File No. 70-9483
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM U-1
APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
West Penn Power Company
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
AYP Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
(Name of companies filing this statement
and addresses of principal executive offices)
_____________________
Allegheny Energy, Inc.
(Name of top registered holding company parent of applicants)
Thomas K. Henderson, Esq.
Vice President
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders
and communications in connection with this Application-
Declaration to:
Thomas K. Henderson, Esq.
Vice President
Allegheny Energy, Inc
10435 Downsville Pike
Hagerstown, Maryland 21740-1766
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1. Applicants hereby amend Item No. 2. Fees,
Commissions and Expenses by deleting it in its entirety and
substituting the following therefor:
Item No. 2. Fees, Commissions and Expenses
In addition to expenses of personnel employed by
Allegheny Energy Service Corporation (formerly Allegheny
Power Service Corporation), whose time is billed at cost,
the following estimated fees and expenses are expected to be
incurred by the Applicants in connection with the
consummation of the transactions contemplated herein:
Legal Fees and Expenses 750,000
Accountants' Fees and Expenses 50,000
Appraisal Fees and Expenses 90,000
Consultants 350,000
Miscellaneous Fees and Expenses 250,000
Total $1,490,000
2. Applicants hereby amend Item No. 1. Description of
Proposed Transaction, by amending Section C. Overview of
Requested Approvals, subparagraph numbered 2.j. by deleting
two references therein (lines 3 and 6) to the words "notes
payable to West Penn". The notes payable will not be
transferred by Energy Subsidiary to GENCO. The subsection,
as amended, will read as follows:
the transfer by Energy Subsidiary of the
Generating Assets; the AGC shares and related
rights and obligations; other generation related
assets; and the Associated Liabilities to GENCO in
exchange for the limited liability interests of
GENCO; and the acquisition by GENCO of the
Generating
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Assets, the AGC shares and related
rights and obligations; and the Associated
Liabilities.
3. Applicants hereby further amend Item No. 1. Description
of Proposed Transaction by adding the following language to
the end of Section H. Assignment and Delegation by Energy
Subsidiary to GENCO of Energy Subsidiary's Rights and
Obligations Under Certain Operating Agreements:
Each of the Joint-Owner Operation Agreements
has a clause which provides that "[T]his Agreement shall
continue in full force and effect for a period of 45 years
from the date hereof and for such longer period as the
Companies shall by mutual agreement continue to operate any
of the units at the Station." Consequently, GENCO's
assumption of all rights and obligations of Energy
Subsidiary (previously West Penn's rights and obligations
under the Joint-Owner Operation Agreements), may be
perpetual. The Joint-Owner Operating Agreements were
entered into in the mid-1960's, so the earliest expiration
of any of the agreements will be the year 2010, after which
time the companies may agree to continue the Agreements in
full force and effect. GENCO plans to perpetually operate
the plants of which it will be the sole owner. The Joint-
Owner Operating Agreements will be subject to Rules 90 and
91.
4. Applicants further amend Item No. 1. Description of
Proposed Transaction by adding the following language to the
end of Section B. Background and Regulatory Environment:
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Restructuring Plan
As a result of the Electric Generation Customer Choice Act
(the "Competition Act"), on November 19, 1998, the
Pennsylvania Public Utility Commission ("PAPUC") issued a
Final Opinion and Order in Docket No. R-00973981 regarding
the application by West Penn Power Company ("West Penn") for
approval of a restructuring plan. By this order, the PAPUC
approved the following for West Penn:
1. The recovery of $670 million1 (or $630 million in the
event of a merger with DQE, Inc.) of stranded costs through
the collection of a non-bypassable charge to every customer
of electric services within the geographical area that
comprises West Penn's certified service territory;
_______________________________
1 The Pennsylvania Public Utility Commission (PAPUC) order
issued on November 19, 1998 authorized West Penn to collect
$670 million (or $630 million in the event of a merger with
DQE, Inc.) of stranded costs from its retail customers
through a Competitive Transition Charge (CTC), to commence
in January, 1999. West Penn was permitted to securitize up
to that entire amount. This is no longer feasible because:
1) Some CTC has already been, and will continue to be,
collected from customers. The amount authorized for
collection up to the date of the bond issuance (some $40
million) must therefore be subtracted from the amount to be
securitized. 2) The PAPUC has set a maximum level for
generation rates (the "rate cap"). There are two basic
elements of the rate cap-the CTC and the "shopping credit".
If $670 million is securitized, there is a risk that the
Intangible Transition Charge-that part of the CTC which
services the Transition Bonds-will at some point exceed the
CTC amount. Reduction of the shopping credit would then be
required so as not to exceed the rate cap. The PAPUC
indicated in its Supplemental Qualified Rate Order issued
August 12, 1999, that, "While the Initial QRO and Joint
Settlement do allow West Penn to securitize 100% of its
stranded costs, the Commission urges that West Penn
management exercise good judgment regarding its final plans
for securitization so as to minimize the risk of
jeopardizing the level of shopping credits and competitive
alternatives for its customers." In addition to the
requirement that the amount already authorized for
collection be subtracted from the $670 million, it is out of
deference to this expressed urging of the PAPUC that West
Penn seeks authority from the SEC to issue only up to $600
million.
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2. The issuance of transition bonds in an aggregate amount
not to exceed $670 million with 75% of net savings from
securitization passed on to customers;
3. The reduction of West Penn's existing capitalization
with the proceeds from the issuance of the transition bonds;
and
4. The transfer of generation assets from West Penn to an
affiliated generation company.
In accordance with this approval by the PAPUC, West Penn is
requesting Commission approval to issue through subsidiaries
transition bonds and transfer through subsidiaries its
generation assets to Allegheny Energy Supply Company, a yet
to be created, wholly owned subsidiary of Allegheny Energy,
Inc. In order to accomplish the restructuring plan approved
by the PAPUC for West Penn, Commission approval is required
for certain transactions determined by the PAPUC to be in
the public interest.
Stranded Costs
In Docket No. R-00973981, the PAPUC determined that West
Penn's recovery of $670 million (or $630 million in the
event of a merger with DQE, Inc.) of stranded costs is just
and reasonable and in the public interest. The PAPUC's
Order authorized West Penn to collect from customers a non-
bypassable Competitive Transition Charge ("CTC") to recover
the $670 million (or $630 million in the event of a merger
with DQE, Inc.) of stranded costs. This non-bypassable
charge is applied to every customer of electric services
within the geographic area that comprises West Penn's
certified service territory. As an alternative
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to the
collection of the CTC, Pennsylvania's Competition Act allows
for the recovery of stranded costs through the issuance of
transition bonds that are payable from an Intangible
Transition Charge ("ITC"). The ITC is a non-bypassable
charge on customer bills to recover qualified transition
expenses pursuant to a qualified rate order (a "QRO") issued
by the PAPUC. Qualified transition expenses are defined to
include the aggregate principal amount of the transition
bonds plus interest and other costs related to the issuance
of the transition bonds.
Securitization
The PAPUC's November 19, 1998 order, supplemented by Order
dated August 12, 1999, authorizes West Penn to recover $670
million (or $630 million in the event of a merger with DQE,
Inc.) of stranded costs through a CTC or, at West Penn's
election, up to that amount through the issuance of
transition bonds. The PAPUC found that the issuance of up
to $670 million of transition bonds by West Penn is in the
public interest, in part because securitization will reduce
the return component of stranded costs chargeable to
customers. The PAPUC's Order requires that the savings from
securitization be used to reduce customer rates, which the
PAPUC concluded is in full compliance with the Electricity
Generation Customer Choice Act in Pennsylvania. The PAPUC
Order states "West Penn shall reduce the CTC's imposed on
its customers by an additional amount necessary to flow
through to customers 75% of the net savings achieved as a
result of securitization of its transition or stranded costs
and issuance of transition bonds." The first year benefit
for West Penn's customers due to securitization is estimated
to be $10 to $15 million. The Commission's approval of West
Penn's
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requested transaction to issue transition bonds is
necessary to achieve the savings from securitization and the
benefits for West Penn's customers.
Under the Competition Act, the PAPUC's issuance of a QRO and
its declaration that the relevant paragraphs of a QRO are
irrevocable gives rise to intangible transition property,
which under the Act is "the irrevocable right of the
electric utility or an assignee to receive through
intangible transition charges amounts sufficient to recover
all of its qualified transition expenses". In addition,
under the Competition Act, the Commonwealth of Pennsylvania
pledges and agrees with the holders of the transition bonds,
and with any assignee or finance party, not to limit or
alter or in any way impair or reduce the value of intangible
transition property or intangible transition charges
approved by a QRO until the related transition bonds are
fully discharged. West Penn's QRO declares that the
paragraphs in the QRO concerning the recovery of West Penn's
stranded costs through the issuance of transition bonds, the
imposition of an ITC on customers in an amount sufficient to
recover qualified transition expenses, and the sale of
intangible personal property, among other things, are
irrevocable for the purposes of the Competition Act. The
transition bonds will be fully secured by the pledge of an
irrevocable right to receive payments from West Penn's
customers in amounts sufficient to fully service the
transition bonds. The bondholders will not be looking to
the general credit of West Penn, and West Penn will under no
circumstances be called upon to meet the required payments
under the
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bonds. Accordingly, the transition bonds do not
constitute traditional "leverage".
