Allegheny Power 2013 Annual Report Download - page 73

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of these proceedings and how the MATS are ultimately implemented, FirstEnergy's total cost of compliance with MATS is currently
estimated to be approximately $465 million (Competitive Energy Services segment of $240 million and Regulated Distribution
segment of $225 million).
As of September 1, 2012, Albright, Armstrong, Bay Shore Units 2-4, Eastlake Units 4-5, R. Paul Smith, Rivesville and Willow Island
were deactivated. FG entered into RMR arrangements with PJM for Eastlake Units 1-3, Ashtabula Unit 5 and Lake Shore Unit 18
through the spring of 2015, when they are scheduled to be deactivated. In February 2014, PJM notified FG that Eastlake Units 1-3
and Lake Shore Unit 18 will be released from RMR status as of September 15, 2014. As of October 9, 2013, the Hatfield's Ferry
and Mitchell stations were also deactivated.
FirstEnergy and FES have various long-term coal transportation agreements, some of which run through 2025 and certain of which
are related to the plants described above. FE and FES have asserted force majeure defenses for delivery shortfalls under certain
agreements, and are in discussion with the applicable counterparties. As to two agreements, FE and FES have settled monetary
claims for damages for the failure to take minimum quantities for the calendar year 2012 by the payments of approximately $70
million, and agreed to pay liquidated damages for delivery shortfalls for 2013 and 2014. FE and FES recorded $67 million in liquidated
damages in the fourth quarter of 2013, associated with estimated 2013 delivery shortfalls, which were paid in the first quarter of
2014. Additionally, in January 2014, FE and FES reached an agreement in principle with Mepco Holdings LLC to terminate a contract
for future coal deliveries to Hatfield for $18 million, which was approved by the United States Bankruptcy Court on February 26,
2014. If FE and FES fail to reach a resolution with applicable counterparties for coal transportation agreements associated with the
deactivated plants or unresolved aspects of the transportation agreements and it were ultimately determined that, contrary to their
belief, the force majeure provisions or other defenses do not excuse delivery shortfalls, the results of operations and financial
condition of both FirstEnergy and FES could be materially adversely impacted.
Climate Change
There are a number of initiatives to reduce GHG emissions under consideration at the state, federal and international level. Certain
northeastern states are participating in the RGGI and western states led by California, have implemented programs to control
emissions of certain GHGs. In his 2013 State of the Union address, President Obama called for Congressional action on GHG
emissions indicating his administration will take action in the event Congress fails to act. In June 2013, the President's Climate
Action Plan outlined Executive action to: (1) cut carbon pollution in America, including the EPA carbon pollution standards for both
new and existing power plants by 17% by 2020 (from 2005 levels); (2) prepare the United States for the impacts of climate change;
and (3) lead international efforts to combat global climate change and prepare for its impacts.
In September 2009, the EPA finalized a national GHG emissions collection and reporting rule that required the measurement and
reporting of GHG emissions commencing in 2010. In December 2009, the EPA released its final “Endangerment and Cause or
Contribute Findings for Greenhouse Gases under the Clean Air Act.” The EPA's finding concludes that concentrations of several
key GHGs increase the threat of climate change and may be regulated as “air pollutants” under the CAA. In April 2010, the EPA
finalized new GHG standards for model years 2012 to 2016 passenger cars, light-duty trucks and medium-duty passenger vehicles
and clarified that GHG regulation under the CAA would not be triggered for electric generating plants and other stationary sources
until January 2, 2011, at the earliest. In May 2010, the EPA finalized new thresholds for GHG emissions that define when NSR pre-
construction permits would be required including an emissions applicability threshold of 75,000 tons per year of CO2 equivalents
for existing facilities under the CAA's PSD program. On April 13, 2012, the EPA proposed new source performance standards for
GHG emissions from newly constructed fossil fuel generating units that are larger than 25 MW, which were ultimately withdrawn.
On June 25, 2013, a Presidential memorandum directed the EPA to complete, in a timely fashion, proposed new source performance
standards for GHG emissions from newly constructed fossil fuel generating units, starting with re-proposal by September 20, 2013.
The memorandum further directed the EPA to propose by June 1, 2014 and complete by June 1, 2015, GHG emission standards
for existing fossil fuel generating units. On September 20, 2013, the EPA proposed a new source performance standard of 1,000
lbs. CO2/MWH for large natural gas fired units (> 850 mmBTU/hr), and 1,100 lbs. CO2/MWH for other natural gas fired units 850
mmBTU/hr), and 1,100 lbs. CO2/MWH for fossil fuel fired units which would require partial carbon capture and storage. On October
15, 2013, the U.S. Supreme Court agreed to review a June 2012 D.C. Circuit Court of Appeals decision upholding the EPA's May
2010 regulations to decide a single narrow question: "Whether EPA permissibly determined that its regulation of greenhouse gas
emissions from new motor vehicles triggered permitting requirements under the CAA for stationary sources that emit greenhouse
gases?" Oral argument was held on February 24, 2014. Depending on the outcome of these proceedings and how any final rules
are ultimately implemented, the future cost of compliance may be substantial and changes to FirstEnergy's and FES' operations
may result.
At the international level, the Kyoto Protocol, signed by the U.S. in 1998 but never submitted for ratification by the U.S. Senate,
was intended to address global warming by reducing the amount of man-made GHG, including CO2, emitted by developed countries
by 2012. A December 2009 U.N. Climate Change Conference in Copenhagen did not reach a consensus on a successor treaty to
the Kyoto Protocol, but did take note of the Copenhagen Accord, a non-binding political agreement that recognized the scientific
view that the increase in global temperature should be below two degrees Celsius; includes a commitment by developed countries
to provide funds, approaching $30 billion over three years with a goal of increasing to $100 billion by 2020; and establishes the
“Green Climate Fund” to support mitigation, adaptation, and other climate-related activities in developing countries. To the extent
that they have become a party to the Copenhagen Accord, developed economies, such as the European Union, Japan, Russia and
the United States, would commit to quantified economy-wide emissions targets by 2020, while developing countries, including