Allegheny Power 2014 Annual Report Download - page 57

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As competitive retail electric suppliers serving retail customers primarily in Ohio, Pennsylvania, Illinois, Michigan, New Jersey and
Maryland, FES and AE Supply are subject to state laws applicable to competitive electric suppliers in those states, including affiliate
codes of conduct that apply to FES, AE Supply and their public utility affiliates. In addition, if any of the FirstEnergy affiliates were
to engage in the construction of significant new transmission or generation facilities, depending on the state, they may be required
to obtain state regulatory authorization to site, construct and operate the new transmission or generation facility.
MARYLAND
PE provides SOS pursuant to a combination of settlement agreements, MDPSC orders and regulations, and statutory provisions.
SOS supply is competitively procured in the form of rolling contracts of varying lengths through periodic auctions that are overseen
by the MDPSC and a third party monitor. Although settlements with respect to residential SOS for PE customers expired on December
31, 2012, by statute, service continues in the same manner unless changed by order of the MDPSC. The settlement provisions
relating to non-residential SOS have also expired; however, by MDPSC order, the terms of service remain in place unless PE
requests or the MDPSC orders a change. PE recovers its costs plus a return for providing SOS.
The Maryland legislature adopted a statute in 2008 codifying the EmPOWER Maryland goals to reduce electric consumption by
10% and reduce electricity demand by 15%, in each case by 2015. PE's initial plan submitted in compliance with the statute was
approved in 2009, at which time expenditures were estimated to be approximately $101 million for the PE programs for the entire
period of 2009-2015. PE's third plan, covering the three-year period 2015-2017, was approved by the MDPSC on December 23,
2014. The projected costs of the 2015-2017 plan are approximately $64 million for that three year period. PE continues to recover
program costs subject to a five-year amortization. Maryland law only allows for the utility to recover lost distribution revenue
attributable to energy efficiency or demand reduction programs through a base rate case proceeding, and to date such recovery
has not been sought or obtained by PE.
The MDPSC adopted rules, effective May 28, 2012, that set utility-specific SAIDI and SAIFI targets for 2012-2015; prescribed
detailed tree-trimming requirements, outage restoration and downed wire response deadlines; imposed other reliability and customer
satisfaction requirements; and established annual reporting requirements. The MDPSC is required to assess each utility's compliance
with the new rules, and may assess penalties of up to $25,000 per day, per violation. The MDPSC issued orders accepting PE's
reports on compliance under the new rules on September 3, 2013 and August 27, 2014.
On February 27, 2013, the MDPSC issued an order (the February 27 Order) requiring the Maryland electric utilities to submit
analyses, relating to the costs and benefits of making further system and staffing enhancements in order to attempt to reduce storm
outage durations. The order further required the Staff of the MDPSC to report on possible performance-based rate structures and
to propose additional rules relating to feeder performance standards, outage communication and reporting, and sharing of special
needs customer information. PE's final filing on September 3, 2013, discussed the steps needed to harden the utility's system in
order to attempt to achieve various levels of storm response speed described in the February 27 Order, and projected that it would
require approximately $2.7 billion in infrastructure investments over 15 years to attempt to achieve the quickest level of response
for the largest storm projected in the February 27 Order. On July 1, 2014, the Staff of the MDPSC issued a set of reports that
recommended the imposition of extensive additional requirements in the areas of storm response, feeder performance, estimates
of restoration times, and regulatory reporting. The Staff also recommended the imposition of penalties, including customer rebates,
for a utility's failure or inability to comply with the escalating standards of storm restoration speed proposed by the Staff. In addition,
the Staff proposed that the utilities be required to develop and implement system hardening plans, up to a rate impact cap on cost.
The MDPSC conducted a hearing September 15-18, 2014, to consider certain of these matters, and has not yet scheduled further
proceedings on any of the matters.
NEW JERSEY
JCP&L currently provides BGS for retail customers who do not choose a third party EGS and for customers of third party EGSs
that fail to provide the contracted service. The supply for BGS, which is comprised of two components, is provided through contracts
procured through separate, annually held descending clock auctions, the results of which are approved by the NJBPU. One BGS
component and auction, reflecting hourly real time energy prices, is available for larger commercial and industrial customers. The
other BGS component and auction, providing a fixed price service, is intended for smaller commercial and residential customers.
All New Jersey EDCs participate in this competitive BGS procurement process and recover BGS costs directly from customers as
a charge separate from base rates.
In an order issued July 31, 2012, the NJBPU ordered JCP&L to file a base rate case using a historical 2011 test year. The rate case
petition was filed on November 30, 2012 by JCP&L requesting approval to increase revenues by approximately $31 million, which
included the recovery of 2011 storm restoration costs but excluded approximately $603 million of costs incurred in 2012 associated
with the impact of Hurricane Sandy. In the initial briefs of the parties, the Division of Rate Counsel recommended that base rate
revenues be reduced by $214.9 million while the NJBPU Staff recommended a $207.4 million reduction (such amounts do not
address the revenue requirements associated with the major storm events of 2011 and 2012). On May 5, 2014, JCP&L submitted
updated schedules to reflect the result of the generic storm cost proceeding, discussed below, to revise the debt rate to 5.93%, and
to request that base rate revenues be increased by $9.1 million, including the recovery of 2011 storm costs. The record in the case
was closed as of June 30, 2014. The ALJ provided his initial Decision on January 8, 2015, which recommended an annual revenue