Allegheny Power 2010 Annual Report Download - page 56

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Ohio
The Ohio Companies operate under an ESP, which expires on May 31, 2011, that provides for generation supplied
through a CBP. The ESP also allows the Ohio Companies to collect a delivery service improvement rider (Rider DSI) at
an overall average rate of $0.002 per KWH for the period of April 1, 2009 through December 31, 2011. The Ohio
Companies currently purchase generation at the average wholesale rate of a CBP conducted in May 2009. FES is one of
the suppliers to the Ohio Companies through the May 2009 CBP. The PUCO approved a $136.6 million distribution rate
increase for the Ohio Companies in January 2009, which went into effect on January 23, 2009 for OE ($68.9 million) and
TE ($38.5 million) and on May 1, 2009 for CEI ($29.2 million). Applications for rehearing of the PUCO order in the
distribution case were filed by the Ohio Companies and one other party. The Ohio Companies raised numerous issues in
their application for rehearing related to rate recovery of certain expenses, recovery of line extension costs, the level of
rate of return and the amount of general plant balances. On February 2, 2011, the PUCO issued an Entry on Rehearing
denying the applications for rehearing filed both by the Ohio Companies and by the other party.
On March 23, 2010, the Ohio Companies filed an application for a new ESP. The new ESP will go into effect on June 1,
2011 and conclude on May 31, 2014. The PUCO approved the new ESP on August 25, 2010 with certain modifications.
The material terms of the new ESP include: a CBP similar to the one used in May 2009 and the one proposed in the
October 2009 MRO filing; a 6% generation discount to certain low-income customers provided by the Ohio Companies
through a bilateral wholesale contract with FES (initial auctions scheduled for October 20, 2010 and January 25, 2011);
no increase in base distribution rates through May 31, 2014; a load cap of no less than 80%, which also applies to any
tranches assigned post auction; and a new distribution rider, Delivery Capital Recovery Rider (Rider DCR), to recover a
return of, and on, capital investments in the delivery system. Rider DCR substitutes for Rider DSI which terminates under
the current ESP. The Ohio Companies also agreed not to pay certain costs related to the companies’ integration into
PJM, for the longer of the five year period from June 1, 2011 through May 31, 2016 or when the amount of costs avoided
by customers for certain types of products totals $360 million dependent on the outcome of certain PJM proceedings,
established a $12 million fund to assist low income customers over the term of the ESP, and agreed to additional energy
efficiency benefits. Many of the existing riders approved in the previous ESP remain in effect, some with modifications.
The new ESP resolved proceedings pending at the PUCO regarding corporate separation, elements of the smart grid
proceeding and the integration into PJM. FirstEnergy recorded approximately $39.5 million of regulatory asset
impairments and expenses related to the ESP. On September 24, 2010, an application for rehearing was filed by the
OCC and two other parties. On February 9, 2011, the PUCO issued an Entry on Rehearing denying the applications for
rehearing.
Under the provisions of SB221, the Ohio Companies are required to implement energy efficiency programs that will
achieve a total annual energy savings equivalent to approximately 166,000 MWH in 2009, 290,000 MWH in 2010,
410,000 MWH in 2011, 470,000 MWH in 2012 and 530,000 MWH in 2013, with additional savings required through 2025.
Utilities are also required to reduce peak demand in 2009 by 1%, with an additional 0.75% reduction each year thereafter
through 2018.
On December 15, 2009, the Ohio Companies filed the required three year portfolio plan seeking approval for the
programs they intend to implement to meet the energy efficiency and peak demand reduction requirements for the 2010-
2012 period. The Ohio Companies expect that all costs associated with compliance will be recoverable from customers.
The Ohio Companies’ three year portfolio plan is still awaiting decision from the PUCO, which is delaying the launch of
the programs described in the plan. As a result, the Ohio Companies filed on January 11, 2011, a request for amendment
of OE’s 2010 energy efficiency and peak demand reduction benchmarks to levels actually achieved in 2010. Because
the Commission indicated that it would revise all of the Ohio Companies’ 2010, 2011, and 2012 benchmarks when
addressing the Ohio Companies’ three year portfolio plan, and an order has yet to be issued on that plan, CEI and TE
also requested a waiver of their respective yet-to-be defined 2010 energy efficiency benchmarks if and only to the degree
one is deemed necessary to bring these companies into compliance with their 2010 energy efficiency obligations. Failure
to comply with the benchmarks or to obtain such an amendment may subject the Companies to an assessment by the
PUCO of a penalty.