FIRSTENERGY CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
| Commission | Registrant; State of Incorporation; | I.R.S. Employer | ||
| File Number | Address; and Telephone Number | Identification No. | ||
| 333-21011 | FIRSTENERGY CORP. | 34-1843785 | ||
| (An Ohio Corporation) | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 000-53742 | FIRSTENERGY SOLUTIONS CORP. | 31-1560186 | ||
| (An Ohio Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-2578 | OHIO EDISON COMPANY | 34-0437786 | ||
| (An Ohio Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-2323 | THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | 34-0150020 | ||
| (An Ohio Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-3583 | THE TOLEDO EDISON COMPANY | 34-4375005 | ||
| (An Ohio Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-3141 | JERSEY CENTRAL POWER & LIGHT COMPANY | 21-0485010 | ||
| (A New Jersey Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-446 | METROPOLITAN EDISON COMPANY | 23-0870160 | ||
| (A Pennsylvania Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 | ||||
| 1-3522 | PENNSYLVANIA ELECTRIC COMPANY | 25-0718085 | ||
| (A Pennsylvania Corporation) | ||||
| c/o FirstEnergy Corp. | ||||
| 76 South Main Street | ||||
| Akron, OH 44308 | ||||
| Telephone (800)736-3402 |
Table of Contents
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Name of Each Exchange | ||||
| Registrant | Title of Each Class | on Which Registered | ||
| FirstEnergy Corp. | Common Stock, $0.10 par value | New York Stock Exchange |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
| Registrant | Title of Each Class | |
| Ohio Edison Company | Common Stock, no par value per share | |
| The Cleveland Electric Illuminating Company | Common Stock, no par value per share | |
| The Toledo Edison Company | Common Stock, $5.00 par value per share | |
| Jersey Central Power & Light Company | Common Stock, $10.00 par value per share | |
| Metropolitan Edison Company | Common Stock, no par value per share | |
| Pennsylvania Electric Company | Common Stock, $20.00 par value per share | |
| FirstEnergy Solutions Corp. | Common Stock, no par value per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
|
Yes
þ
No
o
|
FirstEnergy Corp. | |
|
Yes
o
No
þ
|
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
|
Yes
o
No
þ
|
FirstEnergy Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, FirstEnergy Solutions Corp. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
|
Yes
þ
No
o
|
FirstEnergy Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, FirstEnergy Solutions Corp. |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
|
Yes
þ
No
o
|
FirstEnergy Corp. | |
|
Yes
o
No
þ
|
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
|
Yes
o
No
þ
Yes þ No o |
FirstEnergy Corp.
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company |
Table of Contents
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
þ
|
FirstEnergy Corp. | |
|
Accelerated filer
o
|
N/A | |
|
Non-accelerated filer (do not check
if a smaller reporting company)
þ
|
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company | |
|
Smaller reporting company
o
|
N/A |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
|
Yes
o
No
þ
|
FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company |
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
ask price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter.
FirstEnergy Corp., $10,712,157,232 as of June 30, 2010; and for all other registrants, none.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as
of the latest practicable date.
| OUTSTANDING | ||||
| CLASS | AS OF JANUARY 31, 2011 | |||
|
FirstEnergy
Corp., $0.10 par value
|
304,835,407 | |||
|
FirstEnergy Solutions Corp., no par value
|
7 | |||
|
Ohio Edison Company, no par value
|
60 | |||
|
The Cleveland Electric Illuminating Company, no par value
|
67,930,743 | |||
|
The Toledo Edison Company, $5 par value
|
29,402,054 | |||
|
Jersey Central Power & Light Company, $10 par value
|
13,628,447 | |||
|
Metropolitan Edison Company, no par value
|
741,880 | |||
|
Pennsylvania Electric Company, $20 par value
|
4,427,577 | |||
FirstEnergy Corp. is the sole holder of FirstEnergy Solutions Corp., Ohio Edison Company, The
Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light
Company, Metropolitan Edison Company, and Pennsylvania Electric Company common stock.
Documents incorporated by reference (to the extent indicated herein):
| PART OF FORM 10-K INTO WHICH | ||
| DOCUMENT | DOCUMENT IS INCORPORATED | |
|
|
||
|
Proxy Statement for 2011 Annual Meeting of Stockholders
to be held May 17, 2011
|
Part III |
This combined Form 10-K is separately filed by FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio
Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey
Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company.
Information contained herein relating to any individual registrant is filed by such registrant on
its own behalf. No registrant makes any representation as to information relating to any other
registrant, except that information relating to any of the FirstEnergy subsidiary registrants is
also attributed to FirstEnergy Corp.
Table of Contents
OMISSION OF CERTAIN INFORMATION
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The
Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and
Pennsylvania Electric Company meet the conditions set forth in General Instruction I(1)(a) and (b)
of Form 10-K and are therefore filing this Form 10-K with the reduced disclosure format specified
in General Instruction I(2) to Form 10-K.
Table of Contents
Forward-Looking Statements:
This Form 10-K includes forward-looking statements based on information
currently available to management. Such statements are subject to certain risks and uncertainties.
These statements include declarations regarding management’s intents, beliefs and current
expectations. These statements typically contain, but are not limited to, the terms “anticipate,”
“potential,” “expect,” “believe,” “estimate” and similar words. Forward-looking statements involve
estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements.
Actual results may differ materially due to:
| • |
The speed and nature of increased competition in the electric utility industry.
|
| • |
The impact of the regulatory process on the pending matters in the various states in
which we do business.
|
| • |
Business and regulatory impacts from ATSI’s realignment into PJM Interconnection,
L.L.C., economic or weather conditions affecting future sales and margins.
|
| • |
Changes in markets for energy services.
|
| • |
Changing energy and commodity market prices and availability.
|
| • |
Financial derivative reforms that could increase our liquidity needs and collateral
costs, replacement power costs being higher than anticipated or inadequately hedged.
|
| • |
The continued ability of FirstEnergy’s regulated utilities to collect transition and
other costs.
|
| • |
Operation and maintenance costs being higher than anticipated.
|
| • |
Other legislative and regulatory changes, and revised environmental requirements,
including possible GHG emission and coal combustion residual regulations.
|
| • |
The potential impacts of any laws, rules or regulations that ultimately replace CAIR.
|
| • |
The uncertainty of the timing and amounts of the capital expenditures needed to resolve
any NSR litigation or other potential similar regulatory initiatives or rulemakings
(including that such expenditures could result in our decision to shut down or idle certain
generating units).
|
| • |
Adverse regulatory or legal decisions and outcomes (including, but not limited to, the
revocation of necessary licenses or operating permits and oversight) by the NRC.
|
| • |
Adverse legal decisions and outcomes related to Met-Ed’s and Penelec’s transmission
service charge appeal at the Commonwealth Court of Pennsylvania.
|
| • |
Any impact resulting from the receipt by Signal Peak of the Department of Labor’s notice
of a potential pattern of violations at Bull Mountain Mine No.1.
|
| • |
The continuing availability of generating units and their ability to operate at or near
full capacity.
|
| • |
The ability to comply with applicable state and federal reliability standards and energy
efficiency mandates.
|
| • |
Changes in customers’ demand for power, including but not limited to, changes resulting
from the implementation of state and federal energy efficiency mandates.
|
| • |
The ability to accomplish or realize anticipated benefits from strategic goals
(including employee workforce initiatives).
|
| • |
The ability to improve electric commodity margins and the impact of, among other
factors, the increased cost of coal and coal transportation on such margins and the ability
to experience growth in the distribution business.
|
| • |
The changing market conditions that could affect the value of assets held in the
registrants’ nuclear decommissioning trusts, pension trusts and other trust funds, and
cause FirstEnergy to make additional contributions sooner, or in amounts that are larger
than currently anticipated.
|
| • |
The ability to access the public securities and other capital and credit markets in
accordance with FirstEnergy’s financing plan and the cost of such capital.
|
| • |
Changes in general economic conditions affecting the registrants.
|
| • |
The state of the capital and credit markets affecting the registrants.
|
| • |
Interest rates and any actions taken by credit rating agencies that could negatively
affect the registrants’ access to financing or their costs and increase requirements to
post additional collateral to support outstanding commodity positions, LOCs and other
financial guarantees.
|
| • |
The continuing uncertainty of the national and regional economy and its impact on the
registrants’ major industrial and commercial customers.
|
| • |
Issues concerning the soundness of financial institutions and counterparties with which
the registrants do business.
|
| • |
The expected timing and likelihood of completion of the proposed merger with Allegheny,
including the timing, receipt and terms and conditions of any required governmental and
regulatory approvals of the proposed merger that could reduce anticipated benefits or cause
the parties to abandon the merger, the diversion of management’s time and attention from
FirstEnergy’s ongoing business during this time period, the ability to maintain
relationships with customers, employees or suppliers as well as the ability to successfully
integrate the businesses and realize cost savings and any other synergies and the risk that
the credit ratings of the combined company or its subsidiaries may be different from what
the companies expect.
|
| • |
The risks and other factors discussed from time to time in the registrants’ SEC filings,
and other similar factors.
|
Dividends declared from time to time on FirstEnergy’s common stock during any annual period may in
aggregate vary from the indicated amount due to circumstances considered by FirstEnergy’s Board of
Directors at the time of the actual declarations. The foregoing review of factors should not be
construed as exhaustive. New factors emerge from time to time, and it is not possible for
management to predict all such factors, nor assess the impact of any such factor on the
registrants’ business or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking statements. The
registrants expressly disclaim any current intention to update any forward-looking statements
contained herein as a result of new information, future events or otherwise.
Table of Contents
GLOSSARY OF TERMS
The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and
its current and former subsidiaries:
|
ATSI
|
American Transmission Systems, Incorporated, owns and operates transmission facilities | |
|
Beaver Valley
|
Beaver Valley Power Station | |
|
CEI
|
The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary | |
|
FENOC
|
FirstEnergy Nuclear Operating Company, operates nuclear generating facilities | |
|
FES
|
FirstEnergy Solutions Corp., provides energy-related products and services | |
|
FESC
|
FirstEnergy Service Company, provides legal, financial and other corporate support services | |
|
FEV
|
FirstEnergy Ventures Corp., invests in certain unregulated enterprises and business ventures | |
|
FGCO
|
FirstEnergy Generation Corp., owns and operates non-nuclear generating facilities | |
|
FirstEnergy
|
FirstEnergy Corp., a public utility holding company | |
|
Global Rail
|
A joint venture between FirstEnergy Ventures Corp. and WMB Loan Ventures II LLC, that owns coal transportation operations near Roundup, Montana | |
|
GPU
|
GPU, Inc., former parent of JCP&L, Met-Ed and Penelec, which merged with FirstEnergy on November 7, 2001 | |
|
JCP&L
|
Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary | |
|
JCP&L Transition
Funding |
JCP&L Transition Funding LLC, a Delaware limited liability company and issuer of transition bonds | |
|
JCP&L Transition
Funding II |
JCP&L Transition Funding II LLC, a Delaware limited liability company and issuer of transition bonds | |
|
Met-Ed
|
Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary | |
|
NGC
|
FirstEnergy Nuclear Generation Corp., owns nuclear generating facilities | |
|
OE
|
Ohio Edison Company, an Ohio electric utility operating subsidiary | |
|
Ohio Companies
|
CEI, OE and TE | |
|
Penelec
|
Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary | |
|
Penn
|
Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE | |
|
Pennsylvania Companies
|
Met-Ed, Penelec and Penn | |
|
PNBV
|
PNBV Capital Trust, a special purpose entity created by OE in 1996 | |
|
Perry
|
Perry Nuclear Power Plant | |
|
Shelf Registrants
|
FirstEnergy, OE, CEI, TE, JCP&L, Met-Ed and Penelec | |
|
Shippingport
|
Shippingport Capital Trust, a special purpose entity created by CEI and TE in 1997 | |
|
Signal Peak
|
A joint venture between FirstEnergy Ventures Corp. and WMB Loan Ventures LLC, that owns mining and coal transportation operations near Roundup, Montana | |
|
TE
|
The Toledo Edison Company, an Ohio electric utility operating subsidiary | |
|
Utilities
|
OE, CEI, TE, Penn, JCP&L, Met-Ed and Penelec |
The following abbreviations and acronyms are used to identify frequently used terms in this report:
|
AEP
|
American Electric Power Company, Inc. | |
|
ALJ
|
Administrative Law Judge | |
|
Allegheny
|
Allegheny Energy, Inc. is the parent holding company of Allegheny Supply, Monongahela Power Company, The Potomac Edison Company and West Penn Power Company | |
|
AOCL
|
Accumulated Other Comprehensive Loss | |
|
AQC
|
Air Quality Control | |
|
ARO
|
Asset Retirement Obligation | |
|
AS
|
Allegheny Energy Supply Company, LLC owns and operates non-nuclear generating facilities and purchases and sells energy and energy-related commodities | |
|
BGS
|
Basic Generation Service | |
|
CAA
|
Clean Air Act | |
|
CAIR
|
Clean Air Interstate Rule | |
|
CAMR
|
Clean Air Mercury Rule |
i
Table of Contents
GLOSSARY OF TERMS, Cont’d
.
|
CATR
|
Clean Air Transport Rule | |
|
CBP
|
Competitive Bid Process | |
|
CO
2
|
Carbon dioxide | |
|
CRDM
|
Control Rod Drive Mechanism | |
|
CTC
|
Competitive Transition Charge | |
|
DOE
|
United States Department of Energy | |
|
DOJ
|
United States Department of Justice | |
|
DCPD
|
Deferred Compensation Plan for Outside Directors | |
|
DPA
|
Department of the Public Advocate, Division of Rate Counsel (New Jersey) | |
|
ECAR
|
East Central Area Reliability Coordination Agreement | |
|
EDCP
|
Executive Deferred Compensation Plan | |
|
EE&C
|
Energy Efficiency and Conservation | |
|
EMP
|
Energy Master Plan | |
|
EPA
|
United States Environmental Protection Agency | |
|
EPACT
|
Energy Policy Act of 2005 | |
|
EPRI
|
Electric Power Research Institute | |
|
ESOP
|
Employee Stock Ownership Plan | |
|
ESP
|
Electric Security Plan | |
|
FASB
|
Financial Accounting Standards Board | |
|
FERC
|
Federal Energy Regulatory Commission | |
|
FMB
|
First Mortgage Bond | |
|
FPA
|
Federal Power Act | |
|
FRR
|
Fixed Resource Requirement | |
|
GAAP
|
Accounting Principles Generally Accepted in the United States | |
|
GHG
|
Greenhouse Gases | |
|
IFRS
|
International Financial Reporting Standards | |
|
IRS
|
Internal Revenue Service | |
|
ISO
|
Independent System Operators | |
|
kV
|
Kilovolt | |
|
KWH
|
Kilowatt-hours | |
|
LED
|
Light-Emitting Diode | |
|
LOC
|
Letter of Credit | |
|
LTIP
|
Long-Term Incentive Plan | |
|
MACT
|
Maximum Achievable Control Technology | |
|
MDPSC
|
Maryland Public Service Commission | |
|
MEIUG
|
Met-Ed Industrial Users Group | |
|
MISO
|
Midwest Independent Transmission System Operator, Inc. | |
|
Moody’s
|
Moody’s Investors Service, Inc. | |
|
MRO
|
Market Rate Offer | |
|
MTEP
|
MISO Regional Transmission Expansion Plan | |
|
MW
|
Megawatts | |
|
MWH
|
Megawatt-hours | |
|
NAAQS
|
National Ambient Air Quality Standards | |
|
NEIL
|
Nuclear Electric Insurance Limited | |
|
NERC
|
North American Electric Reliability Corporation | |
|
NJBPU
|
New Jersey Board of Public Utilities | |
|
NNSR
|
Non-Attainment New Source Review | |
|
NOAC
|
Northwest Ohio Aggregation Coalition | |
|
NOPEC
|
Northeast Ohio Public Energy Council | |
|
NOV
|
Notice of Violation | |
|
NO
X
|
Nitrogen Oxide | |
|
NRC
|
Nuclear Regulatory Commission | |
|
NSR
|
New Source Review | |
|
NUG
|
Non-Utility Generation | |
|
NUGC
|
Non-Utility Generation Charge | |
|
NYPSC
|
New York Public Service Commission | |
|
NYSEG
|
New York State Electric and Gas Corporation | |
|
OCC
|
Ohio Consumers’ Counsel | |
|
OCI
|
Other Comprehensive Income | |
|
OPEB
|
Other Post-Employment Benefits | |
|
OVEC
|
Ohio Valley Electric Corporation |
ii
Table of Contents
GLOSSARY OF TERMS, Cont’d
.
|
PCRB
|
Pollution Control Revenue Bond | |
|
PICA
|
Pennsylvania Intergovernmental Cooperation Authority | |
|
PJM
|
PJM Interconnection L. L. C. | |
|
POLR
|
Provider of Last Resort; an electric utility’s obligation to provide generation service to customers whose alternative supplier fails to deliver service | |
|
PPUC
|
Pennsylvania Public Utility Commission | |
|
PSA
|
Power Supply Agreement | |
|
PSCWV
|
Public Service Commission of West Virginia | |
|
PSD
|
Prevention of Significant Deterioration | |
|
PUCO
|
Public Utilities Commission of Ohio | |
|
QSPE
|
Qualifying Special-Purpose Entity | |
|
RCP
|
Rate Certainty Plan | |
|
RECs
|
Renewable Energy Credits | |
|
RFP
|
Request for Proposal | |
|
RTEP
|
Regional Transmission Expansion Plan | |
|
RTC
|
Regulatory Transition Charge | |
|
RTO
|
Regional Transmission Organization | |
|
S&P
|
Standard & Poor’s Ratings Service | |
|
SB221
|
Ohio Amended Substitute Senate Bill 221 | |
|
SBC
|
Societal Benefits Charge | |
|
SEC
|
U.S. Securities and Exchange Commission | |
|
SECA
|
Seams Elimination Cost Adjustment | |
|
SIP
|
State Implementation Plan(s) Under the Clean Air Act | |
|
SMIP
|
Smart Meter Implementation Plan | |
|
SNCR
|
Selective Non-Catalytic Reduction | |
|
SO
2
|
Sulfur Dioxide | |
|
SRECs
|
Solar Renewable Energy Credits | |
|
TBC
|
Transition Bond Charge | |
|
TMI-2
|
Three Mile Island Unit 2 | |
|
TSC
|
Transmission Service Charge | |
|
VERO
|
Voluntary Enhanced Retirement Option | |
|
VIE
|
Variable Interest Entity | |
|
VSCC
|
Virginia State Corporation Commission |
iii
Table of Contents
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| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
vi
Table of Contents
PART I
| ITEM 1. |
BUSINESS
|
Proposed Merger with Allegheny
As previously disclosed, on February 10, 2010, FirstEnergy entered into an Agreement and Plan of Merger,
subsequently amended on June 4, 2010 (Merger Agreement), with Element Merger Sub, Inc., a Maryland corporation, its wholly-owned subsidiary (Merger Sub) and Allegheny a
Maryland corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Allegheny with Allegheny continuing
as the surviving corporation and a wholly-owned subsidiary of FirstEnergy. Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share
of Allegheny common stock, including grants of restricted common stock, would automatically be converted into the right to receive 0.667 of a share of common stock of
FirstEnergy, and Allegheny stockholders would own approximately 27% of the combined company. FirstEnergy would also assume all outstanding Allegheny debt.
Pursuant to the Merger Agreement, completion of the merger is conditioned upon, among other things,
shareholder approval of both companies, which was received on September 14, 2010; the SEC’s clearance of a registration statement registering the FirstEnergy
common stock to be issued in connection with the merger, which
occurred on July 16, 2010. Approval of the merger was received
from the VSCC on September 9, 2010.
Approval from the FERC and from the PSCWV was received on
December 16, 2010. Approval from the MDPSC was received on January 18, 2011. On January 7, 2011,
we were notified by the DOJ that it had completed its review of the merger and closed its investigation. The proposed merger is also conditioned upon receipt of the approval
of the PPUC. The Merger Agreement also contains certain termination rights for both FirstEnergy and Allegheny, and further provides for the payment of fees and expenses upon
termination under specified circumstances.
FirstEnergy
and Allegheny currently anticipate completing the merger in the first
quarter of 2011. Although
FirstEnergy and Allegheny believe that they will receive the required authorizations, approvals and consents to complete the merger, there can be no assurance as to the
timing of these authorizations, approvals and consents or as to FirstEnergy’s and Allegheny’s ultimate ability to obtain such authorizations, consents or approvals
(or any additional authorizations, approvals or consents which may otherwise become necessary) or that such authorizations, approvals or consents will be obtained on terms
and subject to conditions satisfactory to Allegheny and FirstEnergy. Further information concerning the proposed merger is included in the Registration Statement filed by
FirstEnergy with the SEC in connection with the merger.
The Company
FirstEnergy Corp. was organized under the laws of the State of Ohio in 1996. FirstEnergy’s
principal business is the holding, directly or indirectly, of all of the outstanding common stock
of its eight principal electric utility operating subsidiaries: OE, CEI, TE, Penn, ATSI, JCP&L,
Met-Ed and Penelec; and of its generating and marketing subsidiary, FES. FirstEnergy’s consolidated
revenues are primarily derived from electric service provided by its utility operating subsidiaries
and the revenues of its other principal subsidiary, FES. In addition, FirstEnergy holds all of the
outstanding common stock of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV,
FENOC, FELHC, Inc., FirstEnergy Facilities Services Group, LLC, FirstEnergy Fiber Holdings Corp.,
GPU Power, Inc., GPU Nuclear, Inc., MARBEL Energy Corporation and FESC.
FES was organized under the laws of the State of Ohio in 1997. FES provides energy-related products
and services to wholesale and retail customers. FES also owns and operates, through its subsidiary,
FGCO, FirstEnergy’s fossil and hydroelectric generating facilities and owns, through its
subsidiary, NGC, FirstEnergy’s nuclear generating facilities. FENOC, a separate subsidiary of
FirstEnergy, organized under the laws of the State of Ohio in 1998, operates and maintains NGC’s
nuclear generating facilities. FES purchases the entire output of the generation facilities owned
by FGCO and NGC, as well as the output relating to leasehold interests of the Ohio Companies in
certain of those facilities that are subject to sale and leaseback arrangements with
non-affiliates, pursuant to full output, cost-of-service PSAs.
1
Table of Contents
FirstEnergy’s generating portfolio includes 13,436 MW of diversified capacity (FES — 13,236 MW and
JCP&L — 200 MW). Within FES’ portfolio, approximately 7,157 MW, or 54.1%, consist of coal-fired
capacity; 3,991 MW, or 30.2%, consist of
nuclear capacity; 1,151 MW, or 8.7%, consist of oil and natural gas peaking units; 451 MW, or 3.4%,
consist of hydroelectric capacity, 376 MW, or 2.8%, are from wind facilities; and 110 MW, or 0.8%,
consist of capacity from FGCO’s current 4.85% entitlement to the generation output owned by the
OVEC. FirstEnergy’s nuclear and non-nuclear facilities are operated by FENOC and FGCO,
respectively, and, except for portions of certain facilities that are subject to the sale and
leaseback arrangements with non-affiliates referred to above for which the corresponding output is
available to FES through power sale agreements, are all owned directly by NGC and FGCO,
respectively. The FES generating assets are concentrated primarily in Ohio and Pennsylvania. All
FES units are currently dedicated to MISO except Beaver Valley and Seneca Pumped Storage Plant,
which are designated as a PJM resource. Additionally, see FERC Matters for RTO Realignment.
FES, FGCO and NGC comply with the regulations, orders, policies and practices prescribed by the SEC
and the FERC. In addition, NGC and FENOC comply with the regulations, orders, policies and
practices prescribed by the NRC.
The Utilities’ combined service areas encompass approximately 36,100 square miles in Ohio, New
Jersey and Pennsylvania. The areas they serve have a combined population of approximately 11.3
million.
OE was organized under the laws of the State of Ohio in 1930 and owns property and does business as
an electric public utility in that state. OE engages in the distribution and sale of electric
energy to communities in a 7,000 square mile area of central and northeastern Ohio. The area it
serves has a population of approximately 2.8 million. OE complies with the regulations, orders,
policies and practices prescribed by the SEC, FERC and PUCO.
OE owns all of Penn’s outstanding common stock. Penn was organized under the laws of the
Commonwealth of Pennsylvania in 1930 and owns property and does business as an electric public
utility in that state. Penn is also authorized to do business in the State of Ohio (see Item 2 —
Properties). Penn furnishes electric service to communities in 1,100 square miles of western
Pennsylvania. The area it serves has a population of approximately 0.4 million. Penn complies with
the regulations, orders, policies and practices prescribed by the SEC, FERC and PPUC.
CEI was organized under the laws of the State of Ohio in 1892 and does business as an electric
public utility in that state. CEI engages in the distribution and sale of electric energy in an
area of approximately 1,600 square miles in northeastern Ohio. The area it serves has a population
of approximately 1.8 million. CEI complies with the regulations, orders, policies and practices
prescribed by the SEC, FERC and PUCO.
TE was organized under the laws of the State of Ohio in 1901 and does business as an electric
public utility in that state. TE engages in the distribution and sale of electric energy in an area
of approximately 2,300 square miles in northwestern Ohio. The area it serves has a population of
approximately 0.8 million. TE complies with the regulations, orders, policies and practices
prescribed by the SEC, FERC and PUCO.
ATSI was organized under the laws of the State of Ohio in 1998. ATSI owns transmission assets that
were formerly owned by the Ohio Companies and Penn. ATSI owns major, high-voltage transmission
facilities, which consist of approximately 5,821 pole miles of transmission lines with nominal
voltages of 345 kV, 138 kV and 69 kV. Effective October 1, 2003, ATSI transferred operational
control of its transmission facilities to MISO. On December 17, 2009, the FERC authorized ATSI to
transfer operational control of its facilities to PJM. As described below in FERC Matters the
transfer is scheduled to occur on June 1, 2011. ATSI plans, operates, and maintains its
transmission system in accordance with NERC reliability standards, and applicable regulatory
requirements to ensure reliable service to customers. Additionally, see FERC Matters for RTO
Realignment. ATSI complies with the regulations, orders, policies and practices prescribed by the
SEC, FERC and applicable state regulatory authorities.
JCP&L was organized under the laws of the State of New Jersey in 1925 and owns property and does
business as an electric public utility in that state. JCP&L provides transmission and distribution
services in 3,200 square miles of northern, western and east central New Jersey. The area it serves
has a population of approximately 2.6 million. JCP&L complies with the regulations, orders,
policies and practices prescribed by the SEC, FERC and the NJBPU.
Met-Ed was organized under the laws of the Commonwealth of Pennsylvania in 1922 and owns property
and does business as an electric public utility in that state. Met-Ed provides transmission and
distribution services in 3,300 square miles of eastern and south central Pennsylvania. The area it
serves has a population of approximately 1.3 million. Met-Ed complies with the regulations, orders,
policies and practices prescribed by the SEC, FERC and PPUC.
Penelec was organized under the laws of the Commonwealth of Pennsylvania in 1919 and owns property
and does business as an electric public utility in that state. Penelec provides transmission and
distribution services in 17,600 square miles of western, northern and south central Pennsylvania.
The area it serves has a population of approximately 1.6 million. Penelec, as lessee of the
property of its subsidiary, The Waverly Electric Light & Power Company, also serves customers in
Waverly, New York and its vicinity. Penelec complies with the regulations, orders, policies and
practices prescribed by the SEC, FERC, NYPSC and PPUC, as applicable.
2
Table of Contents
FESC provides legal, financial and other corporate support services to affiliated FirstEnergy
companies.
Reference is made to Note 15, Segment Information, of the Notes to Consolidated Financial
Statements contained in Item 8 for information regarding FirstEnergy’s reportable segments.
Utility Regulation
State Regulation
Each of the Utilities’ retail rates, conditions of service, issuance of securities and other
matters are subject to regulation in the state in which each company operates — in Ohio by the
PUCO, in New Jersey by the NJBPU and in Pennsylvania by the PPUC. In addition, under Ohio law,
municipalities may regulate rates of a public utility, subject to appeal to the PUCO if not
acceptable to the utility.
As a competitive retail electric supplier serving retail customers in Ohio, Pennsylvania, New
Jersey, Maryland, Michigan, and Illinois, FES is subject to state laws applicable to competitive
electric suppliers in those states, including affiliate codes of conduct that apply to FES and its
public utility affiliates. In addition, if FES or any of its subsidiaries were to engage in the
construction of significant new generation facilities, they would also be subject to state siting
authority.
Federal Regulation
With respect to their wholesale and interstate electric operations and rates, the Utilities, ATSI,
FES, FGCO and NGC are subject to regulation by the FERC. Under the FPA, the FERC regulates rates
for interstate sales at wholesale, transmission of electric power, accounting and other matters,
including construction and operation of hydroelectric projects. The FERC regulations require ATSI,
Met-Ed, JCP&L and Penelec to provide open access transmission service at FERC-approved rates, terms
and conditions. Transmission service over ATSI’s facilities is provided by MISO under its open
access transmission tariff although as explained herein effective June 1, 2011 transmission service
over ATSI’s facilities will be provided pursuant to PJM’s open access transmission tariff.
Transmission service over Met-Ed’s, JCP&L’s and Penelec’s facilities is provided by PJM under its
open access transmission tariff. The FERC also regulates unbundled transmission service to retail
customers. Additionally, see FERC Matters for RTO Realignment.
The FERC regulates the sale of power for resale in interstate commerce in part by granting
authority to public utilities to sell wholesale power at market-based rates upon a showing that the
seller cannot exert market power in generation or transmission. FES, FGCO and NGC have been
authorized by the FERC to sell wholesale power in interstate commerce and have a market-based
tariff on file with the FERC. By virtue of this tariff and authority to sell wholesale power, each
company is regulated as a public utility under the FPA. However, consistent with its historical
practice, the FERC has granted FES, FGCO and NGC a waiver from most of the reporting,
record-keeping and accounting requirements that typically apply to traditional public utilities.
Along with market-based rate authority, the FERC also granted FES, FGCO and NGC blanket authority
to issue securities and assume liabilities under Section 204 of the FPA. As a condition to selling
electricity on a wholesale basis at market-based rates, FES, FGCO and NGC, like all other entities
granted market-based rate authority, must file electronic quarterly reports with the FERC, listing
their sales transactions for the prior quarter.
The nuclear generating facilities owned and leased by NGC are subject to extensive regulation by
the NRC. The NRC subjects nuclear generating stations to continuing review and regulation covering,
among other things, operations, maintenance, emergency planning, security and environmental and
radiological aspects of those stations. The NRC may modify, suspend or revoke operating licenses
and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations under
such Act or the terms of the licenses. FENOC is the licensee for the operating nuclear plants and
has direct compliance responsibility for NRC matters. FES controls the economic dispatch of NGC’s
plants. See Nuclear Regulation below.
Regulatory Accounting
The Utilities and ATSI recognize, as regulatory assets, costs which the FERC, PUCO, PPUC and NJBPU
have authorized for recovery from customers in future periods or for which authorization is
probable. Without the probability of such authorization, costs currently recorded as regulatory
assets would have been charged to income as incurred. All regulatory assets are expected to be
recovered from customers under the Utilities’ respective transition and regulatory plans. Based on
those plans, the Utilities and ATSI continue to bill and collect cost-based rates for their
transmission and distribution services, which remain regulated; accordingly, it is appropriate that
the Utilities and ATSI continue the application of regulatory accounting to those operations.
3
Table of Contents
FirstEnergy accounts for the effects of regulation through the application of regulatory accounting
to its operating utilities since their rates:
| • |
are established by a third-party regulator with the authority to set rates that bind
customers;
|
||
| • |
are cost-based; and
|
||
| • |
can be charged to and collected from customers.
|
An enterprise meeting all of these criteria capitalizes costs that would otherwise be charged to
expense (regulatory assets) if the rate actions of its regulator make it probable that those costs
will be recovered in future revenue. Regulatory accounting is applied only to the parts of the
business that meet the above criteria. If a portion of the business applying regulatory accounting
no longer meets those requirements, previously recorded net regulatory assets are removed from the
balance sheet in accordance with GAAP.
In Ohio, New Jersey and Pennsylvania, laws applicable to electric industry restructuring contain
similar provisions that are reflected in the Utilities’ respective state regulatory plans. These
provisions include:
| • |
restructuring the electric generation business and allowing the Utilities’ customers to
select a competitive electric generation supplier other than the Utilities;
|
||
| • |
establishing or defining the POLR obligations to customers in the Utilities’ service
areas;
|
||
| • |
providing the Utilities with the opportunity to recover potentially stranded investment
(or transition costs) not otherwise recoverable in a competitive generation market;
|
||
| • |
itemizing (unbundling) the price of electricity into its component elements — including
generation, transmission, distribution and stranded costs recovery charges;
|
||
| • |
continuing regulation of the Utilities’ transmission and distribution systems; and
|
||
| • |
requiring corporate separation of regulated and unregulated business activities.
|
Reliability Initiatives
In 2005, Congress amended the FPA to provide for federally-enforceable mandatory reliability
standards. The mandatory reliability standards apply to the bulk power system and impose certain
operating, record-keeping and reporting requirements on the Utilities, FES, FGCO, FENOC and ATSI.
The NERC, as the ERO, is charged with establishing and enforcing these reliability standards,
although it has delegated day-to-day implementation and enforcement of its responsibilities to
eight regional entities, including Reliability
First
Corporation. All of FirstEnergy’s facilities
are located within the Reliability
First
region. FirstEnergy actively participates in the NERC and
Reliability
First
stakeholder processes, and otherwise monitors and manages its companies in
response to the ongoing development, implementation and enforcement of the reliability standards.
FirstEnergy believes that it is in compliance with all currently-effective and enforceable
reliability standards. Nevertheless, in the course of operating its extensive electric utility
systems and facilities FirstEnergy occasionally learns of isolated facts or circumstances that
could be interpreted as excursions from the reliability standards. If and when such items are
found, FirstEnergy develops information about the item and develops a remedial response to the
specific circumstances, including in appropriate cases “self-reporting” an item to
Reliability
First
. Moreover, it is clear that the NERC, Reliability
First
and the FERC will continue
to refine existing reliability standards as well as to develop and adopt new reliability standards.
The financial impact of complying with new or amended standards cannot be determined at this time.
However, the 2005 amendments to the FPA provide that all prudent costs incurred to comply with the
new reliability standards be recovered in rates. Still, any future inability on FirstEnergy’s part
to comply with the reliability standards for its bulk power system could result in the imposition
of financial penalties that could have a material adverse effect on its financial condition,
results of operations and cash flows.
In April 2007, Reliability
First
performed a routine compliance audit of FirstEnergy’s bulk-power
system within the Midwest ISO region and found it to be in full compliance with all audited
reliability standards. Similarly, in October 2008, Reliability
First
performed a routine compliance
audit of FirstEnergy’s bulk-power system within the PJM region and found it to be in full
compliance with all audited reliability standards. In May 2010, Reliability
First
performed a
routine compliance audit of FirstEnergy’s bulk-power system in the Midwest ISO region and, subject
to certain nonmaterial items, found it to be in compliance with the audited reliability standards.
FirstEnergy’s PJM facilities are next due for the periodic audit by Reliability
First
in 2011.
4
Table of Contents
Ohio Regulatory Matters
The Ohio Companies operate under an ESP, which expires on May 31, 2011, that provides for
generation supplied through a CBP. The ESP also allows the Ohio Companies to collect a delivery
service improvement rider (Rider DSI) at an overall average rate of $0.002 per KWH for the period
of April 1, 2009 through December 31, 2011. The Ohio Companies currently purchase generation at the
average wholesale rate of a CBP conducted in May 2009. FES is one of the suppliers to the Ohio
Companies through the May 2009 CBP. The PUCO approved a $136.6 million distribution rate increase
for the Ohio Companies in January 2009, which went into effect on January 23, 2009 for OE ($68.9
million) and TE ($38.5 million) and on May 1, 2009 for CEI ($29.2 million). Applications for
rehearing of the PUCO order in the distribution case were filed by the Ohio Companies and one other
party. The Ohio Companies raised numerous issues in
their application for rehearing related to rate recovery of certain expenses, recovery of line
extension costs, the level of rate of return and the amount of general plant balances. On February
2, 2011, the PUCO issued an Entry on Rehearing denying the applications for rehearing filed both by
the Ohio Companies and by the other party.
On March 23, 2010, the Ohio Companies filed an application for a new ESP. The new ESP will go into
effect on June 1, 2011 and conclude on May 31, 2014. The PUCO approved the new ESP on August 25,
2010 with certain modifications. The material terms of the new ESP include: a CBP similar to the
one used in May 2009 and the one proposed in the October 2009 MRO filing; a 6% generation discount
to certain low-income customers provided by the Ohio Companies through a bilateral wholesale
contract with FES (initial auctions scheduled for October 20, 2010 and January 25, 2011); no
increase in base distribution rates through May 31, 2014; a load cap of no less than 80%, which
also applies to any tranches assigned post auction; and a new distribution rider, Delivery Capital
Recovery Rider (Rider DCR), to recover a return of, and on, capital investments in the delivery
system. Rider DCR substitutes for Rider DSI which terminates under the current ESP. The Ohio
Companies also agreed not to pay certain costs related to the companies’ integration into PJM, for
the longer of the five year period from June 1, 2011 through May 31, 2016 or when the amount of
costs avoided by customers for certain types of products totals $360 million dependent on the
outcome of certain PJM proceedings, established a $12 million fund to assist low income customers
over the term of the ESP, and agreed to additional energy efficiency benefits. Many of the existing
riders approved in the previous ESP remain in effect, some with modifications. The new ESP resolved
proceedings pending at the PUCO regarding corporate separation, elements of the smart grid
proceeding and the integration into PJM. FirstEnergy recorded approximately $39.5 million of
regulatory asset impairments and expenses related to the ESP. On September 24, 2010, an application
for rehearing was filed by the OCC and two other parties. On February 9, 2011, the PUCO issued an Entry on Rehearing denying the applications for rehearing.
Under the provisions of SB221, the Ohio Companies are required to implement energy efficiency
programs that will achieve a total annual energy savings equivalent to approximately 166,000 MWH in
2009, 290,000 MWH in 2010, 410,000 MWH in 2011, 470,000 MWH in 2012 and 530,000 MWH in 2013, with
additional savings required through 2025. Utilities are also required to reduce peak demand in 2009
by 1%, with an additional 0.75% reduction each year thereafter through 2018.
On December 15, 2009, the Ohio Companies filed the required three year portfolio plan seeking
approval for the programs they intend to implement to meet the energy efficiency and peak demand
reduction requirements for the 2010-2012 period. The Ohio Companies expect that all costs
associated with compliance will be recoverable from customers. The Ohio Companies’ three year
portfolio plan is still awaiting decision from the PUCO, which is delaying the launch of the
programs described in the plan. As a result, the Ohio Companies filed on January 11, 2011, a
request for amendment of OE’s 2010 energy efficiency and peak demand reduction benchmarks to levels
actually achieved in 2010. Because the Commission indicated that it would revise all of the Ohio
Companies’ 2010, 2011, and 2012 benchmarks when addressing the Ohio Companies’ three year portfolio
plan, and an order has yet to be issued on that plan, CEI and TE also requested a waiver of their
respective yet-to-be defined 2010 energy efficiency benchmarks if and only to the degree one is
deemed necessary to bring these companies into compliance with their 2010 energy efficiency
obligations. Failure to comply with the benchmarks or to obtain such an amendment may subject the
Companies to an assessment by the PUCO of a penalty.
5
Table of Contents
Additionally under SB221, electric utilities and electric service companies are required to serve
part of their load from renewable energy resources equivalent to 0.25% of the KWH they served in
2009. In August and October 2009, the Ohio Companies conducted RFPs to secure RECs. The RFPs sought
RECs, including solar RECs and RECs generated in Ohio in order to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2009, 2010 and 2011. The RECs acquired
through these two RFPs were used to help meet the renewable energy requirements established under
SB221 for 2009, 2010 and 2011. On March 10, 2010, the PUCO found that there was an insufficient
quantity of solar energy resources reasonably available in the market. The PUCO reduced the Ohio
Companies’ aggregate 2009 benchmark to the level of solar RECs the Ohio Companies acquired through
their 2009 RFP processes, provided the Ohio Companies’ 2010 alternative energy requirements be
increased to include the shortfall for the 2009 solar REC benchmark. FES also applied for a force
majeure determination from the PUCO regarding a portion of their compliance with the 2009 solar
energy resource benchmark, which application is still pending. In July 2010, the Ohio Companies
initiated an additional RFP to secure RECs and solar RECs needed to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2010 and 2011. As a result of this RFP,
contracts were executed in August 2010. On January 11, 2011, the Ohio Companies filed an
application with the PUCO seeking an amendment to each of their 2010 alternative energy
requirements for solar RECs generated in Ohio due to the insufficient quantity of solar energy
resources reasonably available in the market. The PUCO has not yet ruled on that application.
On February 12, 2010, OE and CEI filed an application with the PUCO to establish a new credit for
all-electric customers. On March 3, 2010, the PUCO ordered that rates for the affected customers
be set at a level that will provide bill impacts commensurate with charges in place on December 31,
2008 and authorized the Ohio Companies to defer incurred costs equivalent to the difference between
what the affected customers would have paid under previously existing rates and what they pay with
the new credit in place. Tariffs implementing this new credit went into effect on March 17, 2010.
On April 15, 2010, the PUCO issued a Second Entry on Rehearing that expanded the group of customers
to which the new
credit would apply and authorized deferral for the associated additional amounts. The PUCO also
stated that it expected that the new credit would remain in place through at least the 2011 winter
season, and charged its staff to work with parties to seek a long term solution to the issue.
Tariffs implementing this newly expanded credit went into effect on May 21, 2010, and the
proceeding remains open. The hearing in the matter is set to commence on February 16, 2011.
Pennsylvania Regulatory Matters
The PPUC adopted a Motion on January 28, 2010 and subsequently entered an Order on March 3, 2010
which denied the recovery of marginal transmission losses through the TSC rider for the period of
June 1, 2007 through March 31, 2008, and directed Met-Ed and Penelec to submit a new tariff or
tariff supplement reflecting the removal of marginal transmission losses from the TSC, and
instructed Met-Ed and Penelec to work with the various intervening parties to file a recommendation
to the PPUC regarding the establishment of a separate account for all marginal transmission losses
collected from ratepayers plus interest to be used to mitigate future generation rate increases
beginning January 1, 2011. On March 18, 2010, Met-Ed and Penelec filed a Petition with the PPUC
requesting that it stay the portion of the March 3, 2010 Order requiring the filing of tariff
supplements to end collection of costs for marginal transmission losses. By Order entered March 25,
2010, the PPUC granted the requested stay until December 31, 2010. Pursuant to the PPUC’s order,
Met-Ed and Penelec filed the plan to establish separate accounts for marginal transmission loss
revenues and related interest and carrying charges and the plan for the use of these funds to
mitigate future generation rate increases commencing January 1, 2011. The PPUC approved this plan
on June 7, 2010. On April 1, 2010, Met-Ed and Penelec filed a Petition for Review with the
Commonwealth Court of Pennsylvania appealing the PPUC’s March 3, 2010 Order. Although the ultimate
outcome of this matter cannot be determined at this time, Met-Ed and Penelec believe that they
should prevail in the appeal and therefore expect to fully recover the approximately $252.7 million
($188.0 million for Met-Ed and $64.7 million for Penelec) in marginal transmission losses for the
period prior to January 1, 2011. The argument before the Commonwealth Court,
en banc
, was held on
December 8, 2010.
On May 20, 2010, the PPUC approved Met-Ed’s and Penelec’s annual updates to their TSC rider for the
period June 1, 2010 through December 31, 2010, including marginal transmission losses as approved by
the PPUC, although the recovery of marginal losses will be subject to the outcome of the proceeding
related to the 2008 TSC filing as described above. The TSC for Met-Ed’s customers was increased to
provide for full recovery by December 31, 2010.
Met-Ed and Penelec filed with the PPUC a generation procurement plan covering the period January 1,
2011 through May 31, 2013. The plan is designed to provide adequate and reliable service through a
prudent mix of long-term, short-term and spot market generation supply with a staggered procurement
schedule that varies by customer class, using a descending clock auction. On August 12, 2009, the
parties to the proceeding filed a settlement agreement of all but two issues, and the PPUC entered
an Order approving the settlement and the generation procurement plan on November 6, 2009.
Generation procurement began in January 2010.
On February 8, 2010, Penn filed a Petition for Approval of its Default Service Plan for the period
June 1, 2011 through May 31, 2013. On July 29, 2010, the parties to the proceeding filed a Joint
Petition for Settlement of all issues. Although the PPUC’s Order approving the Joint Petition held
that the provisions relating to the recovery of MISO exit fees and one-time PJM integration costs
(resulting from Penn’s June 1, 2011 exit from MISO and integration into PJM) were approved, it made
such provisions subject to the approval of cost recovery by FERC. Therefore, Penn may not put these
provisions into effect until FERC has approved the recovery and allocation of MISO exit fees and
PJM integration costs.
6
Table of Contents
Met-Ed, Penelec and Penn jointly filed a SMIP with the PPUC on August 14, 2009. This plan proposed
a 24-month assessment period in which the Pennsylvania Companies will assess their needs, select
the necessary technology, secure vendors, train personnel, install and test support equipment, and
establish a cost effective and strategic deployment schedule, which currently is expected to be
completed in fifteen years. Met-Ed, Penelec and Penn estimate assessment period costs of
approximately $29.5 million, which the Pennsylvania Companies, in their plan, proposed to recover
through an automatic adjustment clause. The ALJ’s Initial Decision approved the SMIP as modified by
the ALJ, including: ensuring that the smart meters to be deployed include the capabilities listed
in the PPUC’s Implementation Order; denying the recovery of interest through the automatic
adjustment clause; providing for the recovery of reasonable and prudent costs net of resulting
savings from installation and use of smart meters; and requiring that administrative start-up costs
be expensed and the costs incurred for research and development in the assessment period be
capitalized. On April 15, 2010, the PPUC adopted a Motion by Chairman Cawley that modified the
ALJ’s initial decision, and decided various issues regarding the SMIP for the Pennsylvania
Companies. The PPUC entered its Order on June 9, 2010, consistent with the Chairman’s Motion. On
June 24, 2010, Met-Ed, Penelec and Penn filed a Petition for Reconsideration of a single portion of
the PPUC’s Order regarding the future ability to include smart meter costs in base rates. On August
5, 2010, the PPUC granted in part the petition for reconsideration by deleting language from its
original order that would have precluded Met-Ed, Penelec and Penn from seeking to include smart
meter costs in base rates at a later time. The costs to implement the SMIP could be material.
However, assuming these costs satisfy a just and reasonable standard they are expected to be
recovered in a rider (Smart Meter Technologies Charge Rider) which was approved when the PPUC
approved the SMIP.
By Tentative Order entered September 17, 2009, the PPUC provided for an additional 30-day comment
period on whether the 1998 Restructuring Settlement, which addressed how Met-Ed and Penelec were
going to implement direct
access to a competitive market for the generation of electricity, allows Met-Ed and Penelec to
apply over-collection of NUG costs for select and isolated months to reduce non-NUG stranded costs
when a cumulative NUG stranded cost balance exists. In response to the Tentative Order, various
parties filed comments objecting to the above accounting method utilized by Met-Ed and Penelec.
Met-Ed and Penelec are awaiting further action by the PPUC.
New Jersey Regulatory Matters
JCP&L is permitted to defer for future collection from customers the amounts by which its costs of
supplying BGS to non-shopping customers, costs incurred under NUG agreements, and certain other
stranded costs, exceed amounts collected through BGS and NUGC rates and market sales of NUG energy
and capacity. As of December 31, 2010, the accumulated deferred cost balance was a credit of
approximately $37 million. To better align the recovery of expected costs, on July 26, 2010, JCP&L
filed a request to decrease the amount recovered for the costs incurred under the NUG agreements by
$180 million annually. On February 10, 2011, the NJBPU approved a stipulation which allows the change in rates to become effective March 1, 2011.
On March 13, 2009, JCP&L filed its annual SBC Petition with the NJBPU that includes a request for a
reduction in the level of recovery of TMI-2 decommissioning costs based on an updated TMI-2
decommissioning cost analysis dated January 2009 estimated at $736 million (in 2003 dollars). This
matter is currently pending before the NJBPU.
New Jersey statutes require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic growth, and environmental
impact. The NJBPU adopted an order establishing the general process and contents of specific EMP
plans that must be filed by New Jersey electric and gas utilities in order to achieve the goals of
the EMP. On April 16, 2010, the NJBPU issued an order indefinitely suspending the requirement of
New Jersey utilities to submit Utility Master Plans until such time as the status of the EMP has
been made clear. At this time, FirstEnergy and JCP&L cannot determine the impact, if any, the EMP
may have on their operations.
7
Table of Contents
FERC Matters
Rates for Transmission Service Between MISO and PJM
On November 18, 2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to eliminate multiple
transmission charges for a single transaction between the MISO and PJM regions. The FERC also
ordered MISO, PJM and the transmission owners within MISO and PJM to submit compliance filings
containing a rate mechanism to recover lost transmission revenues created by elimination of this
charge (referred to as SECA) during a 16-month transition period. In 2005, the FERC set the SECA
for hearing. The presiding ALJ issued an initial decision on August 10, 2006, rejecting the
compliance filings made by MISO, PJM and the transmission owners, and directing new compliance
filings. This decision was subject to review and approval by the FERC. On May 21, 2010, FERC issued
an order denying pending rehearing requests and an Order on Initial Decision which reversed the
presiding ALJ’s rulings in many respects. Most notably, these orders affirmed the right of
transmission owners to collect SECA charges with adjustments that modestly reduce the level of such
charges, and changes to the entities deemed responsible for payment of the SECA charges. The Ohio
Companies were identified as load serving entities responsible for payment of additional SECA
charges for a portion of the SECA period (Green Mountain/Quest issue). FirstEnergy executed
settlements with AEP, Dayton and the Exelon parties to fix FirstEnergy’s liability for SECA charges
originally billed to Green Mountain and Quest for load that returned to regulated service during
the SECA period. The AEP, Dayton and Exelon, settlements were approved by FERC on November 23,
2010, and the relevant payments made. Rehearings remain pending in this proceeding.
PJM Transmission Rate
On April 19, 2007, FERC issued an order (Opinion 494) finding that the PJM transmission owners’
existing “license plate” or zonal rate design was just and reasonable and ordered that the current
license plate rates for existing transmission facilities be retained. On the issue of rates for new
transmission facilities, FERC directed that costs for new transmission facilities that are rated at
500 kV or higher are to be collected from all transmission zones throughout the PJM footprint by
means of a postage-stamp rate based on the amount of load served in a transmission zone. Costs for
new transmission facilities that are rated at less than 500 kV, however, are to be allocated on a
load flow methodology (DFAX), which is generally referred to as a “beneficiary pays” approach to
allocating the cost of high voltage transmission facilities.
The FERC’s Opinion 494 order was appealed to the U.S. Court of Appeals for the Seventh Circuit,
which issued a decision on August 6, 2009. The court affirmed FERC’s ratemaking treatment for
existing transmission facilities, but found that FERC had not supported its decision to allocate
costs for new 500+ kV facilities on a load ratio share basis and, based on this finding, remanded
the rate design issue back to FERC.
In an order dated January 21, 2010, FERC set the matter for “paper hearings”— meaning that FERC
called for parties to submit comments or written testimony pursuant to the schedule described in
the order. FERC identified nine separate issues for comments and directed PJM to file the first
round of comments on February 22, 2010, with other parties
submitting responsive comments and then reply comments on later dates. PJM filed certain studies
with FERC on April 13, 2010, in response to the FERC order. PJM’s filing demonstrated that
allocation of the cost of high voltage transmission facilities on a beneficiary pays basis results
in certain eastern utilities in PJM bearing the majority of their costs. Numerous parties filed
responsive comments or studies on May 28, 2010 and reply comments on June 28, 2010. FirstEnergy and
a number of other utilities, industrial customers and state commissions supported the use of the
beneficiary pays approach for cost allocation for high voltage transmission facilities. Certain
eastern utilities and their state commissions supported continued socialization of these costs on a
load ratio share basis. FERC is expected to act by May 31, 2011.
RTO Realignment
On December 17, 2009, FERC issued an order approving, subject to certain future compliance filings,
ATSI’s withdrawal from MISO and integration into PJM. This move, which is expected to be effective
on June 1, 2011, allows FirstEnergy to consolidate its transmission assets and operations into PJM.
Currently, FirstEnergy’s transmission assets and operations are divided between PJM and MISO. The
realignment will make the transmission assets that are part of ATSI, whose footprint includes the
Ohio Companies and Penn, part of PJM. In the order, FERC approved FirstEnergy’s proposal to use a
FRR Plan to obtain capacity to satisfy the PJM capacity requirements for the 2011-12 and 2012-13
delivery years.
FirstEnergy
successfully conducted the FRR auctions on March 19, 2010. Moreover, the ATSI zone
loads participated in the PJM base residual auction for the 2013 delivery year. Successful
completion of these steps secured the capacity necessary for the ATSI footprint to meet PJM’s
capacity requirements. On August 25, 2010, the PUCO issued an order in the 2010 ESP Case approving
a settlement that, among other things, called for the PUCO to withdraw its opposition to the RTO
consolidation. In addition, the order approved a wholesale procurement process, and certain “retail
choice” policies, that reflected ATSI’s entry into PJM on June 1, 2011.
8
Table of Contents
On February 1, 2011, ATSI in conjunction with PJM filed its proposal with FERC for moving its
transmission rate into PJM’s tariffs. FirstEnergy expects ATSI to enter PJM on June 1, 2011, and
that if legal proceedings regarding its rate are outstanding at that time, ATSI will be permitted
to start charging its proposed rates, subject to refund. Additional FERC proceedings are either
pending or expected in which the amount of exit fees, transmission cost allocations, and costs
associated with long term firm transmission rights payable by the ATSI zone upon its withdrawal
from the Midwest ISO will be determined. In addition, certain parties may protest other aspects of
ATSI’s integration into PJM, and certain of these matters remain outstanding and will be resolved
in future FERC proceedings. The outcome of these proceedings cannot be predicted.
MISO Multi-Value Project Rule Proposal
On July 15, 2010, MISO and certain MISO transmission owners jointly filed with FERC their proposed
cost allocation methodology for certain new transmission projects. The new transmission
projects—described as MVPs—are a class of MTEP projects. The filing parties proposed to allocate
the costs of MVPs by means of a usage-based charge that will be applied to all loads within the
MISO footprint, and to energy transactions that call for power to be “wheeled through” the MISO as
well as to energy transactions that “source” in the MISO but “sink” outside of MISO. The filing
parties expect that the MVP proposal will fund the costs of large transmission projects designed to
bring wind generation from the upper Midwest to load centers in the east. The filing parties
requested an effective date for the proposal of July 16, 2011. On August 19, 2010, MISO’s Board
approved the first MVP project — the “Michigan Thumb Project.” Under MISO’s proposal, the costs of
MVP projects approved by MISO’s Board prior to the anticipated June 1, 2011 effective date of
FirstEnergy’s integration into PJM would continue to be allocated to FirstEnergy. MISO estimated
that approximately $11 million in annual revenue requirements would be allocated to the ATSI zone
associated with the Michigan Thumb Project upon its completion.
On September 10, 2010, FirstEnergy filed a protest to the MVP proposal arguing that MISO’s proposal
to allocate costs of MVP projects across the entire MISO footprint does not align with the
established rule that cost allocation is to be based on cost causation (the “beneficiary pays”
approach). FirstEnergy also argued that, in light of progress to date in the ATSI integration into
PJM, it would be unjust and unreasonable to allocate any MVP costs to the ATSI zone, or to ATSI.
Numerous other parties filed pleadings on MISO’s MVP proposal.
On December 16, 2010, FERC issued an order approving the MVP proposal without significant change.
FERC’s order was not clear, however, as to whether the MVP costs would be payable by ATSI or load
in the ATSI zone. FERC stated that the MISO’s tariffs obligate ATSI to pay all charges that attach
prior to ATSI’s exit but ruled that the question of the amount of costs that are to be allocated to
ATSI or to load in the ATSI zone were beyond the scope of FERC’s order and would be addressed in
future proceedings.
On January 18, 2011, FirstEnergy filed for rehearing of FERC’s order. In its rehearing request,
the Company argued that because the MVP rate is usage-based, costs could not be applied to ATSI,
which is a stand-alone transmission company that does not use the transmission system. FirstEnergy
also renewed its arguments regarding cost causation and the impropriety of allocating costs to the
ATSI zone or to ATSI. FirstEnergy cannot predict the outcome of these proceedings at this time.
Sales to Affiliates
FES has received authorization from FERC to make wholesale power sales to the Utilities. FES
actively participates in auctions conducted by or on behalf of the Utilities to obtain the power
and related services necessary to meet the Utilities’ POLR obligations. Because of the merger with
FirstEnergy, AS is considered an affiliate of the Utilities for purposes of FERC’s affiliate
restriction regulations. This requires AS to obtain prior FERC authorization to make sales to the
Utilities when it successfully participates in the Utilities’ POLR auctions.
FES currently supplies the Ohio Companies with a portion of their capacity, energy, ancillary
services and transmission under a Master SSO Supply Agreement for a two-year period ending May 31,
2011. FES won 51 tranches in a descending clock auction for POLR service administered by the Ohio
Companies and their consultant, CRA International on May 13-14, 2009. Other winning suppliers have
assigned their Master SSO Supply Agreements to FES, five of which were effective in June, two more
in July, four more in August and ten more in September, 2009. FES also supplies power used by
Constellation to serve an additional five tranches. As a result of these arrangements, FES serves
77 tranches, or 77% of the POLR load of the Ohio Companies until May 31, 2011.
On October 20, 2010, FES participated in a descending clock auction for POLR service administered
by the Ohio Companies and their consultant, CRA International, for the following periods: June 1,
2011 through May 31, 2012; June 1, 2011, through May 31, 2013; and June 1, 2010 through May 31,
2014. The Ohio Companies offered 17, 17, and 16 tranches for these periods, respectively. FES won
10, 7, and 3 tranches, respectively, for these periods. On January 25, 2011, the Ohio Companies
conducted a second auction offering the same product for identical time periods. FES won 3, 0, and
3 tranches, respectively, for these periods. FES entered into a Master SSO Supply Agreement to
provide capacity, energy, ancillary services, and congestion costs to the Ohio Companies for the
tranches won. Under the ESP in effect for these time periods, the Ohio Companies are responsible
for payment of noncontrollable transmission costs billed by PJM for POLR service.
9
Table of Contents
On October 18, 2010, FES participated in a descending clock auction for POLR service administered
by both Met-Ed and Penelec and their consultant, National Economic Research Associates (NERA) for
the following tranche products and delivery periods: Residential 5-month, Residential 24-month,
Commercial 5-month, Commercial 12-month and Industrial 12-month. All 5-month delivery periods are
from January 1, 2011 through May 31, 2011, all 12-month delivery periods are from June 1, 2011
through May 31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31,
2013. Met-Ed offered 7 Residential 5-month tranches, 4 Residential 24-month tranches, 6 Commercial
5-month tranches, 6 Commercial 12-month tranches and 1 Industrial tranche while Penelec offered 5
Residential 5-month tranches, 3 Residential 24-month tranches, 5 Commercial 5-month tranches, 5
Commercial 12-month tranches and 1 Industrial tranche.
For Met-Ed offerings, FES won 4 Residential 5-month tranches, 2 Residential 24-month tranches, 1
Commercial 5-month tranche, 1 Commercial 12-month tranche and zero Industrial tranches. For Penelec
offerings, FES won 1 Residential 5-month tranche, 1 Residential 24-month tranche, zero Commercial
5-month tranches, zero Commercial 12-month tranches and zero Industrial tranches. FES entered into
separate Supplier Master Agreements (SMA) to provide capacity, energy, ancillary services, and
congestion costs with Met-Ed and Penelec for each product won. Under the terms and conditions of
the SMA, Met-Ed and Penelec are responsible for payment of noncontrollable transmission costs
billed by PJM.
On January 18 to 20, 2011 FES participated in a descending clock auction for POLR service
administered by Met-Ed, Penelec, and Penn Power and their consultant, NERA for the following
tranche products and delivery periods: Residential 12-month, Residential 24-month, Commercial
12-month and Industrial 12-month. All 12-month delivery periods are from June 1, 2011 through May
31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31, 2013. Met-Ed
offered 3 Residential 12-month tranches, 4 Residential 24-month tranches, 6 Commercial 12-month
tranches and 11 Industrial tranches. Penelec offered 3 Residential 12-month tranches, 2 Residential
24-month tranches, 5 Commercial 12-month tranches and 11 Industrial tranches. Penn Power offered 2
Residential 12-month tranches, 1 Residential 24-month tranche, 3 Commercial 12-month tranches and 3
Industrial tranches.
For Met-Ed offerings, FES won 1 Commercial 12-month tranche and zero for the remaining products.
For Penelec and Penn Power offerings, FES won no tranches. FES entered into a SMA to provide
capacity, energy, ancillary services, and congestion costs with Met-Ed for the product won. Under
the terms and conditions of the SMA, Met-Ed is responsible for payment of noncontrollable
transmission costs billed by PJM.
Capital Requirements
Our capital spending for 2011 is expected to be approximately $1.4 billion (excluding nuclear
fuel). For 2012 and 2013 we anticipate average annual baseline capital expenditures of
approximately $1.2 billion — that excludes currently unplanned investment opportunities or future
mandated spending. Baseline capital initiatives promote reliability, improve
operations, and support current environmental and energy efficiency directives. Our capital
investments for additional nuclear fuel are expected to be $133 million, $300 million and $183
million in 2011, 2012 and 2013, respectively.
Anticipated capital expenditures for the Utilities, FES and FirstEnergy’s other subsidiaries for
2011, excluding nuclear fuel, are shown in the following table. Such costs include expenditures for
the betterment of existing facilities and for the completion of generating capacity, construction,
transmission lines, distribution lines, substations and other assets.
| Capital | ||||||||
| 2010 | Expenditures | |||||||
| Actual (1) | Forecast 2011 | |||||||
| (In millions) | ||||||||
|
OE
|
$ | 138 | $ | 127 | ||||
|
Penn
|
26 | 20 | ||||||
|
CEI
|
113 | 117 | ||||||
|
TE
|
46 | 37 | ||||||
|
JCP&L
|
190 | 181 | ||||||
|
Met-Ed
|
106 | 89 | ||||||
|
Penelec
|
135 | 121 | ||||||
|
ATSI
|
67 | 60 | ||||||
|
FGCO
|
581 | 215 | ||||||
|
NGC
|
333 | 393 | ||||||
|
Other subsidiaries
|
78 | 60 | ||||||
|
|
||||||||
|
Total
|
$ | 1,813 | $ | 1,420 | ||||
|
|
||||||||
| (1) |
Excludes nuclear fuel.
|
10
Table of Contents
During the 2011-2015 period, maturities of, and sinking fund requirements for, long-term debt
of FirstEnergy and its subsidiaries are:
| Long-Term Debt Redemption Schedule | ||||||||||||
| 2011 | 2012-2015 | Total | ||||||||||
| (In millions) | ||||||||||||
|
FirstEnergy
|
$ | 250 | $ | — | $ | 250 | ||||||
|
FES
|
163 | 692 | 855 | |||||||||
|
OE
|
— | 150 | 150 | |||||||||
|
Penn
|
1 | 4 | 5 | |||||||||
|
CEI
|
20 | 396 | 416 | |||||||||
|
JCP&L
|
32 | 149 | 181 | |||||||||
|
Met-Ed
|
— | 400 | 400 | |||||||||
|
Penelec
|
— | 150 | 150 | |||||||||
|
Other
(1)
|
(21 | ) | 229 | 208 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 445 | $ | 2,170 | $ | 2,615 | ||||||
|
|
||||||||||||
| (1) |
Includes elimination of certain intercompany debt.
|
The following tables display consolidated operating lease commitments as of December 31, 2010.
| Lease | Capital | |||||||||||
| Operating Leases | Payments | Trust | Net | |||||||||
| (In millions) | ||||||||||||
|
2011
|
$ | 329 | $ | 116 | $ | 213 | ||||||
|
2012
|
365 | 125 | 240 | |||||||||
|
2013
|
367 | 130 | 237 | |||||||||
|
2014
|
363 | 131 | 232 | |||||||||
|
2015
|
365 | 91 | 274 | |||||||||
|
Years thereafter
|
2,150 | 32 | 2,118 | |||||||||
|
|
||||||||||||
|
Total minimum lease payments
|
$ | 3,939 | $ | 625 | $ | 3,314 | ||||||
|
|
||||||||||||
| Operating Leases | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
2011
|
$ | 192 | $ | 146 | $ | 4 | $ | 64 | $ | 6 | $ | 4 | $ | 3 | ||||||||||||||
|
2012
|
230 | 147 | 3 | 64 | 5 | 4 | 3 | |||||||||||||||||||||
|
2013
|
236 | 147 | 3 | 64 | 5 | 4 | 3 | |||||||||||||||||||||
|
2014
|
234 | 146 | 3 | 64 | 5 | 4 | 2 | |||||||||||||||||||||
|
2015
|
238 | 146 | 3 | 64 | 4 | 4 | 2 | |||||||||||||||||||||
|
Years thereafter
|
1,895 | 166 | 6 | 79 | 48 | 40 | 23 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total minimum lease
payments
|
$ | 3,025 | $ | 898 | $ | 22 | $ | 399 | $ | 73 | $ | 60 | $ | 36 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
FirstEnergy expects its existing sources of liquidity to remain sufficient to meet its
anticipated obligations and those of its subsidiaries. FirstEnergy’s business is capital intensive,
requiring significant resources to fund operating expenses, construction expenditures, scheduled
debt maturities and interest and dividend payments. During 2011, FirstEnergy expects to satisfy these requirements with internal cash from operations — external
funds may also be raised in the capital markets as market conditions warrant. FirstEnergy also
expects that borrowing capacity under credit facilities will continue to be available to manage
working capital requirements along with continued access to long-term capital markets.
FirstEnergy had approximately $700 million of short-term indebtedness as of December 31, 2010,
comprised of borrowings under the $2.75 billion revolving line of credit described below. Total
short-term bank lines of committed credit to FirstEnergy, FES and the Utilities as of January 31,
2011 were approximately $3.2 billion.
11
Table of Contents
FirstEnergy, along with certain of its subsidiaries, are party to a $2.75 billion five-year
revolving credit facility. FirstEnergy has the ability to request an increase in the total
commitments available under this facility up to a maximum of $3.25 billion, subject to the
discretion of each lender to provide additional commitments. Commitments under the facility are
available until August 24, 2012, unless the lenders agree, at the request of the borrowers, to an
unlimited number of additional one-year extensions. Generally, borrowings under the facility must
be repaid within 364 days. Available amounts for each borrower are subject to a specified
sub-limit, as well as applicable regulatory and other limitations. The annual facility fee is
0.125%.
As of January 31, 2011, FES had a $100 million term loan in addition to a $1 billion credit limit
associated with FirstEnergy’s $2.75 billion revolving credit facility. Also, an aggregate of $395
million of accounts receivable financing facilities through the Ohio and Pennsylvania Companies may
be accessed to meet working capital requirements and for other general corporate purposes.
FirstEnergy’s available liquidity as of January 31, 2011, is described in the following table.
| Available | ||||||||||||||
| Company | Type | Maturity | Commitment | Liquidity | ||||||||||
| (In millions) | ||||||||||||||
|
FirstEnergy
(1)
|
Revolving | Aug. 2012 | $ | 2,750 | $ | 2,245 | ||||||||
|
FES
|
Term loan | Mar. 2011 | 100 | — | ||||||||||
|
Ohio and Pennsylvania Companies
|
Receivables financing | Various | (2) | 395 | 237 | |||||||||
|
|
||||||||||||||
|
|
Subtotal | $ | 3,245 | $ | 2,482 | |||||||||
|
|
Cash | — | 668 | |||||||||||
|
|
||||||||||||||
|
|
Total | $ | 3,245 | $ | 3,150 | |||||||||
|
|
||||||||||||||
| (1) |
FirstEnergy Corp. and subsidiary borrowers.
|
|
| (2) |
Ohio — $250 million matures March 30, 2011; Pennsylvania — $145 million matures June 17, 2011 with optional extension terms.
|
FirstEnergy’s primary source of cash for continuing operations as a holding company is cash
from the operations of its subsidiaries. During 2010, the holding company received $850 million of
cash dividends on common stock from its subsidiaries and paid $670 million in cash dividends to
common shareholders.
As of December 31, 2010, the Ohio Companies and Penn had the aggregate capability to issue
approximately $2.4 billion of additional FMBs on the basis of property additions and retired bonds
under the terms of their respective mortgage indentures. The issuance of FMBs by the Ohio Companies
is also subject to provisions of their senior note indentures generally limiting the incurrence of
additional secured debt, subject to certain exceptions that would permit, among other things, the
issuance of secured debt (including FMBs) supporting pollution control notes or similar
obligations, or as an extension, renewal or replacement of previously outstanding secured debt. In
addition, these provisions would permit OE and CEI to incur additional secured debt not otherwise
permitted by a specified exception of
up to $124 million and $26 million, respectively, as of December 31, 2010. As a result of the
indenture provisions, TE cannot incur any additional secured debt. Met-Ed and Penelec had the
capability to issue secured debt of approximately $394 million and $343 million, respectively,
under provisions of their senior note indentures as of December 31, 2010.
Based upon FGCO’s FMB indenture, net earnings and available bondable property additions as of
December 31, 2010, FGCO had the capability to issue $1.7 billion of additional FMBs under the terms
of that indenture. Based upon NGC’s FMB indenture, net earnings and available bondable property
additions, NGC had the capability to issue $695 million of additional FMBs as of December 31, 2010.
To the extent that coverage requirements or market conditions restrict the subsidiaries’ abilities
to issue desired amounts of FMBs or preferred stock, they may seek other methods of financing. Such
financings could include the sale of preferred and/or preference stock or of such other types of
securities as might be authorized by applicable regulatory authorities which would not otherwise be
sold and could result in annual interest charges and/or dividend requirements in excess of those
that would otherwise be incurred.
On September 22, 2008, the Shelf Registrants filed an automatically effective shelf registration
statement with the SEC for an unspecified number and amount of securities to be offered thereon.
The shelf registration provides FirstEnergy the flexibility to issue and sell various types of
securities, including common stock, preferred stock, debt securities, warrants, share purchase
contracts, and share purchase units. The Shelf Registrants may utilize the shelf registration
statement to offer and sell unsecured, and in some cases, secured debt securities.
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Nuclear Operating Licenses
On August 27, 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse
Nuclear Power Station operating license for an additional twenty years, until 2037. On December 27
and 28, 2010, a group of petitioners filed a request for hearing, contending that FENOC failed to
adequately consider wind or solar generation, or some combination thereof, as an alternative to
license extension at Davis Besse. They further argued FENOC had failed to adequately assess the
cost of a severe accident at Davis Besse. FENOC and the NRC staff responded to this pleading on
January 21, 2011, demonstrating that none of the petitioners’ arguments were admissible contentions
under the National Environmental Policy Act or NRC regulations. An Atomic Safety and Licensing
Board panel is expected to determine whether a hearing is necessary in this matter.
The following table summarizes the current operating license expiration dates for FES’ nuclear
facilities in service.
| Current License | ||||||||
| Station | In-Service Date | Expiration | ||||||
|
Beaver Valley Unit 1
|
1976 | 2036 | ||||||
|
Beaver Valley Unit 2
|
1987 | 2047 | ||||||
|
Perry
|
1986 | 2026 | ||||||
|
Davis-Besse
|
1977 | 2017 | ||||||
Nuclear Regulation
Under NRC regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities. As of December 31, 2010, FirstEnergy had approximately $2
billion invested in external trusts to be used for the decommissioning and environmental
remediation of Davis-Besse, Beaver Valley, Perry and TMI-2. FirstEnergy provides an additional $15
million parental guarantee associated with the funding of decommissioning costs for these units. As
required by the NRC, FirstEnergy annually recalculates and adjusts the amount of its parental
guarantee, as appropriate. The values of FirstEnergy’s nuclear decommissioning trusts fluctuate
based on market conditions. If the value of the trusts decline by a material amount, FirstEnergy’s
obligation to fund the trusts may increase. Disruptions in the capital markets and its effects on
particular businesses and the economy could also affect the values of the nuclear decommissioning
trusts. The NRC recently issued guidance anticipating an increase in low-level radioactive waste disposal
costs associated with the decommissioning of FirstEnergy’s nuclear facilities. As a result,
FirstEnergy’s decommissioning funding obligations are expected to increase. FirstEnergy continues
to evaluate the status of its funding obligations for the decommissioning of these nuclear
facilities.
Nuclear Insurance
The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear
power plant to $12.6 billion (assuming 104 units licensed to operate) for a single nuclear
incident, which amount is covered by: (i) private insurance amounting to $375 million; and (ii)
$12.2 billion provided by an industry retrospective rating plan required by the NRC pursuant
thereto. Under such retrospective rating plan, in the event of a nuclear incident at any unit in
the
United States resulting in losses in excess of private insurance, up to $118 million (but not more
than $18 million per unit per year in the event of more than one incident) must be contributed for
each nuclear unit licensed to operate in the country by the licensees thereof to cover liabilities
arising out of the incident. Based on their present nuclear ownership and leasehold interests,
FirstEnergy’s maximum potential assessment under these provisions would be $470 million (OE-$40
million, NGC-$408 million, and TE-$22 million) per incident but not more than $70 million (OE-$6
million, NGC-$61 million, and TE-$3 million) in any one year for each incident.
In addition to the public liability insurance provided pursuant to the Price-Anderson Act,
FirstEnergy has also obtained insurance coverage in limited amounts for economic loss and property
damage arising out of nuclear incidents. FirstEnergy is a member of NEIL which provides coverage
(NEIL I) for the extra expense of replacement power incurred due to prolonged accidental outages of
nuclear units. Under NEIL I, FirstEnergy’s subsidiaries have policies, renewable yearly,
corresponding to their respective nuclear interests, which provide an aggregate indemnity of up to
approximately $1.4 billion (OE-$120 million, NGC-$1.22 billion, TE-$64 million) for replacement
power costs incurred during an outage after an initial 26-week waiting period. Members of NEIL I
pay annual premiums and are subject to assessments if losses exceed the accumulated funds available
to the insurer. FirstEnergy’s present maximum aggregate assessment for incidents at any covered
nuclear facility occurring during a policy year would be approximately $9 million (OE-$1 million,
NGC-$8 million, and TE-less than $1 million).
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FirstEnergy is insured as to its respective nuclear interests under property damage insurance
provided by NEIL to the operating company for each plant. Under these arrangements, up to $2.8
billion of coverage for decontamination costs, decommissioning costs, debris removal and repair
and/or replacement of property is provided. FirstEnergy pays annual premiums for this coverage and
is liable for retrospective assessments of up to approximately $61 million (OE-$5 million, NGC-$52
million, TE-$2 million, Met Ed, Penelec, and JCP&L-less than $1 million each) during a policy year.
FirstEnergy intends to maintain insurance against nuclear risks as described above as long as it is
available. To the extent that replacement power, property damage, decontamination, decommissioning,
repair and replacement costs and other such costs arising from a nuclear incident at any of
FirstEnergy’s plants exceed the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be covered by FirstEnergy’s insurance
policies, or to the extent such insurance becomes unavailable in the future, FirstEnergy would
remain at risk for such costs.
The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of
$1.1 billion or the amount generally available from private sources, whichever is less. The
proceeds of this insurance are required to be used first to ensure that the licensed reactor is in
a safe and stable condition and can be maintained in that condition to prevent any significant risk
to the public health and safety. Within 30 days of stabilization, the licensee is required to
prepare and submit to the NRC a cleanup plan for approval. The plan is required to identify all
cleanup operations necessary to decontaminate the reactor sufficiently to permit the resumption of
operations or to commence decommissioning. Any property insurance proceeds not already expended to
place the reactor in a safe and stable condition must be used first to complete those
decontamination operations that are ordered by the NRC. FirstEnergy is unable to predict what
effect these requirements may have on the availability of insurance proceeds.
Hydro Relicensing
Yards Creek
The Yards Creek Pumped Storage Project is a 400 MW hydroelectric project located in Warren County,
New Jersey. JCP&L owns an undivided 50% interest in the project, and operates the project. PSEG
Fossil, LLC, a subsidiary of Public Service Enterprise Group, owns the remaining interest in the
plant. The project was constructed in the early 1960s, and became operational in 1965.
Authorization to operate the project is by a license issued by the FERC. The existing license
expires on February 28, 2013.
In February 2011 FirstEnergy and PSEG filed a joint application with FERC to renew the license
for an additional fifty years. The companies are pursuing relicensure through FERC’s Integrated
License Application Process (ILP). Under the ILP process FERC will assess the license
applications, issue draft and final Environmental Assessments/Environmental Impact Studies (as
required by NEPA), and provide opportunity for intervention and protests by affected third parties.
FERC may hold hearings during the 2-year ILP licensure period. FirstEnergy expects FERC to issue
the new license within the remaining portion of the 2-year ILP period. To the extent, however that
the license proceedings extend beyond the February 28, 2013 expiration date for the current
license, the current license will be extended yearly as necessary to permit FERC to issue the new
license.
Seneca
The Seneca (Kinzua) Pumped Storage Project is a 451 MW hydroelectric project located in Warren
County, Pennsylvania. FGCO owns and operates the project. The current FERC license was issued on
December 1, 1965, and will expire on November 30, 2015.
FGCO expects to file its new license
application on or before November 30, 2013.
On November 23, 2010, FGCO filed its notice of intent to relicense and pre-application document
(PAD). On November 30, 2010, the Seneca Nation of Indians (Salamanca, NY) filed a competing notice
of intent to file a new license application and PAD. On January 28, 2011, FERC issued a notice of
the competing notices of intent and PADs; commencement of prefiling process and scoping; request
for comments on the PADs; and identification of issues and associated study requests.
FERC’s ILP provides a 5 year period for preparation, submission and adjudication of the licenses.
The first part is a 3-year period during which each of FirstEnergy and the Seneca Nation are to
collect the information and conduct the studies necessary to support license applications. The
second part is the same as the licensing process described above for Yards Creek.
Section 15 of the Federal Power Act provides that when there are competing license applications,
insignificant differences between competing applications are not determinative and shall not result
in transfer of the license for the project. Based on the facts and
the law, FirstEnergy believes it
qualifies for this “incumbent preference”. The timetable for a FERC decision cannot be predicted at
this time.
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Environmental Matters
Various federal, state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. Compliance with environmental regulations could have a
material adverse effect on FirstEnergy’s earnings and competitive position to the extent that
FirstEnergy competes with companies that are not subject to such regulations and, therefore, do not
bear the risk of costs associated with compliance, or failure to comply, with such regulations.
Clean Air Act Compliance
FirstEnergy is required to meet federally-approved SO
2
and NOx emissions regulations
under the CAA. FirstEnergy complies with SO
2
and NOx reduction requirements under the
CAA and SIP(s) under the CAA by burning lower-sulfur fuel, combustion controls and post-combustion
controls, generating more electricity from lower-emitting plants and/or using emission allowances.
Violations can result in the shutdown of the generating unit involved and/or civil or criminal
penalties.
The Sammis, Eastlake and Mansfield coal-fired plants are operated under a consent decree with the
EPA and DOJ that requires reductions of NOx and SO
2
emissions through the installation
of pollution control devices or repowering. OE and Penn are subject to stipulated penalties for
failure to install and operate such pollution controls or complete repowering in accordance with
that agreement.
In July 2008, three complaints were filed against FGCO in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on Bruce Mansfield Plant air emissions. Two of these
complaints also seek to enjoin the Bruce Mansfield Plant from operating except in a “safe,
responsible, prudent and proper manner”, one being a complaint filed on behalf of twenty-one
individuals and the other being a class action complaint seeking certification as a class action
with the eight named plaintiffs as the class representatives. FGCO believes the claims are without
merit and intends to defend itself against the allegations made in those three complaints.
The states of New Jersey and Connecticut filed CAA citizen suits in 2007 alleging NSR violations at
the Portland Generation Station against GenOn Energy, Inc. (the current owner and operator), Sithe
Energy (the purchaser of the Portland Station from Met-Ed in 1999) and Met-Ed. Specifically, these
suits allege that “modifications” at Portland Units 1 and 2 occurred between 1980 and 2005 without
preconstruction NSR permitting in violation of the CAA’s PSD program, and seek injunctive relief,
penalties, attorney fees and mitigation of the harm caused by excess emissions. In September 2009,
the Court granted Met-Ed’s motion to dismiss New Jersey’s and Connecticut’s claims for injunctive
relief against Met-Ed, but denied Met-Ed’s motion to dismiss the claims for civil penalties. The
parties dispute the scope of Met-Ed’s indemnity obligation to and from Sithe Energy.
In January 2009, the EPA issued a NOV to GenOn alleging NSR violations at the Portland Generation
Station based on “modifications” dating back to 1986 and also alleged NSR violations at the
Keystone and Shawville Stations based on “modifications” dating back to 1984. Met-Ed, JCP&L, as the
former owner of 16.67% of the Keystone Station, and Penelec, as former owner and operator of the
Shawville Station, are unable to predict the outcome of this matter.
In June 2008, the EPA issued a Notice and Finding of Violation to Mission Energy Westside, Inc.
alleging that “modifications” at the Homer City Power Station occurred since 1988 to the present
without preconstruction NSR permitting in violation of the CAA’s PSD program. In May 2010, the EPA
issued a second NOV to Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an
ownership interest in the Homer City Power Station containing in all material respects identical
allegations as the June 2008 NOV. On July 20, 2010, the states of New York and Pennsylvania
provided Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an ownership
interest in the Homer City Power Station a notification that was required 60 days prior to filing a
citizen suit under the
CAA. In January, 2011, the DOJ filed a complaint against Penelec in the U.S. District Court for the
Western District of Pennsylvania seeking damages based on alleged “modifications” at the Homer City
Power Station between 1991 to 1994 without preconstruction NSR permitting in violation of the CAA’s
PSD and Title V permitting programs. The complaint was also filed against the former co-owner,
NYSEG, and various current owners of the Homer City Station, including EME Homer City Generation
L.P. and affiliated companies, including Edison International. In addition, the Commonwealth of
Pennsylvania and the State of New York intervened and have filed a separate complaint regarding the
Homer City Station. Mission Energy Westside, Inc. is seeking indemnification from Penelec, the
co-owner and operator of the Homer City Power Station prior to its sale in 1999. The scope of
Penelec’s indemnity obligation to and from Mission Energy Westside, Inc. is under dispute and
Penelec is unable to predict the outcome of this matter.
In January 2011, a complaint was filed against Penelec in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on the Homer City Station’s air emissions. The
complaint was also filed against the former co-owner, NYSEG and various current owners of the Homer
City Station, including EME Homer City Generation L.P. and affiliated companies, including Edison
International. The complaint also seeks certification as a class action and to enjoin the Homer
City Station from operating except in a “safe, responsible, prudent and proper manner.” Penelec
believes the claims are without merit and intends to defend itself against the allegations made in
the complaint.
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In August 2009, the EPA issued a Finding of Violation and NOV alleging violations of the CAA and
Ohio regulations, including the PSD, NNSR, and Title V regulations at the Eastlake, Lakeshore, Bay
Shore and Ashtabula generating plants. The EPA’s NOV alleges equipment replacements occurring
during maintenance outages dating back to 1990 triggered the pre-construction permitting
requirements under the PSD and NNSR programs. FGCO received a request for certain operating and
maintenance information and planning information for these same generating plants and notification
that the EPA is evaluating whether certain maintenance at the Eastlake generating plant may
constitute a major modification under the NSR provision of the CAA. Later in 2009, FGCO also
received another information request regarding emission projections for the Eastlake generating
plant. FGCO intends to comply with the CAA, including the EPA’s information requests, but, at this
time, is unable to predict the outcome of this matter.
National Ambient Air Quality Standards
The EPA’s CAIR requires reductions of NOx and SO
2
emissions in two phases (2009/2010 and
2015), ultimately capping SO
2
emissions in affected states to 2.5 million tons annually
and NOx emissions to 1.3 million tons annually. In 2008, the U.S. Court of Appeals for the District
of Columbia vacated CAIR “in its entirety” and directed the EPA to “redo its analysis from the
ground up.” In December 2008, the Court reconsidered its prior ruling and allowed CAIR to remain in
effect to “temporarily preserve its environmental values” until the EPA replaces CAIR with a new
rule consistent with the Court’s opinion. The Court ruled in a different case that a cap-and-trade
program similar to CAIR, called the “NOx SIP Call,” cannot be used to satisfy certain CAA
requirements (known as reasonably available control technology) for areas in non-attainment under
the “8-hour” ozone NAAQS. In July 2010, the EPA proposed the CATR to replace CAIR, which remains in
effect until the EPA finalizes CATR. CATR requires reductions of NOx and SO
2
emissions
in two phases (2012 and 2014), ultimately capping SO
2
emissions in affected states to
2.6 million tons annually and NOx emissions to 1.3 million tons annually. The EPA proposed a
preferred regulatory approach that allows trading of NOx and SO
2
emission allowances
between power plants located in the same state and severely limits interstate trading of NOx and
SO
2
emission allowances. The EPA also requested comment on two alternative
approaches—the first eliminates interstate trading of NOx and SO
2
emission allowances
and the second eliminates trading of NOx and SO
2
emission allowances in its entirety.
Depending on the actions taken by the EPA with respect to CATR, the proposed MACT regulations
discussed below and any future regulations that are ultimately implemented, FGCO’s future cost of
compliance may be substantial. Management continues to assess the impact of these environmental
proposals and other factors on FGCO’s facilities, particularly on the operation of its smaller,
non-supercritical units. In August 2010, for example, management decided to idle certain units or
operate them on a seasonal basis until developments clarify.
Hazardous Air Pollutant Emissions
The EPA’s CAMR provides for a cap-and-trade program to reduce mercury emissions from coal-fired
power plants in two phases; initially, capping nationwide emissions of mercury at 38 tons by 2010
(as a “co-benefit” from implementation of SO
2
and NOx emission caps under the EPA’s CAIR
program) and 15 tons per year by 2018. The U.S. Court of Appeals for the District of Columbia, at
the urging of several states and environmental groups, vacated the CAMR, ruling that the EPA failed
to take the necessary steps to “de-list” coal-fired power plants from its hazardous air pollutant
program and, therefore, could not promulgate a cap-and-trade program. On April 29, 2010, the EPA
issued proposed MACT regulations requiring emissions reductions of mercury and other hazardous air
pollutants from non-electric generating unit boilers. If finalized,
the non-electric generating unit MACT regulations could also provide precedent for MACT standards
applicable to electric generating units. On January 20, 2011, the U.S. District Court for the
District of Columbia denied a motion by the EPA for an extension of the deadline to issue final
rules, ordering the EPA to issue such rules by February 21, 2011. The EPA also entered into a
consent decree requiring it to propose MACT regulations for mercury and other hazardous air
pollutants from electric generating units by March 16, 2011, and to finalize the regulations by
November 16, 2011.
Depending on the action taken by the EPA and on how any future regulations are ultimately
implemented, FGCO’s future cost of compliance with MACT regulations may be substantial and changes
to FGCO’s operations may result.
Climate Change
There are a number of initiatives to reduce GHG emissions under consideration at the federal, state
and international level. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the House of Representatives passed
one such bill, the American Clean Energy and Security Act of 2009, on June 26, 2009. The Senate
continues to consider a number of measures to regulate GHG emissions. President Obama has announced
his Administration’s “New Energy for America Plan” that includes, among other provisions, ensuring
that 10% of electricity used in the United States comes from renewable sources by 2012, increasing
to 25% by 2025, and implementing an economy-wide cap-and-trade program to reduce GHG emissions by
80% by 2050. State activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states, led by California, have coordinated efforts to
develop regional strategies to control emissions of certain GHGs.
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In September 2009, the EPA finalized a national GHG emissions collection and reporting rule that
will require FirstEnergy to measure GHG emissions commencing in 2010 and submit reports commencing
in 2011. In December 2009, the EPA released its final “Endangerment and Cause or Contribute
Findings for Greenhouse Gases under the Clean Air Act.” The EPA’s finding concludes that
concentrations of several key GHGs increase the threat of climate change and may be regulated as
“air pollutants” under the CAA. In April 2010, the EPA finalized new GHG standards for model years
2012 to 2016 passenger cars, light-duty trucks and medium-duty passenger vehicles and clarified
that GHG regulation under the CAA would not be triggered for electric generating plants and other
stationary sources until January 2, 2011, at the earliest. In May 2010, the EPA finalized new
thresholds for GHG emissions that define when permits under the CAA’s NSR program would be
required. The EPA established an emissions applicability threshold of 75,000 tons per year (tpy) of
carbon dioxide equivalents (CO2e) effective January 2, 2011 for existing facilities under the CAA’s
PSD program, but until July 1, 2011 that emissions applicability threshold will only apply if PSD
is triggered by non-carbon dioxide pollutants.
At the international level, the Kyoto Protocol, signed by the U.S. in 1998 but never submitted for
ratification by the U.S. Senate, was intended to address global warming by reducing the amount of
man-made GHG, including CO
2
, emitted by developed countries by 2012. A December 2009
U.N. Climate Change Conference in Copenhagen did not reach a consensus on a successor treaty to the
Kyoto Protocol, but did take note of the Copenhagen Accord, a non-binding political agreement which
recognized the scientific view that the increase in global temperature should be below two degrees
Celsius; include a commitment by developed countries to provide funds, approaching $30 billion over
the next three years with a goal of increasing to $100 billion by 2020; and establish the
“Copenhagen Green Climate Fund” to support mitigation, adaptation, and other climate-related
activities in developing countries. Once they have become a party to the Copenhagen Accord,
developed economies, such as the European Union, Japan, Russia and the United States, would commit
to quantified economy-wide emissions targets from 2020, while developing countries, including
Brazil, China and India, would agree to take mitigation actions, subject to their domestic
measurement, reporting and verification.
On September 21, 2009, the U.S. Court of Appeals for the Second Circuit and on October 16, 2009,
the U.S. Court of Appeals for the Fifth Circuit reversed and remanded lower court decisions that
had dismissed complaints alleging damage from GHG emissions on jurisdictional grounds. However, a
subsequent ruling from the U.S. Court of Appeals for the Fifth Circuit reinstated the lower court
dismissal of a complaint alleging damage from GHG emissions. These cases involve common law tort
claims, including public and private nuisance, alleging that GHG emissions contribute to global
warming and result in property damages. On December 6, 2010, the U.S. Supreme Court granted a writ
of certiorari to the Second Circuit in
Connecticut v. AEP
. Briefing and oral argument are expected
to be completed in early 2011 and a decision issued in or around June 2011. While FirstEnergy is
not a party to this litigation, FirstEnergy and/or one or more of its subsidiaries could be named
in actions making similar allegations.
FirstEnergy cannot currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO
2
emissions, or litigation
alleging damages from GHG emissions, could require significant capital and other expenditures or
result in changes to its operations. The CO
2
emissions per KWH of electricity generated
by FirstEnergy is lower than many regional competitors due to its diversified generation sources,
which include low or non-CO
2
emitting gas-fired and nuclear generators.
Clean Water Act
Various water quality regulations, the majority of which are the result of the federal Clean Water
Act and its amendments, apply to FirstEnergy’s plants. In addition, Ohio, New Jersey and
Pennsylvania have water quality standards applicable to FirstEnergy’s operations.
The EPA established new performance standards under Section 316(b) of the Clean Water Act for
reducing impacts on fish and shellfish from cooling water intake structures at certain existing
electric generating plants. The regulations call for reductions in impingement mortality (when
aquatic organisms are pinned against screens or other parts of a cooling
water intake system) and entrainment (which occurs when aquatic life is drawn into a facility’s
cooling water system). The EPA has taken the position that until further rulemaking occurs,
permitting authorities should continue the existing practice of applying their best professional
judgment to minimize impacts on fish and shellfish from cooling water intake structures. On April
1, 2009, the U.S. Supreme Court reversed one significant aspect of the Second Circuit’s opinion and
decided that Section 316(b) of the Clean Water Act authorizes the EPA to compare costs with
benefits in determining the best technology available for minimizing adverse environmental impact
at cooling water intake structures. The EPA is developing a new regulation under Section 316(b) of
the Clean Water Act consistent with the opinions of the Supreme Court and the Court of Appeals
which have created significant uncertainty about the specific nature, scope and timing of the final
performance standard. FirstEnergy is studying various control options and their costs and
effectiveness, including pilot testing of reverse louvers in a portion of the Bay Shore power
plant’s water intake channel to divert fish away from the plant’s water intake system. On November
19, 2010, the Ohio EPA issued a permit for the Bay Shore power plant requiring installation of
reverse louvers in its entire water intake channel by December 31, 2014. Depending on the results
of such studies and the EPA’s further rulemaking and any final action taken by the states
exercising best professional judgment, the future costs of compliance with these standards may
require material capital expenditures.
