BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION METROPOLITAN EDISON COMPANY DOCKET NO. P

Transcription

1 Met-Ed/Penelec/Penn PowerlWest Penn Statement No.1 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION METROPOLITAN EDISON COMPANY DOCKET NO. P PENNSYLVANIA ELECTRIC COMPANY DOCKET NO. P-011- PENNSYLVANIA POWER COMPANY DOCKET NO. P-011- WEST PENN POWER COMPANY DOCKET NO. P DEFAULT SERVICE PROGRAMS For the Period June 1,0 to May 1, 01 Direct Testimony of Richard A. D'Angelo List of Topics Addressed Summary of Default Service Program The Role of the PJM Interconnection, LLC Customer Notice Cost Recovery and Reconciliation for the Default Service Program Commitments from the Merger Settlement Investigation into Pennsylvania's Retail Electricity Market Proposed Retail Opt-In Aggregation Program and Retail Customer Referral Program

2 DIRECT TESTIMONY OF RICHARD A. D'ANGELO I. Q. A. Introduction and Purpose Please state your name and business address. My name is Richard A. D'Angelo and my business address is FirstEnergy, P.O. Box 01, Reading, Pennsylvania Q. A Mr. D'Angelo, by whom are you employed and in what capacity? I am employed by FirstEnergy Service Company as Manager - Rates and Regulatory Affairs - Pennsylvania. FirstEnergy Service Company's Pennsylvania Rate Department provides regulatory support for FirstEnergy Corp. 's wholly-owned Pennsylvania operating companies: Metropolitan Edison Company ("Met-Ed"), Pennsylvania Electric Company ("Penelec"), Pennsylvania Power Company ("Penn Power") and West Penn Power Company ("West Penn") (collectively, the "Companies"). I am responsible to the Director of Rates & Regulatory Affairs for the development, coordination, preparation and presentation of the Companies' accounting and financial data in all their raterelated matters before the Pennsylvania Public Utility Commission ("PUC;' or "Commission"), New York Public Service Commission and the Federal Energy Regulatory Commission ("FERC"), as well as the preparation of statements and reports addressing, among other things, stranded cost recovery, energy costs, nonutility generation ("NUG") costs, quarterly earnings, and other financial matters. Also, I am responsible for the administration of the Companies' tariffs,

3 development of retail electric rates and rules and regulations ensuring uniform administration and interpretation. Q. A. What is your educational and professional background? I graduated from Brooklyn College in with a Bachelor of Science degree in Economics and Pace University in with a Masters in Business Administration degree in Finance. I have over thirty-five () years of experience with Met-Ed, GPU Energy, and FirstEnergy. My work experience is more fully described in Appendix A. Q. A On whose behalf are you testifying in this proceeding? I am testifying on behalf ofthe Companies in support of the Joint Petition filed on November 1,011 for approval of their default service supply programs ("Joint Petition"). In particular, my testimony focuses on the need to continue the competitive procurement of default service generation supplies at market prices in accordance with Pennsylvania's Electricity Generation Customer Choice and Competition Act, Pa. C.S. 01 et seq., as amended by Act of 00 ("Customer Choice Act"), the Commission's default service regulations and Policy Statement on Default Service ("Policy Statement") and the Commission's Investigation of Pennsylvania's Retail Electricity Market at Docket No Accordingly, by their Joint Petition, the Companies seek to continue to obtain market-based generation supplies and to develop associated retail rates for the provision of default service for a two-year period commencing on June 1, 0 and running through May 1, 01.

4 Q. A. Please describe Met-Ed. Met-Ed is a wholly owned subsidiary of FirstEnergy Corp. Met-Ed provides service to about,000 electric utility customers in eastern Pennsylvania. Met Ed has a summer peak load of about,0 MW, with about two-thirds ofthat load attributable to residential and small commercial customers. Met-Ed owns the transmission facilities within its service territory, which are under the operational control of the PJM Interconnection, LLC ("PJM") as the regional transmission organization ("RTO"). Q. 11 A Please describe Penelec. Penelec is a wholly owned subsidiary of FirstEnergy Corp. Penelec provides service to about 1,000 electric utility customers in western Pennsylvania. Penelec has a summer peak load of about,0 MW with about two-thirds of that load attributable to residential and small commercial customers. Penelec owns the transmission facilities within its service territory, which are under the operational control ofpjm as the RTO. 1 Q. A. 0 1 Please describe Penn Power. Penn Power is a wholly owned subsidiary of the Ohio Edison Company which, in tum, is a wholly owned subsidiary of FirstEnergy Corp. The Company provides service to about,000 electric utility customers in western Pennsylvania. Penn Power has a summer peak load of about 1,00 MW with about three-quarters of that load attributable to residential and small commercial customers. The FirstEnergy transmission facilities within the Penn Power service territory are

