File No. 70-9469
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
FORM U-1
APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
West Penn Power Company
800 Cabin Hill Drive
Greensburg, PA 15601
(Name of company or companies filing this statement and addresses
of principal executive offices)
Allegheny Energy, Inc.
(Name of top registered holding company parent of each applicant
or declarant)
Thomas K. Henderson, Esq.
Vice President
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, MD 21740-1766
(Name and address of agent for service)
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1. Applicants hereby amend Item No. 1. Description of
Proposed Transaction Section A. Introduction, subsection (f)
by replacing $670 million with $600 million.
2. Applicants further amend Item No. 1. Description of
Proposed Transaction Section D. Requested Authority,
subsection 3. Issuance of Transition Bonds by deleting
the reference in the first sentence to $670 million and
substituting $600 million therefor.
3. Applicants further amend Item No. 1. Description of
Proposed Transaction Section D. Requested Authority,
subsection 4. Loan by deleting both references in that
paragraph to $670 million and substituting $600 million
therefor.
4. Applicants further amend Item No. 1. Description of
Proposed Transaction Section G. Use of Proceeds by
deleting the reference to "$670 million (or $630 million
in the event of a merger with DQE, Inc.)" in the first
sentence and replacing it with $600 million.
5. Applicants hereby amend Item No. 1. Description of
Proposed Transaction Section B. Background of
Competition and Regulatory Environment in Pennsylvania
by adding the following to the end thereof:
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Restructuring Plan
As a result of the Electric Generation Customer Choice Act
(the "Competition Act"), on November 19, 1998, the
Pennsylvania Public Utility Commission ("PAPUC") issued a
Final Opinion and Order in Docket No. R-00973981 regarding
the application by West Penn Power Company ("West Penn") for
approval of a restructuring plan. By this order, the PAPUC
approved the following for West Penn:
1. The recovery of $670 million1 (or $630 million in the
event of a merger with DQE, Inc.) of stranded costs through
the collection of a non-bypassable charge to every customer
of electric services within the geographical area that
comprises West Penn's certified service territory;
2. The issuance of transition bonds in an aggregate amount
not to exceed $670 million with 75% of net savings from
securitization passed on to customers;
3. The reduction of West Penn's existing capitalization
with the proceeds from the issuance of the transition bonds;
and
_______________________________
1 The Pennsylvania Public Utility Commission (PAPUC) order
issued on November 19, 1998 authorized West Penn to collect
$670 million (or $630 million in the event of a merger with
DQE, Inc.) of stranded costs from its retail customers
through a Competitive Transition Charge (CTC), to commence
in January, 1999. West Penn was permitted to securitize up
to that entire amount. This is no longer feasible because:
1) Some CTC has already been, and will continue to be,
collected from customers. The amount authorized for
collection up to the date of the bond issuance (some $40
million) must therefore be subtracted from the amount to be
securitized. 2) The PAPUC has set a maximum level for
generation rates (the "rate cap"). There are two basic
elements of the rate cap-the CTC and the "shopping credit".
If $670 million is securitized, there is a risk that the
Intangible Transition Charge-that part of the CTC which
services the Transition Bonds-will at some point exceed the
CTC amount. Reduction of the shopping credit would then be
required so as not to exceed the rate cap. The PAPUC
indicated in its Supplemental Qualified Rate Order issued
August 12, 1999, that, "While the Initial QRO and Joint
Settlement do allow West Penn to securitize 100% of its
stranded costs, the Commission urges that West Penn
management exercise good judgment regarding its final plans
for securitization so as to minimize the risk of
jeopardizing the level of shopping credits and competitive
alternatives for its customers." In addition to the
requirement that the amount already authorized for
collection be subtracted from the $670 million, it is out of
deference to this expressed urging of the PAPUC that West
Penn seeks authority from the SEC to issue only up to $600
million.
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4. The transfer of generation assets from West Penn to an
affiliated generation company.
In accordance with this approval by the PAPUC, West Penn is
requesting Commission approval to issue through subsidiaries
transition bonds and transfer through subsidiaries its
generation assets to Allegheny Energy Supply Company,
a yet to be created, wholly owned subsidiary of Allegheny
Energy, Inc. In order to accomplish the restructuring plan
approved by the PAPUC for West Penn, Commission approval is
required for certain transactions determined by the PAPUC to
be in the public interest.
Stranded Costs
In Docket No. R-00973981, the PAPUC determined that West
Penn's recovery of $670 million (or $630 million in the
event of a merger with DQE, Inc.) of stranded costs is just
and reasonable and in the public interest. The PAPUC's
Order authorized West Penn to collect from customers a non-
bypassable Competitive Transition Charge ("CTC") to recover
the $670 million (or $630 million in the event of a merger
with DQE, Inc.) of stranded costs. This non-bypassable
charge is applied to every customer of electric services
within the geographic area that comprises West Penn's
certified service territory. As an alternative to the
collection of the CTC, Pennsylvania's Competition Act allows
for the recovery of stranded costs through the issuance of
transition bonds that are payable from an Intangible
Transition Charge ("ITC"). The ITC is a non-bypassable
charge on customer bills to recover qualified transition
expenses pursuant to a qualified rate order (a "QRO") issued
by the PAPUC. Qualified transition expenses are defined to
include the
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aggregate principal amount of the transition
bonds plus interest and other costs related to the issuance
of the transition bonds.
Securitization
The PAPUC's November 19, 1998 order, supplemented by Order
dated August 12, 1999, authorizes West Penn to recover $670
million (or $630 million in the event of a merger with DQE,
Inc.) of stranded costs through a CTC or, at West Penn's
election, up to that amount through the issuance of
transition bonds. The PAPUC found that the issuance of up
to $670 million of transition bonds by West Penn is in the
public interest, in part because securitization will reduce
the return component of stranded costs chargeable to
customers. The PAPUC's Order requires that the savings from
securitization be used to reduce customer rates, which the
PAPUC concluded is in full compliance with the Electricity
Generation Customer Choice Act in Pennsylvania. The PAPUC
Order states "West Penn shall reduce the CTC's imposed on
its customers by an additional amount necessary to flow
through to customers 75% of the net savings achieved as a
result of securitization of its transition or stranded costs
and issuance of transition bonds." The first year benefit
for West Penn's customers due to securitization is estimated
to be $10 to $15 million. The Commission's approval of West
Penn's requested transaction to issue transition bonds is
necessary to achieve the savings from securitization and the
benefits for West Penn's customers.
Under the Competition Act, the PAPUC's issuance of a QRO and
its declaration that the relevant paragraphs of a QRO are
irrevocable gives
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rise to intangible transition property,
which under the Act is described as "the irrevocable right
of the electric utility or an assignee to receive through
intangible transition charges amounts sufficient to recover
all of its qualified transition expenses". In addition,
under the Competition Act, the Commonwealth of Pennsylvania
pledges and agrees with the holders of the transition bonds,
and with any assignee or finance party, not to limit or
alter or in any way impair or reduce the value of intangible
transition property or intangible transition charges
approved by a QRO until the related transition bonds are
fully discharged. West Penn's QRO declares that the
paragraphs in the QRO concerning the recovery of West Penn's
stranded costs through the issuance of transition bonds, the
imposition of an ITC on customers in an amount sufficient to
recover qualified transition expenses, and the sale of
intangible personal property, among other things, are
irrevocable for the purposes of the Competition Act.
The transition bonds will be fully secured by the pledge of
an irrevocable right to receive payments from West Penn's
customers in amounts sufficient to fully service the
transition bonds. The bondholders will not be looking to
the general credit of West Penn, and West Penn will under no
circumstances be called upon to meet required payments under
the transition bonds. Accordingly, the transition bonds do
not constitute traditional "leverage".
West Penn plans to issue up to $600 million of transition
bonds after Commission approval is obtained.
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Competition
In compliance with the Competition Act, a component of the
restructuring plan approved by the PAPUC is the PAPUC's
approval for West Penn to transfer its generation assets to
a newly formed Allegheny Energy Supply Company. This
transfer removes from West Penn's books and records the
generation assets no longer regulated by the PAPUC.
Allegheny Energy Supply Company, will participate as a first
tier subsidiary of Allegheny Energy, Inc. in the competitive
energy supply markets, subject to the jurisdiction of the
Federal Energy Regulatory Commission.
As electric utility restructuring is enacted in other states
where Allegheny Subsidiaries provide electric service,
Allegheny Energy, Inc. plans to transfer the ownership
interest in generation owned by The Potomac Edison Company
and Monongahela Power Company to Allegheny Energy Supply
Company. As restructuring is implemented, Allegheny Energy
will integrate its ownership and operation of its generation
assets recognizing that each of the five states in which
Allegheny Energy Subsidiaries provide electric service may
adopt electric utility restructuring under varying
schedules. This will enable Allegheny Energy, Inc. to
consolidate its ownership interest in generation assets into
a single company and will enable Allegheny Energy Supply
Company to maximize synergies of operations and financing.
Also, this will simplify the corporate structure and related
code of conduct issues.
West Penn plans to transfer its generation assets to
Allegheny Energy Supply Company after Commission approval is
obtained.
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Common Equity Ratios
Confidential pro forma capital structures and capitalization
ratios through 2008, which is the scheduled term of the
transition bonds, were filed for West Penn and Allegheny
Energy, Inc. as Tables A and B, respectively.
West Penn's consolidated pro forma long term debt includes
$600 million of transition bonds, which do not adversely
affect West Penn's cash flows. The transition bonds will be
separately rated by credit rating agencies. The transition
bonds will not impact West Penn's credit ratings. The
credit rating agencies recognize that the transition bonds
will be serviced by the ITC approved by the PAPUC and
therefore are independent of West Penn's credit. Bonds
similar to West Penn's transition bonds that have been
issued by other utility companies have been rated AAA. It
is expected that an AAA rating will be achieved for the
transition bonds to be issued by West Penn.
West Penn's current credit ratings are A+ from Standard &
Poors, A1 from Moody's and A+ from Fitch. Based on
discussions with the credit rating agencies regarding West
Penn's credit ratings after the transfer of its generation
assets to Allegheny Energy Supply Company, it is expected
that West Penn's credit ratings will remain at the current
ratings or higher. Since West Penn will be a regulated
electric delivery company after its generation assets are
transferred, the credit rating agencies are expected to view
West Penn as having less business risk.
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As shown in Table A of the confidential filing of a letter
dated October 5, 1999, West Penn's consolidated common
equity to total capitalization ratio prior to the pro forma
adjustments at June 30, 1999 is 43%. As a result of the pro
forma adjustments, West Penn's consolidated pro forma common
equity ratio at June 30, 1999 decreases to 14%. The
consolidated pro forma common equity ratio is projected to
increase annually through 2008 as the transition bonds
mature and certain pollution control notes mature in 2003
and 2007. The projected consolidated common equity ratio at
December 31, 2008 is 58%.
In carrying out the PAPUC's November 19, 1998 Order, West
Penn's consolidated common equity ratio is projected to
decrease below the Commission's 30% target during part of
the period that the transition bonds are outstanding. Based
on current projections, West Penn's common equity ratio is
projected to exceed 30% by December 31, 2004. West Penn
requests an exemption from the generally required 30% common
equity ratio in order to achieve the objectives of the
restructuring plan initiated under Pennsylvania's
Competition Act and approved by the PAPUC, including lower
rates to our Pennsylvania customers due to securitization
and the formation of a competitive generation company. By
its approval of West Penn's proposed securitization and
transfer of generation assets, the PAPUC is implementing
provisions of the Competition Act. West Penn considers such
regulatory action to be unique and a compelling reason for
the Commission to approve the requested exemption.
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Also, the decrease in West Penn's consolidated common equity
ratio below 30% is due to the transition bonds and pollution
control notes related to assets to be transferred to
Allegheny Energy Supply Company being shown as debt in the
consolidated financial statements of West Penn. The source
of the cash flows to service this debt will be the ITC and
Allegheny Energy Supply Company, not West Penn's utility
operations. These items do not represent leverage in the
classical sense that the 30% test was intended to address.
Excluding the transition bonds of $600 million and pollution
control debt of $230.8 million from the June 30, 1999
consolidated pro forma capital structure of West Penn, the
common equity ratio would be 48%.
During the period that West Penn's common equity ratio is
below 30%, West Penn will report annually its capital
structures and capitalization ratios for the most recent
year-end and pro forma through 2008. This report will be
submitted within 30 days after West Penn's Annual Report on
Form 10K is filed with the Commission. The report will be
submitted as a confidential report to the Commission's
Staff. This reporting requirement will cease once West
Penn's actual common equity ratio equals or exceeds the
Commission's 30% target.
Allegheny Energy, Inc.'s pro forma consolidated common equity
ratio, excluding the transition bonds, as of June 30, 1999
is 41%.
6. Applicants hereby amend Item No. 6. Exhibits and
Financial Statements by adding the following:
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(a) Exhibits
B-4 Form of Tax Allocation Agreement Amendment.
D-3 Joint Petition for Full Settlement of West
Penn Power Company's Restructuring Plan and
Related Court Proceedings--November 3, 1998;
Docket No. R-00973981 (filed on paper with
request for hardship exemption).
D-4 Tentative Order of Pennsylvania Public
Utility Commission of November 4, 1998; Docket
No. R-00973981.
D-5 Final Opinion and Order of Pennsylvania
Public Utility Commission of November 19, 1998;
Docket No. R-00973981.
D-6 Supplemental Pennsylvania Public Utility
Commission Order dated August 12, 1999.
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SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned company has
duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST PENN POWER COMPANY
By /s/ Deborah J. Henry
Deborah J. Henry for
Carol G. Russ, Counsel
Dated: October 5, 1999
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EXHIBIT B-4
FORM OF TAX ALLOCATION AGREEMENT
AMENDMENT NO. 3 TO
TAX ALLOCATION AGREEMENT
By and Between
ALLEGHENY ENERGY, INC.
and its Subsidiaries
Amending the Agreement dated as of December 1, 1994
AMENDMENT NO. 3 dated as of ___________, 1999, among
ALLEGHENY ENERGY, INC. (hereinafter called the "Parent
Company") and the direct and indirect subsidiaries of the
Parent Company (hereinafter called the "Subsidiary
Companies"), collectively referred to hereinafter as "the
parties hereto".
WHEREAS, the Parent Company and the Subsidiaries are
parties to an agreement dated as of December 1, 1994
concerning their federal income tax allocation (the "Tax
Allocation Agreement"); and
WHEREAS, new subsidiary companies have been formed and
are joining in the consolidated group for federal income tax
purposes;
NOW THEREFORE, the parties hereto hereby mutually agree
that:
1. West Penn Funding Corp., West Penn Funding, LLC,
Allegheny Energy Supply Company, LLC, West Penn Transferring
Agent, LLC, Allegheny Enterprises, LLC, and Allegheny Energy
Unit 1 and Unit 2, LLC are included as parties to the Tax
Allocation Agreement as of the date hereof.
2. With the addition of the subsidiaries above-
named, the Agreement dated as of December 1, 1994 remains in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed.
ALLEGHENY GENERATING COMPANY
By
A. J. Noia
President
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ALLEGHENY PITTSBURGH COAL COMPANY
By
J. D. Latimer
Vice President
ALLEGHENY ENERGY SERVICE
CORPORATION (f/k/a Allegheny Power
Service Corporation)
By
A. J. Noia
President
ALLEGHENY ENERGY, INC.
(f/k/a Allegheny Power System, Inc.)
By
A. J. Noia
President
ALLEGHENY VENTURES, INC.
(f/k/a AYP Capital, Inc.)
By
A. J. Noia
President
MONONGAHELA POWER COMPANY
By
J. D. Latimer
Vice President
THE POTOMAC EDISON COMPANY
By
J. D. Latimer
Vice President
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WEST PENN POWER COMPANY
By
J. D. Latimer
Vice President
WEST PENN WEST VIRGINIA WATER
POWER COMPANY
By
J. D. Latimer
Vice President
WEST VIRGINIA POWER AND
TRANSMISSION COMPANY
By
A. J. Noia
President
ALLEGHENY COMMUNICATIONS
CONNECT, INC.
