April 29, 2016 VIA ELECTRONIC FILING

Transcription

1 April 29, 2016 VIA ELECTRONIC FILING The Honorable Kimberly D. Bose Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C Re: Southwest Power Pool, Inc., Docket No. ER Submission of Revenue Requirement, Formula Rate Template and Formula Rate Protocols for Arkansas Electric Cooperative Corporation Dear Secretary Bose: Pursuant to Section 205 of the Federal Power Act ( FPA ), 16 U.S.C. 824d, and Part 35 of the Federal Energy Regulatory Commission s ( Commission ) Regulations, 18 C.F.R. Part 35, Southwest Power Pool, Inc. ( SPP ), on behalf and at the request of Arkansas Electric Cooperative Corporation ( AECC ), hereby submits revisions to its Open Access Transmission Tariff ( Tariff ) 1 to add an Annual Transmission Revenue Requirement ( ATRR ) and to implement a formula rate template and implementation protocols (together the Formula Rate ) for transmission service using the facilities of AECC when AECC transfers functional control of its transmission facilities to SPP on July 1, The ATRR is to be included in the American Electric Power ( AEP ) West zone ( AEP Zone ) and the Oklahoma Gas and Electric Company ( OG&E ) zone ( OG&E Zone ) of SPP, which are pricing zones one (1) and seven (7) respectively under the Tariff. AECC has updated its SPP Membership Agreement, as a Transmission Owner of SPP and 1 Southwest Power Pool, Inc., Open Access Transmission Tariff, Sixth Revised Volume No. 1.

2 The Honorable Kimberly D. Bose April 29, 2016 Page 2 will transfer functional control of certain transmission facilities, described herein, to SPP on July 1, 2016 for purposes of rate recovery under the Tariff. 2 Although the Commission does not have jurisdiction over AECC under sections 205 and of the FPA because AECC is a nonjurisdictional cooperative entity, the Commission does have jurisdiction over SPP s rates. In this regard, the Commission must have adequate information to ensure that the integration of AECC s revenue requirement does not cause SPP s rates to become unjust and unreasonable. For this reason, SPP hereby submits the enclosed materials on AECC s behalf. The supporting testimony and demonstration of the justness and reasonableness of the Formula Rate proposed herein were prepared by and provided to SPP by AECC. SPP requests on AECC s behalf an effective date of July 1, In support, SPP states the following: I. BACKGROUND A. SPP SPP is a Commissionapproved Regional Transmission Organization ( RTO ). 4 SPP is an Arkansas nonprofit corporation with its principal place of business in Little Rock, Arkansas. SPP has 94 Members, including 16 investorowned utilities, 14 municipal systems, 20 generation and transmission cooperatives, 8 state agencies, 13 independent power producers, 12 power marketers, 10 independent transmission companies, and 1 federal agency. As an RTO, SPP administers open access Transmission Service over approximately 60,000 miles of transmission lines covering portions of Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, The approval of transfer of functional control of transmission facilities to SPP is subject to Arkansas Public Service Commission approval in Docket No U, available at, 16 U.S.C. 824e. Sw. Power Pool, Inc., 109 FERC 61,009 (2004), order on reh g, 110 FERC 61,137 (2005).

3 The Honorable Kimberly D. Bose April 29, 2016 Page 3 and Wyoming, across the facilities of SPP s Transmission Owners, 5 and administers the Integrated Marketplace, a centralized day ahead and realtime energy and operating reserve market with locational marginal pricing and marketbased congestion management. 6 The Tariff specifies a zonal ATRR ( ZATRR ) for each SPP transmission zone. Transmission service rates to support the load located within the SPP region are based, in part, on the sum of the ZATRR for each Transmission Owner within the zone in which the load is located. 7 The ATRR for each pricing zone used in the calculation of Network Integration Transmission Service ( NITS ) is set out in Attachment H of the Tariff. The rates for PointtoPoint Service ( PTP ), which are based on the ATRR in Attachment H, are set forth in Attachment T of the Tariff. Each Transmission Owner controls the filing of its rate changes within the zone. SPP, in turn, as administrator of the Tariff, makes the filings necessary to incorporate any such rate changes in the Tariff. 8 B. AECC AECC is an electric generation and transmission cooperative organized and existing under the laws of the State of Arkansas. AECC follows the Uniform System of Accounts prescribed by the Rural Utilities Service ( RUS ) and the Commission. AECC was organized and exists under Arkansas law to provide wholesale electric power and associated energy to its 17 members ( Cooperative Members ). AECC provides electric power to its Cooperative Members under wholesale power contracts. AECC s rate to its Cooperative Members includes a demand charge, an energy charge and certain rate riders, the combination of which are designed to recover the operating See Sw. Power Pool, Inc., 89 FERC 61,084 (1999); Sw. Power Pool, Inc., 86 FERC 61,090 (1999); Sw. Power Pool, Inc., 82 FERC 61,267 (1998), order on reh g, 85 FERC 61,031 (1998). Sw. Power Pool, Inc., 146 FERC 61,130 (2014) (order approving the startup and operation of the Integrated Marketplace effective March 1, 2014). See Tariff at Schedules 79. See Westar Energy, Inc., 122 FERC 61,268, at P 105 (2008) (requiring SPP to include each transmission owner s rate formula in the Tariff).

