Allegheny Power 2013 Annual Report Download - page 68

53
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
FirstEnergy, submitted filings to FERC setting forth the cost allocation method for projects that cross the borders between: (1) the
PJM region and the NYISO region and; (2) the PJM region and the FERC-jurisdictional members of the SERTP region. These filings
propose to allocate the cost of these interregional transmission projects based on the costs of projects that otherwise would have
been constructed separately in each region. On the same date, also in response to Order No. 1000, the PJM transmission owners,
including FirstEnergy, also submitted to FERC a filing stating that the cost allocation provisions for interregional transmission projects
provided in the Joint Operating Agreement between PJM and MISO comply with the requirements of Order No. 1000. On December
30, 2013, FERC conditionally accepted the PJM/SERTP cross-border project cost allocation filing, subject to refund and future
orders in PJM's and SERTP's related Order No. 1000 interregional compliance proceedings. The PJM/NYISO and PJM/MISO cross-
border project cost allocation filings remain pending before FERC. On January 16, 2014, FERC issued an order regarding the
effective date of PJM's separate Order No. 1000 compliance filing, noting that it would address the merits of the comments on and
protests to that filing and related compliance filings in a future order.
Numerous parties, including ATSI, FES, TrAIL, OE, CEI, TE, Penn, JCP&L, ME, MP, PN, WP and PE, have sought judicial review
of Order No. 1000 before the U.S. Court of Appeals for the D.C. Circuit. Briefing was completed in December 2013 and oral argument
is scheduled for March 20, 2014.
The outcome of these proceedings and their impact, if any, on FirstEnergy cannot be predicted at this time.
RTO Realignment
On June 1, 2011, ATSI and the ATSI zone transferred from MISO to PJM. The move was performed as planned with no known
operational or reliability issues for ATSI or for the wholesale transmission customers in the ATSI zone. While many of the matters
involved with the move have been resolved, FERC denied recovery by means of ATSI's transmission rate for certain charges that
collectively can be described as "exit fees" and certain other transmission cost allocation charges totaling approximately $78.8
million until such time as ATSI submits a cost/benefit analysis that demonstrates net benefits to customers from the move. On
December 21, 2012, ATSI and other parties filed a proposed settlement agreement with FERC to resolve the exit fee and transmission