Allegheny Power 2014 Annual Report Download - page 61

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reached by all the parties, which was filed with the WVPSC on December 2, 2014. The parties agreed to defer $16.8 million of the
energy portion of the under-recovery balance for medium and large customers for one year at a carrying cost of 4% in order to
mitigate the proposed rate impact to those customers. The settlement permits MP and PE to recover all of their costs incurred
during the two year review period and closes the review period except for two coal issues for further review in next year’s ENEC
case. On January 29, 2015, the WVPSC approved the settlement in full without modification and new ENEC rates will go into effect
February 25, 2015.
RELIABILITY MATTERS
Federally-enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping
and reporting requirements on the Utilities, FES, AE Supply, FG, FENOC, NG, ATSI and TrAIL. NERC is the ERO designated by
FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and
enforcement of these reliability standards to eight regional entities, including RFC. All of FirstEnergy's facilities are located within
the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages
its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented
and enforced by RFC.
FirstEnergy believes that it is in compliance with all currently-effective and enforceable reliability standards. Nevertheless, in the
course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or
circumstances that could be interpreted as excursions from the reliability standards. If and when such occurrences are found,
FirstEnergy develops information about the occurrence and develops a remedial response to the specific circumstances, including
in appropriate cases “self-reporting” an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue to refine
existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergy's part to comply
with the reliability standards for its bulk electric system could result in the imposition of financial penalties that could have a material
adverse effect on its financial condition, results of operations and cash flows.
FERC MATTERS
PJM Transmission Rates
PJM and its stakeholders have been debating the proper method to allocate costs for new transmission facilities. While FirstEnergy
and other parties advocate for a traditional "beneficiary pays" (or usage based) approach, others advocate for “socializing” the costs
on a load-ratio share basis, where each customer in the zone would pay based on its total usage of energy within PJM. This question
has been the subject of extensive litigation before FERC and the appellate courts, including most recently before the Seventh
Circuit. On June 25, 2014, a divided three-judge panel of the Seventh Circuit ruled that FERC had not quantified the benefits that
western PJM utilities would derive from certain new 500 kV or higher lines and thus had not adequately supported its decision to
socialize the costs of these lines. The majority found that eastern PJM utilities are the primary beneficiaries of the lines, while
western PJM utilities are only incidental beneficiaries, and that, while incidental beneficiaries should pay some share of the costs
of the lines, that share should be proportionate to the benefit they derive from the lines, and not on load-ratio share in PJM as a
whole. The court remanded the case to FERC, which issued an order setting the issue of cost allocation for hearing and settlement
proceedings. Settlement discussions under a FERC-appointed settlement judge are ongoing.
Order No. 1000, issued by FERC on July 21, 2011, announced new policies regarding transmission planning and transmission cost
allocation, requiring the submission of a compliance filing by PJM and the PJM transmission owners demonstrating that the cost
allocation methodology for new transmission projects directed by the PJM Board of Managers satisfied the principles set forth in
the order. On August 15, 2014 the U.S. Court of Appeals for the D.C. Circuit affirmed Order No. 1000, including its termination of
certain "right of first refusal" privileges discussed in more detail below. The court subsequently denied a request for rehearing of
its decision.
In series of orders, including certain of the orders related to the Order No. 1000 proceedings, FERC has asserted that the PJM
transmission owners do not hold an incumbent “right of first refusal” to construct, own and operate transmission projects within their
respective footprints that are approved as part of PJM’s RTEP process. FirstEnergy and other PJM transmission owners have
appealed these rulings, and those appeals are pending before the U.S. Court of Appeals for the D.C. Circuit.
To demonstrate compliance with the regional cost allocation principles of Order No. 1000, the PJM transmission owners, including
FirstEnergy, proposed a hybrid allocation of 50% beneficiary pays and 50% socialized to be effective for RTEP projects approved
by the PJM Board of Managers on, and after, the requested February 1, 2013 effective date of the compliance filing. FERC has
accepted that approach.
Separately, the PJM transmission owners, including FirstEnergy, submitted filings to FERC setting forth the cost allocation method
for projects that cross the borders between the PJM Region and: (1) the NYISO region; (2) the MISO region; and (3) the FERC-
jurisdictional members of the SERTP region. These filings propose to allocate the cost of these interregional transmission projects
based on the costs of projects that otherwise would have been constructed separately in each region, or, in the case of MISO,
indicate that the cost allocation provisions for interregional transmission projects provided in the Joint Operating Agreement between
PJM and MISO comply with the requirements of Order No. 1000. FERC accepted the PJM/MISO and PJM/SERTP filing, subject