4 The Honorable Kimberly D. Bose April 29, 2016 Page 4 costs of AECC, plus a margin as approved by AECC s board of directors (the Board) and the Arkansas Public Service Commission ( APSC ). RUS approval is required for all rate decreases. AECC delivers energy over its owned and contracted transmission facilities. Today, AECC service areas cover more than 60 percent of the land area in Arkansas and include more than 500,000 homes, farms and businesses. AECC owns approximately 329 miles of transmission lines, but relies primarily on the transmission facilities of Entergy Arkansas, Inc., AEP Southwestern Electric Power Company (SWEPCO), OG&E, and Southwestern Power Administration (SPA) to deliver electricity to the Cooperative Members pursuant to longterm delivery agreements or tariffs. Beginning December 12, 2013, AECC became a transmission owner under Midcontinent Independent System Operator, Inc. s ( MISO ) tariff. AECC intends to transfer functional control of its Transmission Facilities as a Transmission Owner in the SPP region, on July 1, 2016 (the Integration Date ). At that time and subject to Commission and state regulatory approvals, AECC will be a Transmission Owner in the AEP West Zone Zone 1 and OG&E Zone 7 in SPP. As described in the accompanying testimony, the AECC facilities being transferred to SPP s functional control meet the Transmission Facilities definition set forth in Attachment AI of the Tariff, and include several highvoltage electric transmission facilities owned by AECC. AECC provided SPP s staff with a list of all of the Transmission Facilities it is seeking to incorporate into SPP in connection with its steps undertaken to join SPP. C. Standard of Review for the Rates of NonJurisdictional Members of RTOs As an electric cooperative borrower from the RUS, AECC is not a public utility within the meaning of section 201 of the FPA 9 and is not subject to the Commission s jurisdiction under sections 205 and of the FPA. However, the Commission does have jurisdiction under sections 205 and 206 of the FPA over the rates for transmission service provided by SPP, an RTO that is a public utility. In this U.S.C. 824(e) and (f). 16 U.S.C. 824e.

5 The Honorable Kimberly D. Bose April 29, 2016 Page 5 respect, the courts have made clear that when a nonjurisdictional transmission owner voluntarily joins an RTO, the Commission can ensure by examining [the nonjurisdictional utility s revenue requirement] that the [RTO s] rates will ultimately be just and reasonable. 11 Nevertheless, the Commission has declined to establish a formal standard of review to be applied to all nonjurisdictional revenue requirement cases. 12 II. DESCRIPTION OF FILING Pursuant to the Membership Agreement and Tariff, SPP s Members possess the unilateral right to submit (per a FPA Section 205 filing or through SPP) changes to the SPP Member s rates or rate structures. 13 The Membership Agreement further provides that [n]o approval from SPP is required for such filings. 14 AECC proposes to become an SPP Transmission Owner on July 1, In anticipation of becoming a Transmission Owner and transferring functional control of a portion of its facilities to SPP, AECC requested that SPP implement these Tariff changes and provided testimonial support for AECC s ATRR, formula rate and formula rate protocols. With this filing, SPP is not independently supporting or justifying the AECC ATRR, formula rate or protocols. SPP is merely modifying the Tariff to accommodate AECC s recovery of transmission service revenues for its transmission facilities under the Tariff. SPP submits this filing to establish an ATRR for AECC. This filing includes the direct testimony of (1) Michael Mueller, AECC s Manager Planning Engineer (identified as Exhibit No. SPP1), which describes AECC, provides background regarding SPP Transmission Owner membership for AECC, and describes the AECC transmission assets to be transferred to the functional control of SPP; and (2) Alfred See Pac. Gas & Elec. Co. v. FERC, 306 F.3d 1112, 1117 (D.C. Cir. 2002). See City of Vernon, Cal., 111 FERC 61,092 at P 36, reh g granted in part and denied in part, 112 FERC 61,207 (2005), reh g denied, 115 FERC 61,297 (2006). Southwest Power Pool, Inc., Membership Agreement, First Revised Volume No. 3 at Section Id.

6 The Honorable Kimberly D. Bose April 29, 2016 Page 6 Busbee, Project Manager for GDS Associates, Inc. (identified as Exhibit No. SPP2), who sponsors AECC s ATRR, its formula rate template and protocols, the annual update of the formula rate, and supporting work papers. In the instant filing, SPP requests that the Commission accept the revised Tariff modifications to Attachment H to accommodate AECC s recovery of revenues for its transmission facilities. Specifically, Attachment H, Section I, Table 1 ( Table 1 ) will specify AECC s revenue requirement as Line 1h in the Zone 1 and Line 7c in Zone Table 1 directs interested parties to the Rates and Revenue Requirements ( RRR ) on SPP s website which contains the allocations for ATRR consistent with the methodology established in the Tariff. 16 Additionally, SPP adds Addendum 38 to Attachment H which contains AECC s formula rate template and protocols. 17 SPP also requests to revise Attachment T to add a reference to the AECC formula rate template to the AEP Zone and OGE Zone rate sheets. 18 The Commission has previously approved similar modifications to the Tariff in order See Proposed Tariff at Attachment H. See Tariff at R Definitions (The RRR is A file posted on the SPP website as a reference to : (i) Annual Transmission Revenue Requirements (ATRRs) for Network Integration Transmission Service, as referenced in Attachment H of this Tariff; (ii) Base Plan ATRR allocation; (iii) allocation factors for Base Plan funded projects; (iv) notes on the calculation of Base Plan ATRR amounts on a Regionwide and Zonal basis; (v) ATRR reallocation for Balanced Portfolio projects; (vi) the calculation of Base Plan PointToPoint Transmission Service rates on a Regionwide and Zonal basis in accordance with Schedule 11; and (vii) the rates for PointToPoint Transmission Service as referenced in Attachment T in accordance with Schedules 7 and 8. ). The Commission approved the use of the RRR in Docket No. ER (Dec. 5, 2011) (approving the use of the RRR to post updates to ATRR, Base Plan ATRR allocation, etc., consistent with the definition of the RRR ). See Proposed Tariff at Attachment H, Addendum 38. See Proposed Tariff at Attachment T (rate sheets for AEP West and OG&E).

