<PAGE>
File No. 70-8941
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
AMENDED
APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
ALLEGHENY POWER SERVICE CORPORATION
800 Cabin Hill Drive
Greensburg, PA 15601
MONONGAHELA POWER COMPANY
1310 Fairmont Avenue
Fairmont, WV 26554
THE POTOMAC EDISON COMPANY
10435 Downsville Pike
Hagerstown, MD 21740
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 POWER SYSTEM, INC.
10435 Downsville Pike
Hagerstown, MD 21740
(Name of top registered holding company parent of each
applicant or declarant)
Thomas K. Henderson, Esq.
Vice President
Allegheny Power
10435 Downsville Pike
Hagerstown, MD 21740
(Name and address of agent for service)
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TABLE OF CONTENTS
Page
ITEM 1. Description of Proposed Transaction 1
I. Restructuring 2
A. Consolidation and Reengineering of Functions 3
1. Restructuring of Electric Utility
Company Functions 4
a. Operating Business Unit 4
b. Retail Marketing 5
c. Corporate Affairs 5
2. Restructuring of Bulk Power Supply 5
a. Generation Business Unit 6
b. Transmission Business Unit 7
c. Planning and Compliance Business
Unit 7
3. Restructuring of Corporate Services 8
B. AYP Capital, Inc. 16
C. Reasons for Restructuring 17
D. Control over APSC 21
E. Cost Allocation 24
F. Proposed Amendment to Service Agreements 26
II. Electric Utility Companies Providing Services to
One Another 26
A. Operations Services 28
B. Customer Service Center 29
C. Office Services/Mail Payment 30
III. All System Companies Allocation Factor 30
IV. Compliance with Rule 54 31
ITEM 2. Fees, Commissions, and Expenses 32
ITEM 3. Applicable Statutory Provisions 32
ITEM 4. Regulatory Approval 33
ITEM 5. Procedure 33
ITEM 6. Exhibits and Financial Statements 34
ITEM 7. Information as to Environmental Effects 35
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
INTRODUCTION
Allegheny Power Service Corporation (APSC), a wholly-owned
subsidiary service corporation of Allegheny Power System, Inc.
(APS, Inc.), a holding company registered under the Public
Utility Holding Company Act of 1935 (1935 Act), proposes to amend
Exhibit I (Proposed Amendment) to its Service Agreements with
Monongahela Power Company, an Ohio corporation with general
corporate offices in Fairmont, West Virginia (Monongahela), The
Potomac Edison Company, a Maryland and Virginia corporation with
general corporate offices in Hagerstown, Maryland (Potomac
Edison), and West Penn Power Company, a Pennsylvania corporation
with general corporate offices in Greensburg, Pennsylvania (West
Penn), (collectively, the Electric Utility Companies). The
Proposed Amendment reflects changes in the scope of services
provided by APSC to the above-referenced companies, which are all
subsidiaries of APS, Inc. The changes are in large part a
further consolidation of services already performed by APSC.
Some of these changes began on January 1, 1996; the bulk of the
changes commenced as of July 1, 1996.
In addition, the Electric Utility Companies propose to enter
into a Service Agreement among themselves, which is similar to
the existing APSC Service Agreements. This Agreement will allow
the Electric Utility Companies to perform services for one
another and properly allocate the costs of such services.
Finally, APSC requests authority to use an existing
allocation factor for unregulated subsidiaries of APS, Inc.
I. RESTRUCTURING
In 1995, APS, Inc. announced its intention to undertake a
restructuring designed to consolidate and reengineer its
operations to better meet the competitive challenges of the
changing electric utility industry and remain the energy supplier
of choice in the future for its customers. On or about January
1, 1996, APSC began to realign its organization to create
distinct power generation and energy transmission and
distribution groups. As of July 1, 1996, the Electric Utility
Companies restructured, including the reengineering of processes
and the consolidation of functions with services already provided
by APSC. In addition, although they have not changed their legal
corporate names, nor altered in any manner ownership of capital
assets, the Electric Utility Companies began doing business under
the trade name "Allegheny Power" as of September 1, 1996.
The restructuring is an effort to further control costs,
operate more efficiently, and prepare for the anticipated
increase in retail and wholesale competition among suppliers of
electricity, beginning with the Energy Policy Act of 1992.
Allegheny Power's goal is to expand by attracting new customers
to its service area and, to the extent legally permitted, to
aggressively pursue new business within and outside its service
area, using its resources efficiently and capitalizing on its
competitive strengths. The restructuring process, for the most
part, should be completed by the end of 1996, although Allegheny
Power now embraces business process reengineering and continuous
improvement as a way of life.
Allegheny Power expects to realize a number of benefits from
its restructuring. Beginning in 1996 and continuing into the
future, increased efficiencies and synergies are expected to
result from the elimination of layers of management and the
elimination of previously duplicated functions. The flattening,
streamlining and consolidation of functions within the
organization will lead to enhanced efficiency and communication,
which should translate into a reduction in the rate of growth in
operating and maintenance costs and thereby minimize the need for
future rate increases.
A. Consolidation and Reengineering of Functions
In general, the restructuring consolidated in APSC certain
functions which previously were either performed separately by
employees of each of Allegheny Power's three Electric Utility
Companies, or by employees of the three Electric Utility
Companies along with employees of APSC. Allegheny Power has been
restructured into the following functional units: Operating
Business Unit; Retail Marketing; Corporate Affairs; Generation
Business Unit; Transmission Business Unit; Planning and
Compliance Business Unit; and Corporate Services, which serves
the business units. The restructuring did not involve the
formation of any new legal entities, nor did it require the
writedown of any rate base assets. No capital assets were
transferred among companies within Allegheny Power in connection
with the restructuring.
The overall goals of the restructuring have been to realign
functions by process and consolidate functions where feasible.
The following briefly describes the restructured functions.
1. Restructuring of Electric Utility Company Functions
Most of the functions which were performed exclusively by
the Electric Utility Companies have been consolidated into three
units: 1) the Operating Business Unit (OBU); 2) Retail Marketing
business unit; and 3) Corporate Affairs. The Vice Presidents of
these groups all report to a Senior Vice President of APSC, who
also holds the title of President of each of the Electric Utility
Companies. Some of the main goals of the restructuring of these
functions include establishing a team-oriented environment,
maintaining fewer layers of management, establishing broader job
classifications, and establishing an integrated work management
system to schedule, design, track, and finish jobs.
a. Operating Business Unit
The OBU is administered by one Vice President and ten
process directors. Teams of employees handle various processes
from start to finish. The processes covered include: respond to
electric service requests, restore service, ensure reliable
service, manage the revenue stream, manage resources, and respond
to customer inquiries. Instead of the 21 divisions comprising
the service territory of the Electric Utility Companies before
restructuring, the service area of the OBU is divided into seven
administrative regions which are staffed and serviced by teams
consisting of employees of APSC and employees of the Electric
Utility Companies. At present, many physical employees,
including all of the union work force, remain employees of the
Electric Utility Companies.1
The OBU will also include a consolidated state-of-the-art
Customer Service Center located in Fairmont, which will be the
"front door" to the new organization and will handle calls or
forward them to members of the appropriate process teams. All
non-union OBU employees will be APSC employees by January 1,
1997.
[FN]
(1) Although they will remain employees of the Electric Utility Companies,
as of January 1, 1997, all union employees will be paid and receive benefits
through APSC.
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b. Retail Marketing
Retail Marketing functions are performed by a Vice
President, three General Managers (residential, industrial, and
commercial), and their staffs. This business unit has
responsibility for acquiring and maintaining customers. To the
extent legally permissible, this group aggressively markets new
products and services to meet customers' needs.
c. Corporate Affairs
Corporate Affairs functions are handled by three Vice
Presidents, one located at each general corporate office, and
their staffs. These employees will maintain active community and
state regulatory relations.
2. Restructuring of Bulk Power Supply
The Bulk Power Supply (BPS) section of APSC underwent a
process redesign, effective January 1, 1996, which created
distinct generation, transmission, and planning and compliance
business units, and resulted in a reduction in work force of
about 170 employees. The restructuring of BPS combined the
services that it was already providing to the Electric Utility
Companies into three functional business units: Generation
Business Unit (GBU), Transmission Business Unit (TBU), and
Planning and Compliance Business Unit (P&CBU). These business
units are each headed by a Vice President of APSC. The Vice
Presidents of the GBU, TBU, and P&CBU all report to a Senior Vice
President of APSC. Various administrative and other support
services will continue to be provided to these business units by
other APSC departments. In the restructuring of BPS, no new
entities were formed and no capital assets were transferred.
a. Generation Business Unit
The GBU is responsible for ensuring that adequate generation
is available to serve the native load customers of the Electric
Utility Companies and other loads served by the GBU by employing
their generating facilities and third-party generation obtained
through marketing efforts. Its primary responsibilities include
ensuring the cost-effective operation and maintenance of the
Electric Utility Companies' generating units and providing the
most economic mix of generation from available generating units
and off-system purchases and sales.
b. Transmission Business Unit
The TBU is responsible for ensuring that adequate high-
voltage network facilities are available and on-line to reliably
convey power produced from the power production operations run
by, or procured by, the GBU to serve native load and other loads
served by those operations. It will also engage in marketing
efforts for sales of bundled and unbundled transmission services
to nonaffiliates and will be responsible for accommodating
requests for transmission service submitted by nonaffiliates who
qualify as customers for that service under federal regulations.
Finally, the TBU is responsible for maintaining the optimal
economic balance on a real-time basis between native customer
load and the output of the generation resources supplied by the
GBU, as well as managing the various emission allowance resources
of Allegheny Power.
c. Planning and Compliance Business Unit
The P&CBU provides strategic resource planning and
engineering analysis of alternate transmission and generation
resource options, environmental and regulatory issues management,
environmental compliance oversight, research and development, and
emerging technology development for Allegheny Power. Much of the
work of this business unit will be accomplished through multi-
functional, cross-organizational, teams yielding a more balanced
solution to strategic problems.
3. Restructuring of Corporate Services
The groups in this area provide certain corporate services
to the business units and have been restructured in order to
supply these services more efficiently. The following is a brief
description of major changes to this area resulting from the
restructuring.
a. Accounting
Historically, functions of the Accounting department have
included general accounting, payroll, accounts payable, plant
accounting, and taxes. These functions were performed at three
locations (Greensburg, Fairmont, and Hagerstown) by employees of
one of the Electric Utility Companies or employees of APSC. By
January 1, 1997, all Accounting employees will be employees of
APSC. The restructuring of the Accounting department also
involves the following changes:
1) General Accounting - consolidated in
Greensburg and called Corporate Accounting. The consolidation is
intended to eliminate duplicative activities, and certain non-
general accounting tasks will be transferred to more appropriate
sections (i.e., transportation accounting) in the near future.
2) Payroll - consolidated in Greensburg.
The payroll process will be simplified, and paycheck production,
including payroll taxes, may eventually be outsourced.
3) Plant Accounting - consolidated in
Fairmont and called Asset Accounting. Billing and work order
approval processes will be standardized and streamlined.
4) Taxes - consolidated in Greensburg. This
department will place more emphasis on tax planning for the
future.
5) Accounts Payable - consolidated in
Hagerstown and called Payment Processing.
b. Information Services
Prior to the restructuring, this department was divided into
four groups: Applications Development and Support; Technical
Information Services and Network Support; EDP Operations; and EDP
User Support and Research and Development. There was a
decentralized system of user support that concentrated on
designing most systems to the individual needs of each user.
These services were performed by APSC employees or Electric
Utility Company employees located at Greensburg, Hagerstown and
Fairmont.
Information Services has been reorganized into three main
groups: 1) Business Solutions Team - concentrating on
applications acquisition, development, implementation, and
maintenance; 2) Technology Operations Team - handling
infrastructure planning, operation and maintenance; and 3)
Customer Support Team - including customer services and support
center. The Technology Operations Team (one Team Leader, 26
Specialists and 14 Technicians) and Business Solutions Team (46
Specialists) are located in Greensburg, Pennsylvania. The
Customer Support Team is divided among the corporate centers,
with four Specialists located in Fairmont, West Virginia; four
Specialists located in Hagerstown, Maryland, and 14 Specialists,
two Contract Coordinators, two Contract Assistants and one
Technician located in Greensburg. Also, six Business Consultants
are assigned to the major business units and will handle tasks
from all three Information Services groups. As of January 1,
1997, all Information Services employees will be employees of
APSC.
Key changes to be implemented by the restructuring include
the negotiation of service level agreements for specific projects
with the various business units which will specify a certain
level of service for specific services. The service level
agreements are not intended to cover cost allocation. In
addition, Information Services will be doing more direct billing
of its services rather than using cost allocation.
c. Financial Management
Historically, Financial Management has provided the
following services: capital management; forecasting of long-term
financing; insurance/risk management; corporate strategic
planning; and financial planning.
Major changes implemented by the restructuring include
combining four budgeting groups and financial planning into a
single financial management group. The consolidation is designed
to eliminate duplicate efforts and reduce or eliminate hand-offs.