West Penn plans to issue up to $600 million of transition
bonds after Commission approval is obtained.
Competition
In compliance with the Competition Act, a component of the
restructuring plan approved by the PAPUC is the PAPUC's
approval for West Penn to transfer its generation assets to
a newly formed Allegheny Energy Supply Company. This
transfer removes from West Penn's books and records the
generation assets no longer regulated by the PAPUC.
Allegheny Energy Supply Company will participate as a first
tier subsidiary of Allegheny Energy, Inc. in the competitive
energy supply markets, subject to the jurisdiction of the
Federal Energy Regulatory Commission.
As electric utility restructuring is enacted in other states
where Allegheny Subsidiaries provide electric service,
Allegheny Energy, Inc. plans to transfer the ownership
interest in generation owned by The Potomac Edison Company
and Monongahela Power Company to Allegheny Energy Supply
Company. As restructuring is implemented, Allegheny Energy
will integrate its ownership and operation of its generation
assets recognizing that each of the five states in which
Allegheny Energy Subsidiaries provide electric service may
adopt electric utility restructuring under varying
schedules. This will enable Allegheny Energy, Inc. to
consolidate its ownership interest in generation assets
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into a single company and will enable Allegheny Energy Supply
Company to maximize synergies of operations and financing.
Also, this will simplify the corporate structure and related
code of conduct issues.
West Penn plans to transfer its generation assets to
Allegheny Energy Supply Company after Commission approval is
obtained.
Common Equity Ratios
Confidential pro forma capital structures and capitalization
ratios through 2008, which is the scheduled term of the
transition bonds, were filed for West Penn and Allegheny
Energy, Inc. as Tables A and B, respectively.
West Penn's consolidated pro forma long term debt includes
$600 million of transition bonds, which do not adversely
affect West Penn's cash flows. The transition bonds will be
separately rated by credit rating agencies. The transition
bonds will not impact West Penn's credit ratings. The credit
rating agencies recognize that the transition bonds will be
serviced by the ITC approved by the PAPUC and therefore are
independent of West Penn's credit. Bonds similar to West
Penn's transition bonds that have been issued by other
utility companies have been rated AAA. It is expected that
an AAA rating will be achieved for the transition bonds to
be issued by West Penn.
West Penn's current credit ratings are A+ from Standard &
Poors, A1 from Moody's and A+ from Fitch. Based on
discussions with the credit rating agencies regarding West
Penn's credit ratings after the transfer
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of its generation
assets to Allegheny Energy Supply Company, it is expected
that West Penn's credit ratings will remain at the current
ratings or higher. Since West Penn will be a regulated
electric delivery company after its generation assets are
transferred, the credit rating agencies are expected to view
West Penn as having less business risk.
As shown in Table A of the confidential filing of a letter
dated October 5, 1999, West Penn's consolidated common
equity to total capitalization ratio prior to the pro forma
adjustments at June 30, 1999 is 43%. As a result of the pro
forma adjustments, West Penn's consolidated pro forma common
equity ratio at June 30, 1999 decreases to 14%. The
consolidated pro forma common equity ratio is projected to
increase annually through 2008 as the transition bonds
mature and certain pollution control notes mature in 2003
and 2007. The projected consolidated common equity ratio at
December 31, 2008 is 58%.
In carrying out the PAPUC's November 19, 1998 Order, West
Penn's consolidated common equity ratio is projected to
decrease below the Commission's 30% target during part of
the period that the transition bonds are outstanding. Based
on current projections, West Penn's common equity ratio is
projected to exceed 30% by December 31, 2004. West Penn
requests an exemption from the generally required 30% common
equity ratio in order to achieve the objectives of the
restructuring plan initiated under Pennsylvania's
Competition Act and approved by the PAPUC, including lower
rates to our Pennsylvania customers due to securitization
and the formation of a competitive generation company.
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By its approval of West Penn's proposed securitization and
transfer of generation assets, the PAPUC is implementing
provisions of the Competition Act. West Penn considers such
regulatory action to be unique and a compelling reason for
the Commission to approve the requested exemption.
Also, the decrease in West Penn's consolidated common equity
ratio below 30% is due to the transition bonds and pollution
control notes related to assets to be transferred to
Allegheny Energy Supply Company being shown as debt in the
consolidated financial statements of West Penn. The source
of the cash flows to service this debt will be the ITC and
Allegheny Energy Supply Company, not West Penn's utility
operations. These items do not represent leverage in the
classical sense that the 30% test was intended to address.
Excluding the transition bonds of $600 million and pollution
control debt of $230.8 million from the June 30, 1999
consolidated pro forma capital structure of West Penn, the
common equity ratio would be 48%.
During the period that West Penn's common equity ratio is
below 30%, West Penn will report annually its capital
structures and capitalization ratios for the most recent
year-end and pro forma through 2008. This report will be
submitted within 30 days after West Penn's Annual Report on
Form 10K is filed with the Commission. The report will be
submitted as a confidential report to the Commission's
Staff. This reporting requirement will cease once West
Penn's actual common equity ratio equals or exceeds the
Commission's 30% target.
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Allegheny Energy, Inc's pro forma consolidated common equity
ratio, excluding the transition bonds, as of June 30, 1999
is 41%.
5. Applicants hereby amend Item No. 6. Exhibits and
Financial Statements by adding the following:
(a) Exhibits
B-12 Form of Tax Allocation Agreement Amendment
D-8 Joint Petition for Full Settlement of West
Penn Power Company's Restructuring Plan and
Related Court Proceedings--November 3, 1998;
Docket No. R-00973981 (filed on paper with
request for hardship exemption).
D-9 Tentative Order of Pennsylvania Public
Utility Commission of November 4, 1998; Docket
No. R-00973981.
D-10 Final Opinion and Order of Pennsylvania
Public Utility Commission of November 19, 1998;
Docket No. R-00973981.
D-11 Opinion and Order of Pennsylvania Public
Utility Commission of May 29, 1998; Docket
No. R-00973981 (filed on paper with request for
hardship exemption).
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SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the Undersigned Company has
duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGHENY ENERGY, INC.
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
WEST PENN POWER COMPANY
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
AYP ENERGY, INC.
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
Dated: October 5, 1999
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EXHIBIT B-4
FORM OF TAX ALLOCATION AGREEMENT
AMENDMENT NO. 3 TO
TAX ALLOCATION AGREEMENT
By and Between
ALLEGHENY ENERGY, INC.
and its Subsidiaries
Amending the Agreement dated as of December 1, 1994
AMENDMENT NO. 3 dated as of ___________, 1999, among
ALLEGHENY ENERGY, INC. (hereinafter called the "Parent
Company") and the direct and indirect subsidiaries of the
Parent Company (hereinafter called the "Subsidiary
Companies"), collectively referred to hereinafter as "the
parties hereto".
WHEREAS, the Parent Company and the Subsidiaries are
parties to an agreement dated as of December 1, 1994
concerning their federal income tax allocation (the "Tax
Allocation Agreement"); and
WHEREAS, new subsidiary companies have been formed and
are joining in the consolidated group for federal income tax
purposes;
NOW THEREFORE, the parties hereto hereby mutually agree
that:
1. West Penn Funding Corp., West Penn Funding, LLC,
Allegheny Energy Supply Company, LLC, West Penn Transferring
Agent, LLC, Allegheny Enterprises, LLC, and Allegheny Energy
Unit 1 and Unit 2, LLC are included as parties to the Tax
Allocation Agreement as of the date hereof.
2. With the addition of the subsidiaries above-
named, the Agreement dated as of December 1, 1994 remains in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed.
ALLEGHENY GENERATING COMPANY
By
A. J. Noia
President
<PAGE>
ALLEGHENY PITTSBURGH COAL COMPANY
By
J. D. Latimer
Vice President
ALLEGHENY ENERGY SERVICE
CORPORATION (f/k/a Allegheny Power
Service Corporation)
By
A. J. Noia
President
ALLEGHENY ENERGY, INC.
(f/k/a Allegheny Power System, Inc.)
By
A. J. Noia
President
ALLEGHENY VENTURES, INC.
(f/k/a AYP Capital, Inc.)
By
A. J. Noia
President
MONONGAHELA POWER COMPANY
By
J. D. Latimer
Vice President
THE POTOMAC EDISON COMPANY
By
J. D. Latimer
Vice President
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WEST PENN POWER COMPANY
By
J. D. Latimer
Vice President
WEST PENN WEST VIRGINIA WATER
POWER COMPANY
By
J. D. Latimer
Vice President
WEST VIRGINIA POWER AND
TRANSMISSION COMPANY
By
A. J. Noia
President
ALLEGHENY COMMUNICATIONS
CONNECT, INC.
By
A. J. Noia
President
AYP ENERGY, INC.
By
A. J. Noia
President
ALLEGHENY ENERGY SOLUTIONS, INC.
By
President or Vice President
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WEST PENN FUNDING CORP.
