EXHIBIT D-3
MEMORANDUM OF UNDERSTANDING
Restructuring Plan Principles Related
To Transfer of Generation Assets
Allegheny Power - Virginia SCC Staff
As part of its Virginia transition/restructuring plan
and to facilitate transfer at book value of its generating
assets to an affiliate (GENCO) July 1, 2000, Allegheny Power
("AP" or "Company") proposes to include the following steps
in its functional separation plan to be filed with the State
Corporation Commission:
(1) Roll Allegheny Power's fuel factor into base
rates July 1, 2000 at a rate of 1.181>/kwh (Fuel
Cost 1.151>, GRT .03>) and thereafter terminate the
fuel factor mechanism. Deferred accounting for
items included in the fuel factor will cease July 1,
2000. Any deferred over or under recovery existing
at June 30, 2000 will be written off of the
Company's books with no refunding or charging to
customers.
(2) Allegheny Power will not file an application to
increase its base rates prior to January 1, 2001.
Except for fuel cost adjustments otherwise permitted
under the Act but which AP agrees to forego during
the capped rate period, exceptions to this stay-out
and the legislatively mandated rate freeze will
continue as specified in the Virginia Electric
Utility Restructuring Act (the "Act") or as the Act
may be changed or modified. Additional services
currently not included in the rate cap level could
be established under a separate proceeding.
(3) Allegheny Power will reduce Virginia retail rates
by $1 million starting July 1, 2000.
(4) Allegheny Power will contract for generation
sufficient to meet its default service obligations
at rates set in accordance with the current Act or
as the Act may be changed or modified until the
Company's obligation to provide default service
terminates. For ratemaking purposes, including any
request to increase frozen rates due to financial
distress, Virginia default service load will first
be deemed to be served from a finite portion of the
GENCO's generation facilities, in an amount up to
367 MW, which equals the Virginia load now reflected
in the allocation in AP's generation costs to
Virginia retail customersthe allocation of Allegheny
Power's generation previously used to serve Virginia
customers (including the portion of non-AP capacity
under the Power Supply Agreement). During the rate
cap period, pricing of the 367 MW will be based on
the Virginia unbundled frozen generation rate.
After the rate cap period, pricing of the 367 MW
will be based on the then current generation costs
of the portion of the existing system dedicated to
serve retail Virginia load. Revisions to rates due
to permitted exceptions under the legislation will
be based only on the incremental costs of those
exceptions.
(5) The Company agrees to operate and maintain the
distribution system of its Virginia service
territory at or above historical average levels of
service quality and reliability. The Company agrees
to implement, on a timely basis, distribution system
improvements that are required to maintain such
system levels of service quality and reliability as
well as to provide any individual customer or groups
of customers with an acceptable level of service
quality and reliability. The Company shall report
the Standard Average Interruption Frequency Index
(SAIFI) and the Standard Average Interruption
Duration Index (SAIDI) for its Virginia retail
service territory quarterly on a year-to-date basis
both including and excluding the impact of major
storms. The Company will provide these indices
(annual) for each of the previous five years (1995
through 1999). The Company also agrees to make all
reasonable efforts to support any additional
distribution reliability monitoring efforts
undertaken by the Commission Staff.
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(6) The Company and the Commission Staff agree that
the Company's current Schedule CO-G shall continue
in effect through December 31, 2001. On or before
January 1, 2002, or as soon thereafter as
practicable, the Company, after consultation with
the Commission Staff, shall file an application to
modify Schedule CO-G.
The parties agree that the restructuring principles
outlined above are consistent with and satisfy all
requirements of the Act.
Allegheny Power Staff
Virginia State Corporation
Commission
By:__________________________ By:__________________________
Dated: May 19, 2000
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