5 owned by the Company's affiliate American Transmission Systems Incorporated ("ATSI") and are under the operational control ofpjm as the RTO. Q. A. Please describe West Penn. West Penn is a wholly owned subsidiary of Allegheny Energy, Inc. which, in tum, is a wholly owned subsidiary of FirstEnergy Corp. West Penn provides service to about 1,000 electric utility customers in western Pennsylvania. West Penn has a summer peak load of about, MW with about two-thirds of that load attributable to residential and small commercial customers. West Penn owns the transmission facilities within its service territory, which are under the operational control ofpjm as the RTO. 11 Q. 1 A Please describe the purpose of your direct testimony. The purpose of my testimony is to: (1) provide an overview of the Companies' Default Service Programs that will commence on June 1,0; () describe the RTO that has operational control of the Companies' (or in Penn Power's case, ATSI's) transmission facilities; () discuss customer notice requirements; () address the cost recovery and reconciliation provisions of the Default Service Programs; () update the status of the commitments the Companies and FirstEnergy made as part of the settlement of the FirstEnergyl Allegheny Energy merger approval proceeding at Docket Nos. A-0- and A-0- (the "Merger Settlement"); and () discuss the Commission's investigation of Pennsylvania'S retail electricity market at Docket No and proposals the Companies are making in response to that proceeding.

6 Q. A. Mr. D'Angelo, have you prepared exhibits to accompany your testimony? Yes. Met-Ed/PeneleciPenn PowerlWest Penn Exhibit RAD-l and RAD- have been prepared by me or under my supervision and are described in detail later in my testimony. Q. A. Please identify the other witnesses submitting direct testimony on behalf of Met-Ed, Penelec, Penn Power and West Penn and describe the general subject areas of their testimony. Mr. Raymond E. Valdes (Met-Ed/Penelec/Penn PowerlWest Penn Statement No. ) will discuss how wholesale prices obtained from the procurement process will be converted into fixed retail rates for residential and small commercial customers 11 and will also discuss associated tariff changes. As Mr. Valdes explains: (1) the 1 wholesale prices that result from the procurement process will be submitted to the Commission for approval after each solicitation; () each Company's retail tariff 1 will translate approved bids into retail rates based upon formulas to be approved 1 by the Commission in this case; () the initial retail rates will be posted to the 1 Companies' public internet domain no later than April 1, 0; and () 1 subsequent tariff updates will be posted quarterly. New Company-specific tariff supplements to implement these changes will become effective on June 1,0. Mr. Richard L. Schreader (Met-Ed/PeneleciPenn PowerlWest Penn Statement No. 0 ) provides an overview of the Supplier Master Agreements ("SMAs"), the 1 responsibilities of the winning suppliers and the Solar Photovoltaic Alternative Energy Credit Purchase and Sale Agreements.

7 Mr. Dean W. Stathis (Met-Ed/Penelec/Penn Power/West Penn Statement No.) will describe the Companies' Default Service Procurement Plans, including the full requirements products the Companies will procure and the schedule for those procurements. Also, he will describe the Companies' contingency plans for under-subscribed solicitations and supplier defaults, Alternative Energy Portfolio Standards Act ("AEPS Act") requirements and the design and administration of a request for proposals ("RFP") to comply with the AEPS Act's solar requirements. Dr. Bradley Miller of Charles River Associates International ("CRA International") (Met-Ed/PeneleclPenn Power/West Penn Statement No.) will explain the Companies' proposed descending clock auction to competitively 11 procure full requirements generation supply, the procurement design, the 1 administration of the procurement process and the evaluation of the bids by the Independent Evaluator. Dr. Miller will also discuss the Companies' proposed 1 Retail Opt-In Aggregation Program. 1 Mr. James D. Reitzes of The Brattle Group ("Brattle") (Met-Ed/Penelec/Penn 1 Power/West Penn Statement No.) will explain the solar requirements RFP, the 1 solar procurement design, the administration of the solar RFP process, and the evaluation of the solar RFP results by the solar RFP Manager. He will also discuss the full requirements product that the Companies will competitively 0 procure to provide the default service generation supply and the proposed 1 portfolio's consistency with "the least-cost over time" requirements of Act for residential and commercial customers, the Companies' proposal to "bid-out"

8 Time of Use ("TOU") rates and the Companies' proposal to implement a nonbypass able Market Adjustment Clause ("MAC") that includes a return component to compensate the Companies for risks they bear as the provider of default service, which will also create "headroom" for retail suppliers' competitive offers. Mr. Charles V. Fullem (Met-EdlPenelec/Penn PowerlWest Penn Statement No.) will describe the current status of competition in the Companies' service territories and will discuss and support certain market enhancements being proposed by the Companies to facilitate competition in Pennsylvania, including the Companies' proposal to implement a non-bypassable Market Adjustment Clause ("MAC"). 11 II. 1 Q. A. Overview of the Companies' Default Service Programs Why are the Companies filing new Default Service Programs? Each of the Companies' current Default Service Supply Plans, established at 1 Docket Nos. P (Met-Ed), P (Penelec), P-0-1 (Penn Power) and P-000 (West Penn), expire on May 1,0. In 1 order to comply with the Commission's default service regulations, the 1 Companies must file with the Commission, not less than 1 months prior to the conclusion of their currently effective Commission-approved Default Service Supply Plans, a default service program to establish a supply plan to obtain a 0 market-based generation supply for their customers that choose not to, or are 1 unable to, shop for generation service. For the most part, the Companies have adopted the framework of their existing Default Service Supply Plans, which, as

