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FILE NO. [_____]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(NAME OF COMPANY FILING THIS STATEMENT AND ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
NANCY C. ASHCOM, CORPORATE SECRETARY
FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(NAMES AND ADDRESS OF AGENT FOR SERVICE)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
MICHAEL F. CUSICK
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
(212) 858-1000
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
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INTRODUCTION
Pursuant to Sections (9)(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "1935 Act" or the "Act"), FirstEnergy Corp., an Ohio
corporation ("FirstEnergy" or the "Applicant"), hereby requests that the
Securities and Exchange Commission (the "Commission") issue an order (i)
approving the direct acquisition by FirstEnergy of all of the issued and
outstanding voting securities of American Transmission Systems, Incorporated, a
newly formed Ohio corporation ("ATSI"), (ii) approving the indirect acquisition
by FirstEnergy of certain debt securities to be issued by ATSI as part of
consideration for transfer of certain transmission assets as described in Item
1.B.1 hereof (the "Transmission Assets") owned by each of Ohio Edison Company,
an Ohio corporation ("Ohio Edison"), The Cleveland Electric Illuminating
Company, an Ohio corporation ("Cleveland Electric"), The Toledo Edison Company,
an Ohio corporation ("Toledo Edison") and Pennsylvania Power Company, a
Pennsylvania corporation (individually, "Penn Power," and collectively, the
"Operating Companies") to ATSI and (iii) granting such other authorizations as
may be necessary in connection therewith.
FirstEnergy's proposed creation of ATSI and transfer of the
Transmission Assets to ATSI is part of its plan to establish an independent
regional transmission organization ("RTO"). The proposed formation of the new
transmission company is intended to provide the following benefits to
FirstEnergy and its Operating Companies' customers: (i) greater corporate and
organizational separation of transmission from generation; and (ii) by tying
together control, planning, maintenance and financial responsibilities of the
Operating Companies' transmission facilities into a single company having an
independent, streamlined and cost-efficient operation, (a) creating synergies
that result in better service in the region and (b) assuring non-discriminatory
access for all transmission users. FirstEnergy's plan to establish an RTO, with
the creation of ATSI as a significant step toward this end, will maximize the
value of the Transmission Assets to shareholders.
FirstEnergy is a public-utility holding company under the 1935 Act. It
directly owns all of the issued and outstanding voting securities of Cleveland
Electric, Toledo Edison and Ohio Edison and indirectly owns all of the issued
and outstanding voting securities of Penn Power. FirstEnergy has claimed an
exemption from all provisions of the 1935 Act (except for Section 9(a)(2)
thereof) pursuant to Rule 2 thereunder. See FirstEnergy Form U-3A-2, "Statement
by Holding Company Claiming Exemption Under Rule U-2 from the Provisions of the
Public Utility Holding Company Act of 1935," dated February 26, 1999, attached
hereto as Exhibit G-1.
Ohio Edison currently owns all of the issued and outstanding voting
securities of Penn Power. Ohio Edison, Penn Power, Cleveland Electric and Toledo
Edison are all "public-utility companies" as defined in the 1935 Act. Ohio
Edison is also a "holding company" as defined in the 1935 Act. Ohio Edison is
currently exempt from the registration and other requirements of the 1935 Act,
other than from Section 9(a)(2) thereof, pursuant to Section 3(a)(2) thereof.
ATSI is incorporated as an Ohio corporation. It currently does not
conduct any business or own any utility assets. Upon completion of the transfer
of the Transmission Assets from the
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Operating Companies to it, ATSI will become a "public-utility company" as
defined in the 1935 Act.
The transactions contemplated hereby will be accomplished through (i)
FirstEnergy's acquisition of all of the issued and outstanding voting securities
of ATSI in exchange for approximately $300 million, (ii) the sale and transfer
by the Operating Companies of their Transmission Assets to ATSI in consideration
for the purchase price (the "Purchase Price") which will be the net book value
of the Transmission Assets as of November 30, 1998 (approximately $655 million)
and (iii) ATSI's financing of the purchase of the Transmission Assets by (A) the
use of FirstEnergy's purchase price for all of the issued and outstanding voting
securities of ATSI for an amount equal to 45% of the Purchase Price and (B)
ATSI's issuance of promissory notes (which may be secured by a lien on the
assets transferred) to the Operating Companies in an aggregate amount equal to
55% of the Purchase Price. The interest rate on the promissory notes will be
based on the embedded cost of debt of the Operating Companies on a consolidated
basis as of November 30, 1998 (which was approximately 7.75%).
A. DESCRIPTION OF PARTIES TO THE TRANSACTION
1. GENERAL DESCRIPTION. (a) FIRSTENERGY. FirstEnergy was organized
under the laws of the State of Ohio in 1996. The principal executive offices of
FirstEnergy are located in Akron, Ohio. FirstEnergy is a holding company within
the meaning of Section 2(a)(7) of the 1935 Act.
FirstEnergy's principal business is the holding of all of the issued
and outstanding voting securities of the following 12 direct active
subsidiaries: Ohio Edison; Cleveland Electric; Toledo Edison; FirstEnergy
Properties, Inc.; FirstEnergy Ventures Corp.; FirstEnergy Trading Services,
Inc.; FirstEnergy Securities Transfer Company; FirstEnergy Facilities Services
Group, Inc.; MARBEL Energy Corporation; JR Operating Company; FirstEnergy
Services Corp.; and FirstEnergy Nuclear Operating Company; and all of the issued
and outstanding voting securities of the following four direct inactive
subsidiaries: Centerior Service Company; FirstEnergy Holdings, LLC; FE
Acquisition Corp.; and ATSI. Unless otherwise noted, all these subsidiaries are
incorporated in the State of Ohio and have their principal offices in Akron,
Ohio.
(b) ATSI. ATSI is incorporated as an Ohio corporation on
October 8, 1998. It currently does not conduct any business or own any utility
assets. Upon consummation of the transactions contemplated hereby, ATSI will
become a "public-utility company" as defined in the 1935 Act.
(c) OHIO EDISON. Ohio Edison was organized under the laws of
the State of Ohio in 1930 and is both a public utility and a public utility
holding company which is exempt from regulation by the Commission under the 1935
Act (except for Section 9(a)(2) thereof) because it is predominantly a
public-utility company whose operations as such do not extend beyond the State
of Ohio and contiguous states. See Ohio Edison Company, Holding Co. Act Release
No. 21019 (April 26, 1979). Ohio Edison owns all of the issued and outstanding
voting securities of Penn Power. Ohio Edison also owns directly 16.5% of the
issued and outstanding voting securities of Ohio Valley Electric Corporation, an
Ohio corporation ("OVEC") (which, in turn, owns all of the issued and
outstanding voting securities of Indiana-Kentucky Electric
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Corporation ("IKEC")). OVEC is a public utility company organized under the laws
of Ohio in 1952. On the same date, IKEC was organized under the laws of Indiana.
The two companies were formed by 15 independent investor-owned public utilities
(including Ohio Edison, Penn Power and Toledo Edison), furnishing electric
service in the Ohio River Valley for the purpose of providing the large electric
power requirements projected for the major uranium enrichment complex near
Portsmouth, Ohio, then being built by the Atomic Energy Commission, the
predecessor to the Nuclear Regulatory Commission ("NRC").
In addition to Penn Power, Ohio Edison has seven other wholly-owned
subsidiaries organized, unless otherwise noted, under the laws of the State of
Ohio: (i) OES Capital, Incorporated; (ii) OES Fuel, Incorporated; (iii) OES
Finance, Incorporated; (iv) Ohio Edison Financing Trust, organized under the
laws of the State of Delaware; (v) Ohio Edison Financing Trust II, organized
under the laws of the State of Delaware; (vi) OES Nuclear, Incorporated; and
(vii) OES Ventures, Incorporated. These subsidiaries manage and finance nuclear
fuel for Ohio Edison and Penn Power, finance certain electric accounts
receivable, provide structures for investment in energy-related projects and the
raising of capital by Ohio Edison, finance and manage business opportunities not
directly related to the provision of electric service, or provide other
energy-related products and services. OES Ventures, Incorporated has a 49%
beneficial interest in the PNBV Capital Trust, a business trust organized under
the laws of the State of Delaware to facilitate the acquisition of lease
obligation bonds relating to Ohio Edison's sale and leaseback of individual
interests in Beaver Valley Nuclear Power Station Unit No. 2 and Perry Nuclear
Power Plant Unit No. 1 and the resultant reduction in effective cost to Ohio
Edison under those leases. Finally, Ohio Edison has a 49% interest in OES
Engineering Incorporated, a corporation that provides engineering services at
cost as a subcontractor on construction projects undertaken by Ohio Edison for
third parties. Other than Penn Power, these subsidiaries do not, individually or
in the aggregate, have a material effect on the consolidated financial
statements of Ohio Edison.
(d) PENN POWER. Penn Power was organized under the laws of the
Commonwealth of Pennsylvania in 1930 and owns property and does business as an
electric public utility in that state. Penn Power is also authorized to do
business and owns property in the State of Ohio. Penn Power has one wholly-owned
subsidiary, Penn Power Energy, Inc.
(e) CLEVELAND ELECTRIC. Cleveland Electric was organized under
the laws of the State of Ohio in 1892 and is a public utility company engaged
primarily in the generation, transmission, distribution and sale of electric
energy to an area of approximately 1,700 square miles in northeastern Ohio,
including the City of Cleveland. It has one subsidiary, Centerior Funding
Corporation, which is a Delaware corporation organized in 1996 that finances
accounts receivable. It also owns 10% of The Toledo Edison Capital Corporation
("TECC"), which is a Delaware corporation organized in 1997 that makes equity
investments in Delaware business trusts that hold lessor debt instruments issued
in connection with Cleveland Electric's and Toledo Edison's sale and leaseback
of interests in the Bruce Mansfield Plant.
(f) TOLEDO EDISON. Toledo Edison was organized under the laws
of the State of Ohio in 1901 and is a public utility company engaged primarily
in the generation, transmission, distribution and sale of electric energy to an
area of approximately 2,500 square miles in
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northwestern Ohio, including the City of Toledo. It owns 90% of TECC. Toledo
Edison owns directly 4% of the issued and outstanding voting securities of OVEC.
(g) FIRSTENERGY PROPERTIES, INC. FirstEnergy Properties, Inc. was
organized in 1929 and primarily manages non-residential real estate. It has one
subsidiary, BSG Properties, Inc., organized in 1996 that pursues real estate
development.
(h) FIRSTENERGY VENTURES CORP. FirstEnergy Ventures Corp. was organized
in 1971. Its principal business involves the ownership of stock investments in
certain non-utility ventures. It has seven subsidiaries organized under the laws
of the State of Ohio: (i) Centerior Power Enterprises, Inc. which, together with
CPICOR Management LLC (a non-affiliate), is responsible for implementing a
Department of Energy ("DOE") clean coal project; (ii) Centerior Energy Services,
Inc., which provides various energy consulting services under the registered
trade name "The E. Group"; (iii) Fertile-Earth Inc., which composts certain
wastes and wood products into salable mulch and soil amendments; (iv)
FirstEnergy Telecom Corp., which provides telecommunications services; (v)
Centerior Communications Holdings, Inc., which holds equity investments for
certain telecommunications ventures; (vi) Bay Shore Power Company, which
proposes to provide steam to a Toledo Edison generating unit and a nonaffiliated
refinery; and (vii) FirstEnergy Fuel Marketing Company which provides products
and services to electricity generators and industrial fuel users. FirstEnergy
Ventures is also part owner of seven Ohio limited liability companies: Eastroc,
LLC, Eastroc Technologies, LLC and Engineered Processes, LTD, which own or apply
technologies for the production of gypsum products; Carbon Plus, LLC, which
converts nonhazardous waste by-products into new products; Warrenton River
Terminal, LTD, which owns facilities for the transloading of bulk materials on
the Ohio River; Soils Technology, LLC, which recycles discarded materials to
manufacture nutrient-rich soils; and Ohio National Energy, LTD, which is
involved in the East Burger Merchant Repowering Project.
(i) FIRSTENERGY TRADING SERVICES, INC. FirstEnergy Trading Services,
Inc. is an Ohio corporation organized in 1995 that is a power marketer in the
wholesale power markets.
(j) FIRSTENERGY SECURITIES TRANSFER COMPANY. FirstEnergy Securities
Transfer Company is an Ohio corporation organized in 1997 to act as transfer
agent and registrar for the securities of FirstEnergy and its direct and
indirect subsidiaries.
(k) FIRSTENERGY FACILITIES SERVICES GROUP, INC. FirstEnergy Facilities
Services Group is the parent company of the eight direct subsidiaries engaged in
heating, ventilating, air conditioning and energy management. These subsidiaries
consist of the following: (i) Ancoma, Inc. of Rochester New York (New York
corporation); (ii) Colonial Mechanical Corporation of Richmond, Virginia, which
has a subsidiary Webb Technologies, Inc. of Norfolk, Virginia (both Virginia
corporations); (iii) Dunbar Mechanical Inc. of Toledo, Ohio (Ohio corporation);
(iv) Edwards Electrical & Mechanical, Inc. of Indianapolis, Indiana (Indiana
corporation); (v) Elliott-Lewis Corporation of Philadelphia, Pennsylvania
(Pennsylvania corporation); (vi) L.H. Cranston & Sons, Inc. of Timonium,
Maryland (Maryland corporation); (vii) Roth Bros., Inc. of Youngstown, Ohio
(Ohio corporation) and its subsidiary The Hattenbach Company of Cleveland, Ohio
(Ohio corporation); and (viii) R.P.C. Mechanical, Inc. of Cincinnati, Ohio
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(Ohio corporation) and its subsidiary Spectrum Controls Systems of Cincinnati,
Ohio (Ohio corporation).
(l) MARBEL ENERGY CORPORATION. MARBEL Energy Corporation ("MARBEL") is
a fully integrated natural gas company. MARBEL owns interests in more than 1,800
gas and oil wells and holds interests in more than 200,000 undeveloped acres in
eastern and central Ohio. MARBEL's subsidiaries include MB Operating Company,
Inc., a natural gas exploration and production company, which has as
subsidiaries, J. R. Nominee Corp., J. R. Nominee Corp. II and Natural Gas
Brokerage Corporation (all Ohio corporations) and Northeast Ohio Operating
Companies, Inc., which has as subsidiaries Gas Transport, Inc., NEO Construction
Company and Ohio Intrastate Gas Transmission Company (all Ohio corporations).
(m) JR OPERATING COMPANY. JR Operating Company engages in the
acquisition and development of oil and gas properties.
(n) FIRSTENERGY SERVICES CORP. A national sales group was established
within FirstEnergy Services Corp. to pursue sales in the unregulated electric
utility market. FirstEnergy Services Corp. qualified to do business in
Pennsylvania in 1998 and the national sales group began selling in the
Pennsylvania market following the restructuring which opened the generation
business to increased competition.
(o) FIRSTENERGY NUCLEAR OPERATING COMPANY. FirstEnergy Nuclear
Operating Company operates the Davis-Besse Nuclear Power Station and the Perry
Nuclear Power Plant under the supervision and direction of the owners of those
facilities.
2. DESCRIPTION OF UTILITY OPERATIONS. (a) FIRSTENERGY AND ATSI. Currently,
neither of FirstEnergy and ATSI directly owns any utility properties or performs
any utility operations.
(b) OHIO EDISON AND PENN POWER. Ohio Edison furnishes electric service
to communities in a 7,500 square mile area of central and northeastern Ohio.
Ohio Edison also provides transmission services and electric energy for resale
to certain municipalities in its service area and transmission services to
certain rural cooperatives. Ohio Edison has ownership interests in certain
generating facilities located in the Commonwealth of Pennsylvania. Ohio Edison
also engages in the sale, purchase and interchange of electric energy with other
electric companies. During the twelve months ended December 31, 1998, the
principal source of Ohio Edison's operating revenues was derived from the sale
of electricity.
Penn Power furnishes electric service to communities in a 1,500 square mile
area of western Pennsylvania. Penn Power also provides transmission services and
electric energy for resale to certain municipalities in Pennsylvania. During the
twelve months ended December 31, 1998, the principal source of Penn Power's
operating revenues was derived from the sale of electricity.
Ohio Edison and Penn Power own or lease all or a portion of 39 electric
generating units, consisting of 18 coal fired units, three nuclear units, seven
oil fired units, one gas/oil fired unit and 10 diesel generators (located at
three sites), which have total net generating capacity of 5,757
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megawatts ("MW"). All of the electric properties owned by Ohio Edison and Penn
Power are located within the State of Ohio and the Commonwealth of Pennsylvania.
Eleven of the 18 coal fired units are 100% owned by Ohio Edison, and
all such units are located in Ohio. Four of the 18 coal fired units are held in
a combined Ohio Edison-Penn Power ownership along with other parties and the
remaining three coal fired units are 100% owned by Penn Power. The three nuclear
units consist of (i) Beaver Valley Nuclear Power Station Unit 1 ("Beaver Valley
Unit 1"), located in Pennsylvania and representing a 425 MW share from a
combined Ohio Edison-Penn Power ownership of 52.50%, (ii) Beaver Valley Nuclear
Power Station Unit 2 ("Beaver Valley Unit 2"), also located in Pennsylvania and
representing a 343 MW share from an Ohio Edison ownership and leasehold interest
of 41.88%, and (iii) Perry Nuclear Power Plant Unit 1 ("Perry Unit 1"), located
in Ohio and representing a 421 MW share from a combined Ohio Edison-Penn Power
ownership and leasehold interest of 35.24%. One of the seven oil fired units is
located in Ohio and 100% owned by Ohio Edison. The remaining six oil fired units
are also located in Ohio but are held in a combined Ohio Edison-Penn Power
ownership. The oil/natural gas unit is located in Ohio and is 100% owned by Ohio
Edison. Two of the three diesel generator sites are located in Ohio and the
remaining diesel generator site is located in Pennsylvania. All three diesel
generator sites are held in a combined Ohio Edison-Penn Power ownership.
Ohio Edison and Penn Power have transmission facilities of 5,647
circuit line miles covering an area of approximately 9,000 square miles. These
facilities have 629 circuit miles of 345 kilovolt ("kV") lines, 2,239 circuit
miles of 138 kV lines, 1,894 circuit miles of 69 kV lines, 180 circuit miles of
34.5 kV lines and 581 circuit miles of 23 kV lines. Additionally, the electric
distribution systems of Ohio Edison and Penn Power have include overhead pole
line and underground conduit carrying primary, secondary and street lighting
circuits. Ohio Edison and Penn Power own, individually or together with one or
more of the other Central Area Power Coordination Group ("CAPCO") companies
(Cleveland Electric, Toledo Edison and Duquesne Light Company ("Duquesne")) as
tenants in common, 448 substations with a total installed transformer capacity
of 24,849,513 kV-amperes, of which 70 are transmission substations, including
nine located at generating plants.
Ohio Edison and Penn Power have three 345kV and four 138kV
interconnections. Ohio Edison and Cleveland Electric have five 345 kV and four
138 kV interconnections, and Ohio Edison and Toledo Edison have one 345 kV and
one 138 kV interconnection. Ohio Edison has one 345 kV interconnection with
Allegheny Energy Inc., seven 345 kV interconnections with American Electric
Power Company, Inc. ("AEP") and five 345 kV interconnections with Duquesne. Ohio
Edison has the following 138 kV interconnections with neighboring utility
systems: one with Allegheny Energy, eight with AEP and three with Dayton Power
and Light Company ("Dayton"). Ohio Edison and Penn Power also have the following
69 kV interconnections with other utility systems: one with Dayton, one with
AEP, one with Allegheny Energy, and one with Duquesne.
Ohio Edison does not own or have any financial interest in any natural
gas pipeline company. However, at Ohio Edison's Edgewater plant, OES Fuel owns a
four mile gas pipeline that connects the Edgewater plant to the Columbia Gas
Transmission system.
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(c) OVEC AND IKEC. OVEC owns the Kyger Creek Plant at
Cheshire, Ohio, which is a coal-fired facility with a capacity of 1,075 MW. IKEC
owns the Clifty Creek Plant at Madison, Indiana, which is a coal-fired facility
with a capacity of 1,290 MW. These plants are connected by a 780-mile 345 kV
transmission network and are interconnected with the major transmission systems
of OVEC's sponsor companies, although OVEC's transmission facilities do not
interconnect directly with the Ohio Edison-Penn Power or Toledo Edison systems.
(d) CLEVELAND ELECTRIC. Cleveland Electric is engaged
primarily in the generation, transmission, distribution and sale of electric
energy to an area of approximately 1,700 square miles in northeastern Ohio,
including the City of Cleveland. Cleveland Electric also has ownership interests
in certain generating facilities located in the Commonwealth of Pennsylvania.
Cleveland Electric also engages in the sale, purchase and interchange of
electric energy with other electric companies. During the twelve months ended
December 31, 1998, the principal source of Cleveland Electric's operating
revenues was derived from the sale of electricity.
Cleveland Electric's generating properties consist of all or a portion
of: (i)15 units at four fossil fuel plants including the Avon Lake Plant,
located in Avon Lake, Ohio, the Lake Shore Plant, located in Cleveland, Ohio,
the Eastlake Plant, located in Eastlake, Ohio, and the Ashtabula Plant, located
in Ashtabula, Ohio; (ii) a 452 MW share of Davis-Besse Nuclear Power Station
located in Oak Harbor, Ohio; and a (iii) 351 MW share of a pumped storage
hydroelectric plant ("Seneca Plant") located in Warren, Pennsylvania. These six
Cleveland Electric-owned plants have a net demonstrated capability of 2,997 MW.
At the present time Cleveland Electric is in the process of acquiring its
co-owner's share of the Seneca Plant (87 MW).
Cleveland Electric and Toledo Edison as co-lessees, have an ownership
share of 6.5% (51 MW), 45.9% (358 MW) and 44.38% (355 MW) of Units 1, 2 and 3,
respectively, of the coal-fired Bruce Mansfield Plant located in Shippingport,
Pennsylvania.
Cleveland Electric also has a 31.11% ownership share (371 MW) of Perry
Unit 1 located in Perry, Ohio, and a 24.47% share (201 MW) of Beaver Valley Unit
2 located in Shippingport, Pennsylvania, and leases, as co-lessee with Toledo
Edison, another 18.26% (150 MW) of Beaver Valley Unit 2.
Cleveland Electric owns the transmission facilities located in the area
it serves in northeastern Ohio for transmitting electric energy to all of its
customers, except for one 5.5 mile 138 kV transmission line that Cleveland
Electric leases from the City of Cleveland. The portions of the transmission
lines located in Pennsylvania to the Seneca Plant, Bruce Mansfield Plant and the
Beaver Valley Power Station are not owned by Cleveland Electric. Cleveland
Electric has a transmission interconnection with Pennsylvania Electric Company,
which provides for transmission of electric energy from the Seneca Plant.
Cleveland Electric also has interconnections with Ohio Edison that provide for
the transmission of electric energy from the Bruce Mansfield Plant and the
Beaver Valley Nuclear Power Station, and also interconnects with AEP.
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Cleveland Electric's transmission facilities consist of transmission
lines and transmission substations operating at voltages up to 345,000 volts.
Cleveland Electric owns the distribution facilities located in the area
it serves in northeastern Ohio for distributing electric energy to all of its
customers. These distribution facilities consist primarily of distribution lines
and distribution substations and related service facilities and are used to
serve electric energy to customers pursuant to franchises granted by the State
of Ohio and, in some instances, by municipalities.
(e) TOLEDO EDISON. Toledo Edison is engaged primarily in the
generation, transmission, distribution and sale of electric energy to an area of
approximately 2,500 square miles in northwestern Ohio, including the City of
Toledo. Toledo Edison also has ownership interests in certain generating
facilities located in the Commonwealth of Pennsylvania. Toledo Edison also
engages in the sale, purchase and interchange of electric energy with other
electric companies. During the twelve months ended December 31, 1998, the
principal source of Toledo Edison's operating revenues was derived from the sale
of electricity.
Toledo Edison's generating properties consist of : (i) one wholly-owned
fossil fuel electric generating station, Bay Shore, located in Lucas County,
Ohio; (ii) a 428 MW share of Davis-Besse Nuclear Power Station located in Oak
Harbor, Ohio; and (iii) five internal combustion turbine generator units with an
aggregate capability of 77 MW located in northwestern Ohio. These Toledo
Edison-owned plants have a net demonstrated capability of 1,136 MW.
Toledo Edison and Cleveland Electric as co-lessees, have an ownership
share of 6.5% (51 MW), 45.9% (358 MW) and 44.38% (355 MW) of Units 1, 2 and 3,
respectively, of the coal-fired Bruce Mansfield Plant located in Shippingport,
Pennsylvania.
Toledo Edison also has a 19.91% ownership share (238 MW) of Perry Unit
1. Toledo Edison has a tenant-in-common interest and leasehold interest (with
Cleveland Electric as co-lessee with respect to 150 MW) in 19.91% (163 MW) in
Beaver Valley Unit 2. Toledo Edison is presently selling 150 MW of its Beaver
Valley Unit 2 leased capacity entitlement to Cleveland Electric.
Toledo Edison's transmission facilities consist of transmission lines
and transmission substations operating at voltages up to 345,000 volts. Toledo
Edison owns the transmission facilities located in the area it serves in
northwestern Ohio for transmitting electric energy to all of its customers. The
portions of the transmission lines located in Pennsylvania to the Bruce
Mansfield Plant and the Beaver Valley Power Station are not owned by Toledo
Edison. Toledo Edison has interconnections with Ohio Edison that provide for the
transmission of electric energy from the Bruce Mansfield Plant and the Beaver
Valley Nuclear Power Station. Toledo Edison also has transmission
interconnections with Consumers Energy Company, The Detroit Edison Company and
AEP.
Toledo Edison owns the distribution facilities located in the area it
serves in northwestern Ohio for distributing electric energy to all of its
customers. These distribution facilities consist
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primarily of distribution lines and distribution substations and related service
facilities and are used to serve electric energy to its customers.
(f) TRANSACTION WITH DUQUESNE. The CAPCO companies (the Operating
Companies and Duquesne) jointly own nine generating units and independently own
related CAPCO transmission facilities. As part of a separate transaction from
the transactions contemplated herein, the Operating Companies have negotiated a
transaction pursuant to which they will exchange ownership interest of these and
other generating units with Duquesne so that the joint ownership of generating
units with Duquesne is eliminated. Duquesne would also sell seven CAPCO
transmission facilities to ATSI. There can be no assurance that required
regulatory approvals will be received.
(g) UTILITY REGULATION. Ohio Edison, Cleveland Electric and Toledo
Edison are subject to broad regulation as to rates and other matters by the
Public Utilities Commission of Ohio (the "PUCO"). Under Ohio law, municipalities
may regulate rates, subject to appeal to the PUCO if not acceptable to the
utility. Penn Power is subject to broad regulation as to rates and other matters
by the Pennsylvania Public Utility Commission (the "PPUC").
Ohio Edison, Cleveland Electric, Toledo Edison and Penn Power are also
subject to the jurisdiction of the Federal Energy Regulatory Commission (the
"FERC") under the Federal Power Act with respect to wholesale electric rates and
other matters. Construction and operation of nuclear generating units are
subject to the regulatory jurisdiction of the NRC, including the issuance by it
of construction permits and operating licenses.
ATSI will be subject to the jurisdiction of the FERC with respect to its
rates and other matters.
B. DESCRIPTION OF THE PROPOSED TRANSACTION
1. DESCRIPTION OF THE TRANSMISSION ASSETS. The Transmission Assets to be
transferred from the Operating Companies to ATSI are identified in detail in
Appendix D to the Operating Agreement between ATSI and the Operating Companies.
The Appendix also describes the generation and distribution facilities retained
by the Operating Companies. The Operating Agreement appears in full in Exhibit
B-2 to this Application/Declaration. Essentially, ATSI will acquire from the
Operating Companies and will operate transmission facilities currently operating
at voltages of generally 345 kV and 138 kV (the "Bulk Transmission System"), and
69 kV facilities (the "Area Transmission System," and together with the Bulk
Transmission System, the "Transmission System"). The Transmission Assets to be
transferred shall include:
(1) transmission lines (including towers, poles, and conductors) and
transmission stations;
(2) transformers providing transformation within the Bulk Transmission
System and between the Bulk Transmission System and Area Transmission
System;
(3) the System Control Center facility and equipment in Wadsworth,
Ohio not including the associated land and land rights;
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(4) lines providing connections to generation facilities;
(5) radial taps from the Transmission System that are 69kV and above
(up to, but not including, the facilities that establish the final circuit
connection to distribution facilities or retail customers);
(6) substations that provide primarily a transmission function;
(7) voltage control devices and power flow control devices directly
connected to the Transmission System;
(8) mobile capacitor banks 69kV or higher; and
(9) equipment spares for transmission facilities.
