Regulatory Matters | 9 Months Ended |
Sep. 30, 2014 |
Regulated Operations [Abstract] | ' |
REGULATORY MATTERS | ' |
REGULATORY MATTERS |
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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 residential SOS for PE customers expired on December 31, 2012, by statute, service continues in the same manner unless changed by order of the MDPSC. The settlement provisions relating to non-residential SOS have also expired; however, by MDPSC order, the terms of service remain in place unless PE requests or the MDPSC orders a change. 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. PE's initial plan submitted in compliance with the statute was approved in 2009 and covered 2009-2011, the first three years of the statutory period. Expenditures were originally estimated to be approximately $101 million for the PE programs for the entire period of 2009-2015. PE's plan for the second three year period, 2012-2014, included additional and improved programs, and was approved by the MDPSC in December 2011. PE filed its third plan, covering the three-year period 2015-2017, on September 2, 2014. The projected costs of the 2015-2017 plan are approximately $64 million for that three year period. The MDPSC held hearings for the utilities' 2015-2017 plans on October 20-24, 2014. 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. |
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Pursuant to a bill passed by the Maryland legislature in 2011, the MDPSC adopted rules, effective May 28, 2012, that set utility-specific SAIDI and SAIFI targets for 2012-2015; prescribed detailed tree-trimming requirements, outage restoration and downed wire response deadlines; imposed other reliability and customer satisfaction requirements; and established annual reporting requirements. The MDPSC is required to assess each utility's compliance with the new rules, and may assess penalties of up to $25,000 per day, per violation. PE has advised the MDPSC that compliance with the new rules is expected to increase costs by approximately $106 million over the period 2012-2015. On April 1, 2013, the Maryland electric utilities, including PE, filed their first annual reports on compliance with the new rules, and following a hearing, the MDPSC issued an order on September 3, 2013, which accepted PE's filing and the operational changes proposed therein. PE filed its second annual report on March 27, 2014. The MDPSC held a hearing on the utility reports on July 10, 2014, and on August 27, 2014, the MDPSC issued an order accepting PE's second report. |
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Following a "derecho" storm through the region on June 29, 2012, the MDPSC convened a proceeding to consider matters relating to the electric utilities' performance in responding to the storm. Hearings on the matter were conducted in September 2012. Concurrently, Maryland's governor convened a special panel to examine possible ways to improve the resilience of the electric distribution system. On October 3, 2012, that panel issued a report calling for various measures including: acceleration and expansion of some of the requirements contained in the reliability standards which had become final on May 28, 2012; selective increased investment in system hardening; creation of separate recovery mechanisms for the costs of those changes and investments; and penalties or bonuses on returns earned by the utilities based on their reliability performance. On February 27, 2013, the MDPSC issued an order (the February 27 Order) requiring the utilities to submit several reports over a series of months, 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 responded to the requirements in the order consistent with the schedule set forth therein. PE's final filing on September 3, 2013, 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 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. In addition, the Staff 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 scheduled further proceedings on any of the matters. |
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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, which is comprised of two components, is provided through contracts procured through separate, annually held descending clock auctions, the results of which are approved by the NJBPU. One BGS component and auction, reflecting hourly real time energy prices, is available for larger commercial and industrial customers. The other BGS component and auction, providing a fixed price service, 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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In a written Order issued July 31, 2012, the NJBPU found that a base rate proceeding "will assure that JCP&L's rates are just and reasonable and that JCP&L is investing sufficiently to assure the provision of safe, adequate and proper utility service to its customers" and ordered JCP&L to file a base rate case using a historical 2011 test year. The rate case petition was filed on November 30, 2012 by JCP&L requesting approval to increase revenues by approximately $31 million, which included the recovery of 2011 storm costs but excluded approximately $603 million of costs incurred in 2012 associated with the impact of Hurricane Sandy. The NJBPU transmitted the case to the New Jersey Office of Administrative Law for further proceedings and an ALJ was assigned. Hearings in the rate case concluded in November 2013. In the initial briefs of the parties filed on January 27, 2014, the Division of Rate Counsel recommended that base rate revenues be reduced by $214.9 million while the NJBPU Staff recommended a $207.4 million reduction (such amounts do not address the revenue requirements associated with the major storm events of 2011 and 2012). Reply briefs were filed on February 24, 2014. On May 5, 2014, JCP&L submitted updated schedules to reflect the result of the generic storm cost proceeding, discussed below, to revise the debt rate to 5.93%, and to request that base rate revenues be increased by $9.1 million, including the recovery of 2011 storm costs. The record in the case was closed as of June 30, 2014, and the matter is pending before the ALJ. On July 24, 2014, the Division of Rate Counsel filed a motion with the NJBPU requesting that effective August 1, 2014, JCP&L's existing rates be continued on a provisional basis until the NJBPU's final order in the base rate case and subject to refund. JCP&L filed a brief opposing the motion on August 4, 2014, and the Division of Rate Counsel filed a reply to JCP&L's opposition on August 8, 2014. On September 30, 2014, the NJBPU granted the request of the ALJ to extend the time for an initial decision in the base rate case until November 13, 2014. |
