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                                       November 15, 2002

VIA MESSENGER

Ms. Linda Dorr
Secretary
Public Service Commission of Wisconsin
610 North Whitney Way
Madison, WI 53705

Re:       Docket No. ___-AE-____
          Application for Approval of an Affiliated-Interest Agreement Among Wisconsin Public
          Service Corporation, Wisconsin Public Service Investment, LLC, American
          Transmission Company LLC, and ATC Management Inc., Regarding the Arrowhead-
          Weston Project

Dear Ms. Dorr:

1. Background

        On October 30, 2001, the Public Service Commission of Wisconsin (“Commission”)
issued its Final Decision in the above-referenced docket (“Final Order”). Through the Final
Order, the Commission issued a Certificate of Public Convenience and Necessity to Wisconsin
Public Service Corporation (“WPSC”), Minnesota Power Company (“MP”), American
Transmission Company LLC and ATC Management Inc., to construct the Wisconsin portion of a
220-mile 345-kV electric transmission line from Wausau, Wisconsin to Duluth, Minnesota,
generally referred to as the Arrowhead-Weston Line (hereafter “the Line” refers to the
Wisconsin portion of the Arrowhead-Weston transmission line).

        As required by Wis. Stat. § 196.485(1)(b), WPS will be transferring its interests in the
Line to American Transmission Company LLC and ATC Management Inc. (together, “ATC”).
To that end, WPSC, its affiliate Wisconsin Public Service Investment, LLC (WPSI) (together
“WPS”), and ATC have prepared an agreement governing the transfer of primary project
management from WPSC to ATC, WPSC’s continued participation in project design,
engineering and construction, and WPS’s continued provision of capital funding to the project.
Because it qualifies as an affiliated-interest agreement under Wis. Stat. § 196.52, WPS and ATC
must obtain approval from the Commission for this agreement.
                                                                                   Ms. Linda Dorr
                                                                                November 15, 2002
                                                                                           Page 2


2. Today’s Filing

        Enclosed with this letter, WPS and ATC (collectively, “Co-Applicants”) submit the
original and 20 copies of an Application for Approval of an Affiliated-Interest Agreement among
Wisconsin Public Service Corporation, Wisconsin Public Service Investment, LLC, American
Transmission Company LLC, and ATC Management Inc., regarding the Arrowhead-Weston
Project. Co-Applicants are mailing a copy of this filing to all parties listed on the Service List in
the Arrowhead-Weston Docket, No. 05-CE-113.

3. Future Filings

        In the near future, WPS, ATC and MP expect to request that the Commission amend its
Final Order in Docket No. 05-CE-113 regarding several issues, including approval of a revised
cost estimate for the Line. Co-Applicants request that the Commission process their request for
approval of this affiliated-interest agreement independently from any supplemental filings in the
Arrowhead-Weston docket.

Respectfully submitted,


FOLEY & LARDNER for                                      MICHAEL BEST & FRIEDRICH LLP for
WISCONSIN PUBLIC SERVICE                                 AMERICAN TRANMISSION COMPANY LLC
CORPORATION and                                          and
WISCONSIN PUBLIC SERVICE                                 ATC MANAGEMENT INC.
INVESTMENT, LLC



Bradley D. Jackson, SBN 1005468                          David J. Hanson, SBN 1012253
                                                         Lauren L. Azar, SBN 1023003


LLA:lmm
Enclosure
cc:    Service List for Docket No. 05-CE-113




                                                 2
                                                                              Ms. Linda Dorr
                                                                           November 15, 2002
                                                                                      Page 3



                                       THE
                            PUBLIC SERVICE COMMISSION
                                   OF WISCONSIN


Application for Approval of an Affiliated Interest
Agreement Among Wisconsin Public Service
Corporation, American Transmission Company
LLC, and ATC Management Inc., Regarding the                          Docket No. ___-AE-____
Arrowhead-Weston Project




I.     INTRODUCTION



       This Application for Approval of an Affiliated Interest Agreement among Wisconsin

Public Service Corporation, American Transmission Company LLC, and ATC Management Inc.,

regarding the Arrowhead-Weston Project (the Agreement) is filed on behalf of Wisconsin Public

Service Corporation (WPSC), its affiliate Wisconsin Public Service Investment, LLC (WPSI),

American Transmission Company LLC (ATCLLC) and ATC Management Inc. (ATCM). Under

§ 196.52 Wis. Stats., this Agreement requires Commission approval prior to its taking effect. A

copy of the Agreement is attached.



