Application of West Penn Power Company. For approval of its restructuring plan under Section 2806 of the Public Utility Code.

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1 88 COMMONWEALTH OF PENNSYLVANIA PUBLIC UTILITY COMMISSION x Petition of West Penn Power Company. For issuance of a second supplement to its previous qualified rate orders under Section 2808 and 2812 of the Public Utility Code. Docket No. R x Application of West Penn Power Company. For approval of its restructuring plan under Section 2806 of the Public Utility Code. Docket No. R Initial Hearing. Pages 88 through 104 DOCUMENT x JUL Hearing Room.2... _ Commonwealth Keystone Building Harrisburg, Pennsylvania Monday, March 14, Met, pursuant to adjournment, at 10:0 0 a.m. BEFORE: m WAYNE L. WEISMANDEL, Administrative Law Judge -n APPEARANCES: JOHN F. POVILAITIS, Esquire Ryan, Russell, Ogden & Seltzer 800 North Third Street, Suite 101 Harrisburg, Pennsylvania (For West Penn Power Company) 2*.; r CD zo j CO! > t O m m o Commonwealth Reporting Company, Inc. 700 Lisburn Road Camp Hill, Pennsylvania (717)

2 89 APPEARANCES (Continued): JOHN L. MUNSCH, Esquire 800 Cabin H i l l Drive Greensburg, Pennsylvania (For West Penn Power Company) RICHARD A. KANASKIE, Esquire P. O. Box 3265 "Harrisburg, Pennsylvania (For Office of Trial Staff) TANYA McCLOSKEY, Esquire JAMES MULLINS, Esquire Fifth Floor, Forum Place 555 Walnut Street Harrisburg, Pennsylvania (For Office of Consumer Advocate) WILLIAM R. LLOYD, JR., Esquire CAROL F. PENNINGTON, Esquire 300 North Second Street, Suite 1102 Harrisburg, Pennsylvania (For Office of Small Business Advocate) JAMES H. CAWLEY, Esquire Rhoads & Sinon LLP 1 South Market Square P. O. Box 1146 Harrisburg, Pennsylvania (For Constellation NewEnergy, Inc. and Constellation Energy Commodities Group) JONATHAN SCHNEIDER, Esquire Stinson, Morrison and Hecker th Street NW, Suite 800 Washington, D.C (For Citizen Power, Inc.) Commonwealth Reporting Company, Inc. 700 Lisburn Road Camp Hill, Pennsylvania (717)

3 90 APPEARANCES (Continued) : DERRICK WILLIAMSON, Esquire SUSAN BRUCE, Esquire McNees, Wallace & Nurick 100 Pine Street P. O. Box 1166 Harrisburg, Pennsylvania (For West Penn Power Industrial Intervenors) DAVID F. BOEHM, Esquire 1510 URS Center 36 East Seventh Street Cincinnati, OH (For AK Steel) DENNIS J. BUCKLEY, Esquire Klett, Rooney, Lieber & Schorling 240 North Third Street, Suite 700 Harrisburg, Pennsylvania (For Reliant Energy, Inc.) Commonwealth Reporting Company, Inc. 700 Lisburn Road Camp Hill, Pennsylvania (717)

4 91 WITNESS INDEX WITNESS DIRECT CROSS REDIRECT RECROSS (None.)

5 92 NUMBER EXHIBIT INDEX FOR IDENTIFICATION IN EVIDENCE 3 /West Penn Power Statement 4.B (Howells - Direct, Revised) Amended Joint Petition For ^Settlement and For Modification of the 1998 Restructuring Settlement Any reproduction of this transcript is prohibited without authorization by the certifying reporter COMMONWEALTH REPORTING COMPANY (717)

6 93 1 PROCEEDINGS 2 ADMINISTRATIVE LAW JUDGE WAYNE L. WEISMANDEL: We'll 3 open the record. This is the date, time and place set for a 4 conference in the matter of the petition of West Penn Power 5 Company for issuance of a second supplement to its previous 6 qualified rate orders under Sections and of the 7 Public Utility Code, Pennsylvania Public Utility Commission 8 Docket No. R This case is also proceeding under the caption and 10 docket number, application of West Penn Power Company for 11 approval of its restructuring plan under Section 2806 of the 12 Public Utility Code, Docket No. R I am Administrative Law Judge Wayne L. Weismandel, '4 assigned by the Commission to preside in this matter. I 15 will indicate for the record that I have two attorneys 16 participating telephonically this morning. David F. Boehm, 17 Esquire has been contacted at area 513, Mr. Boehm 18 is representing AK Steel Corporation. 19 Jonathan D. Schneider, Esquire has been contacted at 20 area code 202, Mr. Schneider is representing 21 Citizens Power, Inc. 22 Starting on my right and your left, I would ask 23 counsel to state their name and on whose behalf they are 24 appearing today. Mr.. Buckley? 25 MR. BUCKLEY: Thank you, Your Honor. Dennis J. COMMONWEALTH REPORTING COMPANY (717)

