PENNSYLVANIA ELECTRIC COMPANY

FlUNG REQUIRP.MENT 1-A-1:

Penelec Exhibit CVF-1 Witness: C. V. f-'ullern

Page L ofG

" Provide a summary discussion of the rate change request, includ ing specific reasons for each increase or decrease. A I so provide a breakdown which identifies the revenue requirement value of the maj01' items generating the requested rate change."

RESPONSE:

Introduction

Pennsylvania Electric Company Statement of Reasons for Rate Changes

Pennsylvania 1-:lcctric Company (' 'Penclcc" or th l:! "Company'1) has filed a tal'iiT

supp lement and accompanying supporting data setting forth a proposed distribution base

rate increase and other proposed tariff revisions ("Rate Plan'') for approval by the

Pe1u1sylvania Pu bli c Utility Commiss ion ("Commission'').

The Rate Plan proposes rates thal would produce an increase in Penelec's ann ual

distribution revenue or $158.8 million based on a fully projected futu re test year endi 11g

December 31, 2017 and renecting the Company's proposed overall rate of return of

8.58% and a rate of return on the common equity portion of its capital structure of

11.30%. The average total-bill inc1·eases under the proposed rates vary by class of

customers, and average class increases range fi·om approximate ly 0. 15% to 32.04% te l'

customers that receive de fault serv ice from the Company. The monthly bill of a

residential dcfau It service customer us ing I ,000 kilowatt-hours ("kW h") per month

wou ld increase rrom $ 137.89 to $161.50.

Pcnclcc Exhibit CVf-1 Witness: C. V. Fullem

Page 2 of6

Principal Reasons For The Proposed Increase ln Rates

Five principal factor~ are driving the Company's need to increa':ie its distribution

rates:

I. Growth in the Compaoy's distribution rate base. One of the factors driving

Penelec's need for raLe reliefis the II% growth in the Company's rate base

attributable lo ils ongoing investment in distribution plant (including smart meter

and DSIC-e li gible investment). As shown in the table below, the Company' s

estimated rate base at December 31 , 2017, as developed in Mr. I)' Ange.lo' s

Penelec Kxhibit RAIJ-1, is expected to be approximately $165 mill1n11 greaLer

than the level renected in current rates:

Penelec - ~

~ (thousands) ·- ·-·-.. ---'---

Rate 13asc Docket No. R-20 14-242R743 $ 1,465,01 g

Rate Base RAD-1 pg. 1 line 19 $1,631,037

Increase $ 165,120

Percentage Change 11%

2. Reduction in sales. Penelec' s projected 2017 revenue at current rates is twenty

three million dollars less than the revenue requirement in the Settlement

t\greement approved by the Comm ission at Docket No. R-20 14-2428743. Sales

to the residential class as a whole are expected to decrease by 2.14% annually,

driven by a decline in the average usage per customer of approximately 2.10%

annually over the next tour years, offset slightly by increases in the number of

residential customers. The decline in the average residential usage in the

Pcnclec 8xhibit CVF- L Witness: C. V. Pullem

Page 3 or6

Company's !:>ervice area is p1·imarily due to implementation of Pennsylvania's

stale-mandated energy effic iency programs (Act 129), as well as federally

mandated energy efliciency I ighting standards.

3. Deferred Taxes. Penelec's derenecl ta.'< expense for the FPFTY is higher than the

amount rct1ectecl in its last base rate proceeding.

4. Depreciation expense associated with increased investment in plant in

service. The Company has included with this filing a new service life study

rct1ecting adoption ofthe Equal Life Group Method. The updated accrual rates,

along with the new distribution plant, result in corresponding increases in

depreciation expense.

5. lucrease in opera tions and maintenance ("O&M") expense. Implementation

oft'he Company's Commission-approved Long Termlnfrastructurc lmprovement

Plan ("LTllP") will drive higher O&M expenses as work included in the LTJIP

has an on-going O&M component in addition to the capita l component. In

addition, the Company has budgeted increases in vegetation management, facility

repairs and substation maintenance, as part of its on-going ~:: rrorts to enhance

reliabili ty. Finally, the Company continues to experience increased uncollectible

accounts expense.