7 The Honorable Kimberly D. Bose April 29, 2016 Page 7 to accommodate zones that include multiple owners. 19 SPP distributes transmission service revenues to multiowner zones in accordance with the provisions of Attachment L of the Tariff. 20 Finally, SPP requests to revise Addendum 2 of Attachment O to include AECC as a participant in SPP s planning region. 21 III. REQUEST FOR APPROVAL WITHOUT SUSPENSION OR MODIFICATION SPP, on AECC s behalf, respectfully requests that the Commission accept this filing and make it effective on July 1, 2016, the date on which AECC will transfer functional control of its facilities to SPP, without modification or suspension. 22 AECC submits that it has fully supported the proposed Formula Rate with the attached testimony and bases its formula rate template on formula rates that the Commission has accepted in other proceedings. AECC submits that Commission See Sw. Power Pool, Inc., 149 FERC 61,113 (2014) (conditionally accepting SPP s filing to create the new, multiowner Upper Missouri Zone pricing zone). See also, Sw. Power Pool, Inc., Letter Order, Docket No. ER (January 11, 2010) (accepting Tariff revisions implementing rate recovery for Oklahoma Municipal Power Authority s revenue requirements for transmission facilities located in SPP zones for AEP West and Oklahoma Gas & Electric ( OG&E )). See also Southwest Power Pool, Inc., 120 FERC 61,297 (2007) (accepting Tariff revisions reflecting Westar Energy, Inc. s recovery of the cost of transmission facilities located in the OG&E zone.) See Tariff at Attachment L, Sections II.B.2 and II.C. See Proposed Tariff at Attachment O, Addendum 2. In the event the Commission determines further proceedings are necessary in order to complete its evaluation of AECC s ATRR, formula rate and formula rate protocols, AECC has voluntarily agreed to allow its ATRR, formula rate and formula rate protocols to be treated as being accepted, subject to refund with interest at the Commission interest rate. AECC has informed SPP that AECC makes this voluntary commitment without waiving or in any way limiting or altering AECC s nonjurisdictional status.

8 The Honorable Kimberly D. Bose April 29, 2016 Page 8 approval would be consistent with several Commission orders that have approved formula rate filings without suspension or hearing. 23 IV. ADDITIONAL INFORMATION A. Documents Submitted with this Filing: In addition to this transmittal letter, the following documents are included with this filing: 1) Clean and Redline Tariff revisions under the Sixth Revised Volume No. 1; 2) Exhibit No. SPP1, Direct Testimony of Michael Mueller, on Behalf of AECC; 3) Exhibit No. SPP2, Direct Testimony of Alfred Busbee, on Behalf of AECC; 4) Exhibit No. SPP3, AECC s populated formula rate template and workpapers; 24 B. Effective date: SPP requests that the Commission accept the proposed revisions to the Tariff to become effective July 1, 2016, which is not less than 60 days, or more than 120 days, after the submission of this filing as required by the Commission s See, e.g., Mich. Elec. Transmission Co., 117 FERC 61,314, at P 17 (2006); lnt l Transmission Co., 116 FERC 61,036, at P 19 (2006); United Illuminating Co., 119 FERC 61,182 (2007). Upon submittal of this filing, SPP will make available a working formula rate template on the Member Related Postings section of SPP s website at the following link: ostings.asp.

9 The Honorable Kimberly D. Bose April 29, 2016 Page 9 regulations. 25 The Formula Rate will apply to service over AECC s facilities as of July 1, 2016, the effective date of the transfer to SPP of functional control over AECC s transmission facilities. AECC represents to SPP that its Formula Rate is fully supported by the attached testimony and is based on formula rates that the Commission has accepted in other proceedings. C. Service: SPP has electronically served a copy of this filing on all its Members, Transmission Customers, and Market Participants. A complete copy of this filing will be posted on the SPP web site, and is also being served on all affected state commissions. D. Requisite Agreement: These revisions to the Tariff do not require any contracts or agreements. E. Part Cost of Service Support The information AECC has provided in this filing is intended to contain sufficient information for the Commission to find that inclusion of AECC s ATRR, formula rate and formula rate protocols in the Tariff is just and reasonable. To the extent necessary, AECC and SPP request waiver of any provisions of section of the Commission s regulations that may be deemed to require cost support in the form of costofservice statements for the enclosed revisions. SPP notes that the Tariff revisions are to include a revenue requirement for AECC. As such, SPP is serving only an administrative function by making this filing and AECC bears the responsibility to justify its rates C.F.R. 35.3(a) (1) (2014).

10 The Honorable Kimberly D. Bose April 29, 2016 Page 10 F. Communications 26 Correspondence and communications with respect to this filing should be sent to, and SPP requests the Secretary to include on the official service list, the following: Nicole Wagner Manager Regulatory Policy Southwest Power Pool, Inc. 201 Worthen Drive Little Rock, AR Telephone: (501) Fax: (501) Matthew Harward Attorney Southwest Power Pool, Inc. 201 Worthen Drive Little Rock, AR Telephone: (501) Fax: (501) John T. Elkins Counsel Arkansas Electric Cooperative Corporation 1 Cooperative Way Little Rock, AR Telephone: (501) Fax: (501) john.elkins@aecc.com V. CONCLUSION For all of the foregoing reasons, SPP, on behalf of AECC, respectfully requests that the Commission accept the Formula Rate proposed herein as just and reasonable, to be effective date on July 1, 2016, and allow the Formula Rate to apply to service over AECC s facilities beginning on July 1, SPP further requests 26 Pursuant to Commission Rule 101(e), 18 C.F.R (e), SPP requests waiver of Rule 203(b)(3), 18 C.F.R (b)(3), in order to permit more than two persons to be included on the service list.