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On January 23, 2013, the NJBPU opened a generic proceeding to review its policies with respect to the use of a CTA in base rate cases. The NJBPU and its Staff solicited, and were provided, input from interested stakeholders, including utilities and the Division of Rate Counsel. On June 18, 2014, the NJBPU Staff proposed to amend current CTA policy by: 1) calculating savings using a 5 year look back from the beginning of the test year; 2) allocating savings with 75% retained by the company and 25% allocated to rate payers; and 3) excluding transmission assets of electric distribution companies in the savings calculation. JCP&L and other stakeholders filed written comments on the Staff proposal on August 18, 2014. In its Order issued October 22, 2014, the NJBPU stated it would continue to apply its current CTA policy in base rate cases, subject to incorporating the staff proposed modifications (as discussed above). For pending base rate cases in which the record had closed, such as JCP&L’s, the NJBPU would, following an initial decision of the ALJ, reopen the record for the limited purpose of adding a CTA calculation reflecting the modified policy and allow parties the opportunity to comment. Although FirstEnergy is still reviewing the CTA Order, by our interpretation and calculation, FirstEnergy expects that application of the modified policy in the pending JCP&L base rate case would reduce the CTA revenue adjustment as proposed by certain parties to the case from approximately $56 million to approximately $5 to $6 million. |
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On March 20, 2013, the NJBPU ordered that a generic proceeding be established to investigate the prudence of costs incurred by all New Jersey utilities for service restoration efforts associated with the major storm events of 2011 and 2012. The Order provided that if any utility had already filed a proceeding for recovery of such storm costs, to the extent the amount of approved recovery had not yet been determined, the prudence of such costs would be reviewed in the generic proceeding. On May 31, 2013, the NJBPU clarified its earlier order to indicate that the 2011 major storm costs would be reviewed expeditiously in the generic proceeding, with the goal of maintaining the base rate case schedule established by the ALJ where recovery of such costs would be addressed. The NJBPU further indicated in the May 31 clarification that it would review the 2012 major storm costs in the generic proceeding and the recovery of such costs would be considered through a Phase II in the existing base rate case or through another appropriate method to be determined at the conclusion of the generic proceeding. On June 21, 2013, consistent with NJBPU's orders, JCP&L filed the detailed report in support of recovery of major storm costs with the NJBPU. On February 24, 2014, a Stipulation was filed with the NJBPU by JCP&L, the Division of Rate Counsel and NJBPU Staff which will allow recovery of $736 million of JCP&L's $744 million of costs related to the significant weather events of 2011 and 2012. As a result, FirstEnergy recorded a regulatory asset impairment charge of approximately $8 million (pre-tax) in the fourth quarter of 2013. By its Order of March 19, 2014, the NJBPU approved the Stipulation of Settlement and on March 25, 2014, transmitted a copy of that Order to the Office of Administrative Law so that “actual recovery of the 2011 costs can be determined in relation to the pending base rate case.” Recovery of 2011 storm costs will be addressed in the pending base rate case and are included in JCP&L's May 5, 2014, proposed rate increase; while recovery of 2012 storm costs will be determined by the NJBPU. |
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OHIO |
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The Ohio Companies primarily operate under their ESP 3 plan which expires on May 31, 2016. The material terms of ESP 3 include: |
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• | Continuing the current base distribution rate freeze through May 31, 2016; |
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• | Continues collection of lost distribution revenues associated with energy efficiency and peak demand reduction programs; |
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• | Continuing to provide economic development and assistance to low-income customers for the two-year plan period at levels established in the existing prior ESP; |
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• | 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); |
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• | Continuing to provide power to non-shopping customers at a market-based price set through an auction process; |
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• | Continuing Rider DCR that allows continued investment in the distribution system for the benefit of customers; |
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• | Continuing 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; |
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• | 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 |
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• | Extending the recovery period for costs associated with purchasing RECs mandated by SB221 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. |
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Notices of appeal to the Supreme Court of Ohio were filed by the Northeast Ohio Public Energy Council and the ELPC. While briefing has been completed, the matter has not yet been scheduled for oral argument. Northeast Ohio Public Energy Council and the ELPC filed a motion to expedite the oral argument on August 28, 2014. The Ohio Companies responded opposing the motion on September 8, 2014. On October 8, 2014, the Supreme Court of Ohio denied the Northeast Ohio Public Energy Council and ELPC's motion to expedite the oral argument. |
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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 have requested a decision by the PUCO by April 8, 2015. The evidentiary hearing on the ESP IV is currently scheduled to commence January 20, 2015. The material terms of the proposed plan include: |
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• | Continuing a base distribution rate freeze through May 31, 2019; |
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• | Continues collection of lost distribution revenues associated with energy efficiency and peak demand reduction programs; |
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• | Providing economic development and assistance to low-income customers for the three-year plan period; |
