Allegheny Power 2014 Annual Report Download - page 64

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circumstances; (iii) maintain DR as a supply-side resource; and (iv) impose a Capacity Performance Resource must-offer requirement
(units that can perform as a Capacity Performance Resource must offer into the capacity market, except certain defined resources,
including DR). PJM also proposes, among other things, to revise the PJM Operating Agreement to provide limits in energy market
offers based on specific physical characteristics and to ensure that capacity resources are available when the PJM Region needs
them to perform. PJM requested an effective date of April 1, 2015 for these proposed reforms. Numerous parties filed comments
on and protests to PJM’s Capacity Performance filings. FESC, on behalf of its affected affiliates, and, as part of a coalition of certain
other PJM utilities, filed comments and protests on the proposed reforms. PJM's filings and all related pleadings are pending before
FERC.
In addition, on December 24, 2014, PJM submitted two filings seeking to ensure enough capacity is available during the 2015/2016
Delivery Year. First, PJM proposed to revise the PJM Tariff to allow PJM to procure an undetermined amount of additional capacity
for the 2015/2016 Delivery Year to address reliability concerns. PJM requested an effective date of February 23, 2015 for this
revision. Second, PJM requested a one-time PJM Tariff waiver that would permit PJM to keep approximately 2,000 MW of committed
capacity that should be released for the third incremental auction for the 2015/2016 Delivery Year. Without the waiver, PJM would
be required under the PJM Tariff to release this capacity. PJM requests an effective date of February 23, 2015 for the waiver.
Numerous parties filed comments on and protests to these PJM filings. FESC, on behalf of its affected affiliates, and, as part of a
coalition of certain other PJM utilities, filed comments in support of both PJM filings and seeking additional information from PJM
about the scope of any capacity shortfall. PJM's filings and all related pleadings are pending before FERC.
PJM Market Reform: PJM RPM Auctions - Calculation of Unit-Specific Offer Caps
The PJM Tariff describes the rules for calculating the “offer cap” for each unit that offers into the RPM auctions. FES disagreed with
the PJM Market Monitor's approach for calculating the offer caps and in 2014, FES asked FERC to determine which PJM Tariff
interpretation, FES's or the PJM Market Monitor's, was correct. On August 25, 2014, FERC issued a declaratory order agreeing
with the FES interpretation of the PJM Tariff language. FERC went on, however, to initiate a new proceeding to examine whether
the existing PJM Tariff language is just and reasonable. PJM filed its brief explaining why the existing PJM Tariff language is just
and reasonable. Other parties, including FES, submitted responsive briefs. The briefs and related pleadings are pending before
FERC.
PJM Market Reform: FERC Order No. 745 - DR
On May 23, 2014, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit issued an opinion vacating FERC
Order No. 745, which required that, under certain parameters, DR participating in organized wholesale energy markets be
compensated at LMP. The majority concluded that DR is a retail service, and therefore falls under state, and not federal, jurisdiction,
and that FERC, therefore, lacks jurisdiction to regulate DR. The majority also found that even if FERC had jurisdiction over DR,
Order No. 745 would be arbitrary and capricious because, under its requirements, DR was inappropriately receiving a double
payment (LMP plus the savings of foregone energy purchases). On January 15, 2015, FERC and a coalition of DR providers and
industrial end-user groups filed separate petitions for U.S. Supreme Court review of the May 23, 2014 decision. Responses to those
petitions are due March 19, 2015. The U.S. Court of Appeals for the D.C. Circuit will withhold issuance of the mandate pending the
United States Supreme Court's disposition of those petitions.
On May 23, 2014, FESC, on behalf of its affiliates with market-based rate authorization, filed a complaint asking FERC to issue an
order requiring the removal of all portions of the PJM Tariff allowing or requiring DR to be included in the PJM capacity market, with
a refund effective date of May 23, 2014. FESC also requested that the results of the May 2014 PJM BRA be considered void and
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