9 noted above, were previously approved by the Commission, and have used the default service regulations, the associated Policy Statement and the Customer Choice Act as guides in developing their proposed Default Service Programs. The Companies believe that the plans set forth in their filing: (1) comply with the default service regulations, the Commission's Policy Statement and applicable provisions of the Customer Choice Act; () are consistent with Commission decisions in similar prior proceedings; and () are in the public interest. Q. A What method do the Companies propose to use to procure their generation supplies? The Default Service Programs will employ a wholesale competitive procurement process by rate class - specifically, a descending clock auction - that will be used to establish fixed-price rates for residential and commercial customers and to provide real-time price signals to industrial customers through hourly pricing. 1 Q. 1 1 A Will FirstEnergy's unregulated generation supply affiliate be permitted to bid in the competitive procurement? Yes. In the supply plans that the Commission previously approved for Met-Ed (Docket No. P-00-00), Penelec (P-00-00) and Penn Power (P- 0-), FirstEnergy's unregulated generation supply affiliate, FirstEnergy Solutions ("FES"), was expressly permitted to participate in the competitive procurements. (Because West Penn's existing supply plan was approved before the FirstEnergyl Allegheny Energy merger occurred, that plan does not contain a similar approval for FES participation, although FES was not subject to any restrictions on its participation in the West Penn supply plan.)

10 Similarly, the Default Service Programs proposed in this case would pennit FES to participate in the competitive procurements. Additionally, as the Commission's default service regulations require, the Companies have retained an independent third party (CRA International) to manage the procurement process and evaluate the bids in order to eliminate any possibility of inappropriate "selfdealing." FES' participation, with appropriate safeguards and transparency, will enhance the competitive environment and help ensure that vigorous competition will yield the best prices for the products being procured. Q. 11 A Please provide an overview of the Default Service Program's Procurement Plan. The tenn ofthe Default Service Procurement Plan will be for twenty-four () months from June 1,0 through May 1,01. The proposed Default Service Procurement Plan will procure the required power supply in the wholesale marketplace, by rate class, through multiple solicitations for the two-year tenn of the Default Service Program. Power to serve the loads of each ofthe Companies will be procured in tranches of approximately 0 MW each for the residential and commercial rate classes and in tranches of approximately 0 MW each for the industrial rate class. 0 1 The Default Service Procurement Plans are designed: (1) to offer residential and commercial customers a fixed price for energy and capacity that reflects a prudent mix of spot-priced and fixed-price twenty-four month supplies; and () to offer industrial customers hourly-priced service through the procurement of power at hourly market prices. Suppliers who are successful bidders in the competitive

11 procurement process will be responsible for satisfying AEPS Act, with the exception of 0% of the solar requirements, as explained by Mr. Stathis. The Default Service Procurement Plans will continue to provide customers with market-based generation rates, which will provide opportunities for Electric Generation Suppliers ("EGSs") to offer competitive alternatives, as contemplated by the Customer Choice Act The products purchased under the Default Service Procurement Plans will be full requirements generation service. This means that suppliers must supply and pay for all energy, capacity, ancillary service and transmission service (excluding charges for Network Integration Transmission Service ("NITS"), Regional Transmission Expansion Plan ("RTEP"), and PJM Expansion Cost Recovery (collectively, "Non-Market Based Services - Transmission Charges"), and AEPS credits (excluding 0% of the solar requirements) needed to meet the requirements of serving the Companies' default service loads The Companies propose to remove the Non-Market Based SerVices Transmission Charges from the "price-to-compare" and to obtain such services for both default generation suppliers and EGSs serving load in their service areas. The Companies also propose to recover the associated costs through the nonbypassable Default Service Support Rider ("DSSR"). This market enhancement, which removes risk from suppliers and EGSs, is discussed in detail by Mr. Fullem. Mr. Valdes explains why it is appropriate to recover the associated costs in the non-bypassable DSSR.

12 The Default Service Procurement Plans also propose a MAC that will add a return component to the price-to-compare. Mr. Reitzes and Mr. Fullem support the adoption ofthe MAC. In addition to properly compensating the Companies for the risks they bear as default service suppliers, the MAC will enhance competition by creating additional "headroom" for competitive offers, as discussed by Mr. Reitzes and Mr. Fullem. Q. Please describe the time schedule necessary to implement the proposed Default Service Programs. A Section 0(e) ofthe Public Utility Code and Section.(b) of the Commission's regulations provide that the Commission has nine () months from the date the Joint Petition was filed to issue a final order. The Companies have not requested expedited treatment of their filing because adhering to the statutory deadline will provide sufficient time for them to conduct and complete the procurement processes and present the results to the Commission for approval on a timely basis. The Companies anticipate posting default service rates for their customers no later than thirty (0) days after the last supply auction in order to provide sufficient time for consumers to solicit, and for EGSs to make, competitive supply offers, as discussed by Mr. Valdes. 0 The following schedule illustrates the timing for Commission review and implementation ofthe Companies' Default Service Programs: 11