The Transmission Assets include all the facilities currently recorded on
the books of the Operating Companies as "transmission" facilities as well as the
CAPCO transmission lines discussed in Item 1.A.2(f) above, with the exception of
certain 36 kV, 34.5kV, 33kV and 23 kV facilities ("Subtransmission Facilities")
and do not include "distribution facilities" used to provide retail service.
Distribution facilities include all facilities with voltages below 69 kV,
including both Subtransmission Facilities and the final circuit connection to
substations providing transformation or connection to any retail customer
regardless of voltage level. The Operating Companies currently provide
transmission service to certain wholesale customers at delivery points less than
69 kV. In order to ensure continuity of service to such customers who decide to
take service under the new FERC-approved transmission tariff under which ATSI
will offer its transmission service (the "ATSI Tariff"), ATSI and the Operating
Companies have entered into an Agency Agreement. A copy of the Agency Agreement
is attached as Appendix C to the Operating Agreement, which in turn is included
in Exhibit B-1 to this Application/Declaration. Under the Agency Agreement, the
Operating Companies and ATSI have expressly provided for use of certain
distribution facilities necessary to continue transmission service to wholesale
customers served at delivery points whose voltages are less than 69 kV.
Transmission service to wholesale customers over these distribution facilities
will be offered under the ATSI Tariff, and associated distribution costs will be
recovered in the rates on a direct assignment basis as a distribution adder.
This procedure is necessary to ensure that existing wholesale customers served
at voltages below 69 kV will have access to comparable transmission service
under the ATSI Tariff.
2. OPERATION OF THE TRANSMISSION SYSTEM. ATSI will operate the Transmission
System pursuant to the ATSI Tariff and the Operating Agreement. ATSI will have
operational control of the Transmission Assets, serve as the control area
operator over the Transmission System, offer and arrange for ancillary services,
operate the Open Access Same-Time Information System ("OASIS") in conformance
with FERC Order No. 889(1), and administer the ATSI Tariff,
- -----------------------------
(1) Open Access Same-Time Information System (Formerly Real-Time Information
Network) and Standards of Conduct, Order No. 889, Docket No. RM95-9-000,
61 Fed. Reg. 21737 (May 10, 1996), FERC Stats. & Regs. [Reg. Preambles
1991-96] P. 31,035 (1996) (subsequent history omitted).
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including all requests for service under the ATSI Tariff. ATSI will also be
responsible for maintenance of the Transmission Assets, and will initially
contract with the Operating Companies to perform the maintenance.
ATSI will offer all ancillary services required by the FERC in its
Order No. 888. Since ATSI owns no generating facilities, it will purchase the
necessary ancillary services from third parties. Under the Operating Agreement,
the Operating Companies are required to sell ancillary services to ATSI upon
request at FERC approved rates. ATSI is free, however, to purchase ancillary
services from unaffiliated generators, and will do so consistent with a least
cost procurement strategy. ATSI expects to enter into agreements to purchase
ancillary services from unaffiliated generators in its control area. ATSI will
not, however, engage in the purchase and sale of energy other than to obtain the
necessary ancillary services.
In short, upon receipt of the necessary regulatory approvals, ATSI will
commence providing open access transmission service to those existing open
access customers served by the Operating Companies under the existing
transmission tariff ("FirstEnergy Open Access Tariff"), and any other eligible
customer requesting transmission service from ATSI. In addition, post-transfer,
the Operating Companies will become customers of ATSI under the ATSI Tariff.
Where the Operating Companies are responsible for providing transmission service
under agreements or tariffs predating Order No. 888 ("Grandfathered Transmission
Agreements"), ATSI will work to ensure obligations are satisfied, and will make
its Transmission System available to provide transmission service under the
Grandfathered Transmission Agreements unless otherwise directed by the FERC.
3. FINANCIAL ASPECTS OF THE TRANSACTION. A Bill of Sale will be entered
into between FirstEnergy Corp., on behalf of the Operating Companies, and ATSI
covering the conveyance of the Transmission Assets. The Transmission Assets
transferred to ATSI under the Bill of Sale include FirstEnergy's rights and
interests in any contracts under the FirstEnergy Open Access Tariff. A copy of
the form of Bill of Sale is included as part of Exhibit B-1 to this
Application/Declaration.
The transactions contemplated hereby will be accomplished through (i)
FirstEnergy's acquisition of all of the issued and outstanding voting securities
of ATSI in exchange for approximately $300 million, (ii) the sale and transfer
by the Operating Companies of their Transmission Assets to ATSI in consideration
for the Purchase Price which will be the net book value of the Transmission
Assets as of November 30, 1998 (approximately $655 million) and (iii) ATSI's
financing of the purchase of the Transmission Assets by (A) the use of
FirstEnergy's purchase price for all of the issued and outstanding voting
securities of ATSI for an amount equal to 45% of the Purchase Price and (B)
ATSI's issuance of promissory notes (which may be secured by a lien on the
assets transferred) to the Operating Companies in an aggregate amount equal to
55% of the Purchase Price. The interest rate on the promissory notes will be
based on the embedded cost of debt of the Operating Companies on a consolidated
basis as of November 30, 1998 (which was approximately 7.75%). The 45/55
equity-debt ratio is the same as the Operating Companies' consolidated ratio as
of November 30, 1998.
Release of the Transmission Assets from the liens of the indentures
securing mortgage bonds of the Operating Companies will take place at transfer
of the Transmission Assets to
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ATSI. Fee land, easements and rights-of-way have been excluded from the asset
transfer and will remain the property of the Operating Companies. ATSI will
acquire the right to use land through 50-year ground leases with the Operating
Companies.
C. REASONS FOR AND ANTICIPATED EFFECTS OF THE PROPOSED TRANSACTION
1. CONTEXT OF THE TRANSACTION--CREATION OF A LARGER RTO. The transfer
of the Transmission Assets to ATSI will facilitate implementation of the
subsequent transfer of these facilities into an RTO. FirstEnergy's formation of
ATSI and the transfer of the Transmission Assets to ATSI is not the ultimate
goal. Rather, this is a step towards the subsequent transfer of these facilities
to an RTO. FirstEnergy's ultimate goal is to divest ownership, operation and
control of its transmission facilities from its other assets. Accordingly, if
ATSI does not file a Section 203 application under the Federal Power Act to
transfer ownership or control of its transmission facilities to an RTO within
two years of the date of approval of the joint application with the FERC (a copy
of which is attached hereto as Exhibit D-1), ATSI will file a Section 203
application to divest its transmission facilities to an unaffiliated entity.
FirstEnergy intends to continue its efforts with other transmission owners in
the development of a transmission alliance that would own, operate and aggregate
regional transmission assets and could, in turn, operate transmission facilities
of other companies (the "Transmission Alliance"). At present, the three utility
systems currently committed to participating with FirstEnergy in the
Transmission Alliance (AEP, Consumers Energy and Virginia Power) would stretch
from Michigan to Virginia and would provide open access transmission service
over approximately 43,500 miles of transmission lines serving a population of 23
million. It will strive to better align the interests of transmission customers
with the interests of transmission owners and operators. FirstEnergy has not
precluded consideration of other regional transmission alternatives. Whatever
the regional entity, ATSI's existence as a separate corporate entity and single
provider of transmission services will facilitate the process. Moreover, ATSI
will have the opportunity to gain some experience in the operation of the
transmission system as a stand alone entity - experience that will be valuable
to the effectuation of the next step.
2. ANTICIPATED EFFECTS. The proposed formation of the new transmission
company is intended to provide the following benefits to FirstEnergy and its
Operating Companies' customers: (i) greater corporate and organizational
separation of transmission from generation; and (ii) by tying together control,
planning, maintenance and financial responsibilities of the Operating Companies'
transmission facilities into a single company having an independent, streamlined
and cost-efficient operation, (a) creating synergies that result in better
service in the region, (b) assuring non-discriminatory access for all
transmission users and (c) maximizing the value of the Transmission Assets for
shareholders.
ATSI will not be engaged in the electric power generation business, and
will contract with the Operating Companies and others on the open market to
provide ancillary services on a least cost basis. ATSI will not own distribution
facilities, and will use distribution facilities only to the extent required to
provide transmission services to wholesale customers served at voltages below 69
kV under the ATSI Tariff. Instead, ATSI will focus solely on efficiently and
effectively operating and maintaining, and where necessary expanding, its
transmission system, and will be well-situated to respond quickly to customer
needs.
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D. ADDITIONAL INFORMATION
No associate company or affiliate of FirstEnergy or any affiliate of
any such associate company has any direct or indirect material interest in the
proposed transaction except as stated herein.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
------------------------------
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the transactions contemplated herein, including
other related matters, are estimated as follows:
Legal fees
Winthrop, Stimson, Putnam & Roberts ............................ *
Fees relating to appraisal of the Transmission Assets ............... *
Miscellaneous ....................................................... *
TOTAL ............................................................... *
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
It is believed that Sections 9(a)(2) and 10 of the Act are applicable
to the proposed transactions. To the extent that the proposed transactions are
considered by the Commission to require authorization, approval or exemption
under any section of the Act or provision of the rules or regulations thereunder
other than those specifically referred to herein, request for such
authorization, approval or exemption is hereby made.
Upon consummation of the transfer of the Transmission Assets from the
Operating Companies to ATSI, ATSI will become an "electric utility company" as
defined in Section 2(a)(3) of the Act as well as a "public-utility company" as
defined in Section 2(a)(5) of the Act. Because FirstEnergy will, as a result of
the transactions contemplated herein, be directly acquiring five per centum or
more of the outstanding voting securities of ATSI in addition to those of each
of the Operating Companies (which are public-utility companies), such
acquisition will be subject to Section 9(a)(2) of the Act. Moreover, because
FirstEnergy will be indirectly acquiring certain securities (I.E., the
promissory notes) of ATSI, such acquisition will also be subject to Section
9(a)(2) of the Act. Thus FirstEnergy believes that the proposed transactions
cannot proceed without the Commission's approval pursuant to Section 10 of the
Act. The relevant statutory standards to be satisfied are set forth in Sections
10(b), 10(c), and 10(f) of the Act.
A. SECTION 10(b)
Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless the Commission finds that:
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<PAGE> 15
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public utility companies, of a kind or to an
extent detrimental to the public interest or the interest of investors or
consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other remuneration, to
whomsoever paid, to be given, directly or indirectly, in connection with
such acquisition is not reasonable or does not bear a fair relation to the
sums invested in or the earning capacity of the utility assets to be
acquired or the utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of
the holding company system of the applicant or will be detrimental to the
public interest of consumers or the proper functioning of such holding
company system.
1. SECTION 10(b)(1). The proposed transactions will not tend towards
interlocking relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public interest or the
interest of investors or consumers.
Notwithstanding the above, as in the case of virtually every transaction
subject to Section 9(a)(2), there may exist among FirstEnergy and its public
utility subsidiaries (including ATSI) interlocking directors and officers only
of such nature and to such extent as normally exist in public utility holding
company systems among affiliated and associated companies. See CIPSCO, Inc.,
Holding Co. Act. Release No. 25152, 47 S.E.C. Docket 174, 178 (1990).
Similarly, the proposed transactions will not tend toward any
"concentration of control of public-utility companies" that is detrimental to
the public interest, consumers or investors. The proposed transactions will not
involve the acquisition of any utility assets that are not already owned, either
directly or indirectly, by FirstEnergy and "will therefore have no effect on the
concentration of control of public-utility companies." Wisconsin Energy Corp.,
Holding Co. Act Release No. 24267, 37 SEC Docket 296, 300 (1986).
In this Application/Declaration, FirstEnergy seeks only to more
definitively separate its generation from its transmission facilities in order
to pave the way for complete divestiture of the transmission facilities to an
RTO. As proposed herein, the Transmission Assets that are now owned by the
Operating Companies will be divested to, and acquired by, ATSI, a corporate
subsidiary of FirstEnergy. None of FirstEnergy, the Operating Companies and ATSI
proposes to merge with any other entity in the instant Application/Declaration.
ATSI does not currently own any generation, distribution or transmission
facilities, and will not own or control any generation. Upon completion of the
proposed transfer, the Operating Companies will no longer own transmission
facilities.
2. SECTION 10(b)(2)--FAIRNESS OF CONSIDERATION AND FEES. (a) FAIRNESS OF
CONSIDERATION. Section 10(b)(2) of the 1935 Act requires the Commission to
determine whether the consideration in connection with a proposed acquisition of
securities is reasonable and whether it bears a fair relation to the investment
in and the earning capacity of the utility assets underlying the securities
being acquired. The consideration in connection with security acquisitions under
the transactions contemplated herein will be as follows: (i) approximately
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<PAGE> 16
$300 million will be paid by FirstEnergy for all of the outstanding voting
securities of ATSI and (ii) the Transmission Assets will be transferred to ATSI
for the promissory notes and a cash payment equal to the difference between the
aggregate principal amount of the promissory notes and the net book value of the
Transmission Assets. FirstEnergy believes that the consideration to be paid by
it for the voting securities of ATSI is reasonable because the amount of such
consideration plus the total amount of debt that ATSI will incur in acquiring
the Transmission Assets is equal to the approximate actual value of those
assets. FirstEnergy further believes that such consideration bears a fair
relation to the investment in and the earning capacity of the Transmission
Assets because it is based on the net book value those assets had in the hands
of the Operating Companies. The rates set by FERC in connection with those
facilities when they were owned by the Operating Companies permitted them to
achieve a fair return on those assets. Since ATSI's rates will also be subject
to FERC approval, it can be expected that those rates (which should be based on
the same book value) will permit ATSI to achieve a fair return on them as well.
This being the case, FirstEnergy, being the sole equity owner of ATSI, can
expect to earn a fair return on its investment. FirstEnergy believes that the
consideration paid by the Operating Companies for the promissory notes is
reasonable because the principal amount of the notes, when added to the cash
that the Operating Companies will receive for the Transmission Assets, will be
equal to the net book value of those assets on the books of the Operating
Companies. The consideration paid by the Operating Companies bears a fair
relation to the investment in and the earning capacity of the Transmission
Assets because the interest rate borne by the promissory notes will be equal to
the embedded cost of debt of the Operating Companies on a consolidated basis and
this amount is not any greater than the cost of debt (on a consolidated basis)
that FERC considered when it approved the transmission rates currently
applicable to the Transmission Assets. In any event, the proposed transaction is
not in a real sense an acquisition of securities; it is merely a corporate
reorganization.
(b) REASONABLENESS OF FEES. An estimate of the fees and expenses to be
paid in connection with the proposed transactions is set forth in Item 2 hereof.
The estimated amounts to be paid are fees required to be paid to governmental
bodies, fees for necessary professional services, and other expenses incurred or
to be incurred in connection with carrying out the proposed transactions.
FirstEnergy believes that such fees and expenses are reasonable and customary
for a transaction of this kind, and the standards of Section 10(b)(2) are thus
satisfied.
3. SECTION 10(b)(3)--CAPITAL STRUCTURE. Section 10(b)(3) requires the
Commission to determine whether the proposed transactions will unduly complicate
FirstEnergy's capital structure or will be detrimental to the public interest,
the interests of investors or consumers or the proper functioning of
FirstEnergy's system. The corporate capital structure of FirstEnergy after the
consummation of the proposed transactions will not be unduly complicated.
FirstEnergy will directly acquire all of the issued and outstanding voting
securities of ATSI, in addition to continuing to own directly or indirectly all
of the issued and outstanding voting securities of each of the Operating
Companies, and thus there will be no minority equity interest in any of such
companies. The Operating Companies will own all of ATSI's debt securities. No
change will be effected in the capital structure of Penn Power, which will
continue to be a wholly-owned subsidiary of Ohio Edison.
In any event, as set forth more fully in Item 3.B.2 and elsewhere in this
Application/Declaration, the proposed formation of the new transmission company
is expected to
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result in certain benefits to the public and to consumers and investors of the
FirstEnergy holding-company system. FirstEnergy's plan to establish an RTO, with
the creation of ATSI as a significant step toward that end, will maximize the
value of the Transmission Assets to shareholders.
B. SECTION 10(C)
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the Commission shall
not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system . . . .
1. SECTION 10(c)(1). Consistent with the standards set forth in Section
10(c)(1) of the Act, the proposed acquisition of securities will not be unlawful
under the provisions of Section 8 of the Act (inasmuch as Section 8 applies only
to registered holding companies), or detrimental to the carrying out of the
provisions of Section 11 of the 1935 Act, which also applies, by its terms, only
to registered holding companies, because FirstEnergy believes that following the
consummation of the proposed transactions it will continue to be a
public-utility holding company entitled to an exemption under Section 3(a)(1) of
the 1935 Act from all of the provisions of the 1935 Act (except for Section
9(a)(2) thereof), including provisions relating to registration. See FirstEnergy
Form U-3A-2, "Statement by Holding Company Claiming Exemption Under Rule U-2
from the Provisions of the Public Holding Company Act of 1935," dated February
26, 1999, attached hereto as Exhibit G-1.
Section 8 prohibits a registered holding company or any of its
subsidiaries from acquiring, owning interests in or operating both a gas utility
company and an electric utility company serving substantially the same area if
prohibited by state law. Because none of FirstEnergy and any of its subsidiary
companies owns or has any financial interest in any gas utility company and
because ATSI will not own or have any financial interest in any gas utility
company, following the proposed transactions, FirstEnergy will not have
acquired, and will not own or operate a gas utility company.
Section 11(a) of the Act requires the Commission to examine the
corporate structure of registered holding companies to ensure, among others,
that unnecessary complexities are eliminated and voting powers are fairly and
equitably distributed. The proposed transactions meet the standards of Section
11(a) of the Act. As discussed above with respect to the requirements of Section
10(b)(3) of the Act, FirstEnergy will directly acquire all of the issued and
outstanding voting securities of ATSI, in addition to continuing to own directly
or indirectly all of the issued and outstanding voting securities of each of the
Operating Companies, thus leaving no minority interests outstanding. The
Operating Companies will own all of ATSI's debt
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securities. Penn Power will continue to be a wholly-owned subsidiary of Ohio
Edison. After the consummation of the proposed transactions, no person will be a
holding company with respect to FirstEnergy.
2. SECTION 10(c)(2). As the following discussion will demonstrate, the
proposed transactions will serve the public interest by tending towards the
economical and efficient development of an integrated public-utility system, as
required by Section 10(c)(2) of the Act.
(a) EFFICIENCIES AND ECONOMIES. As described more fully in Item 1.C.2
above, the proposed transactions tend towards the following efficiencies and
economies: (i) greater corporate and organizational separation of transmission
from generation; and (ii) by tying together control, planning, maintenance and
financial responsibilities of the Operating Companies' transmission facilities
into a single company having an independent, streamlined and cost-efficient
operation, synergies will be created that result in better service in the region
and non-discriminatory access for all transmission users will be assured.
FirstEnergy's plan to establish an RTO, with the creation of ATSI as a
significant step toward that end, will maximize the value of the Transmission
Assets to shareholders.
(b) INTEGRATED PUBLIC UTILITY SYSTEM. As applied to electric utility
companies, the term "integrated public utility system" is defined in Section
2(a)(29)(A) of the Act as:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as a single
interconnected and coordinated system confined in its operation to a
single area or region, in one or more states, not so large as to impair
(considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation.
The Commission has previously taken notice of developments that have
occurred in the gas and electric industries in recent years, and has interpreted
the Act and analyzed proposed transactions in light of these changed and
changing circumstances. See, e.g., New Century Energies, Inc., Holding Co. Act
Release No. 26748 (Aug. 1, 1997) (approving transactions relating to combination
of a Colorado gas and electric public-utility company and intrastate exempt
holding company and a New Mexico electric public-utility company), citing
Hearing on Regulation of Public Utility Holding Companies Before Subcomm, on
Telecommunications and Finance and Subcomm. on Energy and Power of the House of
Representatives Comm, on Commerce, 104th Cong., 1st Sess. (Aug. 4, 1995)
(testimony of Arthur Levitt, Chairman, SEC); "The Regulation of Public-Utility
Holding Companies," report of the Division of Investment Management (June 1995)
("1995 Report") at 29-31; and Consolidated Natural Gas Co., Holding Co. Act
Release No. 26512 (Apr. 30, 1996). See also Rust v. Sullivan, 500 U.S. 173,
186-87 (1991) ("an agency is not required to" establish rules of conduct to last
forever, "but rather must be given ample latitude to "adapt [its] rules and
policies to the demands of changing circumstances.") (citations omitted);
Shawmut Assn. v. SEC, 146 F.2d 791, 796-97 (1st Cir. 1945) (an agency "is
expected to treat experience not as a jailer but as a teacher").
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On the basis of the statutory definition above, the Commission has
established four standards that must be met before the Commission will find that
an integrated public-utility system will result from a proposed acquisition of
securities:
(1) the utility assets of the system are physically interconnected or
capable of physical interconnection;
(2) the utility assets, under normal conditions, may be economically
operated as a single interconnected and coordinated system;
(3) the system must be confined in its operations to a single area or
region; and
(4) the system must not be so large as to impair (considering the
state of the art and the area or region affected) the advantages of
localized management, efficient operation, and the effectiveness of
regulation.
Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1263 (9th Cir. 1990), quoting
In re Electric Energy, Inc., 38 S.E.C. 658, 668 (1958).
The proposed transactions satisfy all four of these requirements. It should
be noted that in the 1995 Report, the Division recommended that the Commission
"respond realistically to the changes in the utility industry and interpret more
flexibly each piece of the integration equation." 1995 Report at 71.
CAPABLE OF PHYSICAL INTERCONNECTION. Upon consummation of the proposed
transactions, Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison,
along with the new transmission company, ATSI, will continue to be "physically
interconnected or capable of physical interconnection" within the meaning of
Section 2(a)(29)(A). The electric service areas of the Operating Companies are
adjacent, with Ohio Edison separating Cleveland Electric and Toledo Edison. The
proposed transactions will maintain a continuous, geographically compact system
across northern Ohio and western Pennsylvania.
Moreover, the service areas served by the Operating Companies are already
highly interconnected. Ohio Edison and Penn Power have three 345kV and four
138kV interconnections. Ohio Edison and Cleveland Electric have five 345 kV and
four 138 kV interconnections, and Ohio Edison and Toledo Edison have one 345 kV
and one 138 kV interconnection. After the transfer of the Transmission Assets to
ATSI contemplated by the proposed transactions, the same physical
interconnections will be maintained in the FirstEnergy holding company system.
In view of the above, the facts presented clearly support a finding that
the utility assets of the FirstEnergy system are "physically interconnected or
capable of physical interconnection" within the meaning of Section 2(a)(29)(A)
of the Act.
SINGLE INTERCONNECTED AND COORDINATED SYSTEM. Section 2(a)(29)(A) of the
Act requires that the utility assets, under normal circumstances, may be
"economically operated as a single interconnected and coordinated system." The
Commission has interpreted this language to refer to the physical operation of
utility assets as a system in which, among other
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things, the generation and/or flow of current within the system may be centrally
controlled and allocated as need or economy directs. See UNITIL Corp., Holding
Co. Act Release No. 25524 (Apr. 24, 1992). The electric generation, transmission
and distribution system of FirstEnergy are operated in a manner that satisfies
the standard of economic and coordinated operations in Section 2(a)(29)(A) of
the Act. Moreover, as more fully described in Item 1.C.2 above, the proposed
transactions are expected to result in greater coordination and more efficient
allocation of provision of transmission services within the region served by the
FirstEnergy holding company system.
SINGLE AREA OR REGION. The "single integrated system" of FirstEnergy and
its subsidiaries are currently confined in its operations to a single area or
region, namely, northern and central Ohio and western Pennsylvania. This will
not change as a result of the consummation of the proposed transactions,
including the introduction of ATSI into the existing system.
LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE REGULATION. The
FirstEnergy's utility system will not be enlarged at all as a result of the
proposed transactions; thus, they will not impair the advantages of localized
management, efficient operations and the effectiveness of regulation. Moreover,
the Commission's past decisions on "localized management" show that the proposed
transactions fully preserve the advantages of localized management. In such
cases, the Commission has evaluated localized management in terms of: (i)
responsiveness to local needs, see American Electric Power Co., Holding Co. Act
Release No. 20633 (July 21, 1978)(advantages of localized management evaluated
in terms of whether an enlarged system could be "responsive to local needs");
General Public Utilities Corp., 37 S.E.C. 28, 36 (1956)(localized management
evaluated in terms of "local problems and matters involving relations with
consumers"); (ii) whether management and directors were drawn from local
utilities, see Centerior Energy Corp., Holding Co. Act Release No. 24073 (April
29, 1986)(advantages of localized management would not be compromised by the
affiliation of two electric utilities under a new holding company because the
new holding company's "management [would be] drawn from the present management"
of the two utilities); (iii) the preservation of corporate identities, See
Northeast Utilities, Holding Co. Act Release No. 25221 (December 21, 1990)
(utilities "will be maintained as separate New Hampshire corporations . . .
[t]herefore the advantages of localized management will be preserved"); Columbia
Gas System, Inc., Holding Co. Act Release No. 24599 (March 15, 1988)(benefits of
local management maintained where the utility to be added would be a separate
subsidiary); and (iv) the ease of communications, see American Electric Power
Co., Holding Co. Act Release No. 20633 (July 21, 1978)(distance of corporate
headquarters from local management was a "less important factor in determining
what is in the public interest" given the "present-day ease of communications
and transportation").
The effectiveness of regulation will not be diminished as a result of the
proposed transactions; Ohio Edison, Cleveland Electric and Toledo Edison will
remain subject to regulation by the PUCO, and Penn Power will remain subject to
regulation by the PPUC. Moreover, the respective interstate activities of Ohio
Edison, Penn Power, Cleveland Electric and Toledo Edison will continue to be
regulated by the FERC. ATSI will also be subject to regulation of the FERC with
respect to rates and other matters.
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C. SECTION 10(f)
Section 10(f) provides that
The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply in
respect of such acquisition have been complied with, except where the
Commission finds that compliance with such State laws would be
detrimental to the carrying out of the provisions of section 11.
Ohio Edison, Cleveland Electric and Toledo Edison are currently subject
to the jurisdiction of the PUCO. An application with the PUCO (a copy of which
is attached hereto as Exhibit D-3) has been filed for approval of the PUCO with
respect to the proposed transfer of the relevant Transmission Assets from each
of the three Operating Companies to ATSI.
Penn Power is currently subject to the jurisdiction of the PPUC. An
application with the PPUC (a copy of which is attached hereto as Exhibit D-5)
has been filed for approval of the PPUC with respect to the proposed transfer of
the relevant Transmission Assets from Penn Power to ATSI and the operation of
Penn Power's transmission lines by ATSI.
ITEM 4. REGULATORY APPROVALS
--------------------
Set forth below is a summary of the regulatory approvals that the
applicants have obtained or expect to obtain in connection with the proposed
transactions. Except as set forth below, no other state or local regulatory body
or agency and no other federal commission or agency has jurisdiction over the
transactions proposed herein.
A. FEDERAL POWER ACT
Under Section 203 of the Federal Power Act, the FERC has jurisdiction
over the proposed transactions. The Operating Companies have filed a joint
application with the FERC (a copy of which is attached hereto as Exhibit D-1)
for authority to consummate the proposed transactions.
B. STATE PUBLIC UTILITY REGULATION
An application with the PUCO (a copy of which is attached hereto as
Exhibit D-3) has been filed for approval of the PUCO with respect to the
proposed transfer of the relevant Transmission Assets from each of the three
Operating Companies to ATSI. An application with the PPUC (a copy of which is
attached hereto as Exhibit D-5) has been filed for approval of the PPUC with
respect to the proposed transfer of the relevant Transmission Assets from Penn
Power to ATSI and the operation of Penn Power's transmission lines by ATSI.
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C. OTHER
FirstEnergy may file other applications for, or request, certain other
consents or authorizations by federal, state or municipal agencies in connection
with the issuance of securities, system operations and franchises or any other
activities subject to regulatory approval.
ITEM 5. PROCEDURE
---------
The Applicant requests that there be no 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. The Applicant submits that a recommended decision by a hearing or
other responsible officer of the Commission is not needed with respect to the
proposed transaction and that the Division may assist with the preparation of
the Commission's decision and/or order in this matter unless such Division
opposes the matters covered hereby.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
A. EXHIBITS
EXHIBIT
A-1 Articles of Incorporation of ATSI.