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• | An Economic Stability Program providing for a retail rate stability rider to flow through charges or credits representing the net result of the costs paid to FES through a proposed 15-year purchase power agreement for the output of Sammis, Davis-Besse and FES’ share of OVEC against the revenues received from selling the output into the PJM markets over the same period; |
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• | Continuing to provide power to non-shopping customers at a market-based price set through an auction process; |
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• | Continuing Rider DCR with increased revenue caps of approximately $30 million per year that allows continued investment supporting the distribution system for the benefit of customers; |
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• | 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 such costs avoided by customers for certain types of products totals $360 million, including appropriately such costs from MISO along with such costs from PJM, subject to the outcome of certain FERC proceedings; and |
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• | General updates to electric service regulations and tariffs to reflect regulatory orders, administrative rule changes, and current practices. |
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Under R.C. 4928.66 (codification of SB221), and the Ohio Companies' filing of amended energy efficiency plans under SB310, the Ohio Companies are required to implement energy efficiency programs that achieve a total annual energy savings equivalent of approximately 1,200 GWHs in 2012, 1,705 GWHs in 2013, and 2,237 GWHs in 2014, 2015, and 2016. The Ohio Companies are also required to reduce peak demand in 2009 by 1%, with an additional 0.75% reduction each year thereafter through 2014, and retain the 2014 level for 2015 and 2016, and then increase the benchmark by an additional 0.75% thereafter through 2020. The Ohio Companies filed annual status reports in 2013 and 2014 indicating their compliance with the statutory energy efficiency and peak demand reduction benchmarks in 2012 and 2013, respectively. |
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On March 20, 2013, the PUCO approved the three-year energy efficiency portfolio plans for 2013-2015, estimated to cost the Ohio Companies approximately $250 million over the three-year period, which is expected to be recovered in rates. Applications for rehearing were filed by the Ohio Companies and several other parties. On July 17, 2013, the PUCO denied the Ohio Companies' application for rehearing, in part, but authorized the Ohio Companies to receive 20% of any revenues obtained from bidding energy efficiency and demand response reserves into the PJM auction. The PUCO also confirmed that the Ohio Companies can recover PJM costs and applicable penalties associated with PJM auctions, including the costs of purchasing replacement capacity from PJM incremental auctions, to the extent that such costs or penalties are prudently incurred. On August 16, 2013, ELPC and OCC filed applications for rehearing under the basis that the PUCO's authorization for the Ohio Companies to share in the PJM revenues was unlawful. The PUCO granted rehearing on September 11, 2013 for the sole purpose of further consideration of the issue. On September 24, 2014, the Ohio Companies filed an amendment to their portfolio plan as contemplated by SB310, seeking to suspend certain programs for the 2015-2016 period in order to better align the plan with the new benchmarks under SB310. The PUCO has sixty days to review and approve, or modify and approve, the amended plan. |
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On September 16, 2013, the Ohio Companies filed with the Supreme Court of Ohio a notice of appeal of the PUCO's July 17, 2013 Entry on Rehearing related to energy efficiency, alternative energy, and long-term forecast rules stating that the rules issued by the PUCO are inconsistent with, and are not supported by, statutory authority. On October 23, 2013, the PUCO filed a motion to dismiss the appeal. The Ohio Companies' response was filed on November 4, 2013. The motion is still pending and additional briefing has followed. While briefing has been completed, the matter has not been scheduled for oral argument. |
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R.C. 4928.64 requires electric utilities and electric service companies in Ohio to serve part of their load from renewable energy resources measured by an annually increasing percentage amount through 2024, except 2015 and 2016 that remain at the 2014 level. The Ohio Companies conducted RFPs in 2009, 2010 and 2011 to secure RECs to help meet the renewable energy requirements established under SB221. In September 2011, the PUCO opened a docket to review the Ohio Companies' alternative energy recovery rider through which the Ohio Companies recover the costs of acquiring these RECs and selected auditors to perform a financial and management audit. Final audit reports filed with the PUCO generally supported the Ohio Companies' approach to procurement of RECs, but also recommended the PUCO examine, for possible disallowance, certain costs associated with the procurement of in-state renewable obligations that the auditor characterized as excessive. Following the hearing, the PUCO issued an Opinion and Order on August 7, 2013 approving the Ohio Companies' acquisition process and their purchases of RECs to meet statutory mandates in all instances except for part of the purchases arising from one auction and directing the Ohio Companies to credit non-shopping customers in the amount of $43.4 million, plus interest, and to file tariff schedules reflecting the refund and interest costs within 60 days following the issuance of a final appealable order on the basis that the Ohio Companies did not prove such purchases were prudent. The Ohio Companies, along with other parties, timely filed applications for rehearing on September 6, 2013. On December 18, 2013, the PUCO denied all of the applications for rehearing. Based on the PUCO ruling, a regulatory charge of approximately $51 million, including interest, was recorded in the fourth quarter of 2013. On December 24, 2013, the Ohio Companies filed a notice of appeal and a motion for stay of the PUCO's order with the Supreme Court of Ohio. On February 10, 2014, the Supreme Court of Ohio granted the Ohio Companies' motion for stay, which went into effect on February 14, 2014. On February 18, 2014, the OCC and the ELPC also filed appeals of the PUCO's order. The Ohio Companies filed their merit brief with the Supreme Court of Ohio on March 6, 2014. On April 15, 2014, the Supreme Court of Ohio stayed the briefing schedule pending the court's resolution of the Ohio Companies' motion to seal certain confidential portions of the appendix and supplement to their merit brief. On May 6, 2014, the PUCO issued an Entry extending the confidential treatment to February 13, 2015, of all materials and information previously granted confidential treatment. On September 3, 2014, the Supreme Court of Ohio ruled that the documents filed under seal will be maintained under seal pursuant to Supreme Court rules, and that the briefing schedule should recommence. |
