Ohio Power Co. v. Federal Energy Regulatory Commission, s. 79-3628

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Citation668 F.2d 880
Docket Number79-3685 and 79-3698,Nos. 79-3628,s. 79-3628
PartiesOHIO POWER COMPANY, Kentucky Power Company and American Electric Power Service Corporation, (79-3628), Public Utilities Commission of Ohio, (79-3685), Michigan Public Service Commission; Public Service Commission of Indiana; Indiana and Michigan Municipal Distributors Association, (79-3698), Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, West Virginia Public Service Commission, Energy Regulatory Commission ofKentucky, Intervenors.
Decision Date11 January 1982

Page 880

668 F.2d 880
OHIO POWER COMPANY, Kentucky Power Company and American
Electric Power Service Corporation, (79-3628), Public
Utilities Commission of Ohio, (79-3685), Michigan Public
Service Commission; Public Service Commission of Indiana;
Indiana and Michigan Municipal Distributors Association,
(79-3698), Petitioners,
v.
FEDERAL ENERGY REGULATORY COMMISSION, Respondent,
West Virginia Public Service Commission, Energy Regulatory
Commission ofKentucky, Intervenors.
Nos. 79-3628, 79-3685 and 79-3698.
United States Court of Appeals,
Sixth Circuit.
Argued Oct. 6, 1981.
Decided Jan. 11, 1982.

Page 881

Richard M. Dicke, Albert X. Bader, Jr., Thomas Bistline, Simpson, Thacher & Bartlett, New York City, for Ohio Power Co.

George E. Morrow, Martin, Tate, Morrow & Marston, P.C., Memphis, Tenn., Thomas R. Ewald, Washington, D.C., for Indiana and Michigan Municipal Distributors Ass'n.

Frank J. Kelley, Atty. Gen., Arthur E. D'Hondt, Don L. Keskey, Asst. Attys. Gen., Lansing, Mich., Ronald D. Eastman, Jeffrey D. Komarow, Cadwalader, Wickersham & Taft, Washington, D.C., for Michigan Public Service Commission.

Marvin I. Resnik, Asst. Atty. Gen., Chief, Public Utilities Section, Columbus, Ohio, for Public Utilities Commission of Ohio.

William M. Sawyer, Gen. Counsel, Energy Regulatory Commission of Ky., Frankfort, Ky., for intervenor Energy Regulatory Commission of Ky.

John A. Cameron, Jr., The Federal Energy Regulatory Commission, Washington, D.C., for respondent.

Larry J. Wallace, Chairman, Public Service Commission of Indiana, Indianapolis, Ind., for Public Service Commission of Indiana.

Robert R. Rodecker, Gen. Counsel, Richard E. Hitt, Staff Atty., Charleston, W. Va., for intervenor West Virginia Public Service Commission.

Before KEITH and MERRITT, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

PHILLIPS, Senior Circuit Judge.

This case is before the court on three petitions to review two orders of the Federal Energy Regulatory Commission 1 in American Electric Power Service Corporation, Docket No. E-9408: "Opinion No. 50, Opinion and Order Approving Amendment

Page 882

of Interconnection Agreement with Modifications," issued July 27, 1979; and "Order Denying Applications for Rehearing and Clarifying Requirement for Credits of Refunds," issued September 24, 1979. The order of July 27, 1979, (but not the order of Sept. 24, 1979) is reported at 19 Fed.Pow.Serv. (Matthew Bender) 5-869. Copies of both orders are made an Appendix to this opinion.

The American Electric Power Company, Inc. (AEP) is an electric utility holding company, registered under the Public Utility Holding Company Act of 1935, 15 U.S.C. §§ 79, et seq. Its electric utility subsidiary companies own and operate a physically integrated electric utility system (the AEP System) for the generation, transmission, and sale of electric power and energy in parts of Ohio, Michigan, Indiana, Kentucky, Virginia, West Virginia and a small area in the Tri-Cities section of East Tennessee.

In Indiana & Michigan Electric Company, 33 F.P.C. 739, 743 (1965), aff'd, 365 F.2d 180 (7th Cir.), cert. denied, 365 U.S. 972, 87 S.Ct. 509, 17 L.Ed.2d 435 (1966), the Commission approved the following definition of a physically integrated and centrally controlled electric power system:

Turning to the present record we find that AEP forms a physically integrated and centrally controlled interstate system for the generation, transmission and sale of electric energy. This conception is well defined by Philip Sporn in his book "The Integrated Power System". Mr. Sporn has been associated with the development of the AEP system, and is a Director of American Electric Power Company, Inc. and Chairman of its System Development Committee.