       When approved, this Agreement will transfer primary responsibility for overall direction

and management of the Arrowhead-Weston Project to ATC. WPSC will continue to plan,

design, engineer and construct the project and as an applicant and party to the proceedings in

Docket 05-CE-113. WPS Resources Corporation, WPSC’s corporate parent, will also continue




                                              3
                                                                                 Ms. Linda Dorr
                                                                              November 15, 2002
                                                                                         Page 4


to provide capital funding for the Project. The Agreement will transfer the rate recovery risk for

Project costs from WPSC to ATC.



Background Information.


       In Docket 05-CE-113, the Commission issued a Certificate of Public Convenience and

Necessity (“CPCN”) to WPSC, Minnesota Power Company (MP), ATCLLC and ATCM

(collectively “Applicants”) to construct the Wisconsin portion of the 220-mile 345-kV electric

transmission Project generally referred to as the Arrowhead-Weston Project (“Project”).

       In November 1999, WPSC submitted an application to the Commission to approve the

Project. At the time of ATC’s formation on January 1, 2001 WPSC gave up its right to own and

operate transmission facilities in Wisconsin. But WPSC as the primary applicant in Docket 05-

CE-113 continued to pursue the Project for the benefit of Wisconsin and regional transmission

integrity. ATC LLC and ATC Mgmt. (together “ATC”) became co-applicants in this Project on

June 29, 2001. Since that time ATC and WPSC have cooperated in the planning and engineering

of the Project. Unless primary responsibility for the Project is transferred to ATC as proposed,

WPSC would carry the rate recovery risk through the Project’s completion. The ATC Board has

accepted the principle that primary financial risk would be more appropriately borne by ATC and

its customers in light of the Applicants’ agreement that primary project direction and

management should rest with ATC, which in any event will ultimately own and operate the

Project.

Summary of Findings and Approvals Sought.

       Applicants request that the Commission approve the attached Agreement and:


                                                4
                                                                                  Ms. Linda Dorr
                                                                               November 15, 2002
                                                                                          Page 5


   Issue a finding of fact that the Agreement is “reasonable and consistent with the public
    interest”; and

   Issue an order, pursuant to Wis. Stat. § 196.52, approving the Agreement.

   If approval of the entire Agreement is delayed or deferred issue an Order approving payment
    of the CPCN costs and associated asset transfers described in Section III, below and in
    paragraphs 1 and 2 of the Agreement.

STATUTORY REQUIREMENTS FOR AFFILIATED INTERESTS.

       Agreements between public utilities and their affiliated interests are regulated under

Wisconsin law.       Under Wis. Stat. § 196.52(1), “affiliated interests” includes any of the

following with respect to a public utility:

       (a) Any person owning or holding directly or indirectly 5% or more of the voting
           securities of the public utility.

       (b) Any person in any chain of successive ownership of 5% or more of the voting
           securities of the public utility.

       (c) Every corporation 5% of more of whose voting securities is owned by any person
           owning 5% or more of the voting securities of the public utility or by any person in
           any chain of successive ownership of 5% or more of voting securities of the public
           utility.

(d) Any person who is an officer or director of the public utility or of any corporation in any
    chain of successive ownership of 5% or more of voting securities of the public utility.

       (e) Any corporation operating a public utility,...or a servicing organization for
           furnishing supervisory, construction, engineering, accounting, legal and similar
           services to public utilities ..., which has one or more officers or one or more directors
           in common with the public utility, ...
           ...
       (h) Any subsidiary of the public utility. In this paragraph, “subsidiary” means any
           person 5% or more of the securities of which are directly or indirectly owned by a
           public utility.




                                                5
                                                                                      Ms. Linda Dorr
                                                                                   November 15, 2002
                                                                                              Page 6


Under Paragraph (h), ATC is an affiliate of WPSC because WPSC owns stock in ATCM, and a

WPSC affiliate1 owns membership units in the ATCLLC.

              Agreements between affiliated parties are regulated as follows:

         [with certain exceptions] unless and until the commission gives its written
         approval, any contract or arrangement is not valid or effective if the
         contract or arrangement is made between a public utility and an affiliated
         interest....The commission shall approve a contract or arrangement...only
         if it shall clearly appear and be established upon investigation that it is
         reasonable and consistent with the public interest. The commission may
         not approve any contract or arrangement unless satisfactory proof is
         submitted to the commission of the cost to the affiliated interest of
         rendering the services or of furnishing the property or service to each
         public utility or of the cost to the public utility of rendering the services or
         of furnishing the property or service to each affiliated interest. No proof is
         satisfactory under this paragraph unless it includes the original (or verified
         copies) of the relevant cost records and other relevant accounts of the
         affiliated interest, or an abstract of the records and accounts or a summary
         taken from the records and accounts if the commission deems the abstract
         or summary adequate.