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In June 2008, the U.S. Attorney’s Office in Cleveland, Ohio advised FGCO that it is considering
prosecution under the Clean Water Act and the Migratory Bird Treaty Act for three petroleum spills
at the Edgewater, Lakeshore and Bay Shore plants which occurred on November 1, 2005, January 26,
2007 and February 27, 2007. FGCO is unable to predict the outcome of this matter.
Regulation of Waste Disposal
Federal and state hazardous waste regulations have been promulgated as a result of the Resource
Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976.
Certain fossil-fuel combustion residuals, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA’s evaluation of the need for future regulation. In February
2009, the EPA requested comments from the states on options for regulating coal combustion
residuals, including whether they should be regulated as hazardous or non-hazardous waste.
On December 30, 2009, in an advanced notice of public rulemaking, the EPA said that the large
volumes of coal combustion residuals produced by electric utilities pose significant financial risk
to the industry. On May 4, 2010, the EPA proposed two options for additional regulation of coal
combustion residuals, including the option of regulation as a special waste under the EPA’s
hazardous waste management program which could have a significant impact on the management,
beneficial use and disposal of coal combustion residuals. FGCO’s future cost of compliance with any
coal combustion residuals regulations which may be promulgated could be substantial and would
depend, in part, on the regulatory action taken by the EPA and implementation by the EPA or the
states.
The Utilities have been named as potentially responsible parties at waste disposal sites, which may
require cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act of
1980. Allegations of disposal of hazardous substances at historical sites and the liability
involved are often unsubstantiated and subject to dispute; however, federal law provides that all
potentially responsible parties for a particular site may be liable on a joint and several basis.
Environmental liabilities that are considered probable have been recognized on the consolidated
balance sheet as of December 31, 2010, based on estimates of the total costs of cleanup, the
Utilities’ proportionate responsibility for such costs and the financial ability of other
unaffiliated entities to pay. Total liabilities of approximately $104 million (JCP&L — $69 million,
TE — $1 million, CEI — $1 million, FGCO — $1 million and FirstEnergy — $32 million) have been
accrued through December 31, 2010. Included in the total are accrued liabilities of approximately
$64 million for environmental remediation of former MGPs and gas holder facilities in New Jersey,
which are being recovered by JCP&L through a non-bypassable SBC.
Fuel Supply
FES currently has long-term coal contracts with various terms to acquire approximately 19.2 million
tons of coal for the year 2011, approximately 116% of its 2011 coal requirements of 16.6 million
tons. This contract coal is produced primarily from mines located in Ohio, Pennsylvania, West
Virginia, Montana and Wyoming. The contracts expire at various times through December 31, 2030. FES
has contracted sufficient storage to manage the coal inventory should that be necessary. See
“Environmental Matters” for factors pertaining to meeting environmental regulations affecting
coal-fired generating units.
In July 2008, FEV entered into a joint venture with WMB Loan Ventures LLC and WMB Loan Ventures II
LLC, to acquire a majority stake in the Bull Mountain Mine Operations, now called Signal Peak,
near Roundup, Montana. This joint venture is part of FirstEnergy’s strategy to secure high-quality
fuel supplies at attractive prices to maximize the capacity of its fossil generating plants. In a
related transaction, FGCO entered into a 15-year agreement to purchase up to 10 million tons of
bituminous western coal annually from the mine. FirstEnergy also entered into agreements with the
rail carriers associated with transporting coal from the mine to its generating stations, and began
taking delivery of the coal in late 2009. The joint venture has the right to resell Signal Peak
coal tonnage not used at FirstEnergy facilities and has call rights on such coal above certain
levels.
FirstEnergy has contracts for all uranium requirements through 2012 and a portion of uranium
material requirements through 2024. Conversion services contracts fully cover requirements through
2011 and partially fill requirements through 2024. Enrichment services are contracted for
essentially all of the enrichment requirements for nuclear fuel through 2020. A portion of
enrichment requirements is also contracted for through 2024. Fabrication services for fuel
assemblies are contracted for both Beaver Valley units and Davis-Besse through 2013 and through the
current operating license period for Perry. The Davis-Besse fabrication contract also has an
extension provision for services for additional consecutive reload batches through the current
operating license period. In addition to the existing commitments, FirstEnergy intends to make
additional arrangements for the supply of uranium and for the subsequent conversion, enrichment,
fabrication, and waste disposal services.
18
Table of Contents
On-site spent fuel storage facilities are expected to be adequate for Beaver Valley Unit 1 through
2014. Davis-Besse has adequate storage through 2017. FENOC is taking actions to extend the spent
fuel storage capacity for Beaver Valley Units 1 and 2 and Perry. Plant modifications to increase
the storage capacity of the existing spent fuel storage pool at Beaver Valley Unit 2 are currently
under NRC review with approval expected by mid-year 2011. Dry fuel storage is also being pursued
at Beaver Valley with completion projected by the end of 2014. Perry dry fuel storage facilities
have been completed with the initial dry fuel storage loading pending resolution of a technical
issue with the NRC. The Perry initial dry fuel storage loading campaign is targeted for 2012.
Both Beaver Valley 2 and Perry maintain sufficient fuel storage capability to continue operations
through the targeted completion dates of their respective storage expansion projects. After
current on-site storage capacity at the plants is exhausted, additional storage capacity will have
to be obtained either through plant modifications, interim off-site disposal, or permanent waste
disposal facilities.
The Federal Nuclear Waste Policy Act of 1982 provided for the construction of facilities for the
permanent disposal of high-level nuclear wastes, including spent fuel from nuclear power plants
operated by electric utilities. NGC has contracts with the DOE for the disposal of spent fuel for
Beaver Valley, Davis-Besse and Perry. Yucca Mountain was approved in 2002 as a repository for
underground disposal of spent nuclear fuel from nuclear power plants and high level waste from U.S.
defense programs. The DOE submitted the license application for Yucca Mountain to the NRC on June
3, 2008. On March 3, 2010, the Department of Energy filed a motion to withdraw its Yucca Mountain
license application with prejudice. The Atomic Safety and Licensing Board denied the Department’s
withdrawal motion on June 29, 2010. That decision is on appeal to the Commission. However, the
current Administration has stated the Yucca Mountain repository will not be completed and a Federal
review of potential alternative strategies is being performed.
In parallel, several parties filed actions in the U.S. Circuit Court of Appeals for the D.C.
Circuit challenging the Department’s authority to withdraw the license application in light of its
obligations under the Nuclear Waste Policy Act. The first case filed was
In re: Aiken County
,
filed on February 19, 2010. Robert L. Ferguson, et al. filed a petition on February 25, 2010;
State of South Carolina filed on March 26, 2010; and State of Washington filed on April 13, 2010.
These cases have since been consolidated. Arguments in the case are scheduled for March 22, 2011.
In light of this uncertainty, FirstEnergy intends to make additional arrangements for storage
capacity as a contingency for the continuing delays of the DOE acceptance of spent fuel for
disposal.
Fuel oil and natural gas are used primarily to fuel peaking units and/or to ignite the burners
prior to burning coal when a coal-fired plant is restarted. Fuel oil requirements have historically
been low and are forecasted to remain so. Requirements are expected to average approximately 5
million gallons per year over the next five years. Natural gas is currently consumed primarily by
peaking units and demand is forecasted at less than 1 million mcf in 2011. FirstEnergy purchased a
partially completed combined cycle combustion turbine plant in Fremont Ohio. Construction is
scheduled to be completed in 2011.
System Demand
The 2010 net maximum hourly demand for each of the Utilities was:
| • |
OE—5,610 MW on July 23, 2010;
|
||
| • |
Penn—1,028 MW on July 23, 2010;
|
||
| • |
CEI—4,418 MW on July 23, 2010;
|
||
| • |
TE—2,122 MW on July 23, 2010;
|
||
| • |
JCP&L—6,420 MW on July 6, 2010;
|
||
| • |
Met-Ed—2,932 MW on July 6, 2010; and
|
||
| • |
Penelec—2,884 MW on July 6, 2010.
|
19
Table of Contents
Supply Plan
Regulated Commodity Sourcing
The Utilities have a default service obligation to provide power to non-shopping customers who have
elected to continue to receive service under regulated retail tariffs. The volume of these sales
can vary depending on the level of shopping that occurs. Supply plans vary by state and by service
territory. JCP&L’s default service supply is secured through a statewide competitive procurement
process approved by the NJBPU. The Ohio Companies and Penn’s default service supplies are provided
through a competitive procurement process approved by the PUCO and PPUC, respectively. The default
service supply for Met-Ed and Penelec was secured through a FERC-approved agreement with FES
through 2010, transitioning to a PPUC-approved competitive procurement process in 2011. If any
supplier fails to deliver power to any one of the Utilities’ service areas, the Utility serving
that area may need to procure the required power in the market in their role as a POLR.
Unregulated Commodity Sourcing
FES provides energy and energy related services, including the generation and sale of electricity
and energy planning and procurement through retail and wholesale competitive supply arrangements.
FES controls 13,236 MW of installed generating capacity. FES supplies the power requirements of its
competitive load-serving obligations through a combination of subsidiary-owned generation,
non-affiliated contracts and spot market transactions.
FES has retail and wholesale competitive load-serving obligations in Ohio, Pennsylvania, Illinois,
Maryland, Michigan and New Jersey serving both affiliated and non-affiliated companies. FES
provides energy products and services to customers under various POLR, shopping, competitive-bid
and non-affiliated contractual obligations. In 2010, FES’ generation was used to serve two primary
obligations — affiliated companies utilized approximately 43% of FES’ total generation and retail
customers utilized approximately 43% of FES’ total generation. Geographically, approximately 60% of
FES’ obligation is located in the MISO market area and 40% is located in the PJM market area.
Regional Reliability
FirstEnergy’s operating companies are located within MISO and PJM and operate under the reliability
oversight of a regional entity known as Reliability
First
. This regional entity operates under the
oversight of the NERC in accordance with a Delegation Agreement approved by the FERC.
Reliability
First
began operations under the NERC on January 1, 2006. On July 20, 2006, the NERC was
certified by the FERC as the ERO in the United States pursuant to Section 215 of the FPA and
Reliability
First
was certified as a regional entity.
Competition
As a result of actions taken by state legislative bodies, major changes in the electric utility
business have occurred in portions of the United States, including Ohio, New Jersey and
Pennsylvania, where FirstEnergy’s utility subsidiaries operate. These changes have altered the way
traditional integrated utilities conduct their business. FirstEnergy has aligned its business units
to participate in the competitive electricity marketplace (see Management’s Discussion and
Analysis). FirstEnergy’s Competitive Energy Services segment participates in deregulated energy
markets in Ohio, Pennsylvania, Maryland, Michigan, New Jersey, and Illinois through FES.
In New Jersey, JCP&L has procured electric generation supply to serve its BGS customers since 2002
through a statewide auction process approved by the NJBPU. The auction is designed to procure
supply for BGS customers at a cost reflective of market conditions. In Ohio, SB221 provides two
options for pricing generation in 2009 and beyond — through a negotiated rate plan or a
competitive bidding process (see Ohio Regulatory Matters above). In Pennsylvania, all electric
distribution companies are required to secure generation for customers in competitive markets
effective January 1, 2011.
Seasonality
The sale of electric power is generally a seasonal business and weather patterns can have a
material impact on FirstEnergy’s operating results. Demand for electricity in our service
territories historically peaks during the summer and winter months, with market prices also
generally peaking at that time. Accordingly, FirstEnergy’s annual results of operations and
liquidity position may depend disproportionately on its operating performance during the summer and
winter. Mild weather conditions may result in lower power sales and consequently lower earnings.
20
Table of Contents
Research and Development
The Utilities, FES, and FENOC participate in the funding of EPRI, which was formed for the purpose
of expanding electric research and development (R&D) under the voluntary sponsorship of the
nation’s electric utility industry — public,
private and cooperative. Its goal is to mutually benefit utilities and their customers by promoting
the development of new and improved technologies to help the utility industry meet present and
future electric energy needs in environmentally and economically acceptable ways. EPRI conducts
research on all aspects of electric power production and use, including fuels, generation,
delivery, energy management and conservation, environmental effects and energy analysis. The
majority of EPRI’s research and development projects are directed toward practical solutions and
their applications to problems currently facing the electric utility industry.
FirstEnergy participates in other initiatives with industry R&D consortiums and universities to
address technology needs for its various business units. Participation in these consortiums helps
the company address research needs in areas such as plant operations and maintenance, major
component reliability, environmental controls, advanced energy technologies, and transmission and
distribution system infrastructure to improve performance, and develop new technologies for
advanced energy and grid applications.
21
Table of Contents
Executive Officers
| Name | Age | Positions Held During Past Five Years | Dates | |||
|
A.
J. Alexander (A)(B)
|
59 |
President and Chief Executive Officer
Chief Executive Officer (F) |
*-present
*-present |
|||
|
|
||||||
|
W. D. Byrd (B)
|
56 | Vice President, Corporate Risk & Chief Risk Officer | 2007-present | |||
|
|
Director — Rates Strategy | *-2007 | ||||
|
|
||||||
|
L. M. Cavalier (B)
|
59 | Senior Vice President — Human Resources | 2005-present | |||
|
|
Vice President | *-2005 | ||||
|
|
||||||
|
M. T. Clark (A)(B)(C)(D)(E)(F)
|
60 | Executive Vice President and Chief Financial Officer | 2009-present | |||
|
|
Executive Vice President — Strategic Planning & Operations | 2008-2009 | ||||
|
|
Senior Vice President — Strategic Planning & Operations | *-2008 | ||||
|
|
||||||
|
C. E. Jones (A)(B)
|
55 | Senior Vice President & President — FirstEnergy Utilities | 2010-present | |||
|
|
President (C) (D) | 2010-present | ||||
|
|
Senior Vice President — Energy Delivery & Customer Service | 2009-2010 | ||||
|
|
President — FirstEnergy Solutions | 2007-2009 | ||||
|
|
Senior Vice President — Energy Delivery & Customer Service | *-2007 | ||||
|
|
||||||
|
J. H. Lash (F)
|
60 | President and Chief Nuclear Officer | 2010-present | |||
|
|
Senior Vice President and Chief Operating Officer | 2007-2010 | ||||
|
|
Vice President, Beaver Valley | *-2007 | ||||
|
|
||||||
|
C. D. Lasky (E)
|
48 | Vice President — Fossil Operations | 2008-present | |||
|
|
Vice President — Fossil Operations & Air Quality Compliance | 2007-2008 | ||||
|
|
Vice President | *-2007 | ||||
|
|
||||||
|
G. R. Leidich (A)(B)
|
60 | Executive Vice President & President — FirstEnergy Generation | 2008-present | |||
|
|
Senior Vice President — Operations (B) | 2007-2008 | ||||
|
|
President and Chief Nuclear Officer (F) | *-2007 | ||||
|
|
||||||
|
D. C. Luff (B)
|
63 | Senior Vice President — Governmental Affairs | 2007-present | |||
|
|
Vice President | *-2007 | ||||
|
|
||||||
|
J. F. Pearson
|
56 | Vice President and Treasurer | 2006-present | |||
|
(A)(B)(C)(D)(E)(F)
|
Treasurer | *-2006 | ||||
|
|
||||||
|
D. R. Schneider (E)
|
49 | President | 2009-present | |||
|
|
Senior Vice President — Energy Delivery & Customer Service (B) | 2007-2009 | ||||
|
|
Vice President (B) | 2006-2007 | ||||
|
|
Vice President (E) | *-2006 | ||||
|
|
||||||
|
L. L. Vespoli (A)(B)(C)(D)(E)(F)
|
51 | Executive Vice President and General Counsel | 2008-present | |||
|
|
Senior Vice President and General Counsel | *-2008 | ||||
|
|
||||||
|
H. L. Wagner (A)(B)
|
58 | Vice President, Controller and Chief Accounting Officer | *-present | |||
|
|
Vice President and Controller (C)(D)(E)(F) | *-present |
| (A) |
Denotes executive officer of FirstEnergy Corp.
|
|
| (B) |
Denotes executive officer of FESC
|
|
| (C) |
Denotes executive officer of OE, CEI and TE.
|
|
| (D) |
Denotes executive officer of Met-Ed, Penelec and Penn.
|
|
| (E) |
Denotes executive officer of FES
|
|
| (F) |
Denotes executive officer of FENOC
|
|
| * |
Indicates position held at least since January 1, 2006.
|
22
Table of Contents
Employees
As of December 31, 2010, FirstEnergy’s subsidiaries had a total of 13,330 employees located in the
United States as follows:
| Bargaining | ||||||||
| Total | Unit | |||||||
| Employees | Employees | |||||||
|
FESC
|
2,796 | 295 | ||||||
|
OE
|
1,227 | 750 | ||||||
|
CEI
|
916 | 615 | ||||||
|
TE
|
394 | 287 | ||||||
|
Penn
|
207 | 154 | ||||||
|
JCP&L
|
1,434 | 1,097 | ||||||
|
Met-Ed
|
706 | 509 | ||||||
|
Penelec
|
899 | 642 | ||||||
|
ATSI
|
39 | — | ||||||
|
FES
|
274 | — | ||||||
|
FGCO
|
1,751 | 1,140 | ||||||
|
FENOC
|
2,687 | 982 | ||||||
|
|
||||||||
|
Total
|
13,330 | 6,471 | ||||||
|
|
||||||||
FirstEnergy Web Site
Each of the registrant’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also made available free of
charge on or through FirstEnergy’s internet Web site at www.firstenergycorp.com. These reports are
posted on the Web site as soon as reasonably practicable after they are electronically filed with
the SEC. Additionally, we routinely post important information on our Web site and recognize our
Web site is a channel of distribution to reach public investors and as a means of disclosing
material non-public information for complying with disclosure obligations under SEC Regulation FD.
Information contained on FirstEnergy’s Web site shall not be deemed incorporated into, or to be
part of, this report.
| ITEM 1A. |
RISK FACTORS
|
We operate in a business environment that involves significant risks, many of which are beyond our
control. Management of each Registrant regularly evaluates the most significant risks of the
Registrant’s businesses and reviews those risks with the FirstEnergy Board of Directors or
appropriate Committees of the Board. The following risk factors and all other information contained
in this report should be considered carefully when evaluating FirstEnergy and our subsidiaries.
These risk factors could affect our financial results and cause such results to differ materially
from those expressed in any forward-looking statements made by or on behalf of us. Below, we have
identified risks we currently consider material. Additional information on risk factors is included
in “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and in other sections of this Form 10-K that include forward-looking and
other statements involving risks and uncertainties that could impact our business and financial
results.
Risks Related to Business Operations
Risks Arising from the Reliability of Our Power Plants and Transmission and Distribution Equipment
Operation of generation, transmission and distribution facilities involves risk, including, the
risk of potential breakdown or failure of equipment or processes, due to aging infrastructure, fuel
supply or transportation disruptions, accidents, labor disputes or work stoppages by employees,
acts of terrorism or sabotage, construction delays or cost overruns, shortages of or delays in
obtaining equipment, material and labor, operational restrictions resulting from environmental
limitations and governmental interventions, and performance below expected levels. In addition,
weather-related incidents and other natural disasters can disrupt generation, transmission and
distribution delivery systems. Because our transmission facilities are interconnected with those of
third parties, the operation of our facilities could be adversely affected by unexpected or
uncontrollable events occurring on the systems of such third parties.
23
Table of Contents
Operation of our power plants below expected capacity could result in lost revenues and increased
expenses, including higher operating and maintenance costs, purchased power costs and capital
requirements. Unplanned outages of generating units and extensions of scheduled outages due to
mechanical failures or other problems occur from time to time and are an inherent risk of our
business. Unplanned outages typically increase our operation and maintenance expenses and may
reduce our revenues as a result of selling fewer MWH or may require us to incur significant costs
as a result of operating our higher cost units or obtaining replacement power from third parties in
the open market to satisfy our forward power sales obligations. Moreover, if we were unable to
perform under contractual obligations, penalties or liability for damages could result. FES, FGCO
and the Ohio Companies are exposed to losses under their applicable sale-leaseback arrangements for
generating facilities upon the occurrence of certain contingent events that could render those
facilities worthless. Although we believe these types of events are unlikely to occur, FES, FGCO
and the Ohio Companies have a maximum exposure to loss under those provisions of approximately
$1.36 billion for FES, $666 million for OE and an aggregate of $622 million for TE and CEI as
co-lessees.
We remain obligated to provide safe and reliable service to customers within our franchised service
territories. Meeting this commitment requires the expenditure of significant capital resources.
Failure to provide safe and reliable service and failure to meet regulatory reliability standards
due to a number of factors, including, but not limited to, equipment failure and weather, could
adversely affect our operating results through reduced revenues and increased capital and operating
costs and the imposition of penalties/fines or other adverse regulatory outcomes.
Changes in Commodity Prices Could Adversely Affect Our Profit Margins
We purchase and sell electricity in the competitive wholesale and retail markets. Increases in the
costs of fuel for our generation facilities (particularly coal, uranium and natural gas) can affect
our profit margins. Changes in the market price of electricity, which are affected by changes in
other commodity costs and other factors, may impact our results of operations and financial
position by increasing the amount we pay to purchase power to supply POLR and default service
obligations in the states we do business. In addition, the global economy could lead to lower
international demand for coal, oil and natural gas, which may lower fossil fuel prices and put
downward pressure on electricity prices.
Electricity and fuel prices may fluctuate substantially over relatively short periods of time for a
variety of reasons, including:
| • |
changing weather conditions or seasonality;
|
||
| • |
changes in electricity usage by our customers;
|
||
| • |
illiquidity and credit worthiness of participants in wholesale power and other markets;
|
||
| • |
transmission congestion or transportation constraints, inoperability or inefficiencies;
|
||
| • |
availability of competitively priced alternative energy sources;
|
||
| • |
changes in supply and demand for energy commodities;
|
||
| • |
changes in power production capacity;
|
||
| • |
outages at our power production facilities or those of our competitors;
|
||
| • |
changes in production and storage levels of natural gas, lignite, coal, crude oil and refined products;
|
||
| • |
changes in legislation and regulation; and
|
||
| • |
natural disasters, wars, acts of sabotage, terrorist acts, embargoes and other catastrophic events.
|
We Are Exposed to Operational, Price and Credit Risks Associated With Selling and Marketing
Products in the Power Markets That We Do Not Always Completely Hedge Against
We purchase and sell power at the wholesale level under market-based tariffs authorized by the
FERC, and also enter into agreements to sell available energy and capacity from our generation
assets. If we are unable to deliver firm capacity and energy under these agreements, we may be
required to pay damages. These damages would generally be based on the difference between the
market price to acquire replacement capacity or energy and the contract price of the undelivered
capacity or energy. Depending on price volatility in the wholesale energy markets, such damages
could be significant
.
Extreme weather conditions, unplanned power plant outages, transmission
disruptions, and other factors could affect our ability to meet our obligations, or cause increases
in the market price of replacement capacity and energy.
24
Table of Contents
We attempt to mitigate risks associated with satisfying our contractual power sales arrangements by
reserving generation capacity to deliver electricity to satisfy our net firm sales contracts and,
when necessary, by purchasing firm transmission service. We also routinely enter into contracts,
such as fuel and power purchase and sale commitments, to hedge our exposure to fuel requirements
and other energy-related commodities. We may not, however, hedge the entire exposure of our
operations from commodity price volatility. To the extent we do not hedge against commodity price
volatility, our results of operations and financial position could be negatively affected.
The Use of Derivative Contracts by Us to Mitigate Risks Could Result in Financial Losses That May
Negatively Impact Our Financial Results
We use a variety of non-derivative and derivative instruments, such as swaps, options, futures and
forwards, to manage our commodity and financial market risks. In the absence of actively quoted
market prices and pricing information from external sources, the valuation of some of these
derivative instruments involves management’s judgment or use of estimates. As a result, changes in
the underlying assumptions or use of alternative valuation methods could affect the reported fair
value of some of these contracts. Also, we could recognize financial losses as a result of
volatility in the market values of these contracts or if a counterparty fails to perform.
Financial Derivatives Reforms Could Increase Our Liquidity Needs and Collateral Costs
In July 2010, federal legislation was enacted to reform financial markets that significantly alter
how over-the-counter (OTC) derivatives are regulated. The law increased regulatory oversight of
OTC energy derivatives, including (1) requiring standardized OTC derivatives to be traded on
registered exchanges regulated by the Commodity Futures Trading Commission (CFTC), (2) imposing new
and potentially higher capital and margin requirements and (3) authorizing the establishment of
overall volume and position limits. The law gives the CFTC authority to exempt end users of energy
commodities which could reduce, but not eliminate, the applicability of these measures to us and
other end users. These requirements could cause our OTC transactions to be more costly and have an
adverse effect on our liquidity due to additional capital requirements. In addition, as these
reforms aim to standardize OTC products it could limit the effectiveness of our hedging programs
because we would have less ability to tailor OTC derivatives to match the precise risk we are
seeking to protect.
Our Risk Management Policies Relating to Energy and Fuel Prices, and Counterparty Credit, Are by
Their Very Nature Risk Related, and We Could Suffer Economic Losses Despite Such Policies
We attempt to mitigate the market risk inherent in our energy, fuel and debt positions. Procedures
have been implemented to enhance and monitor compliance with our risk management policies,
including validation of transaction and market prices, verification of risk and transaction limits,
sensitivity analysis and daily portfolio reporting of various risk measurement metrics.
Nonetheless, we cannot economically hedge all of our exposures in these areas and our risk
management program may not operate as planned. For example, actual electricity and fuel prices may
be significantly different or more volatile than the historical trends and assumptions reflected in
our analyses. Also, our power plants might not produce the expected amount of power during a given
day or time period due to weather conditions, technical problems or other unanticipated events,
which could require us to make energy purchases at higher prices than the prices under our energy
supply contracts. In addition, the amount of fuel required for our power plants during a given day
or time period could be more than expected, which could require us to buy additional fuel at prices
less favorable than the prices under our fuel contracts. As a result, we cannot always predict the
impact that our risk management decisions may have on us if actual events lead to greater losses or
costs than our risk management positions were intended to hedge.
Our risk management activities, including our power sales agreements with counterparties, rely on
projections that depend heavily on judgments and assumptions by management of factors such as
future market prices and demand for power and other energy-related commodities. These factors
become more difficult to predict and the calculations become less reliable the further into the
future these estimates are made. Even when our policies and procedures are followed and decisions
are made based on these estimates, results of operations may be diminished if the judgments and
assumptions underlying those calculations prove to be inaccurate.
We also face credit risks from parties with whom we contract who could default in their
performance, in which cases we could be forced to sell our power into a lower-priced market or make
purchases in a higher-priced market than existed at the time of executing the contract. Although we
have established risk management policies and programs, including credit policies to evaluate
counterparty credit risk, there can be no assurance that we will be able to fully meet our
obligations, that we will not be required to pay damages for failure to perform or that we will not
experience counterparty non-performance or that we will collect for voided contracts. If
counterparties to these arrangements fail to perform, we may be forced to enter into alternative
hedging arrangements or honor underlying commitments at then-current market prices. In that event,
our financial results could be adversely affected.
25
Table of Contents
Nuclear Generation Involves Risks that Include Uncertainties Relating to Health and Safety,
Additional Capital Costs, the Adequacy of Insurance Coverage and Nuclear Plant Decommissioning
We are subject to the risks of nuclear generation, including but not limited to the following:
| • |
the potential harmful effects on the environment and human health
resulting from unplanned radiological releases associated with the
operation of our nuclear facilities and the storage, handling and
disposal of radioactive materials;
|
||
| • |
limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with our
nuclear operations or those of others in the United States;
|
||
| • |
uncertainties with respect to contingencies and assessments if insurance coverage is inadequate; and
|
||
| • |
uncertainties with respect to the technological and financial aspects
of decommissioning nuclear plants at the end of their licensed
operation including increases in minimum funding requirements or costs
of completion.
|
The NRC has broad authority under federal law to impose licensing security and safety-related
requirements for the operation of nuclear generation facilities. In the event of non-compliance,
the NRC has the authority to impose fines and/or shut down a unit, depending upon its assessment of
the severity of the situation, until compliance is achieved. Revised safety requirements
promulgated by the NRC could necessitate substantial capital expenditures at nuclear plants,
including ours. Also, a serious nuclear incident at a nuclear facility anywhere in the world could
cause the NRC to limit or prohibit the operation or relicensing of any domestic nuclear unit.
Our nuclear facilities are insured under NEIL policies issued for each plant. Under these policies,
up to $2.8 billion of insurance coverage is provided for property damage and decontamination and
decommissioning costs. We have also obtained approximately $2.0 billion of insurance coverage for
replacement power costs. Under these policies, we can be assessed a maximum of approximately $79
million for incidents at any covered nuclear facility occurring during a policy year that are in
excess of accumulated funds available to the insurer for paying losses.
The Price-Anderson Act limits the public liability that can be assessed with respect to a nuclear
power plant to $12.6 billion (assuming 104 units licensed to operate in the United States) for a
single nuclear incident, which amount is covered by: (i) private insurance amounting to $375
million; and (ii) $12.2 billion provided by an industry retrospective rating plan. Under such
retrospective rating plan, in the event of a nuclear incident at any unit in the United States
resulting in losses in excess of private insurance, up to $118 million (but not more than $18
million per year) must be contributed for each nuclear unit licensed to operate in the country by
the licensees thereof to cover liabilities arising out of the incident. Our maximum potential
exposure under these provisions would be $470 million per incident but not more than $70 million in
any one year.
Capital Market Performance and Other Changes May Decrease the Value of Decommissioning Trust Fund,
Pension Fund Assets and Other Trust Funds Which Then Could Require Significant Additional Funding
Our financial statements reflect the values of the assets held in trust to satisfy our obligations
to decommission our nuclear generation facilities and under pension and other post-retirement
benefit plans. The value of certain of the assets held in these trusts do not have readily
determinable market values. Changes in the estimates and assumptions inherent in the value of these
assets could affect the value of the trusts. If the value of the assets held by the trusts
declines by a material amount, our funding obligation to the trusts could materially increase.
These assets are subject to market fluctuations and will yield
uncertain returns, which may fall below our projected return rates. Forecasting investment earnings
and costs to decommission nuclear generating stations, to pay future pensions and other obligations
requires significant judgment, and actual results may differ significantly from current estimates.
Capital market conditions that generate investment losses or greater liability levels can
negatively impact our results of operations and financial position.
26
Table of Contents
We Could be Subject to Higher Costs and/or Penalties Related to Mandatory Reliability Standards Set
by NERC/FERC or Changes in the Rules of Organized Markets and the States in Which We Do Business
As a result of the EPACT, owners, operators, and users of the bulk electric system are subject to
mandatory reliability standards promulgated by the NERC and approved by FERC as well as mandatory
reliability standards and energy efficiency requirements imposed by each of the states in which we
operate. The standards are based on the functions that need to be performed to ensure that the bulk
electric system operates reliably. Compliance with modified or new reliability standards may
subject us to higher operating costs and/or increased capital expenditures. If we were found not to
be in compliance with the mandatory reliability standards, we could be subject to sanctions,
including substantial monetary penalties.
Reliability standards that were historically subject to voluntary compliance are now mandatory and
could subject us to potential civil penalties for violations which could negatively impact our
business. The FERC can now impose penalties of $1.0 million per day for failure to comply with
these mandatory electric reliability standards.
In addition to direct regulation by the FERC and the states, we are also subject to rules and terms
of participation imposed and administered by various RTOs and ISOs. Although these entities are
themselves ultimately regulated by the FERC, they can impose rules, restrictions and terms of
service that are quasi-regulatory in nature and can have a material adverse impact on our business.
For example, the independent market monitors of ISOs and RTOs may impose bidding and scheduling
rules to curb the potential exercise of market power and to ensure the market functions. Such
actions may materially affect our ability to sell, and the price we receive for, our energy and
capacity. In addition, the RTOs may direct our transmission owning affiliates to build new
transmission facilities to meet the reliability requirements of the RTO or to provide new or
expanded transmission service under the RTO tariffs.
We Rely on Transmission and Distribution Assets That We Do Not Own or Control to Deliver Our
Wholesale Electricity. If Transmission is Disrupted Including Our Own Transmission, or Not Operated
Efficiently, or if Capacity is Inadequate, Our Ability to Sell and Deliver Power May Be Hindered
We depend on transmission and distribution facilities owned and operated by utilities and other
energy companies to deliver the electricity we sell. If transmission is disrupted (as a result of
weather, natural disasters or other reasons) or not operated efficiently by independent system
operators, in applicable markets, or if capacity is inadequate, our ability to sell and deliver
products and satisfy our contractual obligations may be hindered, or we may be unable to sell
products on the most favorable terms. In addition, in certain of the markets in which we operate,
we may be required to pay for congestion costs if we schedule delivery of power between congestion
zones during periods of high demand. If we are unable to hedge or recover for such congestion
costs in retail rates, our financial results could be adversely affected.
Demand for electricity within our Utilities’ service areas could stress available transmission
capacity requiring alternative routing or curtailing electricity usage that may increase operating
costs or reduce revenues with adverse impacts to results of operations. In addition, as with all
utilities, potential concerns over transmission capacity could result in MISO, PJM or the FERC
requiring us to upgrade or expand our transmission system, requiring additional capital
expenditures.
The FERC requires wholesale electric transmission services to be offered on an open-access,
non-discriminatory basis. Although these regulations are designed to encourage competition in
wholesale market transactions for electricity, it is possible that fair and equal access to
transmission systems will not be available or that sufficient transmission capacity will not be
available to transmit electricity as we desire. We cannot predict the timing of industry changes as
a result of these initiatives or the adequacy of transmission facilities in specific markets or
whether independent system operators in applicable markets will operate the transmission networks,
and provide related services, efficiently.
Disruptions in Our Fuel Supplies Could Occur, Which Could Adversely Affect Our Ability to Operate
Our Generation Facilities and Impact Financial Results
We purchase fuel from a number of suppliers. The lack of availability of fuel at expected prices,
or a disruption in the delivery of fuel which exceeds the duration of our on-site fuel inventories,
including disruptions as a result of weather, increased transportation costs or other difficulties,
labor relations or environmental or other regulations affecting our fuel suppliers, could cause an
adverse impact on our ability to operate our facilities, possibly resulting in lower sales and/or
higher costs and thereby adversely affect our results of operations. Operation of our coal-fired
generation facilities is highly dependent on our ability to procure coal. Although we have
long-term contracts in place for our coal and coal transportation needs, power generators in the
Midwest and the Northeast have experienced significant pressures on available coal supplies that
are either transportation or supply related. If prices for physical delivery are unfavorable, our
financial condition, results of operations and cash flows could be materially adversely affected.
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Temperature Variations as well as Weather Conditions or other Natural Disasters Could Have a
Negative Impact on Our Results of Operations and Demand Significantly Below or Above Our Forecasts
Could Adversely Affect Our Energy Margins
Weather conditions directly influence the demand for electric power. Demand for power generally
peaks during the summer and winter months, with market prices also typically peaking at that time.
Overall operating results may fluctuate based on weather conditions. In addition, we have
historically sold less power, and consequently received less revenue, when weather conditions are
milder. Severe weather, such as tornadoes, hurricanes, ice or snow storms, or droughts or other
natural disasters, may cause outages and property damage that may require us to incur additional
costs that are generally not insured and that may not be recoverable from customers. The effect of
the failure of our facilities to operate as planned under these conditions would be particularly
burdensome during a peak demand period.
Customer demand could change as a result of severe weather conditions or other circumstances over
which we have no control. We satisfy our electricity supply obligations through a portfolio
approach of providing electricity from our generation assets, contractual relationships and market
purchases. A significant increase in demand could adversely affect our energy margins if we are
required under the terms of the default service tariffs to provide the energy supply to fulfill
this increased demand at capped rates, which we expect would remain below the wholesale prices at
which we would have to purchase the additional supply if needed or, if we had available capacity,
the prices at which we could otherwise sell the additional supply. Accordingly, any significant
change in demand could have a material adverse effect on our results of operations and financial
position.
We Are Subject to Financial Performance Risks Related to Regional and General Economic Cycles and
also Related to Heavy Manufacturing Industries such as Automotive and Steel
Our business follows the economic cycles of our customers. As our retail strategy is centered
around the sale of output from our generating plants generally where that power will reach,
therefore, we are more directly impacted by the economic conditions in our primary markets (i.e.,
Pennsylvania, Ohio, Maryland, New Jersey, Michigan and Illinois).
Declines in demand for electricity as a result of a regional economic downturn would be expected to
reduce overall electricity sales and reduce our revenues. Electric generation sales volume has
been, and is expected to continue to be, influenced by circumstances in automotive, steel and other
heavy industries.
Increases in Customer Electric Rates and Economic Uncertainty May Lead to a Greater Amount of
Uncollectible Customer Accounts
Our operations are impacted by the economic conditions in our service territories and those
conditions could negatively impact the rate of delinquent customer accounts and our collections of
accounts receivable which could adversely impact our financial condition, results of operations and
cash flows.
The Goodwill of One or More of Our Operating Subsidiaries May Become Impaired, Which Would Result
in Write-Offs of the Impaired Amounts
Goodwill could become impaired at one or more of our operating subsidiaries. The actual timing and
amounts of any goodwill impairments in future years would depend on many uncertainties, including
changing interest rates, utility sector market performance, our capital structure, market prices
for power, results of future rate proceedings, operating and capital expenditure requirements, the
value of comparable utility acquisitions, environmental regulations and other factors.
We Face Certain Human Resource Risks Associated with the Availability of Trained and Qualified
Labor to Meet Our Future Staffing Requirements
We must find ways to retain our aging skilled workforce while recruiting new talent to mitigate
losses in critical knowledge and skills due to retirements. Mitigating these risks could require
additional financial commitments.
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Significant Increases in Our Operation and Maintenance Expenses, Including Our Health Care and
Pension Costs, Could Adversely Affect Our Future Earnings and Liquidity
We continually focus on limiting, and reducing where possible, our operation and maintenance
expenses. However, we expect cost pressures could increase as we continue to implement our retail
sales strategy. We expect to continue to face increased cost pressures in the areas of health care
and pension costs. We have experienced significant health care cost inflation in the last few
years, and we expect our cash outlay for health care costs, including prescription drug coverage,
to continue to increase despite measures that we have taken and expect to take requiring employees
and retirees to bear a higher portion of the costs of their health care benefits. The measurement
of our expected future health care and pension obligations and costs is highly dependent on a
variety of assumptions, many of which relate to factors beyond our control. These assumptions
include investment returns, interest rates, health care cost trends, benefit design
changes, salary increases, the demographics of plan participants and regulatory requirements. If
actual results differ materially from our assumptions, our costs could be significantly increased.
Our Business is Subject to the Risk that Sensitive Customer Data May be Compromised, Which Could
Result in an Adverse Impact to Our Reputation and/or Results of Operations
Our business requires access to sensitive customer data, including personal and credit information,
in the ordinary course of business. A security breach may occur, despite security measures taken by
us and required of vendors. If a significant or widely publicized breach occurred, our business
reputation may be adversely affected, customer confidence may be diminished, or we may become
subject to legal claims, fines or penalties, any of which could have a negative impact on our
business and/or results of operations.
Acts of War or Terrorism Could Negatively Impact Our Business
The possibility that our infrastructure, such as electric generation, transmission and distribution
facilities, or that of an interconnected company, could be direct targets of, or indirect
casualties of, an act of war or terrorism, could result in disruption of our ability to generate,
purchase, transmit or distribute electricity. Any such disruption could result in a decrease in
revenues and additional costs to purchase electricity and to replace or repair our assets, which
could have a material adverse impact on our results of operations and financial condition.
Capital Improvements and Construction Projects May Not be Completed Within Forecasted Budget,
Schedule or Scope Parameters
Our business plan calls for extensive capital investments. We may be exposed to the risk of
substantial price increases in the costs of labor and materials used in construction. We have
engaged numerous contractors and entered into a large number of agreements to acquire the necessary
materials and/or obtain the required construction-related services. As a result, we are also
exposed to the risk that these contractors and other counterparties could breach their obligations
to us. Such risk could include our contractors’ inabilities to procure sufficient skilled labor as
well as potential work stoppages by that labor force. Should the counterparties to these
arrangements fail to perform, we may be forced to enter into alternative arrangements at
then-current market prices that may exceed our contractual prices, with resulting delays in those
and other projects. Although our agreements are designed to mitigate the consequences of a
potential default by the counterparty, our actual exposure may be greater than these mitigation
provisions. This could have negative financial impacts such as incurring losses or delays in
completing construction projects.
Changes in Technology May Significantly Affect Our Generation Business by Making Our Generating
Facilities Less Competitive
We primarily generate electricity at large central facilities. This method results in economies of
scale and lower costs than newer technologies such as fuel cells, microturbines, windmills and
photovoltaic solar cells. It is possible that advances in technologies will reduce their costs to
levels that are equal to or below that of most central station electricity production, which could
have a material adverse effect on our results of operations.
We May Acquire Assets That Could Present Unanticipated Issues for Our Business in the Future, Which
Could Adversely Affect Our Ability to Realize Anticipated Benefits of Those Acquisitions
Asset acquisitions involve a number of risks and challenges, including: management attention;
integration with existing assets; difficulty in evaluating the requirements associated with the
assets prior to acquisition, operating costs, potential environmental and other liabilities, and
other factors beyond our control; and an increase in our expenses and working capital requirements.
Any of these factors could adversely affect our ability to achieve anticipated levels of cash
flows or realize other anticipated benefits from any such asset acquisition.
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Ability of Certain FirstEnergy Companies to Meet Their Obligations to Other FirstEnergy Companies
Certain of the FirstEnergy companies have obligations to other FirstEnergy companies because of
transactions involving energy, coal, other commodities, services, and because of hedging
transactions. If one FirstEnergy entity failed to perform under any of these arrangements, other
FirstEnergy entities could incur losses. Their results of operations, financial position, or
liquidity could be adversely affected, resulting in the nondefaulting FirstEnergy entity being
unable to meet its obligations to unrelated third parties. Our hedging activities are generally
undertaken with a view to overall FirstEnergy exposures. Some FirstEnergy companies may therefore
be more or less hedged than if they were to engage in such transactions alone.
Risks Associated With Our Proposed Merger With Allegheny
We May be Unable to Obtain the Approvals Required to Complete Our Merger with Allegheny or, in
Order to do so, the Combined Company May be Required to Comply With Material Restrictions or
Conditions
On
February 11, 2010, we announced the execution of a merger
agreement with Allegheny. The only regulatory approval pending is
from the PPUC. The PPUC could impose
conditions on the completion, or require changes to the terms, of the merger, including
restrictions or conditions on the business, operations, or financial performance of the combined
company following completion of the merger. These conditions or changes could have the effect of
delaying completion of the merger or imposing additional costs on or limiting the revenues of the
combined company following the merger, which could have a material adverse effect on the financial
results of the combined company and/or cause either us or Allegheny to abandon the merger.
If Completed, Our Merger with Allegheny May Not Achieve Its Intended Results
We and Allegheny entered into the merger agreement with the expectation that the merger would
result in various benefits, including, among other things, cost savings and operating efficiencies
relating to both the regulated utility operations and the generation business. Achieving the
anticipated benefits of the merger is subject to a number of uncertainties, including whether the
business of Allegheny is integrated in an efficient and effective manner. Failure to achieve these
anticipated benefits could result in increased costs, decreases in the amount of expected revenues
generated by the combined company and diversion of management’s time and energy and could have an
adverse effect on the combined company’s business, financial results and prospects.
We Will be Subject to Business Uncertainties and Contractual Restrictions While the Merger with
Allegheny is Pending That Could Adversely Affect Our Financial Results
Uncertainty about the effect of the merger with Allegheny on employees and customers may have an
adverse effect on us. Although we intend to take steps designed to reduce any adverse effects,
these uncertainties may impair our ability to attract, retain and motivate key personnel until the
merger is completed and for a period of time thereafter, and could cause customers, suppliers and
others that deal with us to seek to change existing business relationships.
Employee retention and recruitment may be particularly challenging prior to the completion of the
merger, as employees and prospective employees may experience uncertainty about their future roles
with the combined company. If, despite our retention and recruiting efforts, key employees depart
or fail to accept employment with us because of issues relating to the uncertainty and difficulty
of integration or a desire not to remain with the combined company, our financial results could be
affected.
The pursuit of the merger and the preparation for the integration of Allegheny into our company may
place a significant burden on management and internal resources. The diversion of management
attention away from day-to-day business concerns and any difficulties encountered in the transition
and integration process could affect our financial results.
In addition, the merger agreement restricts us, without Allegheny‘s consent, from making
certain acquisitions and taking other specified actions until the merger occurs or the merger
agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business
opportunities and making other changes to our business prior to completion of the merger or
termination of the merger agreement.
Failure to Complete Our Merger with Allegheny Could Negatively Impact Our Stock Price and Our
Future Business and Financial Results
If our merger with Allegheny is not completed, our ongoing business and financial results may be
adversely affected and we would be subject to a number of risks, including the following:
| • |
We may be required, under specified circumstances set forth in the Merger
Agreement, to pay Allegheny a termination fee of $350 million and/or
Allegheny’s reasonable out-of-pocket transaction expenses up to $45 million;
|
||
| • |
we would be required to pay costs relating to the merger, including
legal, accounting, financial advisory, filing and printing costs,
whether or not the merger is completed; and
|
||
| • |
matters relating to our merger with Allegheny (including integration
planning) may require substantial commitments of time and resources by
our management, which could otherwise have been devoted to other
opportunities that may have been beneficial to us.
|
We could also be subject to litigation related to any failure to complete our merger with
Allegheny. If our merger is not completed, these risks may materialize and may adversely affect
our business, financial results and stock price.
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Risks Associated With Regulation
Complex and Changing Government Regulations Could Have a Negative Impact on Our Results of
Operations
We are subject to comprehensive regulation by various federal, state and local regulatory agencies
that significantly influence our operating environment. Changes in, or reinterpretations of,
existing laws or regulations, or the imposition of new laws or regulations, could require us to
incur additional costs or change the way we conduct our business, and therefore could have an
adverse impact on our results of operations.
Our utility subsidiaries currently provide service at rates approved by one or more regulatory
commissions. Thus, the rates a utility is allowed to charge may or may not be set to recover its
expenses at any given time. Additionally, there may also be a delay between the timing of when
costs are incurred and when costs are recovered. For example, we may be unable to timely recover
the costs for our energy efficiency investments, expenses and additional capital or lost revenues
resulting from the implementation of aggressive energy efficiency programs. While rate regulation
is premised on providing an opportunity to earn a reasonable return on invested capital and
recovery of operating expenses, there
can be no assurance that the applicable regulatory commission will determine that all of our costs
have been prudently incurred or that the regulatory process in which rates are determined will
always result in rates that will produce full recovery of our costs in a timely manner. For
example, our utility subsidiaries’ ability to timely recover rates and charges associated with
integration of the ATSI footprint into PJM is uncertain.
Regulatory Changes in the Electric Industry, Including a Reversal, Discontinuance or Delay of the
Present Trend Toward Competitive Markets, Could Affect Our Competitive Position and Result in
Unrecoverable Costs Adversely Affecting Our Business and Results of Operations
As a result of restructuring initiatives, changes in the electric utility business have occurred,
and are continuing to take place throughout the United States, including the states in which we do
business. These changes have resulted, and are expected to continue to result, in fundamental
alterations in the way utilities conduct their business.
Some states that have deregulated generation service have experienced difficulty in transitioning
to market-based pricing. In some instances, state and federal government agencies and other
interested parties have made proposals to impose rate cap extensions or otherwise delay market
restructuring or even re-regulate areas of these markets that have previously been deregulated.
Although we expect wholesale electricity markets to continue to be competitive, proposals to
re-regulate our industry may be made, and legislative or other action affecting the electric power
restructuring process may cause the process to be delayed, discontinued or reversed in the states
in which we currently, or may in the future, operate. Such delays, discontinuations or reversals of
electricity market restructuring in the markets in which we operate could have an adverse impact on
our results of operations and financial condition.
The FERC and the U.S. Congress propose changes from time to time in the structure and conduct of
the electric utility industry. If the restructuring, deregulation or re-regulation efforts result
in decreased margins or unrecoverable costs, our business and results of operations would be
adversely affected. We cannot predict the extent or timing of further efforts to restructure,
deregulate or re-regulate our business or the industry.
The Prospect of Rising Rates Could Prompt Legislative or Regulatory Action to Restrict or Control
Such Rate Increases. This In Turn Could Create Uncertainty Affecting Planning, Costs and Results
of Operations and May Adversely Affect the Utilities’ Ability to Recover Their Costs, Maintain
Adequate Liquidity and Address Capital Requirements
Increases in utility rates, such as may follow a period of frozen or capped rates, can generate
pressure on legislators and regulators to take steps to control those increases. Such efforts can
include some form of rate increase moderation, reduction or freeze. The public discourse and debate
can increase uncertainty associated with the regulatory process, the level of rates and revenues,
and the ability to recover costs. Such uncertainty restricts flexibility and resources, given the
need to plan and ensure available financial resources. Such uncertainty also affects the costs of
doing business. Such costs could ultimately reduce liquidity, as suppliers tighten payment terms,
and increase costs of financing, as lenders demand increased compensation or collateral security to
accept such risks.
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Our Profitability is Impacted by Our Affiliated Companies’ Continued Authorization to Sell Power at
Market-Based Rates
The FERC granted FES, FGCO and NGC authority to sell electricity at market-based rates. These
orders also granted them waivers of certain FERC accounting, record-keeping and reporting
requirements. The Utilities also have market-based rate authority. The FERC’s orders that grant
this market-based rate authority reserve the right to revoke or revise that authority if the FERC
subsequently determines that these companies can exercise market power in transmission or
generation, create barriers to entry or engage in abusive affiliate transactions. As a condition to
the orders granting the generating companies market-based rate authority, every three years they
are required to file a market power update to show that they continue to meet the FERC’s standards
with respect to generation market power and other criteria used to evaluate whether entities
qualify for market-based rates. FES, FGCO, NGC and the Utilities renewed this authority for PJM in
2008 and MISO in 2009. On December 30, 2010, FES, FGCO, NGC and the Utilities filed to renew this
authority for operations within PJM. If any of these companies were to lose their market-based
rate authority, they would be required to obtain the FERC’s acceptance to sell power at cost-based
rates. FES, FGCO and NGC could also lose their waivers, and become subject to the accounting,
record-keeping and reporting requirements that are imposed on utilities with cost-based rate
schedules.
There Are Uncertainties Relating to Our Participation in RTOs
RTO rules could affect our ability to sell power produced by our generating facilities to users in
certain markets due to transmission constraints and attendant congestion costs. The prices in
day-ahead and real-time energy markets and RTO capacity markets have been subject to price
volatility. Administrative costs imposed by RTOs, including the cost of administering energy
markets, have also increased. The rules governing the various regional power markets may also
change from time to time, which could affect our costs or revenues. To the degree we incur
significant additional fees and increased costs to participate in an RTO, and we are limited with
respect to recovery of such costs from retail customers, we may suffer financial harm. While RTO
rates for transmission service are cost based, our revenues from customers to whom we currently
provide transmission services may not reflect all of the administrative and market-related costs
imposed under the RTO tariff. In addition, we may be allocated a portion of the cost of
transmission facilities built by
others due to changes in RTO transmission rate design. Finally, we may be required to expand our
transmission system according to decisions made by an RTO rather than our internal planning
process. As a member of an RTO, we are subject to certain additional risks, including those
associated with the allocation among members of losses caused by unreimbursed defaults of other
participants in that RTO’s market and those associated with complaint cases filed against the RTO
that may seek refunds of revenues previously earned by its members.
The MISO has proposed changes to its rates and tariffs that may result or cause significant charges
to ATSI or the Ohio Companies or Penn upon their respective withdrawal from the MISO on May 31,
2011. The implementation of these and other new market designs has the potential to increase our
costs of transmission, costs associated with inefficient generation dispatching, costs of
participation in the market and costs associated with estimated payment settlements.
Because it remains unclear which companies will be participating in the various regional power
markets, or how RTOs will ultimately develop and operate, or what region they will cover, we cannot
fully assess the impact that these power markets or other ongoing RTO developments may have.
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A Significant Delay in or Challenges to Various Elements of ATSI’s Consolidation into PJM,
including but not Limited to, the Intervention of Parties to the Regulatory Proceedings Could
have a Negative Impact on Our Results of Operations and Financial Condition
On December 17, 2009, FERC authorized, subject to certain conditions, FirstEnergy to consolidate
its transmission assets and operations that currently are located in MISO into PJM; such
consolidation to be effective on June 1, 2011. The consolidation will make the transmission assets
that are part of ATSI, whose footprint includes the Ohio Companies and Penn, part of PJM.
Consolidation on June 1, 2011 will coincide with delivery of power under the next competitive
generation procurement process for the Ohio Companies. On December 17, 2009, and after FERC issued
the order, ATSI executed and delivered to PJM those legal documents necessary to implement
its consolidation into PJM. On December 18, 2009, the Ohio Companies and Penn executed and
delivered to PJM those legal documents necessary to follow ATSI into PJM. Currently, ATSI, the Ohio
Companies and Penn are expected to consolidate into PJM as planned on June 1, 2011.
On February 1, 2011, ATSI filed its proposal with FERC for moving its transmission rate into PJM’s
tariffs. Numerous parties are expected to intervene and file responsive comments. Our expectation
is that ATSI will enter PJM as scheduled on June 1, 2011, and that if legal proceedings regarding
its rate are outstanding at that time, ATSI will be permitted to start charging its proposed rates,
subject to refund. Additional FERC proceedings are either
pending or expected in which the amount of exit fees, transmission cost allocations, and costs
associated with long term firm transmission rights payable by the ATSI zone upon its departure from
the Midwest ISO will be determined. In addition, certain other parties continue to protest aspects
of the move into PJM, and certain of these matters remain outstanding and will be resolved in
future FERC proceedings
.
A ruling by FERC or any other regulator with jurisdiction in favor of one
or more of the intervening or protesting parties (and against FirstEnergy) on one or more of
the disputed issues could result in a negative impact on our results of operations and financial
condition.
Energy Conservation and Energy Price Increases Could Negatively Impact Our Financial Results
A number of regulatory and legislative bodies have introduced requirements and/or incentives to
reduce energy consumption by certain dates. Conservation programs could impact our financial
results in different ways. To the extent conservation resulted in reduced energy demand or
significantly slowed the growth in demand, the value of our merchant generation and other
unregulated business activities could be adversely impacted. We currently have energy efficiency
riders in place to recover the cost of these programs either at or near a current recovery
timeframe in Ohio and Pennsylvania. In New Jersey, we recover the costs for energy efficiency
programs through the SBC. Currently only Ohio has provisions for recovery of lost revenues. In our
regulated operations, conservation could negatively impact us depending on the regulatory treatment
of the associated impacts. Should we be required to invest in conservation measures that result in
reduced
sales from effective conservation, regulatory lag in adjusting rates for the impact of these
measures could have a negative financial impact. We could also be impacted if any future energy
price increases result in a decrease in customer usage. Our results could be affected if we are
unable to increase our customer’s participation in our energy efficiency programs. We are unable
to determine what impact, if any, conservation and increases in energy prices will have on our
financial condition or results of operations.
Our Business and Activities are Subject to Extensive Environmental Requirements and Could be
Adversely Affected by such Requirements
We may be forced to shut down facilities, either temporarily or permanently, if we are unable to
comply with certain environmental requirements, or if we make a determination that the expenditures
required to comply with such requirements are uneconomical. In fact, we are exposed to the risk
that such electric generating plants would not be permitted to continue to operate if pollution
control equipment is not installed by prescribed deadlines.
The EPA is Conducting NSR Investigations at a Number of Our Generating Plants, the Results of Which
Could Negatively Impact Our Results of Operations and Financial Condition
We may be subject to risks in connection with changing or conflicting interpretations of existing
laws and regulations. For example, applicable standards under the EPA’s NSR initiatives remain in
flux. Under the CAA, modification of our generation facilities in a manner that causes increased
emissions could subject our existing facilities to the far more stringent NSR standards applicable
to new facilities.
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The EPA has taken the view that many companies, including many energy producers, have been
modifying emissions sources in violation of NSR standards in connection with work believed by the
companies to be routine maintenance. We are currently involved in litigation and EPA investigations
concerning alleged violations of the NSR standards at certain of our existing and former generating
facilities. We intend to vigorously pursue and defend our position in these environmental matters
but FGCO is unable to predict their outcomes. If NSR and similar requirements are imposed on our
generation facilities, in addition to the possible imposition of fines, compliance could entail
significant capital investments in pollution control technology, which could have an adverse impact
on our business, results of operations, cash flows and financial condition. For a more complete
discussion see “Environmental Matters.”
Costs of Compliance with Environmental Laws are Significant, and the Cost of Compliance with Future
Environmental Laws, Including Limitations on GHG
Emissions, Could Adversely Affect Cash
Flow and Profitability
Our operations are subject to extensive federal, state and local environmental statutes, rules and
regulations. Compliance with these legal requirements requires us to incur costs for environmental
monitoring, installation of pollution control equipment, emission fees, maintenance, upgrading,
remediation and permitting at our facilities. These expenditures have been significant in the past
and may increase in the future. If the cost of compliance with existing environmental laws and
regulations does increase, it could adversely affect our business and results of operations,
financial position and cash flows. Moreover, changes in environmental laws or regulations may
materially increase our costs of compliance or accelerate the timing of capital expenditures.
Because of the deregulation of generation, we may not directly recover through rates additional
costs incurred for such compliance. Our compliance strategy, although reasonably based on available
information, may not successfully address future relevant standards and interpretations. If we fail
to comply with environmental laws and regulations, even if caused by factors beyond our control or
new interpretations of longstanding requirements, that failure could result in the assessment of
civil or criminal liability and fines. In addition, any alleged violation of environmental laws and
regulations may require us to expend significant resources to defend against any such alleged
violations.
There are a number of initiatives to reduce GHG emissions under consideration at the federal, state
and international level. Environmental advocacy groups, other organizations and some agencies in
the United States are focusing considerable attention on carbon dioxide emissions from power
generation facilities and their potential role in climate change. Many states and environmental
groups have also challenged certain of the federal laws and regulations relating to air emissions
as not being sufficiently strict. Also, claims have been made alleging that CO
2
emissions from power generating facilities constitute a public nuisance under federal and/or state
common law. Private individuals may seek to enforce environmental laws and regulations against us
and could allege personal injury or property damage from exposure to hazardous materials. Recently
the courts have begun to acknowledge these claims and may order us to reduce GHG emissions in the
future. There is a growing consensus in the United States and globally that GHG emissions are a
major cause of global warming and that some form of regulation will be forthcoming at the federal
level with respect to GHG emissions (including carbon dioxide) and such regulation could result in
the creation of substantial additional costs in the form of taxes or emission allowances. As a
result, it is possible that state and federal regulations will be developed that will impose more
stringent limitations on emissions than are currently in effect. In December 2009, the EPA issued
an “endangerment and cause or contributing finding” for GHG under the CAA, which will allow the EPA
to craft rules that directly regulate GHG. This “finding” triggered several regulatory actions
under the CAA, resulting, among other things in the regulation of GHG emissions from large
stationary sources. Although several bills have been introduced at the state and federal level that
would compel carbon dioxide emission reductions, none have advanced
through the legislature. Due to the uncertainty of control technologies available to reduce
greenhouse gas emissions including CO
2
, as well as the unknown nature of potential
compliance obligations should climate change regulations be enacted, we cannot provide any
assurance regarding the potential impacts these future regulations would have on our operations. In
addition, any legal obligation that would require us to substantially reduce our emissions could
require extensive mitigation efforts and, in the case of carbon dioxide legislation, would raise
uncertainty about the future viability of fossil fuels, particularly coal, as an energy source for
new and existing electric generation facilities. Until specific regulations are promulgated, the
impact that any new environmental regulations, voluntary compliance guidelines, enforcement
initiatives, or legislation may have on our results of operations, financial condition or liquidity
is not determinable.
At the federal level, members of Congress have introduced several bills seeking to reduce emissions
of GHG in the United States, and the House of Representatives passed one such bill, the American
Clean Energy and Security Act of 2009, on June 26, 2009. The Senate continues to consider a number
of measures to regulate GHG emissions. President Obama has announced his Administration’s “New
Energy for America Plan” that includes, among other provisions, ensuring that 10% of electricity
used in the United States comes from renewable sources by 2012, increasing to 25% by 2025, and
implementing an economy-wide cap-and-trade program to reduce GHG emissions by 80% by 2050. State
activities, primarily the northeastern states participating in the Regional Greenhouse Gas
Initiative and western states, led by California, have coordinated efforts to develop regional
strategies to control emissions of certain GHGs.
34
Table of Contents
In September 2009, the EPA finalized a national GHG emissions collection and reporting rule that
required FirstEnergy to measure GHG emissions commencing in 2010 and begin to submit reports
commencing in 2011. In December 2009, the EPA released its final “Endangerment and Cause or
Contribute Findings for Greenhouse Gases under the Clean Air Act.” The EPA’s finding concludes that
concentrations of several key GHGs increase the threat of climate change and may be regulated as
“air pollutants” under the CAA. In May 2010, the EPA finalized new thresholds for GHG emissions
that define when permits under the CAA’s NSR program would be required. The EPA established an
emissions applicability threshold of 75,000 tons per year (tpy) of carbon dioxide equivalents
(CO2e) effective January 2, 2011 for existing facilities under the CAA’s PSD program, but until
July 1, 2011 that emissions applicability threshold will only apply if PSD is triggered by
non-carbon dioxide pollutants.
At the international level, the Kyoto Protocol, signed by the U.S. in 1998 but never submitted for
ratification by the U.S. Senate, was intended to address global warming by reducing the amount of
man-made GHG, including CO
2
, emitted by developed countries by 2012. A December 2009
U.N. Climate Change Conference in Copenhagen did not reach a consensus on a successor treaty to the
Kyoto Protocol, but did take note of the Copenhagen Accord, a non-binding political agreement which
recognized the scientific view that the increase in global temperature should be below two degrees
Celsius; include a commitment by developed countries to provide funds, approaching $30 billion over
the next three years with a goal of increasing to $100 billion by 2020; and establish the
“Copenhagen Green Climate Fund” to support mitigation, adaptation, and other climate-related
activities in developing countries. Once they have become a party to the Copenhagen Accord,
developed economies, such as the European Union, Japan, Russia and the United States, would commit
to quantified economy-wide emissions targets from 2020, while developing countries, including
Brazil, China and India, would agree to take mitigation actions, subject to their domestic
measurement, reporting and verification.
FirstEnergy cannot currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO
2
emissions, or litigation
alleging damages from GHG emissions, could require significant capital and other expenditures or
result in changes to its operations. The CO
2
emissions per KWH of electricity generated
by FirstEnergy is lower than many regional competitors due to its diversified generation sources,
which include low or non-CO
2
emitting gas-fired and nuclear generators.
The EPA’s CAIR requires reductions of NOx and SO
2
emissions in two phases (2009/2010 and
2015), ultimately capping SO
2
emissions in affected states to 2.5 million tons annually
and NOx emissions to 1.3 million tons annually. In 2008, the U.S. Court of Appeals for the District
of Columbia vacated CAIR “in its entirety” and directed the EPA to “redo its analysis from the
ground up.” In December 2008, the Court reconsidered its prior ruling and allowed CAIR to remain in
effect to “temporarily preserve its environmental values” until the EPA replaces CAIR with a new
rule consistent with the Court’s opinion. In July 2010, the EPA proposed the CATR to replace CAIR,
which remains in effect until the EPA finalizes CATR. CATR requires reductions of NOx and
SO
2
emissions in two phases (2012 and 2014), ultimately capping SO
2
emissions
in affected states to 2.6 million tons annually and NOx emissions to 1.3 million tons annually. The
EPA proposed a preferred regulatory approach that allows trading of NOx and SO
2
emission
allowances between power plants located in the same state and severely limits interstate trading of
NOx and SO
2
emission allowances. The EPA also requested comment on two alternative
approaches—the first eliminates interstate trading of NOx and SO
2
emission allowances
and the second eliminates trading of NOx and SO
2
emission allowances in its entirety.
Depending on the actions taken by the EPA with respect to CATR, the proposed MACT regulations
discussed below and any future regulations that are ultimately implemented, FGCO’s future cost of
compliance may be substantial.
The EPA’s CAMR provides for a cap-and-trade program to reduce mercury emissions from coal-fired
power plants in two phases; initially, capping nationwide emissions of mercury at 38 tons by 2010
(as a “co-benefit” from implementation of SO
2
and NO
X
emission caps under the
EPA’s CAIR program) and 15 tons per year by 2018. The U.S. Court of Appeals
for the District of Columbia, at the urging of several states and environmental groups, vacated the
CAMR, ruling that the EPA failed to take the necessary steps to “de-list” coal-fired power plants
from its hazardous air pollutant program and, therefore, could not promulgate a cap-and-trade
program. On April 29, 2010, the EPA issued proposed MACT regulations requiring emissions reductions
of mercury and other hazardous air pollutants from non-electric generating unit boilers, including
boilers which do not use fossil fuels. If finalized, the non-electric generating unit MACT
regulations could also provide precedent for MACT standards applicable to electric generating
units. On January 20, 2011, the U.S. District Court for the District of Columbia denied a motion by
the EPA for an extension of the deadline to issue final rules, ordering the EPA to issue such rules
by February 21, 2011. The EPA also entered into a consent decree requiring it to propose MACT
regulations for mercury and other hazardous air pollutants from electric generating units by March
16, 2011, and to finalize the regulations by November 16, 2011. Depending on the action taken by
the EPA and on how any future regulations are ultimately implemented, FGCO’s future cost of
compliance with MACT regulations may be substantial and changes to FGCO’s operations may result.
Various water quality regulations, the majority of which are the result of the federal Clean Water
Act and its amendments, apply to FirstEnergy’s plants. In addition, various states have water
quality standards applicable to FirstEnergy’s operations.
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Table of Contents
The EPA established new performance standards under Section 316(b) of the Clean Water Act for
reducing impacts on fish and shellfish from cooling water intake structures at certain existing
electric generating plants. The regulations call for reductions in impingement mortality (when
aquatic organisms are pinned against screens or other parts of a cooling water intake system) and
entrainment (which occurs when aquatic life is drawn into a facility’s cooling water system). The
EPA has taken the position that until further rulemaking occurs; permitting authorities should
continue the existing practice of applying their best professional judgment to minimize impacts on
fish and shellfish from cooling water intake structures. On April 1, 2009, the U.S. Supreme Court
reversed one significant aspect of the Second Circuit’s opinion and decided that Section 316(b) of
the Clean Water Act authorizes the EPA to compare costs with benefits in determining the best
technology available for minimizing adverse environmental impact at cooling water intake
structures. The EPA is developing a new regulation under Section 316(b) of the Clean Water Act
consistent with the opinions of the Supreme Court and the Court of Appeals which have created
significant uncertainty about the specific nature, scope and timing of the final performance
standard. FirstEnergy is studying various control options and their costs and effectiveness,
including pilot testing of reverse louvers in a portion of the Bay Shore power plant’s water intake
channel to divert fish away from the plant’s water intake system. On November 19, 2010, the Ohio
EPA issued a permit for the Bay Shore power plant requiring installation of reverse louvers in its
entire water intake channel by April 1, 2013. Depending on the results of such studies and the
EPA’s further rulemaking and any final action taken by the states exercising best professional
judgment, the future costs of compliance with these standards may require material capital
expenditures. Also, If either the federal or state final regulations require retrofitting of
cooling water intake structures (cooling towers) at any of our power plants, and if installation of
such cooling towers is not technically or economically feasible, we may be forced to take actions
which could adversely impact our results of operations and financial condition.
Federal and state hazardous waste regulations have been promulgated as a result of the Resource
Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976.
Certain fossil-fuel combustion residuals, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA’s evaluation of the need for future regulation. In February
2009, the EPA requested comments from the states on options for regulating coal combustion
residuals, including whether they should be regulated as hazardous or non-hazardous waste.
On December 30, 2009, in an advanced notice of public rulemaking, the EPA said that the large
volumes of coal combustion residuals produced by electric utilities pose significant financial risk
to the industry. On May 4, 2010, the EPA proposed two options for additional regulation of coal
combustion residuals, including the option of regulation as a special waste under the EPA’s
hazardous waste management program which could have a significant impact on the management,
beneficial use and disposal of coal combustion residuals. FGCO’s future cost of compliance with any
coal combustion residuals regulations which may be promulgated could be substantial and would
depend, in part, on the regulatory action taken by the EPA and implementation by the EPA or the
states.
The Physical Risks Associated with Climate Change May Impact Our Results of Operations and Cash
Flows.
Physical risks of climate change, such as more frequent or more extreme weather events, changes in
temperature and precipitation patterns, changes to ground and surface water availability, and other
related phenomena, could affect some, or all, of our operations. Severe weather or other natural
disasters could be destructive, which could result in increased costs, including supply chain
costs. An extreme weather event within the Utilities’ service areas can also directly affect their
capital assets, causing disruption in service to customers due to downed wires and poles or damage
to other operating equipment. Finally, climate change could affect the availability of a secure and
economical supply of water in some locations, which is essential for continued operation of
generating plants.
Remediation of Environmental Contamination at Current or Formerly Owned Facilities
We are subject to liability under environmental laws for the costs of remediating environmental
contamination of property now or formerly owned by us and of property contaminated by hazardous
substances that we may have generated
regardless of whether the liabilities arose before, during or after the time we owned or operated
the facilities. Remediation activities associated with our former MGP operations are one source of
such costs. We are currently involved in a number of proceedings relating to sites where other
hazardous substances have been deposited and may be subject to additional proceedings in the
future. We also have current or previous ownership interests in sites associated with the
production of gas and the production and delivery of electricity for which we may be liable for
additional costs related to investigation, remediation and monitoring of these sites. Citizen
groups or others may bring litigation over environmental issues including claims of various types,
such as property damage, personal injury, and citizen challenges to compliance decisions on the
enforcement of environmental requirements, such as opacity and other air quality standards, which
could subject us to penalties, injunctive relief and the cost of litigation. We cannot predict the
amount and timing of all future expenditures (including the potential or magnitude of fines or
penalties) related to such environmental matters, although we expect that they could be material.
In some cases, a third party who has acquired assets from us has assumed the liability we may
otherwise have for environmental matters related to the transferred property. If the transferee
fails to discharge the assumed liability or disputes its responsibility, a regulatory authority or
injured person could attempt to hold us responsible, and our remedies against the transferee may be
limited by the financial resources of the transferee.
36
Table of Contents
Availability and Cost of Emission Credits Could Materially Impact Our Costs of Operations
We are required to maintain, either by allocation or purchase, sufficient emission credits to
support our operations in the ordinary course of operating our power generation facilities. These
credits are used to meet our obligations imposed by various applicable environmental laws. If our
operational needs require more than our allocated allowances of emission credits, we may be forced
to purchase such credits on the open market, which could be costly. If we are unable to maintain
sufficient emission credits to match our operational needs, we may have to curtail our operations
so as not to exceed our available emission credits, or install costly new emissions controls. As we
use the emissions credits that we have purchased on the open market, costs associated with such
purchases will be recognized as operating expense. If such credits are available for purchase, but
only at significantly higher prices, the purchase of such credits could materially increase our
costs of operations in the affected markets. Laws and regulations such as CAIR may, and are, being
revised and as CAIR is being rewritten it is creating uncertainty in many areas, including but not
limited to, the annual NOx emission allowances beyond 2010.
Mandatory Renewable Portfolio Requirements Could Negatively Affect Our Costs
If federal or state legislation mandates the use of renewable and alternative fuel sources, such as
wind, solar, biomass and geothermal and such legislation would not also provide for adequate cost
recovery, it could result in significant changes in our business, including renewable energy credit
purchase costs, purchased power and potentially renewable energy credit costs and capital
expenditures. We are unable to predict what impact, if any, these changes may have on our
financial condition or results of operations.
We Are and May Become Subject to Legal Claims Arising from the Presence of Asbestos or Other
Regulated Substances at Some of Our Facilities
We have been named as a defendant in pending asbestos litigation involving multiple plaintiffs and
multiple defendants. In addition, asbestos and other regulated substances are, and may continue to
be, present at our facilities where suitable alternative materials are not available. We believe
that any remaining asbestos at our facilities is contained. The continued presence of asbestos and
other regulated substances at these facilities, however, could result in additional actions being
brought against us.
The Continuing Availability and Operation of Generating Units is Dependent on Retaining the
Necessary Licenses, Permits, and Operating Authority from Governmental Entities, Including the NRC
We are required to have numerous permits, approvals and certificates from the agencies that
regulate our business. We believe the necessary permits, approvals and certificates have been
obtained for our existing operations and that our business is conducted in accordance with
applicable laws; however, we are unable to predict the impact on our operating results from future
regulatory activities of any of these agencies and we are not assured that any such permits,
approvals or certifications will be renewed.
Future Changes in Financial Accounting Standards May Affect Our Reported Financial Results
The SEC, FASB or other authoritative bodies or governmental entities may issue new pronouncements
or new interpretations of existing accounting standards that may require us to change our
accounting policies. These changes are beyond our control, can be difficult to predict and could
materially impact how we report our financial condition and results of operations. We could be
required to apply a new or revised standard retroactively, which could adversely affect our
financial position. The SEC has announced a work plan to aid in its evaluation of the impact that
the use of IFRS by U.S. public companies would have on the U.S. securities market. Given the
results of the work plan, the SEC expects to make a determination in 2011 regarding the mandatory
adoption of IFRS. We are currently assessing the impact that
this potential change would have on our consolidated financial statements and we will continue to
monitor the development of the potential implementation of IFRS.
Increases in Taxes and Fees.
Due to the revenue needs of the United States and the states and jurisdictions in which we operate,
various tax and fee increases may be proposed or considered. We cannot predict whether legislation
or regulation will be introduced, the form of any legislation or regulation, whether any such
legislation or regulation will be passed by the state legislatures or regulatory bodies. If
enacted, these changes could increase tax costs and could have a negative impact on our results of
operations, financial condition and cash flows.
37
Table of Contents
Risks Associated With Financing and Capital Structure
Interest Rates and/or a Credit Rating Downgrade Could Negatively Affect Our Financing Costs, Our
Ability to Access Capital and Our Requirement to Post Collateral
We have near-term exposure to interest rates from outstanding indebtedness indexed to variable
interest rates, and we have exposure to future interest rates to the extent we seek to raise debt
in the capital markets to meet maturing debt obligations and fund construction or other investment
opportunities. Past disruptions in capital and credit markets have resulted in higher interest
rates on new publicly issued debt securities, increased costs for certain of our variable interest
rate debt securities and failed remarketings (all of which were eventually remarketed) of variable
interest rate tax-exempt debt issued to finance certain of our facilities. Continuation of these
disruptions could increase our financing costs and adversely affect our results of operations.
Also, interest rates could change as a result of economic or other events that our risk management
processes were not established to address. As a result, we cannot always predict the impact that
our risk management decisions may have on us if actual events lead to greater losses or costs than
our risk management positions were intended to hedge. Although we employ risk management techniques
to hedge against interest rate volatility, significant and sustained increases in market interest
rates could materially increase our financing costs and negatively impact our reported results of
operations.
We rely on access to bank and capital markets as sources of liquidity for cash requirements not
satisfied by cash from operations. A downgrade in our credit ratings from the nationally recognized
credit rating agencies, particularly to a level below investment grade, could negatively affect our
ability to access the bank and capital markets, especially in a time of uncertainty in either of
those markets, and may require us to post cash collateral to support outstanding commodity
positions in the wholesale market, as well as available letters of credit and other guarantees. A
rating downgrade would also increase the fees we pay on our various credit facilities, thus
increasing the cost of our working capital. A rating downgrade could also impact our ability to
grow our businesses by substantially increasing the cost of, or limiting access to, capital. On
February 11, 2010, S&P issued a report lowering FirstEnergy’s and its subsidiaries’ credit ratings
by one notch, while maintaining its stable outlook. As a result, FirstEnergy may be required to
post up to $48 million of collateral. Moody’s and Fitch affirmed the ratings and stable outlook of
FirstEnergy and its subsidiaries on February 11, 2010. On September 28, 2010, S&P then affirmed
the ratings and stable outlook of FE and its subsidiaries. On December 15, 2010, Fitch revised its
outlook on FE and FES from stable to negative and affirmed the rating for FirstEnergy and its
subsidiaries.
A rating is not a recommendation to buy, sell or hold debt, inasmuch as such rating does not
comment as to market price or suitability for a particular investor. The ratings assigned to our
debt address the likelihood of payment of principal and interest pursuant to their terms. A rating
may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating
should be evaluated independently of any other rating that may be assigned to our securities.
Also, we cannot predict how rating agencies may modify their evaluation process or the impact such
a modification may have on our ratings.
Our credit ratings also govern the collateral provisions of certain contract guarantees. Subsequent
to the occurrence of a credit rating downgrade to below investment grade or a “material adverse
event,” the immediate posting of cash collateral may be required. See Note 15(B) of the Notes to
the Consolidated Financial Statements for more information associated with a credit ratings
downgrade leading to the posting of cash collateral.
We Must Rely on Cash from Our Subsidiaries and Any Restrictions on Our Utility Subsidiaries’
Ability to Pay Dividends or Make Cash Payments to Us May Adversely Affect Our Financial Condition
We are a holding company and our investments in our subsidiaries are our primary assets.
Substantially all of our business is conducted by our subsidiaries. Consequently, our cash flow is
dependent on the operating cash flows of our subsidiaries and their ability to upstream cash to the
holding company. Our utility subsidiaries are regulated by various state utility commissions that
generally possess broad powers to ensure that the needs of utility customers are being met. Those
state commissions could attempt to impose restrictions on the ability of our utility subsidiaries
to pay dividends or otherwise restrict cash payments to us.
We Cannot Assure Common Shareholders that Future Dividend Payments Will be Made, or if Made, in
What Amounts they May be Paid
Our Board of Directors regularly evaluates our common stock dividend policy and determines the
dividend rate each quarter. The level of dividends will continue to be influenced by many factors,
including, among other things, our earnings, financial condition and cash flows from subsidiaries,
as well as general economic and competitive conditions. We cannot assure common shareholders that
dividends will be paid in the future, or that, if paid, dividends will be at the same amount or
with the same frequency as in the past.
38
Table of Contents
Disruptions in the Capital and Credit Markets May Adversely Affect Our Business, Including the
Availability and Cost of Short-Term Funds for Liquidity Requirements, Our Ability to Meet Long-Term
Commitments, Our Ability to Hedge Effectively Our Generation Portfolio, and the Competitiveness and
Liquidity of Energy Markets; Each Could Adversely Affect Our Results of Operations, Cash Flows and
Financial Condition
We rely on the capital markets to meet our financial commitments and short-term liquidity needs if
internal funds are not available from our operations. We also use letters of credit provided by
various financial institutions to support our hedging operations. Disruptions in the capital and
credit markets could adversely affect our ability to draw on our respective credit facilities. Our
access to funds under those credit facilities is dependent on the ability of the financial
institutions that are parties to the facilities to meet their funding commitments. Those
institutions may not be able to meet their funding commitments if they experience shortages of
capital and liquidity or if they experience excessive volumes of borrowing requests within a short
period of time.
Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or
increased regulation, reduced alternatives or failures of significant financial institutions could
adversely affect our access to liquidity needed for our business. Any disruption could require us
to take measures to conserve cash until the markets stabilize or until alternative credit
arrangements or other funding for our business needs can be arranged. Such measures could include
deferring capital expenditures, changing hedging strategies to reduce collateral-posting
requirements, and reducing or eliminating future dividend payments or other discretionary uses of
cash.
The strength and depth of competition in energy markets depends heavily on active participation by
multiple counterparties, which could be adversely affected by disruptions in the capital and credit
markets. Reduced capital and liquidity and failures of significant institutions that participate in
the energy markets could diminish the liquidity and competitiveness of energy markets that are
important to our business. Perceived weaknesses in the competitive strength of the energy markets
could lead to pressures for greater regulation of those markets or attempts to replace those market
structures with other mechanisms for the sale of power, including the requirement of long-term
contracts, which could have a material adverse effect on our results of operations and cash flows.
Questions Regarding the Soundness of Financial Institutions or Counterparties Could Adversely
Affect Us
We have exposure to many different financial institutions and counterparties and we routinely
execute transactions with counterparties in connection with our hedging activities, including
brokers and dealers, commercial banks, investment banks and other institutions and industry
participants. Many of these transactions expose us to credit risk in the event that any of our
lenders or counterparties are unable to honor their commitments or otherwise default under a
financing agreement. We also deposit cash balances in short-term investments. Our ability to access
our cash quickly depends on the soundness of the financial institutions in which those funds
reside. Any delay in our ability to access those funds, even for a short period of time, could have
a material adverse effect on our results of operations and financial condition.
| ITEM 1B. |
UNRESOLVED STAFF COMMENTS
|
None.
| ITEM 2. |
PROPERTIES
|
The Utilities’ (other than ATSI and JCP&L), FGCO’s and NGC’s respective first mortgage indentures
constitute, in the opinion of their counsel, direct first liens on substantially all of the
respective Utilities’, FGCO’s and NGC’s physical property, subject only to excepted encumbrances,
as defined in the first mortgage indentures. See the “Leases” and “Capitalization” notes to the
respective financial statements for information concerning leases and financing encumbrances
affecting certain of the Utilities’, FGCO’s and NGC’s properties.
FirstEnergy controls the following generation sources as of January 31, 2011, shown in the table
below. Except for the leasehold interests, OVEC participation and purchased wind power referenced
in the footnotes to the table, substantially all of the generating units are owned by NGC (nuclear)
and FGCO (non-nuclear).
39
Table of Contents
| Net Demonstrated | ||||||||
| Plant-Location | Unit | Capacity (MW) | ||||||
|
Coal-Fired Units
|
||||||||
|
Ashtabula-
|
||||||||
|
Ashtabula, OH
|
5 | 244 | ||||||
|
Bay Shore-
|
||||||||
|
Toledo, OH
|
1-4 | 631 | ||||||
|
R. E. Burger-
|
||||||||
|
Shadyside, OH
|
3 | 94 | ||||||
|
Eastlake-Eastlake, OH
|
1-5 | 1,233 | ||||||
|
Lakeshore-
|
||||||||
|
Cleveland, OH
|
18 | 245 | ||||||
|
Bruce Mansfield-
|
1 | 830 | (a) | |||||
|
Shippingport, PA
|
2 | 830 | (b) | |||||
|
|
3 | 830 | (c) | |||||
|
W. H. Sammis — Stratton, OH
|
1-7 | 2,220 | ||||||
|
Kyger Creek — Cheshire, OH
|
1-5 | 50 | (d) | |||||
|
Clifty Creek — Madison, IN
|
1-6 | 60 | (d) | |||||
|
|
||||||||
|
Total
|
7,267 | |||||||
|
|
||||||||
|
|
||||||||
|
Nuclear Units
|
||||||||
|
Beaver Valley-
|
1 | 911 | ||||||
|
Shippingport, PA
|
2 | 904 | (e) | |||||
|
Davis-Besse-
|
||||||||
|
Oak Harbor, OH
|
1 | 908 | ||||||
|
Perry-
|
||||||||
|
N. Perry Village, OH
|
1 | 1,268 | (f) | |||||
|
|
||||||||
|
Total
|
3,991 | |||||||
|
|
||||||||
|
|
||||||||
|
Oil/Gas — Fired/
|
||||||||
|
Pumped Storage Units
|
||||||||
|
Richland — Defiance, OH
|
1-6 | 432 | ||||||
|
Seneca — Warren, PA
|
1-3 | 451 | ||||||
|
West Lorain — Lorain, OH
|
1-6 | 545 | ||||||
|
Yard’s Creek — Blairstown
|
||||||||
|
Twp., NJ
|
1-3 | 200 | (g) | |||||
|
Wind power
|
376 | (h) | ||||||
|
Other
|
174 | |||||||
|
|
||||||||
|
Total
|
2,178 | |||||||
|
|
||||||||
|
Grand Total
|
13,436 | |||||||
|
|
||||||||
| (a) |
Includes FGCO’s leasehold interest of 93.825% (779 MW)
and CEI’s leasehold interest of 6.175% (51 MW), which
has been assigned to FGCO.
|
|
| (b) |
Includes CEI’s and TE’s leasehold interests of 27.17%
(226 MW) and 16.435% (136 MW), respectively, which
have been assigned to FGCO.
|
|
| (c) |
Includes CEI’s and TE’s leasehold interests of 23.247%
(193 MW) and 18.915% (157 MW), respectively, which
have been assigned to FGCO.
|
|
| (d) |
Represents FGCO’s 4.85% entitlement based on its
participation in OVEC.
|
|
| (e) |
Includes OE’s leasehold interest of 16.65% (151 MW)
from non-affiliates.
|
|
| (f) |
Includes OE’s leasehold interest of 8.11% (103 MW)
from non-affiliates.
|
|
| (g) |
Represents JCP&L’s 50% ownership interest.
|
|
| (h) |
Includes 167 MW from leased facilities and 209 MW
under power purchase agreements.
|
The above generating plants and load centers are connected by a transmission system consisting
of elements having various voltage ratings ranging from 23 kV to 500 kV. The Utilities’ overhead
and underground transmission lines aggregate 14,932 pole miles.
The Utilities’ electric distribution systems include 194,685 miles of overhead pole line and
underground conduit carrying primary, secondary and street lighting circuits. They own substations
with a total installed transformer capacity of 85,247,000 kV-amperes.
40
Table of Contents
The transmission facilities that are owned by ATSI are currently operated on an integrated basis as
part of MISO through May 31, 2011. Effective June 1, 2011, the ATSI transmission assets will be
migrated from MISO and integrated into PJM. The transmission facilities of JCP&L, Met-Ed and
Penelec are physically interconnected and are operated on an integrated basis as part of PJM.
FirstEnergy’s distribution and transmission systems as of December 31, 2010, consist of the
following:
| Substation | ||||||||||||
| Distribution | Transmission | Transformer | ||||||||||
| Lines | Lines | Capacity ** | ||||||||||
|
OE
|
62,156 | 461 | 8,300,000 | |||||||||
|
Penn
|
13,389 | 52 | 1,351,000 | |||||||||
|
CEI
|
33,210 | — | 8,754,000 | |||||||||
|
TE
|
17,592 | 81 | 2,497,000 | |||||||||
|
JCP&L
|
22,668 | 2,549 | 20,078,000 | |||||||||
|
Met-Ed
|
18,641 | 1,405 | 8,595,000 | |||||||||
|
Penelec
|
27,029 | 2,860 | 12,409,000 | |||||||||
|
ATSI
*
|
— | 7,524 | 23,263,000 | |||||||||
|
|
||||||||||||
|
Total
|
194,685 | 14,932 | 85,247,000 | |||||||||
|
|
||||||||||||
| * |
Represents transmission lines of 69kV and above located in the
service areas of OE, Penn, CEI and TE.
|
|
| ** |
Top rating of in-service power transformers only. Excludes
grounding banks, station power transformers, and generator and customer-owned transformers.
|
41
Table of Contents
| ITEM 3. |
LEGAL PROCEEDINGS
|
Reference is made to Note 14, Commitments, Guarantees and Contingencies, of FirstEnergy’s Notes to
Consolidated Financial Statements contained in Item 8 for a description of certain legal
proceedings involving FirstEnergy, FES, OE, CEI, TE, JCP&L, Met-Ed and Penelec.
| ITEM 4. |
REMOVED AND RESERVED
|
PART II
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The information required by Item 5 regarding FirstEnergy’s market information, including stock
exchange listings and quarterly stock market prices, dividends and holders of common stock is
included in Item 6.
Information for FES, OE, CEI, TE, JCP&L, Met-Ed and Penelec is not disclosed because they are
wholly owned subsidiaries of FirstEnergy and there is no market for their common stock.
Information regarding compensation plans for which shares of FirstEnergy common stock may be issued
is incorporated herein by reference to FirstEnergy’s 2011 proxy statement filed with the SEC
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
The table below includes information on a monthly basis regarding purchases made by FirstEnergy of
its common stock during the fourth quarter of 2010.
| Period | ||||||||||||||||
| October | November | December | Fourth Quarter | |||||||||||||
|
Total Number of Shares Purchased
(a)
|
68,246 | 133,762 | 539,703 | 741,711 | ||||||||||||
|
Average Price Paid per Share
|
$ | 38.50 | $ | 35.99 | $ | 35.48 | $ | 35.85 | ||||||||
|
Total Number of Shares Purchased As Part of
Publicly Announced Plans or Programs
|
— | — | — | — | ||||||||||||
|
Maximum Number (or Approximate Dollar Value)
of Shares that May Yet Be Purchased Under
the Plans or Programs
|
— | — | — | — | ||||||||||||
| (a) |
Share amounts reflect purchases on the open market to satisfy
FirstEnergy’s obligations to deliver common stock under its 2007
Incentive Compensation Plan, Deferred Compensation Plan for
Outside Directors, Executive Deferred Compensation Plan, Savings
Plan and Stock Investment Plan. In addition, such amounts reflect
shares tendered by employees to pay the exercise price or
withholding taxes upon exercise of stock options granted under the
2007 Incentive Compensation Plan and the Executive Deferred
Compensation Plan.
|
42
Table of Contents
| ITEM 6. |
SELECTED FINANCIAL DATA
|
| For the Years Ended December 31, | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Revenues
|
$ | 13,339 | $ | 12,973 | $ | 13,627 | $ | 12,802 | $ | 11,501 | ||||||||||
|
|
||||||||||||||||||||
|
Income From Continuing Operations
|
$ | 784 | $ | 1,006 | $ | 1,342 | $ | 1,309 | $ | 1,258 | ||||||||||
|
|
||||||||||||||||||||
|
Earnings Available to FirstEnergy Corp.
|
$ | 784 | $ | 1,006 | $ | 1,342 | $ | 1,309 | $ | 1,254 | ||||||||||
|
Basic Earnings per Share of Common Stock:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 2.58 | $ | 3.31 | $ | 4.41 | $ | 4.27 | $ | 3.85 | ||||||||||
|
|
||||||||||||||||||||
|
Earnings per basic share
|
$ | 2.58 | $ | 3.31 | $ | 4.41 | $ | 4.27 | $ | 3.84 | ||||||||||
|
Diluted Earnings per Share of Common Stock:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 2.57 | $ | 3.29 | $ | 4.38 | $ | 4.22 | $ | 3.82 | ||||||||||
|
|
||||||||||||||||||||
|
Earnings per diluted share
|
$ | 2.57 | $ | 3.29 | $ | 4.38 | $ | 4.22 | $ | 3.81 | ||||||||||
|
|
||||||||||||||||||||
|
Dividends Declared per Share of Common Stock
(1)
|
$ | 2.20 | $ | 2.20 | $ | 2.20 | $ | 2.05 | $ | 1.85 | ||||||||||
|
|
||||||||||||||||||||
|
Total Assets
|
$ | 34,805 | $ | 34,304 | $ | 33,521 | $ | 32,311 | $ | 31,196 | ||||||||||
|
|
||||||||||||||||||||
|
Capitalization as of December 31:
|
||||||||||||||||||||
|
Total Equity
|
$ | 8,513 | $ | 8,557 | $ | 8,315 | $ | 9,007 | $ | 9,069 | ||||||||||
|
Long-Term Debt and Other Long-Term Obligations
|
12,579 | 12,008 | 9,100 | 8,869 | 8,535 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total Capitalization
|
$ | 21,092 | $ | 20,565 | $ | 17,415 | $ | 17,876 | $ | 17,604 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Weighted Average Number of Basic Shares Outstanding
|
304 | 304 | 304 | 306 | 324 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Weighted Average Number of Diluted Shares Outstanding
|
305 | 306 | 307 | 310 | 327 | |||||||||||||||
|
|
||||||||||||||||||||
| (1) |
Dividends declared in 2010, 2009 and 2008 include four quarterly dividends of $0.55 per share. Dividends declared in 2007
include three quarterly payments of $0.50 per share in 2007 and one quarterly payment of $0.55 per share in 2008. Dividends
declared in 2006 include three quarterly payments of $0.45 per share in 2006 and one quarterly payment of $0.50 per share in 2007.
|
PRICE RANGE OF COMMON STOCK
The common stock of FirstEnergy Corp. is listed on the New York Stock Exchange under the symbol
“FE” and is traded on other registered exchanges.
| 2010 | 2009 | |||||||||||||||
|
First Quarter High-Low
|
$ | 47.09 | $ | 38.31 | $ | 53.63 | $ | 35.63 | ||||||||
|
Second Quarter High-Low
|
$ | 39.96 | $ | 33.57 | $ | 43.29 | $ | 35.26 | ||||||||
|
Third Quarter High-Low
|
$ | 39.06 | $ | 34.51 | $ | 47.82 | $ | 36.73 | ||||||||
|
Fourth Quarter High-Low
|
$ | 40.12 | $ | 35.00 | $ | 47.77 | $ | 41.57 | ||||||||
|
Yearly High-Low
|
$ | 47.09 | $ | 33.57 | $ | 53.63 | $ | 35.26 | ||||||||
Prices are from http://finance.yahoo.com.
