Allegheny Power 2013 Annual Report Download - page 140

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investment in system hardening; creation of separate recovery mechanisms for the costs of those changes and investments; and
penalties or bonuses on returns earned by the utilities based on their reliability performance. On February 27, 2013, the MDPSC
issued an order (the February 27 Order) requiring the utilities to submit several reports over a series of months, relating to the costs
and benefits of making further system and staffing enhancements in order to attempt to reduce storm outage durations. The order
further requires the Staff of the MDPSC to report on possible performance-based rate structures and to propose additional rules
relating to feeder performance standards, outage communication and reporting, and sharing of special needs customer information.
PE has responded to the requirements in the order consistent with the schedule set forth therein. PE's final filing on September 3,
2013, discussed the steps needed to harden the utility's system in order to attempt to achieve various levels of storm response
speed described in the February 27 Order, and projected that it would expect to make approximately $2.7 billion in infrastructure
investments over 15 years to attempt to achieve the quickest level of response for the largest storm projected in the February 27
Order. The MDPSC has ordered that certain reports of its Staff relating to these matters be provided by May 1, 2014, and otherwise
has not issued a schedule for further proceedings in this matter.
NEW JERSEY
JCP&L currently provides BGS for retail customers who do not choose a third party EGS and for customers of third party EGSs
that fail to provide the contracted service. The supply for BGS, which is comprised of two components, is provided through contracts
procured through separate, annually held descending clock auctions, the results of which are approved by the NJBPU. One BGS
component and auction, reflecting hourly real time energy prices, is available for larger commercial and industrial customers. The
other BGS component and auction, providing a fixed price service, is intended for smaller commercial and residential customers.
All New Jersey EDCs participate in this competitive BGS procurement process and recover BGS costs directly from customers as
a charge separate from base rates.
On September 7, 2011, the Division of Rate Counsel filed a Petition with the NJBPU asserting that it has reason to believe that
JCP&L is earning an unreasonable return on its New Jersey jurisdictional rate base. The Division of Rate Counsel requested that
the NJBPU order JCP&L to file a base rate case petition so that the NJBPU may determine whether JCP&L's current rates for
electric service are just and reasonable. In its written Order issued July 31, 2012, the NJBPU found that a base rate proceeding
"will assure that JCP&L's rates are just and reasonable and that JCP&L is investing sufficiently to assure the provision of safe,
adequate and proper utility service to its customers" and ordered JCP&L to file a base rate case using a historical 2011 test year.
The rate case petition was filed on November 30, 2012. In the filing, JCP&L requested approval to increase its revenues by
approximately $31.5 million and reserved the right to update the filing to include costs associated with the impact of Hurricane
Sandy. The NJBPU transmitted the case to the New Jersey Office of Administrative Law for further proceedings and an ALJ has
been assigned. On February 22, 2013, JCP&L updated its filing to request recovery of $603 million of distribution-related Hurricane
Sandy restoration costs, resulting in increasing the total revenues requested to approximately $112 million. On June 14, 2013,
JCP&L further updated its filing to: 1) include the impact of a depreciation study which had been directed by the NJBPU; 2) remove
costs associated with 2012 major storms, consistent with the NJBPU orders establishing a generic proceeding to review 2011 and
2012 major storm costs (discussed below); and 3) reflect other revisions to JCP&L's filing. That filing represented an increase of
approximately $20.6 million over the revenues produced by existing base rates. Testimony has also been filed in the matter by the
Division of Rate Counsel and several other intervening parties in opposition to the base rate increase JCP&L requested. Specifically,
the testimony of the Division of Rate Counsel's witnesses recommended that revenues produced by JCP&L's base rates for electric
service be reduced by approximately $202.8 million (such amount did not address the revenue requirements associated with major
storm events of 2011 and 2012, which are subject to review in the generic proceeding). JCP&L filed rebuttal testimony in response
to the testimony of other parties on August 7, 2013. Hearings in the rate case have concluded. In the initial briefs of the parties filed
on January 27, 2014, the Division of Rate Counsel recommended that base rate revenues be reduced by $214.9 million while the
NJBPU Staff recommended a $207.4 million reduction (such amounts do not address the revenue requirements associated with
the major storm events of 2011 and 2012). Reply briefs were filed on February 24, 2014.
On March 20, 2013, the NJBPU ordered that a generic proceeding be established to investigate the prudence of costs incurred by
all New Jersey utilities for service restoration efforts associated with the major storm events of 2011 and 2012. The Order provided
that if any utility had already filed a proceeding for recovery of such storm costs, to the extent the amount of approved recovery
had not yet been determined, the prudence of such costs would be reviewed in the generic proceeding. On May 31, 2013, the
NJBPU clarified its earlier order to indicate that the 2011 major storm costs would be reviewed expeditiously in the generic proceeding
with the goal of maintaining the base rate case schedule established by the ALJ where recovery of such costs would be addressed.
The NJBPU further indicated in the May 31 clarification that it would review the 2012 major storm costs in the generic proceeding
and the recovery of such costs would be considered through a Phase II in the existing base rate case or through another appropriate
method to be determined at the conclusion of the generic proceeding. On June 21, 2013, consistent with NJBPU's orders, JCP&L
filed the detailed report in support of recovery of major storm costs with the NJBPU. On November 15, 2013, the Division of Rate
Counsel filed testimony recommending that approximately $15 million of JCP&L’s costs be disallowed for recovery. Evidentiary
hearings in this proceeding were scheduled for January 2014 but were subsequently adjourned by the NJBPU before their
commencement. On February 24, 2014, a Stipulation was filed with the NJBPU by JCP&L, the Division of Rate Counsel and NJBPU
Staff which will allow recovery of $736 million of JCP&L’s $744 million of costs related to the significant weather events of 2011 and
2012. As a result, FirstEnergy recorded a regulatory asset impairment charge of approximately $8 million (pre-tax) as of December
31, 2013, included in Amortization of regulatory assets, net within the Consolidated Statements of Income. The agreement, upon
which no other party took a position to oppose or support, is now pending before the NJBPU. Recovery of 2011 storm costs will be
addressed in the pending base rate case; recovery of 2012 storm costs will be determined by the NJBPU.