METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

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III. AFFILIATE INTERESTSBackground - The Stratified Management and Operations Audit of Metropolitan EdisonCompany (Met-Ed), Pennsylvania Electric Company (Penelec), and PennsylvaniaPower Company (Penn Power) (collectively referred to as the FirstEnergy PennsylvaniaCompanies or FE-PA Companies) conducted by the consulting firmBarrington-Wellesley Group, Inc. (BWG), released by the Pennsylvania Public UtilityCommission (PUC or Commission) on March 1, 2007, at D-05MGT002, D-05MGT003and D-05MGT004, contained five recommendations in the Affiliate Interests section.BWG rated this functional area as needing moderate improvement. In this chapter, twoprior recommendations and prior situations are reviewed and two follow-up findings andtwo recommendations are presented.The FE-PA Companies are public utilities subject to regulation by the PUC andare owned by FirstEnergy Corp. (FirstEnergy). FirstEnergy is a registered public utilityholding company headquartered In Akron, Ohio which, in addition to Met-Ed andPenelec also directly owns the electric distribution companies (EDCs) Ohio EdisonCompany (Ohio Edison), Jersey Central Power & Light Company, The ClevelandElectric Illuminating Company, and The Toledo Edison Company. Penn Power is adirect subsidiary of Ohio Edison. FirstEnergy is also the parent company of AmericanTransmission Systems, Inc. that owns and operates transmission facilities and issubject to regulation by the Federal Energy Regulatory Commission (FERC) (Refer toFollow-up Finding and Conclusion No. VII-1 in Chapter VII Operations). FirstEnergyalso owns several unregulated generation companies and competitive energy supplycompanies. FirstEnergy Service Company, a direct subsidiary to FirstEnergy, providesthe following services to affiliates:• Executive Management – Chairman, President & CEO, and ExecutiveVice President, FirstEnergy Utilities• Energy Delivery & Customer Service• Utility Operations• Customer Services & Energy Efficiency• Utility Support• FERC Policy & Compliance• Energy Policy• Finance, Strategic Planning & Operations• Rates & Regulatory Affairs• Information Technology• Supply Chain• Business Development/Performance & Management• Controller• Treasury• Corporate Risk• Internal Auditing• Legal• Real Estate, Record Management- 18 -
• Corporate Affairs• Communications• Governmental Affairs• Human ResourcesAt the time of our fieldwork, FirstEnergy also was seeking approvals for itsagreement to merge with Allegheny Energy, Inc. 2 The Allegheny Energy, Inc. mergerwould include the Pennsylvania EDC West Penn Power Company and its affiliatedEDCs Potomac Edison Company and Monongahela Power Company and the rest ofthe Allegheny Power System affiliates.Prior Recommendation – Submit affiliate transaction contracts for Commissionapproval for all FE-PA Companies’ transactions with affiliates in accordance withSection 2102.Prior Situation – The FE-PA Companies were not adhering to regulations establishedin the Public Utility Code, 66 Pa. C.S. §2102 which require utilities to submit contractsfor transactions with affiliates to the Commission for its approval. Specifically, theCommission’s authority to approve contracts between public utilities and their affiliatescomes under the general authority to regulate public utilities in the Commonwealth, 66C.S. §2102(a) which, in part, states:No contract or arrangement providing for the furnishing ofmanagement, supervisory, construction, engineering, accounting,legal, financial, or similar services, and no contract or arrangementfor the purchase, sale, lease, or exchange of property, right, orthing or for the furnishing of any service, property, right or thingother than those above enumerated, made or entered into after theeffective date of this section between a public utility and anyaffiliated interest shall be valid or effective unless and until suchcontract or arrangement has received the written approval of thecommission.To be valid, most transactions between FE-PA Companies and their affiliatesmust be covered by a contract approved by the PUC. Transactions that are not inexcess of $10,000 are generally exempted from PUC approval, per 66 C.S. §2102(d):. . . where the amount of consideration involved is not in excess of$10,000 or 5% of the par value of outstanding common stock,whichever is smaller. Regularly recurring payments under a generalor continuing arrangement which aggregate a greater annualamount shall not be broken down into a series of transactions tocome with this exemption.(Emphasis added)2 The merger with Allegheny Energy, Inc. subsequently closed on February 25, 2011, after receiving finalapproval from the PAPUC on February 24, 2011.- 19 -
Page 5: METROPOLITAN EDISON COMPANYPENNSYLV
Page 8 and 9: • Support Services• Human Resou
Page 10 and 11: • Developed and implemented forma
Page 12 and 13: FIRSTENERGY PENNSYLVANIA COMPANIESM
Page 26 and 27: In addition, subsidiary or related
Page 28 and 29: BWG recommended that a detailed, wr
Page 30 and 31: management. Other potential uses of
Page 32 and 33: IV. CORPORATE GOVERNANCEBackground
Page 34 and 35: V. FINANCIAL MANAGEMENTBackground -
Page 36 and 37: the internal audit was to determine
Page 38 and 39: Committee citing the internal contr
Page 40 and 41: VI. ELECTRIC RELIABILITYBackground
Page 42: Exhibit VI-1Metropolitan Edison Com
Page 45 and 46: provide additional details to the C
Page 47 and 48: Exhibit VI-6FirstEnergy Pennsylvani
Page 49 and 50: All three FE-PA Companies have had
Page 51 and 52: FirstEnergy is following the right
Page 53 and 54: Company, and The Toledo Edison Comp
Page 55 and 56: technicians. These strategies are u
Page 57 and 58: VIII. EMERGENCY PREPAREDNESSBackgro
Page 59 and 60: Routine periodic updating of the em
Page 61 and 62: Follow-up Finding and Conclusion No
Page 63 and 64: old excess inventory. Spare invento
Page 65 and 66: controls were automated. Moreover,
Page 67 and 68: Exhibit IX-6FE-PA CompaniesPercenta
Page 69 and 70: FE-PA Companies were unable to iden
Page 71 and 72: Staff’s Follow-up Recommendation
Page 73 and 74: Exhibit X-6Metropolitan Edison Comp
Page 75 and 76:
Prior Recommendation - Develop a co
Page 77 and 78:
Therefore, BWG suggested that First
Page 79 and 80:
XI. CUSTOMER SERVICEBackground - Th
Page 81 and 82:
Exhibit XI-2FE-PA CompaniesPercenta
Page 83 and 84:
Exhibit XI-5FE-PA Companies Compare
Page 85 and 86:
Exhibit XI-7FE-PA Companies Compare
Page 87 and 88:
Follow-up Finding and Conclusion No
Page 89 and 90:
uilding, in an effort to protect re
Page 91 and 92:
Companies would submit a supplement
Page 93 and 94:
3. The "four-fifths" rule (underuti
Page 95 and 96:
Met-Ed has female underutilization
Page 97 and 98:
Exhibit XII-4Page 1 of 2FirstEnergy
Page 99 and 100:
The number of years that FirstEnerg
Page 101 and 102:
FE-PA Companies do track purchases
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METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

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