Allegheny Power 2011 Annual Report Download - page 23

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During the third quarter of 2011, FirstEnergy received approximately $130 million from assigning a substantially below-market, long-
term fossil fuel contract to a third party. As a result, FirstEnergy entered into a new long-term contract with another supplier for
replacement fuel based on current market prices. The new contract runs for nine years, which is the remaining term of the assigned
contract. The transaction reduced fuel costs during the quarter by approximately $123 million.
TrAIL's primary investment, the Trans-Allegheny Interstate Line (a 500-kV transmission project that extends from Southwestern
Pennsylvania through West Virginia to Northern Virginia), was completed in May 2011.
On January 26, 2012, FirstEnergy announced a change to its method for accounting for pensions and OPEB effective in 2011 (see
Note 1, Organization, Basis of Presentation and Significant Accounting Policies of the Combined Notes to the Consolidated Financial
Statements). We also disclosed that we made a $600 million voluntary contribution to our pension plan earlier that month.
Regulatory Matters
Met-Ed and Penelec Transition to Competitive Markets
The Pennsylvania Companies began the move to competitive markets with the expiration of the rate caps on Met-Ed's and Penelec's
retail generation rates on December 31, 2010. Beginning in 2011, Met-Ed and Penelec obtained their power supply from the
competitive wholesale market and fully recover their generation costs through retail rates. The Ohio Companies, Penn, WP and
JCP&L previously transitioned to competitive generation markets.
Marginal transmission loss recovery
On March 3, 2010, the PPUC issued an order denying Met-Ed and Penelec the ability to recover marginal transmission losses
through the transmission service charge riders in their respective tariffs which applies to the periods including June 1, 2008 through
December 31, 2010. Subsequently, Met-Ed and Penelec filed a Petition for Review with the Commonwealth Court of Pennsylvania
(Commonwealth Court) appealing the PPUC's order. On June 14, 2011, the Commonwealth Court affirmed the PPUC's decision
that marginal transmission losses are not recoverable as transmission costs. On July 13, 2011, Met-Ed and Penelec filed a federal
complaint with the United States District Court for the Eastern District of Pennsylvania and on the following day, filed a Petition for
Allowance of Appeal to the Pennsylvania Supreme Court. Met-Ed and Penelec believe the Commonwealth Court's decision
contradicts federal law and is inconsistent with prior PPUC and court decisions and therefore expect to fully recover the related
regulatory assets ($189 million for Met-Ed and $65 million for Penelec). In January 2011 and continuing for 29 months, pursuant
to a related PPUC order, Met-Ed and Penelec began crediting customers for the amounts at issue pending the outcome of court
appeals.
Ohio Energy Efficiency and Peak Demand Reduction Portfolio Plan
On March 23, 2011, the PUCO approved the three-year Energy Efficiency and Demand Reduction portfolio plan for the Ohio
Companies. The Ohio Companies' plan was developed to comply with the Energy Efficiency mandate in Ohio's SB 221, passed in
2008. This law requires that utilities in Ohio reduce energy usage by 22.2 percent by 2025 and peak demand by 7.75 percent by
2018, develop a portfolio plan, and meet annual benchmarks to measure progress.
NYSEG Ruling
On July 11, 2011, FirstEnergy was found to be a potentially responsible party under CERCLA indirectly liable for a portion of past
and future clean-up costs at certain legacy MGP sites in New York. As a result, FirstEnergy recognized additional expense of $29
million during the second quarter of 2011.
West Virginia Fuel, Purchased Power Cost Decision
On December 30, 2011, MP and PE announced that the WVPSC issued an order regarding the companies' adjustment of fuel and
purchased power costs. The WVPSC's order approved a settlement agreement between the companies, the Consumer Advocate
Division, the Staff of the WVPSC and the West Virginia Energy Users Group. In the approved settlement, parties have agreed that
the companies will recover an additional $19.6 million in 2012, an approximate 1.7 percent increase, primarily reflecting rising coal
prices over the past two years, with certain additional amounts to be recovered over time with a carrying charge.
FIRSTENERGY’S BUSINESS
With the completion of the AE merger in the first quarter of 2011, FirstEnergy reorganized its management structure, which resulted
in changes to its operating segments to be consistent with the manner in which management views the business. The new structure
supports the combined company's primary operations - distribution, transmission, generation and the marketing and sale of its
products. The external segment reporting is consistent with the internal financial reporting used by FirstEnergy's chief executive
officer (its chief operating decision maker) to regularly assess the performance of the business and allocate resources. FirstEnergy
now has three reportable operating segments - Regulated Distribution, Regulated Independent Transmission and Competitive