By
A. J. Noia
President
AYP ENERGY, INC.
By
A. J. Noia
President
ALLEGHENY ENERGY SOLUTIONS, INC.
By
President or Vice President
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WEST PENN FUNDING CORP.
By
President or Vice President
WEST PENN FUNDING, LLC
By
President or Vice President
ALLEGHENY ENERGY SUPPLY COMPANY, LLC
By
President or Vice President
WEST PENN TRANSFERRING AGENT, LLC
By
President or Vice President
ALLEGHENY ENTERPRISES, LLC
By
President or Vice President
ALLEGHENY ENERGY UNIT 1 AND
UNIT 2, LLC
By
President or Vice President
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PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held November 4, 1998
Commissioners present:
John M. Quain, Chairman
Robert K. Bloom, Vice Chairman
David W. Rolka, Concurring in result
Nora Mead Brownell
Aaron Wilson, Jr.
Application of West Penn Power Company for
Approval of a Restructuring Plan Under Section Docket No. R-00973981
2806 of the Code
TENTATIVE ORDER
BY THE COMMISSION:
On November 3, 1998, a Joint Petition for Full
Settlement ("Joint Petition") of the Restructuring Plan,
related Commission dockets and civil and appellate
litigation was filed in the above captioned proceedings by
West Penn Power Company ("West Penn"); the Office of
Consumer Advocate ("OCA"); the Office of Small Business
Advocate ("OSBA"), the Office of Trial Staff ("OTS"), West
Penn Power Industrial Intervenors ("WPPII"), Community
Action Association of Pennsylvania ("CAPP"), Allegheny
Electric Cooperative, Inc. ("AEC"), ARMCO, Inc. ("ARMCO"),
the Pennsylvania State University ("Pennsylvania State"),
Pennsylvania Retailers' Association ("PRA"), the
Environmentalists ("Environmentalists"), Hospital Shared
Services/Administrative Resources, Inc. ("HHS/ARI"), and
PECO Energy Company ("PECO")(all parties collectively
referred to as the Joint Petitioners).
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The proposed terms and conditions of the Joint Petition
represent a comprehensive settlement which resolves all
issues on appeal before the Commonwealth Court and all
issues before the U.S. District Court arising from
challenges by the Joint Petitioners to the Commission's
final orders regarding West Penn's Application for
Restructuring Plan under Section 2806 of the Public Utility
Code1.
The Joint Petitioners aver that the comprehensive
settlement is in the public interest and, therefore, request
that the Commission: (1) approve the settlement terms and
conditions set forth in the Joint Petition without
modification; (2) amend the Commission's Restructuring Order
and Reconsideration Order as necessary to implement the
proposed Settlement; (3) approve the Tariff Supplements
attached as Appendix B to become effective pursuant to the
terms set forth therein; (4) issue the Qualified Rate Order
set forth in Appendix E hereto; (5) approve West Penn's
transfer of generating assets as set forth herein; and (6)
approve West Penn's establishment of a regulatory asset for
certain CTC revenues as set forth herein. The Joint
Petitioners recognize, however, that pursuant to the
provisions of Section 703 (g) of the Public Utility Code,
the Commission is obligated to provide notice of an
opportunity to be heard before we may amend a prior order.
In the proposed settlement, there will be an immediate
overall 2.5% rate reduction,
effective January 1, 1999 through December 31, 1999.
Accordingly, customers that elect to shop for generation
will receive total rate reductions in
[FN]1 As noted in the Certificate of Service, copies of the
Joint Petition and appendices have been served by West Penn
on all parties to the proceeding by overnight mail or hand
delivery. In addition, the Joint Petition provides that
West Penn will provide written notice of the proposed
settlement by letter to its customers, will post notice in
its business offices and on its Internet web page, and will
provide notice by news release.
</FN>
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1999 equal to the 2.5%
decreases, plus any savings produced by the difference
between their generation purchase price and their shopping
credit. In addition to these guaranteed rate decreases,
West Penn's transmission and distribution charges, which
otherwise would expire on June 30, 2001, will be extended
through December 31, 2005 for all customers. Given these
provisions, as well as other specific components of the
proposed settlement, the Joint Petitioners expect the
proposed settlement to promote competition to the benefit of
business and industry as well as to residential consumers.
In addition, the settlement terms and conditions
provide that West Penn (1) will recover a substantially
smaller amount of stranded cost recovery than it claimed
before the Commission; (2) will be subject to competitive
safeguards to ensure fair dealing; (3) will expand its
current universal service programs; (4) will accelerate the
phase-in for customer choice for all customer classes; (5)
will educate consumers about restructuring (6) will
facilitate funding of sustainable energy; (7) will encourage
small renewable energy technologies; (8) will withdraw all
of its proceedings before the Commonwealth Court and its
civil complaint before the U.S. District Court challenging
the Commission's Restructuring Order, Reconsideration Order,
and Compliance Orders at Docket No. R-00973981; (9) will
accelerate the recognition of CTC revenue through the
creation of a regulatory asset; (10) will be required to
securitize up to 100% of stranded costs with 75% of the
savings realized from such securitization share with
consumers; (11) will be permitted to transfer generation
assets to an affiliate; and (12) will be required to adjust
the CTC recovery in the event West Penn sells its generation
assets within the next three years.
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The Joint Petitioners agree to resolve all objections
to West Penn's Restructuring Plan, as set forth herein, and
to withdraw (1) all cases pending before the Commonwealth
Court which challenge the constitutionality of the Electric
Competition Act except as specifically provided in Paragraph
N.5. and (2) all proceedings pending before the Commonwealth
Court which challenge the Commission's Restructuring Order,
reconsideration order and Compliance Orders at Docket No. R-
00973981, as set forth in Part N herein.
The proposed settlement set forth in the Joint Petition
and its Appendices constitutes a comprehensive resolution of
the broad array of issues raised by West Penn Restructuring
Plan under the Electric Competition Act. Consistent with
the fundamental goals of that historic legislation, the
proposed settlement provides for an orderly transition from
the current regulated electric utility structure for
generation to a structure under which retail customers will
have direct access to a competitive market for the
generation of electricity. Moreover, and also consistent
with the legislation, the proposed settlement provides for a
fair and reasonable recovery of West Penn's stranded costs
created by this transition to a competitive market. In
particular, the proposed settlement contains the following
benefits:
- - customers will receive overall rate decreases of 2.5%
during 1999;
- - two-thirds of all customers will have the opportunity
to choose an alternate electric generation supplier on
January 2, 1999;
- - customers will received shopping credits that may allow
shopping customers to achieve bill savings in addition to
the guaranteed rate cuts;
- - provisions of the settlement will insure that a
competitive market for electricity will be created and
functioning by January 1, 1999;
- - in the event that West Penn divests itself of
generation assets, the net jurisdictional proceeds will be
used to offset the Company's stranded costs, that
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is recoverable from ratepayers through West Penn's
Competitive Transition Charge;
- - transmission and distribution rates will be capped for
an additional four and one-half years, (to December 31,
2005);
- - the generation rate caps will be extended for an
additional three years;
- - universal service program will be expanded, and a
sustainable energy fund will promote the development and the
use of renewable energy and clean energy technologies,
energy conservation and efficiency which will benefit the
environment;
- - consumers will have the opportunity to receive metering
and billing services from competitive suppliers;
- - a competitive market for the provider of last resort
service will be established so that non-shopping customers
also have the opportunity to realize bill savings; and
- - substantial litigation and its associated costs and
uncertainties will be avoided.
Upon our review of the Joint Petition and Appendices, we
tentatively find that the proposal is in the public interest
and therefore should be approved. We note that the Joint
Petition has been signed by most if not all active parties
of record in West Penn's restructuring proceeding. Before
we can give final approval to the proposal, we shall afford
all parties of record an opportunity to file comments to the
comprehensive proposal.
Accordingly, we direct that any comments to the Joint
Petition and appendices must be filed on, or before November
16, 1998. Thereafter, we will promptly consider timely
filed comments and issue a final order with respect to the
proposed settlement set forth in the Joint Petition and
Appendices.
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We recognize and appreciate the uncounted hours spend
by the participants in preparing this Joint Petition, which
represents a negotiated resolution of important and
conflicting interests in a practical and enforceable manner.
We believe that this settlement represents a difficult, but
important step in establishing electric competition in areas
served by West Penn and anticipate that the competitive
energy market which will develop will strengthen the economy
those areas in particular and of the Commonwealth in
general. At the same time, the Joint Petition continues
necessary and important safeguards for utility customers
which is in the public interest to preserve.
We have thoroughly examined the proposed settlement.
Based upon that review, we tentatively find it to be in the
public interest; THEREFORE, IT IS ORDERED:
1. That in consideration of and reliance upon the
representations, mutual promises and undertakings of the
parties to this proposed settlement, including the agreement
of each signatory to be legally bound by its terms and the
certification or each signatory that he or she has full
authority to enter the settlement and to act on behalf of
their respective parties, the terms of the proposed
settlement set forth in the Joint Petition and Appendices
shall be and are hereby tentatively approved as to each and
every one of its terms and conditions, and we hereby
tentatively reconsider and amend our prior orders in this
proceeding as necessary to implement the terms of the full
settlement. Any issue not specifically addressed in this
settlement shall be treated and resolved in accordance with
the resolution of that issue in the Restructuring Order
adopted by the Commission and entered on May 29, 1998 at
Docket R-00973981.
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2. That the Commission hereby tentatively grants, subject
to the terms and conditions set forth in the Settlement, the
approvals, licenses and certificates required under the
Public Utility Code regarding the transfer, lease or
assignment of West Penn's generating assets and liabilities,
including but not limited to approvals under Chapter 5, 11,
19, 21, and 28 of the Public Utility Code.
3. That in the event of divestiture or transfer of West
Penn's generating facilities, it is tentatively determined
that allowing these generation facilities to qualify as
"eligible facilities" under the Public Utility Holding
Company Act of 1935 (1) will benefit consumers; (2) is in
the public interest and (3) does not violate State law.
4. That the recovery of stranded costs by West Penn of
$670 million ($630 in the event of a merger with DQE, Inc.),
subject to later reconciliation, is just and reasonable and
in the public interest.
5. That the tariff supplements appended to Joint Petition
and all other Appendices are hereby tentatively approved,
being necessary to implement the full settlement, and shall
become effective pursuant to the terms set forth in the
Joint Petition and Appendices.
6. That the application of West Penn Power Company for the
Issuance of an Irrevocable Qualified Rate Order under
Section 2808 and 2812 of the Public Utility Code, 66 Pa.
C.S. 2808 and 2812, attached to the Joint Petition for
Settlement as Appendix E, is hereby tentatively granted,
consistent with this Qualified Rate Order.
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7. That to the extent specified in the Qualified Rate
Order, West Penn's filings, testimony and exhibits submitted
to the Commission in conjunction with West Penn Company's
proposed Restructuring Plan, at Docket No. 0097381 are
hereby incorporated herein by reference.
8. That West Penn is tentatively authorized to create a
regulatory asset for the stranded cost recovery values for
1999 through 2002, and the recovery of that regulatory asset
shall be amortized over the years 2003 through 2008 as shown
in Appendix A.
9. That any party of record to West Penn's restructuring
proceeding at Docket R-00973981 may submit comments on, or
before November 16, 1998 with respect to the provisions of
the proposed settlement set forth in the Joint Petition and
the Appendices.
10. That written comments, an original and fifteen copies
shall be submitted to the Secretary, Pennsylvania Public
Utility Commission, P.O. Box 3265, Harrisburg, PA 17105-
3265. Comments should specifically reference the above
docketed number. Comments not received by the Secretary by
close of business on November 16, 1998 will not be
considered.
11. That this order shall not become final until the
Commission has considered all timely filed comments and
issued a final order.
12. That the Commission's approval of the terms and
conditions set forth in the Joint Petition and Appendices is
expressly contingent upon and shall not become final and
enforceable until all appeals and civil actions required to
be
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dismissed with prejudice as referred to in Part N of the
proposed settlement have been fully withdrawn, discontinued,
or dismissed with prejudice in accordance with the
provisions of the settlement.
13. That a copy of this tentative order shall be served
upon all parties to West Penn's restructuring proceeding at
Dkt. R-00973981.
BY THE COMMISSION,
James J. McNulty
Secretary
(SEAL)
ORDER ADOPTED: November 4, 1998
ORDER ENTERED: November 4, 1998
COMMONWEALTH OF PENNSYLVANIA
PENNSYLVANIA PUBLIC UTILITY COMMISSION
P.O. BOX 3265, HARRISBURG, PA 17105-3265
November 19, 1998
R-00973981
TO ALL PARTIES
Application of West Penn Power Company
for Approval of a Restructuring Plan
Under Section 2806 of the Code.
To Whom It May Concern:
This is to advise you that a Final Opinion and Order has
been adopted by the Commission in Public Meeting on November 19,
1998 in the above entitled proceeding.
A Final Opinion and Order has been enclosed for your
records.
Very truly yours,
/S/ JAMES J MCNULTY
James J. McNulty,
Secretary
encls
cert. mail
law
<PAGE>
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held November 19, 1998
Commissioners Present:
John M. Quain, Chairman
Robert K. Bloom, Vice Chairman
David W. Rolka, Statement attached
Nora Mead Brownell
Aaron Wilson, Jr.
Application of West Penn Power Company for
Approval of a Restructuring Plan Under Section Docket No. R-00973981
2806 of the Code.
FINAL OPINION AND ORDER
BY THE COMMISSION:
Before the Commission for consideration are the
comments filed with respect to our Tentative Order, entered
November 4, 1998, in the above-captioned proceedings. These
proceedings concern the restructuring plans and resulting
litigation arising under the Electric Generation Customer
Choice and Competition Act, 66 Pa- C.S. Section 2801-2812
("Act"), of West Penn Power Company ("West Penn" or "the
Company"). Our Tentative Order approved the terms of a
proposed full settlement ("Settlement") set forth in the
Joint Petition for Full Settlement of West Penn's
Restructuring Plan and Related Court Proceedings, dated
November 3, 1998 ("Joint Petition"). In the Tentative Order,
we provided that the determinations contained therein would
not become final until this Commission considered all timely
filed comments and issued a final order.
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Comments have been received from the Environmentalists
("the Environmentalists") and the Mid-Atlantic Power Supplier
Association ("MAPSA"). Also, a group of Joint Petitioners
involved with universal service issues-- West Penn, the
Office of Consumer Advocate ("OCA"), Community Action
Agencies of Pennsylvania ("CAAP") and the Environmentalists
-- filed a joint comment. The Dollar Energy Fund ("DEF"), an
independent non-profit organization that provides energy
assistance programs to low income families throughout
Pennsylvania, did not participate in the West Penn
restructuring proceeding, but did file a comment.
We also received timely comments from individual West
Penn customers: Mrs. Hiram Boggs, William J. Graham, Adam
Kushner, George H. Milne, Frank Beachly, Edward J. Giron,
and John Zutko.
Background
The Joint Petition dated November 3, 1998 has been
filed with the following signatories: West Penn; the OCA;
the Office of Small Business Advocate ("OSBA"), the Office
of Trial Staff ("OTS"), West Penn Power Industrial
Intervenors ("WPII")l, CAAP, Allegheny Electric Cooperative,
Inc. ("AEC"), the Pennsylvania State University ("Penn
State"), Pennsylvania Retailers' Association ("PRA"), the
Environmentalists2, Hospital Shared Services/Administrative
Resources, Inc. ("HHS/ARI"), and PECO Energy Company
("PECO") (all parties collectively referred to as the Joint
Petitioners).
1 WPPII includes in its membership ARMCO, Inc. who had
signed the Joint Petition individually.