A-2 Amended Articles of Incorporation of FirstEnergy (Incorporated by
reference to the Form S-4 Registration Statement filed on February 3,
1997, File No. 333-21011, as Exhibit (3)-1).
A-3 Amended Articles of Incorporation of Ohio Edison, effective June 21,
1994 (Incorporated by reference to the Form 10-K Annual Report of Ohio
Edison for the year ended December 31, 1994, File No. 1-2578, as
Exhibit 3-1).
A-4 Amended Articles of Incorporation of Cleveland Electric, effective May
28, 1993 (Incorporated by reference to the Form 10-K Annual Report of
Cleveland Electric for the year ended December 31, 1993, File No.
1-2323, as Exhibit 3a).
A-5 Amended Articles of Incorporation of Toledo Edison, effective October
2, 1992 (Incorporated by reference to the Form 10-K Annual Report of
Toledo Edison for the year ended December 31, 1992, File No. 1-3583, as
Exhibit 3a).
A-6 Agreement of Merger and Consolidation dated April 1, 1929, among
Pennsylvania Power Company (Penn), Harmony Electric Company and Peoples
Power Company (consummated May 31, 1930), copies of Letters Patent
issued thereon, together with the Election Return and Treasurer's
Return, relative to decrease of capital stock; Election Return
authorizing change of capital stock and increase of indebtedness;
Election Return authorizing change of capital stock; Election Return
authorizing increase of capital stock; Election Return establishing
4.24% Preferred Stock; Certificate with respect to the establishment of
the 4.64% Preferred Stock; Election Returns and Certificates of Actual
Sale in connection with the purchase by Penn Power of all the property
of Pine-Mercer Electric Company, Industry Borough Electric Company,
Ohio Township Electric Company, and Shippingport Borough
21
<PAGE> 23
EXHIBITS
Electric Company; Certificate of Change of Location of Penn Power's
principal office; Certificate of Consent authorizing increase in
authorized Common Stock; Certificate of Consent with respect to the
removal of limitations on the authorized amount of indebtedness of Penn
Power; Election Returns and Certificates of Actual Sale in connection
with the purchase by Penn Power of all the property of Borolak Public
Service Company, Eastfax Public Service Company, Norango Public Service
Company, Sadwick Public Service Company, Sosango Public Service
Company, Surrick Public Service Company, Wesango Public Service
Company, and Westfax Public Service Company; Certificate of Change of
Location of Penn Power's principal office; Amendment to the Charter
extending the territory in which Penn Power may operate in the Borough
of Shippingport, Beaver County, Pennsylvania; Certificate of Consent
authorizing increase in authorized Common Stock; Certificate with
respect to the establishment of the 8% Preferred Stock; Certificate
accepting Business Corporation Law of Pennsylvania for government and
regulation of affairs of Penn Power; Articles of Amendment
incorporating certain protective provisions relating to Preferred
Stock, increasing amount of authorized Preferred Stock and authorizing
future increases in amounts of authorized Preferred Stock without a
vote of the holders of Preferred Stock; Articles of Amendment
increasing the authorized number of shares of Common Stock; Statement
Affecting Class or Series of Shares with respect to the establishment
of the 7.64% Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Articles of Amendment
increasing the number of authorized shares of Preferred Stock;
Statement Affecting Class or Series of Shares with respect to the
establishment of the 8.48% Preferred Stock; Articles of Amendment
authorizing sinking fund requirements for Preferred Stock; Statement
Affecting Class or Series of Shares with respect to the establishment
of the 11% Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Statement Affecting Class
or Series of Shares with respect to the establishment of the 9.16%
Preferred Stock; Articles of Amendment increasing authorized number of
shares of Common Stock; Articles of Amendment increasing authorized
number of shares of Preferred Stock; Statement Affecting Class or
Series of Shares with respect to the establishment of the 8.24%
Preferred Stock; Statement Affecting Class or Series of Shares with
respect to the establishment of the 10.50% Preferred Stock; Articles of
Amendment increasing authorized number of shares of Common Stock;
Articles of Amendment increasing authorized number of shares of
Preferred Stock; Statement Affecting Class or Series of Shares with
respect to the establishment of the 15.00% Preferred Stock; Statement
Affecting Class or Series of Shares with respect to the establishment
of the 11.50% Preferred Stock; Articles of Amendment increasing
authorized number of shares of Preferred Stock; Statement Affecting
Class or Series of Shares with respect to the establishment of the
13.00% Preferred Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 11.50% Preferred Stock, Series
B; Articles of Amendment effective April 2, 1987, adding a standard of
care for, and limiting the personal liability of, officers and
directors; Articles of Amendment effective April 1, 1992, setting forth
corporate purposes of the Company; Statement with Respect to Shares
with respect to the establishment of
22
<PAGE> 24
EXHIBITS
the 7.625% Preferred Stock and Statement with Respect to Shares with
respect to the establishment of the 7.75% Preferred Stock. (Physically
filed and designated respectively, as follows: in Form A-2,
Registration No. 2-3889, as Exhibit A-1; in Form 1-MD for 1938, File
No.2-3889, as Exhibit (a)-1; in Form 1-MD for 1945, File No. 2-3889, as
Exhibit A; in Form U-1, File No. 70-2310, as Exhibit A-3 (d); in Form
8-K for March 1951, File No. 1-3491, as Exhibit B; in Form 8-K for June
1958, File No. 1-3491B, as Exhibit 1; in Form 10-K for 1959 as Exhibits
1, 2, 3 and 4; in Form 8-K for March 1960, File No. 1-3491B as Exhibit
A; in Form U-1, File No. 70-3971, as Exhibit A-2; in Form U-1, File No.
70-4055, as Exhibit A-2; as Exhibits 1 through 8 in Form 8-K for
January 1962, File No. 1-3491; as Exhibit A in Form 8-K for August
1963, File No. 1-3491; as Exhibits A and B in Form 8-K for September
1969, File No. 1-3491; as Exhibit B in Form 8-K for April 1971, File
No. 1-3491; as Exhibit B in Form 8-K for September 1971, File No.
1-3491; in Form 8-K for September 1972, File No. 1-3491; as Exhibit A
in Form 8-K for December 1972, File No. 1-3491; as Exhibit A in Form
8-K for March 1973, File No. 1-3491; as Exhibit A in Form 8-K for
December 1973, File No. 1-3491; as Exhibits A and C in Form 8-K for
February 1974, File No. 1-3491; as Exhibits A and B in Form 8-K for
January 1975, File No. 1-3491; as Exhibit F in Form 8-K for May 1975,
File No. 1-3491; as Exhibit A in Form 8-K for April 1976, File No.
1-3491; as Exhibit G in Form 10-Q for quarter ended June 30, 1977, File
No. 1-3491; as Exhibit C in Form 10-K for 1977, File No. 1-3491; as
Exhibit A in Form 10-K for 1977, File No. 1-3491; as Exhibit D in Form
10-Q for quarter ended June 30, 1980, File No. 1-3491; as Exhibit (4)
in Form 10-Q for quarter ended June 30, 1981, File No. 1-3491; as
Exhibit 4 in Form 10-Q for quarter ended June 30, 1982, File No.
1-3491; as Exhibit 4 in Form 10-Q for quarter ended September 30, 1982,
File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended September
30, 1983, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended
March 31, 1984, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter
ended June 30, 1984, File No. 1-3491; as Exhibit 4 in Form 10-Q for
quarter ended September 30, 1985, File No. 1-3491; as Exhibit 3-2 in
Form 10-K for 1987 File No. 1-3491; as Exhibit 3-2 in Form 10-K for
1992 File No. 1-3491; as Exhibit 19-2 in Form 10-K for 1992 File No.
1-3491; and as Exhibit 3-2 in Form 10-K for 1993 File No. 1-3491.)
B-1 Form of Operating Agreement between the Operating Companies and ATSI.
D-1 Joint Application of Ohio Edison, Penn Power, Cleveland Electric and
Toledo Edison to FERC.
D-2 Order of FERC. (To be filed by amendment.)
D-3 Application to the PUCO.
D-4 Order of the PUCO. (To be filed by amendment.)
D-5 Application to the PPUC.
D-6 Order of the PPUC. (To be filed by amendment.)
F-1 Preliminary Opinion of Counsel. (To be filed by amendment.)
23
<PAGE> 25
EXHIBITS
F-2 Past Tense Opinion of Counsel. (To be filed with certificate of
notification.)
G-1 First Energy Form U-3A-2, "Statement by Holding Company Claiming
Exemption under Rule U-2 from the Provisions of the Public Utility
Holding Company Act of 1935," dated February 26, 1999 (Incorporated by
reference to such filing, File No. 69-423).
G-2 Form 10-K Annual Report of FirstEnergy for the year ended December 31,
1998 (Incorporated by reference to such filing, File No. 333-21011).
G-3 Form 10-K Annual Report of Ohio Edison for the year ended December 31,
1998 (Incorporated by reference to such filing, File No. 1-2578).
G-4 Form 10-K Annual Report of Penn Power for the year ended December 31,
1998 (Incorporated by reference to such filing, File No. 1-3491).
G-5 Form 10-K Annual Report of Cleveland Electric for the year ended
December 31, 1998 (Incorporated by reference to such filing, File No.
1-2323).
G-6 Form 10-K Annual Report of Toledo Edison for the year ended December
31, 1998 (Incorporated by reference to such filing, File No. 1-3583).
H-1 Form of Notice of Application.
B. FINANCIAL STATEMENTS
EXHIBIT
FS-1 FirstEnergy Consolidated Balance Sheet as of December 31, 1998 (see
Annual Report of FirstEnergy on Form 10-K for the year ended December
31, 1998 (Exhibit G-2 hereto)).
FS-2 FirstEnergy Consolidated Statements of Income for its last three fiscal
years (see Annual Report of Ohio Edison on Form 10-K for the year ended
December 31, 1998 (Exhibit G-2 hereto)).
FS-3 Ohio Edison Consolidated Balance Sheet as of December 31, 1998 (see
Annual Report of Ohio Edison on Form 10-K for the year ended December
31, 1998 (Exhibit G-3 hereto)).
FS-4 Ohio Edison Consolidated Statements of Income for its last three fiscal
years (see Annual Report of Ohio Edison on Form 10-K for the year ended
December 31, 1998 (Exhibit G-3 hereto)).
FS-5 Penn Power Balance Sheet as of December 31, 1998 (see Annual Report of
Penn Power on Form 10-K for the year ended December 31, 1998 (Exhibit
G-4 hereto)).
FS-6 Penn Power Statements of Income for its last three fiscal years (see
Annual Report of Penn Power on Form 10-K for the year ended December
31, 1998 (Exhibit G-4 hereto)).
FS-7 Cleveland Electric Consolidated Balance Sheet as of December 31, 1998
(see Annual Report of Cleveland Electric on Form 10-K for the year
ended December 31,
24
<PAGE> 26
EXHIBITS
1998 (Exhibit G-5 hereto)).
FS-8 Cleveland Electric Consolidated Statements of Income for its last three
fiscal years (see Annual Report of Cleveland Electric on Form 10-K for
the year ended December 31, 1998 (Exhibit G-5 hereto)).
FS-9 Toledo Edison Balance Sheet as of December 31, 1998 (see Annual Report
of Toledo Edison on Form 10-K for the year ended December 31, 1998
(Exhibit G-6 hereto)).
FS-10 Toledo Edison Statements of Income for its last three fiscal years (see
Annual Report of Toledo Edison on Form 10-K for the year ended December
31, 1998 (Exhibit G-6 hereto)).
Financial Statements of ATSI are not included herein because it has no
assets and has not engaged in any business operations.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
---------------------------------------
The proposed transactions neither involve a "major federal action" nor
"significantly affect the quality of the human environment" as those terms are
used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4321 et seq. Consummation of the proposed transactions will not result in
changes in the operations of FirstEnergy, Ohio Edison, Toledo Edison or Penn
Power that would have any impact on the environment. No federal agency is
preparing an environmental impact statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Application/Declaration to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: ___________, 1999
FIRSTENERGY CORP.
By: /s/ H. Peter Burg
-----------------------------------
H. Peter Burg
President and Chief Executive Officer
25
<PAGE> 1
Exhibit A-1
ARTICLES OF INCORPORATION
OF
AMERICAN TRANSMISSION SYSTEMS, INCORPORATED
(AS FILED WITH THE OHIO SECRETARY OF STATE ON OCTOBER 8, 1998)
The undersigned, desiring to form a corporation, for profit,
under Sections 1701.01 et seq. of the Ohio Revised Code, does hereby state the
following:
FIRST. The name of the corporation shall be "American
Transmission Systems, Incorporated."
SECOND. The place in Ohio where its principal office is to be
located is Akron, Summit County.
THIRD. The purpose for which this corporation is formed is to
engage in any lawful act or activity for which a corporation may be formed under
Section 1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH. The number of shares of all classes which the
corporation is authorized to have outstanding is eight hundred and fifty (850)
shares of common stock having no par value.
IN WITNESS WHEREOF, I have subscribed my name, this ___ day of
_________, 1998.
American Transmission Systems, Incorporated
/s/ Mary Hockwalt Bell
----------------------------
Mary Hockwalt Bell
Incorporator
<PAGE> 2
ORIGINAL APPOINTMENT OF STATUTORY AGENT
The undersigned, the sole incorporator of AMERICAN TRANSMISSION
SYSTEMS, INCORPORATED, hereby appoints NANCY C. ASHCOM to be statutory agent
upon whom any process, notice or demand required or permitted by statute to be
served upon the corporation may be served. The complete address of the agent is:
76 SOUTH MAIN STREET, AKRON, OHIO 44308.
/s/ Mary Hockwalt Bell
--------------------------------
Mary Hockwalt Bell
ACCEPTANCE OF APPOINTMENT
The undersigned, NANCY C. ASHCOM, named here in as the statutory agent
for AMERICAN TRANSMISSION SYSTEMS, INCORPORATED, hereby acknowledges and accepts
the appointment of statutory agent for said corporation.
/s/ Nancy C. Ashcom
--------------------------------
Nancy C. Ashcom
<PAGE> 1
Exhibit B-1
OPERATING AGREEMENT
-------------------
WHEREAS, FirstEnergy Corp. has formed a wholly-owned
subsidiary, American Transmission Systems, Inc. ("ATSI") to own, plan, and
operate Transmission Facilities transferred from The Cleveland Electric
Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, and The
Toledo Edison Company (FirstEnergy Operating Companies) and to become the
Control Area Operator for the Transmission System;
WHEREAS, the FirstEnergy Operating Companies have delivered a
Bill of Sale transferring ownership of their transmission facilities to ATSI;
WHEREAS, the FirstEnergy Operating Companies have entered into
Ground Leases which provide for non-exclusive use of transmission rights-of-way
by ATSI;
WHEREAS, the FirstEnergy Operating Companies and ATSI desire
to enter into an Agreement providing for the planning, operation, and control of
the Transmission System by ATSI;
THIS OPERATING AGREEMENT, including all appendices attached
hereto (hereinafter "Agreement") is entered into by ATSI and the FirstEnergy
Operating Companies, (Individually a "Party" and collectively the "Parties")
transferring the ownership, planning, and operation of the FirstEnergy
Transmission System to ATSI.
ARTICLE ONE
DEFINITIONS
1. IN GENERAL
----------
Unless the context otherwise specifies or requires, the following terms
used in this Agreement, or in any appendix to this Agreement, shall have the
meanings set forth below. Additional terms are defined in other provisions of
this Agreement as needed.
1.1 AGENCY AGREEMENT. The agreement appended hereto as Appendix C which
allows ATSI
<PAGE> 2
to act as agent for the FirstEnergy Operating Companies to the extent necessary
to provide transmission service to wholesale customers served at voltages below
69 kV over Distribution Facilities under the Transmission Tariff.
1.2 CONTROL AREA OPERATOR. Means operating an electric power system or
combinations of electric power systems to which a common automatic generation
control scheme is applied in order to:
a. match, at all times, the power output of the
generators within the electric power system(s) and
capacity and energy purchased from or sold to
entities outside or within the electric power
system(s), in accordance with transmission service
requests with the load within the electric power
system(s);
b. maintain scheduled interchange with other Control
Areas, within the limits of Good Utility Practice;
c. maintain the frequency of the electric power
system(s) to NERC standards and provide emergency
services in cooperation with the FirstEnergy
Operating Companies and Good Utility Practice;
d. provide sufficient generating capacity to maintain
operating reserves in accordance with Good Utility
Practice; and
e. administer and implement all transmission
reservations in accordance to the "Open Access Same
Time Information System" (OASIS). Following FERC
approval, ATSI will be the Control Area Operator for
the FirstEnergy electric power system.
1.3 DISTRIBUTION FACILITIES. All facilities with nominal voltages below
69 kV which are owned or operated by the FirstEnergy Operating Companies.
Distribution Facilities include the 36, 34.5, 33 and 23 kv lines and associated
facilities defined in Section 3.1.3 of this Agreement. Distribution
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<PAGE> 3
facilities shall include the final circuit connection into substations,
including substation facilities, providing transformation or connection to any
wholesale or retail customer, regardless of the nominal voltage level.
Distribution Facilities include all metering and related facilities necessary to
serve such customers, including customer owned Distribution Facilities operated
by the FirstEnergy Operating Companies and such other facilities defined in
Appendix D.
1.4 EFFECTIVE DATE. The Effective Date of this Agreement is the date
that FERC approves the application of the FirstEnergy Operating Companies for
transfer of ownership, operation, and control of Transmission Facilities to
ATSI.
1.5 FERC. The Federal Energy Regulatory Commission, or any successor
agency.
1.6 FIRSTENERGY OPERATING COMPANIES. Ohio Edison Company, Pennsylvania
Power Company, The Cleveland Electric Illuminating Company, and The Toledo
Edison Company.
1.7 GENERATION FACILITIES. Generating Facilities are facilities used
for the production of electric energy and which are owned and operated by the
FirstEnergy Operating Companies. The Generation Facilities are described in more
detail in Appendix D.
1.8 GOOD UTILITY PRACTICE. Any of the practices, methods, and acts
engaged in or approved by a significant portion of the electric utility industry
during the relevant time period, or any of the practices, methods, and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at reasonable cost consistent with good business practices, reliability,
safety, and expedition. Good Utility Practice is not intended to be limited to
the optimum practice, method, or act, to the exclusion of all others, but rather
to be a range of acceptable practices, methods, or act generally accepted in the
region.
1.9 GRANDFATHERED TRANSMISSION AGREEMENTS. Grandfathered Transmission
Agreements has the meaning given in Section 2.1.5 of this Agreement.
1.10 REGULATORY AUTHORITY(IES). Regulatory Authority(ies) includes any
federal, state, local or
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<PAGE> 4
other governmental, regulatory or administrative agency having jurisdiction over
the subject matter of this Agreement.
1.11 TRANSFER DATE. The first business day following the Effective Date
when ownership, operation, and control of Transmission Facilities is transferred
to ATSI.
1.12 TRANSMISSION FACILITIES. Transmission facilities of 69 kV nominal
rating and above, all transformers where the nominal low-side voltage is 69 kV
and above, the System Control Center facility and equipment, and such other
facilities described in Appendix D, sold to, and owned by ATSI. The Transmission
Facilities also include any other facilities built, purchased, leased, or
otherwise acquired by ATSI in furtherance of its obligations under this
Agreement, including any new metering necessary between ATSI and either the
Distribution Facilities or Generation Facilities.
1.13 TRANSMISSION TARIFF. The Transmission Tariff on file with the FERC
under which ATSI will offer open access transmission service, or any successor
tariff.
1.14 TRANSMISSION SYSTEM. The Transmission Facilities owned, operated,
and controlled by ATSI that are used to provide service under the Transmission
Tariff.
1.15 TRANSMISSION CUSTOMER. A Transmission Customer under the
Transmission Tariff or any entity that is a party to a transaction under the
Transmission Tariff. Transmission Customer includes the FirstEnergy Operating
Companies.
ARTICLE TWO
RIGHTS, POWERS, AND OBLIGATIONS OF ATSI
2. PLANNING AND OPERATIONS.
------------------------
2.1.1 PLANNING ACTIVITIES. ATSI shall plan the Transmission System in
order to provide all Transmission Customers with efficient, reliable, and
non-discriminatory transmission service under the Transmission Tariff. Such
planning shall conform to applicable reliability requirements of the North
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<PAGE> 5
American Electric Reliability Council (NERC), applicable regional reliability
councils, or any successor organizations, and all applicable requirements of
federal or state laws or Regulatory Authorities and any reliability procedures
or guidelines adopted by ATSI. Such planning shall seek to minimize costs for
both ATSI and Transmission Customers, consistent with Good Utility Practice and
the reliability and other requirements set forth in this Agreement, but shall
also include consideration of economic Transmission System expansion, whether by
construction or acquisition of new Transmission Facilities. ATSI shall plan the
Transmission System as provided in Appendix A to this Agreement.
2.1.2 RELIABILITY. ATSI shall have responsibility for the reliability
of the Transmission System.
2.1.3 OPERATIONAL CONTROL. ATSI shall operate the Transmission System
and the high side (69 kV or higher) devices of the Distribution Facilities as
necessary to provide all Transmission Customers with efficient, reliable, and
non-discriminatory transmission service under the Transmission Tariff. Such
operation shall be exercised in accordance with Good Utility Practice and shall
conform to applicable reliability requirements of the NERC, applicable regional
reliability councils, or any successor organizations, and all applicable
requirements of federal or state laws or Regulatory Authorities. ATSI shall
establish reliability guidelines or procedures necessary to implement and comply
with applicable reliability requirements. ATSI's operation of the Transmission
System shall be in accordance with Appendix B to this Agreement.
2.1.4 PERFORMANCE OF REGULATORY OBLIGATIONS. ATSI shall comply with
transmission operation and planning obligations of the FirstEnergy Operating
Companies imposed by federal or state laws or Regulatory Authorities, as of the
Effective Date of this Agreement, including all transmission related obligations
adopted by FERC in OHIO EDISON, ET AL., 81 FERC section 61,110 (1997), and
license conditions imposed by the Nuclear Regulatory Commission or its
predecessor, which can no longer be performed solely by the FirstEnergy
Operating Companies following transfer of ownership and control of their
Transmission Facilities to ATSI, until such time as such obligations are changed
or revised to relieve
-5-
<PAGE> 6
the FirstEnergy Operating Companies or ATSI in whole or in part of such
obligations.
2.1.5 GRANDFATHERED TRANSMISSION AGREEMENTS. Where the FirstEnergy
Operating Companies are responsible for providing transmission service under
agreements or tariffs which were executed or effective prior to July 9, 1996
(Grandfathered Transmission Agreements), ATSI and the FirstEnergy Operating
Companies will execute a network integration service agreement under the
Transmission Tariff to ensure that the FirstEnergy Operating Companies'
obligation to provide transmission service under the Grandfathered Transmission
Agreements is satisfied. The load served pursuant to the Grandfathered
Transmission Agreements will be included in the FirstEnergy Operating Companies'
member load ratio calculation under the Transmission Tariff, and the FirstEnergy
Operating Companies shall compensate ATSI for this service under the
Transmission Tariff. The FirstEnergy Operating Companies will continue to bill
customers served under Grandfathered Transmission Agreements in accordance with
those agreements.
2.2 NON-DISCRIMINATORY TRANSMISSION SERVICE.
2.2.1 TRANSMISSION. ATSI shall offer transmission service over the
entire Transmission System, to all "Eligible Customers", as defined in the
Transmission Tariff, including the FirstEnergy Operating Companies, on a
non-discriminatory basis, pursuant to the Transmission Tariff and Agency
Agreement attached hereto as Appendix C. ATSI shall be the Transmission Provider
under the Transmission Tariff.
2.2.2 PRICING. ATSI may propose to the FERC such pricing for
transmission service as is necessary to fulfill its obligations under this
Agreement and may propose to the FERC such changes in prices, pricing methods,
terms, and conditions as are necessary to continue to fulfill such obligations.
2.2.3 STANDARDS OF CONDUCT. ATSI, the FirstEnergy Operating Companies,
their affiliates, and their directors, officers, employees, contractors, and
agents shall adhere to the ATSI Standards of Conduct as approved by this
Commission.
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<PAGE> 7
2.2.4 OASIS. ATSI shall assume responsibility for the OASIS or
successor system(s) currently maintained by FirstEnergy Operating Companies. The
OASIS shall conform to the requirements for such systems as specified by the
FERC in Order No. 889, FERC Stat. & Regs. Section 31,037 (1996), as amended by
rehearing orders.
2.2.5 ANCILLARY SERVICES. ATSI shall offer, as part of the Transmission
Tariff, such ancillary services as are required by the FERC to be offered. ATSI
shall obtain ancillary services on a least cost basis. ATSI may obtain ancillary
services from the FirstEnergy Operating Companies or from such other generators
as make these services available to ATSI at their FERC approved rates for these
services consistent with ATSI's reliability responsibilities and other
obligations under this Agreement. The FirstEnergy Operating Companies will
continue to provide ancillary services to support transmission service using the
Transmission System when requested by ATSI.
2.2.6 INSPECTION AND AUDITING PROCEDURES. ATSI shall grant each of the
FirstEnergy Operating Companies, its directors, officers, employees or agents,
external auditors, and Regulatory Authorities having jurisdiction over ATSI,
such access to ATSI's books and records as is necessary to verify compliance by
ATSI with this Agreement and to audit and verify transactions under this
Agreement. Such access shall be at reasonable times and under reasonable
conditions. ATSI shall also comply with the reporting requirements of Regulatory
Authorities having jurisdiction over ATSI with respect to the business aspects
of its business operations, and shall maintain such accounting records and
metering data as is necessary to perform its obligations under this Agreement.
ARTICLE THREE
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<PAGE> 8
RIGHTS, POWERS, AND OBLIGATIONS OF THE PARTIES
3. CONSTRUCTION AND OPERATION OF THE PARTIES' FACILITIES
-----------------------------------------------------
3.1.1 OPERATION OF FIRSTENERGY OPERATING COMPANY FACILITIES. The
FirstEnergy Operating Companies shall cooperate with ATSI, its directors,
officers, employees, or agents, in performing its duty as Control Area Operator
in operating high side (69 kV or higher) devices of the Distribution Facilities,
redispatching Generation Facilities, providing reactive supply and voltage
control from generation sources or other ancillary services, and curtailing
load, when reasonably requested by ATSI, in accordance with the Transmission
Tariff and Good Utility Practice. The FirstEnergy Operating Companies shall not
operate their Generation and Distribution Facilities in a manner which unduly
interferes with the provision of transmission service by ATSI.
3.1.2 DISTRIBUTION FACILITIES USED FOR WHOLESALE SERVICES. ATSI will
arrange for transmission service over the Distribution Facilities to wholesale
customers served at voltages below 69 kV under the Transmission Tariff. ATSI
will cooperate with the FirstEnergy Operating Companies to provide service over
these Distribution Facilities to these wholesale customers at FERC approved
rates as set forth in Appendix C.
3.1.3 OPERATION OF CERTAIN DISTRIBUTION FACILITIES BY ATSI. For a
period of no more than three years from the Effective Date, ATSI will operate,
as agent for the FirstEnergy Operating Companies, 36, 34.5, 33 and 23 kV
Distribution Facilities currently classified as "transmission" under the FERC
Uniform System Accounts. The FirstEnergy Operating Companies will remain
responsible for maintaining these facilities in accordance with Good Utility
Practice. ATSI will be reimbursed by the FirstEnergy Operating Companies for its
cost of operating these Distribution Facilities. Except as provided in Section
3.1.2, these 36, 34.5, 33 and 23 kV Distribution Facilities are not available
for service under the Transmission Tariff. The FirstEnergy Operating Companies
will assume responsibility for the operation of these Distribution Facilities at
the earliest possible date that they can do so consistent with
-8-
<PAGE> 9
Good Utility Practice. ATSI will cooperate with the FirstEnergy Operating
Companies to facilitate the transfer of operational control.
3.1.4 MAINTENANCE AND OPERATION SERVICES. ATSI is responsible for
maintenance, and operation of the Transmission System and may employ persons and
enter into agreements as necessary to perform these services. ATSI may contract
with the FirstEnergy Operating Companies to perform these services. For a period
of three years from the Effective Date, the FirstEnergy Operating Companies
agree to perform the maintenance and operation services identified in a separate
services agreement for ATSI in accordance with Good Utility Practice. This
services agreement will continue from year to year thereafter unless terminated
by either Party by written notice at least one year prior to the expiration of
the annual term, or if this Agreement is terminated in accordance with Article
IV. The FirstEnergy Operating Companies shall coordinate performance of these
services with ATSI as set forth in more detail in Appendix B to this Agreement.
