113 FERC ¶ 61,238

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

Midwest Independent Transmission System Docket Nos. ER04-446-000 and
Operator, Inc. ER04-446-001

ORDER ON PAPER HEARING

(Issued December 2, 2005)

1.  In this order we find that the proposed Schedule 10-FERC-METC tariff
    is just and reasonable based on our review of the record developed
    at hearing and the briefs submitted by the parties.

    **[Background]{.underline}**

2.  In an order issued October 28, 2003, in Docket No. ER03-1277-000,
    the Commission conditionally accepted Schedule 10-FERC of Midwest
    Independent Transmission System Operator, Inc.'s, (Midwest ISO) Open
    Access Transmission Tariff (OATT). Schedule 10-FERC created a rate
    mechanism in the OATT to recover Midwest ISO's FERC annual charge
    costs[^1] from the Midwest ISO transmission customers.[^2] Midwest
    ISO filed Schedule 10-FERC in response to Order No. 641, which
    changed the Commission's policy for assessing and collecting FERC
    annual charges.[^3] In addition to determining that FERC's electric
    regulatory program costs would be assessed only to transmission
    transactions,[^4] Order No. 641 also provided that in the context of
    a regional transmission organization (RTO), FERC annual charges
    would be assessed directly to the transmission service provider
    rather than the owner of the transmission facilities.[^5] Order No.
    641 did not specifically address rate recovery of FERC annual
    charges but noted that these charges were a legitimate cost of
    providing transmission service and could be recovered
    accordingly.[^6] Thus, Midwest ISO filed Schedule 10-FERC to recover
    these costs.

3.  Certain intervenors in the proceeding involving Midwest ISO's
    Schedule 10-FERC (Michigan Public Power Agency and Michigan South
    Central Power Agency) zonal rate objected to Midwest ISO's proposed
    revisions on the grounds that the Michigan Electric Transmission
    Company (METC) zonal rate that they pay already included a cost
    component to recover FERC annual charges. The METC zonal rate, a
    "black box" stated rate (\$0.98/kW per month, referred to herein as
    the \$0.98 rate), was adopted as part of the sale of Consumers
    Energy Company's (Consumers) jurisdictional transmission assets to
    Michigan Transco Holdings, L.P. (METC's parent company), a
    partnership managed by Trans-Elect, Inc.[^7] As part of that sale,
    METC agreed to a rate moratorium through December 31, 2005, on the
    \$0.98 rate applicable to transmission services provided over the
    transferred facilities. The intervenors asserted that the \$0.98
    rate already included FERC annual charges because that rate was the
    same rate used by METC's predecessor, Consumers.[^8] The intervenors
    argued that Consumers' rate included a provision for the collection
    of FERC annual charges, as shown in its cost-of-service which was
    filed in Docket No. OA96-77-000. Therefore the intervenors argued
    that if the proposed revisions to Schedule 10-FERC were applied to
    METC zonal rate customers, those customers would be subject to a
    double charge for FERC annual charges.

4.  Though the Commission did not determine ultimate cost responsibility
    for the FERC annual charges, the October 28 Order directed Midwest
    ISO to bill METC for FERC annual charges under Schedule 10-FERC. On
    rehearing,[^9] the Commission affirmed its decision that directed
    Midwest ISO to bill FERC annual charges to METC. However, the
    Commission clarified that the October 28 Order did not preclude METC
    from seeking to pass through the FERC annual charges to its
    customers,[^10] and that such a proposal would be considered in
    Docket No. ER04-446-000, the instant proceeding.[^11]

    **[Proposed Schedule-10 FERC-METC]{.underline}**

5.  On January 20, 2004, Midwest ISO submitted Schedule 10-FERC-METC, a
    mechanism under the Midwest ISO OATT designed to allow METC to
    recover FERC annual charges from customers taking service within the
    METC pricing zone under the Midwest ISO OATT.[^12] Schedule
    10-FERC-METC contains a formula rate which would provide recovery of
    the actual charges invoiced by Midwest ISO, from the METC zonal
    customers.

6.  On March 19, 2004, the Commission accepted the proposed Schedule
    10-FERC-METC for filing, suspended it for a nominal period and made
    it effective subject to refund.[^13] In addition, the Commission set
    the matter for hearing and held the hearing in abeyance pending
    settlement judge procedures.

7.  As a result of the settlement judge procedures, several parties
    entered into a settlement regarding FERC annual charge
    responsibility.[^14] Soon after the settlement was approved by the
    Commission, Holland Board of Public Works (Holland) filed a late
    motion to intervene with the Presiding Administrative Law Judge
    (Presiding Judge). The Presiding Judge granted Holland's motion and
    found that while Holland is a member of MPPA, a settling party, MPPA
    did not adequately represent the interests of Holland as a
    point-to-point transmission customer paying the METC zonal
    rate.[^15]

8.  The remaining parties proceeded to hearing and a Joint Stipulation
    of Issues was filed on December 16, 2004.[^16] Consumers, Trial
    Staff, Holland, and METC filed a joint motion to waive the initial
    decision and evidentiary hearing in this proceeding. The Commission
    granted the motion and established a schedule for initial and reply
    briefs to be filed directly with the Commission on February 9, 2005
    and March 2, 2005, respectively.[^17]

9.  Consumers, Holland and Trial Staff filed initial and reply briefs.
    In addition, Holland filed a motion to strike the section of METC's
    reply brief that challenged Holland's late motion to intervene. METC
    filed a response to the motion to strike.

