Allegheny Power 2015 Annual Report Download - page 61

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Retailcreditqualityisaffectedbytheeconomyandtheabilityofcustomerstomanagethroughunfavorableeconomiccyclesand
other market changes. If the business environment were to be negatively affected by changes in economic or other market
conditions,FirstEnergy'sretailcreditriskmaybeadverselyimpacted.
OUTLOOK
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STATEREGULATION
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EachoftheUtilities'retailrates,conditionsofservice,issuanceofsecuritiesandothermattersaresubjecttoregulationinthestates
inwhichitoperatesinMarylandbytheMDPSC,inOhiobythePUCO,inNewJerseybytheNJBPU,inPennsylvaniabythePPUC,
inWestVirginiabytheWVPSCandinNewYorkbytheNYPSC.ThetransmissionoperationsofPEinVirginiaaresubjecttocertain
regulationsoftheVSCC.Inaddition,underOhiolaw,municipalitiesmayregulateratesofapublicutility,subjecttoappealtothe
PUCOifnotacceptabletotheutility.
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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.
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MARYLAND
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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SOSsupplyforPEcustomershaveexpired,service
continuesinthesamemanneruntilchangedbyorderoftheMDPSC.PErecoversitscostsplusareturnforprovidingSOS.
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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,andrequiringeachelectricutilitytofileaplaneverythreeyears.PE's
currentplan,coveringthethreeyearperiod20152017,wasapprovedbytheMDPSConDecember23,2014.Thecostsofthe2015
2017plan areexpected tobe approximately$66 millionforthatthreeyearperiod,ofwhich $19millionwasincurredthrough
December2015.OnJuly16,2015,theMDPSCissuedanordersettingnewincrementalenergysavingsgoalsfor2017andbeyond,
beginningwiththelevelofsavingsachievedunderPE'scurrentplanfor2016,andrampingup0.2%peryearthereaftertoreach2%.
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.OnJanuary28,2016,PEfiledarequesttoincreaseplanspendingby$2
millioninordertoreachthenewgoalsfor2017setintheJuly16,2015order.
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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responsivefilings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oftheMDPSC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oftheMDPSC.Inaddition,theStaff
oftheMDPSC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issuedaruling
onanyofthosematters.
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OnMarch3,2014,pursuanttotheMDPSC'sregulations,PEfileditsrecommendationsforSAIDIandSAIFIstandardstoapplyduring
theperiod20162019.TheMDPSCdirectedtheStaffoftheMDPSCtofileananalysisandrecommendationswithrespecttothe
proposed20162019SAIDIandSAIFIstandardsandanyrelatedrulechangeswhichtheStaffoftheMDPSCrecommended.The
Staff oftheMDPSCmade itsfiling onJuly10, 2015, andrecommendedthat PE berequiredto improveits SAIDI resultsby
approximately20%by2019.TheMDPSCheldahearingontheStaff'sanalysisandrecommendationsonSeptember12,2015,and
approvedPE'srevisedproposalforanimprovementof8.6%initsSAIDIstandardby2019andmaintaineditsSAIFIstandardat2015
levels. TheproposedregulationsincorporatingthenewSAIDIandSAIFIstandardswereapprovedasfinalinDecember2015.
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OnApril1,2015,PEfileditsannualreportonitsperformancerelativetovariousservicereliabilitystandardssetforthintheMDPSC’s
regulations.TheMDPSCconductedhearingsonthereportsfiledbyPEandtheotherelectricutilitiesinMarylandonAugust24,2015
andsubsequentlyclosedits2014servicereliabilityreview.
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NEWJERSEY
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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iscomprisedoftwocomponents,procuredthroughseparate,annuallyheld
descendingclockauctions,theresultsofwhichareapprovedbytheNJBPU.OneBGScomponentreflectshourlyrealtimeenergy
pricesandisavailableforlargercommercialandindustrialcustomers.ThesecondBGScomponentprovidesafixedpriceservice
and 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.
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OnMarch26,2015,theNJBPUenteredfinalorderswhichtogetherprovidedanoverallreductioninJCP&L'sannualrevenuesof
approximately$34million,effectiveApril1,2015.ThefinalorderinJCP&L'sbaseratecaseproceedingdirectedanannualbaserate
revenuereductionofapproximately$115million,includingrecoveryof2011stormcostsandtheapplicationoftheNJBPU'smodified
CTA policy approved in the generic CTA proceeding referred to below.Additionally, the final order in the generic proceeding
establishedtoreviewJCP&L'smajorstormeventsof2011and2012approvedtherecoveryof2012stormcostsof$580million
resultinginanincreaseinannualrevenuesofapproximately$81million.JCP&Lisrequiredtofileanotherbaseratecasenolater
thanApril1,2017.TheNJBPUalsodirectedthatcertainstudiesbecompleted.OnJuly22,2015,theNJBPUapprovedtheNJBPU
staff'srecommendationtoimplementsuchstudies,whichwillincludeoperationalandfinancialcomponentsandisexpectedtotake
approximatelyoneyeartocomplete.
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InanOrderissuedOctober22,2014,inagenericproceedingtoreviewitspolicieswithrespecttotheuseofaCTAinbaserate
cases(GenericCTAproceeding),theNJBPUstatedthatitwouldcontinuetoapplyitscurrentCTApolicyinbaseratecases,subject
toincorporatingthefollowingmodifications:(i)calculatingsavingsusingafiveyearlookbackfromthebeginningofthetestyear(ii)
allocatingsavingswith75%retainedbythecompanyand25%allocatedtoratepayersand(iii)excludingtransmissionassetsof
electricdistributioncompaniesinthesavingscalculation.OnNovember5,2014,theDivisionofRateCounselappealedtheNJBPU
OrderregardingtheGenericCTAproceedingtotheNewJerseySuperiorCourtandJCP&Lhasfiledtoparticipateasarespondentin
thatproceeding.Briefinghasbeencompleted,andoralargumenthasnotyetbeenscheduled.
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OnJune19,2015,JCP&L,alongwith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,anewtransmissiononlysubsidiaryofFET.On
January8,2016,theNJBPUPresidentissuedanOrdergrantingRateCounsel’sMotiononthelegalissueofwhetherMAITcanbe
designatedasapublicutility.Theproceduralschedulehasbeensuspendeduntiladecisionismadeonthisissue.SeeTransferof
TransmissionAssetstoMAITinFERCMattersbelowforfurtherdiscussionofthistransaction.

