January 26, 2017 Hon. Kimberly D. Bose Secretary Federal

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January 26, 2017 Hon. Kimberly D. Bose Secretary Federal Joshua A. Konecni Associate Counsel Rockland Electric Company 4 Irving Place, Room 1815-S, New York, NY 10003 Tel.: 212-460-3593 Email: [email protected] January 26, 2017 Hon. Kimberly D. Bose Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426 Re: Rockland Electric Company, Docket No. ER17-___856-000 Dear Ms. Bose: Pursuant to Sections 205 and 219 of the Federal Power Act,1 Part 35 of the Commission’s Regulations,2 and Order No. 679,3 Rockland Electric Company (“RECO”) respectfully requests that the Commission approve: (1) the attached Tariff sheets updating RECO’s stated annual transmission revenue requirement, transmission rates, and rate for Schedule 1A services;4 (2) a new RECO base return on equity (“ROE”) of 10.2 percent; and (3) a 50 basis point ROE adder for RECO’s continued participation in PJM Interconnection L.L.C. (“PJM”), a Regional Transmission Organization (“RTO”) (“RTO Participation Incentive”).5 RECO is thus seeking a new total ROE of 10.7 percent, which is less than its current ROE of 11.11 percent. In support of this filing, RECO submits the testimony and associated exhibits of: (1) Francis Peverly, Vice President - Operations, Orange and Rockland Utilities, Inc. (“O&R”); (2) the accounting panel of John de la Bastide, Jack Deem, and Wenqi Wang, (“Accounting Panel”); and (3) Adrian McKenzie. RECO also submits the cost of service 1 16 U.S.C. §§ 824d and 824s (2012). 2 18 C.F.R. §35.13 (2016). 3 Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222 (2006), order on reh’g, Order No. 679-A, FERC Stats. & Regs. ¶ 31,236, order on reh’g, 119 FERC ¶ 61,062 (2007) (Order No. 679). 4 Schedule 1A covers Scheduling, System Control and Dispatch Service. 5 Pursuant to Order No. 714, this filing is submitted by PJM on behalf of RECO as part of an XML filing package that conforms with the Commission’s regulations. PJM has agreed to make all filings on behalf of the PJM Transmission Owners in order to retain administrative control over the PJM Tariff. Thus, RECO has requested that PJM submit its proposed updated Tariff Sheets in the eTariff system as part of PJM’s electronic Intra PJM Tariff. Kimberly D. Bose January 26, 2017 Page 2 statements and other information required by the Commission’s regulations, to the extent applicable. RECO respectfully requests that the Commission approve the updated Tariff sheets, ROE, and RTO Participation Incentive, without suspension or hearing, effective April 3, 2017. However, in the event that the Commission decides to set this case for hearing and settlement judge procedures, RECO respectfully requests that in its order on this filing the Commission: (1) approve RECO’s request for a 50 basis point ROE adder for continued participation in PJM; and (2) confirm that the basic methodology RECO used to calculate its updated annual revenue requirement—which the Commission has previously approved—remains just and reasonable, and as such, is not an issue set for hearing or settlement. I. BACKGROUND A. Description of RECO and its Affiliates RECO is an electric-only utility that provides transmission, retail distribution, and provider of last resort service to approximately 73,000 customers in northern New Jersey. As a New Jersey utility, RECO is subject to the retail jurisdiction of the New Jersey Board of Public Utilities. RECO’s service territory includes parts of three counties that border New York—Bergen, Passaic, and Sussex— but the majority of its customers (more than 59,000) reside in Bergen County. RECO classifies its Bergen County service territory as its “Eastern Division,” its Passaic County service territory as its “Central Division,” and its Sussex County service territory as its “Western Division.” As discussed below, RECO is a PJM transmission owner because it has turned over operational control of its Eastern Division transmission assets to PJM. RECO’s Central and Western Divisions, which are not geographically contiguous to its PJM service area, along with O&R, are members of the New York Independent System Operator, Inc. (“NYISO”). In 2015, RECO’s peak load for its Eastern Division was 396 MW.6 RECO is a wholly owned subsidiary of O&R,7 which in turn is a wholly owned subsidiary of Consolidated Edison, Inc. (“CEI”), the parent company of Consolidated Edison Company of New York, Inc. (“Con Edison”).8 O&R is an electric and gas utility 6 In the remainder of this letter, references to “RECO” are to RECO’s Eastern Division, which is the Division in PJM. 7 O&R also owned Pike County Light & Power Company, an electric and gas utility located in Pennsylvania until 2016. 