SHAREHOLDER RETURN
The following graph shows the total cumulative return from a $100 investment on December 31, 2005
in FirstEnergy’s common stock compared with the total cumulative returns of EEI’s Index of
Investor-Owned Electric Utility Companies and the S&P 500.
43
Table of Contents
HOLDERS OF COMMON STOCK
There were 105,822 and 105,518 holders of 304,835,407 shares of FirstEnergy’s common stock as of
December 31, 2010 and January 31, 2011, respectively. Information regarding retained earnings
available for payment of cash dividends is given in Note 11 to the consolidated financial
statements.
44
Table of Contents
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF REGISTRANT AND SUBSIDIARIES
|
Forward-Looking Statements:
This Form 10-K includes forward-looking statements based on
information currently available to management. Such statements are subject to certain risks and
uncertainties. These statements include declarations regarding management’s intents, beliefs and
current expectations. These statements typically contain, but are not limited to, the terms
“anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Forward-looking
statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such forward-looking
statements.
Actual results may differ materially due to:
| • |
The speed and nature of increased competition in the electric utility industry.
|
| • |
The impact of the regulatory process on the pending matters in the various states in
which we do business.
|
| • |
Business and regulatory impacts from ATSI’s realignment into PJM Interconnection,
L.L.C., economic or weather conditions affecting future sales and margins.
|
| • |
Changes in markets for energy services.
|
| • |
Changing energy and commodity market prices and availability.
|
| • |
Financial derivative reforms that could increase our liquidity needs and collateral
costs, replacement power costs being higher than anticipated or inadequately hedged.
|
| • |
The continued ability of FirstEnergy’s regulated utilities to collect transition and
other costs.
|
| • |
Operation and maintenance costs being higher than anticipated.
|
| • |
Other legislative and regulatory changes, and revised environmental requirements,
including possible GHG emission and coal combustion residual regulations.
|
| • |
The potential impacts of any laws, rules or regulations that ultimately replace CAIR.
|
| • |
The uncertainty of the timing and amounts of the capital expenditures needed to resolve
any NSR litigation or other potential similar regulatory initiatives or rulemakings
(including that such expenditures could result in our decision to shut down or idle
certain generating units).
|
| • |
Adverse regulatory or legal decisions and outcomes (including, but not limited to, the
revocation of necessary licenses or operating permits and oversight) by the NRC.
|
| • |
Adverse legal decisions and outcomes related to Met-Ed’s and Penelec’s transmission
service charge appeal at the Commonwealth Court of Pennsylvania.
|
| • |
Any impact resulting from the receipt by Signal Peak of the Department of Labor’s
notice of a potential pattern of violations at Bull Mountain Mine No.1.
|
| • |
The continuing availability of generating units and their ability to operate at or near
full capacity.
|
| • |
The ability to comply with applicable state and federal reliability standards and
energy efficiency mandates.
|
| • |
Changes in customers’ demand for power, including but not limited to, changes resulting
from the implementation of state and federal energy efficiency mandates.
|
| • |
The ability to accomplish or realize anticipated benefits from strategic goals
(including employee workforce initiatives).
|
| • |
The ability to improve electric commodity margins and the impact of, among other
factors, the increased cost of coal and coal transportation on such margins and the
ability to experience growth in the distribution business.
|
| • |
The changing market conditions that could affect the value of assets held in the
registrants’ nuclear decommissioning trusts, pension trusts and other trust funds, and
cause FirstEnergy to make additional contributions sooner, or in amounts that are larger
than currently anticipated.
|
| • |
The ability to access the public securities and other capital and credit markets in
accordance with FirstEnergy’s financing plan and the cost of such capital.
|
| • |
Changes in general economic conditions affecting the registrants.
|
| • |
The state of the capital and credit markets affecting the registrants.
|
| • |
Interest rates and any actions taken by credit rating agencies that could negatively
affect the registrants’ access to financing or their costs and increase requirements to
post additional collateral to support outstanding commodity positions, LOCs and other
financial guarantees.
|
| • |
The continuing uncertainty of the national and regional economy and its impact on the
registrants’ major industrial and commercial customers.
|
| • |
Issues concerning the soundness of financial institutions and counterparties with which
the registrants do business.
|
| • |
The expected timing and likelihood of completion of the proposed merger with Allegheny,
including the timing, receipt and terms and conditions of any required governmental and
regulatory approvals of the proposed merger that could reduce anticipated benefits or
cause the parties to abandon the merger, the diversion of management’s time and attention
from FirstEnergy’s ongoing business during this time period, the ability to maintain
relationships with customers, employees or suppliers as well as the ability to
successfully integrate the businesses and realize cost savings and any other synergies and
the risk that the credit ratings of the combined company or its subsidiaries may be
different from what the companies expect.
|
| • |
The risks and other factors discussed from time to time in the registrants’ SEC
filings, and other similar factors.
|
Dividends declared from time to time on FirstEnergy’s common stock during any annual period may in
aggregate vary from the indicated amount due to circumstances considered by FirstEnergy’s Board of
Directors at the time of the actual declarations. The foregoing review of factors should not be
construed as exhaustive. New factors emerge from time to time, and it is not possible for
management to predict all such factors, nor assess the impact of any such factor on the
registrants’ business or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking statements. The
registrants expressly disclaim any current intention to update any forward-looking statements
contained herein as a result of new information, future events or otherwise.
45
Table of Contents
FIRSTENERGY CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
Earnings available to FirstEnergy Corp. in 2010 were $784 million, or basic earnings of $2.58 per
share of common stock ($2.57 diluted), compared with $1.01 billion, or basic earnings of $3.31 per
share of common stock ($3.29 diluted), in 2009 and $1.34 billion, or basic earnings of $4.41 per
share ($4.38 diluted), in 2008.
| Change in Basic Earnings Per Share From Prior Year | 2010 | 2009 | ||||||
|
|
||||||||
|
Basic Earnings Per Share — Prior Year
|
$ | 3.31 | $ | 4.41 | ||||
|
Non-core asset sales/impairments
|
(0.37 | ) | 0.47 | |||||
|
Generating plant impairments
|
(0.77 | ) | — | |||||
|
Litigation settlement
|
0.04 | (0.03 | ) | |||||
|
Trust securities impairments
|
0.03 | 0.16 | ||||||
|
Regulatory charges
|
0.45 | (0.55 | ) | |||||
|
Derivative mark-to-market adjustment
|
0.35 | (0.42 | ) | |||||
|
Organizational restructuring
|
0.14 | (0.14 | ) | |||||
|
Debt redemption premium
|
0.32 | (0.31 | ) | |||||
|
Merger transaction costs — 2010
|
(0.16 | ) | — | |||||
|
Income tax resolution
|
(0.57 | ) | 0.68 | |||||
|
Revenues
|
1.06 | (1.85 | ) | |||||
|
Fuel and purchased power
|
(0.68 | ) | (0.09 | ) | ||||
|
Amortization of regulatory assets, net
|
0.22 | (0.02 | ) | |||||
|
Investment income
|
(0.20 | ) | 0.20 | |||||
|
Interest expense
|
— | (0.14 | ) | |||||
|
Transmission expense
|
(0.20 | ) | 0.73 | |||||
|
Other expenses
|
(0.39 | ) | 0.21 | |||||
|
|
||||||||
|
Basic Earnings Per Share
|
$ | 2.58 | $ | 3.31 | ||||
|
|
||||||||
2010 was a transformational year for FirstEnergy, and one in which we built a strong foundation
for future success.
On
February 11, 2010, FirstEnergy and Allegheny announced a proposed
merger that would create the nation’s largest
electric utility system, with:
| • |
more than 6 million customers across ten regulated electric distribution subsidiaries in
Ohio, Pennsylvania, New Jersey, Maryland and West Virginia,
|
| • |
generation subsidiaries owning or controlling approximately 24,000 MWs of generating
capacity from a diversified mix of coal, nuclear, natural gas, oil and renewable power, and
|
| • |
transmission subsidiaries owning over 20,000 miles of high-voltage lines connecting the
Midwest and Mid-Atlantic.
|
Pursuant
to the terms of the merger, Allegheny shareholders would receive 0.667 of a share of
FirstEnergy common stock in exchange for each share of Allegheny they
own.
2010
also marked FirstEnergy’s final transition year to competitive
markets with the expiration of
the rate cap on Met-Ed and Penelec’s retail generation rates on December 31, 2010. Beginning in
2011, Met-Ed and Penelec obtain their power supply from the competitive wholesale market and fully
recover their generation costs through retail rates. All of FirstEnergy’s other regulated
utilities previously transitioned to competitive generation markets.
The effects of the uncertainty in the U.S. economy continue to present challenges. Although
economic recovery began across our service territories, power sales and deliveries have still not
returned to pre-recessionary levels. Distribution deliveries in 2010 were 108.0 million MWH,
compared with 102.3 million MWH in 2009, driven primarily by an 8.4% increase in deliveries to the
industrial sector, with the largest gains from customers in the automotive and steel industries.
Industrial usage is lagging pre-recessionary levels by approximately 11%. Residential sales were up
6%, primarily due to warmer weather during the summer of 2010. Wholesale power prices continued to
be weak; however, generation output improved in 2010 with output of 74.9 million MWH compared to the
2009 output of 65.6 million MWH.
In the second half of 2010, FES entered into financial transactions that offset the mark-to-market
impact of 500 MW of legacy purchased power contracts which were entered into in 2008 for delivery
in 2010 and 2011 and which were marked to market beginning in December 2009. These financial
transactions eliminate the volatility in GAAP earnings associated with marking these contracts to
market through the end of 2011.
46
Table of Contents
FES continued implementation of its retail strategy by focusing on direct, governmental aggregation
and POLR sales opportunities. As of February 8, 2011, FES committed sales (as a percentage of total
projected sales) for 2011 and 2012 were 96% and 65% respectively.
Operational Matters
PJM RTO Integration
In March 2010 two FRR Integration Auctions were conducted by PJM on behalf of the Ohio Companies to
secure electric capacity for delivery years June 1, 2011, through May 31, 2012, and June 1, 2012,
through May 31, 2013. In the 2011/2012 auction, 27 suppliers participated and 12,583 MW of unforced
capacity (the MW bid into the auction after adjusting for historical forced outage rates) cleared
at a price of $108.89/MW-day. The 2012/2013 auction had 28 market participants, with 13,038 MW of
unforced capacity clearing at a price of $20.46/MW-day. FirstEnergy plans to integrate its
operations into PJM by June 1, 2011.
Nuclear Generation
On February 28, 2010, the Davis-Besse Nuclear Plant (908 MW) shut down for its 16th scheduled
refueling outage to exchange 76 of 177 fuel assemblies and to conduct numerous safety inspections.
During the outage, it was determined through testing that modification work also needed to be
performed on certain CRDM nozzles that penetrate the reactor vessel head. Modifications of 24 of
the 69 nozzles on the reactor head were completed and Davis-Besse returned to service on June 29,
2010. The plant was originally scheduled to have a new reactor vessel head installed in 2014.
This timeline was voluntarily accelerated, and FirstEnergy plans to install the new reactor head in
the fall of 2011.
On August 30, 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse
operating license. In a letter dated October 18, 2010, the NRC determined that the Davis-Besse
license renewal application was complete and acceptable for docketing and further review.
Davis-Besse currently is licensed until 2017; if approved, the renewal would extend operations for
an additional 20 years, until 2037.
On October 2, 2010, Beaver Valley Nuclear Power Station Unit 1 (911 MW) began its scheduled
refueling and maintenance outage. During the outage FENOC exchanged 60 of the 157 fuel assemblies,
conducted safety inspections and performed routine maintenance work. The plant returned to service
on November 4, 2010.
Coal and Gas Fired Generation
On March 31, 2010, FGCO closed the sale of its 340 MW Sumpter Plant in Sumpter, Michigan, to
Wolverine Power Supply Cooperative, Inc. FirstEnergy recorded a $6 million impairment of the
Sumpter plant in December 2009 and a loss of $9 million with the sale in the first quarter of 2010.
The plant consists of four 85 MW natural gas turbines and represented FirstEnergy’s only
generation assets in Michigan.
On August 12, 2010, FirstEnergy announced that operational changes would be made to some of the
smaller coal-fired units in response to the slow economy, the lower demand for electricity and
uncertainty related to proposed new federal environmental regulations. Beginning September 2010,
Bay Shore units 2-4, Eastlake units 1-4, the Lake Shore Plant, and the Ashtabula Plant, which total
1,620 MW of capacity, began operating with minimum three-day notice and in response to consumer
demand. FGCO recognized an impairment of $303 million ($190 million after tax) related to these
assets in 2010.
On November 17, 2010, we announced plans to cancel repowering Units 4 and 5 (312 MW) at the R.E.
Burger Plant to generate electricity principally with biomass. FGCO recognized an impairment of $72
million ($45 million after tax) and permanently shut down these units on December 31, 2010, due to
the current market conditions.
During the third quarter of 2010, FGCO re-evaluated the schedule for completing the Fremont Plant
(707 MW) due to market conditions and the extension of the tax incentives included in the Small
Business legislation through 2011. As a result, FGCO extended the plant’s expected completion to
December 31, 2011, to reduce overtime labor cost and outside contractor spend for the remainder of
the project. On February 3, 2011, FirstEnergy and American Municipal Power, Inc., entered into a
non-binding Memorandum of Understanding (MOU) for the sale of our Fremont Energy Center. The MOU
provides, among other things, for the parties to engage in exclusive negotiations towards a
definitive agreement expected to be executed in March, 2011, with a targeted closing date in July,
2011.
On December 28, 2010, FirstEnergy closed the sale of 6.65% of FGCO’s participation interest in the
output of OVEC
(approximately 150 MW) to Peninsula Generation Cooperative, a subsidiary of Wolverine Power Supply
Cooperative, Inc., effective December 31, 2010. FirstEnergy’s remaining interest in OVEC is 4.85%.
The gain from this transaction increased 2010 net income by $53.8 million.
The Signal Peak coal mining operation in Montana, a joint venture owned 50% by FirstEnergy, began
production in December 2009, providing FirstEnergy flexibility with respect to coal commodity
supply for its fossil generation fleet. As part of this transaction, we also entered into a
15-year agreement to purchase up to 10 million tons of coal annually from the mine, securing a
long-term western fuel supply at attractive prices. Signal Peak provides us with optionality
— to either burn its western coal in our units, or sell the coal through the venture to other
domestic or international buyers.
47
Table of Contents
Finally, in 2010 we completed a $1.8 billion environmental retrofit of the W.H. Sammis Plant in
Stratton, Ohio. This project was designed to reduce SO
2
emissions by 95% at the plant
and NOx emissions by 90% at its two largest units. This project was among the largest AQC
retrofits ever completed in the United States.
Ohio Wind Power Project
On February 8, 2011, FES announced its agreement to purchase 100 MW of output from Blue Creek Wind Farm (304 MW),
which is being built in western Ohio by Iberdrola Renewables. Under terms of the agreement FES will purchase 100 MW
of the total output of the project for 20 years beginning in October 2012.
Financial Matters
Cash flow from operations in 2010 was at a record level of $3.1 billion. During the year we also
completed refinancing $725 million of variable rate debt to fixed rate debt.
In April and June of 2010, FGCO, a subsidiary of FES, purchased $235 million of variable rate PCRBs
and $15 million of fixed rate PCRBs, respectively, originally issued on its behalf. In August of
2010, FES completed the remarketing of the $250 million of PCRBs; $235 million were successfully
converted from a variable interest rate to a fixed interest rate and the remaining $15 million of
PCRBs remain in a fixed rate mode. The $235 million series now bears a per-annum rate of 2.25% and
is subject to mandatory purchase on June 3, 2013. The $15 million series now bears a per-annum
rate of 1.5% and is subject to mandatory purchase on June 1, 2011.
Subsequently, in October of 2010, FES completed the refinancing and remarketing of six series of
PCRBs totaling $313 million. These series were converted from a variable interest rate to a fixed
interest rate of 3.375% per-annum and are subject to mandatory purchase on July 1, 2015. On
December 3, 2010, FES and Penelec completed the refinancing and remarketing of five series of PCRBs
totaling $178 million. These series were converted from variable rate to fixed interest rates
ranging from 2.25% to 3.75% per-annum and are subject to mandatory purchase.
In May of 2010, FirstEnergy terminated fixed-for-floating interest rate swap agreements with a
notional value of $3.2 billion, which resulted in cash proceeds of $43.1 million. As of June 30,
2010, the debt underlying the $3.2 billion outstanding notional amount of interest rate swaps had a
weighted average fixed interest rate of 6%, which the swaps converted to a current weighted average
variable rate of 4%. On July 16, 2010, FirstEnergy terminated these fixed-for-floating interest
rate swap agreements resulting in cash proceeds of $83.6 million. The related gain from both of
those transactions will generally be amortized to earnings over the life of the underlying debt. As
of December 31, 2010, there were no fixed-to-floating swaps hedging the consolidated interest rate
risk associated with FirstEnergy’s consolidated debt.
On June 1, 2010, Penn redeemed $1 million of 5.40% PCRBs, due 2013, and on July 30, 2010, redeemed
$6.5 million of its 7.65% FMBs due in 2023.
On October 22, 2010, Signal Peak Energy and Global Rail Group, as borrowers, entered into a new $350
million senior secured term loan facility. The two-year syndicated bank loan is guaranteed by
FirstEnergy and the other owners of the borrowers. The proceeds from the loan were used to repay
bank borrowings ($63 million) and debt owed to FirstEnergy ($258 million) with the balance to be
used for other general corporate purposes.
In February 2010, S&P issued a report lowering FirstEnergy’s and its subsidiaries’ credit ratings
by one notch, while maintaining its stable outlook. Moody’s and Fitch affirmed the ratings and
stable outlook of FirstEnergy and its subsidiaries. These rating agency actions were taken in
response to the announcement of the proposed merger with Allegheny. On September 28, 2010 S&P
affirmed the ratings and stable outlook of FE and its subsidiaries. On December 15, 2010, Fitch
revised its outlook on FirstEnergy and FES from stable to negative and affirmed the rating for
FirstEnergy and its subsidiaries.
Regulatory Matters
Ohio ESP
The Ohio Companies will be operating under a new ESP effective June 1, 2011 through May 31, 2014,
which was filed in March 2010 and approved by the PUCO in August 2010. That ESP provides customers
with no overall increase to base distribution rates during the plan period and limits the costs
they will pay related to certain PJM transmission projects. The ESP provides the Ohio Companies
with recovery of capital invested in their distribution businesses through a Delivery Capital
Recovery Rider effective January 1, 2012, through May 31, 2014. Generation rates for the annual
delivery periods during the plan are determined through a CBP which will be conducted every October
and January for
generation service through May 31, 2014. The first two CBPs were conducted in October 2010 and
January 2011. Both auctions consisted of one, two and three-year products. The results of these
auctions were accepted by the PUCO. The next auction
is scheduled for October 2011.
48
Table of Contents
Pennsylvania Default Service Plan
On October 20, 2010, the PPUC approved the results of various auctions held to procure the default
service requirements for Met-Ed and Penelec customers who choose not to shop with an alternative
supplier. The auction was the last of four auctions for the five-month period of January 1, 2011
to May 31, 2011, and the second of four auctions to procure commercial default service requirements
for the 12-month period of June 1, 2011 to May 31, 2012 and residential requirements for the
24-month period of June 1, 2011 to May 31, 2013. The PPUC also approved the default service RFP for
the Residential Fixed Block On-Peak and Off-Peak energy products. On January 18-20, 2011, Met-Ed,
Penelec and Penn conducted auctions to procure a portion of the default service requirements for
their customers who choose not to shop with an alternative supplier. The January 2011 auction was
the third of four auctions for Met-Ed and Penelec and the first of two auctions for Penn to procure
commercial default service requirements for the 12-month period of June 1, 2011 to May 31, 2012 and
residential requirements for the 24-month period of June 1, 2011 to May 31, 2013. For Met-Ed,
Penelec and Penn commercial customers the tranche-weighted average price ($/MWH) was $69.97, $59.32
and $57.88, respectively, and for residential customers the tranche-weighted average price was
$70.69, $59.74 and $55.39, respectively. This was also the first of two auctions held to procure
residential service requirements for the 12-month period of June 1, 2011 to May 31, 2012. For
Met-Ed, Penelec and Penn residential customers the tranche-weighted average price ($/MWH) was
$67.43, $58.01 and $60.29, respectively. In addition, the January 2011 auction procured supply for
Met-Ed and Penelec industrial customers Hourly Priced Default Service. For Met-Ed and Penelec, the
average 12-month price ($/MWH) was $9.90 and $9.91, respectively. The PPUC approved the results of
the January 2011 auctions on January 24, 2011.
Penn Power’s settlement for approval of its Default Service Plan for the period of June 1, 2011
through May 31, 2013 was approved by the PPUC on October 21, 2010.
Although the PPUC’s Order approving the Joint Petition held that the provisions relating to
the recovery of MISO exit fees and one-time PJM integration costs (resulting from
Penn's June 1, 2011 exit from MISO and integration into PJM) were approved, it made such
provisions subject to the approval of cost recovery by FERC. Therefore, Penn may not put
these provisions into effect until FERC has approved the recovery and allocation of MISO exit
fees and PJM integration costs.
Energy Efficiency, Smart Grid and Smart Meter Programs
On June 3, 2010, FirstEnergy and the DOE signed grants totaling $57.4 million that were awarded as
part of the American Recovery and Reinvestment Act to introduce smart grid technologies in targeted
areas in Pennsylvania, Ohio, and New Jersey. The DOE grants represent 50% of the funding for
approximately $115 million FirstEnergy plans to invest in smart grid technologies. The PPUC, PUCO
and NJBPU have approved recovery of the remaining costs not funded through the DOE grant for the
smart grid programs in Pennsylvania, Ohio and New Jersey, respectively, and the programs are
underway in all three states.
Pennsylvania’s Act 129 (Act 129) requires all Pennsylvania electric distribution companies with
more than 100,000 customers to install smart meter technology within 15 years. On April 15, 2010,
the PPUC adopted a Motion by Chairman Cawley that modified the ALJ’s initial decision issued on
January 28, 2010 and decided various issues regarding the SMIP for the Pennsylvania Companies. An
order consistent with Chairman Cawley’s Motion was entered on June 9, 2010. The companies filed a
petition for reconsideration on a single portion of the order, and on August 5, 2010, the PPUC
entered an order granting in part the petition for reconsideration. The Pennsylvania Companies’
SMIP will assess the technologies, vendors, capital cost, and potential benefits of smart meter
technology during an assessment period that covers the next 24 months. The Pennsylvania Companies
expect to incur approximately $29.5 million of costs during the assessment period which they expect
to recover through the Smart Meter Technologies Charge rider. At the end of the assessment period,
the Pennsylvania Companies will submit to the PPUC a deployment plan for the full scale deployment
of smart meters. The costs to implement the SMIP could be material. However, assuming these costs
satisfy a just and reasonable standard they are expected to be recovered in a rider (Smart Meter
Technologies Charge Rider) which was approved when the PPUC approved the SMIP.
Act 129 also requires utilities to reduce energy consumption and peak demand, with electricity
consumption reduction targets of 1% by May 31, 2011, and 3% by May 31, 2013, and a peak demand
reduction target of 4.5% by May 31, 2013. The Pennsylvania Companies responded by offering a wide
variety of programs to residential, commercial, industrial, governmental and non-profit customers
through their PPUC-approved EE&C Plans.
JCP&L Rate Adjustment
JCP&L is permitted to defer for future collection from customers the amounts by which its costs of
supplying BGS to non-shopping customers, costs incurred under NUG agreements, and certain other
stranded costs, exceed amounts collected through BGS and NUGC rates and market sales of NUG energy
and capacity. As of December 31, 2010, the accumulated deferred cost balance was a credit of
approximately $37 million. To better align the recovery of expected
costs, on July 26, 2010, JCP&L filed a request to decrease the amount recovered for the costs
incurred under the NUG agreements by $180 million annually. On
February 10, 2011, the NJBPU approved a stipulation which allows the
change in rates to become effective March 1, 2011.
On January 18, 2011, JCP&L provided information to the NJBPU regarding the proposed merger between
FirstEnergy and Allegheny. A stipulation between JCP&L, Board Staff and Rate Counsel was also
provided. The Board reviewed the Stipulation at its January 25, 2011 meeting and issued an Order
on February 10, 2011 indicating that it did not object to the transaction proceeding.
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FIRSTENERGY’S BUSINESS
We are a diversified energy company headquartered in Akron, Ohio, that operates primarily through
two core business segments (see Results of Operations).
| • |
Energy Delivery Services
transmits and distributes electricity through our seven utility
distribution companies and ATSI, serving 4.5 million customers within 36,100 square miles
of Ohio, Pennsylvania and New Jersey. This segment also purchases power for its POLR and
default service requirements in all three states. Its revenues are primarily derived from
the delivery of electricity within our service areas and the sale of electric generation
service to retail customers who have not selected an alternative supplier (default service)
in its Ohio, Pennsylvania and New Jersey franchise areas. Its results reflect the commodity
costs of securing electric generation from FES and from non-affiliated power suppliers, the
net PJM and MISO transmission expenses related to the delivery of the respective generation
loads, and the deferral and amortization of certain fuel costs.
|
The service areas of our utilities are summarized below:
| Company | Area Served | Customers Served | ||||
|
OE
|
Central and Northeastern Ohio | 1,037,000 | ||||
|
Penn
|
Western Pennsylvania | 160,000 | ||||
|
CEI
|
Northeastern Ohio | 751,000 | ||||
|
TE
|
Northwestern Ohio | 310,000 | ||||
|
JCP&L
|
Northern, Western and East Central New Jersey | 1,098,000 | ||||
|
Met-Ed
|
Eastern Pennsylvania | 553,000 | ||||
|
Penelec
|
Western Pennsylvania | 591,000 | ||||
|
ATSI
|
Service areas of OE, Penn, CEI and TE | |||||
| • |
Competitive Energy Services
segment supplies electric power to end-use customers
through retail and wholesale arrangements primarily in Ohio, Pennsylvania, Illinois,
Maryland, Michigan and New Jersey. This business segment controls 13,236 MWs of capacity
and also purchases electricity to meet sales obligations. The segment’s net income is
primarily derived from affiliated and non-affiliated electric generation sales revenues
less the related costs of electricity generation, including purchased power and net
transmission (including congestion) and ancillary costs charged by PJM and MISO to deliver
energy to the segment’s customers.
|
STRATEGY AND OUTLOOK
FirstEnergy’s vision is to be a leading regional energy provider, recognized for operational
excellence, outstanding customer service and our commitment to safety; the choice for long-term
growth, investment value and financial strength; and a company driven by the leadership, skills,
diversity and character of our employees.
Our
near-term focus is on getting the merger closed and then successfully managing the merger integration process and capturing
long-term value to benefit our customers, shareholders and employees.
The merger integration process is underway and is expected to create significant efficiencies
and economies of scale as we share best practices across the new organization. Merger integration
teams comprised of employees from both FirstEnergy and Allegheny began working in April 2010 to
identify value drivers and estimate transaction benefits.
The
proposed merger is a natural geographic fit that would bring together complementary assets and corporate
cultures and create a strong company that is well-positioned for growth. Our strength is the
diversity of our assets, and our strategic focus is on creating long-term value through our core
operations — distribution operations, transmission operations and competitive generation and
retail operations.
In our distribution operations, we remain focused on reliability, customer service and safety, and
maintaining stable earnings growth. Our combined company will be committed to meeting regulatory
expectations and leveraging best practices across seven states and ten operating utilities.
FirstEnergy’s management structure and philosophy supports local authority and decision-making by
maintaining a local presence, which includes regional offices for our utility operations.
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Presently,
our competitive generation portfolio of 13,236 MW contains a diverse mix of
quality assets, including nuclear, coal, natural gas, wind and pumped storage.
In response to reduced customer demand and uncertainty related to proposed new federal
environmental regulations, FirstEnergy announced in August 2010 operational changes at several
fossil plants. Affected are nine units at four plants located on the shore of Lake Erie in Ohio,
with 1,620 MW of total capacity. In September 2010, the units began operating with a minimum
three-day notice and in response to customer demand. These operational changes provide future
flexibility regarding potential plant retirements given the current ongoing uncertainty regarding
future EPA mandates or environmental legislation. (see Environmental Outlook below). We plan to
make a similar evaluation of Allegheny’s fossil assets once the
merger is completed; however,
because most of Allegheny’s supercritical units
have already been retrofitted with environmental control equipment,
it is the bulk of their older,
regulated subcritical units that are most exposed to potential regulations.
In the fall of 2011, we plan to replace Davis-Besse’s reactor vessel head, accelerating the
original replacement scheduled in 2014. We expect this proactive approach to provide additional
margins of safety and reliability.
Construction continues on our Fremont Energy Center, which includes two natural gas combined-cycle
combustion turbines and a steam turbine capable of producing 544 MW of load-following capacity and
163 MW of peaking capacity. We expect to complete construction of this facility by the end of
2011. On February 3, 2011, FirstEnergy and American Municipal Power, Inc. (AMP), entered into a
non-binding Memorandum of Understanding (MOU) for the sale of our Fremont Energy Center. The
MOU provides, among other things, for the parties to engage in exclusive negotiations towards a
definitive agreement expected to be executed in March, 2011, with a targeted closing date in July,
2011. In addition to Fremont, Signal Peak has been identified as a non-strategic asset that could
be made available for sale.
FirstEnergy
has identified potential post-merger benefits in the competitive generation and retail business
mostly related to expanding the FirstEnergy operating philosophy and model to the combined
operation. These include:
| • |
Economies of scale and best practices related to fuel procurement and transportation;
|
| • |
Expanded use of fuel blending techniques;
|
| • |
Generation asset reliability improvement;
|
| • |
Dispatch optimization;
|
| • |
Outage best practices; and
|
| • |
Expansion of the retail
sales growth strategy.
|
Our strategy is to sell our own physical generation output to sales channels in close proximity to
our fleet at the highest achievable margins. Our retail business remains a key component of our
strategy. FES continues to expand its regional reach through retail sales by using its competitive
generation assets to back POLR, governmental aggregation and direct sales commitments.
Wholesale power prices remain under pressure in response to continued low gas prices, but we expect
future improvements in power prices to benefit the combined fleet.
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Table of Contents
Financial Outlook
We remain committed to managing our operating and capital costs in order to achieve our financial
goals and commitment to shareholders.
Our liquidity position remains strong, with access to more than $
3.2
billion of liquidity,
of which approximately $3.1 billion was available as of January 31, 2011.
Capital expenditures in 2011 are projected to be $1.4 billion, compared to $1.8 billion in 2010.
We intend to continue to fund our capital requirements through cash generated from
operations
.
Positive earnings drivers for 2011 are expected to include:
| • |
Increased retail revenues associated with FES POLR, governmental aggregation and direct
sales;
|
| • |
Reduced fuel expenses; and
|
| • |
Increased margin from Signal Peak.
|
Negative earnings drivers for 2011 are expected to include:
| • |
Decreased revenues associated with the expiration of the Met Ed/Penelec partial
requirements agreement with FES;
|
| • |
Increase in net ancillary, congestion, and capacity expenses;
|
| • |
Increased purchased power expenses;
|
| • |
Additional planned nuclear outage for Davis-Besse’s reactor head replacement; and
|
| • |
Increased depreciation expenses and reduced capitalized interest, primarily associated
with the Sammis plant environmental project.
|
Distribution deliveries and non-fuel, non-outage O&M expenses including employee benefits are
expected to be essentially flat in 2011 compared to 2010.
FirstEnergy’s $2.75 billion revolving credit facility matures in August 2012. We intend to review
our revolving credit facility needs post-merger and at a minimum anticipate pursuing renewal of the
existing facility during the first half of 2011.
In December 2010, a new federal income tax law became effective that provides for bonus
depreciation tax benefits. This new law is expected to provide
approximately $500 million in
additional cash to FirstEnergy through 2012.
We remain focused on liquidity and a strong balance sheet, as well as maintaining investment grade
credit ratings. Our financial plan accelerates our goal of improving our financial strength and
flexibility by significantly reducing debt by the end of 2012. In addition to cash generated from
operations, we expect to deploy cash received through bonus depreciation tax benefits, as well as
cash from the future sale of certain non-core assets, to this debt reduction initiative. These
actions are expected to improve our credit metrics over the next several years.
Capital Expenditures Outlook
Our capital expenditure forecast for 2011 is projected to be $1.4 billion, which represents a $393
million decrease from 2010.
The main drivers of this decrease are the 2010 completion of the $1.8 billion Sammis AQC
environmental compliance project and reduced spending for the Fremont facility, scheduled for
completion in 2011.
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Table of Contents
Capital expenditures for our competitive energy services business (excluding the AQC project and
Fremont facility) are expected to increase slightly in 2011. The primary cause is the previously
announced decision to accelerate the replacement of the Davis-Besse nuclear reactor vessel head.
This initiative began in 2010 and is expected to be completed in 2011. Other planned generation
investments provide for maintenance of critical generation assets, deliver operational improvements
to enhance reliability, and support our generation to market strategy.
For our regulated operations, capital expenditures are forecasted at $730 million in 2011.
Approximately $100 million has been allocated to the transmission expansion initiative, which
includes projects to satisfy transmission capacity and reliability requirements, transitioning to
the PJM market, and connecting new load delivery and new wholesale generation points. Expenditures
for Ohio and Pennsylvania energy efficiency and advanced metering initiatives are expected to be
primarily reimbursed from distribution customers and federal stimulus funding. Other investments
for transmission and distribution infrastructure are designed to achieve cost-effective
improvements in the reliability of our service.
For 2012 and 2013 we anticipate average annual baseline capital expenditures of approximately $1.2
billion, exclusive of any additional opportunities or future mandated spending. Planned capital
initiatives promote reliability, improve operations, and support current environmental and energy
efficiency directives.
Actual capital spending for 2010 and projected capital spending for 2011 are as follows:
| Capital Spending by Business Unit | 2010 | 2011 | ||||||
| (In millions) | ||||||||
|
Energy Delivery
|
$ | 729 | $ | 630 | ||||
|
Nuclear
|
324 | 320 | ||||||
|
Fossil
|
174 | 160 | ||||||
|
FES Other
|
21 | 10 | ||||||
|
Corporate
|
59 | 50 | ||||||
|
AQC
|
249 | 4 | ||||||
|
|
||||||||
|
Baseline Capital Expenditures
|
$ | 1,556 | $ | 1,174 | ||||
|
Fremont Facility
|
148 | 56 | ||||||
|
Burger Biomass
|
7 | — | ||||||
|
Transmission Expansion
|
79 | 100 | ||||||
|
Davis-Besse Reactor Vessel Head
Replacement
|
23 | 90 | ||||||
|
|
||||||||
|
|
$ | 1,813 | $ | 1,420 | ||||
|
|
||||||||
Environmental Outlook
At FirstEnergy, we continually strive to enhance environmental protection and remain good stewards
of our natural resources. We devote significant resources to environmental compliance efforts, and
our employees share a commitment to, and accountability for, environmental performance. Our
corporate focus on continuous improvement is integral to our environmental programs.
We have spent more than $7 billion on environmental protection efforts since the initial passage of
the Clean Air and Water Acts in the 1970s, and these investments are making a difference. Over the
past five years, we have invested approximately $1.8 billion at our W.H. Sammis Plant in Stratton,
Ohio, to further reduce emissions of SO
2
by over 95% and NOx by at least 64%. This is
one of the largest environmental retrofit projects in the nation and was recognized by Platts as
the 2010 construction project of the year. Since 1990, we have reduced emissions of NOx by more
than 83%,
SO
2
by
more than 82%, and mercury by about 60%. Also, our CO
2
emission rate, in pounds of CO
2
per kWh, has dropped by 19% during this period. Emission
rates for our power plants are lower than the regional average.
By the end of 2011, we expect approximately 70% of our generation fleet to be non-emitting or low
emitting generation. Over 52% of our coal-fired generating fleet will have full NOx and
SO
2
equipment controls thus significantly decreasing our exposure to future
environmental requirements.
One of the key issues facing our company and industry is global-climate—change-related mandates.
Lawmakers at the state and federal levels are exploring and implementing a wide range of responses.
We believe our generation fleet is very well positioned to compete in a carbon-constrained economy.
In addition, we believe that upon consummation of the proposed
merger with Allegheny, our competitive position will be enhanced with an
even more diverse mix of fully-scrubbed fossil generation, non-emitting nuclear and renewable
generation, including large-scale storage.
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Table of Contents
We have taken aggressive steps over the past two decades that have increased our generating
capacity without adding to overall CO
2
emissions. For example, since 1990, we have
reconfigured our fleet by retiring nearly 1,000 MWs of older, coal-based generation and adding more
than 1,800 MWs of non-emitting nuclear capacity. Through these and other actions, we have increased
our generating capacity by nearly 15% over the same period while avoiding some 350 million metric
tons of CO
2
emissions. Today, nearly 40% of our electricity is generated without
emitting CO
2
— a key advantage that will help us meet the challenge of future
governmental climate change mandates. And with recent announcements in 2009, including the expanded
use of renewable energy, energy storage and natural gas, our CO
2
emission rate will
decline even further in the future.
We have taken a leadership role in pursuing new ventures and testing and developing new
technologies that show promise in achieving additional reductions in CO
2
emissions.
These include:
| • |
Sales of over 1 million MWH per year of wind generation.
|
| • |
Testing of CO
2
sequestration to gain a better understanding of the potential
for geological storage of CO
2
.
|
| • |
Supporting afforestation — growing forests on non-forested land — and other efforts
designed to remove CO
2
from the environment.
|
| • |
Reducing emissions of SF
6
(sulfur hexafluoride) by nearly 15 metric tons, resulting in
an equivalent reduction of nearly 315,000 metric tons of CO
2
, through the EPA’s
SF6 Emissions Reduction Partnership for Electric Power Systems.
|
| • |
Supporting research to develop and evaluate cost effective sorbent materials for
CO
2
capture including work by Powerspan at the Burger Plant, The University of
Akron and the EPRI.
|
We remain actively engaged in the federal and state debate over future environmental requirements
and legislation, especially those dealing with global climate change, hazardous air pollutants,
coal combustion residues and water effluent discharges. We are committed to working with policy
makers and regulators to develop fair and reasonable requirements, with the goal of reducing
emissions while minimizing the economic impact on our customers. Due to the significant
uncertainty as to the final form or timing of any such legislation and regulation at both the
federal and state levels, we are unable to determine the potential impact and risks associated with
future emissions requirements.
We also have a long history of supporting research in distributed energy resources. Distributed
energy resources include fuel cells, solar and wind systems or energy storage technologies located
close to the customer or direct control of customer loads to provide alternatives or enhancements
to the traditional electric power system. We are testing the world’s largest utility-scale fuel
cell system at our Eastlake power plant to determine its feasibility for augmenting generating
capacity during summer peak-use periods. Through a partnership with EPRI, the Cuyahoga Valley
National Park, the Department of Defense and Case Western Reserve University, two solid-oxide fuel
cells were installed as part of a test program to explore the technology and the environmental
benefits of distributed generation.
We are also evaluating the impact of distributed energy storage on the distribution system through
analysis and field demonstrations of advanced battery technologies. FirstEnergy’s EasyGreen
®
load-management program utilizes two-way communication capability with customers’ non-critical
equipment such as air conditioners in New Jersey and Pennsylvania to help manage peak loading on
the electric distribution system. FirstEnergy has also made an online interactive energy
efficiency tool, Home Energy Analyzer, available for its customers to help achieve electricity
use-reduction goals.
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Table of Contents
RISKS AND CHALLENGES
In executing our strategy, we face a number of industry and enterprise risks and challenges,
including:
| • |
risks arising from the reliability of our power plants and transmission and distribution
equipment;
|
| • |
changes in commodity prices could adversely affect our profit margins;
|
| • |
we are exposed to operational, price and credit risks associated with selling and
marketing products in the power markets that we do not always completely hedge against;
|
||
| • |
the use of derivative contracts by us to mitigate risks could result in financial losses
that may negatively impact our financial results;
|
| • |
financial derivatives reforms could increase our liquidity needs and collateral costs;
|
| • |
our risk management policies relating to energy and fuel prices, and counterparty
credit, are by their very nature risk related, and we could suffer economic losses despite
such policies;
|
| • |
nuclear generation involves risks that include uncertainties relating to health and
safety, additional capital costs, the adequacy of insurance coverage and nuclear plant
decommissioning;
|
| • |
capital market performance and other changes may decrease the value of the decommissioning
trust fund, pension fund assets and other trust funds which then could require significant
additional funding;
|
| • |
we could be subject to higher costs and/or penalties related to mandatory reliability
standards set by NERC/FERC or changes in the rules of organized markets and the states in
which we do business;
|
| • |
we rely on transmission and distribution assets that we do not own or control to deliver
our wholesale electricity. If transmission is disrupted, including our own transmission, or
not operated efficiently, or if capacity is inadequate, our ability to sell and deliver
power may be hindered;
|
| • |
disruptions in our fuel supplies could occur, which could adversely affect our ability
to operate our generation facilities and impact financial results;
|
| • |
temperature variations as well as weather conditions or other natural disasters could
have a negative impact on our results of operations and demand significantly below or above
our forecasts could adversely affect our energy margins;
|
| • |
we are subject to financial performance risks related to regional and general economic
cycles and also related to heavy manufacturing industries such as automotive and steel;
|
| • |
increases in customer electric rates and economic uncertainty may lead to a greater
amount of uncollectible customer accounts;
|
| • |
the goodwill of one or more of our operating subsidiaries may become impaired, which
would result in write-offs of the impaired amounts;
|
| • |
we face certain human resource risks associated with the availability of trained and
qualified labor to meet our future staffing requirements;
|
| • |
significant increases in our operation and maintenance expenses, including our health
care and pension costs, could adversely affect our future earnings and liquidity;
|
| • |
our business is subject to the risk that sensitive customer data may be compromised,
which could result in an adverse impact to our reputation and/or results of operations;
|
| • |
acts of war or terrorism could negatively impact our business;
|
| • |
capital improvements and
construction projects may not be completed within forecasted budget,
schedule or scope parameters;
|
| • |
changes in technology may significantly affect our generation business by making our
generating facilities less competitive;
|
55
Table of Contents
| • |
we may acquire assets that could present unanticipated issues for our business in the
future, which could adversely affect our ability to realize anticipated benefits of those
acquisitions;
|
| • |
ability of certain FirstEnergy companies to meet their obligations to other FirstEnergy
companies;
|
| • |
our pending merger with Allegheny may not achieve its intended results;
|
| • |
upon consummation of the pending merger we will be subject to business uncertainties that could
adversely affect our financial results;
|
||
| • |
once the pending merger is closed the combined company will have a higher percentage of coal-fired generation capacity
compared to FirstEnergy’s previous generation mix. As a result, FirstEnergy may be exposed
to greater risk from regulations of coal and coal combustion by-products than it faced
prior to the merger;
|
| • |
complex and changing government regulations could have a negative impact on our results
of operations;
|
| • |
regulatory changes in the electric industry, including a reversal, discontinuance or
delay of the present trend toward competitive markets, could affect our competitive
position and result in unrecoverable costs adversely affecting our business and results of
operations;
|
| • |
the prospect of rising rates could prompt legislative or regulatory action to restrict
or control such rate increases; this in turn could create uncertainty affecting planning,
costs and results of operations and may adversely affect the utilities’ ability to recover
their costs, maintain adequate liquidity and address capital requirements;
|
| • |
our profitability is impacted by our affiliated companies’ continued authorization to
sell power at market-based rates;
|
| • |
there are uncertainties relating to our participation in RTOs;
|
| • |
a significant delay in or challenges to various elements of ATSI’s consolidation into
PJM, including but not limited to, the intervention of parties to the regulatory
proceedings could have a negative impact on our results of operations and financial
condition;
|
| • |
energy conservation and energy price increases could negatively impact our financial
results;
|
| • |
our business and activities are subject to extensive environmental requirements and
could be adversely affected by such requirements;
|
| • |
the EPA is conducting NSR investigations at a number of our generating plants, the
results of which could negatively impact our results of operations and financial condition;
|
| • |
costs of compliance with environmental laws are significant, and the cost of compliance
with future environmental laws, including limitations on GHG
emissions could
adversely affect cash flow and profitability;
|
| • |
the physical risks associated with climate change may impact our results of operations
and cash flows;
|
| • |
remediation of environmental contamination at current or formerly owned facilities;
|
| • |
availability and cost of emission credits could materially impact our costs of
operations;
|
| • |
mandatory renewable portfolio requirements could negatively affect our costs;
|
| • |
we are and may become subject to legal claims arising from the presence of asbestos or
other regulated substances at some of our facilities;
|
| • |
the continuing availability and operation of generating units is dependent on retaining
the necessary licenses, permits, and operating authority from governmental entities,
including the NRC;
|
| • |
future changes in financial accounting standards may affect our reported financial
results;
|
56
Table of Contents
| • |
increases in taxes and fees;
|
| • |
interest rates and/or a credit rating downgrade could negatively affect our financing
costs, our ability to access capital and our requirement to post collateral;
|
| • |
we must rely on cash from our subsidiaries and any restrictions on our utility
subsidiaries’ ability to pay dividends or make cash payments to us may adversely affect our
financial condition;
|
| • |
we cannot assure common shareholders that future dividend payments will be made, or if
made, in what amounts they may be paid;
|
||
| • |
disruptions in the capital and credit markets may adversely affect our business,
including the availability and cost of short-term funds for liquidity requirements, our
ability to meet long-term commitments, our ability to hedge effectively our generation
portfolio, and the competitiveness and liquidity of energy markets; each could adversely
affect our results of operations, cash flows and financial condition; and
|
| • |
questions regarding the soundness of financial institutions or counterparties could
adversely affect us.
|
RESULTS OF OPERATIONS
The financial results discussed below include revenues and expenses from transactions among
FirstEnergy’s business segments. A reconciliation of segment financial results is provided in Note
15 to the consolidated financial statements. Earnings available to FirstEnergy by major business
segment were as follows:
| Increase (Decrease) | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 vs 2009 | 2009 vs 2008 | ||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||
|
Earnings (Loss) By Business Segment:
|
||||||||||||||||||||
|
Energy delivery services
|
$ | 607 | $ | 435 | $ | 916 | $ | 172 | $ | (481 | ) | |||||||||
|
Competitive energy services
|
258 | 517 | 472 | (259 | ) | 45 | ||||||||||||||
|
Other and reconciling adjustments*
|
(81 | ) | 54 | (46 | ) | (135 | ) | 100 | ||||||||||||
|
|
||||||||||||||||||||
|
Total
|
$ | 784 | $ | 1,006 | $ | 1,342 | $ | (222 | ) | $ | (336 | ) | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Basic Earnings Per Share
|
$ | 2.58 | $ | 3.31 | $ | 4.41 | $ | (0.73 | ) | $ | (1.10 | ) | ||||||||
|
Diluted Earnings Per Share
|
$ | 2.57 | $ | 3.29 | $ | 4.38 | $ | (0.72 | ) | $ | (1.09 | ) | ||||||||
| * |
Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses, noncontrolling interests
and the elimination of intersegment transactions.
|
57
Table of Contents
Summary of Results of Operations — 2010 Compared with 2009
Financial results for FirstEnergy’s major business segments in 2010 and 2009 were as follows:
| Energy | Competitive | Other and | ||||||||||||||
| Delivery | Energy | Reconciling | FirstEnergy | |||||||||||||
| 2010 Financial Results | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | 9,271 | $ | 3,252 | $ | — | $ | 12,523 | ||||||||
|
Other
|
542 | 292 | (92 | ) | 742 | |||||||||||
|
Internal*
|
139 | 2,301 | (2,366 | ) | 74 | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
9,952 | 5,845 | (2,458 | ) | 13,339 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
— | 1,440 | (8 | ) | 1,432 | |||||||||||
|
Purchased power
|
5,266 | 1,724 | (2,366 | ) | 4,624 | |||||||||||
|
Other operating expenses
|
1,492 | 1,436 | (78 | ) | 2,850 | |||||||||||
|
Provision for depreciation
|
451 | 254 | 41 | 746 | ||||||||||||
|
Amortization of regulatory assets
|
722 | — | — | 722 | ||||||||||||
|
Deferral of new regulatory assets
|
— | — | — | — | ||||||||||||
|
Impairment of long lived assets
|
— | 384 | — | 384 | ||||||||||||
|
General taxes
|
653 | 113 | 10 | 776 | ||||||||||||
|
|
||||||||||||||||
|
Total Expenses
|
8,584 | 5,351 | (2,401 | ) | 11,534 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
1,368 | 494 | (57 | ) | 1,805 | |||||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
102 | 51 | (36 | ) | 117 | |||||||||||
|
Interest expense
|
(496 | ) | (221 | ) | (128 | ) | (845 | ) | ||||||||
|
Capitalized interest
|
5 | 92 | 68 | 165 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Expense
|
(389 | ) | (78 | ) | (96 | ) | (563 | ) | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
979 | 416 | (153 | ) | 1,242 | |||||||||||
|
Income taxes
|
372 | 158 | (48 | ) | 482 | |||||||||||
|
|
||||||||||||||||
|
Net Income (Loss)
|
607 | 258 | (105 | ) | 760 | |||||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (24 | ) | (24 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 607 | $ | 258 | $ | (81 | ) | $ | 784 | |||||||
|
|
||||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, internal
revenues are not fully offset for sale of RECs by FES to the Ohio Companies that are retained
in inventory.
|
58
Table of Contents
| Energy | Competitive | Other and | ||||||||||||||
| Delivery | Energy | Reconciling | FirstEnergy | |||||||||||||
| 2009 Financial Results | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | 10,585 | $ | 1,447 | $ | — | $ | 12,032 | ||||||||
|
Other
|
559 | 447 | (82 | ) | 924 | |||||||||||
|
Internal*
|
— | 2,843 | (2,826 | ) | 17 | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
11,144 | 4,737 | (2,908 | ) | 12,973 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
— | 1,153 | — | 1,153 | ||||||||||||
|
Purchased power
|
6,560 | 996 | (2,826 | ) | 4,730 | |||||||||||
|
Other operating expenses
|
1,424 | 1,357 | (84 | ) | 2,697 | |||||||||||
|
Provision for depreciation
|
445 | 270 | 21 | 736 | ||||||||||||
|
Amortization of regulatory assets
|
1,155 | — | — | 1,155 | ||||||||||||
|
Deferral of new regulatory assets
|
(136 | ) | — | — | (136 | ) | ||||||||||
|
Impairment of long lived assets
|
— | 6 | — | 6 | ||||||||||||
|
General taxes
|
641 | 108 | 4 | 753 | ||||||||||||
|
|
||||||||||||||||
|
Total Expenses
|
10,089 | 3,890 | (2,885 | ) | 11,094 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
1,055 | 847 | (23 | ) | 1,879 | |||||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
139 | 121 | (56 | ) | 204 | |||||||||||
|
Interest expense
|
(472 | ) | (166 | ) | (340 | ) | (978 | ) | ||||||||
|
Capitalized interest
|
3 | 60 | 67 | 130 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Income (Expense)
|
(330 | ) | 15 | (329 | ) | (644 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
725 | 862 | (352 | ) | 1,235 | |||||||||||
|
Income taxes
|
290 | 345 | (390 | ) | 245 | |||||||||||
|
|
||||||||||||||||
|
Net Income
|
435 | 517 | 38 | 990 | ||||||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (16 | ) | (16 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 435 | $ | 517 | $ | 54 | $ | 1,006 | ||||||||
|
|
||||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, Internal
revenues are not fully offset for sale of RECs by FES to the Ohio Companies that are retained
in inventory.
|
59
Table of Contents
| Energy | Competitive | Other and | ||||||||||||||
| Changes Between 2010 and 2009 Financial | Delivery | Energy | Reconciling | FirstEnergy | ||||||||||||
| Results Increase (Decrease) | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | (1,314 | ) | $ | 1,805 | $ | — | $ | 491 | |||||||
|
Other
|
(17 | ) | (155 | ) | (10 | ) | (182 | ) | ||||||||
|
Internal*
|
139 | (542 | ) | 460 | 57 | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
(1,192 | ) | 1,108 | 450 | 366 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
— | 287 | (8 | ) | 279 | |||||||||||
|
Purchased power
|
(1,294 | ) | 728 | 460 | (106 | ) | ||||||||||
|
Other operating expenses
|
68 | 79 | 6 | 153 | ||||||||||||
|
Provision for depreciation
|
6 | (16 | ) | 20 | 10 | |||||||||||
|
Amortization of regulatory assets
|
(433 | ) | — | — | (433 | ) | ||||||||||
|
Deferral of new regulatory assets
|
136 | — | — | 136 | ||||||||||||
|
Impairment of long lived assets
|
— | 378 | — | 378 | ||||||||||||
|
General taxes
|
12 | 5 | 6 | 23 | ||||||||||||
|
|
||||||||||||||||
|
Total Expenses
|
(1,505 | ) | 1,461 | 484 | 440 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
313 | (353 | ) | (34 | ) | (74 | ) | |||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
(37 | ) | (70 | ) | 20 | (87 | ) | |||||||||
|
Interest expense
|
(24 | ) | (55 | ) | 212 | 133 | ||||||||||
|
Capitalized interest
|
2 | 32 | 1 | 35 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Expense
|
(59 | ) | (93 | ) | 233 | 81 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
254 | (446 | ) | 199 | 7 | |||||||||||
|
Income taxes
|
82 | (187 | ) | 342 | 237 | |||||||||||
|
|
||||||||||||||||
|
Net Income
|
172 | (259 | ) | (143 | ) | (230 | ) | |||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (8 | ) | (8 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 172 | $ | (259 | ) | $ | (135 | ) | $ | (222 | ) | |||||
|
|
||||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, internal
revenues are not fully offset for sale of RECs by FES to the Ohio Companies that are retained
in inventory.
|
Energy Delivery Services — 2010 Compared to 2009
Net income increased $172 million to $607 million in 2010 compared to $435 million in 2009,
primarily due to CEI’s $216 million regulatory asset impairment in 2009, partially offset by
increases in other operating expenses. Lower generation revenues were offset by lower purchased
power expenses.
Revenues —
The decrease in total revenues resulted from the following sources:
| Increase | ||||||||||||
| Revenues by Type of Service | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Distribution services
|
$ | 3,629 | $ | 3,419 | $ | 210 | ||||||
|
|
||||||||||||
|
Generation sales:
|
||||||||||||
|
Retail
|
4,456 | 5,764 | (1,308 | ) | ||||||||
|
Wholesale
|
841 | 752 | 89 | |||||||||
|
|
||||||||||||
|
Total generation sales
|
5,297 | 6,516 | (1,219 | ) | ||||||||
|
|
||||||||||||
|
Transmission
|
833 | 1,028 | (195 | ) | ||||||||
|
Other
|
193 | 181 | 12 | |||||||||
|
|
||||||||||||
|
Total Revenues
|
$ | 9,952 | $ | 11,144 | $ | (1,192 | ) | |||||
|
|
||||||||||||
60
Table of Contents
The increase in distribution deliveries by customer class is summarized in the following table:
| Electric Distribution KWH Deliveries | ||||
|
Residential
|
5.9 | % | ||
|
Commercial
|
2.8 | % | ||
|
Industrial
|
8.4 | % | ||
|
|
||||
|
Total Distribution KWH Deliveries
|
5.6 | % | ||
|
|
||||
Higher deliveries to residential and commercial customers reflect increased weather-related
usage due to a 70% increase in cooling degree days in 2010 compared to 2009, partially offset by a
4% decrease in heating degree days for the same period. In the industrial sector, KWH deliveries
increased primarily to major automotive customers (16%), refinery customers (7%) and steel
customers (38%). The increase in distribution service revenues also reflects the Pennsylvania
Companies’ recovery of the Pennsylvania EE&C as approved by the PPUC in March 2010 and the
accelerated recovery of deferred distribution costs in Ohio, partially offset by a reduction in the
transition rate for CEI effective June 1, 2009.
The following table summarizes the price and volume factors contributing to the $1.2 billion
decrease in generation revenues in 2010 compared to 2009:
| Increase | ||||
| Source of Change in Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Retail:
|
||||
|
Effect of 24.9% decrease in sales volumes
|
$ | (1,438 | ) | |
|
Change in prices
|
130 | |||
|
|
||||
|
|
(1,308 | ) | ||
|
|
||||
|
Wholesale:
|
||||
|
Effect of 8.4% decrease in sales volumes
|
(64 | ) | ||
|
Change in prices
|
153 | |||
|
|
||||
|
|
89 | |||
|
|
||||
|
Net Decrease in Generation Revenues
|
$ | (1,219 | ) | |
|
|
||||
The decrease in retail generation sales volumes was primarily due to an increase in customer
shopping in the Ohio Companies’ service territories. Total generation KWH provided by alternative
suppliers as a percentage of total KWH deliveries by the Ohio Companies increased to 62% in 2010
from 17% in 2009. The decrease in volumes was partially offset by increases in generation revenues
due to higher rates from the May 2009 Ohio CBP that include the recovery of transmission costs.
The increase in wholesale generation revenues reflected higher prices and increased capacity sales
for Met-Ed and Penelec in the PJM market.
Transmission revenues decreased $195 million primarily due to the termination of the Ohio
Companies’ transmission tariff effective June 1, 2009; transmission costs are now a component of
the cost of generation established under the May 2009 Ohio CBP.
Expenses —
Total expenses decreased by $1.5 billion due to the following:
| • |
Purchased power costs were $1.3 billion lower in 2010, largely due to lower volume
requirements. The decrease in volumes from non-affiliates resulted principally from
the termination of a third-party supply contract for Met-Ed and Penelec in January
2010 and from the increase in customer shopping in the Ohio Companies’ service
territories. The decrease in purchases from FES also resulted from the increase in
customer shopping in Ohio.
|
| • |
An increase in purchased power unit costs from non-affiliates in 2010 resulted
from higher capacity prices in the PJM market for Met-Ed and Penelec. A decrease in
unit costs for purchases from FES was principally due to the lower weighted average
unit price per KWH established under the May 2009 CBP auction for the Ohio Companies
effective June 1, 2009.
|
61
Table of Contents
| Increase | ||||
| Source of Change in Purchased Power | (Decrease) | |||
| (In millions) | ||||
|
Purchases from non-affiliates:
|
||||
|
Change due to increased unit costs
|
$ | 619 | ||
|
Change due to decreased volumes
|
(1,489 | ) | ||
|
|
||||
|
|
(870 | ) | ||
|
|
||||
|
Purchases from FES:
|
||||
|
Change due to decreased unit costs
|
(257 | ) | ||
|
Change due to decreased volumes
|
(250 | ) | ||
|
|
||||
|
|
(507 | ) | ||
|
|
||||
|
|
||||
|
Decrease in costs deferred
|
83 | |||
|
|
||||
|
Net Decrease in Purchased Power Costs
|
$ | (1,294 | ) | |
|
|
||||
| • |
Transmission expenses increased $70 million primarily due to higher PJM
network transmission expenses and congestion costs for Met-Ed and Penelec, partially
offset by lower MISO network transmission expenses that are reflected in the
generation rate established under the May 2009 Ohio CBP. Met-Ed and Penelec defer or
amortize the difference between revenues from their transmission rider and
transmission costs incurred with no material effect on earnings.
|
| • |
Energy efficiency program costs, which are also recovered through rates, increased
$41 million in 2010 compared to 2009.
|
| • |
Labor and employee benefit expenses decreased by $34 million due to lower pension
and OPEB expenses, lower payroll costs resulting from staffing reductions implemented
in 2009, and restructuring expenses recognized in 2009.
|
| • |
Expenses for economic development commitments related to the Ohio Companies’ ESP
were lower by $11 million in 2010 compared to 2009.
|
| • |
Depreciation expense increased $6 million due to property additions since 2009.
|
| • |
Amortization of regulatory assets decreased $433 million due primarily to
the absence of the $216 million impairment of CEI’s regulatory assets in 2009,
reduced net MISO and PJM transmission cost amortization and reduced CTC amortization
for Met-Ed and Penelec, partially offset by increased amortization associated with
the accelerated recovery of deferred distribution costs in Ohio and a $35 million
regulatory asset impairment in 2010 associated with the Ohio Companies’ ESP.
|
| • |
The deferral of new regulatory assets decreased $136 million in 2010 due to CEI’s
purchased power cost deferrals that ended in early 2009.
|
| • |
General taxes increased $12 million principally due to a benefit relating to Ohio
KWH excise taxes that was recognized in 2009 and applicable to prior years.
|
Other Expense —
Other expense increased $59 million in 2010 compared to 2009 primarily due to lower nuclear
decommissioning trust investment income ($37 million) and higher net interest expense associated
with debt issuances by the Utilities during 2009 ($22 million).
Competitive Energy Services — 2010 Compared to 2009
Net income decreased to $258 million in 2010 compared to $517 million in 2009. The decrease in net
income was primarily due to $384 million of impairment charges ($240 million net of tax) in 2010.
In addition, FES sold a 6.65% participation interest in OVEC in 2010 compared to a 9% interest in
2009, accounting for $105 million of the reduction in net income. Investment income from nuclear
decommissioning trusts was also lower in 2010. These reductions were partially offset by an
increase in sales margins.
62
Table of Contents
Revenues —
Total revenues increased $1,108 million in 2010 compared to the same period in 2009
primarily due to an increase in direct and government aggregation sales and sales of RECs,
partially offset by decreases in POLR sales to the Ohio Companies, other wholesale sales and the
reduced OVEC participation interest sale in 2010.
The increase in reported segment revenues resulted from the following sources:
| Increase | ||||||||||||
| Revenues by Type of Service | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Direct and Government Aggregation
|
$ | 2,494 | $ | 779 | $ | 1,715 | ||||||
|
POLR
|
2,436 | 2,863 | (427 | ) | ||||||||
|
Wholesale
|
550 | 632 | (82 | ) | ||||||||
|
Transmission
|
77 | 73 | 4 | |||||||||
|
RECs
|
74 | 17 | 57 | |||||||||
|
Sale of OVEC participation interest
|
85 | 252 | (167 | ) | ||||||||
|
Other
|
129 | 121 | 8 | |||||||||
|
|
||||||||||||
|
Total Revenues
|
$ | 5,845 | $ | 4,737 | $ | 1,108 | ||||||
|
|
||||||||||||
The increase in direct and government aggregation revenues of $1.7 billion resulted from
increased revenue from the acquisition of new commercial and industrial customers as well as from
new government aggregation contracts with communities in Ohio that provide generation to 1.5
million residential and small commercial customers at the end of 2010 compared to approximately
600,000 customers at the end of 2009. Increases in direct sales were partially offset by lower
unit prices. Sales to residential and small commercial customers were also bolstered by summer
weather in the delivery area that was significantly warmer than in 2009.
The decrease in POLR revenues of $427 million was due to lower sales volumes and lower unit prices
to the Ohio Companies, partially offset by increased sales volumes and higher unit prices to the
Pennsylvania Companies. The lower sales volumes and unit prices to the Ohio Companies in 2010
reflected the results of the May 2009 CBP. The increased revenues to the Pennsylvania Companies
resulted from FES supplying Met-Ed and Penelec with volumes previously supplied through a
third-party contract and at prices that were slightly higher than in 2009.
Other wholesale revenues decreased $82 million due to reduced volumes, partially offset by higher
prices. Lower sales volumes in MISO were due to available capacity serving increased retail sales
in Ohio partially offset by increased sales under bilateral agreements in PJM.
The following tables summarize the price and volume factors contributing to changes in revenues
from generation sales:
| Increase | ||||
| Source of Change in Direct and Government Aggregation | (Decrease) | |||
| (In millions) | ||||
|
Direct Sales:
|
||||
|
Effect of increase in sales volumes
|
$ | 1,083 | ||
|
Change in prices
|
(82 | ) | ||
|
|
||||
|
|
1,001 | |||
|
|
||||
|
Government Aggregation:
|
||||
|
Effect of increase in sales volumes
|
704 | |||
|
Change in prices
|
10 | |||
|
|
||||
|
|
714 | |||
|
|
||||
|
Net Increase in Direct and Government Aggregation Revenues
|
$ | 1,715 | ||
|
|
||||
63
Table of Contents
| Increase | ||||
| Source of Change in Wholesale Revenues | Decrease | |||
| (In millions) | ||||
|
POLR:
|
||||
|
Effect of 5.3% decrease in sales volumes
|
$ | (153 | ) | |
|
Change in prices
|
(274 | ) | ||
|
|
||||
|
|
(427 | ) | ||
|
|
||||
|
Other Wholesale:
|
||||
|
Effect of 26.5% decrease in sales volumes
|
(105 | ) | ||
|
Change in prices
|
23 | |||
|
|
||||
|
|
(82 | ) | ||
|
|
||||
|
Net Decrease in Wholesale Revenues
|
$ | (509 | ) | |
|
|
||||
Expenses —
Total expenses increased $1.5 billion in 2010 due to the following factors:
| • |
Fuel costs increased $287 million in 2010 compared to 2009 primarily due to
increased volumes consumed ($217 million) and higher unit prices ($70 million). The
higher volumes consumed in 2010 were due to increased sales to direct and government
aggregation customers, improved economic conditions and improved generating unit
availability. The increase in unit prices was due primarily to increased coal
transportation costs and to higher nuclear fuel unit prices following the refueling
outages that occurred in 2009 and 2010.
|
| • |
Purchased power costs increased $728 million. Increased volumes purchased primarily
relate to the assumption of a 1,300 MW third party contract from Met-Ed and Penelec.
|
| • |
Fossil operating costs decreased $12 million due primarily to lower labor and
professional and contractor costs, which were partially offset by reduced gains from
the sale of emission allowances and excess coal.
|
| • |
Nuclear operating costs decreased $21 million due primarily to lower labor,
consulting and contractor costs partially offset by increased nuclear property
insurance and employee benefit costs. The year 2010 had one less refueling outage and
fewer extended outages than the same period of 2009.
|
| • |
Transmission expenses increased $25 million due primarily to increased costs in MISO
of $170 million from higher network, ancillary and congestion costs, partially offset
by lower PJM transmission expenses of $145 million due to lower congestion costs.
|
| • |
Depreciation expense decreased $16 million principally due to reduced depreciable
property associated with the impairments described below and the sale of the Sumpter
plant in early 2010.
|
| • |
General taxes increased $5 million due to an increase in revenue-related taxes.
|
| • |
Other expenses increased $465 million primarily due to a $384 million impairment
charge ($240 million net of tax) related to operational changes at certain smaller
coal-fired units in response to the continued slow economy, lower demand for
electricity and uncertainty related to proposed new federal environmental regulations.
Expenses were also increased due to the significant growth in FES’ retail business —
professional and contractor expenses, billings from affiliated service companies,
uncollectible customer accounts and agent fees.
|
Other Expense —
Total other expense in 2010 was $93 million higher than the same period in 2009, primarily due to a
decrease in nuclear decommissioning trust investment income ($66) million and a $23 million
increase in net interest expense from new long-term debt issued in late 2009 combined with the
restructuring of outstanding PCRBs that occurred throughout 2009 and 2010.
64
Table of Contents
Other — 2010 Compared to 2009
Financial results from other operating segments and reconciling items, including interest expense
on holding company debt and corporate support services revenues and expenses, resulted in a $135
million decrease in earnings available to FirstEnergy in 2010 compared to 2009. The decrease
resulted primarily from increased income tax expense ($342 million) due in part to the absence of
favorable tax settlements that occurred in 2009 ($200 million), partially offset by the absence of
2009 debt retirement costs in connection with the tender offer for holding company debt ($90
million), decreased interest expense associated with the debt retirement ($53 million), increased
investment income ($20 million) and decreased depreciation ($20 million).
Summary of Results of Operations — 2009 Compared with 2008
Financial results for FirstEnergy’s major business segments in 2009 were as follows:
| Energy | Competitive | Other and | ||||||||||||||
| Delivery | Energy | Reconciling | FirstEnergy | |||||||||||||
| 2009 Financial Results | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | 10,585 | $ | 1,447 | $ | — | $ | 12,032 | ||||||||
|
Other
|
559 | 447 | (82 | ) | 924 | |||||||||||
|
Internal*
|
— | 2,843 | (2,826 | ) | 17 | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
11,144 | 4,737 | (2,908 | ) | 12,973 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
— | 1,153 | — | 1,153 | ||||||||||||
|
Purchased power
|
6,560 | 996 | (2,826 | ) | 4,730 | |||||||||||
|
Other operating expenses
|
1,424 | 1,357 | (84 | ) | 2,697 | |||||||||||
|
Provision for depreciation
|
445 | 270 | 21 | 736 | ||||||||||||
|
Amortization of regulatory assets
|
1,155 | — | — | 1,155 | ||||||||||||
|
Deferral of new regulatory assets
|
(136 | ) | — | — | (136 | ) | ||||||||||
|
Impairment of long lived assets
|
— | 6 | — | 6 | ||||||||||||
|
General taxes
|
641 | 108 | 4 | 753 | ||||||||||||
|
|
||||||||||||||||
|
Total Expenses
|
10,089 | 3,890 | (2,885 | ) | 11,094 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
1,055 | 847 | (23 | ) | 1,879 | |||||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
139 | 121 | (56 | ) | 204 | |||||||||||
|
Interest expense
|
(472 | ) | (166 | ) | (340 | ) | (978 | ) | ||||||||
|
Capitalized interest
|
3 | 60 | 67 | 130 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Expense
|
(330 | ) | 15 | (329 | ) | (644 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
725 | 862 | (352 | ) | 1,235 | |||||||||||
|
Income taxes
|
290 | 345 | (390 | ) | 245 | |||||||||||
|
|
||||||||||||||||
|
Net Income
|
435 | 517 | 38 | 990 | ||||||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (16 | ) | (16 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 435 | $ | 517 | $ | 54 | $ | 1,006 | ||||||||
|
|
||||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, internal
revenues are not fully offset for sale of RECs by FES to the Ohio Companies that are retained
in inventory.
|
65
Table of Contents
| Energy | Competitive | Other and | ||||||||||||||
| Delivery | Energy | Reconciling | FirstEnergy | |||||||||||||
| 2008 Financial Results | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | 11,360 | $ | 1,333 | $ | — | $ | 12,693 | ||||||||
|
Other
|
708 | 238 | (12 | ) | 934 | |||||||||||
|
Internal
|
— | 2,968 | (2,968 | ) | — | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
12,068 | 4,539 | (2,980 | ) | 13,627 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
2 | 1,338 | — | 1,340 | ||||||||||||
|
Purchased power
|
6,480 | 779 | (2,968 | ) | 4,291 | |||||||||||
|
Other operating expenses
|
2,022 | 1,142 | (119 | ) | 3,045 | |||||||||||
|
Provision for depreciation
|
417 | 243 | 17 | 677 | ||||||||||||
|
Amortization of regulatory assets
|
1,053 | — | — | 1,053 | ||||||||||||
|
Deferral of new regulatory assets
|
(316 | ) | — | — | (316 | ) | ||||||||||
|
Impairment of long lived assets
|
— | — | — | — | ||||||||||||
|
General taxes
|
646 | 109 | 23 | 778 | ||||||||||||
|
|
||||||||||||||||
|
Total Expenses
|
10,304 | 3,611 | (3,047 | ) | 10,868 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
1,764 | 928 | 67 | 2,759 | ||||||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
171 | (34 | ) | (78 | ) | 59 | ||||||||||
|
Interest expense
|
(411 | ) | (152 | ) | (191 | ) | (754 | ) | ||||||||
|
Capitalized interest
|
3 | 44 | 5 | 52 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Expense
|
(237 | ) | (142 | ) | (264 | ) | (643 | ) | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
1,527 | 786 | (197 | ) | 2,116 | |||||||||||
|
Income taxes
|
611 | 314 | (148 | ) | 777 | |||||||||||
|
|
||||||||||||||||
|
Net Income
|
916 | 472 | (49 | ) | 1,339 | |||||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (3 | ) | (3 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 916 | $ | 472 | $ | (46 | ) | $ | 1,342 | |||||||
|
|
||||||||||||||||
66
Table of Contents
| Energy | Competitive | Other and | ||||||||||||||
| Changes Between 2009 and 2008 Financial | Delivery | Energy | Reconciling | FirstEnergy | ||||||||||||
| Results Increase (Decrease) | Services | Services | Adjustments | Consolidated | ||||||||||||
| (In millions) | ||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
External
|
||||||||||||||||
|
Electric
|
$ | (775 | ) | $ | 114 | $ | — | $ | (661 | ) | ||||||
|
Other
|
(149 | ) | 209 | (70 | ) | (10 | ) | |||||||||
|
Internal*
|
— | (125 | ) | 142 | 17 | |||||||||||
|
|
||||||||||||||||
|
Total Revenues
|
(924 | ) | 198 | 72 | (654 | ) | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Expenses:
|
||||||||||||||||
|
Fuel
|
(2 | ) | (185 | ) | — | (187 | ) | |||||||||
|
Purchased power
|
80 | 217 | 142 | 439 | ||||||||||||
|
Other operating expenses
|
(598 | ) | 215 | 35 | (348 | ) | ||||||||||
|
Provision for depreciation
|
28 | 27 | 4 | 59 | ||||||||||||
|
Amortization of regulatory assets
|
102 | — | — | 102 | ||||||||||||
|
Deferral of new regulatory assets
|
180 | — | — | 180 | ||||||||||||
|
Impairment of long lived assets
|
— | 6 | — | 6 | ||||||||||||
|
General taxes
|
(5 | ) | (1 | ) | (19 | ) | (25 | ) | ||||||||
|
|
||||||||||||||||
|
Total Expenses
|
(215 | ) | 279 | 162 | 226 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating Income
|
(709 | ) | (81 | ) | (90 | ) | (880 | ) | ||||||||
|
|
||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Investment income
|
(32 | ) | 155 | 22 | 145 | |||||||||||
|
Interest expense
|
(61 | ) | (14 | ) | (149 | ) | (224 | ) | ||||||||
|
Capitalized interest
|
— | 16 | 62 | 78 | ||||||||||||
|
|
||||||||||||||||
|
Total Other Expense
|
(93 | ) | 157 | (65 | ) | (1 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income Before Income Taxes
|
(802 | ) | 76 | (155 | ) | (881 | ) | |||||||||
|
Income taxes
|
(321 | ) | 31 | (242 | ) | (532 | ) | |||||||||
|
|
||||||||||||||||
|
Net Income
|
(481 | ) | 45 | 87 | (349 | ) | ||||||||||
|
Loss attributable to noncontrolling interest
|
— | — | (13 | ) | (13 | ) | ||||||||||
|
|
||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | (481 | ) | $ | 45 | $ | 100 | $ | (336 | ) | ||||||
|
|
||||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, internal
revenues are not fully offset for sale of RECs by FES to the Ohio Companies that are retained
in inventory.
|
Energy Delivery Services — 2009 Compared to 2008
Net income decreased $481 million to $435 million in 2009 compared to $916 million in 2008,
primarily due to lower revenues, increased purchased power costs and decreased deferrals of new
regulatory assets, partially offset by lower other operating expenses.
Revenues —
The decrease in total revenues resulted from the following sources:
| Increase | ||||||||||||
| Revenues by Type of Service | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Distribution services
|
$ | 3,420 | $ | 3,882 | $ | (462 | ) | |||||
|
|
||||||||||||
|
Generation sales:
|
||||||||||||
|
Retail
|
5,760 | 5,768 | (8 | ) | ||||||||
|
Wholesale
|
752 | 962 | (210 | ) | ||||||||
|
|
||||||||||||
|
Total generation sales
|
6,512 | 6,730 | (218 | ) | ||||||||
|
|
||||||||||||
|
Transmission
|
1,023 | 1,268 | (245 | ) | ||||||||
|
Other
|
189 | 188 | 1 | |||||||||
|
|
||||||||||||
|
Total Revenues
|
$ | 11,144 | $ | 12,068 | $ | (924 | ) | |||||
|
|
||||||||||||
67
Table of Contents
The decrease in distribution deliveries by customer class is summarized in the following table:
| Electric Distribution KWH Deliveries | ||||
|
Residential
|
(3.3 | )% | ||
|
Commercial
|
(4.4 | )% | ||
|
Industrial
|
(14.7 | )% | ||
|
|
||||
|
Total Distribution KWH Deliveries
|
(7.3 | )% | ||
|
|
||||
The lower revenues from distribution services were driven primarily by the reductions in sales
volume associated with milder weather and economic conditions. The decrease in residential
deliveries reflected reduced weather-related usage compared to 2008, as cooling degree days and
heating degree days decreased by 17% and 1%, respectively. The decreases in distribution deliveries
to commercial and industrial customers were primarily due to economic conditions in FirstEnergy’s
service territory. In the industrial sector, KWH deliveries declined to major automotive customers
by 20.2% and to steel customers by 36.2%. Reduced revenues from transition charges for OE and TE
that ceased with the full recovery of related costs effective January 1, 2009 and the transition
rate reduction for CEI effective June 1, 2009, were offset by PUCO-approved distribution rate
increases (see Regulatory Matters — Ohio).
The following table summarizes the price and volume factors contributing to the $218 million
decrease in generation revenues in 2009 compared to 2008:
| Increase | ||||
| Source of Change in Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Retail:
|
||||
|
Effect of 10.5% decrease in sales volumes
|
$ | (603 | ) | |
|
Change in prices
|
595 | |||
|
|
||||
|
|
(8 | ) | ||
|
|
||||
|
Wholesale:
|
||||
|
Effect of 14.9% decrease in sales volumes
|
(143 | ) | ||
|
Change in prices
|
(67 | ) | ||
|
|
||||
|
|
(210 | ) | ||
|
|
||||
|
Net Decrease in Generation Revenues
|
$ | (218 | ) | |
|
|
||||
The decrease in retail generation sales volumes from 2008 was primarily due to the weakened
economic conditions and milder weather described above. Retail generation prices increased for
JCP&L and Penn during 2009 as a result of their power procurement processes. For the Ohio
Companies, average prices increased primarily due to the higher fuel cost recovery riders that were
effective from January through May 2009. In addition, effective June 1, 2009, the Ohio Companies’
transmission tariff ended and transmission costs became a component of the generation rate
established under the CBP.
Wholesale generation sales decreased principally as a result of JCP&L selling less available power
from NUGs due to the termination of a NUG purchase contract in October 2008. The decrease in
wholesale prices reflected lower spot market prices in PJM.
Transmission revenues decreased $245 million primarily due to the termination of the Ohio
Companies’ current transmission tariff and lower MISO and PJM transmission revenues, partially
offset by higher transmission rates for Met-Ed and Penelec resulting from the annual updates to
their TSC riders (see Regulatory Matters). The difference between transmission revenues accrued and
transmission costs incurred are deferred, resulting in no material effect on current period
earnings.
Expenses —
Total expenses increased by $215 million due to the following:
| • |
Purchased power costs were
$80 million higher in 2009 due to higher unit costs, partially offset by an increase
in volumes combined with higher NUG cost deferrals. The increased purchased power costs from non-affiliates
was due primarily to increased volumes for the Ohio Companies as a result of their CBP, partially offset by lower
volumes for Met-Ed and Penelec due to the termination of a third-party supply contract in December 2008 and for JCP&L
due to the termination of a NUG purchase contract in October 2008. Decreased purchased power costs from FES were
principally due to lower volumes for the Ohio Companies following their CBP, partially offset by increased volumes for
Met-Ed and Penelec under their fixed-price partial requirements PSA with FES. Higher unit costs from FES, which
included a component for transmission under the Ohio Companies’ CBP, partially offset the decreased volumes.
|
68
Table of Contents
The following table summarizes the sources of changes in purchased power costs:
| Increase | ||||
| Source of Change in Purchased Power | (Decrease) | |||
| (In millions) | ||||
|
Purchases from non-affiliates:
|
||||
|
Change due to increased unit costs
|
$ | 58 | ||
|
Change due to increased volumes
|
312 | |||
|
|
||||
|
|
370 | |||
|
|
||||
|
Purchases from FES:
|
||||
|
Change due to increased unit costs
|
583 | |||
|
Change due to decreased volumes
|
(725 | ) | ||
|
|
||||
|
|
(142 | ) | ||
|
|
||||
|
|
||||
|
Increase in NUG costs deferred
|
(148 | ) | ||
|
|
||||
|
Net Increase in Purchased Power Costs
|
$ | 80 | ||
|
|
||||
| • |
Transmission expenses were lower by $481 million in 2009, reflecting the
change in the transmission tariff under the Ohio Companies’ CBP, reduced transmission
volumes and lower congestion costs.
|
| • |
Intersegment cost reimbursements related to the Ohio Companies’ nuclear generation
leasehold interests increased by $114 million in 2009. Prior to 2009, a portion of
OE’s and TE’s leasehold costs were recovered through customer transition charges.
Effective January 1, 2009, these leasehold costs are reimbursed from the competitive
energy services segment.
|
| • |
Labor and employee benefit expenses decreased by $39 million reflecting changes to
Energy Delivery’s organizational and compensation structure and increased resources
dedicated to capital projects, partially offset by higher pension expenses resulting
from reduced pension plan asset values at the end of 2008.
|
| • |
Storm-related costs were $16 million lower in 2009 compared to the prior year.
|
| • |
An increase in other operating expenses of $40 million resulted from the
recognition of economic development and energy efficiency obligations in accordance
with the PUCO-approved ESP.
|
| • |
Uncollectible expenses were higher by $12 million in 2009 principally due to
increased bankruptcies.
|
| • |
A $102 million increase in the amortization of regulatory assets was due primarily
to the ESP-related impairment of CEI’s regulatory assets ($216 million) and MISO/PJM
transmission cost amortization in 2009, partially offset by the cessation of
transition cost amortization for OE and TE.
|
| • |
A $180 million decrease in the deferral of new regulatory assets was principally
due to the absence in 2009 of PJM transmission cost deferrals and RCP distribution
cost deferrals, partially offset by the PUCO-approved deferral of purchased power
costs for CEI.
|
| • |
Depreciation expense increased $28 million due to property additions since 2008.
|
| • |
General taxes decreased $5 million due primarily to lower revenue-related taxes in
2009.
|
Other Expense —
Other expense increased $93 million in 2009 compared to 2008. Lower investment income of $32
million resulted primarily from repaid notes receivable from affiliates. Higher interest expense
(net of capitalized interest) of $61 million resulted from a net increase in debt of $1.8
billion by the Utilities and ATSI during 2009.
Competitive Energy Services — 2009 Compared to 2008
Net income increased to $517 million in 2009 compared to $472 million in the same period of 2008.
The increase in net income includes FGCO’s gain from the sale of a 9% participation interest in
OVEC, increased sales margins, and an increase in investment income, offset by a mark-to-market
adjustment relating to purchased power contracts for delivery in 2010 and 2011.
69
Table of Contents
Revenues —
Total revenues increased $198 million in 2009 compared to the same period in 2008. This increase
primarily resulted from the OVEC sale and higher unit prices on affiliated generation sales to the
Ohio Companies and non-affiliated customers, partially offset by lower sales volumes.
The increase in reported segment revenues resulted from the following sources:
| Increase | ||||||||||||
| Revenues by Type of Service | 2009 | 2008 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Non-Affiliated Generation Sales:
|
||||||||||||
|
Retail
|
$ | 778 | $ | 615 | $ | 163 | ||||||
|
Wholesale
|
669 | 718 | (49 | ) | ||||||||
|
|
||||||||||||
|
Total Non-Affiliated Generation
Sales
|
1,447 | 1,333 | 114 | |||||||||
|
Affiliated Generation Sales
|
2,843 | 2,968 | (125 | ) | ||||||||
|
Transmission
|
73 | 150 | (77 | ) | ||||||||
|
Sale of OVEC participation interest
|
252 | — | 252 | |||||||||
|
Other
|
122 | 88 | 34 | |||||||||
|
|
||||||||||||
|
Total Revenues
|
$ | 4,737 | $ | 4,539 | $ | 198 | ||||||
|
|
||||||||||||
The increase in non-affiliated retail revenues of $163 million resulted from increased revenue
in both the PJM and MISO markets. The increase in MISO retail revenue is primarily the result of
the acquisition of new customers, higher unit prices and the inclusion of the transmission related
component in retail rates previously reported as transmission revenues. The increase in PJM retail
revenue resulted from the acquisition of new customers, higher sales volumes and unit prices. The
acquisition of new customers in MISO is primarily due to new government aggregation contracts with
60 area communities in Ohio that will provide discounted generation prices to approximately 580,000
residential and small commercial customers. Lower non-affiliated wholesale revenues of $49 million
resulted from decreased sales volumes in PJM partially offset by increased capacity prices,
increased sales volumes in MISO, and favorable settlements on hedged transactions.
The lower affiliated company wholesale generation revenues of $125 million were due to lower sales
volumes to the Ohio Companies combined with lower unit prices to the Pennsylvania companies,
partially offset by higher unit prices to the Ohio Companies and increased sales volumes to the
Pennsylvania Companies. The lower sales volumes and higher unit prices to the Ohio Companies
reflected the results of the power procurement processes in the first half of 2009 (see Regulatory
Matters — Ohio). The higher sales to the Pennsylvania Companies were due to increased Met-Ed and
Penelec generation sales requirements supplied by FES partially offset by lower sales to Penn due
to decreased default service requirements in 2009 compared to 2008. Additionally, while unit prices
for each of the Pennsylvania Companies did not change, the mix of sales among the companies caused
the overall price to decline.
The following tables summarize the price and volume factors contributing to changes in revenues
from generation sales:
| Increase | ||||
| Source of Change in Non-Affiliated Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Retail:
|
||||
|
Effect of 8.6% increase in sales volumes
|
$ | 53 | ||
|
Change in prices
|
110 | |||
|
|
||||
|
|
163 | |||
|
|
||||
|
Wholesale:
|
||||
|
Effect of 13.9% decrease in sales volumes
|
(100 | ) | ||
|
Change in prices
|
51 | |||
|
|
||||
|
|
(49 | ) | ||
|
|
||||
|
Net Increase in Non-Affiliated Generation Revenues
|
$ | 114 | ||
|
|
||||
70
Table of Contents
| Increase | ||||
| Source of Change in Affiliated Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Retail:
|
||||
|
Effect of 36.3% decrease in sales volumes
|
$ | (837 | ) | |
|
Change in prices
|
645 | |||
|
|
||||
|
|
(192 | ) | ||
|
|
||||
|
Wholesale:
|
||||
|
Effect of 14.7% increase in sales volumes
|
97 | |||
|
Change in prices
|
(30 | ) | ||
|
|
||||
|
|
67 | |||
|
|
||||
|
Net Decrease in Affiliated Generation Revenues
|
$ | (125 | ) | |
|
|
||||
Transmission revenues decreased $77 million due primarily to reduced loads following the
expiration of the government aggregation programs in Ohio at the end of 2008 and to the inclusion
of the transmission-related component in the retail rates in mid-2009. In 2009 FGCO sold 9% of its
participation interest in OVEC resulting in a $252 million ($158 million, after tax) gain. Other
revenue increased $28 million primarily due to income associated with NGC’s acquisition of equity
interests in the Perry and Beaver Valley Unit 2 leases.
Expenses —
Total expenses increased $279 million in 2009 due to the following factors:
| • |
Fossil Fuel costs decreased $198 million due primarily to lower generation volumes
($307 million) partially offset by higher unit prices ($109 million). Nuclear Fuel
costs increased $13 million as higher unit prices ($26 million) were partially offset
by lower generation ($13 million).
|
| • |
Purchased power costs increased $217 million due to a mark-to-market adjustment
($205 million) relating to purchased power contracts for delivery in 2010 and 2011
and higher unit prices ($33 million)
that resulted primarily from higher capacity costs, partially offset by lower volumes
purchased ($21 million) due to FGCO’s reduced participation interest in OVEC.
|
| • |
Fossil operating costs decreased $24 million due primarily to a reduction in
contractor, material and labor costs and increased resources dedicated to capital
projects, partially offset by higher employee benefits.
|
| • |
Nuclear operating costs increased $45 million due to an additional refueling
outage during the 2009 period and higher employee benefits, partially offset by lower
labor costs.
|
| • |
Transmission expense increased $121 million due to transmission services charges
related to the load serving entity obligations in MISO, increased net congestion and
higher loss expenses in MISO and PJM.
|
| • |
Other expense increased $78 million due primarily to increased intersegment
billings for leasehold costs from the Ohio Companies and higher pension costs.
|
| • |
Depreciation expense increased $27 million due to NGC’s increased ownership
interest in Beaver Valley Unit 2 and Perry.
|
Other Income (Expense) —
Total other income in 2009 was $15 million compared to total other expense in 2008 of $142 million,
resulting primarily from a $155 million increase from gains on the sale of nuclear decommissioning
trust investments. During 2009, the majority of the nuclear decommissioning trust holdings were
converted to more closely align with the liability being funded.
Other — 2009 Compared to 2008
Our financial results from other operating segments and reconciling items resulted in a $100
million increase in net income in 2009 compared to 2008. The increase resulted primarily from $200
million of favorable tax settlements, offset by debt redemption costs of $90 million and by the
absence of the gain from the sale of telecommunication assets ($19 million, net of taxes) in 2008.
71
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POSTRETIREMENT BENEFITS
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers
substantially all of our employees and non-qualified pension plans that cover certain employees.
The plans provide defined benefits based on years of service and compensation levels. We also
provide health care benefits, which include certain employee contributions, deductibles, and
co-payments, upon retirement to employees hired prior to January 1, 2005, their dependents, and
under certain circumstances, their survivors. Benefit plan assets and obligations are remeasured
annually using a December 31 measurement date. Adverse market conditions during 2008 increased 2009
costs, which were partially offset by the effects of a $500 million voluntary cash pension
contribution and an OPEB plan amendment in 2009. Recovering market conditions and greater returns
on higher asset levels decreased postretirement benefit expense in 2010, partially offset by a full
year of realization on the reduction in benefit liability resulting from the OPEB plan amendment in
2009. Pension and OPEB expenses are included in various cost categories and have contributed to
cost increases discussed above for 2010. The following table reflects the portion of qualified and
non-qualified pension and OPEB costs that were charged to expense in the three years ended December
31, 2010:
| Postretirement Benefits Expense (Credits) | 2010 | 2009 | 2008 | |||||||||
| (In millions) | ||||||||||||
|
Pension
|
$ | 174 | $ | 185 | $ | (23 | ) | |||||
|
OPEB
|
(90 | ) | (40 | ) | (37 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | 84 | $ | 145 | $ | (60 | ) | |||||
|
|
||||||||||||
As of December 31, 2010, our pension plan was underfunded and we currently anticipate that an
additional voluntary cash contribution of $250 million will be made in 2011.
The overall actual investment result during 2010 was a gain of 10% compared to an assumed 8.5%
return. Based on discount rates of 5.50% for pension, 5.00% for OPEB and an estimated return on
assets of 8.25%, our 2011 pre-tax net periodic postretirement benefit expense is expected to be
approximately $92 million.