11 The Honorable Kimberly D. Bose April 29, 2016 Page 11 waiver of any additional Commission regulations that the Commission may deem applicable. Respectfully submitted, /s/ Matthew Harward Matthew Harward Southwest Power Pool, Inc. 201 Worthen Drive Little Rock, AR Telephone: (501) Attorney for Southwest Power Pool, Inc.

12 Exhibit No. SPP1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Southwest Power Pool, Inc. ) Docket No. ER16 Direct Testimony of Michael Mueller ARKANSAS ELECTRIC COOPERATIVE CORPORATION Formulary Transmission Rate in the Southwest Power Pool Dated: April 29, 2016

13 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Exhibit No. SPP1 Page 1 of 6 Southwest Power Pool, Inc. ) Docket No. ER16 Direct Testimony of Michael Mueller On Behalf of Arkansas Electric Cooperative Corporation Q. PLEASE STATE YOUR NAME, TITLE, AND BUSINESS ADDRESS. A. My name is Michael Mueller. I serve as Manager Planning Engineer for Arkansas Electric Cooperative Corporation ( AECC ). My business address and AECC s principal office is located at 1 Cooperative Way, Little Rock, AR Q. PLEASE DESCRIBE YOUR EDUCATIONAL AND PROFESSIONAL BACKGROUND. A. I received a Bachelor of Science in Electrical Engineering from the University of Arkansas in 2007 and a Master of Business Administration from Harding University in I am a registered Professional Engineer in the State of Arkansas. I have been employed by AECC since Q. PLEASE DESCRIBE YOUR DUTIES AT AECC. A. I am responsible for transmission and distribution planning functions as needed for AECC to serve its seventeen (17) member distribution cooperatives ( Cooperative Members ), supervise and perform any planning studies for the economical implementation of facilities, and represent AECC s and its Cooperative Members interest in planning of such facilities.

14 Exhibit No. SPP1 Page 2 of 6 Q. WERE YOUR TESTIMONY AND EXHIBITS PREPARED EITHER BY YOU OR A. Yes. UNDER YOUR DIRECT SUPERVISION AND CONTROL? Q. HAVE YOU SUBMITTED TESTIMONY IN OTHER PROCEEDINGS? A. No. Q. PLEASE DESCRIBE AECC? A. AECC is an electric generation and transmission cooperative incorporated under Arkansas law. AECC provides wholesale electricity to its Cooperative Members. 1 These Cooperative Members in turn provide electricity at retail to approximately 500,000 consumers, primarily in Arkansas. The certified service territories of AECC s Cooperative Members extend into 74 of the 75 counties in Arkansas and cover approximately 60% of the state s geographic area. The loads and resources of AECC and its Cooperative Members are located in balancing authority areas operated by three entities: Southwest Power Pool, Inc. ( SPP ) for transmission owned by American Electric Power Company s Southwestern Electric Power Company ( AEP/SWEPCO ) and Oklahoma Gas and Electric Company ( OG&E ); Midcontinent Independent System Operator, Inc. (MISO) for transmission owned by Entergy Corporation s Entergy Arkansas, Inc. ( EAI ); and the Southwestern Power Administration ( SPA ). 1 AECC s seventeen electric distribution Cooperative Members are: Arkansas Valley Electric Cooperative Corp. (Ozark, Arkansas); AshleyChicot Electric Cooperative, Inc. (Hamburg, Arkansas); C&L Electric Cooperative Corp. (Star City, Arkansas); Carroll Electric Cooperative Corp. (Berryville, Arkansas); Clay County Electric Cooperative Corp. (Corning, Arkansas); Craighead Electric Cooperative Corp. (Jonesboro, Arkansas); Farmers Electric Cooperative Corporation (Newport, Arkansas); First Electric Cooperative Corp. (Jacksonville, Arkansas); Mississippi County Electric Cooperative, Inc. (Blytheville, Arkansas); North Arkansas Electric Cooperative, Inc. (Salem, Arkansas); Ouachita Electric Cooperative Corp. (Camden, Arkansas); Ozarks Electric Cooperative Corp. (Fayetteville, Arkansas); Petit Jean Electric Cooperative Corp. (Clinton, Arkansas); Rich Mountain Electric Cooperative, Inc. (Mena, Arkansas); South Central Arkansas Electric Cooperative, Inc. (Arkadelphia, Arkansas); Southwest Arkansas Electric Cooperative Corp. (Texarkana, Arkansas); and Woodruff Electric Cooperative Corp. (Forrest City, Arkansas).

15 Exhibit No. SPP1 Page 3 of 6 AECC relies on the transmission systems of AEP/SWEPCO, OG&E, EAI and SPA to serve its Cooperative Member s load on the respective entity s transmission system, and thus is a transmissiondependent utility on the transmission systems of those entities. Q. PLEASE DESCRIBE AECC s TRANSMISSION AND GENERATION FACILITIES? A. AECC owns or controls approximately 329 miles of high voltage transmission line and 3,514 MW of generating capacity either through joint ownership agreements or wholly owned electric generating plants in Arkansas. AECC also purchases an additional 604 MW of capacity through contractual arrangements such as purchase power agreements. Q. PLEASE DESCRIBE THE PURPOSE OF YOUR TESTIMONY? A. On January 6, 2016, AECC s Board of Directors voted to change its membership status in SPP from a NonTransmission Owner Member to a Transmission Owner Member. The purpose of my testimony is to provide support for this change in membership status, conditioned on (a) the acceptance of the Formula Rate included in this filing and summarized in the Direct Testimony of Alfred Busbee, and (b) receiving approval from the Arkansas Public Service Commission ( APSC ). Q. WHY IS AECC SEEKING TO TRANSFER FUNCTIONAL CONTROL OVER ITS TRANSMISSION FACILITIES TO SPP? A. Once SPP includes AECCowned transmission facilities as Transmission Facilities in its Open Access Transmission Tariff ( OATT ), AECC will begin receiving revenues from all users of such facilities. This increased revenue will help offset AECC s transmission expense and lower AECC s costs to its Cooperative Members.

