Allegheny Power 2015 Annual Report Download - page 67

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50
2014ATSIFormulaRateFiling
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OnOctober31,2014,ATSIfiledaproposalwithFERCtochange thestructureofitsformularatefroman“historicallooking”
approach,wheretransmissionratesreflectactualcostsfortheprioryear,toa“forwardlooking”approach,wheretransmissionrates
wouldbebasedontheestimatedcostsforthecomingyear,withanannualtrueup.OnDecember31,2014,FERCissuedanorder
acceptingATSI'sfilingeffectiveJanuary1,2015,subjecttorefundandtheoutcomeofhearingandsettlementproceedings.FERC
subsequentlyissuedanorderonOctober29,2015,acceptingasettlementagreementontheforwardlookingformularate,subjectto
minor compliance requirements.The settlement agreement provides for certain changes toATSI's formula rate template and
protocols,andalsochangesATSI'sROEfrom12.38%tothefollowingvalues:(i)12.38%fromJanuary1,2015throughJune30,
2015(ii)11.06%fromJuly1,2015throughDecember31,2015and(iii)10.38%from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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TransferofTransmissionAssetstoMAIT
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OnJune10,2015,MAIT,aDelawarelimitedliabilitycompany,wasformedasanewtransmissiononlysubsidiaryofFETforthe
purposesofowningandoperatingallFERCjurisdictionaltransmissionassetsofJCP&L,MEandPNfollowingthereceiptofall
necessarystateandfederalregulatoryapprovals.OnJune19,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.Additionally,
thefilingsrequestedapprovalfromtheNJBPUandPPUC,asapplicable,of:(i)aleasetoMAITofrealpropertyandrightsofway
associatedwiththeutilities'transmissionassets(ii)aMutualAssistanceAgreement(iii)MAITbeingdeemedapublicutilityunder
state law (iv) MAIT's participation in FE's regulated companies' money pool and (v) certain affiliated interest agreements.If
approved,JCP&L,ME,andPNwillcontributetheirtransmissionassetsatnetbookvalueandanallocatedportionofgoodwillinatax
freeexchangetoMAIT,whichwilloperatesimilartoFET'stwoexistingstandalonetransmissionsubsidiaries,ATSIandTrAIL.MAIT's
transmissionfacilitieswillremainunderthefunctionalcontrolofPJM,andPJMwillprovidetransmissionserviceusingthesefacilities
underthePJMTariff.Duringthethirdquarterof2015,FirstEnergyrespondedtoFERCStaff'srequestforadditionalinformation
regardingtheapplication.FERCapprovalisexpectedduringthefirstquarterof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.SeeNewJerseyandPennsylvaniainStateRegulationaboveforfurtherdiscussionofthistransaction.
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CaliforniaClaimsMatters
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InOctober2006,severalCaliforniagovernmentalandutilitypartiespresentedAESupplywithasettlementproposaltoresolve
allegedoverchargesforpowersalesbyAESupplytotheCaliforniaEnergyResourceSchedulingdivisionoftheCDWRduring2001.
ThesettlementproposalclaimsthatCDWRisowedapproximately$190millionfortheseallegedovercharges.Thisproposalwas
madeinthecontextofmediationeffortsbyFERCandtheNinthCircuitinseveralpendingproceedingstoresolvealloutstanding
refundandotherclaims,includingclaimsofallegedpricemanipulationintheCaliforniaenergymarketsduring2000and2001.The
NinthCircuithadpreviouslyremandedoneofthoseproceedingstoFERC,whichdismissedtheclaimsoftheCaliforniapartiesinMay
2011.TheCaliforniapartiesappealedFERC'sdecisionbacktotheNinthCircuit.AESupplyjoinedwithotherintervenorsinthecase
andfiledabriefinsupportofFERC'sdismissalofthecase.OnApril29,2015,theNinthCircuitremandedthecasetoFERCfor
furtherproceedings.OnNovember3,2015,FERCsetforhearingandsettlementprocedurestheremandedissueofwhetherany
individual public utility seller’s violation of FERC’s marketbased rate quarterly reporting requirement led to an unjust and
unreasonablerateforthatparticularsellerinCaliforniaduringthe20002001period.SettlementdiscussionsunderaFERCappointed
settlementjudgeareongoing.RequestsforrehearingorclarificationofFERC’sNovember3,2015orderbyvariousparties,including
AESupply,remainpending.
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Inanotherproceeding,inMay2009,theCaliforniaAttorneyGeneral,onbehalfofcertainCaliforniaparties,filedacomplaintwith
FERCagainstvarioussellers,includingAESupply,againseekingrefundsfortransactionsintheCaliforniaenergymarketsduring
2000and2001.TheabovenotedtransactionswithCDWRarethebasisforincludingAESupplyinthiscomplaint.AESupplyand
otherpartiesfiledmotionstodismiss,whichFERCgranted.TheCaliforniaAttorneyGeneralappealedFERC'sdismissalofits
complainttotheNinthCircuit,whichhasconsolidatedthecasewithotherpendingappealsrelatedtoCaliforniarefundclaims,and
stayedtheproceedingspendingfurtherorder.
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Theoutcomeofeitheroftheabovemattersorestimateoflossorrangeoflosscannotbepredictedatthistime.
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PATHTransmissionProject
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OnAugust24,2012,thePJMBoardofManagerscanceledthePATHproject,aproposedtransmissionlinefromWestVirginia
throughVirginiaandintoMarylandwhichPJMhadpreviouslysuspendedinFebruary2011.AsaresultofPJMcancelingtheproject,
approximately$62millionandapproximately$59millionincostsincurredbyPATHAlleghenyandPATHWV(anequitymethod
investmentforFE),respectively,werereclassifiedfromnetproperty,plantandequipmenttoaregulatoryassetforfuturerecovery.
PATHAlleghenyandPATHWVrequestedauthorizationfromFERCtorecoverthecostswithaproposedROEof10.9%(10.4%base
plus0.5%forRTOmembership)fromPJMcustomersoverfiveyears.FERCissuedanorderdenyingthe0.5%ROEadderforRTO
membershipandallowingthetariffchangesenablingrecoveryofthesecoststobecomeeffectiveonDecember1,2012,subjectto
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51
settlement proceedings and hearing if the parties could not agree to a settlement. On March 24, 2014, the FERC ChiefALJ
terminatedsettlementproceedingsandappointedanALJtopresideoverthehearingphaseofthecase,includingdiscoveryand
additionalpleadingsleadinguptohearing,whichsubsequentlyincludedthepartiesaddressingtheapplicationofFERC'sOpinionNo.
531,discussedbelow,tothePATHproceeding.OnSeptember14,2015,theALJissuedhisinitialdecision,disallowingrecoveryof
certaincosts.TheinitialdecisionandexceptionstheretoarenowbeforeFERCforreviewandafinalorder.FirstEnergycontinuesto
believethecostsarerecoverable,subjecttofinalrulingfromFERC.
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FERCOpinionNo.531
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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thepotentialfor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forecast
basedonaforecastfortheU.S.economy(1/3weight).Regardingthequalitativeadjustment,forsingleutilityratecasesFERC
formerlypeggedROEatthemedian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. On October 16, 2014, FERC issued its Opinion No. 531A, applying the revised ROE
methodologytocertainISONewEnglandtransmissionowners,andonMarch3,2015,FERCissuedOpinionNo.531Baffirmingits
priorrulings.AppealsofOpinionNos.531,532Aand531BarependingbeforetheU.S.CourtofAppealsfortheD.C.Circuit.
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.
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MISOCapacityPortability
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OnJune11,2012,inresponsetocertainargumentsadvancedbyMISO,FERCrequestedcommentsregardingwhetherexisting
rulesontransfercapabilityactasbarrierstothedeliveryofcapacitybetweenMISOandPJM.FirstEnergyandotherpartiessubmitted
filingsarguing thatMISO's concernslargelyarewithoutfoundation,FERC did notmandatea solutionin response toMISO's
concerns.AtFERC'sdirection,inMay,2015,PJM,MISO,andtheirrespectiveindependentmarketmonitorsprovidedadditional
informationontheirvariousjointissuessurroundingthePJM/MISOseamtoassistFERC'sunderstandingoftheissuesandwhat,if
any,additionalstepsFERCshouldtaketoimprovetheefficiencyofoperationsatthePJM/MISOseam.Stakeholders,includingFESC
onbehalfofcertainofitsaffiliatesandaspartofacoalitionofcertainotherPJMutilities,filedresponsestotheRTOsubmissions.The
varioussubmissionsandresponsesarenowbeforeFERCforconsideration.
ChangestothecriteriaandqualificationsforparticipationinthePJMRPMcapacityauctionscouldhaveasignificantimpactonthe
outcomeofthoseauctions,includinganegativeimpactonthepricesatwhichthoseauctionswouldclear.