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On April 9, 2014, the PUCO initiated a generic investigation of marketing practices in the competitive retail electric service market, with a focus on the marketing of fixed-price or guaranteed percent-off SSO rate contracts where there is a provision that permits the pass-through of new or additional charges. |
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PENNSYLVANIA |
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The Pennsylvania Companies currently operate under DSPs that expire on May 31, 2015, and provide for the competitive procurement of generation supply for customers that do not choose an alternative EGS or for customers of alternative EGSs that fail to provide the contracted service. The default service supply is currently provided by wholesale suppliers through a mix of long-term and short-term contracts procured through descending clock auctions, competitive requests for proposals and spot market purchases. On July 24, 2014, the PPUC unanimously approved a settlement of the Pennsylvania Companies' DSPs for the period of June 1, 2015 through May 31, 2017, that provides for quarterly descending clock auctions to procure 3, 12 and 24-month energy contracts, as well as one RFP seeking 2-year contracts to secure SRECs for ME, PN and Penn. While approving the settlement, the PPUC, however, also denied the Pennsylvania Companies' proposal to recover NITS on a non-bypassable basis. |
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The PPUC entered an Order on March 3, 2010 that denied the recovery of marginal transmission losses through the TSC rider for the period of June 1, 2007 through March 31, 2008, and directed ME and PN to submit a new tariff or tariff supplement reflecting the removal of marginal transmission losses from the TSC. Pursuant to a plan approved by the PPUC, ME and PN refunded those amounts to customers over a 29-month period that began in January of 2011. On appeal, the Commonwealth Court affirmed the PPUC's Order to the extent that it holds that line loss costs are not transmission costs and, therefore, the approximately $254 million in marginal transmission losses and associated carrying charges for the period prior to January 1, 2011, are not recoverable under ME's and PN's TSC riders. The Pennsylvania Supreme Court denied ME's and PN's Petition for Allowance of Appeal and the Supreme Court of the United States denied ME's and PN's Petition for Writ of Certiorari. The U.S. District Court for the Eastern District of Pennsylvania granted the PPUC's motion to dismiss the complaint filed by ME and PN to obtain an order that would enjoin enforcement of the PPUC and Pennsylvania court orders under a theory of federal preemption on the question of retail rate recovery of the marginal transmission loss charges. As a result of the U.S. District Court's decision, FirstEnergy recorded a regulatory asset impairment charge of approximately $254 million (pre-tax) in the quarter ended September 30, 2013. The balance of marginal transmission losses was fully refunded to customers by the second quarter of 2013. On appeal, on September 16, 2014, in a split decision, two judges of a three-judge panel of the United States Court of Appeals for the Third Circuit affirmed the U.S. District Court's dismissal of the complaint, agreeing that ME and PN had litigated the issue in the state proceedings and thus were precluded from subsequent litigation in federal court. One judge dissented, writing that the Pennsylvania authorities improperly interpreted a matter outside of their jurisdiction and that was in FERC's exclusive jurisdiction (the PJM tariff meaning of line losses), and that preclusion therefore does not apply. On September 30, 2014, ME and PN filed for rehearing and rehearing en banc before the Third Circuit and, on October 15, 2014, the Third Circuit rejected that rehearing request. ME and PN are evaluating next steps, including a possible appeal to the U.S. Supreme Court. |
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Pennsylvania adopted Act 129 in 2008 to address issues such as: energy efficiency and peak load reduction; generation procurement; time-of-use rates; smart meters; and alternative energy. Among other things, Act 129 required utilities to file with the PPUC an energy efficiency and peak load reduction plan (EE&C Plan) by July 1, 2009, setting forth the utilities' plans to reduce energy consumption by a minimum of 1% and 3% by May 31, 2011 and May 31, 2013, respectively, and to reduce peak demand by a minimum of 4.5% by May 31, 2013. Act 129 provides for potentially significant financial penalties between $1 and $20 million to be assessed on utilities that fail to achieve the required reductions in consumption and peak demand. The Pennsylvania Companies submitted reports in November 2011 and November 2013, in which they reported on their compliance with the statutory benchmarks. On March 20, 2014, the PPUC issued an Order initially determining that ME, PN and Penn achieved the 2011 and 2013 statutory energy efficiency benchmarks and that WP was in compliance with the 2013 statutory energy efficiency and peak demand benchmarks but was not in compliance with the 2011 energy efficiency benchmarks. The PPUC referred the matter of WP's compliance with the 2011 statutory benchmarks, to the PPUC Bureau of Investigation and Enforcement for the initiation of an appropriate proceeding by May 30, 2014 to investigate whether WP is subject to statutory penalties. The initial determination would be deemed final unless any petitions challenging its initial determination were filed within 20 days of the Order. On April 9, 2014, WP filed a petition challenging the PPUC’s initial determination arguing, among other things, that the May 2011 target was not mandatory and WP was in compliance because it achieved its May 2013 targets. On April 21, 2014, WP filed an appeal with the Commonwealth Court of Pennsylvania challenging the PPUC's initial finding of a violation of Act 129 on due process grounds. The Bureau of Investigation and Enforcement also initiated a proceeding by filing a Complaint against WP in which it alleged that WP violated Act 129 and recommended a penalty in the amount of $11.4 million. On August 22, 2014, the PPUC entered an Order approving a joint petition for settlement filed on July 30, 2014, that resolved all issues in the pending proceedings, and included WP making a payment of $1.3 million to the PPUC. On September 9, 2014, WP submitted the $1.3 million payment to the PPUC and withdrew the Commonwealth Court appeal and the petition before the PPUC challenging its initial findings thereby concluding these matters. |