In addition, the Risk Management function has been transferred to
Treasury, and Financial Management has assumed long-term
financial planning and cash forecasting from Treasury. As of
January 1, 1997, all Financial Management employees will be APSC
employees.
d. Secretary/Treasurer
This area has historically provided services involving: 1)
Corporate secretarial functions, including Board of Directors
matters, administration of the Electric Utility Companies'
indentures, regulatory filings, and records and library
management; and 2) Treasury functions, such as bank relations,
cashier services, cash management (internal funding, cash
forecasting, and external short-term borrowing and investing),
credit and collections, cash and customer bill processing, and
long-term financing. These functions were performed at all three
corporate headquarters, by employees of the Electric Utility
Companies.
The restructuring of this area has produced the following
key changes: The Corporate Secretary function is transferred to
Legal Services; and Treasury assumed the risk management function
from Financial Management and electronic commerce from
Information Services. Treasury continues long-term financings,
bank relations and cash management functions and is consolidated
in Hagerstown. As of January 1, 1997, all employees in these
areas will be APSC employees.
e. Investor Relations
As of July 1, 1996, Investor Relations and Public Relations
(originally part of the Administrative function at APSC and part
of Customer Relations at the Electric Utility Companies) were
transferred and consolidated to form External Relations, located
at Hagerstown. As of October 1, 1996, External Relations was
combined with Communications (formerly under the authority of
Corporate Affairs) to form Corporate Communications, which is
responsible for internal and external communications, including
advertising and stockholder publications. Investor Relations
remains responsible for maintaining a favorable relationship
between Allegheny Power and the financial community. As of
January 1, 1997, all employees in these areas will be APSC
employees.
f. Audit Services
Historically, this department has performed financial,
contracts, and operations/consulting audits. Prior to the
restructuring, Audits consisted of four divisions located at the
three corporate general office locations. The Audit employees
were either employees of one of the Electric Utility Companies or
employees of APSC. As a result of the restructuring, Audit
Services became one department and all Audit employees became
APSC employees. The department will continue to perform the same
types of services as it did prior to the restructuring, although
during the transition process it is expected to devote additional
attention to allocation and billing processes to ensure effective
practices are maintained. It will also strive to become more
customer-focused, reduce the process cycle time, and promote its
consulting role.
g. Supply Chain
The Supply Chain functions include Purchasing, Stores, Fuel
Accounting, and Accounts Payable. Historically, these functions
were performed by employees of one of the Electric Utility
Companies or employees of APSC, located at one of the three
general corporate offices. As a result of the restructuring,
Purchasing is named Procurement, and the employees performing
this function have been organized into Client Service Provider
Teams. Stores is named Materials Management and Distribution,
and management of this function has been centralized at
Connellsville, Pennsylvania, and at Hagerstown. In addition,
Accounts Payable is now called Payment Processing and is
consolidated in Hagerstown. All Supply Chain employees are
currently APSC employees.
h. Legal Services
In the past, localized legal services were provided to the
Electric Utility Companies by their own legal staffs, and the
APSC legal department handled corporate matters or matters of
more generalized interest to Allegheny Power. As a result of the
restructuring, all Legal Services personnel are currently
employees of APSC, and the attorneys are available to perform
legal work for any Allegheny Power company. The local presence
of Legal Services personnel in each general corporate office has
been maintained, and the Legal Services staff has been organized
into te
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BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
In Re: Application of West Penn )
Power Company Pursuant to )
66 Pa. C.S. Sec. 2102 for Prior ) Application Docket
Written Approval of Contracts )
Between or Among West Penn Power )
Company and Its Affiliated Interests)
To the Pennsylvania Public Utility Commission:
NOW COMES West Penn Power Company, (hereinafter "Applicant") and
pursuant to Section 2102 of the Public Utility Code, 66 Pa. C.S. Sec. 2102,
requests the Pennsylvania Public Utility Commission ("Commission") to
approve: 1) an Amendment to Service Agreements between itself and its
affiliate, Allegheny Power Service Corporation ("APSC"); and 2) a new
Service Agreement with its other operating affiliates. In support of
said Application, Applicant respectfully states as follows:
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* I. The Affiliated Interests *
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1. Applicant is a Pennsylvania corporation engaged in supplying
electric service to customers in all or parts of 23 counties in
Pennsylvania. The address of its corporate center is 800 Cabin Hill
Drive, Greensburg, Pennsylvania 15601.
2. APSC is a Maryland corporation. Its principal place of
business is 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601.
3. Monongahela Power Company ("Monongahela") is an Ohio
corporation. It provides electric service in portions of Ohio and West
Virginia. The Potomac Edison Company ("Potomac Edison") is a Maryland
and Virginia corporation. Potomac Edison provides electric service in
portions of Maryland, Virginia and West Virginia.
4. Applicant, Monongahela and Potomac Edison (hereinafter
sometimes collectively referred to as the "Operating Companies") and APSC
are wholly-owned subsidiaries of Allegheny Power System, Inc. ("APS"), a
Maryland corporation. Together, the Operating Companies and APSC are
operated as an integrated public utility holding company system under the
Public Utility Holding Company Act of 1935 ("PUHCA"), and are affiliated
interests under Section 2101 of the Public Utility Code, 66 Pa. C.S.
Sec. 2101.
5. Pursuant to a Service Agreement effective January 8, 1994,
which was approved by the Commission in an Order entered February 24,
1994 at Docket No. G-00930363 and which supplemented a previous agreement
dated November 19, 1976, APSC provides centralized engineering, financial
and administrative services to the Operating Companies to take advantage
of the economies of scale.
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* II. Restructuring of APS *
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6. In 1995, APS began a restructuring to consolidate and
reengineer its operations. Subsequently, APSC was realigned into
distinct power generation and energy transmission and distribution
groups. The Operating Companies also were restructured and their
functions were consolidated in part with services already provided by
APSC.
7. The Operating Companies began doing business under the trade
name "Allegheny Power" in their respective jurisdictions as of September
1, 1996. The restructuring did not involve the formation of any new
legal entities, nor did it require the writedown of any rate base assets.
No capital assets including jurisdictional rate base assets were
transferred among the companies during the restructuring.
8. The restructuring is an effort to control costs, operate more
efficiently, and prepare for the anticipated increase in retail and
wholesale competition among suppliers of electricity, resulting in part
from passage of the federal Energy Policy Act of 1992.
9. The overall objective of the restructuring was to realign
functions by process and consolidate functions where feasible. (e.g.,
consolidating in APSC certain functions which previously were performed
separately by employees of each of the Operating Companies.) The
following briefly describes the restructured functions.
A. Restructuring of Operating Company Functions
Most of the functions which were performed by the three Operating
Companies have been consolidated into three business units. The
Operating Business Unit (OBU) principally consists of teams of employees
who handle various processes from start to finish. The processes include
responding to electric service requests; restoring service; ensuring
reliable service; managing the revenue stream; managing resources; and
responding to customer inquiries. The service territory of the Operating
Companies is divided into
9. continued
seven (7) administrative regions. The OBU also will include
a state-of-the-art Customer Service Center located in
Fairmont, West Virginia which will handle all customer
telephone inquiries, in cooperation with appropriate process
teams. The Retail Marketing business unit will be
responsible for acquiring and maintaining customers, and, as legally
permissible, marketing new products and services. The Corporate Affairs
unit will maintain active community and regulatory relations.
B. Restructuring of Bulk Power Supply
The Bulk Power Supply (BPS) group of APSC has been separated into
distinct generation, transmission, and planning and compliance business
units. The Generation Business Unit (GBU) is responsible for ensuring
that adequate generation is available to serve the Operating Companies'
native load customers, and other loads obtained, by employing their
generating facilities and third-party generation. The GBU's
responsibilities include ensuring the cost-effective operation and
maintenance of the generating units, and providing the most economic mix
of all available generation. The Transmission Business Unit (TBU) is
responsible for ensuring that adequate high-voltage network facilities
are available and on-line to reliably convey power. The TBU will also
engage in marketing efforts for sales of bundled and unbundled
transmission services to nonaffiliates and will be responsible for
accommodating requests for transmission service submitted by
nonaffiliates who qualify for that service under federal regulations.
Finally, the TBU is responsible for maintaining the optimal economic
balance on a real-time basis between native customer load and the output
of the generation resources supplied by the GBU, as well as managing the
emission allowance resourcesof APS.
The Planning and Compliance Business Unit (P&CBU) provides
strategic resource planning and engineering analysis of alternate
transmission and generation resource options, environmental and
regulatory issues management, environmental compliance oversight,
research and development, and emerging technology development for the APS
system.
C. Restructuring of Corporate Services
The groups within Corporate Services support the business units and
have been restructured for efficiency. The various Accounting functions
(i.e., general accounting, accounts payable, plant accounting, and taxes)
will be consolidated. Information Services functions are being
reorganized into a Business Solution Team, concentrating on applications
acquisition, development, implementation and maintenance; a Technical
Operations Team, handling infrastructure planning, operation and
maintenance; and a Customer Support Team, including customer services and
support center. Also, six Business Consultants are assigned to the major
business units and will handle tasks from all three Information Services
teams. A single Financial Management group has resulted from combining
four budgeting groups and the financial planning function. The
restructuring of the Secretary and Treasurer functions has resulted in
the Corporate Secretary function being transferred to Legal Services and
in Treasury assuming the risk management function from Financial
Management and the electronic commerce function from Information
Services. Treasury continues to be responsible for long-term financings,
bank relations and cash management functions. As of July 1, 1996,
Investor
9. (continued)
Relations and Public Relations were consolidated to form External
Relations, which was thereafter combined with Communications to form
Corporate Communications, which is responsible for internal and external
communications, including advertising and stockholder publications.
Investor Relations remains responsible for maintaining a favorable
relationship between APS and the financial community. The Audit Services
Department has resulted from combining the auditing groups of the
Operating Companies and APSC. The Supply Chain functions include
Procurement, Materials Management and Distribution, and Payment
Processing. The Legal Services groups of the Operating Companies and
APSC have been consolidated into one department. A new department,
Regulation and Pricing, will perform the rates-related functions of
costing, pricing support, regulatory management and billing. A single
Human Resources department will set and administer human resources
policies system-wide. A newly created Governmental Affairs Department
has resulted from combining the Operating Companies' employees who
performed local, state and federal governmental relations.
D. Results of the Restructuring
10. Except for the union work force and possibly some other
employees, the management, engineering, maintenance, legal, accounting,
payables and administrative and support functions previously performed by
the Operating Companies will be supplied by employees of APSC. By
January 1, 1997, all non-union employees of the Operating Companies will
become employees of APSC. The net transfer of approximately 2800 non-
union employees from the Operating Companies to APSC is expected. This
will virtually eliminate non-union employment by the Operating Companies.
11. A number of factors will ensure that APSC continues to be
responsive to the needs of the Operating Companies and provides the
operating companies with the ability to judge their need for inter-
affiliate services and to monitor the quality and value of the services
being provided. These factors include the APSC budget process;
Securities and Exchange Commission (SEC)-approved work order procedures
to track and document the initiation of services; billing and review
procedures designed to ensure the accuracy of APSC billings; and internal
audit controls designed to ensure the fairness of APSC charges. For
example, Audit Services will continue to meet at least twice a year with
the Audit Committees of the Boards of Directors of APS, APSC and the
Operating Companies (which Audit Committees are comprised solely of
outside directors) to review audit plans and findings. In addition, the
Director, Audit Services will continue to have open and direct access to
the Chairs of the Audit Committees. These procedures will ensure that
costs associated with the services performed by APSC on behalf of the
Operating Companies are properly authorized, allocated and tracked.
E. Cost Allocation
12. APSC's current method of cost allocations will be maintained
in the restructured organization. Under existing SEC authority and
practice, each of the Operating Companies pays to APSC all costs which
reasonably can be identified and related to a particular transaction or
service performed by APSC on its behalf. These costs are captured in
work orders in accordance
12. (continued)
with the SEC's Uniform System of Accounts for Mutual Service Companies
and Subsidiary Service Companies.
APSC maintains a separate record of the expenses for each
department. Expenses are reported as departmental expenses, incremental
out-of-pocket expenses, or overhead expenses. Department expenses
consist of salaries and employee expenses, employee welfare expenses,
rents, expenses of training and development of APSC's employees, and all
other expenses attributable to, or necessary to the operation of the
department. Incremental out-of-pocket expenses are expenses incurred for
the direct benefit and convenience of a particular company or group of
companies and are charged solely to such company(ies). Overhead expenses
include costs of maintaining the corporate existence, such as taxes,
outside auditing and legal fees, and other corporate expenses.
Departmental and out-of-pocket expenses incurred by APSC are
accumulated by specific, identifiable work order numbers and directly
billed to the receiving company(ies). APSC will continue to use controls
and procedures relating to the existing work order accounting system
employed in past rate cases. These procedures ensure that costs
associated with the services performed on behalf of the receiving company
are properly authorized, allocated, and tracked. Work orders are
established and administered in accordance with the SEC's Uniform System
of Accounts for Mutual and Subsidiary Service Companies.
12 (continued)
When a service is rendered for the benefit of two or more
companies, the costs are shared by the receiving companies in proportion
to the average electric operating revenues of each (exclusive of sales to
another APS subsidiary), operating and maintenance expenses (exclusive of
fuel, deferred fuel, and purchased power and exchanges), kilowatthours
sold to regular customers (other than to the APS subsidiaries), and total
electric plant in service (less revenues for depreciation and
amortization), over the three preceding calendar years.
