Exhibit D-1
Before the
Public Service Commission
of Maryland
In the matter of the application of *
The Potomac Edison Company,
d/b/a Allegheny Power regarding * Case No. _____
the transfer of its Maryland
generation assets to an affiliate under *
Section 7-508 of the Electric Customer
Choice and Competition Act of 1999 *
APPLICATION
Consistent with Section 7-508 of the Electric Customer
Choice and Competition Act of 1999 ("the Act"), The Potomac
Edison Company, d/b/a Allegheny Power ("AP" or "Company")
applies for Commission review of its transfer of its
Maryland generation assets to its affiliate, Allegheny
Energy Supply Company, LLC ("GENCO"). In support of said
application, AP respectfully states as follows:
1. AP is an Electric Supplier and an Electric Company as
defined by the Act and physically distributes electricity in
Maryland to retail customers located in seven central and
western counties of the state. AP owns generation
facilities allocated to its Maryland service area consistent
with separation and cost of service principles accepted in
prior base rate proceedings for the Company before this
Commission.
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2. GENCO is a Delaware limited liability company. It is
an affiliate of AP formed to own the unregulated generation
assets in the Allegheny Energy system. GENCO will be an
Electric Supplier.
3. In the 1999 session, the General Assembly passed the
Act which was signed into law on April 9, 1999. Section 7-
508 of the Act provides that an Electric Company may
transfer its generation facilities or generation assets to
an affiliate as part of the restructuring of the generation
services market in Maryland. Assuming the Commission
approves the Settlement Agreement described below, all of
AP's Maryland customers will be eligible for customer choice
by July 1, 2000 and the amount of transition costs will have
been finally determined by the Commission. In the
alternative, Section 7-508 (C) (2) of the Act provides that:
"[T]he Commission may review and approve the transfer (of
generation facilities) for the sole purpose of determining:
(i) that the appropriate accounting has been followed; (ii)
that the transfer does not or would not result in an undue
adverse effect on the proper functioning of a competitive
electric supply market; and (iii) the appropriate transfer
price and rate making."
4. In Case No. 8797, the Commission has before it for
approval a Settlement Agreement filed by the parties which
calls for full customer choice of generation suppliers by
all of AP's Maryland customers beginning July 1, 2000
subject to AP honoring certain contracts. Paragraph 31 of
the Settlement Agreement provides that "[A]fter full
customer choice is available as of July 1, 2000, Allegheny
Power shall either transfer its generation assets to an
affiliate (GENCO) at book value or shall transfer, sell,
<PAGE>
lease, assign, mortgage or otherwise dispose of or encumber
its generation assets to a third party consistent with the
Restructuring Legislation." That section goes on to
provide: "[A]llegheny Power's generation shall be
deregulated only after full customer choice is available as
of July 1, 2000, and the generation assets are either
transferred to an affiliate or are transferred, sold,
leased, assigned, or mortgaged or otherwise disposed of or
encumbered to a third party."
5. Effective July 1, 2000, or as soon thereafter as is
practicable, AP will transfer to GENCO its Maryland
generation assets at book value. Thereafter, GENCO will own
and operate the generation facilities and will incur all
operating costs and capital addition costs for the
transferred generation assets. Under the terms of the
Settlement Agreement, AP is to provide standard offer
service to customers over certain defined periods and prior
to July 1, 2003 has discretion concerning how it arranges
for its standard offer service load. For the period July
1, 2000 to July 1, 2003, GENCO may enter into a power sale
contract with AP sufficient to allow AP to meet its standard
offer service obligations under the Settlement Agreement.
GENCO would be free to satisfy the standard offer service
load requirements either by dispatch of the transferred
generation facilities or by purchases in the market. Upon
completion of the transfer of AP's generation assets to
GENCO at book value, AP's generation assets will be
deregulated.
6. An operating relationship between AP and GENCO
following the transfer of AP's Maryland generation assets to
GENCO will be governed by an agreed Code of Conduct set
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forth as Attachment No. 3 to the Settlement Agreement
presently before the Commission in Case No. 8797. A copy
of that Code of Conduct is attached hereto as Exhibit No. 1.
Additionally, the Commission has scheduled a separate
adjudicative proceeding to address market power protective
measures and has called for the filing of market power
studies by July 3, 2000. The restrictions and protections
in the Code of Conduct together with the Commission's
impending investigation into market power provide
sufficient assurances to allow the Commission to make a
finding that the transfer of AP's generating facilities to
GENCO does not and would not result in an undue adverse
effect on the proper functioning of a competitive electric
supply market.
7. Attached as Exhibit No. 2 is a list of the Maryland
generation assets to be transferred by AP to GENCO. The
book value as of September 30, 1999 for each of the assets
to be transferred is set out on the exhibit. The values
actually transferred will be those in existence at the time
of the asset transfer. Maryland's share of the generation
assets owned in common by AP and its affiliates has been
determined in accordance with separation and cost of service
studies which follow procedures long accepted by this
Commission in prior base rate cases for AP. Filed
concurrently with this application is the direct testimony
of Joseph F. Baier explaining and supporting Exhibit No. 2.
8. AP's assets not transferred to GENCO will remain
subject to price regulation by this Commission.
<PAGE>
Wherefore, for the reasons set forth herein, consistent
with the Act and the Settlement Agreement, AP files this
Application and proposes to transfer its Maryland generation
facilities to GENCO effective July 1, 2000 or as soon
thereafter as is practicable, at the book values in effect
at the time of the transfer and in accordance with the
accounting and rate making treatment described herein.
Respectfully submitted,
The Potomac Edison Company
d//b/a Allegheny Power
/s/ M. P. MORRELL, VICE PRESIDENT
By: _____________________________
M. P. Morrell, Vice President
_____________________________
Philip J. Bray
Allegheny Power
10435 Downsville Pike
Hagerstown, MD 21740
(301) 790-6283
Dated: December ____, 1999