By
President or Vice President
WEST PENN FUNDING, LLC
By
President or Vice President
ALLEGHENY ENERGY SUPPLY COMPANY, LLC
By
President or Vice President
WEST PENN TRANSFERRING AGENT, LLC
By
President or Vice President
ALLEGHENY ENTERPRISES, LLC
By
President or Vice President
ALLEGHENY ENERGY UNIT 1 AND
UNIT 2, LLC
By
President or Vice President
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PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held November 4, 1998
Commissioners present:
John M. Quain, Chairman
Robert K. Bloom, Vice Chairman
David W. Rolka, Concurring in result
Nora Mead Brownell
Aaron Wilson, Jr.
Application of West Penn Power Company for
Approval of a Restructuring Plan Under Section Docket No. R-00973981
2806 of the Code
TENTATIVE ORDER
BY THE COMMISSION:
On November 3, 1998, a Joint Petition for Full
Settlement ("Joint Petition") of the Restructuring Plan,
related Commission dockets and civil and appellate
litigation was filed in the above captioned proceedings by
West Penn Power Company ("West Penn"); the Office of
Consumer Advocate ("OCA"); the Office of Small Business
Advocate ("OSBA"), the Office of Trial Staff ("OTS"), West
Penn Power Industrial Intervenors ("WPPII"), Community
Action Association of Pennsylvania ("CAPP"), Allegheny
Electric Cooperative, Inc. ("AEC"), ARMCO, Inc. ("ARMCO"),
the Pennsylvania State University ("Pennsylvania State"),
Pennsylvania Retailers' Association ("PRA"), the
Environmentalists ("Environmentalists"), Hospital Shared
Services/Administrative Resources, Inc. ("HHS/ARI"), and
PECO Energy Company ("PECO")(all parties collectively
referred to as the Joint Petitioners).
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The proposed terms and conditions of the Joint Petition
represent a comprehensive settlement which resolves all
issues on appeal before the Commonwealth Court and all
issues before the U.S. District Court arising from
challenges by the Joint Petitioners to the Commission's
final orders regarding West Penn's Application for
Restructuring Plan under Section 2806 of the Public Utility
Code1.
The Joint Petitioners aver that the comprehensive
settlement is in the public interest and, therefore, request
that the Commission: (1) approve the settlement terms and
conditions set forth in the Joint Petition without
modification; (2) amend the Commission's Restructuring Order
and Reconsideration Order as necessary to implement the
proposed Settlement; (3) approve the Tariff Supplements
attached as Appendix B to become effective pursuant to the
terms set forth therein; (4) issue the Qualified Rate Order
set forth in Appendix E hereto; (5) approve West Penn's
transfer of generating assets as set forth herein; and (6)
approve West Penn's establishment of a regulatory asset for
certain CTC revenues as set forth herein. The Joint
Petitioners recognize, however, that pursuant to the
provisions of Section 703 (g) of the Public Utility Code,
the Commission is obligated to provide notice of an
opportunity to be heard before we may amend a prior order.
In the proposed settlement, there will be an immediate
overall 2.5% rate reduction,
effective January 1, 1999 through December 31, 1999.
Accordingly, customers that elect to shop for generation
will receive total rate reductions in
[FN]1 As noted in the Certificate of Service, copies of the
Joint Petition and appendices have been served by West Penn
on all parties to the proceeding by overnight mail or hand
delivery. In addition, the Joint Petition provides that
West Penn will provide written notice of the proposed
settlement by letter to its customers, will post notice in
its business offices and on its Internet web page, and will
provide notice by news release.
</FN>
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1999 equal to the 2.5%
decreases, plus any savings produced by the difference
between their generation purchase price and their shopping
credit. In addition to these guaranteed rate decreases,
West Penn's transmission and distribution charges, which
otherwise would expire on June 30, 2001, will be extended
through December 31, 2005 for all customers. Given these
provisions, as well as other specific components of the
proposed settlement, the Joint Petitioners expect the
proposed settlement to promote competition to the benefit of
business and industry as well as to residential consumers.
In addition, the settlement terms and conditions
provide that West Penn (1) will recover a substantially
smaller amount of stranded cost recovery than it claimed
before the Commission; (2) will be subject to competitive
safeguards to ensure fair dealing; (3) will expand its
current universal service programs; (4) will accelerate the
phase-in for customer choice for all customer classes; (5)
will educate consumers about restructuring (6) will
facilitate funding of sustainable energy; (7) will encourage
small renewable energy technologies; (8) will withdraw all
of its proceedings before the Commonwealth Court and its
civil complaint before the U.S. District Court challenging
the Commission's Restructuring Order, Reconsideration Order,
and Compliance Orders at Docket No. R-00973981; (9) will
accelerate the recognition of CTC revenue through the
creation of a regulatory asset; (10) will be required to
securitize up to 100% of stranded costs with 75% of the
savings realized from such securitization share with
consumers; (11) will be permitted to transfer generation
assets to an affiliate; and (12) will be required to adjust
the CTC recovery in the event West Penn sells its generation
assets within the next three years.
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The Joint Petitioners agree to resolve all objections
to West Penn's Restructuring Plan, as set forth herein, and
to withdraw (1) all cases pending before the Commonwealth
Court which challenge the constitutionality of the Electric
Competition Act except as specifically provided in Paragraph
N.5. and (2) all proceedings pending before the Commonwealth
Court which challenge the Commission's Restructuring Order,
reconsideration order and Compliance Orders at Docket No. R-
00973981, as set forth in Part N herein.
The proposed settlement set forth in the Joint Petition
and its Appendices constitutes a comprehensive resolution of
the broad array of issues raised by West Penn Restructuring
Plan under the Electric Competition Act. Consistent with
the fundamental goals of that historic legislation, the
proposed settlement provides for an orderly transition from
the current regulated electric utility structure for
generation to a structure under which retail customers will
have direct access to a competitive market for the
generation of electricity. Moreover, and also consistent
with the legislation, the proposed settlement provides for a
fair and reasonable recovery of West Penn's stranded costs
created by this transition to a competitive market. In
particular, the proposed settlement contains the following
benefits:
- - customers will receive overall rate decreases of 2.5%
during 1999;
- - two-thirds of all customers will have the opportunity
to choose an alternate electric generation supplier on
January 2, 1999;
- - customers will received shopping credits that may allow
shopping customers to achieve bill savings in addition to
the guaranteed rate cuts;
- - provisions of the settlement will insure that a
competitive market for electricity will be created and
functioning by January 1, 1999;
- - in the event that West Penn divests itself of
generation assets, the net jurisdictional proceeds will be
used to offset the Company's stranded costs, that
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is recoverable from ratepayers through West Penn's
Competitive Transition Charge;
- - transmission and distribution rates will be capped for
an additional four and one-half years, (to December 31,
2005);
- - the generation rate caps will be extended for an
additional three years;
- - universal service program will be expanded, and a
sustainable energy fund will promote the development and the
use of renewable energy and clean energy technologies,
energy conservation and efficiency which will benefit the
environment;
- - consumers will have the opportunity to receive metering
and billing services from competitive suppliers;
- - a competitive market for the provider of last resort
service will be established so that non-shopping customers
also have the opportunity to realize bill savings; and
- - substantial litigation and its associated costs and
uncertainties will be avoided.
Upon our review of the Joint Petition and Appendices, we
tentatively find that the proposal is in the public interest
and therefore should be approved. We note that the Joint
Petition has been signed by most if not all active parties
of record in West Penn's restructuring proceeding. Before
we can give final approval to the proposal, we shall afford
all parties of record an opportunity to file comments to the
comprehensive proposal.
Accordingly, we direct that any comments to the Joint
Petition and appendices must be filed on, or before November
16, 1998. Thereafter, we will promptly consider timely
filed comments and issue a final order with respect to the
proposed settlement set forth in the Joint Petition and
Appendices.
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We recognize and appreciate the uncounted hours spend
by the participants in preparing this Joint Petition, which
represents a negotiated resolution of important and
conflicting interests in a practical and enforceable manner.
We believe that this settlement represents a difficult, but
important step in establishing electric competition in areas
served by West Penn and anticipate that the competitive
energy market which will develop will strengthen the economy
those areas in particular and of the Commonwealth in
general. At the same time, the Joint Petition continues
necessary and important safeguards for utility customers
which is in the public interest to preserve.
We have thoroughly examined the proposed settlement.
Based upon that review, we tentatively find it to be in the
public interest; THEREFORE, IT IS ORDERED:
1. That in consideration of and reliance upon the
representations, mutual promises and undertakings of the
parties to this proposed settlement, including the agreement
of each signatory to be legally bound by its terms and the
certification or each signatory that he or she has full
authority to enter the settlement and to act on behalf of
their respective parties, the terms of the proposed
settlement set forth in the Joint Petition and Appendices
shall be and are hereby tentatively approved as to each and
every one of its terms and conditions, and we hereby
tentatively reconsider and amend our prior orders in this
proceeding as necessary to implement the terms of the full
settlement. Any issue not specifically addressed in this
settlement shall be treated and resolved in accordance with
the resolution of that issue in the Restructuring Order
adopted by the Commission and entered on May 29, 1998 at
Docket R-00973981.
