Allegheny Power 2010 Annual Report Download - page 122

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Midwest to load centers in the east. The filing parties requested an effective date for the proposal of July 16, 2011. On
August 19, 2010, MISO’s Board approved the first MVP project -- the “Michigan Thumb Project.” Under MISO's proposal,
the costs of MVP projects approved by MISO’s Board prior to the anticipated June 1, 2011 effective date of FirstEnergy's
integration into PJM would continue to be allocated to FirstEnergy. MISO estimated that approximately $11 million in
annual revenue requirements would be allocated to the ATSI zone associated with the Michigan Thumb Project upon its
completion.
On September 10, 2010, FirstEnergy filed a protest to the MVP proposal arguing that MISO’s proposal to allocate costs
of MVP projects across the entire MISO footprint does not align with the established rule that cost allocation is to be
based on cost causation (the “beneficiary pays” approach). FirstEnergy also argued that, in light of progress to date in
the ATSI integration into PJM, it would be unjust and unreasonable to allocate any MVP costs to the ATSI zone, or to
ATSI. Numerous other parties filed pleadings on MISO’s MVP proposal.
On December 16, 2010, FERC issued an order approving the MVP proposal without significant change. FERC’s order
was not clear, however, as to whether the MVP costs would be payable by ATSI or load in the ATSI zone. FERC stated
that the MISO’s tariffs obligate ATSI to pay all charges that attach prior to ATSI’s exit but ruled that the question of the
amount of costs that are to be allocated to ATSI or to load in the ATSI zone were beyond the scope of FERC’s order and
would be addressed in future proceedings.
On January 18, 2011, FirstEnergy filed for rehearing of FERC’s order. In its rehearing request, the Company argued that
because the MVP rate is usage-based, costs could not be applied to ATSI, which is a stand-alone transmission company
that does not use the transmission system. FirstEnergy also renewed its arguments regarding cost causation and the
impropriety of allocating costs to the ATSI zone or to ATSI. FirstEnergy cannot predict the outcome of these proceedings
at this time.
Sales to Affiliates
FES has received authorization from FERC to make wholesale power sales to the Utilities. FES actively participates in
auctions conducted by or on behalf of the Utilities to obtain the power and related services necessary to meet the
Utilities’ POLR obligations. Because of the merger with FirstEnergy, AS is considered an affiliate of the Utilities for
purposes of FERC’s affiliate restriction regulations. This requires AS to obtain prior FERC authorization to make sales to
the Utilities when it successfully participates in the Utilities’ POLR auctions.
FES currently supplies the Ohio Companies with a portion of their capacity, energy, ancillary services and transmission
under a Master SSO Supply Agreement for a two-year period ending May 31, 2011. FES won 51 tranches in a
descending clock auction for POLR service administered by the Ohio Companies and their consultant, CRA International
on May 13-14, 2009. Other winning suppliers have assigned their Master SSO Supply Agreements to FES, five of which
were effective in June, two more in July, four more in August and ten more in September, 2009. FES also supplies power
used by Constellation to serve an additional five tranches. As a result of these arrangements, FES serves 77 tranches,
or 77% of the POLR load of the Ohio Companies until May 31, 2011.
On October 20, 2010, FES participated in a descending clock auction for POLR service administered by the Ohio
Companies and their consultant, CRA International, for the following periods: June 1, 2011 through May 31, 2012; June
1, 2011, through May 31, 2013; and June 1, 2010 through May 31, 2014. The Ohio Companies offered 17, 17, and 16
tranches for these periods, respectively. FES won 10, 7, and 3 tranches, respectively, for these periods. On January 25,
2011, the Ohio Companies conducted a second auction offering the same product for identical time periods. FES won 3,
0, and 3 tranches, respectively, for these periods. FES entered into a Master SSO Supply Agreement to provide
capacity, energy, ancillary services, and congestion costs to the Ohio Companies for the tranches won. Under the ESP in
effect for these time periods, the Ohio Companies are responsible for payment of noncontrollable transmission costs
billed by PJM for POLR service.
On October 18, 2010, FES participated in a descending clock auction for POLR service administered by both Met-Ed and
Penelec and their consultant, National Economic Research Associates (NERA) for the following tranche products and
delivery periods: Residential 5-month, Residential 24-month, Commercial 5-month, Commercial 12-month and Industrial
12-month. All 5-month delivery periods are from January 1, 2011 through May 31, 2011, all 12-month delivery periods
are from June 1, 2011 through May 31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31,
2013. Met-Ed offered 7 Residential 5-month tranches, 4 Residential 24-month tranches, 6 Commercial 5-month tranches,
6 Commercial 12-month tranches and 1 Industrial tranche while Penelec offered 5 Residential 5-month tranches, 3
Residential 24-month tranches, 5 Commercial 5-month tranches, 5 Commercial 12-month tranches and 1 Industrial
tranche.
For Met-Ed offerings, FES won 4 Residential 5-month tranches, 2 Residential 24-month tranches, 1 Commercial 5-month
tranche, 1 Commercial 12-month tranche and zero Industrial tranches. For Penelec offerings, FES won 1 Residential 5-
month tranche, 1 Residential 24-month tranche, zero Commercial 5-month tranches, zero Commercial 12-month
tranches and zero Industrial tranches. FES entered into separate Supplier Master Agreements (SMA) to provide