Allegheny Power 2014 Annual Report Download - page 134

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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 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. The California Parties appealed FERC's decision back to the Ninth Circuit, where the appeal remains pending. AE Supply
joined with other intervenors in the case and filed a brief in support of FERC's dismissal of the case. Oral argument was held on
February 11, 2015. The matter is now before the Ninth Circuit for decision.
In another proceeding, in June 2009, the California Attorney General, on behalf of certain California parties, filed a 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 FERC granted. The California Attorney General 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
On August 24, 2012, the PJM Board of Managers canceled the PATH project, a proposed transmission line from West Virginia
through Virginia and into Maryland which PJM had previously suspended in February 2011. As a result of PJM canceling the project,
approximately $62 million and approximately $59 million in costs incurred by PATH-Allegheny and PATH-WV (an equity method
investment for FE), respectively, were reclassified from net property, plant and equipment to a regulatory asset for future recovery.
PATH-Allegheny and PATH-WV requested authorization from FERC to recover the costs with a proposed ROE of 10.9% (10.4%
base plus 0.5% for RTO membership) from PJM customers over five years. FERC issued an order denying the 0.5% ROE 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 proceedings and hearing if the parties do not agree to a settlement. On March 24, 2014, the FERC
Chief ALJ terminated settlement judge procedures and appointed an ALJ to preside over the hearing phase of the case. The FERC
Chief ALJ later extended the procedural schedule to allow time for the parties to address the applicability of FERC's Opinion No.
531 to the PATH proceedings. FERC's Opinion No. 531, as discussed below, revises FERC's methodology for calculating ROE.
The hearing is scheduled to commence in March 2015.
MISO Capacity Portability
On June 11, 2012, in response to certain arguments advanced by MISO, FERC issued a Notice of Request for Comments regarding
whether existing rules on transfer capability act as barriers to the delivery of capacity between MISO and PJM. FirstEnergy and
other parties have submitted filings arguing that MISO's concerns largely are without foundation and suggested that FERC address
the remaining concerns in the existing stakeholder process that is described in the PJM/MISO Joint Operating Agreement. FERC
has not mandated a solution, and the RTOs and affected parties are working to address the MISO's proposal in stakeholder
proceedings. In January 2015, the RTOs and affected parties indicated to FERC that discussions on the various issues are continuing.
Changes to the criteria and qualifications for participation in the PJM RPM capacity auctions could have a significant impact on the
outcome of those auctions, including a negative impact on the prices at which those auctions would clear.
FTR Underfunding Complaint
In PJM, FTRs are a mechanism to hedge congestion and operate as a financial replacement for physical firm transmission service.
FTRs are financially-settled instruments that entitle the holder to a stream of revenues based on the hourly congestion price
differences across a specific transmission path in the PJM Day-ahead Energy Market. FE also performs bilateral transactions for
the purpose of hedging the price differences between the location of supply resources and retail load obligations. Due to certain
language in the PJM Tariff, the funds that are set aside to pay FTRs can be diverted to other uses, resulting in “underfunding” of
FTR payments. Since June 2010, FES and AE Supply have lost more than $94 million in revenues that they otherwise would have
received as FTR holders to hedge congestion costs. FES and AE Supply expect to continue to experience significant underfunding.
On February 15, 2013, FES and AE Supply filed a renewed complaint with FERC for the purpose of changing the PJM Tariff to
eliminate FTR underfunding. On June 5, 2013, FERC issued its order denying the new complaint. Requests for rehearing, and all
subsequent filings in the docket, are pending before FERC. The PJM stakeholders continue to discuss FTR underfunding.
A recent and related issue is the effect that certain financial trades have on congestion. On August 29, 2014, FERC instituted an
investigation to address the question of whether the current rules regarding “Up-to Congestion” transactions are just and reasonable.
FESC, on behalf of FES and the Utilities, filed comments supporting the investigation, arguing that PJM Tariff changes would
decrease the incidence of Up-to Congestion transactions, and funding for FTRs likely would increase. FERC convened a technical