13 Q. November 1,011: The Companies filed their Joint Petition for Approval of Default Service Programs, and customer notice of the filing of the Default Service Programs was provided via a press release. December 0, 011: The Companies' direct testimony and prehearing memorandum will be filed. August 1, 01: Final day for the Commission to enter an order approving the Default Service Programs ( Pa.C.S. 0(e)(.); Pa. Code.(b)). September 01: Initial bidder session. November 01: Initial descending clock auction held, followed by the Auction Manager submitting winning auction bids to the Commission for approval. Within hours of Auction Manager's submittal: The Commission approves winning auction bids. Within days of the Commission's approval of the results of the last auction: The Companies file compliance tariffs including generation rates based on approved auction bids. No later than Aprill, 0: The Companies post default service rates to their public internet domain. Within their April 0 billing cycle: The Companies mail bill insert notices informing customers of default service rates. What are the benefits of the Default Service Programs? 1

14 11 1 A. Under the Default Service Programs, customers will be served under marketbased generation rates in accordance with the provisions of the Customer Choice Act and the Commission's default service regulations. The Default Service Programs will continue to offer fixed generation rates for residential and commercial customers and continue to make hourly pricing available to industrial customers. The Default Service Programs will enable the Companies to procure their generation supplies through multiple solicitations, which will protect residential and commercial customers from short-term price variations in the marketplace for generation supply. The twenty-four month term will provide assured, stable pricing for fixed-price customers. The Default Service Programs also provide flexibility for the Companies to simultaneously procure their generation supplies, which is expected to increase the number of bidders and, thereby, increase the competitiveness of the procurement process The Companies believe that the Default Service Programs will continue to facilitate competitive shopping opportunities for all customers, as anticipated by the Customer Choice Act. 1 Q. A. 0 1 How are the Companies proposing to handle transmission services for default suppliers and EGSs providing competitive retail service? The Companies will secure the transmission services for which P JM imposes Non-Market Based Services - Transmission Charges on behalf of default suppliers and EOSs. This market enhancement is discussed in greater detail by Mr. Fullem.

15 Q. How do the Companies plan to meet their solar requirements under the AEPS Act? A. The Companies propose to issue a separate RFP to meet 0% of the solar requirements imposed by the AEPS Act and also propose that the remaining 0% will be the responsibility of the wholesale (default generation) and retail (EGS) suppliers. Mr. Stathis discusses the Companies' requirements for solar photovoltaic alternative energy credits ("SP AECs") and their plans to meet those requirements. Q. How do the Companies propose to recover the costs of meeting the 0% of their solar requirements that they will obtain by RFP? 11 A. Met-Ed, Penelec and Penn Power are proposing to continue recovering the costs 1 of meeting their 0% SP AEC requirements under Act of 00 and the AEPS Act through their existing Solar Photovoltaic Requirements Charge ("SPVRC") 1 Riders. West Penn is proposing to recover the costs of meeting its 0% SP AEC 1 requirement through a Solar Photovoltaic Requirements Charge ("SPVRC") Rider 1 that it is asking the Commission to approve in this case. Mr. Valdes introduces 1 and supports West Penn's proposal to implement a SPVRC Rider. Q. How do the Companies propose to recover the administrative costs associated with conducting an RFP to meet 0% of their Act solar 0 photovoltaic requirements? 1 A. The costs associated with holding the SP AEC RFP will be recovered in the administration charge of the rates to be established under the SPVRC Rider. A 1

16 preliminary estimate of such administrative costs is set forth in Met-Ed/ Penelec/ Penn Power/West Penn Exhibit RAD-l. III. P JM Interconnection, LLC Q. Are the Companies members of an RTO? A. Yes. As I previously explained, the Companies are members of P JM, which became an independent organization in. In, PJM became the nation's first power pool approved by FERC as a fully-functioning independent system operator ("ISO") under the criteria offerc Orders and. Subsequently, in Order 000, the FERC encouraged the formation ofrtos to operate transmission systems in multi-state areas and to advance the development of competitive wholesale power markets. Order 000 also set forth the characteristics and functions an entity had to satisfy to become an RTO. PJM became the nation's first fully functioning RTO in 001. PJM operates the world's largest competitive wholesale electricity market and ensures the reliability of the largest centrally dispatched grid in the world. 1 Q. 1 A. 0 1 Please describe PJM's role in providing electric service in the region it serves. As an RTO, PJM coordinates the movement of wholesale electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM's staff monitors the high-voltage transmission grid twentyfour hours a day, seven days a week. PJM keeps the electricity supply and 1

17 demand in balance by telling power producers how much energy should be generated and by adjusting import and export transactions. PJM's staff studies hundreds of "what if' scenarios and prepares to deal with a wide range of contingencies. Each variable that might affect supply and demand for electricity is carefully considered - from extreme weather conditions, emergency situations and equipment failures to the more easily anticipated cycles of hours, days, weeks and seasons. 11 P JM coordinates the continuous buying, selling and delivery of wholesale electricity through open and competitive markets. In so doing, PJM balances the needs of suppliers, wholesale customers and other market participants and continuously monitors market behavior. 1 Q. 1 A Is P JM prepared for the Companies to conduct competitive solicitations for energy and capacity as proposed in its Default Service Programs? Yes. P JM has more than 00 members including power generators, transmission owners, electricity distributors, power marketers, curtailment service providers and large consumers. Currently, PJM employs a Locational Marginal Pricing model that uses day-ahead and real-time prices to determine the optimal dispatch order of all generation resources within the region. P JM has been handling competitive solicitations for several years. 0 1 PJM's wholesale electricity market is in some respects similar to a stock exchange. It establishes a market price for electricity by matching supply with 1