2 The Environmentalists include The Sierra Club, The Group
Against Smog and Pollution, Clean Water Action, Citizen
Power, Inc., The Pennsylvania Public Interest Research
Group and Citizens' Organization on Utility Policies.
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As noted in the Tentative Order, the proposed terms and
conditions of the Joint Petition represent a comprehensive
settlement of the complex matter involved in achieving the
restructuring of West Penn. The Joint Petition is intended
to resolve all issues on appeal before the Commonwealth
Court and the United States District Court arising from
challenges by various Joint Petitioners to this Commission's
final orders and related determinations regarding West
Penn's Application for Approval of its Restructuring Plan
under Section 2806 of the Public Utility Code, 66 Pa. C.S.
Section 2806. The essential accomplishments of the
Settlement are as follows:
customers will receive overall rate decreases of
2.5% during 1999;
two-thirds of all customers will have the
opportunity to choose an alternate electric
generation supplier on January 2, 1999;
customers will receive shopping credits that may
allow shopping customers to achieve bill savings
in addition to the guaranteed rate cuts;
provisions of the settlement will insure that a
competitive market for electricity will be
created and functioning by January 1, 1999;
in the event that West Penn divests itself of
generation assets, the net jurisdictional
proceeds will be used to offset the Company's
stranded costs, that is recoverable from
ratepayers through West Penn's Competitive
Transition Charge;
transmission and distribution rates will be
capped for an additional four and one-half
years, (to December 31, 2005);
the generation rate caps will be extended for an
additional three years;
universal service program will be expanded, and
a sustainable energy fund will promote the
development and the use of renewable energy and
clean energy technologies, energy conservation
and efficiency which will benefit the
environment;
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consumers will have the opportunity to receive
metering and billing services from competitive
suppliers;
a competitive market for the provider of last
resort service will be established so that
non-shopping customers also have the opportunity
to realize bill savings; and
substantial litigation and its associated costs
and uncertainties will be avoided.
Copies of the Joint Petition, Settlement and Appendices
have been served by West Penn on all parties to the
proceeding by overnight mail or hand delivery. Written
notice of the proposed settlement has been provided by
letter to all West Penn customers, as well as posting in
offices and on the Companies' Internet web page, and by news
release. (See Tentative Order, p. 2, n. 1).
DISCUSSION
Comments of the Environmentalists
A. Net Metering
In their comments, the Environmentalists voice support
for the Joint Petition but propose a substantive change -
that language in the Net Energy Metering Rider be made
consistent with the net metering provisions of the PECO
Energy Company's final order. The Environmentalists state
that the language proposed by the Company at "Metering"
(paragraph 19 on page 4-12), "Self Generation Competitive
Transition Charge" (paragraph 40 on page 4-33) and "Net
Energy Metering Rider" (pages 34-1 through 34-3) differs
from the net metering provisions approved in the previous
three settlement agreements in the following ways:
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1.The West Penn rider states that customers with
eligible renewable energy projects are subject to the
competitive transition charge. In the previous cases,
these projects were exempt from the CTC. This
provision destroys the retail-in/retail-out up to net
feature of the net metering tariff.
2.The West Penn rider requires the customer to forfeit
any surplus of generation above generation during the
billing period. In the other settlements, the
customer that is likely to regularly generate a
surplus can choose either the two meter option or the
smart meter option to receive payment for energy it
generates in excess of consumption. The West Penn
customer does not have this option.
3.The West Penn rider does not give the customer the
option of using its existing non-ratcheted,
bi-directional meter. This meter option, present in
the other three settlements, is critical to keep the
costs reasonable.
4.The West Penn rider holds the customer responsible
for the cost of all changes in the distribution
system. In the other three settlements, the customer
was not responsible for the first $1,000 of local
distribution system upgrades.
The Environmentalists'Comments, p.2.
The Environmentalists request that the above provisions
be changed, and expressed their willingness to work with the
Company for inclusion in its compliance filing to draft a
net metering tariff that is consistent with earlier
settlements.
West Penn, in reply to the Environmentalists' comments,
prefaces its comments by pointing out that the
Environmentalists fully participated in the settlement
negotiations, and that in the Agreement signed by the
Environmentalists they agree to support the Settlement
Agreement before the Commission and not to initiate or join
in any court challenge of the Settlement Agreement. (See
Paragraph N.5.)
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As to the Environmentalists' proposed changes, West
Penn states that it is willing to allow net metering through
a non-ratcheted, bi-directional meter if one is already in
place (Item No. 3 on the Environmentalists' list). In
addition, West Penn is willing to allow those kilowatt-hours
of customer use that is supplied by the customer's own
generation to be exempt from a CTC, with the understanding
that such treatment does not reduce the total amount of CTC
revenue which West Penn is authorized to collect from
customers (Item No. I on the Environmentalists' list).
However, in light of West Penn's contribution of $4
million in shareholder funds to ECAP for development of
conservation services and for expansion of clean and
renewable energy sources, West Penn does not support adding
provisions to the signed Agreement at this late date to
incorporate Item No. 2 (a buy back of customer generation)
or Item No. 4 (free distribution system upgrades) requested
by the Environmentalists.
As there is agreement in regard to the
Environmentalists' requested changes regarding the allowance
of net metering through a non-ratcheted, bi-directional
meter that is already in place (Item No. 1), and the
exemption from a CTC of those kilowatt-hours supplied for a
customer's own use by the customer's own generation
(provided that the practice does not reduce the total amount of
CTC revenue which West Penn is authorized to collect from
customers) (Item No. 3), the Commission will direct that these
revisions be made to West Penn's Tariff.
As to the other two proposed changes advanced by the
Environmentalists, the Commission must agree with West Penn.
The Joint Petition provides that any matter not specifically
addressed is controlled by the Commission's May 29, 1998
Order on West Penn Restructuring filing. Joint Petition,
Paragraph M. 1. At p. 190
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of that Order, the Commission specifically rejected the
Environmentalists' proposal that West Penn be required to
purchase generation from any customer. Accordingly, by the
terms of the settlement, this request cannot be granted.
In regard to the Environmentalists' request that West
Penn provide free distribution system upgrades to
self-generators, the Joint Petition and the Commission's May
29, 1998 orders and subsequent compliance filing orders are
silent. Section 2804 (2) of the Act, 66 Pa. C.S. Section
2804(2), directs that customers should be afforded
"reasonable opportunities to self-generate and
interconnect." We believe that West Penn, in providing $4
million in funding to ECAP's residential energy conservation
and renewable resource program, has sufficiently satisfied
the Act's requirement. Therefore, we will deny the
Environmentalists' request for additional expenditures by
West Penn relating to self-generation.
B. Identification of Citizen Power, Inc. as Fund Recipient
The Environmentalists also request a change to the
language at paragraph D. 5 of page 25 of the Joint Petition
that would include the following language:
... West Penn agrees to contribute four million dollars
($4 million) of shareholder funds to Citizen Power,
Inc., the sponsor of the western division of the Energy
Association of Pennsylvania (ECAP), a licensed
aggregator, for a four year program.
The Environmentalists explain that there are two
reasons for this change. The first is that the proposed
language more accurately reflects the current status of ECAP
as provided for in an agreement between ECAP and Citizen's
Power. Second, the proposed language will better preserve
the funds for the purpose described in paragraph D.5 of the
Joint Petition. As a tax-exempt cooperative, ECAP must
distribute all residual proceeds to its members each tax
year. Unless
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the $4 million was totally spent in 1998, the choice is
distribute the remainder of the $4 million to ECAP's
members, or for ECAP to pay income tax on the unspent
amount. The plan is to place the funds in a tax-exempt
account of Citizen Power until they are actually used to
provide ECAP services.
In its comment, the Environmentalists state that West
Penn has approved this revision to the Settlement's language
and that OCA has no opinion about the proposed revision. In
its reply comments, West Penn reiterates that it does not
object to the addition of the language in Paragraph D.5 if
it is included in the Commission's Final Order. Accordingly,
the Commission directs that the language in Paragraph D.5 is
revised as proposed by the Environmentalists.
Comments of the Dollar Energy Fund; Comments Filed by Joint
Petitioners Regarding the Provision of Universal Service
In its comments, DEF requests that the Commission
change language that appears at Paragraph E.2 of the Joint
Petition. This language reads as follows:
West Penn shall use Community Action Agencies to
operate its. LIPURP and Pennsylvania Weatherization
Providers Task Force member agencies to operate its
LIURP.
DEF, who was not a participant in West Penn's
Restructuring Proceeding or in the Joint Petition for Settlement,
comments that the above language is restrictive and precludes other
qualified community agencies, such as DEF, from working with West Penn
to administer their universal service programs. DEF requests that generic
language be substituted for this restrictive provision:
E.2.West Penn shall use community-based agencies to
operate its LIPURP and LIURP.
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Alternate language for this paragraph is offered in
comments filed by those Joint Petitioners who were
interested in the Settlement's universal service provisions
- Office of Consumer Advocate, CAAP, West Penn and the
Environmentalists. OCA explains that it had contacted the
other parties and had worked with DEF to attempt to reach
agreement on the language that could be substituted for
original language in Paragraphs D.5.a and E.2. This
substitute language reads as follows:
D.5.a.All ECAP low income and rural programs and
services will be provided through Community
Action Agencies and Pennsylvania
Weatherization Task Force member agencies
except where these local providers are not in
a position to or are unwilling to provide the
programs and services.
E.2.West Penn shall use Dollar Energy Fund (Dollar
Energy) and Community Action Agencies to
operate its LIPURP and Pennsylvania
Weatherization Providers Task Force member
agencies to operate its LIURP unless these
agencies are unavailable or unwilling to
provide the programs and services. With
respect to LIURP, Dollar Energy will provide
prescreening and referral. Additionally,
50-75% of all LIURP jobs will receive quality
control inspection from Dollar Energy.
OCA states that it is authorized to state that CAAP,
West Penn, OCA and the Environmentalists agree that the
Settlement should be modified to incorporate this language,
and request that the Commission direct that the modification
be made. OCA also states that DEF has informed the OCA that
the language in Paragraph E.2 would allow DEF to continue
providing services in West Penn service territory and that
it would not oppose this language.
In its reply comments, West Penn states that it concurs
in the adoption of the language presented by OCA for
Sections D.5.a and E.2 of the Agreement and extends its
appreciation to OCA for its lead role in resolving universal
service
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issues in a way that will allow DEF to continue providing
service in West Penn's service area.
In light of the agreement of those Joint Petitioners
who are involved with universal service issues that these
amendments to the Joint Petition should be made, the
Commission will direct that these provisions should be so
revised.
Comments of MAPSA
In its comments3, MAPSA seeks a clarification as to a
specific portion of the Supplier Coordination Tariff that had
been appended to the Joint Petition as Appendix F.
Specifically, MAPSA is concerned with Section 6.2.6 that
provides for the calculation of the percentage of a load
attributable to an electric generation supplier ("EGS), and
the percentage of a load attributable to West Penn during the
phase-in period- MAPSA states that this provision is silent
as to which entity's energy is considered to be the "first
through the meter" for purposes of calculating a customer's
shopping credit. MAPSA explains that because West Penn has a
declining block rate structure, the entity whose energy is
considered as being the first through the meter determines
the size of the customer's shopping credit MAPSA further
explains that if a supplier' s energy is considered to be the
first through the meter, the customer will have a larger
shopping credit with which to shop, but if the converse is
true, namely if West Penn's energy is calculated to be the
first through the meter, the customer will have a much
smaller shopping credit (considering that West Penn's energy
as being first pushes the energy usage used to calculate the
shopping credit out to the lower blocks of the rate schedule,
thus
3 In its comments, MAPSA states that with regard to those
portions of the Competitive Safeguards (Appendix G), in
particular Articles 5, 6 and 7, it will communicate with
West Penn regarding standards for posting transactions,
offerings to the market, etc., and will attempt to meet
with West Penn to address these issues. MAPSA states that
the results of these discussions will be submitted to the
Commission where appropriate.
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creating a smaller shopping credit for the customer). MAPSA
claims that calculating West Penn's portion of load as being
first through the meter discourages customers from shopping.
MAPSA requests that the Commission clarify Section
6.2.6 of West Penn's Supplier Tariff and require that an
EGS's portion of the load be counted as "first through the
meter" for all purposes. MAPSA notes that the Commission
approved this provision in PP&L, Inc.'s Supplier
Coordination Tariff, and that the PP&L tariff was the basis
for discussion of West Penn's tariff. MAPSA states that West
Penn is currently calculating its energy as being first
through the meter and that this practice deprives
"commercial and industrial customers of the benefit of the
bargain, and essentially will vitiate the two-thirds
phase-in." For these reasons, MAPSA requests that the
Commission adopt this clarification.
In its reply comments , West Penn states that the
"first through the meter" issue for partial loads has been
extensively debated and resolved during the proceeding. West
Penn further states that the issue was initially raised by
WPPII in its comments to West Penn's Compliance Filing of
June 18, 1998. In response to these comments, by order, the
Commission directed West Penn to demonstrate that its
methodology for partial loads would not place customers on a
different, less advantageous rate or violate the rate
provisions of the Act. Order entered July 23, 1998 at Docket
No. R-00973981, p. 24.
West Penn continues that in its Revised Compliance
Filing of August 19, 1998, it demonstrated that it would
split charges during the phase-in for customers with loads
being served both by West Penn's EDC and the EGS, assuming a
full enrollment and 66 percent of the load available to shop. The
example submitted
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with the Compliance Filing shows that the West Penn and the
EGS provide generation at the same overall load factor.
West Penn then states that on September 17, 1998, the
Commission entered an Opinion and Order on the Company's
Revised Compliance Filing which addressed WPPII's concerns
for partial load industrial customers. In its September 17,
1998 Order, the Commission summarized the WPPII contentions
with respect to receiving service at a different less
advantageous rate and summarized WPPII's contention that
West Penn should be directed to implement phase-in for
partial load on a load-following basis. In resolving the
contentions of West Penn and WPPII, the Commission stated
that it believed that the methodology employed by West Penn
reasonably allocates customers' consumption between the EDC
and the EGS, and further that West Penn's methodology has
only a de minimis impact, if any, on a customer's ability to
shop.
West Penn states further that at the time of
negotiations the issue about partial loads during the
phase-in period arose again. West Penn claims that it was
considered in the context of the whole negotiation and
settlement, and that WPPII has agreed to withdraw its appeal
relating to partial load as part of the broader settlement,
and submits that the issue has been fully resolved.
The Commission has considered the merits of these
arguments in the context of this proceeding and agrees with
West Penn. The issue has been considered by this Commission
in the context of West Penn's previous compliance filings
and has been resolved. Order entered September 17, 1998 at
Docket No. R00973981, p. 19. In that order, the Commission
found that West Penn's methodology for allocation of partial
customer loads as presented in its compliance
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filings had only a de minimis impact on a customer's ability
to shop. We therefore decline to make this clarification.
Comments from Individual West Penn Customers
The individual comments filed by West Penn customers
were very complimentary to West Penn commending its
continued reliable service and low rates4. Others questioned
the amount of transition costs that the Company would be
allowed to recover from customers.
Based on the record before us, we believe that the
amount of stranded costs reached in the settlement is
reasonable. West Penn is permitted to recover a slightly
greater amount than authorized in the Commission's May 29,
1998 Restructuring Order, but customers will obtain a 2.5%
rate decrease during 1999 and have the protection of a rate
cap for an extended period of time. These and other
provisions of the settlement package, taken as a whole,
represent a fair and reasonable balance of the competing
interests involved in this matter.
