Allegheny Power 2014 Annual Report Download - page 136

121
legally invalid to the extent that DR cleared that auction because the participation of DR in that auction was unlawful in light of the
May 23, 2014 U.S. Court of Appeals for the D.C. Circuit decision discussed above. FESC, on behalf of FES, subsequently filed an
amended complaint renewing its request that DR be removed from the May 2014 BRA. Specifically, FESC requested that FERC
direct PJM to recalculate the results of the May 2014 BRA by: (i) removing DR from the PJM capacity supply pool; (ii) leaving the
offers of actual capacity suppliers unchanged; and then (iii) determining which capacity suppliers clear the auction on the basis of
the offers they submitted consistent with the existing PJM Tariff once the unlawful DR resources have been removed. The complaint
remains pending before FERC. The timing of FERC action and the outcome of this proceeding cannot be predicted at this time.
On January 14, 2015, PJM filed proposed amendments to the PJM Tariff for the purpose of addressing the uncertainty of DR. The
amendments, which will become effective only in certain defined conditions, purport to be in response to the U.S. Court of Appeals
for the D.C. Circuit's May 23, 2014 decision regarding FERC's jurisdiction to regulate DR, as discussed above. If implemented, the
amendments will move DR from the supply side to the load side for purposes of PJM's RPM capacity markets, and will permit loads
to bid load reductions into the RPM auctions occurring after April 1, 2015. On February 13, 2015, FirstEnergy, as part of a coalition,
filed a protest against PJM's proposed amendments. FirstEnergy expects further filings before FERC rules on this matter.
PJM Market Reform: PJM 2014 Triennial RPM Review
The PJM Tariff obligates PJM to perform a thorough review of its RPM program every three years. On September 25, 2014, PJM
filed proposed changes to the PJM Tariff as part of the latest review cycle. Among other adjustments, the filing included: (i) shifting
the VRR curve one percentage point to the right, which would increase the amount of capacity supply that is procured in the RPM
auctions and the clearing price; and (ii) a change to the index used for calculating the generation plant construction costs of the
Net CONE formula for the future years between triennial reviews. On November 28, 2014, FERC accepted the PJM Tariff amendments
as proposed, subject to a minor compliance requirement. PJM subsequently submitted the required compliance filing. On December
23, 2014, a coalition including FESC, on behalf of its affected affiliates, requested rehearing of FERC's order. PJM's compliance
filing, and the coalition's and others' requests for rehearing, remain pending before FERC.
Market-Based Rate Authority, Triennial Update
The Utilities, AE Supply, FES, FG, NG, FirstEnergy Generation Mansfield Unit 1 Corp., Buchanan Generation, LLC, and Green
Valley Hydro, LLC each hold authority from FERC to sell electricity at market-based rates. One condition for retaining this authority
is that every three years each entity must file an update with the FERC that demonstrates that each entity continues to meet FERC’s
requirements for holding market-based rate authority. On December 20, 2013, FESC, on behalf of its affiliates with market-based
rate authority, submitted to FERC the most recent triennial market power analysis filing for each market-based rate holder for the
current cycle of this filing requirement. On August 13, 2014, FERC accepted the triennial filing as submitted.
FERC Opinion No. 531
On June 19, 2014, FERC issued Opinion No. 531, in which FERC revised its approach for calculating the discounted cash flow
element of FERC’s ROE methodology, and announced a qualitative adjustment to the ROE methodology results. Under the old
methodology, FERC used a five-year forecast for the dividend growth variable, whereas going forward the growth variable will
consist of two parts: (a) a five-year forecast for dividend growth (2/3 weight); and (b) a long-term dividend growth based on a forecast
for the U.S. economy (1/3 weight). Regarding the qualitative adjustment, FERC formerly pegged ROE at the mid-point of the “zone
of reasonableness” that came out of the ROE formula, whereas going forward, FERC may rely on record evidence to make qualitative
adjustments to the outcome of the ROE methodology in order to reach a level sufficient to attract future investment. Requests for
rehearing of Opinion No. 531 are currently pending before FERC. On October 16, 2014, FERC issued its Opinion No. 531-A,
applying the revised ROE methodology to certain ISO New England Inc. transmission owners. FirstEnergy is evaluating the potential
impact of Opinion No. 531 on the authorized ROE of our FERC-regulated transmission utilities and the cost-of-service wholesale
power generation transactions of MP.
15. COMMITMENTS, GUARANTEES AND CONTINGENCIES
NUCLEAR INSURANCE
The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear power plant to $13.6 billion
(assuming 104 units licensed to operate) for a single nuclear incident, which amount is covered by: (i) private insurance amounting
to $375 million; and (ii) $13.2 billion provided by an industry retrospective rating plan required by the NRC pursuant thereto. Under
such retrospective rating plan, in the event of a nuclear incident at any unit in the United States resulting in losses in excess of
private insurance, up to $127 million (but not more than $19 million per unit per year in the event of more than one incident) must
be contributed for each nuclear unit licensed to operate in the country by the licensees thereof to cover liabilities arising out of the
incident. Based on their present nuclear ownership and leasehold interests, FirstEnergy’s maximum potential assessment under
these provisions would be $509 million (NG-$501 million) per incident but not more than $76 million (NG-$75 million) in any one
year for each incident.
In addition to the public liability insurance provided pursuant to the Price-Anderson Act, FirstEnergy has also obtained insurance
coverage in limited amounts for economic loss and property damage arising out of nuclear incidents. FirstEnergy is a member of