SUPPLY PLAN
Regulated Commodity Sourcing
The Utilities have a default service obligation to provide power to non-shopping customers who have
elected to continue to receive service under regulated retail tariffs. The volume of these sales
can vary depending on the level of shopping that occurs. Supply plans vary by state and by service
territory. JCP&L’s default service supply is secured through a statewide competitive procurement
process approved by the NJBPU. The Ohio Companies and Penn’s default service supplies are provided
through a competitive procurement process approved by the PUCO and PPUC, respectively. The default
service supply for Met-Ed and Penelec was secured through a FERC-approved agreement with FES
through 2010, transitioning to a PPUC-approved competitive procurement process in 2011. If any
supplier fails to deliver power to any one of the Utilities’ service areas, the Utility serving
that area may need to procure the required power in the market in their role as a POLR.
Unregulated Commodity Sourcing
FES provides energy and energy related services, including the generation and sale of electricity
and energy planning and procurement through retail and wholesale competitive supply arrangements.
FES controls 13,236 MW of installed generating capacity. FES supplies the power requirements of its
competitive load-serving obligations through a combination of subsidiary-owned generation,
non-affiliated contracts and spot market transactions.
FES has retail and wholesale competitive load-serving obligations in Ohio, Pennsylvania, Illinois,
Maryland, Michigan and New Jersey serving both affiliated and non-affiliated companies. FES
provides energy products and services to customers under various POLR, shopping, competitive-bid
and non-affiliated contractual obligations. In 2010, FES’ generation was used to serve two primary
obligations — affiliated companies utilized approximately 43% of FES’ total generation and retail
customers utilized approximately 43% of FES’ total generation. Geographically, approximately 60% of
FES’ obligation is located in the MISO market area and 40% is located in the PJM market area.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 2010, FirstEnergy had cash and cash equivalents of approximately $1 billion
available to fund investments, operations and capital expenditures. To fund liquidity and capital
requirements for 2011 and beyond, FirstEnergy may rely on internal and external sources of funds.
Short-term cash requirements not met by cash provided from operations are generally satisfied
through short-term borrowings. Long-term cash needs may be met through issuances of debt and/or
equity securities.
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Table of Contents
FirstEnergy expects its existing sources of liquidity to remain sufficient to meet its anticipated
obligations and those of its subsidiaries. FirstEnergy’s business is capital intensive, requiring
significant resources to fund operating expenses, construction expenditures, scheduled debt
maturities and interest and dividend payments. During 2011, FirstEnergy
expects to satisfy these requirements with a combination of internal cash from operations and
external funds from the capital markets as market conditions warrant. FirstEnergy also expects
that borrowing capacity under credit facilities will continue to be available to manage working
capital requirements along with continued access to long-term capital markets.
A material adverse change in operations, or in the availability of external financing sources,
could impact FirstEnergy’s ability to fund current liquidity and capital resource requirements. To
mitigate risk, FirstEnergy’s business model stresses financial discipline and a strong focus on
execution. Major elements of this business model include the expectation of: projected cash from
operations, opportunities for favorable long-term earnings growth as the transition to competitive
generation markets is completed, operational excellence, business plan execution, well-positioned
generation fleet, no speculative trading operations, appropriate long-term commodity hedging
positions, manageable capital expenditure program, adequately funded pension plan, minimal
near-term maturities of existing long-term debt, commitment to a secure dividend (dividends
declared from time to time on FirstEnergy’s common stock during any annual period may in aggregate
vary from the indicated amount due to circumstances considered by FirstEnergy’s Board of Directors
at the time of the actual declarations) and a successful merger integration.
As of December 31, 2010, FirstEnergy’s net deficit in working capital (current assets less current
liabilities) was principally due to short-term borrowings and the classification of certain
variable interest rate PCRBs as currently payable long-term debt. Currently payable long-term debt
as of December 31, 2010, included the following (in millions):
| Currently Payable Long-term Debt | ||||
|
PCRBs supported by bank LOCs
(1)
|
$ | 827 | ||
|
FGCO and NGC PCRBs
(1)
|
191 | |||
|
Penelec unsecured PCRBs
|
25 | |||
|
FirstEnergy Corp. unsecured note
|
250 | |||
|
NGC collateralized lease obligation bonds
|
50 | |||
|
Sinking fund requirements
|
33 | |||
|
FES term loan
|
100 | |||
|
Other obligations
|
10 | |||
|
|
||||
|
|
$ | 1,486 | ||
|
|
||||
| (1) |
Interest rate mode permits individual debt holders to put the
respective debt back to the issuer prior to maturity.
|
Short-Term Borrowings
FirstEnergy had approximately $700 million of short-term borrowings as of December 31, 2010 and
$1.1 billion as of December 31, 2009. FirstEnergy’s available liquidity as of January 31, 2011, is
summarized in the following table:
| Available | ||||||||||||||||
| Company | Type | Maturity | Commitment | Liquidity | ||||||||||||
| (In millions) | ||||||||||||||||
|
FirstEnergy
(1)
|
Revolving | Aug. 2012 | $ | 2,750 | $ | 2,245 | ||||||||||
|
FES
|
Term loan | Mar. 2011 | 100 | — | ||||||||||||
|
Ohio and Pennsylvania Companies
|
Receivables financing | Various | (2) | 395 | 237 | |||||||||||
|
|
||||||||||||||||
|
|
Subtotal | $ | 3,245 | $ | 2,482 | |||||||||||
|
|
Cash | — | 668 | |||||||||||||
|
|
||||||||||||||||
|
|
Total | $ | 3,245 | $ | 3,150 | |||||||||||
|
|
||||||||||||||||
| (1) |
FirstEnergy Corp. and subsidiary borrowers.
|
|
| (2) |
Ohio — $250 million matures March 30, 2011; Pennsylvania — $145 million matures June 17, 2011 with optional extension terms.
|
On October 22, 2010, Signal Peak and Global Rail, as borrowers, entered into a $350 million
syndicated two-year senior secured term loan facility. The loan proceeds were used to repay $258
million of notes payable to FirstEnergy, including $9 million of interest and $63 million of bank
loans that were scheduled to mature on November 16, 2010. Additional proceeds were used for general
company purposes, including an $11 million repayment of a third-party seller’s note. As discussed
below under Guarantees and Other Assurances, FirstEnergy, together with WMB Loan Ventures LLC and
WMB Loan Ventures II LLC, the entities that share ownership with FEV in the borrowers, have
provided a guaranty of the borrowers’ obligations under the facility.
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Table of Contents
Revolving Credit Facility
FirstEnergy has the capability to request an increase in the total commitments available under the
$2.75 billion revolving credit facility (included in the borrowing capability table above) up to a
maximum of $3.25 billion, subject to the discretion of each lender to provide additional
commitments. A total of 25 banks participate in the facility, with no one bank having more than
7.3% of the total commitment. Commitments under the facility are available until August 24, 2012,
unless the lenders agree, at the request of the borrowers, to an unlimited number of additional
one-year extensions. Generally, borrowings under the facility must be repaid within 364 days.
Available amounts for each borrower are subject to a specified sub-limit, as well as applicable
regulatory and other limitations.
The following table summarizes the borrowing sub-limits for each borrower under the facility, as
well as the limitations on short-term indebtedness applicable to each borrower under current
regulatory approvals and applicable statutory and/or charter limitations as of December 31, 2010:
| Revolving | Regulatory and | |||||||
| Credit Facility | Other Short-Term | |||||||
| Borrower | Sub-Limit | Debt Limitations | ||||||
| (In millions) | ||||||||
|
FirstEnergy
|
$ | 2,750 | $ | — | (1) | |||
|
FES
|
1,000 | — | (1) | |||||
|
OE
|
500 | 500 | ||||||
|
Penn
|
50 | 34 | (2) | |||||
|
CEI
|
250 | (3) | 500 | |||||
|
TE
|
250 | (3) | 500 | |||||
|
JCP&L
|
425 | 411 | (2) | |||||
|
Met-Ed
|
250 | 300 | (2) | |||||
|
Penelec
|
250 | 300 | (2) | |||||
|
ATSI
|
50 | (4) | 100 | |||||
| (1) |
No regulatory approvals, statutory or charter limitations applicable.
|
|
| (2) |
Excluding amounts that may be borrowed under the regulated companies’ money pool.
|
|
| (3) |
Borrowing sub-limits for CEI and TE may be increased to up to $500 million by delivering notice to the
administrative agent that such borrower has senior unsecured debt ratings of at least BBB by S&P and Baa2 by
Moody’s.
|
|
| (4) |
The borrowing sub-limit for ATSI may be increased up to $100 million by delivering notice to the
administrative agent that ATSI has received regulatory approval to have short-term borrowings up to the same
amount.
|
Under the revolving credit facility, borrowers may request the issuance of LOCs expiring up to one
year from the date of issuance. The stated amount of outstanding LOCs will count against total
commitments available under the facility and against the applicable borrower’s borrowing
sub-limit.
The revolving credit facility contains financial covenants requiring each borrower to maintain a
consolidated debt to total capitalization ratio of no more than 65%, measured at the end of each
fiscal quarter. As of December 31, 2010, FirstEnergy’s and its subsidiaries’ debt to total
capitalization ratios (as defined under the revolving credit facility) were as follows:
| Borrower | ||||
|
FirstEnergy
|
60.6 | % | ||
|
FES
|
52.6 | % | ||
|
OE
|
54.1 | % | ||
|
Penn
|
37.7 | % | ||
|
CEI
|
57.1 | % | ||
|
TE
|
57.6 | % | ||
|
JCP&L
|
34.6 | % | ||
|
Met-Ed
|
41.5 | % | ||
|
Penelec
|
54.7 | % | ||
|
ATSI
|
48.3 | % |
74
Table of Contents
As of December 31, 2010, FirstEnergy could issue additional debt of approximately $3.2 billion,
or recognize a reduction in equity of approximately $1.7 billion, and remain within the limitations
of the financial covenants required by its revolving credit facility.
The revolving credit facility does not contain provisions that either restrict the ability to
borrow or accelerate repayment of outstanding advances as a result of any change in credit ratings.
Pricing is defined in “pricing grids,” whereby the cost of funds borrowed under the facility is
related to the credit ratings of the company borrowing the funds.
FirstEnergy Money Pools
FirstEnergy’s regulated companies also have the ability to borrow from each other and the holding
company to meet their short-term working capital requirements. A similar but separate arrangement
exists among FirstEnergy’s unregulated companies. FESC administers these two money pools and tracks
surplus funds of FirstEnergy and the respective regulated and unregulated subsidiaries, as well as
proceeds available from bank borrowings. Companies receiving a loan under the money pool agreements
must repay the principal amount of the loan, together with accrued interest, within 364 days of
borrowing the funds. The rate of interest is the same for each company receiving a loan from their
respective pool and is based on the average cost of funds available through the pool. The average
interest rate for borrowings in 2010 was 0.51% per annum for the regulated companies’ money pool
and 0.60% per annum for the unregulated companies’ money pool.
Pollution Control Revenue Bonds
As of December 31, 2010, FirstEnergy’s currently payable long-term debt included approximately $827
million (FES — $778 million, Met-Ed — $29 million and Penelec — $20 million) of variable interest
rate PCRBs, the bondholders of which are entitled to the benefit of irrevocable direct pay bank
LOCs. The interest rates on the PCRBs are reset daily or weekly. Bondholders can tender their PCRBs
for mandatory purchase prior to maturity with the purchase price payable from remarketing proceeds
or, if the PCRBs are not successfully remarketed, by drawings on the irrevocable direct pay LOCs.
The subsidiary obligor is required to reimburse the applicable LOC bank for any such drawings or,
if the LOC bank fails to honor its LOC for any reason, must itself pay the purchase price.
The LOCs for FirstEnergy variable interest rate PCRBs were issued by the following banks as of
December 31, 2010:
| Aggregate LOC | Reimbursements of | |||||||
| LOC Bank | Amount (2) | LOC Termination Date | LOC Draws Due | |||||
| (In millions) | ||||||||
|
CitiBank N.A.
|
$ | 166 | June 2014 | June 2014 | ||||
|
The Bank of Nova Scotia
|
178 | Beginning April 2011 | Multiple dates (3) | |||||
|
The Royal Bank of Scotland
|
131 | June 2012 | 6 months | |||||
|
Wachovia Bank
|
152 | March 2014 | March 2014 | |||||
|
Barclays Bank
(1)
|
208 | April 2011 | 30 days | |||||
|
|
||||||||
|
Total
|
$ | 835 | ||||||
|
|
||||||||
| (1) |
Supported by 13 participating banks, with no one bank having more than 22% of the total commitment.
|
|
| (2) |
Includes approximately $8 million of applicable interest coverage.
|
|
| (3) |
Shorter of 6 months or LOC termination date ($49 million) and shorter of one year or LOC termination date ($129 million).
|
On August 20, 2010, FES completed the remarketing of $250 million of PCRBs. Of the $250
million, $235 million of PCRBs were converted from a variable interest rate to a fixed interest
rate. The remaining $15 million of PCRBs continue to bear a fixed interest rate. The interest
rate conversion minimizes financial risk by converting the long-term debt into a fixed rate and, as
a result, reducing exposure to variable interest rates over the short-term. These remarketings
included two series: $235 million of PCRBs that now bears a per-annum rate of 2.25% and is subject
to mandatory purchase on June 3, 2013; and $15 million of PCRBs that now bears a per-annum rate of
1.5% and is subject to mandatory purchase on June 1, 2011.
On October 1, 2010, FES completed the refinancing and remarketing of six series of PCRBs totaling
$313 million. These PCRBs were converted from a variable interest rate to a fixed long term
interest rate of 3.375% per annum and are subject to mandatory purchase on July 1, 2015.
On December 3, 2010, FES completed the remarketing of four series of PCRBs totaling $153 million
and Penelec completed the remarketing of $25 million PCRBs. These PCRBs were converted from a
variable interest rate to fixed interest rates ranging from 2.25% to 3.75% per annum.
75
Table of Contents
Long-Term Debt Capacity
As of December 31, 2010, the Ohio Companies and Penn had the aggregate capability to issue
approximately $2.4 billion of additional FMBs on the basis of property additions and retired bonds
under the terms of their respective mortgage indentures. The issuance of FMBs by the Ohio Companies
is also subject to provisions of their senior note indentures generally limiting the incurrence of
additional secured debt, subject to certain exceptions that would permit, among other things, the
issuance of secured debt (including FMBs) supporting pollution control notes or similar
obligations, or as an extension, renewal or replacement of previously outstanding secured debt. In
addition, these provisions would permit OE and CEI to incur additional secured debt not otherwise
permitted by a specified exception of up to $124 million and $26 million, respectively, as of
December 31, 2010. As a result of the indenture provisions, TE cannot incur any additional secured
debt. Met-Ed and Penelec had the capability to issue secured debt of approximately $394 million and
$343 million, respectively, under provisions of their senior note indentures as of December 31,
2010.
Based upon FGCO’s FMB indenture, net earnings and available bondable property additions as of
December 31, 2010, FGCO had the capability to issue $1.7 billion of additional FMBs under the terms
of that indenture. Based upon NGC’s FMB indenture, net earnings and available bondable property
additions, NGC had the capability to issue $695 million of additional FMBs as of December 31, 2010.
FirstEnergy’s access to capital markets and costs of financing are influenced by the ratings of its
securities. On February 11, 2010, S&P issued a report lowering FirstEnergy’s and its subsidiaries’
credit ratings by one notch, while maintaining its stable outlook. Moody’s and Fitch affirmed the
ratings and stable outlook of FirstEnergy and its subsidiaries on February 11, 2010. On September
28, 2010, S&P issued a report reaffirming the ratings and stable outlook of FirstEnergy and its
subsidiaries. Fitch revised its outlook on FirstEnergy and FES from stable to negative on December
15, 2010. The following table displays FirstEnergy’s, FES’ and the Utilities’ securities ratings as
of December 31, 2010:
| Senior Secured | Senior Unsecured | |||||||||||||||||||||||
| Issuer | S&P | Moody’s | Fitch | S&P | Moody’s | Fitch | ||||||||||||||||||
|
FirstEnergy Corp.
|
— | — | — | BB+ | Baa3 | BBB | ||||||||||||||||||
|
FES
|
— | — | — | BBB- | Baa2 | BBB | ||||||||||||||||||
|
OE
|
BBB | A3 | BBB+ | BBB- | Baa2 | BBB | ||||||||||||||||||
|
Penn
|
BBB+ | A3 | BBB+ | — | — | — | ||||||||||||||||||
|
CEI
|
BBB | Baa1 | BBB | BBB- | Baa3 | BBB- | ||||||||||||||||||
|
TE
|
BBB | Baa1 | BBB | — | — | — | ||||||||||||||||||
|
JCP&L
|
— | — | — | BBB- | Baa2 | BBB+ | ||||||||||||||||||
|
Met-Ed
|
BBB | A3 | BBB+ | BBB- | Baa2 | BBB | ||||||||||||||||||
|
Penelec
|
BBB | A3 | BBB+ | BBB- | Baa2 | BBB | ||||||||||||||||||
|
ATSI
|
— | — | — | BBB- | Baa1 | — | ||||||||||||||||||
Changes in Cash Position
As of December 31, 2010, FirstEnergy had $1 billion of cash and cash equivalents compared to $874
million as of December 31, 2009. As of December 31, 2010 and 2009, FirstEnergy had approximately
$13 million and $12 million, respectively, of restricted cash included in other current assets on
the Consolidated Balance Sheet.
During 2010, FirstEnergy received $850 million of cash dividends from its subsidiaries and paid
$670 million in cash dividends to common shareholders.
Cash Flows From Operating Activities
FirstEnergy’s consolidated net cash from operating activities is provided primarily by its
competitive energy services and energy delivery services businesses (see Results of Operations
above). Net cash provided from operating activities was $3.1 billion in 2010, $2.5 billion in 2009
and $2.2 billion in 2008, as summarized in the following table:
76
Table of Contents
| Operating Cash Flows | 2010 | 2009 | 2008 | |||||||||
| (In millions) | ||||||||||||
|
Net income
|
$ | 760 | $ | 990 | $ | 1,339 | ||||||
|
Non-cash charges and other adjustments
|
2,309 | 2,281 | 1,405 | |||||||||
|
Pension trust contribution
|
— | (500 | ) | — | ||||||||
|
Working capital and other
|
7 | (306 | ) | (520 | ) | |||||||
|
|
||||||||||||
|
|
$ | 3,076 | $ | 2,465 | $ | 2,224 | ||||||
|
|
||||||||||||
The increase in non-cash charges and other adjustments is primarily due to increased impairment
charges on long lived assets ($378 million) combined with higher deferred income taxes and
investment tax credits ($86 million), partially offset by lower net amortization of regulatory
assets of ($297 million), including the impact of CEI’s $216 million regulatory asset impairment
recorded during the first quarter of 2009, and reduced charges relating to debt redemptions,
primarily caused by a $142 million charge relating to debt redemptions during the third quarter of
2009.
The change in working capital and other is primarily due to cash proceeds of $129 million received
on the termination of fixed-for-floating interest rate swaps during the second and third quarters
of 2010, changes in investment securities of $121 million, increased accrued taxes and decreased
prepayments primarily related to prepaid taxes ($279 million) and changes in uncertain tax
positions ($176 million), partially offset by increased accounts receivable ($252 million),
decreased accrued interest ($60 million) and increased cash collateral paid to third parties ($56
million).
Cash Flows From Financing Activities
In 2010, cash used for financing activities was $983 million compared to cash provided from
financing activities of $49 million in 2009. The change was primarily due to reduced long-term debt
issued in 2010 compared to 2009, partially offset by reduced long-term debt redemptions and reduced
payments on short-term borrowings in 2010 as compared to 2009. The following table summarizes
security issuances (net of any discounts) and redemptions:
| Securities Issued or Redeemed | 2010 | 2009 | 2008 | |||||||||
| (In millions) | ||||||||||||
|
New Issues
|
||||||||||||
|
First mortgage bonds
|
$ | — | $ | 398 | $ | 592 | ||||||
|
Pollution control notes
|
740 | 940 | 692 | |||||||||
|
Senior secured notes
|
350 | 297 | — | |||||||||
|
Unsecured Notes
|
9 | 2,997 | 83 | |||||||||
|
|
||||||||||||
|
|
$ | 1,099 | $ | 4,632 | $ | 1,367 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Redemptions
|
||||||||||||
|
First mortgage bonds
|
$ | 32 | $ | 1 | $ | 126 | ||||||
|
Pollution control notes
|
741 | 884 | 698 | |||||||||
|
Senior secured notes
|
141 | 217 | 35 | |||||||||
|
Unsecured notes
|
101 | 1,508 | 175 | |||||||||
|
|
||||||||||||
|
|
$ | 1,015 | $ | 2,610 | $ | 1,034 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Short-term borrowings, net
|
$ | (378 | ) | $ | (1,246 | ) | $ | 1,494 | ||||
|
|
||||||||||||
Cash Flows From Investing Activities
Net cash flows used in investing activities resulted primarily from property additions. Additions
for the energy delivery services segment primarily represent expenditures related to transmission
and distribution facilities. Capital spending by the
competitive energy services segment is principally generation-related. The following table
summarizes investing activities for 2010, 2009 and 2008 by business segment:
77
Table of Contents
| Summary of Cash Flows | Property | |||||||||||||||
| Provided from (Used for) Investing Activities | Additions | Investments | Other | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Sources (Uses)
|
||||||||||||||||
|
2010
|
||||||||||||||||
|
Energy delivery services
|
$ | (745 | ) | $ | 96 | $ | 13 | $ | (636 | ) | ||||||
|
Competitive energy services
|
(1,129 | ) | (43 | ) | (51 | ) | (1,223 | ) | ||||||||
|
Other
|
(24 | ) | (7 | ) | 30 | (1 | ) | |||||||||
|
Inter-Segment reconciling items
|
(65 | ) | (23 | ) | — | (88 | ) | |||||||||
|
|
||||||||||||||||
|
Total
|
$ | (1,963 | ) | $ | 23 | $ | (8 | ) | $ | (1,948 | ) | |||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
Energy delivery services
|
$ | (750 | ) | $ | 39 | $ | (46 | ) | $ | (757 | ) | |||||
|
Competitive energy services
|
(1,262 | ) | (8 | ) | (19 | ) | (1,289 | ) | ||||||||
|
Other
|
(149 | ) | (3 | ) | 72 | (80 | ) | |||||||||
|
Inter-Segment reconciling items
|
(42 | ) | (24 | ) | 7 | (59 | ) | |||||||||
|
|
||||||||||||||||
|
Total
|
$ | (2,203 | ) | $ | 4 | $ | 14 | $ | (2,185 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
2008
|
||||||||||||||||
|
Energy delivery services
|
$ | (839 | ) | $ | (41 | ) | $ | (17 | ) | $ | (897 | ) | ||||
|
Competitive energy services
|
(1,835 | ) | (14 | ) | (56 | ) | (1,905 | ) | ||||||||
|
Other
|
(176 | ) | 106 | (61 | ) | (131 | ) | |||||||||
|
Inter-Segment reconciling items
|
(38 | ) | (12 | ) | — | (50 | ) | |||||||||
|
|
||||||||||||||||
|
Total
|
$ | (2,888 | ) | $ | 39 | $ | (134 | ) | $ | (2,983 | ) | |||||
|
|
||||||||||||||||
Net cash used for investing activities in 2010 decreased by $237 million compared to 2009. The
decrease was principally due to a $240 million decrease in property additions (principally lower
AQC system expenditures) and an increase in cash proceeds from the sale of assets of $96 million,
partially offset by $113 million spent by FES in the customer acquisition process.
During 2011 through 2013 we anticipate average annual baseline capital expenditures of
approximately $1.2 billion, exclusive of any additional opportunities or future mandated spending.
This includes approximately $133 million, $300 million and $183 million in nuclear fuel
expenditures for 2011, 2012 and 2013, respectively.
CONTRACTUAL OBLIGATIONS
As of December 31, 2010, our estimated cash payments under existing contractual obligations that we
consider firm obligations are as follows:
| 2012- | 2014- | |||||||||||||||||||
| Contractual Obligations | Total | 2011 | 2013 | 2015 | Thereafter | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Long-term debt
|
$ | 13,928 | $ | 437 | $ | 995 | $ | 1,165 | $ | 11,331 | ||||||||||
|
Short-term borrowings
|
700 | 700 | — | — | — | |||||||||||||||
|
Interest on long-term debt
(1)
|
10,978 | 793 | 1,518 | 1,379 | 7,288 | |||||||||||||||
|
Operating leases
(2)
|
3,314 | 213 | 477 | 506 | 2,118 | |||||||||||||||
|
Fuel and purchased power
(3)
|
16,851 | 2,660 | 4,015 | 3,923 | 6,253 | |||||||||||||||
|
Capital expenditures
|
1,109 | 340 | 463 | 306 | — | |||||||||||||||
|
Pension funding
|
1,076 | 250 | 74 | 543 | 209 | |||||||||||||||
|
Other
(4)
|
112 | 31 | 14 | 14 | 53 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total
|
$ | 48,068 | $ | 5,424 | $ | 7,556 | $ | 7,836 | $ | 27,252 | ||||||||||
|
|
||||||||||||||||||||
| (1) |
Interest on variable-rate debt based on rates as of December 31, 2010.
|
|
| (2) |
See Note 7 to the consolidated financial statements.
|
|
| (3) |
Amounts under contract with fixed or minimum quantities based on estimated annual requirements.
|
|
| (4) |
Includes amounts for capital leases (see Note 7) and contingent tax liabilities (see Note 9).
|
Excluded from the data shown above are estimates for the cash outlays stemming from the power
purchase contracts entered into by the Utilities and under which they procure the power supply
necessary to provide generation service to their customers who do not choose an alternative
supplier. The exact amount of outlay will be determined by future customer behavior and consumption
levels, but based on numerous planning assumptions management estimates an amount of $3.0 billion
during 2011.
78
Table of Contents
GUARANTEES AND OTHER ASSURANCES
As part of normal business activities, FirstEnergy enters into various agreements on behalf of its
subsidiaries to provide financial or performance assurances to third parties. These agreements
include contract guarantees, surety bonds and LOCs. Some of the guaranteed contracts contain
collateral provisions that are contingent upon either FirstEnergy or its subsidiaries’ credit
ratings.
As of December 31, 2010, FirstEnergy’s maximum exposure to potential future payments under
outstanding guarantees and other assurances approximated $3.7 billion, as summarized below:
| Maximum | ||||
| Guarantees and Other Assurances | Exposure | |||
| (In millions) | ||||
|
FirstEnergy Guarantees on Behalf of its Subsidiaries
|
||||
|
Energy and Energy-Related Contracts
(1)
|
$ | 300 | ||
|
LOC (long-term debt) — Interest coverage
(2)
|
2 | |||
|
FirstEnergy guarantee of OVEC obligations
|
300 | |||
|
Other
(3)
|
227 | |||
|
|
||||
|
|
829 | |||
|
|
||||
|
|
||||
|
Subsidiaries’ Guarantees
|
||||
|
Energy and Energy-Related Contracts
|
54 | |||
|
LOC (long-term debt) — Interest coverage
(2)
|
3 | |||
|
FES’ guarantee of NGC’s nuclear property insurance
|
70 | |||
|
FES’ guarantee of FGCO’s sale and leaseback obligations
|
2,375 | |||
|
Other
|
2 | |||
|
|
||||
|
|
2,504 | |||
|
|
||||
|
|
||||
|
Surety Bonds
|
82 | |||
|
LOC (long-term debt) — Interest coverage
(2)
|
3 | |||
|
LOC (non-debt)
(4)(5)
|
339 | |||
|
|
||||
|
|
424 | |||
|
|
||||
|
Total Guarantees and Other Assurances
|
$ | 3,757 | ||
|
|
||||
| (1) |
Issued for open-ended terms, with a 10-day termination right by FirstEnergy.
|
|
| (2) |
Reflects the interest coverage portion of LOCs issued in support of floating rate PCRBs with various
maturities. The principal amount of floating-rate PCRBs of $827 million is reflected in currently payable
long-term debt on FirstEnergy’s consolidated balance sheets.
|
|
| (3) |
Includes guarantees of $15 million for nuclear decommissioning funding assurances, $161 million supporting
OE’s sale and leaseback arrangement, and $39 million for railcar leases.
|
|
| (4) |
Includes $167 million issued for various terms pursuant to LOC capacity available under FirstEnergy’s
revolving credit facility.
|
|
| (5) |
Includes approximately $130 million pledged in connection with the sale and leaseback of Beaver Valley Unit 2
by OE and $42 million pledged in connection with the sale and leaseback of Perry by OE.
|
FirstEnergy guarantees energy and energy-related payments of its subsidiaries involved in
energy commodity activities principally to facilitate or hedge normal physical transactions
involving electricity, gas, emission allowances and coal. FirstEnergy also provides guarantees to
various providers of credit support for the financing or refinancing by its subsidiaries of costs
related to the acquisition of property, plant and equipment. These agreements legally obligate
FirstEnergy to fulfill the obligations of those subsidiaries directly involved in energy and
energy-related transactions or financings where the law might otherwise limit the counterparties’
claims. If demands of a counterparty were to exceed the ability of a subsidiary to satisfy existing
obligations, FirstEnergy’s guarantee enables the counterparty’s legal claim to be satisfied by
FirstEnergy’s assets. FirstEnergy believes the likelihood is remote that such parental guarantees
will increase amounts otherwise paid by FirstEnergy to meet its obligations incurred in connection
with ongoing energy and energy-related activities.
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Table of Contents
While these types of guarantees are normally parental commitments for the future payment of
subsidiary obligations, subsequent to the occurrence of a credit rating downgrade to below
investment grade, an acceleration or funding
obligation or a “material adverse event,” the immediate posting of cash collateral, provision of an
LOC or accelerated payments may be required of the subsidiary. As of December 31, 2010,
FirstEnergy’s maximum exposure under these collateral provisions was $468 million, as shown below:
| Collateral Provisions | FES | Utilities | Total | |||||||||
| (In millions) | ||||||||||||
|
Credit rating downgrade to below investment grade
(1)
|
$ | 364 | $ | 65 | $ | 429 | ||||||
|
Material adverse event
(2)
|
39 | — | 39 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 403 | $ | 65 | $ | 468 | ||||||
|
|
||||||||||||
| (1) |
Includes $137 million and $54 million that is also considered an acceleration of payment or funding obligation at FES and the
Utilities, respectively.
|
|
| (2) |
Includes $33 million that is also considered an acceleration of payment or funding obligation at FES.
|
Stress case conditions of a credit rating downgrade or “material adverse event” and
hypothetical adverse price movements in the underlying commodity markets would increase the total
potential amount to $532 million consisting of $486 million due to a below investment grade credit
rating (of which $224 million is related to an acceleration of payment or funding obligation) and
$46 million due to “material adverse event” contractual clauses.
Most of FirstEnergy’s surety bonds are backed by various indemnities common within the insurance
industry. Surety bonds and related guarantees of $82 million provide additional assurance to
outside parties that contractual and statutory obligations will be met in a number of areas
including construction contracts, environmental commitments and various retail transactions.
In addition to guarantees and surety bonds, FES’ contracts, including power contracts with
affiliates awarded through competitive bidding processes, typically contain margining provisions
which require the posting of cash or LOCs in amounts determined by future power price movements.
Based on FES’ power portfolio as of December 31, 2010, and forward prices as of that date, FES has
posted collateral of $185 million. Under a hypothetical adverse change in forward prices (95%
confidence level change in forward prices over a one year time horizon), FES would be required to
post an additional $28 million. Depending on the volume of forward contracts and future price
movements, FES could be required to post higher amounts for margining.
In connection with FES’ obligations to post and maintain collateral under the two-year PSA entered
into by FES and the Ohio Companies following the CBP auction on May 13-14, 2009, NGC entered into a
Surplus Margin Guaranty in an amount up to $500 million. The Surplus Margin Guaranty is secured by
an NGC FMB issued in favor of the Ohio Companies.
FES’ debt obligations are generally guaranteed by its subsidiaries, FGCO and NGC, and FES
guarantees the debt obligations of each of FGCO and NGC. Accordingly, present and future holders of
indebtedness of FES, FGCO and NGC will have claims against each of FES, FGCO and NGC regardless of
whether their primary obligor is FES, FGCO or NGC.
As noted above under Capital Resources and Liquidity, FirstEnergy, together with WMB Loan Ventures
LLC and WMB Loan Ventures II LLC have provided a guaranty of the borrowers’ obligations under the
$350 million syndicated two-year senior secured term loan facility entered into by Signal Peak and
Global Rail. In addition, FEV and the other entities that directly own the equity interest in the
borrowers have pledged those interests to the banks as collateral for the facility.
OFF-BALANCE SHEET ARRANGEMENTS
FES and the Ohio Companies have obligations that are not included on their Consolidated Balance
Sheets related to sale and leaseback arrangements involving the Bruce Mansfield Plant, Perry Unit 1
and Beaver Valley Unit 2, which are satisfied through operating lease payments. The total present
value of these sale and leaseback operating lease commitments, net of trust investments, was $1.6
billion as of December 31, 2010.
MARKET RISK INFORMATION
FirstEnergy uses various market risk sensitive instruments, including derivative contracts,
primarily to manage the risk of price and interest rate fluctuations. FirstEnergy’s Risk Policy
Committee, comprised of members of senior management, provides general oversight for risk
management activities throughout the company.
80
Table of Contents
Commodity Price Risk
FirstEnergy is exposed to financial and market risks resulting from the fluctuation of interest
rates and commodity prices associated with electricity, energy transmission, natural gas, coal,
nuclear fuel and emission allowances. To manage the volatility relating to these exposures,
FirstEnergy uses a variety of non-derivative and derivative instruments, including forward
contracts, options, futures contracts and swaps. The derivatives are used principally for hedging
purposes.
The valuation of derivative contracts is based on observable market information to the extent that
such information is available. In cases where such information is not available, FirstEnergy relies
on model-based information. The model provides estimates of future regional prices for electricity
and an estimate of related price volatility. FirstEnergy uses these results to develop estimates of
fair value for financial reporting purposes and for internal management decision making (see Note 6
to the consolidated financial statements). Sources of information for the valuation of commodity
derivative contracts as of December 31, 2010 are summarized by contract year in the following
table:
| Source of Information- | ||||||||||||||||||||||||||||
| Fair Value by Contract Year | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Prices actively quoted
(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Other external sources
(2)
|
(331 | ) | (157 | ) | (52 | ) | (36 | ) | — | — | (576 | ) | ||||||||||||||||
|
Prices based on models
|
— | — | — | — | 24 | 110 | 134 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
(3)
|
$ | (331 | ) | $ | (157 | ) | $ | (52 | ) | $ | (36 | ) | $ | 24 | $ | 110 | $ | (442 | ) | |||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Represents futures and options traded on the New York Mercantile Exchange.
|
|
| (2) |
Primarily represents contracts based on broker and IntercontinentalExchange quotes.
|
|
| (3) |
Includes $335 million in non-hedge commodity derivative contracts that are primarily related to NUG contracts. NUG contracts are subject
to regulatory accounting and do not impact earnings.
|
FirstEnergy performs sensitivity analyses to estimate its exposure to the market risk of its
commodity positions. Based on derivative contracts held as of December 31, 2010, an adverse 10%
change in commodity prices would decrease net income by approximately $16 million ($10 million net
of tax) during the next 12 months.
Interest Rate Swap Agreements — Fair Value Hedges
FirstEnergy has used fixed-for-floating interest rate swap agreements to hedge a portion of the
consolidated interest rate risk associated with the debt portfolio of its subsidiaries. These
derivatives were treated as fair value hedges of fixed-rate, long-term debt issues, protecting
against the risk of changes in the fair value of fixed-rate debt instruments due to lower interest
rates. As of December 31, 2010, no fixed-for-floating interest rate swap agreements were
outstanding.
Total unamortized gains included in long-term debt associated with prior fixed-for-floating
interest rate swap agreements totaled $124 million ($80 million net of tax) as of December 31,
2010. Based on current estimates, approximately $22 million will be amortized to interest expense
during the next twelve months. Reclassifications from long-term debt into interest expense totaled
$12 million during 2010.
Interest Rate Risk
FirstEnergy’s exposure to fluctuations in market interest rates is reduced since a significant
portion of debt has fixed interest rates, as noted in the table below. FirstEnergy is subject to
the inherent interest rate risks related to refinancing maturing debt by issuing new debt
securities. As discussed in Note 7 to the consolidated financial statements, FirstEnergy’s
investments in capital trusts effectively reduce future lease obligations, also reducing interest
rate risk.
81
Table of Contents
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than
Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 80 | $ | 90 | $ | 101 | $ | 110 | $ | 76 | $ | 1,755 | $ | 2,212 | $ | 2,304 | ||||||||||||||||
|
Average interest rate
|
8.4 | % | 8 | % | 8 | % | 8 | % | 8.1 | % | 5.7 | % | 6.2 | % | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 437 | $ | 94 | $ | 551 | $ | 536 | $ | 629 | $ | 10,504 | $ | 12,751 | $ | 13,668 | ||||||||||||||||
|
Average interest rate
|
5.7 | % | 7.8 | % | 5.8 | % | 5.4 | % | 5.2 | % | 6.3 | % | 6.1 | % | ||||||||||||||||||
|
Variable rate
|
$ | 350 | $ | 827 | $ | 1,177 | $ | 1,177 | ||||||||||||||||||||||||
|
Average interest rate
|
2.5 | % | 0.3 | % | 1 | % | ||||||||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 700 | $ | 700 | $ | 700 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.7 | % | 0.7 | % | ||||||||||||||||||||||||||||
Equity Price Risk
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers
substantially all of its employees and non-qualified pension plans that cover certain employees.
The plan provides defined benefits based on years of service and compensation levels. FirstEnergy
also provides health care benefits (which include certain employee contributions, deductibles and
co-payments) upon retirement to employees hired prior to January 1, 2005, their dependents, and
under certain circumstances, their survivors. The benefit plan assets and obligations are
remeasured annually using a December 31 measurement date or as significant triggering events occur.
As of December 31, 2010, approximately 28% of the pension plan assets are invested in equity
securities, 50% invested in fixed income securities, 11% invested in absolute return strategies, 6%
invested in real estate, 4% invested in private equity and 1% invested in cash. The plan is 83%
funded on an accumulated benefit obligation basis as of December 31, 2010. A decline in the value
of FirstEnergy’s pension plan assets could result in additional funding requirements. FirstEnergy
intends to voluntarily contribute $250 million to its pension plan in 2011.
Nuclear decommissioning trust funds have been established to satisfy NGC’s and the Utilities’
nuclear decommissioning obligations. As of December 31, 2010, approximately 73% of the funds were
invested in fixed income securities, 17% of the funds were invested in equity securities and 10%
were invested in short-term investments, with limitations related to concentration and investment
grade ratings. The investments are carried at their market values of approximately $1,454 million,
$337 million and $189 million for fixed income securities, equity securities and short-term
investments, respectively, as of December 31, 2010. A hypothetical 10% decrease in prices quoted by
stock exchanges would result in a $34 million reduction in fair value as of December 31, 2010. The
decommissioning trusts of JCP&L and the Pennsylvania Companies are subject to regulatory
accounting, with unrealized gains and losses recorded as regulatory assets or liabilities, since
the difference between investments held in trust and the decommissioning liabilities will be
recovered from or refunded to customers. NGC, OE and TE recognize in earnings the unrealized losses
on available-for-sale securities held in their nuclear decommissioning trusts as
other-than-temporary impairments. A decline in the value of FirstEnergy’s nuclear decommissioning
trusts or a significant escalation in estimated decommissioning costs could result in additional
funding requirements. During 2010, $4 million was contributed to the OE and TE nuclear
decommissioning trusts to comply with requirements under certain sale-leaseback transactions in
which OE and TE continue as lessees, and $6 million was contributed to the JCP&L and Pennsylvania
nuclear decommissioning trusts to comply with regulatory requirements. FirstEnergy continues to
evaluate the status of its funding obligations for the decommissioning of these nuclear facilities.
82
Table of Contents
CREDIT RISK
Credit risk is the risk of an obligor’s failure to meet the terms of any investment contract, loan
agreement or otherwise perform as agreed. Credit risk arises from all activities in which success
depends on issuer, borrower or counterparty performance, whether reflected on or off the balance
sheet. FirstEnergy engages in transactions for the purchase and sale of commodities including gas,
electricity, coal and emission allowances. These transactions are often with major energy companies
within the industry.
FirstEnergy maintains credit policies with respect to its counterparties to manage overall credit
risk. This includes performing independent risk evaluations, actively monitoring portfolio trends
and using collateral and contract provisions to mitigate exposure. As part of its credit program,
FirstEnergy aggressively manages the quality of its portfolio of energy contracts, evidenced by a
current weighted average risk rating for energy contract counterparties of BBB (S&P). As of
December 31, 2010, the largest credit concentration was with J.P. Morgan Chase & Co., which is
currently rated investment grade, representing 10.9% of FirstEnergy’s total approved credit risk
composed of 3.3% for FES, 2.2% for JCP&L, 2.7% for Met-Ed and a combined 2.7% for OE, TE and CEI.
REGULATORY MATTERS
Regulatory assets that do not earn a current return totaled approximately $215 million as of
December 31, 2010 (JCP&L — $38 million, Met-Ed — $131 million, Penelec — $12 million, CEI — $16
million and OE — $18 million). Regulatory assets not earning a current return (primarily for
certain regulatory transition costs and employee postretirement benefits) are expected to be
recovered by 2014 for JCP&L and by 2020 for Met-Ed and Penelec.
FirstEnergy and the Utilities prepare their consolidated financial statements in accordance with
the authoritative guidance for accounting for certain types of regulation. Under this guidance,
regulatory assets represent incurred or accrued costs that have been deferred because of their
probable future recovery from customers through regulated rates. Regulatory
liabilities represent the recovery of costs or accrued liabilities that have been deferred because
it is probable such amounts will be returned to customers through future regulated rates. The
following table provides the balance of regulatory assets by Company as of December 31, 2010 and
2009, and changes during 2010:
| December 31, | December 31, | Increase | ||||||||||
| Regulatory Assets | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
OE
|
$ | 400 | $ | 465 | $ | (65 | ) | |||||
|
CEI
|
370 | 546 | (176 | ) | ||||||||
|
TE
|
72 | 70 | 2 | |||||||||
|
JCP&L
|
513 | 888 | (375 | ) | ||||||||
|
Met-Ed
|
296 | 357 | (61 | ) | ||||||||
|
Penelec
|
163 | 9 | 154 | |||||||||
|
Other
|
12 | 21 | (9 | ) | ||||||||
|
|
||||||||||||
|
Total
|
$ | 1,826 | $ | 2,356 | $ | (530 | ) | |||||
|
|
||||||||||||
The following table provides information about the composition of regulatory assets as of
December 31, 2010 and 2009 and the changes during 2010:
| December 31, | December 31, | Increase | ||||||||||
| Regulatory Assets by Source | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Regulatory transition costs
|
$ | 770 | $ | 1,100 | $ | (330 | ) | |||||
|
Customer shopping incentives
|
— | 154 | (154 | ) | ||||||||
|
Customer receivables for future income taxes
|
326 | 329 | (3 | ) | ||||||||
|
Loss on reacquired debt
|
48 | 51 | (3 | ) | ||||||||
|
Employee postretirement benefits
|
16 | 23 | (7 | ) | ||||||||
|
Nuclear decommissioning, decontamination
and spent fuel disposal costs
|
(184 | ) | (162 | ) | (22 | ) | ||||||
|
Asset removal costs
|
(237 | ) | (231 | ) | (6 | ) | ||||||
|
MISO/PJM transmission costs
|
184 | 148 | 36 | |||||||||
|
Deferred generation costs
|
386 | 369 | 17 | |||||||||
|
Distribution costs
|
426 | 482 | (56 | ) | ||||||||
|
Other
|
91 | 93 | (2 | ) | ||||||||
|
|
||||||||||||
|
Total
|
$ | 1,826 | $ | 2,356 | $ | (530 | ) | |||||
|
|
||||||||||||
83
Table of Contents
Ohio
The Ohio Companies operate under an ESP, which expires on May 31, 2011, that provides for
generation supplied through a CBP. The ESP also allows the Ohio Companies to collect a delivery
service improvement rider (Rider DSI) at an overall average rate of $0.002 per KWH for the period
of April 1, 2009 through December 31, 2011. The Ohio Companies currently purchase generation at the
average wholesale rate of a CBP conducted in May 2009. FES is one of the suppliers to the Ohio
Companies through the May 2009 CBP. The PUCO approved a $136.6 million distribution rate increase
for the Ohio Companies in January 2009, which went into effect on January 23, 2009 for OE ($68.9
million) and TE ($38.5 million) and on May 1, 2009 for CEI ($29.2 million). Applications for
rehearing of the PUCO order in the distribution case were filed by the Ohio Companies and one other
party. The Ohio Companies raised numerous issues in their application for rehearing related to rate
recovery of certain expenses, recovery of line extension costs, the level of rate of return and the
amount of general plant balances. On February 2, 2011, the PUCO issued an Entry on Rehearing
denying the applications for rehearing filed both by the Ohio Companies and by the other party.
On March 23, 2010, the Ohio Companies filed an application for a new ESP. The new ESP will go into
effect on June 1, 2011 and conclude on May 31, 2014. The PUCO approved the new ESP on August 25,
2010 with certain modifications. The material terms of the new ESP include: a CBP similar to the
one used in May 2009 and the one proposed in the October 2009 MRO filing; a 6% generation discount
to certain low-income customers provided by the Ohio Companies through a bilateral wholesale
contract with FES (initial auctions scheduled for October 20, 2010 and January 25, 2011); no
increase in base distribution rates through May 31, 2014; a load cap of no less than 80%, which
also applies to any tranches assigned post auction; and a new distribution rider, Delivery Capital
Recovery Rider (Rider DCR), to recover a return of, and on, capital investments in the delivery
system. Rider DCR substitutes for Rider DSI which terminates under the current ESP. The Ohio
Companies also agreed not to pay certain costs related to the companies’ integration into PJM, for
the longer of the five year period from June 1, 2011 through May 31, 2016 or when the amount of
costs avoided
by customers for certain types of products totals $360 million dependent on the outcome of certain
PJM proceedings, established a $12 million fund to assist low income customers over the term of the
ESP, and agreed to additional energy efficiency benefits. Many of the existing riders approved in
the previous ESP remain in effect, some with modifications. The new ESP resolved proceedings
pending at the PUCO regarding corporate separation, elements of the smart grid proceeding and the
integration into PJM. FirstEnergy recorded approximately $39.5 million of regulatory asset
impairments and expenses related to the ESP. On September 24, 2010, an application for rehearing
was filed by the OCC and two other parties. On February 9, 2011, the PUCO issued an Entry on Rehearing denying the applications for rehearing.
Under the provisions of SB221, the Ohio Companies are required to implement energy efficiency
programs that will achieve a total annual energy savings equivalent to approximately 166,000 MWH in
2009, 290,000 MWH in 2010, 410,000 MWH in 2011, 470,000 MWH in 2012 and 530,000 MWH in 2013, with
additional savings required through 2025. Utilities are also required to reduce peak demand in 2009
by 1%, with an additional 0.75% reduction each year thereafter through 2018.
On December 15, 2009, the Ohio Companies filed the required three year portfolio plan seeking
approval for the programs they intend to implement to meet the energy efficiency and peak demand
reduction requirements for the 2010-2012 period. The Ohio Companies expect that all costs
associated with compliance will be recoverable from customers. The Ohio Companies’ three year
portfolio plan is still awaiting decision from the PUCO, which is delaying the launch of the
programs described in the plan. As a result, the Ohio Companies filed on January 11, 2011, a
request for amendment of OE’s 2010 energy efficiency and peak demand reduction benchmarks to levels
actually achieved in 2010. Because the Commission indicated that it would revise all of the Ohio
Companies’ 2010, 2011, and 2012 benchmarks when addressing the Ohio Companies’ three year portfolio
plan, and an order has yet to be issued on that plan, CEI and TE also requested a waiver of their
respective yet-to-be defined 2010 energy efficiency benchmarks if and only to the degree one is
deemed necessary to bring these companies into compliance with their 2010 energy efficiency
obligations. Failure to comply with the benchmarks or to obtain such an amendment may subject the
Companies to an assessment by the PUCO of a penalty.
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Additionally under SB221, electric utilities and electric service companies are required to serve
part of their load from renewable energy resources equivalent to 0.25% of the KWH they served in
2009. In August and October 2009, the Ohio Companies conducted RFPs to secure RECs. The RFPs sought
RECs, including solar RECs and RECs generated in Ohio in order to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2009, 2010 and 2011. The RECs acquired
through these two RFPs were used to help meet the renewable energy requirements established under
SB221 for 2009, 2010 and 2011. On March 10, 2010, the PUCO found that there was an insufficient
quantity of solar energy resources reasonably available in the market. The PUCO reduced the Ohio
Companies’ aggregate 2009 benchmark to the level of solar RECs the Ohio Companies acquired through
their 2009 RFP processes, provided the Ohio Companies’ 2010 alternative energy requirements be
increased to include the shortfall for the 2009 solar REC benchmark. FES also applied for a force
majeure determination from the PUCO regarding a portion of their compliance with the 2009 solar
energy resource benchmark, which application is still pending. In July 2010, the Ohio Companies
initiated an additional RFP to secure RECs and solar RECs needed to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2010 and 2011. As a result of this RFP,
contracts were executed in August 2010. On January 11, 2011, the Ohio Companies filed an
application with the PUCO seeking an amendment to each of their 2010 alternative energy
requirements for solar RECs generated in Ohio due to the insufficient quantity of solar energy
resources reasonably available in the market. The PUCO has not yet ruled on that application.
On February 12, 2010, OE and CEI filed an application with the PUCO to establish a new credit for
all-electric customers. On March 3, 2010, the PUCO ordered that rates for the affected customers
be set at a level that will provide bill impacts commensurate with charges in place on December 31,
2008 and authorized the Ohio Companies to defer incurred costs equivalent to the difference between
what the affected customers would have paid under previously existing rates and what they pay with
the new credit in place. Tariffs implementing this new credit went into effect on March 17, 2010.
On April 15, 2010, the PUCO issued a Second Entry on Rehearing that expanded the group of customers
to which the new credit would apply and authorized deferral for the associated additional amounts.
The PUCO also stated that it expected that the new credit would remain in place through at least
the 2011 winter season, and charged its staff to work with parties to seek a long term solution to
the issue. Tariffs implementing this newly expanded credit went into effect on May 21, 2010, and
the proceeding remains open. The hearing in the matter is set to commence on February 16, 2011.
Pennsylvania
The PPUC adopted a Motion on January 28, 2010 and subsequently entered an Order on March 3, 2010
which denied the recovery of marginal transmission losses through the TSC rider for the period of
June 1, 2007 through March 31, 2008, and directed Met-Ed and Penelec to submit a new tariff or
tariff supplement reflecting the removal of marginal transmission losses from the TSC, and
instructed Met-Ed and Penelec to work with the various intervening parties to file a recommendation
to the PPUC regarding the establishment of a separate account for all marginal transmission losses
collected from ratepayers plus interest to be used to mitigate future generation rate increases
beginning January 1, 2011. On March 18, 2010, Met-Ed and Penelec filed a Petition with the PPUC
requesting that it stay the portion of the March 3,
2010 Order requiring the filing of tariff supplements to end collection of costs for marginal
transmission losses. By Order entered March 25, 2010, the PPUC granted the requested stay until
December 31, 2010. Pursuant to the PPUC’s order, Met-Ed and Penelec filed the plan to establish
separate accounts for marginal transmission loss revenues and related interest and carrying charges
and the plan for the use of these funds to mitigate future generation rate increases commencing
January 1, 2011. The PPUC approved this plan on June 7, 2010. On April 1, 2010, Met-Ed and Penelec
filed a Petition for Review with the Commonwealth Court of Pennsylvania appealing the PPUC’s March
3, 2010 Order. Although the ultimate outcome of this matter cannot be determined at this time,
Met-Ed and Penelec believe that they should prevail in the appeal and therefore expect to fully
recover the approximately $252.7 million ($188.0 million for Met-Ed and $64.7 million for Penelec)
in marginal transmission losses for the period prior to January 1, 2011. The argument before the
Commonwealth Court,
en banc
, was held on December 8, 2010.
On May 20, 2010, the PPUC approved Met-Ed’s and Penelec’s annual updates to their TSC rider for the
period June 1, 2010 through December 31, 2010, including marginal transmission losses as approved by
the PPUC, although the recovery of marginal losses will be subject to the outcome of the proceeding
related to the 2008 TSC filing as described above. The TSC for Met-Ed’s customers was increased to
provide for full recovery by December 31, 2010.
Met-Ed and Penelec filed with the PPUC a generation procurement plan covering the period January 1,
2011 through May 31, 2013. The plan is designed to provide adequate and reliable service through a
prudent mix of long-term, short-term and spot market generation supply with a staggered procurement
schedule that varies by customer class, using a descending clock auction. On August 12, 2009, the
parties to the proceeding filed a settlement agreement of all but two issues, and the PPUC entered
an Order approving the settlement and the generation procurement plan on November 6, 2009.
Generation procurement began in January 2010.
On February 8, 2010, Penn filed a Petition for Approval of its Default Service Plan for the period
June 1, 2011 through May 31, 2013. On July 29, 2010, the parties to the proceeding filed a Joint
Petition for Settlement of all issues. Although the PPUC’s Order approving the Joint Petition held
that the provisions relating to the recovery of MISO exit fees and one-time PJM integration costs
(resulting from Penn’s June 1, 2011 exit from MISO and integration into PJM) were approved, it made
such provisions subject to the approval of cost recovery by FERC. Therefore, Penn may not put these
provisions into effect until FERC has approved the recovery and allocation of MISO exit fees and
PJM integration costs.
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Met-Ed, Penelec and Penn jointly filed a SMIP with the PPUC on August 14, 2009. This plan proposed
a 24-month assessment period in which the Pennsylvania Companies will assess their needs, select
the necessary technology, secure vendors, train personnel, install and test support equipment, and
establish a cost effective and strategic deployment schedule, which currently is expected to be
completed in fifteen years. Met-Ed, Penelec and Penn estimate assessment period costs of
approximately $29.5 million, which the Pennsylvania Companies, in their plan, proposed to recover
through an automatic adjustment clause. The ALJ’s Initial Decision approved the SMIP as modified by
the ALJ, including: ensuring that the smart meters to be deployed include the capabilities listed
in the PPUC’s Implementation Order; denying the recovery of interest through the automatic
adjustment clause; providing for the recovery of reasonable and prudent costs net of resulting
savings from installation and use of smart meters; and requiring that administrative start-up costs
be expensed and the costs incurred for research and development in the assessment period be
capitalized. On April 15, 2010, the PPUC adopted a Motion by Chairman Cawley that modified the
ALJ’s initial decision, and decided various issues regarding the SMIP for the Pennsylvania
Companies. The PPUC entered its Order on June 9, 2010, consistent with the Chairman’s Motion. On
June 24, 2010, Met-Ed, Penelec and Penn filed a Petition for Reconsideration of a single portion of
the PPUC’s Order regarding the future ability to include smart meter costs in base rates. On August
5, 2010, the PPUC granted in part the petition for reconsideration by deleting language from its
original order that would have precluded Met-Ed, Penelec and Penn from seeking to include smart
meter costs in base rates at a later time. The costs to implement the SMIP could be material.
However, assuming these costs satisfy a just and reasonable standard they are expected to be
recovered in a rider (Smart Meter Technologies Charge Rider) which was approved when the PPUC
approved the SMIP.
By Tentative Order entered September 17, 2009, the PPUC provided for an additional 30-day comment
period on whether the 1998 Restructuring Settlement, which addressed how Met-Ed and Penelec were
going to implement direct access to a competitive market for the generation of electricity, allows
Met-Ed and Penelec to apply over-collection of NUG costs for select and isolated months to reduce
non-NUG stranded costs when a cumulative NUG stranded cost balance exists. In response to the
Tentative Order, various parties filed comments objecting to the above accounting method utilized
by Met-Ed and Penelec. Met-Ed and Penelec are awaiting further action by the PPUC.
New Jersey
JCP&L is permitted to defer for future collection from customers the amounts by which its costs of
supplying BGS to non-shopping customers, costs incurred under NUG agreements, and certain other
stranded costs, exceed amounts collected through BGS and NUGC rates and market sales of NUG energy
and capacity. As of December 31, 2010, the accumulated deferred cost balance was a credit of
approximately $37 million. To better align the recovery of expected costs, on July 26, 2010, JCP&L
filed a request to decrease the amount recovered for the costs incurred under the NUG agreements by
$180 million annually. On February 10, 2011, the NJBPU approved a stipulation which allows the change in rates to become effective March 1, 2011.
On March 13, 2009, JCP&L filed its annual SBC Petition with the NJBPU that includes a request for a
reduction in the level of recovery of TMI-2 decommissioning costs based on an updated TMI-2
decommissioning cost analysis dated January 2009 estimated at $736 million (in 2003 dollars). This
matter is currently pending before the NJBPU.
New Jersey statutes require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic growth, and environmental
impact. The NJBPU adopted an order establishing the general process and contents of specific EMP
plans that must be filed by New Jersey electric and gas utilities in order to achieve the goals of
the EMP. On April 16, 2010, the NJBPU issued an order indefinitely suspending the requirement of
New Jersey utilities to submit Utility Master Plans until such time as the status of the EMP has
been made clear. At this time, FirstEnergy and JCP&L cannot determine the impact, if any, the EMP
may have on their operations.
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FERC Matters
Rates for Transmission Service Between MISO and PJM
On November 18, 2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to eliminate multiple
transmission charges for a single transaction between the MISO and PJM regions. The FERC also
ordered MISO, PJM and the transmission owners within MISO and PJM to submit compliance filings
containing a rate mechanism to recover lost transmission revenues created by elimination of this
charge (referred to as SECA) during a 16-month transition period. In 2005, the FERC set the SECA
for hearing. The presiding ALJ issued an initial decision on August 10, 2006, rejecting the
compliance filings made by MISO, PJM and the transmission owners, and directing new compliance
filings. This decision was subject to review and approval by the FERC. On May 21, 2010, FERC issued
an order denying pending rehearing requests and an Order on Initial Decision which reversed the
presiding ALJ’s rulings in many respects. Most notably, these orders affirmed the right of
transmission owners to collect SECA charges with adjustments that modestly reduce the level of such
charges, and changes to the entities deemed responsible for payment of the SECA charges. The Ohio
Companies were identified as load serving entities responsible for payment of additional SECA
charges for a portion of the SECA period (Green Mountain/Quest issue). FirstEnergy executed
settlements with AEP, Dayton and the Exelon parties to fix FirstEnergy’s liability for SECA charges
originally billed to Green Mountain and Quest for load that returned to regulated service during
the SECA period. The AEP, Dayton and Exelon, settlements were approved by FERC on November 23,
2010, and the relevant payments made. Rehearings remain pending in this proceeding.
PJM Transmission Rate
On April 19, 2007, FERC issued an order (Opinion 494) finding that the PJM transmission owners’
existing “license plate” or zonal rate design was just and reasonable and ordered that the current
license plate rates for existing transmission facilities be retained. On the issue of rates for new
transmission facilities, FERC directed that costs for new transmission facilities that are rated at
500 kV or higher are to be collected from all transmission zones throughout the PJM footprint by
means of a postage-stamp rate based on the amount of load served in a transmission zone. Costs for
new transmission facilities that are rated at less than 500 kV, however, are to be allocated on a
load flow methodology (DFAX), which is generally referred to as a “beneficiary pays” approach to
allocating the cost of high voltage transmission facilities.
The FERC’s Opinion 494 order was appealed to the U.S. Court of Appeals for the Seventh Circuit,
which issued a decision on August 6, 2009. The court affirmed FERC’s ratemaking treatment for
existing transmission facilities, but found that FERC had not supported its decision to allocate
costs for new 500+ kV facilities on a load ratio share basis and, based on this finding, remanded
the rate design issue back to FERC.
In an order dated January 21, 2010, FERC set the matter for “paper hearings”— meaning that FERC
called for parties to submit comments or written testimony pursuant to the schedule described in
the order. FERC identified nine separate issues for comments and directed PJM to file the first
round of comments on February 22, 2010, with other parties submitting responsive comments and then
reply comments on later dates. PJM filed certain studies with FERC on April 13, 2010, in response
to the FERC order. PJM’s filing demonstrated that allocation of the cost of high voltage
transmission facilities on a beneficiary pays basis results in certain eastern utilities in PJM
bearing the majority of their costs. Numerous parties filed responsive comments or studies on May
28, 2010 and reply comments on June 28, 2010. FirstEnergy and a number of other utilities,
industrial customers and state commissions supported the use of the beneficiary pays approach for
cost allocation for high voltage transmission facilities. Certain eastern utilities and their state
commissions supported continued socialization of these costs on a load ratio share basis. FERC is
expected to act by May 31, 2011.
RTO Realignment
On December 17, 2009, FERC issued an order approving, subject to certain future compliance filings,
ATSI’s withdrawal from MISO and integration into PJM. This move, which is expected to be effective
on June 1, 2011, allows FirstEnergy to consolidate its transmission assets and operations into PJM.
Currently, FirstEnergy’s transmission assets and operations
are divided between PJM and MISO. The realignment will make the transmission assets that are part
of ATSI, whose footprint includes the Ohio Companies and Penn, part of PJM. In the order, FERC
approved FirstEnergy’s proposal to use a FRR Plan to obtain capacity to satisfy the PJM capacity
requirements for the 2011-12 and 2012-13 delivery years.
FirstEnergy successfully conducted the FRR auctions on March 19, 2010. Moreover,
the ATSI zone
loads participated in the PJM base residual auction for the 2013 delivery year. Successful
completion of these steps secured the capacity necessary for the ATSI footprint to meet PJM’s
capacity requirements. On August 25, 2010, the PUCO issued an order in the 2010 ESP Case approving
a settlement that, among other things, called for the PUCO to withdraw its opposition to the RTO
consolidation. In addition, the order approved a wholesale procurement process, and certain “retail
choice” policies, that reflected ATSI’s entry into PJM on June 1, 2011.
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On February 1, 2011, ATSI in conjunction with PJM filed its proposal with FERC for moving its
transmission rate into PJM’s tariffs. FirstEnergy expects ATSI to enter PJM on June 1, 2011, and
that if legal proceedings regarding its rate are outstanding at that time, ATSI will be permitted
to start charging its proposed rates, subject to refund. Additional FERC proceedings are either
pending or expected in which the amount of exit fees, transmission cost allocations, and costs
associated with long term firm transmission rights payable by the ATSI zone upon its withdrawal
from the Midwest ISO will be determined. In addition, certain parties may protest other aspects of
ATSI’s integration into PJM, and certain of these matters remain outstanding and will be resolved
in future FERC proceedings. The outcome of these proceedings cannot be predicted.
MISO Multi-Value Project Rule Proposal
On July 15, 2010, MISO and certain MISO transmission owners jointly filed with FERC their proposed
cost allocation methodology for certain new transmission projects. The new transmission
projects—described as MVPs—are a class of MTEP projects. The filing parties proposed to allocate
the costs of MVPs by means of a usage-based charge that will be applied to all loads within the
MISO footprint, and to energy transactions that call for power to be “wheeled through” the MISO as
well as to energy transactions that “source” in the MISO but “sink” outside of MISO. The filing
parties expect that the MVP proposal will fund the costs of large transmission projects designed to
bring wind generation from the upper Midwest to load centers in the east. The filing parties
requested an effective date for the proposal of July 16, 2011. On August 19, 2010, MISO’s Board
approved the first MVP project — the “Michigan Thumb Project.” Under MISO’s proposal, the costs of
MVP projects approved by MISO’s Board prior to the anticipated June 1, 2011 effective date of
FirstEnergy’s integration into PJM would continue to be allocated to FirstEnergy. MISO estimated
that approximately $11 million in annual revenue requirements would be allocated to the ATSI zone
associated with the Michigan Thumb Project upon its completion.
On September 10, 2010, FirstEnergy filed a protest to the MVP proposal arguing that MISO’s proposal
to allocate costs of MVP projects across the entire MISO footprint does not align with the
established rule that cost allocation is to be based on cost causation (the “beneficiary pays”
approach). FirstEnergy also argued that, in light of progress to date in the ATSI integration into
PJM, it would be unjust and unreasonable to allocate any MVP costs to the ATSI zone, or to ATSI.
Numerous other parties filed pleadings on MISO’s MVP proposal.
On December 16, 2010, FERC issued an order approving the MVP proposal without significant change.
FERC’s order was not clear, however, as to whether the MVP costs would be payable by ATSI or load
in the ATSI zone. FERC stated that the MISO’s tariffs obligate ATSI to pay all charges that attach
prior to ATSI’s exit but ruled that the question of the amount of costs that are to be allocated to
ATSI or to load in the ATSI zone were beyond the scope of FERC’s order and would be addressed in
future proceedings.
On January 18, 2011, FirstEnergy filed for rehearing of FERC’s order. In its rehearing request,
the Company argued that because the MVP rate is usage-based, costs could not be applied to ATSI,
which is a stand-alone transmission company that does not use the transmission system. FirstEnergy
also renewed its arguments regarding cost causation and the impropriety of allocating costs to the
ATSI zone or to ATSI. FirstEnergy cannot predict the outcome of these proceedings at this time.
Sales to Affiliates
FES has received authorization from FERC to make wholesale power sales to the Utilities. FES
actively participates in auctions conducted by or on behalf of the Utilities to obtain the power
and related services necessary to meet the Utilities’ POLR obligations. Because of the merger with
FirstEnergy, AS is considered an affiliate of the Utilities for purposes of FERC’s affiliate
restriction regulations. This requires AS to obtain prior FERC authorization to make sales to the
Utilities when it successfully participates in the Utilities’ POLR auctions.
FES currently supplies the Ohio Companies with a portion of their capacity, energy, ancillary
services and transmission under a Master SSO Supply Agreement for a two-year period ending May 31,
2011. FES won 51 tranches in a descending clock auction for POLR service administered by the Ohio
Companies and their consultant, CRA International on May 13-14, 2009. Other winning suppliers have
assigned their Master SSO Supply Agreements to FES, five of which were effective in June, two more
in July, four more in August and ten more in September, 2009. FES also supplies power
used by Constellation to serve an additional five tranches. As a result of these arrangements, FES
serves 77 tranches, or 77% of the POLR load of the Ohio Companies until May 31, 2011.
On October 20, 2010, FES participated in a descending clock auction for POLR service administered
by the Ohio Companies and their consultant, CRA International, for the following periods: June 1,
2011 through May 31, 2012; June 1, 2011, through May 31, 2013; and June 1, 2010 through May 31,
2014. The Ohio Companies offered 17, 17, and 16 tranches for these periods, respectively. FES won
10, 7, and 3 tranches, respectively, for these periods. On January 25, 2011, the Ohio Companies
conducted a second auction offering the same product for identical time periods. FES won 3, 0, and
3 tranches, respectively, for these periods. FES entered into a Master SSO Supply Agreement to
provide capacity, energy, ancillary services, and congestion costs to the Ohio Companies for the
tranches won. Under the ESP in effect for these time periods, the Ohio Companies are responsible
for payment of noncontrollable transmission costs billed by PJM for POLR service.
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On October 18, 2010, FES participated in a descending clock auction for POLR service administered
by both Met-Ed and Penelec and their consultant, National Economic Research Associates (NERA) for
the following tranche products and delivery periods: Residential 5-month, Residential 24-month,
Commercial 5-month, Commercial 12-month and Industrial 12-month. All 5-month delivery periods are
from January 1, 2011 through May 31, 2011, all 12-month delivery periods are from June 1, 2011
through May 31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31,
2013. Met-Ed offered 7 Residential 5-month tranches, 4 Residential 24-month tranches, 6 Commercial
5-month tranches, 6 Commercial 12-month tranches and 1 Industrial tranche while Penelec offered 5
Residential 5-month tranches, 3 Residential 24-month tranches, 5 Commercial 5-month tranches, 5
Commercial 12-month tranches and 1 Industrial tranche.
For Met-Ed offerings, FES won 4 Residential 5-month tranches, 2 Residential 24-month tranches, 1
Commercial 5-month tranche, 1 Commercial 12-month tranche and zero Industrial tranches. For Penelec
offerings, FES won 1 Residential 5-month tranche, 1 Residential 24-month tranche, zero Commercial
5-month tranches, zero Commercial 12-month tranches and zero Industrial tranches. FES entered into
separate Supplier Master Agreements (SMA) to provide capacity, energy, ancillary services, and
congestion costs with Met-Ed and Penelec for each product won. Under the terms and conditions of
the SMA, Met-Ed and Penelec are responsible for payment of noncontrollable transmission costs
billed by PJM.
On January 18 to 20, 2011 FES participated in a descending clock auction for POLR service
administered by Met-Ed, Penelec, and Penn Power and their consultant, NERA for the following
tranche products and delivery periods: Residential 12-month, Residential 24-month, Commercial
12-month and Industrial 12-month. All 12-month delivery periods are from June 1, 2011 through May
31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31, 2013. Met-Ed
offered 3 Residential 12-month tranches, 4 Residential 24-month tranches, 6 Commercial 12-month
tranches and 11 Industrial tranches. Penelec offered 3 Residential 12-month tranches, 2 Residential
24-month tranches, 5 Commercial 12-month tranches and 11 Industrial tranches. Penn Power offered 2
Residential 12-month tranches, 1 Residential 24-month tranche, 3 Commercial 12-month tranches and 3
Industrial tranches.
For Met-Ed offerings, FES won 1 Commercial 12-month tranche and zero for the remaining products.
For Penelec and Penn Power offerings, FES won no tranches. FES entered into a SMA to provide
capacity, energy, ancillary services, and congestion costs with Met-Ed for the product won. Under
the terms and conditions of the SMA, Met-Ed is responsible for payment of noncontrollable
transmission costs billed by PJM.
Reliability Initiatives
Federally-enforceable mandatory reliability standards apply to the bulk power system and impose
certain operating, record-keeping and reporting requirements on the Utilities, FES, FGCO, FENOC and
ATSI. The NERC, as the ERO is charged with establishing and enforcing these reliability standards,
although it has delegated day-to-day implementation and enforcement of these reliability standards
to eight regional entities, including Reliability
First
Corporation. All of FirstEnergy’s facilities
are located within the Reliability
First
region. FirstEnergy actively participates in the NERC and
Reliability
First
stakeholder processes, and otherwise monitors and manages its companies in
response to the ongoing development, implementation and enforcement of the reliability standards
implemented and enforced by the Reliability
First
Corporation.
FirstEnergy believes that it generally is in compliance with all currently-effective and
enforceable reliability standards. Nevertheless, in the course of operating its extensive electric
utility systems and facilities, FirstEnergy occasionally learns of isolated facts or circumstances
that could be interpreted as excursions from the reliability standards. If and when such items are
found, FirstEnergy develops information about the item and develops a remedial response to the
specific circumstances, including in appropriate cases “self-reporting” an item to
Reliability
First
. Moreover, it is clear that the NERC, Reliability
First
and the FERC will continue
to refine existing reliability standards as well as to develop and adopt new reliability standards.
The financial impact of complying with new or amended standards cannot be determined at this time;
however, 2005 amendments to the FPA provide that all prudent costs incurred to comply with the new
reliability standards be recovered in rates. Still, any future inability on FirstEnergy’s part to
comply with the reliability standards for
its bulk power system could result in the imposition of financial penalties that could have a
material adverse effect on its financial condition, results of operations and cash flows.
On December 9, 2008, a transformer at JCP&L’s Oceanview substation failed, resulting in an outage
on certain bulk electric system (transmission voltage) lines out of the Oceanview and Atlantic
substations resulting in customers losing power for up to eleven hours. On March 31, 2009, the NERC
initiated a Compliance Violation Investigation in order to determine JCP&L’s contribution to the
electrical event and to review any potential violation of NERC Reliability Standards associated
with the event. NERC has submitted first and second Requests for Information regarding this and
another related matter. JCP&L is complying with these requests. JCP&L is not able to predict what
actions, if any, that the NERC may take with respect to this matter.
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On August 23, 2010, FirstEnergy self-reported to Reliability
First
a vegetation encroachment event
on a Met-Ed 230 kV line. This event did not result in a fault, outage, operation of protective
equipment, or any other meaningful electric effect on any FirstEnergy transmission facilities or
systems. On August 25, 2010, Reliability
First
issued a Notice of Enforcement to investigate the
incident. FirstEnergy submitted a data response to Reliability
First
on September 27, 2010. At
this time, FirstEnergy is unable to predict the outcome of this investigation.
ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. Compliance with environmental regulations could have a
material adverse effect on FirstEnergy’s earnings and competitive position to the extent that
FirstEnergy competes with companies that are not subject to such regulations and, therefore, do not
bear the risk of costs associated with compliance, or failure to comply, with such regulations.
Clean Air Act Compliance
FirstEnergy is required to meet federally-approved SO
2
and NOx emissions regulations
under the CAA. FirstEnergy complies with SO
2
and NOx reduction requirements under the
CAA and SIP(s) under the CAA by burning lower-sulfur fuel, combustion controls and post-combustion
controls, generating more electricity from lower-emitting plants and/or using emission allowances.
Violations can result in the shutdown of the generating unit involved and/or civil or criminal
penalties.
The Sammis, Eastlake and Mansfield coal-fired plants are operated under a consent decree with the
EPA and DOJ that requires reductions of NOx and SO
2
emissions through the installation
of pollution control devices or repowering. OE and Penn are subject to stipulated penalties for
failure to install and operate such pollution controls or complete repowering in accordance with
that agreement.
In July 2008, three complaints were filed against FGCO in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on Bruce Mansfield Plant air emissions. Two of these
complaints also seek to enjoin the Bruce Mansfield Plant from operating except in a “safe,
responsible, prudent and proper manner”, one being a complaint filed on behalf of twenty-one
individuals and the other being a class action complaint seeking certification as a class action
with the eight named plaintiffs as the class representatives. FGCO believes the claims are without
merit and intends to defend itself against the allegations made in those three complaints.
The states of New Jersey and Connecticut filed CAA citizen suits in 2007 alleging NSR violations at
the Portland Generation Station against GenOn Energy, Inc. (the current owner and operator), Sithe
Energy (the purchaser of the Portland Station from Met-Ed in 1999) and Met-Ed. Specifically, these
suits allege that “modifications” at Portland Units 1 and 2 occurred between 1980 and 2005 without
preconstruction NSR permitting in violation of the CAA’s PSD program, and seek injunctive relief,
penalties, attorney fees and mitigation of the harm caused by excess emissions. In September 2009,
the Court granted Met-Ed’s motion to dismiss New Jersey’s and Connecticut’s claims for injunctive
relief against Met-Ed, but denied Met-Ed’s motion to dismiss the claims for civil penalties. The
parties dispute the scope of Met-Ed’s indemnity obligation to and from Sithe Energy.
In January 2009, the EPA issued a NOV to GenOn alleging NSR violations at the Portland Generation
Station based on “modifications” dating back to 1986 and also alleged NSR violations at the
Keystone and Shawville Stations based on “modifications” dating back to 1984. Met-Ed, JCP&L, as the
former owner of 16.67% of the Keystone Station, and Penelec, as former owner and operator of the
Shawville Station, are unable to predict the outcome of this matter.
In June 2008, the EPA issued a Notice and Finding of Violation to Mission Energy Westside, Inc.
alleging that “modifications” at the Homer City Power Station occurred since 1988 to the present
without preconstruction NSR permitting in violation of the CAA’s PSD program. In May 2010, the EPA
issued a second NOV to Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an
ownership interest in the Homer City Power Station containing in all material respects identical
allegations as the June 2008 NOV. On July 20, 2010, the states of New York and Pennsylvania
provided Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an ownership
interest in the Homer City Power Station a notification that was required 60 days prior to filing a
citizen suit under the
CAA. In January, 2011, the DOJ filed a complaint against Penelec in the U.S. District Court for the
Western District of Pennsylvania seeking damages based on alleged “modifications” at the Homer City
Power Station between 1991 to 1994 without preconstruction NSR permitting in violation of the CAA’s
PSD and Title V permitting programs. The complaint was also filed against the former co-owner,
NYSEG, and various current owners of the Homer City Station, including EME Homer City Generation
L.P. and affiliated companies, including Edison International. In addition, the Commonwealth of
Pennsylvania and the State of New York intervened and have filed a separate complaint regarding the
Homer City Station. Mission Energy Westside, Inc. is seeking indemnification from Penelec, the
co-owner and operator of the Homer City Power Station prior to its sale in 1999. The scope of
Penelec’s indemnity obligation to and from Mission Energy Westside, Inc. is under dispute and
Penelec is unable to predict the outcome of this matter.
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In January 2011, a complaint was filed against Penelec in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on the Homer City Station’s air emissions. The
complaint was also filed against the former co-owner, NYSEG and various current owners of the Homer
City Station, including EME Homer City Generation L.P. and affiliated companies, including Edison
International. The complaint also seeks certification as a class action and to enjoin the Homer
City Station from operating except in a “safe, responsible, prudent and proper manner.” Penelec
believes the claims are without merit and intends to defend itself against the allegations made in
the complaint.
In August 2009, the EPA issued a Finding of Violation and NOV alleging violations of the CAA and
Ohio regulations, including the PSD, NNSR, and Title V regulations at the Eastlake, Lakeshore, Bay
Shore and Ashtabula generating plants. The EPA’s NOV alleges equipment replacements occurring
during maintenance outages dating back to 1990 triggered the pre-construction permitting
requirements under the PSD and NNSR programs. FGCO received a request for certain operating and
maintenance information and planning information for these same generating plants and notification
that the EPA is evaluating whether certain maintenance at the Eastlake generating plant may
constitute a major modification under the NSR provision of the CAA. Later in 2009, FGCO also
received another information request regarding emission projections for the Eastlake generating
plant. FGCO intends to comply with the CAA, including the EPA’s information requests, but, at this
time, is unable to predict the outcome of this matter.
National Ambient Air Quality Standards
The EPA’s CAIR requires reductions of NOx and SO
2
emissions in two phases (2009/2010 and
2015), ultimately capping SO
2
emissions in affected states to 2.5 million tons annually
and NOx emissions to 1.3 million tons annually. In 2008, the U.S. Court of Appeals for the District
of Columbia vacated CAIR “in its entirety” and directed the EPA to “redo its analysis from the
ground up.” In December 2008, the Court reconsidered its prior ruling and allowed CAIR to remain in
effect to “temporarily preserve its environmental values” until the EPA replaces CAIR with a new
rule consistent with the Court’s opinion. The Court ruled in a different case that a cap-and-trade
program similar to CAIR, called the “NOx SIP Call,” cannot be used to satisfy certain CAA
requirements (known as reasonably available control technology) for areas in non-attainment under
the “8-hour” ozone NAAQS. In July 2010, the EPA proposed the CATR to replace CAIR, which remains in
effect until the EPA finalizes CATR. CATR requires reductions of NOx and SO
2
emissions
in two phases (2012 and 2014), ultimately capping SO
2
emissions in affected states to
2.6 million tons annually and NOx emissions to 1.3 million tons annually. The EPA proposed a
preferred regulatory approach that allows trading of NOx and SO
2
emission allowances
between power plants located in the same state and severely limits interstate trading of NOx and
SO
2
emission allowances. The EPA also requested comment on two alternative
approaches—the first eliminates interstate trading of NOx and SO
2
emission allowances
and the second eliminates trading of NOx and SO
2
emission allowances in its entirety.
Depending on the actions taken by the EPA with respect to CATR, the proposed MACT regulations
discussed below and any future regulations that are ultimately implemented, FGCO’s future cost of
compliance may be substantial. Management continues to assess the impact of these environmental
proposals and other factors on FGCO’s facilities, particularly on the operation of its smaller,
non-supercritical units. In August 2010, for example, management decided to idle certain units or
operate them on a seasonal basis until developments clarify.
Hazardous Air Pollutant Emissions
The EPA’s CAMR provides for a cap-and-trade program to reduce mercury emissions from coal-fired
power plants in two phases; initially, capping nationwide emissions of mercury at 38 tons by 2010
(as a “co-benefit” from implementation of SO
2
and NOx emission caps under the EPA’s CAIR
program) and 15 tons per year by 2018. The U.S. Court of Appeals for the District of Columbia, at
the urging of several states and environmental groups, vacated the CAMR, ruling that the EPA failed
to take the necessary steps to “de-list” coal-fired power plants from its hazardous air pollutant
program and, therefore, could not promulgate a cap-and-trade program. On April 29, 2010, the EPA
issued proposed MACT regulations requiring emissions reductions of mercury and other hazardous air
pollutants from non-electric generating unit boilers.
If finalized,
the non-electric generating unit MACT regulations could also provide precedent for MACT standards
applicable to electric generating units. On January 20, 2011, the U.S. District Court for the
District of Columbia denied a motion by the EPA for an extension of the deadline to issue final
rules, ordering the EPA to issue such rules by February 21, 2011. The EPA also entered into a
consent decree requiring it to propose MACT regulations for mercury and other hazardous air
pollutants from electric generating units by March 16, 2011, and to finalize the regulations by
November 16, 2011.
Depending on the action taken by the EPA and on how any future regulations are ultimately
implemented, FGCO’s future cost of compliance with MACT regulations may be substantial and changes
to FGCO’s operations may result.
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Climate Change
There are a number of initiatives to reduce GHG emissions under consideration at the federal, state
and international level. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the House of Representatives passed
one such bill, the American Clean Energy and Security Act of 2009, on June 26, 2009. The Senate
continues to consider a number of measures to regulate GHG emissions. President Obama has announced
his Administration’s “New Energy for America Plan” that includes, among other provisions, ensuring
that 10% of electricity used in the United States comes from renewable sources by 2012, increasing
to 25% by 2025, and implementing an economy-wide cap-and-trade program to reduce GHG emissions by
80% by 2050. State activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states, led by California, have coordinated efforts to
develop regional strategies to control emissions of certain GHGs.
In September 2009, the EPA finalized a national GHG emissions collection and reporting rule that
will require FirstEnergy to measure GHG emissions commencing in 2010 and submit reports commencing
in 2011. In December 2009, the EPA released its final “Endangerment and Cause or Contribute
Findings for Greenhouse Gases under the Clean Air Act.” The EPA’s finding concludes that
concentrations of several key GHGs increase the threat of climate change and may be regulated as
“air pollutants” under the CAA. In April 2010, the EPA finalized new GHG standards for model years
2012 to 2016 passenger cars, light-duty trucks and medium-duty passenger vehicles and clarified
that GHG regulation under the CAA would not be triggered for electric generating plants and other
stationary sources until January 2, 2011, at the earliest. In May 2010, the EPA finalized new
thresholds for GHG emissions that define when permits under the CAA’s NSR program would be
required. The EPA established an emissions applicability threshold of 75,000 tons per year (tpy) of
carbon dioxide equivalents (CO2e) effective January 2, 2011 for existing facilities under the CAA’s
PSD program, but until July 1, 2011 that emissions applicability threshold will only apply if PSD
is triggered by non-carbon dioxide pollutants.
At the international level, the Kyoto Protocol, signed by the U.S. in 1998 but never submitted for
ratification by the U.S. Senate, was intended to address global warming by reducing the amount of
man-made GHG, including CO
2
, emitted by developed countries by 2012. A December 2009
U.N. Climate Change Conference in Copenhagen did not reach a consensus on a successor treaty to the
Kyoto Protocol, but did take note of the Copenhagen Accord, a non-binding political agreement which
recognized the scientific view that the increase in global temperature should be below two degrees
Celsius; include a commitment by developed countries to provide funds, approaching $30 billion over
the next three years with a goal of increasing to $100 billion by 2020; and establish the
“Copenhagen Green Climate Fund” to support mitigation, adaptation, and other climate-related
activities in developing countries. Once they have become a party to the Copenhagen Accord,
developed economies, such as the European Union, Japan, Russia and the United States, would commit
to quantified economy-wide emissions targets from 2020, while developing countries, including
Brazil, China and India, would agree to take mitigation actions, subject to their domestic
measurement, reporting and verification.
On September 21, 2009, the U.S. Court of Appeals for the Second Circuit and on October 16, 2009,
the U.S. Court of Appeals for the Fifth Circuit reversed and remanded lower court decisions that
had dismissed complaints alleging damage from GHG emissions on jurisdictional grounds. However, a
subsequent ruling from the U.S. Court of Appeals for the Fifth Circuit reinstated the lower court
dismissal of a complaint alleging damage from GHG emissions. These cases involve common law tort
claims, including public and private nuisance, alleging that GHG emissions contribute to global
warming and result in property damages. On December 6, 2010, the U.S. Supreme Court granted a writ
of certiorari to the Second Circuit in
Connecticut v. AEP
. Briefing and oral argument are expected
to be completed in early 2011 and a decision issued in or around June 2011. While FirstEnergy is
not a party to this litigation, FirstEnergy and/or one or more of its subsidiaries could be named
in actions making similar allegations.
FirstEnergy cannot currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO
2
emissions, or litigation
alleging damages from GHG emissions, could require significant capital and other expenditures or
result in changes to its operations. The CO
2
emissions per KWH of electricity generated
by FirstEnergy is lower than many regional competitors due to its diversified generation sources,
which include low or non-CO
2
emitting gas-fired and nuclear generators.
Clean Water Act
Various water quality regulations, the majority of which are the result of the federal Clean Water
Act and its amendments, apply to FirstEnergy’s plants. In addition, Ohio, New Jersey and
Pennsylvania have water quality standards applicable to FirstEnergy’s operations.
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The EPA established new performance standards under Section 316(b) of the Clean Water Act for
reducing impacts on fish and shellfish from cooling water intake structures at certain existing
electric generating plants. The regulations call for reductions in impingement mortality (when
aquatic organisms are pinned against screens or other parts of a cooling
water intake system) and entrainment (which occurs when aquatic life is drawn into a facility’s
cooling water system). The EPA has taken the position that until further rulemaking occurs,
permitting authorities should continue the existing practice of applying their best professional
judgment to minimize impacts on fish and shellfish from cooling water intake structures. On April
1, 2009, the U.S. Supreme Court reversed one significant aspect of the Second Circuit’s opinion and
decided that Section 316(b) of the Clean Water Act authorizes the EPA to compare costs with
benefits in determining the best technology available for minimizing adverse environmental impact
at cooling water intake structures. The EPA is developing a new regulation under Section 316(b) of
the Clean Water Act consistent with the opinions of the Supreme Court and the Court of Appeals
which have created significant uncertainty about the specific nature, scope and timing of the final
performance standard. FirstEnergy is studying various control options and their costs and
effectiveness, including pilot testing of reverse louvers in a portion of the Bay Shore power
plant’s water intake channel to divert fish away from the plant’s water intake system. On November
19, 2010, the Ohio EPA issued a permit for the Bay Shore power plant requiring installation of
reverse louvers in its entire water intake channel by December 31, 2014. Depending on the results
of such studies and the EPA’s further rulemaking and any final action taken by the states
exercising best professional judgment, the future costs of compliance with these standards may
require material capital expenditures.
In June 2008, the U.S. Attorney’s Office in Cleveland, Ohio advised FGCO that it is considering
prosecution under the Clean Water Act and the Migratory Bird Treaty Act for three petroleum spills
at the Edgewater, Lakeshore and Bay Shore plants which occurred on November 1, 2005, January 26,
2007 and February 27, 2007. FGCO is unable to predict the outcome of this matter.
Regulation of Waste Disposal
Federal and state hazardous waste regulations have been promulgated as a result of the Resource
Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976.
Certain fossil-fuel combustion residuals, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA’s evaluation of the need for future regulation. In February
2009, the EPA requested comments from the states on options for regulating coal combustion
residuals, including whether they should be regulated as hazardous or non-hazardous waste.
On December 30, 2009, in an advanced notice of public rulemaking, the EPA said that the large
volumes of coal combustion residuals produced by electric utilities pose significant financial risk
to the industry. On May 4, 2010, the EPA proposed two options for additional regulation of coal
combustion residuals, including the option of regulation as a special waste under the EPA’s
hazardous waste management program which could have a significant impact on the management,
beneficial use and disposal of coal combustion residuals. FGCO’s future cost of compliance with any
coal combustion residuals regulations which may be promulgated could be substantial and would
depend, in part, on the regulatory action taken by the EPA and implementation by the EPA or the
states.
The Utilities have been named as potentially responsible parties at waste disposal sites, which may
require cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act of
1980. Allegations of disposal of hazardous substances at historical sites and the liability
involved are often unsubstantiated and subject to dispute; however, federal law provides that all
potentially responsible parties for a particular site may be liable on a joint and several basis.
Environmental liabilities that are considered probable have been recognized on the consolidated
balance sheet as of December 31, 2010, based on estimates of the total costs of cleanup, the
Utilities’ proportionate responsibility for such costs and the financial ability of other
unaffiliated entities to pay. Total liabilities of approximately $104 million (JCP&L — $69 million,
TE — $1 million, CEI — $1 million, FGCO — $1 million and FirstEnergy — $32 million) have been
accrued through December 31, 2010. Included in the total are accrued liabilities of approximately
$64 million for environmental remediation of former MGPs and gas holder facilities in New Jersey,
which are being recovered by JCP&L through a non-bypassable SBC.
OTHER LEGAL PROCEEDINGS
Power Outages and Related Litigation
In July 1999, the Mid-Atlantic States experienced a severe heat wave, which resulted in power
outages throughout the service territories of many electric utilities, including JCP&L’s territory.
Two class action lawsuits (subsequently consolidated into a single proceeding) were filed in New
Jersey Superior Court in July 1999 against JCP&L, GPU and other GPU companies, seeking compensatory
and punitive damages due to the outages. After various motions, rulings and appeals, the
Plaintiffs’ claims for consumer fraud, common law fraud, negligent misrepresentation, strict
product liability and punitive damages were dismissed, leaving only the negligence and breach of
contract causes of actions. On July 29, 2010, the Appellate Division upheld the trial court’s
decision decertifying the class. Plaintiffs have filed, and JCP&L has opposed, a motion for leave
to appeal to the New Jersey Supreme Court. JCP&L is waiting for the Court’s decision.
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Litigation Relating to the Proposed Allegheny Merger
In connection with the proposed merger (Note 22), purported shareholders of Allegheny have filed
putative shareholder class action and/or derivative lawsuits against Allegheny and its directors
and certain officers, referred to as the
Allegheny Energy defendants, FirstEnergy and Merger Sub. Four putative class action and derivative
lawsuits were filed in the Circuit Court for Baltimore City, Maryland (Maryland Court). One was
withdrawn. The Maryland Court has consolidated the remaining three cases under the caption: In re
Allegheny Energy Shareholder and Derivative Litigation, C.A. No. 24-C-10-1301. Three shareholder
lawsuits were filed in the Court of Common Pleas of Westmoreland County, Pennsylvania and the court
has consolidated these actions under the caption: In re Allegheny Energy, Inc. Shareholder Class
and Derivative, Litigation, Lead Case No. 1101 of 2010. One putative shareholder class action was
filed in the U.S. District Court for the Western District of Pennsylvania and is captioned
Louisiana Municipal Police Employees’ Retirement System v. Evanson, et al., C.A. No. 10-319 NBF. In
summary, the lawsuits allege, among other things, that the Allegheny Energy directors breached
their fiduciary duties by approving the merger agreement, and that Allegheny, FirstEnergy and
Merger Sub aided and abetted in these alleged breaches of fiduciary duty. The complaints seek,
among other things, jury trials, money damages and injunctive relief. While FirstEnergy believes
the lawsuits are without merit and has defended vigorously against the claims, in order to avoid
the costs associated with the litigation, the defendants have agreed to the terms of a
disclosure-based settlement of all these shareholder lawsuits and have reached agreement with
counsel for all of the plaintiffs concerning fee applications. Under the terms of the settlement,
no payments are being made by FirstEnergy or Merger Sub. A formal stipulation of settlement was
filed with the Maryland Court on October 18, 2010 and it was approved and became final on January
12, 2011. The separate Pennsylvania federal and state proceedings were dismissed on January 14,
2011 and January 18, 2011, respectively. The above shareholder actions have been fully and finally
resolved.
Nuclear Plant Matters
During a planned refueling outage that began on February 28, 2010, FENOC conducted a non
destructive examination and testing of the CRDM nozzles of the Davis-Besse reactor pressure vessel
head. FENOC identified flaws in CRDM nozzles that required modification. The NRC was notified of
these findings, along with federal, state and local officials. On March 17, 2010, the NRC sent a
special inspection team to Davis-Besse to assess the adequacy of FENOC’s identification, analyses
and resolution of the CRDM nozzle flaws and to ensure acceptable modifications were made prior to
placing the RPV head back in service. After successfully completing the modifications, FENOC
committed to take a number of corrective actions including strengthening leakage monitoring
procedures and shutting Davis-Besse down no later than October 1, 2011, to replace the reactor
pressure vessel head with nozzles made of material less susceptible to primary water stress
corrosion cracking, further enhancing the safe and reliable operations of the plant. On June 29,
2010, FENOC returned Davis-Besse to service. On September 9, 2010, the NRC held a public exit
meeting describing the results of the NRC special inspection team inspection of FENOC’s
identification of the CRDM nozzles with flaws and the modifications to those nozzles. On October
22, 2010, the NRC issued its final report of the special inspection. The report contained three
findings characterized as very low safety significance that were promptly corrected prior to plant
operation.