    **[Discussion]{.underline}**

    **A. [Procedural Matters]{.underline}**

10. In section II.B.5 of its reply brief, METC states that the
    settlement resolved all issues between MPPA and METC. METC argues
    that because Holland is a member of MPPA, its continued
    participation in this proceeding constitutes a collateral attack on
    the Commission's order approving the settlement.

11. Holland filed a motion to strike section II.B.5 of METC's reply
    brief. Holland asserts that section II.B.5 is a collateral attack on
    the Presiding Judge's decision to permit Holland to intervene late,
    subject to it accepting the record as developed. Holland asserts
    that the Presiding Judge, aware of its membership in MPPA,
    nevertheless found that MPPA did not adequately represent Holland's
    interests in this proceeding. Holland points out that the Presiding
    Judge determined that the settlement did not dispose of issues
    raised by FERC annual charges being assessed to point-to-point
    transmission customers such as Holland. In addition, Holland argues
    that this section should be struck because METC waited until its
    reply brief to raise this issue. METC responded in its answer to the
    motion to strike that Commission regulations did not require that
    METC raise this issue in an interlocutory appeal of the Presiding
    Judge's decision and that the issue could be raised in the ordinary
    course of the proceeding.[^18]

    **[Commission Determination]{.underline}**

12. We will grant Holland's motion to strike section II.B.5 of METC's
    reply brief. We agree with METC's assertion that it was not required
    to seek interlocutory appeal of the Presiding Judge's decision to
    permit Holland's late intervention and participation in the
    post-settlement proceedings. However, we believe it is important to
    emphasize that parties are not permitted to respond to reply briefs
    in the ordinary course of litigation before the Commission.
    Accordingly, we strongly encourage entities involved in litigation
    to raise issues for Commission consideration in a timely fashion so
    that all parties have a meaningful opportunity to respond.

    **B. [Schedule 10-FERC-METC]{.underline}**

13. Consumers, Holland, and Trial Staff argue that the proposed Schedule
    10-FERC-METC will increase rates and is unjust and unreasonable
    because the rate moratorium prevents any increase in transmission
    rates in the METC pricing zone. They also argue that the current
    \$0.98 rate for the METC pricing zone already includes FERC annual
    charges and that Schedule 10-FERC-METC would therefore represent a
    double recovery of FERC annual charges from customers in the METC
    pricing zone. We will discuss these issues in more detail below.

    **[Initial Briefs]{.underline}**

14. Consumers notes that METC's base transmission rate is a
    \$0.98/kW/month fixed rate that originated from a Consumers rate
    case filed in Docket No. OA96-77-000.[^19] Consumers points out that
    during the proceedings to transfer the transmission assets to METC
    and to establish METC's rate, both Consumers and METC supported the
    use of the \$0.98 rate because it was a continuation of the
    originally-filed Consumers rate.[^20] Consumers relies on the
    testimony of its witness, Mr. Gaarde, to show that FERC annual
    charges were a routine cost-of-service element at the time the
    \$.098 rate was originally filed, and that the cost-of-service
    analysis used to support the transmission service rate in that
    docket included amounts for FERC annual charges.[^21] Consumers
    further states that METC does not dispute that the rate developed in
    that proceeding included recovery of FERC annual charges.[^22]

15. Consumers also asserts that the Membership Interests Purchase
    Agreement (MIPA)[^23] supports its argument that FERC annual charge
    costs are included in the \$0.98 rate. According to Consumers, the
    MIPA indicates that the \$0.98 rate applies to Network Transmission
    Service, which is defined in the MIPA as "transmission service to
    customers that typically has its revenue requirement set forth in
    FERC Open Access Transmission Tariffs Attachment H and ancillary
    service schedule 1..."[^24] Consumers states that the identification
    of the Attachment H Revenue Requirement in the MIPA ties METC's
    \$0.98 rate to the standard package of services and standard package
    of costs associated with rates for open access transmission service
    under the Order No. 888 *pro forma* tariff. Thus, Consumers
    concludes that the \$0.98 rate includes FERC annual charge costs
    because OATT rates typically contain this cost component.

16. Consumers responds to METC's witness, Mr. Statman,[^25] by stating
    that its failure to protest Midwest ISO's recovery of FERC annual
    charges from customers in the METC zone, and Consumers' proposal to
    recover annual charges in a Michigan state proceeding, is not
    inconsistent with its current position. Consumers argues that it did
    not oppose Midwest ISO's Schedule 10-FERC filing because, unlike
    METC, Midwest ISO was not receiving transmission revenue from
    Consumers that contained a cost component for FERC annual
    charges.[^26] Consumers notes that the effect of Midwest ISO's
    Schedule 10-FERC charges could create a cost responsibility for
    Consumers after the expiration of the rate moratorium. Consumers
    also points out that prior to the October 28 Order, Midwest ISO had
    billed Consumers for FERC annual charges under the Schedule 10-FERC.
    Thus, Consumers argues, it was reasonable to anticipate a potential
    cost responsibility and to seek a mechanism to recover that
    potential cost in its rate case before the Michigan Public Service
    Commission (Michigan Commission).[^27]

