Allegheny Power 2013 Annual Report Download - page 62

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As competitive retail electric suppliers serving retail customers primarily in Ohio, Pennsylvania, Illinois, Michigan, New Jersey and
Maryland, FES and AE Supply are subject to state laws applicable to competitive electric suppliers in those states, including affiliate
codes of conduct that apply to FES, AE Supply and their public utility affiliates. In addition, if FES, AE Supply or any of their
subsidiaries were to engage in the construction of significant new generation facilities in any of those states, they would also be
subject to state siting authority.
MARYLAND
PE provides SOS pursuant to a combination of settlement agreements, MDPSC orders and regulations, and statutory provisions.
SOS supply is competitively procured in the form of rolling contracts of varying lengths through periodic auctions that are overseen
by the MDPSC and a third party monitor. Although settlements with respect to residential SOS for PE customers expired on December
31, 2012, by statute, service continues in the same manner unless changed by order of the MDPSC. The settlement provisions
relating to non-residential SOS have also expired; however, by MDPSC order, the terms of service remain in place unless PE
requests or the MDPSC orders a change. PE recovers its costs plus a return for providing SOS.
The Maryland legislature in 2008 adopted a statute codifying the EmPOWER Maryland goals to reduce electric consumption by
10% and reduce electricity demand by 15%, in each case by 2015. PE's initial plan submitted in compliance with the statute was
approved in 2009 and covered 2009-2011, the first three years of the statutory period. Expenditures were originally estimated to
be approximately $101 million for the PE programs for the entire period of 2009-2015. Meanwhile, after extensive meetings with
the MDPSC Staff and other stakeholders, on August 31, 2011, PE filed a new comprehensive plan for the second three year period,
2012-2014, that includes additional and improved programs. The 2012-2014 plan is expected to cost approximately $66 million out
of the original $101 million estimate for the entire EmPOWER program. On December 22, 2011, the MDPSC issued an order
approving PE's second plan with various modifications and follow-up assignments. PE continues to recover program costs subject
to a five-year amortization. Maryland law only allows for the utility to recover lost distribution revenue attributable to energy efficiency
or demand reduction programs through a base rate case proceeding, and to date such recovery has not been sought or obtained
by PE.
Pursuant to a bill passed by the Maryland legislature in 2011, the MDPSC adopted rules, effective May 28, 2012, that create specific
requirements related to a utility's obligation to address service interruptions, downed wire response, customer communication,
vegetation management, equipment inspection, and annual reporting. The MDPSC will be required to assess each utility's
compliance with the new rules, and may assess penalties of up to $25,000 per day, per violation. The new rules set utility-specific
SAIDI and SAIFI targets for 2012-2015; prescribe detailed tree-trimming requirements, outage restoration and downed wire response
deadlines; and impose other reliability and customer satisfaction requirements. PE has advised the MDPSC that compliance with
the new rules is expected to increase costs by approximately $106 million over the period 2012-2015. On April 1, 2013, the Maryland
electric utilities, including PE, filed their first annual reports on compliance with the new rules. The MDPSC conducted a hearing
on August 20, 2013 to discuss the reports, after which an order was issued on September 3, 2013, which accepted PE's filing and
the operational changes proposed therein.
Following a "derecho" storm through the region on June 29, 2012, the MDPSC convened a new proceeding to consider matters
relating to the electric utilities' performance in responding to the storm. Hearings on the matter were conducted in September 2012.
Concurrently, Maryland's governor convened a special panel to examine possible ways to improve the resilience of the electric
distribution system. On October 3, 2012, that panel issued a report calling for various measures including: acceleration and expansion
of some of the requirements contained in the reliability standards which had become final on May 28, 2012; selective increased
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.