On April 5, 2010, the Union of Concerned Scientists (UCS) requested that the NRC issue a Show Cause
Order, or otherwise delay the restart of the Davis-Besse Nuclear Power Station until the NRC
determines that adequate protection standards have been met and reasonable assurance exists that
these standards will continue to be met after the plant’s operation is resumed. By a letter dated
July 13, 2010, the NRC denied UCS’s request for immediate action because “the NRC has conducted
rigorous and independent assessments of returning the Davis-Besse reactor vessel head to service
and its continued operation, and determined that it was safe for the plant to restart.” The UCS
petition was referred to a petition manager for further review. What additional actions, if any,
that the NRC takes in response to the UCS request have not been determined.
Under NRC regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities. As of December 31, 2010, FirstEnergy had approximately $2
billion invested in external trusts to be used for the decommissioning and environmental
remediation of Davis-Besse, Beaver Valley, Perry and TMI-2. FirstEnergy provides an additional $15
million parental guarantee associated with the funding of decommissioning costs for these units. As
required by the NRC, FirstEnergy annually recalculates and adjusts the amount of its parental
guarantee, as appropriate. The values of FirstEnergy’s nuclear decommissioning trusts fluctuate
based on market conditions. If the value of the trusts decline by a material amount, FirstEnergy’s
obligation to fund the trusts may increase. Disruptions in the capital markets and its effects on
particular businesses and the economy could also affect the values of the nuclear decommissioning
trusts. The NRC issued guidance anticipating an increase in low-level radioactive waste disposal
costs associated the decommissioning of FirstEnergy’s nuclear facilities. As a result,
FirstEnergy’s decommissioning funding obligations are expected to increase. FirstEnergy continues
to evaluate the status of its funding obligations for the decommissioning of these nuclear
facilities.
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On August 27, 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse
Nuclear Power Station operating license for an additional twenty years, until 2037. On December 27
and 28, 2010, a group of petitioners filed a request for hearing contending that FENOC failed to
adequately consider wind or solar generation, or some combination thereof, as an alternative to
license extension at Davis-Besse. They further argued FENOC had failed to adequately assess the
cost of a severe accident at Davis-Besse. FENOC and the NRC staff responded to this pleading on
January 21, 2011, demonstrating that none of the petitioners’ arguments were admissible contentions
under the National
Environmental Policy Act or NRC regulations. An Atomic Safety and Licensing Board panel is
expected to determine whether a hearing is necessary.
Ohio Legal Matters
On February 16, 2010, a class action lawsuit was filed in Geauga County Court of Common Pleas
against FirstEnergy, CEI and OE seeking declaratory judgment and injunctive relief, as well as
compensatory, incidental and consequential damages, on behalf of a class of customers related to
the reduction of a discount that had previously been in place for residential customers with
electric heating, electric water heating, or load management systems. The reduction in the discount
was approved by the PUCO. On March 18, 2010, the named-defendant companies filed a motion to
dismiss the case due to the lack of jurisdiction of the court of common pleas. The court granted
the motion to dismiss on September 7, 2010. The plaintiffs appealed the decision to the Court of
Appeals of Ohio, which has not yet rendered an opinion.
Other Legal Matters
There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related
to FirstEnergy’s normal business operations pending against FirstEnergy and its subsidiaries. The
other potentially material items not otherwise discussed above are described below.
FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an
obligation for such costs and can reasonably estimate the amount of such costs. If it were
ultimately determined that FirstEnergy or its subsidiaries have legal liability or are otherwise
made subject to liability based on the above matters, it could have a material adverse effect on
FirstEnergy’s or its subsidiaries’ financial condition, results of operations and cash flows.
CRITICAL ACCOUNTING POLICIES
FirstEnergy prepares consolidated financial statements in accordance with GAAP. Application of
these principles often requires a high degree of judgment, estimates and assumptions that affect
financial results. All of FirstEnergy assets are subject to specific risks and uncertainties and
are regularly reviewed for impairment. FirstEnergy’s more significant accounting policies are
described below.
Revenue Recognition
FirstEnergy follows the accrual method of accounting for revenues, recognizing revenue for
electricity that has been delivered to customers but not yet billed through the end of the
accounting period. The determination of electricity sales to individual customers is based on meter
readings, which occur on a systematic basis throughout the month. At the end of each month,
electricity delivered to customers since the last meter reading is estimated and a corresponding
accrual for unbilled sales is recognized. The determination of unbilled sales and revenues requires
management to make estimates regarding electricity available for retail load, transmission and
distribution line losses, demand by customer class, applicable billing demands, weather-related
impacts, number of days unbilled and tariff rates in effect within each customer class.
Regulatory Accounting
FirstEnergy’s energy delivery services segment is subject to regulation that sets the prices
(rates) the Utilities are permitted to charge customers based on costs that the regulatory agencies
determine the Utilities are permitted to recover. At times, regulators permit the future recovery
through rates of costs that would be currently charged to expense by an unregulated company. This
ratemaking process results in the recording of regulatory assets based on anticipated future cash
inflows. FirstEnergy regularly reviews these assets to assess their ultimate recoverability within
the approved regulatory guidelines. Impairment risk associated with these assets relates to
potentially adverse legislative, judicial or regulatory actions in the future.
Pension and Other Postretirement Benefits Accounting
FirstEnergy’s reported costs of providing noncontributory qualified and non-qualified defined
pension benefits and OPEB benefits other than pensions are dependent upon numerous factors
resulting from actual plan experience and certain assumptions.
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Pension and OPEB costs are affected by employee demographics (including age, compensation levels,
and employment periods), the level of contributions FirstEnergy makes to the plans and earnings on
plan assets. Pension and OPEB costs may also be affected by changes to key assumptions, including
anticipated rates of return on plan assets, the discount rates and health care trend rates used in
determining the projected benefit obligations for pension and OPEB costs.
In accordance with GAAP, changes in pension and OPEB obligations associated with these factors may
not be immediately recognized as costs on the income statement, but generally are recognized in
future years over the remaining average service period of plan participants. GAAP delays
recognition of changes due to the long-term nature
of pension and OPEB obligations and the varying market conditions likely to occur over long periods
of time. As such, significant portions of pension and OPEB costs recorded in any period may not
reflect the actual level of cash benefits provided to plan participants and are significantly
influenced by assumptions about future market conditions and plan participants’ experience.
FirstEnergy recognizes the overfunded or underfunded status of the defined benefit pension and
other postretirement benefit plans on the balance sheet and recognize changes in funded status in
the year in which the changes occur through other comprehensive income. The underfunded status of
FirstEnergy’s qualified and non-qualified pension and OPEB plans at December 31, 2010 was $1.7
billion. FirstEnergy voluntarily intends to contribute $250 million to its pension plan in 2011.
In selecting an assumed discount rate, FirstEnergy considers currently available rates of return on
high-quality fixed income investments expected to be available during the period to maturity of the
pension and other postretirement benefit obligations. The assumed discount rates for pension were
5.50%, 6.00% and 7.00% for December 31, 2010, 2009 and 2008, respectively. The assumed discount
rates for OPEB were 5.00%, 5.75% and 7.0% as of December 31, 2010, 2009 and 2008, respectively.
FirstEnergy’s assumed rate of return on pension plan assets considers historical market returns and
economic forecasts for the types of investments held by the pension trusts. In 2010, FirstEnergy’s
qualified pension and OPEB plan assets earned $492 million or 10.1% compared to amounts earned of
$570 million or 13.6% in 2009. The qualified pension and OPEB costs in 2010 and 2009 were computed
using an assumed 8.5% and 9.0% rate of return, respectively, on plan assets which generated $397
million and $379 million of expected returns on plan assets, respectively. The expected return of
pension and OPEB assets is based on the trusts’ asset allocation targets and the historical
performance of risk-based and fixed income securities. The gains or losses generated as a result of
the difference between expected and actual returns on plan assets are deferred and amortized and
will increase or decrease future net periodic pension and OPEB cost, respectively.
FirstEnergy’s qualified and non-qualified pension and OPEB net periodic benefit cost was $138
million in 2010 compared to $197 million in 2009 and credits of $116 million in 2008. FirstEnergy
expects the 2011 qualified and non-qualified pension and OPEB costs (including amounts capitalized)
to be $103 million.
On June 2, 2009, FirstEnergy amended the health care benefits plan for all employees and retirees
eligible that participate in that plan. The amendment, which reduces future health care coverage
subsidies paid by FirstEnergy on behalf of participants, triggered a remeasurement of FirstEnergy’s
other postretirement benefit plans as of May 31, 2009. On September 2, 2009, the Utilities and
ATSI made a combined $500 million voluntary contribution to their qualified pension plan. Due to
the significance of the voluntary contribution, FirstEnergy elected to remeasure the qualified
pension plan as of August 31, 2009. In the third quarter of 2009, FirstEnergy also incurred a $13
million net postretirement benefit cost (including amounts capitalized) related to a liability
created by the VERO offered by FirstEnergy to qualified employees. The special termination benefits
of the VERO included additional health care coverage subsidies paid by FirstEnergy to those
qualified employees who elected to retire. A total of 715 employees accepted the VERO.
Health care cost trends continue to increase and will affect future OPEB costs. The 2010 composite
health care trend rate assumptions were approximately 8-9%, compared to 8.5-10% in 2009, gradually
decreasing to 5% in later years. In determining FirstEnergy’s trend rate assumptions, included are
the specific provisions of FirstEnergy’s health care plans, the demographics and utilization rates
of plan participants, actual cost increases experienced in FirstEnergy’s health care plans, and
projections of future medical trend rates. The effect on the pension and OPEB costs from changes in
key assumptions are as follows:
Increase in Costs from Adverse Changes in Key Assumptions
| Assumption | Adverse Change | Pension | OPEB | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Discount rate
|
Decrease by 0.25% | $ | 13 | $ | 1 | $ | 14 | |||||||||
|
Long-term return on assets
|
Decrease by 0.25% | $ | 12 | $ | 1 | $ | 13 | |||||||||
|
Health care trend rate
|
Increase by 1% | N/A | $ | 4 | $ | 4 | ||||||||||
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Emission Allowances
FirstEnergy holds emission allowances for SO
2
and NO
X
in
order to comply with
programs implemented by the EPA designed to regulate emissions of SO
2
and NO
X
produced by power plants. Emission allowances are either granted by the EPA at zero cost or are
purchased at fair value as needed to meet emission requirements. Emission allowances are not
purchased with the intent of resale. Emission allowances eligible to be used in the current year
are recorded in materials and supplies inventory at the lesser of weighted average cost or market
value. Emission allowances eligible for use in future years are recorded as other investments.
FirstEnergy recognizes emission allowance costs as fuel expense during the periods that emissions
are produced by generating facilities. Excess emission allowances that are not needed to meet
emission requirements may be sold and are reported as a reduction to other operating expenses.
Long-Lived Assets
FirstEnergy reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of such an asset may not be recoverable. The recoverability of a
long-lived asset is measured by comparing the asset’s carrying value to the sum of undiscounted
future cash flows expected to result from the use and eventual disposition of the asset. If the
carrying value is greater than the undiscounted future cash flows of
the long-lived asset,
impairment exists and a loss is recognized for the amount by which the carrying value of the
long-lived asset exceeds its estimated fair value. Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
Asset Retirement Obligations
FirstEnergy recognizes an ARO for the future decommissioning of FirstEnergy’s nuclear power plants
and future remediation of other environmental liabilities associated with long-lived assets. The
ARO liability represents an estimate of the fair value of the current obligation related to nuclear
decommissioning and the retirement or remediation of environmental liabilities of other assets. A
fair value measurement inherently involves uncertainty in the amount and timing of settlement of
the liability. FirstEnergy uses an expected cash flow approach to measure the fair value of the
nuclear decommissioning and environmental remediation ARO. This approach applies probability
weighting to discounted future cash flow scenarios that reflect a range of possible outcomes. The
scenarios consider settlement of the ARO at the expiration of the nuclear power plants’ current
license, settlement based on an extended license term and expected remediation dates.
Income Taxes
We record income taxes in accordance with the liability method of accounting. Deferred income taxes
reflect the net tax effect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts recognized for tax purposes.
Investment tax credits, which were deferred when utilized, are being amortized over the recovery
period of the related property. Deferred income tax liabilities related to tax and accounting basis
differences and tax credit carryforward items are recognized at the statutory income tax rates in
effect when the liabilities are expected to be paid. Deferred tax assets are recognized based on
income tax rates expected to be in effect when they are settled.
FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. We
account for uncertain income tax positions using a benefit recognition model with a two-step
approach, a more-likely-than-not recognition criterion and a measurement attribute that measures
the position as the largest amount of tax benefit that is greater than 50% likely of being
ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit
will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions
that relate only to timing of when an item is included on a tax return are considered to have met
the recognition threshold. The Company recognizes interest expense or income related to uncertain
tax positions. That amount is computed by applying the applicable statutory interest rate to the
difference between the tax position recognized and the amount previously taken or expected to be
taken on the tax return. FirstEnergy includes net interest and penalties in the provision for
income taxes.
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of the
assets acquired and liabilities assumed is recognized as goodwill. Goodwill is evaluated for
impairment at least annually and more frequently if indicators of impairment arise. In accordance
with accounting standards, if the fair value of a reporting unit is less than its carrying value
(including goodwill), the goodwill is tested for impairment. Impairment is indicated and a loss is
recognized if the implied fair value of a reporting unit’s goodwill is less than the carrying value
of its goodwill.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
See Note 16 to the consolidated financial statements for discussion of new accounting
pronouncements.
97
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
FES is a wholly owned subsidiary of FirstEnergy. FES provides energy-related products and
services, and through its subsidiaries, FGCO and NGC, owns or leases and operates and maintains
FirstEnergy’s fossil and hydroelectric generation facilities, and owns FirstEnergy’s nuclear
generation facilities, respectively. FENOC, a wholly owned subsidiary of FirstEnergy, operates and
maintains the nuclear generating facilities.
FES’ revenues during 2010 were derived from sales to individual retail customers, sales to
communities in the form of government aggregation programs, the sale of electricity to Met-Ed and
Penelec to meet all of their POLR and default service requirements, and its participation in
affiliated and non-affiliated POLR auctions. FES sales were primarily concentrated in Ohio,
Pennsylvania, Illinois, Maryland, Michigan and New Jersey. Beginning in 2011, FES will not be
required to supply Met-Ed and Penelec’s POLR and default service requirements as Met-Ed and Penelec
will procure power under their Default Service Plans in which full requirements products (energy,
capacity, ancillary services and applicable transmission services) are procured through descending
clock auctions.
The demand for electricity produced and sold by FES, along with the price of that electricity, is
impacted by conditions in competitive power markets, global economic activity, economic activity in
the Midwest and Mid-Atlantic regions and weather conditions.
For additional information with respect to FES, please see the information contained in FirstEnergy
Management’s Discussion and Analysis of Financial Condition and Results of Operations under the
following subheadings, which information is incorporated by reference herein: Strategy and Outlook,
Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and Liquidity,
Contractual Obligations, Regulatory Matters, Environmental Matters, Other Legal Proceedings and New
Accounting Standards and Interpretations.
Results of Operations
Net income decreased to $269 million in 2010 compared to $577 million in 2009. The decrease in net
income was primarily due to $384 million of impairment charges ($240 million net of tax) in 2010.
In addition, FES sold a 6.65% participation interest in OVEC in 2010 compared to a 9% interest in
2009, accounting for $105 million of the reduction in net income. Investment income from nuclear
decommissioning trusts was also lower in 2010. These reductions were partially offset by an
increase in sales margins.
Revenues
Excluding the impact of the OVEC sale in both years, total revenues increased $1,267
million in 2010 compared to the same period in 2009, primarily due to an increase in direct and
government aggregation sales and sales of RECs, partially offset by decreases in POLR sales to the
Ohio Companies and other wholesale sales.
The increase in revenues resulted from the following sources:
| Increase | ||||||||||||
| Revenues by Type of Service | 2010 | 2009 | (Decrease) | |||||||||
| (In millions) | ||||||||||||
|
Direct and Government Aggregation
|
$ | 2,494 | $ | 779 | $ | 1,715 | ||||||
|
POLR
|
2,436 | 2,863 | (427 | ) | ||||||||
|
Other Wholesale
|
550 | 632 | (82 | ) | ||||||||
|
Transmission
|
77 | 73 | 4 | |||||||||
|
RECs
|
74 | 17 | 57 | |||||||||
|
Sale of OVEC participation interest
|
85 | 252 | (167 | ) | ||||||||
|
Other
|
112 | 112 | — | |||||||||
|
|
||||||||||||
|
Total Revenues
|
$ | 5,828 | $ | 4,728 | $ | 1,100 | ||||||
|
|
||||||||||||
98
Table of Contents
Direct and government aggregation revenues increased by $1.7 billion due to the acquisition of
new commercial and industrial customers as well as from new government aggregation contracts with
communities in Ohio that provide generation to 1.5 million residential and small commercial
customers at the end of 2010 compared to 600,000 of such customers at the end of 2009. Increases in
direct sales were partially offset by lower unit prices. Sales to residential and
small commercial customers were also bolstered by summer weather in the delivery area that was
significantly warmer than in 2009.
The decrease in POLR revenues of $427 million was due to lower sales volumes and unit prices to the
Ohio Companies, partially offset by increased sales volumes and higher unit prices to the
Pennsylvania Companies. The lower sales volumes and unit prices to the Ohio Companies in 2010
reflected the results of the May 2009 CBP. The increased revenues to the Pennsylvania Companies
resulted from FES supplying Met-Ed and Penelec with volumes previously supplied through a
third-party contract and at prices that were slightly higher than in 2009.
Other wholesale revenues decreased $82 million due to reduced volumes, partially offset by higher
prices. Lower sales volumes in MISO were due to available capacity serving increased retail sales
in Ohio, partially offset by increased sales under bilateral agreements in PJM.
The following tables summarize the price and volume factors contributing to changes in revenues
from generation sales:
| Increase | ||||
| Source of Change in Direct and Government Aggregation | (Decrease) | |||
| (In millions) | ||||
|
Direct Sales:
|
||||
|
Effect of increase in sales volumes
|
$ | 1,083 | ||
|
Change in prices
|
(82 | ) | ||
|
|
||||
|
|
1,001 | |||
|
|
||||
|
|
||||
|
Government Aggregation
|
||||
|
Effect of increase in sales volumes
|
704 | |||
|
Change in prices
|
10 | |||
|
|
||||
|
|
714 | |||
|
|
||||
|
Net Increase in Direct and Government Aggregation Revenues
|
$ | 1,715 | ||
|
|
||||
| Increase | ||||
| Source of Change in Wholesale Revenues | (Decrease) | |||
| (In millions) | ||||
|
POLR:
|
||||
|
Effect of decrease in sales volumes
|
$ | (153 | ) | |
|
Change in prices
|
(274 | ) | ||
|
|
||||
|
|
(427 | ) | ||
|
|
||||
|
|
||||
|
Other Wholesale:
|
||||
|
Effect of decrease in sales volumes
|
(105 | ) | ||
|
Change in prices
|
23 | |||
|
|
||||
|
|
(82 | ) | ||
|
|
||||
|
Net Decrease in Wholesale Revenues
|
$ | (509 | ) | |
|
|
||||
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Table of Contents
Expenses
Total expenses increased $1.5 billion in 2010 compared to 2009. The following table summarizes the
factors contributing to the changes in fuel and purchased power costs in 2010 compared to 2009:
| Increase | ||||
| Source of Change in Fuel and Purchased Power | (Decrease) | |||
| (In millions) | ||||
|
Fossil Fuel:
|
||||
|
Change due to increased unit costs
|
$ | 34 | ||
|
Change due to volume consumed
|
207 | |||
|
|
||||
|
|
241 | |||
|
|
||||
|
|
||||
|
Nuclear Fuel:
|
||||
|
Change due to increased unit costs
|
29 | |||
|
Change due to volume consumed
|
5 | |||
|
|
||||
|
|
34 | |||
|
|
||||
|
|
||||
|
Non-affiliated Purchased Power:
|
||||
|
Power contract mark-to-market adjustment
|
(168 | ) | ||
|
Change due to decreased unit costs
|
(139 | ) | ||
|
Change due to volume purchased
|
896 | |||
|
|
||||
|
|
589 | |||
|
|
||||
|
|
||||
|
Affiliated Purchased Power:
|
||||
|
Change due to increased unit costs
|
101 | |||
|
Change due to volume purchased
|
47 | |||
|
|
||||
|
|
148 | |||
|
|
||||
|
Net Increase in Fuel and Purchased Power Costs
|
$ | 1,012 | ||
|
|
||||
Fossil fuel costs increased $241 million in 2010 compared to 2009. Increased volumes consumed
in 2010 were due to higher sales to direct and government aggregation customers as well as to
improved economic conditions. The higher unit prices reflect higher coal transportation charges in
2010 compared to last year. Nuclear fuel costs increased $34 million primarily due to the
replacement of nuclear fuel at higher unit costs following the refueling outages that occurred in
2009 and 2010.
Non-affiliated purchased power costs increased $589 million. Increased volumes purchased primarily
relate to the assumption of a 1,300 MW third party contract from Met-Ed and Penelec. Affiliated
purchased power increased $148 million primarily due to higher unit costs combined with higher
volumes purchased from affiliated companies.
Other operating expenses increased $96 million in 2010 compared to 2009, primarily due to the
significant growth in FES’ retail business. Costs increased for transmission expenses, contractor
expenses, associated company billings from affiliated service companies, uncollectible customer
accounts and agent fees. Those increases were partially offset by reduced generating plant
operating costs due to lower labor and one less nuclear refueling outage in 2010.
In 2010 impairment charges of long-lived assets increased expenses by $384 million ($240 million
net of tax) related to operational changes at certain smaller coal-fired units in response to the
continued slow economy, lower demand for electricity as well as uncertainty related to proposed new
federal environmental regulations.
Depreciation expense decreased $16 million principally due to reduced depreciable property
associated with the impairments described above and sale of the Sumpter plant in early 2010.
General taxes increased $7 million due to sales taxes associated with increased revenues.
Other Expense
Total other expense in 2010 was $94 million higher than the same period in 2009, primarily due to a
decrease in nuclear decommissioning trust investment income of $66 million and a $32 million
increase in interest expense (net of capitalized interest) from new long-term debt issued in late
2009 combined with the restructuring of outstanding PCRBs that occurred throughout 2009 and 2010.
100
Table of Contents
Market Risk Information
FES uses various market risk sensitive instruments, including derivative contracts, primarily to
manage the risk of price and interest rate fluctuations. FirstEnergy’s Risk Policy Committee,
comprised of members of senior management, provides general oversight for risk management
activities throughout the company.
Commodity Price Risk
FES is exposed to financial and market risks resulting from the fluctuation of interest rates and
commodity prices associated with electricity, energy transmission, natural gas, coal, nuclear fuel
and emission allowances. To manage the volatility relating to these exposures, FES uses a variety
of non-derivative and derivative instruments, including forward contracts, options, futures
contracts and swaps. The derivatives are used principally for hedging purposes.
The valuation of derivative contracts is based on observable market information to the extent that
such information is available. In cases where such information is not available, FES relies on
model-based information. The model provides estimates of future regional prices for electricity and
an estimate of related price volatility. FES uses these results to develop estimates of fair value
for financial reporting purposes and for internal management decision making (see Note 6 to the
consolidated financial statements). Sources of information for the valuation of commodity
derivative contracts as of December 31, 2010 are summarized by contract year in the following
table:
| Source of Information- | ||||||||||||||||||||||||||||
| Fair Value by Contract Year | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Prices actively quoted
(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Other external sources
(2)
|
(115 | ) | 6 | 4 | 7 | — | — | (98 | ) | |||||||||||||||||||
|
Prices based on models
|
— | — | — | — | — | (9 | ) | (9 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | (115 | ) | $ | 6 | $ | 4 | $ | 7 | $ | — | $ | (9 | ) | $ | (107 | ) | |||||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Represents futures and
options traded on the New York Mercantile Exchange.
|
|
| (2) |
Primarily represents contracts based on broker and IntercontinentalExchange quotes.
|
FES performs sensitivity analyses to estimate its exposure to the market risk of its commodity
positions. Based on derivative contracts held as of December 31, 2010, an adverse 10% change in
commodity prices would decrease net income by approximately $16 million ($10 million net of tax)
during the next 12 months.
Interest Rate Risk
FES’ exposure to fluctuations in market interest rates is reduced since a significant portion of
its debt has fixed interest rates. The table below presents principal amounts and related weighted
average interest rates by year of maturity for FES’ investment portfolio and debt obligations.
101
Table of Contents
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than
Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 994 | $ | 994 | $ | 994 | ||||||||||||||||||||||||||
|
Average interest rate
|
10.1 | % | 10.1 | % | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 158 | $ | 68 | $ | 75 | $ | 99 | $ | 450 | $ | 2,650 | $ | 3,500 | $ | 3,624 | ||||||||||||||||
|
Average interest rate
|
4.6 | % | 9 | % | 9 | % | 7.3 | % | 5.1 | % | 5.2 | % | 5.3 | % | ||||||||||||||||||
|
Variable rate
|
$ | 779 | $ | 779 | $ | 779 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.3 | % | 0.3 | % | ||||||||||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 12 | $ | 12 | $ | 12 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.6 | % | 0.6 | % | ||||||||||||||||||||||||||||
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy NGC’s nuclear decommissioning
obligations. Included in FES’s nuclear decommissioning trust are fixed income and short-term
investments carried at a market value of approximately $1,139 million as of December 31, 2010. NGC
recognizes in earnings the unrealized losses on available-for-sale securities held in their nuclear
decommissioning trusts as other-than-temporary impairments. A decline in the value of the nuclear
decommissioning trusts or a significant escalation in estimated decommissioning costs could result
in additional funding requirements. FES continues to evaluate the status of its funding
obligations for the decommissioning of nuclear facilities.
Credit Risk
Credit risk is the risk of an obligor’s failure to meet the terms of any investment contract, loan
agreement or otherwise perform as agreed. Credit risk arises from all activities in which success
depends on issuer, borrower or counterparty performance, whether reflected on or off the balance
sheet. FES engages in transactions for the purchase and sale of commodities including gas,
electricity, coal and emission allowances. These transactions are often with major energy companies
within the industry.
FES maintains credit policies with respect to its counterparties to manage overall credit risk.
This includes performing independent risk evaluations, actively monitoring portfolio trends and
using collateral and contract provisions to mitigate exposure. As part of its credit program, FES
aggressively manages the quality of its portfolio of energy contracts, evidenced by a current
weighted average risk rating for energy contract counterparties of BBB (S&P). As of December 31,
2010, the largest credit concentration was with J.P. Morgan Chase & Co., which is currently rated
investment grade, representing 3.3% of FES total approved credit risk.
102
Table of Contents
OHIO EDISON COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
OE is a wholly owned electric utility subsidiary of FirstEnergy. OE and its wholly owned
subsidiary, Penn, conduct business in portions of Ohio and Pennsylvania, providing regulated
electric distribution services. They provide generation services to those franchise customers
electing to retain OE and Penn as their power supplier.
For additional information with respect to OE, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Off-Balance Sheet Arrangements, Regulatory Matters,
Environmental Matters, Other Legal Proceedings, Critical Accounting Policies and New Accounting
Standards and Interpretations.
Results of Operations
Earnings available to parent increased by $35 million in 2010 compared to 2009. The increase
primarily resulted from lower purchased power costs and other operating costs, partially offset by
lower revenues and investment income.
Revenues
Revenues decreased $681 million, or 27%, in 2010 compared to 2009 due primarily to a decrease in
generation revenues.
Distribution revenues increased $6 million in 2010 compared to 2009, due to higher residential
revenues, partially offset by lower commercial and industrial revenues. Commercial and industrial
revenues were primarily impacted by lower average unit prices, resulting from lower transmission
rates in 2010. Residential distribution revenues increased due to higher average unit prices
resulting from the 2009 ESP and higher KWH deliveries resulting from the warmer conditions (cooling
degree days increased 88% in OE’s service territory). Increased industrial deliveries were the
result of higher KWH deliveries to major steel customers and automotive customers, reflecting
improving economic conditions.
Changes in distribution KWH deliveries and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Distribution KWH Deliveries | Increase | |||
|
|
||||
|
Residential
|
5.5 | % | ||
|
Commercial
|
2.6 | % | ||
|
Industrial
|
9.5 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
5.8 | % | ||
|
|
||||
| Increase | ||||
| Distribution Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 33 | ||
|
Commercial
|
(7 | ) | ||
|
Industrial
|
(20 | ) | ||
|
|
||||
|
Net Increase in Distribution Revenues
|
$ | 6 | ||
|
|
||||
Retail generation revenues decreased $680 million primarily due to lower KWH sales in all
customer classes. Lower KWH sales resulted principally from a 36% increase in customer shopping in
2010. That sales reduction was partially offset by increased weather-related usage in 2010 as
described above. Lower average unit pricing also contributed to the decrease as lower unit prices
in the residential class were partially offset by higher unit prices in the commercial and
industrial classes.
103
Table of Contents
Changes in retail generation KWH sales and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Retail Generation KWH Sales | Decrease | ||||
|
|
|||||
|
Residential
|
(26.0 | )% | |||
|
Commercial
|
(58.0 | )% | |||
|
Industrial
|
(58.2 | )% | |||
|
|
|||||
|
Decrease in Retail Generation Sales
|
(43.3 | )% | |||
|
|
|||||
| Retail Generation Revenues | Decrease | |||
| (In millions) | ||||
|
Residential
|
$ | (216 | ) | |
|
Commercial
|
(266 | ) | ||
|
Industrial
|
(198 | ) | ||
|
|
||||
|
Decrease in Retail Generation Revenues
|
$ | (680 | ) | |
|
|
||||
Expenses
Total expenses decreased $752 million in 2010 compared to 2009. The following table presents
changes from the prior period by expense category:
| Increase | ||||
| Expenses — Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | (635 | ) | |
|
Other operating expenses
|
(97 | ) | ||
|
Provision for depreciation
|
(1 | ) | ||
|
Amortization of regulatory assets, net
|
(31 | ) | ||
|
General taxes
|
12 | |||
|
|
||||
|
Net Decrease in Expenses
|
$ | (752 | ) | |
|
|
||||
Purchased power costs decreased in 2010 compared to 2009, primarily due to lower KWH purchases
resulting from reduced requirements in 2010 and slightly lower unit costs. The decrease in other
operating costs for 2010 was primarily due to lower MISO transmission expenses ($48 million)
(assumed by third party suppliers beginning June 1, 2009), the absence in 2010 of costs associated
with regulatory obligations for economic development and energy efficiency programs under OE’s 2009
ESP ($18 million) and decreased labor expenses ($12 million). The amortization of regulatory assets
decreased primarily due to lower MISO transmission cost amortization, partially offset by increased
recovery of other regulatory assets. The increase in general taxes was primarily due to higher Ohio
KWH taxes in 2010 as compared to 2009 and a $7.1 million Ohio KWH tax adjustment recognized in 2009
related to prior periods.
Other Expense
Other expense increased $21 million in 2010 compared to 2009, primarily due to lower nuclear
decommissioning trust investment income.
104
Table of Contents
Interest Rate Risk
OE’s exposure to fluctuations in market interest rates is reduced since a significant portion of
its debt has fixed interest rates. The table below presents principal amounts and related weighted
average interest rates by year of maturity for OE’s investment portfolio and debt obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than
Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 28 | $ | 31 | $ | 37 | $ | 42 | $ | 37 | $ | 138 | $ | 313 | $ | 365 | ||||||||||||||||
|
Average interest rate
|
8.7 | % | 8.7 | % | 8.8 | % | 8.8 | % | 8.9 | % | 4 | % | 6.7 | % | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 1,159 | $ | 1,159 | $ | 1,321 | ||||||||||||||||||||||||||
|
Average interest rate
|
6.9 | % | 6.9 | % | ||||||||||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 142 | $ | 142 | $ | 142 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.5 | % | 0.5 | % | ||||||||||||||||||||||||||||
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy nuclear decommissioning
obligations. Included in OE’s nuclear decommissioning trust are fixed income and short-term
investments carried at a market value of approximately $126 million as of December 31, 2010. OE
recognizes in earnings the unrealized losses on available-for-sale securities held in their nuclear
decommissioning trust as other-than-temporary impairments. A decline in the value of the nuclear
decommissioning trust or a significant escalation in estimated decommissioning costs could result
in additional funding requirements. During 2010, $4 million was contributed to the OE and TE
nuclear decommissioning trusts to comply with requirements under certain sale-leaseback
transactions in which OE and TE continue as lessees. OE continues to evaluate the status of its
funding obligations for the decommissioning of nuclear facilities.
105
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
CEI is a wholly owned, electric utility subsidiary of FirstEnergy. CEI conducts business in
northeastern Ohio, providing regulated electric distribution services. CEI also procures generation
services for those customers electing to retain CEI as their power supplier.
For additional information with respect to CEI, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Off-Balance Sheet Arrangements, Regulatory Matters,
Environmental Matters, Other Legal Proceedings, Critical Accounting Policies and New Accounting
Standards and Interpretations.
Results of Operations
Earnings available to parent increased by $84 million in 2010 compared to 2009. The increase in
earnings was primarily due to the absence in 2010 of one-time regulatory charges recognized in 2009
and decreased purchased power costs, other operating costs and amortization, partially offset by
decreased revenues and deferrals of new regulatory assets.
Revenues
Revenues decreased $455 million, or 27%, in 2010 compared to 2009 due to lower retail generation
and distribution revenues.
Distribution revenues decreased $87 million in 2010 compared to 2009 due to lower average unit
prices for all customer classes offset by increased KWH deliveries in all sectors. The lower
average unit prices were the result of lower transition rates in 2010. Higher residential
deliveries resulted from increased weather-related usage in 2010, reflecting a 74% increase in
cooling degree days, partially offset by a 5% decrease in heating degree days. Increased
industrial deliveries were the result of higher KWH deliveries to major steel customers (101%) and
automotive customers (6%), reflecting improved economic conditions.
Changes in distribution KWH deliveries and revenues in the 2010 compared to 2009 are summarized in
the following tables:
| Distribution KWH Deliveries | Increase | |||
|
|
||||
|
Residential
|
5.5 | % | ||
|
Commercial
|
2.9 | % | ||
|
Industrial
|
10.9 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
7.0 | % | ||
|
|
||||
| Distribution Revenues | Decrease | |||
| (In millions) | ||||
|
Residential
|
$ | (4 | ) | |
|
Commercial
|
(31 | ) | ||
|
Industrial
|
(52 | ) | ||
|
|
||||
|
Decrease in Distribution Revenues
|
$ | (87 | ) | |
|
|
||||
Retail generation revenues decreased $359 million in 2010 as compared to 2009 primarily due to
lower KWH sales to all customer classes. Reduced KWH sales were primarily the result of a 45%
increase in customer shopping. Lower KWH sales to residential customers were partially offset by
increased KWH deliveries resulting from the previously discussed warmer weather. Decreased volumes
were partially offset by higher average unit prices in all customer classes. Retail generation
prices increased in 2010 as a result of the CBP auction for the service period beginning June 1,
2009.
106
Table of Contents
Changes in retail generation sales and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Retail Generation KWH Sales | Decrease | |||
|
Residential
|
(50.3 | )% | ||
|
Commercial
|
(67.2 | )% | ||
|
Industrial
|
(44.5 | )% | ||
|
|
||||
|
Decrease in Retail Generation Sales
|
(51.7 | )% | ||
|
|
||||
| Retail Generation Revenues | Decrease | |||
| (In millions) | ||||
|
Residential
|
$ | (96 | ) | |
|
Commercial
|
(134 | ) | ||
|
Industrial
|
(129 | ) | ||
|
|
||||
|
Decrease in Retail Generation Revenues
|
$ | (359 | ) | |
|
|
||||
Expenses
Total expenses decreased $589 million in 2010 compared to 2009. The following table presents
changes from the prior period by expense category:
| Increase | ||||
| Expenses - Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | (490 | ) | |
|
Other operating costs
|
(31 | ) | ||
|
Amortization of regulatory assets, net
|
(201 | ) | ||
|
Deferral of new regulatory assets
|
135 | |||
|
General taxes
|
(2 | ) | ||
|
|
||||
|
Net Decrease in Expenses
|
$ | (589 | ) | |
|
|
||||
Purchased power costs decreased in 2010 primarily due to the previously discussed lower KWH
sales requirements. Other operating costs decreased due to lower transmission expenses (assumed by
third party suppliers beginning June 1, 2009), labor and employee benefit expenses and the absence
in 2010 of certain costs incurred in 2009 associated with regulatory obligations for economic
development and energy efficiency programs. Decreased amortization of regulatory assets was due
primarily to the 2009 impairment of CEI’s Extended RTC regulatory asset of $216 million in
accordance with the PUCO-approved ESP. A decrease in the deferral of new regulatory assets was
primarily due to CEI’s contemporaneous recovery of purchased power costs in 2010. General taxes
decreased primarily due to a 2010 favorable property tax settlement in Ohio.
107
Table of Contents
Interest Rate Risk
CEI has little exposure to fluctuations in market interest rates because most of its debt has fixed
interest rates. The table below presents principal amounts and related weighted average interest
rates by year of maturity for CEI’s investment portfolio and debt obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 53 | $ | 66 | $ | 75 | $ | 80 | $ | 50 | $ | 16 | $ | 340 | $ | 381 | ||||||||||||||||
|
Average interest rate
|
7.7 | % | 7.7 | % | 7.7 | % | 7.7 | % | 7.7 | % | 8 | % | 7.7 | % | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 22 | $ | 325 | $ | 26 | $ | 24 | $ | 1,456 | $ | 1,853 | $ | 2,035 | ||||||||||||||||||
|
Average interest rate
|
7.7 | % | 5.8 | % | 7.7 | % | 7.7 | % | 6.8 | % | 6.7 | % | ||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 106 | $ | 106 | $ | 106 | ||||||||||||||||||||||||||
|
Average interest rate
|
1.9 | % | 1.9 | % | ||||||||||||||||||||||||||||
108
Table of Contents
THE TOLEDO EDISON COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
TE is a wholly owned electric utility subsidiary of FirstEnergy. TE conducts business in
northwestern Ohio, providing regulated electric distribution services. TE also provides generation
services to those customers electing to retain TE as their power supplier.
For additional information with respect to TE, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Off-Balance Sheet Arrangements, Regulatory Matters,
Environmental Matters, Other Legal Proceedings, Critical Accounting Policies and New Accounting
Standards and Interpretations.
Results of Operations
Earnings available to parent increased by $9 million in 2010 compared to 2009. The increase was
primarily due to decreased net amortization of regulatory assets, purchased power and other
operating costs, partially offset by an increase in interest expense and decreases in revenues and
investment income.
Revenues
Revenues decreased $317 million, or 38%, in 2010 compared to 2009, primarily due to lower retail
generation and distribution revenues, partially offset by an increase in wholesale generation
revenues.
Distribution revenues decreased $23 million in 2010 compared to 2009, primarily due to lower unit
prices, partially offset by higher KWH deliveries to all customer classes. Lower unit prices are
primarily due to lower transmission rates. Higher KWH deliveries were influenced by weather-related
usage in 2010, reflecting an 85% increase in cooling degree days in TE’s service territory,
partially offset by a 6% decrease in heating degree days. Increased industrial deliveries were the
result of higher KWH deliveries to major automotive customers and steel customers, reflecting
improved economic conditions.
Changes in distribution KWH deliveries and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Distribution KWH Deliveries | Increase | |||
|
Residential
|
7.6 | % | ||
|
Commercial
|
3.7 | % | ||
|
Industrial
|
12.3 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
8.7 | % | ||
|
|
||||
| Increase | ||||
| Distribution Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 1 | ||
|
Commercial
|
(6 | ) | ||
|
Industrial
|
(18 | ) | ||
|
|
||||
|
Net Decrease in Distribution Revenues
|
$ | (23 | ) | |
|
|
||||
Retail generation revenues decreased $307 million in 2010 compared to 2009, primarily due to
lower KWH sales to all customer classes and lower unit prices to industrial customers. Lower KWH
sales to all customer classes were primarily the result of a 48% increase in customer shopping in
2010, partially offset by higher KWH deliveries resulting from the weather conditions described
above. Lower unit prices for industrial customers were primarily due to the absence of TE’s fuel
cost recovery and rate stabilization riders that were effective from January through May 2009,
partially offset by increased generation prices resulting from the CBP auction, effective June 1,
2009.
109
Table of Contents
Changes in retail generation KWH sales and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Retail Generation KWH Sales | Decrease | |||
|
Residential
|
(39.8 | )% | ||
|
Commercial
|
(69.6 | )% | ||
|
Industrial
|
(55.3 | )% | ||
|
|
||||
|
Decrease in Retail Generation Sales
|
(54.7 | )% | ||
|
|
||||
| Retail Generation Revenues | Decrease | |||
| (In millions) | ||||
|
Residential
|
$ | (60 | ) | |
|
Commercial
|
(112 | ) | ||
|
Industrial
|
(135 | ) | ||
|
|
||||
|
Decrease in Retail Generation Revenues
|
$ | (307 | ) | |
|
|
||||
Wholesale revenues increased $9 million in 2010 compared to 2009, primarily due to an increase
in KWH sales to NGC from TE’s leasehold interest in Beaver Valley Unit 2 and higher unit prices.
Expenses
Total expenses decreased $353 million in 2010 compared to 2009. The following table presents
changes from the prior period by expense category:
| Increase | ||||
| Expenses - Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | (285 | ) | |
|
Other operating expenses
|
(34 | ) | ||
|
Provision for depreciation
|
1 | |||
|
Amortization (deferral) of regulatory assets, net
|
(39 | ) | ||
|
General taxes
|
4 | |||
|
|
||||
|
Net Decrease in Expenses
|
$ | (353 | ) | |
|
|
||||
Purchased power costs decreased in 2010 compared to 2009, due to lower volumes required as a
result of decreased KWH sales. Other operating costs decreased primarily due to reduced
transmission expense (assumed by third party suppliers beginning June 1, 2009) and lower costs
associated with regulatory obligations for economic development and energy efficiency programs. The
amortization of regulatory assets decreased primarily due to PUCO-approved cost deferrals and lower
MISO transmission cost amortization in 2010 compared to 2009. The increase in general taxes was
primarily due to higher Ohio KWH taxes in 2010 as compared to 2009 and a $3.5 million Ohio KWH tax
adjustment recognized in 2009 related to prior periods.
Other Expense
Other expense increased $17 million in 2010 compared to 2009, primarily due to higher interest
expense associated with the April 2009 issuance of $300 million senior secured notes and lower
nuclear decommissioning trust investment income.
110
Table of Contents
Interest Rate Risk
TE has little exposure to fluctuations in market interest rates because most of its debt has fixed
interest rates. The table below presents principal amounts and related weighted average interest
rates by year of maturity for TE’s investment portfolio and debt obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 22 | $ | 25 | $ | 26 | $ | 24 | $ | 48 | $ | 145 | $ | 160 | ||||||||||||||||||
|
Average interest rate
|
7.7 | % | 7.7 | % | 7.7 | % | 7.7 | % | 5 | % | 6.8 | % | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 600 | $ | 600 | $ | 653 | ||||||||||||||||||||||||||
|
Average interest rate
|
6.7 | % | 6.7 | % | ||||||||||||||||||||||||||||
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy nuclear decommissioning
obligations. Included in TE’s nuclear decommissioning trust are fixed income and short-term
investments carried at a market value of approximately $76 million as of December 31, 2010. TE
recognizes in earnings the unrealized losses on available-for-sale securities held in their nuclear
decommissioning trust as other-than-temporary impairments. A decline in the value of the nuclear
decommissioning trust or a significant escalation in estimated decommissioning costs could result
in additional funding requirements. During 2010, $4 million was contributed to the OE and TE
nuclear decommissioning trusts to comply with requirements under certain sale-leaseback
transactions in which OE and TE continue as lessees. TE continues to evaluate the status of its
funding obligations for the decommissioning of nuclear facilities.
111
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
JCP&L is a wholly owned, electric utility subsidiary of FirstEnergy. JCP&L conducts business in
New Jersey, providing regulated electric transmission and distribution services. JCP&L also
procures generation services for franchise customers electing to retain JCP&L as their power
supplier. JCP&L procures electric supply to serve its BGS customers through a statewide auction
process approved by the NJBPU.
For additional information with respect to JCP&L, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Regulatory Matters, Environmental Matters, Other Legal
Proceedings, Critical Accounting Policies and New Accounting Standards and Interpretations.
Results of Operations
Net income increased by $22 million in 2010 compared to 2009. The increase was primarily due to
higher revenues, lower purchased power costs and decreased net amortization of regulatory assets,
partially offset by increased other operating costs.
Revenues
Revenues increased by $34 million, or 1%, in 2010 compared with 2009. The increase in revenues was
primarily due to higher distribution, wholesale generation and other revenues, partially offset by
a decrease in retail generation revenues.
Distribution revenues increased by $62 million in 2010 compared to 2009, due to higher KWH
deliveries in all customer classes. Increased usage was due to warmer weather and improved economic
conditions in JCP&L’s service territory. Decreased composite unit prices in the commercial and
industrial classes partially offset the increased volume.
Changes in distribution KWH deliveries and revenues in 2010, compared to 2009, are summarized in
the following tables:
| Distribution KWH Sales | Increase | |||
|
Residential
|
8.5 | % | ||
|
Commercial
|
2.6 | % | ||
|
Industrial
|
1.6 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
5.0 | % | ||
|
|
||||
| Increase | ||||
| Distribution Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 58 | ||
|
Commercial
|
5 | |||
|
Industrial
|
(1 | ) | ||
|
|
||||
|
Net Increase in Distribution Revenues
|
$ | 62 | ||
|
|
||||
In 2010, retail generation revenues decreased by $72 million due to lower KWH sales to the
commercial and industrial classes, partially offset by higher KWH sales to the residential class.
Lower sales to the commercial and industrial classes were primarily due to an increase in the
number of shopping customers. Higher KWH sales to the residential class reflected increased
weather-related usage resulting from a 60% increase in cooling degree days in 2010, partially
offset by a 5% decrease in heating degree days during the same period.
112
Table of Contents
Changes in retail generation KWH sales and revenues in 2010, compared to 2009, are summarized in
the following tables:
| Increase | ||||
| Retail Generation KWH Sales | (Decrease) | |||
|
Residential
|
6.8 | % | ||
|
Commercial
|
(26.4 | )% | ||
|
Industrial
|
(22.4 | )% | ||
|
|
||||
|
Net Decrease in Retail Generation Sales
|
(6.2 | )% | ||
|
|
||||
| Increase | ||||
| Retail Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 85 | ||
|
Commercial
|
(146 | ) | ||
|
Industrial
|
(11 | ) | ||
|
|
||||
|
Net Decrease in Retail Generation Revenues
|
$ | (72 | ) | |
|
|
||||
Wholesale generation revenues increased $27 million in 2010 compared to 2009, due primarily to
higher wholesale energy prices.
Other revenues increased $17 million in 2010 compared to 2009, primarily due to an increase in
transition bond revenues as a result of higher KWH deliveries in all customer classes.
Expenses
Total expenses decreased $29 million in 2010 compared to 2009. The following table presents changes
from the prior year by expense category:
| Increase | ||||
| Expenses - Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | (46 | ) | |
|
Other operating costs
|
34 | |||
|
Provision for depreciation
|
4 | |||
|
Amortization of regulatory assets, net
|
(23 | ) | ||
|
General taxes
|
2 | |||
|
|
||||
|
Net Decrease in Expenses
|
$ | (29 | ) | |
|
|
||||
Purchased power costs decreased in 2010 primarily from reduced requirements due to lower retail
generation sales. Other operating costs increased in 2010 primarily due to major storm clean up
costs, partially offset by a favorable collective bargaining settlement that reduced expenses by $7
million in the second quarter of 2010. The amortization of regulatory assets decreased in 2010
primarily due to the deferral of storm costs.
113
Table of Contents
Market Risk Information
JCP&L uses various market risk sensitive instruments, including derivative contracts, primarily to
manage the risk of price and interest rate fluctuations. FirstEnergy’s Risk Policy Committee,
comprised of members of senior management, provides general oversight for risk management
activities throughout the company.
Commodity Price Risk
JCP&L is exposed to market risk primarily due to fluctuations in electricity, energy transmission
and natural gas prices. To manage the volatility relating to these exposures, JCP&L uses a variety
of non-derivative and derivative instruments, including forward contracts, options, futures
contracts and swaps. The derivatives are used principally for hedging purposes.
The valuation of derivative contracts is based on observable market information to the extent that
such information is available. In cases where such information is not available, JCP&L relies on
model-based information. The model provides estimates of future regional prices for electricity and
an estimate of related price volatility. JCP&L uses these results to develop estimates of fair
value for financial reporting purposes and for internal management decision making. Sources of information for the valuation of commodity derivative contracts as of December 31, 2010
are summarized by contract year in the following table:
| Source of Information- | ||||||||||||||||||||||||||||
| Fair Value by Contract Year | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Prices actively quoted
(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Other external sources
(2)
|
(94 | ) | (47 | ) | (42 | ) | (34 | ) | — | — | (217 | ) | ||||||||||||||||
|
Prices based on models
|
— | — | — | — | (11 | ) | 3 | (8 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
(3)
|
$ | (94 | ) | $ | (47 | ) | $ | (42 | ) | $ | (34 | ) | $ | (11 | ) | $ | 3 | $ | (225 | ) | ||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Represents futures and
options traded on the New York Mercantile Exchange.
|
|
| (2) |
Primarily represents contracts based on broker and IntercontinentalExchange quotes.
|
|
| (3) |
Includes $225 million in non-hedge commodity derivative contracts that are primarily related to NUG contracts. NUG contracts are subject
to regulatory accounting and do not impact earnings.
|
JCP&L performs sensitivity analyses to estimate its exposure to the market risk of its
commodity positions. A hypothetical 10% adverse shift in quoted market prices in the near term on
derivative instruments would not have had a material effect on JCP&L’s consolidated financial
position or cash flows as of December 31, 2010. Based on derivative contracts held as of December
31, 2010, an adverse 10% change in commodity prices would not have a material effect on JCP&L’s net
income for the next 12 months.
Interest Rate Risk
JCP&L’s exposure to fluctuations in market interest rates is reduced since a significant portion of
its debt has fixed interest rates. The table below presents principal amounts and related weighted
average interest rates by year of maturity for JCP&L’s investment portfolio and debt obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 290 | $ | 290 | $ | 290 | ||||||||||||||||||||||||||
|
Average interest rate
|
3.7 | % | 3.7 | % | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 32 | $ | 34 | $ | 36 | $ | 39 | $ | 41 | $ | 1,628 | $ | 1,810 | $ | 1,962 | ||||||||||||||||
|
Average interest rate
|
5.6 | % | 5.7 | % | 5.7 | % | 5.9 | % | 6 | % | 6.1 | % | 6 | % | ||||||||||||||||||
114
Table of Contents
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy nuclear decommissioning
obligations. Included in JCP&L’s nuclear decommissioning trust are fixed income, equity securities
and short-term investments carried at a market value of approximately $185 million as of December
31, 2010. A hypothetical 10% decrease in prices quoted by stock exchanges would result in a $10
million reduction in fair value as of December 31, 2010. The decommissioning trust of JCP&L is
subject to regulatory accounting, with unrealized gains and losses recorded as regulatory assets or
liabilities, since the difference between investments held in trust and the decommissioning
liabilities will be recovered from or refunded to customers. A decline in the value of the nuclear
decommissioning trust or a significant escalation in estimated decommissioning costs could result
in additional funding requirements. During 2010, $3 million was contributed to the JCP&L’s nuclear
decommissioning trust to comply with regulatory requirements. JCP&L continues to evaluate the
status of its funding obligations for the decommissioning of nuclear facilities.
115
Table of Contents
METROPOLITAN EDISON COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Met-Ed is a wholly owned electric utility subsidiary of FirstEnergy. Met-Ed conducts business
in eastern Pennsylvania, providing regulated electric transmission and distribution services.
Met-Ed also procures generation service for those customers electing to retain Met-Ed as their
power supplier. Met-Ed purchased its POLR and default service requirements from FES through a
fixed-price wholesale power sales agreement in 2010. Beginning in 2011, Met-Ed procures power under
its Default Service Plan in which full requirements products (energy, capacity, ancillary services,
and applicable transmission services) are procured through descending clock auctions.
As authorized by Met-Ed’s Board of Directors, Met-Ed repurchased 117,620 shares of the Company’s
common stock from its parent, FirstEnergy, for $150 million on January 28, 2011.
For additional information with respect to Met-Ed, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Regulatory Matters, Environmental Matters, Other Legal
Proceedings and New Accounting Standards and Interpretations.
Results of Operations
Net income increased by $2 million, or 4%, in 2010. The increase was primarily due to increased
revenues and decreased amortization of net regulatory assets, partially offset by increased
purchased power and other operating expenses.
Revenues
Revenue increased $130 million, or 8%, in 2010 compared to 2009, reflecting higher distribution and
generation revenues, partially offset by a decrease in transmission revenues.
Distribution revenues increased $86 million in 2010 compared to 2009, primarily due to higher rates
resulting from the annual update to Met-Ed’s TSC rider effective June 1, 2010, partially offset by
lower CTC rates for the residential class. Higher KWH deliveries to industrial customers were due
to improved economic conditions in Met-Ed’s service territory. Higher residential and commercial
KWH deliveries reflect increased weather-related usage due to a 59% increase in cooling degree days
in 2010 compared to 2009, partially offset by a 5% decrease in heating degree days for the same
period.
Changes in distribution KWH deliveries and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Distribution KWH Deliveries | Increase | |||
|
Residential
|
3.8 | % | ||
|
Commercial
|
3.1 | % | ||
|
Industrial
|
4.6 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
3.8 | % | ||
|
|
||||
| Distribution Revenues | Increase | |||
| (In millions) | ||||
|
Residential
|
$ | 45 | ||
|
Commercial
|
28 | |||
|
Industrial
|
13 | |||
|
|
||||
|
Increase in Distribution Revenues
|
$ | 86 | ||
|
|
||||
In 2010, retail generation revenues increased $32 million due to higher composite unit prices
and higher KWH sales to the residential customer class, partially offset by lower KWH sales to the
commercial and industrial customer classes. The higher unit prices were primarily due to an
increase in the generation rate effective January 1, 2010. Higher KWH sales to residential
customers increased primarily due to weather-related usage described above. Increased customer
shopping in the commercial and industrial classes drove the lower KWH sales to those classes.
116
Table of Contents
Changes in retail generation KWH sales and revenues in 2010 compared to 2009 are summarized in the
following tables:
| Increase | ||||
| Retail Generation KWH Sales | (Decrease) | |||
|
Residential
|
3.8 | % | ||
|
Commercial
|
(0.1 | )% | ||
|
Industrial
|
(2.8 | )% | ||
|
|
||||
|
Net Increase in Retail Generation Sales
|
0.8 | % | ||
|
|
||||
| Increase | ||||
| Retail Generation Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 36 | ||
|
Commercial
|
— | |||
|
Industrial
|
(4 | ) | ||
|
|
||||
|
Net Increase in Retail Generation Revenues
|
$ | 32 | ||
|
|
||||
Wholesale revenues increased $29 million in 2010 compared to 2009, primarily reflecting higher
PJM capacity prices.
Transmission revenues decreased $19 million in 2010 compared to 2009 primarily due to decreased
Financial Transmission Rights revenues. Met-Ed defers the difference between transmission revenues
and transmission costs incurred, resulting in no material effect to current period earnings.
Expenses
Total expenses increased $112 million in 2010 compared to 2009. The following table presents
changes from the prior year by expense category:
| Increase | ||||
| Expenses - Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | 54 | ||
|
Other operating costs
|
141 | |||
|
Provision for depreciation
|
1 | |||
|
Amortization of regulatory assets, net
|
(84 | ) | ||
|
|
||||
|
Net Increase in Expenses
|
$ | 112 | ||
|
|
||||
Purchased power costs increased $54 million in 2010 compared to 2009 primarily due to an
increase in unit costs. Other operating costs increased $141 million in 2010 compared to 2009
primarily due to higher transmission congestion and transmission loss expenses (see reference to
deferral accounting above). The amortization of regulatory assets decreased $84 million in 2010
compared to 2009 primarily due to higher expense deferrals resulting from increased PJM
transmission costs and reduced amortization due to decreasing regulatory asset balances.
Other Expense
Interest income decreased in 2010 compared to 2009 primarily due to reduced CTC stranded asset
balances. That impact was partially offset by lower interest expense due to a $100 million debt
repayment in March 2010 and reduced borrowings under the Revolving Credit Facility.
117
Table of Contents
Market Risk Information
Med-Ed uses various market risk sensitive instruments, including derivative contracts, primarily to
manage the risk of price and interest rate fluctuations. FirstEnergy’s Risk Policy Committee,
comprised of members of senior management, provides general oversight for risk management
activities throughout the company.
Commodity Price Risk
Met-Ed is exposed to market risk primarily due to fluctuations in electricity, energy transmission
and natural gas prices. To manage the volatility relating to these exposures, Met-Ed uses a variety
of non-derivative and derivative instruments, including forward contracts, options, futures
contracts and swaps. The derivatives are used principally for hedging purposes.
The valuation of derivative contracts is based on observable market information to the extent that
such information is available. In cases where such information is not available, Met-Ed relies on
model-based information. The model provides estimates of future regional prices for electricity and
an estimate of related price volatility. Met-Ed uses these results to develop estimates of fair
value for financial reporting purposes and for internal management decision making. Sources of
information for the valuation of commodity derivative contracts as of December 31, 2010 are
summarized by contract year in the following table:
| Source of Information- | ||||||||||||||||||||||||||||
| Fair Value by Contract Year | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Prices actively quoted
(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Other external sources
(2)
|
(53 | ) | (48 | ) | (4 | ) | (2 | ) | — | — | (107 | ) | ||||||||||||||||
|
Prices based on models
|
— | — | — | — | 24 | 83 | 107 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | (53 | ) | $ | (48 | ) | $ | (4 | ) | $ | (2 | ) | $ | 24 | $ | 83 | $ | — | ||||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Represents futures and
options traded on the New York Mercantile Exchange.
|
|
| (2) |
Primarily represents contracts based on broker and Intercontinental Exchange quotes.
|
Met-Ed performs sensitivity analyses to estimate its exposure to the market risk of its
commodity positions. A hypothetical 10% adverse shift in quoted market prices in the near term on
derivative instruments would not have had a material effect on Met-Ed’s consolidated financial
position or cash flows as of December 31, 2010. Based on derivative contracts held as of December
31, 2010, an adverse 10% change in commodity prices would not have a material effect on Met-Ed’s
net income for the next 12 months.
118
Table of Contents
Interest Rate Risk
Met-Ed’s exposure to fluctuations in market interest rates is reduced since a significant portion
of its debt has fixed interest rates. The table below presents principal amounts and related
weighted average interest rates by year of maturity for Met-Ed’s investment portfolio and debt
obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 132 | $ | 132 | $ | 132 | ||||||||||||||||||||||||||
|
Average interest rate
|
3.4 | % | 3.4 | % | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 150 | $ | 250 | $ | 314 | $ | 714 | $ | 793 | ||||||||||||||||||||||
|
Average interest rate
|
5.0 | % | 4.9 | % | 7.6 | % | 6.1 | % | ||||||||||||||||||||||||
|
Variable rate
|
$ | 29 | $ | 29 | $ | 29 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.3 | % | 0.3 | % | ||||||||||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 124 | $ | 124 | $ | 124 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.5 | % | 0.5 | % | ||||||||||||||||||||||||||||
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy nuclear decommissioning
obligations. Included in Met-Ed’s nuclear decommissioning trust are fixed income, equity
securities and short-term investments carried at a market value of approximately $298 million as of
December 31, 2010. A hypothetical 10% decrease in prices quoted by stock exchanges would result in
a $16 million reduction in fair value as of December 31, 2010. The decommissioning trust of Med-Ed
is subject to regulatory accounting, with unrealized gains and losses recorded as regulatory assets
or liabilities, since the difference between investments held in trust and the decommissioning
liabilities will be recovered from or refunded to customers. A decline in the value of the nuclear
decommissioning trust or a significant escalation in estimated decommissioning costs could result
in additional funding requirements. During 2010, $3 million was contributed to the Met-Ed’s
nuclear decommissioning trust to comply with regulatory requirements. Met-Ed continues to evaluate
the status of its funding obligations for the decommissioning of nuclear facilities.
119
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
MANAGEMENT’S NARRATIVE
ANALYSIS OF RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Penelec is a wholly owned electric utility subsidiary of FirstEnergy. Penelec conducts business
in northern and south central Pennsylvania, providing regulated transmission and distribution
services. Penelec also procures generation services for those customers electing to retain Penelec
as their power supplier. Penelec purchased its POLR and default service requirements from FES
through a fixed-price wholesale power sales agreement in 2010. Beginning in 2011, Penelec procures
power under its Default Service Plan in which full requirements products (energy, capacity,
ancillary services, applicable Transmission Services) are procured through descending clock
auctions.
For additional information with respect to Penelec, please see the information contained in
FirstEnergy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the following subheadings, which information is incorporated by reference herein: Strategy
and Outlook, Risks and Challenges, Postretirement Benefits, Supply Plan, Capital Resources and
Liquidity, Contractual Obligations, Regulatory Matters, Environmental Matters, Other Legal
Proceedings, Critical Accounting Policies and New Accounting Standards and Interpretations.
Results of Operations
Net income decreased by $6 million in 2010 compared to 2009. The decrease was primarily due to
higher purchased power costs, other operating costs and interest expense, partially offset by
higher revenues and net deferral of regulatory assets.
Revenues
Revenues increased by $91 million, or 6%, in 2010 compared to 2009. The increase in revenue was
primarily due to higher generation revenues, partially offset by lower distribution and
transmission revenues.
Distribution revenues increased by $1 million in 2010, compared to 2009, primarily due to an
increase in the universal service and energy efficiency rates for the residential customer class
and increased KWH sales in all customer classes, partially offset by a decrease in the CTC rate in
all customer classes.
Changes in distribution KWH deliveries and revenues in 2010, compared to 2009, are summarized in
the following tables:
| Distribution KWH Deliveries | Increase | |||
|
Residential
|
3.9 | % | ||
|
Commercial
|
3.5 | % | ||
|
Industrial
|
4.8 | % | ||
|
|
||||
|
Increase in Distribution Deliveries
|
4.0 | % | ||
|
|
||||
| Increase | ||||
| Distribution Revenues | (Decrease) | |||
| (In millions) | ||||
|
Residential
|
$ | 28 | ||
|
Commercial
|
(16 | ) | ||
|
Industrial
|
(11 | ) | ||
|
|
||||
|
Net Increase in Distribution Revenues
|
$ | 1 | ||
|
|
||||
Retail generation revenues increased $80 million in 2010, compared to 2009, primarily due to
higher unit prices and higher KWH sales in all customer classes. The higher unit prices were
primarily due to an increase in the generation rate, effective January 1, 2010. Higher KWH sales to
industrial customers were due to improved economic conditions in Penelec’s service territory.
Higher KWH sales to residential and commercial customers resulted primarily from weather-related
usage, reflecting a 94% increase in cooling degree days in 2010, partially offset by a 4% decrease
in heating degree days for the same period.
120
Table of Contents
Changes in retail generation KWH sales and revenues in 2010, compared to 2009, are
summarized in the following tables:
| Retail Generation KWH Sales | Increase | |||
|
Residential
|
3.9 | % | ||
|
Commercial
|
2.7 | % | ||
|
Industrial
|
5.6 | % | ||
|
|
||||
|
Increase in Retail Generation Sales
|
3.9 | % | ||
|
|
||||
| Retail Generation Revenues | Increase | |||
| (In millions) | ||||
|
Residential
|
$ | 22 | ||
|
Commercial
|
30 | |||
|
Industrial
|
28 | |||
|
|
||||
|
Increase in Retail Generation Revenues
|
$ | 80 | ||
|
|
||||
Wholesale generation revenues increased $33 million in 2010 compared to 2009, due primarily to
higher PJM capacity prices.
Transmission revenues decreased by $17 million in 2010 compared to 2009, primarily due to lower
Financial Transmission Rights revenue. Penelec defers the difference between transmission revenues
and transmission costs incurred, resulting in no material effect to current period earnings.
Expenses
Total expenses increased $89 million in 2010 compared to 2009. The following table presents changes
from the prior year by expense category:
| Increase | ||||
| Expenses - Changes | (Decrease) | |||
| (In millions) | ||||
|
Purchased power costs
|
$ | 121 | ||
|
Other operating costs
|
60 | |||
|
Amortization (deferral) of regulatory assets, net
|
(91 | ) | ||
|
General taxes
|
(1 | ) | ||
|
|
||||
|
Net Increase in Expenses
|
$ | 89 | ||
|
|
||||
Purchased power costs increased $121 million in 2010 compared to 2009, primarily due to an
increase in unit costs and increased volumes purchased to source increased generation sales
requirements. Other operating costs increased $60 million in 2010, primarily due to higher
transmission congestion and transmission loss expenses (see reference to deferral accounting
above). The amortization (deferral) of net regulatory assets decreased $91 million in 2010,
primarily due to increased cost deferrals resulting from higher transmission expenses and decreased
amortization of regulatory assets resulting from lower CTC revenues. General taxes decreased $1
million primarily due to a favorable ruling on a property tax appeal in the first quarter of 2010.
Other Expense
In 2010, other expense increased $15 million primarily due to an increase in interest expense on
long-term debt as a result of a $500 million debt issuance in September 2009.
121
Table of Contents
Market Risk Information
Penelec uses various market risk sensitive instruments, including derivative contracts, to manage
the risk of price and interest rate fluctuations. FirstEnergy’s Risk Policy Committee, comprised of
members of senior management, provides general oversight to risk management activities.
Commodity Price Risk
Penelec is exposed to market risk primarily due to fluctuations in electricity, energy transmission
and natural gas prices. To manage the volatility relating to these exposures, Penelec uses a
variety of non-derivative and derivative instruments,
including forward contracts, options, futures contracts and swaps. The derivatives are used
principally for hedging purposes.
The valuation of derivative contracts is based on observable market information to the extent that
such information is available. In cases where such information is not available, Penelec relies on
model-based information. The model provides estimates of future regional prices for electricity and
an estimate of related price volatility. Penelec uses these results to develop estimates of fair
value for financial reporting purposes and for internal management decision making. Sources of
information for the valuation of commodity derivative contracts as of December 31, 2010 are
summarized by contract year in the following table:
| Source of Information- | ||||||||||||||||||||||||||||
| Fair Value by Contract Year | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Prices actively quoted
(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Other external sources
(2)
|
(69 | ) | (68 | ) | (10 | ) | (7 | ) | — | — | (154 | ) | ||||||||||||||||
|
Prices based on models
|
— | — | — | — | 11 | 33 | 44 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
(3)
|
$ | (69 | ) | $ | (68 | ) | $ | (10 | ) | $ | (7 | ) | $ | 11 | $ | 33 | $ | (110 | ) | |||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Represents futures and
options traded on the New York Mercantile Exchange.
|
|
| (2) |
Primarily represents contracts based on broker and IntercontinentalExchange quotes.
|
|
| (3) |
Includes $110 million in non-hedge commodity derivative contracts that are primarily related to NUG contracts. NUG contracts are subject
to regulatory accounting and do not impact earnings.
|
Penelec performs sensitivity analyses to estimate its exposure to the market risk of its
commodity positions. A hypothetical 10% adverse shift in quoted market prices in the near term on
derivative instruments would not have had a material effect on Penelec’s consolidated financial
position or cash flows as of December 31, 2010. Based on derivative contracts held as of December
31, 2010, an adverse 10% change in commodity prices would not have a material effect on Penelec’s
net income for the next 12 months.
122
Table of Contents
Interest Rate Risk
Penelec’s exposure to fluctuations in market interest rates is reduced since a significant portion
of its debt has fixed interest rates. The table below presents principal amounts and related
weighted average interest rates by year of maturity for Penelec’s investment portfolio and debt
obligations.
Comparison of Carrying Value to Fair Value
| There- | Fair | |||||||||||||||||||||||||||||||
| Year of Maturity | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | Value | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments Other Than Cash and Cash
Equivalents:
|
||||||||||||||||||||||||||||||||
|
Fixed Income
|
$ | 149 | $ | 149 | $ | 149 | ||||||||||||||||||||||||||
|
Average interest rate
|
1.7 | % | 1.7 | % | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term Debt:
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 150 | $ | 950 | $ | 1,100 | $ | 1,169 | ||||||||||||||||||||||||
|
Average interest rate
|
5.1 | % | 5.8 | % | 5.7 | % | ||||||||||||||||||||||||||
|
Variable rate
|
$ | 20 | $ | 20 | $ | 20 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.3 | % | 0.3 | % | ||||||||||||||||||||||||||||
|
Short-term Borrowings:
|
$ | 101 | $ | 101 | $ | 101 | ||||||||||||||||||||||||||
|
Average interest rate
|
0.5 | % | 0.5 | % | ||||||||||||||||||||||||||||
Equity Price Risk
Nuclear decommissioning trust funds have been established to satisfy nuclear decommissioning
obligations. Included in Penelec’s nuclear decommissioning trust are fixed income, equity
securities and short-term investments carried at a market value of approximately $156 million as of
December 31, 2010. A hypothetical 10% decrease in prices quoted by stock exchanges would result in
an $8 million reduction in fair value as of December 31, 2010. The decommissioning trust of
Penelec’s is subject to regulatory accounting, with unrealized gains and losses recorded as
regulatory assets or liabilities, since the difference between investments held in trust and the
decommissioning liabilities will be recovered from or refunded to customers. A decline in the value
of the nuclear decommissioning trust or a significant escalation in estimated decommissioning costs
could result in additional funding requirements. Penelec continues to evaluate the status of its
funding obligations for the decommissioning of nuclear facilities.
123
Table of Contents
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The information required by ITEM 7A relating to market risk is set forth in ITEM 7. Management
Discussion and Analysis of Financial Condition and Results of Operations.
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of FirstEnergy Corp. (Company) were prepared by management,
who takes responsibility for their integrity and objectivity. The statements were prepared in
conformity with accounting principles generally accepted in the United States and are consistent
with other financial information appearing elsewhere in this report. PricewaterhouseCoopers LLP, an
independent registered public accounting firm, has expressed an unqualified opinion on the
Company’s 2010 consolidated financial statements.
The Company’s internal auditors, who are responsible to the Audit Committee of the Company’s Board
of Directors, review the results and performance of operating units within the Company for
adequacy, effectiveness and reliability of accounting and reporting systems, as well as managerial
and operating controls.
The Company’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
The
effectiveness of the Company’s internal control over financial reporting, as of December 31, 2010,
has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as stated in their report which appears on page 134.
124
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of FirstEnergy Solutions Corp. (Company) were prepared by
management, who takes responsibility for their integrity and objectivity. The statements were
prepared in conformity with accounting principles generally accepted in the United States and are
consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
125
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of Ohio Edison Company (Company) were prepared by management,
who takes responsibility for their integrity and objectivity. The statements were prepared in
conformity with accounting principles generally accepted in the United States and are consistent
with other financial information appearing elsewhere in this report. PricewaterhouseCoopers LLP, an
independent registered public accounting firm, has expressed an unqualified opinion on the
Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
126
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of The Cleveland Electric Illuminating Company (Company) were
prepared by management, who takes responsibility for their integrity and objectivity. The
statements were prepared in conformity with accounting principles generally accepted in the United
States and are consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
127
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of The Toledo Edison Company (Company) were prepared by
management, who takes responsibility for their integrity and objectivity. The statements were
prepared in conformity with accounting principles generally accepted in the United States and are
consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
128
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of Jersey Central Power & Light Company (Company) were
prepared by management, who takes responsibility for their integrity and objectivity. The
statements were prepared in conformity with accounting principles generally accepted in the United
States and are consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
129
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of Metropolitan Edison Company (Company) were prepared by
management, who takes responsibility for their integrity and objectivity. The statements were
prepared in conformity with accounting principles generally accepted in the United States and are
consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
130
Table of Contents
MANAGEMENT REPORTS
Management’s Responsibility for Financial Statements
The consolidated financial statements of Pennsylvania Electric Company (Company) were prepared by
management, who takes responsibility for their integrity and objectivity. The statements were
prepared in conformity with accounting principles generally accepted in the United States and are
consistent with other financial information appearing elsewhere in this report.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has expressed an
unqualified opinion on the Company’s 2010 consolidated financial statements.
FirstEnergy Corp.’s internal auditors, who are responsible to the Audit Committee of FirstEnergy’s
Board of Directors, review the results and performance of the Company for adequacy, effectiveness
and reliability of accounting and reporting systems, as well as managerial and operating controls.
FirstEnergy’s Audit Committee consists of four independent directors whose duties include:
consideration of the adequacy of the internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy and validity of regular and special
audits conducted by independent auditors and the internal auditors; and reporting to the Board of
Directors the Committee’s findings and any recommendation for changes in scope, methods or
procedures of the auditing functions. The Committee is directly responsible for appointing the
Company’s independent registered public accounting firm and is charged with reviewing and approving
all services performed for the Company by the independent registered public accounting firm and for
reviewing and approving the related fees. The Committee reviews the independent registered public
accounting firm’s report on internal quality control and reviews all relationships between the
independent registered public accounting firm and the Company, in order to assess the independent
registered public accounting firm’s independence. The Committee also reviews management’s programs
to monitor compliance with the Company’s policies on business ethics and risk management. The
Committee establishes procedures to receive and respond to complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and allows for the
confidential, anonymous submission of concerns by employees. The Audit Committee held nine meetings
in 2010.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control — Integrated Framework
, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting under the supervision of the chief executive
officer and the chief financial officer. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2010
.
131
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of FirstEnergy Corp.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, common stockholders’ equity, and cash flows present fairly, in all material
respects, the financial position of FirstEnergy Corp. and its subsidiaries at December 31, 2010 and
2009, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2010 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
132
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
Directors of FirstEnergy Solutions Corp.:
Directors of FirstEnergy Solutions Corp.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of FirstEnergy Solutions Corp. and its
subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
133
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
Directors of Ohio Edison Company:
Directors of Ohio Edison Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of Ohio Edison Company and its subsidiaries at
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
134
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors of
The Cleveland Electric Illuminating Company:
The Cleveland Electric Illuminating Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of The Cleveland Electric Illuminating Company and
its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
135
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
Directors of The Toledo Edison Company:
Directors of The Toledo Edison Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of The Toledo Edison Company and its subsidiary at
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
136
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors of
Jersey Central Power & Light Company:
Jersey Central Power & Light Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of Jersey Central Power & Light Company and its
subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
137
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
Directors of Metropolitan Edison Company:
Directors of Metropolitan Edison Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of Metropolitan Edison Company and its
subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
138
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Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
Directors of Pennsylvania Electric Company:
Directors of Pennsylvania Electric Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, capitalization, common stockholder’s equity, and cash flows present fairly,
in all material respects, the financial position of Pennsylvania Electric Company and its
subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 16, 2011
Cleveland, Ohio
February 16, 2011
139
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FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In millions, except per share amounts) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Electric utilities
|
$ | 9,815 | $ | 11,139 | $ | 12,061 | ||||||
|
Unregulated businesses
|
3,524 | 1,834 | 1,566 | |||||||||
|
|
||||||||||||
|
Total revenues*
|
13,339 | 12,973 | 13,627 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES:
|
||||||||||||
|
Fuel
|
1,432 | 1,153 | 1,340 | |||||||||
|
Purchased power
|
4,624 | 4,730 | 4,291 | |||||||||
|
Other operating expenses
|
2,850 | 2,697 | 3,045 | |||||||||
|
Provision for depreciation
|
746 | 736 | 677 | |||||||||
|
Amortization of regulatory assets
|
722 | 1,155 | 1,053 | |||||||||
|
Deferral of regulatory assets
|
— | (136 | ) | (316 | ) | |||||||
|
General taxes
|
776 | 753 | 778 | |||||||||
|
Impairment of long-lived assets
|
384 | 6 | — | |||||||||
|
|
||||||||||||
|
Total expenses
|
11,534 | 11,094 | 10,868 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
1,805 | 1,879 | 2,759 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Investment income
|
117 | 204 | 59 | |||||||||
|
Interest expense
|
(845 | ) | (978 | ) | (754 | ) | ||||||
|
Capitalized interest
|
165 | 130 | 52 | |||||||||
|
|
||||||||||||
|
Total other expense
|
(563 | ) | (644 | ) | (643 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
1,242 | 1,235 | 2,116 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
482 | 245 | 777 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
760 | 990 | 1,339 | |||||||||
|
|
||||||||||||
|
Loss attributable to noncontrolling interest
|
(24 | ) | (16 | ) | (3 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
EARNINGS AVAILABLE TO FIRSTENERGY CORP.
|
$ | 784 | $ | 1,006 | $ | 1,342 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
BASIC EARNINGS PER SHARE OF COMMON STOCK
|
$ | 2.58 | $ | 3.31 | $ | 4.41 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
|
304 | 304 | 304 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
DILUTED EARNINGS PER SHARE OF COMMON STOCK
|
$ | 2.57 | $ | 3.29 | $ | 4.38 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
|
305 | 306 | 307 | |||||||||
|
|
||||||||||||
| * |
Includes $428 million, $395 million and $432 million of excise tax collections in 2010, 2009 and
2008, respectively.
|
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
140
Table of Contents
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in millions) | 2010 | 2009 | ||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,019 | $ | 874 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $36 in 2010 and $33
in 2009
|
1,392 | 1,244 | ||||||
|
Other, net of allowance for uncollectible accounts of $8 in 2010 and $7 in 2009
|
176 | 153 | ||||||
|
Materials and supplies, at average cost
|
638 | 647 | ||||||
|
Prepaid taxes
|
199 | 248 | ||||||
|
Other
|
274 | 154 | ||||||
|
|
||||||||
|
|
3,698 | 3,320 | ||||||
|
|
||||||||
|
PROPERTY, PLANT AND EQUIPMENT:
|
||||||||
|
In service
|
29,451 | 27,826 | ||||||
|
Less — Accumulated provision for depreciation
|
11,180 | 11,397 | ||||||
|
|
||||||||
|
|
18,271 | 16,429 | ||||||
|
Construction work in progress
|
1,517 | 2,735 | ||||||
|
|
||||||||
|
|
19,788 | 19,164 | ||||||
|
|
||||||||
|
INVESTMENTS:
|
||||||||
|
Nuclear plant decommissioning trusts
|
1,973 | 1,859 | ||||||
|
Investments in lease obligation bonds
|
476 | 543 | ||||||
|
Other
|
553 | 621 | ||||||
|
|
||||||||
|
|
3,002 | 3,023 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
5,575 | 5,575 | ||||||
|
Regulatory assets
|
1,826 | 2,356 | ||||||
|
Power purchase contract asset
|
122 | 200 | ||||||
|
Other
|
794 | 666 | ||||||
|
|
||||||||
|
|
8,317 | 8,797 | ||||||
|
|
||||||||
|
|
$ | 34,805 | $ | 34,304 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 1,486 | $ | 1,834 | ||||
|
Short-term borrowings
|
700 | 1,081 | ||||||
|
Accounts payable
|
872 | 829 | ||||||
|
Accrued taxes
|
326 | 314 | ||||||
|
Accrued compensation and benefits
|
315 | 293 | ||||||
|
Derivatives
|
266 | 126 | ||||||
|
Other
|
733 | 711 | ||||||
|
|
||||||||
|
|
4,698 | 5,188 | ||||||
|
|
||||||||
|
CAPITALIZATION:
|
||||||||
|
Common stockholders’ equity-
|
||||||||
|
Common stock, $0.10 par value, authorized 375,000,000 shares-
304,835,407 shares outstanding
|
31 | 31 | ||||||
|
Other paid-in capital
|
5,444 | 5,448 | ||||||
|
Accumulated other comprehensive loss
|
(1,539 | ) | (1,415 | ) | ||||
|
Retained earnings
|
4,609 | 4,495 | ||||||
|
|
||||||||
|
Total common stockholders’ equity
|
8,545 | 8,559 | ||||||
|
Noncontrolling interest
|
(32 | ) | (2 | ) | ||||
|
|
||||||||
|
Total equity
|
8,513 | 8,557 | ||||||
|
Long-term debt and other long-term obligations
|
12,579 | 12,008 | ||||||
|
|
||||||||
|
|
21,092 | 20,565 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
2,879 | 2,468 | ||||||
|
Retirement benefits
|
1,868 | 1,534 | ||||||
|
Asset retirement obligations
|
1,407 | 1,425 | ||||||
|
Deferred gain on sale and leaseback transaction
|
959 | 993 | ||||||
|
Power purchase contract liability
|
466 | 643 | ||||||
|
Lease market valuation liability
|
217 | 262 | ||||||
|
Other
|
1,219 | 1,226 | ||||||
|
|
||||||||
|
|
9,015 | 8,551 | ||||||
|
|
||||||||
|
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 7 and 14)
|
||||||||
|
|
$ | 34,805 | $ | 34,304 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
141
Table of Contents
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Other | ||||||||||||||||||||||
| Comprehensive | Number | Par | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| (Dollars in millions) | Income | of Shares | Value | Capital | Income (Loss) | Earnings | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, January 1, 2008
|
304,835,407 | $ | 31 | $ | 5,509 | $ | (50 | ) | $ | 3,487 | ||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 1,342 | 1,342 | |||||||||||||||||||||
|
Unrealized loss on derivative hedges, net
of $16 million of income tax benefits
|
(28 | ) | (28 | ) | ||||||||||||||||||||
|
Change in unrealized gain on investments, net
of
$86 million of income tax benefits
|
(146 | ) | (146 | ) | ||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $697 million of income tax benefits (Note
3)
|
(1,156 | ) | (1,156 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 12 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock options exercised
|
(36 | ) | ||||||||||||||||||||||
|
Restricted stock units
|
(1 | ) | ||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(670 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2008
|
304,835,407 | 31 | 5,473 | (1,380 | ) | 4,159 | ||||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 1,006 | 1,006 | |||||||||||||||||||||
|
Unrealized gain on derivative hedges, net
of $24 million of income taxes
|
27 | 27 | ||||||||||||||||||||||
|
Change in unrealized gain on investments, net
of
$31 million of income tax benefits
|
(43 | ) | (43 | ) | ||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $34 million of income taxes (Note 3)
|
(19 | ) | (19 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 971 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock options exercised
|
(3 | ) | ||||||||||||||||||||||
|
Restricted stock units
|
7 | |||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Acquisition adjustment of non-controlling interest (Note 8)
|
(30 | ) | ||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(670 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2009
|
304,835,407 | 31 | 5,448 | (1,415 | ) | 4,495 | ||||||||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 784 | 784 | |||||||||||||||||||||
|
Unrealized gain on derivative hedges, net
of $14 million of income taxes
|
22 | 22 | ||||||||||||||||||||||
|
Unrealized gain on investments, net of
$3 million of income taxes
|
5 | 5 | ||||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $107 million of income tax benefits (Note
3)
|
(151 | ) | (151 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 660 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock options exercised
|
(2 | ) | ||||||||||||||||||||||
|
Restricted stock units
|
(3 | ) | ||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(670 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2010
|
304,835,407 | $ | 31 | $ | 5,444 | $ | (1,539 | ) | $ | 4,609 | ||||||||||||||
|
|
||||||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
142
Table of Contents
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| As of December 31, | ||||||||||||
| (In millions) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 760 | $ | 990 | $ | 1,339 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
746 | 736 | 677 | |||||||||
|
Amortization of regulatory assets
|
722 | 1,155 | 1,053 | |||||||||
|
Deferral of regulatory assets
|
— | (136 | ) | (316 | ) | |||||||
|
Nuclear fuel and lease amortization
|
168 | 128 | 112 | |||||||||
|
Deferred purchased power and other costs
|
(254 | ) | (338 | ) | (226 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
470 | 384 | 366 | |||||||||
|
Impairment of long-lived assets (Note 19)
|
384 | 6 | — | |||||||||
|
Investment impairment (Note 2(E))
|
33 | 62 | 123 | |||||||||
|
Deferred rents and lease market valuation liability
|
(54 | ) | (52 | ) | (95 | ) | ||||||
|
Stock based compensation
|
(1 | ) | 20 | (64 | ) | |||||||
|
Accrued compensation and retirement benefits
|
89 | 22 | (140 | ) | ||||||||
|
Gain on asset sales
|
(2 | ) | (27 | ) | (72 | ) | ||||||
|
Electric service prepayment programs
|
— | (10 | ) | (77 | ) | |||||||
|
Cash collateral, net
|
(26 | ) | 30 | (31 | ) | |||||||
|
Gain on sales of investment securities held in trusts, net
|
(55 | ) | (176 | ) | (63 | ) | ||||||
|
Loss on debt redemption
|
5 | 146 | — | |||||||||
|
Interest rate swap transactions
|
129 | — | — | |||||||||
|
Commodity derivative transactions, net (Note 6)
|
(81 | ) | 229 | 5 | ||||||||
|
Pension trust contributions
|
— | (500 | ) | — | ||||||||
|
Uncertain tax positions
|
(34 | ) | (210 | ) | (5 | ) | ||||||
|
Acquisition of supply requirements
|
— | (93 | ) | — | ||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
(177 | ) | 75 | (29 | ) | |||||||
|
Materials and supplies
|
2 | (11 | ) | (52 | ) | |||||||
|
Prepayments and other current assets
|
100 | (19 | ) | (263 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
43 | 50 | 10 | |||||||||
|
Accrued taxes
|
57 | (103 | ) | (39 | ) | |||||||
|
Accrued interest
|
7 | 67 | 4 | |||||||||
|
Other
|
45 | 40 | 7 | |||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
$ | 3,076 | $ | 2,465 | $ | 2,224 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
1,099 | 4,632 | 1,367 | |||||||||
|
Short-term borrowings, net
|
— | — | 1,494 | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(1,015 | ) | (2,610 | ) | (1,034 | ) | ||||||
|
Short-term borrowings, net
|
(378 | ) | (1,246 | ) | — | |||||||
|
Common stock dividend payments
|
(670 | ) | (670 | ) | (671 | ) | ||||||
|
Other
|
(19 | ) | (57 | ) | 19 | |||||||
|
|
||||||||||||
|
Net cash provided from (used for) financing activities
|
$ | (983 | ) | $ | 49 | $ | 1,175 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(1,963 | ) | (2,203 | ) | (2,888 | ) | ||||||
|
Proceeds from asset sales
|
117 | 21 | 72 | |||||||||
|
Sales of investment securities held in trusts
|
3,172 | 2,229 | 1,656 | |||||||||
|
Purchases of investment securities held in trusts
|
(3,219 | ) | (2,306 | ) | (1,749 | ) | ||||||
|
Customer acquisition costs
|
(113 | ) | — | — | ||||||||
|
Cash investments (Note 5)
|
66 | 60 | 60 | |||||||||
|
Other
|
(8 | ) | 14 | (134 | ) | |||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
$ | (1,948 | ) | $ | (2,185 | ) | $ | (2,983 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase in cash and cash equivalents
|
145 | 329 | 416 | |||||||||
|
Cash and cash equivalents at beginning of year
|
874 | 545 | 129 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 1,019 | $ | 874 | $ | 545 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 662 | $ | 718 | $ | 667 | ||||||
|
|
||||||||||||
|
Income taxes (benefits)
|
$ | (42 | ) | $ | 173 | $ | 685 | |||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
143
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Electric sales to affiliates (Note 17)
|
$ | 2,227,277 | $ | 2,825,959 | $ | 2,968,323 | ||||||
|
Electric sales to non-affiliates
|
3,251,765 | 1,447,482 | 1,332,364 | |||||||||
|
Other
|
348,572 | 454,896 | 217,666 | |||||||||
|
|
||||||||||||
|
Total revenues
|
5,827,614 | 4,728,337 | 4,518,353 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES:
|
||||||||||||
|
Fuel
|
1,402,839 | 1,127,463 | 1,315,293 | |||||||||
|
Purchased power from affiliates (Note 17)
|
370,692 | 222,406 | 101,409 | |||||||||
|
Purchased power from non-affiliates
|
1,585,207 | 996,383 | 778,882 | |||||||||
|
Other operating expenses
|
1,279,340 | 1,183,225 | 1,084,548 | |||||||||
|
Provision for depreciation
|
243,296 | 259,393 | 231,899 | |||||||||
|
General taxes
|
93,777 | 86,915 | 88,004 | |||||||||
|
Impairment of long-lived assets
|
383,665 | 6,067 | — | |||||||||
|
|
||||||||||||
|
Total expenses
|
5,358,816 | 3,881,852 | 3,600,035 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
468,798 | 846,485 | 918,318 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Investment income
|
59,202 | 125,226 | (22,678 | ) | ||||||||
|
Miscellaneous income
|
16,667 | 12,737 | 1,698 | |||||||||
|
Interest expense — affiliates
|
(9,755 | ) | (10,106 | ) | (29,829 | ) | ||||||
|
Interest expense — other
|
(206,100 | ) | (142,120 | ) | (111,682 | ) | ||||||
|
Capitalized interest
|
91,673 | 60,152 | 43,764 | |||||||||
|
|
||||||||||||
|
Total other income (expense)
|
(48,313 | ) | 45,889 | (118,727 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
420,485 | 892,374 | 799,591 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
151,057 | 315,290 | 293,181 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
$ | 269,428 | $ | 577,084 | $ | 506,410 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
144
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 9,281 | $ | 12 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $16,591 in 2010 and
$12,041 in 2009
|
365,758 | 195,107 | ||||||
|
Associated companies
|
477,565 | 318,561 | ||||||
|
Other, net of allowance for uncollectible accounts of $6,765 in 2010 and $6,702
in 2009
|
89,550 | 51,872 | ||||||
|
Notes receivable from associated companies
|
396,770 | 805,103 | ||||||
|
Materials and supplies, at average cost
|
545,342 | 539,541 | ||||||
|
Derivatives
|
181,660 | 31,485 | ||||||
|
Prepayments and other
|
60,171 | 76,297 | ||||||
|
|
||||||||
|
|
2,126,097 | 2,017,978 | ||||||
|
|
||||||||
|
PROPERTY, PLANT AND EQUIPMENT:
|
||||||||
|
In service
|
11,321,318 | 10,357,632 | ||||||
|
Less — Accumulated provision for depreciation
|
4,024,280 | 4,531,158 | ||||||
|
|
||||||||
|
|
7,297,038 | 5,826,474 | ||||||
|
Construction work in progress
|
1,062,744 | 2,423,446 | ||||||
|
|
||||||||
|
|
8,359,782 | 8,249,920 | ||||||
|
|
||||||||
|
INVESTMENTS:
|
||||||||
|
Nuclear plant decommissioning trusts
|
1,145,846 | 1,088,641 | ||||||
|
Other
|
11,704 | 22,466 | ||||||
|
|
||||||||
|
|
1,157,550 | 1,111,107 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Accumulated deferred income tax benefits
|
— | 86,626 | ||||||
|
Customer intangibles
|
133,968 | 16,566 | ||||||
|
Goodwill
|
24,248 | 24,248 | ||||||
|
Property taxes
|
41,112 | 50,125 | ||||||
|
Unamortized sale and leaseback costs
|
73,386 | 72,553 | ||||||
|
Derivatives
|
97,603 | 28,368 | ||||||
|
Other
|
48,689 | 93,297 | ||||||
|
|
||||||||
|
|
419,006 | 371,783 | ||||||
|
|
||||||||
|
|
$ | 12,062,435 | $ | 11,750,788 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 1,132,135 | $ | 1,550,927 | ||||
|
Short-term borrowings-
|
||||||||
|
Associated companies
|
11,561 | 9,237 | ||||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
466,623 | 466,078 | ||||||
|
Other
|
241,191 | 245,363 | ||||||
|
Accrued taxes
|
70,129 | 83,158 | ||||||
|
Derivatives
|
266,411 | 125,609 | ||||||
|
Other
|
251,671 | 233,448 | ||||||
|
|
||||||||
|
|
2,439,721 | 2,713,820 | ||||||
|
|
||||||||
|
CAPITALIZATION:
|
||||||||
|
Total common stockholder’s equity
|
3,788,245 | 3,514,571 | ||||||
|
Noncontrolling interest
|
(504 | ) | — | |||||
|
|
||||||||
|
Total equity
|
3,787,741 | 3,514,571 | ||||||
|
Long-term debt and other long-term obligations
|
3,180,875 | 2,811,652 | ||||||
|
|
||||||||
|
|
6,968,616 | 6,326,223 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Deferred gain on sale and leaseback transaction
|
959,154 | 992,869 | ||||||
|
Accumulated deferred income taxes
|
57,595 | — | ||||||
|
Accumulated deferred investment tax credits
|
54,224 | 58,396 | ||||||
|
Asset retirement obligations
|
892,051 | 921,448 | ||||||
|
Retirement benefits
|
285,160 | 204,035 | ||||||
|
Property taxes
|
41,112 | 50,125 | ||||||
|
Lease market valuation liability
|
216,695 | 262,200 | ||||||
|
Other
|
148,107 | 221,672 | ||||||
|
|
||||||||
|
|
2,654,098 | 2,710,745 | ||||||
|
|
||||||||
|
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 7 & 14)
|
||||||||
|
|
$ | 12,062,435 | $ | 11,750,788 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
145
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, without par value, authorized 750 shares,
7 shares outstanding
|
$ | 1,490,082 | $ | 1,468,423 | ||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(120,414 | ) | (103,001 | ) | ||||
|
Retained earnings (Note 11(A))
|
2,418,577 | 2,149,149 | ||||||
|
|
||||||||
|
Total
|
3,788,245 | 3,514,571 | ||||||
|
|
||||||||
|
|
||||||||
|
NONCONTROLLING INTEREST
|
(504 | ) | — | |||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 11(C)):
|
||||||||
|
Secured notes:
|
||||||||
|
FirstEnergy Solutions Corp.