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Pursuant to Act 129, the PPUC was charged with reviewing the cost effectiveness of energy efficiency and peak demand reduction programs. The PPUC found the energy efficiency programs to be cost effective and directed all of the electric utilities in Pennsylvania to submit by November 15, 2012, a Phase II EE&C Plan that would be in effect for the period June 1, 2013 through May 31, 2016. The PPUC deferred ruling on the need to create peak demand reduction targets until it receives more information from the EE&C statewide evaluator, and therefore did not include a peak demand reduction requirement in the Phase II plans. On March 14, 2013, the PPUC adopted a settlement among the Pennsylvania Companies and interested parties and also approved the Pennsylvania Companies' Phase II EE&C Plans for the period 2013-2016. Total costs of these plans are expected to be approximately $234 million and recoverable through the Pennsylvania Companies' reconcilable EE&C riders. |
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In the PPUC Order approving the FirstEnergy and AE merger, the PPUC announced that a separate statewide investigation into Pennsylvania's retail electricity market would be conducted with the goal of making recommendations for improvements to ensure that a properly functioning and workable competitive retail electricity market exists in the state. On April 29, 2011, the PPUC entered an Order initiating the investigation and requesting comments from interested parties on eleven directed questions concerning retail markets in Pennsylvania to investigate both intermediate and long term plans that could be adopted to further foster the competitive markets, and to explore the future of default service in Pennsylvania following the expiration of the upcoming DSPs on May 31, 2015. A final order was issued on February 15, 2013, providing recommendations on the entities to provide default service, the products to be offered, billing options, customer education, and licensing fees and assessments, among other items. Subsequently, the PPUC established five workgroups and one comment proceeding in order to seek resolution of certain matters and to clarify certain obligations that arose from that order. |
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On August 4, 2014, the Pennsylvania Companies each filed tariffs with the PPUC proposing general rate increases associated with their distribution operations. The filings request approval to increase operating revenues by approximately $151.9 million at ME, $119.8 million at PN, $28.5 million at Penn, and $115.5 million at WP based upon fully projected future test years for the twelve months ending April 30, 2016 at each of the Pennsylvania Companies. The filings also propose several new cost recovery riders as well as revisions to certain existing cost recovery riders. An order on the proposed increases is expected in May 2015. |
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WEST VIRGINIA |
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MP and PE currently operate under a Joint Stipulation and Agreement of Settlement reached with the other parties and approved by the WVPSC in June 2010 that provided for: |
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• | $40 million annualized base rate increases effective June 29, 2010; |
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• | Deferral of February 2010 storm restoration expenses over a maximum five-year period; |
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• | Additional $20 million annualized base rate increase effective in January 2011; |
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• | Decrease of $20 million in ENEC rates effective January 2011, providing for deferral of related costs for later recovery in 2012; and |
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• | Moratorium on filing for further increases in base rates before December 1, 2011, except under specified circumstances. |
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On April 30, 2014, MP and PE filed a rate case requesting a base rate increase of approximately $96 million, or 9.3%, based on an historic 2013 test year. The filing also included a surcharge to recover costs of MP's and PE's vegetation management program in the amount of approximately $48 million. On June 13, 2014, MP and PE amended their filing to add an additional $7.5 million of additional revenues to reimburse their expected costs of implementing monthly meter reading for residential and small commercial customers, resulting in a proposed total rate increase request of approximately $152 million, or 14.7%. On November 3, 2014, a Joint Stipulation was submitted by all parties which resolves all issues in the pending proceeding and includes, among other things: a $15 million increase in base rate revenues effective February 25, 2015; the implementation of a Vegetation Management Surcharge effective February 25, 2015 to recover operating and maintenance expenses and capital costs related to a new vegetation maintenance program; authority to establish a regulatory asset for MATS investments placed into service in 2016 and 2017 and recover in the next base rate case; authority to defer, amortize and recover over a 5-year period approximately $46 million of restoration costs associated with the 2012 Derecho and Hurricane Sandy storms; and elimination of the Temporary Transaction Surcharge and movement of the costs currently being collected for the 2013 Harrison generation transaction into base rates effective February 25, 2015. The settlement is subject to review and approval of the WVPSC. The WVPSC has scheduled a hearing for November 7, 2014, to evaluate the settlement and its terms. |
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On August 29, 2014, MP and PE filed their annual ENEC case proposing an approximate $65.8 million annual increase in rates, which is a 5.7% overall increase over existing rates. The $65.8 million increase is comprised of an actual $51.6 million under-recovered balance as of June 30, 2014, and a projected $14.2 million in under-recovery for the 2015 rate effective period. This proceeding includes a two-year review period as there was not an annual ENEC filing in 2013 pursuant to party agreement and WVPSC consent during MP and PE’s 2013 proceeding authorizing the Harrison/Pleasants asset transfer. An order is expected to be issued before the end of 2014. |
