: __________________________

Lisa Fink

State of Maine

Public Utilities Commission

242 State Street

18 State House Station

Augusta, ME 04333-0018

(207) 287-1389

Rhode Island Public Utilities

Commission

Rhode Island Division of Public

Utilities and Carriers

Sheldon Whitehouse

Attorney General of the State of

Rhode Island

By their Attorney,

___/s/______________________

Paul Roberti

Assistant Attorney General

Chief, Regulatory Unit

Department of Attorney General

150 South Main Street

Providence, RI 02903

Dated: October 31, 2002

Harvey L. Reiter

John E. McCaffrey

STINSON MORRISON HECKER LLP

1150 18th Street, N.W.

Suite 800

Washington, DC 20036

(202) 785-9100

(202) 785-9163 (fax)

Attorneys for Maine Public Utilities

Commission

Ronald Lecomte

Massachusetts Department of

Telecommunications and Energy

One South Station Boston, MA. 02110.

(617) 305-3658

CERTIFICATE OF SERVICE

I hereby certify that I have this day served a copy of the foregoing document by

first class mail upon each party on the official service list compiled by the Secretary in

this proceeding.

Dated at Washington, D.C., this 31st day of October, 2002.

_________________________

Harvey L. Reiter

WDCDOCS 50718v1