Allegheny Power 2013 Annual Report Download - page 143

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PENNSYLVANIA
The Pennsylvania Companies currently operate under DSPs that expire on May 31, 2015, and provide for the competitive
procurement of generation supply for customers that do not choose an alternative EGS or for customers of alternative EGSs that
fail to provide the contracted service. The default service supply is currently provided by wholesale suppliers through a mix of long-
term and short-term contracts procured through descending clock auctions, competitive requests for proposals and spot market
purchases. On November 4, 2013, the Pennsylvania Companies filed a DSP that will provide the method by which they will procure
the supply for their default service obligations for the period of June 1, 2015 through May 31, 2017. The Pennsylvania Companies
proposed programs call for quarterly descending clock auctions to procure 3, 12, 24, and 48-month energy contracts, as well as,
one RFP seeking 2-year contracts to secure SRECs for ME, PN, and Penn. Hearings on the plans are scheduled to be held March
4-7, 2014. The Pennsylvania Companies expect a decision from the PPUC by August 4, 2014.
The PPUC entered an Order on March 3, 2010 that denied the recovery of marginal transmission losses through the TSC rider for
the period of June 1, 2007 through March 31, 2008, and directed ME and PN to submit a new tariff or tariff supplement reflecting
the removal of marginal transmission losses from the TSC. Pursuant to a plan approved by the PPUC, ME and PN refunded those
amounts to customers over a 29-month period that began in January of 2011. On appeal, the Commonwealth Court affirmed the
PPUC's Order to the extent that it holds that line loss costs are not transmission costs and, therefore, the approximately $254 million
in marginal transmission losses and associated carrying charges for the period prior to January 1, 2011, are not recoverable under
ME's and PN's TSC riders. The Pennsylvania Supreme Court denied ME's and PN's Petition for Allowance of Appeal and the
Supreme Court of the United States denied ME's and PN's Petition for Writ of Certiorari. ME and PN also filed a complaint in the
U.S. District Court for the Eastern District of Pennsylvania to obtain an order that would enjoin enforcement of the PPUC and
Pennsylvania court orders under a theory of federal preemption on the question of retail rate recovery of the marginal transmission
loss charges. On September 30, 2013, the U.S. District Court granted the PPUC’s motion to dismiss. As a result of the U.S. District
Court's September 30, 2013 decision, FirstEnergy recorded a regulatory asset impairment charge of approximately $254 million
(pre-tax) in the quarter ended September 30, 2013 included in Amortization of regulatory assets, net within the Consolidated
Statement of Income. The balance of marginal transmission losses was fully refunded to customers by the second quarter of 2013.
On October 29, 2013, ME and PN filed a Notice of Appeal of the U.S. District Court’s decision to dismiss the complaint with the
United States Court of Appeals for the Third Circuit. On December 30, 2013, ME and PN filed a brief with the Third Circuit that
explained why it was legal error for the U.S. District Court to dismiss the complaint. The PPUC filed its brief on February 3, 2014,
and ME and PN filed a reply brief on February 21, 2014. Oral argument has been scheduled for April 9, 2014.
Pennsylvania adopted Act 129 in 2008 to address issues such as: energy efficiency and peak load reduction; generation procurement;
time-of-use rates; smart meters; and alternative energy. Among other things, Act 129 required utilities to file with the PPUC an
energy efficiency and peak load reduction plan (EE&C Plan) by July 1, 2009, setting forth the utilities' plans to reduce energy
consumption by a minimum of 1% and 3% by May 31, 2011 and May 31, 2013, respectively, and to reduce peak demand by a
minimum of 4.5% by May 31, 2013. Act 129 provides for potentially significant financial penalties to be assessed on utilities that
fail to achieve the required reductions in consumption and peak demand. The Pennsylvania Companies submitted a report on
November 15, 2011, in which they reported on their compliance with statutory May 31, 2011, energy efficiency benchmarks. ME,
PN and Penn achieved the 2011 benchmarks; however WP did not. WP could be subject to a statutory penalty of between $1 and
$20 million. On July 15, 2013, the Pennsylvania Companies filed their preliminary energy efficiency and demand reduction results
for the period ending May 31, 2013, indicating that all Pennsylvania Companies are expected to meet their statutory obligations.
On November 15, 2013, the Pennsylvania Companies submitted their energy efficiency and peak demand reduction report for the
period ending May 31, 2013, in which they indicated that all of the Pennsylvania Companies met their statutory requirements.
Pursuant to Act 129, the PPUC was charged with reviewing the cost effectiveness of energy efficiency and peak demand reduction
programs. The PPUC found the energy efficiency programs to be cost effective and in an Order entered on August 3, 2012, the
PPUC directed all of the electric utilities in Pennsylvania to submit by November 15, 2012, a Phase II EE&C Plan that would be in
effect for the period June 1, 2013 through May 31, 2016. The PPUC has deferred ruling on the need to create peak demand reduction
targets until it receives more information from the EE&C statewide evaluator. Based upon information received, the PPUC has not
included a peak demand reduction requirement in the Phase II plans. The Pennsylvania Companies filed their Phase II plans and
supporting testimony in November 2012. On January 16, 2013, the Pennsylvania Companies reached a settlement with all but one
party on all but one issue. The settlement provides for the Pennsylvania Companies to meet with interested parties to discuss ways
to expand upon the EE&C programs and incorporate any such enhancements after the plans are approved, provided that these
enhancements will not jeopardize the Pennsylvania Companies' compliance with their required targets or exceed the statutory
spending caps. On February 6, 2013, the Pennsylvania Companies filed revised Phase II EE&C Plans to conform the plans to the
terms of the settlement. Total costs of these plans are expected to be approximately $234 million. All such costs are expected to
be recoverable through the Pennsylvania Companies reconcilable Phase II EE&C Plan C riders. The remaining issue, raised by a
natural gas company, involved the recommendation that the Pennsylvania Companies include in their plans incentives for natural
gas space and water heating appliances. On March 14, 2013, the PPUC approved the 2013-2016 EE&C plans of the Pennsylvania
Companies, adopting the settlement, and rejecting the natural gas companies recommendations.
In addition, Act 129 required utilities to file a SMIP with the PPUC. On December 31, 2012, the Pennsylvania Companies filed their
Smart Meter Deployment Plan. The Deployment Plan requests deployment of approximately 98.5% of the smart meters to be
installed over the period 2013 to 2019, and the remaining meters in difficult to reach locations to be installed by 2022, with an
estimated life cycle cost of about $1.25 billion. Such costs are expected to be recovered through the Pennsylvania Companies'