16 Q. PLEASE DESCRIBE SPP S CRITERIA FOR WHAT CONSTITUTES A TRANSMISSION FACILITY. Exhibit No. SPP1 Page 4 of 6 A. SPP s OATT, Attachment AI, at Section II states that a Transmission Facility is one that meets any of the following criteria: 1. All existing nonradial power lines, substations, and associated facilities, operated at 60 kv or above, plus all radial lines and associated facilities operated at or above 60 kv that serve two or more Eligible Customers not Affiliates of each other., open loops are radial lines. Additionally, at such time an existing radial is incorporated into a looped transmission circuit, that existing radial would be eligible for inclusion in rates on the same basis as the remainder of the facilities in the loop. 2. Facility(ies) that are utilized for interconnecting the various internal Zones to each other as well as those facilities that interconnect the Transmission System with other surrounding entities. 3. Control equipment and facilities necessary to control and protect a facility qualifying as a Transmission Facility. 4. For a substation connected to the Transmission System, where power is transformed from a voltage higher than 60 kv to a voltage lower than 60 kv, the facilities on the high voltage side of the transformer will be included with the exception of transformer isolation equipment. 5. The portion of the directcurrent interconnections with areas outside of the SPP Region (DC ties) that are owned by a Transmission Owner in the SPP Region, including those portions of the DC tie that operate at a voltage lower than 60 kv. 6. A facility operated below 60 kv that has been determined to be transmission by the Commission pursuant to the seven (7) factor test Q. PLEASE DESCRIBE THE TRANSMISSION FACILITIES WHICH AECC PROPOSES TO TRANSFER TO SPP S FUNCTIONAL CONTROL. A. Attachment No. 1 to this Direct Testimony is a specific listing of the transmission facilities AECC believes currently qualify as Transmission Facilities under Attachment AI of SPP s OATT. This list includes approximately 1 mile of 161 kv transmission

17 Exhibit No. SPP1 Page 5 of 6 line, 7 miles of 115 kv transmission line, as well as transmission equipment located in 5 substations and 3 switching stations. AECC will continue to work with SPP staff to determine additional transmission facilities that meet SPP s requirements for eligibility and submit the additional facilities to SPP for inclusion in the OATT on an annual basis. Q. HAS AECC CONDUCTED AN ANALYSIS OF THE TRANSMISSION FACILITIES PROPOSED FOR TRANSFER TO SPP S FUNCTIONAL CONTROL? A. Yes. AECC s detailed list of transmission facilities was prepared under my direction. I reviewed the list and map 2 as well as consulted with SPP. The facilities meet SPP s criteria at Attachment AI of the SPP OATT considering the transmission facilities are 69 kv or above and are looped feeds that are part of the transmission system in SPP. Q. DOES AECC HAVE ANY GRANDFATHERED AGREEMENTS ( GFA ) TO BE A. No. ADDED TO ATTACHMENT W OF THE SPP OATT FOR THIS FILING? Q. IS AECC A RURAL UTILITIES SERVICE ( RUS ) BORROWER? A. Yes. Upon advice of counsel, I understand that because AECC is an RUS borrower, AECC is exempt from Federal Energy Regulatory Commission ( FERC ) jurisdiction over public utilities under the Federal Power Act, however, I also understand that changing AECC s membership status from a NonTransmission Owner Member to a Transmission Owner Member in SPP will not alter AECC s nonferc jurisdictional status. 2 Maps will be provided upon proper execution of a nondisclosure agreement.

18 Exhibit No. SPP1 Page 6 of 6 Q. DOES THIS CONCLUDE YOUR TESTIMONY? A. Yes.

19 Attachment No. 1 Attachment No. 1 List of Transmission Facilities

20 Attachment No. 1 Page 1 of 2 AECC Transmission Facilities AEP ZONE Avoca 161/69 kv Substation Avoca is a 161/69 kv substation with two 100 MVA autotransformers located on the AEP East Rogers to Beaver Dam 161 kv transmission line. The through bus of the substation is connected between two AEP 161 kv line switches. The autotransformers are connected to the through bus by two separate tap buses. The autotransformers are connected to three 69 kv transmission lines and a 69 kv capacitor bank. The 69 kv transmission lines are looped but operated with normal open points. The through bus and related equipment is part of the network transmission system and to be included in Attachment H of the SPP OATT. East Fayetteville 161/69 kv Substation East Fayetteville is a 161/69 kv substation with two 100 MVA autotransformers located on the AEP Dyess to Hyland 161 kv transmission line. The through bus of the substation is connected between two AEP 161 kv line switches. The autotransformers are connected to the through bus by two separate tap buses. The autotransformers are connected to four 69 kv transmission lines. The 69 kv transmission lines are looped but operated with normal open points. The through bus and related equipment is part of the network transmission system and to be included in Attachment H of the SPP OATT. Elm Springs 161/69 kv Substation Elm Springs is a 161/69 kv substation with two 100 MVA autotransformers located on the AEP Dyess to Tontitown 161 kv transmission line. The through bus of the substation is connected between two AEP 161 kv line switches. The autotransformers are connected to the through bus by two separate tap buses. The autotransformers are connected to four 69 kv transmission lines and a 69 kv capacitor bank. The 69 kv transmission lines are looped but operated with normal open points. The through bus and related equipment is part of the network transmission system and to be included in Attachment H of the SPP OATT. Farmington 161/69 kv Substation Farmington is a 161/69 kv substation with one 100 MVA autotransformer located on the AEP Chamber Springs to South Fayetteville 161 kv transmission line. The through bus of the substation is connected between two AEP 161 kv line switches. The autotransformer is connected to the through bus by a tap bus. The autotransformer is connected to two 69 kv transmission lines. The 69 kv transmission lines are looped but operated with normal open points. The through bus and related equipment is part of the network transmission system and to be included in Attachment H of the SPP OATT. Fulton 115 kv Switching Station