7 94 1 Buckley, appearing on behalf of Reliant Energy, 2 Incorporated. 3 JUDGE WEISMANDEL: Thank you, sir. 4 MR. MUNSCH: John L. Munsch, appearing for West Penn 5 Power Company. 6 MR. POVILAITI-S: Good morning, Your Honor. I am John 7 Povilaitis with Ryan, Russell, Ogden and Seltzer representing West Penn Power Company today. 9 MR. LLOYD: William Lloyd and Carol Pennington on 10 behalf of the Office of Small Business Advocate. 11 MS. McCLOSKEY: Good morning. Tanya McCloskey, and 12 with me today is James A. Mullins on behalf of the Office of 13 Consumer Advocate. 14 MR. WILLIAMSON: Good morning. Derrick Williamson 15 and Susan Bruce from McNees, Wallace and Nurick on behalf of 16 the West Penn Power Industrial Intervenors. 17 MR. KANASKIE: Richard Kanaskie with the Office of 18 Trial Staff. 19 MR. CAWLEY: James H. Cawley of Rhoads & Sinon on 20 behalf of Constellation Energy Commodities Group, 21 Incorporated and Constellation NewEnergy, Inc. 22 JUDGE WEISMANDEL: Very good, Mr. Cawley. 23 (Laughter.) 24 JUDGE WEISMANDEL: Mr. Schneider, Mr. Boehm, were you 25 able to hear everyone?

8 95 1 MR. SCHNEIDER: Yes, Your. Honor, very clearly. 2 MR. BOEHM: Yes. 3 JUDGE WEISMANDEL: Good, okay. All right. As I had 4 indicated before we went on the record, I have received the 5 amended joint petition for settlement and for modification 6 of the 1998 restructuring settlement. That was filed with 7 the Commission Secretary at the docket numbers for this case 8 on March 8, Filed at the same time was revised direct testimony 10 of John R. Howells on behalf of West Penn Power Company 11 marked Statement No. IB. That too was filed on March 8, It's my understanding that those documents are not 1 4 being challenged by any of the participants in this matter 1 5 and they can be accepted as though Mr. Howells testified 16 here in person and was available for cross-examination; is 1 7 that correct? 18 MR. POVILAITIS: Yes, Your Honor. 19 MS. McCLOSKEY: Yes, Your Honor. 20 MR. WILLIAMSON: Yes, Your Honor. 21 JUDGE WEISMANDEL: I can see everyone here in front 22 of me indicating agreement with those statements. How about 23 Mr. Boehm and Mr. Schneider? Are those correct 24 representations? 25 MR. BOEHM: This is David Boehm, Your Honor. Yes.

9 96 1 MR. SCHNEIDER: And for Citizens Power, Your Honor, 2 that is also correct. 3 JUDGE WEISMANDEL: Very good. All right. Thank you. 4 I have received written statements in support of the amended 5 joint petition for settlement from the Office of Consumer 6 Advocate, the Office of Small Business Advocate, West Penn 7 Power Industrial Intervenors and Mr. Cawley's clients, the 8 two Constellation entities. 9 I thank you all for that. And as far as those of you 10 who have not yet submitted a written statement in support, I 11 would like to have one. 12 I gather that by the answers I've gotten, you all 13 agree that the amended joint petition is in the public 14 interest, and that i t should be recommended by me for 15 approval by the Commission without modification. But I 16 would like to see something in writing particularly from AK 17 Steel and Citizen Power. 18 Trial Staff, Mr. Kanaskie, what's your position? Are 19 you going to give a statement in support or a statement not 20 in opposition? 21 MR. KANASKIE: Your Honor, we will give a statement 22 not opposing. I can give an oral statement on the record or 23 provide you with a written document. 24 JUDGE WEISMANDEL: A short written document, i f you 25 would, please.