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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, 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 items are found, FirstEnergy develops information about the item and develops a remedial response to the specific circumstances, including in appropriate cases “self-reporting” an item to RFC. Moreover, it is clear that the 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 power system could result in the imposition of financial penalties 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 advocated 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 most recently before the Seventh Circuit. On June 25, 2014, a divided three-judge panel of the U.S. Court of Appeals for 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 by means of a "postage-stamp" rate. 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 them, and not based on load-ratio share in PJM as a whole. The court remanded the case to FERC for further proceedings to implement its findings and ruling. On September 5, 2014, the Seventh Circuit denied a petition for rehearing and rehearing en banc of the panel's decision. |
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Order No. 1000, issued by FERC on July 21, 2011, announced new policies regarding transmission planning and transmission cost allocation. Order No. 1000 required the submission of a compliance filing by PJM or the PJM transmission owners demonstrating that the cost allocation methodology for new transmission projects directed by the PJM Board of Managers satisfied the principles set forth in the order. On August 15, 2014 the D.C. Circuit affirmed Order No. 1000 in every respect, including its termination of certain "right of first refusal" privileges discussed in more detail below. On October 17, 2014, the court denied a request for rehearing that had been filed by representatives of certain public power entities. |
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In series of orders, including certain of the orders related to the Order No. 1000 proceedings, FERC has 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 those appeals are pending before the D.C. Circuit. |
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To demonstrate compliance with the regional cost allocation principles of Order No. 1000, the PJM transmission owners, including FirstEnergy, submitted a filing to FERC proposing a hybrid method of 50% beneficiary pays and 50% postage stamp to be effective for RTEP projects approved by the PJM Board of Managers on, and after, the effective date of the compliance filings. FERC approved the filing, subject to additional compliance filings. Requests for rehearing by certain parties remain pending. Separately, the PJM transmission owners, including FirstEnergy, submitted filings to FERC setting forth the cost allocation method for projects that cross the borders between: (1) the PJM region and the NYISO region; and (2) the PJM region and the FERC-jurisdictional members of the SERTP region. These filings propose to allocate the cost of these interregional transmission projects based on the costs of projects that otherwise would have been constructed separately in each region. On the same date, also in response to Order No. 1000, the PJM transmission owners, including FirstEnergy, also submitted to FERC a filing stating that the cost allocation provisions for interregional transmission projects provided in the Joint Operating Agreement between PJM and MISO comply with the requirements of Order No. 1000. On December 30, 2013, FERC conditionally accepted the PJM/SERTP cross-border project cost allocation filing, subject to refund and future orders in PJM's and the SERTP region participants' related Order No. 1000 interregional compliance proceedings. The PJM/NYISO and PJM/MISO cross-border project cost allocation filings remain pending before FERC. |
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The outcome of these proceedings and their impact, if any, on FirstEnergy cannot be predicted at this time. |
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RTO Realignment |
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On June 1, 2011, ATSI and the ATSI zone transferred from MISO to PJM. The move was performed as planned with no known operational or reliability issues for ATSI or for the wholesale transmission customers in the ATSI zone. While many of the matters involved with the move have been resolved, FERC denied recovery by means of 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 that demonstrates net benefits to customers from the move. On December 21, 2012, ATSI and other parties filed a proposed settlement agreement with FERC to resolve the exit fee and transmission cost allocation issues. However, FERC subsequently rejected that settlement, 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. On October 21, 2013, FirstEnergy filed a request for rehearing of FERC's order, which 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 U.S. appellate courts. 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. A separate but related issue is the allocation of certain congestion revenue rights (described as "MISO LTTRs") that result from constructing MVP projects. Although MISO and the MISO transmission owners agree that the ATSI zone should pay for the Michigan Thumb MVP project, they submitted a proposed tariff that, among other things, would have the effect of depriving ATSI of ATSI’s share of the most valuable class of MISO LTTRs associated with that project. ATSI protested this proposal but, on September 18, 2014, FERC issued an order approving the MISO LTTR proposal. On October 20, 2014, ATSI requested rehearing of FERC’s September 18, 2014 order. |
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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. |
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The outcome of those proceedings that address the remaining open issues related to ATSI's move into PJM cannot be predicted at this time. |
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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. The proposed change requested a move 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. ATSI has requested FERC approval of the proposal with an effective date of January 1, 2015. FirstEnergy expects that FERC will issue an initial ruling by the end of 2014. |
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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 U.S. Court of Appeals for 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, and affirmed the dismissal in June 2012. The California Parties appealed FERC's decision back to the Ninth Circuit, where the appeal remains pending. |