CONCLUSION
The Joint Petition represents a comprehensive
settlement of all issues. concerning the restructuring of
West Penn Power Company. We are convinced that a resolution
of this proceeding is in the public interest; THEREFORE,
4 A couple of comments protested the proposed merger of
West Penn with DQE, Inc. which was the subject of
Commission proceedings on the Joint Application of DQE,
Inc. and Allegheny Power System, Inc. and AY? Sub, Inc. for
Approval of the Transfer by Merger of Property and Rights
of Duquesne Light Company to Allegheny Power System, Inc.,
Dkt. No. A- 110 150 F.00 15. The Commission will not
address this matter here except to point out that the
anticipated savings that will result from the proposed
merger will reduce the total amount of stranded costs that
West Penn will be permitted to collect from its customers
under the Settlement from $670 million to $630 million.
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IT IS ORDERED:
1. That the Tentative Opinion and Order entered
November 4, 1998, is hereby, made final, subject to and
incorporating herein, the modifications contained in this
Final Opinion and Order.
2. That in consideration of and reliance upon the
representations, mutual promises and undertakings of the
parties to this proposed settlement, including the express
agreement of each signatory to be legally bound by its terms
and certification of each signatory that he or she has full
authority to enter into the settlement and act on behalf of
their respective parties, the terms of the proposed full
settlement set forth in the Joint Petition and the
Appendices shall be hereby approved as to each and every one
of its terms and conditions, and we hereby reconsider and
amend our prior orders in these proceedings as necessary to
implement the terms of the full settlement. Any issue not
specifically addressed in this settlement shall be treated
and resolved in accordance with the resolution of that issue
in the Restructuring Order adopted by the Commission and
entered on May 29, 1998, at Docket No. R-00973981.
3. That the Commission hereby grants, subject to the
terms and conditions set forth in the Settlement, the
approvals, licenses and certificates required under the
Public Utility Code regarding the transfer, lease or
assignment of the Company's generating assets and
liabilities, including but not limited to approvals under
Chapter 5, 11, 19, 21 and 28 of the Public Utility Code.
4. That the recovery of stranded costs by West Penn of
$670 million (or $630 million in the event of a merger with
DQE, Inc.) is just and reasonable and in the public
interest.
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5. That the tariff supplements appended to the Joint
Petition and all Appendices are hereby approved, being
necessary to implement the full settlement and shall become
effective pursuant to the terms set forth in the Joint
Petition and Appendices.
6. That in the event of divestiture or transfer of West
Penn's generating facilities, it is hereby determined with
respect to the divested generation facilities of the Company
that allowing these generation facilities to qualify as
"'eligible facilities" under the Public Utility Holding
Company Act of 1935 (1) will benefit consumers, (2) is in
the public interest and (3) does not violate State law.
7. That the Commission's approval of the terms and
conditions set forth in the Joint Petition and Appendices is
expressly contingent upon and shall not become final and
enforceable until all appeals and civil actions required to
be dismissed with prejudice as referred to in Part N of the
Joint Petition have been finally withdrawn, discontinued, or
dismissed with prejudice in accordance with the provisions
of the settlement.
8. That the Application of West Penn Power Company for
the Issuance of a Qualified Rate Order Under Sections 2808
and 2812 of the Electricity Generation Customer Choice and
Competition Act, 66 Pa. C.S. Section 2808 and Section 2812,
contained in the Joint Petition for Settlement of West Penn
Power Company's Restructuring Plan be, and hereby is,
granted, consistent with this Qualified Rate Order.
9. That to the extent specified in this Qualified Rate
Order, West Penn's filings, testimony and exhibits submitted
to the Commission in conjunction with West Penn's
Restructuring Plan at Docket R-00973981, are hereby
incorporated herein by reference.
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10. That it is just and reasonable and in the public
interest for West Penn to recover from its customers, through
Intangible Transition Charges as and to the extent authorized
at Paragraph 12 of this Qualified Rate Order, up to $630
million of Qualified Transition Expenses (or in the event
that the proposed merger of Allegheny Energy, Inc., and DQE,
Inc. is not consummated, up to $670 million in Qualified
Transition Expenses) including all Transition or Stranded
Costs approved by the Commission for recovery from customers
and other Qualified Transition Expenses, as defined in
Paragraph 12, below. The savings from securitization and
issuance of transition bonds are provided for in the rates
and rate reductions set forth in Section BI and Appendix A of
the Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Court Proceedings at
Docket No. R-00973981 and further reductions in the CTC/ITC
set forth in Section A.5 of the Joint Petition. The aforesaid
rates and CTC/ITC, reductions constitute full compliance with
Sections 2808(e) and 2812(b)(2) of the Electricity Generation
Customer Choice and Competition Act and no further rate
reduction is required.
11. That this Commission authorizes the issuance of
Transition Bonds in an aggregate principal amount not to
exceed $630 million (or not to exceed $670 million in the
event that the merger is not consummated) and finds that the
issuance of such amount of Transition Bonds is in the public
interest. Provided that the rate reductions specified in
the Joint Petition are implemented as provided in Paragraph
13 of this Qualified Rate Order, this Commission hereby
determines that 75% of all savings that may be accomplished
through securitization will be passed on to customers
through the rate reductions in Paragraph 13 and West Penn is
not required to pass on additional savings, and no further
rate adjustment, is required because the Commission hereby
finds that such additional savings have already been
reflected in this Joint Petition.
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12. That this Commission authorizes West Penn to impose
on, and to collect from its customers, either directly or
through bills rendered by electric generation suppliers or
any subsequently selected providers of last resort, through
non-bypassable charges applied to the bill of every customer
of electric services within the geographic area that
comprises West Penn's certified service territory on the
effective date of the Act, whether such customer was a
customer on the effective date of the Act, or became a
customer after that date, (i) Competitive Transition Charges
("CTCs") as provided in the Joint Petition in an amount
sufficient to permit West Penn to recover the full amount of
its Transition or Stranded Costs as authorized for recovery
by the Commission's approval of the Settlement Petition, and
(ii) Intangible Transition Charges in an amount sufficient to
recover the aggregate principal amount of the Transition
Bonds plus a reasonable amount sufficient to provide for any
credit enhancement to fund any reserves, and to pay interest,
premiums upon acquisition or redemption of equity or debt, if
any, costs of defeasance, servicing fees and other fees,
costs and charges relating to the Transition Bonds (the
Transition or Stranded Costs, which includes the principal
and interest on Transition Bonds, costs for credit
enhancements, the costs of retiring existing debt and equity,
costs of defeasance, servicing fees and other related fees,
taxes, costs, charges and expenses permitted to be recovered
through Intangible Transition Charges, collectively the
"Qualified Transition Expenses"). The Commission finds that
such recovery and the imposition of such CTCs and Intangible
Transition Charges are in the public interest and are just
and reasonable. The Commission finds that good cause has been
shown to extend the payment period for imposing the CTCs and
the Intangible Transition Charges to December 31, 2008. The
Intangible Transition Charges shall be collected over periods
of time and in such amounts as are necessary to amortize each
series and class of Transition Bonds in accordance with the
terms thereof, but in no event
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shall be charged to the customers after December 31, 2008.
Notwithstanding anything else in this Qualified Rate Order,
the Intangible Transition Charges shall be collected from
customers in an amount sufficient to discharge the
Transition Bonds in accordance with their terms.
13. Upon the successful issuance of Transition Bonds
authorized by this Qualified Rate Order and the imposition of
Intangible Transition Charges related thereto, West Penn is
directed to implement the following adjustments to its rates:
West Penn shall reduce the CTCs imposed on its customers by
an amount equal to the Intangible Transition Charges
associated with such Transition Bond issuance and West Penn
shall reduce the CTCs imposed on its customers by an
additional amount necessary to flow through to customers 75%
of the net savings achieved as a result of securitization of
its Transition or Stranded costs and issuance of Transition
Bonds. The reductions specified above shall be implemented on
the following terms: (a) upon the issuance of any series of
Transition Bonds, a corresponding reduction shall be
calculated and implemented corresponding to each such series;
(b) the rate reduction shall be applied to bills using the
method set forth in the Joint Petition; and (c) the
Intangible Transition Charges associated with the Transition
Bonds issued on that date shall be applied to bills
simultaneously with the reduction of the CTCs.
14. That the CTCs and the Intangible Transition Charges
shall be applied to customer bills using the methodology and
allocation set forth in West Penn's QRO Application and its
Restructuring Filing, as adjusted by the Joint Petition.
Pursuant to Section 2812(b)(5) of the Act, the Commission
authorizes West Penn to make annual adjustments (each, an
"Annual Adjustment") to the Intangible Transition Charges if
collections of such Intangible Transition Charges fall below
the amount necessary to ensure the receipt by the assignee
of the Intangible
18
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Transition Property and Financing Party of revenue sufficient
to recover fully the Qualified Transition Expenses consistent
with this Commission's Order; provided, however, that
adjustments during the final calendar year of Intangible
Transition Charge collection for any series of Transition
Bonds shall be done quarterly or monthly, if necessary, in
order to ensure full recovery of Intangible Transition
Charges. The revenues received by the assignee of the
Intangible Property and the Financing Party through the
Intangible Transition Charges shall be determined to be
sufficient for this purpose if and only if the revenues so
received through the Intangible Transition Charges are
sufficient to provide for the payment of the principal,
interest, and acquisition or redemption premium on Transition
Bonds, to fund any reserves and to pay relayed credit
enhancement, servicing fees and other related fees, costs and
charges in accordance with the terms thereof and as
consistent with the terms of this Qualified Rate Order and
the Joint Petition. For each Annual Adjustment, West Penn
shall file with this Commission: (a) an accounting of
Intangible Transition Charges received by the assignee of the
Intangible Transition Property and the Financing Party for
the previous annual period; (b) a statement of any over- or
under-receipts; (c) the charge or credit to be added to the
Intangible Transition Charges to ensure that the Intangible
Transition Charges revenue received by assignee of the
Intangible Property and the Financing Party will be
sufficient to amortize the Qualified Transition Expenses in
accordance with the amortization schedule for Transition
Bonds to be determined at the time of issuance of each series
of Transition Bonds) and the corresponding reduction or
increase in the CTCs, or if CTCs have not been imposed, West
Penn's distribution rates; and (d) any proposal by West Penn
to modify the reconciliation methodology. Pursuant to 66 Pa.
C.S. Section 2812 (b)(5), this Commission shall finally
adjudicate all Annual Adjustments within 90 days of West
Penn's Annual Adjustment filing.
19
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15. That this Commission determines that the
methodology under which West Penn will recover the
Intangible Transition Charges authorized by this Qualified
Rate Order satisfies the provisions of 66 Pa. C.S. Section
2812(g), which require the methodology not shift inter-class
or intra-class costs and that the methodology maintains
consistency with the allocation methodology for utility
production plant used by the Commission in West Penn's most
recently concluded base-rate proceeding.
16. That this Commission concludes that it is in the
public interest to, and authorizes West Penn and any Assignee
to, (a) assign, sell, transfer or pledge Intangible
Transition Property (such term includes all right title, and
interest of West Penn or any Assignee in this Qualified Rate
Order) in an amount sufficient to recover all its Qualified
Transition Expenses and in all revenues, collections, claims,
payments, money or proceeds arising from Intangible
Transition Charges pursuant to this Qualified Rate Order to
the extent that this Qualified Rate Order and the rates and
other charges authorized hereunder are declared irrevocable
and (b) issue, sell and refinance, in reliance on this
Qualified Rate Order, one or more series of Transition Bonds,
each series in one or more classes, secured by Intangible
Transition Property created by this Qualified Rate Order,
provided that, the final maturity of any series of Transition
Bonds shall not exceed 10 years from the date of issuance and
in no event shall any Transition Bond have a final maturity
after December 31, 2008. Notwithstanding the foregoing, West
Penn retains sole discretion regarding whether to assign,
sell or otherwise transfer Intangible Transition Property
created hereby or to issue or cause the Transition Bonds to
be issued or refinanced.
17.That West Penn or any Assignee may refinance the
Transition Bonds in a face amount not to exceed the
unamortized principal thereof. That, if West
20
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Penn or any Assignee refinances the Transition Bonds, the
Intangible Transition Charges authorized in this Qualified
Rate Order shall be adjusted in accordance with the true-up
mechanism described in Paragraph 14 of this Qualified Rate
Order to ensure the receipt by the Transition Bond Assignee
of revenues sufficient to pay for all Transition or Stranded
Costs of West Penn approved by the Commission for recovery
under Sections 2804 (relating to standards for restructuring
of the electric industry) and 2808 (relating to competitive
transition charge), through the issuance of Transition Bonds;
the reasonable costs of retiring existing debt or equity
capital of the electric utility or its holding company
parent, including accrued interest and premiums upon
acquisition or redemption of equity or debt, costs of
defeasance, and other related fees, costs, and charges
relating to, through the issuance of Transition Bonds or the
assignment, sale, or other transfer of Intangible Transition
Property; and the costs incurred to issue, service or
refinance the Transition Bonds, including accrued interest
and acquisition or redemption premium, and other related
fees, taxes, costs and charges, or to assign, sell, or
otherwise transfer Intangible Transition Property. The
revenues received by the Transition Bond Assignee through the
Intangible Transition Charges shall be determined to be
sufficient for this purpose if and only if the revenues so
received through the Intangible Transition Charges provide
for the amortization of Transition Bonds in accordance with
the amortization schedule set forth in any prospectus or
other offering document provided to the holders of the
refinanced bonds after payment of interest, reserves, all
Transition or Stranded Costs of West Penn approved by the
Commission for recovery under Sections 2804 (relating to
standards for restructuring of electric industry) and 2808
(relating to competitive transition charge), through the
issuance of Transition Bonds; the costs of retiring existing
debt or equity capital of the electric utility or its holding
company parent including accrued interest and premiums upon
acquisition or redemption of equity
21
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or debt costs of defeasance, and other related fees, costs
and charges relating to, through the issuance of Transition
Bonds or the assignment, sale or other transfer of
Intangible Transition Property; and the costs incurred to
issue, service, or refinance the Transition Bonds, including
accrued interest and premiums upon acquisition or redemption
of equity or debt, and other related fees, costs and
charges, or to assign, sell or otherwise transfer Intangible
Transition Property.
18. That this Commission directs that West Penn use the
proceeds from the assignment, sale, transfer or pledge of
Intangible Transition Property and the issuance and sale of
Transition Bonds principally to reduce West Penn's
Transition or Stranded Costs as set forth in the Settlement
Petition by reducing related capitalization. The Commission
authorizes West Penn to reduce West Penn's existing
capitalization through retirement of outstanding debt and
preferred stock and through stock buy backs, dividends and
purchases of common stock in such proportions as West Penn
determines.
19. That West Penn shall file with this Commission, no
later than 120 days after the issuance or refinancing of
Transition Bonds, a description of the final structure of
each issuance or refinancing of Transition Bonds, a
description of the final structure of each issuance or
refinancing of such Transition Bonds, including the
principal amount, the price at which each such series and/or
class of Transition Bonds was sold, payment schedules, the
interest rate and other financing costs, and the final plans
for West Penn's use of the proceeds of such offering.
Notwithstanding such filing, the final structure of each
such issuance or refinancing shall not be subject to change
or revision by this Commission after the date of such
issuance or refinancing.
22
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20. That to the extent that West Penn, or any Assignee,
assigns, sells, transfers, or pledges any interest in the
Intangible Property created hereby, this Commission
authorizes West Penn to contract, for a specified fee, with
such Assignee for West Penn, its successors or assigns to
continue to operate the system to provide electric services
to West Penn's customers, to impose and collect the
applicable Intangible Transition Charges for the benefit and
account of the Assignee, to make periodic adjustments of the
Intangible Transition Charges contemplated under Paragraph 14
of this Qualified Rate Order, and to account for and remit
the applicable Intangible Transition Charges to or for the
account of the Assignee free of any charge, deduction, or
surcharge of any kind (other than the specified contractual
fee referred to above). This Commission also authorizes West
Penn to contract with the Assignee and an alternative party,
which may be a trustee, that the alternative party wll
replace West Penn under its contract with the Assignee and
perform the obligations of West Penn contemplated in this
Qualified Rate Order. The obligations of West Penn (a) shall
be binding upon West Penn, its successors and assigns and (b)
shall be required by this Commission to be undertaken and
performed by West Penn and any other entity that provides
transmission and distribution services to a person that was a
customer of West Penn located within West Penn's certified
territory on January 1, 1997, or that became a customer of
electric services within such territory after January 1,
1997, and is still located within such territory, as a
condition to providing service to such customer or municipal
entity providing such services in place of West Penn by West
Penn or such other entity.