10 97 MR. KANASKIE: Yes, Your Honor. JUDGE WEISMANDEL: Thank you. And again, Mr. Boehm and Mr. Schneider, this doesn't have to be "Gone With the Wind" or anything, but I would like some short written statement in support that can be filed, all right? MR. SCHNEIDER: This is John Schneider. We're happy to do that. Your Honor. If you would simply indicate by when you would want us to submit that, I will comply. JUDGE WEISMANDEL: I'd like i t this week. 10 MR. SCHNEIDER: That's fine at the latest. JUDGE WEISMANDEL: In other words, by Friday the 18th MR. SCHNEIDER: Okay, we can do so. JUDGE WEISMANDEL: Does that suit you too, Mr. Boehm? MR. BOEHM: We will do that, Your Honor. Thank you. JUDGE WEISMANDEL: Okay. Mr. Buckley, I also 17 received a letter from you on behalf of Reliant Energy, Inc which says, and I'm reading your letter, that Reliant does not oppose consideration of the amended joint petition for settlement. Is there anything magic about the word "consideration" there as opposed to, doesn't oppose approval? 23 MR. BUCKLEY: No. There's no magic. Your Honor, no 24 sleight-of-hand either. 25 JUDGE WEISMANDEL: The word "approval" could be COMMONWEALTH REPORTING COMPANY (717)

11 98 1 substituted without changing your client's position? 2 MR. BUCKLEY: That is correct. Your Honor. 3 JUDGE WEISMANDEL: Okay. I wanted to make sure that 4 that was my understanding. I wanted to be sure we're all 5 on the same page. 6 MR. BUCKLEY: Yes. Your understanding is correct. 7 JUDGE WEISMANDEL: Very good. Thank you, sir. 8 Is there anything else that we need to do? Mr. 9 Povilaitis? 10 MR. POVILAITIS: Just a couple matters, Your Honor. 11 I read your remarks earlier this morning as admitting the 12 testimony of John R. Howells, Statement No. IB. It was also 13 our intention to move into the evidentiary record the joint 14 petition itself with appendices. We ask that you expand 15 your admission of materials to that as well. 16 JUDGE WEISMANDEL: I thought I did, but i f I didn't, 17 I ' l l do that now. No one has any objection to the joint 18 petition being also admitted, correct? 19 MR. LLOYD: No/ Your Honor. 20 JUDGE WEISMANDEL: Mr. Boehm, Mr. Schneider, no 21 objection? 22 MR. SCHNEIDER: No objection, Your Honor. 23 MR. BOEHM: No objection. 24 JUDGE WEISMANDEL: Thank you, gentlemen. 25 (Whereupon, the documents were

12 99 1 marked as West Penn Power Statement 2 No. 1-B and Amended Joint Petition 3 for Settlement for identification 4 and received in evidence.) 5 MR. POVILAITIS: And Your Honor, i f I may, just a 6 brief rundown of what that document consists of, i t is a 7 substantial document with a number of appendices and for the 8 sake of those who will not be as familiar with this matter 9 as you are and will be looking at i t in the next few weeks, 10 let me just describe that briefly. 11 In addition to the amended joint petition itself, we 12 have revised Appendix A which summarizes the generation and 13 the ITC rates for the various company rate classes. 14 Revised Appendix B consists of the ordering 15 paragraphs for securitization. These are fairly important, 16 Your Honor. We wanted to bring them particularly to your 17 attention. These are the paragraphs that, assuming that we 18 get a favorable recommendation from you, that those ordering 19 paragraphs appear in your recommendation and, subsequent to 20 that, in the Commission's order, assuming that that is an 21 approval as well. 22 Appendix C had a very minor adjustment to i t from the 23 original petition. We have not described i t as a revised 24 appendix for that matter. It essentially consists of the 25 ITC 2 tariff pages that were part of the joint petition