3.1.5 CONSTRUCTION.
A. ATSI is responsible for the design and construction of new
Transmission Facilities where necessary or desirable to provide transmission
service over the Transmission System, or in response to requests for
transmission service under the Transmission Tariff. ATSI will acquire all land,
licenses, or rights-of-way, necessary for such construction. ATSI may contract
with the FirstEnergy Operating Companies for design, construction and related
real estate services. For a period of three years from the Effective Date, the
FirstEnergy Operating Companies agree to construct all new Transmission
Facilities for ATSI as provided in a separate construction agreement. The
construction agreement will continue from year to year thereafter unless
terminated by either Party by written notice at least one year prior to
expiration of the annual term, or if this Agreement is terminated in accordance
with Article IV.
B. The FirstEnergy Operating Companies shall use due diligence
to plan and construct Distribution Facilities necessary to provide adequate and
reliable transmission service to
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<PAGE> 10
wholesale customers served at voltages below 69 kV, or in response to requests
for service under the Transmission Tariff.
C. All facilities constructed pursuant to this Agreement shall
be subject to such siting, permitting, and environmental requirements as may be
imposed by state, local, and federal laws and regulations, and subject to the
approval of Regulatory Authorities . Construction of new facilities shall be
performed in accordance with Good Utility Practice, industry standards, and any
Regulatory Authorities. All new Transmission Facilities shall be owned by ATSI
and all new Distribution Facilities shall be owned by the FirstEnergy Operating
Companies.
3.1.6 ACQUISITION. If ATSI constructs, leases, or otherwise acquires
ownership or control of Transmission Facilities after the Transfer Date, such
facilities shall become part of the Transmission System.
3.1.7 PROVIDING INFORMATION. ATSI shall provide such information to the
FirstEnergy Operating Companies as is necessary for them to perform their
obligations under this Agreement or any Grandfathered Transmission Agreement, or
to comply with requirements of Regulatory Authorities. All such information
shall be submitted in accordance with Order No. 889. Information identified as
confidential shall be treated as confidential to the extent permitted by law.
3.1.8 FACILITIES ACCESS. ATSI shall allow the FirstEnergy Operating
Companies, their directors, officers, employees, or agents such access to its
Transmission Facilities as is necessary for the FirstEnergy Operating Companies
to perform their obligations under this Agreement or to comply with the
requirements of Regulatory Authorities. Such access shall be at reasonable times
and under reasonable conditions.
3.2 ADDITIONAL OBLIGATIONS OF THE FIRSTENERGY OPERATING COMPANIES.
3.2.1 PROVIDING INFORMATION. The FirstEnergy Operating Companies shall
provide such information to ATSI as is necessary for it to perform its
obligations under this Agreement, the
-10-
<PAGE> 11
Transmission Tariff, and any service agreements thereunder, or to comply with
the requirements of Regulatory Authorities. All such information shall be
submitted in accordance with Order No. 889. Information identified as
confidential shall be treated as confidential to the extent permitted by law.
3.2.2 FACILITIES ACCESS. The FirstEnergy Operating Companies shall allow ATSI,
its directors, officers, employees, or agents, such access to their Distribution
Facilities and Generation Facilities as is necessary for ATSI to perform its
obligations under this Agreement, the Transmission Tariff, and any service
agreements thereunder, or to comply with the requirements of Regulatory
Authorities. Such access shall be at reasonable times and under reasonable
conditions.
3.3.3 INSPECTION AND AUDITING PROCEDURES. The FirstEnergy Operating
Companies shall grant the FERC, ATSI, its directors, officers, employees, and
agents, and each state regulatory authority having jurisdiction over the
FirstEnergy Operating Companies, such access to books and records as is
necessary for ATSI to perform its obligations under this Agreement, the
Transmission Tariff, and any service agreements thereunder, to comply with the
requirements of Regulatory Authorities, and to audit and verify transactions
under this Agreement. Such access shall be at reasonable times and under
reasonable conditions. The FirstEnergy Operating Companies shall comply with the
reporting requirements of Regulatory Authorities having jurisdiction over the
FirstEnergy Operating Companies with respect to the business aspects of their
operations, and shall maintain such accounting records and metering data as is
necessary to perform its obligations under this Agreement.
ARTICLE FOUR
TERM AND TERMINATION
4.1 The term of this Agreement shall commence on the Effective Date and
the Agreement will remain in effect for an initial period of three years unless
terminated earlier by the mutual consent of the Parties, or in accordance with
Section 4.2 below. After the initial three year term, this Agreement shall
thereafter remain in effect from year to year unless terminated by either Party
upon at least one year's
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<PAGE> 12
written notice prior to the annual renewal date.
4.2 In entering into this Agreement the Parties contemplate that ATSI
will join a regional transmission organization (RTO) during the initial
three-year term of the Agreement. In preparing for the implementation of a
transfer of ownership, control or operation of the Transmission System through
ATSI's participation in a RTO (or otherwise through the divestiture of ownership
of ATSI by FirstEnergy Corp.), the Parties may desire to leave in place all or
part of this Agreement for an interim period following the date of transfer or
divestiture to permit permanent arrangements to be negotiated and made effective
among the Parties and the RTO or new owner(s). Accordingly, upon consent of the
Parties (which will not be unreasonably withheld), this Agreement may remain in
place for an interim period following the date of transfer or divestiture of the
Transmission System; provided, however, that if the transfer of ownership,
control or operation of the Transmission System takes place through ATSI's
participation in a RTO, ATSI must secure the consent of the RTO to permit any
continued effectiveness of this Agreement past the date of transfer.
4.3 The Parties' obligation to make any payments owing or due under
this Agreement or to complete the construction of specific facilities agreed to
prior to termination of this Agreement, shall survive the termination of this
Agreement.
ARTICLE FIVE
REGULATORY APPROVALS
5. REGULATORY AUTHORITIES. This Agreement is subject to acceptance or approval
by the FERC and may be subject to the actions of Regulatory Authorities to which
ATSI and the FirstEnergy Operating Companies may be subject and which may affect
the ability of ATSI or the FirstEnergy Operating Companies to participate in
this Agreement.
-12-
<PAGE> 13
5.1.1 In the event one or more of the Regulatory Authorities rejects,
disapproves or refuses in whole or in part to accept this Agreement, then this
Agreement shall cease to be effective.
5.1.2 In the event one or more of the Regulatory Authorities by order
imposes conditions on approval or acceptance of the Agreement which adversely
affect either Party, the affected Party may, no later than thirty (30) days
after the date of such order, withdraw from this Agreement.
5.2 RENEGOTIATION. If any provision of this Agreement, or the
application thereof to any person, entity, or circumstance, is held by a
Regulatory Authority or court of competent jurisdiction to be invalid, void, or
unenforceable, then the Parties shall endeavor in good faith to negotiate such
amendment or amendments to this Agreement as will restore the relative benefits
and obligations of the Parties under this Agreement immediately prior to such
holding. If such negotiations are unsuccessful, then the Parties may withdraw
from this Agreement.
ARTICLE SIX
MISCELLANEOUS PROVISIONS
6.1 DESCRIPTIVE HEADINGS. The descriptive headings of Articles,
Sections, Paragraphs, Subparagraphs, and other provisions of this Agreement have
been inserted for convenience of reference only and shall not define, modify,
restrict, construe, or otherwise affect the construction or interpretation of
any of the provisions of this Agreement.
6.2 GOVERNING LAW. This Agreement shall be interpreted, construed, and
governed by the laws of the State of Ohio, except to the extent preempted by the
laws of the United States of America.
6.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument, binding upon the
FirstEnergy Operating Companies and ATSI.
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<PAGE> 14
6.4 NO IMPLIED WAIVERS. The failure of a Party to insist upon or
enforce strict performance of any of the specific provisions of this Agreement
at any time shall not be construed as a waiver or relinquishment to any extent
of such Party's right to assert or rely upon any such provisions, rights, or
remedies in that or any other instance, or as a waiver to any extent of any
specific provision of this Agreement; rather the same shall be and remain in
full force and effect.
6.5 FURTHER ASSURANCES. Each Party agrees that it shall hereafter
execute and deliver such further instruments, provide all information, and take
or forbear such further acts and things as may be reasonably required or useful
to carry out the intent and purpose of this Agreement and as are not
inconsistent with the provisions of this Agreement.
6.6 DELIVERY OF NOTICES. Except as otherwise expressly provided herein,
notices required under this Agreement shall be in writing and shall be sent to
the FirstEnergy Operating Companies or ATSI by U.S. mail, overnight courier,
hand delivery, telefacsimile, or other reliable electronic means. Any notice
required under this Agreement shall be deemed to have been given either upon
delivery, if by U.S. mail, overnight courier, or hand delivery, or upon
confirmation, if given by telefacsimile or other reliable electronic means.
6.7 ENTIRE AGREEMENT. This Agreement, including the appendices attached
hereto, the Transmission Tariff, Service Agreements thereunder, the Agency
Agreement, the Bill of Sale, Ground Lease, and other agreements referenced
herein constitute the entire agreement among the Parties with respect to the
subject matter of this Agreement, and no previous or contemporary oral or
written representations, agreements, or understandings made by any director,
officer, agent, or employee of the FirstEnergy Operating Companies or ATSI shall
be binding on the other unless contained in this Agreement, including the
appendices attached hereto, the Transmission Tariff, Service Agreements
thereunder, the Agency Agreement, the Bill of Sale, Ground Lease, or other
agreements referenced herein. No amendment, modification or change in this
Agreement shall be valid and enforceable unless reduced
-14-
<PAGE> 15
in writing and executed by the Parties.
6.8 GOOD FAITH EFFORTS. Each Party agrees that it shall in good faith
take all reasonable actions necessary to fulfill its obligations under this
Agreement. Where the consent, agreement, or approval of any Party must be
obtained hereunder, such consent, agreement, or approval shall not be
unreasonably withheld, conditioned, or delayed. Where any Party is required or
permitted to act, or omit to act, based on its opinion or judgment, such opinion
or judgment shall not be unreasonably exercised. To the extent that the
jurisdiction of any Regulatory Authorities applies to any part of this Agreement
or the transactions or actions covered by this Agreement, each Party shall
cooperate to secure any necessary or desirable approval or acceptance of such
Regulatory Authorities of such part of this Agreement or such transactions or
actions.
6.9 THIRD-PARTY AGREEMENTS. This Agreement, including the appendices to
this Agreement, the Transmission Tariff, the Service Agreements thereunder, the
Agency Agreement, Bill of Sale, and the Ground Leases, and other agreements
referenced herein, shall not be construed, interpreted or applied in such a
manner as to cause the FirstEnergy Operating Companies to be in material breach,
anticipatory or otherwise, of any agreement between the FirstEnergy Operating
Companies and one or more third parties who are not Parties to this Agreement
for the joint ownership, operation, or maintenance of any electrical facilities
covered by this Agreement, the Transmission Tariff, or the Agency Agreement. A
FirstEnergy Operating Company which has such a third-party joint agreement shall
discuss with ATSI any material conflict between such third-party joint agreement
and this Agreement, the Transmission Tariff, or the Agency Agreement raised by a
third party to such joint agreement, and shall act in good faith to resolve such
conflict in accordance with Good Utility Practice.
IN WITNESS WHEREOF, the Parties have caused their duly
authorized representatives
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<PAGE> 16
to execute and attest this Agreement, on their respective behalf, as of this
____ day of ____________, 199__.
<TABLE>
<S> <C>
- ----------------------------------- --------------------------------
Signature Signature
- ----------------------------------- --------------------------------
Title of Signatory Title of Signatory
ATSI TRANSMISSION SYSTEMS, INC. THE FIRSTENERGY OPERATING
COMPANIES:
OHIO EDISON COMPANY
PENNSYLVANIA POWER COMPANY
THE CLEVELAND ELECTRIC ILLUMINATING CO.
THE TOLEDO EDISON COMPANY
</TABLE>
-16-
<PAGE> 17
APPENDIX A
----------
SYSTEM PLANNING
1. OVERVIEW.
---------
This Appendix A describes the process to be used by ATSI in
planning the Transmission System. Nothing in this Appendix is intended to
restrict or expand existing federal or state laws.
ATSI has overall responsibility for planning the Transmission
System to provide all Transmission Customers with efficient, reliable, and
non-discriminatory transmission service, and has exclusive responsibility for
planning the ATSI Transmission Facilities. ATSI will cooperate with all
Transmission Customers to ensure that costs to both ATSI and Transmission
Customers are minimized in the planning process. ATSI will also coordinate the
planning of Transmission Customer owned facilities which affect operation of the
Transmission System, or are necessary to provide service to wholesale customers,
and shall review and comment on any plans developed by the Transmission Customer
for these facilities. With respect to Distribution Facilities, ATSI shall have
only that planning authority necessary to carry out its responsibilities under
this Agreement and the Transmission Tariff. When performing System Impact and
Facilities Studies as defined in the Transmission Tariff, ATSI shall treat
Transmission Customer owned facilities on a comparable basis with ATSI's own
facilities. ATSI shall make all determinations of Available Transmission
Capability (ATC) over the Transmission System, including determinations
involving the impact on Transmission Customer owned facilities of providing ATC.
2. THE PLANNING PROCESS
--------------------
A. NEW LOAD
1. FirstEnergy Operating Companies will be the point of
contact for retail customers planning to increase existing load or to connect
new load to either the Transmission System or to Distribution Facilities. The
FirstEnergy Operating Companies shall inform ATSI of any new load proposed to
connect directly to the Transmission System.
<PAGE> 18
2. The FirstEnergy Operating Companies shall coordinate load
and facility additions with ATSI for the planning of new Transmission
Facilities. The FirstEnergy Operating Companies will be required to obtain the
approval of ATSI before proceeding with any modifications or additions to the
Transmission System. ATSI will be obligated to act on the proposals submitted by
FirstEnergy Operating Companies in an expeditious manner, consistent with its
obligation to serve the FirstEnergy Operating Companies' network loads under the
Transmission Tariff.
3. Transmission Customers may contact ATSI directly with
regard to initiating any transmission planning activities to accommodate
increased loads or power transfers. ATSI will act on the proposals submitted by
Transmission Customers in an expeditious manner, consistent with its obligation
to serve the Transmission Customers' network loads under the Transmission
Tariff.
B. NEW GENERATION
1. ATSI is responsible for connection of new generation
synchronized to the Transmission System. The connection will be established
through a joint process with the generator. ATSI will develop "Facility
Connection Requirements" which will set out the minimum technical, design,
reliability, protection and operational criteria which must be complied with by
generators wishing to connect and synchronize generation to the Transmission
System. This will include, but not be limited to the must run and black start
requirements of the generator. ATSI will enter into the necessary agreements to
permit the connection.
2. DISTRIBUTED GENERATION. The FirstEnergy Operating Companies
are responsible for arrangements with retail customers who install generation
which is connected to the Transmission System. The FirstEnergy Operating
Companies will cooperate with the retail customers to develop procedures for the
operation of such generation.
C. PLANNING RESPONSIBILITIES OF ATSI
<PAGE> 19
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(1) ATSI will have ultimate decision-making responsibility for
transmission planning, including the approval or rejection of any proposed
modification or addition that significantly affects the capability of the
Transmission System.
(2) ATSI will have ultimate responsibility for planning the
Transmission System to:
(a) meet reliability standards (as defined by NERC, applicable
regional reliability councils and any successor or other
industry or reliability organizations) in a manner consistent
with Good Utility Practice;
(b) meet transmission requirements associated with the distributed
load growth of the FirstEnergy Operating Companies and ATSI's
Transmission Customers;
(c) increase transfer capability on the Transmission System in
response to congestion price signals, to relieve interregional
constraints, and in response to requests for service; and
(d) minimize costs to ATSI and its Transmission Customers.
(3) ATSI will develop the "Planning Criteria" for the Transmission
System and will cooperate with the FirstEnergy Operating Companies and connected
generators to determine the must run status of their units.
(4) ATSI will conduct power flow and stability studies for the
Transmission System, and will participate in joint studies with other control
areas or reliability councils as necessary to ensure compliance with NERC and
applicable regional planning criteria, including, but not limited to the
following.
(a) ATSI will maintain transmission modeling information.
(b) ATSI will maintain specific transmission line and equipment
information to develop a database for determining the thermal
ratings of circuits and transformers. This will include
information such as transmission line plan and
<PAGE> 20
-4-
profile and transformer test data.
(c) ATSI will be responsible for maintaining data necessary for a
system short circuit database, relay setting database, and
other information necessary for performing dynamic system
studies and assessing system performance.
(d) ATSI will be responsible for performing short circuit adequacy
studies and providing verification of compliance or a schedule
for planned facility replacements to achieve compliance.
(e) The FirstEnergy Operating Companies will cooperate with ATSI
in the preparation of geographic transmission maps, system one
lines, design drawings, and substation schematic one lines of
the Transmission Facilities for use by ATSI and submittal to
various reliability and regulatory organizations. The
materials so developed will be owned by ATSI.
(5) Proposed Distribution Facilities or Transmission Customer owned
facilities which will be configured in a manner that establish a parallel path
with the Transmission System will require coordination of planning and operation
with ATSI. Transmission Customers seeking to establish a parallel path with the
Transmission System will provide the necessary data for review and resolution of
potential operating problems.
D. PLANNING RESPONSIBILITIES OF FIRSTENERGY OPERATING COMPANIES
(1) The FirstEnergy Operating Companies will:
(a) Annually submit to ATSI a load forecast for all
delivery points from the Transmission System. This
includes transmission (retail) connected substations,
FirstEnergy Operating Companies' distribution
substations, and any delivery point to wholesale
customers served under grandfathered transmission
agreements.
<PAGE> 21
-5-
(b) Submit on an annual basis, forecasts of the monthly
peak demands for each delivery point for the next 10
years, together with corresponding projected power
factors.
(c) Annually submit to ATSI planned facility (new
delivery point) connections to the Transmission
System for the next 10 years.
(2) All such information shall be used for planning
purposes only and shall be kept confidential by ATSI
to the extent permitted by law.
(3) The FirstEnergy Operating Companies are responsible for
maintaining modeling data used by ATSI for dynamic stability and planning
studies. The FirstEnergy Operating Companies will also maintain a schedule of
planned generation maintenance outages, for a minimum of 5 years ahead, and
submit this schedule together with forecasts of generator availability to ATSI
biannually. Periodic unit tests will be required to verify reactive capability.
(4) Changes to Generation Facilities' equipment and operation,
such as GSU tap settings, which could impact the available reactive capability
of a generating unit, must be submitted to ATSI for approval. ATSI will specify
generating unit voltage schedules when required for must run operation.
3. DISTRIBUTION PLANNING
Except as provided above, the planning of all Transmission
Customer owned transmission and distribution facilities shall be done by the
Transmission Customer. Furthermore, the Transmission Customer, in carrying out
their planning responsibilities to meet the reliability needs of all loads
connected to the Transmission System may, as appropriate, develop and propose
plans involving modifications or expansions to any Transmission Facilities which
are part of the Transmission System. All such plans proposed by the Transmission
Customers will be reviewed by ATSI, and may be incorporated into
<PAGE> 22
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Transmission System plan developed by ATSI if appropriate. ATSI will assist
Transmission Customers, to the extent consistent with this Agreement and the
Transmission Tariff, in satisfying the planning requirements of Regulatory
Authorities.
<PAGE> 23
APPENDIX B
----------
SYSTEM OPERATIONS
1. OPERATIONAL RESPONSIBILITIES.
-----------------------------
A. ATSI'S RESPONSIBILITIES. ATSI shall be responsible for the following
operational functions:
1. ATSI shall operate the Transmission System, the 36, 34.5, 33 and 23
kV Distribution Facilities, and will control the high side (69 kV or higher)
devices of the Distribution Facilities necessary to the reliable operation of
the Transmission System, and will be the Control Area Operator for the
FirstEnergy System.
2. ATSI shall review and approve, as appropriate, requests for
transmission service, will schedule transmission transactions, and shall
determine available transmission capability (hereinafter "ATC") under the
Transmission Tariff.
3. ATSI shall provide service over the Transmission System pursuant to
the Transmission Tariff.
4. ATSI shall be responsible for the security of the Transmission
System.
5. ATSI shall offer ancillary services required to support transmission
service under the Transmission Tariff.
6. ATSI shall establish, in cooperation with Transmission Customers,
the schedule for maintenance of all Transmission Facilities making up the
Transmission System and shall coordinate with the FirstEnergy Operating
Companies and other generation owners, as appropriate, the scheduling of
maintenance on generation facilities connected to the Transmission System.
7. ATSI shall be responsible for operations of the OASIS system in
accordance with the Transmission Tariff.
8. ATSI shall monitor and coordinate voltage levels that are the
responsibility of control areas to maintain.
<PAGE> 24
9. ATSI will operate and maintain the reliability of the Transmission
System in accordance with Good Utility Practice and applicable NERC, ECAR, and
Regulatory Authorities. For purposes of this paragraph, Good Utility Practice
means a standard of reliability which meets or succeeds the average CAIDI,
SAIDI, SAIFI, or other commonly used reliability indices maintained in the
industry, of FirstEnergy Transmission Facilities for the three years prior to
the Transfer Date.
B. THE FIRSTENERGY OPERATING COMPANIES' RESPONSIBILITIES. As described more
fully below, the FirstEnergy Operating Companies shall have the following
responsibilities:
1. The FirstEnergy Operating Companies shall own, operate and maintain
the Distribution and Generation Facilities in accordance with Good Utility
Practice. Except as provided below, operation of the Distribution Facilities by
ATSI shall be limited to the high side (69 kV or higher) devices of the
Distribution Facilities where necessary to ensure reliable operation of the
Transmission System.
2. The FirstEnergy Operating Companies shall cooperate with ATSI to
provide transmission service to wholesale customers served at voltages below 69
kV through their Distribution Facilities at the direction of ATSI pursuant to
the terms of the Transmission Tariff.
3. The FirstEnergy Operating Companies shall comply with the
instructions of ATSI in its role as Control Area Operator.
4. The FirstEnergy Operating Companies shall maintain Transmission
Facilities included in the Transmission System under maintenance schedules
approved by ATSI unless other arrangements are made in accordance with Section
3.I.B of the Agreement. The FirstEnergy Operating Companies shall coordinate
maintenance on their Generation Facilities significantly affecting the
capability or reliability of the Transmission System with ATSI. Maintenance of
Transmission Facilities shall be performed in accordance with Good Utility
Practice. For purposes of this paragraph, and for a period of three years from
the Effective Date of this Agreement, "Good Utility Practice" shall include
maintenance
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<PAGE> 25
practices which meet or exceed the FirstEnergy's maintenance practices for
Transmission Facilities in the three years prior to this Agreement.
5. The FirstEnergy Operating Companies shall offer to
redispatch their Generation Facilities units in accordance with the Transmission
Tariff, when feasible, subject to receiving appropriate compensation. The
FirstEnergy Operating Companies shall submit and coordinate Generation Facility
outage schedules with ATSI when such outages affect transmission capability or
transmission reliability.
6. The FirstEnergy Operating Companies shall provide advance
written notice, if possible, to ATSI before taking Distribution Facilities out
of service if the outage will affect operation of the Transmission System.
II. CONTROL OVER TRANSMISSION FACILITIES.
-------------------------------------
A. ATSI CONTROL.
1. ATSI shall have operational control over the Transmission
Facilities that make up the Transmission System. ATSI shall also have
operational control over the 36, 34.5, 33 and 23 kV Distribution Facilities for
a period of no more than three years from the Effective Date of this Agreement.
ATSI will transfer operational control of these Distribution Facilities to the
FirstEnergy Operating Companies at the earliest possible date that it can do so
consistent with Good Utility Practice. ATSI will cooperate with the FirstEnergy
Operating Companies to facilitate the transfer of operational control of these
Distribution Facilities.
2. ATSI shall periodically review whether the Transmission
Facilities under its operational control constitute all of the facilities
necessary to provide reliable transmission service contemplated under the
Agreement and the Transmission Tariff.
3. ATSI shall, in consultation with the FirstEnergy Operating
Companies, develop, and then revise from time-to-time as appropriate, operating
procedures for its exercise of operational
-3-
<PAGE> 26
control over the Transmission System, the 36, 34.5, 33, and 23 kV Distribution
Facilities, the high side (69 kV or higher) devices of the Distribution
Facilities, and those Distribution Facilities used to serve wholesale customers
at voltages below 69 kV (hereinafter "Operating Procedures"). The Operating
Procedures shall be provided to the FirstEnergy Operating Companies and, except
to the extent determined necessary for emergency or security reasons, such
procedures shall be made available to the public. ATSI shall comply with its
Operating Procedures in exercising its operational control over the facilities
described above.
4. ATSI shall operate the Transmission System in such a way as
to preserve the rights of parties to Third Party or Grandfathered Transmission
Agreements.
5. ATSI shall be responsible for coordinating system operation
with the applicable regional reliability councils and may join such councils as
appropriate.
6. ATSI shall comply with any transmission operating
obligations imposed by federal or state law or Regulatory Authorities which can
no longer be performed solely by the FirstEnergy Operating Companies following
transfer of ownership and operational control of its Transmission Facilities to
ATSI, until such obligations are revised or changed.
7. ATSI shall take no action that would impair the safety and
reliability of nuclear facilities, and shall take actions consistent with
nuclear license conditions or requirements of the Nuclear Regulatory Commission
("NRC") imposed on the FirstEnergy Operating Companies.
B. FIRSTENERGY OPERATING COMPANIES' RESPONSIBILITIES.
--------------------------------------------------
1. The FirstEnergy Operating Companies shall own, operate, and
maintain their Distribution Facilities in accordance with Good Utility Practice,
and comply with the reasonable requests of ATSI with respect to such operation
and maintenance issued in compliance with the Operating Procedures.
2. The FirstEnergy Operating Companies will operate their
Distribution Facilities in
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<PAGE> 27
such a way as to preserve the rights of parties to Third Party or Grandfathered
Transmission Agreements.
C. RETAINED RIGHTS OF THE FIRSTENERGY OPERATING COMPANIES. The FirstEnergy
Operating Companies shall retain all rights of ownership in Distribution
Facilities. Nothing in this Appendix B shall be deemed to restrict or prohibit
access to the Transmission Facilities by the FirstEnergy Operating Companies, or
those acting under their authority, in furtherance of this Agreement when such
access does not affect the provision of transmission services. ATSI shall be
notified promptly by the FirstEnergy Operating Companies should an event occur
which results in unplanned outages of a transmission line or transformer.
III. DETERMINATION OF AVAILABLE TRANSMISSION CAPABILITY AND TRANSMISSION
-------------------------------------------------------------------
SCHEDULING.
-----------
A. AVAILABLE TRANSMISSION CAPABILITY. ATSI shall determine the ATC
consistent with the terms of the Transmission Tariff and this Agreement.
1. ATSI shall review all data received from other control areas,
independent transmission system operators, regional reliability councils, or
other entities that impact ATC calculations.
2. ATSI shall share data with other control areas, independent
transmission system operators, regional reliability councils, or other entities
with whom data must be exchanged, as requested, in order to determine ATC.
3. ATSI shall determine the capacity, rating, control settings, and
contingencies for all Transmission Facilities used to calculate ATC.
B. TRANSMISSION SERVICE REQUESTS. ATSI shall receive and process all
transmission service requests in accordance with the Transmission Tariff.
1. ATSI shall be responsible for conducting all System Impact
Studies associated with a request for transmission service. The required
analysis shall be coordinated between ATSI and the FirstEnergy Operating
Companies as follows:
-5-
<PAGE> 28
a. ATSI shall provide sufficient information to representatives of
the FirstEnergy Operating Companies to allow them to model load consequences of
the requested service on Distribution Facilities.
b. ATSI shall coordinate with FirstEnergy Operating Companies
representatives when processing requests for service through Distribution
Facilities.
c. ATSI shall consult and with the FirstEnergy Operating Companies
with respect to the installation of equipment which affects Distribution
Facilities.
2. Upon completion of any required System Impact Studies, ATSI shall be
responsible for making the final determination as to the amount of firm and
non-firm transmission capacity that is available under the Transmission Tariff,
and for resolving requests for transmission service in accordance with the terms
of the Transmission Tariff.
3. When there is not adequate transmission capability to satisfy a
transmission request, ATSI shall relieve or facilitate the relief of the
transmission constraint consistent with the terms of the Transmission Tariff.
4. ATSI shall be responsible for documenting all transmission service
requests under the Transmission Tariff, the disposition of such requests, and
any supporting data required to support the decision with respect to such
requests.