17. Holland generally agrees with Consumers' arguments. Holland
    emphasizes that the rate moratorium prohibits METC from raising
    rates to collect the FERC annual charges levied against it by
    Midwest ISO. Holland argues that METC chose to accept the risk of a
    rate moratorium and should not be allowed to raise rates to
    customers in its pricing zone to collect such charges. Holland notes
    that any decrease in METC's costs (because of METC's separate
    collection of FERC annual charges) will result in additional profits
    for METC and points to the fact that in Docket No. OA96-77-000,
    Consumers' originally-filed rate was ultimately lowered to \$0.72 in
    Opinion No. 456,[^28] a 25 percent reduction. Holland argues that
    METC, in seeking a rate moratorium on the carryover of the \$0.98
    rate, benefited from the fact that the rate was maintained at the
    higher \$0.98 level, yet METC now seeks to ignore the rate
    moratorium when it may be to METC's detriment. Holland also argues
    that, regardless of the interpretation of the MIPA (*i.e.*, whether
    or not it allows for pass-through of FERC annual charges), the
    agreement only governs the relationship between METC and Consumers,
    not other METC pricing zone customers, such as Holland.

18. Trial Staff also agrees with Consumers' arguments. According to
    Trial Staff, METC has failed to show that the proposed Schedule
    10-FERC-METC is just and reasonable. Trial Staff states that METC
    failed to demonstrate that the proposed Schedule 10-FERC-METC does
    not double charge METC zonal customers. Trial Staff argues that METC
    provides no documented evidence to support the METC witness' claim
    that the MIPA was negotiated to specifically exclude new RTO related
    costs from the rate moratorium. Like Consumers, Trial Staff argues
    that the language of the MIPA includes FERC annual charges in the
    "black box" \$0.98 rate. Trial Staff claims that, according to the
    MIPA, the \$0.98 rate was intended to compensate METC for all costs
    related to providing "Network Transmission Services" and that FERC
    annual charges are a typical cost associated with network
    transmission service as defined by the MIPA.[^29]

19. METC contends that the costs proposed in Schedule 10-FERC-METC are
    RTO-related costs that the \$0.98 rate and rate moratorium do not
    cover. In addition, METC states that the \$0.98 rate, as a "black
    box" rate, does not specify what costs are included in the rate.
    Accordingly, METC argues that Consumers' double charge claim is
    baseless because the rate cannot be compartmentalized into cost
    components. METC also asserts that Consumers' position in the
    instant proceeding is inconsistent with its position in other
    proceedings where Consumers acknowledged that it is responsible for
    FERC annual charges.

20. METC also asserts that the Commission previously determined that
    METC, as a transmission owner within an RTO, is not responsible for
    paying FERC annual charges. METC asserts that, under Order No. 641,
    the RTO, as the transmission provider, is responsible for FERC
    annual charges and the RTO collects the costs of these annual
    charges from system users. Thus METC contends that FERC annual
    charges are RTO costs that it should be allowed to pass through to
    its customers. METC also states that the Commission has already
    decided this cost responsibility issue. It points to correspondence
    between METC and the Commission regarding an invoice for 2002 FERC
    annual charges, where the Commission's Division of Financial
    Services issued a letter determination (DFA Letter) stating that
    METC had been incorrectly billed for the 2002 annual charges and
    that METC was not responsible for that invoice.[^30] METC asserts
    that this letter is "controlling on the issue of FERC annual charge
    responsibility for service within the METC zone,"[^31] and
    postulates that the Commission was not aware of this correspondence
    when it issued its decision in Docket No. ER03-1277-000 that
    directed Midwest ISO to bill METC instead of METC's customers for
    FERC annual charges.

21. METC also contests the embedded cost theory presented by Consumers,
    where the \$0.98 rate must include a cost component of FERC annual
    charges. METC's argues that the \$0.98 rate is a "black box" rate
    for transmission service as defined in the MIPA, and as such, cannot
    be divided into individual cost components. METC does not dispute
    that the rate filed in Docket No. OA96-77-000 included a component
    for FERC annual charges. However, METC argues that it did not adopt
    the cost of service justification from that rate when it negotiated
    the MIPA which established the \$0.98 rate. METC points out that the
    MIPA does not reference or adopt the cost of service analysis
    presented in Docket No. OA96-77-000. METC states that, had the
    parties intended to carry over the cost of service analysis in
    Docket No. OA96-77-000, they could have easily drafted the MIPA to
    reflect that, but did not.

22. Additionally, METC claims that Consumers' past conduct contradicts
    its current position and indicates an acknowledgement of
    responsibility for the FERC annual charges. METC notes that when
    Midwest ISO proposed Schedule 10-FERC to collect FERC annual charges
    directly from METC zonal customers, Consumers did not contest
    Midwest ISO's intent to hold Consumers responsible for FERC annual
    charges. METC also points to a motion to intervene submitted by
    Consumers in Docket No. ER03-1277-000 where Consumers stated that it
    had an interest in the proceeding because it would be paying a
    significant portion of the Schedule 10-FERC charges. METC indicates
    that Consumers' acknowledgement of FERC annual charge cost
    responsibility is also evidenced by Consumers' rate case before the
    Michigan Commission where Consumers sought to recover, in retail
    rates, the FERC annual charges under Midwest ISO's Schedule
    10-FERC.[^32]

    **[Reply Briefs]{.underline}**

23. Consumers' reply brief reiterates the arguments contained in its
    initial brief. Consumers emphasizes that Order No. 641 did not
    convert annual charges to RTO charges, but rather, it reaffirmed
    that FERC annual charges were a routine cost of providing
    transmission service.[^33] In addition, Consumers points out that
    Order No. 641 does not address the primary issues in this case.
    According to Consumers, these issues are: (1) the effect of the rate
    moratorium; and (2) whether the \$0.98 rate already contains a
    component that recovers FERC annual charges. Consumers argues that
    the testimony of METC witness, Mr. Statman, has no probative value
    since he provided no objective manifestation of his contemporary
    understanding as to whether FERC annual charges were included in the
    rate.