Due in large part to its substantial investment in utility plant and

notwithstanding its success in containing O&M expenses, Penelcc's overall rate of return ,

at present rates, is projected to be only 3.42% for the fully projected ·future test year.

Penelec Exhibit CVF-1 Witness: C. V. Fullcm

Page 4 of6

More importantly, the indicated rt:tu1·n on common e4uity under present rates is

anticipated to he only 1.93%, whidJ is inadequate by nny reasonable standard.

Principal Components of the Rate Plan

The Company's Rate Plan consists orthe following principal components:

I. The Company is proposing a general rate im;rease to its distribution rates and

is also requesting increases in its Default Service Support Rider and llourly

Pricing Defzndt Service Rider in order to fully col lect the uncollectible

expense assoc iated with the provision ol default service, as well as the

Purchase of Receivable Program o!lered Lo hlectric Generation Suppliers. In

addition, the Company is proposing to include smart meter and DSTC

(Distribution SystciTI Improvement Charge) investmt:nt costs in base rntes.

2. The Company currently has a Stnart Meter 'l 'echnologit:s Chargt: ("SMT-C'')

Rider through which it recovers the costs or implcmenling its Smart Meter

Plan. Absent the fi ling of this base rate request, the Company's SiviT-C

Rider, which is currently set at zero, wou ld be rcinstatt:ld beginning in 2017 to

collect a budgeted $3,871,000 of smart meter costs during 2017. Hecause or

lhis filing, the Company will include its 2017 smart meter costs in base raLes

and will maintain its SMT-C Rider rate at zero. The SMT-C Rider will

remain in the Company' s tariff and will be uti! ized to recover the costs or its

Stnart Meter Plan in excess ofthc level of such costs included in base rales,

net of applicable savings.

Penelec Exhibit C YF- 1 Witn~ss : C. V. Fu llem

Page 5 of6

3. Likewise, the Company has sought the Commission's approval to im plement

a Distribution System Improvement Charge ("DSTC Rider'') for service

rendered beginning .July 1, 2016 at Docket No . .P-20 15-2508936. The

Company proposes to ro ll the projected OSTC Rider Ghargcs and costs into

base distribution rates, and lo reset the DSfC Rider to zero as of the effective

date of the base rates determined in this case. The DSIC Rider wi ll remain at

zero until Penelec has added plant through its L TTrP in excess of the claimed

amount included in its estimated December 3 1. 2017 rate base in the present

case.

C ustomer TmJJact/Bi ll Comparisons

As previous ly noted_ if Penelec·s proposed rates were fully implemented. a

residentia l customer of the Company using 1,000 kWh of electricity per month and

receiving default service wou ld pay a total monthly bill of$161 .50. That amount is

competitive with the month ly bills of default service customers LISing I ,000 kWh per

month served by the three other majOI' EDCs in Pennsylvania not affi I iated with Ptmelec, 1

which range tl·om $136.37 to $156.21 under those companies' existing rates.

Conclusion

The Rate Plan reflects the Company's need tor adequate and timely rate relief to

support the substantial amounts of add itional investment it will be required to make to

maintain and enhance rel iab ility, replace aging infrastructure, ami fu ll y implement its

Smart Mcler Plan while continuing to furn ish its customers the safe, reliab le and high-

Duquesne Lighl Company, PECO F.ucrgy Company and PPL Electric Utilities Corporation.

Penelec Exhibit CVF-1 Witness: C. V. Full em

Page 6 of6

quality electric service they have come to expect. Accordingly, it is critically important

for both the Company and its customers that the Rate Plan be approved.

Pcnclec Exhibit CVF-2 Witness: C. V. Fullem

Page 1 of 1

PENNSYLVANIA ELECTRIC COMPANY

FILING REQUIREMENT J-A-2:

" Identify the proposed witnesses for all statements and schedules of revenues, expenses, taxes, property, valuation, and the like."