C. SCHEDULING TRANSMISSION SERVICE TRANSACTIONS. ATSI shall schedule all
transmission service transactions involving the Transmission Tariff, as follows:
1. ATSI shall schedule and curtail transmission service and schedule
the allocation of losses and ancillary services in accordance with the
Transmission Tariff.
2. ATSI shall, in consultation with the FirstEnergy Operating
Companies, develop and from time-to-time, amend when necessary, scheduling
protocols ("Scheduling Protocols"). For the FirstEnergy Operating Companies'
nuclear generating facilities, ATSI shall enter into written agreements,
-6-
<PAGE> 29
which define Scheduling Protocols, limitations, and restrictions necessary to
ensure the availability of off site power to such facilities. The Scheduling
Protocols shall not conflict with the provisions of the Transmission Tariff or
requirements of Regulatory Authorities. All scheduling shall be performed in
accordance with the Scheduling Protocols.
3. ATSI shall operate its control area for local generation
control and economic dispatch purposes. In so doing, ATSI shall comply with the
scheduling instructions issued pursuant to the Scheduling Protocols.
4. In performing its scheduling functions, ATSI shall ensure
that the Transmission System is operated in compliance with applicable NERC,
regional reliability council or successor organizations, and all other
applicable operating reliability criteria.
5. ATSI shall inform representatives of the FirstEnergy
Operating Companies of the approved schedules under the Transmission Tariff, and
of any subsequent changes made thereto.
6. ATSI shall perform all inadvertent flow accounting for its
control area and shall coordinate the performance of such accounting with other
control areas.
IV. ADMINISTRATION OF TRANSMISSION TARIFF.
--------------------------------------
A. ATSI RESPONSIBILITIES.
1. ATSI shall be solely responsible for administering the
Transmission Tariff.
2. ATSI shall negotiate as appropriate to develop reciprocal
service, equitable tariff application, compensation principles, and any related
arrangements.
3. ATSI shall cooperate with the FirstEnergy Operating
Companies to ensure that the rates to wholesale customers charged for use of the
FirstEnergy Operating Companies Distribution Facilities under the Transmission
Tariff adequately compensate the FirstEnergy Operating Companies. ATSI shall, at
the FirstEnergy Operating Companies' direction, file an application with FERC
under
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<PAGE> 30
Section 205 of the Federal Power Act to establish or adjust the rates charged
for use of FirstEnergy Operating Companies's Distribution Facilities in
providing service under the Transmission Tariff.
B. FIRSTENERGY OPERATING COMPANIES' RESPONSIBILITIES. The FirstEnergy
Operating Companies shall provide transmission service for wholesale customers
served at voltages below 69 kV through their Distribution Facilities as directed
by ATSI to the extent necessary to provide service under the Transmission
Tariff. The FirstEnergy Operating Companies shall provide the necessary
information to support any filing made by ATSI at the FERC relating to the
Distribution Facilities.
V. SECURITY OF THE TRANSMISSION SYSTEM.
------------------------------------
A. GENERAL.
1. The security and reliability of the Transmission System
shall be the responsibility of ATSI.
2. ATSI shall be responsible for operating its control area in
a secure and reliable manner.
3. ATSI is hereby designated and shall be the Control Area
Operator for the Transmission System. In this role, ATSI shall exercise security
monitoring and emergency response functions, as described in more detail below.
B. SECURITY MONITORING.
1. ATSI shall periodically perform load-flow and stability
studies of the Transmission System to identify and address security problems.
2. ATSI shall monitor its control area for system security. It
shall be responsible for identifying and addressing local security problems. .
3. The FirstEnergy Operating Companies shall continuously
provide ATSI with all data required to assess the security of the Transmission
System consistent with NERC (or successor
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<PAGE> 31
organizations) requirements, and consistent with regional requirements and the
ATSI Standards of Conduct.
4. ATSI shall exchange necessary security information with
other control areas, independent transmission system operators and regional
reliability councils consistent with NERC (or successor organizations)
requirements, with regional requirements and the ATSI Standards of Conduct.
5. ATSI shall monitor real-time data to determine whether any
control areas are experiencing generation capacity deficiencies. If a generation
capacity deficiency event threatens the security of the system, ATSI shall take
appropriate action, including if necessary, ordering the shedding of firm load
in accordance with operating agreements under the Transmission Tariff.
Implementation of specific load shedding measures is the responsibility of the
Transmission Customer.
C. EMERGENCY RESPONSE.
1. ATSI shall work with Transmission Customers, appropriate
state agencies, NERC, regional reliability councils, and other security
coordinators to develop regional security plans and emergency operating
procedures.
2. ATSI shall, in coordination with Transmission Customers,
appropriate state agencies, NERC, regional reliability councils, security
coordinators, or other system operators, develop, and from time-to-time update,
procedures for responding to emergencies (hereinafter the "Emergency
Procedures").
a. The Emergency Procedures shall include procedures
for responding to specified critical contingencies.
b. ATSI shall continuously analyze issues that may
require the initiation of emergency response actions. Such analysis may be made
at ATSI's initiative, or at the request of Transmission Customers, NERC,
regional reliability councils, security coordinators, or other system operators.
The Emergency Procedures shall be amended to include any changes or additions
resulting
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<PAGE> 32
from such analysis.
c. The Emergency Procedures shall make provision for system
restoration including priority restoration of off-site power to nuclear
generating facilities.
3. ATSI shall direct the response to any emergency in the
Transmission System pursuant to the Emergency Procedures. The Transmission
Customers shall carry out the required emergency actions as directed by ATSI.
ATSI will alert Transmission Customers to the possibility of load shedding and
will provide as much advance notice as possible of the need to shed firm load.
VI. ANCILLARY SERVICES.
-------------------
A. ATSI shall offer to provide all Ancillary Services as defined and
required under the Transmission Tariff.
B. ATSI may acquire the ancillary services required to be offered by
the Transmission Tariff from the FirstEnergy Operating Companies or third
parties, consistent with a least cost procurement strategy.
C. ATSI will determine and obtain any black start service necessary to
maintain the reliability of the Transmission System.
D. The FirstEnergy Operating Companies, shall provide ancillary
services to ATSI upon request. The charges for such ancillary services shall be
in accordance with FERC approved rate schedules for the FirstEnergy Operating
Companies.
VII. TRANSMISSION AND GENERATION MAINTENANCE.
----------------------------------------
A. PLANNED TRANSMISSION MAINTENANCE. ATSI is responsible for reviewing,
establishing, and updating schedules for all planned maintenance of Transmission
Facilities in the Transmission System.
1. ATSI shall establish its planned transmission maintenance
schedules for a
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<PAGE> 33
minimum of a rolling one year period. The planned maintenance schedules shall be
updated monthly.
2. ATSI shall determine if, and the extent to which, such
planned transmission maintenance affect transmission service, ATC, ancillary
services, the security of the Transmission System, and any other relevant
effects. This determination shall include appropriate analytical detail.
3. As part of its review process, ATSI shall identify planned
transmission maintenance schedules that limit ATC and shall identify
opportunities and associated costs for rescheduling planned maintenance to
enhance ATC.
4. ATSI will coordinate planned outages of Transmission
Facilities with the Transmission Customers . Transmission Customers will inform
ATSI of all customer owned equipment outages that could impact loading on the
Transmission System.
5. In developing its transmission maintenance schedule, ATSI
will comply with all applicable reliability standards, including, but not
limited to, the current maintenance practices of the FirstEnergy Operating
Companies, will meet the FirstEnergy Operating Companies' requirements for
access to ATSI Transmission Facilities, and will endeavor to minimize
congestion.
B. UNPLANNED AND EMERGENCY TRANSMISSION MAINTENANCE. ATSI shall
coordinate unplanned transmission maintenance with Transmission Customers to
assure that reliability of the Transmission System is maintained. For emergency
conditions which are likely to result in significant disruption of service or
damage to the Generation, Transmission, and Distribution Facilities, or are
likely to endanger life, property or the environment, the FirstEnergy Operating
Companies (to the extent responsible for performing said maintenance) shall
notify ATSI of such emergency maintenance. Prior approval by ATSI for such
emergency transmission maintenance is not required.
C. GENERATION MAINTENANCE. The FirstEnergy Operating Companies shall
coordinate the maintenance of Generating Facilities with ATSI to the extent such
generation maintenance affects the transmission capability or transmission
reliability of the Transmission System as follows:
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<PAGE> 34
1. The FirstEnergy Operating Companies' shall submit their
planned generating unit maintenance schedules to ATSI annually for a two year
period, updated for changes. A five year ahead schedule shall be submitted
bi-annually.
2. ATSI shall analyze planned generating unit maintenance
schedules to determine the effect on Transmission Customers, ATC, ancillary
services, the security of the Transmission System, identification of must run
units, and any other relevant effects. ATSI shall inform the FirstEnergy
Operating Companies if its generation maintenance schedule is expected to have
an impact on the security of the Transmission System.
3. As part of its review process, ATSI shall identify
generating unit maintenance schedules that limit ATC and shall recommend
opportunities for rescheduling planned maintenance to enhance ATC. If the
FirstEnergy Operating Companies reschedule maintenance at ATSI's request, the
FirstEnergy Operating Companies shall be compensated for additional costs
associated with rescheduling such planned maintenance pursuant to procedures
adopted by ATSI, and applied on a non-discriminatory basis to all similarly
situated generation owners.
4. For all generators connected to the Transmission System,
ATSI will enter into connection, and if necessary, must run agreements, which
define coordinated operations and such other operating requirements as are
necessary to ensure the safe and reliable of such generators with the
Transmission System.
D. UNPLANNED GENERATION MAINTENANCE
The FirstEnergy Operating Companies shall notify ATSI promptly
in the event of an unplanned outage of the Generation Facilities. This includes
partial forced outages of Generation Facilities. The FirstEnergy Operating
Companies will coordinate unplanned generation maintenance with ATSI to ensure
that reliability of the Transmission System is maintained. For emergency
conditions which are likely to result in significant disruption of service or
damage to the Generation, Transmission, and
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<PAGE> 35
Distribution Facilities, or are likely to endanger life, property or the
environment, the FirstEnergy Operating Companies shall notify ATSI of the
emergency generation maintenance. Prior approval by ATSI for emergency
generation maintenance is not required.
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<PAGE> 36
APPENDIX C
AGENCY AGREEMENT
Through this Agreement ("Agency Agreement"), the FirstEnergy
Operating Companies authorize ATSI to offer and provide transmission service
over certain facilities as detailed below.
RECITALS
A. Upon FERC approval pursuant to Section 203 of the Federal Power Act,
16 U.S. C. section 824b and the transfer of ownership and operational control of
Transmission Facilities in accordance with the Agreement, ATSI will own the
Transmission Facilities identified in Appendix D. ATSI will provide open access
transmission service across those facilities in accordance with a Transmission
Tariff filed with FERC.
B. The FirstEnergy Operating Companies will retain ownership of
Distribution Facilities that may be used in part to provide transmission service
to wholesale customers served at voltages below 69 kV under ATSI's Transmission
Tariff.
C. In order for ATSI to offer service to these customers , it is
necessary that the FirstEnergy Operating Companies provide the authority to ATSI
to provide the transmission and other services necessary to effectuate the
Transmission Tariff.
D. The FirstEnergy Operating Companies are entering into this Agency
Agreement to authorize ATSI to act as their agent in the performance of its
tariff administration duties with regard to Distribution Facilities used to
provide service to wholesale customers served at voltages below 69 kV; to
commit, where necessary, Distribution Facilities used to provide service to
wholesale customers served at voltages below 69 kV as required for the
performance of service agreements under the Transmission Tariff; to make rate
filings with the FERC under Section 205 of the Federal Power Act; to bill and
collect FERC approved rates on behalf of the FirstEnergy Operating Companies;
and for other purposes as specified herein and in the Agreement.
<PAGE> 37
TERMS OF AGREEMENT
1. INCORPORATION OF TRANSMISSION TARIFF.
1.1 INCORPORATION OF TRANSMISSION TARIFF INTO AGREEMENT
The Transmission Tariff, including each and every constituent
part, is incorporated into this Agency Agreement as though set forth herein in
its entirety. In the event of any conflict between any provision of this Agency
Agreement and the Transmission Tariff, the Transmission Tariff shall control.
2. APPOINTMENT OF ATSI AS AGENT
The FirstEnergy Operating Companies appoint ATSI as its agent
to enter into service agreements in conformity with the Transmission Tariff on
its behalf for transmission service to wholesale customers using Distribution
Facilities to connect to the Transmission System. It is agreed that all such
service agreements will bind the FirstEnergy Operating Companies to perform to
the requirements and specifications of the Transmission Tariff and service
agreements where appropriate. The FirstEnergy Operating Companies will cooperate
with ATSI in developing the rate charged for use of their Distribution
Facilities (Distribution Adder), and will provide the necessary support for any
filing under Section 205 of the FPA made by ATSI to establish a rate for
transmission service using Distribution Facilities.
3. PERFORMANCE BY THE FIRSTENERGY OPERATING COMPANIES
The FirstEnergy Operating Companies agree to provide all
services necessary or appropriate for performance under the Transmission Tariff,
and service agreements thereunder, for wholesale transmission service using
Distribution and Transmission Facilities. Upon ATSI's request, the FirstEnergy
Operating Companies further agree to provide ATSI with all information necessary
to permit ATSI to perform its tariff administration functions under the
Transmission Tariff.
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<PAGE> 38
4. PAYMENT TO THE FIRSTENERGY OPERATING COMPANIES.
-----------------------------------------------
ATSI will be responsible for billing and collection of all
rates charged under the Transmission Tariff, including any Distribution Adder
developed pursuant to this Agreement. ATSI shall distribute revenues collected
from the Distribution Adder to the FirstEnergy Operating Companies.
5. EFFECTIVENESS, DURATION OF AGENCY AGREEMENT, AND WITHDRAWAL RIGHTS.
-------------------------------------------------------------------
The Agency Agreement is effective on the Effective Date as
defined in the Agreement. The Agency Agreement will terminate upon mutual
agreement of ATSI and the FirstEnergy Operating Companies.
6. INTEGRATION AND AMENDMENT.
--------------------------
This is an integrated agreement which contains all terms and
conditions of agreement between the parties concerning the subject matter. Any
prior or oral agreements concerning the subject matter not stated herein are
superseded by this Agency Agreement. This Agency Agreement may be amended only
by a writing executed by both Parties.
7. AUTHORITY.
----------
The Parties represent that the person executing this agreement
on their behalf is authorized to execute this agreement and bind the Parties to
its terms, and that such authorization has been made in compliance with all
applicable laws, articles of incorporation, bylaws, and resolutions and in a
manner that the authorization is binding upon the FirstEnergy Operating
Companies and ATSI.
FIRSTENERGY OPERATING COMPANIES
OHIO EDISON COMPANY
PENNSYLVANIA POWER COMPANY
-3-
<PAGE> 39
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
THE TOLEDO EDISON COMPANY
- -----------------------------------------
Signature
Title:
----------------------------------
Date:
----------------------------------
ATSI TRANSMISSION SYSTEMS, INC.
- -----------------------------------------
Signature
Title:
----------------------------------
Date:
----------------------------------
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<PAGE> 40
APPENDIX D
PRINCIPLES GUIDING THE DIVISION OF ASSETS
BETWEEN THE FIRSTENERGY OPERATING COMPANIES
AND AMERICAN TRANSMISSION SYSTEMS, INC.
1. American Transmission Systems, Inc. (ATSI), as a wholly owned
subsidiary of FirstEnergy Corp., will purchase, own, and operate the
FirstEnergy Operating Companies' Transmission Facilities currently
operating at nominal voltages of generally 345 kV and 138 kV ("bulk
transmission") and 69 kV facilities ("area transmission"). These
facilities include Transmission lines (i.e., towers, poles, conductors)
and Transmission substations.
2. Transmission substations provide transformation between portions of the
bulk transmission system (e.g., 345-138 kV transformers) and between
the bulk and area transmission systems (e.g., 138-69 kV transformers).
ATSI will own all Transmission substations and transformers.
Substations with common use/miscellaneous facilities providing both a
Transmission (ATSI) function and a Distribution (FirstEnergy) function
will be Transmission Facilities (i.e., primary transmission function)
owned by ATSI if they meet one of the following conditions:
(i) a substation bus with more than two 69 kV or higher network
sources; (exception being customer substations with revenue
metering on each supply)
(ii) a substation bus with one or more 69 kV or higher line network
sources and a connection (through transformation) to a higher
voltage system;
(iii) a direct interconnection to another transmission system.
All other substations will be Distribution Facilities owned by the
FirstEnergy Operating Companies. The primary purpose of the designation
as a Transmission (ATSI) versus a Distribution (FirstEnergy) substation
is to allocate the cost of the common use facilities (e.g, control
buildings). Both ATSI and the FirstEnergy Operating Companies may own
major equipment within each Transmission substation.
3. All voltage control devices (e.g., fixed and switched capacitors,
reactors, synchronous condensers, static VAR controllers) and power
flow control devices directly connected to the Transmission System will
be owned by ATSI. Transmission voltage control devices (rated 69 kV and
higher) and located in FirstEnergy Operating Companies' Distribution
substations will be owned by ATSI, although the remainder of the
Distribution substation will be owned by FirstEnergy Operating
Companies.
4. ATSI will own Transmission lines providing connections to Generation
Facilities. ATSI will also
<PAGE> 41
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own the Step Up (plant) Substations at Generation Facilities. The
FirstEnergy Operating Companies will own the Generator Step Up
Transformers, terminating facilities providing the connection for the
Generation Facilities to the Step Up Substations, including terminating
connections which provide alternative power supply to the Generation
Facility, and all generation plant and auxiliary facilities.
5. ATSI will own the radial taps from the Transmission System that are 69
kV and above, excluding the facilities establishing the final circuit
connection to substations providing transformation or other connection
to Distribution Facilities or retail customers. For example, in the
case of a radial 138 kV supply to a 138-12.47 kV substation, the radial
line section up to the point of the final circuit connection to the
138-12.47 kV substation will be owned by ATSI. The FirstEnergy
Operating Companies will own the final circuit connection to the
Distribution substation. The final circuit connections described above
are Distribution Facilities.
6. For looped transmission system supply configurations, ATSI ownership
will also exclude the final connection to Distribution substations
providing transformation or other connection to assets not owned by
ATSI. For example, in the case of a loop supply to a 138-12.47 kV
substation, the final circuit connections providing the loop supply to
the 138-12.47 kV substation will be owned by the FirstEnergy Operating
Companies. The final circuit connections will be Distribution
Facilities owned by the FirstEnergy Operating Companies.
7. The FirstEnergy Operating Companies currently owns three mobile
substations/transformers where there is a choice of two low side
windings/taps: two with a choiceof 69 kV or 23 kV, and one with a
choice of 69 kV or 34.5 kV. One of these mobile tranformers will be
transferred to ATSI .
8. All mobile capacitor banks 69 kV or higher are Transmission Facilities
and will be owned by ATSI.
9. ATSI will own the System Control Center facility and equipment in
Wadsworth, Ohio, not including the associated land and land rights. The
FirstEnergy Operating Companies will pay ATSI for use of the System
Control Center. ATSI will pay Cleveland Electric Illuminating Company
(CEI) for the use of the System Operation Center (SOC) in Brecksville,
Ohio until such time that use for transmission-related functions is no
longer needed. The FirstEnergy Operating Companies (CEI) will retain
ownership of the SOC.
10. The FirstEnergy Operating Companies will continue to own all land,
easements, franchises, and other rights which they have or have upon,
under or over which Transmission Facilities are located on the Transfer
Date. The land, easements, franchises, and other rights associated with
these Transmission Facilities will be leased by ATSI from the
FirstEnergy Operating Companies pursuant to a Ground Lease.
11. All equipment spares for Transmission Facilities will be owned by ATSI.
All spare parts and equipment spares for Distribution Facilities will
be owned by the FirstEnergy Operating Companies.
<PAGE> 1
Exhibit D-1
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
FirstEnergy Operating Companies: )
The Cleveland Electric Illuminating Company )
Ohio Edison Company )
Pennsylvania Power Company )
The Toledo Edison Company ) Docket No. EC99-_____-000
Transferors )
American Transmission Systems, Inc., )
Transferee )
APPLICATION OF THE FIRSTENERGY OPERATING COMPANIES FOR
AUTHORIZATION TO TRANSFER TRANSMISSION ASSETS TO
AMERICAN TRANSMISSION SYSTEMS, INC.
The FirstEnergy Operating Companies request authorization under Section 203
of the Federal Power Act (FPA), 16 U.S.C. section 824b and Part 33 of the
Federal Energy Regulatory Commission's regulations, 18 C.F.R. Part 33, to
transfer ownership and operational control of their jurisdictional transmission
facilities to American Transmission Systems, Inc. ("ATSI").(1) The FirstEnergy
Operating Companies owning transmission assets are Ohio Edison Company ("Ohio
Edison"), The Cleveland Electric Illuminating Company ("CEI"), The Toledo Edison
Company ("Toledo Edison"), and Pennsylvania Power Company ("Pennsylvania
Power"). The Commission approved the merger of these companies in 1997. Ohio
Edison Co., et al., 81 FERC section 61,110 (1997) ("Merger Order"). On November
10, 1998, the Commission issued an order denying various requests for rehearing
of the Merger Order and directing the FirstEnergy Operating Companies to report
"the status of its participation in the Midwest ISO or another
- --------------
1 In a companion application to be filed shortly, ATSI also seeks approval under
FPA section 205, 16 U.S.C. section 824d, of an open access transmission tariff
and amended Joint Dispatch Agreement.
<PAGE> 2
appropriate regional transmission organization (RTO) and to report other efforts
to satisfy our concerns." 85 FERC section 61,203, at 61,845. On December 10,
1998, the FirstEnergy Operating Companies complied with the Commission's
directive, and informed the Commission that a necessary intermediate and
facilitating interim step to the formation of a RTO would be the transfer of
control of the FirstEnergy Operating Companies' transmission assets to an
affiliated transmission company. The instant application seeks authorization for
the transfer of transmission facilities to ATSI in preparation for the
subsequent transfer of such assets and operations to a RTO. ATSI's acquisition
and operation of the transmission facilities of the FirstEnergy Operating
Companies at this stage will result in a more definitive separation of
transmission and generation assets and operations, exceeding the Commission's
functional separation requirements, and will permit a more efficient and
effective implementation of the subsequent transfer of transmission facilities
to the RTO.
FirstEnergy's goal is to position its transmission assets for divestiture
to a RTO, or to create a vehicle for the addition of transmission assets
divested by third parties into it. Accordingly, FirstEnergy commits to the
Commission that if ATSI has not filed a Section 203 application to transfer
ownership or control of its transmission facilities to a RTO within two years of
the date of approval of this application, that ATSI will file a Section 203
application to divest its transmission facilities to an unaffiliated entity.
- --------------------------------------------------------------------------------
2
<PAGE> 3
I.
THE APPLICANTS
The FirstEnergy Operating Companies are Ohio Edison, Pennsylvania
Power, CEI, and Toledo Edison. All but Pennsylvania Power are Ohio corporations
and wholly-owned subsidiaries of FirstEnergy Corp. Pennsylvania Power is a
wholly-owned subsidiary of Ohio Edison and is a Pennsylvania corporation.
FirstEnergy Corp. is an exempt holding company under the Public Utility Holding
Company Act of 1935.
FirstEnergy Corp. is headquartered in Akron, Ohio. Together the
FirstEnergy Operating Companies provide retail electric service to more than 2.2
million customers in a 13,200 square-mile area stretching from central and
northern Ohio into western Pennsylvania; wholesale electric capacity, energy,
and transmission services to 37 municipal electric systems in Ohio and five
boroughs in Pennsylvania; and transmission service to 11 rural electric
cooperatives (RECs). FirstEnergy has transmission interconnections with six
different public utilities. Each interconnection is at or above 138 kV with the
exception of four 69 kV interconnections which are normally operated in an open
configuration.
The FirstEnergy Operating Companies currently own and operate 1,153
miles of 345 kV, 3,667 miles of 138 kV, and 2,279 miles of 69 kV transmission
facilities as part of a single control area. The applicants propose that
essentially all of these facilities be transferred to ATSI. The original cost of
the facilities transferred to ATSI is in excess of one billion dollars. ATSI
will
3
<PAGE> 4
own and operate these facilities, and become the control area operator for the
FirstEnergy System.
Each of the four FirstEnergy Operating Companies is a member of the East
Central Area Reliability Coordination Agreement (ECAR) region. Additionally, all
four companies, along with Duquesne Light Company (Duquesne Light), are members
of the Central Area Power Coordinating Group (CAPCO) and jointly own nine
generating units and independently own related CAPCO transmission facilities. As
part of a separate transaction, the FirstEnergy Operating Companies expect to
exchange ownership shares of these and other generating units with Duquesne
Light so that joint ownership of generating units with Duquesne Light is
eliminated. Duquesne Light will also sell several CAPCO transmission lines and
related facilities to ATSI. This latter purchase will be the subject of a
separate Section 203 application with the Commission. In anticipation of this
transaction, the Duquesne Light transmission facilities are included in the
transmission facilities proposed to be owned by ATSI and for which Commission
approval for transfer is sought in this application. See Schedule A to the Bill
of Sale included as Exhibit H to the application.
ATSI, an Ohio corporation, is a wholly-owned subsidiary of FirstEnergy
Corp. ATSI does not currently own or operate any facilities subject to the
Commission's jurisdiction. However, upon the grant of Commission authorization
of the transfer proposed here, ATSI will own and operate all transmission
facilities of the FirstEnergy Operating Companies subject to the jurisdiction of
the Commission and will provide transmission services pursuant to the terms and
conditions set forth in its own Open Access Transmission Tariff (ATSI Tariff).
The
4
<PAGE> 5
determination of whether existing facilities currently serve a transmission
function, and thus should be transferred to ATSI, is based on application of the
Commission's seven factor test, and is explained in the supporting testimony of
Carl J. Bridenbaugh.(2) ATSI's Tariff will be filed separately under Section 205
of the Federal Power Act in a companion docket, along with an amended version of
FirstEnergy's Joint Dispatch Agreement.
II.
SUMMARY OF TRANSFER
A. DESCRIPTION OF FACILITIES
The transmission facilities to be transferred from the FirstEnergy
Operating Companies to ATSI are described in Appendix D to the Operating
Agreement between ATSI and the FirstEnergy Operating Companies. The Appendix
also describes the generation and distribution facilities retained by the
FirstEnergy Operating Companies. The Operating Agreement appears in full in
Exhibit H to this application.(3) Essentially, ATSI will acquire from the
FirstEnergy
- ------------------
(2) See Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by Public
Utilities and Transmitting Utilities, Order No. 888, Docket No. RM95-8-000, et
al., 61 Fed. Reg. 21540 (May 10, 1996), FERC Stats. & Regs. [Reg. Preambles
1991-96] section 31,036, pp. 31,780-81 (1996) (establishing a 7-factor test to
guide the transmission/distribution analysis) (subsequent history omitted).
(3) The Operating Agreement, which sets forth the rights and obligations of ATSI
and the FirstEnergy Operating Companies, contains the following appendices: (A)
System Planning, (B) System Operations, (C) Agency Agreement, and (D) Principles
Governing Division of Assets.
5
<PAGE> 6
Operating Companies and will operate transmission facilities
currently operating at voltages of generally 345 kV and 138 kV (the "bulk
transmission system"), and 69 kV facilities (the "area transmission system").
The transmission facilities proposed to be transferred include:
(1) transmission lines (including towers, poles, and conductors) and
transmission sub stations;
(2) transformers providing transformation within the bulk transmission
system and between the bulk and area transmission systems;
(3) the System Control Center facility in Wadsworth, Ohio;
(4) lines providing connections to generation sources and step-up (plant)
substations;
(5) radial taps from the transmission system up to, but not including, the
facilities that establish the final connection to distribution
facilities or retail customers;
(6) substations that provide primarily a transmission function; and
(7) voltage control devices and power flow control devices directly
connected to the transmission system.
- --------------------------------------------------------------------------------
6
<PAGE> 7
The transmission facilities include all the facilities currently
recorded on the books of the FirstEnergy Operating Companies as "transmission"
facilities as well as the CAPCO transmission facilities discussed above, with
the exception of certain 36, 34.5, 33, and 23 kV facilities. Because of the
historical evolution of the FirstEnergy System, there are certain geographic
areas where 36, 34.5, 33, and 23 kV facilities have served a transmission
function. The applicants have reevaluated this classification in light of the
Commission's seven factor test, current transmission planning for the
FirstEnergy System, and future participation in a RTO, and concluded that these
facilities should be classified as distribution. However, these facilities will
be operated by ATSI for a transition period not to exceed three years, after
which these facilities will be operated by the FirstEnergy Operating Companies.