13 originally. Revised Appendix D consists of the backup material for the adjustments to Rate Schedule 20. That was an element of the settlement. This spells out in detail the adjustments to the first rate block for that particular rate schedule which was part of the settlement terms. And Appendix E is an example of the operation of what is referred to in the amended joint petition as the Generation Purchase Credit, the GPC. It's an illustrative 10 example of how that would operate. 11 And this is the formula under which, i f the eventual bids in response to the RFP for years 2009 and 2010 provide costs that are below the rate caps, it's a mechanism under which any potential savings could be redistributed to customers. So I just wanted to add that description. We did have a couple other matters that would relate to your recommendation for your consideration as well. The first of those is the fact that we wanted to call to your attention Paragraph 19 of the amended joint petition. This is the paragraph of the settlement which essentially says, for those parties that are supporting the settlement, i f your recommended decision does not modify the settlement or add any new matters, the parties supporting the settlement waive the right to exception. We were hoping that in the event your recommendation

14 101 1 is favorable, that you could bring this to the attention of 2 the Commission as part of your recommendation so that we do 3 not get an exception and reply to exception period scheduled 4 for this matter, which would be unnecessary. 5 Mr. Buckley on behalf of Reliant and Mr. Kanaskie on 6 behalf of Trial Staff are not necessarily part of that 7 agreement because they are not affirmatively supporting the 8 settlement. It's my understanding that they do not oppose 9 that waiver of the exception period. And i f you're 10 interested, I'm sure they would put that on the record. 11 JUDGE WEISMANDEL: I want that on the record i f that 12 is in fact the case. Mr. Buckley, is it? 13 MR. BUCKLEY: Yes, i t is, Your Honor. 14 JUDGE WEISMANDEL: On behalf of Reliant? 15 MR. BUCKLEY: On behalf of Reliant. 16 JUDGE WEISMANDEL: And Mr. Kanaskie on behalf of OTS? 17 MR. KANASKIE: Yes, Your Honor. And would you like 18 that included in the statement that I submit to you? 19 JUDGE WEISMANDEL: That would be very good, i f you 20 wouid. Yes, sir. Thank you. 21 MR. POVILAITIS: One other matter relating to the 22 timing of the remainder of the case. Your Honor. We would, 23 on behalf of the joint petitioners, we would ask that you 24 include in a favorable recommendation, i f that is your 25 recommendation, that you include a request for expedited

15 102 1 Commission resolution of the matter. 2 As is spelled out in the materials that we've 3 submitted, there is an issue of this settlement being more 4 advantageous to customers the sooner i t is approved. 5 Essentially, the cost of money is a moving point. 6 It's moving upward at this point. We need the supplemental 7 qualified rate order to initiate the securitization process 8 which will achieve these savings and finalize the issue of 9 the company's uncollected stranded costs. 10 The sooner we can commence the securitization, the 11 sooner the 11 percent carrying charge that is associated 12 with stranded costs will terminate. 13 So we certainly ask that, in the event of a favorable 14 recommendation, that you bring this matter to the 15 Commission's attention and urge them to schedule i t for 16 disposition as promptly as-possible. 17 JUDGE WEISMANDEL: I can certainly do that. The 18 efficacy of my doing so remains to be seen, and I wouldn't 19 put a whole lot of trust in i t. 20 The next Public Meeting is March 23rd. Obviously 21 we're not going to make that. In April, there is a Public 22 Meeting on the 7th. I sincerely doubt that we'll make that. 23 The next one is the 21st. That may be doable, and I will 24 act as expeditiously as I can on the matter. Once i t goes 25 out of my hands and out of our shop, other forces are at

16 103 1 play. 2 3 MR. POVILAITIS: I understand you fully. Your Honor. It's just that, i f a plug were made for doing i t 4 expeditiously, at least there's a chance. 5 JUDGE WEISMANDEL: I ' l l do i t. 6 MR. POVILAITIS: Thank you from JUDGE WEISMANDEL: Anything further? (No response.) JUDGE WEISMANDEL: Mr. Schneider, anything further Citizen Power? MR. SCHNEIDER: No, thank you. Your Honor. JUDGE WEISMANDEL: Okay. I will get a written statement in support by the 18th, correct? MR. SCHNEIDER: Yes, you will. JUDGE WEISMANDEL: Thank you. Mr. Boehm, anything 16 further for AK Steel Corporation? MR. BOEHM: No, Your Honor, and we'll get our statement in by the 18th. 19 JUDGE WEISMANDEL: Thank you, sir. If there's 20 nothing else, I thank you all. I know you all worked very hard on getting this matter resolved, and I commend you for the fine effort you made. Thank you all very much. That will conclude this morning's proceeding concluded.) (Whereupon, at 10:13 a.m., the proceedings were

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