18 demand. P JM uses online e-tools to facilitate trading for members and customers by enabling them to submit bids and offers and providing them with continuous real-time data. Market participants can follow market fluctuations as they happen and make informed decisions rapidly. IV. Q. A. Customer Notice Please describe the proposed customer notice for the Default Service Programs filing. The Companies are providing notice to customers as required by the Commission's default service regulations at Pa.C.S.. and Pursuant to Pa. Code.(e)(1), the Companies must provide all customers with notice of the filing of their Default Service Programs in a manner similar to that described in Pa. Code., which deals with changes in purchased gas cost rates under Section 0(f) ofthe Public Utility Code. Accordingly, within 0 days of filing their Joint Petition, each of the Companies provided public notice of that filing by publishing a notice in the major newspapers serving their respective service areas. The notice contains information about the Companies' filing, their proposed competitive solicitations of generation resources, how the Companies' plans may affect customers, where the filings are made available for public inspection, how comments or complaints can be filed, and how customers can participate in this proceeding. The Companies' Joint Petition, direct testimony and exhibits are being made available for inspection at Met-Ed's principal office in Reading, Penelec's principal office 1

19 in Erie, Penn Power's principal office in Clark, and West Penn's principal office in Greensburg. This material will also be posted to the Companies' public internet domain, where it will be available electronically for public inspection. The Companies have provided additional public notice by means of a press release, as well. 11 In accordance with Pa.C.S..(b), the Companies have also served copies of their Joint Petition, direct testimony and exhibits on the Pennsylvania Office of Consumer Advocate ("OCA"), the Pennsylvania Office of Small Business Advocate ("OSBA"), the Commission's Bureau ofinvestigation and Enforcement ("I&E"), l P JM, and all EGSs registered to provide service in their respective service territories. 1 Q. 1 1 A Please describe the proposed customer notices that will be provided for the initial default service rates that will be established under the Default Service Programs to be approved in this proceeding. The Companies will provide all customers with notice of their new default service rates, terms and conditions of service sixty (0) days before their effective date or thirty (0) days after bidding has concluded, whichever is the first to occur, unless another time period is directed by the Commission. Notice will be given via a bill insert and/or bill message after the Commission approves the Companies' retail tariff supplements containing generation rates reflecting the results of the competitive auction process. The notices and notification period will enable Formerly the Office of Trial Staff ("OTS").

20 customers to analyze how the new rates will affect their bills and provide an opportunity for customers to seek competitive alternatives from EGSs. The Companies will also provide written notice to the OCA, OSBA, I&E, PJM and all EGSs registered in their service territories explaining the methodology used to calculate the default service rates from the wholesale prices obtained in their competitive solicitations As previously noted, after the initial steps of the default service procurements and implementation plans are completed, the Companies will file tariff supplements with the Commission designed to reflect, for each customer class, the rates to be charged for default service. The tariff supplements will be accompanied by: (l) supporting documentation showing that the Companies adhered to the procurement plan approved by the Commission; () the procurement plan results; and () the calculation that translate procurement plan results into retail rates. 1 Q. 1 1 A Please describe the proposed customer notice for subsequent default service rate changes. The Companies will submit tariff supplements on a quarterly basis, or more frequently, to revise default service rates to ensure the recovery of costs reasonably incurred in acquiring electricity at market prices. Written notice of the submission of these tariff supplements will be provided to the OCA, OSBA, I&E, P JM and all EGSs registered in each of the Companies' service territories. The tariff supplements will be posted on the Companies' public internet domain when they are filed with the Commission.

21 Also, within one business day of the effective date ofthe revised price-tocompare for each customer class, the revised prices-to-compare will be posted on the Companies' public internet domain. The costs associated with all forms of public notice will be recovered in the administration charge of the new default service rates. A preliminary estimate is set forth in Met-Ed/Penelec/Penn PowerlWest Penn Exhibit RAD-. V. Q. A Cost Recovery and Reconciliation for Default Service Programs How do the Companies propose to recover the costs of providing default service supply to their non-shopping customers? Most ofthe Companies' costs for providing default service supply will be recovered through default service rates, as explained by Mr. Valdes. Through the rate design process, wholesale prices obtained in the supply auctions will be converted into retail rates for residential and commercial customer classes. The residential and commercial classes are comprised of customers served under specific rate schedules, as defined in the default service riders for the Companies. Costs for supplying hourly-priced service for certain large commercial and industrial customers will be billed on a monthly basis. Q. Mr. D'Angelo, have the Companies included a reconciliation component in the new generation rates proposed under their Default Service Programs? 0 A. 1 Yes. Consistent with the Commission's regulations and prior plan approvals for Met-Ed, Penelec, Penn Power and West Penn, the Companies have incorporated a reconciliation component in the generation rates proposed in their Default Service 0