|
||||||||
|
5.150% due 2010-2015
|
21,146 | 21,950 | ||||||
|
*2.000% due 2011
|
100,000 | 100,000 | ||||||
|
|
||||||||
|
|
121,146 | 121,950 | ||||||
|
|
||||||||
|
FirstEnergy Generation Corp.
|
||||||||
|
5.700% due 2014
|
50,000 | 50,000 | ||||||
|
*0.310% due 2017
|
28,525 | 28,525 | ||||||
|
5.630% due 2018
|
141,260 | 141,260 | ||||||
|
*0.290% due 2019
|
90,140 | 90,140 | ||||||
|
5.250% due 2023
|
50,000 | 50,000 | ||||||
|
4.750% due 2029
|
100,000 | 100,000 | ||||||
|
4.750% due 2029
|
6,450 | 6,450 | ||||||
|
*0.300% due 2041
|
56,600 | 56,600 | ||||||
|
|
||||||||
|
|
522,975 | 522,975 | ||||||
|
|
||||||||
|
FirstEnergy Nuclear Generation Corp.
|
||||||||
|
8.830% due 2010-2016
|
3,921 | 4,514 | ||||||
|
8.890% due 2010-2016
|
68,728 | 77,445 | ||||||
|
9.000% due 2010-2017
|
171,924 | 206,453 | ||||||
|
9.120% due 2010-2016
|
53,506 | 61,455 | ||||||
|
12.000% due 2010-2017
|
962 | 1,072 | ||||||
|
*0.320% due 2035
|
60,000 | 60,000 | ||||||
|
*0.330% due 2035
|
98,900 | 98,900 | ||||||
|
5.750% due 2033
|
62,500 | 62,500 | ||||||
|
5.875% due 2033
|
107,500 | 107,500 | ||||||
|
|
||||||||
|
|
627,941 | 679,839 | ||||||
|
|
||||||||
|
Total secured notes
|
1,272,062 | 1,324,764 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes:
|
||||||||
|
FirstEnergy Solutions Corp.
|
||||||||
|
4.800% due 2015
|
400,000 | 400,000 | ||||||
|
6.050% due 2021
|
600,000 | 600,000 | ||||||
|
6.800% due 2039
|
500,000 | 500,000 | ||||||
|
|
||||||||
|
|
1,500,000 | 1,500,000 | ||||||
|
|
||||||||
|
FirstEnergy Generation Corp.
|
||||||||
|
7.000% due 2011
|
4,678 | — | ||||||
|
0.000% due 2016
|
2,632 | — | ||||||
|
3.000% due 2018
|
2,805 | 2,805 | ||||||
|
3.000% due 2018
|
2,985 | 2,985 | ||||||
|
5.700% due 2020
|
177,000 | 177,000 | ||||||
|
**2.250% due 2023
|
234,520 | 234,520 | ||||||
|
**1.500% due 2028
|
15,000 | 15,000 | ||||||
|
7.125% due 2028
|
25,000 | 25,000 | ||||||
|
**3.375% due 2040
|
43,000 | 43,000 | ||||||
|
*0.320% due 2041
|
129,610 | 129,610 | ||||||
|
**3.000% due 2041
|
26,000 | 26,000 | ||||||
|
3.000% due 2047
|
46,300 | 46,300 | ||||||
|
|
||||||||
|
|
709,530 | 702,220 | ||||||
|
|
||||||||
|
FirstEnergy Nuclear Generation Corp.
|
||||||||
|
7.250% due 2032
|
23,000 | 23,000 | ||||||
|
7.250% due 2032
|
33,000 | 33,000 | ||||||
|
**2.250% due 2033
|
46,500 | 46,500 | ||||||
|
**2.750% due 2033
|
54,600 | 54,600 | ||||||
|
**3.750% due 2033
|
26,000 | 26,000 | ||||||
|
**3.375% due 2033
|
99,100 | 99,100 | ||||||
|
**3.375% due 2033
|
8,000 | 8,000 | ||||||
|
*0.280% due 2033
|
135,550 | 135,550 | ||||||
|
*0.330% due 2033
|
15,500 | 15,500 | ||||||
|
3.000% due 2033
|
20,450 | 20,450 | ||||||
|
3.000% due 2033
|
9,100 | 9,100 | ||||||
|
**3.375% due 2034
|
7,200 | 7,200 | ||||||
|
**3.375% due 2034
|
82,800 | 82,800 | ||||||
|
**3.375% due 2035
|
72,650 | 72,650 | ||||||
|
*0.290% due 2035
|
163,965 | 163,965 | ||||||
|
|
||||||||
|
|
797,415 | 797,415 | ||||||
|
|
||||||||
|
Total unsecured notes
|
3,006,945 | 2,999,635 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
35,788 | 40,110 | ||||||
|
Net unamortized discount on debt
|
(1,785 | ) | (1,930 | ) | ||||
|
Long-term debt due within one year
|
(1,132,135 | ) | (1,550,927 | ) | ||||
|
|
||||||||
|
Total long-term debt and other long-term obligations
|
3,180,875 | 2,811,652 | ||||||
|
|
||||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 6,968,616 | $ | 6,326,223 | ||||
|
|
||||||||
| * |
Denotes variable rate issue with applicable year-end interest rate shown.
|
|
| ** |
Denotes remarketed unsecured notes in 2010.
|
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
146
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||
| Common Stock | Other | |||||||||||||||||||
| Comprehensive | Number | Carrying | Comprehensive | Retained | ||||||||||||||||
| (Dollars in thousands) | Income | of Shares | Value | Income (Loss) | Earnings | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, January 1, 2008
|
7 | $ | 1,164,922 | $ | 140,654 | $ | 1,108,655 | |||||||||||||
|
Net income
|
$ | 506,410 | 506,410 | |||||||||||||||||
|
Net unrealized loss on derivative instruments, net
of $5,512 of income tax benefits
|
(9,200 | ) | (9,200 | ) | ||||||||||||||||
|
Change in unrealized gain on investments, net of
$82,014 of income tax benefits
|
(137,689 | ) | (137,689 | ) | ||||||||||||||||
|
Pension and other postretirement benefits, net
of $47,853 of income tax benefits (Note 3)
|
(85,636 | ) | (85,636 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 273,885 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Equity contribution from parent
|
280,000 | |||||||||||||||||||
|
Stock options exercised, restricted stock units
and other adjustments
|
13,262 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
6,045 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(43,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2008
|
7 | 1,464,229 | (91,871 | ) | 1,572,065 | |||||||||||||||
|
Net income
|
$ | 577,084 | 577,084 | |||||||||||||||||
|
Net unrealized gain on derivative instruments, net
of $6,766 of income taxes
|
11,329 | 11,329 | ||||||||||||||||||
|
Change in unrealized gain on investments, net of
$20,937 of income tax benefits
|
(28,306 | ) | (28,306 | ) | ||||||||||||||||
|
Pension and other postretirement benefits, net
of $8,472 of income taxes (Note 3)
|
5,847 | 5,847 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 565,954 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
866 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
3,328 | |||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2009
|
7 | 1,468,423 | (103,001 | ) | 2,149,149 | |||||||||||||||
|
Net income
|
269,428 | 269,428 | ||||||||||||||||||
|
Net unrealized gain on derivative instruments, net
of $8,835 of income taxes
|
14,363 | 14,363 | ||||||||||||||||||
|
Change in unrealized gain on investments, net of
$2,846 of income taxes
|
4,765 | 4,765 | ||||||||||||||||||
|
Pension and other postretirement benefits, net
of $22,369 of income tax benefits (Note 3)
|
(36,541 | ) | (36,541 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 252,015 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
(329 | ) | ||||||||||||||||||
|
Consolidated tax benefit allocation
|
21,988 | |||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2010
|
7 | $ | 1,490,082 | $ | (120,414 | ) | $ | 2,418,577 | ||||||||||||
|
|
||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
147
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net Income
|
$ | 269,428 | $ | 577,084 | $ | 506,410 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
243,296 | 259,393 | 231,899 | |||||||||
|
Nuclear fuel and lease amortization
|
172,132 | 130,486 | 111,978 | |||||||||
|
Deferred rents and lease market valuation liability
|
(47,319 | ) | (46,384 | ) | (43,263 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
175,653 | 219,962 | 116,626 | |||||||||
|
Impairment of long-lived assets (Note 19)
|
383,665 | 6,067 | — | |||||||||
|
Investment impairments (Note 2(E))
|
32,254 | 57,073 | 115,207 | |||||||||
|
Accrued compensation and retirement benefits
|
24,973 | 6,162 | 16,011 | |||||||||
|
Commodity derivative transactions, net (Note 6)
|
(81,362 | ) | 228,705 | 5,100 | ||||||||
|
Gain on asset sales
|
(2,333 | ) | (10,649 | ) | (38,858 | ) | ||||||
|
Gain on investment securities held in trusts, net
|
(50,693 | ) | (158,112 | ) | (53,290 | ) | ||||||
|
Acquisition of supply requirements
|
— | (93,371 | ) | — | ||||||||
|
Cash collateral, net
|
(6,581 | ) | 20,208 | (60,621 | ) | |||||||
|
Associated company lease assignment
|
— | 71,356 | — | |||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
(361,901 | ) | (34,429 | ) | 59,782 | |||||||
|
Materials and supplies
|
(11,015 | ) | 12,513 | (59,983 | ) | |||||||
|
Prepayments and other current assets
|
41,937 | (26,046 | ) | (12,302 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(27,457 | ) | 67,855 | 34,467 | ||||||||
|
Accrued taxes
|
2,303 | 6,059 | (90,568 | ) | ||||||||
|
Accrued interest
|
(1,873 | ) | 46,441 | 1,398 | ||||||||
|
Other
|
31,015 | 33,916 | 12,935 | |||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
786,122 | 1,374,289 | 852,928 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
715,370 | 2,438,402 | 618,375 | |||||||||
|
Equity contributions from parent
|
— | — | 280,000 | |||||||||
|
Short-term borrowings, net
|
2,324 | — | 700,759 | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(772,454 | ) | (709,156 | ) | (462,540 | ) | ||||||
|
Short-term borrowings, net
|
— | (1,155,586 | ) | — | ||||||||
|
Common stock dividend payments
|
— | — | (43,000 | ) | ||||||||
|
Other
|
(2,140 | ) | (21,790 | ) | (5,147 | ) | ||||||
|
|
||||||||||||
|
Net cash provided from (used for) financing activities
|
(56,900 | ) | 551,870 | 1,088,447 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(1,034,685 | ) | (1,222,933 | ) | (1,835,629 | ) | ||||||
|
Proceeds from asset sales
|
117,333 | 18,371 | 23,077 | |||||||||
|
Sales of investment securities held in trusts
|
1,926,684 | 1,379,154 | 950,688 | |||||||||
|
Purchases of investment securities held in trusts
|
(1,974,020 | ) | (1,405,996 | ) | (987,304 | ) | ||||||
|
Loans from (to) associated companies, net
|
408,333 | (675,928 | ) | (36,391 | ) | |||||||
|
Customer acquisition costs
|
(113,336 | ) | — | — | ||||||||
|
Leasehold improvement payments to associated companies
|
(51,204 | ) | — | — | ||||||||
|
Other
|
942 | (18,854 | ) | (55,779 | ) | |||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(719,953 | ) | (1,926,186 | ) | (1,941,338 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net change in cash and cash equivalents
|
9,269 | (27 | ) | 37 | ||||||||
|
Cash and cash equivalents at beginning of period
|
12 | 39 | 2 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 9,281 | $ | 12 | $ | 39 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 116,713 | $ | 38,446 | $ | 92,103 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | 139,953 | $ | 96,045 | $ | 196,963 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
148
Table of Contents
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
REVENUES (Note 17):
|
||||||||||||
|
Electric sales
|
$ | 1,729,367 | $ | 2,418,292 | $ | 2,487,956 | ||||||
|
Excise and gross receipts tax collections
|
106,751 | 98,630 | 113,805 | |||||||||
|
|
||||||||||||
|
Total revenues
|
1,836,118 | 2,516,922 | 2,601,761 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES (Note 17):
|
||||||||||||
|
Purchased power from affiliates
|
521,052 | 991,405 | 1,203,314 | |||||||||
|
Purchased power from non-affiliates
|
316,712 | 481,406 | 114,972 | |||||||||
|
Other operating costs
|
364,274 | 461,142 | 565,893 | |||||||||
|
Provision for depreciation
|
88,154 | 89,289 | 79,444 | |||||||||
|
Amortization of regulatory assets, net
|
62,857 | 93,694 | 117,733 | |||||||||
|
General taxes
|
182,679 | 171,082 | 186,396 | |||||||||
|
|
||||||||||||
|
Total expenses
|
1,535,728 | 2,288,018 | 2,267,752 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
300,390 | 228,904 | 334,009 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE) (Note 17):
|
||||||||||||
|
Investment income
|
21,758 | 46,887 | 56,103 | |||||||||
|
Miscellaneous income (expense)
|
4,455 | 2,654 | (4,525 | ) | ||||||||
|
Interest expense
|
(88,588 | ) | (90,669 | ) | (75,058 | ) | ||||||
|
Capitalized interest
|
1,197 | 844 | 414 | |||||||||
|
|
||||||||||||
|
Total other expense
|
(61,178 | ) | (40,284 | ) | (23,066 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
239,212 | 188,620 | 310,943 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
81,972 | 66,186 | 98,584 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
157,240 | 122,434 | 212,359 | |||||||||
|
|
||||||||||||
|
Income from noncontrolling interest
|
509 | 567 | 613 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EARNINGS AVAILABLE TO PARENT
|
$ | 156,731 | $ | 121,867 | $ | 211,746 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
149
Table of Contents
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 420,489 | $ | 324,175 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $4,086 in 2010
and $5,119 in 2009
|
176,591 | 209,384 | ||||||
|
Associated companies
|
118,135 | 98,874 | ||||||
|
Other
|
12,232 | 14,155 | ||||||
|
Notes receivable from associated companies
|
16,957 | 118,651 | ||||||
|
Prepayments and other
|
6,393 | 15,964 | ||||||
|
|
||||||||
|
|
750,797 | 781,203 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
3,136,623 | 3,036,467 | ||||||
|
Less — Accumulated provision for depreciation
|
1,207,745 | 1,165,394 | ||||||
|
|
||||||||
|
|
1,928,878 | 1,871,073 | ||||||
|
Construction work in progress
|
45,103 | 31,171 | ||||||
|
|
||||||||
|
|
1,973,981 | 1,902,244 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Investment in lease obligation bonds (Note 7)
|
190,420 | 216,600 | ||||||
|
Nuclear plant decommissioning trusts
|
127,017 | 120,812 | ||||||
|
Other
|
95,563 | 96,861 | ||||||
|
|
||||||||
|
|
413,000 | 434,273 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Regulatory assets
|
400,322 | 465,331 | ||||||
|
Pension assets (Note 3)
|
28,596 | 19,881 | ||||||
|
Property taxes
|
71,331 | 67,037 | ||||||
|
Unamortized sale and leaseback costs
|
30,126 | 35,127 | ||||||
|
Other
|
17,634 | 39,881 | ||||||
|
|
||||||||
|
|
548,009 | 627,257 | ||||||
|
|
||||||||
|
|
$ | 3,685,787 | $ | 3,744,977 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 1,419 | $ | 2,723 | ||||
|
Short-term borrowings-
|
||||||||
|
Associated companies
|
142,116 | 92,863 | ||||||
|
Other
|
320 | 807 | ||||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
99,421 | 102,763 | ||||||
|
Other
|
29,639 | 40,423 | ||||||
|
Accrued taxes
|
78,707 | 81,868 | ||||||
|
Accrued interest
|
25,382 | 25,749 | ||||||
|
Other
|
74,947 | 81,424 | ||||||
|
|
||||||||
|
|
451,951 | 428,620 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statements of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
914,411 | 1,021,110 | ||||||
|
Noncontrolling interest
|
5,680 | 6,442 | ||||||
|
|
||||||||
|
Total equity
|
920,091 | 1,027,552 | ||||||
|
Long-term debt and other long-term obligations
|
1,152,134 | 1,160,208 | ||||||
|
|
||||||||
|
|
2,072,225 | 2,187,760 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
696,410 | 660,114 | ||||||
|
Accumulated deferred investment tax credits
|
10,159 | 11,406 | ||||||
|
Retirement benefits
|
183,712 | 174,925 | ||||||
|
Asset retirement obligations
|
74,456 | 85,926 | ||||||
|
Other
|
196,874 | 196,226 | ||||||
|
|
||||||||
|
|
1,161,611 | 1,128,597 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES (Notes 7 and 14)
|
||||||||
|
|
$ | 3,685,787 | $ | 3,744,977 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
150
Table of Contents
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, without par value, 175,000,000 shares authorized,
60 shares outstanding
|
$ | 951,866 | $ | 1,154,797 | ||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(179,076 | ) | (163,577 | ) | ||||
|
Retained earnings (Note 11(A))
|
141,621 | 29,890 | ||||||
|
|
||||||||
|
Total
|
914,411 | 1,021,110 | ||||||
|
|
||||||||
|
|
||||||||
|
NONCONTROLLING INTEREST
|
5,680 | 6,442 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 11(C)):
|
||||||||
|
Ohio Edison Company-
|
||||||||
|
First mortgage bonds:
|
||||||||
|
8.250% due 2018
|
25,000 | 25,000 | ||||||
|
8.250% due 2038
|
275,000 | 275,000 | ||||||
|
|
||||||||
|
Total
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Secured notes:
|
||||||||
|
7.156% weighted average interest rate due 2009-2010
|
— | 1,257 | ||||||
|
|
||||||||
|
Total
|
— | 1,257 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes:
|
||||||||
|
5.450% due 2015
|
150,000 | 150,000 | ||||||
|
6.400% due 2016
|
250,000 | 250,000 | ||||||
|
6.875% due 2036
|
350,000 | 350,000 | ||||||
|
|
||||||||
|
Total
|
750,000 | 750,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Pennsylvania Power Company-
|
||||||||
|
First mortgage bonds:
|
||||||||
|
9.740% due 2010-2019
|
8,799 | 9,773 | ||||||
|
6.090% due 2022
|
100,000 | 100,000 | ||||||
|
7.625% due 2023
|
— | 6,500 | ||||||
|
|
||||||||
|
Total
|
108,799 | 116,273 | ||||||
|
|
||||||||
|
|
||||||||
|
Secured notes:
|
||||||||
|
5.400% due 2013
|
— | 1,000 | ||||||
|
|
||||||||
|
Total
|
— | 1,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
6,604 | 6,884 | ||||||
|
Net unamortized discount on debt
|
(11,850 | ) | (12,483 | ) | ||||
|
Long-term debt due within one year
|
(1,419 | ) | (2,723 | ) | ||||
|
|
||||||||
|
Total long-term debt and other long-term obligations
|
1,152,134 | 1,160,208 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 2,072,225 | $ | 2,187,760 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
151
Table of Contents
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||
| Common Stock | Other | |||||||||||||||||||
| Comprehensive | Number | Carrying | Comprehensive | Retained | ||||||||||||||||
| (Dollars in thousands) | Income | of Shares | Value | Income (Loss) | Earnings | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, January 1, 2008
|
60 | $ | 1,220,512 | $ | 48,386 | $ | 307,277 | |||||||||||||
|
Earnings available to parent
|
$ | 211,746 | 211,746 | |||||||||||||||||
|
Change in unrealized gain on investments, net of
$5,702 of income tax benefits
|
(10,370 | ) | (10,370 | ) | ||||||||||||||||
|
Pension and other postretirement benefits, net
of $121,425 of income tax benefits (Note 3)
|
(222,401 | ) | (222,401 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive loss
|
$ | (21,025 | ) | |||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
(16 | ) | ||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
3,919 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(265,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2008
|
60 | 1,224,416 | (184,385 | ) | 254,023 | |||||||||||||||
|
Earnings available to parent
|
$ | 121,867 | 121,867 | |||||||||||||||||
|
Change in unrealized gain on investments, net of
$4,196 of income tax benefits
|
(5,497 | ) | (5,497 | ) | ||||||||||||||||
|
Pension and other postretirement benefits, net
of $20,257 of income taxes (Note 3)
|
26,305 | 26,305 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income available to parent
|
$ | 142,675 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
81 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
4,300 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(346,000 | ) | ||||||||||||||||||
|
Cash dividends declared as return of capital
|
(74,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2009
|
60 | 1,154,797 | (163,577 | ) | 29,890 | |||||||||||||||
|
Earnings available to parent
|
$ | 156,731 | 156,731 | |||||||||||||||||
|
Unrealized gain on investments, net of
$246 of income taxes
|
448 | 448 | ||||||||||||||||||
|
Pension and other postretirement benefits, net
of $10,596 of income tax benefits (Note 3)
|
(15,947 | ) | (15,947 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income available to parent
|
$ | 141,232 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
117 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
1,952 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(45,000 | ) | ||||||||||||||||||
|
Cash dividends declared as return of capital
|
(205,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2010
|
60 | $ | 951,866 | $ | (179,076 | ) | $ | 141,621 | ||||||||||||
|
|
||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
152
Table of Contents
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 157,240 | $ | 122,434 | $ | 212,359 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
88,154 | 89,289 | 79,444 | |||||||||
|
Amortization of regulatory assets, net
|
62,857 | 93,694 | 117,733 | |||||||||
|
Amortization of lease costs
|
(8,609 | ) | (8,211 | ) | (7,702 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
46,513 | 41,178 | 16,125 | |||||||||
|
Accrued compensation and retirement benefits
|
(23,025 | ) | (13,729 | ) | 17,139 | |||||||
|
Accrued regulatory obligations
|
1,047 | 18,635 | — | |||||||||
|
Electric service prepayment programs
|
— | (4,634 | ) | (42,215 | ) | |||||||
|
Cash collateral from suppliers
|
2,060 | 6,469 | — | |||||||||
|
Pension trust contributions
|
— | (103,035 | ) | — | ||||||||
|
Asset retirement obligation settlements
|
(10,075 | ) | — | — | ||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
26,650 | 139,679 | (61,926 | ) | ||||||||
|
Prepayments and other current assets
|
13,639 | (10,407 | ) | 5,937 | ||||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(21,311 | ) | (14,949 | ) | 14,166 | |||||||
|
Accrued taxes
|
(3,161 | ) | (9,142 | ) | (8,983 | ) | ||||||
|
Accrued interest
|
(367 | ) | 76 | 3,295 | ||||||||
|
Other
|
(4,712 | ) | 8,924 | 143 | ||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
326,900 | 356,271 | 345,515 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
— | 100,000 | 292,169 | |||||||||
|
Short-term borrowings, net
|
48,766 | 92,130 | — | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(10,075 | ) | (101,680 | ) | (249,897 | ) | ||||||
|
Short-term borrowings, net
|
— | — | (51,761 | ) | ||||||||
|
Common stock dividend payments
|
(250,000 | ) | (420,000 | ) | (315,000 | ) | ||||||
|
Other
|
(1,561 | ) | (2,839 | ) | (4,435 | ) | ||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
(212,870 | ) | (332,389 | ) | (328,924 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(150,119 | ) | (152,817 | ) | (182,512 | ) | ||||||
|
Leasehold improvement payments from associated companies
|
18,375 | — | — | |||||||||
|
Sales of investment securities held in trusts
|
83,352 | 131,478 | 120,744 | |||||||||
|
Purchases of investment securities held in trusts
|
(89,406 | ) | (138,925 | ) | (127,680 | ) | ||||||
|
Loan repayments from associated companies, net
|
101,694 | 102,314 | 373,138 | |||||||||
|
Collection of principal on long-term notes receivable
|
— | 195,970 | 1,756 | |||||||||
|
Cash investments
|
25,005 | 20,133 | (57,792 | ) | ||||||||
|
Other
|
(6,617 | ) | (4,203 | ) | 1,366 | |||||||
|
|
||||||||||||
|
Net cash provided from (used for) investing activities
|
(17,716 | ) | 153,950 | 129,020 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase in cash and cash equivalents
|
96,314 | 177,832 | 145,611 | |||||||||
|
Cash and cash equivalents at beginning of year
|
324,175 | 146,343 | 732 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
420,489 | $ | 324,175 | $ | 146,343 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 82,895 | $ | 86,523 | $ | 67,508 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | 76,152 | $ | 20,530 | $ | 118,834 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
153
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
REVENUES (Note 17):
|
||||||||||||
|
Electric sales
|
$ | 1,152,950 | $ | 1,609,946 | $ | 1,746,309 | ||||||
|
Excise and gross receipts tax collections
|
68,422 | 66,192 | 69,578 | |||||||||
|
|
||||||||||||
|
Total revenues
|
1,221,372 | 1,676,138 | 1,815,887 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES (Note 17):
|
||||||||||||
|
Purchased power from affiliates
|
361,317 | 734,592 | 766,270 | |||||||||
|
Purchased power from non-affiliates
|
129,054 | 245,809 | 4,210 | |||||||||
|
Other operating costs
|
130,018 | 161,407 | 259,438 | |||||||||
|
Provision for depreciation
|
72,753 | 71,908 | 72,383 | |||||||||
|
Amortization of regulatory assets, net
|
169,541 | 370,967 | 163,534 | |||||||||
|
Deferral of new regulatory assets
|
— | (134,587 | ) | (107,571 | ) | |||||||
|
General taxes
|
143,294 | 145,324 | 143,058 | |||||||||
|
|
||||||||||||
|
Total expenses
|
1,005,977 | 1,595,420 | 1,301,322 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
215,395 | 80,718 | 514,565 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE) (Note 17):
|
||||||||||||
|
Investment income
|
27,360 | 31,194 | 34,392 | |||||||||
|
Miscellaneous income (expense)
|
2,362 | 3,911 | (495 | ) | ||||||||
|
Interest expense
|
(133,351 | ) | (137,171 | ) | (125,976 | ) | ||||||
|
Capitalized interest
|
82 | 173 | 786 | |||||||||
|
|
||||||||||||
|
Total other income (expense)
|
(103,547 | ) | (101,893 | ) | (91,293 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME (LOSS) BEFORE INCOME TAXES
|
111,848 | (21,175 | ) | 423,272 | ||||||||
|
|
||||||||||||
|
INCOME TAXES
|
38,673 | (10,183 | ) | 136,786 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME (LOSS)
|
73,175 | (10,992 | ) | 286,486 | ||||||||
|
|
||||||||||||
|
Income from noncontrolling interest
|
1,517 | 1,714 | 1,960 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EARNINGS AVAILABLE TO PARENT
|
$ | 71,658 | $ | (12,706 | ) | $ | 284,526 | |||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
154
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 238 | $ | 86,230 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $4,589 in 2010
and $5,239 in 2009
|
183,744 | 209,335 | ||||||
|
Associated companies
|
77,047 | 98,954 | ||||||
|
Other
|
11,544 | 11,661 | ||||||
|
Notes receivable from associated companies
|
23,236 | 26,802 | ||||||
|
Prepayments and other
|
3,656 | 9,973 | ||||||
|
|
||||||||
|
|
299,465 | 442,955 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
2,396,893 | 2,310,074 | ||||||
|
Less — Accumulated provision for depreciation
|
932,246 | 888,169 | ||||||
|
|
||||||||
|
|
1,464,647 | 1,421,905 | ||||||
|
Construction work in progress
|
38,610 | 36,907 | ||||||
|
|
||||||||
|
|
1,503,257 | 1,458,812 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Investment in lessor notes
|
340,029 | 388,641 | ||||||
|
Other
|
10,074 | 10,220 | ||||||
|
|
||||||||
|
|
350,103 | 398,861 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
1,688,521 | 1,688,521 | ||||||
|
Regulatory assets
|
370,403 | 545,505 | ||||||
|
Pension assets (Note 3)
|
— | 13,380 | ||||||
|
Property taxes
|
80,614 | 77,319 | ||||||
|
Other
|
11,486 | 12,777 | ||||||
|
|
||||||||
|
|
2,151,024 | 2,337,502 | ||||||
|
|
||||||||
|
|
$ | 4,303,849 | $ | 4,638,130 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 161 | $ | 117 | ||||
|
Short-term borrowings-
|
||||||||
|
Associated companies
|
105,996 | 339,728 | ||||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
32,020 | 68,634 | ||||||
|
Other
|
14,947 | 17,166 | ||||||
|
Accrued taxes
|
84,668 | 90,511 | ||||||
|
Accrued interest
|
18,555 | 18,466 | ||||||
|
Other
|
44,569 | 45,440 | ||||||
|
|
||||||||
|
|
300,916 | 580,062 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statement of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
1,302,806 | 1,343,987 | ||||||
|
Noncontrolling interest
|
18,017 | 20,592 | ||||||
|
|
||||||||
|
Total equity
|
1,320,823 | 1,364,579 | ||||||
|
Long-term debt and other long-term obligations
|
1,852,530 | 1,872,750 | ||||||
|
|
||||||||
|
|
3,173,353 | 3,237,329 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
622,771 | 644,745 | ||||||
|
Accumulated deferred investment tax credits
|
10,994 | 11,836 | ||||||
|
Retirement benefits
|
95,654 | 69,733 | ||||||
|
Other
|
100,161 | 94,425 | ||||||
|
|
||||||||
|
|
829,580 | 820,739 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES (Note 7 and 14)
|
||||||||
|
|
$ | 4,303,849 | $ | 4,638,130 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
155
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, without par value, 105,000,000 shares authorized,
67,930,743 shares outstanding
|
$ | 887,087 | $ | 884,897 | ||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(153,187 | ) | (138,158 | ) | ||||
|
Retained earnings (Note 11(A))
|
568,906 | 597,248 | ||||||
|
|
||||||||
|
Total
|
1,302,806 | 1,343,987 | ||||||
|
|
||||||||
|
|
||||||||
|
NONCONTROLLING INTEREST
|
18,017 | 20,592 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 11(C)):
|
||||||||
|
First mortgage bonds-
|
||||||||
|
8.875% due 2018
|
300,000 | 300,000 | ||||||
|
5.500% due 2024
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
Total
|
600,000 | 600,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Secured notes-
|
||||||||
|
7.880% due 2017
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
Total
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes-
|
||||||||
|
5.650% due 2013
|
300,000 | 300,000 | ||||||
|
5.700% due 2017
|
250,000 | 250,000 | ||||||
|
5.950% due 2036
|
300,000 | 300,000 | ||||||
|
7.663% due to associated companies 2010-2016 (Note 8)
|
102,692 | 123,008 | ||||||
|
|
||||||||
|
Total
|
952,692 | 973,008 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
3,044 | 3,162 | ||||||
|
Net unamortized discount on debt
|
(3,045 | ) | (3,303 | ) | ||||
|
Long-term debt due within one year
|
(161 | ) | (117 | ) | ||||
|
|
||||||||
|
Total long-term debt and other long-term obligations
|
1,852,530 | 1,872,750 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 3,173,353 | $ | 3,237,329 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
156
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||
| Common Stock | Other | |||||||||||||||||||
| Comprehensive | Number | Carrying | Comprehensive | Retained | ||||||||||||||||
| (Dollars in thousands) | Income | of Shares | Value | Income (Loss) | Earnings | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, January 1, 2008
|
67,930,743 | $ | 873,536 | $ | (69,129 | ) | $ | 685,428 | ||||||||||||
|
Earnings available to parent
|
$ | 284,526 | 284,526 | |||||||||||||||||
|
Pension and other postretirement benefits, net
of $33,136 of income tax benefits (Note 3)
|
(65,728 | ) | (65,728 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 218,798 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
(1 | ) | ||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
5,249 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(110,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2008
|
67,930,743 | 878,785 | (134,857 | ) | 859,954 | |||||||||||||||
|
Loss applicable to parent
|
$ | (12,706 | ) | (12,706 | ) | |||||||||||||||
|
Pension and other postretirement benefits, net
of $1,923 of income taxes (Note 3)
|
(3,301 | ) | (3,301 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive loss
|
$ | (16,007 | ) | |||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
74 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
6,038 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(250,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2009
|
67,930,743 | 884,897 | (138,158 | ) | 597,248 | |||||||||||||||
|
Earnings available to parent
|
$ | 71,658 | 71,658 | |||||||||||||||||
|
Pension and other postretirement benefits, net
of $11,926 of income tax benefits (Note 3)
|
(15,029 | ) | (15,029 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive loss
|
$ | 56,629 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
55 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
2,135 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(100,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2010
|
67,930,743 | $ | 887,087 | $ | (153,187 | ) | $ | 568,906 | ||||||||||||
|
|
||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
157
Table of Contents
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income (loss)
|
$ | 73,175 | $ | (10,992 | ) | $ | 286,486 | |||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
72,753 | 71,908 | 72,383 | |||||||||
|
Amortization of regulatory assets
|
169,541 | 370,967 | 163,534 | |||||||||
|
Deferral of new regulatory assets
|
— | (134,587 | ) | (107,571 | ) | |||||||
|
Deferred income taxes and investment tax credits, net
|
(20,068 | ) | (51,839 | ) | 11,918 | |||||||
|
Accrued compensation and retirement benefits
|
12,724 | 8,514 | 1,563 | |||||||||
|
Accrued regulatory obligations
|
— | 12,556 | — | |||||||||
|
Electric service prepayment programs
|
— | (3,510 | ) | (23,634 | ) | |||||||
|
Cash collateral from suppliers
|
889 | 5,440 | — | |||||||||
|
Lease assignment payments to associated company
|
— | (40,827 | ) | — | ||||||||
|
Pension trust contributions
|
— | (89,789 | ) | — | ||||||||
|
Uncertain tax positions
|
(2,872 | ) | 10,766 | (793 | ) | |||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
60,762 | 65,603 | 66,963 | |||||||||
|
Prepayments and other current assets
|
6,075 | (7,186 | ) | (450 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(38,833 | ) | (3,479 | ) | 13,787 | |||||||
|
Accrued taxes
|
(3,700 | ) | 2,533 | (3,149 | ) | |||||||
|
Accrued interest
|
89 | 4,534 | 37 | |||||||||
|
Other
|
2,090 | (3,736 | ) | 8,995 | ||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
332,625 | 206,876 | 490,069 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
— | 298,398 | 300,000 | |||||||||
|
Short-term borrowings, net
|
— | 93,577 | — | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(117 | ) | (151,273 | ) | (213,319 | ) | ||||||
|
Short-term borrowings, net
|
(254,048 | ) | — | (315,827 | ) | |||||||
|
Common stock dividend payments
|
(100,000 | ) | (275,000 | ) | (185,000 | ) | ||||||
|
Other
|
(4,100 | ) | (6,427 | ) | (6,440 | ) | ||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
(358,265 | ) | (40,725 | ) | (420,586 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(105,660 | ) | (103,243 | ) | (137,265 | ) | ||||||
|
Loan repayments from (loans to) associated companies, net
|
3,566 | (7,741 | ) | 33,246 | ||||||||
|
Investment in lessor notes
|
48,612 | 37,074 | 37,707 | |||||||||
|
Other
|
(6,870 | ) | (6,237 | ) | (3,177 | ) | ||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(60,352 | ) | (80,147 | ) | (69,489 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(85,992 | ) | 86,004 | (6 | ) | |||||||
|
Cash and cash equivalents at beginning of year
|
86,230 | 226 | 232 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 238 | $ | 86,230 | $ | 226 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 131,546 | $ | 130,689 | $ | 122,834 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | 67,651 | $ | 29,358 | $ | 153,042 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
158
Table of Contents
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES (Note 17):
|
||||||||||||
|
Electric sales
|
$ | 489,310 | $ | 810,069 | $ | 865,016 | ||||||
|
Excise tax collections
|
27,387 | 23,839 | 30,489 | |||||||||
|
|
||||||||||||
|
Total revenues
|
516,697 | 833,908 | 895,505 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES (Note 17):
|
||||||||||||
|
Purchased power from affiliates
|
180,523 | 392,825 | 410,885 | |||||||||
|
Purchased power from non-affiliates
|
64,174 | 136,210 | 2,459 | |||||||||
|
Other operating costs
|
108,072 | 142,203 | 190,441 | |||||||||
|
Provision for depreciation
|
31,613 | 30,727 | 32,422 | |||||||||
|
Amortization (deferral) of regulatory assets, net
|
(1,427 | ) | 37,820 | 94,104 | ||||||||
|
General taxes
|
52,045 | 47,815 | 52,324 | |||||||||
|
|
||||||||||||
|
Total expenses
|
435,000 | 787,600 | 782,635 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
81,697 | 46,308 | 112,870 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE) (Note 17):
|
||||||||||||
|
Investment income
|
14,727 | 24,388 | 22,823 | |||||||||
|
Miscellaneous expense
|
(4,206 | ) | (2,436 | ) | (7,820 | ) | ||||||
|
Interest expense
|
(41,883 | ) | (36,512 | ) | (23,286 | ) | ||||||
|
Capitalized interest
|
358 | 169 | 164 | |||||||||
|
|
||||||||||||
|
Total other expense
|
(31,004 | ) | (14,391 | ) | (8,119 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
50,693 | 31,917 | 104,751 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
17,645 | 7,939 | 29,824 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
33,048 | 23,978 | 74,927 | |||||||||
|
|
||||||||||||
|
Income from noncontrolling interest
|
4 | 21 | 12 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EARNINGS AVAILABLE TO PARENT
|
$ | 33,044 | $ | 23,957 | $ | 74,915 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
159
Table of Contents
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 149,262 | $ | 436,712 | ||||
|
Receivables-
|
||||||||
|
Customers
|
29 | 75 | ||||||
|
Associated companies
|
31,777 | 90,191 | ||||||
|
Other, net of allowance for uncollectible accounts of $330 in 2010
and $208 in 2009
|
18,464 | 20,180 | ||||||
|
Notes receivable from associated companies
|
96,765 | 85,101 | ||||||
|
Prepayments and other
|
2,306 | 7,111 | ||||||
|
|
||||||||
|
|
298,603 | 639,370 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
947,203 | 912,930 | ||||||
|
Less — Accumulated provision for depreciation
|
446,401 | 427,376 | ||||||
|
|
||||||||
|
|
500,802 | 485,554 | ||||||
|
Construction work in progress
|
12,604 | 9,069 | ||||||
|
|
||||||||
|
|
513,406 | 494,623 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Investment in lessor notes (Note 7)
|
103,872 | 124,357 | ||||||
|
Nuclear plant decommissioning trusts
|
75,558 | 73,935 | ||||||
|
Other
|
1,492 | 1,580 | ||||||
|
|
||||||||
|
|
180,922 | 199,872 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
500,576 | 500,576 | ||||||
|
Regulatory assets
|
72,059 | 69,557 | ||||||
|
Property taxes
|
24,990 | 23,658 | ||||||
|
Other
|
23,750 | 55,622 | ||||||
|
|
||||||||
|
|
621,375 | 649,413 | ||||||
|
|
||||||||
|
|
$ | 1,614,306 | $ | 1,983,278 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 199 | $ | 222 | ||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
17,168 | 78,341 | ||||||
|
Other
|
7,351 | 8,312 | ||||||
|
Notes payable to associated companies
|
— | 225,975 | ||||||
|
Accrued taxes
|
24,401 | 25,734 | ||||||
|
Lease market valuation liability
|
36,900 | 36,900 | ||||||
|
Other
|
29,076 | 29,273 | ||||||
|
|
||||||||
|
|
115,095 | 404,757 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statements of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
393,543 | 489,878 | ||||||
|
Noncontrolling interest
|
2,589 | 2,696 | ||||||
|
|
||||||||
|
Total equity
|
396,132 | 492,574 | ||||||
|
Long-term debt and other long-term obligations
|
600,493 | 600,443 | ||||||
|
|
||||||||
|
|
996,625 | 1,093,017 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
132,019 | 80,508 | ||||||
|
Accumulated deferred investment tax credits
|
5,930 | 6,367 | ||||||
|
Retirement benefits
|
71,486 | 65,988 | ||||||
|
Asset retirement obligations
|
28,762 | 32,290 | ||||||
|
Lease market valuation liability (Note 7)
|
199,300 | 236,200 | ||||||
|
Other
|
65,089 | 64,151 | ||||||
|
|
||||||||
|
|
502,586 | 485,504 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES (Notes 7 and 14)
|
||||||||
|
|
$ | 1,614,306 | $ | 1,983,278 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
160
Table of Contents
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, $5 par value, 60,000,000 shares authorized,
29,402,054 shares outstanding
|
$ | 147,010 | $ | 147,010 | ||||
|
Other paid-in capital
|
178,182 | 178,181 | ||||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(49,183 | ) | (49,803 | ) | ||||
|
Retained earnings (Note 11(A))
|
117,534 | 214,490 | ||||||
|
|
||||||||
|
Total
|
393,543 | 489,878 | ||||||
|
|
||||||||
|
|
||||||||
|
NONCONTROLLING INTEREST
|
2,589 | 2,696 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 11(C)):
|
||||||||
|
Secured notes-
|
||||||||
|
7.250% due 2020
|
300,000 | 300,000 | ||||||
|
6.150% due 2037
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
Total
|
600,000 | 600,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
3,270 | 3,492 | ||||||
|
Net unamortized discount on debt
|
(2,578 | ) | (2,827 | ) | ||||
|
Long-term debt due within one year
|
(199 | ) | (222 | ) | ||||
|
|
||||||||
|
Total long-term debt and other long-term obligations
|
600,493 | 600,443 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 996,625 | $ | 1,093,017 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
161
Table of Contents
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Other | ||||||||||||||||||||||
| Comprehensive | Number | Par | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| (Dollars in thousands) | Income | of Shares | Value | Capital | Income (Loss) | Earnings | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, January 1, 2008
|
29,402,054 | $ | 147,010 | $ | 173,169 | $ | (10,606 | ) | $ | 175,618 | ||||||||||||||
|
Earnings available to parent
|
$ | 74,915 | 74,915 | |||||||||||||||||||||
|
Unrealized gain on investments, net
of $1,421 of income taxes
|
2,372 | 2,372 | ||||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $11,630 of income tax benefits (Note 3)
|
(25,138 | ) | (25,138 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income available to parent
|
$ | 52,149 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
47 | |||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
2,662 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(60,000 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2008
|
29,402,054 | 147,010 | 175,879 | (33,372 | ) | 190,533 | ||||||||||||||||||
|
Earnings available to parent
|
$ | 23,957 | 23,957 | |||||||||||||||||||||
|
Change in unrealized gain on investments, net of $5,756 of income tax benefits
|
(9,425 | ) | (9,425 | ) | ||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $874 of income tax benefits (Note 3)
|
(7,006 | ) | (7,006 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income available to parent
|
$ | 7,526 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
71 | |||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
2,231 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2009
|
29,402,054 | 147,010 | 178,181 | (49,803 | ) | 214,490 | ||||||||||||||||||
|
Earnings available to parent
|
$ | 33,044 | 33,044 | |||||||||||||||||||||
|
Unrealized gain on investments, net
of $46 of income taxes
|
85 | 85 | ||||||||||||||||||||||
|
Pension and other postretirement benefits, net
of $1,190 of income tax benefits (Note 3)
|
535 | 535 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income available to parent
|
$ | 33,664 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
1 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(130,000 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2010
|
29,402,054 | $ | 147,010 | $ | 178,182 | $ | (49,183 | ) | $ | 117,534 | ||||||||||||||
|
|
||||||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
162
Table of Contents
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 33,048 | $ | 23,978 | $ | 74,927 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
31,613 | 30,727 | 32,422 | |||||||||
|
Amortization (deferral) of regulatory assets, net
|
(1,427 | ) | 37,820 | 94,104 | ||||||||
|
Deferred rents and lease market valuation liability
|
(37,839 | ) | (37,839 | ) | (37,938 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
28,041 | 2,003 | (16,869 | ) | ||||||||
|
Accrued compensation and retirement benefits
|
5,517 | 3,489 | 1,483 | |||||||||
|
Accrued regulatory obligations
|
(36 | ) | 4,630 | — | ||||||||
|
Electric service prepayment programs
|
— | (1,458 | ) | (11,181 | ) | |||||||
|
Pension trust contribution
|
— | (21,590 | ) | — | ||||||||
|
Cash collateral from suppliers
|
1,548 | 2,794 | — | |||||||||
|
Lease assignment payment to associated company
|
— | (30,529 | ) | — | ||||||||
|
Gain on sales of investment securities held in trusts
|
(2,348 | ) | (7,130 | ) | (626 | ) | ||||||
|
Uncertain tax positions
|
(1,831 | ) | 3,038 | (1,219 | ) | |||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
82,369 | (18,872 | ) | 20,186 | ||||||||
|
Prepayments and other current assets
|
6,464 | (5,898 | ) | (348 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(60,183 | ) | 35,192 | (164,397 | ) | |||||||
|
Accrued taxes
|
(1,333 | ) | (1,932 | ) | (5,812 | ) | ||||||
|
Accrued interest
|
— | 3,625 | (17 | ) | ||||||||
|
Other
|
(7,653 | ) | (1,120 | ) | (1,456 | ) | ||||||
|
|
||||||||||||
|
Net cash provided from (used for) operating activities
|
75,950 | 20,928 | (16,741 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
— | 297,422 | — | |||||||||
|
Short-term borrowings, net
|
— | 114,733 | 97,846 | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(222 | ) | (347 | ) | (3,860 | ) | ||||||
|
Short-term borrowings, net
|
(225,975 | ) | — | — | ||||||||
|
Common stock dividend payments
|
(130,000 | ) | (25,000 | ) | (70,000 | ) | ||||||
|
Other
|
(112 | ) | (351 | ) | (131 | ) | ||||||
|
|
||||||||||||
|
Net cash provided from (used for) financing activities
|
(356,309 | ) | 386,457 | 23,855 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(42,097 | ) | (47,028 | ) | (57,385 | ) | ||||||
|
Leasehold improvement payments from associated companies
|
32,829 | — | — | |||||||||
|
Loan repayments from (loans to) associated companies, net
|
(11,664 | ) | 63,711 | 43,098 | ||||||||
|
Redemption of lessor notes (Note 7)
|
20,485 | 18,330 | 11,959 | |||||||||
|
Sales of investment securities held in trusts
|
125,557 | 168,580 | 37,931 | |||||||||
|
Purchases of investment securities held in trusts
|
(127,323 | ) | (170,996 | ) | (40,960 | ) | ||||||
|
Other
|
(4,878 | ) | (3,284 | ) | (1,765 | ) | ||||||
|
|
||||||||||||
|
Net cash provided from (used for) investing activities
|
(7,091 | ) | 29,313 | (7,122 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(287,450 | ) | 436,698 | (8 | ) | |||||||
|
Cash and cash equivalents at beginning of year
|
436,712 | 14 | 22 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
149,262 | $ | 436,712 | $ | 14 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid (received) during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 41,162 | $ | 32,353 | $ | 22,203 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | (13,456 | ) | $ | 1,350 | $ | 62,879 | |||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
163
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Electric sales
|
$ | 2,976,452 | $ | 2,943,590 | $ | 3,420,772 | ||||||
|
Excise tax collections
|
50,636 | 49,097 | 51,481 | |||||||||
|
|
||||||||||||
|
Total revenues
|
3,027,088 | 2,992,687 | 3,472,253 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES:
|
||||||||||||
|
Purchased power
|
1,736,318 | 1,782,435 | 2,206,251 | |||||||||
|
Other operating costs
|
344,135 | 309,791 | 302,894 | |||||||||
|
Provision for depreciation
|
107,167 | 102,912 | 96,482 | |||||||||
|
Amortization of regulatory assets
|
320,561 | 344,158 | 364,816 | |||||||||
|
General taxes
|
65,396 | 63,078 | 67,340 | |||||||||
|
|
||||||||||||
|
Total expenses
|
2,573,577 | 2,602,374 | 3,037,783 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
453,511 | 390,313 | 434,470 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Miscellaneous income (expense)
|
6,303 | 5,272 | (1,037 | ) | ||||||||
|
Interest expense (Note 17)
|
(120,152 | ) | (116,851 | ) | (99,459 | ) | ||||||
|
Capitalized interest
|
697 | 543 | 1,245 | |||||||||
|
|
||||||||||||
|
Total other expense
|
(113,152 | ) | (111,036 | ) | (99,251 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
340,359 | 279,277 | 335,219 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
148,264 | 108,778 | 148,231 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
$ | 192,095 | $ | 170,499 | $ | 186,988 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
164
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars In thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 4 | $ | 27 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $3,769 in 2010
and $3,506 in 2009
|
323,044 | 300,991 | ||||||
|
Associated companies
|
53,780 | 12,884 | ||||||
|
Other
|
26,119 | 21,877 | ||||||
|
Notes receivable — associated companies
|
177,228 | 102,932 | ||||||
|
Prepaid taxes
|
10,889 | 34,930 | ||||||
|
Other
|
12,654 | 12,945 | ||||||
|
|
||||||||
|
|
603,718 | 486,586 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
4,562,781 | 4,463,490 | ||||||
|
Less — Accumulated provision for depreciation
|
1,656,939 | 1,617,639 | ||||||
|
|
||||||||
|
|
2,905,842 | 2,845,851 | ||||||
|
Construction work in progress
|
63,535 | 54,251 | ||||||
|
|
||||||||
|
|
2,969,377 | 2,900,102 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Nuclear fuel disposal trust
|
207,561 | 199,677 | ||||||
|
Nuclear plant decommissioning trusts
|
181,851 | 166,768 | ||||||
|
Other
|
2,104 | 2,149 | ||||||
|
|
||||||||
|
|
391,516 | 368,594 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
1,810,936 | 1,810,936 | ||||||
|
Regulatory assets
|
513,395 | 888,143 | ||||||
|
Other
|
27,938 | 27,096 | ||||||
|
|
||||||||
|
|
2,352,269 | 2,726,175 | ||||||
|
|
||||||||
|
|
$ | 6,316,880 | $ | 6,481,457 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 32,402 | $ | 30,667 | ||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
28,571 | 26,882 | ||||||
|
Other
|
158,442 | 168,093 | ||||||
|
Accrued compensation and benefits
|
35,232 | 32,814 | ||||||
|
Customer deposits
|
23,385 | 23,636 | ||||||
|
Accrued interest
|
18,111 | 18,256 | ||||||
|
Other
|
24,772 | 67,272 | ||||||
|
|
||||||||
|
|
320,915 | 367,620 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statements of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
2,618,786 | 2,600,396 | ||||||
|
Long-term debt and other long-term obligations
|
1,769,849 | 1,801,589 | ||||||
|
|
||||||||
|
|
4,388,635 | 4,401,985 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
715,527 | 687,545 | ||||||
|
Power purchase contract liability
|
233,492 | 399,105 | ||||||
|
Nuclear fuel disposal costs
|
196,768 | 196,511 | ||||||
|
Retirement benefits
|
182,364 | 150,603 | ||||||
|
Asset retirement obligations
|
108,297 | 101,568 | ||||||
|
Other
|
170,882 | 176,520 | ||||||
|
|
||||||||
|
|
1,607,330 | 1,711,852 | ||||||
|
|
||||||||
|
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 7 and 14)
|
||||||||
|
|
$ | 6,316,880 | $ | 6,481,457 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
165
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, $10 par value, 16,000,000 shares authorized,
13,628,447 shares outstanding
|
$ | 136,284 | $ | 136,284 | ||||
|
Other paid-in capital
|
2,508,874 | 2,507,049 | ||||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(253,542 | ) | (243,012 | ) | ||||
|
Retained earnings (Note 11(A))
|
227,170 | 200,075 | ||||||
|
|
||||||||
|
Total
|
2,618,786 | 2,600,396 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT (Note 11(C)):
|
||||||||
|
Secured notes-
|
||||||||
|
5.390% due 2008-2010
|
— | 13,629 | ||||||
|
5.250% due 2008-2012
|
14,268 | 23,974 | ||||||
|
5.810% due 2010-2013
|
69,772 | 77,075 | ||||||
|
5.410% due 2012-2014
|
25,693 | 25,693 | ||||||
|
6.160% due 2013-2017
|
99,517 | 99,517 | ||||||
|
5.520% due 2014-2018
|
49,220 | 49,220 | ||||||
|
5.610% due 2018-2021
|
51,139 | 51,139 | ||||||
|
|
||||||||
|
Total
|
309,609 | 340,247 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes-
|
||||||||
|
5.625% due 2016
|
300,000 | 300,000 | ||||||
|
5.650% due 2017
|
250,000 | 250,000 | ||||||
|
4.800% due 2018
|
150,000 | 150,000 | ||||||
|
7.350% due 2019
|
300,000 | 300,000 | ||||||
|
6.400% due 2036
|
200,000 | 200,000 | ||||||
|
6.150% due 2037
|
300,000 | 300,000 | ||||||
|
|
||||||||
|
Total
|
1,500,000 | 1,500,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
108 | 136 | ||||||
|
Unamortized discount on debt
|
(7,466 | ) | (8,127 | ) | ||||
|
Long-term debt due within one year
|
(32,402 | ) | (30,667 | ) | ||||
|
|
||||||||
|
Total long-term debt
|
1,769,849 | 1,801,589 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 4,388,635 | $ | 4,401,985 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
166
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Other | ||||||||||||||||||||||
| Comprehensive | Number | Par | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| (Dollars in thousands) | Income | of Shares | Value | Capital | Income (Loss) | Earnings | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, January 1, 2008
|
14,421,637 | $ | 144,216 | $ | 2,655,941 | $ | (19,881 | ) | $ | 237,588 | ||||||||||||||
|
Net income
|
$ | 186,988 | 186,988 | |||||||||||||||||||||
|
Net unrealized gain on derivative instruments
|
276 | 276 | ||||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $131,317 of income tax benefits
(Note 3)
|
(196,933 | ) | (196,933 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive loss
|
$ | (9,669 | ) | |||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
3 | |||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
4,065 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(268,000 | ) | ||||||||||||||||||||||
|
Purchase accounting fair value adjustment
|
(15,254 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2008
|
14,421,637 | 144,216 | 2,644,756 | (216,538 | ) | 156,576 | ||||||||||||||||||
|
Net income
|
$ | 170,499 | 170,499 | |||||||||||||||||||||
|
Net unrealized gain on derivative instruments,
net of $11 of income tax benefits
|
288 | 288 | ||||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $13,025 of income tax benefits
(Note 3)
|
(26,762 | ) | (26,762 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 144,025 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
99 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(127,000 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
(793,190 | ) | (7,932 | ) | (137,806 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2009
|
13,628,447 | 136,284 | 2,507,049 | (243,012 | ) | 200,075 | ||||||||||||||||||
|
Net income
|
$ | 192,095 | 192,095 | |||||||||||||||||||||
|
Net unrealized loss on derivative instruments,
net of $463 of income taxes
|
(187 | ) | (187 | ) | ||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $9,065 of income tax benefits
(Note 3)
|
(10,343 | ) | (10,343 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 181,565 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
59 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(165,000 | ) | ||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
1,766 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2010
|
13,628,447 | $ | 136,284 | $ | 2,508,874 | $ | (253,542 | ) | $ | 227,170 | ||||||||||||||
|
|
||||||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
167
Table of Contents
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 192,095 | $ | 170,499 | $ | 186,988 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
107,167 | 102,912 | 96,482 | |||||||||
|
Amortization of regulatory assets
|
320,561 | 344,158 | 364,816 | |||||||||
|
Deferred purchased power and other costs
|
(104,842 | ) | (148,308 | ) | (165,071 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
31,645 | 42,800 | 12,834 | |||||||||
|
Accrued compensation and retirement benefits
|
14,055 | 12,915 | (35,791 | ) | ||||||||
|
Cash collateral from (returned to) suppliers
|
(22,341 | ) | (210 | ) | 23,106 | |||||||
|
Pension trust contributions
|
— | (100,000 | ) | — | ||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
(67,191 | ) | 42,532 | 8,042 | ||||||||
|
Prepayments and other current assets
|
23,595 | (24,333 | ) | (9,252 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(19,465 | ) | (24,677 | ) | 10,174 | |||||||
|
Accrued taxes
|
11,739 | (14,265 | ) | 2,582 | ||||||||
|
Accrued interest
|
(145 | ) | 9,059 | (121 | ) | |||||||
|
Other
|
(9,966 | ) | (11,246 | ) | (13,002 | ) | ||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
476,907 | 401,836 | 481,787 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
— | 299,619 | — | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(30,639 | ) | (29,094 | ) | (27,206 | ) | ||||||
|
Short-term borrowings, net
|
— | (121,380 | ) | (9,001 | ) | |||||||
|
Common stock
|
— | (150,000 | ) | — | ||||||||
|
Common stock dividend payments
|
(165,000 | ) | (127,000 | ) | (268,000 | ) | ||||||
|
Other
|
(2 | ) | (2,281 | ) | (80 | ) | ||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
(195,641 | ) | (130,136 | ) | (304,287 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(182,368 | ) | (166,409 | ) | (178,358 | ) | ||||||
|
Proceeds from asset sales
|
— | — | 20,000 | |||||||||
|
Loan repayments from (loans to) associated companies, net
|
(74,296 | ) | (86,678 | ) | 2,173 | |||||||
|
Sales of investment securities held in trusts
|
411,470 | 397,333 | 248,185 | |||||||||
|
Purchases of investment securities held in trusts
|
(428,214 | ) | (413,693 | ) | (265,441 | ) | ||||||
|
Restricted funds
|
(1,322 | ) | 5,015 | (689 | ) | |||||||
|
Other
|
(6,559 | ) | (7,307 | ) | (3,398 | ) | ||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(281,289 | ) | (271,739 | ) | (177,528 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net decrease in cash and cash equivalents
|
(23 | ) | (39 | ) | (28 | ) | ||||||
|
Cash and cash equivalents at beginning of year
|
27 | 66 | 94 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 4 | $ | 27 | $ | 66 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 117,454 | $ | 108,650 | $ | 99,731 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | 144,939 | $ | 95,764 | $ | 145,943 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
168
Table of Contents
METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Electric sales
|
$ | 1,733,651 | $ | 1,611,088 | $ | 1,573,781 | ||||||
|
Excise tax collections
|
84,896 | 77,894 | 79,221 | |||||||||
|
|
||||||||||||
|
Total revenues
|
1,818,547 | 1,688,982 | 1,653,002 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES (Note 17):
|
||||||||||||
|
Purchased power from affiliates
|
612,496 | 365,491 | 303,779 | |||||||||
|
Purchased power from non-affiliates
|
342,988 | 536,054 | 593,203 | |||||||||
|
Other operating costs
|
418,569 | 277,024 | 429,745 | |||||||||
|
Provision for depreciation
|
52,176 | 51,006 | 44,556 | |||||||||
|
Amortization of regulatory assets, net
|
160,360 | 244,709 | 21,504 | |||||||||
|
General taxes
|
87,829 | 87,799 | 85,643 | |||||||||
|
|
||||||||||||
|
Total expenses
|
1,674,418 | 1,562,083 | 1,478,430 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
144,129 | 126,899 | 174,572 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Interest income
|
3,019 | 9,709 | 17,647 | |||||||||
|
Miscellaneous income
|
5,901 | 4,033 | 105 | |||||||||
|
Interest expense (Note 17)
|
(52,829 | ) | (56,683 | ) | (43,651 | ) | ||||||
|
Capitalized interest
|
653 | 159 | 258 | |||||||||
|
|
||||||||||||
|
Total other expense
|
(43,256 | ) | (42,782 | ) | (25,641 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
100,873 | 84,117 | 148,931 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
42,866 | 28,594 | 60,898 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
$ | 58,007 | $ | 55,523 | $ | 88,033 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
169
Table of Contents
METROPOLITAN EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 243,220 | $ | 120 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $3,868 in 2010
and $4,044 in 2009
|
178,522 | 171,052 | ||||||
|
Associated companies
|
24,920 | 29,413 | ||||||
|
Other
|
13,007 | 11,650 | ||||||
|
Notes receivable from associated companies
|
11,028 | 97,150 | ||||||
|
Prepaid taxes
|
343 | 15,229 | ||||||
|
Other
|
2,289 | 1,459 | ||||||
|
|
||||||||
|
|
473,329 | 326,073 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
2,247,853 | 2,162,815 | ||||||
|
Less — Accumulated provision for depreciation
|
846,003 | 810,746 | ||||||
|
|
||||||||
|
|
1,401,850 | 1,352,069 | ||||||
|
Construction work in progress
|
23,663 | 14,901 | ||||||
|
|
||||||||
|
|
1,425,513 | 1,366,970 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Nuclear plant decommissioning trusts
|
289,328 | 266,479 | ||||||
|
Other
|
884 | 890 | ||||||
|
|
||||||||
|
|
290,212 | 267,369 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
416,499 | 416,499 | ||||||
|
Regulatory assets
|
295,856 | 356,754 | ||||||
|
Power purchase contract asset
|
111,562 | 176,111 | ||||||
|
Other
|
31,699 | 36,544 | ||||||
|
|
||||||||
|
|
855,616 | 985,908 | ||||||
|
|
||||||||
|
|
$ | 3,044,670 | $ | 2,946,320 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 28,760 | $ | 128,500 | ||||
|
Short-term borrowings-
|
||||||||
|
Associated companies
|
124,079 | — | ||||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
33,942 | 40,521 | ||||||
|
Other
|
29,862 | 41,050 | ||||||
|
Accrued taxes
|
60,856 | 11,170 | ||||||
|
Accrued interest
|
16,114 | 17,362 | ||||||
|
Other
|
29,278 | 24,520 | ||||||
|
|
||||||||
|
|
322,891 | 263,123 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statement of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
1,087,099 | 1,057,918 | ||||||
|
Long-term debt and other long-term obligations
|
718,860 | 713,873 | ||||||
|
|
||||||||
|
|
1,805,959 | 1,771,791 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
473,009 | 453,462 | ||||||
|
Accumulated deferred investment tax credits
|
6,866 | 7,313 | ||||||
|
Nuclear fuel disposal costs
|
44,449 | 44,391 | ||||||
|
Asset retirement obligations
|
192,659 | 180,297 | ||||||
|
Retirement benefits
|
29,121 | 33,605 | ||||||
|
Power purchase contract liability
|
116,027 | 143,135 | ||||||
|
Other
|
53,689 | 49,203 | ||||||
|
|
||||||||
|
|
915,820 | 911,406 | ||||||
|
|
||||||||
|
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 7 and 14)
|
||||||||
|
|
$ | 3,044,670 | $ | 2,946,320 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
170
Table of Contents
METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, without par value, 900,000 shares authorized,
859,500 shares outstanding
|
$ | 1,197,076 | $ | 1,197,070 | ||||
|
Accumulated other comprehensive loss (Note 2(F))
|
(142,383 | ) | (143,551 | ) | ||||
|
Retained earnings (Note 11(A))
|
32,406 | 4,399 | ||||||
|
|
||||||||
|
Total
|
1,087,099 | 1,057,918 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT (Note 11(C)):
|
||||||||
|
First mortgage bonds-
|
||||||||
|
5.950% due 2027
|
13,690 | 13,690 | ||||||
|
|
||||||||
|
Total
|
13,690 | 13,690 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes-
|
||||||||
|
4.450% due 2010
|
— | 100,000 | ||||||
|
4.950% due 2013
|
150,000 | 150,000 | ||||||
|
4.875% due 2014
|
250,000 | 250,000 | ||||||
|
7.700% due 2019
|
300,000 | 300,000 | ||||||
|
* 0.330% due 2021
|
28,500 | 28,500 | ||||||
|
|
||||||||
|
Total
|
728,500 | 828,500 | ||||||
|
|
||||||||
|
|
||||||||
|
Capital lease obligations (Note 7)
|
5,158 | — | ||||||
|
Unamortized premium on debt
|
272 | 183 | ||||||
|
Long-term debt due within one year
|
(28,760 | ) | (128,500 | ) | ||||
|
|
||||||||
|
Total long-term debt
|
718,860 | 713,873 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 1,805,959 | $ | 1,771,791 | ||||
|
|
||||||||
| * |
Denotes variable rate issue with applicable year-end interest rate shown.
|
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of
these financial statements.
171
Table of Contents
METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | Retained | |||||||||||||||||||
| Common Stock | Other | Earnings | ||||||||||||||||||
| Comprehensive | Number | Carrying | Comprehensive | (Accumulated | ||||||||||||||||
| (Dollars in thousands) | Income (Loss) | of Shares | Value | Income (Loss) | Deficit) | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, January 1, 2008
|
859,500 | $ | 1,203,186 | $ | (15,397 | ) | $ | (139,157 | ) | |||||||||||
|
Net income
|
$ | 88,033 | 88,033 | |||||||||||||||||
|
Net unrealized gain on derivative instruments
|
335 | 335 | ||||||||||||||||||
|
Pension and other postretirement benefits, net
of $86,030 of income tax benefits
(Note 3)
|
(125,922 | ) | (125,922 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive loss
|
$ | (37,554 | ) | |||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
9 | |||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
791 | |||||||||||||||||||
|
Purchase accounting fair value adjustment
|
(7,815 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2008
|
859,500 | 1,196,172 | (140,984 | ) | (51,124 | ) | ||||||||||||||
|
Net income
|
$ | 55,523 | 55,523 | |||||||||||||||||
|
Net unrealized gain on derivative instruments
|
335 | 335 | ||||||||||||||||||
|
Pension and other postretirement benefits, net
of $2,784 of income taxes
(Note 3)
|
(2,902 | ) | (2,902 | ) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 52,956 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
55 | |||||||||||||||||||
|
Consolidated tax benefit allocation
|
843 | |||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2009
|
859,500 | 1,197,070 | (143,551 | ) | 4,399 | |||||||||||||||
|
Net income
|
$ | 58,007 | 58,007 | |||||||||||||||||
|
Net unrealized loss on derivative instruments, net
of $522 of income taxes
|
(187 | ) | (187 | ) | ||||||||||||||||
|
Pension and other postretirement benefits, net
of $1,066 of income tax benefits (Note 3)
|
1,355 | 1,355 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Comprehensive income
|
$ | 59,175 | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Restricted stock units
|
6 | |||||||||||||||||||
|
Cash dividends declared on common stock
|
(30,000 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance, December 31, 2010
|
859,500 | $ | 1,197,076 | $ | (142,383 | ) | $ | 32,406 | ||||||||||||
|
|
||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
172
Table of Contents
METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 58,007 | $ | 55,523 | $ | 88,033 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
52,176 | 51,006 | 44,556 | |||||||||
|
Amortization of regulatory assets, net
|
160,360 | 244,709 | 21,504 | |||||||||
|
Deferred costs recoverable as regulatory assets
|
(62,462 | ) | (96,304 | ) | (25,132 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
29,528 | 66,965 | 49,939 | |||||||||
|
Accrued compensation and retirement benefits
|
(2,474 | ) | 5,876 | (23,244 | ) | |||||||
|
Cash collateral from (to) suppliers
|
2,141 | (4,580 | ) | — | ||||||||
|
Pension trust contribution
|
— | (123,521 | ) | — | ||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
(424 | ) | (32,088 | ) | (24,282 | ) | ||||||
|
Prepayments and other current assets
|
14,057 | (8,948 | ) | 8,223 | ||||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(18,598 | ) | (2,781 | ) | (12,512 | ) | ||||||
|
Accrued taxes
|
39,375 | (5,001 | ) | 470 | ||||||||
|
Accrued interest
|
(1,248 | ) | 10,607 | (23 | ) | |||||||
|
Other
|
8,026 | 5,022 | 15,629 | |||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
278,464 | 166,485 | 143,161 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
— | 300,000 | 28,500 | |||||||||
|
Short-term borrowings, net
|
124,079 | — | — | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(100,000 | ) | — | (28,568 | ) | |||||||
|
Short-term borrowings, net
|
— | (265,003 | ) | (20,324 | ) | |||||||
|
Common stock dividend payments
|
(30,000 | ) | — | — | ||||||||
|
Other
|
— | (2,268 | ) | (266 | ) | |||||||
|
|
||||||||||||
|
Net cash provided from (used for) financing activities
|
(5,921 | ) | 32,729 | (20,658 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(107,230 | ) | (100,201 | ) | (110,301 | ) | ||||||
|
Sales of investment securities held in trusts
|
460,277 | 67,973 | 181,007 | |||||||||
|
Purchases of investment securities held in trusts
|
(470,192 | ) | (77,738 | ) | (193,061 | ) | ||||||
|
Loans from (to) associated companies, net
|
86,122 | (85,704 | ) | 1,128 | ||||||||
|
Other, net
|
1,580 | (3,568 | ) | (1,267 | ) | |||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(29,443 | ) | (199,238 | ) | (122,494 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
243,100 | (24 | ) | 9 | ||||||||
|
Cash and cash equivalents at beginning of year
|
120 | 144 | 135 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 243,220 | $ | 120 | $ | 144 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid (received) during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 49,285 | $ | 41,809 | $ | 38,627 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | (43,227 | ) | $ | (5,801 | ) | $ | 16,872 | ||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
173
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Electric sales
|
$ | 1,471,956 | $ | 1,385,574 | $ | 1,443,461 | ||||||
|
Gross receipts tax collections
|
67,915 | 63,372 | 70,168 | |||||||||
|
|
||||||||||||
|
Total revenues
|
1,539,871 | 1,448,946 | 1,513,629 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
EXPENSES (Note 17):
|
||||||||||||
|
Purchased power from affiliates
|
643,152 | 341,645 | 284,074 | |||||||||
|
Purchased power from non-affiliates
|
364,647 | 544,490 | 591,487 | |||||||||
|
Other operating costs
|
268,614 | 209,156 | 228,257 | |||||||||
|
Provision for depreciation
|
61,141 | 61,317 | 54,643 | |||||||||
|
Amortization (deferral) of regulatory
assets, net
|
(34,819 | ) | 56,572 | 71,091 | ||||||||
|
General taxes
|
73,285 | 73,839 | 79,604 | |||||||||
|
|
||||||||||||
|
Total expenses
|
1,376,020 | 1,287,019 | 1,309,156 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
163,851 | 161,927 | 204,473 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Miscellaneous income
|
5,928 | 3,662 | 1,359 | |||||||||
|
Interest expense (Note 17)
|
(69,864 | ) | (54,605 | ) | (59,424 | ) | ||||||
|
Capitalized interest
|
750 | 98 | (591 | ) | ||||||||
|
|
||||||||||||
|
Total other expense
|
(63,186 | ) | (50,845 | ) | (58,656 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
100,665 | 111,082 | 145,817 | |||||||||
|
|
||||||||||||
|
INCOME TAXES
|
41,173 | 45,694 | 57,647 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
$ | 59,492 | $ | 65,388 | $ | 88,170 | ||||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
174
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 5 | $ | 14 | ||||
|
Receivables-
|
||||||||
|
Customers, net of allowance for uncollectible accounts of $3,369 in 2010
and $3,483 in 2009
|
148,864 | 139,302 | ||||||
|
Associated companies
|
54,052 | 77,338 | ||||||
|
Other
|
11,314 | 18,320 | ||||||
|
Notes receivable from associated companies
|
14,404 | 14,589 | ||||||
|
Prepaid taxes
|
14,026 | 18,946 | ||||||
|
Other
|
1,592 | 1,400 | ||||||
|
|
||||||||
|
|
244,257 | 269,909 | ||||||
|
|
||||||||
|
UTILITY PLANT:
|
||||||||
|
In service
|
2,532,629 | 2,431,737 | ||||||
|
Less — Accumulated provision for depreciation
|
935,259 | 901,990 | ||||||
|
|
||||||||
|
|
1,597,370 | 1,529,747 | ||||||
|
Construction work in progress
|
30,505 | 24,205 | ||||||
|
|
||||||||
|
|
1,627,875 | 1,553,952 | ||||||
|
|
||||||||
|
OTHER PROPERTY AND INVESTMENTS:
|
||||||||
|
Nuclear plant decommissioning trusts
|
152,928 | 142,603 | ||||||
|
Non-utility generation trusts
|
80,244 | 120,070 | ||||||
|
Other
|
297 | 289 | ||||||
|
|
||||||||
|
|
233,469 | 262,962 | ||||||
|
|
||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||
|
Goodwill
|
768,628 | 768,628 | ||||||
|
Regulatory assets
|
163,407 | 9,045 | ||||||
|
Power purchase contract asset
|
5,746 | 15,362 | ||||||
|
Other
|
19,287 | 19,143 | ||||||
|
|
||||||||
|
|
957,068 | 812,178 | ||||||
|
|
||||||||
|
|
$ | 3,062,669 | $ | 2,899,001 | ||||
|
|
||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Currently payable long-term debt
|
$ | 45,000 | $ | 69,310 | ||||
|
Short-term borrowings-
|
||||||||
|
Associated companies
|
101,338 | 41,473 | ||||||
|
Accounts payable-
|
||||||||
|
Associated companies
|
35,626 | 39,884 | ||||||
|
Other
|
41,420 | 41,990 | ||||||
|
Accrued taxes
|
5,075 | 6,409 | ||||||
|
Accrued interest
|
17,378 | 17,598 | ||||||
|
Other
|
22,541 | 22,741 | ||||||
|
|
||||||||
|
|
268,378 | 239,405 | ||||||
|
|
||||||||
|
CAPITALIZATION (See Consolidated Statement of Capitalization):
|
||||||||
|
Common stockholder’s equity
|
899,538 | 931,386 | ||||||
|
Long-term debt and other long-term obligations
|
1,072,262 | 1,072,181 | ||||||
|
|
||||||||
|
|
1,971,800 | 2,003,567 | ||||||
|
|
||||||||
|
NONCURRENT LIABILITIES:
|
||||||||
|
Accumulated deferred income taxes
|
371,877 | 242,040 | ||||||
|
Retirement benefits
|
187,621 | 174,306 | ||||||
|
Asset retirement obligations
|
98,132 | 91,841 | ||||||
|
Power purchase contract liability
|
116,972 | 100,849 | ||||||
|
Other
|
47,889 | 46,993 | ||||||
|
|
||||||||
|
|
822,491 | 656,029 | ||||||
|
|
||||||||
|
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 7 and 14)
|
||||||||
|
|
$ | 3,062,669 | $ | 2,899,001 | ||||
|
|
||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
175
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
| As of December 31, | ||||||||
| (Dollars in thousands) | 2010 | 2009 | ||||||
|
|
||||||||
|
COMMON STOCKHOLDER’S EQUITY:
|
||||||||
|
Common stock, $20 par value, 5,400,000 shares authorized,
4,427,577 shares outstanding
|
$ | 88,552 | $ | 88,552 | ||||
|
Other paid-in capital
|
913,519 | 913,437 | ||||||
|
Accumulated other comprehensive income (loss) (Note 2(F))
|
(163,526 | ) | (162,104 | ) | ||||
|
Retained earnings (Note 11(A))
|
60,993 | 91,501 | ||||||
|
|
||||||||
|
Total
|
899,538 | 931,386 | ||||||
|
|
||||||||
|
|
||||||||
|
LONG-TERM DEBT (Note 11(C)):
|
||||||||
|
First mortgage bonds-
|
||||||||
|
5.350% due 2010
|
— | 12,310 | ||||||
|
5.350% due 2010
|
— | 12,000 | ||||||
|
|
||||||||
|
Total
|
— | 24,310 | ||||||
|
|
||||||||
|
|
||||||||
|
Unsecured notes-
|
||||||||
|
5.125% due 2014
|
150,000 | 150,000 | ||||||
|
6.050% due 2017
|
300,000 | 300,000 | ||||||
|
6.625% due 2019
|
125,000 | 125,000 | ||||||
|
*0.330% due 2020
|
20,000 | 20,000 | ||||||
|
5.200% due 2020
|
250,000 | 250,000 | ||||||
|
*0.340% due 2025
|
— | 25,000 | ||||||
|
2.250% due 2025
|
25,000 | — | ||||||
|
6.150% due 2038
|
250,000 | 250,000 | ||||||
|
|
||||||||
|
Total
|
1,120,000 | 1,120,000 | ||||||
|
|
||||||||
|
|
||||||||
|
Net unamortized discount on debt
|
(2,738 | ) | (2,819 | ) | ||||
|
Long-term debt due within one year
|
(45,000 | ) | (69,310 | ) | ||||
|
|
||||||||
|
Total long-term debt
|
1,072,262 | 1,072,181 | ||||||
|
|
||||||||
|
TOTAL CAPITALIZATION
|
$ | 1,971,800 | $ | 2,003,567 | ||||
|
|
||||||||
| * |
Denotes variable rate issue with applicable year-end interest rate shown.
|
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
176
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Other | ||||||||||||||||||||||
| Comprehensive | Number | Par | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| (Dollars in thousands) | Income (Loss) | of Shares | Value | Capital | Income (Loss) | Earnings | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, January 1, 2008
|
4,427,577 | $ | 88,552 | $ | 920,616 | $ | 4,946 | $ | 57,943 | |||||||||||||||
|
Net income
|
$ | 88,170 | 88,170 | |||||||||||||||||||||
|
Net unrealized gain on investments, net
of $13 of income taxes
|
9 | 9 | ||||||||||||||||||||||
|
Net unrealized gain on derivative instruments,
net of $4 of income tax benefits
|
69 | 69 | ||||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $90,822 of income tax benefits
(Note 3)
|
(133,021 | ) | (133,021 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive loss
|
$ | (44,773 | ) | |||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
35 | |||||||||||||||||||||||
|
Stock-based compensation
|
1 | |||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
1,066 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(70,000 | ) | ||||||||||||||||||||||
|
Purchase accounting fair value adjustment
|
(9,277 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2008
|
4,427,577 | 88,552 | 912,441 | (127,997 | ) | 76,113 | ||||||||||||||||||
|
Net income
|
$ | 65,388 | 65,388 | |||||||||||||||||||||
|
Change in unrealized gain on investments,
net of $15 of income taxes
|
(2 | ) | (2 | ) | ||||||||||||||||||||
|
Net unrealized gain on derivative instruments,
net of $7 of income tax benefits
|
72 | 72 | ||||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $17,244 of income tax benefits
(Note 3)
|
(34,177 | ) | (34,177 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 31,281 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
65 | |||||||||||||||||||||||
|
Consolidated tax benefit allocation
|
931 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(50,000 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2009
|
4,427,577 | 88,552 | 913,437 | (162,104 | ) | 91,501 | ||||||||||||||||||
|
Net income
|
$ | 59,492 | 59,492 | |||||||||||||||||||||
|
Net unrealized loss on derivative instruments,
net of $105 of income taxes
|
(40 | ) | (40 | ) | ||||||||||||||||||||
|
Pension and other postretirement benefits,
net of $4,367 of income tax benefits
(Note 3)
|
(1,382 | ) | (1,382 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income
|
$ | 58,070 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Restricted stock units
|
82 | |||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(90,000 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, December 31, 2010
|
4,427,577 | $ | 88,552 | $ | 913,519 | $ | (163,526 | ) | $ | 60,993 | ||||||||||||||
|
|
||||||||||||||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part
of these financial statements.
177
Table of Contents
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 59,492 | $ | 65,388 | $ | 88,170 | ||||||
|
Adjustments to reconcile net income to net cash from operating activities-
|
||||||||||||
|
Provision for depreciation
|
61,141 | 61,317 | 54,643 | |||||||||
|
Amortization (deferral) of regulatory assets, net
|
(34,819 | ) | 56,572 | 71,091 | ||||||||
|
Deferred costs recoverable as regulatory assets
|
(89,070 | ) | (100,990 | ) | (35,898 | ) | ||||||
|
Deferred income taxes and investment tax credits, net
|
133,885 | 63,065 | 95,227 | |||||||||
|
Accrued compensation and retirement benefits
|
8,206 | 3,866 | (25,661 | ) | ||||||||
|
Cash collateral paid, net
|
(3,980 | ) | — | — | ||||||||
|
Pension trust contribution
|
— | (60,000 | ) | — | ||||||||
|
Decrease (increase) in operating assets-
|
||||||||||||
|
Receivables
|
24,687 | 22,891 | (74,338 | ) | ||||||||
|
Prepayments and other current assets
|
4,728 | (2,519 | ) | (16,313 | ) | |||||||
|
Increase (decrease) in operating liabilities-
|
||||||||||||
|
Accounts payable
|
(5,128 | ) | 3,114 | (1,966 | ) | |||||||
|
Accrued taxes
|
(10,089 | ) | (6,855 | ) | (2,181 | ) | ||||||
|
Accrued interest
|
(220 | ) | 4,467 | (36 | ) | |||||||
|
Other
|
4,909 | 3,236 | 17,815 | |||||||||
|
|
||||||||||||
|
Net cash provided from operating activities
|
153,742 | 113,552 | 170,553 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
New financing-
|
||||||||||||
|
Long-term debt
|
25,000 | 498,583 | 45,000 | |||||||||
|
Short-term borrowings, net
|
59,865 | — | 66,509 | |||||||||
|
Redemptions and repayments-
|
||||||||||||
|
Long-term debt
|
(49,310 | ) | (135,000 | ) | (45,556 | ) | ||||||
|
Short-term borrowings, net
|
— | (239,929 | ) | — | ||||||||
|
Common stock dividend payments
|
(90,000 | ) | (85,000 | ) | (90,000 | ) | ||||||
|
Other
|
(48 | ) | (4,453 | ) | — | |||||||
|
|
||||||||||||
|
Net cash provided from (used for) financing activities
|
(54,493 | ) | 34,201 | (24,047 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Property additions
|
(126,344 | ) | (124,262 | ) | (126,672 | ) | ||||||
|
Loan repayments from associated companies, net
|
185 | 244 | 1,480 | |||||||||
|
Sales of investment securities held in trusts
|
164,627 | 84,400 | 117,751 | |||||||||
|
Purchases of investment securities held in trusts
|
(129,714 | ) | (98,467 | ) | (134,621 | ) | ||||||
|
Other, net
|
(8,012 | ) | (9,677 | ) | (4,467 | ) | ||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(99,258 | ) | (147,762 | ) | (146,529 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net decrease in cash and cash equivalents
|
(9 | ) | (9 | ) | (23 | ) | ||||||
|
Cash and cash equivalents at beginning of year
|
14 | 23 | 46 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 5 | $ | 14 | $ | 23 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid (received) during the year-
|
||||||||||||
|
Interest (net of amounts capitalized)
|
$ | 67,208 | $ | 48,265 | $ | 56,972 | ||||||
|
|
||||||||||||
|
Income taxes
|
$ | (115,870 | ) | $ | (10,775 | ) | $ | 44,197 | ||||
|
|
||||||||||||
The accompanying Combined Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
178
Table of Contents
COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
FirstEnergy is a diversified energy company that holds, directly or indirectly, all of the
outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned
subsidiary of OE), ATSI, JCP&L, Met-Ed, Penelec, FENOC, FES and its subsidiaries FGCO and NGC and
FESC.
FirstEnergy and its subsidiaries follow GAAP and comply with the regulations, orders, policies and
practices prescribed by the SEC, FERC and, as applicable, the PUCO, PPUC and NJBPU. The preparation
of financial statements in conformity with GAAP requires management to make periodic estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
The reported results of operations are not indicative of results of operations for any future
period. In preparing the financial statements, FirstEnergy and its subsidiaries have evaluated
events and transactions for potential recognition or disclosure through the date the financial
statements were issued.
FirstEnergy and its subsidiaries consolidate all majority-owned subsidiaries over which they
exercise control and, when applicable, entities for which they have a controlling financial
interest. Intercompany transactions and balances are eliminated in consolidation unless otherwise
prescribed by GAAP (see Note 15). FirstEnergy consolidates a VIE (see Note 8) when it is determined
to be the VIE’s primary beneficiary. Investments in non-consolidated affiliates over which
FirstEnergy and its subsidiaries have the ability to exercise significant influence, but not
control (20-50% owned companies, joint ventures and partnerships) are accounted for under the
equity method. Under the equity method, the interest in the entity is reported as an investment in
the Consolidated Balance Sheets and the percentage share of the entity’s earnings is reported in
the Consolidated Statements of Income. These footnotes combine results of FE, FES, OE, CEI, TE,
JCP&L, Met-Ed and Penelec.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Unless otherwise indicated, defined terms used herein have the meanings set forth in the
accompanying Glossary of Terms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ACCOUNTING FOR THE EFFECTS OF REGULATION
FirstEnergy accounts for the effects of regulation through the application of regulatory accounting
to its operating utilities since their rates:
| • |
are established by a third-party regulator with the authority to set rates that
bind customers;
|
| • |
are cost-based; and
|
| • |
can be charged to and collected from customers.
|
An enterprise meeting all of these criteria capitalizes costs that would otherwise be charged to
expense (regulatory assets) if the rate actions of its regulator make it probable that those costs
will be recovered in future revenue. Regulatory accounting is applied only to the parts of the
business that meet the above criteria. If a portion of the business applying regulatory accounting
no longer meets those requirements, previously recorded net regulatory assets are removed from the
balance sheet in accordance with GAAP.
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Regulatory assets on the Balance Sheets are comprised of the following:
| Regulatory Assets | FE | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||||||||||
|
Regulatory transition costs
|
$ | 770 | $ | — | $ | — | $ | — | $ | 591 | $ | 131 | $ | 43 | ||||||||||||||
|
Customer shopping incentives
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Customer receivables for future income taxes
|
326 | 50 | 2 | 1 | 30 | 113 | 130 | |||||||||||||||||||||
|
Loss (gain) on reacquired debt
|
48 | 17 | 1 | (3 | ) | 21 | 6 | 6 | ||||||||||||||||||||
|
Employee postretirement benefits
|
16 | — | 3 | 2 | 7 | 4 | — | |||||||||||||||||||||
|
Nuclear decommissioning, decontamination
and spent fuel disposal costs
|
(184 | ) | — | — | — | (31 | ) | (92 | ) | (61 | ) | |||||||||||||||||
|
Asset removal costs
|
(237 | ) | (24 | ) | (47 | ) | (19 | ) | (147 | ) | — | — | ||||||||||||||||
|
MISO/PJM transmission costs
|
184 | (1 | ) | — | — | — | 131 | 52 | ||||||||||||||||||||
|
Deferred generation costs
|
386 | 125 | 226 | 35 | — | — | — | |||||||||||||||||||||
|
Distribution costs
|
426 | 216 | 155 | 55 | — | — | — | |||||||||||||||||||||
|
Other
|
91 | 17 | 30 | 1 | 42 | 3 | (7 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 1,826 | $ | 400 | $ | 370 | $ | 72 | $ | 513 | $ | 296 | $ | 163 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
|
December 31, 2009
|
||||||||||||||||||||||||||||
|
Regulatory transition costs
|
$ | 1,100 | $ | 73 | $ | 8 | $ | 8 | $ | 965 | $ | 116 | $ | (70 | ) | |||||||||||||
|
Customer shopping incentives
|
154 | — | 154 | — | — | — | — | |||||||||||||||||||||
|
Customer receivables for future income taxes
|
329 | 58 | 3 | 1 | 31 | 114 | 122 | |||||||||||||||||||||
|
Loss (gain) on reacquired debt
|
51 | 18 | 1 | (3 | ) | 22 | 8 | 5 | ||||||||||||||||||||
|
Employee postretirement benefits
|
23 | — | 5 | 2 | 10 | 6 | — | |||||||||||||||||||||
|
Nuclear decommissioning, decontamination
and spent fuel disposal costs
|
(162 | ) | — | — | — | (22 | ) | (83 | ) | (57 | ) | |||||||||||||||||
|
Asset removal costs
|
(231 | ) | (23 | ) | (43 | ) | (17 | ) | (148 | ) | — | — | ||||||||||||||||
|
MISO/PJM transmission costs
|
148 | (15 | ) | (15 | ) | (3 | ) | — | 187 | (6 | ) | |||||||||||||||||
|
Deferred generation costs
|
369 | 115 | 222 | 32 | — | — | — | |||||||||||||||||||||
|
Distribution costs
|
482 | 230 | 197 | 55 | — | — | — | |||||||||||||||||||||
|
Other
|
93 | 9 | 14 | (5 | ) | 30 | 9 | 15 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 2,356 | $ | 465 | $ | 546 | $ | 70 | $ | 888 | $ | 357 | $ | 9 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
Regulatory assets that do not earn a current return totaled approximately $215 million as of
December 31, 2010 (JCP&L — $38 million, Met-Ed — $131 million, Penelec — $12 million, OE — $18
million and, CEI — $16 million). Regulatory assets of JCP&L, Met-Ed and Penelec not earning a
current return are primarily for certain regulatory transition costs and employee postretirement
benefits and will be recovered by 2014 for JCP&L and by 2020 for Met-Ed and Penelec. Regulatory
assets of OE and CEI not earning a current return primarily relate to the deferral of certain
purchased power costs for which the means of recovery as not yet been established by the PUCO.
Transition Cost Amortization
JCP&L’s and Met-Ed’s regulatory transition costs include the deferral of above-market costs for
power supplied from NUGs of $164 million for JCP&L (recovered through NGC revenues) and $128
million for Met-Ed (recovered through CTC revenues). Projected above-market NUG costs are adjusted
to fair value at the end of each quarter, with a corresponding offset to regulatory assets.
Recovery of the remaining regulatory transition costs is expected to continue pursuant to various
regulatory proceedings in New Jersey and Pennsylvania (see Note 10).
(B) REVENUES AND RECEIVABLES
The Utilities’ principal business is providing electric service to customers in Ohio, Pennsylvania
and New Jersey. The Utilities’ retail customers are metered on a cycle basis. Electric revenues are
recorded based on energy delivered through the end of the calendar month. An estimate of unbilled
revenues is calculated to recognize electric service provided from the last meter reading through
the end of the month. This estimate includes many factors, among which are historical customer
usage, load profiles, estimated weather impacts, customer shopping activity and prices in effect
for each class of customer. In each accounting period, the Utilities accrue the estimated unbilled
amount receivable as revenue and reverse the related prior period estimate.