21 Attachment No. 1 Page 2 of 2 Fulton is a 115 kv switching station with four 115 kv terminals. Two of the 115 kv terminals are connected to the Fulton power plant. The two other 115 kv terminals are connected to 115 kv transmission lines. The Fulton Switching Station excluding generator leads is to be included in Attachment H of the SPP OATT. Fulton to AEP (Couch & Turk) 115 kv Transmission Lines The two Fulton to Hope 115 kv transmission lines are 3.61 miles each, originate at the AECC Fulton 115 kv switching station, and run parallel to an interconnection with AEP between Couch and Turk. The two transmission lines are to be included in Attachment H of the SPP OATT. South Foreman 138/69 kv Substation South Foreman is a 138/69 kv substation with one 42 MVA autotransformer located on the AEP North New Boston to Patterson 138 kv transmission line. The through bus of the substation is connected between two AEP 138 kv line switches. The autotransformer is connected to the through bus by a tap bus. The autotransformer is connected to one 69 kv transmission line. The 69 kv transmission line is looped but operated with a normal open point. The through bus and related equipment is part of the network transmission system and to be included in Attachment H of the SPP OATT. OG&E ZONE Fitzhugh 161 kv Switching Station Fitzhugh is a 161 kv switching station with five 161 kv terminals. Two of the 161 kv terminals are connected to the Fitzhugh power plant. The three other 161 kv terminals are connected to 161 kv transmission lines. The Fitzhugh Switching Station excluding generator leads is to be included in Attachment H of the SPP OATT. Fitzhugh to OG&E (Altus & Helberg) 161 kv Transmission Lines The Fitzhugh to OG&E 161 kv transmission lines are 0.57 miles each, originate at the AECC Fitzhugh 161 kv switching station, and run parallel to an interconnection with OG&E between Altus and Helberg. The two transmission lines are to be included in Attachment H of the SPP OATT. VBI North 69 kv Switching Station VBI North is a 69 kv switching station with three 69 kv terminals. One of the 69 kv terminals is connected to a 69 kv transmission line that goes to the HS13 power plant. The other two 69 kv terminals are connected to 69 kv transmission lines. The VBI North Switching Station excluding the generator lead is to be included in Attachment H of the SPP OATT.

22 Pursuant to 28 U.S.C. 1746, I state under penalty of perjury that the foregoing testimony is true Michael Mueller Manager Engineer Arkansas Electric Cooperative Corporation Planning Executed this 27th day of April, and correct to the best of my information, knowledge and belief. VERifICATION

23 Exhibit No. SPP2 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Southwest Power Pool, Inc. Docket No. ER PREPARED DIRECT TESTIMONY AND EXHIBITS OF Alfred. W Busbee On Behalf of ARKANSAS ELECTRIC COOPERATIVE CORPORATION Formulary Transmission Rate in the Southwest Power Pool April 29, 2016

24 Exhibit No. SPP2 Page i TABLE OF CONTENTS I. INTRODUCTION... 1 II. PURPOSE OF TESTIMONY AND BACKGROUND... 4 III. FORMULA RATE... 7

25 LIST OF ATTACHMENTS TO THIS TESTIMONY Exhibit No. SPP2 Page ii Attachment Attachment No. 1 Description Experience of Alfred W. Busbee

26 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Exhibit No. SPP2 Page 1 of 16 Arkansas Electric Cooperative Corporation Docket No. ER Prepared Direct Testimony and Exhibits Of Alfred W. Busbee On Behalf of Arkansas Electric Cooperative Corporation I. INTRODUCTION Q. Please state your name and business address. A. My name is Alfred W. Busbee. My business address is 1850 Parkway Place, Suite 800, Marietta, Georgia Q. By whom are you employed and in what capacity? A. I am a Project Manager at GDS Associates, Inc. ( GDS or GDS Associates ), a multidisciplinary engineering and consulting firm that serves primarily electric, gas and water utilities. Q. Please outline your formal education. A. I received a BA degree in Economics from the University of Georgia in Q. What are your duties and responsibilities at GDS Associates? A. My primary responsibilities involve providing rate and regulatory consulting services related to electric utility industry matters including rate design, cost of service and related revenue requirements, transmission revenue requirements, formula rate design, and regulatory policy development. Q. Please briefly describe your professional experience.

27 Exhibit No. SPP2 Page 2 of A. I have been with GDS since Prior to joining GDS, I was employed by Southwest Power Pool, Inc. ( SPP ) since 2012 in the Regulatory Policy group where my responsibilities included regulatory policy analysis. I have worked in the public utility sector in regulatory and government affairs for most of my 34 years of professional work. I have over 27 years of regulated utility experience that includes regulatory and government affairs. My experience and knowledge spans the functional areas of financial, plant accounting, and operations needed to support regulatory filings before state utility commissions and the Federal Energy Regulatory Commission ( FERC ). I am very familiar with the SPP Open Access Transmission Tariff ( Tariff ) and versed in Independent System Operator (ISO) and Regional Transmission Organization ( RTO ) operations and impacts on its stakeholder groups. I serve as a voting member on the SPP Regional Tariff Working Group ( RTWG ). The RTWG is responsible for development, recommendation, overall implementation and oversight of SPP s Tariff. The RTWG will further advise the SPP staff on regulatory or implementation issues not specifically covered by the Tariff or issues where there may be conflict or differing interpretations of the Tariff. The RTWG provides policy input to the Markets and Operations Policy Committee (MOPC) and Board of Directors (BOD) and its committees, if requested Q. Have you had occasion to provide consulting services related to electric utility allocated cost of service studies and revenue requirements? A. While employed with SPP, I participated in the preparation and submission of cost of service filings SPP filed on behalf of its Member companies at the FERC.