Overhead expenses and the cost of services rendered by APSC are
distributed among receiving companies in direct proportion to the amount
of department expenses charged to or allocated to such companies.
The foregoing billing principles will remain the bases for APSC's
charges to the Operating Companies unless and until modified or until new
principles are adopted and reported to and/or approved by the Commission.
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* III. Amendment of Existing Service Agreement *
* between West Penn and APSC *
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13. The services centralized in APSC as a result of the
restructuring are a logical extension of the existing services being
provided by APSC to reflect changed business conditions and take
advantage of cost reduction opportunities. They do not represent a
fundamental change in the character of the services previously rendered
by APSC. They will be billed in the same Commission-approved manner,
using existing allocation methods, as other similar services heretofore
have been provided by APSC.
14. To define the new responsibilities and services which will be
provided by APSC to the Applicant under the reorganization, it is
necessary to amend the existing Service Agreement between the Applicant
and APSC (approved by the Commission at Docket No. G-00930363) and
conform Exhibit I to that agreement. Attachment No. 1 hereto is the
proposed Amendment to Service Agreements covering all three Operating
Companies with revised Exhibit I. Revised Exhibit I sets forth the
various services which APSC may provide to the Applicant and its
affiliates. This amendment will be executed by the parties following
receipt of all necessary regulatory approvals. By this Application, the
Commission is being requested, among other things, to approve this
proposed Amendment to Service Agreements with its revised Exhibit I as
required by Pennsylvania's affiliated interest statute. 66 Pa. C.S.
Sec. 2102.
+))))))))))))))))))))))))))))))))))))),
* IV. New Service Agreement between *
* the Operating Companies *
.)))))))))))))))))))))))))))))))))))))-
15. One effect of the restructuring is to combine certain
services which were previously performed separately by West Penn,
Monongahela and Potomac Edison. In order that the Operating Companies
may perform services for each other, they propose to enter into the form
Service Agreement attached hereto as Attachment No. 2. This Service
Agreement will be executed on behalf of the parties after receiving all
necessary regulatory approvals.
16. The following services are being consolidated and may be
performed by one or more of the Operating Companies for another of the
Operating Companies.
A. Operations Services
At the Applicant's Connellsville Center, the restructuring
consolidated certain engineering and construction work that had
previously been performed by Monongahela and Potomac Edison. Also,
certain of the work that was previously performed by the Applicant was
consolidated at Potomac Edison's Bower Avenue location. The
consolidation of those functions is expected to result in increased
efficiency.
(i) Materials and supplies--Transmission and distribution
materials are being supplied from the Applicant's Connellsville storeroom
and Potomac Edison's Bower Avenue storeroom to all locations for the
three Operating Companies.
(ii) Distribution transformer/regulator repair--Repair of
distribution transformers as well as regulator repairs for all three
Operating Companies may be consolidated at Applicant's Connellsville
Center. Currently, this work is also being performed in Hagerstown,
Maryland.
(iii)Oil circuit recloser repair--Applicant's Connellsville center
is the central oil circuit recloser (OCR) repair site for Monongahela and
the Applicant. OCR repairs for the Applicant are performed at
Hagerstown,
16. (continued)
Maryland. Further cost comparison studies will determine whether all of
the OCR repairs should be performed at Connellsville, Pennsylvania.
(iv) Rubber goods repair and testing--For all three Operating
Companies, testing and inspection of rubber goods such as gloves, sleeves
and blankets is being consolidated at the Applicant's Connellsville
location.
(v) Metering--Most meter test activities for the Operating
Companies is being consolidated at the Applicant's Connellsville,
Pennsylvania location, although some wiring of meter packages for all
three Operating Companies will be performed at Hagerstown, Maryland.
(vi) Other Operations Services--Other operations services which
have been consolidated, but are still performed, at least in part, by
Operating Company employees include: Building Management; Transportation
Services; Substation Construction; Substation Maintenance; and
Telecommunications Operations.
B. Customer Service Center
As previously indicated, a state-of-the-art Customer Service Center
will be located in Fairmont, West Virginia, and its employees will answer
incoming calls to the Operating Companies by a toll-free number. At
present, its functions may be performed by employees of APSC or by
employees of any of the Operating Companies. Therefore, the Operating
Companies may perform services for one another which include responding
to customer inquires, initiating new
16. (continued)
service, dispatching service and line crews in response to power outages,
handling credit and collection activities, responding to customer and
complaints, and managing the meter reading and billing activities.
C. Office Services/Mail Payment
Currently, employees of one or more of the Operating Companies may
perform payment processing services for one or more of the other
operating companies. In addition, the Operating Companies may perform
certain office services, including secretarial, typing, mailroom
services, duplicating, fleet administration, and other similar services
for one another.
D. Cost Allocation
The operating company performing work for an affiliated operating
company will accumulate the actual costs incurred in providing authorized
services through the use of specific, identifiable work order numbers or
by FERC accounts, and will bill the receiving company based on the
amounts accumulated. Employee time sheets will be used to record the
amount of time employed in rendering such services. Out-of-pocket
expenses which are expended in regard to specific services will also be
recorded.
The total cost of a particular service will be the sum of:
facilities charges, in order to recover depreciation and return on
investment on fixed assets; working capital charges, where appropriate;
all labor charges, including related payroll overheads and out-of-pocket
expenses; and any related overhead charge associated with out-of-pocket
costs. The billing process will be done monthly. In return for services
performed by an Operating Company, the recipient of the services will pay
the Operating Company which performs the service the actual costs
incurred by it in providing the service.
WHEREFORE, pursuant to Section 2102 of the Public Utility Code, 66
Pa. C.S. Sec. 2102, the Applicant requests that the Commission approve
Attachment Nos. 1 and 2 hereto for the reasons above stated.
Respectfully submitted,
WEST PENN POWER COMPANY
by: /s/
John L. Munsch
Attorney
800 Cabin Hill Drive
Greensburg, PA 15601
(412) 838-6210
Dated: November 8, 1996
<PAGE>
VERIFICATION
Commonwealth of Pennsylvania
County of Westmoreland
C. S. Ault and C. R. Chamberlain, Vice President and Assistant
Secretary, respectively, of West Penn Power Company, Applicant herein,
being duly sworn, say that the facts and allegations therein contained
are true, except so far as they are therein stated to be on information,
and that so far as they are therein stated to be on information, they
believe them to be true.
/s/
C. S. Ault
/s/
C. R. Chamberlain
Taken, sworn to and subscribed before me
this 8th day of November, 1996.
/s/
Notary Public
My Commission expires on .
<PAGE>
412-838-6210
November 8, 1996
Mr. John G. Alford, Secretary
Pennsylvania Public Utility Commission
P.O. Box 3265
Harrisburg, PA 17105-3265
Re: Application of West Penn Power Company Pursuant
to 66 Pa. C.S. Sec. 2102 for Prior Written Approval
of Contracts Between or Among West Penn Power
Company and Its Affiliated Interests
Dear Secretary Alford:
Enclosed please find an original and two (2) copies of the
above-referenced Application, together with two (2) true, correct and
fully executed copies of the Agreements for which this filing is being
made.
U.S. Postal Service Form 3817, Certificate of Mailing, is
attached to this cover letter. Therefore, the filing date of the
enclosure should be deemed to be today, November 8, 1996, pursuant to 52
Pa. Code Sec. 1.11(a).
Very truly yours,
/s/
John L. Munsch
Attorney
Enclosures
bc: P. J. Bray - Hagerstown CC
P. J. Clark
T. K. Henderson - Hagerstown CC
G. A. Jack - Fairmont CC
K. L. Mitchell - Hagerstown CC
D. L. Williams
R. R. Winter
u:\secys\bbarth1\affiliat.app
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that I have served a true and correct copy
of the foregoing Application by regular first-class mail as follows:
TANYA J. MCCLOSKEY, ESQUIRE
Assistant Consumer Advocate
Office of Consumer Advocate
1425 Strawberry Square
Harrisburg, PA 17120
BERNARD A. RYAN JR., ESQUIRE
Office of Small Business Advocate
Suite 1102, Commerce Building
300 North Second Street
Harrisburg, PA 17101
Dated: November 8, 1996
/s/
John L. Munsch
<PAGE>
EXHIBIT D-2
Before The
State Corporation Commission
of Virginia
APPLICATION OF
THE POTOMAC EDISON COMPANY,
dba ALLEGHENY POWER Case No. PUA_______________
For approval of service
agreements among affiliates.
Petition for Affiliate Act Approval
Pursuant to Sections 56-76 through 56-87 of the Code of Virginia, The
Potomac Edison Company, dba Allegheny Power, ("Petitioner") requests State
Corporation Commission of Virginia ("Commission") approval: 1) to amend an
existing Service Agreement between itself and its affiliate, Allegheny Power
Service Corporation; and 2) to enter into a new Service Agreement with its
operating affiliates in the Allegheny Power System. In support of said
Petition, Petitioner respectfully states as follows:
I. The Affiliates
1. Petitioner is a public service company organized and existing
under the laws of the Commonwealth of Virginia and the state of Maryland,
provides retail electric service to customers in all or part of thirteen
counties in northwest Virginia, is a foreign corporation qualified to do
business in the state of West Virginia and has its principal place of
business at 10435 Downsville Pike, Hagerstown, Maryland 21740-1766.
2. Allegheny Power Service Corporation ("APSC") is a corporation
organized and existing under the laws of the state of Maryland and has its
principal place of business at 800 Cabin Hill Drive, Greensburg,
Pennsylvania 15601.
3. Monongahela Power Company, dba Allegheny Power ("Mon Power"),
is an electric company organized and existing under the laws of Ohio. It
provides electric service in portions of Ohio and West Virginia. West Penn
Power Company, dba Allegheny Power ("West Penn"), is an electric company
organized and existing under the laws of the Commonwealth of Pennsylvania
and serves portions of Pennsylvania. Together, Petitioner, APSC, Mon Power
and West Penn are operated as an integrated public utility holding company
system under the Public Utility Holding Company Act of 1935 ("PUHCA").
4. Petitioner, APSC, Mon Power and West Penn are wholly-owned
subsidiaries of Allegheny Power System, Inc. (APS), a Maryland corporation.
Petitioner, APSC, Mon Power and West Penn are affiliated interests under
Section 56-76 of the Code of Virginia.
5. Petitioner's operation as part of an integrated system provides
many benefits to its Virginia utility customers. For example, Petitioner,
Mon Power and West Penn (the "APS Operating Companies") are joint owners of
several large power stations located in West Virginia and Pennsylvania and
operate their generating and bulk transmission facilities on an integrated
basis. This arrangement not only improves the availability and reliability
of electric service, it also cuts costs, because the integrated power system
operates more efficiently than each company could operate individual power
systems.
6. APSC is an important part of the APS system. It was created to
meet regulatory standards under PUHCA and provides a cost-effective vehicle
for APS companies to maximize the economy available from operating an
integrated electric system. APSC provides certain centralized engineering,
financial and administrative services to the APS Operating Companies. These
services, which would otherwise have to be performed individually by each
company, are able to be done more cost efficiently for the three companies
together. This provides an economic benefit to Petitioner's Virginia
customers and serves the public interest.
7. APSC provides certain services to Petitioner and the other APS
Operating Companies under the terms of a Service Agreement dated November 3,
1993 which was approved by the Commission in an order issued February 24,
1995 in Case No. PUA940014.
8. The APS Operating Companies perform certain operating services
functions for each other pursuant to the Commission's May 24, 1996 Order
Granting Approval in Case No. PUA950044.
II. Restructuring of APS
9. In 1995, APS announced its intention to undertake a
restructuring designed to consolidate and reengineer its operations to
better meet the competitive challenges of the changing electric utility
industry and remain the energy supplier of choice in the future for its
customers. On or about January 1, 1996, APSC began to realign its
organization to create distinct power generation and energy transmission and
distribution groups. As of July 1, 1996, the APS Operating Companies
restructured, including the reengineering of processes and the consolidation
of functions with services already provided by APSC. In addition, although
they have not changed their legal corporate names, nor altered in any manner
ownership of capital assets, the APS Operating Companies began doing
business under the trade name "Allegheny Power" as of September 1, 1996.
10. The restructuring is an effort to further control costs, operate
more efficiently, and prepare for the anticipated increase in retail and
wholesale competition among suppliers of electricity, resulting from passage
of the Energy Policy Act of 1992. The restructuring process for the most
part should be completed by the end of 1996, although the APS Companies now
embrace business process reengineering and continuous improvement as a way
of life.
11. The APS companies expect to realize a number of benefits from
restructuring. Beginning in 1996 and continuing into the future, increased
efficiencies and synergies are expected to result from the elimination of
layers of management and the elimination of previously duplicated functions.
The flattening, streamlining and consolidation of functions within the
organization will enhance efficiency and communication, which should
translate into a reduction in the rate of growth of operating and
maintenance expenses thereby minimizing the need for future rate increases.
A. Consolidation and Reengineering of Functions
12. In general, the restructuring is consolidating in APSC certain
functions which previously were either performed separately by employees of
each of the APS Operating Companies or by employees of the APS Operating
Companies along with employees of APSC. APS has been restructured into the
following functional units: Operating Business Unit; Retail Marketing;
Corporate Affairs; Generation Business Unit; Transmission Business Unit;
Planning and Compliance Business Unit; and Corporate Services, which serves
the business units. The restructuring did not involve the formation of any
new legal entities, nor did it require the writedown of any rate base
assets. No capital assets were transferred among companies within APS in
connection with the restructuring.