OHIO
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TheOhioCompaniesoperateundertheirESP3planwhichexpiresonMay31,2016.ThematerialtermsofESP3include:
•AbasedistributionratefreezethroughMay31,2016
•Collectionoflostdistributionrevenuesassociatedwithenergyefficiencyandpeakdemandreductionprograms
•Economicdevelopmentandassistancetolowincomecustomersforthetwoyearplanperiodatlevelsestablishedinthe
priorESP
•A6%generationratediscounttocertainlowincome customersprovidedbytheOhioCompanies throughabilateral
wholesalecontractwithFES(FESisoneofthewholesalesupplierstotheOhioCompanies)
•Arequirementtoprovidepowertononshoppingcustomersatamarketbasedpricesetthroughanauctionprocess
•RiderDCRthatallowscontinuedinvestmentinthedistributionsystemforthebenefitofcustomers
•Acommitmentnottorecoverfromretailcustomerscertaincostsrelatedtotransmissioncostallocationsforthelongerofthe
fiveyearperiodfromJune1,2011throughMay31,2016orwhentheamountofcostsavoidedbycustomersforcertain
typesofproductstotals$360million,subjecttotheoutcomeofcertainFERCproceedings
•Securinggenerationsupplyforalongerperiodoftimebyconductinganauctionforathreeyearperiodratherthanaone
yearperiod,ineachofOctober2012andJanuary2013,tomitigateanypotentialpricespikesfortheOhioCompanies'utility
customerswhodonotswitchtoacompetitivegenerationsupplierand
•ExtendingtherecoveryperiodforcostsassociatedwithpurchasingRECsmandatedbySB221,Ohio'srenewableenergy
andenergyefficiencystandard,throughtheendofthenewESP3period.Thisisexpectedtoinitiallyreducethemonthly
renewableenergychargeforallnonshoppingutilitycustomersoftheOhioCompaniesbyspreadingoutthecostsoverthe
entireESPperiod.

NoticesofappealoftheOhioCompanies'ESP3plantotheSupremeCourtofOhiowerefiledbytheNortheastOhioPublicEnergy
CouncilandtheELPC.TheoralargumentinthismatteroccurredonJanuary6,2016.

TheOhioCompaniesfiledanapplicationwiththePUCOonAugust4,2014seekingapprovaloftheirESPIVentitledPoweringOhio's
Progress.TheOhioCompaniesfiledaStipulationandRecommendationonDecember22,2014,andsupplementalstipulationsand
recommendationsonMay28,2015,andJune4,2015.TheevidentiaryhearingontheESPIVcommencedonAugust31,2015and
concluded on October 29, 2015. On December 1, 2015, the Ohio Companies filed a Third Supplemental Stipulation and
Recommendation,whichincludedPUCOStaffasasignatorypartyinadditiontoothersignatories.ThePUCOcompletedahearing