Allegheny Power 2015 Annual Report Download - page 64

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48
EachofthePennsylvaniaCompaniescurrentlyofferdistributionratesundertheirrespectiveJointPetitionsforSettlementapproved
onApril9,2015bythePPUC,which,amongotherthings,providedforatotalincreaseinannualrevenuesforallPennsylvania
Companiesof$292.8million,($89.3millionforME,$90.8millionforPN,$15.9millionforPennand$96.8millionforWP),including
the recovery of $87.7 million of additional annual operating expenses, including costs associated with service reliability
enhancementstothedistributionsystem,amortizationofdeferredstormcostsandtheremainingnetbookvalueoflegacymeters,
assistanceforprovidingservicetolowincomecustomers,andthecreationofastormreserveforeachutility.Additionally,the
approvedsettlementsincludecommitmentstomeetcertainwaittimesforcallcentersandservicereliabilitystandards.Thenewrates
wereeffectiveMay3,2015.
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OnJuly16,2013,thePPUC'sBureauofAuditsinitiatedafocusedmanagementandoperationsauditofthePennsylvaniaCompanies
asrequiredeveryeightyearsbystatute.ThePPUCissuedareportonitsfindingsandrecommendationsonFebruary12,2015,at
whichtimethePennsylvaniaCompanies'associatedimplementationplanwasalsomadepublic.InanorderissuedonMarch30,
2015,thePennsylvaniaCompaniesweredirectedtodevelopandfilebyMay29,2015arevisedimplementationplanregarding
certainoftheoperationaltopicsaddressedinthereport,includingaddressingcertainreliabilitymatters.ThePennsylvaniaCompanies
filedtheirrevisedimplementationplanincompliancewiththisorder.Afinalorderadoptingtheplan,asrevised,wasenteredon
November5,2015.ThecostofcomplianceforthePennsylvaniaCompaniesiscurrentlyexpectedtorangefromapproximately$200
millionto$230million.
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OnJune19,2015,MEandPN,alongwithJCP&L,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.
EvidentiaryhearingsarescheduledtocommencebeforethePPUConFebruary29,2016.AfinaldecisionfromthePPUCisexpected
bymid2016.SeeTransferofTransmissionAssetstoMAITinFERCMattersbelowforfurtherdiscussionofthistransaction.
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WESTVIRGINIA
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MPandPEcurrentlyoperateunderaJointStipulationandAgreementofSettlementapprovedbytheWVPSConFebruary3,2015,
thatprovidedfor:a$15millionincreaseinannualbaseraterevenueseffectiveFebruary25,2015theimplementationofaVegetation
ManagementSurchargetorecoverallcostsrelatedtobothnewandexistingvegetationmaintenanceprogramsauthoritytoestablish
aregulatoryassetforMATSinvestmentsplacedintoservicein2016and2017authoritytodefer,amortizeandrecoveroverafive
yearperiodthroughbaseratesapproximately$46millionofstormrestorationcostsandeliminationoftheTTSforcostsassociated
withMP'sacquisitionoftheHarrisonplantinOctober2013andmovementofthosecostsintobaserates.
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OnAugust14,2015,MPandPEfiledtheirannualENECcasewiththeWVPSCproposinganapproximate$165.1millionannual
increaseinrateseffectiveJanuary1,2016orbefore,whichwouldbea12.5%overallincreaseoverexistingrates.Theoriginal
proposedincreasewascomprisedofa$97millionunderrecoveredbalanceasofJune30,2015,aprojected$23.7millionunder
recoveryforthe2016calendaryear,andanactualunderrecoveredbalancefromMPandPE'sTTSforHarrisonPowerStationof
$44.4million.OnSeptember10,2015,MPandPEfiledanamendmentaddressingtheresultsoftherecentPJMTransitional
AuctionsforCapacityPerformance,whichresultedinanetdecreaseof$20.6millionfromtheinitialrequestedincreaseto$144.5
million.Asettlementwasreachedamongallthepartiesincreasingrevenues$96.9millionanddeferringothercostsforrecoveryinto
2017. ThesettlementwaspresentedtotheWVPSConNovember19,2015andafinalorderapprovingthesettlementwithout
changeswasissuedonDecember22,2015,withrateseffectiveonJanuary1,2016.
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OnAugust31,2015,MPandPEfiledwiththeWVPSCtheirbiennialpetitionforreconciliationoftheVegetationManagement
ProgramSurchargeandregularreviewoftheprogramproposinganapproximate$37.7millionannualincreaseinratesoveratwo
yearperiod,whichisa2.8%overallincreaseoverexistingrates.Theproposedincreasewascomprisedofa$2.1millionunder
recoveredbalanceasofJune30,2015,aprojected$23.9millioninunderrecoveryforthe2016/2017rateeffectiveperiod,and
recoveryofpreviouslyauthorizeddeferredvegetationmanagementcostsfromApril14,2014throughFebruary24,2015inthe
amountof$49.9million. Asettlementwasreachedamongallthepartiesincreasingrevenues$36.7millionannuallyforthe2016
2017twoyearraterecoveryperiod,andwaspresentedtotheWVPSConNovember19,2015.Afinalorderapprovingthesettlement
withoutchangeswasissuedonDecember21,2015,withrateseffectiveonJanuary1,2016.
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RELIABILITYMATTERS
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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.
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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
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49
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,andobligationstoupgrade
orbuildtransmissionfacilities,thatcouldhaveamaterialadverseeffectonitsfinancialcondition,resultsofoperationsandcash
flows.
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FERCMATTERS
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PJMTransmissionRates
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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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.
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InaseriesofordersincertainOrderNo.1000dockets,FERC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thequestionofwhether
FirstEnergyandthePJMtransmissionownershavea"rightoffirstrefusal"isnowpendingbeforetheU.S.CourtofAppealsforthe
D.C.CircuitinanappealofFERC'sorderapprovingPJM'sOrderNo.1000compliancefiling.
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Theoutcomeoftheseproceedingsandtheirimpact,ifany,onFirstEnergycannotbepredictedatthistime.

