Allegheny Power 2013 Annual Report Download - page 145

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authorized the transaction, with certain conditions, and on October 9, 2013, the transaction closed resulting in MP recording a pre-
tax impairment charge of approximately $322 million in the fourth quarter of 2013 to reduce the net book value of the Harrison
Power Station to the amount that was permitted to be included in jurisdictional rate base. The charge is included in Impairment of
long lived assets within the Consolidated Statement of Income. Concurrently, MP recognized a regulatory liability of approximately
$23 million representing refunds to customers associated with the excess purchase price received by MP above the net book value
of MP's minority interest in the Pleasants Power Station. The transaction resulted in AE Supply receiving net consideration of $1.1
billion and MP's assumption of a $73.5 million pollution control note. The $1.1 billion net consideration was originally financed by
MP through an equity infusion from FE of approximately $527 million and a note payable to AE Supply of approximately $573 million.
The note payable to AE Supply was paid in the fourth quarter of 2013. In accordance with the settlement, MP and PE will file a base
rate case by April 30, 2014. On November 6, 2013, the WVCAG petitioned for appeal with the West Virginia Supreme Court. MP
and PE filed their response to the WVCAG petition on December 27, 2013 and WVCAG filed its reply on January 16, 2014. Oral
argument before the Supreme Court is scheduled for March 5, 2014.
RELIABILITY MATTERS
Federally-enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping
and reporting requirements on the Utilities, FES, AE Supply, FG, FENOC, ATSI and TrAIL. NERC is the ERO designated by FERC
to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and enforcement of
these reliability standards to eight regional entities, including RFC. All of FirstEnergy's facilities are located within the RFC region.
FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages its companies
in response to the ongoing development, implementation and enforcement of the reliability standards implemented and enforced
by RFC.
FirstEnergy believes that it is in compliance with all currently-effective and enforceable reliability standards. Nevertheless, in the
course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or
circumstances that could be interpreted as excursions from the reliability standards. If and when such items are found, FirstEnergy
develops information about the item and develops a remedial response to the specific circumstances, including in appropriate cases
“self-reporting” an item to RFC. Moreover, it is clear that the NERC, RFC and FERC will continue to refine existing reliability standards
as well as to develop and adopt new reliability standards. Any inability on FirstEnergy's part to comply with the reliability standards
for its bulk power system could result in the imposition of financial penalties that could have a material adverse effect on its financial
condition, results of operations and cash flows.
FERC MATTERS
PJM Transmission Rates
PJM and its stakeholders have been debating the proper method to allocate costs for new transmission facilities. While FirstEnergy
and other parties advocated for a traditional "beneficiary pays" (or usage based) approach, others advocate for “socializing” the
costs on a load-ratio share basis - each customer in the zone would pay based on its total usage of energy within PJM. On August
6, 2009, the U.S. Court of Appeals for the Seventh Circuit found that FERC had not supported a prior FERC decision to allocate
costs for new 500 kV and higher voltage facilities on a load ratio share basis and, based on that finding, remanded the rate design
issue to FERC. In an order dated January 21, 2010, FERC set this matter for a “paper hearing” and requested parties to submit
written comments. FERC identified nine separate issues for comment and directed PJM to file the first round of comments. PJM
filed certain studies with FERC on April 13, 2010, which demonstrated that allocation of the cost of high voltage transmission facilities
on a beneficiary pays basis results in certain LSEs in PJM bearing the majority of the costs. FirstEnergy and a number of other
utilities, industrial customers and state utility commissions supported the use of the beneficiary pays approach for cost allocation
for high voltage transmission facilities. Other utilities and state utility commissions supported continued socialization of these costs
on a load ratio share basis. On March 30, 2012, FERC issued an order on remand reaffirming its prior decision 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 (or socialized) rate based on the amount of load served in a transmission zone and concluding that
such methodology is just and reasonable and not unduly discriminatory or preferential. On April 30, 2012, FirstEnergy requested
rehearing of FERC's March 30, 2012 order and on March 22, 2013, FERC denied rehearing. On March 29, 2013, FirstEnergy filed
its Petition for Review with the U.S. Court of Appeals for the Seventh Circuit, and the case subsequently was consolidated for
briefing and disposition before that court. Briefing is complete, and the case will be scheduled for oral argument, with a decision
currently expected in 2014.
Order No. 1000, issued by FERC on July 21, 2011, required the submission of a compliance filing by PJM or the PJM transmission
owners demonstrating that the cost allocation methodology for new transmission projects directed by the PJM Board of Managers
satisfied the principles set forth in the order. To demonstrate compliance with the regional cost allocation principles of the order, the
PJM transmission owners, including FirstEnergy, submitted a filing to FERC on October 11, 2012, proposing a hybrid method of
50% beneficiary pays and 50% postage stamp to be effective for RTEP projects approved by the PJM Board of Managers on, and
after, the effective date of the compliance filing. On January 31, 2013, FERC conditionally accepted the hybrid method to be effective
on February 1, 2013, subject to refund and to a future order on PJM's separate Order No. 1000 compliance filing. On March 22,
2013, FERC granted final acceptance of the hybrid method. Certain parties have sought rehearing of parts of FERC's March 22,
2013 order. These requests for rehearing are pending before FERC. On July 10, 2013, the PJM transmission owners, including