24. In its reply brief, METC reiterates the arguments contained in its
    initial brief and in Mr. Statman's testimony. METC's reply brief
    elaborates on METC's arguments concerning the contractual intent of
    the MIPA, which METC maintains supports its position that the \$0.98
    rate was a "black box" stated rate and not tied to any cost of
    service analysis. METC also reiterates its assertion that Mr.
    Statman's recollections of the negotiations over the MIPA
    demonstrate that RTO charges were excluded from the \$0.98 rate
    cap.[^34] METC claims that Consumers failed to present evidence that
    countered Mr. Statman's testimony concerning the contractual intent
    of the parties to the MIPA.

25. METC also criticizes Consumers' explanation of its "course of
    conduct." METC claims that it is illogical for Consumers to claim
    that it did not raise a double charge claim in opposition to the
    Midwest ISO Schedule 10-FERC because Midwest ISO was not in a
    position to double recover the FERC annual charge costs. METC
    criticizes this argument, claiming that such a position by Consumers
    "reduces \[its\] 'double charge' claim to a 'name-on-invoice'
    analysis," which is irrational.

26. Holland's reply brief reiterates the arguments contained in its
    initial brief. Holland challenges METC's assertion that the
    Commission has determined that METC is not liable for FERC annual
    charges. Holland points out that the DFA Letter was limited to the
    mechanics of which entity should receive the 2002 invoice of FERC
    annual charges, and was not a decision on the merits of whether METC
    bears any liability for the FERC annual charges.[^35] Holland also
    argues that the DFA Letter is not relevant here because it does not
    address the issue of whether customers in the METC pricing zone are
    paying a rate that is subject to the rate moratorium.

27. Holland argues that approval of the proposed Schedule 10-FERC-METC
    would produce the same unjust result that would occur had the
    Commission approved application of Midwest ISO's Schedule 10-FERC to
    customers in the METC pricing zone. Holland contends that the
    October 28 Order determined that METC was already collecting FERC
    annual charges so Midwest ISO could not invoice METC's customers for
    the same charges.[^36] Holland argues that rates in the other
    Midwest ISO zones are calculated pursuant to Attachment O of the
    Midwest ISO OATT which excludes FERC annual charges from the zonal
    rate calculation. In contrast, Holland contends that the METC zonal
    rate is not calculated pursuant to Attachment O and included a FERC
    annual charge component when the rate was established.

28. Holland emphasizes that it was not a party to the MIPA, therefore
    whatever the parties' intentions were when they negotiated the MIPA
    relate only to METC and Consumers and are not articulated or
    identified in any of the rates that are on file with the
    Commission.[^37]

29. Nevertheless, Holland argues that the MIPA contains no specific
    reference to FERC annual charges. Holland maintains that Order No.
    641 did not address how the FERC annual charges would be recovered
    in individual transmission owners' rates or how they would be
    recovered in regions with an RTO providing transmission
    service.[^38] Thus Holland concludes that Mr. Statman, who was aware
    of Order No. 641, had no basis to assume that during the MIPA
    negotiations, FERC annual charges were not included in the \$0.98
    rate. Holland emphasizes that the exclusion of FERC annual charges
    from the rate should have been stated in the MIPA.

30. Trial Staff's reply brief reiterates the arguments contained in its
    initial brief. Trial Staff argues that METC misinterprets Order
    No. 641. According to Trial Staff, Order No. 641 "changes only the
    'methodology for the *assessment* \[by the Commission to the
    appropriate entity or entities\] of annual charges to public
    utilities. Order No. 641 at 31,857 (emphasis added)."[^39] Trial
    Staff asserts that the October 28 Order simply found that Midwest
    ISO should bill METC, as a transmission owner. That order, according
    to Trial Staff, did not address the issue of whether the proposed
    Schedule 10-FERC-METC results in METC recovering FERC annual charges
    twice.