21. That this Commission hereby declares that this
Qualified Rate Order shall be irrevocable for purposes of
Section 2812 of the Public Utility Code, 66 Pa. C.S. Section
2812, and accordingly agrees that it will not directly or
indirectly, by any subsequent action, reduce, postpone,
impair or terminate this Qualified Rate Order
23
<PAGE>
or the Intangible Transition Charges authorized to be
imposed or collected under this Qualified Rate Order. This
Commission further declares that the right, title and
interest of West Penn and any Assignee in this Qualified
Rate Order and the Intangible Transition Charges, the rates
and other charges authorized hereby and all revenues,
collections, claims, payments, money or proceeds arising
from the same constitutes Intangible Transition Property.
West Penn shall have the irrevocable right to issue
Transition Bonds in accordance with the Qualified Rate Order
until December 31, 2008.
22. That West Penn may apply to the Commission for
supplements to this Qualified Rate Order, not inconsistent
with the terms and provisions hereof and the Settlement
Petition, as West Penn deems necessary to enable the
issuance of Transition Bonds authorized thereunder.
23. That during some or all of this period during which
the Intangible Transition Charges and the CTCs approved by
this Qualified Rate Order are being collected, the
generation component of West Penn's charges to customers
will be limited by the provisions of 66 Pa. C.S. Section
2804(4)(pertaining to rate caps) and the provisions of the
Joint Petition. For purposes of 66 Pa. C.S. Section 2804
(4)(ii), the generation component of West Penn's charges
includes CTCs, Intangible Transition Charges, and other
generation charges. If the combined total of these elements
would cause the generation component of West Penn's charges
to exceed the rate cap specified in 66 Pa. C.S. Section
2804(4) and the Joint Petition, West Penn shall retain
whatever right it may have under existing provisions of the
statute as limited by the Joint Petition to request relief
from the rate cap, but if it does not seek such relief, or
if that relief is denied, West Penn shall adjust the non
securitized elements of its generation charges, rather than
the Intangible Transition Charges approved by this Qualified
Rate Order, to bring the charges into
24
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compliance with the rate cap provisions of 66 Pa. C.S.
Section 2804 (4) and the Joint Petition.
24. That all regulatory approvals within the
jurisdiction of the Commission that are necessary for the
securitization of Qualified Transition Expenses and all
related transactions contemplated in West Penn's Application
for a Qualified Rate Order, including but not limited to any
approvals under Chapter II and 19 of the Public Utility
Code, are hereby granted.
25. That West Penn is authorized to create a regulatory
asset for the stranded cost recovery values for 1999 through
2002, and the recovery of that regulatory asset shall be
amortized over the years 2003 through 2008 as shown in
Appendix A of the Joint Petition.
26. That consistent with Section B.1 of the Joint
Petition, West Penn is directed to implement its January 1,
1999 rate decrease through a refund to customers from 1998
revenues in the amount of $25.1 million, and that rate
decrease shall apply to each retail rate classification and
customers within those rate classifications as set forth in
Appendices B and K of the Joint Petition.
25
<PAGE>
27. That a copy of this Final Opinion and Order. shall
be served upon all parties to the instant restructuring
proceeding at Docket No. R-00973981.
BY THE COMMISSION
/S/ JAMES J MCNULTY
James I McNulty
Secretary
(SEAL)
ORDER ADOPTED: November 19,1998
ORDER ENTERED: NOVEMBER 19, 1998
26
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PENNSYLVANIA PUBLIC UTILITY
COMMISSION
Harrisburg, Pennsylvania 17105-3265
JOINT PETITION FOR FULL SETTLEMENT PUBLIC MEETING -
OF WEST PENN POWER COMPANY`S NOVEMBER 19. 1998
RESTRUCTURING PLAN AND NOV-98-L-110
RELATED COURT PROCEEDINGS DOCKET NO. R-00973981
STATEMENT OF COMMISSIONER DAVID W. ROLKA
I am concerned about the language at Section E.2 -
Universal Service and Energy Conservation. Section E.2 reads:
'West Penn shall use Community-Action Agencies to operate its
LIPURP and Pennsylvania Weatherization Providers Task Force
member agencies to operate its LIURP" (Emphasis added). The
language in the Settlement Agreement directs West Penn to use
specific community-based organizations (CBOs) to administer its
universal service programs. This language can effectively
eliminate any CBO who is not a member of Community Action
Agencies or a member of the Pennsylvania Weatherization Task
Force from consideration.
Following the filing of the Joint Petition for
Settlement, the OCA contacted the Community Action Association of
Pennsylvania (CAAP), West Penn, and the Environmentalists to
resolve certain language that excluded certain community-based
universal service providers in the Company's service territory.
The OCA also worked with the Dollar Energy Fund (DEF). The
settlement language specifically affected DEF by eliminating
their ability to provide services for West Penn. The Joint
Petitioners agreed that the following changes were necessary to
Sections D.5 and E.2 of the Settlement:
D.5.a. All ECAP low-income and rural programs and
services will be provided through Community Action
Agencies and Pennsylvania Weatherization Task Force
member agencies except where these local providers
are not in a position to or unwilling to provide
the programs and services.
E.2. West Penn shall use Dollar Energy and
Community-Action Agencies to operate its LIPURP and
Pennsylvania Weatherization Providers Task Force
member agencies to operate its LIURP unless the
agencies are unavailable or unwilling to provide the
programs and services. With respect to LIURP, Dollar
Energy will provide prescreening and referral.
Additionally, 50-75% of all LIURP jobs will receive
quality control inspection from Dollar Energy.
<PAGE>
The OCA, CAAP, West Penn and the Environmentalists have requested
that the Commission direct the modifications above. The DEF
informed the OCA that DEF would not oppose the language above.
The Act at Section 2804(9) states, "The commission shall
encourage the use of community-based organizations that have the
necessary technical and administrative experience to be the direct
providers of services or programs which reduce energy consumption
or otherwise assist low-income customers to afford electric
service." (Emphasis added).
The Act does not specify particular community agencies or
that an agency must be non-profit. Many utilities contract with
qualified, effective, non-profit agencies and for-profit, small
businesses from the community who may or may not be members of
Community-Action Agencies or the Pennsylvania Weatherization
Providers Task Force. To limit a utility's hiring to a specific
agency limits a utility's ability to consider performance a
criterion of employment. Downplaying or eliminating performance
criteria hinders a utility's ability to fulfill the requirement of
the Act to administer a cost-effective and efficient universal
service program.
A utility should continue to have the ability to consider
experience, performance, existing contracts and working
relationships with community agencies as part of their hiring
practices.
NOV 19, 1998 /S/ DAVID W ROLKA
DATED DAVID W. ROLKA, COMMISSIONER
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA. 17105-3265
Public Meeting held August 12, 1999
Commissioners Present:
John M. Quain, Chairman
Robert K. Bloom, Vice
Chairman
David W. Rolka
Nora Mead Brownell
Aaron Wilson, Jr.
Petition of West Penn Power Company for Issuance of Docket Number:
a Supplemental Qualified Rate Order Under Sections R-00994649
2808 and 2812 of the Public Utility Code.
ORDER
BY THE COMMISSION:
On April 23, 1999, West Penn Power Company (West
Penn) filed the
above-docketed petition (Petition) for the issuance of a
supplemental Qualified Rate
Order (QRQ) under Sections 2808 and 2812 of the Public
Utility Code, 66 Pa. C. S.
2808 and 2812. A copy of the Petition was served upon the
Office of Consumer
Advocate (OCA), the Office of Small Business Advocate
(OSBA), the Office of
Trial Staff, and all active parties in West Penn's
restructuring proceeding at Docket
No.
R-00973981.
On November 19, 1998, we entered a Final Order
at Docket No.
R-00973981 (Final Order), approving the settlement of West
Penn's Restructuring
Proceeding under the Electricity Generation Customer Choice
and Competition Act
of December 3, 1996 (Competition Act). As part of the
Final Order, we issued a
<PAGE>
QRO (Initial QRO) authorizing West Penn to issue, through
December 31, 2008,
Transition Bonds in an aggregate principal amount not to
exceed $670 million. (or
not to exceed $630 million in the event of a merger with
DQE, Inc.). The Final
Order provided that West Penn may apply to the Commission
for supplements to the
initial QRO, not inconsistent with the terms and provisions
approved in the Final
Order, as West Penn deemed necessary to enable the issuance
of Transition Bonds.
In the Final Order, we determined that 75% of all
savings that West
Penn accomplished through securitization will be passed on to
customers through
rate reductions. The savings arise from the difference between
the weighted
average interest rate on the Transition Bonds, and the Commission
authorized
11.00 percent weighted average return on unamortized Competitive
Transition
Charge (CTC) balances. If the market conditions seem favorable
and if the
Transition Bonds have not yet been issued, West Penn may enter
into one or more
contracts to lock-in a particular interest rate. If the
contracts are entered into, their
effects and associated costs would be reflected in the calculation
of the savings
from the issuance of Transition Bonds.
Through the instant Petition, West Penn is seeking
to supplement
and clarify certain provisions of the Initial QRO which
relate primarily to the
computation, design, and reconciliation of Intangible
Transition Charges (ITCs) that
are intended to provide for collection of amounts needed to
pay Qualified Transition Expenses (QTEs) incurred in
connection with the issuance of Transition Bonds.
West Penn is also seeking Commission approval for a
financing structure for the
Transition Bonds that it believes will be adequate to
achieve a AAA-rating, after
reasonable credit enhancements.
2
<PAGE>
On May 13, 1999, the OCA filed an answer to West
Penn's Petition.
The Pennsylvania State University (PSU), the West Penn Power
Industrial
Intervenors (WPPII), and the Mid-Atlantic Power Supply
Association (M.APSA),
each filed a Petition to Intervene in the proceeding on May
12, 1999, May 14, 1999,
and May 17, 1999, respectively. On May 18, 1999, the OSBA
filed a Notice of
intervention in this proceeding. The OCA, PSU, WPPII,
MAPSA, and the OSBA
will be collectively known as "the parties". Also, several
West Penn customers sent correspondences commenting on the
issuance of Transition Bonds.
The OCA contends in its answer to the Petition,
that West Penn's
proposal regarding reconciliation and adjustment may result
in a double count of
both uncollectibles and payment lags. The OCA submits
that the implications of
West Penn's proposal to address the rate cap, particularly
with the deferred
accounting request, are unclear and that the
proposal requires further clarification to
ensure consistency with the Final Order and the Act. The
OCA also notes that West
Penn has itemized a number of costs and service fees, and
submits that these fees
and costs should be reviewed at the appropriate
reconciliation proceeding when the
actual costs are known. The OCA is also concerned that, if
the merger between
DQE, Inc. and West Penn were to be consummated, the bond
issuance may leave
ratepayers paying costs associated with a bond issuance of
an unjustified amount.
And finally, the OCA submits that certain aspects of West
Penn's General Account
should be clarified to assure that interest earned on this
ratepayer funded account is
used to the benefit of ratepayers.
PSU and WPP's concerns deal with the computation,
allocation,
design and reconciliation of the ITC, the bond rating for
the Transition Bonds, the
3
<PAGE>
sufficiency of funds available to pay the principal and
interest on the Transition
Bonds, and the annual reconciliation procedure which will
be used by West Penn.
West Penn and the parties, collectively
referred to as the "Joint
Petitioners", have resolved most differences
amicably with respect to the Petition,
and as a result, on August 2, 1999, the Joint
Petitioners filed a "Joint Petition for
Approval of Settlement Agreement and Presentation of
Outstanding Issue" (Joint Petition). The Joint
Petition includes the Settlement Agreement and the
parties' Position Statements setting forth brief
legal argument of their respective positions.
Components of the Settlement Agreement are detailed
in the following discussion; however, if an issue
resolved in the Settlement Agreement is not
specifically addressed, it is our intent that the
resolution of the issue in the Settlement Agreement
prevail.
The Joint Petitioners request expedited
consideration and approval of the Settlement
Agreement (attached as Appendix A) and expedited
consideration and resolution of the outstanding
issue which deals with the adjustment of the
"shopping credit" in the reconciliation process for
ITCs in the event that West Penn's ITC is in an
underrecovery position.
Proposed Transition
Bonds
West Penn has designed a financing
structure whereby West Penn's Intangible Transition
Property (ITP) will be transferred to a special
purpose company (SPQ) formed or acquired by a
wholly-owned subsidiary (Newco) of West Penn. The
SPC will then issue the Transition Bonds in one or
more series at different times in response to market
conditions and other business circumstances. The
proceeds from the Transition Bonds will be
transferred to Newco and then to West
4
<PAGE>
Penn. Such
transfers will be deemed perfected when the
requirements set forth in Section 2812 of the Public
Utility Code and any applicable Commission
regulations are met. West Penn will use the
proceeds principally to reduce stranded costs and
related capitalization.
To meet the funding requirements imposed pursuant
to the periodic adjustment mechanism in Section 2812(b)(4)
of the Competition Act, which
ensures that the recovery of revenues is sufficient to
provide for the payments of
principal, interest, acquisition, or redemption premiums and
for other fees, costs
and charges associated with the 'Transition Bonds, West Penn
is proposing to act as
servicer of the bonds by billing and collecting the ITCs for
the account of the SPC. Included in Appendix A of the
instant Petition, is a list of fees and expenses that
West Penn expects to incur for the securitization. Because
ITC collections will be the property of the SPC, West Penn
will receive these funds solely as agent for the
SPC. West Penn will periodically remit collections of the
ITCs to the SPC. West
Penn will measure cash payments of the ITC as they are
collected, and if
conditions dictate, West Penn may use a collections curve as
the basis for
determining collections forwarded to the SPC.
The list of fees and expenses that West Penn
provided in its
Appendix A to the Petition, included no dollar amounts or
details about the
categories. The OCA proposes that we not rule on fees and
costs until they are
incurred and then West Penn can demonstrate whether they
represent incremental
costs to West Penn. Exhibit A of the Settlement Agreement
provides a revised list
of expenses which were agreed upon by the parties. Each of
these expenses will be
based on actual experience. The parties reserve the right
to review the actual
amounts incurred for reasonableness. The Settlement
Agreement states that any
5
<PAGE>
adjustments made by the Commission shall be
reflected in the ITC reconciliation
process.
West Penn states that the ITC remittances
from ratepayers must be sufficient to permit full
payment of all Reconciliation Funding Requirements
on a timely basis over the life of the Transition
Bonds. Therefore, the calculation of West Penn's
monthly ITC remittances will reflect both a
projection of uncollectible ITCs and payment lags
based upon West Penn's most recent actual
experience. If actual uncollectibles realized are
less than the assumed amount of uncollectibles, the
excess ITC collections generated by this
differential will be
used either for Reconciliation Funding Requirements or be
deposited in the
Reserve Subaccount described below. Uncollectible
ITCs and payment lags will be projected separately
for each of the three customer classes and will be
updated annually.
The SPC will establish a Collection Account,
comprised of several
subaccounts, as a trust account to be held by the Trustee as
collateral to ensure the
payment of principal and interest on the Transition Bonds
and other Reconciliation
Funding Requirements (QTEs including amounts to replenish
the subaccounts) in
full and on a timely basis. These subaccounts will be
funded by the ongoing
process of the ITC and by a capital contribution from West
Penn. If the ITC
remittances to the Trustee are insufficient to make all
scheduled payments of Reconciliation Funding Requirements,
these subaccounts will be drawn down to
make up the difference.