Likewise, the facilities transferred to ATSI do not include distribution
facilities used to provide retail service. Distribution facilities include all
facilities with voltages below 69 kV, including the final circuit connection to
substations providing transformation or connection to any retail customer
regardless of voltage level. The FirstEnergy Operating Companies currently
provide transmission service to certain wholesale customers at delivery points
of less than 69 kV. In order to ensure continuity of service to such wholesale
customers who decide to take service under the ATSI Tariff, ATSI and the
FirstEnergy Operating Companies have entered into an Agency Agreement.(4) Under
this Agency Agreement, the FirstEnergy Operating Companies and ATSI provide for
the use of certain distribution facilities necessary to continue transmission
- -----------------
(4) A copy of the Agency Agreement is attached as Appendix C to the Operating
Agreement, which in turn is included in Exhibit H to this application.
7
<PAGE> 8
service to wholesale customers served at delivery points whose voltages are less
than 69 kV. As explained further in ATSI's companion tariff filing, transmission
service to wholesale customers over these distribution facilities will be made
available under the ATSI Tariff, and associated distribution costs will be
recovered in the rates on a direct assignment basis as a distribution adder.
This procedure is necessary to ensure that existing wholesale customers served
under grandfathered transmission arrangements at voltages below 69 kV will have
access to comparable transmission service under the ATSI Tariff.
B. ATSI'S OPERATION OF THE TRANSMISSION SYSTEM
- --------------------------------------------------------------------------------
8
<PAGE> 9
ATSI will operate the Transmission System pursuant to the ATSI Tariff
and the Operating Agreement. ATSI will have operational control of the
transmission and 36, 34.5, 33 and 23 kV distribution facilities, serve as the
control area operator over the Transmission System, procure, offer and arrange
for ancillary services, operate the Open Access Same-Time Information System
("OASIS") in conformance with Order No. 889,(5) and administer the ATSI Tariff,
including all requests for service under the ATSI Tariff. ATSI will also be
responsible for maintenance of the transmission facilities, and will initially
contract with the FirstEnergy Operating Companies to perform the maintenance.
ATSI will also assume responsibility for ensuring compliance with FirstEnergy's
transmission-related merger commitments, including transmission system planning.
In its recent merger proceeding, FirstEnergy agreed to:
(1) Amend the Ohio Edison-Centerior interface commitment to include
granting a priority equal to native load for a Municipal System's
scheduling of transmission service;
(2) Operate the internal interface so as not to preclude third-party
suppliers from serving both current and future operational needs of the
Municipal Systems;
(3) Allow Municipal Systems and any other interested parties to join
with Applicants in planning the expansion of Transmission facilities;
(4) Not charge other jurisdictional customers the redispatch costs that
Municipal Systems would have borne but for Applicants' commitment not
to seek such costs from them;
(5) Expand the capacity of the internal interface in accordance with
FirstEnergy's open access tariff if sufficient capacity is not
available post-merger on the internal interface to accommodate service
requests;
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(5) Open Access Same-Time Information System (Formerly Real-Time Information
Network) and Standards of Conduct, Order No. 889, Docket No. RM95-9-000, 61 Fed.
Reg. 21737 (May 10, 1996), FERC Stats. & Regs. [Reg. Preambles 1991-96] section
31,035 (1996) (subsequent history omitted).
9
<PAGE> 10
(6) [R]evise the contingencies, priority and price cap commitment to
state that, when an internal condition on FirstEnergy's system prevents
a Municipal System from taking delivery of electric energy from a
third-party supplier, the Municipal System will pay FirstEnergy and the
third-party supplier no more, in total, than it would have paid the
third-party supplier if the third-party supplier had delivered its
electric energy to the Municipal System; and
(7) [F]ulfill the commitments reflected in their agreements with the
City of Cleveland and AMP-Ohio.
See Rehearing Order, 85 FERC Section 61,203, at 61,844 (1998) (footnotes
omitted). All of the transmission related merger commitments approved by the
Commission for FirstEnergy will be assumed by ATSI. Non-transmission related
merger commitments will remain the responsibility of the FirstEnergy Operating
Companies.
ATSI will offer all ancillary services required by the Commission in
Order No. 888. Since ATSI owns no generating facilities, it will purchase the
necessary ancillary services from third parties. Under the Operating Agreement,
the FirstEnergy Operating Companies are required to offer to sell generation
based ancillary services to ATSI, upon request, at Commission approved rates.
ATSI will be free, however, to purchase ancillary services from unaffiliated
generators, and will do so on a non preferential basis, consistent with a least
cost procurement strategy. ATSI expects to enter into agreements to purchase
ancillary services from unaffiliated generators in its control area. For
example, upon consummation of the asset exchange with Duquesne Light discussed
previously, and Duquesne Light's subsequent generation auction, ATSI will
contract with the new owners for must run operations and ancillary services from
the generators located in ATSI's control area and connected to its transmission
system. Likewise, FirstEnergy has signed an agreement with Automated Power
Exchange, Inc. (APX) to establish a
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<PAGE> 11
power exchange based on FirstEnergy System. ATSI expects to participate in the
exchange to obtain ancillary services. ATSI will not, however, engage in the
purchase and sale of energy other than to obtain necessary ancillary services
required by its customers.
In short, upon receipt of the necessary regulatory approvals, ATSI will
commence providing open access transmission service to those existing open
access customers served by the FirstEnergy Operating Companies under the
existing FirstEnergy Open Access Tariff, and any other eligible customer
requesting transmission service from ATSI. The FirstEnergy Operating Companies
will become transmission customers of ATSI under ATSI's Tariff. As described
more fully in the companion tariff filing, where the FirstEnergy Operating
Companies are responsible for providing transmission service under agreements or
tariffs predating Order No. 888 ("grandfathered transmission agreements"), ATSI
will make the ATSI transmission system available to the FirstEnergy Operating
Companies, pursuant to Network Integration Service and Operating Agreements
under the ATSI Tariff, in order to provide transmission service under the
grandfathered transmission agreements.
C. FINANCIAL ASPECTS OF THE TRANSACTION
A Bill of Sale will be entered into between the FirstEnergy Operating
Companies and ATSI covering the conveyance of the transmission facilities.
Schedule A to that document lists the facilities transferred. The "transmission
assets" transferred to ATSI under the Bill of Sale include FirstEnergy's rights
and interests in any contracts under the FirstEnergy Open Access Tariff. A copy
of the form of Bill of Sale is included as part of Exhibit H to this
application. The transmission facilities will be sold by the FirstEnergy
Operating Companies to ATSI at net
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<PAGE> 12
book value of approximately $647 million as of November 30, 1998. November 30,
1998 represents the end of the first year of operating experience following the
FirstEnergy merger, and is the test year in the separate Section 205 filing for
ATSI. ATSI will finance the purchase of transmission facilities as follows: 45%
of the purchase price will be provided through a cash infusion from ATSI's
parent company, FirstEnergy Corp.; and the balance of the purchase price will be
financed through promissory notes payable to each of the FirstEnergy Operating
Companies for the transmission facilities sold. The interest rate on the
promissory notes will be based on the embedded cost of debt of the FirstEnergy
Operating Companies on a consolidated basis as of November 30, 1998, or about
7.75%. The twelve months ending November 30, 1998 is the same period used to
develop the transmission rates for the ATSI Tariff. The 45/55 equity-debt ratio
is equal to FirstEnergy Operating Companies' consolidated ratio as of November
30, 1998, but will not include preferred stock.
The accounting entries for the FirstEnergy Operating Companies will be
a debit to cash, notes receivable, and accumulated depreciation, and a credit to
utility plant for the transmission facilities transferred. Deferred tax balances
will remain on the books of the FirstEnergy Operating Companies, consistent with
"Guidance on Accounting for Deferred Income Taxes on Intercompany Property
Transfers" issued by the Chief Accountant of the Commission in Docket No. AI
98-2-000 on June 15, 1998. The tax basis of the assets to ATSI will be the
transfer price -- net book value -- of the facilities. ATSI will file to
establish depreciation rates in the Section 205 filing for the transmission
facilities. Release of the transmission facilities from the respective first
mortgage indentures of the FirstEnergy Operating Companies will take place
12
<PAGE> 13
when the transmission facilities are transferred to ATSI. Fee land, easements,
and rights-of-way have been excluded from the asset transfer and will remain the
property of the FirstEnergy Operating Companies. ATSI will acquire the right to
use land through 50-year ground leases (renewable for up to ten, 50-year terms)
with the FirstEnergy Operating Companies. A copy of the Form of Ground Lease is
included as part of Exhibit H to this application.
D. STANDARDS OF CONDUCT
In Order No. 888, the Commission stated that "[f]unctional unbundling
will work only if a strong code of conduct (including a requirement to separate
employees involved in transmission functions from those involved in wholesale
power merchant functions) is in place."(6) To that end, the transmission
facilities of the FirstEnergy Operating Companies will be owned and operated by
a separate corporate entity, ATSI. ATSI will have its own open access tariff.
Not only will ATSI's Tariff incorporate the Standards of Conduct set forth in
the Commission's regulations,(7) but, in accordance with Section 37.4(c), the
FirstEnergy Operating Companies and ATSI have also developed procedures for
implementation of the Standards of Conduct. These procedures, which are set
forth in the ATSI Standards of Conduct include the following statement of
policy:
It is the policy of ATSI to operate the Transmission System in a fair
and nondiscriminatory manner and to implement such rules and
regulations in the governance of the corporation as necessary to
prevent control of the decision-
- ------------------
(6) Order No. 888, FERC Stats. & Regs. [Reg. Preambles 1991-96] at 31,655.
(7) See 18 C.F.R. Part 37, and BALTIMORE GAS & ELECTRIC CO., ET AL., 82 FERC
section 61,073 (1998), and AMEREN SERVICES CO., ET AL., 85 FERC section 61,068
(1998) finding FirstEnergy's Standards of Conduct filings acceptable.
13
<PAGE> 14
making process by the merchant function of the FirstEnergy Operating
companies or its affiliates or any User of the Transmission System. It
is the policy of ATSI to own, operate and plan the Transmission System
without adverse distinction or preference to the FirstEnergy Operating
Companies or Users of the Transmission System, and that investments in
new transmission facilities will be made by ATSI without
discrimination.
Appendix 3, Standards of Conduct at 2-3.
Specifically, each employee directly responsible for either the
FirstEnergy Operating Companies' wholesale merchant operations or ATSI's
transmission operations will be required to sign a Standards of Conduct
Acknowledgment and Compliance Statement, and abide by its terms. Managers of
departments not directly responsible for these functions will be given a copy of
the Standards of Conduct and will similarly be required to sign a Standards of
Conduct Acknowledgment and Compliance Statement and abide by its terms. These
managers will also be required to review the Standards of Conduct with all of
their employees. To further ensure separation of function, the wholesale
merchant division of the FirstEnergy Operating Companies has been relocated to a
separate headquarters several miles from the System Control Center of ATSI.
The FirstEnergy Operating Companies have established procedures that
prevent access to the System Control Center by any employee responsible for
wholesale merchant functions for the purpose of obtaining information on
transmission capacity, price, curtailments, ancillary services, scheduled
maintenance and line outages. Firewalls have been established within the Energy
Management System ("EMS") to ensure that transmission information from the EMS
cannot be accessed by wholesale merchant employees. Implementation of these
measures is further
14
<PAGE> 15
evidence of ATSI's commitment to further the Commission's objective to separate
transmission from wholesale merchant functions in order to ensure
non-discriminatory access to its transmission system. Approval of the ATSI
Standards of Conduct will be sought in the companion Section 205 filing. A copy
of the ATSI Standards of Conduct is included herein as Appendix 3.
15
<PAGE> 16
E. SUPPORTING TESTIMONY
Volume II of this filing contains testimony in support of the Section
203 filing. Stanley F. Szwed will be the vice president in charge of ATSI. His
testimony provides an overview of ATSI's operations and organization. He
describes the status of FirstEnergy's efforts to form a RTO. Leonard S. Hyman of
Salomon, Smith Barney describes the desirable structure for a RTO, and its
conditions for success, including its ability to attract capital on reasonable
terms. Bruce J. Busse describes how ATSI will operate the Transmission System
and obtain the services necessary to operate the FirstEnergy control area. Carl
J. Bridenbaugh describes the rationale for separation of assets between ATSI and
the FirstEnergy Operating Companies, including the rationale for separation of
transmission and distribution facilities. Harvey L. Wagner will describe the
accounting treatment for the sale of assets to ATSI, and provides the pro forma
financial statements for ATSI. Although this application raises no market power
issues, Walt W. Suratt of National Economic Research Associates provides an
affidavit in which he concludes that the sale of assets to ATSI will not affect
market power.
III.
THE PROPOSED TRANSACTION IS IN THE PUBLIC INTEREST
Section 203(a) of the FPA, which establishes the Commission's
jurisdiction over identified corporate transactions involving public utility
jurisdictional facilities and public utility securities, reads in pertinent
part:
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<PAGE> 17
(a) No public utility shall sell, lease, or otherwise
dispose of . . . its facilities subject to the jurisdiction of
the Commission . . . or by any means whatsoever, directly or
indirectly, merge or consolidate such facilities or any part
hereof with those of any other person, or purchase, acquire,
or take any security of any other public utility, without
first having secured an order of the Commission authorizing it
to do so . . . After notice and opportunity for hearing, if
the Commission finds that the proposed disposition,
consolidation, acquisition, or control will be consistent with
the public interest it shall approve the same.(8)
Among the facilities FirstEnergy will transfer to ATSI are
jurisdictional facilities of a value in excess of $50,000. The Commission is
obligated to approve proposed transactions under Section 203 if it is
"consistent with the public interest." While a positive public interest benefit
need not be shown, a showing of "compatibility with the public interest is
required."(9) In support of this application for approval under Section 203,
FirstEnergy provides information which demonstrates that the proposed transfer
to ATSI is consistent with the public interest.
A. TRANSFER OF ASSETS TO A SEPARATE SUBSIDIARY ADVANCES FERC POLICIES REQUIRING
THE SEPARATION OF GENERATION AND TRANSMISSION FUNCTIONS
- --------------------------
(8) 16 U.S.C. section 825b(a).
(9) PACIFIC POWER & LIGHT CO. V. FPC, 111 F.2d 1014 (9th Cir. 1940).
17
<PAGE> 18
In Order No. 888, the Commission determined that functional unbundling
of wholesale generation and transmission services is necessary to implement
non-discriminatory open access transmission. In doing so, the Commission stopped
short of requiring corporate unbundling, which could include the establishment
of a separate corporate affiliate to manage a utility's transmission assets. The
Commission concluded". . . that functional unbundling of wholesale services is
necessary to implement non-discriminatory open access transmission and that
corporate unbundling should not now be required."(10)
The Commission determined that three requirements are necessary to
ensure that public utilities provide non-discriminatory service: (1) a public
utility must take transmission services (including ancillary services) for all
of its new wholesale sales and purchases of energy under the same tariff of
general applicability as do others; (2) a public utility must state separate
rates for wholesale generation, transmission, and ancillary services; and (3) a
public utility must rely on the same electronic information network that its
transmission customers rely on to obtain information about its transmission
system when buying or selling power.
While recognizing that these requirements would give public utilities
an incentive to file fair and efficient rates, terms, and conditions, since they
will be subject to those same rates, terms, and conditions, the Commission
further concluded that functional unbundling will work
- ------------------
(10) Order No. 888, at 31,654.
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<PAGE> 19
only if a strong code of conduct (including a requirement to separate employees
involved in transmission functions from those involved in wholesale power
merchant functions) is in place.(11)
- -----------------------
(11) Order No. 888, at 31,698.
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<PAGE> 20
With this objective in mind, the Commission encouraged utilities to
explore whether corporate unbundling or other restructuring mechanisms may be
appropriate in particular circumstances and indicated that it would "accommodate
other mechanisms that public utilities may submit, including voluntary corporate
restructurings (e.g., . . . separate corporate divisions, divestiture), to
ensure that open access transmission service occurs on a non-discriminatory
basis."(12) While the Commission did not affirmatively require actual corporate
separation of generation from transmission, FirstEnergy proposes in this
application to do exactly that, thereby doing substantially more than that which
is required by Order No. 888 and its progeny. This significant step goes beyond
compliance with Order No. 888, and represents significant progress toward the
applicant's ultimate goal of transferring transmission ownership to an
independent RTO.
ATSI's acquisition and operation of the transmission assets of the
FirstEnergy Operating Companies will exceed the functional unbundling
requirements of Order No. 888, and bring with it greater corporate and
organizational separation of transmission from generation. ATSI will be
responsible for providing all open access transmission and ancillary services
under the ATSI Tariff, and existing open access service agreements under the old
FirstEnergy Tariff will be assigned to ATSI. The FirstEnergy Operating Companies
will remain responsible for obtaining transmission service associated with
grandfathered transmission arrangements. After the transfer of assets, the
FirstEnergy Operating Companies will become a network transmission customer of
- -----------------------
(12) Order No. 888, at 31,698.
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<PAGE> 21
ATSI and will be required to secure transmission service from ATSI in the same
manner as unaffiliated network transmission customers.
The current organizational separation between the employees of the
FirstEnergy Operating Companies' wholesale merchant function and transmission
function will be significantly strengthened beyond the requirements of Order
Nos. 888 and 889 because transmission personnel will become employees of a
separate company, ATSI. Responsibility for power generation and transmission
will be assigned to separate corporate officers of FirstEnergy. ATSI will have
its own board of directors and ATSI will operate as a separate value center
within FirstEnergy. The result of all these measures will be greater separation
of FirstEnergy's wholesale generation business from ATSI's transmission
business.
ATSI will not be engaged in the electric power generation business, and
will contract with the FirstEnergy Operating Companies and others on the open
market to provide ancillary services on a least cost basis. ATSI will not own
distribution facilities, and will arrange for use of distribution facilities
only to the extent required to provide transmission services to wholesale
customers served at voltages below 69 kV under the ATSI Tariff. ATSI will focus
solely on efficiently and effectively operating and maintaining, and where
necessary expanding, its transmission system, and will be well-situated to
respond quickly to customer needs.
The restructuring of the FirstEnergy system that is proposed here goes
well beyond the Commission's requirements for comparability and functional
unbundling. By transferring all of their transmission facilities to a separate
corporation and by agreeing to take transmission and ancillary services under
that corporation's open access tariff for the delivery of all power sold by
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<PAGE> 22
the FirstEnergy Operating Companies to their wholesale and retail customers, the
FirstEnergy Operating Companies are going beyond what the Commission required of
public utilities in Order No. 888.
22
<PAGE> 23
B. THE TRANSACTION MEETS THE REQUIREMENTS OF THE COMMISSION'S MERGER
POLICY STATEMENT.
The Commission Merger Policy Statement (Order No. 592)(13) sets forth
the revised criteria and considerations for evaluating applications under
Section 203. Specifically, the Commission examines three factors in analyzing
whether a proposed transaction is consistent with the public interest: the
effect on competition, the effect on rates, and the effect on regulation.
Consideration of these three factors, to the extent those factors guide the
Commission's consideration of an intracompany divestiture proposal, further
demonstrates that the transaction is consistent with the public interest.
1. THE TRANSACTION IS PRO-COMPETITIVE.
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(13) Order No. 592, at 30,115.
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<PAGE> 24
The applicants have not submitted a competitive screen analysis because
of the nature of the transaction proposed in this application.(14) FirstEnergy
seeks only to more definitively separate its generation from its transmission
facilities in order to pave the way for complete divestiture of the transmission
facilities. As proposed in this application, the transmission facilities that
are now owned by the FirstEnergy Operating Companies will be sold to ATSI, a
corporate subsidiary of FirstEnergy Corp. Neither FirstEnergy Corp., FirstEnergy
Operating Companies, nor ATSI proposes to merge with any other entity in the
instant application. ATSI does not currently own any generation, distribution or
transmission facilities, and will not own or control any generation. This
transmission-only transaction does not involve any concentration of utility or
other generation capacity and is designed to lead to even more substantial
separation of transmission from other assets. Upon completion of the proposed
transfer, the FirstEnergy Operating Companies will no longer own transmission
facilities. Thus, FirstEnergy Operating Companies and ATSI will not both be
providing open access transmission service in the same geographic market. While
legal ownership will change, actual operation of the transmission system will
not change in ways that could potentially increase market power.
Moreover, the proposed transfer of transmission facilities affects only
the ownership and control of FirstEnergy's transmission facilities; it will not
alter generation facility ownership or
- ------------------------
(14) In Order No. 592, the Commission determined that it is not necessary for
merger applicants to perform a competitive market screen analysis or file the
data needed for the screen analysis in cases where the merging firms do not have
facilities or sell relevant products in common geographic markets. As the
Commission explained, "[i]n these cases, the proposed merger will not have an
adverse competitive impact (i.e., there can be no increase in the applicants'
market power unless they are selling relevant products in the same geographic
markets so there is no need for a detailed data analysis." Order No. 592, at
30,113.
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<PAGE> 25
control. In this regard, the proposed transfer of transmission facilities will
have no effect upon the concentration of generation market power.
In addition, as explained in the affidavit of Walter W. Surratt
submitted with this application, ATSI cannot act in ways that confer greater
market power than FirstEnergy currently possesses, and in no event will ATSI own
or control generation. FirstEnergy's market power can only remain as is or be
diminished by the transfer. Furthermore, because the proposed transaction
positions FirstEnergy's transmission facilities for divestiture to a RTO, it
will facilitate greater competition in the wholesale power markets.
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<PAGE> 26
2. THE TRANSACTION WILL HAVE NO DIRECT EFFECT ON JURISDICTIONAL RATES.
This transaction will have no impact on the wholesale power rates
charged by the FirstEnergy Operating Companies. Likewise, approval of this
transaction is expected to have no direct impact on the rates charged to
transmission customers. Because of the exclusion of generator step-up
transformers and final circuit connections from the definition of transmission
facilities under the ATSI Tariff, and the classification of facilities below 69
kV as distribution facilities, some transmission customers may receive a modest
rate reduction from their existing rates. Second, certain terms and conditions
contained in the ATSI Tariff, as explained in more detail in the Section 205
filing, are believed to be superior to those in the pro forma tariff. Third, the
rates charged for generation based ancillary services by the FirstEnergy
Operating Companies will remain unchanged. Since ATSI's proposed rates for
generation based ancillary services will simply be a pass-through of its
purchased power costs, and since it is free to purchase ancillary services from
other suppliers where technically feasible and services are cheaper, rates for
these ancillary services will remain the same or decline. Transmission customers
will benefit from ATSI's "transmission only" business focus from both a tariff
administration and system planning standpoint.
Many of the FirstEnergy Operating Companies' transmission dependent
customers -- AMP-Ohio, Cleveland Public Power, Painesville, and the Pennsylvania
Boroughs -- take service under pre-Order No. 888, grandfathered transmission
arrangements. As part of the commitments made by FirstEnergy and approved by
this Commission in the FirstEnergy Merger Order, these customers have the right
to remain under their existing arrangements, or at their option, to switch
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<PAGE> 27
to service under the FirstEnergy Open Access Tariff. ATSI will honor this merger
commitment upon transfer of the assets and acceptance of the ATSI Tariff.
Customers who choose to obtain transmission services under their grandfathered
transmission arrangements are free to do so, and will be included as part of the
Network Load of the FirstEnergy Operating Companies. Their third party suppliers
will be designated as Network Resources under the FirstEnergy Operating
Companies' Network Integration Service Agreement with ATSI. These customers will
continue to pay the same rates, and have the same rights and obligations as
provided in their grandfathered transmission arrangements prior to approval of
this application.
The effect on rates to transmission dependent customers who switch to
the ATSI Tariff for network service is almost entirely dependent on the
individual circumstances of the customer. Because existing arrangements provide
for a variety of rates for service at voltages below 69 kV, and charges for
transmission service over distribution facilities are typically averaged rather
than directly assigned, the rate impact will vary from customer to customer.
However, because of the voltage differentiated feature of the network tariff and
the direct assignment of distribution costs, rates under the ATSI Tariff will
more closely match the cost of providing service to particular customers.
Customers currently taking point-to-point service under the FirstEnergy
Open Access Tariff do so at bulk transmission rates. There will be a change in
the proposed rates for this service when compared to the rate levels reflected
in FirstEnergy's pending open access settlement rates. The cost of service
underlying FirstEnergy's pending settlement rates, which are based on a 1995
test year, are substantially below the current cost of providing service over
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<PAGE> 28
these transmission facilities. Accordingly, the FirstEnergy Operating Companies
will be filing a Section 205 application seeking an upward adjustment in its
rates for Point-to-Point and Network Integration Transmission Service under the
existing FirstEnergy Open Access Tariff. Except for Scheduling, System Control
and Dispatch Service, charges for ancillary services will be unaffected. The
settlement rate levels for generation-based ancillary services will remain in
place. The FirstEnergy Section 205 application filing is intended to proceed
independently of the filings submitted by ATSI. The ATSI Section 205
application, however, is based with minor changes on the same cost of service
analysis and test period, and of course, the same transmission facilities as
that upon which FirstEnergy Section 205 application is based. However,
FirstEnergy agrees to cap ATSI's initial transmission rates at the transmission
rate levels approved for the FirstEnergy Operating Companies in their separate
Section 205 filing. Once again, the increase in transmission rates over the
pending settlement rates sought by FirstEnergy in the Section 205 applications
is attributable to increases in cost of providing service over FirstEnergy's
transmission facilities, and not the corporate divestiture of these facilities
associated with the creation of ATSI. To be candid, FirstEnergy would have
proceeded with a Section 205 application under its existing open access tariff
even if ATSI had not been created, and the transfer of assets had not been
proposed. Of course, transmission customers will be free to protest the proposed
transmission rates in either (or more likely both) the FirstEnergy and ATSI
Section 205 filings, and any challenges to the development of the new rates can
be fully aired and resolved in those dockets.
3. THERE IS NO ADVERSE EFFECT ON REGULATION.
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In Order No. 592, the Commission addressed two aspects of the effect on
regulation. First, in situations involving the creation of registered public
utility holding companies, the Commission required section 203 applicants to
choose between two options,: (1) commit to abide by the Commission's policies
with respect to intra-system transactions within any newly-formed holding
company structure; or (2) go to hearing on the issue of the effect of the
proposed registered holding company structure on effective regulation by this
Commission.(15) The Commission stated that, with respect to the effect of a
merger on state regulatory authority, where a State has authority to act on a
merger, the Commission ordinarily will not set this issue for a trial-type
hearing. However, if the State lacked this authority and raised concerns about
the effect on regulation, the Commission may set the issue for hearing. In this
case, FirstEnergy remains an exempt holding company and Commission jurisdiction
is unaffected. Nevertheless, pending SEC verification of its status, FirstEnergy
agrees to abide by the Commission's policy on intra-system transactions.
Further, state commissions will have full authority to regulate the FirstEnergy
Operating Companies, and to regulate retail markets and distribution facilities,
after the transaction. This Commission will retain full authority to regulate
transmission service.
Applications for approval of this transaction will be submitted to the
Ohio and Pennsylvania commissions. Transmission service to retail customers will
be unaffected by this application and retail rates will be unaffected. Under the
Operating Agreement with the FirstEnergy Operating Companies, ATSI has agreed to
plan, operate, and maintain the
- ----------------------
(15) 61 Fed. Reg. at 68,604.
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<PAGE> 30
transmission system in accordance with NERC, industry, and applicable regulatory
requirements in order to ensure that reliability of service is maintained. It
will also grant access to its books and records to state commissions as
necessary to ensure regulatory compliance. ATSI will become a public utility
upon completion of this transaction, and its proposed rate schedules will be
reviewed by the Commission under Section 205 of the FPA, and ATSI will otherwise
be subject to regulation by this Commission under the Federal Power Act.
Likewise, there will be no lapse in the Commission's jurisdictional reach over
FirstEnergy Operating Companies' transactions and facilities. Further, due to
its status as a public utility, any future merger, consolidation, or disposition
of ATSI transmission facilities will be subject to prior Commission
authorization under Section 203. This means that any future disposition of any
jurisdictional asset or service by ATSI, and any sale of ATSI, will be subject
to Commission jurisdiction.