FTRUnderfundingComplaint

InPJM,FTRsareamechanismtohedgecongestionandoperateasafinancialreplacementforphysicalfirmtransmissionservice.
FTRs are financiallysettled instruments that entitle the holder to a stream of revenues based on the hourly congestion price
differencesacrossaspecifictransmissionpathinthePJMDayaheadEnergyMarket.DuetocertainlanguageinthePJMTariff,the
fundsthataresetasidetopayFTRscanbedivertedtootheruses,whichmayresultin“underfunding”ofFTRpayments.On
February15,2013,FESandAESupplyfiledarenewedcomplaintwithFERCforthepurposeofchangingthePJMTarifftoeliminate
FTRunderfunding.OnJune5,2013,FERCissuedanorderdenyingthecomplaint,andonJune8,2015,deniedarequestfor
rehearingoftheJune5,2013order.

PJMMarketReform:PJMCapacityPerformanceProposal
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InDecember2014,PJMsubmittedproposed“CapacityPerformance”reformsofitsRPMcapacityandenergymarkets.OnJune9,
2015,FERCissuedanorderconditionallyapprovingthebulkoftheproposedCapacityPerformancereformswithaneffectivedateof
April1,2015,anddirectedPJMtomakeacompliancefilingreflectingthemandateofFERC’sorder.OnJuly9,2015,severalparties,
includingFESConbehalfofcertainofitsaffiliates,submittedrequestsforrehearingforFERC'sJune9,2015order,andPJM
submitteditscompliancefilingasdirectedbytheorder.TherequestsforrehearingandPJM'scompliancefilingarependingbefore
FERC.
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InAugustandSeptember2015,PJMconductedRPMauctionspursuanttothenewCapacityPerformancerules.FirstEnergy’snet
competitivecapacitypositionasaresultoftheBRAandCapacityPerformancetransitionauctionsisasfollows:
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