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In another proceeding, in June 2009, the California Attorney General, on behalf of certain California parties, filed another 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 filed a motion to dismiss, which was granted by FERC in May 2011, and affirmed by FERC in June 2012. 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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FirstEnergy cannot predict the outcome of either of the above matters or estimate the possible loss or range of loss. |
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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 it had suspended in February 2011. As a result, approximately $62 million and approximately $59 million in costs incurred by PATH-Allegheny and PATH-WV, respectively, were reclassified from net property, plant and equipment to a regulatory asset for future recovery. On September 28, 2012, those companies 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 the next five years. Several parties protested the request. On November 30, 2012, 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 settlement judge procedures and hearing if the parties do not agree to a settlement. |
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On March 24, 2014, the FERC Chief ALJ terminated settlement judge procedures and appointed an ALJ to preside over the hearing phase of the case. The FERC Chief ALJ extended the procedural schedule to allow time for the parties to address the applicability of FERC’s Opinion No. 531 to the PATH proceedings. FERC’s Opinion No. 531, as discussed below, revises FERC’s methodology for calculating ROE. The hearing is scheduled to commence in March 2015. |
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MISO Capacity Portability |
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On June 11, 2012, in response to certain arguments advanced by MISO, FERC issued a Notice of Request for Comments regarding whether existing rules on transfer capability act as barriers to the delivery of capacity between MISO and PJM. FirstEnergy and other parties have submitted filings arguing that MISO's concerns largely are without foundation and suggesting that FERC order that the remaining concerns be addressed in the existing stakeholder process that is described in the PJM/MISO Joint Operating Agreement. FERC has not mandated a solution, and the RTOs and affected parties are working to address the MISO's proposal in stakeholder proceedings. 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. |
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MOPR Reform |
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On May 2, 2013, FERC issued an order in large part accepting PJM's proposed reform of the MOPR, including two proposed categorical exemptions and applicability to existing resources, and also requiring PJM to commit to future review and, if necessary, additional revisions to the MOPR to accommodate changing market conditions. On June 3, 2013, FirstEnergy submitted a request for rehearing of FERC's May 2, 2013 order. In its rehearing request, FirstEnergy referenced the results of the May 2013 PJM RPM capacity auction, and publicly-available data about the reasons for the unexpectedly low "rest-of-RTO" clearing price of $59 per MW-day, as supporting its contention that the MOPR reform depressed prices as predicted in FirstEnergy's December 28, 2012 and January 25, 2013 comments. FirstEnergy's request for rehearing is pending before FERC. |
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FTR Underfunding Complaint |
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In PJM, FTRs are a mechanism to hedge congestion and they 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. FE also performs bilateral transactions for the purpose of hedging the price differences between the location of supply resources and retail load obligations. Due to certain language in the PJM tariff, the funds that are set aside to pay FTRs can be diverted to other uses, resulting in “underfunding” of FTR payments. Since June 2010, FES and AE Supply have lost more than $94 million in revenues that they otherwise would have received as FTR holders to hedge congestion costs. FES and AE Supply expect to continue to experience significant underfunding. |
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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. Various parties filed responsive pleadings, including PJM. On June 5, 2013, FERC issued its order denying the new complaint. On July 5, 2013, FESC, on behalf of FES and AE Supply, filed a request for rehearing of FERC's order. That request for rehearing, and all subsequent filings in the docket, are pending before FERC. The PJM stakeholders continue to discuss the problem of FTR underfunding. |
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A recent and related issue is the effect that certain financial trades have on congestion. On August 29, 2014, FERC instituted an investigation to address the question of whether the current rules regarding “Up-to Congestion” transactions are just and reasonable. On September 29, 2014, FESC, on behalf of certain of its affiliates, filed comments supporting the investigation, arguing that tariff changes would decrease the incidence of Up-to Congestion transactions, and funding for FTRs likely would increase. |
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2013-2014 PJM RPM Tariff Amendments |
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In November 2013, PJM began to submit a series of amendments to its RPM capacity tariff in order to address certain problems that have been observed in recent auctions. These problems can be grouped into four categories: (i) DR; (ii) imports; (iii) modeling of transmission upgrades in calculating geographic clearing prices; and (iv) arbitrage/capacity replacement. The purpose of PJM’s tariff amendments is to ensure that resources that clear in the RPM auctions are available as physical resources in the delivery year and that the rules implement comparable obligations for different types of resources. In each of the relevant dockets, FirstEnergy and other parties submitted comments largely supporting PJM's proposed amendments. FERC largely approved the tariff amendments as proposed by PJM regarding DR, imports, and transmission upgrade modeling. Compliance filings pursuant to and requests for rehearing of certain of these orders are pending before FERC, and a technical conference announced by FERC regarding the arbitrage/capacity replacement issue has yet to be scheduled. |
