Allegheny Power 2015 Annual Report Download - page 23

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EXECUTIVESUMMARY
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FirstEnergycontinuestocapitalizeoninvestmentopportunitiesavailableinitsRegulatedTransmissionandRegulatedDistribution
businesseswhileimplementingaconservativehedgingstrategyatitsCompetitivebusiness.FirstEnergyisfocusedonimprovingits
balancesheetandmaintaininginvestmentgradecreditmetricsateachbusinessunit,whileimprovingmetricsatFirstEnergyover
time.
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FirstEnergy’sregulatedinvestmentstrategyfocuses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.
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RegulatedTransmission
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ThecenterpieceofFirstEnergy’sregulatedinvestmentstrategyistheEnergizingtheFuturetransmissionexpansionplan.Theinitial
phaseofthisplanincludes$4.2billionininvestmentsfrom2014through2017tomodernizeFirstEnergy'stransmissionsystem.
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Inconjunctionwithitstransmissionexpansionplan,in2015ATSIreceivedFERCapprovalofits"forwardlooking"rate,implemented
onJanuary1,2015,wheretransmissionratesarebasedonestimatedcostsforthecurrentyearwithanannualtrueup,andanROE
of:(i)12.38%fromJanuary1,2015throughJune30,2015(ii)11.06%fromJuly1,2015throughDecember31,2015and10.38%
effectiveJanuary1,2016,unlesschangedpursuanttoSection205or206oftheFPA,providedtheeffectivedateforanychange
cannotbeearlierthanJanuary1,2018.
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Additionally, in June 2015, JCP&L, PN, ME, FET, and MAIT made filings with FERC, the NJBPU, and the PPUC requesting
authorizationforJCP&L,PNandMEtocontributetheirtransmissionassetstoMAIT.Ifapproved,MAITwilloperatesimilartoFET’s
twoexistingstandalonetransmissionsubsidiariesATSIandTrAIL.FERCapprovalisexpectedinMarch2016withfinaldecisions
expectedfromtheNJBPUandPPUCbymid2016.FollowingFERCapprovalofthetransfer,MAITexpectstofileaSection204
applicationwithFERC,andothernecessaryfilingswiththePPUCandtheNJBPU,seekingauthorizationtoissueequitytoFET,
JCP&L,PNandMEfortheirrespectivecontributions,andtoissuedebt.MAITwillalsomakeaSection205formularateapplication
withFERCtoestablishitstransmissionrate.
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RegulatedDistribution
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During2015,FirstEnergycontinuedtopursuekeyregulatoryinitiativesacrossitsutilityfootprint,focusingonprovidingsignificant
benefitstocustomerswhileensuringthetimelyandappropriaterecoveryofinvestments.Theseinitiativesincluded:
•TheOhioCompanies'ESPIV,PoweringOhio’sProgress:TheESPIV,includingtheimpactoffiledstipulationsinthecase,
contemplatescontinuingadistributionratefreezethroughMay2024whilehelpingensurecontinuedavailabilityofmorethan
3,200MWsofFirstEnergy’scriticalbaseloadgeneratingassetsprimarilylocatedinthestateandservingthelongterm
energyneedsofOhiocustomers.EvidentiaryhearingscommencedinAugust2015.OnDecember1,2015,FirstEnergy's
OhioCompaniesfiledanadditionalsettlementatthePUCO,whichincludedthePUCOStaffasasignatoryparty,thatsets
forthambitiousstepstohelpsafeguardcustomersagainstretailgenerationpriceincreasesinfutureyears,deploynew
energyefficiencyprograms,andprovideaclearpathtoacleanerenergyfuturebyestablishingagoaltosubstantially
reducecarbonemissions.Thesettlementincludesaneightyearrateprovision(RiderRRS)designedtohelpprotect
customersagainstrisingretailpriceincreasesandmarketvolatility,whilehelpingpreservevitalbaseloadpowerplantsthat
serveOhiocustomersandprovidethousandsoffamilysustainingjobsinthestate.TheplantsinvolvedincludetheDavis
BesseNuclearPowerStation,theW.H.SammisPlant,andaportionoftheoutputofOVECunitsinGallipolis,Ohio,and
Madison,Indiana.AdecisionisanticipatedinMarch2016.OnJanuary27,2016,certainpartiesfiledacomplaintatFERC
againstFES,OE,CEI,andTEthatrequestsFERCreviewoftheESPIVPPAunderSection205oftheFPA.Inadditionto
suchproceeding,partieshaveexpressedanintentiontochallenge,inthecourtsand/orbeforeFERC,thePPAorPUCO
approvaloftheESPIV,ifapproved.Managementintendstovigorouslydefendagainstsuchchallenges.
ImplementationofNewRatesinPennsylvaniaforME,PN,PennandWP:ThenewrateswereapprovedinApril2015and
wentintoeffectinMay2015 providingforanincreaseinannualrevenuesofapproximately$293millionandapproximately
$88millionofadditionalannualoperatingexpenses.Furthermore,inOctober2015,thePennsylvaniacompaniesfiled
LTIIPswiththePPUCforinfrastructureimprovementsoverthe2016to2020periodtotalingnearly$245million,whichwere
approvedonFebruary11,2016.ThePennsylvaniaCompaniesfiledDSICridersonFebruary16,2016,forquarterlycost
recoveryassociatedwiththeprojectsapprovedintheLTIIPs.