4. APPROVAL OF ATSI WILL FACILITATE THE CREATION OF A LARGER,
INDEPENDENT RTO
The transfer of transmission assets to ATSI will facilitate the
subsequent transfer of these facilities to a RTO. To be clear, FirstEnergy's
formation of ATSI and the transfer of transmission facilities to ATSI sought
here is not the ultimate goal. Rather, this is a step towards the subsequent
transfer of these facilities to a RTO. FirstEnergy's ultimate goal is to divest
ownership, operation and control of its transmission assets from its other
assets. FirstEnergy has advised the Commission of its efforts with other
transmission owners in the development of the
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Transmission Alliance.(16) The Transmission Alliance would own, operate, and
aggregate regional transmission facilities and could, in turn, operate
transmission facilities of other companies. At present, the four interconnected
utility systems currently committed to participating in the Transmission
Alliance(17) would stretch from Michigan to Virginia and would provide open
access transmission service over approximately 43,500 miles of transmission
lines across a region with a population of 23 million. The Transmission Alliance
will strive to better align the interests of transmission customers with the
interests of transmission owners and operators. Still, FirstEnergy has not
precluded consideration of other regional transmission alternatives. Whatever
the regional entity, ATSI's existence as a separate corporate entity and single
provider of transmission services will facilitate its participation in the RTO.
Moreover, ATSI will have the opportunity to gain some experience in the
operation of the transmission system as a stand alone entity -- experience that
will be valuable to the effectuation of the next step.
The formation of a RTO not based on an existing power pool can be a
difficult and time consuming undertaking. FirstEnergy expects to file a Section
203 application to transfer ownership or operation of ATSI transmission
facilities to a RTO in the near future. However, FirstEnergy recognizes that its
efforts to gain the necessary consensus to support a new RTO filing at the
Commission may not be successful. Accordingly, FirstEnergy commits to the
Commission that if ATSI has not filed a Section 203 application to transfer
ownership or control of its transmission facilities within two years from the
date of Commission's approval of this
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(16) FirstEnergy's Response to Requests for Information, filed December 10, 1998
in Docket No. EC97-5-002.
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application, ATSI will file a Section 203 application either seeking divestiture
of ATSI's transmission facilities, or to transfer ownership or control of ATSI's
transmission facilities to a RTO.
However, the applicants do not seek here Commission authorization for
the RTO under development. To do so would be premature. FirstEnergy is
identifying its next step purely to place the application in the proper context
as the Commission undertakes its review under Section 203. The applicants seek
here only Commission authorization for the transfer of transmission facilities
from the FirstEnergy Operating Companies to ATSI. This includes authorization
for the transfer of the Duquesne Light transmission facilities to ATSI.
IV.
ADDITIONAL INFORMATION REQUIRED UNDER PART 33
OF THE COMMISSION'S REGULATIONS
Much of the information required by Section 33.2 of the Commission's
regulations, 18 C.F.R. Section 33.2, is provided in the body of the application
and in the supporting attachments. This includes the information required by
Sections 33.2 (d), (e), (f), and (j). Those items not provided elsewhere are
provided below:
SECTION 33.2(a) THE EXACT NAMES AND ADDRESSES OF THE PRINCIPAL BUSINESS OFFICES
OF APPLICANTS.
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(17) American Electric Power, Consumers Energy, First Energy Corp. and Virginia
Electric Power Company.
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1. Ohio Edison Company is an Ohio corporation having its
principal place of business at Akron, Ohio.
2. The Cleveland Electric Illuminating Company is an
Ohio corporation having its principal place of
business at Akron, Ohio.
3. The Toledo Edison Company is an Ohio corporation
having its principal place of business at Akron,
Ohio.
4. Pennsylvania Power Company is a Pennsylvania
corporation having its principal place of business at
Akron, Ohio.
5. American Transmission Systems, Inc. is an Ohio
corporation having its principal place of business at
Akron, Ohio.
SECTION 33.2(B) NAMES AND ADDRESSES OF THE PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS IN RESPECT TO APPLICATION.
1. For the FirstEnergy Operating Companies:
Arthur Garfield
Vice President
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Phone: (330) 384-5660
Fax: (330) 384-4988
E-Mail: [email protected]
2. For American Transmission Systems, Inc.:
Stanley Szwed
Vice President, Transmission
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Phone: (330) 384-2454
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Fax: (330) 384-3788
E-Mail: [email protected]
3. Applicants further request that a copy of all notices
and communications be addressed to the following
persons:
Robin M. Nuschler, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington D.C. 20036
Phone: (202) 887-4412
Fax: (202) 887-4288
E-Mail: [email protected]
34
<PAGE> 35
Michael R. Beiting
Associate General Counsel
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Phone: (330) 384-5795
Fax: (330) 384-3875
E-Mail: [email protected]
SECTION 33.2(c) DESIGNATION OF THE TERRITORIES SERVED.
1. FirstEnergy Operating Companies
-------------------------------
The electric service territory, by county
and state of each of the FirstEnergy Operating
Companies is as follows:
<TABLE>
<CAPTION>
* The Cleveland Electric Illuminating Company (Ohio)
--------------------------------------------------
<S> <C>
Ashtabula Lorain
Cuyahoga Medina
Geauga Trumbull
Lake
<CAPTION>
* Ohio Edison Company (Ohio)
--------------------------
<S> <C>
Ashland Madison
Ashtabula Mahoning
Carroll Marion
Champaign Medina
Clark Morrow
Columbiana Ottawa
Crawford Portage
Cuyahoga Richland
Delaware Sandusky
Erie Seneca
Fayette Stark
Franklin Summit
Geauga Trumbull
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
Greene Tuscarawas
Holmes Union
Huron Wayne
Knox Wyandot
Lorain
</TABLE>
<TABLE>
<CAPTION>
* Pennsylvania Power Company (Pennsylvania)
-----------------------------------------
<S> <C>
Allegheny Crawford
Beaver Lawrence
Butler Mercer
<CAPTION>
* The Toledo Edison Company (Ohio)
--------------------------------
<S> <C>
Defiance Putnam
Fulton Sandusky
Henry Seneca
Lucas Williams
Ottawa Wood
</TABLE>
2. American Transmission Systems, Inc.
-----------------------------------
ATSI has no electric service territory. ATSI was
formed for the purpose of acquiring transmission facilities of
the FirstEnergy Operating Companies and will, upon completion
of that transaction, provide open access transmission service
under the ATSI Tariff. It will assume responsibility for
providing transmission service for all existing agreements
under the FirstEnergy Open Access Tariff. It will also act as
the control area operator for the transmission system.
SECTION 33.2(g) A STATEMENT (IN THE FORM PRESCRIBED BY THE COMMISSION'S
UNIFORM SYSTEM OF ACCOUNTS FOR PUBLIC UTILITIES AND LICENSEES)
OF THE COST OF THE FACILITIES INVOLVED IN THE TRANSACTION.
See Exhibit C.
36
<PAGE> 37
SECTION 33.2(h) A STATEMENT AS TO THE EFFECT OF THE PROPOSED TRANSACTION UPON
ANY CONTRACT FOR THE PURCHASE, SALE, OR INTERCHANGE OF
ELECTRIC ENERGY.
The proposed transaction is expected to have no
direct impact on any contract for the purchase, sale, or
interchange of electric energy. As stated previously,
transmission customers served under existing, grandfathered
transmission arrangements will have the right to continue
receiving transmission service under these arrangements from
the FirstEnergy Operating Companies. The FirstEnergy Operating
Companies will take network integration service from ATSI
under its proposed Tariff. Service agreements under
FirstEnergy's Open Access Tariff will be assigned to ATSI. An
index of customers served under the FirstEnergy Open Access
Tariff is attached as Appendix 1.
SECTION 33.2(i) A STATEMENT AS TO WHETHER OR NOT ANY APPLICATION WITH
RESPECT TO THE TRANSACTION OR ANY PART THEREOF IS
REQUIRED TO BE FILED WITH ANY OTHER FEDERAL OR STATE
REGULATORY BODY.
In addition to the FPA section 203 authorization
requested herein and the FPA section 205 authorization to be
requested in the companion tariff filing, other regulatory
approvals and notifications will be required before ATSI can
assume ownership and control of the Transmission Facilities,
e.g., approvals from the Public Utilities Commission of Ohio
("PUCO"), the Pennsylvania Public Utility Commission
("Pennsylvania PUC"), the Ohio Power Siting Board, and the
United States Securities and Exchange Commission, and
notification to the Nuclear Regulatory Commission. Copies of
the applications requesting such authorization are
37
<PAGE> 38
included in Exhibit G (Related Applications), which will be
supplemented as filings are made.
SECTION 33.2(k) A BRIEF STATEMENT OF FRANCHISES HELD, SHOWING DATE OF
EXPIRATION IF NOT PERPETUAL.
See attached Appendix 2.
SECTION 33.2(l) A FORM OF NOTICE SUITABLE FOR PUBLICATION IN THE FEDERAL
REGISTER, WHICH WILL BRIEFLY SUMMARIZE THE FACTS CONTAINED IN
THE APPLICATION IN SUCH A WAY AS TO ACQUAINT THE PUBLIC WITH
ITS SCOPE AND PURPOSE.
The required form of notice is appended hereto as Appendix 4.
V.
LIST OF EXHIBITS
REQUIRED BY PART 33 OF THE COMMISSION'S REGULATIONS
18 C.F.R. Section 33.3
EXHIBIT A Copies Of Resolutions Of Directors Authorizing The
Transactions.
EXHIBIT B Statement Of The Measure Of Control or Ownership.
EXHIBIT C Balance Sheets.
EXHIBIT D Statement Of Contingent Liabilities.
EXHIBIT E Income Statement.
EXHIBIT F Analysis Of Retained Earnings.
EXHIBIT G Related Applications.
EXHIBIT H Contracts Relating to Transfer of Facilities-Bill of Sale,
Ground Lease, and Operating Agreement.
EXHIBIT I Map and Diagrams of the Transferred Facilities.
38
<PAGE> 39
The Applicants request a waiver of the requirements of 18 CFR
section 33.3, Exhibit I, for the 69 kV facilities which are the subject of this
transaction. Because of the size of the FirstEnergy System, and the number of 69
kV facilities, it is not possible to show these facilities on a single map.
Exhibit I as submitted is a detailed representation of only 138 kV and above
transmission facilities. Separate engineering diagrams submitted in electronic
format contain a detailed representation of the FirstEnergy transmission
facilities which are the subject of this Application and are also attached to
Exhibit I. A listing of all the facilities proposed to be transferred, including
69 kV facilities, is found at Schedule A to the Bill of Sale included in Exhibit
H. While no additional waivers are believed necessary, the applicants request
waiver of any regulations necessary to permit the authorization sought herein.
VI.
CONCLUSION
The FirstEnergy Operating Companies respectfully request that
the Commission expeditiously authorize the transfer to ATSI of the facilities
proposed herein under the terms and conditions set forth in this application.
Respectfully submitted,
Robin M. Nuschler
39
<PAGE> 40
March 19, 1999
40
<PAGE> 1
Exhibit D-3
BEFORE THE
PUBLIC UTILITIES COMMISSION OF OHIO
In the Matter of the Application of )
the FirstEnergy Operating companies ) Case No. 98-1633-EL-UNC
For Approval of the Transfer of their )
Transmission Assets to ATSI )
APPLICATION
OHIO EDISON COMPANY, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, and
THE TOLEDO EDISON COMPANY, each being public utility subsidiaries of FirstEnergy
Corp. (collectively, the Ohio FirstEnergy Operating Companies(1)), file this
Application for approval of the transfer of certain transmission assets to
American Transmission Systems, Inc. ("ATSI") pursuant to Section 4905.46 (B) of
the Ohio Revised Code.
The transfer to ATSI is a transaction in which all of the FirstEnergy
Operating Companies will transfer certain of their electric transmission assets
and operation of those assets to ATSI. The transaction is intended to be an
intermediate and facilitating step in the subsequent transfer of the assets, and
their operation, to a regional transmission organization ("RTO"). ATSI's
acquisition and operation of these FirstEnergy Operating Company assets at this
time will result in a more definitive separation of transmission, generation and
distribution assets and operations and will permit a more efficient and rapid
transition to participation in a RTO.
- ----------------
(1) As used here, reference to the FIRSTENERGY OPERATING COMPANIES includes Ohio
Edison Company, The Cleveland Electric Illuminating Company, and The Toledo
Edison Company as well as Pennsylvania Power Company, a wholly-owned subsidiary
of Ohio Edison Company. Reference to the OHIO FIRSTENERGY OPERATING COMPANIES
includes only The Cleveland Electric Illuminating Company, Ohio Edison Company,
and The Toledo Edison Company.
1
<PAGE> 2
I. BACKGROUND
The parent of the FirstEnergy Operating Companies is FirstEnergy Corp.,
located in Akron, Ohio. The FirstEnergy Operating Companies:
- provide electric service to 2.2 million customers;
- serve a 13,200 square mile area from central and northern Ohio
to western Pennsylvania;
- provide wholesale electric services to 37 municipal electric
systems in Ohio and five in Pennsylvania;
- provide transmission service to 11 rural electric cooperatives
in Ohio;
- interconnect with six other public utilities at or above 138
kV;(2)
- own and operate 1,153 miles of 345 kV, 3,667 miles of 138 kV,
and 2,279 miles of 69 kV facilities;
- operate as a single electric control area; and
- participate as members of the East Central Area Reliability
Coordination Agreement (ECAR) region.
Ohio Edison Company, The Cleveland Electric Illuminating Company, and
The Toledo Edison Company are public utilities under the jurisdiction of the
Public Utilities Commission of Ohio. Collectively they serve approximately
2,020,000 customers in northern and central Ohio. Their transmission facilities
include 1095 miles of 345 kV, 3,495 miles of 138 kV, and 1,871 miles of 69 kV
facilities. These facilities are to be transferred to ATSI.
ATSI, an Ohio corporation, is a wholly-owned subsidiary of FirstEnergy
Corp. ATSI is not and will not be a public utility under Title 49 of the Revised
- ----------------------
(2) Four interconnections exist at 69 kV but are normally operated in an open
configuration.
2
<PAGE> 3
Code.(3) ATSI does not currently own or operate any facilities subject to this
Commission's jurisdiction or that of the Federal Energy Regulatory Commission
("FERC"). Upon obtaining necessary approvals from this Commission and other
regulatory bodies having jurisdiction, ATSI will own and operate transmission
facilities subject to FERC jurisdiction and will provide transmission services
under the terms and conditions set forth in its own Open Access Transmission
Tariff ("ATSI Tariff").
To effect the proposed transfer, FirstEnergy needs approval of this
Commission as well as approvals of various other regulatory agencies. In
particular, as to approvals from FERC, an application for authorization to
transfer transmission assets to ATSI under Section 203 of the Federal Power Act
(16 U.S.C. Section 824b) and Part 33 of FERC's regulations (18 C.F.R. Part 33)
was filed with FERC on March 19, 1999. On April 26, 1999, FirstEnergy filed an
application to modify the FirstEnergy Open Access Transmission Tariff to
increase its rates for transmission service and to change the classification of
below 138 kV transmission facilities to correspond to that used in the ATSI
applications. In addition, on April 28, 1999, ATSI filed an application with
FERC for acceptance of the ATSI Tariff under Section 205 of the Federal Power
Act (16 U.S.C. Section 824d).4 Copies of these filings have been provided to
this Commission as required by FERC regulations and we incorporate by reference
these filings together with their accompanying exhibits as part of the instant
Application.
- ---------------------
(3) Many of ATSI's facilities will, however, fall within the purview of the Ohio
Power Siting Board pursuant to Revised Code Section 4906.04. ATSI will be a
public utility as defined in and subject to Chapter 5727 of the Revised Code
(Taxation). ATSI will also be a public utility as defined by the Federal Power
Act.
(4) These filings will be, respectively, referred to herein as the "Section 203
filing", the "FE Operating Companies Section 205 filing", and the "ATSI Section
205 filing".
3
<PAGE> 4
The effect of the transaction will be transparent to Ohio retail
customers and its execution will have no adverse impact on reliability of
service to them. In fact, the transaction should serve to enhance service and
reliability as it will facilitate the transfer of those assets to a RTO,
capturing the attendent benefits of such an expedient. The Operating Agreement
between ATSI and the FirstEnergy Operating Companies assures that ATSI will
provide reliable transmission service to the Operating Companies consistent with
Good Utility Practice and applicable standards. See Section 203 filing, Exhibit
H (Operating Agreement, Appendices A & B (System Operations)). Moreover, it
remains the legal obligation of the Ohio FirstEnergy Operating Companies to
continue to provide reliable electric service to their Ohio customers. Those
companies, as Ohio public utilities, remain subject to this Commission's
jurisdiction and the Commission retains its statutory authority to assure this
result.
Additionally, the execution of this transaction will not affect rates
to Ohio retail customers. Pursuant to comprehensive "rate plan" orders of this
Commission(5), retail rates for OE, CEI, and TE have been capped through 2005.
The existence of the rate cap established by these Commission orders prevents
any increases to customers as a result of the transfer of transmission assets,
including the additional transmission facilities acquired from Duquesne Light.
II. DESCRIPTION OF FACILITIES TO BE TRANSFERRED
The assets to be transferred from the FirstEnergy Operating Companies
to ATSI are identified in detail in the Section 203 filing, Exhibit H (Bill of
Sale, Schedule A). Essentially, ATSI will acquire from the FirstEnergy Operating
Companies and will operate transmission facilities currently operating at
voltages
- -----------------------
(5) Case No. 95-830-EL-UNC, Opinion and Order, October 18, 1995; Case Nos.
96-1211-EL-UNC & 96-1322-EL-MER, Opinion and Order, January 30, 1997.
4
<PAGE> 5
of generally 345 kV and 138 kV (the "bulk transmission system"), and 69 kV
facilities (the "area transmission system"). The facilities(6) to be transferred
("Transferred Facilities") include:
(1) transmission lines (including towers, poles, and conductors),
transmission substations and transmission transformers;
(2) the System Control Center facility in Wadsworth;
(3) transmission lines providing connections to generation
facilities;
(4) radial taps from the transmission system, excluding the
facilities that establish the final circuit connection to
distribution facilities or retail customers;
(5) voltage control devices and power flow control devices
directly connected to the transmission system; and
(6) equipment spares for transmission facilities.
The Transferred Facilities include most of the facilities currently
recorded on the books of the FirstEnergy Operating Companies as "transmission"
facilities, and do not include "distribution" facilities that may be used to
provide wholesale transmission service. ATSI may use such distribution
facilities when necessary, however, to provide wholesale transmission services
under the ATSI tariff to wholesale customers who take service at voltages below
69kV. The FirstEnergy Operating Companies and ATSI have expressly provided for
such use and have entered into an Agency Agreement under the ATSI Tariff that
commits such distribution facilities for use by ATSI in providing wholesale
transmission service under the ATSI tariff. Transmission over these distribution
facilities will be offered under the ATSI Tariff and associated costs will be
included in the rates for wholesale transmission service as a distribution
adder.
- --------------------------------
(6) The facilities include both fixed and mobile facilities. As to the former,
the FirstEnergy Operating Companies will lease the land rights associated with
these transmission assets to ATSI through Ground Leases.
5
<PAGE> 6
The result is "one-stop" shopping over all facilities necessary to provide
transmission service to eligible wholesale customers.
As used in this filing, and those made at FERC, distribution facilities
generally include all facilities with voltages below 69 kV, including the final
circuit connection to substations providing transformation or connection to any
retail customer regardless of voltage level. The FirstEnergy Operating Companies
used the FERC's seven factor test from Order No. 888 in classifying transmission
and distribution facilities for purposes of determining the facilities to be
transferred to ATSI as well as setting the transmission rates proposed in the
ATSI and FirstEnergy Operating Companies Section 205 filing. The criteria and
analysis utilized in making this distinction are explained in detail in the
supporting materials to the FERC Section 203 filing. See Section 203 Filing,
Prepared Direct Testimony of Carl J. Bridenbaugh, pages 8 through 14. As
explained by Mr. Bridenbaugh, certain low voltage facilities - 36, 34.5, 33 and
23 kV - currently classified as transmission under the Uniform System of
Accounts do not serve a transmission function and have been reclassified as
distribution facilities. These facilities will not be transferred to ATSI. The
new classification of facilities between transmission and distribution will have
no impact on the rates charged for bundled retail service.
The facilities will be transferred to ATSI at the FirstEnergy Operating
Companies' net book value(7) as follows:
- ----------------------------
(7) These net book values are as of November 30, 1998. The final transaction
will be based upon the latest available book value prior to the transfer.
6
<PAGE> 7
<TABLE>
<CAPTION>
-------------- ------------------------ -------------------------- ----------------------
Original Cost Accumulated Depreciation Net Purchase
(millions) (millions) (millions)
-------------- ------------------------ -------------------------- ----------------------
<S> <C> <C> <C>
PP $105 $44 $61
OE $590 $258 $332
CEI $323 $144 $179
TE $143 $68 $75
TOTAL $1161 $514 $647
-------------- ------------------------ -------------------------- ----------------------
</TABLE>
In addition, ATSI will purchase certain transmission facilities of
Duquesne Light Company ("DLC"). FirstEnergy executed a series of agreements with
DLC to exchange certain generating capacity as a result of DLC's restructuring
order from the Pennsylvania Public Utility Commission. As part of those
agreements, FirstEnergy committed to purchase transmission facilities owned by
DLC that are associated with the generating capacity to be received by
FirstEnergy. The purchase of the transmission facilities from DLC is expected to
take place after the transfer of FirstEnergy transmission assets to ATSI.
Therefore, ATSI is expected to be the purchaser of the DLC transmission
facilities. The net book value of the DLC transmission facilities as of November
30, 1998 was approximately $15 million.(8) The total net purchase price for the
FirstEnergy and DLC facilities by ATSI would have been $662 million as of
November 30, 1998.
The purchase price will be satisfied by ATSI through a combination of
debt and equity. Based on the November 30, 1998 net book values, FirstEnergy
Corp. will provide $298 million of equity in ATSI and the other $364 million
will be in the form of debt to the FirstEnergy Operating Companies. The notes
payable
- -----------------------------
(8) The FERC Section 203 filing estimated the cost of the DLC transmission
facilities to be $32 million. DLC is retaining a portion of the transmission
facilities which were assumed to be part of this transaction in the Section 203
filing.
7
<PAGE> 8
to the FirstEnergy Operating Companies by ATSI would be as follows (in
millions):
PP $ 34
OE $ 187
CEI $ 101
TE $ 42
Total $ 364
FirstEnergy's consolidated capital structure was used to determine the capital
structure of ATSI, approximately 45% equity ($298 million) and 55% debt ($364
million).
The transmission assets being sold will be released from the respective
operating companies' mortgages. This may be accomplished by using property which
has not been used for other purposes under the particular mortgage, using
previously retired bonds available for that purpose, depositing the note
received from the transferee of the assets (provided it is secured by a lien on
the assets transferred) with the trustee and/or depositing cash with the
trustee. All of these options are available, subject to some limitations as to
particular companies.
III. OPERATION OF FACILITIES
ATSI will operate the Transferred Facilities pursuant to its Tariff and
an Operating Agreement (Section 203 Filing, Exhibit H (Operating Agreement))
that is subject to FERC jurisdiction. ATSI will have operational control of the
facilities (utilizing employees of appropriate training and experience who were
formerly with the operating companies); serve as the control area operator over
the transmission system; offer and arrange for ancillary services; operate the
system's Open Access Same-Time Information System ("OASIS") in conformance with
FERC Order No. 889; and administer its Tariff, including all
8
<PAGE> 9
requests for service under the Tariff. ATSI will also be responsible for
maintenance of the transmission facilities, and will initially contract with the
FirstEnergy Operating Companies to perform such maintenance. ATSI will also
assume responsibility for ensuring compliance with FirstEnergy's
transmission-related merger commitments, including transmission system planning.
In short, upon receipt of the necessary regulatory approvals, ATSI will
commence providing open access transmission service to those customers
previously served by the FirstEnergy Operating Companies, and any other eligible
customer requesting transmission service from ATSI. In addition, post-transfer,
the FirstEnergy Operating Companies will become transmission customers of ATSI
under ATSI's Tariff. The FirstEnergy Operating Companies will take network
service from ATSI on behalf of all bundled retail load and grandfathered
(non-open access) wholesale customers. Again, this will not affect the retail
rates charged by the individual operating companies.
IV. REGULATORY APPROVALS
In addition to this Commission's approval, and the FERC approvals
discussed above, various other federal and state regulatory approvals are
required to effect the transaction. The Public Utility Holding Company Act
(Section 9a(2)) requires that the transfer be approved by the Securities and
Exchange Commission because FirstEnergy will be acquiring a security (stock) in
an affiliated public utility (ATSI). Additionally, FirstEnergy is required to
provide the Nuclear Regulatory Commission with a copy of any application seeking
to transfer to an affiliated company any facilities for the production,
transmission, or distribution of electric energy with a value exceeding 10% of
net utility plant. Accordingly, FirstEnergy has served a copy of its ss.203
filing upon the NRC. Finally, approval of the transaction will be sought from
the Pennsylvania Public
9
<PAGE> 10
Utility Commission consistent with several provisions of the Pennsylvania
statutes.
Insofar as this Commission's jurisdiction is concerned, the FirstEnergy
Operating Companies have endeavored to anticipate and describe the relevant
statutory Commission approval and authorization necessary to allow this
transaction to occur. The complex nature of the transaction and the possible
overlap of state and federal agency jurisdiction make it possible that
Commission action is necessary on an aspect of the transaction that is not
expressly set out in this Application. Therefore, the FirstEnergy Operating
Companies request that the Commission grant any such other approval it deems
necessary to allow them to consummate the sale of their transmission assets.
V. CONCLUSION
For the foregoing reasons, the Ohio FirstEnergy Operating Companies
request that the Commission approve the transfer of the identified transmission
assets to ATSI.
Respectfully submitted,
-------------------------------------------
Leila L. Vespoli, Trial Attorney
Arthur E. Korkosz
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Phone: 330/761-4207
Fax: 330/384-3875
Attorneys for:
Ohio Edison Company
The Cleveland Electric Illuminating Company
The Toledo Edison Company
10
<PAGE> 11
CERTIFICATE OF SERVICE
----------------------
I hereby certify that a copy of Application was served upon
all parties of record by regular U.S. Mail, postage prepaid, this 12th day of
May, 1999.
--------------------------------
Arthur E. Korkosz
Attorney
PARTIES OF RECORD
-----------------
Jeffrey L. Small Barry Cohen
Chester, Willcox & Saxbe Ohio Consumers' Counsel
17 South High Street 77 South High Street
Suite 900 15th Floor
Columbus, OH 43215 Columbus, OH 43215
David A. Kopech Kimberly J. Wile
Rinehart, Howarth, Rishel & Kopech McNees, Wallace & Nurick
395 East Broad Street 21 East State Street
Suite 330 Suite 1700
Columbus, OH 43215 Columbus, OH 43215-4228
Duane W. Luckey
Assistant Attorney General
180 East Broad Street
7th Floor
Columbus, OH 43266-0573
11
<PAGE> 1
Exhibit D-5
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Application of Pennsylvania Power Company )
Under sections 1102(a)(3), 2102, and 2811(e) for (1))
A Certificate of Public Convenience Authorizing )
the Transfer of Certain Transmission Assets )Docket No. A-00110450 F00__
to American Transmission Systems, Inc., )
and (2) Approval of Certain Affiliated Interest )
Agreements Necessary to Effect the Transfer )
APPLICATION
-----------
Pennsylvania Power Company ("Penn Power" or "Company") files this
Application for a Certificate of Public Convenience authorizing the Transfer of
Certain Transmission Assets to American Transmission Systems, Inc. ("ATSI") and
for Approval of Certain Affiliated Interest Agreements Necessary to Effect the
Transfer under section 1102(a)(3) and Section 2102 of the Public Utility Code
("Code") (66 Pa. C.S.A. section 1102(a)(3) and Section 2102) ("Application").
This Application is also filed under section 2811(e) of the Electricity
Generation Customer Choice and Competition Act ("Competition Act") (66 Pa.
C.S.A. section 2811(e)), relating to the divestiture of utility assets.
The transfer to ATSI is part of a transaction in which all of the
FirstEnergy Operating Companies(1) will transfer certain of their electric
transmission assets and their operation to ATSI. The transaction is intended to
be an intermediate and facilitating step in the subsequent transfer of the
assets to a regional transmission organization ("RTO") or to create a vehicle
for the addition of transmission assets divested by third parties to it. ATSI's
acquisition and operation of these FirstEnergy Operating Company assets at this
time will result in a more definitive separation of transmission, generation,
and distribution assets and operations and will permit a more efficient and
rapid transition to participation in an RTO.
- ------------------
(1) Pennsylvania Power Company, Ohio Edison Company, The Cleveland
Electric Illuminating Company, and The Toledo Edison Company.