28 Exhibit No. SPP2 Page 3 of My involvement included assisting in the preparation and the review of testimony supporting the appropriateness of the cost of service studies for both investorowned utility rate cases and nonjurisdictional utility filings at FERC where cost allocation and revenue requirements were at issue. I am familiar with electric utility cost allocation methods, Generally Accepted Accounting Principles (GAAP), and FERC and National Association of Regulatory Utility Commissioners (NARUC) general cost of service and ratemaking principles. My primary area of expertise is on FERC regulatory matters involving wholesale transmission rates and services. I have been involved in numerous dockets (both costofservice and formula rate cases) in which the proper level of transmission revenue requirements was at issue. Q. Have you previously testified before utility regulatory commissions? A. Yes. During my employment in the telecommunications industry, I provided expert testimony on behalf of my employer, ALLTEL Communications, in contested proceedings related to the obligations of incumbent Local Exchange Carriers pursuant to Telecommunications Act of While on staff at the Florida Public Service Commission, I would prepare recommendations for the Commission related to Local Exchange Carrier cost of service filings at the state commission. Q. On whose behalf are you presenting testimony in this proceeding? A. I am presenting this testimony on behalf of the Arkansas Electric Cooperative Corporation ( AECC or the Cooperative ).

29 1 II. PURPOSE OF TESTIMONY AND BACKGROUND Exhibit No. SPP2 Page 4 of Q. Please describe AECC. A. AECC is an electric generation and transmission cooperative organized and existing under the laws of the State of Arkansas. AECC follows the Uniform System of Accounts prescribed by the Rural Utilities Service ( RUS ) and FERC. AECC was organized and exists under Arkansas law to provide wholesale electric power and associated energy to its 17 members ( Cooperative Members ). AECC provides electric power to its Cooperative Members under wholesale power contracts. AECC s rate to its Cooperative Members includes a demand charge, an energy charge and certain rate riders, the combination of which are designed to recover the operating costs of AECC, plus a margin as approved by AECC s board of directors (the Board) and the Arkansas Public Service Commission (APSC). RUS approval is required for all rate decreases. AECC delivers energy over its owned and contracted transmission facilities. Today, cooperative service areas cover more than 60 percent of the land area in Arkansas and include more than 500,000 homes, farms and businesses. AECC owns approximately 329 miles of transmission lines, but relies primarily on the transmission facilities of Entergy Arkansas, Inc., American Electric Power Service Corporation ( AEP ) Southwestern Electric Power Company (SWEPCO), Oklahoma Gas and Electric Company ( OG&E ), and Southwestern Power Administration (SPA) to deliver electricity to the Cooperative Members pursuant to longterm delivery agreements or tariffs. Beginning December 12, 2013, AECC became a transmission owner under Midcontinent Independent System Operator, Inc. s ( MISO ) tariff. AECC

30 Exhibit No. SPP2 Page 5 of intends to transfer functional control of its Transmission Facilities, as defined in Attachment AI of the SPP Tariff, as a Transmission Owner Member in the SPP region, on July 1, 2016 (the Integration Date ). At that time and subject to FERC approval, AECC will be a Transmission Owner in the AEP West Zone Zone 1 and OG&E Zone 7 in SPP. Q. What is the purpose of your testimony? A. I was asked by AECC to develop a Formula Rate Template and Protocols (collectively known as the Formula Rate ) for purposes of recovering the Cooperative s qualifying transmission Annual Transmission Revenue Requirements ( ATRRs ) within the footprint of the SPP. AECC, along with several other Transmission Owners, are physically located within the Zone 1 and Zone 7 pricing zones under the SPP Tariff. In this testimony, I describe and support the reasonableness of the proposed Formula Rate. Q. Please explain the structure of the Formula Rate Template. A. The Formula Rate Template utilizes historic costs which will be updated each May ( Annual Update ) with an effective date of June 1. The Rate Year will be June 1 through May 31 of each year. During April and May of each year, AECC will populate the Formula Rate Template with actual costs from its prior calendar year RUS Financial and Operating Report Electric Distribution (Op. Report Distribution) and Financial and Operating Report Electric Power Supply (Op. 21 Report Power Supply) 1. The Formula Rate Template will contain costs 1 The United State Department of Agriculture Data Collection System Information Page states that the Form 12 will not be referred to by form number anymore. The new name for Form 12 will be the "Financial and Operating Report Electric Power Supply" (Op. Report Power Supply). As the agency is

31 Exhibit No. SPP2 Page 6 of associated with or allocable to its SPP area transmission system based on an historic year look back to determine the ATRR for the Rate Year. With a historic based formula rate like the one being proposed by AECC, there is no need for an annual trueup since actual historic costs form the basis for the ATRR and no projections or forecasts are used in the calculations. Those historic costs are recovered on a lagging basis (e.g., calendar year 2016 costs would be recovered from June 1, 2017 through May 31, 2018 Rate Year). Q. What is the proposed effective date of the AECC formula rate? A. AECC proposes that the Formula Rate will apply to service on AECC s Transmission Facilities beginning on July 1, 2016, the date on which SPP will assume functional control of AECC s Transmission Facilities. Q. Does AECC commit to refunds in this proceeding if a FERC Order ultimately results in lower SPParea transmission revenue requirements? A. I understand that AECC commits to refund the difference (if any) between the proposed rates filed in this proceeding and the rates ultimately determined by the FERC to be just and reasonable. Interest on any refunds will be based on AECC s actual shortterm debt costs, capped at the FERC interest rate. This interest rate has been accepted for at least one other SPP Transmission Owner (SPP Tariff, at Attachment H, Section II (3)(Section 2)). Q. Please explain why the proposed Formula Rate is just and reasonable. moving away from a formbased collection to an electronic system for data collection, the names of this information collection are being revised accordingly for Electric Program Borrowers.

