Transmission siting fatigue is the idea that, after a transmission line is sited and permitted in an area, it will be significantly more difficult to get an additional transmission line sited and permitted in that same area.

And then, when you look at the other capital that we're spending, it's block and tackle spending that typically is recovered from a regulated standpoint.

Residential sales, shown in the upper left quadrant, were up 0.9% for the quarter, which brings the annual sales flat to 2012. We continue to see modest customer growth in our Western service areas, while our East customer accounts were essentially flat. Average usage per customer has been impacted by home energy efficiency programs. For these reasons, we are expecting normalized residential sales to be down nearly 1% in 2014.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Yes, 2 questions unrelated. First, on the transmission side. We've seen in the MISO and in New England dockets where interveners are seeking lower transmission base ROEs. If same things happens in some of -- whether it's the Southwest Power Pool, whether it's in PJM, how -- what do you think that tipping point is where we change or, I don't know, you're incentive or your desire to be a sizable investor in transmission in the U.S.?

Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
I think, as long as transmission is, at a premium or equal to the state rates, we're in good shape. And I think, clearly, there is an incentive being placed on building transmission. We're happy with that. And if -- really, once again, the FERC needs to send some messages here that from a policy perspective that we want to continue building transmission in this country. And as long as that premium is at or above the state rates, then we're in good shape.

Brian X. Tierney - Chief Financial Officer and Executive Vice President
FERC was clearly, Michael, looking to attract a capital into this space. And what they've done with their ROEs has done exactly what FERC wanted to happen. So as long as they, as Nick was saying, as long as they continue to send a signal that they want increased investment in this area, we'll respond to that signal.

Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
Okay, I think it's good -- I think, it continues to be part and parcel to the overall grid expansion that's going on in the resilience of the grid. And there's going to continue to be spin regardless. The question is, do you really want to satisfy that precursor of transmission being build out to respond to the generation retirements and so forth to optimize the grid so that you can do that as a prerequisite and then focus on the rest of the underlying system. That's what key. I think you got to get through this transitional process we're at in this industry. So transmission needs to be incentivized in that regard because that will provide the greatest benefit in terms of resiliency of the grid, but also in terms of the optimization of the resources that are attached to the grid.

Frederick County Commissioner Billy Shreve is asking Potomac Edison to donate some land for a park; specifically, the 150-acre Browning Farm, where the utility was planning to build a substation for the Potomac Appalachian Transmission Highline.

He called it a win-win for First Energy and county citizens.

Mr. Akins said he wants to avoid the bruising battles that delayed or doomed big projects in the past, like the 275-mile Potomac-Appalachian Transmission Highline project from West Virginia to Maryland. AEP and partner FirstEnergy Corp. dropped development plans for the complex project in 2011.

"Sometimes, we were just dreaming" that the companies could get enormous power lines built across multiple states, Mr. Akins said. He said AEP now is focusing on shorter projects blessed by federal regulators that eliminate grid bottlenecks. "It's where you want to put your money," he said.

This includes traditional tactics, such as upgrading power poles and trimming trees near power lines. But it also encompasses newer approaches, such as microgrids and energy storage, which allow operators to quickly reconfigure the system when portions of the grid go down. Implicit to such plans is the need to ensure uninterrupted power to critical sites such as oil and gas refineries, water-treatment plants, and telecommunication networks, as well as gasoline stations, hospitals, and pharmacies.

Some of the nation’s leaders seem receptive to such approaches.

...a transformation of the company’s structure and a shifting notion of what AEP needs to do to remain relevant in a changing energy landscape.

In doing so, the company is de-emphasizing what was once a crown jewel, the fleet of Ohio power plants, and putting a greater focus on developing an interstate network of power lines.

“The less we have to spend on centralized generation, the better off we are,” he said in a recent interview.

When he says “centralized generation,” he means big power plants. AEP will be closing more plants than it is building.

The company is shifting resources so it can expand its transmission system, made up of the high-voltage power lines that carry electricity across state lines and between metro areas.

...NRG is installing solar panels on rooftops of homes and businesses and in the future will offer natural gas-fired generators to customers to kick in when the sun goes down, Chief Executive Officer David Crane said in an interview.

AEP, which was reluctant to split its Ohio operations, has responded by focusing on the delivery business.

Meanwhile, the Ohio power plants are a shrinking asset. Because of environmental rules and the age of some of the plants, the company has announced a series of shutdowns that will occur over the next few years.

Also, AEP is in the process of transferring two plants away from Ohio regulation. The plants, both of which are in West Virginia near the Ohio line, will be regulated in nearby states that allow a utility to sell electricity directly to consumers.

Once the moves are complete, AEP will have 8,668 megawatts of power-plant capacity in the new Ohio power-plant subsidiary, which will be down from 11,652 megawatts today.

Akins says the company is responding to an economic climate in which there is little reason to build power plants in Ohio. The state’s electricity demand has been flat, and the regulatory structure provides no clear way to pay for plant construction.

Akins says he’s having fun and is eager to see the work of the past two years come to fruition.

“We are now at a point where we can start defining our success,” he said. “Before, we had a huge anvil we were dragging around, whether it be environmental expense or whether it be other things we were dealing with that were reactionary. We’re finally at a point where we can map out the strategy of this company going forward. It is exhilarating.”

Compliance Trends
During the past several years, DAA observed noncompliance in certain areas that warrant highlighting for jurisdictional entities and their corporate officials. Although there are other areas of noncompliance associated with the topics presented below, the areas discussed relate to areas where DAA has found consistent patterns of noncompliance. Greater attention is needed in these areas to prevent noncompliance and to avoid enforcement action.

Formula Rate Matters. DAA rigorously examines the accounting that populates formula rate recovery mechanisms that are used in determining billings to wholesale customers. In recent formula rate audits, DAA observed certain patterns of noncompliance in the following areas:
Merger Goodwill – including goodwill in the equity component of the capital
structure absent Commission approval;
Depreciation Rates – using state-approved, rather than Commission-approved,
depreciation rates;
Merger Costs – including merger consummation costs (e.g., internal labor and other general and administrative costs) without Commission approval;
Tax Prepayments – incorrectly recording tax overpayments which are not applied
to a future tax year’s obligation as a prepayment leading to excess recoveries
through working capital;
Asset Retirement Obligation (ARO) – including ARO amounts in formula rates,
without explicit Commission approval;
Below-the-Line Costs – attempting to move below-the-line costs into formula rates (e.g., lobbying, charitable contributions, fines and penalties, and compromise settlements arising from discriminatory employment practices); and
Improper Capitalization – seeking to include in rate base (and earn a return on) costs that should be expensed.