RESPONSE:

Statement

Witness Designation i\rea of Testimony

C.Fullem Statement 1 Overview of Distribution Base Rate Case Filing

R. D'Angelo Statement 2 Revenue Requirements

K. Siedt Statement 3 Sales & Revenue Normalization, Rate Design, and

Proposed Changes in Tariff

T. Dolezal Statement 4 Cost of Service

J. Adams Statement 5 Cash Working Capital

L. Gi1Tord Statement 6 Unbundled Uncollectible Expense, Smart Meters

Cost Savings Baseline, and Smart Meter Revenue

Requirements

J. Spanos Statement 7 Annual and Accrued Depreciation Service Lives

P. Ahern Statement 8 Cost of Common Equity

J. Dipre Statement 9 Weighted Average Cost of Capital, Capital

Structure, and Cost of Long-Term Debt

Penelec Exhibit CVF-3 Witness: C. V. Full em

Page 1 of 1

PENNSYLVANIA ELECTRIC COMPANY

FILING REQUIREMENT I-A-3:

"Provide a single page summary table showing, at present and at proposed rates, together with references to the fi ling information, the fol lowing as claimed for the fully adjusted test year:

Revenues Operating Expenses Operating Income Rate Base Rate of Return (produced)"

RESPONSE:

Revenues

Operating Expenses

Operating Income

Rate Base

Rate of Return (produced)

Total Distribution At Present Rates*

Jurisdictional ($millions)

(Exhibit RAD-2 Page 1, Col. 7)

$ 381

$ 325

$ 56

$ 1,631

3.42%

Total Distribution At Proposed Rates*

Jurisdictional ($ millions)

(Exhibit RAD-2 Page 3, col. 25)

$ 534

$ 394

$ 140

$ 1,631

8.58%

*There is an increase in the total revenue requirements because of changes in the Default Service Support Rider of$ and Universal Service Cost Rider of $5,835.

PENNSYL V ANlA ELECTRlC COMPANY

FILING REQUlREMENT l-B-1:

Penelec Exhibit CVF-4 Witness: C. V. Fullem

Page 1 of2

"Provide a corporate history including the dates of original incorporation, subsequent mergers and acquisitions. Indicate all counties, cities and other govemmental subdivisions to which service is provided, including service areas outside this Commonwealth, and the total nwuber of customers or billed units in the areas served."

RESPONSE:

Pennsylvania Electric Company ("Penelec" or the "Company"), a Pennsylvania corporation, traces its roots back to 1880, when a group of Johnstown businessmen indicated their intent to form an electric light company. Between 1901 and 1925, a series of various mergers and acquisitions led to the formation of what became Penn Public Service Corporation. In 1927, the name was changed to Pennsylvania Electric Company. During the next few years many small companies were acqujred and merged with Penelec, and in 1944, the trade name "Penelec" was adopted.

1n 1946, General Public Utilities, Inc. (later "GPU Inc.'') was created, forming the umbrella under which Metropolitan Edison Company, Penelec and Jersey Central Power & Light Company conducted business.

lo 1956, Penelec's service territory was increased by more than one-tbjrd through a merger with Northern Pennsylvania Power Company ("North Penn"). As lessee of a subsidiary, The Waverly Electric Light and Power Company, North Penn also served the ViiJage of Waverly, New York and vicinity. Brockway Light, Heat & Power Company and Colver Electric companies were added in 1958. Three other additions to the Penelec system included Waterford Electtic Company in 1976, Rockingham Light, Heat & Power Company and Windber Electric Corporation in J 978.

On November 7, 2001, GPU merged with FirstEnergy Corp. Since that merger, Penelec has been a wholly owned subsidiary ofFirstEnergy Corp.

The Company's principal business is the transmission, distribution and sale of electticity in northern Pennsylvania and the Waverly District ofNew York. Penelec is affiliated with three other Pennsylvania electric distribution utilities (Metropolitan Edison Company, Pennsylvania Power Company and West Penn Power Company), as well as six additional sister distribution utilities in New Jersey, Ohio, Maryland and West Virginia. Other affiliates include FirstEnergy Service Company (a service company) and various regulated transmission and unregulated competitive energy companies.