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2. That the Commission hereby tentatively grants, subject
to the terms and conditions set forth in the Settlement, the
approvals, licenses and certificates required under the
Public Utility Code regarding the transfer, lease or
assignment of West Penn's generating assets and liabilities,
including but not limited to approvals under Chapter 5, 11,
19, 21, and 28 of the Public Utility Code.
3. That in the event of divestiture or transfer of West
Penn's generating facilities, it is tentatively determined
that allowing these generation facilities to qualify as
"eligible facilities" under the Public Utility Holding
Company Act of 1935 (1) will benefit consumers; (2) is in
the public interest and (3) does not violate State law.
4. That the recovery of stranded costs by West Penn of
$670 million ($630 in the event of a merger with DQE, Inc.),
subject to later reconciliation, is just and reasonable and
in the public interest.
5. That the tariff supplements appended to Joint Petition
and all other Appendices are hereby tentatively approved,
being necessary to implement the full settlement, and shall
become effective pursuant to the terms set forth in the
Joint Petition and Appendices.
6. That the application of West Penn Power Company for the
Issuance of an Irrevocable Qualified Rate Order under
Section 2808 and 2812 of the Public Utility Code, 66 Pa.
C.S. 2808 and 2812, attached to the Joint Petition for
Settlement as Appendix E, is hereby tentatively granted,
consistent with this Qualified Rate Order.
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7. That to the extent specified in the Qualified Rate
Order, West Penn's filings, testimony and exhibits submitted
to the Commission in conjunction with West Penn Company's
proposed Restructuring Plan, at Docket No. 0097381 are
hereby incorporated herein by reference.
8. That West Penn is tentatively authorized to create a
regulatory asset for the stranded cost recovery values for
1999 through 2002, and the recovery of that regulatory asset
shall be amortized over the years 2003 through 2008 as shown
in Appendix A.
9. That any party of record to West Penn's restructuring
proceeding at Docket R-00973981 may submit comments on, or
before November 16, 1998 with respect to the provisions of
the proposed settlement set forth in the Joint Petition and
the Appendices.
10. That written comments, an original and fifteen copies
shall be submitted to the Secretary, Pennsylvania Public
Utility Commission, P.O. Box 3265, Harrisburg, PA 17105-
3265. Comments should specifically reference the above
docketed number. Comments not received by the Secretary by
close of business on November 16, 1998 will not be
considered.
11. That this order shall not become final until the
Commission has considered all timely filed comments and
issued a final order.
12. That the Commission's approval of the terms and
conditions set forth in the Joint Petition and Appendices is
expressly contingent upon and shall not become final and
enforceable until all appeals and civil actions required to
be
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dismissed with prejudice as referred to in Part N of the
proposed settlement have been fully withdrawn, discontinued,
or dismissed with prejudice in accordance with the
provisions of the settlement.
13. That a copy of this tentative order shall be served
upon all parties to West Penn's restructuring proceeding at
Dkt. R-00973981.
BY THE COMMISSION,
James J. McNulty
Secretary
(SEAL)
ORDER ADOPTED: November 4, 1998
ORDER ENTERED: November 4, 1998
COMMONWEALTH OF PENNSYLVANIA
PENNSYLVANIA PUBLIC UTILITY COMMISSION
P.O. BOX 3265, HARRISBURG, PA 17105-3265
November 19, 1998
R-00973981
TO ALL PARTIES
Application of West Penn Power Company
for Approval of a Restructuring Plan
Under Section 2806 of the Code.
To Whom It May Concern:
This is to advise you that a Final Opinion and Order has
been adopted by the Commission in Public Meeting on November 19,
1998 in the above entitled proceeding.
A Final Opinion and Order has been enclosed for your
records.
Very truly yours,
/S/ JAMES J MCNULTY
James J. McNulty,
Secretary
encls
cert. mail
law
<PAGE>
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held November 19, 1998
Commissioners Present:
John M. Quain, Chairman
Robert K. Bloom, Vice Chairman
David W. Rolka, Statement attached
Nora Mead Brownell
Aaron Wilson, Jr.
Application of West Penn Power Company for
Approval of a Restructuring Plan Under Section Docket No. R-00973981
2806 of the Code.
FINAL OPINION AND ORDER
BY THE COMMISSION:
Before the Commission for consideration are the
comments filed with respect to our Tentative Order, entered
November 4, 1998, in the above-captioned proceedings. These
proceedings concern the restructuring plans and resulting
litigation arising under the Electric Generation Customer
Choice and Competition Act, 66 Pa- C.S. Section 2801-2812
("Act"), of West Penn Power Company ("West Penn" or "the
Company"). Our Tentative Order approved the terms of a
proposed full settlement ("Settlement") set forth in the
Joint Petition for Full Settlement of West Penn's
Restructuring Plan and Related Court Proceedings, dated
November 3, 1998 ("Joint Petition"). In the Tentative Order,
we provided that the determinations contained therein would
not become final until this Commission considered all timely
filed comments and issued a final order.
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Comments have been received from the Environmentalists
("the Environmentalists") and the Mid-Atlantic Power Supplier
Association ("MAPSA"). Also, a group of Joint Petitioners
involved with universal service issues-- West Penn, the
Office of Consumer Advocate ("OCA"), Community Action
Agencies of Pennsylvania ("CAAP") and the Environmentalists
-- filed a joint comment. The Dollar Energy Fund ("DEF"), an
independent non-profit organization that provides energy
assistance programs to low income families throughout
Pennsylvania, did not participate in the West Penn
restructuring proceeding, but did file a comment.
We also received timely comments from individual West
Penn customers: Mrs. Hiram Boggs, William J. Graham, Adam
Kushner, George H. Milne, Frank Beachly, Edward J. Giron,
and John Zutko.
Background
The Joint Petition dated November 3, 1998 has been
filed with the following signatories: West Penn; the OCA;
the Office of Small Business Advocate ("OSBA"), the Office
of Trial Staff ("OTS"), West Penn Power Industrial
Intervenors ("WPII")l, CAAP, Allegheny Electric Cooperative,
Inc. ("AEC"), the Pennsylvania State University ("Penn
State"), Pennsylvania Retailers' Association ("PRA"), the
Environmentalists2, Hospital Shared Services/Administrative
Resources, Inc. ("HHS/ARI"), and PECO Energy Company
("PECO") (all parties collectively referred to as the Joint
Petitioners).
1 WPPII includes in its membership ARMCO, Inc. who had
signed the Joint Petition individually.
2 The Environmentalists include The Sierra Club, The Group
Against Smog and Pollution, Clean Water Action, Citizen
Power, Inc., The Pennsylvania Public Interest Research
Group and Citizens' Organization on Utility Policies.
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As noted in the Tentative Order, the proposed terms and
conditions of the Joint Petition represent a comprehensive
settlement of the complex matter involved in achieving the
restructuring of West Penn. The Joint Petition is intended
to resolve all issues on appeal before the Commonwealth
Court and the United States District Court arising from
challenges by various Joint Petitioners to this Commission's
final orders and related determinations regarding West
Penn's Application for Approval of its Restructuring Plan
under Section 2806 of the Public Utility Code, 66 Pa. C.S.
Section 2806. The essential accomplishments of the
Settlement are as follows:
customers will receive overall rate decreases of
2.5% during 1999;
two-thirds of all customers will have the
opportunity to choose an alternate electric
generation supplier on January 2, 1999;
customers will receive shopping credits that may
allow shopping customers to achieve bill savings
in addition to the guaranteed rate cuts;
provisions of the settlement will insure that a
competitive market for electricity will be
created and functioning by January 1, 1999;
in the event that West Penn divests itself of
generation assets, the net jurisdictional
proceeds will be used to offset the Company's
stranded costs, that is recoverable from
ratepayers through West Penn's Competitive
Transition Charge;
transmission and distribution rates will be
capped for an additional four and one-half
years, (to December 31, 2005);
the generation rate caps will be extended for an
additional three years;
universal service program will be expanded, and
a sustainable energy fund will promote the
development and the use of renewable energy and
clean energy technologies, energy conservation
and efficiency which will benefit the
environment;
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consumers will have the opportunity to receive
metering and billing services from competitive
suppliers;
a competitive market for the provider of last
resort service will be established so that
non-shopping customers also have the opportunity
to realize bill savings; and
substantial litigation and its associated costs
and uncertainties will be avoided.
Copies of the Joint Petition, Settlement and Appendices
have been served by West Penn on all parties to the
proceeding by overnight mail or hand delivery. Written
notice of the proposed settlement has been provided by
letter to all West Penn customers, as well as posting in
offices and on the Companies' Internet web page, and by news
release. (See Tentative Order, p. 2, n. 1).
DISCUSSION
Comments of the Environmentalists
A. Net Metering
In their comments, the Environmentalists voice support
for the Joint Petition but propose a substantive change -
that language in the Net Energy Metering Rider be made
consistent with the net metering provisions of the PECO
Energy Company's final order. The Environmentalists state
that the language proposed by the Company at "Metering"
(paragraph 19 on page 4-12), "Self Generation Competitive
Transition Charge" (paragraph 40 on page 4-33) and "Net
Energy Metering Rider" (pages 34-1 through 34-3) differs
from the net metering provisions approved in the previous
three settlement agreements in the following ways:
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1.The West Penn rider states that customers with
eligible renewable energy projects are subject to the
competitive transition charge. In the previous cases,
these projects were exempt from the CTC. This
provision destroys the retail-in/retail-out up to net
feature of the net metering tariff.