Wis. Stat. § 196.52(3)(a).

III.          SUMMARY OF TRANSFER AGREEMENT

         Since the beginning of the Project, WPSC has accumulated costs in preliminary design

and engineering of the Project and carrying it to its current status. These accumulated costs

include costs incurred by Minnesota Power in connection with the Wisconsin portion of the

Project which have been reimbursed by WPSC. Beginning September 17, 2002 the Parties have

been operating under a PSCW-approved Transitional Services Agreement (TSA) and ATC has

been paying all third-party costs associated with the Project.

         WPSC’s “CPCN Costs” total approximately $16 million dollars. Under Sections 1 and 2

of the Agreement, ATC will reimburse WPSC for its CPCN Costs, and WPSC will transfer to

1
    See infra footnote 3 and accompanying text.

                                                    6
                                                                                        Ms. Linda Dorr
                                                                                     November 15, 2002
                                                                                                Page 7


ATC the Project assets acquired as of September 17, 2002.2 When ATC pays the CPCN Costs,

WPSI3 will invest in ATCLLC an amount equal to 50% of the CPCN Costs.4 The Applicants

request that this initial transfer of CPCN Costs and Project assets be approved on an expedited

basis even if approval of the balance of the Agreement is delayed or deferred. (See §9 and §16

of the Agreement)

        Following this initial transfer and Commission approval, ATC will have primary

responsibility for the overall management of the Project and place in operation and own Project

facilities.   (§3 of the Agreement)        WPSC will remain a co-applicant and continue to be

responsible for the design, engineering and construction of the Project subject to ATC policies

and direction. (Id.) WPSC will provide these services to ATC, and will be compensated by

ATC, under the Commission-approved Transitional Services Agreement (TSA). (§4 of the

Agreement) On a going forward basis, WPSI will provide 50% of the capital funding for the

Project. (§5b of the Agreement)5


2
   ATC will reimburse WPSC for CPCN Costs incurred between September 17, 2002 and the full
approval of the Agreement in a “catch-up” payment after the approval. (§5a of the Agreement)
3
  WPSI is an affiliate of WPSC, and both of which are wholly-owned subsidiaries of WPS Resources
Corporation. WPSI is WPSC’s designated affiliate to receive ownership interests in ATCLLC under
Article IV of the Commission-approved Asset Contribution Agreement between ATCLLC and WPSC
dated December 15, 2000. In short, WPSI is WPS Resources Corporation’s vehicle for making equity
investments in ATC.
4
  The Agreement also provides for WPSC to purchase a proportional amount of shares in ATCM until an
Initial Public Offering (“IPO”). This investment is not significant, because the purchase price is nominal,
ATCM currently has only approximately 11,000 outstanding shares, and WPSC’s right terminates upon
an IPO.
5
  At its discretion, WPSI can cap its obligation to provide such funding at $198 million, or 50% of the
revised cost estimate for the entire Project. Applicants will be seeking approval of the revised cost
estimate for the Wisconsin portion of the Project in Docket 05-CE-113. (§6 of the Agreement)




                                                     7
                                                                                 Ms. Linda Dorr
                                                                              November 15, 2002
                                                                                         Page 8


       The Agreement also provides the opportunity for Wisconsin Public Power, Inc. and other

“transmission-dependent utilities” (TDUs) to maintain their proportional ownership interest in

ATC as WPSI makes its investments in ATC associated with the Project.               (§12 of the

Agreement).

       The Parties will provide any information the Commission requests regarding records

supporting the cost of services and assets transferred pursuant to the Agreement.


REQUESTED ACTION


       Applicants request prompt approval of this Agreement, no later than December 31, 2002.

Applicants specifically request the approval of the initial transfers of CPCN Costs and Project

assets under Sections 1 and 2 of the Agreement as soon as possible, even if approval of the

balance of the Agreement is delayed or deferred. The transfer of all costs over and above the

CPCN Costs is conditional on the Commission approving revised Project Costs in 05-CE-113 at

$349 million or an amount acceptable to ATC. (§10 of the Agreement)




FOLEY & LARDNER for                                    MICHAEL BEST & FRIEDRICH LLP for
WISCONSIN PUBLIC SERVICE                               AMERICAN TRANMISSION COMPANY LLC
CORPORATION and                                        and
WISCONSIN PUBLIC SERVICE                               ATC MANAGEMENT INC.
INVESTMENT, LLC



Bradley D. Jackson, SBN 1005468                        David J. Hanson, SBN 1012253
                                                       Lauren L. Azar, SBN 1023003




                                                8
       Ms. Linda Dorr
    November 15, 2002
               Page 9




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