Penelec Exhibit CVF-4 Witness: C. V. Fullem

Page 2 of2

The Company provides retail service to approximately 590,000 customers in all or portions of thirty-three counties in the northern and central parts of Pennsylvania. The municipalities which the Company serves are listed in the Company's filed Electric Service Tariff, Electric Pa. P.U.C. No. 81.

PA 1,000 kWh Residential Default Service Bill Comparison

$180.00

$160.00

$140.00

$120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$-

Met-Ed Penelec Penn Power West Penn

• Customer Charge D Distribution Charge • Total Rider Charge D Total Generation Charge

PPL

Penelec Exhibit CVF-5

Witness: Charles V. Fullem

Page 1 of 2

DUO

$100.00

$90.00

$80.00

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$-

Met-Ed

PA 1 ,000 kWh Residential Delivery Bill Comparison

Penelec Penn Power PECO

Penelec Exhibit CVF-5 Witness: Charles V. Fullem

Page 2 of 2

PPL DUO I Other PA Avg

a Customer Charge DDistribution Charge •Total Rider Charge a Distribution System Improvement

FirstEnergy Web Changes

Penelec Exhibit CVF-6 Witness: C. V. Fullem

Page 1 of 4

Based on PA PUC Requirements for Meter Reading

Order:

"The Company shall revise its website and customer education materials within ninety days of

the Final Order in this proceeding to explicitly inform its customers, in plain language, of the

Company's standard policy to issue bills based on actual meter readings every other

month. The Company's website shall also explain, in plain language, that customers may

provide actual readings in months when the Company would provide an estimated bill and the

procedure for self-readings."

Before July 1, 2015

1. Meter Reading (Help)

www.firstenergycorp.com/content/customer/my account/Submit Meter Reading.html

Met-Ed" AFTS!I'ffl'gy~~

Help

Managing My Account

Billing & Payments

Billing & Payment Options

About Your Bfll

Meter Reading

Locating Meter Info

Reading Load Meter

Reading Meter

View fv1eter Reading Schedules

Rates and Tariffs

Cred!tPolky

Bill Inserts

Bil! Explanation of Terms

Assistance & Service Programs

Making Setvice Requests

Outages

Safety

Saving Energy

Communication Tools

Pennsylvania Smart Meters

Contact Center

Useful Brochures & Fonns

Help • Billing & Payments • Meter Reading

Meter

At times, severe weather conditions or other unforeseen problems might prevent us from reading your meter. When this

happens, your electricity usage is estimated based on your previous electric bills. If you do not want to receive an estimated

bill, you can enter your meter reading online.

We organize meter reading schedules by cycles. To know when your meter is scheduled to be read, look for the meter­

reading cycle code on your bill, and find the corresponding code to identify when your meter is scheduled to be read.

Please be aware that your meter might be read one day before or after the scheduled meter read date if the meter reader

needs to adjust the schedule because of weather, holidays, vacation, or sick days.

Still need help?

Contact us with your questions.

Want a convenient and easy way to be reminded when to submit your meter reading?

If you register to receive text and/or email notifications, you will receive monthly alerts letting you know when to submit your

meter reading. In addition, you can choose to receive alerts for:

" Restoration updates when you have reported an outage

" Notifications of scheduled power outages

" Severe weather alerts in advance of storms

" Billing reminders, including alerts when a new bill is available, a payment is due, a payment has been posted, or no payment has been received

"' Learn more

~ ,iqn nr lor alerts and text messaging. Text REG to 644487 {LIGHTS) f to get started I "

Learn More e '

Penelec Exhibit CVF-6 Witness: C. V. Fullem

Page 2 of 4

2. Submit Meter Reading (My Account)

www.firstenergvcorp.com/content/cus!Qmer/my account&ld!!lDl:tJ~L~!er Reading.html

Account

Pay My Sill

Bill

View Paymem History

View Accounts

;.'\na~yze Usnge

When Should You Submit Your Meter fleadi11!f?