13. The overall goals of the restructuring have been to realign
functions by process and consolidate functions where feasible. The
following briefly describes the restructured functions.
1. Restructuring of Electric Utility Company Functions
Most of the functions which were performed exclusively by the APS
Operating Companies have been consolidated into three business units: 1) the
Operating Business Unit (OBU); 2) Retail Marketing business unit; and
3) Corporate Affairs. The Vice Presidents of these groups all report to a
Senior Vice President of APSC, who also holds the title of President of each
of the APS Operating Companies. Some of the main goals of the restructuring
of these functions include establishing a team-oriented environment,
maintaining fewer layers of management, establishing broader job
classifications and establishing an integrated work management system to
schedule, design, track and finish jobs.
a. Operating Business Unit
The OBU is administered by one Vice President and ten process
directors. Teams of employees will handle various processes from start to
finish. The processes covered include: respond to electric service
requests, restore service, ensure reliable service, manage the revenue
stream, manage resources and respond to customer inquiries. Instead of the
21 divisions comprising the service territory of the APS Operating Companies
before restructuring, the service area of the OBU is divided into seven
administrative regions which are staffed and served by teams consisting of
employees from APSC and employees of the APS Operating Companies. At
present, many physical employees, including all of the union work force,
remain employees of the APS Operating Companies. The OBU will also
include a state-of-the-art Customer Service Center located in Fairmont, West
Virginia which will be the "front door" to the new organization and will
handle all calls or forward them to members of the appropriate process
teams. All non-union OBU employees will become APSC employees by January 1,
1997.
b. Retail Marketing
Retail Marketing functions are performed by a Vice President, three
General Managers (residential, industrial and commercial) and their staffs.
This business unit is responsible for acquiring and maintaining customers.
To the extent legally permissible, this group aggressively markets new
products and services to meet customers' needs.
c. Corporate Affairs
The Corporate Affairs functions are handled by three Vice Presidents,
one located at each general corporate office and their staffs. These
employees will maintain active community and regulatory relations.
2. Restructuring of Bulk Power Supply
14. The Bulk Power Supply (BPS) section of APSC underwent a process
redesign, effective January 1, 1996 which created distinct generation,
transmission, and planning and compliance business units and resulted in a
reduction in work force of about 170 employees. The restructuring of BPS
combined the services that it was already providing to the APS Operating
Companies into three functional business units: Generation Business Unit
(GBU), Transmission Business Unit (TBU), and Planning and Compliance
Business Unit (P&CBU). These business units are each headed by a Vice
President of APSC. The Vice Presidents of the GBU, TBU and P&CBU all report
to a Senior Vice President of APSC. Various administrative and other support
services will continue to be provided to these business units by other APS
departments. In the restructuring of BPS, no new entities were formed and
no capital assets were transferred.
a) Generation Business Unit
The GBU is responsible for ensuring that adequate generation is
available to serve native load customers of the APS Operating Companies and
other loads served by the GBU by employing their generating facilities and
third-party generation obtained through marketing efforts. Its primary
responsibilities include ensuring the cost-effective operation and
maintenance of the system's generating units and providing the most economic
mix of generation from available generating units and off system purchases
and sales.
b) Transmission Business Unit
The TBU is responsible for ensuring that adequate high-voltage network
facilities are available and on-line to reliably convey power produced from
the power production operations run by, or procured by, the GBU to serve
native load and other loads served by these operations. It will also engage
in marketing efforts for sales of bundled and unbundled transmission
services to nonaffiliates and will be responsible for accommodating requests
for transmission service submitted by nonaffiliates who qualify for that
service under federal regulations. Finally, the TBU is responsible for
maintaining the optimal economic balance on a real-time basis between native
customer load and the output of the generation resources supplied by the
GBU, as well as managing the emission allowance resources of APS.
c) Planning and Compliance Business Unit
The P&CBU provides strategic resource planning and engineering
analysis of alternate transmission and generation resource options,
environmental and regulatory issues management, environmental compliance
oversight, research and development, and emerging technology development for
the APS system.
3. Restructuring of Corporate Services
15. The groups in this area provide certain corporate services to
the business units and have been restructured in order to supply these
services more efficiently. The following is a brief description of major
changes to this area resulting from the restructuring.
a. Accounting
Historically, functions of the Accounting Department have included
general accounting, accounts payable, plant accounting and taxes. These
functions were performed at three locations (Greensburg, Fairmont and
Hagerstown) by employees of one of the APS Operating Companies or employees
of APSC. By January 1, 1997, all Accounting employees will be employees of
APSC and each of the various accounting functions will be consolidated at
one location.
b. Information Services
Prior to restructuring, this department was divided into four groups:
Applications Development and Support; Technical Information Services and
Network Support; EDP Operations; and EDP User Support and Research
Development. Information Service is being reorganized into three main
groups: 1) Business Solution Team - concentrating on applications
acquisition, development, implementation and maintenance; 2) Technical
Operations Team - handling infrastructure planning, operation and
maintenance; and 3) Customer Support Team -including customer services and
support center. Also, six Business Consultants are assigned to the major
business units and will handle tasks from all three Information Services
groups. There is a customer service presence at all three corporate
headquarters, but the other teams are consolidated in Greensburg. As of
January 1, 1997 all Information Services employees will be employees of
APSC.
c. Financial Management
Historically, Financial Management has provided the following
services: capital management; forecasting of long-term financing;
insurance/risk management; corporate strategic planning and financial
planning.
Major changes implemented by the restructuring include combining four
budgeting groups and financial planning into a single financial management
group. The consolidation is designed to eliminate duplicate efforts and
reduce or eliminate hand-offs. As of January 1, 1997, all Financial
Management employees will be APSC employees.
d. Secretary/Treasurer
This area has historically provided services involving: 1) Corporate
secretarial functions, including Board of Director matters, administration
of APS Operating Company's indentures, regulatory filings and records and
library management; and 2) Treasury functions, such as bank relations,
cashier services, cash management (internal funding, cash forecasting and
external short-term borrowing and investing), credit and collections, cash
and customer bill processing, and long-term financing. These functions were
performed at all three corporate headquarters by employees of the APS
Operating Companies.
The restructuring of this area has produced the following key changes:
the Corporate Secretary function is transferred to Legal Services; and
Treasury is assuming the risk management function from Financial Management
and electronic commerce from Information Services. Treasury continues long-
term financings, bank relations and cash management functions and is
consolidated in Hagerstown. As of January 1, 1997, all employees in these
areas will become APSC employees.
e. Investor Relations
As of July 1, 1996, Investor Relations and Public Relations
(originally part of the Administrative function at APSC and part of Customer
Relations at the APS Operating Companies) were transferred and consolidated
to form External Relations, located at Hagerstown. As of October 1, 1996,
External Relations was combined with Communications (formerly under the
authority of Corporate Affairs) to form Corporate Communications, which is
responsible for internal and external communications, including advertising
and stockholder publications. Investor Relations remains responsible for
maintaining a favorable relationship between APS and the financial
community. As of January 1, 1997 all employees in these areas will be APSC
employees.
f. Audit Services
Historically, this department has performed financial, contracts, and
operations/consulting audits. Prior to the restructuring, Audits consisted
of four divisions located at the three corporate general office locations.
The Audit employees were either employees of one of the APS Operating
Companies or employees of APSC. As a result of the restructuring, Audit
Services is becoming one department and all Audit employees became APSC
employees.
g. Supply Chain
The Supply Chain functions include Purchasing, Stores, Fuel Accounting
and Accounts Payable. Historically, these functions were performed by
employees of one of the APS Operating Companies or employees of APSC,
located at one of the three general corporate offices. As a result of the
restructuring, Purchasing is named Procurement, and the employees performing
this function are being organized into Client Service Provider Teams.
Stores is named Materials Management and Distribution, and management of
this function has been centralized at Connellsville, Pennsylvania and at
Hagerstown. In addition, Accounts Payable is now called Payment Processing
and is consolidated in Hagerstown. All Supply Chain employees are currently
APSC employees.
h. Legal Services
In the past, local legal services were provided to the APS Operating
Companies by their own legal staffs, and the APSC legal department handled
corporate matters or matters of more generalized interest to APS. As a
result of the restructuring, all Legal Services personnel are currently
employees of APSC, and the attorneys are available to perform legal work for
any APS company.
i. Regulation and Pricing
The functions of the Rates department have included: Costing, Pricing
Support, Regulatory Management, and Billing. These functions were performed
by employees of the APS Operating Companies and by employees of APSC. As
of January 1, 1997, all of the responsibilities of this department, which
is now known as Regulation and Pricing, will be performed entirely by APSC
employees. The Costing and Pricing Teams are consolidated in Greensburg,
the Financial Analysis Team is consolidated in Hagerstown, and the Fuel and
Capital Recovery Team is consolidated in Fairmont.
j. Human Resources
Human resources policies for all of APS have traditionally been set
by a Human Resources (HR) policy-making department at APSC. These policies
were administered by separate HR departments of APSC and of each APS
Operating Company; each department was run by one of four HR Directors.
As the result of the restructuring, a single HR Director, with the
assistance of a two-person management team, will set and administer human
resources policies system-wide. All HR employees are presently APSC
employees.
k. Governmental Affairs
Prior to the restructuring, the Governmental Affairs function was part
of the Legal Services group and was performed locally by employees of the
various APS Operating Companies. This function has been removed from Legal
Services and its employees now report to a Vice President of Governmental
Affairs, a newly created position within APSC.
B. The Effect of Restructuring
16. As a result of the restructuring, the APS companies expect to
provide improved services more efficiently. By reorganizing and eliminating
certain processes and consolidating functions, the APS companies expect to
perform their functions with approximately 1,200 fewer employees. Some
savings from employee reductions will be offset by additional expenses for
technology, facilities revisions required by the restructuring and other
improvements in operations of the business units. It is expected that all
costs associated with the restructuring program will be recovered primarily
through cost savings over a period of two years after Staff reductions.
Total restructuring costs are estimated in the area of $100 million, pre-
tax; total savings are expected to be in the area of $60 million per year,
before taxes.
17. Except for the union work force and possibly some other
employees, the management, engineering, maintenance, legal, accounting,
payables and administrative and support functions previously performed by
the APS Operating Companies will be supplied, after the realignment, by
employees of APSC. By January 1, 1997, all non-union employees of the APS
Operating Companies will be employees of APSC. As compared with January 1,
1996, the restructuring of the APS companies is expected to result in the
net transfer of approximately 2800 non-union employees from the APS
Operating Companies to APSC. The transfer will increase overall employment
of APSC and will virtually eliminate non-union employment by the APS
Operating Companies.
C. Control Over APSC
18. A number of factors will ensure that APSC continues to be
responsive to the needs of the APS Operating Companies and provides the
operating companies with the ability to judge their need for inter-affiliate
services and to monitor the quality and value of the services being
provided. These factors include the APSC budget process, Securities and
Exchange Commission (SEC)-approved work order procedures to track and
document the initiation of services, billing and review procedures designed
to ensure the accuracy of APSC billings, and internal audit controls
designed to ensure the fairness of APSC charges. For example, Audit
Services will continue to meet at least twice a year with the Audit
Committees of the Boards of Directors of APS, APSC and the APS Operating
Companies (which Audit Committees are comprised solely of outside directors)
to review audit plans and findings. In addition, the Director, Audit
Services will continue to have open and direct access to the Chairmen of the
Audit Committees. These procedures will ensure that costs associated with
the services performed by APSC on behalf of the APS Operating Companies are
properly authorized, allocated and tracked.
D. Cost Allocation
19. Under existing SEC authority and practice, each of the APS
Operating Companies pays to APSC all costs which reasonably can be
identified and related to a particular transaction or service performed by
APSC on its behalf. These costs are captured in work orders in accordance
with the SEC's Uniform System of Accounts for Mutual Service Companies and
Subsidiary Service Companies. APSC's current method of allocations will be
maintained in the restructured organization.
APSC maintains a separate record of the expenses for each department.
Expenses are reported as departmental expenses, incremental out-of-pocket
expenses, or overhead expenses. Department expenses consist of salaries and
employee expenses, employee welfare expenses, rents, expenses of training
and development of APSC's employees, and all other expenses attributable to,
or necessary to the operation of the department. Incremental out-of-pocket
expenses are expenses incurred for the direct benefit and convenience of a
particular company or group of companies and are charged solely to such
company(ies). Overhead expenses include costs of maintaining the corporate
existence, such as taxes, outside auditing and legal fees, and other
corporate expenses.
1. Allocation of Departmental and Out-of-Pocket Expenses
Departmental and out-of-pocket expenses incurred by APSC are
accumulated by specific, identifiable work order numbers and directly billed
to the receiving company(ies). APSC will continue to use controls and
procedures relating to the existing work order accounting system reviewed
by this Commission in past rate cases. These procedures ensure that costs
associated with the services performed on behalf of the receiving company
are properly authorized, allocated, and tracked. Work orders are
established and administered in accordance with the SEC's Uniform System of
Accounts for Mutual and Subsidiary Service Companies.
