* PARs could save hundreds of millions in costs * Projected to control unscheduled power costs By Scott DiSavino April 5 (Reuters) - ITC Holdings Corp on Thursday turned on power transmission equipment along the Michigan-Ontario border in hopes of making the power flow more reliably and efficiently. The long-awaited phase angle regulator (PAR) transformers are designed to control unscheduled flows of power around Lake Erie. Grid operators have said stopping the Lake Erie loop flow could save millions of dollars in electric costs for consumers in Ontario, Michigan, Ohio, Pennsylvania and New York. The new transformers are at ITC's Bunce Creek substation in Michigan and will join similar devices already in service on the Ontario side of the border at Lambton and Keith. Once this equipment becomes operational, Ontario's Independent Electricity System Operator (IESO) and the U.S. Midwest power grid operator, the Midwest Independent Transmission System Operator (MISO), will begin using the transformers to maintain power flow equal to the net import and export schedule, to the extent possible. MISO, which oversees the ITC transmission system in Michigan, operates the power grid in parts of 11 U.S. Midwest states and the province of Manitoba in Canada. Although operating in this mode will cause a slight reduction in transmission capability, IESO said in a report a couple of weeks ago that the reduction in inadvertent power flows should improve energy trade. Since the U.S. Department of Energy approved of the operation of the new transformers in March, Michigan-based ITC has been testing the equipment. Power traders said they have noticed anomalies in the power market during that time - prices or power flows higher than usual in some areas and lower in others - but could not say for certain if the testing of the PARs had anything to do with those so-called anomalies. The testing caused no reliability problems, and officials said they expected the transformers to improve reliability. For a timeline see WHO PAYS? Now that the transformers are on line, U.S. energy regulators must decide who pays for their construction and operation. In December 2010, the U.S. Federal Energy Regulatory Commission (FERC) accepted a proposal by ITC and the MISO to allocate some of the cost of building and operating the transformers to the PJM and New York ISO power grids. PJM is the biggest power grid operator in the United States, overseeing the system in parts of 13 U.S. Mid-Atlantic and Midwest states and the District of Columbia. The New York ISO oversees the New York power grid. In the past, ITC said it cost about $41.6 million to install the two PARs at Bunce Creek with a projected annual revenue requirement of about $11.4 million. But PJM and the New York ISO have opposed that cost-allocation plan since they were not required to pay for the transformers in the past. After a FERC-sponsored settlement discussion produced no agreement, the grid operators and ITC now heading into the FERC hearing phase. PJM and the New York ISO have asked FERC for an expedited decision since the grids expect to receive a bill for the PARs soon now that the transformers are on line.