22 Programs. Reconciling adjustments will be made on a quarterly basis for the duration of the Default Service Programs. As Mr. Valdes explains, the reconciliation feature is included in both the Price to Compare Default Service Rate Rider, which will establish fixed-price rates for residential and commercial customers, and the Hourly Pricing Default Service Rider, which will establish hourly-priced rates for industrial customers (and may be chosen as an option by certain other customers). Q. A Would you provide an overview of reconciliation rate provisions? Each month, costs to provide default service (as defined in the applicable riders) will be compared to default service revenue billed to retail customers (as also defined in the riders), and any resulting over or under collection will be recorded on each of the Companies' books. The calculations will be done separately by Company and by customer class Each quarter, the cumulative over or under collection recorded on the Companies' books will be used to compute a new reconciliation charge, or "E" factor. The "E" factor will be calculated to refund or recover, as appropriate, the net over or under collection per customer class, including carrying charges, on a per-kwh basis, over the prospective three-month rate application period. Carrying charges will be calculated at the interest rates specified in the default service regulations. 0 Q. 1 A. How often will the fixed-price default service rates be adjusted? The basic default service charges for residential and commercial customers will be adjusted on a quarterly basis. This will require the Companies to make 1

23 quarterly compliance filings in order to have their proposed retail rates approved for billing purposes. These new generation rates would include the latest "E" factor adjustment for each Company. As a result, default service rates will change four times per year for residential and commercial customer classes. Q. A. 11 Will the wholesale suppliers selected in the auctions be affected by the reconciliation adjustment factor? No. The wholesale suppliers will always be paid based on the price they bid including seasonal factors and other adjustments identified in the SMA, no more, no less. The reconciliation adjustment factor simply ensures that the Companies' purchased power expenses and revenues are equal over time and that all of the Companies' default service costs are fully recovered from their customers. 1 Q. 1 1 A. 1 1 As you previously mentioned, Mr. Stathis discusses contingency plans. Please address how the Companies will recover any additional costs they may incur if the contingency plans have to be implemented. As discussed by Mr. Stathis, it is possible that the Companies could receive an insufficient number of bids to fully subscribe the auction or could encounter a default by one or more of the winning bidders before or after June 1,0. 0 The primary contingency plan calls for each Company to purchase necessary power supplies through PJM-administered markets at prevailing spot-market prices. Mr. Stathis describes in more detail all of the contingency plans.

24 The Companies would flow these power supply plan costs through default service rates and the associated reconciliation mechanism that I previously described. These costs would be reconciled to actual default service revenues collected from non-shopping customers. Changes in costs would be reflected in the "E" factor mechanism, which adjusts generation charges on a quarterly basis. This procedure would avoid the need to hold an emergency interim proceeding to adjust Default Service Program generation rates. VI. Q. 11 A. Commitments from the Merger Settlement Mr. D'Angelo, did the Companies make certain commitments in the Merger Settlement that may be relevant to this case. Yes, they did. 1 Q. A Please update the status of those commitments. The Merger Settlement, which the Commission adopted on February,011, included several provisions setting forth things the Companies were required to do (or to refrain from doing) that are relevant to their default service plans. In general, these commitments either have been fully satisfied already, are in the process of being satisfied, or will have been accomplished upon approval of the Companies' Default Service Programs, as explained below. 0 1 First, as they committed to do, the Companies are introducing voluntary TOU rates to residential customers with smart meters and voluntary real-time rates to commercial and industrial customers with smart meters. Mr. Valdes discusses how the Companies propose to implement the TOU commitment. The

25 administrative costs associated with the bidding of this service and related advertising would be allocated only to residential customers and recovered through the DSSRs. Second, the Companies agreed that West Penn's Rate Schedules and and conjunctive billing agreements thereunder would remain available and that the rate design under those rate schedules would be maintained for a period of five years from the date the merger of FirstEnergy and Allegheny was consummated (February,011). Accordingly, West Penn is not proposing any changes to Rate Schedules and or conjunctive billing agreements in this proceeding Third, the Companies agreed that they would all use the same price-to-compare structure in their next default service proceeding. Consistent with that commitment, all of the Companies are proposing to use the same price-tocompare structure in their Default Service Programs in this case, as Mr. Valdes explains Fourth, the Companies made commitments to implement retail market enhancements, including customer welcome packets, updated eligibility lists, sync lists, interval/non-interval consumption information via Electronic Data Interchange ("EDI"), EDI change requests, rate-readylbill ready options, purchase of receivables for residential and commercial customers and budget billing for utility consolidated billing, to be completed within three months following integration of West Penn into FirstEnergy's SAP computer system. The implementation of these commitments is on track and is expected to be completed

26 in the second quarter of01, which is within the timeframe required by the Merger Settlement. Fifth, the Companies agreed to appoint an ombudsman, and West Penn agreed to discontinue billing EGS administrative charges. These commitments have been implemented. Sixth, the Merger Settlement requires monthly meetings with EGSs. The first monthly EGS meeting was held on March,011, and EGS meetings have been conducted monthly thereafter Seventh, the Companies agreed to provide the OCA, OSBA and I&E (formerly, the OTS) with detailed information about processes for, and results of, procuring default supplies for service rendered after June 1,0. This includes copies of solicitations, assessments done to qualify prospective suppliers, disqualification information, results of procurement, and a summary showing market shares of default suppliers. The Companies are required to supply this information within three days after the Commission approves' the procurement results. This Merger Settlement commitment will be implemented as part of this default service proceeding. 0 1 Eighth, as they committed to do in the Merger Settlement, the Companies will file with the Commission annually, for the years , a report on wholesale market prices and price trends within PJM. Under this commitment, the first report will be filed in 01. The report will also be served on the OCA, OSBA