When a service is rendered for the benefit of two or more companies,
the costs are shared by the receiving companies in proportion to the average
electric operating revenues of each (exclusive of sales to another APS
subsidiary), operating and maintenance expenses (exclusive of fuel, deferred
fuel, and purchased power and exchanges), kilowatthours sold to regular
customers (other than to the APS subsidiaries), and total electric plant in
service (less revenues for depreciation and amortization), over the three
preceding calendar years.
2. Allocation of Overhead Expenses
Overhead expenses and the cost of services rendered by APSC are
distributed among receiving companies in direct proportion to the amount of
department expenses charged to or allocated to such companies.
The foregoing billing principles will remain the basis for APSC's
charges to the APS Operating Companies unless and until modified or until
new principles are adopted and reported to and/or approved by the
Commission.
E. Proposed Amendment to the Existing Service Agreement
20. The services centralized in APSC as a result of the
restructuring are a logical extension of the existing services being
provided by APSC to reflect changed business conditions and cost reduction
opportunities. They do not represent a fundamental change in the essential
character of the services previously rendered by APSC. They will be billed
in the same Commission approved manner, using existing allocation methods,
as other similar services heretofore have been provided by APSC.
21. To define the new responsibilities and services which will be
provided by APSC to Petitioner under the re-organization, it is necessary
to amend the Commission-approved November 3, 1993 Service Agreement between
Petitioner and APSC and refine Exhibit I to that agreement. Attachment
No. 1 hereto is the Amendment to Service Agreement with revised Exhibit I.
Revised Exhibit I sets forth the various services which APSC may provide to
Petitioner. By this petition, the Commission is being requested, among
other things, to approve this Amendment to Service Agreement with its
revised Exhibit I as required by Virginia's affiliate act statutes.
III. APS Operating Companies Providing Services to Each Other
22. One effect of the restructuring is to combine certain services
which were previously performed separately by each APS Operating Company.
In order that each operating company may perform services for the others,
the APS Operating Companies propose to enter into the Service Agreement
attached hereto as Attachment No. 2.
23. The following services are being consolidated and may be
performed by one or more of the APS Operating Companies for another of the
APS Operating Companies.
A. Operations Services
At West Penn's Connellsville Center, the restructuring
consolidated certain engineering and construction work that had
previously been performed by Mon Power and Petitioner. Also,
certain of the work that was previously performed by West Penn
was consolidated at Petitioner's Bower Avenue location. The APS
Operating Companies believe that consolidation of those
functions will result in increased efficiency for the entire
System.
1. Materials and supplies--Transmission and distribution
materials are being supplied from West Penn's Connellsville
storeroom and Petitioner's Bower Avenue storeroom to all
locations for the three APS Operating Companies.
2. Distribution transformer/regulator repair--Repair of
distribution transformers as well as regulator repairs for all
three APS Operating Companies may be consolidated at West Penn's
Connellsville Center. Currently, this work is also being
performed in Hagerstown.
3. Oil circuit recloser repair--West Penn's Connellsville
center is the central oil circuit recloser (OCR) repair site for
Mon Power and West Penn. OCR repairs for Petitioner are
performed at Hagerstown. Further cost comparison studies will
determine whether all of the OCR repairs should be performed at
Connellsville.
4. Rubber goods repair and testing--For all three APS
Operating Companies, testing and inspection of rubber goods such
as gloves, sleeves and blankets is being consolidated at West
Penn's Connellsville location.
5. Metering--Most meter test activities for the three
APS Operating Companies is being consolidated at West Penn's
Connellsville location, although some wiring of meter packages
for all three operating companies is still performed at
Hagerstown.
6. Other Operations Services - Other operations services
which have been consolidated, but are still performed, at least
in part, by APS Operating Company employees include: Building
Management; Transportation Services; Substation Construction;
Substation Maintenance; and Telecommunications Operations.
B. Customer Service Center
As previously noted, a state-of-the-art Customer Service
Center will be located in Fairmont, West Virginia and its
employees will answer incoming calls to the APS Operating
Companies by a toll-free number. At present, its functions may
be performed by employees of APSC or by employees of any of the
APS Operating Companies. Therefore, the APS Operating Companies
may perform services for one another which include responding
to customer inquires, initiating new service, dispatching
service and line crews in response to power outages, handling
credit and collection activities, responding to customer and
Public Service Commission complaints, and managing the meter
reading and billing activities.
C. Office Services/Mail Payment
Currently, employees of one or more of the APS Operating
Companies may perform payment processing services for one or
more of the other operating companies. In addition, the APS
Operating Companies may perform certain office services,
including secretarial, typing, mailroom services, duplicating,
fleet administration, and other similar services for one
another.
D. Cost Allocation
24. The APS Operating Company performing work for an
affiliated operating company will accumulate the actual costs
incurred in providing authorized services through the use of
specific, identifiable work order numbers or by FERC accounts,
and will bill the receiving company based on the amounts
accumulated. Employee time sheets will be used to record the
amount of time employed in rendering such services. Out-of-
pocket expenses which are expended in regard to specific
services will also be recorded.
25. The total cost of a particular service will be the
sum of: facilities charges, in order to recover depreciation and
return on investment on fixed assets; working capital charges,
where appropriate; all labor charges, including related payroll
overheads and out-of-pocket expenses; and any related overhead
charge associated with out-of-pocket costs. The billing process
will be done monthly. In return for services performed by an
APS Operating Company, the recipient of the services will pay
the Operating Company which performs the service the actual
costs incurred by it in providing the service.
IV. Request for Approvals
26. Petitioner believes that the terms and conditions of
the Amendment To Service Agreement with its revised Exhibit I
included as Attachment No. 1 hereto, and the new Service
Agreement among the APS Operating Companies included as
Attachment No. 2 hereto are fair and reasonable, will not grant
an undue advantage to any party to the transactions and that
approval of these agreements as set forth herein is in the best
interests of Petitioner's Virginia customers. No other electric
utility subject to the jurisdiction of this Commission will be
affected by the service agreements.
27. Petitioner further represents that no purpose will
be served by the giving of formal notice or the conducting of a
hearing concerning the approval sought herein and that customers
served by Petitioner would be convenience by the waiving of
formal notice and hearing in regard thereto.
Wherefore, pursuant to Section 56-77 of the Code of
Virginia, Petitioner prays that the Commission approve
Attachment Nos. 1 and 2 hereto as being in the public interest.
The Potomac Edison, dba Allegheny Power
By: /s/
J. D. Latimer, Vice President
Dated: October _____, 1996.
Attest:
___________________________
E. W. McCauley, Jr.
Assistant Secretary
Counsel
____________________________
Philip J. Bray
Attorney
The Potomac Edison Company dba Allegheny Power
10435 Downsville Pike
Hagerstown, Maryland 21740-1766
(310) 790-6283
VASCC\PETITION.VAA
<PAGE>
VERIFICATION
State of Maryland
County of Washington, to wit:
J. D. Latimer and Eugene W. McCauley, Jr., Vice President
and Assistant Secretary, respectively, of The Potomac Edison
Company, dba Allegheny Power, Petitioner herein, being duly
sworn, say that the facts and allegations therein contained are
true, except so far as they are therein stated to be on
information, and that so far as they are therein stated to be
on information, Mr. Latimer and Mr. McCauley believe them to be
true.
/s/
Affiant
/s/
Affiant
Taken, sworn to and subscribed before me this _______ day of
___________________, 1996.
/s/
Notary Public
My Commission expires on __________________________.
VASCC\PETITION.VAA
<PAGE>
EXHIBIT D-3
BEFORE THE PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
PETITION OF MONONGAHELA POWER
COMPANY AND THE POTOMAC EDISON
COMPANY, DBA ALLEGHENY POWER,
FOR CONSENT AND APPROVAL OF
SERVICE AGREEMENTS AMONG AFFILIATES
PETITION FOR CONSENT AND APPROVAL
NOW COMES Monongahela Power Company and The Potomac Edison Company,
doing business as Allegheny Power, the Petitioners herein, and respectfully
request the Public Service Commission of West Virginia (Commission) grant
its consent and approval for Petitioners to amend and enter into new Service
Agreements among its affiliated companies. Specifically, the Petitioners
respectfully request the Commission grant its consent and approval, to the
extent required by law, under Section 24-2-12 of the West Virginia Code:
1) to amend their existing Service Agreements by and between Monongahela
Power Company and Allegheny Power Service Corporation and The Potomac Edison
Company and Allegheny Power Service Corporation by deleting the existing
Exhibit 1 to the Service Agreements and replacing it with a revised Exhibit
1. Exhibit 1 describes the services that Allegheny Power Service Company
may perform for each of the Petitioners. Such electric Service Agreements
were previously approved by this Commission by an order issued September 12,
1994 in Case No. 94-0443-E-PC; and 2) to enter into a new Service Agreement
between Monongahela Power Company, The Potomac Edison Company and West Penn
Power Company to allow the operating companies to perform certain services
for one another and to establish a method of determining allocation of and
payment for such services among the three companies. The amendment to the
existing Service Agreements is attached as Attachment No. B-1 and the new
Service Agreement among the three APS operating companies is attached as
Attachment No. B-2.
I. The Affiliates
1. Monongahela Power Company, doing business as Allegheny Power,
hereinafter referred to as Monongahela or Petitioner(s), is a public utility
corporation organized and existing under the laws of the State of Ohio,
provides retail electric service to customers in portions of West Virginia,
and has its principal place of business at 1310 Fairmont Avenue, Fairmont,
West Virginia 26555-1392. The financial condition of the Petitioner is set
forth on Attachment A hereto.
2. The Potomac Edison Company, doing business as Allegheny Power,
hereinafter referred to as Potomac Edison or Petitioner(s), is a public
utility corporation organized and existing under the laws of the
Commonwealth of Virginia and the State of Maryland, provides retail electric
service to customers in portions of West Virginia, and has its principal
place of business at 10435 Downsville Pike, Hagerstown, Maryland 21740-1766.
The financial condition of the Petitioner is set forth on Attachment A
hereto.
3. West Penn Power Company, doing business as Allegheny Power,
hereinafter referred to as West Penn, is a public utility organized and
existing under the laws of the State of Pennsylvania, provides retail
electric service to customers in portions of Pennsylvania, and has its
principal place of business at 800 Cabin Hill Drive, Greensburg,
Pennsylvania 15601. West Penn is not regulated by the Public Service
Commission of West Virginia since it provides no electric service in West
Virginia.
4. Allegheny Power Service Corporation, hereinafter referred to as
APSC, is a corporation organized and existing under the laws of the State
of Maryland and has its principal place of business at 800 Cabin Hill Drive,
Greensburg, Pennsylvania 15601. APSC is an important part of the APS
system. It was created to meet regulatory standards under Public Utility
Holding Company Act and provides a cost-effective vehicle for APS companies
to maximize the economy available from operating an integrated electric
system. APSC provides certain centralized engineering, financial and
administrative services to the APS Operating Companies. These services,
which would otherwise have to be performed individually by each company, are
able to be done more cost efficiently for the three companies together. This
provides an economic benefit to Petitioners' West Virginia customers and
serves the public interest. Potomac Edison, APSC, Monongahela and West Penn
are wholly-owned subsidiaries of Allegheny Power System, Inc. (APS), a
Maryland corporation, and are affiliated companies.
5. Petitioners' operation, as part of an integrated system,
provides many benefits to its West Virginia utility customers. For example,
Petitioners and West Penn (the "APS Operating Companies") are joint owners
of several large power stations located in West Virginia and Pennsylvania
and operate their generating and bulk transmission facilities on an
integrated basis. This arrangement not only improves the availability and
reliability of electric service, it also cuts costs, because the integrated
power system operates more efficiently than each company could operate
individual power systems.
6. APSC provides certain services to Petitioners and the other APS
Operating Companies under the terms of a Service Agreement dated November 3,
1993 which was approved by the Commission in an order issued September 12,
1994 in Case No. 94-0443-E-PC.
7. The APS Operating Companies perform consolidated engineering and
construction services for each other pursuant to the Commission's Order
dated December 31, 1995 granting approval in Case No. 95-0811-E-PC. The
Commission has also approved the consolidation of mail payment processing
at Hagerstown for Petitioners through its Order dated April 19, 1996 in Case
No. 95-0408-E-PC.
II. Restructuring of APS
8. In 1995, APS announced its intention to undertake a
restructuring designed to consolidate and reengineer its operations to
better meet the competitive challenges of the changing electric utility
industry and remain the energy supplier of choice in the future for its
customers. On or about January 1, 1996, APSC began to realign its
organization to create distinct power generation and energy transmission and
distribution groups. As of July 1, 1996, the APS Operating Companies
restructured, including the reengineering of processes and the consolidation
of functions with services already provided by APSC. In addition, although
they have not changed their legal corporate names, nor altered in any manner
ownership of capital assets, the APS Operating Companies began doing
business under the trade name "Allegheny Power" as of September 1, 1996.
9. The restructuring is an effort to further control costs, operate
more efficiently, and prepare for the anticipated increase in retail and
wholesale competition among suppliers of electricity, resulting from passage
of the Energy Policy Act of 1992. The restructuring process for the most
part should be completed by the end of 1996, although the APS Companies now
embrace business process reengineering and continuous improvement as a way
of life.
10. The APS companies expect to realize a number of benefits from
restructuring. Beginning in 1996 and continuing into the future, increased
efficiencies and synergies are expected to result from the elimination of
layers of management and the elimination of previously duplicated functions.