The Trustee will deposit the ITC remittances from
West Penn into
the General Subaccount. Monies in this subaccount,
including interest earned, will
6
<PAGE>
be applied by the Trustee on a periodic basis to pay
expenses of the SPC, to pay principal and interest on the
Transition Bonds, and to meet the funding requirements of
the other subaccounts. When the Transition Bonds and
related expenses have been paid in full, the balance
remaining in this subaccount, including interest earned,
will be released to the SPC, and West Penn's customers will
receive a credit equal to that amount through an adjustment
to the CTC or through a temporary reduction in distribution
rates.
The Overcollateralization Subaccount will be
established to serve as collateral to ensure timely payment
of principal and interest on the Transition
Bonds and other Reconciliation Funding Requirements. To the
extent it becomes necessary to draw on this subaccount to
pay those amounts due to a shortfall in the
ITC remittances, it will be replenished through future ITC
remittances to its
required level, not expected to exceed 2 percent of the
original principal amount of
the Transition Bonds, through the periodic reconciliation
process. Monies in this subaccount will be invested in
interest bearing securities and will be used to pay
principal and interest on the Transition Bonds and other
Reconciliation Funding Requirements. When the Transition
Bonds and related expenses have been paid in full, the
balance remaining in this subaccount, including interest
earned, will be released to the SPC, and West Penn's
customers will receive a credit equal to that amount through
an adjustment to the CTC or through a temporary reduction in
distribution rates.
The Capital Subaccount will be funded by a capital
contribution
from West Penn expected to equal 0.5 percent of the original
principal amount of
the bond issuance. This subaccount will also serve as
collateral to ensure timely payment of principal and
interest on the Transition Bonds and other Reconciliation
7
<PAGE>
Funding Requirements. To the extent it becomes necessary to
draw on this subaccount to pay those amounts due to a
shortfall in the ITC remittances, it will be replenished to
its original level through future ITC remittances determined
in the periodic reconciliation process. The monies in this
subaccount will be invested in interest bearing securities,
and amounts equal to the interest earnings will be
periodically released by the Trustee to the SPC if not
needed during the current period to pay principal and
interest on the bonds or to meet other obligations.
Because the Capital Subaccount will be funded by a West Penn
capital contribution, any balance remaining in this
subaccount, including any interest, will revert back to West
Penn when the Transition Bonds and related expenses have
been paid in full.
The Reserve Subaccount will hold any ITC
remittances and interest earnings on the
Overcollateralization Subaccount. Further, it will hold any
earned interest on the balance within the Reserve Subaccount
in excess of the amounts needed to pay current principal and
interest requirements on the Transition Bonds, and to pay
other Reconciliation Funding Requirements. The payments
from this subaccount include, but are not limited to,
funding or replenishing the Overcollateralization and
Capital Subaccounts. Any balance in this subaccount will be
treated as an overcollection for reconciliation purposes and
will be reflected as a credit for the periodic ITC
adjustments. Like the other subaccounts, monies in this
subaccount will be invested in interest bearing securities,
and will be used to pay principal and interest on the
Transition Bonds and other
Reconciliation Funding Requirements. When the Transition
Bonds and related
expenses have been paid in full, the balance remaining in
this subaccount,
including interest earned, will be released to the SPC, and
West Penn's customers
8
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will receive a credit equal to that amount through an
adjustment to the CTC or through a temporary reduction in
distribution rates.
As mentioned, if the ITC remittances to the
Trustee are insufficient
to make all scheduled payments of Reconciliation Funding,
Requirements, the
Reserve Subaccount, the Overcollateralization Subaccount,
and the Capital
Subaccount will be drawn down to make those payments. These
subaccounts will
be drawn down without regard to the level of contributions
made by each customer
class and each rate schedule. However, the
Overcollateralization and the Capital Subaccounts must be
replenished on a periodic basis through the reconciliation
process and that process will reflect draw-downs on a
customer class basis as an undercollection.
CTC and ITC Rate Design
West Penn proposes to reflect the savings from the
issuance of the transition Bonds through CTC reductions and
then allocate CTC reductions among
West Penn's retail rate schedules utilizing the same
methodology employed to
allocate generation-related stranded cost under the Final
Order. The OCA agrees
with the methodology but reserves the right to review the
final details of the
allocation when filed.
The Settlement Agreement recommends that West
Penn's
methodology be approved, provided that the parties
reserve the right to review the
final ITCs when filed. The Settlement Agreement further
stated that any
subsequent adjustment by the Commission shall be made in ITC
reconciliation proceedings. Nothing in the Settlement
Agreement is intended to limit the
imposition of ITCs sufficient to recover all QTEs on a
timely basis.
9
<PAGE>
ITC Reconciliation and Adjustment
In the instant Petition, West Penn states that since
the issuance of the Final Order, it has become apparent
from meetings with underwriters and rating agencies that
in order to secure a AAA-rating for the Transition Bonds,
with reasonable credit enhancements, it must implement
more detailed reconciliation procedures than were set forth
in its initial QRO application. West Penn has determined
that the reconciliation process described in this petition
eliminates the need for the originally approved mechanisms
and requests that the Commission specifically find that West
Penn can implement its proposed reconciliation process in
lieu of that originally approved. West Penn claims that if
its proposed reconciliation procedures are not approved, it
is likely that its Transition Bonds will not attain a AAA-
rating and that costly additional credit enhancements will be
required to attain a AAA-rating. West Penn maintains that
this would significantly reduce the savings that customers
would realize from the issuance of the Transition Bonds.
The QRO approved by the Commission on November 19, 1998,
provided for two tariff supplements relating to the ITC
and its reconciliation. One tariff supplement, the Net
Securitization Adjustment (NSA), reflected a provision
for the recovery of all known and estimated QTEs consisting
of transition or stranded costs, expenses associated with
the issuance and service of Transition Bonds, and related
recapitalization costs. The NSA was designed to periodically
reconcile only the difference between the revenue requirement
necessary to amortize the QTE principal balance and actual
revenues, and to adjust the ITC rate accordingly. The second
tariff supplement, the Transition Bond Expense Adjustment
(TBEA), was a reconciliation mechanism to collect or refund
the difference between the estimated Transition Bond Expenses
that have been
10
<PAGE>
incorporated into the Transition Bonds being
recovered through the ITC, and the actual bond expenses.
The major provisions reflected in the Petition for
the Supplemental
QRO and subsequent Settlement agreement that were not
included in the original
QRO are: Tariff 37 and Tariff 39, each using a single ITC
reconciliation rider as compared to two, with both the
revenue and costs being reconciled through the
same mechanism; the combining of the over/under collections
of Tariff 37 with the over/under collections of the Rate
Schedules of Tariff 39 to produce a total over/under
collection for the commercial class; the reforecasting of
sales during the reconciliation process rather than using
the sales forecast approved by the Commission in the
Settlement; reflecting projected uncollectible ITCs and
payment lags in the calculation of the ITC rates; grouping
the various rate schedules into three customer classes for
reconciliation purposes; the establishment of collateral
accounts by the transferee of the Intangible Transition
Property funded by both West Penn and ITC revenues to ensure
the payment of the QTEs on a timely basis; and a provision
for review and audit by the Commission.
As mentioned, the instant Petition and Settlement
Agreement would
differ from the original QRO in its customer grouping of
rate schedules for
reconciliation purposes. West Penn's tariff has
approximately 21 rate schedules
and rate riders. In the instant petition, West
Penn is proposing a reconciliation of
the ITC by customer class within three principal customer
class groupings: (1) residential; (2) commercial; and (3)
industrial, including street lighting. These
three broad customer class groupings are based upon the
various customers
conditions of service. Because some rate schedules have
only a few customers and
a small delivery base, West Penn believes that it is
necessary to reconcile
11
<PAGE>
over/under collections by customer class rather than by
individual rate schedule in
order to provide a broad base of deliveries against which to
reconcile, to prevent
large rate swings in the reconciliation process, and to
reduce the risk of failure to
meet the Reconciliation Funding Requirements. West Penn
states that
reconciliation by rate schedule would effectively preclude
the issuance of
Transition Bonds for many rate schedules and would
significantly increase the cost
of any securitization which could be accomplished.
Although West Penn proposes to aggregate the
over/under collection
by customer class, a separate ITC reconciliation
credit/charge will be calculated
for each rate schedule based on the cost allocations
approved in the Final Order.
Any over/under collection for a particular Customer Class
will be allocated to each individual Rate Schedule within
that Customer Class. Such allocation will be
based upon the ratio of the cumulative ITC over/under
collection applicable to the Customer Class to the projected
ITC revenues for the Customer Class for the
period during which the ITC reconciliation factor will be
applied. The resulting allocated over/under collection will
be reflected in the ITC rates for each Rate
Schedule within the customer class.
After all QTEs have been paid in full and the
Capital Subaccount has
been fully replenished, any overcollection of ITC revenues,
including an amount
equal to the balances remaining in the General Subaccount,
the Overcollateraliza-
tion Subaccount and the Reserve Subaccount, will be
reflected in the reconciliation
of the CTC for the calendar year in which the Transition
Bond principal and interest were paid in full or through a
temporary reduction in distribution rates.
12
<PAGE>
The Commission, in its Order entered April
10, 1997, at
M-00960890 F0006, established that the annual ITC
reconciliation filings are to be
made within 45 days subsequent to the anniversary date of the
QRO. West Penn's
initial QRO was entered on November 19, 1998. The QRO
anniversary date is
established by the initial QRO, regardless of the
supplemental QRO requested in
the instant petition. West Penn is requesting in Paragraph
28 of the Petition that
the Commission waive this requirement in order to permit it
to make annual
reconciliation filings on October 1 of each year, which is 49
days before the
anniversary date of the Commission's initial QRO for West
Penn. The Company
states that it is requesting this waiver so that there will
be a full 90 day review
period from the proposed annual filing date of October 1 and
the proposed annual
effective date of January 1.
We approve West Penn's requested waiver from the
annual ITC
reconciliation filing requirements set forth in its April
10, 1997, Order. We
believe that the requested annual filing and ITC adjustment
effective dates are in
compliance with Section 2812(b)(4) of the Competition Act.
That Section states
that adjustments to the ITC, if required, are to be approved
within 90 days of each
anniversary-of the issuance of the QRO or of each additional
interval provided for
in the QRO. The November 19 anniversary date and the
proposed January 1
effective dates are within the 90 day time period prescribed
by the Competition
Act. Further, an October 1 filing date and a January 1
effective date, preserve the
90 day review period which the Commission believes is the
intent of Section
2812(b)(4).
West Penn states that the annual reconciliation
filings submitted on
October 1 of each year during the bond period will include
a schedule of actual
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over/under collections for the nine months ended August 31,
an estimate of
over/under collections for the three months ending November
30, and a
recalculation of the ITCs based upon the most recent
forecasts of annual deliveries,
uncollectibles, payment lags and other expenses for the next
calendar year. On
December 15 of each year, West Penn will file actual
over/under collection data as
of November 30, replacing the estimated data submitted on
October 1, along with
a tariff supplement reflecting the new ITCs and supporting
data for the ITC rates to
become effective each January 1. The annual rate adjustment
and reconciliation
will become effective for service rendered on and after
January 1 and would
remain in effect for one year, except possibly during the
final bond year. The
Settlement Agreement provides for a similar procedure for
annual changes to the
CTC. As a result, annual changes to both the Company's ITC
and CTC would
occur January 1 of each year.
In order to facilitate and expedite the review
process for the annual
reconciliation, West Penn will tile on April 15 and July 15
of each year an update
of its reconciliation data with the Bureau of Audits. These
updates will provide
the same information in the same format as the October 1
filing, but will of
necessity rely more heavily on projections. Further, as
provided for in the
Settlement Agreement, West Penn will also file an update of
its ITC reconciliation
data on January 15 of each year.
During the final 12 months of the bond period,
West Penn is
proposing to be permitted to make interim reconciliation
filings as often as
monthly in order to minimize an), possible over/under
collection of the ITC for the
final reconciliation. These interim adjusted ITC rates,
which may be monthly or
quarterly as determined by West Penn, would continue until
the earlier of the full
14
<PAGE>
payment of all QTEs or December 31, 2008, the last day of
the authorized bond
period. Such interim reconciliation filings would become
effective on the first day
of the next calendar month, with not less than 15 days
notice.
As previously mentioned, the OCA submitted
comments regarding
several items contained in the instant Petition. First, the
OCA stated that the
Company's description of the General Subaccount does not
mention any credit for
ratepayers relating to the interest earned by that account
which is funded with
ratepayer monies. The OCA requested a clarification on the
matter. We share the
OCA's concern regarding the use of the interest earned by
the subaccounts.
However, it should be noted that each of these subaccounts
provide that the
primary use of an any interest earned on the balances in the
subaccounts is for
paying the principal and interest on the Transition Bonds.
Any remaining interest
in the Overcollateralization Subaccount and the Reserve
Subaccount will be used
for making the payment on the principal and interest on the
Transition Bonds in a
later payment period. The Settlement Agreement provides
that interest earned on
the General Subaccount will be treated in the same fashion
as interest on the
Overcollateralization Subaccount.
Regarding the proposed time frame for annual
filings, the OCA does
not oppose West Penn's proposed annual filing schedule. The
OCA does express a
concern that it may be difficult to completely
resolve all issues in the 90 day time
period, October 1 to January 1, particularly if other
utilities are on a similar
schedule. As part of the Settlement Agreement, West Penn
will submit monthly
updates to its October 1 filing within 15 days following the
conclusion of each
calendar month. Following Commission action on West Penn's
November 15,
filing, the Company will file, in compliance, actual ITC
over/under collections as
15
<PAGE>
of November 30, replacing the previously submitted
estimates as well as a tariff
supplement and supporting data setting forth ITC rates to
become effective
January 1. We believe such monthly updates, along with
the availability of
quarterly reports for review and audit as discussed above,
will allow staff
sufficient time to perform a meaningful review of any
proposed ITC rate
adjustment and to prepare a report based upon the November
15 filing update.
The ITC charges will be terminated at the earlier
of December 31,
2008, or the time when the Trustee issues a report stating
that all required
payments of principal, interest, and other QTEs for the
Transition Bonds have been
made and the Capital Account is fully funded. West Penn
maintains that although
the ITC charges will be terminated on or before December 31,
2008, prorated bills
issued after such termination will reflect such charges for
service rendered prior to
such termination, and that West Penn will continue to receive
customer payments
of such charge and prior charges after such termination.
Thus, West Penn is
seeking authority to extend the final stated maturity date of
the Transition Bonds to
the earlier of ten years after the issuance date or September
25, 2009, so that such
ITC collections may be taken into account by the rating
agencies in determining
the rating of the Transition Bonds. The OCA requests that
unless it is shown that
the calculation of these charges and savings will properly
reflect the full benefit of
the savings for ratepayers during the CTC period, then the
maturity dates of the
Transition Bonds should not be extended.
The Settlement Agreement stipulates that West
Penn should be
allowed to extend the legal final maturity of the
Transition Bonds to the earlier of
ten years after the issuance date or September 25, 2009.
This is to assure that all
ITC charges will be taken into account by the rating
agencies and any credit
16
<PAGE>
enhancements in determining the ratings of the Transition
Bonds. The scheduled maturity date of the Transition Bonds
will be prior to December 31, 2008 and will
not be affected by the change in the legal final maturity
date so as not to increase required credit enhancements.
As indicated previously, West Penn is proposing to
reforecast its
annual sales during the reconciliation proceedings rather
than utilize the sales
forecast contained in the Settlement approved by the
Commission in the Final
Order. The Final Order approved a 10 year sales forecast
with a pre-established
annual escalator beginning in 1999. Our understanding is
that West Penn and the
bond underwriters believe that a 10 year forecast is too
long a period to use for the
ITC without risking the potential for large annual
over/under collections and rate
swings. In order to mitigate that potential risk, and to
assure a AAA-rating on its
bonds, West Penn has proposed that it be permitted to use an
annual reforecasting
of its sales in its ITC reconciliation process.