From a technical standpoint, what is meant by 'integration' is this: that all facilities of the system are connected physically into or gathered within the system, and that they all are made to work continuously as part of the system. The presumption is that no facility is needlessly idle; no part of the system is left hanging loose, so to speak; no part of the system is left without the resources and support of the system as a whole.

Applied to energy generation, this means the ability to develop all energy resources capable of economic exploitation and the development of all the resources to their maximum, as well as the elimination of all barriers to development such as local inability to absorb the resources. Again, it means the ability to use the largest units justified by the requirements of the system for any particular station or source, regardless of the requirements of the local area. Still further, it means the ability, as the system grows and develops, to exploit the most efficient units capable of technical projection because other units relatively recently installed but perhaps not so technically advanced can be relegated to a lesser system use. The combined or integrated effect of these is conservation on a vast scale.

Mr. Sporn then discusses the AEP system as an example of an integrated system and considers its growth and development, its ability to serve all requirements of any part of the area and its contribution to operating economies and resource conservation.

In that case the Seventh Circuit described the AEP System as follows:

Indiana & Michigan Electric Company, together with five other operating companies, is an integral part of the American Electric Power System (AEP), a single coordinated power system operating as an integrated unit in Michigan, Indiana, Ohio, Kentucky, West Virginia, Virginia and Tennessee, with generating facilities combined by an inter-connected transmission grid. The System's dispatching center at Canton, Ohio, directs the dispatch and utilization of energy on a continuous basis to provide the capacity and energy required to carry all the customer demands in the seven-state area at maximum economy.

The proof shows that I & M realizes substantial advantages from its participation in the integrated operations including

Page 883

savings in capital outlay for generating facilities, savings in the cost of generating and transmitting energy, better control and maintenance of voltage levels and greater reliability of service.

The System serves more than 5,400,000 people, and is tied together by a network of 14,000 circuit miles of 345,000 volt line, the highest voltage in general use in the United States. The System is interconnected with nineteen other electric power systems at sixty-six locations, including thirty-nine major, high-voltage interconnections.

The electric load of every customer of every operating company in the System is supplied with electric energy from the entire AEP pool.

365 F.2d at 181-82.

The American Electric Power Service Corporation (AEP Service Corporation), which initiated this proceeding before the Commission, supervises and directs the operation and use of the electric power and energy produced by and available to the system. AEP Service Corporation is a wholly-owned subsidiary of AEP. It renders engineering, rate, financial, accounting, legal and other special services to its parent and to the operating companies. The AEP Service Corporation does not own any facilities for the generation, transmission or distribution of electric power and energy.

The four principal operating companies of the AEP System and their electric service areas are: (1) Ohio Power Company (OPC), serving an extensive area of Ohio; (2) Indiana & Michigan Electric Company (I&M), serving the northern and east central parts of Indiana and the southwestern corner of Michigan; (3) Kentucky Power Company (KPC), serving eastern Kentucky; and (4) Appalachian Power Company (Appalachian), serving western Virginia and the southern part of West Virginia.

In addition, the AEP System includes three other operating companies: Kingsport Power Company, Michigan Power Company and Wheeling Electric Company. These companies purchase their electrical power and energy from the four principal operating companies at wholesale and resell the power and energy to customers in small areas of Tennessee, Michigan and West Virginia. The System also contains one generating company which owns and operates generating facilities, Kanawha Valley Power Company. This company, a wholly owned subsidiary of Appalachian Power, sells all of its output to its parent. Both I&M and OPC once had generating subsidiaries, Indiana & Michigan Power Company and Ohio Electric Company, respectively, but the subsidiaries have merged into their parent utilities.

The petitioners in No. 79-3628, AEP Service Corporation, OPC and KPC, are subsidiaries of AEP. The petitioners in No. 79-3698 are the Michigan Public Service Commission (Michigan Commission), which regulates the retail electric rates of I&M in Michigan; the Public Service Commission of Indiana (Indiana Commission), which regulates the retail electric rates of I&M in Indiana; and the Indiana and Michigan Municipal Distributors Association (IMMDA), whose member municipalities purchase electric power and energy from I&M for resale to retail customers. The petitioner in No. 79-3685 is the Public Utilities Commission of Ohio (Ohio Commission), which regulates the retail electric rates of the Ohio Power Company.

I

On July 6, 1951, the principal system operating companies, Appalachian, I&M, OPC and AEP Service Corporation (then American Gas & Electric Service Corp.) signed an Interconnection Agreement, which was designed to give the system members the benefits and advantages of large scale, coordinated operation and planning of electric supply facilities owned by, or available to, the members. KPC signed the agreement in 1962. One of the features of this agreement is a primary capacity equalization charge. This charge fixes the rate at which AEP System utilities purchase electric generating capacity from each other to supplement the capacity of their own systems to

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