The flattening, streamlining and consolidation of functions within the
organization will enhance efficiency and communication, which should
translate into a reduction in the rate of growth of operating and
maintenance expenses thereby minimizing the need for future rate increases.
A. Consolidation and Reengineering of Functions
11. In general, the restructuring is consolidating in APSC certain
functions which previously were either performed separately by employees of
each of the APS Operating Companies or by employees of the APS Operating
Companies along with employees of APSC. APS has been restructured into the
following functional units: Operating Business Unit; Retail Marketing;
Corporate Affairs; Generation Business Unit; Transmission Business Unit;
Planning and Compliance Business Unit; and Corporate Services, which serves
the business units. The restructuring did not involve the formation of any
new legal entities, nor did it require the writedown of any rate base
assets. No capital assets were transferred among companies within APS in
connection with the restructuring.
12. The overall goals of the restructuring have been to realign
functions by process and consolidate functions where feasible. The
following briefly describes the restructured functions.
1. Restructuring of Electric Utility Company Functions
Most of the functions which were performed exclusively by the APS
Operating Companies have been consolidated into three business units: 1) the
Operating Business Unit (OBU); 2) Retail Marketing business unit; and
3) Corporate Affairs. The Vice Presidents of these groups all report to a
Senior Vice President of APSC, who also holds the title of President of each
of the APS Operating Companies. Some of the main goals of the restructuring
of these functions include establishing a team-oriented environment,
maintaining fewer layers of management, establishing broader job
classifications and establishing an integrated work management system to
schedule, design, track and finish jobs.
a. Operating Business Unit
The OBU is administered by one Vice President and ten process
directors. Teams of employees will handle various processes from start to
finish. The processes covered include: respond to electric service
requests, restore service, ensure reliable service, manage the revenue
stream, manage resources and respond to customer inquiries. Instead of the
19 divisions comprising the service territory of the APS Operating Companies
before restructuring, the service area of the OBU is divided into seven
administrative regions which are staffed and served by teams consisting of
employees from APSC and employees of the APS Operating Companies. At
present, many physical employees, including all of the union work force,
remain employees of the APS Operating Companies. The OBU will also
include a state-of-the-art Customer Service Center located in Fairmont, West
Virginia which will be the "front door" to the new organization and will
handle all calls or forward them to members of the appropriate process
teams. All non-union OBU employees will become APSC employees by January 1,
1997.
b. Retail Marketing
Retail Marketing functions are performed by a Vice President, three
General Managers (residential, industrial and commercial) and their staffs.
This business unit is responsible for acquiring and maintaining customers.
To the extent legally permissible, this group aggressively markets new
products and services to meet customers' needs.
c. Corporate Affairs
The Corporate Affairs functions are handled by three Vice Presidents,
one located at each general corporate office and their staffs. These
employees will maintain active community and regulatory relations.
2. Restructuring of Bulk Power Supply
13. The Bulk Power Supply (BPS) section of APSC underwent a process
redesign, effective January 1, 1996 which created distinct generation,
transmission, and planning and compliance business units and resulted in a
reduction in work force of about 170 employees. The restructuring of BPS
combined the services that it was already providing to the APS Operating
Companies into three functional business units: Generation Business Unit
(GBU), Transmission Business Unit (TBU), and Planning and Compliance
Business Unit (P&CBU). These business units are each headed by a Vice
President of APSC. The Vice Presidents of the GBU, TBU and P&CBU all report
to a Senior Vice President of APSC. Various administrative and other support
services will continue to be provided to these business units by other APS
departments. In the restructuring of BPS, no new entities were formed and
no capital assets were transferred.
a. Generation Business Unit
The GBU is responsible for ensuring that adequate generation is
available to serve native load customers of the APS Operating Companies and
other loads served by the GBU by employing their generating facilities and
third-party generation obtained through marketing efforts. Its primary
responsibilities include ensuring the cost-effective operation and
maintenance of the system's generating units and providing the most economic
mix of generation from available generating units and off system purchases
and sales.
b. Transmission Business Unit
The TBU is responsible for ensuring that adequate high-voltage network
facilities are available and on-line to reliably convey power produced from
the power production operations run by, or procured by, the GBU to serve
native load and other loads served by these operations. It will also engage
in marketing efforts for sales of bundled and unbundled transmission
services to nonaffiliates and will be responsible for accommodating requests
for transmission service submitted by nonaffiliates who qualify for that
service under federal regulations. Finally, the TBU is responsible for
maintaining the optimal economic balance on a real-time basis between native
customer load and the output of the generation resources supplied by the
GBU, as well as managing the emission allowance resources of APS.
c. Planning and Compliance Business Unit
The P&CBU provides strategic resource planning and engineering
analysis of alternate transmission and generation resource options,
environmental and regulatory issues management, environmental compliance
oversight, research and development, and emerging technology development for
the APS system.
3. Restructuring of Corporate Services
14. The groups in this area provide certain corporate services to
the business units and have been restructured in order to supply these
services more efficiently. The following is a brief description of major
changes to this area resulting from the restructuring.
a. Accounting
Historically, functions of the Accounting Department have included
general accounting, accounts payable, plant accounting and taxes. These
functions were performed individually at three separate locations
(Greensburg, Fairmont and Hagerstown) by employees of the APS Operating
Companies or employees of APSC. By January 1, 1997, all Accounting employees
will be employees of APSC and each of the various accounting functions will
be consolidated at one location.
b. Information Services
Prior to restructuring, this department was divided into four groups:
Applications Development and Support; Technical Information Services and
Network Support; EDP Operations; and EDP User Support and Research
Development. Information Service is being reorganized into three main
groups: 1) Business Solution Team - concentrating on applications
acquisition, development, implementation and maintenance; 2) Technical
Operations Team - handling infrastructure planning, operation and
maintenance; and 3) Customer Support Team -including customer services and
support center. Also, six Business Consultants are assigned to the major
business units and will handle tasks from all three Information Services
groups. There is a customer service presence at all three corporate
headquarters, but the other teams are consolidated in Greensburg. As of
January 1, 1997 all Information Services employees will be employees of
APSC.
c. Financial Management
Historically, Financial Management has provided the following
services: capital management; forecasting of long-term financing;
insurance/risk management; corporate strategic planning and financial
planning.
Major changes implemented by the restructuring include combining four
budgeting groups and financial planning into a single financial management
group. The consolidation is designed to eliminate duplicate efforts and
reduce or eliminate hand-offs. As of January 1, 1997, all Financial
Management employees will be APSC employees.
d. Secretary/Treasurer
This area has historically provided services involving: 1) Corporate
secretarial functions, including Board of Director matters, administration
of APS Operating Company's indentures, regulatory filings and records and
library management; and 2) Treasury functions, such as bank relations,
cashier services, cash management (internal funding, cash forecasting and
external short-term borrowing and investing), credit and collections, cash
and customer bill processing, and long-term financing. These functions were
performed individually at all three corporate headquarters by separate
employees of the APS Operating Companies.
The restructuring of this area has produced the following key changes:
the Corporate Secretary function is transferred to Legal Services; and
Treasury is assuming the risk management function from Financial Management
and electronic commerce from Information Services. Treasury continues long-
term financings, bank relations and cash management functions and is
consolidated in Hagerstown. As of January 1, 1997, all employees in these
areas will become APSC employees.
e. Investor Relations
As of July 1, 1996, Investor Relations and Public Relations
(originally part of the Administrative function at APSC and part of Customer
Relations at the APS Operating Companies) were transferred and consolidated
to form External Relations, located at Hagerstown. As of October 1, 1996,
External Relations was combined with Communications (formerly under the
authority of Corporate Affairs) to form Corporate Communications, which is
responsible for internal and external communications, including advertising
and stockholder publications. Investor Relations remains responsible for
maintaining a favorable relationship between APS and the financial
community. As of January 1, 1997 all employees in these areas will be APSC
employees.
f. Audit Services
Historically, this department has performed financial, contracts, and
operations/consulting audits. Prior to the restructuring, Audits consisted
of four divisions located at the three corporate general office locations.
The Audit employees were either employees of one of the APS Operating
Companies or employees of APSC. As a result of the restructuring, Audit
Services is becoming one department and all Audit employees became APSC
employees.
g. Supply Chain
The Supply Chain functions include Purchasing, Stores, Fuel Accounting
and Accounts Payable. Historically, these functions were performed by
separate employees at all three APS Operating Companies. As a result of the
restructuring, Purchasing is named Procurement, and the employees performing
this function are being organized into Client Service Provider Teams.
Stores is named Materials Management and Distribution, and management of
this function has been centralized at Connellsville, Pennsylvania and at
Hagerstown. In addition, Accounts Payable is now called Payment Processing
and is consolidated in Hagerstown. All Supply Chain employees are currently
APSC employees.
h. Legal Services
In the past, local legal services were provided to the APS Operating
Companies by their own legal staffs, and the APSC legal department handled
corporate matters or matters of more generalized interest to APS. As a
result of the restructuring, all Legal Services personnel are currently
employees of APSC, and the attorneys are available to perform legal work for
any APS company.
i. Regulation and Pricing
The functions of the Rates department have included: Costing, Pricing
Support, Regulatory Management, and Billing. These functions were performed
by separate employees at all the individual APS Operating Companies and by
employees of APSC. As of January 1, 1997, all of the responsibilities of
this department, which is now known as Regulation and Pricing, will be
performed entirely by APSC employees. The Costing and Pricing Teams are
consolidated in Greensburg, the Financial Analysis Team is consolidated in
Hagerstown, and the Fuel and Capital Recovery Team is consolidated in
Fairmont.
j. Human Resources
Human resources policies for all of APS have traditionally been set
by a Human Resources (HR) policy-making department at APSC. These policies
were administered by separate HR departments of APSC and at each APS
Operating Company; each department was run by one of four HR Directors.
As the result of the restructuring, a single HR Director, with the
assistance of a two-person management team, will set and administer human
resources policies system-wide. All HR employees are presently APSC
employees.
k. Governmental Affairs
Prior to the restructuring, the Governmental Affairs function was part
of the Legal Services group and was performed locally by employees of the
various APS Operating Companies. This function has been removed from Legal
Services and its employees now report to a Vice President of Governmental
Affairs, a newly created position within APSC.
B. The Effect of Restructuring
15. As a result of the restructuring, the APS companies expect to
provide improved services more efficiently. By reorganizing and eliminating
certain processes and consolidating functions, the APS companies expect to
perform their functions with approximately 1,200 fewer employees. Some
savings from employee reductions will be offset by additional expenses for
technology, facilities revisions required by the restructuring and other
improvements in operations of the business units.
16. Except for the union work force and possibly some other
employees, the management, engineering, maintenance, legal, accounting,
payables and administrative and support functions previously performed by
the APS Operating Companies will be supplied, after the realignment, by
employees of APSC. By January 1, 1997, all non-union employees of the APS
Operating Companies will be employees of APSC. As compared with January 1,
1996, the restructuring of the APS companies is expected to result in the
net transfer of approximately 2800 non-union employees from the APS
Operating Companies to APSC. The transfer will increase overall employment
of APSC and will virtually eliminate non-union employment by the APS
Operating Companies.
C. Control Over APSC
17. A number of factors will ensure that APSC continues to be
responsive to the needs of the APS Operating Companies and provides the
operating companies with the ability to judge their need for inter-affiliate
services and to monitor the quality and value of the services being
provided. These factors include the APSC budget process, Securities and
Exchange Commission (SEC)-approved work order procedures to track and
document the initiation of services, billing and review procedures designed
to ensure the accuracy of APSC billings, and internal audit controls
designed to ensure the fairness of APSC charges. For example, Audit
Services will continue to meet at least twice a year with the Audit
Committees of the Boards of Directors of APS, APSC and the APS Operating
Companies (which Audit Committees are comprised solely of outside directors)
to review audit plans and findings. In addition, the Director, Audit
Services will continue to have open and direct access to the Chairmen of the
Audit Committees. These procedures will ensure that costs associated with
the services performed by APSC on behalf of the APS Operating Companies are
properly authorized, allocated and tracked.
D. Cost Allocation
18. Under existing SEC authority and practice, each of the APS
Operating Companies pays to APSC all costs which reasonably can be
identified and related to a particular transaction or service performed by
APSC on its behalf. These costs are captured in work orders in accordance
with the SEC's Uniform System of Accounts for Mutual Service Companies and
Subsidiary Service Companies. APSC's current method of allocations will be
maintained in the restructured organization.
APSC maintains a separate record of the expenses for each department.
Expenses are reported as departmental expenses, incremental out-of-pocket
expenses, or overhead expenses. Department expenses consist of salaries and
employee expenses, employee welfare expenses, rents, expenses of training
and development of APSC's employees, and all other expenses attributable to,
or necessary to the operation of the department. Incremental out-of-pocket
expenses are expenses incurred for the direct benefit and convenience of a
particular company or group of companies and are charged solely to such
company(ies). Overhead expenses include costs of maintaining the corporate
existence, such as taxes, outside auditing and legal fees, and other
corporate expenses.
