Allegheny Energy, Inc.'s subsidiary, Trans-Allegheny Interstate Line Company (TrAILCo), has filed a settlement agreement with the Federal Energy Regulatory Commission for a formula rate treatment for the proposed TrAIL line and other transmission-related projects. All active parties to the proceeding either support or do not oppose the settlement agreement.

The settlement agreement, which requires FERC approval and would resolve all issues previously set for hearing, includes the following:

• an incentive return on equity rate of 12.7 percent for the TrAIL project;
• an incentive return on equity rate of 12.7 percent for the static VAR compensator installed at the existing Black Oak Substation; and
• a return on equity rate of 11.7 percent, which includes a 50 basis point adder for membership in PJM Interconnection, for any other projects TrAILCo may undertake for which no incentive return on equity has been requested.

Incentive rate treatment is intended to encourage new investment in electric transmission projects that will improve the reliability of electric service. PJM, the regional grid operator for a 13-state area, warns that without TrAIL, the stability of the grid and reliable flow of electricity within the region cannot be reasonably assured. This could result in blackouts, voltage disruptions, and brownouts throughout the mid-Atlantic region as soon as 2011.

In 2006, PJM approved construction of the proposed line. The project includes approximately 180 miles of 500-kilovolt (kV) transmission spanning portions of Allegheny’s service territory in southwestern Pennsylvania, West Virginia and Virginia; additional 138-kV transmission lines to address local reliability concerns in southwestern Pennsylvania; and related substation facilities. TrAIL is estimated to cost $820 million.

TrAILCo is seeking regulatory approvals from the utility commissions in the respective states the line crosses.