<PAGE> 2
-2-
I. BACKGROUND
-------------
Penn Power is a public utility whose rates and terms of service are
regulated by the Pennsylvania Public Utility Commission ("Commission"). It
serves approximately 140,000 customers in a six county area of western
Pennsylvania and owns and operates 58 miles of 345 kV, 172 miles of 138 kV, and
408 miles of 69 kV transmission lines. These facilities are to be transferred by
Penn Power to ATSI.
The parent of the FirstEnergy Operating Companies is FirstEnergy Corp.,
located in Akron, Ohio. The FirstEnergy Operating Companies:
- provide electric service to 2.2 million customers;
- serve a 13,200 square mile area from central and northern Ohio
to western Pennsylvania;
- provide wholesale electric services to 37 municipal electric
systems in Ohio and five in Pennsylvania;
- provide transmission service to 11 rural electric cooperatives
in Ohio;
- interconnect with six other public utilities at or above 138
kV;(2)
- own and operate 1,153 miles of 345 kV lines, 3,667 miles of
138 kV lines, and 2279 miles of 69 kV lines;
- operate as a single electric control area; and
- participate as members of the East Central Area Reliability
Coordination Agreement (ECAR) region.
- ----------------------------
rmally operated in an open configuration.
ATSI, an Ohio corporation, is a wholly owned subsidiary of FirstEnergy
Corp. ATSI does not currently own or operate any facilities subject to
Commission jurisdiction or that of the Federal Energy
<PAGE> 3
-3-
Regulatory Commission ("FERC"). Upon obtaining necessary approvals from this
Commission and other regulatory bodies having jurisdiction, ATSI will own and
operate transmission facilities subject to FERC jurisdiction and will provide
transmission services under the terms and conditions set forth in its own Open
Access Transmission Tariff ("Tariff"). ATSI will become the control area
operator for the FirstEnergy System.
FirstEnergy, in order to effect the proposed transfer, needs
the approval of various other regulatory agencies. An Application for
Authorization to Transfer Transmission Assets to ATSI under Section 203 of the
Federal Power Act (16 U.S.C. Section 824b) and Part 33 of FERC's regulations (18
C.F.R. Part 33) was filed with FERC on March 19, 1999. In addition, ATSI filed
an application with FERC on April 28, 1999 for acceptance of the Tariff under
Section 205 of the Federal Power Act (16 U.S.C. Section 824d). Copies of these
filings have been served on the Commission as required by FERC regulations. In
addition, approval of the transaction is being sought from the Ohio Public
Utilities Commission and the Securities Exchange Commission ("SEC"). Finally,
the Nuclear Regulatory Commission (NRC) has been notified of the transfer.
II. DESCRIPTION OF FACILITIES TO BE TRANSFERRED
-------------------------------------------
The transmission assets to be transferred from Penn Power to
ATSI are identified in detail in Schedule A of the Bill of Sale from Penn Power
to ATSI, Attachment A, hereto. The determination of whether existing facilities
serve a transmission function, and thus should be transferred to ATSI is based
upon FERC's seven-factor test as explained in the testimony accompanying ATSI's
Section 203 filing. Essentially, ATSI will acquire from the FirstEnergy
Operating Companies transmission facilities currently operating at voltages of
345 kV and 138 kV (the "bulk transmission system") and of 69 kV (the "area
transmission system"). ATSI will provide transmission services pursuant to the
terms and conditions set forth in its own Open Access Transmission Tariff. The
facilities (including fixed and mobile types) to be
<PAGE> 4
-4-
transferred ("Transferred Facilities") shall include
(1) transmission lines (including towers, poles, and conductors)
and transmission transformers and substations;(3)
(2) the System Control Center facility in Wadsworth, Ohio;
(3) transmission lines providing connections to generation
facilities;
(4) radial taps from the transmission system (excluding the
facilities that establish the final circuit connection to
distribution facilities or retail customers);
(4) voltage control devices and power flow control devices
directly connected to the transmission system; and
(6) equipment spares for transmission facilities. The Transferred
Facilities comprise all of the facilities currently recorded on the books of
Penn Power as "transmission" facilities with the exception of 23 kV facilities
which currently are classified as distribution facilities.(4) The Transferred
Facilities do not include facilities providing retail service or "distribution"
facilities that may be used to provide wholesale transmission service. However,
ATSI may use such distribution facilities in order to provide service under its
Tariff to existing wholesale customers. The FirstEnergy Operating Companies and
ATSI have entered into an Agency Agreement (Appendix C to Attachment B, hereto)
under the Open Access Transmission Tariff that commits such distribution
facilities for use by ATSI in providing wholesale transmission service under the
ATSI Tariff.
The facilities will be transferred to ATSI at Penn Power's and the
other FirstEnergy
- ------------------------
(3) The FirstEnergy Operating Companies will lease the land rights
associated with these transmission assets to ATSI through Ground Leases.
Approval of Penn Power's Ground Lease is discussed in Section VI of this
Application.
(4) Distribution facilities are those operating at voltages below 69
kV, including the final circuit connection to substations providing
transformation or connection to any retail customer regardless of voltage level.
<PAGE> 5
-5-
Operating Companies' net book value as of the date of the transfer. The net book
values as of November 30, 1998, the test year in ATSI's Section 205 filing, are:
<TABLE>
<CAPTION>
Original Cost Accumulated Depreciation Net Purchase
------------- ------------------------ ------------
(millions) (millions) (millions)
<S> <C> <C> <C>
PP $105 $44 $61
OE $590 $258 $332
CEI $323 $144 $179
TE $143 $68 $75
----- ---- ----
TOTAL $1161 $514 $647
</TABLE>
- --------------------------------------------------------------------------------
In addition, ATSI is expected to purchase certain transmission
facilities of Duquesne Light Company ("Duquesne"). FirstEnergy has signed
definitive agreements with Duquesne to exchange certain generating capacity as a
result of Duquesne's restructuring order at Docket No. R-00974104. As part of
those agreements, FirstEnergy committed to purchase transmission facilities
owned by Duquesne that are associated with the generating capacity to be
received by FirstEnergy. The purchase of the transmission facilities from
Duquesne is expected to take place after the transfer of FirstEnergy
transmission assets to ATSI. Therefore, ATSI is expected to be the purchaser of
the Duquesne transmission facilities. The net book value of the subject Duquesne
transmission facilities as of November 30, 1998 was approximately $15 million.
The total net purchase price for the FirstEnergy ($647 million) and Duquesne
($15 million) facilities by ATSI will be $662 million.
The purchase price will be satisfied by ATSI through the
issuance of a combination of debt and equity. Based on the November 30, 1998 net
book values, FirstEnergy Corp. will provide $298 million of equity in ATSI and
the other $364 million will be in the form of debt to the FirstEnergy Operating
Companies. The notes payable to the FirstEnergy Operating Companies by ATSI will
be approximately as follows (in millions):
<PAGE> 6
-6-
PP $ 34
OE $187
CEI $101
TE $ 42
----
Total $364
The actual amounts will be based upon the net book value of the transferred
assets as of the date of closing.
The accounting entries to be made to record the Penn Power asset sale are:
Debit Cash $ 27
Debit Notes Receivable $ 34
Debit Accumulated Depreciation $ 44
Credit Utility Plant $105
Similar entries in appropriate amounts will be made for the other FirstEnergy
Operating Companies.
III. OPERATION OF FACILITIES
----------------------------
ATSI will operate the Transferred Facilities pursuant to its
Tariff and an Operating Agreement (Attachment B, hereto) that is subject to FERC
jurisdiction. ATSI will have operational control of the transmission and, for
the first 3 years, 23 kV facilities of Penn Power; serve as the control area
operator over the transmission system; procure, offer and arrange for ancillary
services; operate the Open Access Same-Time Information System ("OASIS") in
conformance with FERC Order No. 889; and administer its Tariff, including all
requests for service under the Tariff. ATSI's operational staff will consist
primarily of former employees of FirstEnergy or its operating companies who have
appropriate training and experience. ATSI also will be responsible for
maintenance of the transmission facilities, and will initially contract with the
FirstEnergy Operating Companies to perform the maintenance (See Attachment B).
In short, upon receipt of the necessary regulatory approvals,
ATSI will commence providing open access transmission service to those existing
open access customers served by the FirstEnergy Operating Companies, and any
other eligible customer requesting transmission service from
<PAGE> 7
-7-
ATSI. In addition, post-transfer, the FirstEnergy Operating Companies will
become transmission customers of ATSI under its Tariff.
IV. COMPETITIVE ISSUES
----------------------
Under Section 2811(e) of the Competition Act, the Commission
must review whether the disposition of utility assets is likely to result in
anticompetitive or discriminatory conduct or the unlawful exercise of market
power which would prevent Pennsylvania retail customers from obtaining the
benefits of the Competition Act. As explained below, the proposed transfer will
have no anticompetitive effect and, in fact, may enhance customers' ability to
secure the benefits of retail competition.
As noted previously, FirstEnergy seeks only to more
definitively separate its generation from its transmission facilities in order
to pave the way for complete divestiture of its transmission assets. ASTI does
not currently own any generation, distribution or transmission facilities, and
will not own or control any generation. Upon completion of the proposed
transfer, the FirstEnergy Operating Companies will no longer own transmission
facilities. As such, the proposed transfer is competitively benign in that it
has no effect on the concentration of generation or transmission assets or
market power. Indeed, FirstEnergy's market power only can remain as is or be
diminished by the transfer. Furthermore, because the proposed transaction
positions FirstEnergy's transmission facilities for divestiture to an RTO, it
will facilitate greater competition in the wholesale power market. In short, the
formation of ATSI creates greater separation between the distribution,
transmission and generation portions of FirstEnergy and thereby reduces the
likelihood of anticompetitive or discriminatory behavior.
V. STANDARDS OF CONDUCT
-----------------------
In its Order No. 888, FERC stated that "[f]unctional
unbundling will work only if a strong code of conduct (including a requirement
to separate employees involved in transmission functions from
<PAGE> 8
-8-
those involved in wholesale power merchant functions) is in place."(5) To that
end, not only does ATSI's Tariff incorporate the Standards of Conduct set forth
in FERC's regulations,(6) but, in accordance with section 37.4(c) of FERC's
regulations,(7) the FirstEnergy Operating Companies and ATSI have also developed
procedures for implementation of the Standards of Conduct. These procedures
include the following statement of policy:
It is the policy of ATSI to operate the Transmission System in
a fair and nondiscriminatory manner and to implement such rules and
regulations in the governance of the corporation as necessary to
prevent control of the decision-making process by the merchant function
of the FirstEnergy Operating companies or its affiliates or any User of
the Transmission System. It is the policy of ATSI to own, operate and
plan the Transmission System without adverse distinction or preference
to the FirstEnergy Operating Companies or Users of the Transmission
System, and that investments in new transmission facilities will be
made by ATSI without discrimination.
Specifically, each employee directly responsible for either
the FirstEnergy Operating Companies' wholesale merchant operations or ATSI's
transmission operations will be required to sign a Standards of Conduct
Acknowledgment and Compliance Statement and to abide by its terms. Managers of
departments not directly responsible for these functions will be given a copy of
the Standards of Conduct and will similarly be required to sign a Standards of
Conduct Acknowledgment and Compliance Statement and to abide by its terms. These
managers will also be required to review the Standards of Conduct with all of
their employees. Furthermore, the wholesale merchant division of the FirstEnergy
Operating Companies will be headquartered several miles from ATSI's System
Control Center.
The FirstEnergy Operating Companies have established
procedures that prevent access by any employee responsible for wholesale
merchant functions to the System Control Center for the purpose of obtaining
information on transmission capacity, price, curtailments, ancillary services,
scheduled
- -----------------------------
(5) Order No. 888, FERC Stats. & Regs. [Reg. Preambles 1991-96] at 31,655.
(6) See 18 C.F.R. Part 37.
(7) Id. Section 37.4(c).
<PAGE> 9
-9-
maintenance and line outages. Firewalls have been established within the Energy
Management System ("EMS") to ensure that transmission information from the EMS
can not be accessed by wholesale merchant employees. Implementation of these
measures is further evidence of ATSI's commitment to provide non-discriminatory
access to the transmission system. Approval of the ATSI standards of conduct has
been sought from FERC as part of its Section 205 filing.
VI. AFFILIATED INTEREST AGREEMENTS
------------------------------
In order to effectuate this transaction, Penn Power requests
approval of several affiliated interest agreements under Section 2102 of the
Public Utility Code. Commission approval of these agreements is sought to the
extent that Section 2107, (66 Pa. C.S.A. Section 2107) relating to approvals by
Federal regulatory agencies, does not apply to all or portions of the
Agreements. These agreements are:
1. Bill of Sale
2. Ground Lease
3. Promissory Note
4. Operating Agreement
The Bill of Sale is designed to convey title to the
transmission assets purchased by ATSI from Penn Power and the other FirstEnergy
Operating Companies. The Bill of Sale includes an itemization (Schedule A,
thereto) of facilities to be transferred and standard representations and
warranties. The assets transferred to ATSI under the Bill of Sale include
FirstEnergy's rights and interests in any contracts under the FirstEnergy Open
Access Tariff. A form of the Bill of Sale is attached hereto as Attachment A.
The Ground Lease allows ATSI to use land and rights of way
owned by Penn Power and the other FirstEnergy Operating Companies for a term of
fifty years. Penn Power will retain ownership of the land with ATSI making
annual Base Rent payments to Penn Power of $1,303,674. The Base Rent was
<PAGE> 10
-10-
calculated using an implicit 11.5% return on equity. The Base Rent payments are
net to Penn Power throughout the term, i.e., net of taxes, costs, expenses,
liabilities, charges or other deductions except as specifically provided in the
lease. A form of Ground Lease is attached hereto as Attachment C.
As set forth in Section II, above, ATSI will execute a
Promissory Note to Penn Power in an approximate amount of $34 million. The note
is payable over 30 years in accordance with the specified payment scheduled
attached to the Promissory Note. Interest on the Promissory Note is set at the
approximate composite embedded cost of long-term debt for the FirstEnergy
Operating Companies of 7.75%. A form of Promissory Note is attached hereto as
Attachment D.
Lastly, Penn Power will be entering into an Operating
Agreement for the planning, operation, and control of the transmission system.
This agreement has been filed with FERC and is an integral component of the
Section 203 filing for which FERC approval is sought. To the extent Commission
approval is necessary, Penn Power requests that the Operating Agreement,
attached hereto as Attachment B, be approved.
VII. ADDITIONAL COMMISSION APPROVALS
-------------------------------
Penn Power has attempted to describe all of the relevant
Commission approvals and authorizations necessary to allow this transaction to
occur. The complex nature of the transaction and the possible overlap of
Pennsylvania and federal agency jurisdiction make it possible that Commission
action is necessary on an aspect of the transaction that is not specifically
requested in this Application. Therefore, Penn Power requests that the
Commission grant any other approvals it deems necessary to allow Penn Power to
consummate the sale of its transmission assets.
VIII. THE PROPOSED TRANSACTION IS IN THE PUBLIC INTEREST
--------------------------------------------------
ATSI's acquisition and operation of the transmission
facilities is in the public interest.
-11-
<PAGE> 11
First, ATSI's acquisition and operation of the transmission assets of the
FirstEnergy Operating Companies will exceed the "functional" unbundling
requirements of Order No. 888, and bring with it greater corporate and
organizational separation of transmission from generation. ATSI will be
responsible for providing all open access transmission and ancillary services
under the proposed ATSI Tariff, and existing open access service agreements
under the old FirstEnergy Tariff will be assigned to ATSI. The FirstEnergy
Operating Companies will remain responsible for outstanding transmission
obligations associated with grandfathered, pre-open access contracts. After the
transfer of assets, the FirstEnergy Operating Companies will become network
transmission customers of ATSI and will be required to secure transmission
service from ATSI in the same manner as unaffiliated transmission customers. The
requirement for the FirstEnergy Operating Companies to take service under the
open access tariff does not arise as a result of the transfer. Rather, the
companies were required to enter into network service agreements under
FirstEnergy's own open access tariff under FERC precedent and policy. This
arrangement will not, in and of itself, have any impact on transmission rates.
The current organizational separation between the employees of the
FirstEnergy Operating Companies' wholesale merchant divisions and transmission
divisions will be significantly strengthened beyond the requirements of Order
Nos. 888 and 889, because transmission personnel will become employees of a
separate company, ATSI. Responsibility for power generation and transmission
will be assigned to separate corporate officers of FirstEnergy. ATSI will have
its own board of directors and will operate as a separate value center within
FirstEnergy. The result of all these measures will be the further separation of
FirstEnergy's wholesale generation and transmission services.
ATSI will not be engaged in the electric power generation business, and
will contract with the FirstEnergy Operating Companies and others on the open
market to provide ancillary services on a least cost basis. ATSI will not own
distribution facilities, and will arrange for the use of facilities only to the
extent required to provide transmission services to wholesale customers served
at voltages below 69 kV
<PAGE> 12
-12-
under the ATSI tariff. ATSI will focus solely on efficiently and effectively
operating and maintaining, and where necessary expanding, its transmission
system, and will be well situated to respond quickly to customer needs.
Regulation of the parties after the proposed transaction will not be
adversely affected. FirstEnergy will remain an exempt holding company subject to
FERC and SEC jurisdiction. This Commission and the Public Utilities Commission
of Ohio will continue to regulate retail markets and distribution facilities
after the transaction. FERC will retain its full authority to regulate
transmission service.
Transmission service to retail customers will be unaffected by the
proposed transaction. Under the Operating Agreement with the FirstEnergy
Operating Companies, ATSI is obligated to plan, operate, and maintain the
transmission system in accordance with NERC, industry, and applicable regulatory
requirements in order to ensure that reliability of service is maintained. Penn
Power will continue to be subject to statutory and regulatory requirements as to
the adequacy, safety and reliability of its facilities and operations and will
retain its obligations to provide reliable electric service to its customers.
This Commission will have access to ATSI's books and records to the extent
necessary to ensure regulatory compliance. ATSI will become a FERC
jurisdictional public utility subject to regulation under the Federal Power Act
and its rate schedules will be subject to review and acceptance by FERC under
Section 205 of the Federal Power Act. There will be no lapse in the
jurisdictional reach over the FirstEnergy Operating Companies' transactions and
facilities. Moreover, any future merger, consolidation, or disposition of ATSI
transmission facilities will be subject to prior FERC authorization under
Section 203 of the Federal Power Act.
The transfer will also facilitate FirstEnergy's efforts to transfer
these facilities to an RTO. To be clear, FirstEnergy's formation of ATSI and the
transfer of transmission assets to ATSI sought here is not the ultimate goal.
Rather, this is a step towards the subsequent transfer of these facilities to an
RTO.
<PAGE> 13
-13-
FirstEnergy's ultimate goal is to divest ownership, operation and control of its
transmission assets from its other assets. FirstEnergy has advised the
Commission of its efforts with other transmission owners in the development of
the Transmission Alliance. The Transmission Alliance would own, operate, and
aggregate regional transmission facilities and could in turn operate
transmission facilities of other companies. At present, the four utility systems
currently committed to participating in the Transmission Alliance(8) would
stretch from Michigan to Virginia and would provide open access transmission
service over 43,100 miles of transmission facilities across a region with a
population of 23,000,000. The Transmission Alliance is committed to better align
the interests of transmission customers with the interests of transmission
owners and operators. At the same time, FirstEnergy has not precluded
consideration of other regional transmission alternatives. Whatever the regional
entity, ATSI's existence as a separate corporate entity and single provider of
transmission services will facilitate its participation in an RTO. Moreover,
ATSI will have the opportunity to gain some experience in the operation of the
transmission system as a stand-alone entity -- experience that will be valuable
to the effectuation of the next step.
The formation of an RTO not based on an existing power pool can be a
difficult and time-consuming undertaking. FirstEnergy expects to file a Section
203 application to transfer ownership or operation of ATSI transmission
facilities to an RTO in the near future. However, FirstEnergy recognizes that
its efforts to gain the necessary consensus to support a new RTO filing at FERC
may not be successful. Accordingly, FirstEnergy has committed to FERC that if
ATSI has not filed a Section 203 application to transfer ownership or control of
its transmission facilities within two years from the date of FERC's approval of
the current Section 203 application before that agency, ATSI will file a second
Section 203 application seeking either divestiture of its transmission
facilities or the transfer of ownership or control of its transmission
facilities to an RTO. FirstEnergy seeks to make it clear that it has no
intention to delay the formation of, or participation in, an RTO. Its actions in
the Transmission Alliance
- --------------------------------
(8) ATSI, American Electric Power, Consumers Energy, and Virginia Electric Power
Company
<PAGE> 14
-14-
will demonstrate this. In offering the two-year divestiture commitment in the
FERC proceeding, FirstEnergy seeks only to reinforce its intent to effectuate a
separation of transmission from the integrated utility structure. FirstEnergy
does not desire delay, and is pursuing a course of action that is hoped and
intended to place itself in a FERC-approved RTO well before the close of the
two-year period.
IX. CONCLUSION
----------
For the foregoing reasons, Penn Power requests that the Commission (a)
issue a Certificate of Public Convenience authorizing the proposed transfer of
assets, (b) approve the affiliated interest agreements attached hereto, and (c)
grant such other approvals as it deems necessary to effectuate this transaction.
In doing so, the Commission should find:
1. That the sale of the identified transmission assets by Penn
Power to ATSI is in the public interest;
2. That the agreements necessary to effect the sale are
reasonable and consistent with the public interest; and
3. That the transaction is not likely to result in
anticompetitive or discriminatory conduct or the unlawful
exercise of market power.
The proposed transaction is a reasonable initial step in the
formation of a truly vibrant regional transmission entity. Such an entity is
necessary to create the long-term benefits envisioned by the
<PAGE> 15
-15-
enactment of Competition Act and should be approved.
Respectfully submitted,
----------------------------------
Stephen L. Feld
Senior Attorney
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Phone: 330/761-4207
Fax: 330/384-3875
May 11, 1999
<PAGE> 1
Exhibit H-1
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filings under the Public Utility Holding Company Act of 1935 ("Act")
May , 1999
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by ,
1999 to the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at the
address(es) as specified below. Proof of service (by affidavit or, in case of an
attorney at law, by certificate) should be filed with the request. Any request
for hearing shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing, if ordered,
and will receive a copy of any notice or order issued in the matter. After said
date, the application(s) and/or declaration(s), as filed or as amended, may be
granted and/or permitted to become effective.
* * * * * *
FIRSTENERGY CORP. (70- )
FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308, an Ohio
corporation ("FirstEnergy"), has filed an application/declaration under Sections
(9)(a)(2) and 10 of the Act to (i) directly acquire all of the issued and
outstanding voting securities of American Transmission Systems, Incorporated, a
newly formed Ohio corporation ("ATSI") and (ii) indirectly acquire certain debt
securities to be issued by ATSI as part of consideration for transfer of certain
transmission assets (the "Transmission Assets") owned by each of Ohio Edison
Company ("Ohio Edison"), The Cleveland Electric Illuminating Company ("Cleveland
Electric"), The Toledo Edison Company ("Toledo Edison") and Pennsylvania Power
Company (individually, "Penn Power," and collectively, the "Operating
Companies") to ATSI.
<PAGE> 2
FirstEnergy states that the proposed creation of ATSI and transfer of
the Transmission Assets to ATSI is part of its plan to establish an independent
regional transmission organization. FirstEnergy further states that the proposed
formation of the new transmission company is intended to provide the following
benefits to it and its Operating Companies' customers: (i) greater corporate and
organizational separation of transmission from generation; and (ii) by tying
together control, planning, maintenance and financial responsibilities of the
Operating Companies' transmission facilities into a single company having an
independent, streamlined and cost-efficient operation, (A) creating synergies
that result in better service in the region and (B) assuring non-discriminatory
access for all transmission users. FirstEnergy states that its plan to establish
an independent RTO, with the creation of ATSI, as a significant step toward this
end, will maximize the value of the Transmission Assets to shareholders.
FirstEnergy was organized under the laws of the State of Ohio in 1996
and is a holding company within the meaning of Section 2(a)(7) of the Act.
FirstEnergy's principal business is the holding of all of the issued and
outstanding voting securities of the following 12 direct active subsidiaries:
Ohio Edison; Cleveland Electric; Toledo Edison; FirstEnergy Properties, Inc.;
FirstEnergy Ventures Corp.; FirstEnergy Trading Services, Inc.; FirstEnergy
Securities Transfer Company; FirstEnergy Facilities Services Group, Inc.; MARBEL
Energy Corporation; JR Operating Company; FirstEnergy Services Corp.; and
FirstEnergy Nuclear Operating Company; and all of the issued and outstanding
voting securities of the following four direct inactive subsidiaries: Centerior
Service Company; FirstEnergy Holdings, LLC; FE Acquisition Corp.; and ATSI.
FirstEnergy has claimed an exemption from all provisions of the Act (except for
Section 9(a)(2) thereof) pursuant to Rule 2 thereunder.
ATSI is incorporated as an Ohio corporation and currently does not
conduct any business or own any utility assets. Upon consummation of the
proposed transaction, ATSI will become a "public-utility company" as defined in
the Act.
Ohio Edison was organized under the laws of the State of Ohio in 1930
and is both a public utility and a public utility holding company which is
exempt from regulation by the Commission under the Act (except for Section
9(a)(2) thereof) because it is predominantly a public-utility company whose
operations as such do not extend beyond the State of Ohio and contiguous states.
Ohio Edison owns all of the issued and outstanding voting securities of Penn
Power. Ohio Edison also owns directly 16.5% of the issued and outstanding voting
securities of Ohio Valley Electric Corporation, an Ohio corporation ("OVEC"). In
addition to Penn Power, Ohio Edison has seven other wholly-owned subsidiaries
organized, unless otherwise noted, under the laws of the State of Ohio: (i) OES
Capital, Incorporated; (ii) OES Fuel, Incorporated; (iii) OES Finance,
Incorporated; (iv) Ohio Edison Financing Trust, organized under the laws of the
State of Delaware; (v) Ohio Edison Financing Trust II, organized under the laws
of the State of Delaware; (vi) OES Nuclear, Incorporated; and (vii) OES
Ventures, Incorporated. Finally, Ohio Edison has a 49% interest in OES
Engineering Incorporated.
Penn Power was organized under the laws of the Commonwealth of
Pennsylvania in 1930 and owns property and does business as an electric public
utility in that state. Penn Power is also authorized to do business and owns
property in the State of Ohio. Penn Power has one wholly-owned subsidiary, Penn
Power Energy, Inc.
2
<PAGE> 3
Cleveland Electric was organized under the laws of the State of Ohio in
1892 and is a public utility company engaged primarily in the generation,
transmission, distribution and sale of electric energy to an area of
approximately 1,700 square miles in northeastern Ohio, including the City of
Cleveland. It has one subsidiary, Centerior Funding Corporation. It also owns
10% of The Toledo Edison Capital Corporation ("TECC")
Toledo Edison was organized under the laws of the State of Ohio in 1901
and is a public utility company engaged primarily in the generation,
transmission, distribution and sale of electric energy to an area of
approximately 2,500 square miles in northwestern Ohio, including the City of
Toledo. It owns 90% of TECC. Toledo Edison owns directly 4% of the issued and
outstanding voting securities of OVEC.
FirstEnergy states that the proposed transaction will be accomplished
through (i) FirstEnergy's acquisition of all of the issued and outstanding
voting securities of ATSI in exchange for certain cash consideration, (ii) the
sale and transfer by the Operating Companies of their Transmission Assets to
ATSI in consideration for the purchase price (the "Purchase Price") which will
be the net book value of the Transmission Assets as of November 30, 1998 and
(iii) ATSI's financing of the purchase of the Transmission Assets by (A) the use
of FirstEnergy's purchase price for all of the issued and outstanding voting
securities of ATSI for an amount equal to 45% of the Purchase Price and (B)
ATSI's issuance of promissory notes (which may be secured by a lien on the asset
transferred) to the Operating Companies in an aggregate amount equal to 55% of
the Purchase Price. The interest rate on the promissory notes will be based on
the embedded cost of debt of the Operating Companies on a consolidated basis as
of November 30, 1998.
FirstEnergy states that, after the consummation of the proposed
transaction, FirstEnergy will directly own all of the issued and outstanding
voting securities of ATSI, in addition to continuing to own directly or
indirectly all of the issued and outstanding voting securities of each of the
Operating Companies, and thus there will be no minority equity interest in any
such companies. The Operating Companies will own all of ATSI's debt securities.
No change will be effected in the capital structure of Penn Power, which will
continue to be wholly-owned subsidiary of Ohio Edison.
3