2.The West Penn rider requires the customer to forfeit
any surplus of generation above generation during the
billing period. In the other settlements, the
customer that is likely to regularly generate a
surplus can choose either the two meter option or the
smart meter option to receive payment for energy it
generates in excess of consumption. The West Penn
customer does not have this option.
3.The West Penn rider does not give the customer the
option of using its existing non-ratcheted,
bi-directional meter. This meter option, present in
the other three settlements, is critical to keep the
costs reasonable.
4.The West Penn rider holds the customer responsible
for the cost of all changes in the distribution
system. In the other three settlements, the customer
was not responsible for the first $1,000 of local
distribution system upgrades.
The Environmentalists'Comments, p.2.
The Environmentalists request that the above provisions
be changed, and expressed their willingness to work with the
Company for inclusion in its compliance filing to draft a
net metering tariff that is consistent with earlier
settlements.
West Penn, in reply to the Environmentalists' comments,
prefaces its comments by pointing out that the
Environmentalists fully participated in the settlement
negotiations, and that in the Agreement signed by the
Environmentalists they agree to support the Settlement
Agreement before the Commission and not to initiate or join
in any court challenge of the Settlement Agreement. (See
Paragraph N.5.)
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As to the Environmentalists' proposed changes, West
Penn states that it is willing to allow net metering through
a non-ratcheted, bi-directional meter if one is already in
place (Item No. 3 on the Environmentalists' list). In
addition, West Penn is willing to allow those kilowatt-hours
of customer use that is supplied by the customer's own
generation to be exempt from a CTC, with the understanding
that such treatment does not reduce the total amount of CTC
revenue which West Penn is authorized to collect from
customers (Item No. I on the Environmentalists' list).
However, in light of West Penn's contribution of $4
million in shareholder funds to ECAP for development of
conservation services and for expansion of clean and
renewable energy sources, West Penn does not support adding
provisions to the signed Agreement at this late date to
incorporate Item No. 2 (a buy back of customer generation)
or Item No. 4 (free distribution system upgrades) requested
by the Environmentalists.
As there is agreement in regard to the
Environmentalists' requested changes regarding the allowance
of net metering through a non-ratcheted, bi-directional
meter that is already in place (Item No. 1), and the
exemption from a CTC of those kilowatt-hours supplied for a
customer's own use by the customer's own generation
(provided that the practice does not reduce the total amount of
CTC revenue which West Penn is authorized to collect from
customers) (Item No. 3), the Commission will direct that these
revisions be made to West Penn's Tariff.
As to the other two proposed changes advanced by the
Environmentalists, the Commission must agree with West Penn.
The Joint Petition provides that any matter not specifically
addressed is controlled by the Commission's May 29, 1998
Order on West Penn Restructuring filing. Joint Petition,
Paragraph M. 1. At p. 190
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of that Order, the Commission specifically rejected the
Environmentalists' proposal that West Penn be required to
purchase generation from any customer. Accordingly, by the
terms of the settlement, this request cannot be granted.
In regard to the Environmentalists' request that West
Penn provide free distribution system upgrades to
self-generators, the Joint Petition and the Commission's May
29, 1998 orders and subsequent compliance filing orders are
silent. Section 2804 (2) of the Act, 66 Pa. C.S. Section
2804(2), directs that customers should be afforded
"reasonable opportunities to self-generate and
interconnect." We believe that West Penn, in providing $4
million in funding to ECAP's residential energy conservation
and renewable resource program, has sufficiently satisfied
the Act's requirement. Therefore, we will deny the
Environmentalists' request for additional expenditures by
West Penn relating to self-generation.
B. Identification of Citizen Power, Inc. as Fund Recipient
The Environmentalists also request a change to the
language at paragraph D. 5 of page 25 of the Joint Petition
that would include the following language:
... West Penn agrees to contribute four million dollars
($4 million) of shareholder funds to Citizen Power,
Inc., the sponsor of the western division of the Energy
Association of Pennsylvania (ECAP), a licensed
aggregator, for a four year program.
The Environmentalists explain that there are two
reasons for this change. The first is that the proposed
language more accurately reflects the current status of ECAP
as provided for in an agreement between ECAP and Citizen's
Power. Second, the proposed language will better preserve
the funds for the purpose described in paragraph D.5 of the
Joint Petition. As a tax-exempt cooperative, ECAP must
distribute all residual proceeds to its members each tax
year. Unless
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the $4 million was totally spent in 1998, the choice is
distribute the remainder of the $4 million to ECAP's
members, or for ECAP to pay income tax on the unspent
amount. The plan is to place the funds in a tax-exempt
account of Citizen Power until they are actually used to
provide ECAP services.
In its comment, the Environmentalists state that West
Penn has approved this revision to the Settlement's language
and that OCA has no opinion about the proposed revision. In
its reply comments, West Penn reiterates that it does not
object to the addition of the language in Paragraph D.5 if
it is included in the Commission's Final Order. Accordingly,
the Commission directs that the language in Paragraph D.5 is
revised as proposed by the Environmentalists.
Comments of the Dollar Energy Fund; Comments Filed by Joint
Petitioners Regarding the Provision of Universal Service
In its comments, DEF requests that the Commission
change language that appears at Paragraph E.2 of the Joint
Petition. This language reads as follows:
West Penn shall use Community Action Agencies to
operate its. LIPURP and Pennsylvania Weatherization
Providers Task Force member agencies to operate its
LIURP.
DEF, who was not a participant in West Penn's
Restructuring Proceeding or in the Joint Petition for Settlement,
comments that the above language is restrictive and precludes other
qualified community agencies, such as DEF, from working with West Penn
to administer their universal service programs. DEF requests that generic
language be substituted for this restrictive provision:
E.2.West Penn shall use community-based agencies to
operate its LIPURP and LIURP.
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Alternate language for this paragraph is offered in
comments filed by those Joint Petitioners who were
interested in the Settlement's universal service provisions
- Office of Consumer Advocate, CAAP, West Penn and the
Environmentalists. OCA explains that it had contacted the
other parties and had worked with DEF to attempt to reach
agreement on the language that could be substituted for
original language in Paragraphs D.5.a and E.2. This
substitute language reads as follows:
D.5.a.All ECAP low income and rural programs and
services will be provided through Community
Action Agencies and Pennsylvania
Weatherization Task Force member agencies
except where these local providers are not in
a position to or are unwilling to provide the
programs and services.
E.2.West Penn shall use Dollar Energy Fund (Dollar
Energy) and Community Action Agencies to
operate its LIPURP and Pennsylvania
Weatherization Providers Task Force member
agencies to operate its LIURP unless these
agencies are unavailable or unwilling to
provide the programs and services. With
respect to LIURP, Dollar Energy will provide
prescreening and referral. Additionally,
50-75% of all LIURP jobs will receive quality
control inspection from Dollar Energy.
OCA states that it is authorized to state that CAAP,
West Penn, OCA and the Environmentalists agree that the
Settlement should be modified to incorporate this language,
and request that the Commission direct that the modification
be made. OCA also states that DEF has informed the OCA that
the language in Paragraph E.2 would allow DEF to continue
providing services in West Penn service territory and that
it would not oppose this language.
In its reply comments, West Penn states that it concurs
in the adoption of the language presented by OCA for
Sections D.5.a and E.2 of the Agreement and extends its
appreciation to OCA for its lead role in resolving universal
service
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issues in a way that will allow DEF to continue providing
service in West Penn's service area.
In light of the agreement of those Joint Petitioners
who are involved with universal service issues that these
amendments to the Joint Petition should be made, the
Commission will direct that these provisions should be so
revised.
Comments of MAPSA
In its comments3, MAPSA seeks a clarification as to a
specific portion of the Supplier Coordination Tariff that had
been appended to the Joint Petition as Appendix F.
Specifically, MAPSA is concerned with Section 6.2.6 that
provides for the calculation of the percentage of a load
attributable to an electric generation supplier ("EGS), and
the percentage of a load attributable to West Penn during the
phase-in period- MAPSA states that this provision is silent
as to which entity's energy is considered to be the "first
through the meter" for purposes of calculating a customer's
shopping credit. MAPSA explains that because West Penn has a
declining block rate structure, the entity whose energy is
considered as being the first through the meter determines
the size of the customer's shopping credit MAPSA further
explains that if a supplier' s energy is considered to be the
first through the meter, the customer will have a larger
shopping credit with which to shop, but if the converse is
true, namely if West Penn's energy is calculated to be the
first through the meter, the customer will have a much
smaller shopping credit (considering that West Penn's energy
as being first pushes the energy usage used to calculate the
shopping credit out to the lower blocks of the rate schedule,
thus
3 In its comments, MAPSA states that with regard to those
portions of the Competitive Safeguards (Appendix G), in
particular Articles 5, 6 and 7, it will communicate with
West Penn regarding standards for posting transactions,
offerings to the market, etc., and will attempt to meet
with West Penn to address these issues. MAPSA states that
the results of these discussions will be submitted to the
Commission where appropriate.