1. Allocation of Departmental and Out-of-Pocket Expenses
Departmental and out-of-pocket expenses incurred by APSC are
accumulated by specific, identifiable work order numbers and directly billed
to the receiving company(ies). APSC will continue to use controls and
procedures relating to the existing work order accounting system reviewed
by this Commission in past rate cases. These procedures ensure that costs
associated with the services performed on behalf of the receiving company
are properly authorized, allocated, and tracked. Work orders are
established and administered in accordance with the SEC's Uniform System of
Accounts for Mutual and Subsidiary Service Companies.
When a service is rendered for the benefit of two or more companies,
the costs are shared by the receiving companies in proportion to the average
electric operating revenues of each (exclusive of sales to another APS
subsidiary), operating and maintenance expenses (exclusive of fuel, deferred
fuel, and purchased power and exchanges), kilowatt hours sold to regular
customers (other than to the APS subsidiaries), and total electric plant in
service (less revenues for depreciation and amortization), over the three
preceding calendar years.
2. Allocation of Overhead Expenses
Overhead expenses and the cost of services rendered by APSC are
distributed among receiving companies in direct proportion to the amount of
department expenses charged to or allocated to such companies.
The foregoing billing principles will remain the basis for APSC's
charges to the APS Operating Companies unless and until modified or until
new principles are adopted and reported to and/or approved by the
Commission.
E. Proposed Amendment to the Existing Service Agreement
19. The services centralized in APSC as a result of the
restructuring are a logical extension of the existing services being
provided by APSC to reflect changed business conditions and cost reduction
opportunities. They do not represent a fundamental change in the essential
character of the services previously rendered by APSC. They will be billed
in the same Commission approved manner, using existing allocation methods,
as other similar services heretofore have been provided by APSC.
20. To define the new responsibilities and services which will be
provided by APSC to Petitioners under the re-organization, it is necessary
to amend the Commission-approved November 3, 1993 Service Agreements between
Petitioners and APSC and refine Exhibit I to that agreement. Attachment
No. B-1 hereto is the proposed Amendment to Service Agreements covering all
three APS Operating Companies with a revised Exhibit I. Revised Exhibit I
sets forth the various services which APSC may provide to Petitioners and
its affiliates. This amendment will be executed by the parties following
receipt of all necessary regulatory approvals. By this petition, the
Commission is being requested to approve this proposed Amendment to Service
Agreements with its revised Exhibit I to the extent required by West
Virginia Code, Section 24-2-12, or other applicable law.
III. APS Operating Companies Providing Services to Each Other
21. One effect of the restructuring is to combine certain services
which were previously performed separately by each APS Operating Company.
In order that each operating company may perform services for the others,
the APS Operating Companies propose to enter into the form Service Agreement
attached hereto as Attachment No. B-2. This Service Agreement will be signed
by the parties after receiving all necessary regulatory approvals.
22. The services listed below are being consolidated and may be
performed by one or more of the APS Operating Companies for another of the
APS Operating Companies. The Commission has previously approved the
consolidation of the engineering and construction services, described below
in Section A, in its December 31, 1995 Order granting approval in Case
No. 95-0811-E-PC. The Commission has also approved the consolidation of
mail payment processing at Hagerstown, described below as part of Section
C, for Potomac Edison and Monongahela in its April 19, 1996 Order granting
approval in Case No. 95-0408-E-PC. Accordingly, these functions should not
require further Commission approval, we believe, but are listed as part of
the functions one operating company may perform for another. To the extent
the Commission feels additional approval is necessary for these functions
due to a new Service Agreement among the operating companies, we hereby
request such approval.
A. Engineering and Construction Services
At West Penn's Connellsville Center, the restructuring consolidated
certain engineering and construction work that had previously been performed
by Petitioners. Also, certain of the work that was previously performed by
West Penn was consolidated at Potomac Edison's Bower Avenue location. The
APS Operating Companies believe that consolidation of those functions will
result in increased efficiency for the entire System.
1. Materials and supplies--Transmission and distribution materials
are being supplied from West Penn's Connellsville storeroom and Potomac
Edison's Bower Avenue storeroom to all locations for the three APS Operating
Companies.
2. Distribution transformer/regulator repair--Repair of
distribution transformers as well as regulator repairs for all three APS
Operating Companies may be consolidated at West Penn's Connellsville Center.
Currently, this work is also being performed in Hagerstown.
3. Oil circuit recloser repair--West Penn's Connellsville center
is the central oil circuit recloser (OCR) repair site for Monongahela and
West Penn. OCR repairs for Potomac Edison are performed at Hagerstown.
Further cost comparison studies will determine whether all of the OCR
repairs should be performed at Connellsville.
4. Rubber goods repair and testing--For all three APS Operating
Companies, testing and inspection of rubber goods such as gloves, sleeves
and blankets is being consolidated at West Penn's Connellsville location.
5. Metering--Most meter test activities for the three APS Operating
Companies is being consolidated at West Penn's Connellsville location,
although some wiring of meter packages for all three operating companies is
still performed at Hagerstown.
6. Other Operations Services - Other operations services which have
been consolidated, but are still performed, at least in part, by APS
Operating Company employees include: Building Management; Transportation
Services; Substation Construction; Substation Maintenance; and
Telecommunications Operations.
B. Customer Service Center
As previously noted, a state-of-the-art Customer Service Center will
be located in Fairmont, West Virginia and its employees will answer incoming
calls to the APS Operating Companies by a toll-free number. At present, its
functions may be performed by employees of APSC or by employees of any of
the APS Operating Companies. Therefore, the APS Operating Companies may
perform services for one another which include responding to customer
inquires, initiating new service, dispatching service and line crews in
response to power outages, handling credit and collection activities,
responding to customer and Public Service Commission complaints, and
managing the meter reading and billing activities.
C. Office Services/Mail Payment
Currently, employees of one or more of the APS Operating Companies may
perform payment processing services for one or more of the other operating
companies. In addition, the APS Operating Companies may perform certain
office services, including secretarial, typing, mailroom services,
duplicating, fleet administration, and other similar services for one
another.
D. Cost Allocation
23. The APS Operating Company performing work for an affiliated
operating company will accumulate the actual costs incurred in providing
authorized services through the use of specific, identifiable work order
numbers or by FERC accounts, and will bill the receiving company based on
the amounts accumulated. Employee time sheets will be used to record the
amount of time employed in rendering such services. Out-of-pocket expenses
which are expended in regard to specific services will also be recorded.
24. The total cost of a particular service will be the sum of:
facilities charges, in order to recover depreciation and return on
investment on fixed assets; working capital charges, where appropriate; all
labor charges, including related payroll overheads and out-of-pocket
expenses; and any related overhead charge associated with out-of-pocket
costs. The billing process will be done monthly. In return for services
performed by an APS Operating Company, the recipient of the services will
pay the Operating Company which performs the service the actual costs
incurred by it in providing the service.
IV. Request for Approvals
25. Petitioners believe that the terms and conditions of the
Amendment To Service Agreements with its revised Exhibit I, appended as
Attachment No. B-1 hereto, and the new Service Agreement among the APS
Operating Companies, included as Attachment No. B-2 hereto, are fair and
reasonable, will not grant an undue advantage to any party to the
transactions and that approval of these agreements as set forth herein is
in the best interests of Petitioners' West Virginia customers. No other
electric utility subject to the jurisdiction of this Commission will be
affected by the Service Agreements.
26. Petitioners further represents that no purpose will be served
by the giving of formal notice or the conducting of a hearing concerning the
approval sought herein and that customers served by Petitioners would be
convenienced by the waiving of formal notice and hearing in regard thereto.
WHEREFORE, pursuant to Section 24-2-12 of the West Virginia Code and
to the extent required by law, Petitioners pray that the Commission approve
the subject Amendment to Service Agreements among the APS operating
companies and APSC, Attachment No. B-1, and a new Service Agreement among
the APS operating companies, Attachment No. B-2, as being in the public
interest and grant the consent and approval for Petitioners to enter into
said Agreements and perform such other acts as are necessary in furtherence
thereof.
Dated: October 28, 1996. MONONGAHELA POWER COMPANY and
THE POTOMAC EDISON COMPANY,
doing business as Allegheny Power
By: /s/
C. V. Estel, Jr., Vice President
/s/
Gary A. Jack
Attorney
1310 Fairmont Avenue
Fairmont, WV 26554
(304) 367-3423<PAGE>
<PAGE>
VERIFICATION
STATE OF WEST VIRGINIA,
COUNTY OF MARION, TO WIT
C. V. Estel, Jr., Vice President, Allegheny Power, being duly sworn,
says that the facts and allegations therein contained are true, except so
far as they are therein stated to be on information, and that, so far as
they are therein stated to be on information, he believes them to be true.
/s/
C. V. Estel, Jr.
Taken, sworn to and subscribed before me this ______ day of
__________________________, 1996.
/s/
Notary Public in and for said County
My commission expires __________________________.
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
PENNSYLVANIA PUBLIC UTILITY COMMISSION
P.O. BOX 3265, HARRISBURG, PA 17105-3266
FEBRUARY 13, 1997 REFER TO OUR FILE
G-00960525
JOHN L. MUNSCH ESQUIRE
WEST PENN POWER COMPANY
800 CABIN HILL DRIVE
GREENSBURG PA 15601-1689
Affiliated Interest Agreement between
West Penn Power Company and
Allegheny Power Service Corporation
To Whom It May Concern:
This is to advise you that an Opinion and Order has been adopted by
the Commission in Public Meeting on February 13, 1997, in the above
entitled proceeding.
An Opinion and Order has been enclosed for your records.
Very truly yours,
/s/
John G. Alford, Secretary
smk
Encls.
Cert.Mail
<PAGE>
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held February 13, 1997
Commissioners Present:
John M. Quain, Chairman
Lisa Crutchfield, Vice Chairman
John Hanger, Statement attached
David W. Rolka
Robert K. Bloom
Docket No.
Affiliated Interest Agreement Between WestG-00960525
Penn Power Company, Allegheny Power Service
Corporation and Other Operating Affiliates
OPINION AND ORDER
BY THE COMMISSION:
On November 8, 1996, an Affiliated Interest Agreement
("Agreement") between West Penn Power Company ("West Penn"), Allegheny
Power Service Corporation ("APSC") and its affiliates was filed to become
effective on December 8, 1996. On December 5, 1996, the Commission
extended the period for consideration of this Agreement to February 14,
1997.
This is an Agreement that amends a current affiliated
interest agreement between West Penn and APSC. This Agreement also seeks
approval of a new service agreement between West Penn and its other
operating affiliates (Monongahela Power Company and Potomac Edison).
The original Service Agreement was approved by the Commission
at Docket No. G-00930363. The existing Agreement addresses the
arrangement where APSC provides accounting, reporting and other
management services to the operating companies. This Agreement is being
revised in order to define new responsibilities and services which will
be provided by APSC to West Penn and its affiliates under Allegheny Power
System's reorganization.
In addition to revising the existing Service Agreement, this
Agreement seeks approval of a new Service Agreement among West Penn,
Monongahela and Potomac Edison. This is an Agreement whereby each
Company offers to furnish to any of the other affiliated companies a
variety of services including office services, operations services,
customer service center services and mail payment services.
Any service provided by one Company to another will be
provided for at cost. Cost will be calculated as the sum of facilities
charges, working capital charges, all labor charges, payroll overheads,
out-of-pocket expenses, and any overheads associated with out-of-pocket
expenses.
This Agreement enables centralized services to be provided
for activities that are deemed to be more efficient when centralized.
Customers will benefit as a result of the economies derived by these
centralizations.
The subject Agreement is filed in accordance with the
requirements of Section 2102(b) of the Public Utility Code, 66 Pa. C.S.
2102(b).
We have examined the Agreement and have determined that it
appears to be reasonable and consistent with the public interest;
however, approval of the Agreement does not preclude us from
investigating, during any formal proceeding, the reasonableness of
charges incurred under the Agreement;
THEREFORE,
IT IS ORDERED:
1. That the Affiliated Interest Agreement between West Penn
Power Company, Allegheny Power Service Corporation and other Operating
Affiliates filed on November 8, 1996, be and hereby is, approved.
2. That acceptance does not preclude the Commission from
investigating during any formal proceeding the reasonableness of charges
incurred under the Agreement.
3. That this Docket No. G-00960525 be marked closed.
BY THE COMMISSION
/s/
John G. Alford,
Secretary
(SEAL)
ORDER ADOPTED: February 13, 1997
ORDER ENTERED: FEB 13 1997
<PAGE>
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Harrisburg, Pennsylvania
AFFILIATED INTEREST AGREEMENT PUBLIC MEETING-
BETWEEN WEST PENN POWER COMPANY, FEBRUARY 13, 1997
ALLEGHENY POWER SERVICE CORPORATION FEB-97-FUS-1030*
AND ITS AFFILIATES DOCKET NO.
G-00960525
STATEMENT OF COMMISSIONER JOHN HANGER
The subject affiliated interest agreement is a continuation
of an agreement which has been in effect since 1993 in which West Penn
and the other APS companies perform certain regulated utility services
for each other. Since 1993, the APS companies have been able to operate
more efficiently by consolidating and avoiding duplication of these
services. The modifications at this time expand the services slightly
and reflect recent corporate reorganization, but do not change the basic
scope or nature of the consolidated services. Approval of these
efficiencies has been, and continues to be, in the public interest.
Since 1993, West Penn and APS have demonstrated actual
experience with specific services. These agreements do not raise any
issues concerning the interaction of West Penn and unregulated
competitive market services.
