Allegheny Power 2014 Annual Report Download - page 65

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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.
ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water quality and other environmental matters.
Compliance with environmental regulations could have a material adverse effect on FirstEnergy's earnings and competitive position
to the extent that FirstEnergy competes with companies that are not subject to such regulations and, therefore, do not bear the risk
of costs associated with compliance, or failure to comply, with such regulations.
Clean Air Act
FirstEnergy complies with SO2 and NOx emission reduction requirements under the CAA and SIP(s) by burning lower-sulfur fuel,
utilizing combustion controls and post-combustion controls, generating more electricity from lower or non-emitting plants and/or
using emission allowances. CAIR requires reductions of NOx and SO2 emissions in two phases (2009/2010 and 2015), ultimately
capping SO2 emissions in affected states to 2.5 million tons annually and NOx emissions to 1.3 million tons annually. In 2008, the
U.S. Court of Appeals for the D.C. Circuit decided that CAIR violated the CAA but allowed CAIR to remain in effect to “temporarily
preserve its environmental values” until the EPA replaced CAIR with a new rule consistent with the Court's decision. In July 2011,
the EPA finalized CSAPR, to replace CAIR, requiring reductions of NOx and SO2 emissions in two phases (2012 and 2014), ultimately
capping SO2 emissions in affected states to 2.4 million tons annually and NOx emissions to 1.2 million tons annually. CSAPR allows
trading of NOx and SO2 emission allowances between power plants located in the same state and interstate trading of NOx and
SO2 emission allowances with some restrictions. On December 30, 2011, CSAPR was stayed by the U.S. Court of Appeals for the
D.C. Circuit and was ultimately vacated by the Court on August 21, 2012. The Court subsequently ordered the EPA to continue
administration of CAIR until it finalized a valid replacement for CAIR. On April 29, 2014, the U.S. Supreme Court reversed the U.S.
Court of Appeals for the D.C. Circuit decision vacating CSAPR and generally upheld the EPA's authority under the CAA to establish
the regulatory structure underpinning CSAPR. On October 23, 2014, the U.S. Court of Appeals for the D.C. Circuit lifted its stay of
CSAPR allowing its Phase 1 reductions of NOx and SO2 emissions to begin in 2015, a three year delay from EPA's original rule.
CSAPR Phase 2 will also be delayed by three years to 2017. Depending on the outcome of further proceedings in this matter and
how the EPA and the states implement the final rules, the future cost of compliance may be substantial and changes to FirstEnergy's
and FES' operations may result.
MATS imposes emission limits for mercury, PM, and HCL for all existing and new coal-fired electric generating units effective in
April 2015 with averaging of emissions from multiple units located at a single plant. Under the CAA, state permitting authorities can
grant an additional compliance year through April 2016, as needed, including instances when necessary to maintain reliability where
electric generating units are being closed. On December 28, 2012, the WVDEP granted a conditional extension through April 16,
2016 for MATS compliance at the Fort Martin, Harrison and Pleasants stations. On March 20, 2013, the PA DEP granted an extension
through April 16, 2016 for MATS compliance at the Hatfield's Ferry and Bruce Mansfield stations. In December 2014, FG requested
an extension through April 16, 2016 for MATS compliance at the Bay Shore and Sammis stations and await a decision from OEPA.
In addition, an EPA enforcement policy document contemplates up to an additional year to achieve compliance, through April 2017,
under certain circumstances for reliability critical units. MATS was challenged in the U.S. Court of Appeals for the D.C. Circuit by