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creating a smaller shopping credit for the customer). MAPSA
claims that calculating West Penn's portion of load as being
first through the meter discourages customers from shopping.
MAPSA requests that the Commission clarify Section
6.2.6 of West Penn's Supplier Tariff and require that an
EGS's portion of the load be counted as "first through the
meter" for all purposes. MAPSA notes that the Commission
approved this provision in PP&L, Inc.'s Supplier
Coordination Tariff, and that the PP&L tariff was the basis
for discussion of West Penn's tariff. MAPSA states that West
Penn is currently calculating its energy as being first
through the meter and that this practice deprives
"commercial and industrial customers of the benefit of the
bargain, and essentially will vitiate the two-thirds
phase-in." For these reasons, MAPSA requests that the
Commission adopt this clarification.
In its reply comments , West Penn states that the
"first through the meter" issue for partial loads has been
extensively debated and resolved during the proceeding. West
Penn further states that the issue was initially raised by
WPPII in its comments to West Penn's Compliance Filing of
June 18, 1998. In response to these comments, by order, the
Commission directed West Penn to demonstrate that its
methodology for partial loads would not place customers on a
different, less advantageous rate or violate the rate
provisions of the Act. Order entered July 23, 1998 at Docket
No. R-00973981, p. 24.
West Penn continues that in its Revised Compliance
Filing of August 19, 1998, it demonstrated that it would
split charges during the phase-in for customers with loads
being served both by West Penn's EDC and the EGS, assuming a
full enrollment and 66 percent of the load available to shop. The
example submitted
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with the Compliance Filing shows that the West Penn and the
EGS provide generation at the same overall load factor.
West Penn then states that on September 17, 1998, the
Commission entered an Opinion and Order on the Company's
Revised Compliance Filing which addressed WPPII's concerns
for partial load industrial customers. In its September 17,
1998 Order, the Commission summarized the WPPII contentions
with respect to receiving service at a different less
advantageous rate and summarized WPPII's contention that
West Penn should be directed to implement phase-in for
partial load on a load-following basis. In resolving the
contentions of West Penn and WPPII, the Commission stated
that it believed that the methodology employed by West Penn
reasonably allocates customers' consumption between the EDC
and the EGS, and further that West Penn's methodology has
only a de minimis impact, if any, on a customer's ability to
shop.
West Penn states further that at the time of
negotiations the issue about partial loads during the
phase-in period arose again. West Penn claims that it was
considered in the context of the whole negotiation and
settlement, and that WPPII has agreed to withdraw its appeal
relating to partial load as part of the broader settlement,
and submits that the issue has been fully resolved.
The Commission has considered the merits of these
arguments in the context of this proceeding and agrees with
West Penn. The issue has been considered by this Commission
in the context of West Penn's previous compliance filings
and has been resolved. Order entered September 17, 1998 at
Docket No. R00973981, p. 19. In that order, the Commission
found that West Penn's methodology for allocation of partial
customer loads as presented in its compliance
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filings had only a de minimis impact on a customer's ability
to shop. We therefore decline to make this clarification.
Comments from Individual West Penn Customers
The individual comments filed by West Penn customers
were very complimentary to West Penn commending its
continued reliable service and low rates4. Others questioned
the amount of transition costs that the Company would be
allowed to recover from customers.
Based on the record before us, we believe that the
amount of stranded costs reached in the settlement is
reasonable. West Penn is permitted to recover a slightly
greater amount than authorized in the Commission's May 29,
1998 Restructuring Order, but customers will obtain a 2.5%
rate decrease during 1999 and have the protection of a rate
cap for an extended period of time. These and other
provisions of the settlement package, taken as a whole,
represent a fair and reasonable balance of the competing
interests involved in this matter.
CONCLUSION
The Joint Petition represents a comprehensive
settlement of all issues. concerning the restructuring of
West Penn Power Company. We are convinced that a resolution
of this proceeding is in the public interest; THEREFORE,
4 A couple of comments protested the proposed merger of
West Penn with DQE, Inc. which was the subject of
Commission proceedings on the Joint Application of DQE,
Inc. and Allegheny Power System, Inc. and AY? Sub, Inc. for
Approval of the Transfer by Merger of Property and Rights
of Duquesne Light Company to Allegheny Power System, Inc.,
Dkt. No. A- 110 150 F.00 15. The Commission will not
address this matter here except to point out that the
anticipated savings that will result from the proposed
merger will reduce the total amount of stranded costs that
West Penn will be permitted to collect from its customers
under the Settlement from $670 million to $630 million.
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IT IS ORDERED:
1. That the Tentative Opinion and Order entered
November 4, 1998, is hereby, made final, subject to and
incorporating herein, the modifications contained in this
Final Opinion and Order.
2. That in consideration of and reliance upon the
representations, mutual promises and undertakings of the
parties to this proposed settlement, including the express
agreement of each signatory to be legally bound by its terms
and certification of each signatory that he or she has full
authority to enter into the settlement and act on behalf of
their respective parties, the terms of the proposed full
settlement set forth in the Joint Petition and the
Appendices shall be hereby approved as to each and every one
of its terms and conditions, and we hereby reconsider and
amend our prior orders in these proceedings as necessary to
implement the terms of the full settlement. Any issue not
specifically addressed in this settlement shall be treated
and resolved in accordance with the resolution of that issue
in the Restructuring Order adopted by the Commission and
entered on May 29, 1998, at Docket No. R-00973981.
3. That the Commission hereby grants, subject to the
terms and conditions set forth in the Settlement, the
approvals, licenses and certificates required under the
Public Utility Code regarding the transfer, lease or
assignment of the Company's generating assets and
liabilities, including but not limited to approvals under
Chapter 5, 11, 19, 21 and 28 of the Public Utility Code.
4. That the recovery of stranded costs by West Penn of
$670 million (or $630 million in the event of a merger with
DQE, Inc.) is just and reasonable and in the public
interest.
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5. That the tariff supplements appended to the Joint
Petition and all Appendices are hereby approved, being
necessary to implement the full settlement and shall become
effective pursuant to the terms set forth in the Joint
Petition and Appendices.
6. That in the event of divestiture or transfer of West
Penn's generating facilities, it is hereby determined with
respect to the divested generation facilities of the Company
that allowing these generation facilities to qualify as
"'eligible facilities" under the Public Utility Holding
Company Act of 1935 (1) will benefit consumers, (2) is in
the public interest and (3) does not violate State law.
7. That the Commission's approval of the terms and
conditions set forth in the Joint Petition and Appendices is
expressly contingent upon and shall not become final and
enforceable until all appeals and civil actions required to
be dismissed with prejudice as referred to in Part N of the
Joint Petition have been finally withdrawn, discontinued, or
dismissed with prejudice in accordance with the provisions
of the settlement.
8. That the Application of West Penn Power Company for
the Issuance of a Qualified Rate Order Under Sections 2808
and 2812 of the Electricity Generation Customer Choice and
Competition Act, 66 Pa. C.S. Section 2808 and Section 2812,
contained in the Joint Petition for Settlement of West Penn
Power Company's Restructuring Plan be, and hereby is,
granted, consistent with this Qualified Rate Order.
9. That to the extent specified in this Qualified Rate
Order, West Penn's filings, testimony and exhibits submitted
to the Commission in conjunction with West Penn's
Restructuring Plan at Docket R-00973981, are hereby
incorporated herein by reference.
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10. That it is just and reasonable and in the public
interest for West Penn to recover from its customers, through
Intangible Transition Charges as and to the extent authorized
at Paragraph 12 of this Qualified Rate Order, up to $630
million of Qualified Transition Expenses (or in the event
that the proposed merger of Allegheny Energy, Inc., and DQE,
Inc. is not consummated, up to $670 million in Qualified
Transition Expenses) including all Transition or Stranded
Costs approved by the Commission for recovery from customers
and other Qualified Transition Expenses, as defined in
Paragraph 12, below. The savings from securitization and
issuance of transition bonds are provided for in the rates
and rate reductions set forth in Section BI and Appendix A of
the Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Court Proceedings at
Docket No. R-00973981 and further reductions in the CTC/ITC
set forth in Section A.5 of the Joint Petition. The aforesaid
rates and CTC/ITC, reductions constitute full compliance with
Sections 2808(e) and 2812(b)(2) of the Electricity Generation
Customer Choice and Competition Act and no further rate
reduction is required.
11. That this Commission authorizes the issuance of
Transition Bonds in an aggregate principal amount not to
exceed $630 million (or not to exceed $670 million in the
event that the merger is not consummated) and finds that the
issuance of such amount of Transition Bonds is in the public
interest. Provided that the rate reductions specified in
the Joint Petition are implemented as provided in Paragraph
13 of this Qualified Rate Order, this Commission hereby
determines that 75% of all savings that may be accomplished
through securitization will be passed on to customers
through the rate reductions in Paragraph 13 and West Penn is
not required to pass on additional savings, and no further
rate adjustment, is required because the Commission hereby
finds that such additional savings have already been
reflected in this Joint Petition.