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Receivables from customers include distribution and retail electric sales to residential,
commercial and industrial customers for the Utilities and retail and wholesale sales to customers
for FES. There was no material concentration of receivables as of December 31, 2010 and 2009 with
respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer
receivables as of December 31, 2010 and 2009 are shown below.
| Customer Receivables | FE | FES | OE | CEI | TE (1) | JCP&L | Met-Ed | Penelec | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||||||||||||||
|
Billed
|
$ | 752 | $ | 196 | $ | 81 | $ | 95 | $ | — | $ | 178 | $ | 101 | $ | 82 | ||||||||||||||||
|
Unbilled
|
640 | 170 | 96 | 89 | — | 145 | 78 | 67 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total
|
$ | 1,392 | $ | 366 | $ | 177 | $ | 184 | $ | — | $ | 323 | $ | 179 | $ | 149 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
December 31, 2009
|
||||||||||||||||||||||||||||||||
|
Billed
|
$ | 725 | $ | 109 | $ | 101 | $ | 114 | $ | 1 | $ | 183 | $ | 110 | $ | 88 | ||||||||||||||||
|
Unbilled
|
519 | 86 | 108 | 95 | — | 118 | 61 | 51 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total
|
$ | 1,244 | $ | 195 | $ | 209 | $ | 209 | $ | 1 | $ | 301 | $ | 171 | $ | 139 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) |
See Note 13 for a discussion of TE’s accounts receivable financing arrangement with
Centerior Funding Corporation.
|
(C) EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share of common stock are computed using the weighted average of actual common
shares outstanding during the respective period as the denominator. The denominator for diluted
earnings per share of common stock reflects the weighted average of common shares outstanding plus
the potential additional common shares that could result if dilutive securities and other
agreements to issue common stock were exercised. The following table reconciles basic and diluted
earnings per share of common stock:
| Reconciliation of Basic and Diluted | ||||||||||||
| Earnings per Share of Common Stock | 2010 | 2009 | 2008 | |||||||||
| (In millions, except per share amounts) | ||||||||||||
|
Earnings available to FirstEnergy Corp.
|
$ | 784 | $ | 1,006 | $ | 1,342 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Weighted average number of basic shares outstanding
|
304 | 304 | 304 | |||||||||
|
Assumed exercise of dilutive stock options and awards
|
1 | 2 | 3 | |||||||||
|
|
||||||||||||
|
Weighted average number of diluted shares outstanding
|
305 | 306 | 307 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings per share of common stock
|
$ | 2.58 | $ | 3.31 | $ | 4.41 | ||||||
|
|
||||||||||||
|
Diluted earnings per share of common stock
|
$ | 2.57 | $ | 3.29 | $ | 4.38 | ||||||
|
|
||||||||||||
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment reflects original cost (except for nuclear generating assets which
are adjusted to fair value), including payroll and related costs such as taxes, employee benefits,
administrative and general costs, and interest costs incurred to place the assets in service. The
costs of normal maintenance, repairs and minor replacements are expensed as incurred. FirstEnergy
recognizes liabilities for planned major maintenance projects as they are incurred. Property, plant
and equipment balances as of December 31, 2010 and 2009 were as follows:
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Property, Plant and Equipment | Unregulated | Regulated | Total | Unregulated | Regulated | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
In service
|
$ | 11,952 | $ | 17,499 | $ | 29,451 | $ | 10,935 | $ | 16,891 | $ | 27,826 | ||||||||||||
|
Less accumulated depreciation
|
(4,229 | ) | (6,951 | ) | (11,180 | ) | (4,699 | ) | (6,698 | ) | (11,397 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Net plant in service
|
$ | 7,723 | $ | 10,548 | $ | 18,271 | $ | 6,236 | $ | 10,193 | $ | 16,429 | ||||||||||||
|
|
||||||||||||||||||||||||
FirstEnergy provides for depreciation on a straight-line basis at various rates over the
estimated lives of property included in plant in service. The respective annual composite rates for
FirstEnergy’s subsidiaries’ electric plant in 2010, 2009 and 2008 are shown in the following table:
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Table of Contents
| Annual Composite | ||||||||||||
| Depreciation Rate | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
OE
|
2.9 | % | 3.1 | % | 3.1 | % | ||||||
|
CEI
|
3.2 | 3.3 | 3.5 | |||||||||
|
TE
|
3.3 | 3.3 | 3.6 | |||||||||
|
Penn
|
2.2 | 2.4 | 2.4 | |||||||||
|
JCP&L
|
2.4 | 2.4 | 2.3 | |||||||||
|
Met-Ed
|
2.5 | 2.5 | 2.3 | |||||||||
|
Penelec
|
2.5 | 2.6 | 2.5 | |||||||||
|
FGCO
|
4.0 | 4.6 | 4.7 | |||||||||
|
NGC
|
3.1 | 3.0 | 2.8 | |||||||||
Asset Retirement Obligations
FirstEnergy recognizes an ARO for the future decommissioning of its nuclear power plants and future
remediation of other environmental liabilities associated with all of its long-lived assets. The
ARO liability represents an estimate of the fair value of FirstEnergy’s current obligation related
to nuclear decommissioning and the retirement or remediation of
environmental liabilities of other assets. A fair value measurement inherently involves uncertainty
in the amount and timing of settlement of the liability. FirstEnergy uses an expected cash flow
approach to measure the fair value of the nuclear decommissioning and environmental remediation
ARO. This approach applies probability weighting to discounted future cash flow scenarios that
reflect a range of possible outcomes. The scenarios consider settlement of the ARO at the
expiration of the nuclear power plant’s current license, settlement based on an extended license
term and expected remediation dates. The fair value of an ARO is recognized in the period in which
it is incurred. The associated asset retirement costs are capitalized as part of the carrying value
of the long-lived asset and are depreciated over the life of the related asset, as described
further in Note 12.
(E) ASSET IMPAIRMENTS
Long-lived Assets
FirstEnergy reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of such an asset may not be recoverable. The recoverability of
the long-lived asset is measured by comparing the long-lived asset’s carrying value to the sum of
undiscounted future cash flows expected to result from the use and eventual disposition of the
asset. If the carrying value is greater than the undiscounted future cash flows of the long-lived
asset, impairment exists and a loss is recognized for the amount by which the carrying value of the
long-lived asset exceeds its estimated fair value. Impairments of long-lived assets recognized for
the year ended December 31, 2010, are described further in Note 19.
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of the
assets acquired and liabilities assumed is recognized as goodwill. Goodwill is evaluated for
impairment at least annually and more frequently if indicators of impairment arise. In accordance
with the accounting standards, if the fair value of a reporting unit is less than its carrying
value (including goodwill), the goodwill is tested for impairment. Impairment is indicated and a
loss is recognized if the implied fair value of a reporting unit’s goodwill is less than the
carrying value of its goodwill.
FirstEnergy’s goodwill primarily relates to its energy delivery services segment. FirstEnergy’s
aggregated reporting units are consistent with its operating segments — energy delivery services
and competitive energy. Goodwill is allocated to these operating segments based on the original
purchase price allocation for acquisitions within the various reporting units. The goodwill
allocated to competitive energy is insignificant to that segment and to FirstEnergy.
Annual impairment testing is conducted during the third quarter of each year and for 2010, 2009 and
2008 the analysis indicated no impairment of goodwill. For purposes of annual testing the estimated
fair values of energy delivery services and the utilities were determined using a discounted cash
flow approach.
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Table of Contents
The discounted cash flow model of the reporting units, which are aggregated into operating
segments, is based on the forecasted operating cash flow for the current year, projected operating
cash flows for the next five years (determined using forecasted amounts as well as an estimated
growth rate) and a terminal value beyond five years. Discounted cash flows consist of the operating
cash flows for each reporting unit less an estimate for capital expenditures. The key assumptions
incorporated in the discounted cash flow approach include growth rates, projected operating income,
changes in working capital, projected capital expenditures, planned funding of pension plans,
anticipated funding of nuclear decommissioning trusts, expected results of future rate proceedings
and a discount rate equal to the assumed long term cost of capital. Cash flows may be adjusted to
exclude certain non-recurring or unusual items. Reporting unit income, which excludes non-recurring
or unusual items, was the starting point for determining operating cash flow and there were no
non-recurring or unusual items excluded from the calculations of operating cash flow in any of the
periods included in the determination of fair value.
Unanticipated changes in assumptions could have a significant effect on FirstEnergy’s evaluation of
goodwill. At the time of annual impairment testing, fair value would have to have declined in
excess of 52% for energy delivery services to indicate a potential goodwill impairment. Fair value
would have to have declined more than 26% for CEI, 64% for TE, 38% for JCP&L, 56% for Met-Ed and
57% for Penelec to indicate potential goodwill impairment.
A summary of the changes in goodwill for the three years ended December 31, 2010 is shown below by
operating segment, which represent aggregated reporting units (see Note 15):
| Energy | Competitive | |||||||||||
| Delivery | Energy | |||||||||||
| Goodwill | Services | Services | Consolidated | |||||||||
| (In millions) | ||||||||||||
|
Balance as of December 31, 2007
|
$ | 5,583 | $ | 24 | $ | 5,607 | ||||||
|
Adjustments related to GPU acquisitions
|
(32 | ) | — | (32 | ) | |||||||
|
|
||||||||||||
|
Balance as of December 31, 2008, 2009 and 2010
|
$ | 5,551 | $ | 24 | $ | 5,575 | ||||||
|
|
||||||||||||
A summary of the changes in FES’ and the Utilities’ goodwill for the three years ended December
31, 2010 is shown below.
| Goodwill | FES | CEI | TE | JCP&L | Met-Ed | Penelec | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Balance as of December, 31 2007
|
$ | 24 | $ | 1,689 | $ | 501 | $ | 1,826 | $ | 424 | $ | 778 | ||||||||||||
|
Adjustments related to GPU acquisition
|
— | — | — | (15 | ) | (8 | ) | (9 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance as of December, 31 2008, 2009
and 2010
|
$ | 24 | $ | 1,689 | $ | 501 | $ | 1,811 | $ | 416 | $ | 769 | ||||||||||||
|
|
||||||||||||||||||||||||
FirstEnergy, FES and the Utilities, with the exception of Met-Ed, have no accumulated
impairment charge as of December 31, 2010. Met-Ed has an accumulated impairment charge of $355
million, which was recorded in 2006.
Investments
At the end of each reporting period, FirstEnergy evaluates its investments for impairment.
Investments classified as available-for-sale securities are evaluated to determine whether a
decline in fair value below the cost basis is other than temporary. FirstEnergy first considers its
intent and ability to hold the investment until recovery and then considers, among other factors,
the duration and the extent to which the security’s fair value has been less than its cost and the
near-term financial prospects of the security issuer when evaluating investments for impairment. If
the decline in fair value is determined to be other than temporary, the cost basis of the
investment is written down to fair value. FirstEnergy recognizes in earnings the unrealized losses
on available-for-sale securities held in its nuclear decommissioning trusts since the trust
arrangements, as they are currently defined, do not meet the required ability and intent to hold
criteria in consideration of other-than-temporary impairment. In 2010, 2009 and 2008, FirstEnergy
recognized $33 million, $62 million and $123 million, respectively, of other-than-temporary
impairments. The fair values of FirstEnergy’s investments are disclosed in Note 5(B).
(F) COMPREHENSIVE INCOME
Comprehensive income includes net income as reported on the Consolidated Statements of Income and
all other changes in common stockholders’ equity except those resulting from transactions with
stockholders and adjustments relating to noncontrolling interests. Accumulated other comprehensive
income (loss), net of tax, included on FE’s, FES’ and the Utilities’ Consolidated Balance Sheets as
of December 31, 2010 and 2009, is comprised of the following:
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Table of Contents
| Accumulated Other Comprehensive | ||||||||||||||||||||||||||||||||
| Income (Loss) | FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Net liability for unfunded
retirement benefits
|
$ | (1,492 | ) | $ | (127 | ) | $ | (180 | ) | $ | (153 | ) | $ | (49 | ) | $ | (253 | ) | $ | (141 | ) | $ | (164 | ) | ||||||||
|
Unrealized gain on investments
|
7 | 6 | 1 | — | — | — | — | — | ||||||||||||||||||||||||
|
Unrealized gain (loss) on
derivative hedges
|
(54 | ) | 1 | — | — | — | (1 | ) | (1 | ) | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
AOCL Balance, December 31, 2010
|
$ | (1,539 | ) | $ | (120 | ) | $ | (179 | ) | $ | (153 | ) | $ | (49 | ) | $ | (254 | ) | $ | (142 | ) | $ | (164 | ) | ||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net liability for unfunded
retirement benefits
|
$ | (1,341 | ) | $ | (91 | ) | $ | (164 | ) | $ | (138 | ) | $ | (50 | ) | $ | (242 | ) | $ | (143 | ) | $ | (162 | ) | ||||||||
|
Unrealized gain on investments
|
2 | 2 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Unrealized loss on derivative hedges
|
(76 | ) | (14 | ) | — | — | — | (1 | ) | (1 | ) | — | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
AOCL Balance, December 31, 2009
|
$ | (1,415 | ) | $ | (103 | ) | $ | (164 | ) | $ | (138 | ) | $ | (50 | ) | $ | (243 | ) | $ | (144 | ) | $ | (162 | ) | ||||||||
|
|
||||||||||||||||||||||||||||||||
Other comprehensive income (loss) reclassified to net income during the three years ended
December 31, 2010, 2009 and 2008 was as follows:
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Pension and other postretirement
benefits
|
$ | (67 | ) | $ | (3 | ) | $ | 1 | $ | (13 | ) | $ | (3 | ) | $ | (16 | ) | $ | (9 | ) | $ | (7 | ) | |||||||||
|
Gain on investments
|
54 | 50 | 2 | — | 2 | — | — | — | ||||||||||||||||||||||||
|
Loss on derivative hedges
|
(35 | ) | (24 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
(48 | ) | 23 | 3 | (13 | ) | (1 | ) | (16 | ) | (9 | ) | (7 | ) | ||||||||||||||||||
|
Income taxes (benefits) related to
reclassification to net income
|
(19 | ) | 8 | 1 | (5 | ) | — | (6 | ) | (4 | ) | (3 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reclassification to net income
|
$ | (29 | ) | $ | 15 | $ | 2 | $ | (8 | ) | $ | (1 | ) | $ | (10 | ) | $ | (5 | ) | $ | (4 | ) | ||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Pension and other postretirement
benefits
|
$ | (78 | ) | $ | (3 | ) | $ | (5 | ) | $ | (11 | ) | $ | (2 | ) | $ | (18 | ) | $ | (11 | ) | $ | (5 | ) | ||||||||
|
Gain on investments
|
157 | 139 | 10 | — | 7 | — | — | — | ||||||||||||||||||||||||
|
Loss on derivative hedges
|
(67 | ) | (27 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
12 | 109 | 5 | (11 | ) | 5 | (18 | ) | (11 | ) | (5 | ) | ||||||||||||||||||||
|
Income taxes (benefits) related to
reclassification to net income
|
4 | 41 | 2 | (4 | ) | 2 | (8 | ) | (5 | ) | (2 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reclassification to net income
|
$ | 8 | $ | 68 | $ | 3 | $ | (7 | ) | $ | 3 | $ | (10 | ) | $ | (6 | ) | $ | (3 | ) | ||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Pension and other postretirement
benefits
|
$ | 80 | $ | 7 | $ | 16 | $ | 1 | $ | — | $ | 14 | $ | 9 | $ | 14 | ||||||||||||||||
|
Gain on investments
|
40 | 31 | 9 | — | 1 | — | — | — | ||||||||||||||||||||||||
|
Loss on derivative hedges
|
(19 | ) | (3 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
101 | 35 | 25 | 1 | 1 | 14 | 9 | 14 | ||||||||||||||||||||||||
|
Income taxes related to
reclassification to net income
|
41 | 14 | 10 | — | — | 6 | 4 | 6 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reclassification to net income
|
$ | 60 | $ | 21 | $ | 15 | $ | 1 | $ | 1 | $ | 8 | $ | 5 | $ | 8 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
184
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3. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers
substantially all of its employees and non-qualified pension plans that cover certain employees.
The plans provide defined benefits based on years of service and compensation levels. FirstEnergy’s
funding policy is based on actuarial computations using the projected unit credit method. On
September 2, 2009, the Utilities and ATSI made a combined $500 million voluntary contribution to
their qualified pension plan. Due to the significance of the voluntary contribution, FirstEnergy
elected to remeasure its qualified pension plan as of August 31, 2009. FirstEnergy intends to
voluntarily contribute $250 million to its pension plan in 2011.
FirstEnergy provides a minimum amount of noncontributory life insurance to retired employees in
addition to optional contributory insurance. Health care benefits, which include certain employee
contributions, deductibles and co-payments, are also available upon retirement to employees hired
prior to January 1, 2005, their dependents and, under certain circumstances, their survivors.
FirstEnergy recognizes the expected cost of providing other postretirement benefits to employees
and their beneficiaries and covered dependents from the time employees are hired until they become
eligible to receive those benefits. During 2008, FirstEnergy amended the OPEB plan effective in
2010 to limit the monthly contribution for pre-1990 retirees. On June 2, 2009, FirstEnergy amended
its health care benefits plan for all employees and retirees eligible to participate in that plan.
The amendment, which reduces future health care coverage subsidies paid by FirstEnergy on behalf of
participants, triggered a remeasurement of FirstEnergy’s other postretirement benefit plans as of
May 31, 2009. FirstEnergy also has obligations to former or inactive employees after employment,
but before retirement, for disability-related benefits.
Pension and OPEB costs are affected by employee demographics (including age, compensation levels,
and employment periods), the level of contributions made to the plans and earnings on plan assets.
Pension and OPEB costs may also be affected by changes in key assumptions, including anticipated
rates of return on plan assets, the discount rates and health care trend rates used in determining
the projected benefit obligations for pension and OPEB costs. FirstEnergy uses a December 31
measurement date for its pension and OPEB plans. The fair value of the plan assets represents the
actual market value as of the measurement date.
In the third quarter of 2009, FirstEnergy incurred a $13 million net postretirement benefit cost
(including amounts capitalized) related to a liability created by the VERO offered by FirstEnergy
to qualified employees. The special termination benefits of the VERO included additional health
care coverage subsidies paid by FirstEnergy to those qualified employees who elected to retire. A
total of 715 employees accepted the VERO.
185
Table of Contents
| Obligations and Funded Status | Pension Benefits | Other Benefits | ||||||||||||||
| As of December 31 | 2010 | 2009 | 2010 | 2009 | ||||||||||||
| (In millions) | ||||||||||||||||
|
Change in benefit obligation
|
||||||||||||||||
|
Benefit obligation as of January 1
|
$ | 5,392 | $ | 4,700 | $ | 823 | $ | 1,189 | ||||||||
|
Service cost
|
99 | 91 | 10 | 12 | ||||||||||||
|
Interest cost
|
314 | 317 | 45 | 64 | ||||||||||||
|
Plan participants’ contributions
|
— | — | 30 | 29 | ||||||||||||
|
Plan amendments
|
16 | 6 | — | (408 | ) | |||||||||||
|
Special termination benefits
|
— | — | — | 13 | ||||||||||||
|
Medicare retiree drug subsidy
|
— | — | 7 | 20 | ||||||||||||
|
Actuarial (gain) loss
|
343 | 648 | 56 | 23 | ||||||||||||
|
Benefits paid
|
(306 | ) | (370 | ) | (110 | ) | (119 | ) | ||||||||
|
|
||||||||||||||||
|
Benefit obligation as of December 31
|
$ | 5,858 | $ | 5,392 | $ | 861 | $ | 823 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Change in fair value of plan assets
|
||||||||||||||||
|
Fair value of plan assets as of January 1
|
$ | 4,399 | $ | 3,752 | $ | 467 | $ | 440 | ||||||||
|
Actual return on plan assets
|
440 | 508 | 52 | 62 | ||||||||||||
|
Company contributions
|
11 | 509 | 59 | 55 | ||||||||||||
|
Plan participants’ contributions
|
— | — | 30 | 29 | ||||||||||||
|
Benefits paid
|
(306 | ) | (370 | ) | (110 | ) | (119 | ) | ||||||||
|
|
||||||||||||||||
|
Fair value of plan assets as of December 31
|
$ | 4,544 | $ | 4,399 | $ | 498 | $ | 467 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Funded Status
|
||||||||||||||||
|
Qualified plan
|
$ | (1,076 | ) | $ | (787 | ) | ||||||||||
|
Non-qualified plans
|
(238 | ) | (206 | ) | ||||||||||||
|
|
||||||||||||||||
|
Funded Status
|
$ | (1,314 | ) | $ | (993 | ) | $ | (363 | ) | $ | (356 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Accumulated benefit obligation
|
$ | 5,469 | $ | 5,036 | ||||||||||||
|
|
||||||||||||||||
|
Amounts Recognized on the Balance Sheet
|
||||||||||||||||
|
Current liabilities
|
$ | (11 | ) | $ | (10 | ) | $ | — | $ | — | ||||||
|
Noncurrent liabilities
|
(1,303 | ) | (983 | ) | (363 | ) | (356 | ) | ||||||||
|
|
||||||||||||||||
|
Net liability as of December 31
|
$ | (1,314 | ) | $ | (993 | ) | $ | (363 | ) | $ | (356 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Amounts Recognized in
|
||||||||||||||||
|
Accumulated Other Comprehensive Income
|
||||||||||||||||
|
Prior service cost (credit)
|
$ | 76 | $ | 67 | $ | (952 | ) | $ | (1,145 | ) | ||||||
|
Actuarial loss
|
2,554 | 2,486 | 718 | 756 | ||||||||||||
|
|
||||||||||||||||
|
Net amount recognized
|
$ | 2,630 | $ | 2,553 | $ | (234 | ) | $ | (389 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Assumptions Used to Determine Benefit
|
||||||||||||||||
|
Obligations as of December 31
|
||||||||||||||||
|
Discount rate
|
5.50 | % | 6.00 | % | 5.00 | % | 5.75 | % | ||||||||
|
Rate of compensation increase
|
5.20 | % | 5.20 | % | ||||||||||||
|
|
||||||||||||||||
|
Allocation of Plan Assets
|
||||||||||||||||
|
As of December 31
|
||||||||||||||||
|
Equity securities
|
28 | % | 39 | % | 47 | % | 51 | % | ||||||||
|
Bonds
|
50 | 49 | 45 | 46 | ||||||||||||
|
Absolute return strategies
|
11 | — | 3 | — | ||||||||||||
|
Real estate
|
6 | 6 | 2 | 1 | ||||||||||||
|
Private equities
|
4 | 5 | 1 | 1 | ||||||||||||
|
Cash
|
1 | 1 | 2 | 1 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
|
|
||||||||||||||||
186
Table of Contents
| Estimated 2011 Amortization of | ||||||||
| Net Periodic Pension Cost from | Pension | Other | ||||||
| Accumulated Other Comprehensive Income | Benefits | Benefits | ||||||
| (In millions) | ||||||||
|
Prior service cost (credit)
|
$ | 14 | $ | (193 | ) | |||
|
Actuarial loss
|
$ | 194 | $ | 57 | ||||
| Pension Benefits | Other Benefits | |||||||||||||||||||||||
| Components of Net Periodic Benefit Costs | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Service cost
|
$ | 99 | $ | 91 | $ | 87 | $ | 10 | $ | 12 | $ | 19 | ||||||||||||
|
Interest cost
|
314 | 317 | 299 | 45 | 64 | 74 | ||||||||||||||||||
|
Expected return on plan assets
|
(361 | ) | (343 | ) | (463 | ) | (36 | ) | (36 | ) | (51 | ) | ||||||||||||
|
Amortization of prior service cost
|
13 | 13 | 13 | (193 | ) | (175 | ) | (149 | ) | |||||||||||||||
|
Amortization of net actuarial loss
|
187 | 179 | 8 | 60 | 61 | 47 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net periodic cost
|
$ | 252 | $ | 257 | $ | (56 | ) | $ | (114 | ) | $ | (74 | ) | $ | (60 | ) | ||||||||
|
|
||||||||||||||||||||||||
FES’ and the Utilities’ shares of the net pension and OPEB asset (liability) as of December 31,
2010 and 2009 are as follows:
| Pension Benefits | Other Benefits | |||||||||||||||
| Net Pension and OPEB Asset (Liability) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
| (In millions) | ||||||||||||||||
|
FES
|
$ | (488 | ) | $ | (361 | ) | $ | (36 | ) | $ | (19 | ) | ||||
|
OE
|
29 | 30 | (66 | ) | (74 | ) | ||||||||||
|
CEI
|
(22 | ) | (13 | ) | (62 | ) | (59 | ) | ||||||||
|
TE
|
(21 | ) | (15 | ) | (46 | ) | (47 | ) | ||||||||
|
JCP&L
|
(106 | ) | (77 | ) | (70 | ) | (56 | ) | ||||||||
|
Met-Ed
|
(6 | ) | 6 | (19 | ) | (28 | ) | |||||||||
|
Penelec
|
(99 | ) | (79 | ) | (85 | ) | (84 | ) | ||||||||
FES’ and the Utilities’ shares of the net periodic pension and OPEB costs for the three years
ended December 31, 2010 are as follows:
| Pension Benefits | Other Benefits | |||||||||||||||||||||||
| Net Periodic Pension and OPEB Costs | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
FES
|
$ | 84 | $ | 71 | $ | 15 | $ | (27 | ) | $ | (15 | ) | $ | (7 | ) | |||||||||
|
OE
|
15 | 23 | (26 | ) | (25 | ) | (14 | ) | (7 | ) | ||||||||||||||
|
CEI
|
20 | 17 | (5 | ) | (6 | ) | — | 2 | ||||||||||||||||
|
TE
|
7 | 6 | (3 | ) | (1 | ) | 2 | 4 | ||||||||||||||||
|
JCP&L
|
25 | 31 | (15 | ) | (7 | ) | (6 | ) | (16 | ) | ||||||||||||||
|
Met-Ed
|
10 | 18 | (10 | ) | (8 | ) | (4 | ) | (10 | ) | ||||||||||||||
|
Penelec
|
19 | 16 | (13 | ) | (9 | ) | (4 | ) | (13 | ) | ||||||||||||||
| Assumptions Used | ||||||||||||||||||||||||
| to Determine Net Periodic Benefit Cost | Pension Benefits | Other Benefits | ||||||||||||||||||||||
| for Years Ended December 31 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
Weighted-average discount rate
|
6.00 | % | 7.00 | % | 6.50 | % | 5.75 | % | 7.00 | % | 6.50 | % | ||||||||||||
|
Expected long-term return on plan assets
|
8.50 | % | 9.00 | % | 9.00 | % | 8.50 | % | 9.00 | % | 9.00 | % | ||||||||||||
|
Rate of compensation increase
|
5.20 | % | 5.20 | % | 5.20 | % | ||||||||||||||||||
187
Table of Contents
Accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in
active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair
value hierarchy defined by accounting guidance are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of
the reporting date. Active markets are those where transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets
include registered investment companies, common stocks, publicly traded real estate investment
trusts and certain shorter duration, more liquid fixed income securities. Registered investment
companies and common stocks are stated at fair value as quoted on a recognized securities exchange
and are valued at the last reported sales price on the last business day of the plan year. Market
values for real estate investment trusts and certain fixed income securities are based on daily
quotes available on public exchanges as with other publicly traded equity and fixed income
securities.
Level 2 — Pricing inputs are either directly or indirectly observable in the market as of the
reporting date, other than quoted prices in active markets included in Level 1. Additionally, Level
2 includes those financial instruments that are valued using models or other valuation
methodologies based on assumptions that are observable in the marketplace throughout the full term
of the instrument, can be derived from observable data or are supported by observable levels at
which transactions are executed in the marketplace. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the underlying
instruments, as well as other relevant economic measures. Level 2 investments include common
collective trusts, certain real estate investment trusts, and fixed income assets. Common
collective trusts are not available in an exchange and active market; however, the fair value is
determined based on the underlying investments as traded in an exchange and active market.
Level 3 — Pricing inputs include inputs that are generally less observable from objective sources.
These inputs may be used with internally developed methodologies that result in management’s best
estimate of fair value in addition to the use of independent appraisers’ estimates of fair value on
a periodic basis typically determined quarterly but no less than annually. Assets in this category
include private equity, limited partnership, certain real estate trusts and fixed income
securities. The fixed income securities’ market values are based in part on quantitative models
and on observing market value ascertained through timely trades for securities that are similar to
the ones being valued.
As of December 31, 2010 and 2009, the pension investments measured at fair value were as follows:
| December 31, 2010 | Asset | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Allocation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Cash and short-term securities
|
$ | — | $ | 72 | $ | — | $ | 72 | 1 | % | ||||||||||
|
Equity investments
|
||||||||||||||||||||
|
Domestic
|
342 | 189 | — | 531 | 12 | % | ||||||||||||||
|
International
|
118 | 615 | — | 733 | 16 | % | ||||||||||||||
|
Fixed income
|
||||||||||||||||||||
|
Government bonds
|
— | 722 | — | 722 | 16 | % | ||||||||||||||
|
Corporate bonds
|
— | 1,414 | — | 1,414 | 31 | % | ||||||||||||||
|
Distressed debt
|
— | 97 | — | 97 | 2 | % | ||||||||||||||
|
Mortgaged-backed securities
(non-government)
|
— | 52 | — | 52 | 1 | % | ||||||||||||||
|
Alternatives
|
||||||||||||||||||||
|
Hedge funds
|
— | 497 | — | 497 | 11 | % | ||||||||||||||
|
Private equity funds
|
— | — | 119 | 119 | 4 | % | ||||||||||||||
|
Real estate funds
|
2 | — | 282 | 284 | 6 | % | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 462 | $ | 3,658 | $ | 401 | $ | 4,521 | 100 | % | ||||||||||
|
|
||||||||||||||||||||
188
Table of Contents
| December 31, 2009 | Asset | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Allocation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Cash and short-term securities
|
$ | — | $ | 337 | $ | — | $ | 337 | 7 | % | ||||||||||
|
Equity investments
|
||||||||||||||||||||
|
Domestic
|
447 | 790 | — | 1,237 | 28 | % | ||||||||||||||
|
International
|
131 | 204 | — | 335 | 8 | % | ||||||||||||||
|
Mutual funds
|
159 | — | — | 159 | 4 | % | ||||||||||||||
|
Fixed income
|
||||||||||||||||||||
|
Government bonds
|
— | 254 | — | 254 | 6 | % | ||||||||||||||
|
Corporate bonds
|
— | 1,580 | — | 1,580 | 35 | % | ||||||||||||||
|
Distressed debt
|
— | 92 | — | 92 | 2 | % | ||||||||||||||
|
Mortgaged-backed securities
(non-government)
|
— | 2 | — | 2 | 1 | % | ||||||||||||||
|
Alternatives
|
||||||||||||||||||||
|
Private equity funds
|
— | — | 137 | 137 | 3 | % | ||||||||||||||
|
Real estate funds
|
1 | 4 | 241 | 246 | 6 | % | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 738 | $ | 3,263 | $ | 378 | $ | 4,379 | 100 | % | ||||||||||
|
|
||||||||||||||||||||
The following table provides a reconciliation of changes in the fair value of pension
investments classified as Level 3 in the fair value hierarchy during 2010 and 2009:
| Private Equity | Real Estate | |||||||
| Funds | Funds | |||||||
|
|
||||||||
|
Balance as of January 1, 2009
|
$ | 74 | $ | 342 | ||||
|
Actual return on plan assets:
|
||||||||
|
Unrealized gains (losses)
|
6 | (104 | ) | |||||
|
Realized gains (losses)
|
1 | (1 | ) | |||||
|
Purchases, sales and settlements
|
12 | 4 | ||||||
|
Transfers in (out)
|
44 | — | ||||||
|
|
||||||||
|
Balance as of December 31, 2009
|
137 | 241 | ||||||
|
Actual return on plan assets:
|
||||||||
|
Unrealized gains
|
1 | 45 | ||||||
|
Realized gains (losses)
|
11 | (3 | ) | |||||
|
Purchases, sales and settlements
|
(28 | ) | (1 | ) | ||||
|
Transfers in (out)
|
(2 | ) | — | |||||
|
|
||||||||
|
Balance at December 31, 2010
|
$ | 119 | $ | 282 | ||||
|
|
||||||||
189
Table of Contents
As of December 31, 2010 and 2009, the other postretirement benefit investments measured at fair
value were as follows:
| December 31, 2010 | Asset | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Allocation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Cash and short-term securities
|
$ | — | $ | 16 | $ | — | $ | 16 | 2 | % | ||||||||||
|
Equity investment
|
||||||||||||||||||||
|
Domestic
|
178 | 6 | — | 184 | 36 | % | ||||||||||||||
|
International
|
20 | 19 | — | 39 | 9 | % | ||||||||||||||
|
Mutual funds
|
7 | 2 | — | 9 | 2 | % | ||||||||||||||
|
Fixed income
|
||||||||||||||||||||
|
U.S. treasuries
|
— | 27 | — | 27 | 5 | % | ||||||||||||||
|
Government bonds
|
— | 143 | — | 143 | 28 | % | ||||||||||||||
|
Corporate bonds
|
— | 55 | — | 55 | 10 | % | ||||||||||||||
|
Distressed debt
|
— | 3 | — | 3 | 1 | % | ||||||||||||||
|
Mortgage-backed securities
(non-government)
|
— | 4 | — | 4 | 1 | % | ||||||||||||||
|
Alternatives
|
||||||||||||||||||||
|
Hedge funds
|
— | 15 | — | 15 | 3 | % | ||||||||||||||
|
Private equity funds
|
— | — | 3 | 3 | 1 | % | ||||||||||||||
|
Real estate funds
|
— | — | 9 | 9 | 2 | % | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 205 | $ | 290 | $ | 12 | $ | 507 | 100 | % | ||||||||||
|
|
||||||||||||||||||||
| December 31, 2009 | Asset | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Allocation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Cash and short-term securities
|
$ | — | $ | 19 | $ | — | $ | 19 | 4 | % | ||||||||||
|
Equity investment
|
||||||||||||||||||||
|
Domestic
|
180 | 23 | — | 203 | 43 | % | ||||||||||||||
|
International
|
15 | 6 | — | 21 | 4 | % | ||||||||||||||
|
Mutual funds
|
10 | 2 | — | 12 | 3 | % | ||||||||||||||
|
Fixed income
|
||||||||||||||||||||
|
U.S. treasuries
|
— | 20 | — | 20 | 4 | % | ||||||||||||||
|
Government bonds
|
— | 123 | — | 123 | 26 | % | ||||||||||||||
|
Corporate bonds
|
— | 56 | — | 56 | 12 | % | ||||||||||||||
|
Distressed debt
|
— | 3 | — | 3 | 1 | % | ||||||||||||||
|
Mortgage-backed securities
(non-government)
|
— | 3 | — | 3 | 1 | % | ||||||||||||||
|
Alternatives
|
||||||||||||||||||||
|
Private equity funds
|
— | — | 4 | 4 | 1 | % | ||||||||||||||
|
Real estate funds
|
— | — | 7 | 7 | 1 | % | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 205 | $ | 255 | $ | 11 | $ | 471 | 100 | % | ||||||||||
|
|
||||||||||||||||||||
190
Table of Contents
The following table provides a reconciliation of changes in the fair value of postretirement
benefit investments classified as Level 3 in the fair value hierarchy during 2010 and 2009:
| Private Equity | Real Estate | |||||||
| Funds | Funds | |||||||
| (in millions) | ||||||||
|
Balance as of January 1, 2009
|
$ | 2 | $ | 10 | ||||
|
Actual return on plan assets:
|
||||||||
|
Unrealized gains (losses)
|
— | (3 | ) | |||||
|
Realized gains (losses)
|
— | — | ||||||
|
Purchases, sales and settlements
|
1 | — | ||||||
|
Transfers in (out)
|
1 | — | ||||||
|
|
||||||||
|
Balance as of December 31, 2009
|
4 | 7 | ||||||
|
Actual return on plan assets:
|
||||||||
|
Unrealized gains
|
— | — | ||||||
|
Realized gains (losses)
|
— | 2 | ||||||
|
Purchases, sales and settlements
|
(1 | ) | — | |||||
|
Transfers in (out)
|
— | — | ||||||
|
|
||||||||
|
Balance at December 31, 2010
|
$ | 3 | $ | 9 | ||||
|
|
||||||||
In selecting an assumed discount rate, FirstEnergy considers currently available rates of
return on high-quality fixed income investments expected to be available during the period to
maturity of the pension and other postretirement benefit obligations. The assumed rates of return
on pension plan assets consider historical market returns and economic forecasts for the types of
investments held by FirstEnergy’s pension trusts. The long-term rate of return is developed
considering the portfolio’s asset allocation strategy.
FirstEnergy generally employs a total return investment approach whereby a mix of equities and
fixed income investments are used to maximize the long-term return on plan assets for a prudent
level of risk. Risk tolerance is established through careful consideration of plan liabilities,
plan funded status and corporate financial condition. The investment portfolio contains a
diversified blend of equity and fixed-income investments. Equity investments are diversified across
U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalization funds. Other
assets such as real estate and private equity are used to enhance long-term returns while improving
portfolio diversification. Derivatives may be used to gain market exposure in an efficient and
timely manner; however, derivatives
are not used to leverage the portfolio beyond the market value of the underlying investments.
Investment risk is measured and monitored on a continuing basis through periodic investment
portfolio reviews, annual liability measurements, and periodic asset/liability studies.
FirstEnergy’s target asset allocations for its pension and OPEB portfolio for 2010 and 2009 are
shown in the following table:
| Target Asset | ||||||||
| Allocations | ||||||||
| 2010 | 2009 | |||||||
|
Equities
|
21 | % | 58 | % | ||||
|
Fixed income
|
50 | 30 | ||||||
|
Absolute return strategies
|
21 | — | ||||||
|
Real estate
|
6 | 8 | ||||||
|
Private equity
|
2 | 4 | ||||||
|
|
||||||||
|
Total
|
100 | % | 100 | % | ||||
|
|
||||||||
191
Table of Contents
| Assumed Health Care Cost Trend Rates | ||||||||
| As of December 31 | 2010 | 2009 | ||||||
|
Health care cost trend rate assumed
(pre/post-Medicare)
|
8.0-9.0 | % | 8.5-10 | % | ||||
|
Rate to which the cost trend rate is assumed to
decline (the ultimate trend rate)
|
5 | % | 5 | % | ||||
|
Year that the rate reaches the ultimate trend
rate (pre/post-Medicare)
|
2016-2018 | 2016-2018 | ||||||
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates would have
the following effects:
| 1-Percentage- | 1-Percentage- | |||||||
| Point Increase | Point Decrease | |||||||
| (in millions) | ||||||||
|
Effect on total of service and interest cost
|
$ | 2 | $ | (2 | ) | |||
|
Effect on accumulated postretirement benefit obligation
|
$ | 22 | $ | (20 | ) | |||
Taking into account estimated employee future service, FirstEnergy expects to make the
following pension benefit payments from plan assets and other benefit payments, net of the Medicare
subsidy and participant contributions:
| Pension | Other | |||||||
| Benefits | Benefits | |||||||
| (in millions) | ||||||||
|
2011
|
$ | 320 | $ | 88 | ||||
|
2012
|
332 | 76 | ||||||
|
2013
|
344 | 61 | ||||||
|
2014
|
367 | 63 | ||||||
|
2015
|
381 | 61 | ||||||
|
Years 2016-2020
|
2,068 | 297 | ||||||
4. STOCK-BASED COMPENSATION PLANS
FirstEnergy has four stock-based compensation programs — LTIP, EDCP, ESOP and DCPD.
(A) LTIP
FirstEnergy’s LTIP includes four stock-based compensation programs — restricted stock, restricted
stock units, stock options and performance shares.
Under FirstEnergy’s LTIP, total awards cannot exceed 29.1 million shares of common stock or their
equivalent. Only stock options, restricted stock and restricted stock units have currently been
designated to pay out in common stock, with vesting periods ranging from two months to ten years.
Performance share awards are currently designated to be paid in cash rather than common stock and
therefore do not count against the limit on stock-based awards. As of December 31, 2010, 7.2
million shares were available for future awards.
FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised
or distributed. Realized tax benefits during the years ended December 31, 2010, 2009 and 2008 were
$11 million, $9 million and $43 million, respectively. The excess of the deductible amount over the
recognized compensation cost is recorded in stockholders’ equity and reported as an other financing
activity on the Consolidated Statements of Cash Flows.
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Table of Contents
Restricted Stock and Restricted Stock Units
Eligible employees receive awards of FirstEnergy common stock or stock units subject to
restrictions. Those restrictions lapse over a defined period of time or based on performance.
Dividends are received on the restricted stock and are reinvested in additional shares. Restricted
common stock grants under the LTIP were as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Restricted common shares granted
|
71,752 | 73,255 | 82,607 | |||||||||
|
Weighted average market price
|
$ | 38.43 | $ | 43.68 | $ | 68.98 | ||||||
|
Weighted average vesting period (years)
|
4.74 | 4.42 | 5.03 | |||||||||
|
Dividends restricted
|
Yes | Yes | Yes | |||||||||
Vesting activity for restricted common stock during 2010 was as follows (forfeitures were not
material):
| Weighted | ||||||||
| Number | Average | |||||||
| of | Grant-Date | |||||||
| Restricted Stock | Shares | Fair Value | ||||||
|
Nonvested as of January 1, 2010
|
648,293 | $ | 50.39 | |||||
|
Nonvested as of December 31, 2010
|
475,914 | 51.26 | ||||||
|
Granted in 2010
|
71,752 | 38.43 | ||||||
|
Vested in 2010
|
292,152 | 38.75 | ||||||
FirstEnergy grants two types of restricted stock unit awards: discretionary-based and
performance-based. With the discretionary-based, FirstEnergy grants the right to receive, at the
end of the period of restriction, a number of shares of common stock equal to the number of
restricted stock units set forth in each agreement. With the performance-based, FirstEnergy grants
the right to receive, at the end of the period of restriction, a number of shares of common stock
equal to the number of restricted stock units set forth in the agreement subject to adjustment
based on FirstEnergy’s stock performance.
| 2010 | 2009 | 2008 | ||||||||||
|
Restricted common shares units granted
|
511,418 | 533,399 | 450,683 | |||||||||
|
Weighted average vesting period (years)
|
3.00 | 3.00 | 3.14 | |||||||||
Vesting activity for restricted stock units during 2010 was as follows (forfeitures were not
material):
| Weighted | ||||||||
| Number | Average | |||||||
| of | Grant-Date | |||||||
| Restricted Stock Units | Shares | Fair Value | ||||||
|
Nonvested as of January 1, 2010
|
1,489,187 | $ | 54.81 | |||||
|
Nonvested as of December 31, 2010
|
1,402,108 | 48.40 | ||||||
|
Granted in 2010
|
511,418 | 37.13 | ||||||
|
Vested in 2010
|
579,736 | 38.83 | ||||||
Compensation expense recognized in 2010, 2009 and 2008 for restricted stock and restricted
stock units, net of amounts capitalized, was approximately $22 million, $25 million and $29
million, respectively.
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Stock Options
Stock options were granted to eligible employees allowing them to purchase a specified number of
common shares at a fixed grant price over a defined period of time. Stock option activities under
FirstEnergy stock option programs during 2010 were as follows:
| Weighted | ||||||||
| Number | Average | |||||||
| of | Grant-Date | |||||||
| Stock Option Activities | Shares | Fair value | ||||||
|
|
||||||||
|
Balance, January 1, 2010
|
3,074,626 | $ | 34.69 | |||||
|
(3,074,626 options exercisable)
|
||||||||
|
|
||||||||
|
Options granted
|
— | — | ||||||
|
Options exercised
|
180,460 | 26.86 | ||||||
|
Options forfeited
|
5,100 | 21.61 | ||||||
|
Balance, December 31, 2010
|
2,889,066 | $ | 35.18 | |||||
|
(2,889,066 options exercisable)
|
||||||||
Options outstanding and range of exercise price as of December 31, 2010 were as follows:
| Options Outstanding and Exercisable | ||||||||||||
| Weighted | ||||||||||||
| Range of | Average | Remaining | ||||||||||
| Exercise Prices | Shares | Exercise Price | Contractual Life | |||||||||
|
$29.50-29.71
|
894,054 | $ | 29.66 | 1.77 | ||||||||
|
$34.45-39.46
|
1,995,012 | $ | 37.66 | 2.67 | ||||||||
|
|
||||||||||||
|
Total
|
2,889,066 | $ | 35.18 | 2.39 | ||||||||
|
|
||||||||||||
FirstEnergy reduced its use of stock options beginning in 2005 and increased its use of
performance-based, restricted stock units. As a result, all unvested stock options vested in 2008.
No compensation expense was recognized for stock options during 2010 and 2009, and compensation
expense in 2008 was not material. Cash received from the exercise of stock options in 2010, 2009
and 2008 was $6 million, $7 million and $74 million, respectively.
Performance Shares
Performance shares are share equivalents and do not have voting rights. The shares track the
performance of FirstEnergy’s common stock over a three-year vesting period. During that time,
dividend equivalents are converted into additional shares. The final account value may be adjusted
based on the ranking of FirstEnergy stock performance to a composite of peer companies.
Compensation expense (income) recognized for performance shares during 2010, 2009 and 2008, net of
amounts capitalized, totaled approximately ($4) million, $3 million and $8 million, respectively.
During 2010, no cash was paid to settle performance shares due to certain criteria not being met
for the previous three-year vesting period. Cash used to settle performance shares in 2009 and 2008
was $15 million and $14 million, respectively.
(B) ESOP
An ESOP Trust funded most of the matching contribution for FirstEnergy’s 401(k) savings plan
through December 31, 2007. All employees eligible for participation in the 401(k) savings plan are
covered by the ESOP.
In 2008 and 2009, shares of FirstEnergy common stock were purchased on the market and contributed
to participants’ accounts. Total ESOP-related compensation expenses in 2010, 2009 and 2008, net of
amounts capitalized and dividends on common stock were $30 million, $36 million and $40 million,
respectively.
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Table of Contents
(C) EDCP
Under the EDCP, covered employees can direct a portion of their compensation, including annual
incentive awards and/or long-term incentive awards, into an unfunded FirstEnergy stock account to
receive vested stock units or into an
unfunded retirement cash account. Through December 31, 2010, covered employees received an
additional 20% premium in the form of stock units based on the amount allocated to the FirstEnergy
stock account. During 2010, the EDCP was amended to cease the 20% stock premium with respect to
annual and long-term incentive awards earned during any calendar years that commence on or after
January 1, 2011. Dividends are calculated quarterly on stock units outstanding and are paid in the
form of additional stock units. Upon withdrawal, stock units are converted to FirstEnergy shares.
Payout typically occurs three years from the date of deferral; however, an election can be made in
the year prior to payout to further defer shares into a retirement stock account that will pay out
in cash upon retirement (see Note 3). Interest is calculated on the cash allocated to the cash
account and the total balance will pay out in cash upon retirement. Compensation expense (income)
recognized on EDCP stock units, net of amounts capitalized, in 2010, 2009 and 2008 was ($3)
million, ($0.2) million and ($13) million, respectively.
(D) DCPD
Under the DCPD, directors can elect to allocate all or a portion of their cash retainers, meeting
fees and chair fees to deferred stock or deferred cash accounts. Funds deferred into the stock
account through December 31, 2010, receive a 20% match to the funds allocated. The 20% match and
any appreciation on it are forfeited if the director leaves the Board within three years from the
date of deferral for any reason other than retirement, disability, death, upon a change in control
or when a director is ineligible to stand for re-election. Compensation expense is recognized for
the 20% match over the three-year vesting period. Directors may also elect to defer their equity
retainers into the deferred stock account; however, they do not receive a 20% match on that
deferral. During 2010, the DCPD was amended to cease the 20% match feature with respect to
director’s fees earned for service performed during any calendar years that commence on or after
January 1, 2011. DCPD expenses recognized in 2010, 2009 and 2008 was $4 million, $3 million and $3
million, respectively. The net liability recognized for DCPD of approximately $5 million as of
December 31, 2010, 2009 and 2008 is included in the caption “Retirement benefits” on the
Consolidated Balance Sheets.
Of the 1.7 million stock units authorized under the EDCP and DCPD, 1,239,415 stock units were
available for future awards as of December 31, 2010.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
All borrowings with initial maturities of less than one year are defined as short-term financial
instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which
approximates their fair market value, in the caption “short-term borrowings.” The following table
provides the approximate fair value and related carrying amounts of long-term debt and other
long-term obligations as of December 31, 2010 and 2009:
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Value | Value | Value | Value | |||||||||||||
| (In millions) | ||||||||||||||||
|
FirstEnergy
(Consolidated)
|
$ | 13,928 | $ | 14,845 | $ | 13,853 | $ | 14,602 | ||||||||
|
FES
|
4,279 | 4,403 | 4,324 | 4,406 | ||||||||||||
|
OE
|
1,159 | 1,321 | 1,169 | 1,299 | ||||||||||||
|
CEI
|
1,853 | 2,035 | 1,873 | 2,032 | ||||||||||||
|
TE
|
600 | 653 | 600 | 638 | ||||||||||||
|
JCP&L
|
1,810 | 1,962 | 1,840 | 1,950 | ||||||||||||
|
Met-Ed
|
742 | 821 | 842 | 909 | ||||||||||||
|
Penelec
|
1,120 | 1,189 | 1,144 | 1,177 | ||||||||||||
The fair values of long-term debt and other long-term obligations reflect the present value of
the cash outflows relating to those securities based on the current call price, the yield to
maturity or the yield to call, as deemed appropriate at the end of each respective period. The
yields assumed were based on securities with similar characteristics offered by corporations with
credit ratings similar to those of FirstEnergy, FES and the Utilities.
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(B) INVESTMENTS
All temporary cash investments purchased with an initial maturity of three months or less are
reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their
fair market value. Investments other than cash and cash equivalents include held-to-maturity
securities, available-for-sale securities and notes receivable.
FES and the Utilities periodically evaluate their investments for other-than-temporary impairment.
They first consider their intent and ability to hold an equity investment until recovery and then
consider, among other factors, the duration and the extent to which the security’s fair value has
been less than cost and the near-term financial prospects of the security issuer when evaluating an
investment for impairment. For debt securities, FES and the Utilities consider their intent to hold
the security, the likelihood that they will be required to sell the security before recovery of
their cost basis, and the likelihood of recovery of the security’s entire amortized cost basis.
Available-For-Sale Securities
FES and the Utilities hold debt and equity securities within their nuclear decommissioning trusts,
nuclear fuel disposal trusts and NUG trusts. These trust investments are considered as
available-for-sale at fair market value. FES and the Utilities have no securities held for trading
purposes.
The following table summarizes the amortized cost basis, unrealized gains and losses and fair
values of investments held in nuclear decommissioning trusts, nuclear fuel disposal trusts and NUG
trusts as of December 31, 2010 and 2009:
| December 31, 2010 (1) | December 31, 2009 (2) | |||||||||||||||||||||||||||||||
| Cost | Unrealized | Unrealized | Fair | Cost | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
| Basis | Gains | Losses | Value | Basis | Gains | Losses | Value | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Debt securities
|
||||||||||||||||||||||||||||||||
|
FirstEnergy
|
$ | 1,699 | $ | 31 | $ | — | $ | 1,730 | $ | 1,727 | $ | 22 | $ | — | $ | 1,749 | ||||||||||||||||
|
FES
|
980 | 13 | — | 993 | 1,043 | 3 | — | 1,046 | ||||||||||||||||||||||||
|
OE
|
123 | 1 | — | 124 | 55 | — | — | 55 | ||||||||||||||||||||||||
|
TE
|
42 | — | — | 42 | 72 | — | — | 72 | ||||||||||||||||||||||||
|
JCP&L
|
281 | 9 | — | 290 | 271 | 9 | — | 280 | ||||||||||||||||||||||||
|
Met-Ed
|
127 | 4 | — | 131 | 120 | 5 | — | 125 | ||||||||||||||||||||||||
|
Penelec
|
145 | 4 | — | 149 | 166 | 5 | — | 171 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Equity
securities
|
||||||||||||||||||||||||||||||||
|
FirstEnergy
|
$ | 268 | $ | 69 | $ | — | $ | 337 | $ | 252 | $ | 43 | $ | — | $ | 295 | ||||||||||||||||
|
JCP&L
|
80 | 17 | — | 97 | 74 | 11 | — | 85 | ||||||||||||||||||||||||
|
Met-Ed
|
125 | 35 | — | 160 | 117 | 23 | — | 140 | ||||||||||||||||||||||||
|
Penelec
|
63 | 16 | — | 79 | 61 | 9 | — | 70 | ||||||||||||||||||||||||
| (1) |
Excludes cash balances: FirstEnergy — $193 million; FES — $153 million; OE —
$3 million; TE — $34 million;
JCP&L —
$3 million; Met-Ed — $(3) million and Penelec — $4
million.
|
|
| (2) |
Excludes cash balances: FirstEnergy — $137 million; FES — $43 million; OE — $66
million; TE — $2 million;
JCP&L —
$3 million and Penelec — $23 million.
|
196
Table of Contents
Proceeds from the sale of investments in available-for-sale securities, realized gains and
losses on those sales, and interest and dividend income for the three years ended December 31,
2010, 2009 and 2008 were as follows:
| Interest and | ||||||||||||||||
| December 31, 2010 | Sales Proceeds | Realized Gains | Realized Losses | Dividend Income | ||||||||||||
| (In millions) | ||||||||||||||||
|
FirstEnergy
|
$ | 3,172 | $ | 126 | $ | 107 | $ | 79 | ||||||||
|
FES
|
1,927 | 92 | 75 | 47 | ||||||||||||
|
OE
|
83 | 2 | — | 3 | ||||||||||||
|
TE
|
126 | 3 | 1 | 2 | ||||||||||||
|
JCP&L
|
411 | 10 | 10 | 14 | ||||||||||||
|
Met-Ed
|
460 | 13 | 14 | 7 | ||||||||||||
|
Penelec
|
165 | 6 | 7 | 6 | ||||||||||||
| Interest and | ||||||||||||||||
| December 31, 2009 | Sales Proceeds | Realized Gains | Realized Losses | Dividend Income | ||||||||||||
| (In millions) | ||||||||||||||||
|
FirstEnergy
|
$ | 2,229 | $ | 226 | $ | 155 | $ | 60 | ||||||||
|
FES
|
1,379 | 199 | 117 | 27 | ||||||||||||
|
OE
|
132 | 11 | 4 | 4 | ||||||||||||
|
TE
|
169 | 7 | 1 | 2 | ||||||||||||
|
JCP&L
|
397 | 6 | 12 | 14 | ||||||||||||
|
Met-Ed
|
68 | 2 | 13 | 7 | ||||||||||||
|
Penelec
|
84 | 1 | 8 | 6 | ||||||||||||
| Interest and | ||||||||||||||||
| December 31, 2008 | Sales Proceeds | Realized Gains | Realized Losses | Dividend Income | ||||||||||||
| (In millions) | ||||||||||||||||
|
FirstEnergy
|
$ | 1,657 | $ | 115 | $ | 237 | $ | 76 | ||||||||
|
FES
|
951 | 99 | 184 | 37 | ||||||||||||
|
OE
|
121 | 11 | 9 | 5 | ||||||||||||
|
TE
|
38 | 1 | — | 3 | ||||||||||||
|
JCP&L
|
248 | 1 | 17 | 14 | ||||||||||||
|
Met-Ed
|
181 | 2 | 17 | 9 | ||||||||||||
|
Penelec
|
118 | 1 | 10 | 8 | ||||||||||||
Unrealized gains applicable to the decommissioning trusts of FES, OE and TE are recognized in
OCI since fluctuations in fair value will eventually impact earnings. The decommissioning trusts of
JCP&L, Met-Ed and Penelec are subject to regulatory accounting. Net unrealized gains and losses are
recorded as regulatory assets or liabilities since the difference between investments held in trust
and the decommissioning liabilities will be recovered from or refunded to customers.
The investment policy for the nuclear decommissioning trust funds restricts or limits the ability
to hold certain types of assets including private or direct placements, warrants, securities of
FirstEnergy, investments in companies owning nuclear power plants, financial derivatives, preferred
stocks, securities convertible into common stock and securities of the trust fund’s custodian or
managers and their parents or subsidiaries.
During 2010, 2009 and 2008, FirstEnergy recognized $55 million, $176 million and $63 million of net
realized gains resulting from the sale of securities held in nuclear decommissioning trusts.
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Table of Contents
Held-To-Maturity Securities
The following table provides the amortized cost basis, unrealized gains and losses, and approximate
fair values of investments in held-to-maturity securities as of December 31, 2010 and 2009:
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||
| Cost | Unrealized | Unrealized | Fair | Cost | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
| Basis | Gains | Losses | Value | Basis | Gains | Losses | Value | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Debt Securities
|
||||||||||||||||||||||||||||||||
|
FirstEnergy
|
$ | 476 | $ | 91 | $ | — | $ | 567 | $ | 544 | $ | 72 | $ | — | $ | 616 | ||||||||||||||||
|
OE
|
190 | 51 | — | 241 | 217 | 29 | — | 246 | ||||||||||||||||||||||||
|
CEI
|
340 | 41 | — | 381 | 389 | 43 | — | 432 | ||||||||||||||||||||||||
Investments in emission allowances, employee benefits and cost and equity method investments
totaling $259 million as of December 31, 2010, and $264 million as of December 31, 2009, are not
required to be disclosed and are excluded from the amounts reported above.
Notes Receivable
The table below provides the approximate fair value and related carrying amounts of notes
receivable as of December 31, 2010 and 2009. The fair value of notes receivable represents the
present value of the cash inflows based on the yield to maturity. The yields assumed were based on
financial instruments with similar characteristics and terms. The maturity dates range from 2013
to 2021.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Value | Value | Value | Value | |||||||||||||
| (In millions) | ||||||||||||||||
|
Notes Receivable
|
||||||||||||||||
|
FirstEnergy
|
$ | 7 | $ | 8 | $ | 36 | $ | 35 | ||||||||
|
FES
|
— | — | 2 | 1 | ||||||||||||
|
TE
|
104 | 118 | 124 | 141 | ||||||||||||
(C) RECURRING FAIR VALUE MEASUREMENTS
Fair value is the price that would be received for an asset or paid to transfer a liability (exit
price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between willing market participants on the measurement date. A fair value hierarchy has
been established that prioritizes the inputs used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted market prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of
the fair value hierarchy are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of
the reporting date. Active markets are those where transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on an ongoing basis. FirstEnergy’s
Level 1 assets and liabilities primarily consist of exchange-traded derivatives and equity
securities listed on active exchanges that are held in various trusts.
Level 2 — Pricing inputs are either directly or indirectly observable in the market as of the
reporting date, other than quoted prices in active markets included in Level 1. FirstEnergy’s Level
2 assets and liabilities consist primarily of investments in debt securities held in various trusts
and commodity forwards. Additionally, Level 2 includes those financial instruments that are valued
using models or other valuation methodologies based on assumptions that are observable in the
marketplace throughout the full term of the instrument and can be derived from observable data or
are supported by observable levels at which transactions are executed in the marketplace. These
models are primarily industry-standard models that consider various assumptions, including quoted
forward prices for commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic measures. Instruments in
this category may include non-exchange-traded derivatives such as forwards and certain interest
rate swaps.
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Table of Contents
Level 3 — Pricing inputs include inputs that are generally less observable from objective sources.
These inputs may be used with internally developed methodologies that result in management’s best
estimate of fair value. FirstEnergy develops its view of the future market price of key commodities
through a combination of market observation and assessment (generally for the short term) and
fundamental modeling (generally for the long term). Key fundamental electricity model inputs are
generally directly observable in the market or derived from publicly available historic and
forecast data. Some key inputs reflect forecasts published by industry leading consultants who
generally employ similar fundamental modeling approaches. Fundamental model inputs and results, as
well as the selection of consultants, reflect the consensus of appropriate FirstEnergy management.
Level 3 instruments include those that may be more structured or otherwise tailored to customers’
needs. FirstEnergy’s Level 3 instruments consist exclusively of NUG contracts.
FirstEnergy utilizes market data and assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in the inputs to the
valuation technique. These inputs can be readily observable, market corroborated, or generally
unobservable. FirstEnergy primarily applies the market approach for recurring fair value
measurements using the best information available. Accordingly, FirstEnergy maximizes the use of
observable inputs and minimizes the use of unobservable inputs.
The determination of the fair value measures takes into consideration various factors. These
factors include nonperformance risk, including counterparty credit risk and the impact of credit
enhancements (such as cash deposits, LOCs and priority interests). The impact of nonperformance
risk was immaterial in the fair value measurements.
The following tables set forth financial assets and financial liabilities that are accounted for at
fair value by level within the fair value hierarchy as of December 31, 2010 and 2009. Assets and
liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement. FirstEnergy’s assessment of the significance of a particular input
to the fair value measurement requires judgment and may affect the fair valuation of assets and
liabilities and their placement within the fair value hierarchy levels. Transfers between levels
are recognized at the end of the reporting period. During 2010, there were no significant
transfers between Level 1, Level 2 and Level 3.
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Table of Contents
FirstEnergy Corp.
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on FirstEnergy’s Consolidated Balance Sheets at fair value at December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 597 | $ | — | $ | 597 | ||||||||
|
Derivative assets — commodity contracts
|
— | 250 | — | 250 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 122 | 122 | ||||||||||||
|
Equity securities
(2)
|
338 | — | — | 338 | ||||||||||||
|
Foreign government debt securities
|
— | 149 | — | 149 | ||||||||||||
|
U.S. government debt securities
|
— | 595 | — | 595 | ||||||||||||
|
U.S. state debt securities
|
— | 379 | — | 379 | ||||||||||||
|
Other
(4)
|
— | 219 | — | 219 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 338 | $ | 2,189 | $ | 122 | $ | 2,649 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — commodity contracts
|
$ | — | $ | (348 | ) | $ | — | $ | (348 | ) | ||||||
|
Derivative liabilities — NUG contracts
(1)
|
— | — | (466 | ) | (466 | ) | ||||||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | (348 | ) | $ | (466 | ) | $ | (814 | ) | |||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 338 | $ | 1,841 | $ | (344 | ) | $ | 1,835 | |||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 484 | $ | — | $ | 484 | ||||||||
|
Derivative assets — commodity contracts
|
— | 34 | — | 34 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 200 | 200 | ||||||||||||
|
Equity securities
(2)
|
295 | — | — | 295 | ||||||||||||
|
Foreign government debt securities
|
— | 279 | — | 279 | ||||||||||||
|
U.S. government debt securities
|
— | 558 | — | 558 | ||||||||||||
|
U.S. state debt securities
|
— | 478 | — | 478 | ||||||||||||
|
Other
(4)
|
— | 75 | — | 75 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 295 | $ | 1,908 | $ | 200 | $ | 2,403 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — commodity contracts
|
$ | (11 | ) | $ | (224 | ) | $ | — | $ | (235 | ) | |||||
|
Derivative liabilities — NUG contracts
(1)
|
— | — | (643 | ) | (643 | ) | ||||||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | (11 | ) | $ | (224 | ) | $ | (643 | ) | $ | (878 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 284 | $ | 1,684 | $ | (443 | ) | $ | 1,525 | |||||||
|
|
||||||||||||||||
| (1) |
NUG contracts are subject to regulatory accounting and do not impact earnings.
|
|
| (2) |
NDT funds hold equity portfolios whose performance is benchmarked against the S&P
500 Index or Russell 3000 Index.
|
|
| (3) |
Excludes $(7) million and $21 million as of December 31, 2010 and 2009,
respectively, of receivables, payables and accrued income associated with the financial
instruments reflected within the fair value table.
|
|
| (4) |
Primarily consists of cash and cash equivalents.
|
200
Table of Contents
Rollforward of Level 3 Measurements
The following table provides a reconciliation of changes in the fair value of NUG contracts held by
the Utilities and classified as Level 3 in the fair value hierarchy for the years ending December
31, 2010 and 2009:
| Derivative Asset | Derivative Liability | Net | ||||||||||
| NUG Contracts (1) | NUG Contracts (1) | NUG Contracts (1) | ||||||||||
| (In millions) | ||||||||||||
|
January 1, 2010 Balance
|
$ | 200 | $ | (643 | ) | $ | (443 | ) | ||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(71 | ) | (110 | ) | (181 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
(7 | ) | 287 | 280 | ||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2010 Balance
|
$ | 122 | $ | (466 | ) | $ | (344 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
January 1, 2009 Balance
|
$ | 434 | $ | (765 | ) | $ | (331 | ) | ||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(234 | ) | (236 | ) | (470 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
— | 358 | 358 | |||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2009 Balance
|
$ | 200 | $ | (643 | ) | $ | (443 | ) | ||||
|
|
||||||||||||
| (1) |
Changes in the fair value of NUG contracts are subject to regulatory
accounting and do not impact earnings.
|
201
Table of Contents
FirstEnergy Solutions Corp.
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on FES’ Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 528 | $ | — | $ | 528 | ||||||||
|
Derivative assets — commodity contracts
|
— | 241 | — | 241 | ||||||||||||
|
Foreign government debt securities
|
— | 147 | — | 147 | ||||||||||||
|
U.S. government debt securities
|
— | 308 | — | 308 | ||||||||||||
|
U.S. state debt securities
|
— | 6 | — | 6 | ||||||||||||
|
Other
(2)
|
— | 148 | — | 148 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | — | $ | 1,378 | $ | — | $ | 1,378 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — commodity contracts
|
$ | — | $ | (348 | ) | $ | — | $ | (348 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | (348 | ) | $ | — | $ | (348 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(1)
|
$ | — | $ | 1,030 | $ | — | $ | 1,030 | ||||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 443 | $ | — | $ | 443 | ||||||||
|
Derivative assets — commodity contracts
|
— | 15 | — | 15 | ||||||||||||
|
Foreign government debt securities
|
— | 279 | — | 279 | ||||||||||||
|
U.S. government debt securities
|
— | 306 | 306 | |||||||||||||
|
U.S. state debt securities
|
— | 15 | — | 15 | ||||||||||||
|
Other
(2)
|
— | 29 | — | 29 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | — | $ | 1,087 | $ | — | $ | 1,087 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — commodity contracts
|
$ | (11 | ) | $ | (224 | ) | $ | — | $ | (235 | ) | |||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | (11 | ) | $ | (224 | ) | $ | — | $ | (235 | ) | |||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(1)
|
$ | (11 | ) | $ | 863 | $ | — | $ | 852 | |||||||
|
|
||||||||||||||||
| (1) |
Excludes $7 million and $15 million as of December 31, 2010 and 2009,
respectively, of receivables, payables and accrued income associated with the financial
instruments reflected within the fair value table.
|
|
| (2) |
Primarily consists of cash and cash equivalents.
|
202
Table of Contents
Ohio Edison Company
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on OE’s Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
U.S. government debt securities
|
$ | — | $ | 124 | $ | — | $ | 124 | ||||||||
|
Other
|
— | 2 | — | 2 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
(1)
|
$ | — | $ | 126 | $ | — | $ | 126 | ||||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
U.S. government debt securities
|
$ | — | $ | 118 | $ | — | $ | 118 | ||||||||
|
Other
|
— | 2 | — | 2 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
(1)
|
$ | — | $ | 120 | $ | — | $ | 120 | ||||||||
|
|
||||||||||||||||
| (1) |
Excludes $1 million as of December 31, 2010 and 2009 of receivables, payables and
accrued income associated with the financial instruments reflected within the fair value
table.
|
Toledo Edison Company
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on TE’s Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 7 | $ | — | $ | 7 | ||||||||
|
U.S. government debt securities
|
— | 33 | — | 33 | ||||||||||||
|
U.S. state debt securities
|
— | 1 | — | 1 | ||||||||||||
|
Other
(2)
|
— | 35 | — | 35 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
(1)
|
$ | — | $ | 76 | $ | — | $ | 76 | ||||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
U.S. government debt securities
|
— | 72 | — | 72 | ||||||||||||
|
Other
|
— | — | — | — | ||||||||||||
|
|
||||||||||||||||
|
Total assets
(1)
|
$ | — | $ | 72 | $ | — | $ | 72 | ||||||||
|
|
||||||||||||||||
| (1) |
Excludes $2 million as of December 31, 2009 of receivables, payables and accrued
income associated with the financial instruments reflected within the fair value table.
|
|
| (2) |
Primarily consists of cash and cash equivalents.
|
203
Table of Contents
Jersey Central Power & Light Company
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on JCP&L’s Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 23 | $ | — | $ | 23 | ||||||||
|
Derivative assets — commodity contracts
|
— | 2 | — | 2 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 6 | 6 | ||||||||||||
|
Equity securities
(2)
|
96 | — | — | 96 | ||||||||||||
|
U.S. government debt securities
|
— | 33 | — | 33 | ||||||||||||
|
U.S. state debt securities
|
— | 236 | — | 236 | ||||||||||||
|
Other
|
— | 4 | — | 4 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 96 | $ | 298 | $ | 6 | $ | 400 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (233 | ) | $ | (233 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (233 | ) | $ | (233 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 96 | $ | 298 | $ | (227 | ) | $ | 167 | |||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 15 | $ | — | $ | 15 | ||||||||
|
Derivative assets — commodity contracts
|
— | 5 | — | 5 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 8 | 8 | ||||||||||||
|
Equity securities
(2)
|
87 | — | — | 87 | ||||||||||||
|
U.S. government debt securities
|
— | 23 | — | 23 | ||||||||||||
|
U.S. state debt securities
|
— | 230 | — | 230 | ||||||||||||
|
Other
|
— | 12 | — | 12 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 87 | $ | 285 | $ | 8 | $ | 380 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (399 | ) | $ | (399 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (399 | ) | $ | (399 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 87 | $ | 285 | $ | (391 | ) | $ | (19 | ) | ||||||
|
|
||||||||||||||||
| (1) |
NUG contracts are subject to regulatory accounting and do not impact earnings.
|
|
| (2) |
NDT funds hold equity portfolios whose performance is benchmarked against the S&P
500 Index or Russell 3000 Index.
|
|
| (3) |
Excludes $(3) million as of December 31, 2010 of receivables, payables and
accrued income associated with the financial instruments reflected within the fair value
table.
|
204
Table of Contents
Rollforward of Level 3 Measurements
The following table provides a reconciliation of changes in the fair value of NUG contracts held by
JCP&L and classified as Level 3 in the fair value hierarchy for the years ending December 31, 2010
and 2009:
| Derivative Asset | Derivative Liability | Net | ||||||||||
| NUG Contracts (1) | NUG Contracts (1) | NUG Contracts (1) | ||||||||||
| (In millions) | ||||||||||||
|
January 1, 2010 Balance
|
$ | 8 | $ | (399 | ) | $ | (391 | ) | ||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(1 | ) | 36 | 35 | ||||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
(1 | ) | 130 | 129 | ||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2010 Balance
|
$ | 6 | $ | (233 | ) | $ | (227 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
January 1, 2009 Balance
|
$ | 14 | $ | (531 | ) | $ | (517 | ) | ||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(6 | ) | (36 | ) | (42 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
— | 168 | 168 | |||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2009 Balance
|
$ | 8 | $ | (399 | ) | $ | (391 | ) | ||||
|
|
||||||||||||
| (1) |
Changes in the fair value of NUG contracts are subject to regulatory
accounting and do not impact earnings.
|
205
Table of Contents
Metropolitan Edison Company
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on Met-Ed’s Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 32 | $ | — | $ | 32 | ||||||||
|
Derivative assets — commodity contracts
|
— | 5 | — | 5 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 112 | 112 | ||||||||||||
|
Equity securities
(2)
|
160 | — | — | 160 | ||||||||||||
|
Foreign government debt securities
|
— | 1 | — | 1 | ||||||||||||
|
U.S. government debt securities
|
— | 88 | — | 88 | ||||||||||||
|
U.S. state debt securities
|
— | 2 | — | 2 | ||||||||||||
|
Other
|
— | 14 | — | 14 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 160 | $ | 142 | $ | 112 | $ | 414 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (116 | ) | $ | (116 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (116 | ) | $ | (116 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 160 | $ | 142 | $ | (4 | ) | $ | 298 | |||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 20 | $ | — | $ | 20 | ||||||||
|
Derivative assets — commodity contracts
|
— | 9 | — | 9 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 176 | 176 | ||||||||||||
|
Equity securities
(2)
|
133 | — | — | 133 | ||||||||||||
|
U.S. government debt securities
|
— | 30 | — | 30 | ||||||||||||
|
U.S. state debt securities
|
— | 82 | — | 82 | ||||||||||||
|
Other
|
— | 2 | — | 2 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 133 | $ | 143 | $ | 176 | $ | 452 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (143 | ) | $ | (143 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (143 | ) | $ | (143 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 133 | $ | 143 | $ | 33 | $ | 309 | ||||||||
|
|
||||||||||||||||
| (1) |
NUG contracts are subject to regulatory accounting and do not impact earnings.
|
|
| (2) |
NDT funds hold equity portfolios whose performance is benchmarked against the S&P
500 Index or Russell 3000 Index.
|
|
| (3) |
Excludes $(9) million and $1 million as of December 31, 2010 and 2009,
respectively, of receivables, payables and accrued income associated with the financial
instruments reflected within the fair value table.
|
206
Table of Contents
Rollforward of Level 3 Measurements
The following table provides a reconciliation of changes in the fair value of NUG contracts held by
Met-Ed and classified as Level 3 in the fair value hierarchy for the years ending December 31, 2010
and 2009:
| Derivative Asset | Derivative Liability | Net | ||||||||||
| NUG Contracts (1) | NUG Contracts (1) | NUG Contracts (1) | ||||||||||
| (In millions) | ||||||||||||
|
January 1, 2010 Balance
|
$ | 176 | $ | (143 | ) | $ | 33 | |||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(59 | ) | (38 | ) | (97 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
(5 | ) | 65 | 60 | ||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2010 Balance
|
$ | 112 | $ | (116 | ) | $ | (4 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
January 1, 2009 Balance
|
$ | 300 | $ | (150 | ) | $ | 150 | |||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(124 | ) | (81 | ) | (205 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
— | 88 | 88 | |||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2009 Balance
|
$ | 176 | $ | (143 | ) | $ | 33 | |||||
|
|
||||||||||||
| (1) |
Changes in the fair value of NUG contracts are subject to regulatory
accounting and do not impact earnings.
|
207
Table of Contents
Pennsylvania Electric Company
The following tables provide the fair value measurement amounts for assets and liabilities recorded
on Penelec’s Consolidated Balance Sheets at fair value as of December 31, 2010 and 2009:
| December 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 8 | $ | — | $ | 8 | ||||||||
|
Derivative assets — commodity contracts
|
— | 2 | — | 2 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 4 | 4 | ||||||||||||
|
Equity securities
(2)
|
81 | — | — | 81 | ||||||||||||
|
U.S. government debt securities
|
— | 9 | — | 9 | ||||||||||||
|
U.S. state debt securities
|
— | 133 | — | 133 | ||||||||||||
|
Other
|
— | 5 | — | 5 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 81 | $ | 157 | $ | 4 | $ | 242 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (117 | ) | $ | (117 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (117 | ) | $ | (117 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 81 | $ | 157 | $ | (113 | ) | $ | 125 | |||||||
|
|
||||||||||||||||
| December 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Corporate debt securities
|
$ | — | $ | 6 | $ | — | $ | 6 | ||||||||
|
Derivative assets — commodity contracts
|
— | 5 | — | 5 | ||||||||||||
|
Derivative assets — NUG contracts
(1)
|
— | — | 16 | 16 | ||||||||||||
|
Equity securities
(2)
|
74 | — | — | 74 | ||||||||||||
|
U.S. government debt securities
|
— | 9 | — | 9 | ||||||||||||
|
U.S. state debt securities
|
— | 151 | — | 151 | ||||||||||||
|
Other
|
— | 20 | — | 20 | ||||||||||||
|
|
||||||||||||||||
|
Total assets
|
$ | 74 | $ | 191 | $ | 16 | $ | 281 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Derivative liabilities — NUG contracts
(1)
|
$ | — | $ | — | $ | (101 | ) | $ | (101 | ) | ||||||
|
|
||||||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | (101 | ) | $ | (101 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net assets (liabilities)
(3)
|
$ | 74 | $ | 191 | $ | (85 | ) | $ | 180 | |||||||
|
|
||||||||||||||||
| (1) |
NUG contracts are subject to regulatory accounting and do not impact earnings.
|
|
| (2) |
NDT funds hold equity portfolios whose performance is benchmarked against the S&P
500 Index or Russell 3000 Index.
|
|
| (3) |
Excludes $(3) million and $3 million as of December 31, 2010 and 2009,
respectively, of receivables, payables and accrued income associated with the financial
instruments reflected within the fair value table.
|
208
Table of Contents
Rollforward of Level 3 Measurements
The following table provides a reconciliation of changes in the fair value of NUG and commodity
contracts held by Penelec and classified as Level 3 in the fair value hierarchy for the years
ending December 31, 2010 and 2009:
| Derivative Asset | Derivative Liability | Net | ||||||||||
| NUG Contracts (1) | NUG Contracts (1) | NUG Contracts (1) | ||||||||||
| (In millions) | ||||||||||||
|
January 1, 2010 Balance
|
$ | 16 | $ | (101 | ) | $ | (85 | ) | ||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(11 | ) | (108 | ) | (119 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
(1 | ) | 92 | 91 | ||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2010 Balance
|
$ | 4 | $ | (117 | ) | $ | (113 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
January 1, 2009 Balance
|
$ | 120 | $ | (84 | ) | $ | 36 | |||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Unrealized gain (loss)
|
(104 | ) | (119 | ) | (223 | ) | ||||||
|
Purchases
|
— | — | — | |||||||||
|
Issuances
|
— | — | — | |||||||||
|
Sales
|
— | — | — | |||||||||
|
Settlements
|
— | 102 | 102 | |||||||||
|
Transfers in (out) of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
December 31, 2009 Balance
|
$ | 16 | $ | (101 | ) | $ | (85 | ) | ||||
|
|
||||||||||||
| (1) |
Changes in the fair value of NUG contracts are subject to regulatory
accounting and do not impact earnings.
|
6. DERIVATIVE INSTRUMENTS
FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity
prices, including prices for electricity, natural gas and energy transmission. To manage the
volatility relating to these exposures, FirstEnergy uses a variety of derivative instruments,
including forward contracts, options, futures contracts and swaps. The derivatives are used for
risk management purposes. In addition to derivatives, FirstEnergy also enters into master netting
agreements with certain third parties. FirstEnergy’s Risk Policy Committee, comprised of members of
senior management, provides general management oversight for risk management activities throughout
FirstEnergy. The Committee is responsible for promoting the effective design and implementation of
sound risk management programs and oversees compliance with corporate risk management policies and
established risk management practices.
FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value
unless they meet the normal purchases and normal sales criteria. Derivatives that meet those
criteria are accounted for at cost under the accrual method of accounting. The changes in the fair
value of derivative instruments that do not meet the normal purchases and normal sales criteria are
included in purchased power, other expense, unrealized gain (loss) on derivative hedges in other
comprehensive income (loss), or as part of the value of the hedged item. Based on derivative
contracts held as of December 31, 2010, an adverse 10% change in commodity prices would decrease
net income by approximately $16 million ($10 million net of tax) during the next twelve months. A
hypothetical 10% increase in the interest rates associated with variable-rate debt would decrease
annual net income by approximately $1 million.
Cash Flow Hedges
FirstEnergy has used forward starting swap agreements to hedge a portion of the consolidated
interest rate risk associated with anticipated issuances of fixed-rate, long-term debt securities
of its subsidiaries. These derivatives were treated as cash flow hedges, protecting against the
risk of changes in future interest payments resulting from changes in benchmark U.S. Treasury rates
between the date of hedge inception and the date of the debt issuance. As of December 31, 2010, no
forward starting swap agreements were outstanding.
Total unamortized losses included in AOCL associated with prior interest rate cash flow hedges
totaled $92 million ($60 million net of tax) as of December 31, 2010. Based on current estimates,
approximately $11 million will be amortized to interest expense during the next twelve months. The
table below provides the activity of AOCL related to interest rate cash flow hedges for the years
ended December 31, 2010 and 2009.
209
Table of Contents
| Years Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Effective Portion
|
||||||||
|
Loss Recognized in AOCL
|
$ | — | $ | (18 | ) | |||
|
Reclassification from AOCL into Interest Expense
|
(11 | ) | (40 | ) | ||||
Fair Value Hedges
FirstEnergy has used fixed-for-floating interest rate swap agreements to hedge a portion of the
consolidated interest rate risk associated with the debt portfolio of its subsidiaries. These
derivatives were treated as fair value hedges of fixed-rate, long-term debt issues, protecting
against the risk of changes in the fair value of fixed-rate debt instruments due to lower interest
rates. As of December 31, 2010, no fixed-for-floating interest rate swap agreements were
outstanding.
Total unamortized gains included in long-term debt associated with prior fixed-for-floating
interest rate swap agreements totaled $124 million ($80 million net of tax) as of December 31,
2010. Based on current estimates, approximately $22 million will be amortized to interest expense
during the next twelve months. Reclassifications from long-term debt into interest expense totaled
$12 million during 2010.
Commodity Derivatives
FirstEnergy uses both physically and financially settled derivatives to manage its exposure to
volatility in commodity prices. Commodity derivatives are used for risk management purposes to
hedge exposures when it makes economic sense to do so, including circumstances where the hedging
relationship does not qualify for hedge accounting.
The following tables summarize the fair value of commodity derivatives on FirstEnergy’s
Consolidated Balance Sheets:
| Cash Flow Hedges | ||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||
| Fair Value | Fair Value | |||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||
|
Electricity Forwards
|
Electricity Forwards
|
|||||||||||||||||||
|
Current Assets
|
$ | 55 | $ | 3 |
Current Liabilities
|
$ | 58 | $ | 7 | |||||||||||
|
Noncurrent Assets
|
49 | 11 |
Noncurrent Liabilities
|
43 | 12 | |||||||||||||||
|
Natural Gas Futures
|
Natural Gas Futures
|
|||||||||||||||||||
|
Current Assets
|
— | — |
Current Liabilities
|
— | 9 | |||||||||||||||
|
Noncurrent Assets
|
— | — |
Noncurrent Liabilities
|
— | — | |||||||||||||||
|
Other
|
Other
|
|||||||||||||||||||
|
Current Assets
|
— | — |
Current Liabilities
|
— | 2 | |||||||||||||||
|
Noncurrent Assets
|
— | — |
Noncurrent Liabilities
|
— | — | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 104 | $ | 14 | $ | 101 | $ | 30 | ||||||||||||
|
|
||||||||||||||||||||
| Economic Hedges | ||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||
| Fair Value | Fair Value | |||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||
|
NUG Contracts
|
NUG Contracts
|
|||||||||||||||||||
|
Power Purchase
|
Power Purchase
|
|||||||||||||||||||
|
Contract Asset
|
$ | 122 | $ | 200 |
Contract Liability
|
$ | 466 | $ | 643 | |||||||||||
|
Other
|
Other
|
|||||||||||||||||||
|
Current Assets
|
96 | — |
Current Liabilities
|
208 | 106 | |||||||||||||||
|
Noncurrent Assets
|
50 | 19 |
Noncurrent Liabilities
|
38 | 97 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
268 | 219 | 712 | 846 | ||||||||||||||||
|
|
||||||||||||||||||||
|
Total Commodity Derivatives
|
$ | 372 | $ | 233 |
Total Commodity Derivatives
|
$ | 813 | $ | 876 | |||||||||||
|
|
||||||||||||||||||||
210
Table of Contents
Electricity forwards are used to balance expected sales with expected generation and purchased
power. Natural gas futures are entered into based on expected consumption of natural gas, primarily
used in FirstEnergy’s peaking units. Heating oil futures are entered into based on expected
consumption of oil and the financial risk in FirstEnergy’s coal transportation contracts.
Derivative instruments are not used in quantities greater than forecasted needs. The following
table summarizes the volume of FirstEnergy’s outstanding derivative transactions as of December 31,
2010:
| Purchases | Sales | Net | Units | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Electricity Forwards
|
42,227 | (45,164 | ) | (2,937 | ) | MWH | ||||||||||
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive
Income for the years ended December 31, 2010 and 2009 are summarized in the following tables:
| Electricity | Natural Gas | Heating Oil | ||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | Forwards | Futures | Futures | Total | ||||||||||||
| (In millions) | ||||||||||||||||
|
2010
|
||||||||||||||||
|
Gain (Loss) Recognized in AOCL (Effective Portion)
|
$ | — | $ | (1 | ) | $ | — | $ | (1 | ) | ||||||
|
Effective Gain (Loss) Reclassified to:
(1)
|
||||||||||||||||
|
Purchased Power Expense
|
(12 | ) | — | — | (12 | ) | ||||||||||
|
Fuel Expense
|
— | (10 | ) | (3 | ) | (13 | ) | |||||||||
|
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
Gain (Loss) Recognized in AOCL (Effective Portion)
|
$ | 7 | $ | (9 | ) | $ | 1 | $ | (1 | ) | ||||||
|
Effective Gain (Loss) Reclassified to:
(1)
|
||||||||||||||||
|
Purchased Power Expense
|
(6 | ) | — | — | (6 | ) | ||||||||||
|
Fuel Expense
|
— | (9 | ) | (12 | ) | (21 | ) | |||||||||
| (1) |
The ineffective portion was immaterial.
|
| NUG | ||||||||||||
| Derivatives Not in Hedging Relationships | Contracts | Other | Total | |||||||||
| (In millions) | ||||||||||||
|
2010
|
||||||||||||
|
Unrealized Gain (Loss) Recognized in:
|
||||||||||||
|
Purchased Power Expense
|
$ | — | $ | (24 | ) | $ | (24 | ) | ||||
|
Regulatory Assets
(1)
|
(181 | ) | — | (181 | ) | |||||||
|
|
||||||||||||
|
|
$ | (181 | ) | $ | (24 | ) | $ | (205 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Realized Gain (Loss) Reclassified to:
|
||||||||||||
|
Purchased Power Expense
|
$ | — | $ | (118 | ) | $ | (118 | ) | ||||
|
Regulatory Assets
(1)
|
(279 | ) | 9 | (270 | ) | |||||||
|
|
||||||||||||
|
|
$ | (279 | ) | $ | (109 | ) | $ | (388 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
2009
|
||||||||||||
|
Unrealized Gain (Loss) Recognized in:
|
||||||||||||
|
Purchased Power Expense
|
$ | — | $ | (203 | ) | $ | (203 | ) | ||||
|
Fuel Expense
|
— | (1 | ) | (1 | ) | |||||||
|
Regulatory Assets
(1)
|
(470 | ) | — | (470 | ) | |||||||
|
|
||||||||||||
|
|
$ | (470 | ) | $ | (204 | ) | $ | (674 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Realized Gain (Loss) Reclassified to:
|
||||||||||||
|
Purchased Power Expense
|
$ | — | $ | 1 | $ | 1 | ||||||
|
Fuel Expense
|
— | (1 | ) | (1 | ) | |||||||
|
Regulatory Assets
(1)
|
(358 | ) | 10 | (348 | ) | |||||||
|
|
||||||||||||
|
|
$ | (358 | ) | $ | 10 | $ | (348 | ) | ||||
|
|
||||||||||||
| (1) |
The realized gain (loss) is reclassified upon termination of the derivative
instrument.
|
211
Table of Contents
Total unamortized gains included in AOCL associated with commodity derivatives were $8 million ($5
million net of tax) as of December 31, 2010, as compared to unamortized losses of $15 million ($9
million net of tax) as of December 31, 2009. The net of tax change resulted from a net $1 million
loss related to current hedging activity offset by $15 million of net hedge losses reclassified to
earnings during 2010. Based on current estimates, approximately $3 million (net of tax) of the net
deferred losses on derivative instruments in AOCL as of December 31, 2010 are expected to be
reclassified to earnings during the next twelve months as hedged transactions occur. The fair value
of these derivative instruments fluctuates from period to period based on various market factors.
As of December 31, 2010, FES’ net liability position under commodity derivative contracts
was $107 million. Under these commodity derivative contracts,
FES posted collateral of $156
million. Certain commodity derivative contracts include credit risk-related contingent features
that would require FES to post additional collateral if the credit rating for its debt were
to fall below investment grade. The aggregate fair value of derivative instruments with credit
risk-related contingent features that were in a liability position on December 31, 2010 was $102
million, for which $91 million in collateral has been posted.
If FES’ credit rating were
to fall below investment grade, it would be required to post $24 million of additional collateral
related to commodity derivatives.
7. LEASES
FirstEnergy leases certain generating facilities, office space and other property and equipment
under cancelable and noncancelable leases.
In 1987, OE sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and
entered into operating leases on the portions sold for basic lease terms of approximately 29 years.
In that same year, CEI and TE also sold portions of their ownership interests in Beaver Valley Unit
2 and Bruce Mansfield Units 1, 2 and 3 and entered into similar operating leases for lease terms of
approximately 30 years. During the terms of their respective leases, OE, CEI and TE are
responsible, to the extent of their leasehold interests, for costs associated with the units
including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel,
property taxes and decommissioning. They have the right, at the expiration of the respective basic
lease terms, to renew their respective leases. They also have the right to purchase the facilities
at the expiration of the basic lease term or any renewal term at a price equal to the fair market
value of the facilities. The basic rental payments are adjusted when applicable federal tax law
changes.
Effective October 16, 2007 CEI and TE assigned their leasehold interests in the Bruce Mansfield
Plant to FGCO and FGCO assumed all of CEI’s and TE’s obligations arising under those leases. FGCO
subsequently transferred the Unit 1 portion of these leasehold interests, as well as FGCO’s
leasehold interests under its July 13, 2007 Bruce Mansfield Unit 1 sale and leaseback transaction,
to a newly formed wholly-owned subsidiary on December 17, 2007. The subsidiary assumed all of the
lessee obligations associated with the assigned interests. However, CEI and TE remain primarily
liable on the 1987 leases and related agreements. FGCO remains primarily liable on the 2007 leases
and related agreements, and FES remains primarily liable as a guarantor under the related 2007
guarantees, as to the lessors and other parties to the respective agreements. These assignments
terminate automatically upon the termination of the underlying leases.
In 2007, FGCO completed a sale and leaseback transaction for its 93.825% undivided interest in
Bruce Mansfield Unit 1 and entered into operating leases for basic lease terms of approximately 33
years. FES has unconditionally and irrevocably guaranteed all of FGCO’s obligations under each of
the leases.
During 2008, NGC purchased 56.8 MW of lessor equity interests in the OE 1987 sale and leaseback of
the Perry Plant and approximately 43.5 MW of lessor equity interests in the OE 1987 sale and
leaseback of Beaver Valley Unit 2. In addition, NGC purchased 158.5 MW of lessor equity interests
in the TE and CEI 1987 sale and leaseback of Beaver Valley Unit 2. The Ohio Companies continue to
lease these MW under their respective sale and leaseback arrangements and the related lease debt
remains outstanding.
212
Table of Contents
Rentals for capital and operating leases for the three years ended December 31, 2010 are summarized
as follows:
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Operating leases
|
$ | 228 | $ | 202 | $ | 147 | $ | 4 | $ | 64 | $ | 9 | $ | 7 | $ | 4 | ||||||||||||||||
|
Capital leases
|
||||||||||||||||||||||||||||||||
|
Interest
element
|
2 | 1 | — | 1 | — | — | — | — | ||||||||||||||||||||||||
|
Other
(1)
|
11 | 10 | — | — | — | — | 1 | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total rentals
|
$ | 241 | $ | 213 | $ | 147 | $ | 5 | $ | 64 | $ | 9 | $ | 8 | $ | 4 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Operating leases
|
$ | 236 | $ | 202 | $ | 146 | $ | 4 | $ | 64 | $ | 9 | $ | 7 | $ | 4 | ||||||||||||||||
|
Capital leases
|
||||||||||||||||||||||||||||||||
|
Interest
element
|
1 | 2 | 1 | 1 | — | — | — | — | ||||||||||||||||||||||||
|
Other
(1)
|
6 | 10 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total rentals
|
$ | 243 | $ | 214 | $ | 147 | $ | 5 | $ | 64 | $ | 9 | $ | 7 | $ | 4 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Operating leases
|
$ | 381 | $ | 173 | $ | 146 | $ | 5 | $ | 65 | $ | 8 | $ | 4 | $ | 4 | ||||||||||||||||
|
Capital leases
|
||||||||||||||||||||||||||||||||
|
Interest
element
|
1 | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Other
(1)
|
6 | 8 | — | 1 | — | — | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total rentals
|
$ | 388 | $ | 182 | $ | 146 | $ | 6 | $ | 65 | $ | 8 | $ | 4 | $ | 4 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) |
Includes $6 million in 2010 and 2009, respectively, and $5 million in 2008,
at FE and FES for wind purchased power agreements classified as capital leases.
|
The future minimum capital lease payments as of December 31, 2010 are as follows (OE, TE,
JCP&L, Met-Ed and Penelec have no material capital leases):
| Capital leases | FE | FES | CEI | |||||||||
| (In millions) | ||||||||||||
|
2011
|
$ | 7 | $ | 6 | $ | 1 | ||||||
|
2012
|
7 | 6 | 1 | |||||||||
|
2013
|
7 | 6 | 1 | |||||||||
|
2014
|
7 | 6 | 1 | |||||||||
|
2015
|
7 | 5 | 1 | |||||||||
|
Years thereafter
|
14 | 12 | 2 | |||||||||
|
|
||||||||||||
|
Total minimum lease payments
|
49 | 41 | 7 | |||||||||
|
Executory costs
|
— | — | — | |||||||||
|
|
||||||||||||
|
Net minimum lease payments
|
49 | 41 | 7 | |||||||||
|
Interest portion
|
(10 | ) | (5 | ) | (4 | ) | ||||||
|
|
||||||||||||
|
Present value of net minimum
lease payments
|
39 | 36 | 3 | |||||||||
|
Less current portion
|
5 | 5 | — | |||||||||
|
|
||||||||||||
|
Noncurrent portion
|
$ | 34 | $ | 31 | $ | 3 | ||||||
|
|
||||||||||||
The present value of minimum lease payments for FirstEnergy does not include $15 million of
capital lease obligations that were prepaid as of December 31, 2010.