You may choose to submit your meh:n !eddin.g

'y'Our b!ll dunflfJ trus time ·vve 'Nil! use ,·our ptOvK!-ed !f :loU enter a re2.d1ng L'l.dSJde o~ th1s

Account

Name

J'\ddress

1000838349234, 123 Address John Smith

123 Street Greensburg, PA 15601

w1thm me dates

Severe weather cortdlHOot. or a-ccess prob!erns can preient -us from re2d1ng your electnt meter. lf th!S happens. v,;e tssue an e-stimated bill that is based on your usag-e history. YotJr account

reading

he afJtonHFcall't' adjusted '.uhen v;e obtain an actua!

If you havf; received an estimated blll, you may use the forrn beimv to submit your ovm meter reading and you may receive an

adJusted bdl. In order to pro•1icle a read1ng for your next bill, you must wait 18 day·s from the date of )'our last bill•nq If we do not obtain a reading ourse~ves, V\ie 'Ni!! use your reading to calculate the next

1. Meter Reading (Help)

After July 1, 2015

Penelec Exhibit CVF-6 Witness: C. V. Fullem

Page 3 of 4

www.firstenergycorp.com/content/customer/my account/Submit Meter Reading.html

We provide electricity to millions of customers and strive to deliver accurate bills

eve!)' month. However, if you feel you've received a bill that is not accurate, you

can read your meter and compare that reading with the one on your bilL

To submit your reading, you must enter it within a three-day window, which is listed

under the "Messages" section on your bill, the month before a scheduled

estimation. We will use your actual supplied reading to calculate your bill only if it

is entered within this window. If you enter a reading outside of this window, we will

prorate your bill using the reading you provided.

Urrpiarmed Estimated Meter Readings

At times, severe weather conditions or other unforeseen circumstances might

prevent us from reading your meter. On the months your meter is not read. your

bill is estimated. You can submit a meter reading online or by calling our Contact

Center if you prefer not to receive an estimated bill.

Help

Managing My Account

Billing & Payments

BiiHr.g & Payment Options

About Your Bill

VAeter Reading

Locating Meter Info

Reading Load Meter

Reading Meter

View Meter Reading Schedules

Rates and Tariffs

Credit Policy

BiU Inserts

Bill b:planation of Terms

,.U..ssista n ce & Service Programs

Making Service Requests

Outages

Safety

Saving Energy

Communication Tools

Pennsylvania Smart Meters

Contact Center

Useful Brochures & Forms

Help • Billin,

Meter R~

Our meter 1

depending 1

shows whe·

Ohio Edis.ion

The Hluminati

Toledo Edisk

Met-Ed

Penelec

Penn Power

West Penn F

Jersety Cent

Mon Power

PotomacEdil

Potomac Ed!!

On the mor

based on d

between yo

time your n

After there

compares)

usage, the

associates.

another rea

Penelec Exhibit CVF-6 Witness: C. V. Fullem

Page 4 of 4

2. Submit Meter Reading (My Account}

www.firstenergy_~~~fcustQ!I!ErLD::tL.StiT9UQtfSubmit l\lleter Reading.htrn.!

My Account

Pay My Bill

View My Blll

View Payment History

Vie~JV Usage History

View Accounts

Manage My Account

Payment & Sllling Options

Subrrlit

Itemized Account Statement

View Bill inserts

Analyze Usage

Search

LlJ'f\ccount v- .Submit Ueter FZeadfng

\!Vest Penn Pmr;er issues bills based on actual meter readings every other rnonth (bimonthly}- On the months your meter is

not read_ your bill rs estimated. You can submit a meter reading online or by calling our Contact Center if you prefer not to

receive an estimated bi!L

To submit your reading. you must enter it within a three~day 11vinclow. which is listed on your bill the- month before a scheduled

estimation. VVe will use your actual supplied reading to calculate your bill only if it is entered ~vith!n this windo-w. If you ente1

a reading outside of this 1,vindow. vve will prorate your bill using the reading you provided

Account 1 000'.!3346235. 4113 CYPRESS ST ~

Name RICHARD A FRY

Address 4113 CYPRESS ST BUTLER PA 16001

Severe weather conditions or access problems can prevent us frorn reading your electric meter. If this happens, we issue an

estimated bill that is based on your usage history. Your account will be automatically adjusted when 'Ne obtain an actual

readin(j.

Hol}/ to Read Your Meter

Meter Reading VVork Schedule

About Your Bill