    **[Commission Determination]{.underline}**

31. Our review of the evidence indicates that the proposed Schedule
    10-FERC-METC is just and reasonable and not unduly discriminatory.
    Based on the evidence before us, we find that Schedule 10-FERC-METC
    will not double recover FERC annual charges. The \$0.98 rate is a
    "black-box" stated rate that is designed to provide METC recovery of
    its costs of providing transmission service. Neither the MIPA, nor
    any other evidence in the record, demonstrates that FERC annual
    charges are specifically included in this "black box" rate. Rather,
    as costs that are the responsibility of the RTO in the first
    instance, the FERC annual charges are not subject to the rate
    moratorium applicable to customers in the METC pricing zone. Order
    No. 641 established that FERC annual charges are costs of the
    transmission provider.[^40] In the RTO context, the transmission
    provider is the RTO, not the owner of the transmission facilities.
    Thus Midwest ISO, as

    an RTO, is the transmission provider here and therefore the FERC
    annual charges (the transmission provider's costs) would not be
    subject to the rate moratorium. [^41]

32. Our decision to allow METC to recover FERC annual charges through
    the Schedule 10-FERC-METC is consistent with Order No. 641, where
    the Commission established that, in the RTO context, FERC annual
    charges are costs of the RTO providing transmission service, not
    costs of the individual transmission owners.[^42] We disagree with
    Consumers' argument that Order No. 641 is not relevant to deciding
    whether Schedule 10-FERC-METC is just and reasonable. Instead, as
    discussed below, in order to determine whether recovery of the FERC
    annual charges violates the rate moratorium, it is necessary to
    consider whether the FERC annual charges are RTO costs or
    transmission owner costs. As Consumers notes, a main focus of Order
    No. 641 was the Commission's decision to assess all of its electric
    regulatory program costs on transmission transactions.[^43] In an
    RTO setting it is the RTO and not the individual transmission owner
    who is the transmission service provider. Thus, as a logical
    extension of the decision to only assess FERC annual charges on
    transmission transactions, Order No. 641 also provided that, in the
    context of an RTO, the FERC annual charges would be assessed to the
    RTO. Consequently, FERC annual charges are assessed to and became a
    cost of the RTO. [^44]

33. While Order No. 641 left open the question of how an RTO should
    recover FERC annual charges from its customers, the Commission
    stated that the FERC annual charges are a legitimate cost of
    providing transmission service and can be treated just like any
    other cost.[^45] Therefore, it is reasonable and appropriate to
    consider FERC annual charges the same as any other legitimate RTO
    cost. As with other RTO costs, such as administrative and operating
    expenses, RTOs can propose mechanisms to recover those costs from
    their customers. Midwest ISO collects FERC annual charges from most
    customers through its Schedule 10-FERC. All customers taking
    transmission service under the Midwest ISO tariff, except customers
    in the METC zone, pay the FERC annual charges through Schedule
    10-FERC directly to Midwest ISO.

34. Even though FERC annual charges are a legitimate RTO cost, Consumers
    and Holland assert that the Commission's decision in the October 28
    Order directing Midwest ISO to bill the Schedule 10-FERC charges to
    METC indicates that METC, and not customers in the METC zone, is
    ultimately responsible for FERC annual charges. Consumers argues
    that if METC is allowed to pass through FERC annual charges to its
    zonal customers, then the October 28 Order is meaningless. We
    disagree. The October 28 Order did not address ultimate cost
    responsibility for the FERC annual charges. On rehearing, the
    Commission specifically stated that it was reserving judgment on the
    double charge claim and who should ultimately be responsible for the
    FERC annual charges, and clarified that the October 28 Order did not
    preclude METC from seeking to pass through the charges to its
    customers.[^46] Accordingly, allowing METC, in the instant
    proceeding, to pass through FERC annual charges in no way negates
    the October 28 Order as Consumers seems to suggest. In the instant
    proceeding, we consider the specifics of the double charge claim,
    the MIPA, the \$0.98 rate and the rate moratorium, and how they
    relate to METC's recovery of FERC annual charges from customers in
    the METC pricing zone.

35. With regard to the double charge claim, the record does not
    demonstrate that the parties intended to include FERC annual charges
    in the \$0.98 rate. Consumers' proffered evidence shows, and METC
    does not dispute, that the cost support for the original \$0.98 rate
    filed in Docket No. OA96-77-000 contained a cost component for FERC
    annual charges. However, we find that Consumers' evidence fails to
    tie that original cost support to the MIPA or to the \$0.98 rate
    when it was filed by METC pursuant to section 205 of the FPA.
    Rather, as METC notes, the MIPA indicates that the \$0.98 rate is a
    "black box" stated rate negotiated as part of the MIPA, which
    provides for recovery of METC's costs of providing transmission
    service and was not established based on a specific underlying
    revenue requirement or cost-of-service components.[^47] The MIPA
    does not explicitly stipulate that FERC annual charges are costs
    included in the rate moratorium or otherwise explicitly specify who
    will pay the FERC annual charges after the transfer of Consumers'
    transmission assets to METC. However, the MIPA was negotiated during
    a period when FERC annual charges had been determined to be costs of
    the RTO. Order No. 641 was issued almost a year before the rate
    moratorium was established by the execution of the MIPA,[^48] the
    MIPA contemplated METC's participation in an RTO,[^49] and the
    record shows that the \$0.98 rate was negotiated and proposed to be
    exclusive of RTO charges.[^50] Accordingly, it is reasonable to
    conclude that the rate moratorium does not apply to RTO costs, and,
    therefore, it is appropriate for customers in the METC pricing zone
    to pay FERC annual charges under Schedule 10-FERC-METC.[^51]

36. We also note that Consumers did not raise the double charge claim
    when Midwest ISO originally sought to recover exactly the same FERC
    annual charge costs from transmission customers through the Schedule
    10-FERC. Consumers attempts to explain the apparent contradiction by
    stating that if Midwest ISO recovers FERC annual charges in the
    Schedule 10-FERC, there is no possibility for double recovery
    because Midwest ISO was not already collecting revenue from rates
    that included a cost component for annual charges, as is the case
    with METC and its \$0.98 rate. This explanation is tenuous. An
    effect of double charging should be equally unjust regardless of who
    is ultimately collecting the revenue.

