Allegheny Power 2011 Annual Report Download - page 140

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(2) Includes approximately $10 million in reduced ARO liabilities for FirstEnergy as a result of deconsolidation of the Signal Peak joint venture
(See Note 8, Variable Interest Entities).
(3) The 2011 changes include activity relating to Allegheny, which merged with FE in February 2011.
(4) During 2011, studies were completed to reassess the estimated cost of decommissioning the Perry and Davis-Besse nuclear generating
facilities. The cost studies resulted in revisions to the estimated cash flows associated with the ARO liabilities and reduced the discounted
liabilities as shown. These revisions had no significant impact on accretion of the obligations during 2011, as compared to 2010.
15. REGULATORY MATTERS
RELIABILITY MATTERS
Federally-enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping
and reporting requirements on the Utilities, FES, AE Supply, FGCO, FENOC, ATSI and TrAIL. The NERC is the ERO designated
by FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and
enforcement of these reliability standards to eight regional entities, including RFC. All of FirstEnergy's facilities are located within
the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages
its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented
and enforced by the RFC.
FirstEnergy believes that it is in compliance with all currently-effective and enforceable reliability standards. Nevertheless, in the
course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or
circumstances that could be interpreted as excursions from the reliability standards. If and when such items are found, FirstEnergy
develops information about the item and develops a remedial response to the specific circumstances, including in appropriate cases
“self-reporting” an item to RFC. Moreover, it is clear that the NERC, RFC and FERC will continue to refine existing reliability standards
as well as to develop and adopt new reliability standards. The financial impact of complying with future new or amended standards
cannot be determined at this time; however, 2005 amendments to the FPA provide that all prudent costs incurred to comply with
the future reliability standards be recovered in rates. Any future inability on FirstEnergy's part to comply with the reliability standards
for its bulk power system could result in the imposition of financial penalties that could have a material adverse effect on its financial
condition, results of operations and cash flows.
On December 9, 2008, a transformer at JCP&L's Oceanview substation failed, resulting in an outage on certain bulk electric system
(transmission voltage) lines out of the Oceanview and Atlantic substations resulting in customers losing power for up to eleven
hours. On March 31, 2009, the NERC initiated a Compliance Violation Investigation in order to determine JCP&L's contribution to
the electrical event and to review any potential violation of NERC Reliability Standards associated with the event. NERC has
submitted first and second Requests for Information regarding this and another related matter. JCP&L is complying with these
requests. JCP&L is not able to predict what actions, if any, the NERC may take with respect to this matter.
On August 23, 2010, FirstEnergy self-reported to RFC a vegetation encroachment event on a Met-Ed 230 kV line. This event did
not result in a fault, outage, operation of protective equipment, or any other meaningful electric effect on any FirstEnergy transmission
facilities or systems. On August 25, 2010, RFC issued a notice of enforcement to investigate the incident. FirstEnergy submitted a
data response to RFC on September 27, 2010. On July 8, 2011, RFC and Met-Ed signed a settlement agreement to resolve all
outstanding issues related to the vegetation encroachment event. The settlement calls for Met-Ed to pay a penalty of $650,000,
and for FirstEnergy to perform certain mitigating actions. These mitigating actions include inspecting FirstEnergy's transmission
system using LiDAR technology, and reporting the results of inspections, and any follow-up work, to RFC. FirstEnergy was performing
the LiDAR work in response to certain other industry directives issued by NERC in 2010. NERC subsequently approved the settlement
agreement and, on September 30, 2011, submitted the approved settlement to FERC for final approval. FERC approved the
settlement agreement on October 28, 2011. Met-Ed subsequently paid the $650,000 penalty and, on December 31, 2011, RFC
sent written notice that this matter has been closed.
In 2011, RFC performed routine compliance audits of parts of FirstEnergy's bulk-power system and generally found the audited
systems and process to be in full compliance with all audited reliability standards. RFC will perform additional audits in 2012.
MARYLAND
By statute enacted in 2007, the obligation of Maryland utilities to provide SOS to residential and small commercial customers, in
exchange for recovery of their costs plus a reasonable profit, was extended indefinitely. The legislation also established a 5-year
cycle (to begin in 2008) for the MDPSC to report to the legislature on the status of SOS. PE now conducts rolling auctions to procure
the power supply necessary to serve its customer load pursuant to a plan approved by the MDPSC. However, the terms on which
PE will provide SOS to residential customers after the current settlement expires at the end of 2012 will depend on developments
with respect to SOS in Maryland over the coming year, including but not limited to, possible MDPSC decisions in the proceedings
discussed below.
The MDPSC opened a new docket in August 2007 to consider matters relating to possible “managed portfolio” approaches to SOS
and other matters. “Phase II” of the case addressed utility purchases or construction of generation, bidding for procurement of
demand response resources and possible alternatives if the TrAIL and PATH projects were delayed or defeated. It is unclear when
the MDPSC will issue its findings in this proceeding.