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ImplementationofNewRatesinWestVirginiaforMPandPE:Thenewrateswereapprovedandwentintoeffectin
February 2015, resulting in recovery of $63 million annually for reliability investments and expenses, storm damage
expenses,andinvestmentsinoperatingimprovementsandenvironmentalcomplianceatMP’sandPE’sregulatedcoalfired
powerplantsinWestVirginia.MPandPEalsoreceivedordersinDecember2015intheirENECcaseandtheirbiennial
vegetationmanagementprogramsurchargereconciliation,resultinginrevenueincreases,effectiveJanuary1,2016,totaling
$96.9millionand$36.7million,respectively,torecoverdeferredcosts.
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Additionally,during2015,theNJBPUissuedordersonJCP&L’sbaserateproceedingsanditsgenericstormproceedingsresultingin
areductionofapproximately$34millioninannualrevenues,inclusiveofrecoveryof2011and2012stormcosts,aswellasthe
NJBPU’srecentlymodifiedCTApolicy.Aspartofthebaserateorder,JCP&Lisrequiredtofileanotherbaseratecasenolaterthan
April1,2017.
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CompetitiveEnergyServices
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FirstEnergycontinuesitsstrategyforitscompetitivebusinesstomoreeffectivelyhedgeitsgenerationby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ortomitigaterisk.Thisstrategyisdesignedto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wholesalemarketsadequatelyvaluebaseloadgeneration,whichisessentialto
maintaininggridreliability.
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TheCESsegmenteconomicallyhedgesexposuretopriceriskonaratablebasis,whichisintendedtoreducetheneartermfinancial
impactofmarketpricevolatility.Onaverage,theCESsegmentexpectstoproduceapproximately7580millionMWHsofelectricity
annually,withuptoanadditional5millionMWHsavailablefrompurchasedpoweragreementsforwind,solaranditsentitlementfrom
OVEC.In2015,CESsoldapproximately75millionMWHsofwhich68millionMWHswerethroughcontractsaleswithanother7
millionMWHsofwholesalesales.AsofDecember31,2015,committedsalesfor2016and2017wereapproximately61million
MWHsand38millionMWHs,respectively.
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Fromageneration perspective,FirstEnergycontinues tofocus on ensuringits competitivefleetiscosteffective,efficientand
environmentallysound.FirstEnergyisontracktoexceedbenchmarksestablishedbyMATSandotherenvironmentalregulations.
FirstEnergy’stotalcostforMATScomplianceisexpectedtobeapproximately$345million($168millionatCESand$177millionat
RegulatedDistribution),ofwhich$202millionhasbeenspentthroughDecember31,2015($80millionatCESand$122millionat
RegulatedDistribution).
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During2015,FirstEnergycompletedscheduledshutdownsforthreeofitsnuclearunitsBeaverValleyUnit1andUnit2andthe
PerryNuclearPowerplantforrefuelingandmaintenance.Duringtheoutages,fuelassemblieswereexchangedandnumerous
inspections and preventative maintenance and improvement projects were completed to ensure continued safe and reliable
operations.Additionally,inDecember2015,theNRCapproveda20yearlicenseextensionfortheDavisBesseNuclearPower
Stationallowingtheunittooperateuntil2037.
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Also,in2015,PJMconductedthe2015BRAforthe2018/2019deliveryyearandCapacityPerformancetransitionauctionsforthe
2016/2017and2017/2018deliveryyears.FirstEnergy’snetcompetitivecapacitypositionasaresultoftheBRAandCapacity
Performancetransitionauctionsisasfollows:
20162017
20172018
20182019*
Legacy
Obligation
Capacity
Performance
Legacy
Obligation
Capacity
Performance
Base
Generation
Capacity
Performance
(MW) ($/MWD) (MW) ($/MWD) (MW) ($/MWD) (MW) ($/MWD) (MW) ($/MWD) (MW) ($/MWD)
ATSI
2,765 $114.23 4,210 $134.00 375 $120.00 6,245 $151.50

— $149.98 6,245 $164.77
RTO
875
$59.37
3,675
$134.00
985
$120.00
3,565
$151.50
240
$149.98
3,930
$164.77
AllOther
Zones
135
$119.13
—
$134.00
150
$120.00
—
$151.50
35
**
20
**
3,775
7,885
1,510
9,810
275
10,195
*Approximately885MWsremainuncommittedforthe2018/2019deliveryyear.
**BaseGeneration:10MWsclearedat$200.21/MWDand25MWsclearedat$149.98/MWD.CapacityPerformance:5MWsclearedat
$215.00/MWDand15MWsclearedat$164.77/MWD.
ProjectedCESCapacityRevenue*($Millions)
2016 2017 2018
2019
(through5/31)
CapacityRevenue
$815
$590
$620
$260
*Includesrevenuesfromtheresultsofincremental/transitionalcapacityauctions,bilateraltransactionsandcapacitytransferrights.