37. Accordingly, we find that the proposed Schedule 10-FERC-METC is just
    and reasonable, to become effective January 21, 2004.

[The Commission orders]{.underline}:

\(A\) Holland's motion to strike is hereby granted.

\(B\) Midwest ISO's proposed Schedule 10-FERC-METC tariff is hereby
accepted for filing, to become effective January 21, 2004, as requested.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: As a result of section 3401 of the Omnibus Budget Reconciliation
    Act of 1986, (42 U.S.C. § 7178 (2000)) the Commission is required to
    recover its costs through, among other means, its annual charges.
    *See* 18 C.F.R. Part 382 (2003). The Commission\'s electric annual
    charges (FERC annual charges) in any fiscal year are based on its
    estimated electric regulatory program costs for that year (that are
    not otherwise recovered through, for example, filing fees), and
    during the next fiscal year, the Commission adjusts the annual
    charges up or down to eliminate any over-or under-recovery by
    recalculating the annual charges and carrying any over- or
    under-charge from the prior year as a credit or debit on the next
    fiscal year\'s bill.

[^2]: *Midwest Independent Transmission System Operator, Inc.*, 105 FERC
    ¶ 61,144 (2003) (October 28 Order), *reh'g denied*, 106 FERC ¶
    61,255 (2004) (March 19 Order).

[^3]: *See* *Revision of Annual Charges to Public Utilities*, Order No.
    641, 65 Fed. Reg. 65,757 (November 2, 2000), FERC Statutes and
    Regulations, Regulations Preambles, July 1996-December 2000, ¶
    31,109 at pp. 31,841-42 (2000), *reh\'g denied*, Order No. 641-A, 66
    Fed. Reg. 15793 (March 21, 2001), 94 FERC ¶ 61,290 (2001). Order No.
    641

    revised the method of calculating FERC annual charges and changed
    who would pay the charges.

[^4]: Before Order No. 641, the Commission recovered its annual charges
    from both jurisdictional power sales and transmission volumes. Since
    Order No. 641 was issued, the Commission has recovered its annual
    charges entirely based on transmission volumes.

[^5]: See Order No. 641, at 31,855, stating:

    \[i\]f an ISO or RTO public utility has taken over from individual
    public

    utilities the function of providing transmission services and has,

    accordingly, a tariff or rate schedule (and thus rates) on file for
    such

    service, then it is the ISO or RTO public utility that will be
    responsible for

    paying annual charges, and it will be assessed annual charges based
    on all

    transmission that it provides pursuant to its tariff or rate
    schedule.

[^6]: In Order No. 641, the Commission stated that:

    > We note at the outset that the purpose of this Final Rule is to
    > change
    >
    > the methodology for the assessment of annual charges to public
    > utilities.
    >
    > The issue of rate recovery of annual charges is not within the
    > scope of this
    >
    > Final Rule. The Commission has other regulations already in place
    > that
    >
    > address the recovery of costs in rates, *i.e.*, Part 35, which
    > governs rate
    >
    > change filings.

    In an effort to address the concerns of public utilities as to rate
    recovery the Commission said:

    > \[W\]e find that the annual charge assessments are costs
    >
    > that can be recovered in transmission rates as a legitimate cost
    > of providing
    >
    > transmission service. We will otherwise leave this issue to be
    > resolved in
    >
    > future rate change filings, as they may come before the Commission
    > from

    time to time on a case-by-case basis; different public utilities may
    require

    different rate revisions to address this matter.

    Order No. 641, at 31,857.

[^7]: A Joint Application to transfer ownership of transmission
    facilities and a proposed zonal rate was filed by Trans-Elect and
    Consumers in Docket Nos. EC02-23-000 and ER02-320-000. The proposal,
    including the \$0.98 zonal rate and the moratorium, was approved in
    *Trans-Elect, Inc.*, 98 FERC ¶ 61,142, *order on reh'g*, 98 FERC ¶
    61,368 (2002). All service over METC's facilities is rendered under
    the Midwest ISO OATT pursuant to *Midwest Independent Transmission
    System Operator, Inc.*, 102 FERC ¶ 61,181, *order granting
    clarification*, 104 FERC ¶ 61,027 (2003) and the rate for
    transmission service is \$0.98 per kW/month through December 31,
    2005.

[^8]: In Docket No. OA94-77-000, Consumers filed for approval of a
    \$0.98/kW/month rate based on a 1995 test year supported by a
    cost-of-service analysis. That \$0.98 rate was accepted, subject to
    refund, pending the outcome of an evidentiary hearing. In the Joint
    Application to transfer ownership of transmission facilities, METC
    sought Commission approval to charge the \$0.98 rate without refund
    condition through December 31, 2005 in order to maintain the same
    rate level for transmission service provided over the transferred
    facilities. METC's \$0.98 rate was accepted without refund condition
    or subject to the outcome of the proceeding in Docket No.
    OA96-77-000.

[^9]: METC filed a late motion to intervene and a request for
    clarification. METC's motion to intervene was granted.

[^10]: *See* March 19 Order at P 12.

[^11]: *Id.* at P 13.