/s/
DATED JOHN HANGER, COMMISSIONER
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, April 11, 1997
APPLICATION OF
THE POTOMAC EDISON COMPANY,
dba ALLEGHENY POWER
CASE NO. PUA960065
The approval of service agreements among affiliates
ORDER GRANTING AUTHORITY
The Potomac Edison Company, dba Allegheny Power ("Petitioner",
"Company", "Applicant"), has filed an application with the Commission
under the Public Utilities Affiliates Act for authority to (1) amend the
existing Service Agreement with Allegheny Power Service Corporation
("APSC") and (2) to enter into a new Service Agreement with Monongahela
Power Company, dba Allegheny ("Mon Power") and West Penn Power Company,
dba Allegheny ("West Penn"). Together, Petitioner, APSC, Mon Power and
West Penn (the "APS Operating Companies") are operated as an integrated
public utility holding company system under the Public Utility Holding
Company Act of 1935 ("the 1935 Act"). The APS Operating Companies are
also wholly-owned subsidiaries of Allegheny Power System, Inc. (APS).
The Company states in its application that this Commission approved
in an Order entered on February 24, 1995, in Case No. PUA940014, a
Service Agreement, dated November 3, 1993, between the Company and APSC.
The Service Agreement allows APSC to provide certain services to the
Company and the other APS Operating Exchange Commission ("SEC") 1935 Act
and provides a cost-effective vehicle for APS companies to maximize the
economy available from operating an integrated electric system. APSC
provides certain centralized engineering, financial and administrative
services to the APS Operating Companies. In addition, the APS Operating
Companies perform certain operating service functions for each other
pursuant to this Commission's approval in Orders entered on March 8,
1996, in Case No. PUA950029 and May 24, 1996, and Case No. PUA950029.
As described in the application, APS announced in 1995 its
intention to undertake a restructuring designed to consolidate and
reengineer its operations in an effort to further control costs, operated
more efficiently, and prepare for the anticipated increase in retail and
wholesale competition among suppliers of electricity, resulting from
passage of the Energy Policy Act of 1992. Around January 1, 1996, APSC
began to realign its organization to create distinct power generation and
energy transmission and distribution groups. Also, as of July 1, 1996
the APS Operating Companies restructured, including the reengineering of
processes and the consolidation of functions with services already
provided by APSC. In addition, the APS Operating Companies began doing
business under the trade name "Allegheny Power" as of September 1, 1996.
However, they have not changed their legal corporate names, nor altered
in any manner the ownership of capital assets.
The Company states that the restructuring in APSC involves the
consolidating of certain functions which were either performed separately
by employees of each of the APS Operating Companies or by employees of
the APS Operating Companies along with employees of APSC. The result is
that APSC will provide new and expanded services to the Petitioner and
the other APS Operating Companies. To properly define the broadened
scope of services to be provided by APSC to the Petitioner and its
operating affiliates, it is necessary to amend the previously approved
November 3, 1993 Service Agreement. The services to be provided by APSC
to the Petitioner or its operating affiliates will be billed at cost
without a return component in accordance with the 1935 ACT. Also, APSC's
current method of allocations will be maintained.
The Company also states that another effect of the restructuring is
to combine certain services which were previously performed separately by
each of the APS Operating Companies. As a result, items such as
materials and supplies, meter test activities, rubber goods repair and
testing, office services and mail payments are being consolidated and
will be performed by one operating company for the benefit of the others.
This requires a service agreement among the APS Operating Companies to
define a working relationship and provide for appropriate cost sharing
and billing. The APS Operating Companies performing work for an
affiliated operating company will accumulate the actual costs incurred in
providing authorized services through the use of specific, identifiable
work order numbers or FERC accounts and will bill the receiving company
based on the amounts accumulated.
Accordingly, the Company believes that the terms and conditions of
the amendment to the previously approved November 3, 1993 Service
Agreement, and the new Service Agreement among the APS Operating
Companies are fair and reasonable, will not grant an undue advantage to
any party to the transactions and that approval of these agreements is in
the best interest of Virginia customers. The Company further states that
the purpose of the Amendment and new Service Agreement is to eliminate
redundancy in services, take advantage of economies of scale and to
create new and more efficient methods for performing work.
The amendment to the November 3, 1993 Service Agreement is of
indefinite duration and may be terminated by either party upon sixty (60)
days' prior notice. In addition, Petitioner may terminate the Service
Agreement at any time with or without notice for any cause deemed by it
to be sufficient.
Likewise, the new Service Agreement among the APS Operating
Companies is of indefinite duration and may be terminated by any party
upon sixty (60) days' prior notice. In addition, any company to the new
Service Agreement may terminate its participation in the agreement at any
time with or without notice for any cause deemed by it to be sufficient.
THE COMMISSION, upon consideration of the application and
representations of Applicant and having been advised by its Staff, is of
the opinion and finds that the above described amendment to the
previously approved November 3, 1993 Service Agreement, and the new
Service Agreement among the APS Operating Companies would be in the
public interest and should be approved.
Accordingly,
IT IS ORDERED:
1) That, pursuant to sections 56-77 of the Code of Virginia, the
Potomac Edison Company is hereby authorized to enter into the amendment
to the November 3, 1993 Service Agreement under the terms and conditions
described herein;
2) That, pursuant to sections 56-77 of the Code of Virginia, the
Potomac Edison Company is hereby authorized to enter into the new Service
Agreement with Monongahela Power Company and West Penn Power Company
under the terms and conditions described herein;
3) That should any terms and conditions of the amendment to the
November 3, 1993 Service Agreement or new Service Agreement with
Monongahela Power Company and West Penn Power Company change from those
described herein, Commission approval shall be required for such changes;
4) That the authority granted herein shall have no ratemaking
implications;
5) That the authority granted herein shall not preclude the
Commission from exercising provisions of sections 56-78 and 56-80 of the
Code of Virginia hereafter;
6) That the Commission reserves the right to examine the books
and records of any affiliate in connection with the authority granted
herein whether or not such affiliate is regulated by this Commission,
pursuant to sections 56-79 of the Code of Virginia;
7) That Applicant shall file an Affiliated Transaction Report
with the Director of Public Utility Accounting of the Commission on an
annual basis, such report to include, by month the following information
on each affiliate transaction: 1) affiliate's name; 2) description of the
services provided; 3) total dollar amount of transaction to or from
affiliate; 4) categorical component costs of each transaction (i.e.,
direct/indirect labor, fringe benefits, materials, supplies, overheads,
depreciation, taxes, interest expense, equity cost, etc.); 5) allocation
basis/factors for allocated costs; and 6) comparative market values of
such transactions;
8) That such report shall be filed with the Director of Public
Utility Accounting by no later than May 1 of each year for the preceding
calendar year, the first of such reports due on or before May 1, 1998;
9) That such report shall include all agreements with affiliates
regardless of the amount involved and shall supersede all other affiliate
reporting requirements previously ordered, and
10) That there appearing nothing further to be done in this
matter, the same be, and it hereby is, dismissed.
AN ATTESTED COPY hereof shall be sent to Applicant, care of Philip
J. Bray, Attorney, Allegheny Power, 10435 Downsville Pike, Hagerstown, MD
21740-1766 and delivered to the Director of Public Utility Accounting of
the Commission.
/s/
William J. Bridges
Clerk of the
State Corporation Commission
<PAGE>
EXHIBIT D-6
PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
Entered: December 12, 1996
CASE NO> 96-1344-E-PC
MONONGAHELA POWER COMPANY, doing business
as ALLEGHENY POWER and THE POTOMAC EDISON
COMPANY, doing business as ALLEGHENY
POWER
Petition for consent and approval to
allow the petitioners to enter into
new service agreements among its
affiliated companies.
RECOMMENDED DECISION
On October 30, 1996, Monongahela Power Company and The Potomac Edison
Company, doing business as Allegheny Power (Petitioners), filed a joint
petition, pursuant to West Virginia Code Sec. 24-2-12, seeking Commission
consent and approval to amend and enter into new Service Agreements among
its affiliated companies. Specifically, the Petitioners requested that the
Commission grant its consent to and approval of: (1) the amendment of the
existing Service Agreements by and between Monongahela Power Company and
Allegheny Power Service Corporation and The Potomac Edison Company and
Allegheny Power Service Corporation and (2) the entry into a new
Service Agreement between Monongahela Power Company, The
Potomac Edison Company and West Penn Power Company.
On November 22, 1996, Staff Attorney Caryn Watson Short
filed an Initial and Final Joint Staff Memorandum. A Utilities
Division Final Staff Recommendation dated November 12, 1996,
from Thomas D. Sprinkle, Senior Utilities Analyst, Energy
Section, Utilities Division, was attached thereto. Both of
these Memoranda recommended that the petition be approved,
provided however, that such approval be made without approving
the terms and conditions of the agreements for ratemaking
purposes.
By Order dated December 3, 1996, the Commission referred
this matter to the Division of Administrative Law Judges for
disposition and ordered that an Administrative Law Judge's
decision be rendered on or before February 7, 1997.
FINDINGS OF FACT
1. On October 30, 1996, Monongahela Power Company and
The Potomac Edison Company, both doing business as Allegheny
Power, filed a joint petition seeking Commission consent and
approval to amend and enter into new Service Agreements with
affiliated companies. (See, October 30, 1996 filing).
2. Commission Staff recommended that the petition be
approved. (See, Initial and Final Joint Staff Memorandum and
attachment filed November 22, 1996).
CONCLUSION OF LAW
Upon consideration of the above, the undersigned
Administrative Law Judge is of the opinion that the joint
petition filed by Monongahela Power Company and The Potomac
Edison Company, both doing business as Allegheny Power, should
be approved.
ORDER
IT IS, THEREFORE, ORDERED that the joint petition filed
herein on October 30, 1996, by Monongahela Power Company and
The Potomac Edison Company, seeking Commission consent and
approval to amend previous, and enter into new, Service
Agreements with affiliated companies, be, and hereby is,
granted, without specifically approving the terms and
conditions of said Service Agreements for ratemaking purposes.
IT IS FURTHER ORDERED that this matter be, and hereby is,
removed from the Commission's docket of open cases.
The Executive Secretary is hereby ordered to serve a copy
of this order upon the Commission by hand delivery, and upon
all parties of record by United States Certified Mail, return
receipt requested.
Leave is hereby granted to the parties to file written
exceptions supported by a brief with the Executive Secretary of
the Commission within fifteen (15) days of the date this order
is mailed. If exceptions are filed, the parties filing
exceptions shall certify to the Executive Secretary that all
parties of record have been served said exceptions.
If no exceptions are so filed this order shall become the
order of the Commission, without further action or order, five
(5) days following the expiration of the aforesaid fifteen (15)
day time period, unless it is ordered stayed or postponed by
the Commission.
Any party may request waiver of the right to file
exceptions to an Administrative Law Judge's Order by filing an
appropriate petition in writing with the Secretary. No such
waiver will be effective until approved by order of the
Commission, nor shall any such waiver operate to make any
Administrative Law Judge's Order or Decision the order of the
Commission sooner than five (5) days after approval of such
waiver by the Commission.
/s/
Melissa K. Marland
Chief Administrative Law Judge
U:\LEGAL\KMITCH2\WPFILES\96-1344.ORD
<PAGE>
EXHIBIT F
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Re: Case No. 70-8941
Gentlemen:
Referring to the Application or Declaration on Form U-1 filed
by Allegheny Power System, Inc. ("APS"), Allegheny Power Service
Corporation ("APSC"), Monongahela Power Company ("MP"), The Potomac
Edison Company ("PE"), and West Penn Power Company ("WPP")(MP, PE and WPP
are sometimes hereinafter collectively referred to as the "Electric
Utility Companies")under the Public Utility Holding Company Act of 1935
with respect to amending the APSC service agreements with the Electric
Utility Companies, entering into a new service agreement between the
Electric Utility Companies, and using an existing allocation factor for
unregulated subsidiaries, all as more particularly described in the
Application or Declaration of which this Opinion is a part, I have
examined or caused to be examined such documents and questions of law as
I deemed necessary to enable me to render this opinion.
I understand that the actions taken in connection with the
proposed transactions will be in accordance with the Application or
Declaration; that all amendments necessary to complete the above-
mentioned Application or Declaration will be filed with the Commission;
and that all other necessary corporate action by the Board of Directors
and officers of AGC in connection with the described transactions has
been or will be taken prior thereto.
Based upon the foregoing, I am of the opinion that if the
said Application or Declaration is permitted to become effective and the
proposed transactions are consummated in accordance therewith: (i) all
state laws applicable to the proposed transaction will have been complied
with; and (ii) the consummation of the proposed transactions will not
violate the legal rights of the holders of any of the securities issued
by APS, APSC, the Electric Utility Companies or by any associate or
affiliate company of any of them.
This opinion does not relate to State Blue Sky or securities
laws.
I consent to the use of this Opinion as part of the
Application or Declaration to which it is appended.
Very truly yours,
/s/
Thomas K. Henderson
Counsel for
ALLEGHENY POWER SYSTEM, INC.
ALLEGHENY POWER SERVICE CORPORATION
MONONGAHELA POWER COMPANY
THE POTOMAC EDISON COMPANY
WEST PENN POWER COMPANY