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12. That this Commission authorizes West Penn to impose
on, and to collect from its customers, either directly or
through bills rendered by electric generation suppliers or
any subsequently selected providers of last resort, through
non-bypassable charges applied to the bill of every customer
of electric services within the geographic area that
comprises West Penn's certified service territory on the
effective date of the Act, whether such customer was a
customer on the effective date of the Act, or became a
customer after that date, (i) Competitive Transition Charges
("CTCs") as provided in the Joint Petition in an amount
sufficient to permit West Penn to recover the full amount of
its Transition or Stranded Costs as authorized for recovery
by the Commission's approval of the Settlement Petition, and
(ii) Intangible Transition Charges in an amount sufficient to
recover the aggregate principal amount of the Transition
Bonds plus a reasonable amount sufficient to provide for any
credit enhancement to fund any reserves, and to pay interest,
premiums upon acquisition or redemption of equity or debt, if
any, costs of defeasance, servicing fees and other fees,
costs and charges relating to the Transition Bonds (the
Transition or Stranded Costs, which includes the principal
and interest on Transition Bonds, costs for credit
enhancements, the costs of retiring existing debt and equity,
costs of defeasance, servicing fees and other related fees,
taxes, costs, charges and expenses permitted to be recovered
through Intangible Transition Charges, collectively the
"Qualified Transition Expenses"). The Commission finds that
such recovery and the imposition of such CTCs and Intangible
Transition Charges are in the public interest and are just
and reasonable. The Commission finds that good cause has been
shown to extend the payment period for imposing the CTCs and
the Intangible Transition Charges to December 31, 2008. The
Intangible Transition Charges shall be collected over periods
of time and in such amounts as are necessary to amortize each
series and class of Transition Bonds in accordance with the
terms thereof, but in no event
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shall be charged to the customers after December 31, 2008.
Notwithstanding anything else in this Qualified Rate Order,
the Intangible Transition Charges shall be collected from
customers in an amount sufficient to discharge the
Transition Bonds in accordance with their terms.
13. Upon the successful issuance of Transition Bonds
authorized by this Qualified Rate Order and the imposition of
Intangible Transition Charges related thereto, West Penn is
directed to implement the following adjustments to its rates:
West Penn shall reduce the CTCs imposed on its customers by
an amount equal to the Intangible Transition Charges
associated with such Transition Bond issuance and West Penn
shall reduce the CTCs imposed on its customers by an
additional amount necessary to flow through to customers 75%
of the net savings achieved as a result of securitization of
its Transition or Stranded costs and issuance of Transition
Bonds. The reductions specified above shall be implemented on
the following terms: (a) upon the issuance of any series of
Transition Bonds, a corresponding reduction shall be
calculated and implemented corresponding to each such series;
(b) the rate reduction shall be applied to bills using the
method set forth in the Joint Petition; and (c) the
Intangible Transition Charges associated with the Transition
Bonds issued on that date shall be applied to bills
simultaneously with the reduction of the CTCs.
14. That the CTCs and the Intangible Transition Charges
shall be applied to customer bills using the methodology and
allocation set forth in West Penn's QRO Application and its
Restructuring Filing, as adjusted by the Joint Petition.
Pursuant to Section 2812(b)(5) of the Act, the Commission
authorizes West Penn to make annual adjustments (each, an
"Annual Adjustment") to the Intangible Transition Charges if
collections of such Intangible Transition Charges fall below
the amount necessary to ensure the receipt by the assignee
of the Intangible
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Transition Property and Financing Party of revenue sufficient
to recover fully the Qualified Transition Expenses consistent
with this Commission's Order; provided, however, that
adjustments during the final calendar year of Intangible
Transition Charge collection for any series of Transition
Bonds shall be done quarterly or monthly, if necessary, in
order to ensure full recovery of Intangible Transition
Charges. The revenues received by the assignee of the
Intangible Property and the Financing Party through the
Intangible Transition Charges shall be determined to be
sufficient for this purpose if and only if the revenues so
received through the Intangible Transition Charges are
sufficient to provide for the payment of the principal,
interest, and acquisition or redemption premium on Transition
Bonds, to fund any reserves and to pay relayed credit
enhancement, servicing fees and other related fees, costs and
charges in accordance with the terms thereof and as
consistent with the terms of this Qualified Rate Order and
the Joint Petition. For each Annual Adjustment, West Penn
shall file with this Commission: (a) an accounting of
Intangible Transition Charges received by the assignee of the
Intangible Transition Property and the Financing Party for
the previous annual period; (b) a statement of any over- or
under-receipts; (c) the charge or credit to be added to the
Intangible Transition Charges to ensure that the Intangible
Transition Charges revenue received by assignee of the
Intangible Property and the Financing Party will be
sufficient to amortize the Qualified Transition Expenses in
accordance with the amortization schedule for Transition
Bonds to be determined at the time of issuance of each series
of Transition Bonds) and the corresponding reduction or
increase in the CTCs, or if CTCs have not been imposed, West
Penn's distribution rates; and (d) any proposal by West Penn
to modify the reconciliation methodology. Pursuant to 66 Pa.
C.S. Section 2812 (b)(5), this Commission shall finally
adjudicate all Annual Adjustments within 90 days of West
Penn's Annual Adjustment filing.
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15. That this Commission determines that the
methodology under which West Penn will recover the
Intangible Transition Charges authorized by this Qualified
Rate Order satisfies the provisions of 66 Pa. C.S. Section
2812(g), which require the methodology not shift inter-class
or intra-class costs and that the methodology maintains
consistency with the allocation methodology for utility
production plant used by the Commission in West Penn's most
recently concluded base-rate proceeding.
16. That this Commission concludes that it is in the
public interest to, and authorizes West Penn and any Assignee
to, (a) assign, sell, transfer or pledge Intangible
Transition Property (such term includes all right title, and
interest of West Penn or any Assignee in this Qualified Rate
Order) in an amount sufficient to recover all its Qualified
Transition Expenses and in all revenues, collections, claims,
payments, money or proceeds arising from Intangible
Transition Charges pursuant to this Qualified Rate Order to
the extent that this Qualified Rate Order and the rates and
other charges authorized hereunder are declared irrevocable
and (b) issue, sell and refinance, in reliance on this
Qualified Rate Order, one or more series of Transition Bonds,
each series in one or more classes, secured by Intangible
Transition Property created by this Qualified Rate Order,
provided that, the final maturity of any series of Transition
Bonds shall not exceed 10 years from the date of issuance and
in no event shall any Transition Bond have a final maturity
after December 31, 2008. Notwithstanding the foregoing, West
Penn retains sole discretion regarding whether to assign,
sell or otherwise transfer Intangible Transition Property
created hereby or to issue or cause the Transition Bonds to
be issued or refinanced.
17.That West Penn or any Assignee may refinance the
Transition Bonds in a face amount not to exceed the
unamortized principal thereof. That, if West
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Penn or any Assignee refinances the Transition Bonds, the
Intangible Transition Charges authorized in this Qualified
Rate Order shall be adjusted in accordance with the true-up
mechanism described in Paragraph 14 of this Qualified Rate
Order to ensure the receipt by the Transition Bond Assignee
of revenues sufficient to pay for all Transition or Stranded
Costs of West Penn approved by the Commission for recovery
under Sections 2804 (relating to standards for restructuring
of the electric industry) and 2808 (relating to competitive
transition charge), through the issuance of Transition Bonds;
the reasonable costs of retiring existing debt or equity
capital of the electric utility or its holding company
parent, including accrued interest and premiums upon
acquisition or redemption of equity or debt, costs of
defeasance, and other related fees, costs, and charges
relating to, through the issuance of Transition Bonds or the
assignment, sale, or other transfer of Intangible Transition
Property; and the costs incurred to issue, service or
refinance the Transition Bonds, including accrued interest
and acquisition or redemption premium, and other related
fees, taxes, costs and charges, or to assign, sell, or
otherwise transfer Intangible Transition Property. The
revenues received by the Transition Bond Assignee through the
Intangible Transition Charges shall be determined to be
sufficient for this purpose if and only if the revenues so
received through the Intangible Transition Charges provide
for the amortization of Transition Bonds in accordance with
the amortization schedule set forth in any prospectus or
other offering document provided to the holders of the
refinanced bonds after payment of interest, reserves, all
Transition or Stranded Costs of West Penn approved by the
Commission for recovery under Sections 2804 (relating to
standards for restructuring of electric industry) and 2808
(relating to competitive transition charge), through the
issuance of Transition Bonds; the costs of retiring existing
debt or equity capital of the electric utility or its holding
company parent including accrued interest and premiums upon
acquisition or redemption of equity
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or debt costs of defeasance, and other related fees, costs
and charges relating to, through the issuance of Transition
Bonds or the assignment, sale or other transfer of
Intangible Transition Property; and the costs incurred to
issue, service, or refinance the Transition Bonds, including
accrued interest and premiums upon acquisition or redemption
of equity or debt, and other related fees, costs and
charges, or to assign, sell or otherwise transfer Intangible
Transition Property.