27 and I&E (fonnerly, the OTS) subject to an appropriate protective order, as also provided in the Merger Settlement. Finally, Met-Ed, Penelec and Penn Power, which all have an SPVRC Rider in their current tariffs, agreed: (1) to procure 0% of SPAECs for the period 011 through 01 using ten-year contracts; and () to distribute the SPAECs thus acquired to EGSs and default service suppliers on a load-ratio basis. Mr. Stathis discusses how these requirements will be implemented in this case VII. Q. A. Investigation of Pennsylvania's Retail Electricity Market Are you familiar with the statewide investigation of the retail electricity market that the Commission initiated at Docket No ? Yes. This proceeding, for approval of the Companies' Default Service Programs, is running in parallel with the statewide investigation. On October 1, 011, the Commission issued a tentative order in the statewide investigation and solicited comments ("October 1 Tentative Order"). The Companies were one of many parties providing input into the statewide investigation. Based upon the October 1 Tentative Order and the Companies' filed comments in response, the Companies are seeking approval to implement several proposed market enhancements. 0 1 The Companies are proposing to implement a Retail Opt-In Aggregation Program ("Opt-In Program") marketed towards non-shopping residential customers. All residential customers, including those on a Customer Assistance Plan, will be pennitted to participate. The auction for the Opt-In Program will occur after the

28 January 0 full requirements procurements but no later than March 0. The winning bidders in the Opt-In Program auction will be determined by price expressed as the largest percentage off the PTC. Mr. Fullem discusses the details of the Opt-In Program in his direct testimony. Administrative costs to implement the Opt-In Program would be recovered in each respective Company's DSSR. Also, the Companies are proposing to implement a Retail Customer Referral Program ("Referral Program") for residential customers that call the Companies with a new service request, a high bill complaint or to inquire about customer choice. At the conclusion of the call, a customer service representative will inform the residential customer that: (a) he or she has the ability to shop to reduce 11 his or her price; (b) numerous other offers exist; and ( c) he or she can be 1 transferred to the Customer Referral Plan Implementation Team. If the customer is interested, the customer representative would transfer the caller to the Customer 1 Referral Plan Implementation Team. Administrative costs of the Customer 1 Referral Plan Implementation Team would be recovered in each respective 1 Company's DSSR. Mr. Fullem discusses the details of the Referral Program in 1 his direct testimony. VIII. Conclusions Q. 0 A. 1 Please summarize your testimony and recommendations. The Default Service Programs for which the Companies are seeking approval comply with the applicable provisions of the Customer Choice Act, the Commission's default service regulations, the Commission's Policy Statement on

29 Default Service and the commitments the Companies made in the Merger Settlement. The Companies believe that their proposed Default Service Programs are a solid foundation upon which to base ongoing default service procurements. The Commission should approve the Companies' proposed Default Service Programs, including the proposed twenty-four month term for such programs, as just, reasonable and in the public interest. Additionally, the Commission should approve the Companies' proposed default service rate design, including the proposed reconciliation mechanisms, as just, reasonable and in the public interest. Q. A. Mr. D'Angelo, does this complete your direct testimony? Yes, it does.

30 APPENDIX A

31 Met-Ed/Penelec/Penn Powerl West Penn Statement No. 1 Witness: Richard A. D' Angelo Appendix A Page 1 of Resume: Education and Experience of Richard A. D'Angelo Education: Experience: Bachelor of Science Degree in Economics - Brooklyn College Master of Business Administration Degree in Finance - Pace University /1 - / / - / / - / / - / / Present Accountant and Supervisor - Bankers Trust Company Employed as Accountant within Regulatory Accounting Area - Metropolitan Edison Company ("Met-Ed") Senior Accountant within Regulatory Accounting Area with special emphasis on rate-related matters (Met-Ed) Supervisor - Rates and Financing (Met-Ed) Manager - Rate Revenue Requirements within the Rate Department (Met-Ed) Manager - Regulatory Liaison within the Regulatory Affairs and Pricing Department (Met-Ed/Pennsylvania Electric Company) Manager - Rate Activity within the Rate Department (GPU Energy) Manager - Rates & Regulatory Affairs- Pennsylvania (FirstEnergy Service Company) Prepared and presented testimony in the following rate-related cases: Pennsylvania Public Utility Commission Cases: Docket Nos. A-0- A-0- P-0- P P P-0000 P-000 P-000 R-000 R-000 P-000 P-0001 P-000

32 P-000 A-II00F0 R-0001 R-000 C-00 R-0001COOOl R-000COOOl R-000COOOl A-100F.00 A-II000F.000 P P P-0000 (Phase ) P-0000 (Phase ) R-0000 (Phase 1) R-0000 (Phase 1) P-001I P-001I P-001I P-00 P-00I P-001 P-000 A-I 00 F00 R-I P-000 P R-0 R-0 R- R P-0 M-FACE 0 M-FACE 0 M-FACE 0 M-FACE 0 Met-Ed/Penelec/Penn Power/ West Penn Statement No.1 Witness: Richard A. D' Angelo Appendix A Page of

