Allegheny Power 2011 Annual Report Download - page 146

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FERC MATTERS
PJM Transmission Rate
In April 2007, FERC issued Opinion 494 finding that the PJM transmission owners' existing “license plate” or zonal rate design was
just and reasonable and ordered that the current license plate rates for existing transmission facilities be retained. On the issue of
rates for new transmission facilities, FERC directed that costs for new transmission facilities that are rated at 500 kV or higher are
to be collected from all transmission zones throughout the PJM footprint by means of a postage-stamp rate based on the amount
of load served in a transmission zone. Costs for new transmission facilities that are rated at less than 500 kV, however, are to be
allocated on a load flow methodology, which is generally referred to as a “beneficiary pays” approach to allocating the cost of high
voltage transmission facilities.
FERC's Opinion 494 order was appealed to the U.S. Court of Appeals for the Seventh Circuit, which issued a decision in August
2009. The court affirmed FERC's ratemaking treatment for existing transmission facilities, but found that FERC had not supported
its decision to allocate costs for new 500 kV and higher voltage facilities on a load ratio share basis and, based on this finding,
remanded the rate design issue to FERC.
In an order dated January 21, 2010, FERC set the matter for a “paper hearing” and requested parties to submit written comments
pursuant to the schedule described in the order. FERC identified nine separate issues for comments and directed PJM to file the
first round of comments on February 22, 2010, with other parties submitting responsive comments and then reply comments on
later dates. PJM filed certain studies with FERC on April 13, 2010, in response to the FERC order. PJM's filing demonstrated that
allocation of the cost of high voltage transmission facilities on a beneficiary pays basis results in certain load serving entities in PJM
bearing the majority of the costs. Numerous parties filed responsive comments or studies on May 28, 2010 and reply comments
on June 28, 2010. FirstEnergy and a number of other utilities, industrial customers and state commissions supported the use of
the beneficiary pays approach for cost allocation for high voltage transmission facilities. Other utilities and state commissions
supported continued socialization of these costs on a load ratio share basis. This matter is awaiting action by FERC. FirstEnergy
cannot predict the outcome of this matter or estimate the possible loss or range of loss.
RTO Realignment
On June 1, 2011, ATSI and the ATSI zone entered into PJM. The move was performed as planned with no known operational or
reliability issues for ATSI or for the wholesale transmission customers in the ATSI zone.
On February 1, 2011, ATSI in conjunction with PJM filed its proposal with FERC for moving its transmission rate into PJM's tariffs.
On April 1, 2011, the MISO TOs (including ATSI) filed proposed tariff language that describes the mechanics of collecting and
administering MTEP costs from ATSI-zone ratepayers. From March 20, 2011 through April 1, 2011, FirstEnergy, PJM and the MISO
submitted numerous filings for the purpose of effecting movement of the ATSI zone to PJM on June 1, 2011. These filings include
amendments to the MISO's tariffs (to remove the ATSI zone), submission of load and generation interconnection agreements to
reflect the move into PJM, and submission of changes to PJM's tariffs to support the move into PJM.
On May 31, 2011, FERC issued orders that address the proposed ATSI transmission rate, and certain parts of the MISO tariffs that
reflect the mechanics of transmission cost allocation and collection. In its May 31, 2011 orders, FERC approved ATSI's proposal
to move the ATSI formula rate into the PJM tariff without significant change. Speaking to ATSI's proposed treatment of the MISO's
exit fees and charges for transmission costs that were allocated to the ATSI zone, FERC required ATSI to present a cost-benefit
study that demonstrates that the benefits of the move for transmission customers exceed the costs of any such move, which FERC
had not previously required. Accordingly, FERC ruled that these costs must be removed from ATSI's proposed transmission rates
until such time as ATSI files and FERC approves the cost-benefit study. On June 30, 2011, ATSI submitted the compliance filing
that removed the MISO exit fees and transmission cost allocation charges from ATSI's proposed transmission rates. Also on June
30, 2011, ATSI requested rehearing of FERC's decision to require a cost-benefit analysis as part of FERC's evaluation of ATSI's
proposed transmission rates. Finally, and also on June 30, 2011, the MISO and the MISO TOs filed a competing compliance filing
- one that would require ATSI to pay certain charges related to construction and operation of transmission projects within the MISO
even though FERC ruled that ATSI cannot pass these costs on to ATSI's customers. ATSI on the one hand, and the MISO and
MISO TOs on the other, have submitted subsequent filings - each of which is intended to refute the other's claims. ATSI's compliance
filing and request for rehearing, as well as the pleadings that reflect the dispute between ATSI and the MISO/MISO TOs, are currently
pending before FERC.
From late April 2011 through June 2011, FERC issued other orders that address ATSI's move into PJM. Also, ATSI and the MISO
were able to negotiate an agreement of ATSI's responsibility for certain charges associated with long term firm transmission rights
that, according to the MISO, were payable by the ATSI zone upon its departure from the MISO. ATSI did not and does not agree
that these costs should be charged to ATSI but, in order to settle the case and all claims associated with the case, ATSI agreed to
a one-time payment of $1.8 million to the MISO. This settlement agreement has been submitted for FERC's review and approval.
The final outcome of those proceedings that address the remaining open issues related to ATSI's move into PJM and their impact,
if any, on FirstEnergy cannot be predicted at this time.