18. That this Commission directs that West Penn use the
proceeds from the assignment, sale, transfer or pledge of
Intangible Transition Property and the issuance and sale of
Transition Bonds principally to reduce West Penn's
Transition or Stranded Costs as set forth in the Settlement
Petition by reducing related capitalization. The Commission
authorizes West Penn to reduce West Penn's existing
capitalization through retirement of outstanding debt and
preferred stock and through stock buy backs, dividends and
purchases of common stock in such proportions as West Penn
determines.
19. That West Penn shall file with this Commission, no
later than 120 days after the issuance or refinancing of
Transition Bonds, a description of the final structure of
each issuance or refinancing of Transition Bonds, a
description of the final structure of each issuance or
refinancing of such Transition Bonds, including the
principal amount, the price at which each such series and/or
class of Transition Bonds was sold, payment schedules, the
interest rate and other financing costs, and the final plans
for West Penn's use of the proceeds of such offering.
Notwithstanding such filing, the final structure of each
such issuance or refinancing shall not be subject to change
or revision by this Commission after the date of such
issuance or refinancing.
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20. That to the extent that West Penn, or any Assignee,
assigns, sells, transfers, or pledges any interest in the
Intangible Property created hereby, this Commission
authorizes West Penn to contract, for a specified fee, with
such Assignee for West Penn, its successors or assigns to
continue to operate the system to provide electric services
to West Penn's customers, to impose and collect the
applicable Intangible Transition Charges for the benefit and
account of the Assignee, to make periodic adjustments of the
Intangible Transition Charges contemplated under Paragraph 14
of this Qualified Rate Order, and to account for and remit
the applicable Intangible Transition Charges to or for the
account of the Assignee free of any charge, deduction, or
surcharge of any kind (other than the specified contractual
fee referred to above). This Commission also authorizes West
Penn to contract with the Assignee and an alternative party,
which may be a trustee, that the alternative party wll
replace West Penn under its contract with the Assignee and
perform the obligations of West Penn contemplated in this
Qualified Rate Order. The obligations of West Penn (a) shall
be binding upon West Penn, its successors and assigns and (b)
shall be required by this Commission to be undertaken and
performed by West Penn and any other entity that provides
transmission and distribution services to a person that was a
customer of West Penn located within West Penn's certified
territory on January 1, 1997, or that became a customer of
electric services within such territory after January 1,
1997, and is still located within such territory, as a
condition to providing service to such customer or municipal
entity providing such services in place of West Penn by West
Penn or such other entity.
21. That this Commission hereby declares that this
Qualified Rate Order shall be irrevocable for purposes of
Section 2812 of the Public Utility Code, 66 Pa. C.S. Section
2812, and accordingly agrees that it will not directly or
indirectly, by any subsequent action, reduce, postpone,
impair or terminate this Qualified Rate Order
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or the Intangible Transition Charges authorized to be
imposed or collected under this Qualified Rate Order. This
Commission further declares that the right, title and
interest of West Penn and any Assignee in this Qualified
Rate Order and the Intangible Transition Charges, the rates
and other charges authorized hereby and all revenues,
collections, claims, payments, money or proceeds arising
from the same constitutes Intangible Transition Property.
West Penn shall have the irrevocable right to issue
Transition Bonds in accordance with the Qualified Rate Order
until December 31, 2008.
22. That West Penn may apply to the Commission for
supplements to this Qualified Rate Order, not inconsistent
with the terms and provisions hereof and the Settlement
Petition, as West Penn deems necessary to enable the
issuance of Transition Bonds authorized thereunder.
23. That during some or all of this period during which
the Intangible Transition Charges and the CTCs approved by
this Qualified Rate Order are being collected, the
generation component of West Penn's charges to customers
will be limited by the provisions of 66 Pa. C.S. Section
2804(4)(pertaining to rate caps) and the provisions of the
Joint Petition. For purposes of 66 Pa. C.S. Section 2804
(4)(ii), the generation component of West Penn's charges
includes CTCs, Intangible Transition Charges, and other
generation charges. If the combined total of these elements
would cause the generation component of West Penn's charges
to exceed the rate cap specified in 66 Pa. C.S. Section
2804(4) and the Joint Petition, West Penn shall retain
whatever right it may have under existing provisions of the
statute as limited by the Joint Petition to request relief
from the rate cap, but if it does not seek such relief, or
if that relief is denied, West Penn shall adjust the non
securitized elements of its generation charges, rather than
the Intangible Transition Charges approved by this Qualified
Rate Order, to bring the charges into
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compliance with the rate cap provisions of 66 Pa. C.S.
Section 2804 (4) and the Joint Petition.
24. That all regulatory approvals within the
jurisdiction of the Commission that are necessary for the
securitization of Qualified Transition Expenses and all
related transactions contemplated in West Penn's Application
for a Qualified Rate Order, including but not limited to any
approvals under Chapter II and 19 of the Public Utility
Code, are hereby granted.
25. That West Penn is authorized to create a regulatory
asset for the stranded cost recovery values for 1999 through
2002, and the recovery of that regulatory asset shall be
amortized over the years 2003 through 2008 as shown in
Appendix A of the Joint Petition.
26. That consistent with Section B.1 of the Joint
Petition, West Penn is directed to implement its January 1,
1999 rate decrease through a refund to customers from 1998
revenues in the amount of $25.1 million, and that rate
decrease shall apply to each retail rate classification and
customers within those rate classifications as set forth in
Appendices B and K of the Joint Petition.
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27. That a copy of this Final Opinion and Order. shall
be served upon all parties to the instant restructuring
proceeding at Docket No. R-00973981.
BY THE COMMISSION
/S/ JAMES J MCNULTY
James I McNulty
Secretary
(SEAL)
ORDER ADOPTED: November 19,1998
ORDER ENTERED: NOVEMBER 19, 1998
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PENNSYLVANIA PUBLIC UTILITY
COMMISSION
Harrisburg, Pennsylvania 17105-3265
JOINT PETITION FOR FULL SETTLEMENT PUBLIC MEETING -
OF WEST PENN POWER COMPANY`S NOVEMBER 19. 1998
RESTRUCTURING PLAN AND NOV-98-L-110
RELATED COURT PROCEEDINGS DOCKET NO. R-00973981
STATEMENT OF COMMISSIONER DAVID W. ROLKA
I am concerned about the language at Section E.2 -
Universal Service and Energy Conservation. Section E.2 reads:
'West Penn shall use Community-Action Agencies to operate its
LIPURP and Pennsylvania Weatherization Providers Task Force
member agencies to operate its LIURP" (Emphasis added). The
language in the Settlement Agreement directs West Penn to use
specific community-based organizations (CBOs) to administer its
universal service programs. This language can effectively
eliminate any CBO who is not a member of Community Action
Agencies or a member of the Pennsylvania Weatherization Task
Force from consideration.
Following the filing of the Joint Petition for
Settlement, the OCA contacted the Community Action Association of
Pennsylvania (CAAP), West Penn, and the Environmentalists to
resolve certain language that excluded certain community-based
universal service providers in the Company's service territory.
The OCA also worked with the Dollar Energy Fund (DEF). The
settlement language specifically affected DEF by eliminating
their ability to provide services for West Penn. The Joint
Petitioners agreed that the following changes were necessary to
Sections D.5 and E.2 of the Settlement:
D.5.a. All ECAP low-income and rural programs and
services will be provided through Community Action
Agencies and Pennsylvania Weatherization Task Force
member agencies except where these local providers
are not in a position to or unwilling to provide
the programs and services.
E.2. West Penn shall use Dollar Energy and
Community-Action Agencies to operate its LIPURP and
Pennsylvania Weatherization Providers Task Force
member agencies to operate its LIURP unless the
agencies are unavailable or unwilling to provide the
programs and services. With respect to LIURP, Dollar
Energy will provide prescreening and referral.
Additionally, 50-75% of all LIURP jobs will receive
quality control inspection from Dollar Energy.
<PAGE>
The OCA, CAAP, West Penn and the Environmentalists have requested
that the Commission direct the modifications above. The DEF
informed the OCA that DEF would not oppose the language above.
The Act at Section 2804(9) states, "The commission shall
encourage the use of community-based organizations that have the
necessary technical and administrative experience to be the direct
providers of services or programs which reduce energy consumption
or otherwise assist low-income customers to afford electric
service." (Emphasis added).
The Act does not specify particular community agencies or
that an agency must be non-profit. Many utilities contract with
qualified, effective, non-profit agencies and for-profit, small
businesses from the community who may or may not be members of
Community-Action Agencies or the Pennsylvania Weatherization
Providers Task Force. To limit a utility's hiring to a specific
agency limits a utility's ability to consider performance a
criterion of employment. Downplaying or eliminating performance
criteria hinders a utility's ability to fulfill the requirement of
the Act to administer a cost-effective and efficient universal
service program.
A utility should continue to have the ability to consider
experience, performance, existing contracts and working
relationships with community agencies as part of their hiring
practices.
NOV 19, 1998 /S/ DAVID W ROLKA
DATED DAVID W. ROLKA, COMMISSIONER