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On August 20, 2014, PJM announced that it is contemplating major revisions to its RPM program for the purpose of addressing issues that were identified in the January 2014 polar vortex. On October 7, 2014, PJM released a document that describes its proposed revisions. Highlights of the proposed revisions include: (i) classifying capacity into two products, Base Capacity and Capacity Performance, and capping the amount of Base Capacity that would be procured; (ii) allowing all Capacity Performance units to offer at the Net Cost-of-New-Entry (Net CONE); (iii) eliminating the “2.5% holdback” in the BRA; (iv) imposing significant new penalties on Performance Capacity units that fail to operate when called by PJM; and (v) suggesting a mechanism to limit price change year-over-year between RPM auctions. PJM expects that these changes will increase the RPM auction clearing prices by a significant amount. FirstEnergy is participating in the stakeholder processes where these PJM proposals are being developed. PJM has announced its plans to file tariff revisions that implement some version of these proposed revisions in time for the May 2015 BRA. |
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PJM RPM Auctions - Calculation of Unit-Specific Offer Caps |
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The PJM RPM capacity tariff describes the rules for calculating the “offer cap” for each unit that offers into the RPM auctions. In summary, the offer cap is calculated by identifying certain going-forward costs, including the going-forward capital requirements, for a given unit, and then subtracting the projected energy and ancillary services revenues, net of marginal costs, from the going-forward costs. The remainder becomes the offer cap. FES disagreed with the Market Monitor's approach for calculating the offer caps, and earlier in 2014, FES asked FERC to determine which tariff interpretation, FES or the Market Monitor's, was correct. On August 25, 2014, FERC issued a declaratory order agreeing with the FES interpretation of the PJM tariff language. FERC went on, however, to initiate a new proceeding to examine whether the existing PJM tariff language is just and reasonable. FERC directed PJM to file a brief by November 3, 2014 explaining why the existing tariff language is just and reasonable, and that responsive briefs are due thirty days after PJM files its brief. |
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PJM Market Reform: FERC Order No. 745 - Demand Response |
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On May 23, 2014, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit issued an opinion vacating FERC Order No. 745, which required that, under certain parameters, DR participating in organized wholesale energy markets be compensated at LMP, just as if DR were a traditional energy resource. The majority concluded that DR is a retail service, and therefore falls under state, and not federal, jurisdiction, and that FERC therefore lacked jurisdiction to regulate DR, such as via the PJM tariffs and programs. The majority also found that even if FERC had jurisdiction over DR, Order No. 745 would be arbitrary and capricious because, under its requirements, DR was receiving a double payment (LMP plus the savings of foregone energy purchases). On September 17, 2014, the U.S. Court of Appeals for the D.C. Circuit denied FERC's request for review of the May 23, 2014 D.C. Circuit Panel's decision on Order No. 745. On October 20, 2014, and in response to a motion by FERC, the U.S. Court of Appeals for the D.C. Circuit "stayed" issuance of its mandate until December 16, 2014, pending potential appeal by FERC to the U.S. Supreme Court. |
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On May 23, 2014, FESC, on behalf of FE entities with market-based rate authority, filed a complaint asking FERC to direct PJM to remove all portions of the PJM OATT, which allow or require PJM to include DR in the PJM capacity market, and to invalidate the results of the May 2014 RPM capacity auction on the grounds that the U.S. Court of Appeals for the D.C. Circuit’s May 23, 2014 decision required removal of DR from the wholesale capacity markets. FESC filed an amended complaint on September 22, 2014, renewing its request that DR be removed from the May 2014 BRA. On October 22, 2014, PJM filed its answer to the complaint. Various other parties also filed comments on and protests of the amended complaint. The timing of FERC action and the outcome of this proceeding cannot be predicted at this time. |
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PJM RPM, 2014 Triennial Review |
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PJM’s tariff obligates it to perform a thorough review of its RPM program every three years. PJM’s usual practice is to work through the stakeholder process to retain a consultant to perform a study. PJM and the stakeholders then review the study results, and incremental changes to the tariff then are filed at FERC. PJM's consultant recently completed the 2014 triennial review and, on September 25, 2014, PJM filed proposed changes to the RPM tariff, purportedly in response to the consultant's study results. Highlights of the September 25, 2014 filing include shifting the VRR curve one percentage point to the right, which, if accepted by FERC, will have the effect of increasing the amount of capacity supply that is procured in the RPM auctions and increasing the clearing price. Another highlight is a proposed change of the index that is used for calculating the generation plant construction costs of the Net Cost-of-New-Entry formula for the future years between triennial reviews. On October 16, 2014, FirstEnergy, as part of a coalition, filed comments supporting the proposal to move the VRR curve, but protesting the proposal to revise the index. This matter is pending before FERC. |
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Market-Based Rate Authority, Triennial Update |
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OE, CEI, TE, Penn, JCP&L, ME, PN, MP, WP, PE, 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 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. |
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TrAIL, Petition for Authorization to Pay Dividends |
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On October 7, 2014, TrAIL filed a petition with FERC requesting authorization to declare and pay periodic dividends out of paid-in-capital from time to time on an as-needed basis to maintain its capital structure within the range of capital structures approved by FERC for transmission-owning investor-owned utilities. This authorization will provide flexibility to TrAIL to maintain its capital structure without having to issue new long-term debt. |
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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 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 RTO 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. |