[^12]: Midwest ISO made the filing at METC's request and as the
    administrator of the OATT; Midwest ISO took no position on the
    filing.

[^13]: Midwest Independent Transmission System Operator, Inc., 106 FERC
    ¶ 61,256 (2004) (MISO I).

[^14]: The settling parties are: Michigan Public Power Agency (MPPA) and
    Michigan South Central Power Agency and Wolverine Power Cooperative,
    Inc. *See* *Midwest Independent Transmission System Operator, Inc.*,
    Order Approving Uncontested Settlement, 109 FERC ¶ 61,229 (2004)
    (*MISO II*).

[^15]: *See* Unpublished Order issued December 21, 2004 (ALJ Order).

[^16]: Consumers, METC, and Commission Trial Staff (Trial Staff)
    sponsored this stipulation. They noted that Holland did not oppose
    the stipulation.

[^17]: See Midwest Independent Transmission System Operator, Inc., 109
    FERC **¶** 61,389 (2004) (December 30 Order).

[^18]: METC Answer at p 3-4.

[^19]: Pursuant to Order No. 888, Consumers filed its open-access tariff
    in Docket No. OA96-77-000 on July 9, 1996. See Promoting Wholesale
    Competition Through Open Access Non-discriminatory Transmission
    Services by Public Utilities and Recovery of Stranded Costs by
    Public Utilities and Transmitting Utilities, Order No. 888, FERC
    Stats. & Regs. ¶ 31,036 at 31,812 (1996), order on reh\'g, Order No.
    888-A, FERC Stats. & Regs. ¶ 31,048 (1997), *order on reh'g*, Order
    No. 888-B, 81 FERC ¶ 61,248 (1997), *order on reh'g*, Order No.
    888-C, 82 FERC  61,046 (1998), *aff'd in part and remanded in part
    sub nom., Transmission Access Policy Study Group, v. FERC*, 225 F.3d
    667 (D.C. Cir. 2000), *aff'd sub nom., New York v. FERC*, 535 U.S. 1
    (2002). On January 29, 1997, the Commission accepted the non-rate
    terms and conditions of the Tariff without ordering an evidentiary
    hearing. *See,* *American Electric Power Service Corp.*, 78 FERC ¶
    61,070 at p. 61,269 (1997). By Order issued July 31, 1997, the
    Commission set Consumers\' and other Group 1 public utilities\'
    rates for hearing. *See, Allegheny Power System, Inc.*, 80 FERC ¶
    61,143 (1997).

[^20]: Consumers Initial Brief at 12-15.

[^21]: *Id.* at 10 referencing Consumers' Exhibit No. CEC-1

[^22]: *Id.* at 10 citing METC's Exhibit No. M-8, page 6.

[^23]: The MIPA was executed by Consumers and Michigan Transco Holdings,
    LP, METC's current parent company. The MIPA established the terms
    and conditions governing the sale and transfer of transmission
    assets from Consumers to METC, established the \$0.98 rate for
    transmission service over the transferred assets, and set forth the
    rate moratorium on that rate.

[^24]: Consumers' Initial Brief at 16 referencing section 5.11 and
    Attachment A of the MIPA.

[^25]: *Id.* at 25 referencing Mr. Statman's Testimony, Exhibit No. M-1,
    page 14, lines 6-9.

[^26]: Consumers argues that its statement in its motion to intervene in
    Docket No. ER03-1277-000, that it would be responsible for
    significant portions of the FERC annual charges for the METC pricing
    zone under Midwest ISO's Schedule 10-FERC**,** is not determinative
    evidence that Consumers accepted responsibility for FERC annual
    charges during the period of the rate moratorium. Consumers Initial
    Brief at p. 25.

[^27]: Consumers also explains that the inclusion of FERC annual charge
    costs in its rate case with the Michigan Commission cannot result in
    unjust enrichment for Consumers if METC is prevented from passing
    through the FERC annual charge costs to Consumers. Consumers
    explains that any amounts it collects for recovery of FERC annual
    charge costs under such a scenario would be accounted for in a
    future reconciliation case and as an offset to future expenses.
    Consumers Initial Brief at 24-25.

[^28]: *Consumers Energy Company,* 98 FERC ¶ 61,333 (2002).

[^29]: Trial Staff Initial Brief at pp 10-11 referencing MIPA,
    Attachment a, Ex. M-2, at 58 and MIPA Attachment H. Trial Staff
    Witness, Christina L. Black, Ex, S-1, at 8 and 16.

[^30]: METC Initial Brief at p. 16 referencing Exhibit Nos. M-10 and
    M-12.

[^31]: *Id.* at p. 16.

[^32]: *Id.* at 24 referencing Exhibit No. M-4.

[^33]: Consumers Reply Brief at p 3, *citing*, Order No. 641 at 31,857.

[^34]: METC indicates that its witness, Mr. Statman, METC's chief
    negotiator in drafting the MIPA, recalls that METC never intended to
    accept Consumers' entire rate case in Docket No. OA96-77-000 when
    METC agreed to the negotiated \$0.98 rate in the MIPA. METC states
    that Mr. Statman testified that parties to the MIPA specifically
    discussed the issue of future RTO charges in negotiating the MIPA.
    METC refers to the testimony of Mr. Paul D. McCoy filed in Docket
    Nos. EC02-23-000 and ER02-320-000 to support this claim. The
    referenced testimony, which accompanied the filing of the
    application to transfer transmission assets from Consumers to METC,
    stated: "All other RTO related charges will be borne by Consumers or
    other customers taking service." Exhibit TE-1, p 16, lines 19-20.

