Allegheny Power 2013 Annual Report Download - page 67

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occupy different buildings; EDCs and affiliated EGSs could not share employees or services, except certain corporate support,
emergency, or tariff services (the definition of "corporate support services" excludes items such as information systems, electronic
data interchange, strategic management and planning, regulatory services, legal services, or commodities that have been included
in regulated rates at less than market value); and an EGS must enter into a trademark agreement with the EDC before using its
trademark or service mark. The Proposed Rulemaking Order was published on February 11, 2012, and comments were filed by
the Pennsylvania Companies and FES on March 27, 2012. If implemented these rules could require a significant change in the
ways FES and the Pennsylvania Companies do business in Pennsylvania, and could possibly have an adverse impact on their
results of operations and financial condition. Pennsylvania's Independent Regulatory Review Commission subsequently issued
comments on the proposed rulemaking on April 26, 2012, which called for the PPUC to further justify the need for the proposed
revisions by citing a lack of evidence demonstrating a need for them. The House Consumer Affairs Committee of the Pennsylvania
General Assembly also sent a letter to the Independent Regulatory Review Commission on July 12, 2012, noting its opposition to
the proposed regulations as modified.
WEST VIRGINIA
MP and PE currently operate under a Joint Stipulation and Agreement of Settlement reached with the other parties and approved
by the WVPSC in June 2010 that provided for:
• $40 million annualized base rate increases effective June 29, 2010;
• Deferral of February 2010 storm restoration expenses over a maximum five-year period;
• Additional $20 million annualized base rate increase effective in January 2011;
• Decrease of $20 million in ENEC rates effective January 2011, providing for deferral of related costs for later recovery in
2012; and
• Moratorium on filing for further increases in base rates before December 1, 2011, except under specified circumstances.
The WVPSC opened a general investigation into the June 29, 2012, derecho windstorm with data requests for all utilities. A public
meeting for presentations on utility responses and restoration efforts was held on October 22, 2012 and two public input hearings
have been held. The WVPSC issued an Order in this matter on January 23, 2013 closing the proceeding and directing electric
utilities to file a vegetation management plan within six months and to propose a cost recovery mechanism. This Order also requires
MP and PE to file a status report regarding improvements to their storm response procedures by the same date. On July 23, 2013,
MP and PE filed their vegetation management plans, which provided for recovery of costs through a surcharge mechanism. A
hearing was held on December 3, 2013, and briefing followed but the WVPSC has not yet issued an opinion in this matter.
MP and PE filed their Resource Plan with the WVPSC in August 2012 detailing both supply and demand forecasts and noting a
substantial capacity deficiency. MP and PE filed a Petition for approval of a Generation Resource Transaction with the WVPSC in
November 2012 that proposed a net ownership transfer of 1,476 MW of coal-fired generation capacity to MP. The proposed transfer
involved MP's acquisition of the remaining ownership of the Harrison Power Station from AE Supply and the sale of MP's minority
interest in the Pleasants Power Station to AE Supply. FERC authorized the transfers on April 23, 2013 and the financing on May
13, 2013. A Joint Settlement Agreement was filed by the majority of parties on August 21, 2013. On October 7, 2013, the WVPSC
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