Allegheny Power 2014 Annual Report Download - page 21

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EXECUTIVE SUMMARY
In 2014, FirstEnergy launched programs to begin reinvesting in its Regulated Transmission and Regulated Distribution segments.
This investment strategy is focused on delivering enhanced customer service and reliability, strengthening grid and cyber-security,
and adding resiliency and operating flexibility to its transmission and distribution infrastructure.
Focusing on reinvestment in its regulated operations will also provide stability and growth for FirstEnergy as this plan is implemented
over the coming years.
This pivotal year featured the launch of FirstEnergy's transmission investment program, economic growth in the territory served
by FirstEnergy’s Regulated Distribution segment, active rate plans at ten utility operating companies, and an adjusted competitive
strategy designed to reduce risk while preserving value in that business.
The centerpiece of FirstEnergy’s regulated investment strategy is the Energizing the Future transmission expansion plan, which
was introduced in late 2013. The initial phase of this plan includes $4.2 billion in investments through 2017 to modernize the
transmission system owned by FirstEnergy’s Regulated Transmission segment. In 2014, $1.4 billion was invested across more
than 1,100 projects to improve the durability and flexibility of this transmission system.
The transmission investment program is also designed to prepare the electrical system for load growth, including increased demand
related to continued development in the Marcellus and Utica shale regions of the utilities’ western Pennsylvania, eastern Ohio and
West Virginia service areas. While FirstEnergy continues to monitor recent developments in shale related activity, in 2014, more
than 400 MWs of new industrial demand associated with shale gas activity came online in FirstEnergy’s region, and more than
1,100 MWs of additional planned expansion is expected at customer facilities through 2019. Five consecutive years of growth in
the industrial customer class is another strong indicator of the region’s positive economic future.
FirstEnergy also pursued regulatory initiatives across its utility footprint in 2014, focused on providing significant benefits to customers
while ensuring the timely and appropriate recovery of investments. These initiatives include:
• A rate case application in West Virginia, filed in April 2014, and a settlement agreement approved by the WVPSC on
February 3, 2015, that will result in recovery of $63 million annually for reliability investments, storm damage expenses,
and investments in operating improvements and environmental compliance at MP's and PE's regulated, coal-fired power
plants in the state.
• Rate case applications in Pennsylvania filed in August 2014, with a current settlement agreement in place that, if approved
by the PPUC, would result in an increase in current distribution revenues of approximately $293 million, annually, across
ME, PN, Penn and WP.
• The Ohio Companies' ESP IV, Powering Ohio’s Progress, filed in August 2014, with an expected decision in the second
quarter of 2015 that would freeze base distribution rates for three years while ensuring continued availability of more than
3,200 MWs, if approved by the PUCO, of FirstEnergy’s critical baseload generating assets primarily located in the state
and serving the long-term energy needs of Ohio customers.
• ATSI’s October 2014 rate filing with FERC to request transmission rates using a "forward looking" approach, where
transmission rates would be based on estimated costs for the current year with an annual true up. On December 31, 2014,
FERC issued an order accepting ATSI's rate filing to become effective January 1, 2015, as requested, subject to refund
and the outcome of hearing and settlement proceedings and FERC's inquiry into ATSI's ROE.
Additionally, JCP&L continues with its base rate proceeding in New Jersey as well as the NJBPU's ongoing generic storm proceeding.
In March 2014, New Jersey regulators approved the recovery of $736 million in costs incurred to restore service following devastating
storms in 2011 and 2012, and the company awaits final resolution of its base rate case, while continuing to advocate for a decision
that supports continued investments in service reliability. In January 2015, the ALJ issued a recommended decision that, if approved
by the NJBPU, would reduce annual revenues $107.5 million without considering any adjustment for 2012 storm costs or CTA.
In 2014, FirstEnergy set a new course for CES designed to limit risk in the current difficult energy market, while positioning the
business to take advantage of future market upside.
Extreme weather events, including record low temperatures in January 2014, resulted in increased electricity demand and revealed
weaknesses in the region’s power supply. The situation underscored the implications of a growing dependence on less-reliable
generating resources, DR and intermittent renewables. The volatility also raised concerns about whether the current capacity market
can provide the right incentives to maintain adequate generating resources to meet demand in the PJM Region, especially in
extreme conditions. In response to this crisis, FirstEnergy began repositioning its competitive business to focus on reducing exposure
to weather-sensitive load in certain sales channels, and pursuing high-margin sales while leaving a portion of its generation available
to capture future market opportunities. This strategy is designed to better position CES to benefit from opportunities as markets
improve while limiting risk from continued challenging market conditions. At the same time, FirstEnergy continues to advocate for
reforms that can ensure competitive energy markets adequately value baseload generation, which is essential to maintaining grid
reliability.