[^35]: This DFA Letter, Holland asserts was not part of a public
    proceeding in which interested parties could file comments.
    According to Holland, the existence of this letter did not come to
    light until the discovery stage in this proceeding. Holland Reply
    Brief at p 4, n.2.

[^36]: *Id.* at p 5 n.3, *citing*, October 28 Order at P 34, n.31.

[^37]: *Id.* at p. 6.

[^38]: *Id.* at p. 7-8, *citing*, Order No. 641 at 31,857, 31,852, and
    31,856.

[^39]: Trial Staff Reply Brief at p. 3.

[^40]: *See* n.4 and 5 *supra*.

[^41]: METC asserts that the DFA Letter controls the issue of cost
    responsibility for FERC annual charges. We do not agree. The DFA
    Letter has no precedential value with regard to the substantive
    issue concerning responsibility for FERC annual charges. This letter
    was not issued in a proceeding that provided interested parties with
    notice and an opportunity to participate. In addition, even if the
    DFA Letter could be considered controlling it only addressed the
    2002 FERC annual assessment invoice and pre-dated the October 28
    Order, which ordered Midwest ISO to bill METC.

[^42]: In Order No. 641, the Commission contemplated the assessment of
    FERC annual charges in an RTO setting. For example, in that Order
    the Commission found:

    If an ISO or RTO public utility has taken over from individual
    public utilities the function of providing transmission service and
    has, accordingly, a tariff or rate schedule (and thus rates) on file
    for such service, then it is the ISO or RTO public utility that will
    be responsible for paying annual charges, and it will be assessed
    annual charges based on all transmission that it provides pursuant
    to its tariff or rate schedule.

    Order No. 641 at 31,852

[^43]: *See* Consumers Energy at 3. *See, also,* Order No. 641 at 13,
    stating: "\[the Commission\] will assess annual charges only to
    public utilities providing transmission service."

[^44]: **^?^** In response to the first electric annual charges bills
    issued pursuant to Order No. 641, Midwest ISO and others petitioned
    the Commission to commence a rulemaking to change its electric
    annual charges methodology. The Commission denied the petition. In
    that order the Commission said:

    > With respect to the recovery of annual charges in rates, we have
    > explained that annual charges are costs of the RTOs that pay them
    > and that these costs can be recovered in an RTO\'s rates; they are
    > a legitimate cost of providing transmission service. In this
    > regard, they are no different than any other cost incurred by an
    > RTO and may be recovered in the RTO\'s rates like any other costs
    > incurred by the RTO. Indeed, in this regard, Part 35 of our
    > regulations already provides great flexibility in how public
    > utilities, including RTOs, may develop their electric rates,
    > including their electric transmission rates. Thus, RTOs have the
    > ability and the flexibility to recover their costs, including the
    > annual charges assessed to them, in their rates.

    *Midwest Independent Transmission System Operator, Inc.*, 103 FERC ¶
    61,048 at P 15 (April 11 Order), *reh'g denied*, 104 FERC ¶ 61,060
    (2003).

[^45]: *See* n.5, *supra*.

[^46]: *See* 106 FERC ¶ 61,255 at P 12.

[^47]: METC Initial Brief at 18-19.

[^48]: *See* n.10 *supra*.

[^49]: The MIPA contains numerous references to METC's participation in
    the proposed Alliance RTO under Consumer's ownership and provisions
    that allowed METC to chose to join another RTO once METC was
    acquired by Trans-Elect.

[^50]: In its Initial Brief METC argues that it specifically negotiated
    the \$0.98 rate and corresponding rate moratorium to be exclusive of
    RTO charges. See METC Initial Brief at 18. In support of this
    argument, METC relies on the testimony of its witness, Mr. Statman,
    who was METC's chief negotiator of the MIPA. This position is
    corroborated through testimony in the proceeding where METC and
    Consumers' filed a Joint Application to transfer ownership of
    Consumers' transmission facilities. See n. 8, *supra*. In that
    proceeding, where METC's \$0.98 rate was first proposed to the
    Commission, witness Paul McCoy, testifying on behalf of both METC
    and Consumers, describes the proposed rates for service over the
    transferred facilities:

    > "\[METC's\] base network transmission rates will be capped through
    > December 31, 2005 at \$0.98 per kW per month for network
    > integration transmission service and at \$0.056 per kW per month
    > for ancillary service Schedule 1 ... \[a\]ll other RTO-related
    > charges will be borne by Consumers or other customers taking
    > service."

[^51]: In Holland's motion to intervene it states:

    > Should the outcome of this proceeding result in a Commission Order
    > that determines that METC may not collect the FERC Annual charges
    > from the customers in the METC zone . . ., Holland should not be
    > invoiced such charges. *Likewise, should the outcome of this
    > proceeding result in a Commission order favorable to METC, Holland
    > should pay the charge.* Holland's Late Motion to Intervene at 3
    > (emphasis added).

    Accordingly, given our decision to accept the proposed tariff, we
    consider Holland's concerns to have been addressed and expect
    Holland will pay the rate imposed by the proposed tariff as stated
    in its pleading.