33 Met-Ed/Penelec/Penn Power/ West Penn Statement No. 1 Witness: Richard A. D'Angelo Appendix A Page of M-FACE 0 M-FACE M-0ll COOl State of New Jersey - Board of Public Utility Case: Docket No. E00ll0l New York Public Service Commission Cases: Case No. ll-0l/ll-e-0 Federal Energy Regulatory Commission Cases: Docket Nos. ER and ER ER---00l ER--l Assisted in development and preparation in the following rate cases: Pennsylvania Public Utility Cases: Docket Nos. R-1l R-001 R.I.D. Federal Energy Regulatory Commission Cases: Docket No. ER--

34 Met-Ed/Penelec/Penn Power/West Penn Exhibit RAD-1 Page 1 of 1 Projection of Met-Ed, Penelec, Penn Power and West Penn Default Service Program Solar Photovoltaic Requirements Administration Costs Projected Costs Line No. Description of Incremental Administrative Costs Met-Ed Penelec Penn Power West Penn 1 Legal and Regulatory Expenses for Solar Photovoltaic Component of Default Service Program Proceeding $,00 $,000 $ 1,000 $,00 Consultant Costs for Administration of Auction Process 11,00 111,000,00 1,0 Estimated Totals (Line 1 + Line ) $,00 $,000 $,00 $ 0,00

35 Met-Ed/Penelec/Penn Power/West Penn Exhibit RAD- Page 1 of Projection of Met-Ed Default Service Program Incremental Administrative Costs Line No. Description of Incremental Administrative Costs Projected Costs (A) Residential Commercial HPS/Industrial Total 1 Bill Inserts and Customer Notifications (B) $,00 $,00 $ $,0 Legal and Regulatory Expenses for Default Service Program Proceeding (C),00 0,000,000,00 Consultant Costs for Default Service Program Proceeding and Administration of Descending Clock Auction Process,000 0,000,000 0,000 Metering and Related Expenses - Billing System Enhancements and IT Related Expenses - Estimated Totals (Line 1 through Line ) $ 01,00 $,00 $ 1,000 $ 1,1,00 (A) Projected costs allocated to respective Customer Classes using 0 projected Non-Shopping kwh by Customer Classes. (B) Includes newspaper notices and the production and mailing costs for notification to approximately,000 customers. (C) Includes filing, hearings, briefs, and exceptions for Default Service Program Proceeding.

36 Met-Ed/Penelec/Penn Power/West Penn Exhibit RAD- Page of Projection of Penelec Default Service Program Incremental Administrative Costs Line No. Description of Incremental Administrative Costs Projected Costs (A) Residential Commercial HPS/Industrial Total 1 Bill Inserts and Customer Notifications (B) $,000 $,000 $ $,000 Legal and Regulatory Expenses for Default Service Program Proceeding (C),00,000,000,00 Consultant Costs for Default Service Program Proceeding and Administration of Descending Clock Auction Process,00,00,000 0,000 Metering and Related Expenses Billing System Enhancements and IT Related Expenses Estimated Totals (Line 1 through Line ) $,00 $,00 $ 1,000 $ 1,0,00 (A) Projected costs allocated to respective Customer Classes using 0 projected Non-Shopping kwh by Customer Classes. (B) Includes newspaper notices and the production and mailing costs for notification to approximately 1,000 customers. (C) Includes filing, hearings, briefs, and exceptions for Default Service Supply Plan proceeding.

37 Met-Ed/Penelec/Penn Power/West Penn Exhibit RAD- Page of Projection of Penn Power Default Service Program Incremental Administrative Costs Projected Costs (A) Line No. Description of Incremental Administrative Costs Residential Commercial HPS/Industrial Total 1 Bill Inserts and Customer Notifications (B) $ 1,0 $ 00 $ $ 1,00 Legal and Regulatory Expenses for Default Service Program Proceeding (C),00,000 1,000,00 Consultant Costs for Default Service Program Proceeding and Administration of Descending Clock Auction Process 1,00 0,000 1,00 1,000 Metering and Related Expenses Billing System Enhancements and IT Related Expenses Estimated Totals (Line 1 through Line ) $,000 $ 0,00,00 $,00 (A) Projected costs allocated to respective Customer Classes using 0 projected Non-Shopping kwh by Customer Classes. (B) Includes newspaper notices and the production and mailing costs for notification to approximately,000 customers. (C) Includes filing, hearings, briefs, and exceptions for Default Service Supply Plan proceeding.

38 Met-Ed/Penelec/Penn Power/West Penn Exhibit RAD- Page of Projection of West Penn Default Service Program Incremental Administrative Costs Projected Costs (A) Line No. Description of Incremental Administrative Costs Residential Commercial HPS/Industrial Total 1 Bill Inserts and Customer Notifications (B) $,0 $,000 $ $ 11,0 Legal and Regulatory Expenses for Default Service Program Proceeding (C),00,000,000,00 Consultant Costs for Default Service Program Proceeding and Administration of Descending Clock Auction Process,000,000 1,000 1,000 Metering and Related Expenses - - Billing System Enhancements and IT Related Expenses - Estimated Totals (Line 1 through Line ) $,00 $,000,000 $,00 (A) Projected costs allocated to respective Customer Classes using 0 projected Non-Shopping kwh by Customer Classes. (B) Includes newspaper notices and the production and mailing costs for notification to approximately 1,000 customers. (C) Includes filing, hearings, briefs, and exceptions for Default Service Supply Plan proceeding.