The OCA has commented that it does not oppose the
reforecasting of
sales during the reconciliation proceeding, and agrees that
this will help eliminate
large over/under collections. However, the OCA has stated
that caution must be
utilized in the reforecasting process to assure that the
rate caps are not violated.
The Settlement Agreement approves the use of reforecasting
provided that any
reforecasting will comply with the rate cap provisions of
Section 2804(4) of the
Competition Act. We believe this is a sufficient guarantee
that the rate cap will
not be violated.
Exhibit B to the Settlement Agreement sets forth
several changes to
the Company's ITC and CTC riders which have been agreed to
by the Parties.
17
<PAGE>
One of these changes provides for Commission review and
audit of the annual ITC
reconciliation filings. The amended Rider provides that
the review and audit must
be concluded on a timely basis so as to permit
implementation of changes in the
ITC rates by the January 1, annual effective date. It is
our understanding that the
audit is to be completed prior to the implementation of the
recalculated ITC rates
in order to assure underwriters that scheduled recoveries
will not be impacted by
any potential audit adjustments after the ITC rates have
gone into effect. Without
such assurance, it is unlikely that the Transition Bonds
will attain a AAA-rating
without costly additional credit enhancements.
We do not believe that the time frame initially
proposed in the
company's Petition, a 16 day period from December 15 until
January 1, for
auditing the annual reconciliation statement ending November
30 would be
feasible, particularly if other ITC filings have the same
provision and filing period.
However, the ITC Reconciliation Rider, as proposed in the
Petition and amended
in the Settlement Agreement, provides for West Penn to
submit quarterly reports to
the Commission within 15 days after the conclusion of each
calendar year quarter.
We believe that such quarterly reports would be the basis
for the required audit,
would afford adequate audit time, and still provide
reasonable assurance of the
accuracy of the over/under collection reflected in the ITC
rates to be implemented
on January 1.
West Penn states that it will remit payments of
the ITCs to the SPC
on account, based upon the cash payments of the ITC as they
are collected.
Should conditions dictate, West Penn proposes using a
collections curve as the
basis for determining collections forwarded to the SPC.
West Penn asserts that the
purpose of this adjustment is to recognize that not all
amounts billed to customers
are paid, or are not paid on time.
18
<PAGE>
The OCA responded to this issue by stating that
West Penn's
proposed procedure may result in a double counting of both
uncollectibles and
payment lags. It is the OCA's position that uncollectibles
associated with the full
amount of West Penn's revenues, including its CTC/ITC
revenues, were assigned
to the Transmission and Distribution (T&D) rates in the
unbundling process in
West Penn's restructuring proceeding at-Docket No.
R-00973981. Accordingly,
the OCA contended that West Penn should not be allowed to
reduce the amounts
paid to the SPC by an uncollectibles factor, and then seek
to recover them in the
reconciliation, since ratepayers are fully compensating
West Penn for those
uncollectibles through the T&D rates. The OCA also noted
that, under the
Commission's payment ordering rules and West Penn's tariff
implementing these
rules, the CTC/ITC is the first item to be paid, other than
a pre-retail access
arrearage.
In addition, the OCA stated that West Penn's
existing rates were also
set to include the lag in billing and collecting of revenues
through an allowance for
cash working capital. The OCA believes that since West
Penn's current rates
compensate for this billing lag, it is inappropriate to
allow West Penn to reflect this
lag again in calculating its monthly remittance to
the SPC. The OCA submits that
the uncollectibles and payment lag adjustment may result in
a double count of both
uncollectibles and payments lags which are already reflected
in rates. The
Settlement Agreement addresses this matter by providing for
an offsetting CTC
credit equal to any uncollectible accounts expense included
in the ITC.
At paragraph B.5. of the Joint Petition for Full
Settlement (1998
Joint Petition) filed November 3, 1998, the parties agreed
that the T&D rate cap of
19
<PAGE>
1.73 cents per KWH includes 1.72 cents per KWH for all
existing costs and
services and .01 cents per KWH for the sustainable energy
fund during the T&D
rate cap period. Additionally, no new fees shall be proposed
or charged during the
T&D rate cap period for a cost of service that is included in
the bundled T&D rate.
In the event of a merger with DQE, the T&D rates set forth in
Appendix A, of the
1998 Joint Petition will apply.
West Penn's tariff implements procedures for
applying partial
payments comply with the our guideline relating to partial
payments found in the
Final Order Re: guidelines for Maintaining Customer
Services at the Same Level
of quality Pursuant to 66 Pa. C.S. 280 7(d), and Assuring
Conformance with 52
Pa. Code Chapter 56 Pursuant to 66 Pa. C.S. 2809(e) and
(f) Appendix B,
Guideline 3H of Docket No. M-00960890F0011 dated July
10, 1997.
Guideline 3H states:
In regard to application of
partial payments, the
restructuring plans should direct
how payments which are
insufficient to cover all charges
should be applied. For a
customer who has a pre-retail
access balance, the payment
should be applied by the EDC as
follows: (1) outstanding
pre-retail access balance or the
installment amount for a payment
agreement on this balance; (2)
intangible transition charge
(ITC) and competitive transition
charge (CTC); (3) EDC
transmission and distribution
charges (T&D); (4) supply
charges, and (5) non-basic
service charges. If the
customer's account develops a
post-retail access balance,
partial payments should be
applied to the pre-retail access
balance, according to the terms
of the pre-retail access payment
agreement, before being applied
to any other
outstanding post-retail access
charges. For a customer with no
pre-retail access balance but
with a post-retail access
balance, partial payments should
be applied as follows: (1)
balance due for prior ITC, CTC
and T&D
20
<PAGE>
service; (2) ITC and CTC;
(3) T&D; (4) balance due for
prior supply charges; (5) supply
charges, and (6) non-basic
service charges.
Merger Issues
As noted earlier, if the merger with DQE, Inc. is
consummated, West
Penn's stranded Cost recovery would be limited to $630
million. In the Petition,
West Penn states that if the merger is consummated, and West
Penn has already
issued transition Bonds in excess of $630 million, the costs
of servicing the entire
amount of the Transition Bonds, including interest,
principal, and all other related
fees, costs, credit enhancements, and charges, would
constitute QTEs which
thereafter would be recovered through ITCs. At the next
reconciliation, West Penn
would establish a credit adjustment to customers' bills to
account for the difference
between the $630 million and the actual principal amount of
Transition Bonds
outstanding.
The OCA submits that West Penn's proposal to
recover the expenses
associated with the entire S670 million may be unjust and
unreasonable and that
ratepayers will be left paying costs associated with an
issuance of an unjustified
amount. In the Settlement Agreement, the parties determined
that West Penn's
procedures relating to the merger should be approved,
provided that any credit
adjustment to rates necessary to reflect issuance of not
more than $630 million of
Transition Bonds include a reduction for all associated
costs, fees, and expenses
attributable to the Transition Bonds issued in excess of
$630 million. The
Settlement Agreement further stipulates that the amounts as
proposed by West Penn
will be subject to review and concurrence by the parties and
the Commission.
21
<PAGE>
Adjustment of Shopping Credits
In the Joint Petition for Settlement, the parties
advise that there is
one issue which could not be resolved. The agreed-upon
statement of this issue is
as follows:
Whether the Pennsylvania Public Utility Commission
should permit
West Penn Power Company to adjust (up or down) the
yearly level
of the "shopping credit" contained in the
Restructuring Settlement
approved by the Commission for over/under
collections in Intangible
Transition Charge [ITC] if West Penn proceeds with
securitization of
up to 100% of its remaining stranded costs and
subsequently
experiences an undercollection or overcollection in
its ITC as
reflected in reconciliation.
Petition, p. 2.
West Penn, OCA, MAPSA and WPPII have submitted position
statements in
regard to the above issue. West Penn answers the above
issue in the affirmative
while the others address the issue in the negative.
It is West Penn's position that the Competition Act
and the Initial
QRO mandate the recovery of stranded costs through the CTC
and/or ITCs and
adjustments of the ITCs to ensure recovery of Qualified Rate
Expenses sufficient
to pay the Transition Bonds. In so doing, West Penn
references Paragraph 23 of
the Initial QRO. West Penn also states that both the
Competition Act and the QRO
mandate the inviolability of the ITC (a major factor in
rating of Transition Bonds)
and adherence to the rate cap. West Penn concludes that if
adjustments to the ITCs
exceed the available CTC, the only solution that will not
violate the rate cap
provisions of the Act and the Initial QRO, is that the
utility's shopping credit, i.e.
charges for generation, be reduced.
22
<PAGE>
OCA opposes the adjustment of the shopping credit
to offset under-
over collections of the ITC. OCA does not challenge West
Penn's interpretation
of the Paragraph 23, but instead expresses concern that in
these circumstances,
wherein West Penn proposes to securitize 100% of its
stranded costs, allowing
immediate adjustment of the shopping credit will compromise
the intent of the
Restructuring Settlement. OCA submits that West Penn be
allowed to securitize
only a portion of its remaining stranded costs, thus
allowing the remaining CTC
and savings from securitization to remain available as
revenue sources to fund
underrecovered ITC obligations before the necessity of
reducing the shopping
credit or seeking a rate cap exception would arise.
In its position statement, WPPII expresses concern
that if West Penn
is permitted to reduce the shopping credit, both the
customers and the developing
market will be harmed. It states further that the
provisions of the Restructuring
Settlement that require that securitization be pursued under
reasonable terms and
conditions will not be satisfied where West Penn is permitted
to securitize 100% of
its stranded costs.
MAPSA also opposes the adjustment of shopping
credits. It claims
that the shopping credits are mandatory and there is no
discretion on the part of
any party to modify the system average shopping credit.
MAPSA also claims that
West Penn's ability to securitize is a discretionary act and
its proposal to adjust the
shopping credit is a violation of the express terms of the
Restructuring Settlement.
Upon consideration of all of the arguments
presented, the
Commission believes that the express language of the Initial
QRO read in light of
the Section 2804 (4)(ii) rate cap and other provisions of
its Commission's May 29,
23
<PAGE>
1998 Order1 permits adjustment of the shopping credit when
necessary. Paragraph
23 of the QRO reads as follows:
That during some or all of this
period during which the Intangible
Transition Charges and the CTCs approved
by this Qualified Rate Order are being
collected, the generation component of
West Penn's charges to customers will be
limited by the provisions of 66 Pa. C.S.
2804(4)(pertaining to rate caps) and
the provisions of the Joint Petition.
For purposes of 66 Pa. C.S.
2804(4)(ii), the generation component of
West Penn's charges includes CTCs,
Intangible Transition Charges and other
generation components. If the combined
total of these elements would cause the
generation component of West Penn's
charges to exceed the rate cap specified
in 66 Pa. C.S. 2804(4) and the Joint
Petition, West Penn shall retain whatever
right it may have under existing
provisions of the statute as limited by
the Joint Petition to request relief from
the rate cap, but if it does not seek
such relief, or if that relief is denied,
West Penn shall adjust the
non-securitized elements of its
generation charges, rather than the
Intangible Transition Charges approved by
this Qualified Rate Order, to bring the
charges into compliance with the rate cap
provisions of 66 Pa. C.S. 2804 (4) and
the Joint Petition.
Initial QRO, p. 24, 23
(emphasized order).
The emphasized language expressly permits West
Penn to adjust
_______________________________
other non-securitized elements of the
generation component in order to recover
costs associated with transition bonds. The shopping
credit for consumers
shopping for generation from other suppliers is undeniably
an element of the
generation component as it was carved out of this component
in the Commission's
May 29, 1998 Order on Joint Settlement of West Penn's
Restructuring Plan.
[FN]1 In the West Penn Restructuring Joint Petition for
Settlement, the Parties agreed that the Commission's
Restructuring Order dated May 29, 1998, the Reconsideration
Order entered July 21, 1998 and Compliance Orders entered
July 21, 1998 and September 17, 1998 should be controlling of
any issue not specifically addressed in the settlement and
related agreements. Joint Petitoin for Full Settlement of
West Penn Power
Company's Restructuring Plan and Related Court Proceedings,
p. 41 M.</FN>
24
<PAGE>
Specifically, the Commission determined that the shopping
credit would be the
remainder after the CTC was subtracted from the generation
component of West
Penn's rates. Final Order at pp. 168, and 170.
Accordingly, the shopping credit,
as a non-securitized element of the generation component,
may be adjusted when
circumstances warrant, and the combined total of West
Penn's CTCs, ITCs and
other generation charges will not exceed the rate cap
specified in 66 Pa. C.S.
2804 (4). The outstanding issue presented is thus answered
in the affirmative.
Nevertheless, we agree that OCA, WPPII and MA.PSA
raise some
valid concerns regarding the potential effect of
securitizing 100% of West Penn
stranded costs, particularly when a portion of the stranded
costs has already been
recovered during 1999. While the Initial QRO and Joint
Settlement do allow West
Penn to securitize 100% of its stranded costs, the
Commission urges that West
Penn management exercise good judgment regarding its final
plans for
securitization so as to minimize the risk of jeopardizing
the level of shopping
credits and competitive alternatives for its customers. The
Commission notes that
neither PECO Energy, Inc. nor PP&-L, Inc. securitized 100%
of their stranded
costs. In this way, PP&L and PECO left a CTC in place to
act as a source of funds
so that any underrecovery in ITC collections can be
addressed through the
remaining CTC and securitization savings before disturbing
the level of shopping
credits set forth in their settlements. In this fashion,
the remaining CTC can act as
a cushion such that the shopping credit would be used for
reconciliation purposes
only in extraordinary circumstances. The Commission
believes that this approach
better preserves the benefits of the Joint Settlement for
all parties, especially for a
company like West Penn where the shopping credits are
already the lowest among
the major electric utilities.
25
<PAGE>
Conclusion
West Penn's Petition for a Supplemental QRO has
undergone scrutiny
of the intervenors and the Commission staff. The Parties
and West Penn spent a
great deal of time resolving some important issues, and then
entered into the
Settlement Agreement. This Order gives West Penn the
authority it needs to take
another step forward into the competitive energy industry.
Upon full consideration of the instant
Petition and the Settlement Agreement and appendices, we
find that this approval is in the public interest;
THEREFORE,
IT IS ORDERED:
1. That the "Petition of West Penn Power Company
for issuance of a
Supplemental Qualified Rate Order under Sections 2808 and
2812 of the Public
Utility Code" (Petition) as modified by the Settlement
Agreement among the
parties, and in accordance with Paragraph 22 of the
Qualified Rate Order entered
on November 19, 1998 by the Commission at Docket No.
R-00973981 (Initial
QRO) is hereby granted.
2. That the Petitions to Intervene filed by
The Pennsylvania State
University, Mid-Atlantic Power Supply Association, and
West Penn Power
Industrial Intervenors are hereby granted.
3. That this Commission hereby declares that the
Supplemental
Qualified Rate Order (Supplemental QRO) issued on behalf of
West Penn Power
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Company (West Penn) shall be irrevocable for purposes of
Section 2812 of the
Public Utility Code. Furthermore, this Commission agrees
that it will not directly
or indirectly, by any subsequent action, reduce, postpone,
impair or terminate this
Supplemental QRO or the Intangible Transition Charges (ITCs)
authorized to be
imposed or collected under this Supplemental QRO or the
Initial QRO. This
Commission further declares that Intangible Transition
Property (ITP) includes the
right, title, and interest of West Penn and any Assignee in
this Supplemental QRO,
the Initial QRO, the ITCs, the rates and other charges
authorized hereby and
thereby and all revenues, collections, claims, payments,
moneys or proceeds of or
arising from the same. West Penn and its Assignee shall have
the Tight to issue or
cause to be issued Transition Bonds in accordance with this
Supplemental QRO
and the Initial QRO, as clarified, supplemented, and further
delineated hereby until
December 31, 2008.