32 Exhibit No. SPP2 Page 7 of A. The proposed Formula Rate reflects just and reasonable revenue requirements supported by Op. Report Power Supply data. Further, the proposed Formula Rate is similar to many formulas approved by the FERC that are historic based including, for example, the Attachment O formulas found in MISO s tariff. III. FORMULA RATE Q. Please provide an overview of the proposed Formula Rate. A. The proposed Formula Rate is attached to SPP s filing as Addendum 38 to Attachment H. The Formula Rate has two major components. The first is the Formula Rate Template which is an excel file comprised of 10 tabs or worksheets similar to the Formula Rate Template AECC uses in MISO. The first tab, labeled Zonal ATRR is divided into five pages. Zonal ATRR utilizes direct inputs and other calculations found on Worksheets A H of the Formula Rate Template to calculate the SPP Zonal ATRR found on page 1, line 7, Zonal ATRR. The second component is the Protocols that govern the Annual Update, review, and filing at FERC. The Formula Rate Template, populated with 2015 actual historic data is attached to SPP s filing as Exhibit No. SPP3. Q. How does the AECC Formula Rate Template calculate and allocate the ATRRs to the specific SPP pricing zones in the formula? A. Worksheet E of the Formula Rate Template identifies the investment in Transmission Facilities within the SPP region. The ATRR calculation separates the SPP investment from other transmission investment on the Cooperative s books. As shown in Zonal ATRR, page 4, lines 2, transmission plant that does not qualify under the SPP Tariff is removed from Total Transmission Plant

33 Exhibit No. SPP2 Page 8 of leaving only AECC transmission investment that is included in the SPP. As shown, approximately 5.58% of AECC s transmission investment is located within the SPParea pricing zone. This 5.58% allocation factor is used throughout the Formula Rate Template to allocate AECC s transmission related rate base (SPP Allocator TP ) and expense items (SPP Allocator TE ) to SPP Transmission. Administrative and General ( A&G ) expenses and General Plant items are allocated to SPP transmission based on FERC s historical preference of using a functionalized wages and salaries (SPP Allocator W/S ) allocator to allocate those items. These allocators along with others developed in the Formula Rate Template result in ATRRs related only to the SPParea AECC Transmission Facilities. Q. Please describe the actual population of data and application of the proposed AECC Formula Rate Template. A. Page 1, line 1, of Zonal ATRR is the AECC Gross Revenue Requirement, which is the sum of the test year return on rate base plus expenses. The Gross Revenue Requirement is carried forward from Zonal ATRR, page 3, line 29. Revenue credits related to transmission assets in the SPP area are subtracted on page 1, lines 25, Zonal ATRR, which result in the Net Revenue Requirement or SPP Zonal Annual Transmission Revenue Requirement as used in the SPP Tariff. Pages 2 through 4 of Zonal ATRR calculates a traditional net plant revenue requirement for transmission facilities owned by AECC. The gross revenue requirement is the sum of all expenses such as operation and maintenance ( O&M ), depreciation expense, taxes other than income taxes and return on rate

34 Exhibit No. SPP2 Page 9 of base. The underlying cost data included each year reflect AECC s costs reported on its RUS Form 12 and other inputs from the Cooperative s books and records. That data is input into the Formula Rate Template each April/May timeframe once actual data from the prior calendar year becomes available and audited. Zonal ATRR, page 4 and 5, shows the development of the wage and salary allocator, capital structure, and notes to various line items on pages 1 through 4. Pages 1 through 4 generally have the same presentation of data each line of the formula consists of five columns of information or data in addition to the Line No. column. Those columns are: (1) A description of the cost item or formulaic result of the calculation on that line; (2) The source of the input data (from Form 12 or other Schedule or Worksheet), or an instruction describing the calculation, if applicable; (3) The actual Total AECC data input (areas shaded) or sum of the data (unshaded); (4) The allocation method of functionalization factor applicable to the Total AECC value; and (5) The SPParea transmissionrelated amount obtained by applying the allocator or functionalization factor to the Total AECC value. Q. Please explain how the Rate Base is calculated pursuant to the Formula Rate Template.

35 Exhibit No. SPP2 Page 10 of A. The Formula Rate Template on Page 2, Zonal ATRR shows the functionalized Gross Plant in Service investment at AECC at the prior calendar yearend, that is Dec 31. The transmission investment is allocated to SPParea facilities based on 4 the transmission plant (TP) allocation factor. Similarly, Accumulated Depreciation by function is deducted from the Gross Plant in Service yielding Net Plant by function. Since AECC is a nontaxable cooperative utility, it does not have any accumulated deferred income taxes that are normally included as an adjustment to rate base. Q. Please describe the development of O&M Expenses. A. Transmission O&M Expenses shown on page 3, line 1, Zonal ATRR, comes direct from the annual AECC RUS Form 12 and are allocated to SPParea transmission in column (5) based on AECC SPParea allocation factors (TP) developed in the Formula Rate Template. Certain O&M Expenses are excluded on lines 2, 4, and 5 as they do not reflect the cost to own, operate and maintain the AECC facilities operating in the SPP. Administrative and General Expenses are allocated to transmission based on the wages and salaries allocated developed on page 4 of Zonal ATRR. Q. Please explain the development of Depreciation Expense and Taxes Other Than Income Taxes. A. The Formula Rate Template on page 3, Zonal ATRR, inputs the transmission depreciation expense the Cooperative s RUS Form 12 and allocates it to SPParea transmission based on the transmission plant Inclusion Factor discussed above.