Allegheny Power 2013 Annual Report Download - page 148

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MOPR Reform
On December 7, 2012, PJM filed amendments to its tariff to revise the MOPR used in the RPM. PJM revised the MOPR to add two
broad, categorical exemptions, eliminate an existing exemption, and to limit the applicability of the MOPR to certain capacity
resources. The filing also included related and conforming changes to the RPM posting requirements and to those provisions
describing the role of the Independent Market Monitor for the PJM Region. On May 2, 2013, FERC issued an order in large part
accepting PJM's proposed reform of the MOPR, including the proposed exemptions and applicability but also requiring PJM to
commit to future review and, if necessary, additional revisions to the MOPR to accommodate changing market conditions. On June
3, 2013, FirstEnergy submitted a request for rehearing of FERC's May 2, 2013 order. In its rehearing request, FirstEnergy referenced
the results of the May 2013 PJM RPM capacity auction, and publicly-available data about the reasons for the unexpectedly low
"rest-of-RTO" clearing price of $59 per MW-day, as supporting its contention that the MOPR reform depressed prices as predicted
in FirstEnergy's December 28, 2012 and January 25, 2013 comments. FirstEnergy's request for rehearing is pending before FERC.
FTR Underfunding Complaint
In PJM, FTRs are a mechanism to hedge congestion and they operate as a financial replacement for physical firm transmission
service. FTRs are financially-settled instruments that entitle the holder to a stream of revenues based on the hourly congestion
price differences across a specific transmission path in the PJM Day-ahead Energy Market. FE also performs bilateral transactions
for the purpose of hedging the price differences between the location of supply resources and retail load obligations. Due to certain
language in the PJM tariff, the funds that are set aside to pay FTRs can be diverted to other uses, resulting in “underfunding” of
FTR payments. Since June of 2010, FES and AE Supply have lost more than $65.5 million in revenues that they otherwise would
have received as FTR holders to hedge congestion costs. FES and AE Supply expect to continue to experience significant
underfunding.
On December 28, 2011, FES and AE Supply filed a complaint with FERC for the purpose of modifying certain provisions in the PJM
tariff to eliminate FTR underfunding. On March 2, 2012, FERC issued an order dismissing the complaint. In its order, FERC ruled
that it was not appropriate to initiate action at that time because of the unknown root causes of FTR underfunding. FERC directed
PJM to convene stakeholder proceedings for the purpose of determining the root causes of the FTR underfunding. FERC went on
to note that its dismissal of the complaint was without prejudice to FES and AE Supply or any other affected entity filing a complaint
if the stakeholder proceedings proved unavailing. FES and AE Supply sought rehearing of FERC's order and, on July 19, 2012,
FERC denied rehearing. In April, 2012, PJM issued a report on FTR underfunding. However, the PJM stakeholder process proved
unavailing as the stakeholders were not willing to change the tariff to eliminate FTR underfunding. Accordingly, on February 15,
2013, FES and AE Supply refiled their complaint with FERC for the purpose of changing the PJM tariff to eliminate FTR underfunding.
Various parties filed responsive pleadings, including PJM. On June 5, 2013, FERC issued its order denying the new complaint. On
July 5, 2013, FirstEnergy filed a request for rehearing of FERC's order. FES and AE Supply's request for rehearing, and all subsequent
filings in the docket, are pending before FERC.
PJM RPM Tariff Amendments
In November 2013, PJM began to submit a series of amendments to its RPM capacity tariff in order to address certain problems
that have been observed in recent auctions. These problems can be grouped into three categories: (i) Demand Response (DR);
(ii) imports; and (iii) modeling of transmission upgrades in calculating geographic clearing prices. The purpose of PJM’s tariff
amendments is to ensure that resources that clear in the RPM auctions are available and able to satisfy all obligations under the
PJM tariffs. In each of the affected dockets, FirstEnergy submitted comments as part of a coalition of utilities (generally including
an affiliate of AEP, Duke and Dayton). The FirstEnergy/coalition position was that all of the PJM proposals should be accepted as
proposed, and that the FERC should order PJM to take additional steps that should have the effect of eliminating additional distortions
and flaws in the RPM market. FERC issued deficiency letters requesting additional information from PJM regarding the imports
and modeling filings, and on January 30, 2014 accepted the DR filing as proposed. On February 18 and 21, 2014, respectively,
PJM filed its responses to FERC's deficiency letters regarding the modeling and imports filings. PJM's compliance filings and all
other filings in the dockets are pending before FERC.
Market-Based Rate Authority, Triennial Update
OE, CEI, TE, Penn, JCP&L, ME, PN, MP, WP, PE, AE Supply, FES, FG, NG, FirstEnergy Generation Mansfield Unit 1 Corp.,
Buchanan Generation, LLC, and Green Valley Hydro, LLC each hold authority from FERC to sell electricity at market-based rates.
One condition for retaining this authority is that every three years each entity must file an update with the FERC that demonstrates
that each entity continues to meet FERC’s requirements for holding market-based rate authority. On December 20, 2013, FESC
submitted to FERC the most recent triennial market power analysis filing for each market-based rate holder for the current cycle
of this filing requirement. That filing is pending before FERC.
16. COMMITMENTS, GUARANTEES AND CONTINGENCIES
NUCLEAR INSURANCE