Allegheny Power 2011 Annual Report Download - page 62

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In November 2010, the WVPSC issued RPS Rules, which became effective on January 4, 2011. Under the RPS Rules, on or before
January 1, 2011, each electric utility subject to the provisions of this rule was required to prepare an alternative and renewable
energy portfolio standard compliance plan and file an application with the WVPSC seeking approval of such plan. MP and PE filed
their combined compliance plan in December 2010. A hearing was held at the WVPSC on June 13, 2011. An order was issued by
the WVPSC in September 2011, which conditionally approved MP's and PE's compliance plan, contingent on the outcome of the
resource credits case discussed below.
Additionally, in January 2011, MP and PE filed an application with the WVPSC seeking to certify three facilities as Qualified Energy
Resource Facilities. The application was approved and the three facilities are capable of generating renewable credits which will
assist the companies in meeting their combined requirements under the AREPA. An annual update filing is due on March 31, 2012.
Further, in February 2011, MP and PE filed a petition with the WVPSC seeking an Order declaring that MP is entitled to all alternative
and renewable energy resource credits associated with the electric energy, or energy and capacity, that MP is required to purchase
pursuant to electric energy purchase agreements between MP and three non-utility electric generating facilities in West Virginia.
The City of New Martinsville and Morgantown Energy Associates, each the owner of one of the contracted resources, has participated
in the case in opposition to the Petition. A hearing was held at the WVPSC on August 25 and 26, 2011. On November 22, 2011,
the WVPSC issued an order granting ownership of all RECs produced by the facilities to MP. On December 22, 2011, the WVPSC
order was appealed, and the order was stayed pending the outcome of the appeal. MP's brief was filed on February 13, 2012.
Should MP be unsuccessful in the appeal, it will have to procure the requisite RECs to comply with AREPA from other sources. MP
expects to recover such costs from customers.
In September 2011, MP and PE filed with the WVPSC to recover costs associated with fuel and purchased power (the ENEC) in
the amount of $32 million which represents an approximate 3% overall increase in such costs over the past two years, primarily
attributable to rising coal prices. The requested increase was partially offset by $2.5 million of synergy savings directly resulting
from the merger of FirstEnergy and AE, which closed in February 2011. Under a cost recovery clause established by the WVPSC
in 2007, MP and PE customer bills are adjusted periodically to reflect upward or downward changes in the cost of fuel and purchased
power. The utilities' most recent request to recover costs for fuel and purchased power was in September 2009. MP and PE entered
into a Settlement Agreement related to this matter. The WVPSC issued an order on December 30, 2011, approving the settlement
agreement. The approved settlement resulted in an increase of $19.6 million, instead of the requested $32 million, with additional
costs to be recovered over time with a carrying charge.
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