RTORealignment
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OnJune1,2011,ATSIandtheATSIzonetransferredfromMISOtoPJM.Whilemanyofthemattersinvolvedwiththemovehave
beenresolved,FERCdeniedrecoveryunderATSI'stransmissionrateforcertainchargesthatcollectivelycanbedescribedas"exit
fees"andcertainothertransmissioncostallocationchargestotalingapproximately$78.8millionuntilsuchtimeasATSIsubmitsa
cost/benefitanalysisdemonstratingnetbenefitstocustomersfromthetransfertoPJM.Subsequently,FERCrejectedaproposed
settlementagreementtoresolvetheexitfeeandtransmissioncostallocationissues,statingthatitsactioniswithoutprejudicetoATSI
submittingacost/benefitanalysisdemonstratingthatthebenefitsoftheRTOrealignmentdecisionsoutweightheexitfeeand
transmissioncostallocationcharges.FirstEnergy'srequestforrehearingofFERC'sorderrejectingthesettlementagreementremains
pending.
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Separately,thequestionofATSI'sresponsibilityforcertaincostsforthe“MichiganThumb”transmissionprojectcontinuestobe
disputed.PotentialresponsibilityarisesundertheMISOMVPtariff,whichhasbeenlitigatedincomplexproceedingsbeforeFERC
andcertainUnitedStatesappellatecourtsOnOctober29,2015,FERCissuedanorderfindingthatATSIandtheATSIzonedonot
havetopayMISOMVPchargesfortheMichiganThumbtransmissionproject.MISOandtheMISOTOsfiledarequestforrehearing,
whichispendingatFERC.IntheeventofafinalnonappealableorderthatrulesthatATSImustpaythesecharges,ATSIwillseek
recoveryofthesechargesthroughitsformularate.Onarelatedissue,FirstEnergyjoinedcertainotherPJMtransmissionownersina
protestofMISO'sproposaltoallocateMVPcoststoenergytransactionsthatcrossMISO'sbordersintothePJMRegion.OnJanuary
22,2015,FERCissuedanorderestablishingapaperhearingonremandfromtheSeventhCircuitoftheissueofwhetherany
limitationon"exportpricing"forsalesofenergyfromMISOintoPJMisjustifiedinlightofapplicableFERCprecedent.CertainPJM
transmissionowners,includingFirstEnergy,filedaninitialbriefassertingthatFERC’spriorrulingrejectingMISO’sproposedMVP
exportchargeontransactionsintoPJMwascorrectandshouldbereaffirmedonremand.Thebriefsandrepliestheretoarenow
beforeFERCforconsideration.

Inaddition,inaMay31,2011order,FERCruledthatthecostsforcertain"legacyRTEP"transmissionprojectsinPJMapproved
beforeATSIjoinedPJMcouldbechargedtotransmissioncustomersintheATSIzone.Theamounttobepaid,andthequestionof
derivedbenefits,ispendingbeforeFERCasaresultoftheSeventhCircuit'sJune25,2014orderdescribedaboveunderPJM
TransmissionRates.

Theoutcomeoftheproceedingsthataddresstheremainingopenissuesrelatedtocostsforthe"MichiganThumb"transmission
projectand"legacyRTEP"transmissionprojectscannotbepredictedatthistime.
 