Allegheny Power 2013 Annual Report Download - page 69

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cost allocation issues. However, FERC subsequently rejected that settlement stating that its action is without prejudice to ATSI
submitting a cost/benefit analysis demonstrating that the benefits of the RTO realignment decisions outweigh the exit fee and
transmission cost allocation charges. On October 21, 2013, FirstEnergy filed a request for rehearing of FERC's order.
Separately, the question of ATSI's responsibility of certain costs for the “Michigan Thumb” transmission project continues to be
disputed. Potential responsibility arises under the MISO MVP tariff, which has been litigated in complex proceedings in front of
FERC and certain U.S. appellate courts. The MISO and its allied parties assert that the benefits to the ATSI zone for the Michigan
Thumb project are roughly commensurate with the costs that MISO desires to charge to the ATSI zone, estimated to be as much
as $16 million per year. ATSI has submitted evidence that the Michigan Thumb project provides no electric benefits to the ATSI
zone and, on that basis, opposes the MISO’s efforts to impose these costs to the ATSI zone loads. The MISO and its allied parties
also assert that certain language in the MISO Transmission Owners Agreement requires ATSI to pay these charges. In the event
of a final non-appealable order that rules that ATSI must pay these charges, ATSI will seek recovery of these charges through its
formula rate. While FERC proceedings regarding whether the MISO can charge ATSI for MVP costs remain pending, on February
24, 2014, the U.S. Supreme Court declined to hear appeals filed by FirstEnergy and other parties of the Seventh Circuit's June
2013 decision upholding FERC's acceptance of the MISO's generic MVP cost allocation proposal.
In the May 31, 2011 order, FERC ruled that the costs for certain "legacy RTEP" transmission projects in PJM could be charged to
transmission customers in the ATSI zone. ATSI sought rehearing of the question of whether the ATSI zone should pay these legacy
RTEP charges and, on September 20, 2012, FERC denied ATSI's request for rehearing. ATSI subsequently filed a petition for review
with the U.S. Court of Appeals for the D.C. Circuit. The case thereafter was briefed and oral arguments took place on December
11, 2013. A decision currently is expected in the second quarter of 2014.
The outcome of those proceedings that address the remaining open issues related to ATSI's move into PJM cannot be predicted
at this time.
California Claims Matters
In October 2006, several California governmental and utility parties presented AE Supply with a settlement proposal to resolve
alleged overcharges for power sales by AE Supply to the California Energy Resource Scheduling division of the CDWR during
2001. The settlement proposal claims that CDWR is owed approximately $190 million for these alleged overcharges. This proposal
was made in the context of mediation efforts by FERC and the U.S. Court of Appeals for the Ninth Circuit in several pending
proceedings to resolve all outstanding refund and other claims, including claims of alleged price manipulation in the California
energy markets, during 2000 and 2001. The Ninth Circuit had previously remanded one of those proceedings to FERC, which
dismissed the claims of the California Parties in May 2011, and affirmed the dismissal in June 2012. On June 20, 2012, the California
Parties appealed FERC's decision back to the Ninth Circuit. Briefing was completed before the Ninth Circuit on October 23, 2013.
The timing of further action by the Ninth Circuit is unknown.
In another proceeding, in June 2009, the California Attorney General, on behalf of certain California parties, filed another complaint
with FERC against various sellers, including AE Supply, again seeking refunds for transactions in the California energy markets
during 2000 and 2001. The above-noted transactions with CDWR are the basis for including AE Supply in this complaint. AE Supply
filed a motion to dismiss, which was granted by FERC in May 2011, and affirmed by FERC in June 2012. The California Attorney
General has appealed FERC's dismissal of its complaint to the Ninth Circuit, which has consolidated the case with other pending
appeals related to California refund claims, and stayed the proceedings pending further order.
FirstEnergy cannot predict the outcome of either of the above matters or estimate the possible loss or range of loss.
PATH Transmission Project
The PATH project was proposed to be comprised of a 765 kV transmission line from West Virginia through Virginia and into Maryland,
modifications to an existing substation in Putnam County, West Virginia, and the construction of new substations in Hardy County,
West Virginia and Frederick County, Maryland. PJM initially authorized construction of the PATH project in June 2007. On August
24, 2012, the PJM Board of Managers canceled the PATH project, which it had suspended in February 2011. As a result, approximately
$62 million and approximately $59 million in costs incurred by PATH-Allegheny and PATH-WV, respectively, were reclassified from
net property, plant and equipment to a regulatory asset for future recovery. On September 28, 2012, those companies requested
authorization from FERC to recover the costs with a proposed return on equity of 10.9% (10.4% base plus 0.5% RTO membership)
from PJM customers over the next five years. Several parties protested the request. On November 30, 2012, FERC issued an order
denying the 0.5% return on equity adder for RTO membership and allowing the tariff changes enabling recovery of these costs to
become effective on December 1, 2012, subject to settlement judge procedures and hearing if the parties do not agree to a settlement.
The issues subject to settlement include the prudence of the costs, the base return on equity and the period of recovery. PATH-
Allegheny and PATH-WV are currently engaged in settlement discussions with the other parties. Depending on the outcome of a
possible settlement or hearing, if settlement is not achieved, PATH-Allegheny and PATH-WV may be required to refund certain
amounts that have been collected under their formula rate.
PATH-Allegheny and PATH-WV have requested rehearing of FERC's denial of the 0.5% return on equity adder for RTO membership;
that request for rehearing remains pending before FERC. In addition, FERC has consolidated for settlement judge procedures and