8 Con Edison is a regulated public utility that provides electric service in New York City and most of Westchester County, gas service in parts of New York City, and steam service within the borough of Manhattan. Con Edison serves approximately 3.3 million electric customers, 1.1 million gas customers, and 1,700 steam customers. Con Edison is a transmission owner in the NYISO’s control area, a load serving entity, and a distribution provider in New York City and parts of Westchester County. Kimberly D. Bose January 26, 2017 Page 3 and a transmission owner in the NYISO’s control area. O&R serves more than 225,000 electric customers and more than 130,000 gas customers in three New York counties: Rockland, Orange, and Sullivan. Two of these counties, Rockland and Orange, border RECO’s service territory. In 2015, O&R’s peak load was 1009 MW. RECO has no operating employees; O&R provides all of RECO’s administrative and operating services. Legal and other corporate services are provided to RECO by Con Edison. In addition, since the RECO and O&R transmission systems have historically been operated as a single system, O&R continues to design and operate them as a single integrated system (“Integrated Transmission System”) from its control center in Spring Valley, New York. In 2015, the peak load of the Integrated Transmission System was 1405 MW. B. RECO’s Move to PJM And Approval of Current Rates RECO joined PJM by transferring operational control of its Eastern Division transmission facilities from the NYISO to PJM in 2001 (“PJM Transfer”). RECO requested the PJM Transfer to facilitate its participation in New Jersey’s restructuring of the retail market.9 Before that, RECO did not have its own annual revenue requirement or transmission rates. Instead, its costs were factored into O&R’s transmission revenue requirement which is a rate under the NYISO Tariff. The Commission approved RECO’s current annual revenue requirement and transmission rates at the same time it approved the PJM Transfer.10 Because, as noted above, the RECO and O&R transmission systems are designed and operated as a single integrated system, RECO proposed to establish its annual revenue requirement in PJM by segregating and assigning costs to the PJM part of its load. RECO accomplished this by multiplying the annual revenue requirement for the Integrated Transmission System by the ratio of the RECO system peak load to the system peak load for the Integrated Transmission System: Rockland started with the overall O&R 1994 system-wide annual TRR of $32,820,759, which resulted from the settlement approved by the Commission in Docket No. OA96-210-000.[] In order to allocate an appropriate amount of transmission costs to the Rockland pricing zone, Rockland determined that the Rockland single system peak load in 1994 was 367 MW of the total 1994 O&R system- wide peak load of 1,022 MW. Using the ratio of 367/1022 and applying it to the overall O&R TRR, Rockland calculated a TRR for the Rockland pricing zone of 9 Rockland Elec. Co, 97 FERC ¶ 61,357 at P 9 (2001) (“RECO Order”). 10 Id. P 9. Kimberly D. Bose January 26, 2017 Page 4 $11,785,928. The resulting annual transmission rate is $32.114 per kW/year based on the prior Commission- approved TRR.11 The Commission approved RECO’s proposed rates and proposed method without comment. 12 C. Investment in the Integrated Transmission System As explained by Company witness Peverly, and as set forth in Exhibit No. RECO- 4, there has been significant investment in the Integrated Transmission System since 2001 that justifies RECO updating its transmission rates. For example, in 2003, RECO completed the South Mahwah-Upper Saddle River Project, which entailed replacement of approximately 0.70 miles of 69kV direct buried transmission cable between the South Mahwah and Upper Saddle River Substations in Bergen County with new cable in a manhole and duct system. Placing this project in service improved reliability for customers. In 2004, RECO completed construction of two new 138kV transmission line terminals for the underground cables required to feed its Darlington Substation. This project improved reliability and service to residential and commercial customers in Bergen County. In 2006, RECO completed the Closter to Cresskill Project, which included the upgrade of a double circuit 34.5kV wood pole transmission line to 69kV, as well as an upgrade of the Cresskill Substation. Construction of new double circuit transmission Lines 61 and 751 provided two 69kV transmission sources to the Cresskill Substation. In 2011, the Integrated Transmission System was enhanced by the Corporate Drive Project, which entailed construction of an underground extension to 138kV Lines 702 and 703 and the construction of an overhead to underground transition structure in Orangeburg, New York. Finally, in 2016, the Integrated Transmission System was enhanced by the addition of a 175 MVA 138-69kV autotransformer bank, Bank 167, at the Sterling Forest Substation in Tuxedo, New York.
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