4. That the clarifications, supplements and
further delineations
contained herein are designed primarily to enhance the
prospects that the
Transition Bonds will be assigned a AAA-rating, or the
highest possible
comparable rating from one or more nationally recognized
statistical rating
agencies, with reasonable credit enhancements, and,
thereby, maximize savings
for the mutual benefit of West Penn and its customers
which the Commission
determines is just and reasonable and in the public
interest.
5. That the transactions explained and proposed
in Section B,
paragraphs 10 through 14 of the Petition, as modified by the
Settlement
Agreement among the parties, are hereby approved, and the
results of the proposed
transactions shall be reflected in calculations of West
Penn's ITCs and in
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reconciliation adjustments to West Penn's ITCs in the
manner and to the extent explained therein.
6. That savings derived from the issuance of
Transition Bonds shall
be calculated in the manner described in Section A,
Paragraph 9 of the Petition.
7. That 75 percent of the net savings derived
from the issuance of
Transition Bonds, which constitutes the percentage to be
flowed through to
customers pursuant to the Final Order, shall be calculated
in the manner described
in Section A, Paragraphs 6 and 9 of the Petition.
8. That West Penn shall design ITCs and CTCs
associated with the
issuance of Transition Bonds using the methodology
explained in Section C,
Paragraphs 15 through 19 of the Petition, as modified by
the Settlement
Agreement among the parties.
9. That the reconciliation procedures for ITCs
set forth in Section D,
Paragraphs 20 through 34 of the Petition, as modified by the
Settlement Agreement among the par-ties and resolution by
the Commission set forth in Paragraph 12 of the Settlement
Agreement, are approved, and West Penn and any successor
Servicer of the ITP shall follow these procedures in its
periodic reconciliation filings to adjust the ITCs. These
procedures shall be followed by West Penn in lieu of the
less specific "Transition Bond Expense Adjustment" and "Net
Securitization Adjustment" reconciliation procedures set
forth in West Penn's Application for a QRO presented as
Appendix E to the "Joint Petition for Full Settlement of
West Penn Power's Restructuring Plan and Related Court
Proceedings" that was filed with the Commission on November
3, 1998.
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<PAGE>
Specifically, West Penn is authorized to file an
ITC reconciliation filing on October 1of each year. West
Penn will thereafter file updates of its October 1 filing
within 15 days following the conclusion of each calendar
month until the Commission issues its order authorizing a
change in rates to reflect the annual reconciliation, and
West Penn will, in addition, file quarterly updates with the
Bureau of Audits on each January 15, April 15, and July 15.
10. That West Penn is hereby authorized to file a
tariff supplement
which contains the reconciliation language set forth in
Appendix B to the Petition,
as modified by the Settlement Agreement among the parties,
and includes the
applicable ITCs and reduced CTCs, calculated on the basis of
the methodology
explained in Section C, Paragraphs 15 through 19 of the
Petition, to become
effective upon at least three days' notice based upon actual
data to the extent that
actual data are available. West Penn and any successor
Servicer of the ITP shall
reconcile any differences between estimated data used to
calculate ITCs and CTCs
set forth in the tariff supplement to be filed pursuant to
the authority granted by
this Ordering Paragraph in the first annual ITC
reconciliation filed after such
actual data become available.
11. That West Penn shall apply ITCs in the manner
described in
Section E, Paragraphs 36 through 38 of the Petition, as
modified by the Settlement
Agreement among the parties. If not terminated on an
earlier date, ITCs may be
charged for service rendered through December 31, 2008.
12. That the corporate structure set forth in
Section B, Paragraph 10
and Section F. Paragraph 39 is approved, and a certificate
of public convenience is
hereby issued to West Penn authorizing it to establish or
acquire a subsidiary or
29
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subsidiaries, direct and/or indirect, of West Penn, to
serve as the issuer of the
Transition Bonds (Issuer).
13. That the transfers of the ITP by West Penn to
Newco, which will
be a wholly-owned subsidiary of West Penn, and by Newco to
the SPC (Issuer)
constitute "transactions" and "true sales" as provided in
section 2812(e) of the
Competition Act. Such transfers of the ITP by West Penn to
Newco and by
Newco to the SPC shall be deemed perfected when the
requirements set forth in
Section 2812 of the Public Utility Code and any applicable
Commission
regulations are met.
14. That West Penn may apply to the Commission
for supplements
to this Supplemental QRO, not inconsistent with the terms
and provisions hereof
and the Settlement Agreement among the parties and the
Initial QRO, as West
Penn deems necessary to enable the issuance of Transition
Bonds authorized
hereunder and thereunder with a AAA-rating or the highest
possible comparable
rating from one or more nationally-recognized statistical
rating agencies.
15. That the request that the Transition Bonds
have a legal final
maturity date of the earlier of ten years from the date of
issuance or September 25,
2009 as set forth in Section E, Paragraph 37 of the Petition
is approved.
16. That the procedure for issuance and
treatment of Transition
Bonds in the event of a merger with DQE, Inc. set forth in
Section D, Paragraph
35, as modified by the Settlement Agreement among the
parties, is approved.
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<PAGE>
17. That, with this supplemental QRO and the
approvals granted
herein and heretofore in the Final Order, including the
Initial QRO contained
therein, West Penn has obtained all regulatory approvals
required from this
Commission for the issuance of Transition Bonds and all of
the transactions
explained in the Petition and in the Application for a QRO
presented as Appendix
E to the "Joint Petition for Full Settlement of West Penn
Power Company's
Restructuring Plan and Related Court Proceedings" that was
filed with the
Commission on November 3, 1998.
18. That this Commission concludes that it is in
the public interest
to, and authorizes West Penn and any Assignee to: (a) assign,
sell, transfer, or
pledge Intangible Transition Property (such term includes all
right, title, and
interest of West Penn or any Assignee in this Supplement QRO
or the Initial QRO)
in an amount sufficient to recover all Qualified Transition
Expenses and in all
revenues, collections, claims, payment, money, or proceeds
arising from Intangible
Transition Charges pursuant to this Supplemental QRO or the
Initial QRO to the
extent that this Supplemental QRO or the Initial QRO and the
rates and other
charges authorized hereunder are declared irrevocable and (b)
issue, sell and
refinance, in reliance on this supplemental QRO or the
Initial QRO, one or more
series of Transition Bonds, each series in one or more
classes, secured by
Intangible Transition Property created by this Supplemental
QRO or the Initial
QRO; provided that the legal final maturity of any
series of Transition Bonds shall
not exceed 10 years from the date of issuance and in no event
shall any Transition
Bond have a legal final maturity date after the earlier of 10
years after the date of
issuance or September 25, 2009. Notwithstanding the
foregoing, West Penn
retains sole discretion regarding whether to assign, sell, or
otherwise transfer
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Intangible Transition Property created hereby or thereby or
to issue or cause the Transition Bonds to be issued or
refinanced.
19. That a copy of this Supplemental QRO shall be
served on all parties of record and all active parties in
West Penn's restructuring proceeding at Docket No.
R-00973981.
BY THE COMMISSION,
James J. McNulty
Secretary
(SEAL)
ORDER ADOPTED: August 12,1999
ORDER ENTERED: /s/ August 12, 1999
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APPENDIX A
Page 1 of 6
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Petition of West Penn Power Company for :
Issuance of a Supplemental Qualified Rate :
Order under Sections 2808 and 2812 of the : Docket No. R-0994649
Public Utility Code :
SETTLEMENT AGREEMENT
WHEREAS, on April 23, 1999, West Penn Power
Company ("West Penn") filed with the Pennsylvania
Public Utility Commission ("PUC" or the "Commission")
a Petition for Issuance of a Supplemental Qualified
Rate Order ("Petition") at the above- captioned
docket; and
WHEREAS, on May 12, 1999, The Pennsylvania
State University filed a Petition to Intervene in
this proceeding; and
WHEREAS, on May 13, 1999, the Office of Consumer
Advocate filed an Answer in this proceeding; and
WHEREAS, on May 14, 1999, the West Penn Power
Industrial Intervenors filed a Petition to Intervene in
this proceeding; and
WHEREAS, on May 17, 1999, the Mid-Atlantic Power
Supply Association filed a Petition to Intervene in this
proceeding; and
WHEREAS, on May 18, 1999, the Office of Small
Business Advocate filed a Notice of Intervention in this
proceeding; and
WHEREAS, the above parties, desiring to
resolve their differences amicably, have discussed
possible settlement of this proceeding; and
<PAGE>
APPENDIX A
Page 2 of 6
WHEREAS, as a result of these discussions, the
parties have reached a
settlement of all but one of the issues which they now
present for approval as part of the
Commission's final order in this proceeding;
NOW THEREFORE, intending to be legally bound, the
parties agree as
follows:
1. With the modifications and revisions set
forth below in this Settlement Agreement, West Penn's
Petition should be approved, subject to the resolution of
the outstanding issue set forth at Paragraph 12 hereof.
2. West Penn's request in Paragraph 24 of the Petition to reforecast
deliveries should be approved; provided, however, that any reforecasting will
comply with
Section 2804(4) of the Electricity Generation Customer Choice
and Competition Act (the
"Act"), 66 Pa.C.S.A. Section 2804(4) and the Commission's
final order approving the
settlement in West Penn's restructuring proceeding at Docket
No. R-00973981. Compliance with the above-referenced rate
cap provision and Commission Order shall be subject to review
by the parties, in accordance with the reconciliation
procedures set forth in Paragraphs 20-38 of the Petition.
3. The parties agree that the principal amount
of the Transition Bonds West Penn will issue will reflect
a reduction for the amount of Competitive Transition
Charges ("CTCs") collected between January 1, 1999 and the
date the Intangible Transition Charges ("ITCs") associated
with the Transition Bonds become effective; however, West
Penn may include Qualified Transition Expenses ("QTEs") in
the principal amount as permitted by the QRO.
2
<PAGE>
APPENDIX A
Page 3 of 6
4. In order to implement Paragraph 20 of the
Petition that Competitive
Transition Charge ("CTC") adjustments be implemented
simultaneously with Intangible
Transition Charge ("ITC") adjustments, West Penn proposes
that it will file CTC
reconciliation statements, based on reforecasts of
deliveries as for the ITC, for the twelve
months ended each July 31 with the Commission on or before
each August 30, with public
hearings to occur on or before each October 29 and a final
order to be issued on or before each December 28. The
parties agree that this procedure to establish a January 1
effective date for annual changes in both the ITC and the
CTC should be approved.
5. West Penn's request in Paragraph 25 of the
Petition to include a
provision for uncollectible accounts in calculating ITCs
should be approved; provided,
however, that West Penn agrees to credit CTCs as part of the
annual reconciliation of CTCs in an amount equal to any
uncollectible accounts expense included in ITCs. In
addition, West Penn will make monthly payments of ITCs
collected to the Bond Trustee; however, West Penn agrees to
credit CTCs as part of the annual reconciliation of CTCs in
an amount appropriate to reflect payment lags.
6. In Paragraphs 28-32 of the Petition, West Penn
proposes a schedule for filing of information to perform an
annual ITC reconciliation. West Penn's proposal should be
approved; provided,- however, that West Penn will file
monthly updates to its October 1 filing within 15 days
following the conclusion of each calendar month until the
Commission issues its order authorizing a change in rates to
reflect the annual reconciliation. West Penn will also file
quarterly updates with the Bureau of Audits on each January
15, April 15, and July 15.
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<PAGE>
APPENDIX A
Page 4 of 6
7. Interest earned on the General Subaccount,
discussed in Paragraph 13a of the Petition, shall be treated
in the same fashion as interest on the Overcollateralization
Subaccount, discussed. in Paragraph 13b of the Petition.
8. West Penn's proposed allocation of ITCs
to customer classes and rate schedules shall be
approved; provided, however, the parties reserve the
fight to review the final ITCs when filed to determine
that they in fact follow the methodology proposed by
West Penn in the Petition. Any subsequent adjustment
by the Commission shall be made in ITC reconciliation
proceedings. Nothing in this paragraph or elsewhere
in this Settlement Agreement is intended to limit the
imposition of ITCs sufficient to recover all Qualified
Transition Expenses on a timely basis.
9. Appendix A to the Petition sets forth a list
of expenses associated with the issuance and maintenance of
the Transition Bonds. Exhibit A to this Settlement
Agreement revises the listed expenses as agreed by the
parties. Each of these expense items will be based on
actual experience. The parties agree that these categories
of expense are reasonable and appropriately recovered from
customers, but the parties reserve the right to review the
actual amounts incurred for reasonableness. Any adjustment
made by the Commission shall be reflected in the ITC
reconciliation process.
10. West Penn's request in Paragraph 37 of the Petition to
extend the legal final maturity date of the Transition Bonds
to the earlier of ten years after the issuance date or
September 25, 2009 should be approved in order to assure that
all ITC charges will be taken into account by the rating
agencies and any credit enhancers in determining the ratings
of the Transition Bonds. The scheduled maturity date of the
Transition Bonds will be prior to
4
<PAGE>
APPENDIX A
Page 5 of 6
December 31, 2008 and will not be affected by the change in the
legal final maturity date so as
not to increase required credit enhancements.
11. Exhibit B to this Settlement Agreement sets
forth several technical
changes to the ITC tariff supplement (Appendix B to the
Petition) and to the CTC tariff
supplement (Original Page No. 5-4, Appendix B to the Joint
Petition). The parties agree that these changes are
reasonable and should be approved by the Commission and
reflected in the compliance tariff flied by West Penn when
the Transition Bonds are issued.
12. The parties agree that the issue of
adjustments to West Penn's generation rates in reconciliation
of the ITC shall be separately submitted to the Commission
for decision.
13. Paragraph 35 of the Petition addresses
action to be taken with respect to the Transition Bonds if
the proposed merger with DQE, Inc. is consummated. The
procedure proposed by West Penn should be approved;
provided, however, that any credit adjustment to rates
necessary to reflect issuance of not more than $630
million of Transition Bonds shall include a reduction for
all associated costs, fees, and expenses attributable to
the Transition Bonds issued in excess of $630 million.
These amounts as proposed by West Penn will be subject to
review and concurrence by the par-ties and the Commission.
14. Appendix D of the Petition sets forth a
Proposed Form of Order for the Supplemental Qualified Rate
Order. The parties agree that this proposed order should
be revised to reflect this Settlement Agreement and to
provide additional "true sale" and third party interest
findings for further transfers of Intangible Transition
Property. A proposed revised Supplemental Qualified Rate
Order is provided as Exhibit C to this Settlement
Agreement.
5
<PAGE>
APPENDIX A
Page 6 of 6
15. Subject to resolution of the outstanding
issue set forth in Paragraph 12 hereof and with the above
changes, the parties agree that West Penn's Petition for
Issuance of a Supplemental Qualified Rate Order should be
approved, In order to permit West Penn to issue Transition
Bonds as soon as possible and begin crediting savings to
customers, the parties request expedited Commission review
of the Settlement Agreement and West Penn's Petition for
Issuance of a Supplemental Qualified Rate Order, and
approval, to the extent practicable, at the Commission's
August 12, 1999 public meeting.
16. This Settlement Agreement is contingent upon
the Commission's
approval of West Penn's Petition as revised by this
Settlement Agreement without
modification.
17. If this Settlement Agreement is approved
without modification and the Supplemental QRO (Exhibit C)
is issued as requested, the parties agree not to seek
further administrative or judicial review of the issues
resolved by this Settlement Agreement except as to the
issue addressed in Paragraph 12 hereof; however, should
West Penn determine that the provisions of the Supplemental
QRO are insufficient to provide for the issuance of
Transition Bonds on reasonable terms, West Penn shall have
the right to request that the Commission issue further
Supplemental QROs. Notwithstanding any provision of this
Settlement Agreement, West Penn retains sole discretion
regarding whether to assign, sell, or otherwise transfer
Intangible Transition Property created hereby or to issue
or cause the Transition Bonds to be issued or refinanced.