Established by OE in 1996, PNBV purchased a portion of the lease obligation bonds issued on behalf
of lessors in OE’s Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions.
Similarly, CEI and TE established Shippingport in 1997 to purchase the lease obligation bonds
issued on behalf of lessors in their Bruce Mansfield Units 1, 2 and 3 sale and leaseback
transactions. The PNBV and Shippingport arrangements effectively reduce lease costs related to
those transactions (see Note 8).
213
Table of Contents
The future minimum consolidated operating lease payments as of December 31, 2010 are as follows:
| Lease | Capital | |||||||||||
| Operating Leases | Payments | Trust | Net | |||||||||
| (In millions) | ||||||||||||
|
2011
|
$ | 329 | $ | 116 | $ | 213 | ||||||
|
2012
|
365 | 125 | 240 | |||||||||
|
2013
|
367 | 130 | 237 | |||||||||
|
2014
|
363 | 131 | 232 | |||||||||
|
2015
|
365 | 91 | 274 | |||||||||
|
Years thereafter
|
2,150 | 32 | 2,118 | |||||||||
|
|
||||||||||||
|
Total minimum lease payments
|
$ | 3,939 | $ | 625 | $ | 3,314 | ||||||
|
|
||||||||||||
| Operating Leases | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
2011
|
$ | 192 | $ | 146 | $ | 4 | $ | 64 | $ | 6 | $ | 4 | $ | 3 | ||||||||||||||
|
2012
|
230 | 147 | 3 | 64 | 5 | 4 | 3 | |||||||||||||||||||||
|
2013
|
236 | 147 | 3 | 64 | 5 | 4 | 3 | |||||||||||||||||||||
|
2014
|
234 | 146 | 3 | 64 | 5 | 4 | 2 | |||||||||||||||||||||
|
2015
|
238 | 146 | 3 | 64 | 4 | 4 | 2 | |||||||||||||||||||||
|
Years thereafter
|
1,895 | 166 | 6 | 79 | 48 | 40 | 23 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total minimum lease
payments
|
$ | 3,025 | $ | 898 | $ | 22 | $ | 399 | $ | 73 | $ | 60 | $ | 36 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
FirstEnergy recorded above-market lease liabilities for Beaver Valley Unit 2 and the Bruce
Mansfield Plant associated with the 1997 merger between OE and Centerior. The unamortized
above-market lease liability for Beaver Valley Unit 2 of $236 million as of December 31, 2010, of
which $37 million is classified as current, is being amortized by TE on a straight-line basis
through the end of the lease term in 2017. The unamortized above-market lease liability for the
Bruce Mansfield Plant of $262 million as of December 31, 2010, of which $46 million is classified
as current, is being amortized by FGCO on a straight-line basis through the end of the lease term
in 2016.
8. VARIABLE INTEREST ENTITIES
On January 1, 2010, FirstEnergy adopted the amendments to the consolidation topic addressing VIEs.
This standard requires that FirstEnergy and its subsidiaries perform a qualitative analysis to determine whether
a variable interest gives FirstEnergy or its subsidiaries a controlling financial interest in a VIE. This analysis identifies
the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of a VIE that most significantly
impacts the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant
to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. This standard also
requires an ongoing reassessment of the primary beneficiary of a VIE and eliminates the quantitative approach previously required
for determining whether an entity is the primary beneficiary. In order to evaluate contracts under the consolidation guidance,
FirstEnergy aggregated contracts into categories based on similar risk characteristics and significance. The adoption of
this new standard did not result in a change in the consolidation of VIEs by FirstEnergy or its subsidiaries.
FirstEnergy’s consolidated financial statements include the accounts of entities in which it has a controlling financial interest.
FirstEnergy consolidates certain VIEs in which it has financial control through disproportionate economics in its equity and debt
investments in the entities. These VIEs include: FEV’s joint venture in the Signal Peak mining and coal transportation operations;
the PNBV and Shippingport bond trusts that were created to refinance debt originally issued in connection with sale and leaseback
transactions; and wholly owned limited liability companies of JCP&L created to sell transition bonds to securitize the recovery of
JCP&L’s bondable stranded costs associated with the previously divested Oyster Creek Nuclear Generating Station, of which $310 million
was outstanding as of December 31, 2010.
FirstEnergy and its subsidiaries reflect the portion of VIEs not owned by them in the caption noncontrolling interest within the
consolidated financial statements. The change in noncontrolling interest on the Consolidated Balance Sheets is the result of net
losses of the noncontrolling interests ($24 million) and distributions to owners ($5 million) during the year ended December 31, 2010.
214
Table of Contents
Mining Operations
On July 16, 2008, FEV entered into a joint venture with WMB Loan Ventures LLC and WMB Loan Ventures
II LLC, to acquire a majority stake in the Signal Peak mining and coal transportation operations
near Roundup, Montana. FEV made a $125 million equity investment in the joint venture, which
acquired 80% of the mining operations (Signal Peak Energy, LLC) and 100% of the transportation
operations, with FEV owning a 45% economic interest and an affiliate of WMB Loan Ventures LLC and
WMB Loan Ventures II LLC owning a 55% economic interest in the joint venture. Both parties have a
50% voting interest in the joint venture. FEV consolidates the mining and transportation operations
of this joint venture in its financial statements. In March 2009, FEV agreed to pay a total of $8.5
million to affiliates of WMB Loan Ventures LLC and WMB Loan Ventures II LLC to purchase an
additional 5% economic interest in the Signal Peak mining and coal transportation operations.
Voting interests remained unchanged after the sale was completed in July 2009. Effective August 21,
2009, the joint venture acquired the remaining 20% stake in the mining operations by issuing a
five-year note for $47.5 million. For both acquisitions, the difference between the consideration
paid and the adjustment to the noncontrolling interest resulted in a charge to other paid in
capital of approximately $30 million.
Trusts
FirstEnergy’s consolidated financial statements include PNBV and Shippingport, VIEs created in 1996
and 1997, respectively, to refinance debt originally issued in connection with sale and leaseback
transactions. PNBV and Shippingport financial data are included in the consolidated financial
statements of OE and CEI, respectively.
PNBV was established to purchase a portion of the lease obligation bonds issued in connection with
OE’s 1987 sale and leaseback of its interests in the Perry Plant and Beaver Valley Unit 2. OE used
debt and available funds to purchase the notes issued by PNBV for the purchase of lease obligation
bonds. Ownership of PNBV includes a 3% equity interest by an unaffiliated third party and a 3%
equity interest held by OES Ventures, a wholly owned subsidiary of OE. Shippingport was established
to purchase all of the lease obligation bonds issued in connection with CEI’s and TE’s Bruce
Mansfield Plant sale and leaseback transaction in 1987. CEI and TE used debt and available funds to
purchase the notes issued by Shippingport.
Power Purchase Agreements
FirstEnergy subsidiaries JCPL, Met-Ed and Penelec have 21 long term power purchase agreements
totaling 1,339 MW with NUG entities. The agreements were entered into pursuant to the Public
Utility Regulatory Policies Act of 1978. FirstEnergy was not involved in the creation of, and has
no equity or debt invested in, these entities. FirstEnergy evaluated these power purchase
agreements to determine if certain NUG entities may be VIEs to the extent they own a plant that
sells substantially all of its output to the Utilities and the contract price for power is
correlated with the plant’s variable costs of production.
FirstEnergy has determined that for all but two of these NUG entities, neither JCP&L, nor Met-Ed
nor Penelec have variable interests in the entities or the entities are governmental or
not-for-profit organizations that are not within the scope of consolidation consideration for VIEs.
JCP&L may hold variable interests in the remaining two entities, which sell their output at
variable prices that correlate to some extent with the operating costs of the plants. However,
FirstEnergy applied the scope exception that exempts enterprises unable to obtain the necessary
information to evaluate entities.
Since JCP&L has no equity or debt interests in the NUG entities, its maximum exposure to loss
relates primarily to the above-market costs it incurs for power. FirstEnergy expects any
above-market costs it incurs to be recovered from customers. Purchased power costs related to the
two contracts that may contain a variable interest were $243 million and $225 million for the years
ended December 31, 2010 and 2009, respectively.
Loss Contingencies
FirstEnergy has variable interests in certain sale-leaseback transactions. FirstEnergy is not the
primary beneficiary of these interests as it does not have control over the significant activities
affecting the economics of the arrangement.
215
Table of Contents
FES and the Ohio Companies are exposed to losses under their applicable sale-leaseback agreements
upon the occurrence of certain contingent events that each company considers unlikely to occur. The
maximum exposure under these provisions represents the net amount of casualty value payments due
upon the occurrence of specified casualty events that render the applicable plant worthless. Net
discounted lease payments would not be payable if the casualty loss payments were made. The
following table discloses each company’s net exposure to loss based upon the casualty value
provisions mentioned above as of December 31, 2010:
| Maximum | Discounted Lease | Net | ||||||||||
| Exposure | Payments, net (1) | Exposure | ||||||||||
| (In millions) | ||||||||||||
|
FES
|
$ | 1,360 | $ | 1,167 | $ | 193 | ||||||
|
OE
|
666 | 474 | 192 | |||||||||
|
CEI
(2)
|
622 | 72 | 550 | |||||||||
|
TE
(2)
|
622 | 346 | 276 | |||||||||
| (1) |
The net present value of FirstEnergy’s consolidated sale and leaseback operating lease commitments is $1.6 billion.
|
|
| (2) |
CEI and TE are jointly and severally liable for the maximum loss amounts under certain sale-leaseback agreements.
|
See Note 7 for a discussion of CEI’s and TE’s assignment of their leasehold interests in the
Bruce Mansfield Plant to FGCO.
9. INCOME TAXES
Income Taxes
FirstEnergy records income taxes in accordance with the liability method of accounting. Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts recognized for tax
purposes. Investment tax credits, which were deferred when utilized, are being amortized over the
recovery period of the related property. Deferred income tax liabilities related to temporary tax
and accounting basis differences and tax credit carryforward items are recognized at the statutory
income tax rates in effect when the liabilities are expected to be paid. Deferred tax assets are
recognized based on income tax rates expected to be in effect when they are settled. Details of
income taxes for the three years ended December 31, 2010 are shown below:
216
Table of Contents
| PROVISION FOR INCOME TAXES | FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Currently payable-
|
||||||||||||||||||||||||||||||||
|
Federal
|
$ | (23 | ) | $ | (23 | ) | $ | 37 | $ | 58 | $ | (9 | ) | $ | 81 | $ | 1 | $ | (81 | ) | ||||||||||||
|
State
|
35 | (2 | ) | (2 | ) | 1 | (1 | ) | 36 | 12 | (12 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
12 | (25 | ) | 35 | 59 | (10 | ) | 117 | 13 | (93 | ) | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Deferred, net-
|
||||||||||||||||||||||||||||||||
|
Federal
|
451 | 165 | 45 | (15 | ) | 27 | 30 | 33 | 117 | |||||||||||||||||||||||
|
State
|
28 | 15 | 3 | (4 | ) | 1 | 1 | (3 | ) | 17 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
479 | 180 | 48 | (19 | ) | 28 | 31 | 30 | 134 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Investment tax credit amortization
|
(9 | ) | (4 | ) | (1 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for
income taxes
|
$ | 482 | $ | 151 | $ | 82 | $ | 39 | $ | 18 | $ | 148 | $ | 43 | - | 41 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Currently payable-
|
||||||||||||||||||||||||||||||||
|
Federal
|
$ | (183 | ) | $ | 87 | $ | 21 | $ | 40 | $ | 6 | $ | 40 | $ | (34 | ) | $ | (21 | ) | |||||||||||||
|
State
|
44 | 8 | 4 | 2 | — | 26 | (4 | ) | 4 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
(139 | ) | 95 | 25 | 42 | 6 | 66 | (38 | ) | (17 | ) | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Deferred, net-
|
||||||||||||||||||||||||||||||||
|
Federal
|
351 | 200 | 40 | (52 | ) | — | 41 | 60 | 60 | |||||||||||||||||||||||
|
State
|
42 | 24 | 3 | 1 | 2 | 2 | 7 | 4 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
393 | 224 | 43 | (51 | ) | 2 | 43 | 67 | 64 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Investment tax credit amortization
|
(9 | ) | (4 | ) | (2 | ) | (1 | ) | — | — | — | (1 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for
income taxes
|
$ | 245 | $ | 315 | $ | 66 | $ | (10 | ) | $ | 8 | $ | 109 | $ | 29 | $ | 46 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Currently payable-
|
||||||||||||||||||||||||||||||||
|
Federal
|
$ | 355 | $ | 156 | $ | 79 | $ | 119 | $ | 46 | $ | 101 | $ | 5 | $ | (34 | ) | |||||||||||||||
|
State
|
56 | 20 | 4 | 6 | — | 34 | 6 | (3 | ) | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
411 | 176 | 83 | 125 | 46 | 135 | 11 | (37 | ) | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Deferred, net-
|
||||||||||||||||||||||||||||||||
|
Federal
|
343 | 109 | 22 | 16 | (12 | ) | 9 | 47 | 84 | |||||||||||||||||||||||
|
State
|
36 | 12 | (2 | ) | (2 | ) | (4 | ) | 4 | 4 | 12 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
379 | 121 | 20 | 14 | (16 | ) | 13 | 51 | 96 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Investment tax credit amortization
|
(13 | ) | (4 | ) | (4 | ) | (2 | ) | — | — | (1 | ) | (1 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for
income taxes
|
$ | 777 | $ | 293 | $ | 99 | $ | 137 | $ | 30 | $ | 148 | $ | 61 | $ | 58 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
As a result of the Patient Protection and Affordable Care Act and the Health Care and Education
Affordability Reconciliation Act signed into law on March 23, 2010 and March 30, 2010,
respectively, beginning in 2013 the tax deduction available to FirstEnergy will be reduced to the
extent that drug costs are reimbursed under the Medicare Part D retiree subsidy program. As retiree
healthcare liabilities and related tax impacts under prior law were already reflected in
FirstEnergy’s consolidated financial statements, the change resulted in a charge to FirstEnergy’s
earnings in 2010 of approximately $13 million and a reduction in accumulated deferred tax assets
associated with these subsidies. This change reflects the anticipated increase in income taxes
that will occur as a result of the change in tax law.
FES and the Utilities are party to an intercompany income tax allocation agreement with FirstEnergy
and its other subsidiaries that provides for the allocation of consolidated tax liabilities. Net
tax benefits attributable to FirstEnergy, excluding any tax benefits derived from interest expense
associated with acquisition indebtedness from the merger with GPU, are reallocated to the
subsidiaries of FirstEnergy that have taxable income. That allocation is accounted for as a capital
contribution to the company receiving the tax benefit.
The following tables provide a reconciliation of federal income tax expense at the federal
statutory rate to the total provision for income taxes for the three years ended December 31, 2010.
217
Table of Contents
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Book income before provision for income taxes
|
$ | 1,266 | $ | 420 | $ | 239 | $ | 110 | $ | 51 | $ | 340 | $ | 101 | $ | 101 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Federal income tax expense at statutory rate
|
$ | 443 | $ | 147 | $ | 84 | $ | 39 | $ | 18 | $ | 119 | $ | 35 | $ | 35 | ||||||||||||||||
|
Increases (reductions) in taxes resulting from-
|
||||||||||||||||||||||||||||||||
|
Amortization of investment tax credits
|
(9 | ) | (4 | ) | (1 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||
|
State income taxes, net of federal tax benefit
|
41 | 9 | 1 | (2 | ) | — | 24 | 6 | 3 | |||||||||||||||||||||||
|
Manufacturing deduction
|
— | 2 | (2 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Medicare Part D
|
13 | — | — | 3 | 1 | 3 | 2 | 3 | ||||||||||||||||||||||||
|
Effectively settled tax items
|
(34 | ) | (2 | ) | (9 | ) | (4 | ) | (3 | ) | — | — | — | |||||||||||||||||||
|
Other, net
|
28 | (1 | ) | 9 | 4 | 2 | 2 | — | — | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for income taxes
|
$ | 482 | $ | 151 | $ | 82 | $ | 39 | $ | 18 | $ | 148 | $ | 43 | $ | 41 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Book income before provision for income taxes
|
$ | 1,251 | $ | 892 | $ | 188 | $ | (23 | ) | $ | 32 | $ | 279 | $ | 84 | $ | 111 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Federal income tax expense at statutory rate
|
$ | 438 | $ | 312 | $ | 66 | $ | (8 | ) | $ | 11 | $ | 98 | $ | 29 | $ | 39 | |||||||||||||||
|
Increases (reductions) in taxes resulting from-
|
||||||||||||||||||||||||||||||||
|
Amortization of investment tax credits
|
(9 | ) | (4 | ) | (2 | ) | (1 | ) | — | — | — | (1 | ) | |||||||||||||||||||
|
State income taxes, net of federal tax benefit
|
56 | 21 | 5 | 2 | 1 | 18 | 2 | 5 | ||||||||||||||||||||||||
|
Manufacturing deduction
|
(13 | ) | (11 | ) | (2 | ) | 1 | (1 | ) | — | — | — | ||||||||||||||||||||
|
Effectively settled tax items
|
(217 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
|
Other, net
|
(10 | ) | (3 | ) | (1 | ) | (4 | ) | (3 | ) | (7 | ) | (2 | ) | 3 | |||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for income taxes
|
$ | 245 | $ | 315 | $ | 66 | $ | (10 | ) | $ | 8 | $ | 109 | $ | 29 | $ | 46 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Book income before provision for income taxes
|
$ | 2,119 | $ | 800 | $ | 310 | $ | 421 | $ | 105 | $ | 335 | $ | 149 | $ | 146 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Federal income tax expense at statutory rate
|
$ | 742 | $ | 280 | $ | 109 | $ | 147 | $ | 37 | $ | 117 | $ | 52 | $ | 51 | ||||||||||||||||
|
Increases (reductions) in taxes resulting from-
|
||||||||||||||||||||||||||||||||
|
Amortization of investment tax credits
|
(13 | ) | (4 | ) | (4 | ) | (2 | ) | — | — | (1 | ) | (1 | ) | ||||||||||||||||||
|
State income taxes, net of federal tax benefit
|
60 | 21 | 1 | 2 | (2 | ) | 25 | 7 | 5 | |||||||||||||||||||||||
|
Manufacturing deduction
|
(29 | ) | (16 | ) | (3 | ) | (8 | ) | (2 | ) | — | — | — | |||||||||||||||||||
|
Effectively settled tax items
|
(14 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
|
Other, net
|
31 | 12 | (4 | ) | (2 | ) | (3 | ) | 6 | 3 | 3 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total provision for income taxes
|
$ | 777 | $ | 293 | $ | 99 | $ | 137 | $ | 30 | $ | 148 | $ | 61 | $ | 58 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
218
Table of Contents
Accumulated deferred income taxes as of December 31, 2010 and 2009 are as follows:
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
DECEMBER 31, 2010
|
||||||||||||||||||||||||||||||||
|
Property basis differences
|
$ | 3,617 | $ | 645 | $ | 571 | $ | 471 | $ | 196 | $ | 651 | $ | 354 | $ | 439 | ||||||||||||||||
|
Regulatory transition charge
|
235 | 12 | 37 | 89 | 3 | 95 | (1 | ) | — | |||||||||||||||||||||||
|
Customer receivables for future income taxes
|
113 | — | — | — | — | 13 | 48 | 52 | ||||||||||||||||||||||||
|
Deferred customer shopping incentive
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Deferred MISO/PJM transmission costs
|
85 | — | — | — | — | — | 62 | 23 | ||||||||||||||||||||||||
|
Other regulatory assets — RCP
|
166 | — | 82 | 56 | 28 | — | — | — | ||||||||||||||||||||||||
|
Deferred sale and leaseback gain
|
(469 | ) | (412 | ) | (35 | ) | — | — | (10 | ) | (12 | ) | — | |||||||||||||||||||
|
Nonutility generation costs
|
51 | — | — | — | — | — | 55 | (4 | ) | |||||||||||||||||||||||
|
Unamortized investment tax credits
|
(44 | ) | (20 | ) | (4 | ) | (4 | ) | (2 | ) | (2 | ) | (5 | ) | (4 | ) | ||||||||||||||||
|
Unrealized losses on derivative hedges
|
(29 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
|
Pension and other postretirement obligations
|
(686 | ) | (99 | ) | (57 | ) | (31 | ) | (27 | ) | (74 | ) | (13 | ) | (81 | ) | ||||||||||||||||
|
Lease market valuation liability
|
(197 | ) | (82 | ) | — | — | (81 | ) | — | — | — | |||||||||||||||||||||
|
Oyster Creek securitization (Note 11(C))
|
109 | — | — | — | — | 109 | — | — | ||||||||||||||||||||||||
|
Nuclear decommissioning activities
|
47 | 79 | 7 | (1 | ) | 15 | (8 | ) | 2 | (47 | ) | |||||||||||||||||||||
|
Mark-to-market adjustments
|
(42 | ) | (42 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
Deferred gain for asset sales —
affiliated companies
|
— | — | 34 | 22 | 7 | — | — | — | ||||||||||||||||||||||||
|
Allowance for equity funds used
used during construction
|
12 | — | 12 | — | — | — | — | — | ||||||||||||||||||||||||
|
Loss carryforwards
|
(41 | ) | (10 | ) | — | — | — | — | — | (23 | ) | |||||||||||||||||||||
|
Loss carryforward valuation reserve
|
21 | 9 | — | — | — | — | — | 7 | ||||||||||||||||||||||||
|
All other
|
(69 | ) | (22 | ) | 49 | 21 | (7 | ) | (58 | ) | (17 | ) | 10 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net deferred income tax liability
|
$ | 2,879 | $ | 58 | $ | 696 | $ | 623 | $ | 132 | $ | 716 | $ | 473 | $ | 372 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
DECEMBER 31, 2009
|
||||||||||||||||||||||||||||||||
|
Property basis differences
|
$ | 3,049 | $ | 619 | $ | 508 | $ | 419 | $ | 177 | $ | 458 | $ | 275 | $ | 350 | ||||||||||||||||
|
Regulatory transition charge
|
334 | — | 67 | 95 | 2 | 157 | 13 | — | ||||||||||||||||||||||||
|
Customer receivables for future income taxes
|
111 | — | — | — | — | 13 | 49 | 49 | ||||||||||||||||||||||||
|
Deferred customer shopping incentive
|
55 | — | — | 55 | — | — | — | — | ||||||||||||||||||||||||
|
Deferred MISO/PJM transmission costs
|
89 | — | — | — | — | — | 90 | (1 | ) | |||||||||||||||||||||||
|
Other regulatory assets — RCP
|
162 | — | 80 | 54 | 28 | — | ||||||||||||||||||||||||||
|
Deferred sale and leaseback gain
|
(486 | ) | (426 | ) | (40 | ) | — | — | (9 | ) | (11 | ) | — | |||||||||||||||||||
|
Nonutility generation costs
|
9 | — | — | — | — | — | 48 | (39 | ) | |||||||||||||||||||||||
|
Unamortized investment tax credits
|
(48 | ) | (22 | ) | (4 | ) | (4 | ) | (2 | ) | (2 | ) | (5 | ) | (4 | ) | ||||||||||||||||
|
Unrealized losses on derivative hedges
|
(44 | ) | (8 | ) | — | — | — | (1 | ) | (1 | ) | — | ||||||||||||||||||||
|
Pension and other postretirement obligations
|
(611 | ) | (75 | ) | (57 | ) | (18 | ) | (34 | ) | (72 | ) | (20 | ) | (83 | ) | ||||||||||||||||
|
Lease market valuation liability
|
(232 | ) | (101 | ) | — | — | (111 | ) | — | — | — | |||||||||||||||||||||
|
Oyster Creek securitization (Note 11(C))
|
132 | — | — | — | — | 132 | — | — | ||||||||||||||||||||||||
|
Nuclear decommissioning activities
|
(34 | ) | 23 | 5 | — | 12 | (19 | ) | (1 | ) | (52 | ) | ||||||||||||||||||||
|
Mark-to-market adjustments
|
(76 | ) | (76 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
Deferred gain for asset sales —
affiliated companies
|
— | — | 37 | 25 | 8 | — | — | — | ||||||||||||||||||||||||
|
Allowance for equity funds used
used during construction
|
15 | — | 15 | — | — | — | — | — | ||||||||||||||||||||||||
|
Loss carryforwards
|
(33 | ) | (8 | ) | — | — | — | — | — | (13 | ) | |||||||||||||||||||||
|
Loss carryforward valuation reserve
|
21 | 7 | — | — | — | — | — | 5 | ||||||||||||||||||||||||
|
All other
|
55 | (20 | ) | 49 | 19 | 1 | 31 | 16 | 30 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net deferred income tax liability (asset)
|
$ | 2,468 | $ | (87 | ) | $ | 660 | $ | 645 | $ | 81 | $ | 688 | $ | 453 | $ | 242 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
219
Table of Contents
FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements.
Accounting guidance prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of tax positions taken or expected to be taken on a company’s
tax return. After reaching settlements at appeals in 2010 related primarily to the capitalization
of certain costs for the tax years 2004-2008 and an unrelated federal tax matter related to prior
year gains and losses recognized from the disposition of assets, as well as receiving final
approval from the Joint Committee on Taxation for several items that were under appeals for tax
years 2001-2003, FirstEnergy recognized approximately $78 million of net tax benefits in 2010,
including $21 million that favorably affected FirstEnergy’s effective tax rate. The remaining
portion of the tax benefit increased FirstEnergy’s accumulated deferred income taxes.
Upon reaching a settlement on several items under appeal for the tax years 2001-2003, as well as
other items that effectively settled in 2009, FirstEnergy recognized approximately $100 million of
net tax benefits, including $161 million that favorably affected FirstEnergy’s effective tax rate.
The offsetting $61 million primarily related to tax items where the uncertainty was removed and the
tax refund will be received when the tax years are closed.
Upon completion of the federal tax examinations for tax years 2004-2006, as well as other tax
settlements reached in 2008, FirstEnergy recognized approximately $42 million of net tax benefits,
including $7 million that favorably affected FirstEnergy’s effective tax rate. The remaining
balance of the tax benefits recognized in 2008 adjusted goodwill as a purchase price adjustment
($20 million) and accumulated deferred income taxes for temporary tax items ($15 million).
As of December 31, 2010, it is reasonably possible that approximately $42 million of the
unrecognized benefits may be resolved within the next twelve months, of which up to approximately
$2 million, if recognized, would affect FirstEnergy’s effective tax rate. The potential decrease in
the amount of unrecognized tax benefits is primarily associated with issues related to the
capitalization of certain costs and various state tax items.
In 2009, FirstEnergy, on behalf of the Utilities, filed a change in accounting method related to
the costs to repair and maintain electric utility network (transmission and distribution) assets.
In 2010, approximately $325 million of costs were included as a repair deduction on FirstEnergy’s
2009 consolidated tax return, which reduced taxable income and increased the amount of tax refunds
that were applied to FirstEnergy’s 2010 estimated federal tax payments. Due to the flow through of
the Pennsylvania state income tax benefit for this change in accounting, FirstEnergy’s effective
tax rate was reduced by $6 million in 2010. In connection with completing FirstEnergy’s 2009
consolidated tax return, FES recognized an $8 million adjustment that increased its income tax
expense in 2010. The effects of these adjustments were not material to 2009 or 2010.
In 2008, FirstEnergy, on behalf of FGCO and NGC, filed a change in accounting method related to the
costs to repair and maintain electric generation stations. During the second quarter of 2009, the
IRS approved the change in accounting method and $281 million of costs were included as a repair
deduction on FirstEnergy’s 2008 consolidated tax return. Since the IRS did not complete its review
over this change in accounting method by the extended filing date of FirstEnergy’s federal tax
return, FirstEnergy increased the amount of unrecognized tax benefits by $34 million in the third
quarter of 2009, with a corresponding adjustment to accumulated deferred income taxes for this
temporary tax item. There was no impact on FirstEnergy’s effective tax rate for 2009.
220
Table of Contents
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Balance, January 1, 2010
|
$ | 191 | $ | 41 | $ | 77 | $ | 29 | $ | 6 | $ | 14 | $ | 13 | $ | 11 | ||||||||||||||||
|
Increase for tax positions related to the
current year
|
10 | 6 | 2 | (1 | ) | — | — | 2 | 1 | |||||||||||||||||||||||
|
Increase for tax positions related to
prior years
|
2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Decrease for tax positions related to
prior years
|
(81 | ) | (4 | ) | (19 | ) | (15 | ) | (6 | ) | (21 | ) | (2 | ) | (5 | ) | ||||||||||||||||
|
Decrease for settlement
|
(77 | ) | (2 | ) | (58 | ) | (14 | ) | — | 7 | (11 | ) | (6 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 45 | $ | 41 | $ | 2 | $ | (1 | ) | $ | — | $ | — | $ | 2 | $ | 1 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, January 1, 2009
|
$ | 219 | $ | 5 | $ | (30 | ) | $ | (26 | ) | $ | (4 | ) | $ | 42 | $ | 28 | $ | 24 | |||||||||||||
|
Increase for tax positions related to the
current year
|
41 | 34 | 4 | 3 | — | — | — | — | ||||||||||||||||||||||||
|
Increase for tax positions related to
prior years
|
46 | 2 | 103 | 52 | 10 | — | — | — | ||||||||||||||||||||||||
|
Decrease for tax positions related to
prior years
|
(100 | ) | — | — | — | — | (28 | ) | (15 | ) | (13 | ) | ||||||||||||||||||||
|
Decrease for settlement
|
(15 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
$ | 191 | $ | 41 | $ | 77 | $ | 29 | $ | 6 | $ | 14 | $ | 13 | $ | 11 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, January 1, 2008
|
$ | 272 | $ | 14 | $ | (12 | ) | $ | (17 | ) | $ | (1 | ) | $ | 38 | $ | 24 | $ | 16 | |||||||||||||
|
Increase for tax positions related to the
current year
|
14 | — | 1 | — | — | — | — | — | ||||||||||||||||||||||||
|
Increase for tax positions related to
prior years
|
— | 1 | 1 | — | — | 6 | 5 | 9 | ||||||||||||||||||||||||
|
Decrease for tax positions related to
prior years
|
(56 | ) | (10 | ) | (14 | ) | (8 | ) | (3 | ) | (2 | ) | (1 | ) | (1 | ) | ||||||||||||||||
|
Decrease for settlement
|
(11 | ) | — | (6 | ) | (1 | ) | — | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2008
|
$ | 219 | $ | 5 | $ | (30 | ) | $ | (26 | ) | $ | (4 | ) | $ | 42 | $ | 28 | $ | 24 | |||||||||||||
|
|
||||||||||||||||||||||||||||||||
FirstEnergy recognizes interest expense or income related to uncertain tax positions. That
amount is computed by applying the applicable statutory interest rate to the difference between the
tax position recognized and the amount previously taken or expected to be taken on the tax return.
FirstEnergy includes net interest and penalties in the provision for income taxes. The reversal of
accrued interest associated with the recognized tax benefits noted above favorably affected
FirstEnergy’s effective tax rate by $12 million in 2010. The reversal of accrued interest
associated with the $161 million in recognized tax benefits favorably affected FirstEnergy’s
effective tax rate in 2009 by $56 million and an interest receivable of $11 million was removed
from the accrued interest for uncertain tax positions. The reversal of accrued interest associated
with the $56 million in recognized tax benefits favorably affected FirstEnergy’s effective tax rate
in 2008 by $12 million and an interest receivable of $4 million was removed from the accrued
interest for uncertain tax positions. During the years ended December 31, 2010, 2009 and 2008,
FirstEnergy recognized net interest expense (income) of approximately $(10) million, $(49) million
and $2 million, respectively. The net amount of interest accrued as of December 31, 2010 and 2009
was $3 million and $21 million, respectively.
221
Table of Contents
The following table summarizes the net interest expense (income) recognized by FES and the
Utilities for the three years ended December 31, 2010 and the cumulative net interest payable
(receivable) as of December 31, 2010 and 2009:
| Net Interest Expense (Income) | ||||||||||||||||||||
| For the Years Ended | Net Interest Payable | |||||||||||||||||||
| December 31, | As of December 31, | |||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||
|
FES
|
$ | 1 | $ | (1 | ) | $ | — | $ | 2 | $ | 2 | |||||||||
|
OE
|
(3 | ) | 4 | (4 | ) | 1 | 9 | |||||||||||||
|
CEI
|
(2 | ) | 3 | (2 | ) | — | 3 | |||||||||||||
|
TE
|
(1 | ) | — | — | — | 1 | ||||||||||||||
|
JCP&L
|
(2 | ) | (4 | ) | 1 | — | 1 | |||||||||||||
|
Met-Ed
|
— | (2 | ) | 1 | — | 1 | ||||||||||||||
|
Penelec
|
— | (1 | ) | 2 | — | 1 | ||||||||||||||
FirstEnergy has tax returns that are under review at the audit or appeals level by the IRS
(2008-2010) and state tax authorities. Tax returns for all state jurisdictions are open from
2006-2009. The IRS began auditing the year 2008 in February 2008 and the audit was completed in
July 2010 with one item under appeal. The 2009 tax year audit began in February 2009 and the 2010
tax year audit began in February 2010. Management believes that adequate reserves have been
recognized and final settlement of these audits is not expected to have a material adverse effect
on FirstEnergy’s financial condition or results of operations.
FirstEnergy has pre-tax net operating loss carryforwards for state and local income tax purposes of
approximately $1.6 billion, of which $724 million is expected to be utilized. The associated
deferred tax assets are $20 million. These losses expire as follows:
| Expiration Period | FE | FES | Penelec | |||||||||
| (In millions) | ||||||||||||
|
2011-2015
|
$ | 532 | $ | 321 | $ | — | ||||||
|
2016-2020
|
112 | 15 | 14 | |||||||||
|
2021-2025
|
480 | 4 | 186 | |||||||||
|
2026-2030
|
524 | 230 | 150 | |||||||||
|
|
||||||||||||
|
|
$ | 1,648 | $ | 570 | $ | 350 | ||||||
|
|
||||||||||||
222
Table of Contents
General Taxes
Details of general taxes for the three years ended December 31, 2010 are shown below:
| FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Kilowatt-hour excise
|
$ | 245 | $ | 5 | $ | 92 | $ | 68 | $ | 27 | $ | 51 | $ | — | $ | — | ||||||||||||||||
|
State gross receipts
|
185 | 17 | 15 | — | — | — | 85 | 68 | ||||||||||||||||||||||||
|
Real and personal property
|
243 | 53 | 67 | 70 | 23 | 5 | — | (1 | ) | |||||||||||||||||||||||
|
Social security and unemployment
|
86 | 14 | 8 | 5 | 2 | 9 | 4 | 5 | ||||||||||||||||||||||||
|
Other
|
17 | 5 | 1 | — | — | — | (1 | ) | 1 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total general taxes
|
$ | 776 | $ | 94 | $ | 183 | $ | 143 | $ | 52 | $ | 65 | $ | 88 | $ | 73 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Kilowatt-hour excise
(1)
|
$ | 224 | $ | 1 | $ | 84 | $ | 66 | $ | 24 | $ | 49 | $ | — | $ | — | ||||||||||||||||
|
State gross receipts
|
171 | 14 | 15 | — | — | — | 78 | 63 | ||||||||||||||||||||||||
|
Real and personal property
|
253 | 53 | 64 | 74 | 21 | 5 | 2 | 2 | ||||||||||||||||||||||||
|
Social security and unemployment
|
90 | 14 | 8 | 5 | 3 | 9 | 5 | 6 | ||||||||||||||||||||||||
|
Other
|
15 | 5 | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total general taxes
|
$ | 753 | $ | 87 | $ | 171 | $ | 145 | $ | 48 | $ | 63 | $ | 88 | $ | 74 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Kilowatt-hour excise
|
$ | 249 | $ | 1 | $ | 97 | $ | 70 | $ | 30 | $ | 51 | $ | — | $ | — | ||||||||||||||||
|
State gross receipts
|
183 | 16 | 17 | — | — | — | 79 | 70 | ||||||||||||||||||||||||
|
Real and personal property
|
240 | 53 | 61 | 67 | 19 | 5 | 3 | 2 | ||||||||||||||||||||||||
|
Social security and unemployment
|
95 | 14 | 9 | 6 | 3 | 10 | 5 | 6 | ||||||||||||||||||||||||
|
Other
|
11 | 4 | 2 | — | — | 1 | (1 | ) | 2 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total general taxes
|
$ | 778 | $ | 88 | $ | 186 | $ | 143 | $ | 52 | $ | 67 | $ | 86 | $ | 80 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) |
Kilowatt-hour excise tax for OE and TE includes a $7.1 million and $3.5 million adjustment,
respectively, recognized in 2009 related to prior periods.
|
10. REGULATORY MATTERS
(A) RELIABILITY INITIATIVES
Federally-enforceable mandatory reliability standards apply to the bulk power system and impose
certain operating, record-keeping and reporting requirements on the Utilities, FES, FGCO, FENOC and
ATSI. The NERC, as the ERO is charged with establishing and enforcing these reliability standards,
although it has delegated day-to-day implementation and enforcement of these reliability standards
to eight regional entities, including Reliability
First
Corporation. All of FirstEnergy’s facilities
are located within the Reliability
First
region. FirstEnergy actively participates in the NERC and
Reliability
First
stakeholder processes, and otherwise monitors and manages its companies in
response to the ongoing development, implementation and enforcement of the reliability standards
implemented and enforced by the Reliability
First
Corporation.
FirstEnergy believes that it generally is in compliance with all currently-effective and
enforceable reliability standards. Nevertheless, in the course of operating its extensive electric
utility systems and facilities, FirstEnergy occasionally learns of isolated facts or circumstances
that could be interpreted as excursions from the reliability standards. If and when such items are
found, FirstEnergy develops information about the item and develops a remedial response to the
specific circumstances, including in appropriate cases “self-reporting” an item to
Reliability
First
. Moreover, it is clear that the NERC, Reliability
First
and the FERC will continue
to refine existing reliability standards as well as to develop and adopt new reliability standards.
The financial impact of complying with new or amended standards cannot be determined at this time;
however, 2005 amendments to the FPA provide that all prudent costs incurred to comply with the new
reliability standards be recovered in rates. Still, any future inability on FirstEnergy’s part to
comply with the reliability standards for its bulk power system could result in the imposition of
financial penalties that could have a material adverse effect on its financial condition, results
of operations and cash flows.
223
Table of Contents
On December 9, 2008, a transformer at JCP&L’s Oceanview substation failed, resulting in an outage
on certain bulk electric system (transmission voltage) lines out of the Oceanview and Atlantic
substations resulting in customers losing power for up to eleven hours. On March 31, 2009, the NERC
initiated a Compliance Violation Investigation in order to determine JCP&L’s contribution to the
electrical event and to review any potential violation of NERC Reliability Standards associated
with the event. NERC has submitted first and second Requests for Information regarding this and
another related matter. JCP&L is complying with these requests. JCP&L is not able to predict what
actions, if any, that the NERC may take with respect to this matter.
On August 23, 2010, FirstEnergy self-reported to Reliability
First
a vegetation encroachment event
on a Met-Ed 230 kV line. This event did not result in a fault, outage, operation of protective
equipment, or any other meaningful electric effect on any FirstEnergy transmission facilities or
systems. On August 25, 2010, Reliability
First
issued a Notice of Enforcement to investigate the
incident. FirstEnergy submitted a data response to Reliability
First
on September 27, 2010. At
this time, FirstEnergy is unable to predict the outcome of this investigation.
(B) OHIO
The Ohio Companies operate under an ESP, which expires on May 31, 2011, that provides for
generation supplied through a CBP. The ESP also allows the Ohio Companies to collect a delivery
service improvement rider (Rider DSI) at an overall average rate of $0.002 per KWH for the period
of April 1, 2009 through December 31, 2011. The Ohio Companies currently purchase generation at the
average wholesale rate of a CBP conducted in May 2009. FES is one of the suppliers to the Ohio
Companies through the May 2009 CBP. The PUCO approved a $136.6 million distribution rate increase
for the Ohio Companies in January 2009, which went into effect on January 23, 2009 for OE ($68.9
million) and TE ($38.5 million) and on May 1, 2009 for CEI ($29.2 million). Applications for
rehearing of the PUCO order in the distribution case were filed by the Ohio Companies and one other
party. The Ohio Companies raised numerous issues in their application for rehearing related to rate
recovery of certain expenses, recovery of line extension costs, the level of rate of return and the
amount of general plant balances. On February 2, 2011, the PUCO issued an Entry on Rehearing
denying the applications for rehearing filed both by the Ohio Companies and by the other party.
On March 23, 2010, the Ohio Companies filed an application for a new ESP. The new ESP will go into
effect on June 1, 2011 and conclude on May 31, 2014. The PUCO approved the new ESP on August 25,
2010 with certain modifications. The material terms of the new ESP include: a CBP similar to the
one used in May 2009 and the one proposed in the October 2009 MRO filing; a 6% generation discount
to certain low-income customers provided by the Ohio Companies through a bilateral wholesale
contract with FES (initial auctions scheduled for October 20, 2010 and January 25, 2011); no
increase in base distribution rates through May 31, 2014; a load cap of no less than 80%, which
also applies to any tranches assigned post auction; and a new distribution rider, Delivery Capital
Recovery Rider (Rider DCR), to recover a return of, and on, capital investments in the delivery
system. Rider DCR substitutes for Rider DSI which terminates under the current ESP. The Ohio
Companies also agreed not to pay certain costs related to the companies’ integration into PJM, for
the longer of the five year period from June 1, 2011 through May 31, 2016 or when the amount of
costs avoided by customers for certain types of products totals $360 million dependent on the
outcome of certain PJM proceedings, established a $12 million fund to assist low income customers
over the term of the ESP, and agreed to additional energy efficiency benefits. Many of the existing
riders approved in the previous ESP remain in effect, some with modifications. The new ESP resolved
proceedings pending at the PUCO regarding corporate separation, elements of the smart grid
proceeding and the integration into PJM. FirstEnergy recorded approximately $39.5 million of
regulatory asset impairments and expenses related to the ESP. On September 24, 2010, an application
for rehearing was filed by the OCC and two other parties.
On February 9, 2011, the PUCO issued an Entry on Rehearing denying the applications for rehearing.
Under the provisions of SB221, the Ohio Companies are required to implement energy efficiency
programs that will achieve a total annual energy savings equivalent to approximately 166,000 MWH in
2009, 290,000 MWH in 2010, 410,000 MWH in 2011, 470,000 MWH in 2012 and 530,000 MWH in 2013, with
additional savings required through 2025. Utilities are also required to reduce peak demand in 2009
by 1%, with an additional 0.75% reduction each year thereafter through 2018.
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On December 15, 2009, the Ohio Companies filed the required three year portfolio plan seeking
approval for the programs they intend to implement to meet the energy efficiency and peak demand
reduction requirements for the 2010-2012 period. The Ohio Companies expect that all costs
associated with compliance will be recoverable from customers. The Ohio Companies’ three year
portfolio plan is still awaiting decision from the PUCO, which is delaying the launch of the
programs described in the plan. As a result, the Ohio Companies filed on January 11, 2011, a
request for amendment of OE’s 2010 energy efficiency and peak demand reduction benchmarks to levels
actually achieved in 2010. Because the Commission indicated that it would revise all of the Ohio
Companies’ 2010, 2011, and 2012 benchmarks when addressing the Ohio Companies’ three year portfolio
plan, and an order has yet to be issued on that plan, CEI and TE also requested a waiver of their
respective yet-to-be defined 2010 energy efficiency benchmarks if and only to the degree one is
deemed necessary to bring these companies into compliance with their 2010 energy efficiency
obligations. Failure to comply with the benchmarks or to obtain such an amendment may subject the
Companies to an assessment by the PUCO of a penalty.
Additionally under SB221, electric utilities and electric service companies are required to serve
part of their load from renewable energy resources equivalent to 0.25% of the KWH they served in
2009. In August and October 2009, the Ohio Companies conducted RFPs to secure RECs. The RFPs sought
RECs, including solar RECs and RECs generated in Ohio in order to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2009, 2010 and 2011. The RECs acquired
through these two RFPs were used to help meet the renewable energy requirements established under
SB221 for 2009, 2010 and 2011. On March 10, 2010, the PUCO found that there was an insufficient
quantity of solar energy resources reasonably available in the market. The PUCO reduced the Ohio
Companies’ aggregate 2009 benchmark to the level of solar RECs the Ohio Companies acquired through
their 2009 RFP processes, provided the Ohio Companies’ 2010 alternative energy requirements be
increased to include the shortfall for the 2009 solar REC benchmark. FES also applied for a force
majeure determination from the PUCO regarding a portion of their compliance with the 2009 solar
energy resource benchmark, which application is still pending. In July 2010, the Ohio Companies
initiated an additional RFP to secure RECs and solar RECs needed to meet the Ohio Companies’
alternative energy requirements as set forth in SB221 for 2010 and 2011. As a result of this RFP,
contracts were executed in August 2010. On January 11, 2011, the Ohio Companies filed an
application with the PUCO seeking an amendment to each of their 2010 alternative energy
requirements for solar RECs generated in Ohio due to the insufficient quantity of solar energy
resources reasonably available in the market. The PUCO has not yet ruled on that application.
On February 12, 2010, OE and CEI filed an application with the PUCO to establish a new credit for
all-electric customers. On March 3, 2010, the PUCO ordered that rates for the affected customers
be set at a level that will provide bill impacts commensurate with charges in place on December 31,
2008 and authorized the Ohio Companies to defer incurred costs equivalent to the difference between
what the affected customers would have paid under previously existing rates and what they pay with
the new credit in place. Tariffs implementing this new credit went into effect on March 17, 2010.
On April 15, 2010, the PUCO issued a Second Entry on Rehearing that expanded the group of customers
to which the new credit would apply and authorized deferral for the associated additional amounts.
The PUCO also stated that it expected that the new credit would remain in place through at least
the 2011 winter season, and charged its staff to work with parties to seek a long term solution to
the issue. Tariffs implementing this newly expanded credit went into effect on May 21, 2010, and
the proceeding remains open. The hearing in the matter is set to commence on February 16, 2011.
(C) PENNSYLVANIA
The PPUC adopted a Motion on January 28, 2010 and subsequently entered an Order on March 3, 2010
which denied the recovery of marginal transmission losses through the TSC rider for the period of
June 1, 2007 through March 31, 2008, and directed Met-Ed and Penelec to submit a new tariff or
tariff supplement reflecting the removal of marginal transmission losses from the TSC, and
instructed Met-Ed and Penelec to work with the various intervening parties to file a recommendation
to the PPUC regarding the establishment of a separate account for all marginal transmission losses
collected from ratepayers plus interest to be used to mitigate future generation rate increases
beginning January 1, 2011. On March 18, 2010, Met-Ed and Penelec filed a Petition with the PPUC
requesting that it stay the portion of the March 3, 2010 Order requiring the filing of tariff
supplements to end collection of costs for marginal transmission losses. By Order entered March 25,
2010, the PPUC granted the requested stay until December 31, 2010. Pursuant to the PPUC’s order,
Met-Ed and Penelec filed the plan to establish separate accounts for marginal transmission loss
revenues and related interest and carrying charges and the plan for the use of these funds to
mitigate future generation rate increases commencing January 1, 2011. The PPUC approved this plan
on June 7, 2010. On April 1, 2010, Met-Ed and Penelec filed a Petition for Review with the
Commonwealth Court of Pennsylvania appealing the PPUC’s March 3, 2010 Order. Although the ultimate
outcome of this matter cannot be determined at this time, Met-Ed and Penelec believe that they
should prevail in the appeal and therefore expect to fully recover the approximately $252.7 million
($188.0 million for Met-Ed and $64.7 million for Penelec) in marginal transmission losses for the
period prior to January 1, 2011. The argument before the Commonwealth Court,
en banc
, was held on
December 8, 2010.
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On May 20, 2010, the PPUC approved Met-Ed’s and Penelec’s annual updates to their TSC rider for the
period June 1, 2010 through December 31, 2010, including marginal transmission losses as approved by
the PPUC, although the recovery of marginal losses will be subject to the outcome of the proceeding
related to the 2008 TSC filing as described above. The TSC for Met-Ed’s customers was increased to
provide for full recovery by December 31, 2010.
Met-Ed and Penelec filed with the PPUC a generation procurement plan covering the period January 1,
2011 through May 31, 2013. The plan is designed to provide adequate and reliable service through a
prudent mix of long-term, short-term and spot market generation supply with a staggered procurement
schedule that varies by customer class, using a descending clock auction. On August 12, 2009, the
parties to the proceeding filed a settlement agreement of all but two issues, and the PPUC entered
an Order approving the settlement and the generation procurement plan on November 6, 2009.
Generation procurement began in January 2010.
On February 8, 2010, Penn filed a Petition for Approval of its Default Service Plan for the period
June 1, 2011 through May 31, 2013. On July 29, 2010, the parties to the proceeding filed a Joint
Petition for Settlement of all issues. Although the PPUC’s Order approving the Joint Petition held
that the provisions relating to the recovery of MISO exit fees and one-time PJM integration costs
(resulting from Penn’s June 1, 2011 exit from MISO and integration into PJM) were approved,
it made such provisions subject to the approval of cost recovery by FERC. Therefore, Penn may not
put these provisions into effect until FERC has approved the recovery and allocation of MISO exit
fees and PJM integration costs.
Met-Ed, Penelec and Penn jointly filed a SMIP with the PPUC on August 14, 2009. This plan proposed
a 24-month assessment period in which the Pennsylvania Companies will assess their needs, select
the necessary technology, secure vendors, train personnel, install and test support equipment, and
establish a cost effective and strategic deployment schedule, which currently is expected to be
completed in fifteen years. Met-Ed, Penelec and Penn estimate assessment period costs of
approximately $29.5 million, which the Pennsylvania Companies, in their plan, proposed to recover
through an automatic adjustment clause. The ALJ’s Initial Decision approved the SMIP as modified by
the ALJ, including: ensuring that the smart meters to be deployed include the capabilities listed
in the PPUC’s Implementation Order; denying the recovery of interest through the automatic
adjustment clause; providing for the recovery of reasonable and prudent costs net of resulting
savings from installation and use of smart meters; and requiring that administrative start-up costs
be expensed and the costs incurred for research and development in the assessment period be
capitalized. On April 15, 2010, the PPUC adopted a Motion by Chairman Cawley that modified the
ALJ’s initial decision, and decided various issues regarding the SMIP for the Pennsylvania
Companies. The PPUC entered its Order on June 9, 2010, consistent with the Chairman’s Motion. On
June 24, 2010, Met-Ed, Penelec and Penn filed a Petition for Reconsideration of a single portion of
the PPUC’s Order regarding the future ability to include smart meter costs in base rates. On August
5, 2010, the PPUC granted in part the petition for reconsideration by deleting language from its
original order that would have precluded Met-Ed, Penelec and Penn from seeking to include smart
meter costs in base rates at a later time. The costs to implement the SMIP could be material.
However, assuming these costs satisfy a just and reasonable standard they are expected to be
recovered in a rider (Smart Meter Technologies Charge Rider) which was approved when the PPUC
approved the SMIP.
By Tentative Order entered September 17, 2009, the PPUC provided for an additional 30-day comment
period on whether the 1998 Restructuring Settlement, which addressed how Met-Ed and Penelec were
going to implement direct access to a competitive market for the generation of electricity, allows
Met-Ed and Penelec to apply over-collection of NUG costs for select and isolated months to reduce
non-NUG stranded costs when a cumulative NUG stranded cost balance exists. In response to the
Tentative Order, various parties filed comments objecting to the above accounting method utilized
by Met-Ed and Penelec. Met-Ed and Penelec are awaiting further action by the PPUC.
(D) NEW JERSEY
JCP&L is permitted to defer for future collection from customers the amounts by which its costs of
supplying BGS to non-shopping customers, costs incurred under NUG agreements, and certain other
stranded costs, exceed amounts collected through BGS and NUGC rates and market sales of NUG energy
and capacity. As of December 31, 2010, the accumulated deferred cost balance was a credit of
approximately $37 million. To better align the recovery of expected costs, on July 26, 2010, JCP&L
filed a request to decrease the amount recovered for the costs incurred under the NUG agreements by
$180 million annually.
On February 10, 2011, the NJBPU approved a stipulation which allows the change in rates to become effective March 1, 2011.
On March 13, 2009, JCP&L filed its annual SBC Petition with the NJBPU that includes a request for a
reduction in the level of recovery of TMI-2 decommissioning costs based on an updated TMI-2
decommissioning cost analysis dated January 2009 estimated at $736 million (in 2003 dollars). This
matter is currently pending before the NJBPU.
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New Jersey statutes require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic growth, and environmental
impact. The NJBPU adopted an order establishing the general process and contents of specific EMP
plans that must be filed by New Jersey electric and gas utilities in order to achieve the goals of
the EMP. On April 16, 2010, the NJBPU issued an order indefinitely suspending the requirement of
New Jersey utilities to submit Utility Master Plans until such time as the status of the EMP has
been made clear. At this time, FirstEnergy and JCP&L cannot determine the impact, if any, the EMP
may have on their operations.
(E) FERC MATTERS
Rates for Transmission Service Between MISO and PJM
On November 18, 2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to eliminate multiple
transmission charges for a single transaction between the MISO and PJM regions. The FERC also
ordered MISO, PJM and the transmission owners within MISO and PJM to submit compliance filings
containing a rate mechanism to recover lost transmission revenues created by elimination of this
charge (referred to as SECA) during a 16-month transition period. In 2005, the FERC set the SECA
for hearing. The presiding ALJ issued an initial decision on August 10, 2006, rejecting the
compliance filings made by MISO, PJM and the transmission owners, and directing new compliance
filings. This decision was subject to review and approval by the FERC. On May 21, 2010, FERC issued
an order denying pending rehearing requests and an Order on Initial Decision which reversed the
presiding ALJ’s rulings in many respects. Most notably, these orders affirmed the right of
transmission owners to collect SECA charges with adjustments that modestly reduce the level of such
charges, and changes to the entities deemed responsible for payment of the SECA charges. The Ohio
Companies were identified as load serving entities responsible for payment of additional SECA
charges for a portion of the SECA period (Green Mountain/Quest issue). FirstEnergy executed
settlements with AEP, Dayton and the Exelon parties to fix FirstEnergy’s liability for SECA charges
originally billed to Green Mountain and Quest for load that returned to regulated service during
the SECA period. The AEP, Dayton and Exelon, settlements were approved by FERC on November 23,
2010, and the relevant payments made. Rehearings remain pending in this proceeding.
PJM Transmission Rate
On April 19, 2007, FERC issued an order (Opinion 494) finding that the PJM transmission owners’
existing “license plate” or zonal rate design was just and reasonable and ordered that the current
license plate rates for existing transmission facilities be retained. On the issue of rates for new
transmission facilities, FERC directed that costs for new transmission facilities that are rated at
500 kV or higher are to be collected from all transmission zones throughout the PJM footprint by
means of a postage-stamp rate based on the amount of load served in a transmission zone. Costs for
new transmission facilities that are rated at less than 500 kV, however, are to be allocated on a
load flow methodology (DFAX), which is generally referred to as a “beneficiary pays” approach to
allocating the cost of high voltage transmission facilities.
The FERC’s Opinion 494 order was appealed to the U.S. Court of Appeals for the Seventh Circuit,
which issued a decision on August 6, 2009. The court affirmed FERC’s ratemaking treatment for
existing transmission facilities, but found that FERC had not supported its decision to allocate
costs for new 500+ kV facilities on a load ratio share basis and, based on this finding, remanded
the rate design issue back to FERC.
In an order dated January 21, 2010, FERC set the matter for “paper hearings”— meaning that FERC
called for parties to submit comments or written testimony pursuant to the schedule described in
the order. FERC identified nine separate issues for comments and directed PJM to file the first
round of comments on February 22, 2010, with other parties submitting responsive comments and then
reply comments on later dates. PJM filed certain studies with FERC on April 13, 2010, in response
to the FERC order. PJM’s filing demonstrated that allocation of the cost of high voltage
transmission facilities on a beneficiary pays basis results in certain eastern utilities in PJM
bearing the majority of their costs. Numerous parties filed responsive comments or studies on May
28, 2010 and reply comments on June 28, 2010. FirstEnergy and a number of other utilities,
industrial customers and state commissions supported the use of the
beneficiary pays approach for cost allocation for high voltage transmission facilities. Certain
eastern utilities and their state commissions supported continued socialization of these costs on a
load ratio share basis. FERC is expected to act by May 31, 2011.
RTO Realignment
On December 17, 2009, FERC issued an order approving, subject to certain future compliance filings,
ATSI’s withdrawal from MISO and integration into PJM. This move, which is expected to be effective
on June 1, 2011, allows FirstEnergy to consolidate its transmission assets and operations into PJM.
Currently, FirstEnergy’s transmission assets and operations are divided between PJM and MISO. The
realignment will make the transmission assets that are part of ATSI, whose footprint includes the
Ohio Companies and Penn, part of PJM. In the order, FERC approved FirstEnergy’s proposal to use a
FRR Plan to obtain capacity to satisfy the PJM capacity requirements for the 2011-12 and 2012-13
delivery years.
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FirstEnergy
successfully conducted the FRR auctions on March 19, 2010. Moreover, the ATSI zone
loads participated in the PJM base residual auction for the 2013 delivery year. Successful
completion of these steps secured the capacity necessary for the ATSI footprint to meet PJM’s
capacity requirements. On August 25, 2010, the PUCO issued an order in the 2010 ESP Case approving
a settlement that, among other things, called for the PUCO to withdraw its opposition to the RTO
consolidation. In addition, the order approved a wholesale procurement process, and certain “retail
choice” policies, that reflected ATSI’s entry into PJM on June 1, 2011.
On February 1, 2011, ATSI in conjunction with PJM filed its proposal with FERC for moving its
transmission rate into PJM’s tariffs. FirstEnergy expects ATSI to enter PJM on June 1, 2011, and
that if legal proceedings regarding its rate are outstanding at that time, ATSI will be permitted
to start charging its proposed rates, subject to refund. Additional FERC proceedings are either
pending or expected in which the amount of exit fees, transmission cost allocations, and costs
associated with long term firm transmission rights payable by the ATSI zone upon its withdrawal
from the Midwest ISO will be determined. In addition, certain parties may protest other aspects of
ATSI’s integration into PJM, and certain of these matters remain outstanding and will be resolved
in future FERC proceedings. The outcome of these proceedings cannot be predicted.
MISO Multi-Value Project Rule Proposal
On July 15, 2010, MISO and certain MISO transmission owners jointly filed with FERC their proposed
cost allocation methodology for certain new transmission projects. The new transmission
projects—described as MVPs—are a class of MTEP projects. The filing parties proposed to allocate
the costs of MVPs by means of a usage-based charge that will be applied to all loads within the
MISO footprint, and to energy transactions that call for power to be “wheeled through” the MISO as
well as to energy transactions that “source” in the MISO but “sink” outside of MISO. The filing
parties expect that the MVP proposal will fund the costs of large transmission projects designed to
bring wind generation from the upper Midwest to load centers in the east. The filing parties
requested an effective date for the proposal of July 16, 2011. On August 19, 2010, MISO’s Board
approved the first MVP project — the “Michigan Thumb Project.” Under MISO’s proposal, the costs of
MVP projects approved by MISO’s Board prior to the anticipated June 1, 2011 effective date of
FirstEnergy’s integration into PJM would continue to be allocated to FirstEnergy. MISO estimated
that approximately $11 million in annual revenue requirements would be allocated to the ATSI zone
associated with the Michigan Thumb Project upon its completion.
On September 10, 2010, FirstEnergy filed a protest to the MVP proposal arguing that MISO’s proposal
to allocate costs of MVP projects across the entire MISO footprint does not align with the
established rule that cost allocation is to be based on cost causation (the “beneficiary pays”
approach). FirstEnergy also argued that, in light of progress to date in the ATSI integration into
PJM, it would be unjust and unreasonable to allocate any MVP costs to the ATSI zone, or to ATSI.
Numerous other parties filed pleadings on MISO’s MVP proposal.
On December 16, 2010, FERC issued an order approving the MVP proposal without significant change.
FERC’s order was not clear, however, as to whether the MVP costs would be payable by ATSI or load
in the ATSI zone. FERC stated that the MISO’s tariffs obligate ATSI to pay all charges that attach
prior to ATSI’s exit but ruled that the question of the amount of costs that are to be allocated to
ATSI or to load in the ATSI zone were beyond the scope of FERC’s order and would be addressed in
future proceedings.
On January 18, 2011, FirstEnergy filed for rehearing of FERC’s order. In its rehearing request,
the Company argued that because the MVP rate is usage-based, costs could not be applied to ATSI,
which is a stand-alone transmission company that does not use the transmission system. FirstEnergy
also renewed its arguments regarding cost causation and the impropriety of allocating costs to the
ATSI zone or to ATSI. FirstEnergy cannot predict the outcome of these proceedings at this time.
Sales to Affiliates
FES has received authorization from FERC to make wholesale power sales to the Utilities. FES
actively participates in auctions conducted by or on behalf of the Utilities to obtain the power
and related services necessary to meet the
Utilities’ POLR obligations. Because of the merger with
FirstEnergy, AS is considered an affiliate
of the Utilities for purposes of FERC’s affiliate restriction regulations. This requires AS to
obtain prior FERC authorization to make sales to the Utilities when it successfully participates in
the Utilities’ POLR auctions.
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FES currently supplies the Ohio Companies with a portion of their capacity, energy, ancillary
services and transmission under a Master SSO Supply Agreement for a two-year period ending May 31,
2011. FES won 51 tranches in a descending clock auction for POLR service administered by the Ohio
Companies and their consultant, CRA International on May 13-14, 2009. Other winning suppliers have
assigned their Master SSO Supply Agreements to FES, five of which were effective in June, two more
in July, four more in August and ten more in September, 2009. FES also supplies power used by
Constellation to serve an additional five tranches. As a result of these arrangements, FES serves
77 tranches, or 77% of the POLR load of the Ohio Companies until May 31, 2011.
On October 20, 2010, FES participated in a descending clock auction for POLR service administered
by the Ohio Companies and their consultant, CRA International, for the following periods: June 1,
2011 through May 31, 2012; June 1, 2011, through May 31, 2013; and June 1, 2010 through May 31,
2014. The Ohio Companies offered 17, 17, and 16 tranches for these periods, respectively. FES won
10, 7, and 3 tranches, respectively, for these periods. On January 25, 2011, the Ohio Companies
conducted a second auction offering the same product for identical time periods. FES won 3, 0, and
3 tranches, respectively, for these periods. FES entered into a Master SSO Supply Agreement to
provide capacity, energy, ancillary services, and congestion costs to the Ohio Companies for the
tranches won. Under the ESP in effect for these time periods, the Ohio Companies are responsible
for payment of noncontrollable transmission costs billed by PJM for POLR service.
On October 18, 2010, FES participated in a descending clock auction for POLR service administered
by both Met-Ed and Penelec and their consultant, National Economic Research Associates (NERA) for
the following tranche products and delivery periods: Residential 5-month, Residential 24-month,
Commercial 5-month, Commercial 12-month and Industrial 12-month. All 5-month delivery periods are
from January 1, 2011 through May 31, 2011, all 12-month delivery periods are from June 1, 2011
through May 31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31,
2013. Met-Ed offered 7 Residential 5-month tranches, 4 Residential 24-month tranches, 6 Commercial
5-month tranches, 6 Commercial 12-month tranches and 1 Industrial tranche while Penelec offered 5
Residential 5-month tranches, 3 Residential 24-month tranches, 5 Commercial 5-month tranches, 5
Commercial 12-month tranches and 1 Industrial tranche.
For Met-Ed offerings, FES won 4 Residential 5-month tranches, 2 Residential 24-month tranches, 1
Commercial 5-month tranche, 1 Commercial 12-month tranche and zero Industrial tranches. For Penelec
offerings, FES won 1 Residential 5-month tranche, 1 Residential 24-month tranche, zero Commercial
5-month tranches, zero Commercial 12-month tranches and zero Industrial tranches. FES entered into
separate Supplier Master Agreements (SMA) to provide capacity, energy, ancillary services, and
congestion costs with Met-Ed and Penelec for each product won. Under the terms and conditions of
the SMA, Met-Ed and Penelec are responsible for payment of noncontrollable transmission costs
billed by PJM.
On January 18 to 20, 2011 FES participated in a descending clock auction for POLR service
administered by Met-Ed, Penelec, and Penn Power and their consultant, NERA for the following
tranche products and delivery periods: Residential 12-month, Residential 24-month, Commercial
12-month and Industrial 12-month. All 12-month delivery periods are from June 1, 2011 through May
31, 2012 while all 24-month delivery periods are from June 1, 2011 through May 31, 2013. Met-Ed
offered 3 Residential 12-month tranches, 4 Residential 24-month tranches, 6 Commercial 12-month
tranches and 11 Industrial tranches. Penelec offered 3 Residential 12-month tranches, 2 Residential
24-month tranches, 5 Commercial 12-month tranches and 11 Industrial tranches. Penn Power offered 2
Residential 12-month tranches, 1 Residential 24-month tranche, 3 Commercial 12-month tranches and 3
Industrial tranches.
For Met-Ed offerings, FES won 1 Commercial 12-month tranche and zero for the remaining products.
For Penelec and Penn Power offerings, FES won no tranches. FES entered into a SMA to provide
capacity, energy, ancillary services, and congestion costs with Met-Ed for the product won. Under
the terms and conditions of the SMA, Met-Ed is responsible for payment of noncontrollable
transmission costs billed by PJM.
11. CAPITALIZATION
(A) COMMON STOCK
Retained Earnings and Dividends
As of December 31, 2010, FirstEnergy’s unrestricted retained earnings were $4.6 billion. Dividends
declared in 2010 and 2009 were $2.20 per share in each year, which included quarterly dividends of
$0.55 per share paid in the second, third and fourth quarters of 2010 and 2009, respectively, and
payable in the first quarter of 2011 and 2010, respectively. The amount and timing of all dividend
declarations are subject to the discretion of the Board of Directors and its consideration of
business conditions, results of operations, financial condition and other factors.
In addition to paying dividends from retained earnings, each of FirstEnergy’s electric utility
subsidiaries has authorization from the FERC to pay cash dividends to FirstEnergy from paid-in
capital accounts, as long as its equity to total capitalization ratio (without consideration of
retained earnings) remains above 35%. The articles of incorporation, indentures and various other
agreements relating to the long-term debt of certain FirstEnergy subsidiaries contain provisions
that could further restrict the payment of dividends on their common stock. None of these
provisions materially restricted FirstEnergy’s subsidiaries’ ability to pay cash dividends to
FirstEnergy as of December 31, 2010.
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(B) PREFERRED AND PREFERENCE STOCK
FirstEnergy’s and the Utilities’ preferred stock and preference stock authorizations are as
follows:
| Preferred Stock | Preference Stock | |||||||||||||||
| Shares | Par | Shares | Par | |||||||||||||
| Authorized | Value | Authorized | Value | |||||||||||||
|
FirstEnergy
|
5,000,000 | $ | 100 | |||||||||||||
|
OE
|
6,000,000 | $ | 100 | 8,000,000 | no par | |||||||||||
|
OE
|
8,000,000 | $ | 25 | |||||||||||||
|
Penn
|
1,200,000 | $ | 100 | |||||||||||||
|
CEI
|
4,000,000 | no par | 3,000,000 | no par | ||||||||||||
|
TE
|
3,000,000 | $ | 100 | 5,000,000 | $ | 25 | ||||||||||
|
TE
|
12,000,000 | $ | 25 | |||||||||||||
|
JCP&L
|
15,600,000 | no par | ||||||||||||||
|
Met-Ed
|
10,000,000 | no par | ||||||||||||||
|
Penelec
|
11,435,000 | no par | ||||||||||||||
No preferred shares or preference shares are currently outstanding.
(C) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
The following table presents the outstanding consolidated long-term debt and other long-term
obligations of FirstEnergy as of December 31, 2010 and 2009:
| Weighted Average | December 31, | |||||||||||
| Interest Rate (%) | 2010 | 2009 | ||||||||||
| (in millions) | ||||||||||||
|
FMBs:
|
||||||||||||
|
Due 2010-2013
|
9.74 | $ | 3 | $ | 28 | |||||||
|
Due 2014-2018
|
8.84 | 330 | 330 | |||||||||
|
Due 2019-2023
|
6.13 | 101 | 107 | |||||||||
|
Due 2024-2028
|
8.75 | 314 | 314 | |||||||||
|
Due 2038
|
8.25 | 275 | 275 | |||||||||
|
|
||||||||||||
|
Total FMBs
|
1,023 | 1,054 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Secured Notes
|
||||||||||||
|
Due 2010-2013
|
4.46 | 732 | 456 | |||||||||
|
Due 2014-2018
|
6.87 | 638 | 777 | |||||||||
|
Due 2019-2023
|
5.60 | 622 | 481 | |||||||||
|
Due 2029-2033
|
5.41 | 276 | 510 | |||||||||
|
Due 2034-2038
|
4.13 | 459 | 322 | |||||||||
|
Due 2041
|
0.30 | 57 | 57 | |||||||||
|
|
||||||||||||
|
Total Secured Notes
|
2,784 | 2,603 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Unsecured Notes:
|
||||||||||||
|
Due 2010-2013
|
5.80 | 712 | 878 | |||||||||
|
Due 2014-2018
|
5.43 | 2,467 | 2,473 | |||||||||
|
Due 2019-2023
|
5.72 | 2,435 | 2,435 | |||||||||
|
Due 2024-2028
|
3.95 | 65 | 65 | |||||||||
|
Due 2029-2033
|
6.25 | 1,971 | 1,737 | |||||||||
|
Due 2034-2038
|
5.47 | 1,727 | 1,864 | |||||||||
|
Due 2039-2043
|
5.25 | 698 | 698 | |||||||||
|
Due 2047
|
3.00 | 46 | 46 | |||||||||
|
|
||||||||||||
|
Total Unsecured Notes
|
10,121 | 10,196 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Capital lease obligations
|
54 | 13 | ||||||||||
|
Net unamortized premium (discount) on debt
|
83 | (24 | ) | |||||||||
|
Long-term debt due within one year
|
(1,486 | ) | (1,834 | ) | ||||||||
|
|
||||||||||||
|
Total long-term debt and other long term obligations
|
$ | 12,579 | $ | 12,008 | ||||||||
|
|
||||||||||||
230
Table of Contents
Securitized Transition Bonds
The consolidated financial statements of FirstEnergy and JCP&L include the accounts of JCP&L
Transition Funding and JCP&L Transition Funding II, wholly owned limited liability companies of
JCP&L. In June 2002, JCP&L Transition Funding sold transition bonds to securitize the recovery of
JCP&L’s bondable stranded costs associated with the previously divested Oyster Creek Nuclear
Generating Station. In August 2006, JCP&L Transition Funding II sold transition bonds to securitize
the recovery of deferred costs associated with JCP&L’s supply of BGS.
JCP&L did not purchase and does not own any of the transition bonds, which are included as
long-term debt on FirstEnergy’s and JCP&L’s Consolidated Balance Sheets. As of December 31, 2010,
$310 million of the transition bonds were outstanding. The transition bonds are the sole
obligations of JCP&L Transition Funding and JCP&L Transition Funding II and are collateralized by
each company’s equity and assets, which consist primarily of bondable transition property.
Bondable transition property represents the irrevocable right under New Jersey law of a utility
company to charge, collect and receive from its customers, through a non-bypassable TBC, the
principal amount and interest on transition bonds and other fees and expenses associated with their
issuance. JCP&L sold its bondable transition property to JCP&L Transition Funding and JCP&L
Transition Funding II and, as servicer, manages and administers the bondable transition property,
including the billing, collection and remittance of the TBC, pursuant to separate servicing
agreements with JCP&L Transition Funding and JCP&L Transition Funding II. For the two series of
transition bonds, JCP&L is entitled to aggregate annual servicing fees of up to $628,000 that are
payable from TBC collections.
Other Long-term Debt
FGCO, NGC and each of the Utilities, except for JCP&L and Penelec, have a first mortgage indenture
under which they can issue FMBs secured by a direct first mortgage lien on substantially all of
their property and franchises, other than specifically excepted property.
FirstEnergy and its subsidiaries have various debt covenants under their respective financing
arrangements. The most restrictive of the debt covenants relate to the nonpayment of interest
and/or principal on debt and the maintenance of certain financial ratios. There also exist
cross-default provisions in a number of the respective financing arrangements of FirstEnergy, FES,
FGCO, NGC and the Utilities. These provisions generally trigger a default in the applicable
financing arrangement of an entity if it or any of its significant subsidiaries defaults under
another financing arrangement of a certain principal amount, typically $50 million. Although such
defaults by any of the Utilities will generally cross-default FirstEnergy financing arrangements
containing these provisions, defaults by FirstEnergy will not generally cross-default applicable
financing arrangements of any of the Utilities. Defaults by any of FES, FGCO or NGC will generally
cross-default to applicable financing arrangements of FirstEnergy and, due to the existence of
guarantees of FirstEnergy of certain financing arrangements of FES, FGCO and NGC, defaults by
FirstEnergy will generally cross-default FES, FGCO and NGC financing arrangements containing these
provisions. Cross-default provisions are not typically found in any of the senior note or FMBs of
FirstEnergy or the Utilities.
Based on the amount of FMBs authenticated by the respective mortgage bond trustees as of December
31, 2010, the Utilities’ annual sinking fund requirement for all FMB issued under the various
mortgage indentures amounted to payments of $36 million (Penn — $7 million, Met-Ed — $8 million,
and Penelec — $21 million) in 2010. Penn expects to meet its 2011 annual sinking fund requirement
with a replacement credit under its mortgage indenture. Met-Ed can fulfill its sinking fund
obligation by providing bondable property additions, previously retired FMBs or cash to the
respective mortgage bond trustees. Since Penelec’s first mortgage bond indenture was terminated in
2010, Penelec no longer has a sinking fund obligation.
As of December 31, 2010, FirstEnergy’s currently payable long-term debt includes approximately $827
million (FES — $778 million, Met-Ed — $29 million and Penelec — $20 million) of variable interest
rate PCRBs, the bondholders of which are entitled to the benefit of irrevocable direct pay bank
LOCs. The interest rates on the PCRBs are reset daily or weekly. Bondholders can tender their PCRBs
for mandatory purchase prior to maturity with the purchase price payable from remarketing proceeds,
or if the PCRBs are not successfully remarketed, by drawings on the irrevocable direct pay LOCs.
The subsidiary obligor is required to reimburse the applicable LOC bank for any such drawings or,
if the LOC bank fails to honor its LOC for any reason, must itself pay the purchase price.
On August 20, 2010, FES completed the remarketing of $250 million of PCRBs. Of the $250 million,
$235 million of PCRBs were converted from a variable interest rate to a fixed interest rate. The
remaining $15 million of PCRBs continue to bear a fixed interest rate. The interest rate conversion
minimizes financial risk by converting the long-term debt into a fixed rate and, as a result,
reducing exposure to variable interest rates over the short-term. These remarketings included two
series: $235 million of PCRBs that now bears a per-annum rate of 2.25% and is subject to mandatory
purchase on June 3, 2013; and $15 million of PCRBs that now bears a per-annum rate of 1.5% and is
subject to mandatory purchase on June 1, 2011.
231
Table of Contents
On October 1, 2010, FES completed the refinancing and remarketing of six series of PCRBs totaling
$313 million. These PCRBs were converted from a variable interest rate to a fixed long term
interest rate of 3.375% per annum and are subject to mandatory purchase on July 1, 2015.
On December 3, 2010, FES completed the remarketing of four series of PCRBs totaling $153 million
and Penelec completed the remarketing of one $25 million PCRB. These PCRBs were converted from a
variable interest rate to fixed interest rates ranging from 2.25% to 3.75% per annum.
Sinking fund requirements for FMBs and maturing long-term debt (excluding capital leases and
variable rate PCRBs) for the next five years are:
| Year | FE | FES | OE | CEI | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
2011
|
$ | 445 | $ | 163 | $ | 1 | $ | 20 | $ | 32 | $ | — | $ | — | ||||||||||||||
|
2012
|
448 | 68 | 1 | 22 | 34 | — | — | |||||||||||||||||||||
|
2013
|
554 | 75 | 1 | 324 | 36 | 150 | — | |||||||||||||||||||||
|
2014
|
529 | 99 | 1 | 26 | 38 | 250 | 150 | |||||||||||||||||||||
|
2015
|
639 | 450 | 151 | 24 | 41 | — | — | |||||||||||||||||||||
The following table classifies the outstanding PCRBs by year, for the next three years,
representing the next time the debt holders may exercise their right to tender their PCRBs.
| Year | FE | FES | Met-Ed | Penelec | ||||||||||||
| (In millions) | ||||||||||||||||
|
2011
|
$ | 1,043 | $ | 969 | $ | 29 | $ | 45 | ||||||||
|
2012
|
270 | 270 | — | — | ||||||||||||
|
2013
|
235 | 235 | — | — | ||||||||||||
Obligations to repay certain PCRBs are secured by several series of FMBs. Certain PCRBs are
entitled to the benefit of irrevocable bank LOCs of $835 million as of December 31, 2010, or
noncancelable municipal bond insurance of $14 million as of December 31, 2010, to pay principal of,
or interest on, the applicable PCRBs. To the extent that drawings are made under the LOCs or the
insurance, FGCO, NGC and the Utilities are entitled to a credit against their obligation to repay
those bonds. FGCO, NGC and the Utilities pay annual fees of 0.35% to 3.30% of the amounts of the
LOCs to the issuing banks and are obligated to reimburse the banks or insurers, as the case may be,
for any drawings thereunder. The insurers hold FMBs as security for such reimbursement obligations.
OE has LOCs of $130 million and $42 million in connection with the sale and leaseback of Beaver
Valley Unit 2 and Perry Unit 1, respectively. The amounts and annual fees for FirstEnergy, FES and
the Utilities are as follows:
| FE | FES | Met-Ed | Penelec | |||||||||||||
| (In millions) | ||||||||||||||||
|
Amounts
|
||||||||||||||||
|
LOCs
|
$ | 835 | $ | 786 | $ | 29 | $ | 20 | ||||||||
|
Insurance Policies
|
14 | — | 14 | — | ||||||||||||
|
|
||||||||||||||||
|
Annual Fee
|
||||||||||||||||
|
LOCs
|
0.35% to 3.30 | % | 0.35% to 3.30 | % | 1.60 | % | 1.60 | % | ||||||||
12. ASSET RETIREMENT OBLIGATIONS
FirstEnergy has recognized applicable legal obligations for AROs and their associated cost for
nuclear power plant decommissioning, reclamation of a sludge disposal pond and closure of two coal
ash disposal sites. In addition, FirstEnergy has recognized conditional retirement obligations
(primarily for asbestos remediation).
The ARO liabilities for FES, OE and TE primarily relate to the decommissioning of the Beaver
Valley, Davis-Besse and Perry nuclear generating facilities (OE for its leasehold interest in
Beaver Valley Unit 2 and Perry and TE for its leasehold interest in Beaver Valley Unit 2). The ARO
liabilities for JCP&L, Met-Ed and Penelec primarily relate to the decommissioning of the TMI-2
nuclear generating facility. FES and the Utilities use an expected cash flow approach to measure
the fair value of their nuclear decommissioning AROs.
232
Table of Contents
FirstEnergy, FES and the Utilities maintain nuclear decommissioning trust funds that are legally
restricted for purposes of settling the nuclear decommissioning ARO. The fair values of the
decommissioning trust assets as of December 31, 2010 and 2009 were as follows:
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
FE
|
$ | 1,973 | $ | 1,859 | ||||
|
FES
|
1,146 | 1,089 | ||||||
|
OE
|
127 | 121 | ||||||
|
TE
|
76 | 74 | ||||||
|
JCP&L
|
182 | 167 | ||||||
|
Met-Ed
|
289 | 266 | ||||||
|
Penelec
|
153 | 143 | ||||||
Accounting standards for conditional retirement obligations associated with tangible long-lived
assets require recognition of the fair value of a liability for an ARO in the period in which it is
incurred if a reasonable estimate can made, even though there may be uncertainty about timing or
method of settlement. When settlement is conditional on a future event occurring, it is reflected
in the measurement of the liability, not in the recognition of the liability.
The following table summarizes the changes to the ARO balances during 2010 and 2009.
| ARO Reconciliation | FE | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Balance, January 1, 2009
|
$ | 1,347 | $ | 863 | $ | 92 | $ | 2 | $ | 30 | $ | 95 | $ | 171 | $ | 87 | ||||||||||||||||
|
Liabilities incurred
|
4 | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Liabilities settled
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Accretion
|
90 | 58 | 6 | — | 2 | 7 | 11 | 6 | ||||||||||||||||||||||||
|
Revisions in estimated
cash flows
|
(16 | ) | (1 | ) | (12 | ) | — | — | — | (2 | ) | (1 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
1,425 | 921 | 86 | 2 | 32 | 102 | 180 | 92 | ||||||||||||||||||||||||
|
Liabilities incurred
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Liabilities settled
|
(11 | ) | — | (10 | ) | — | — | — | — | — | ||||||||||||||||||||||
|
Accretion
|
93 | 59 | 5 | — | 2 | 6 | 13 | 6 | ||||||||||||||||||||||||
|
Revisions in estimated
cash flows
(1)
|
(100 | ) | (88 | ) | (7 | ) | — | (5 | ) | — | — | — | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 1,407 | $ | 892 | $ | 74 | $ | 2 | $ | 29 | $ | 108 | $ | 193 | $ | 98 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) |
During the second quarter of 2010, studies were completed to reassess the estimated
cost of decommissioning the Beaver Valley nuclear generating facilities. The cost studies
resulted in a revision to the estimated cash flows associated with the ARO liabilities of FES,
OE and TE and reduced the liability for each subsidiary in the amounts of $88 million, $7
million, and $5 million, respectively.
|
13. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT
FirstEnergy had approximately $700 million of short-term indebtedness as of December 31, 2010,
comprised of borrowings under a $2.75 billion revolving line of credit. Total short-term bank lines
of committed credit to FirstEnergy and the Utilities as of January 31, 2011 were approximately $3.2
billion of which $2.5 billion was unused and available.
FirstEnergy, along with certain of its subsidiaries, are parties to a $2.75 billion five-year
revolving credit facility. FirstEnergy has the ability to request an increase in the total
commitments available under this facility up to a maximum of $3.25 billion, subject to the
discretion of each lender to provide additional commitments. Commitments under the facility are
available until August 24, 2012, unless the lenders agree, at the request of the borrowers, to an
unlimited number of additional one-year extensions. Generally, borrowings under the facility must
be repaid within 364 days. Available amounts for each borrower are subject to a specified
sub-limit, as well as applicable regulatory and other limitations. The annual facility fee is
0.125%.
233
Table of Contents
The following table summarizes the borrowing sub-limits for each borrower under the facility, as
well as the limitations on short-term indebtedness applicable to each borrower under current
regulatory approvals and applicable statutory and/or charter limitations as of December 31, 2010:
| Revolving | Regulatory and | |||||||
| Credit Facility | Other Short-Term | |||||||
| Borrower | Sub-Limit | Debt Limitations | ||||||
| (in millions) | ||||||||
|
FirstEnergy
|
$ | 2,750 | $ | — | (1) | |||
|
FES
|
1,000 | — | (1) | |||||
|
OE
|
500 | 500 | ||||||
|
Penn
|
50 | 34 | (2) | |||||
|
CEI
|
250 | (3) | 500 | |||||
|
TE
|
250 | (3) | 500 | |||||
|
JCP&L
|
425 | 411 | (2) | |||||
|
Met-Ed
|
250 | 300 | (2) | |||||
|
Penelec
|
250 | 300 | (2) | |||||
|
ATSI
|
50 | (4) | 100 | |||||
| (1) |
No regulatory approvals, statutory or charter limitations applicable.
|
|
| (2) |
Excluding amounts which may be borrowed under the regulated companies’ money pool.
|
|
| (3) |
Borrowing sub-limits for CEI and TE may be increased to up to $500 million by
delivering notice to the administrative agent that such borrower has senior unsecured debt
ratings of at least BBB by S&P and Baa2 by Moody’s.
|
|
| (4) |
The borrowing sub-limit for ATSI may be increased up to $100 million by delivering
notice to the administrative agent that ATSI has received regulatory approval to have short-term borrowings up to the same amount.
|
The regulated companies also have the ability to borrow from each other and FirstEnergy to meet
their short-term working capital requirements. A similar but separate arrangement exists among the
unregulated companies. FESC administers these two money pools and tracks FirstEnergy’s surplus
funds and those of the respective regulated and unregulated subsidiaries, as well as proceeds
available from bank borrowings. Companies receiving a loan under the money pool agreements must
repay the principal amount of the loan, together with accrued interest, within 364 days of
borrowing the funds. The rate of interest is the same for each company receiving a loan from their
respective pool and is based on the average cost of funds available through the pool. The average
interest rate for borrowings in 2010 was 0.51% for the regulated companies’ money pool and 0.60%
for the unregulated companies’ money pool.
The weighted average interest rates on short-term borrowings outstanding as of December 31, 2010
and 2009 were as follows:
| 2010 | 2009 | |||||||
|
FE
|
0.68 | % | 0.74 | % | ||||
|
FES
|
0.60 | % | 1.84 | % | ||||
|
OE
|
0.51 | % | 0.72 | % | ||||
|
CEI
|
1.92 | % | 1.13 | % | ||||
|
TE
|
— | 0.72 | % | |||||
|
JCP&L
|
— | — | ||||||
|
Met-Ed
|
0.51 | % | — | |||||
|
Penelec
|
0.51 | % | 0.72 | % | ||||
234
Table of Contents
As of December 31, 2010, FirstEnergy Corp. had four receivables securitizations for five of its
seven public utilities. These transactions enable the company to access up to $395 million of
financing at costs based on commercial paper rates plus annual fees. Each of the facilities matures
in 364 days, and are reflected in the table below. In March of 2011 the Centerior Funding Corp. and
OES Capital facilities are scheduled to decrease to $100 million each. There were no outstanding
borrowings as of December 31, 2010.
| Parent | Annual | |||||||||||
| Subsidiary Company | Company | Commitment | Facility Fee | Maturity | ||||||||
| (In millions) | ||||||||||||
|
OES Capital, Incorporated
|
OE | $ | 125 | 1.08 | % | March 30, 2011 | ||||||
|
Centerior Funding Corporation
|
CEI | 125 | 1.00 | March 30, 2011 | ||||||||
|
Met-Ed Funding LLC
|
Met-Ed | 75 | 0.51 | June 17, 2011 | ||||||||
|
Penelec Funding LLC
|
Penelec | 70 | 0.51 | June 17, 2011 | ||||||||
|
|
||||||||||||
|
|
$ | 395 | ||||||||||
|
|
||||||||||||
14. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(A) NUCLEAR INSURANCE
The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear
power plant to $12.6 billion (assuming 104 units licensed to operate) for a single nuclear
incident, which amount is covered by: (i) private insurance amounting to $375 million; and (ii)
$12.2 billion provided by an industry retrospective rating plan required by the NRC pursuant
thereto. Under such retrospective rating plan, in the event of a nuclear incident at any unit in
the United States resulting in losses in excess of private insurance, up to $118 million (but not
more than $18 million per unit per year in the event of more than one incident) must be contributed
for each nuclear unit licensed to operate in the country by the licensees thereof to cover
liabilities arising out of the incident. Based on their present nuclear ownership and leasehold
interests, FirstEnergy’s maximum potential assessment under these provisions would be $470 million
(OE-$40 million, NGC-$408 million, and TE-$22 million) per incident but not more than $70 million
(OE-$6 million, NGC-$61 million, and TE-$3 million) in any one year for each incident.
In addition to the public liability insurance provided pursuant to the Price-Anderson Act,
FirstEnergy has also obtained insurance coverage in limited amounts for economic loss and property
damage arising out of nuclear incidents. FirstEnergy is a member of NEIL which provides coverage
(NEIL I) for the extra expense of replacement power incurred due to prolonged accidental outages of
nuclear units. Under NEIL I, FirstEnergy’s subsidiaries have policies, renewable yearly,
corresponding to their respective nuclear interests, which provide an aggregate indemnity of up to
approximately $1.4 billion (OE-$120 million, NGC-$1.22 billion, TE-$64 million) for replacement
power costs incurred during an outage after an initial 26-week waiting period. Members of NEIL I
pay annual premiums and are subject to assessments if losses exceed the accumulated funds available
to the insurer. FirstEnergy’s present maximum aggregate assessment for incidents at any covered
nuclear facility occurring during a policy year would be approximately $9 million (OE-$1 million,
NGC-$8 million, and TE-less than $1 million).
FirstEnergy is insured as to its respective nuclear interests under property damage insurance
provided by NEIL to the operating company for each plant. Under these arrangements, up to $2.8
billion of coverage for decontamination costs, decommissioning costs, debris removal and repair
and/or replacement of property is provided. FirstEnergy pays annual premiums for this coverage and
is liable for retrospective assessments of up to approximately $61 million (OE-$5 million, NGC-$52
million, TE-$2 million, Met Ed, Penelec, and JCP&L-less than $1 million each) during a policy year.
FirstEnergy intends to maintain insurance against nuclear risks as described above as long as it is
available. To the extent that replacement power, property damage, decontamination, decommissioning,
repair and replacement costs and other such costs arising from a nuclear incident at any of
FirstEnergy’s plants exceed the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be covered by FirstEnergy’s insurance
policies, or to the extent such insurance becomes unavailable in the future, FirstEnergy would
remain at risk for such costs.
The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of
$1.1 billion or the amount generally available from private sources, whichever is less. The
proceeds of this insurance are required to be used first to ensure that the licensed reactor is in
a safe and stable condition and can be maintained in that condition to prevent any significant risk
to the public health and safety. Within 30 days of stabilization, the licensee is required to
prepare and submit to the NRC a cleanup plan for approval. The plan is required to identify all
cleanup operations necessary to decontaminate the reactor sufficiently to permit the resumption of
operations or to commence decommissioning. Any property insurance proceeds not already expended to
place the reactor in a safe and stable condition must be used first to complete those
decontamination operations that are ordered by the NRC. FirstEnergy is unable to predict what
effect these requirements may have on the availability of insurance proceeds.
235
Table of Contents
(B) GUARANTEES AND OTHER ASSURANCES
As part of normal business activities, FirstEnergy enters into various agreements on behalf of its
subsidiaries to provide financial or performance assurances to third parties. These agreements
include contract guarantees, surety bonds and LOCs. As of December 31, 2010, outstanding guarantees
and other assurances aggregated approximately $3.7 billion, consisting primarily of parental
guarantees ($0.8 billion), subsidiaries’ guarantees ($2.5 billion), surety bonds and LOCs ($0.4
billion).
FirstEnergy guarantees energy and energy-related payments of its subsidiaries involved in energy
commodity activities principally to facilitate or hedge normal physical transactions involving
electricity, gas, emission allowances and coal. FirstEnergy also provides guarantees to various
providers of credit support for the financing or refinancing by subsidiaries of costs related to
the acquisition of property, plant and equipment. These agreements legally obligate FirstEnergy to
fulfill the obligations of those subsidiaries directly involved in energy and energy-related
transactions or financing where the law might otherwise limit the counterparties’ claims. If
demands of a counterparty were to exceed the ability of a subsidiary to satisfy existing
obligations, FirstEnergy’s guarantee enables the counterparty’s legal claim to be satisfied by
other FirstEnergy assets. The likelihood is remote that such parental guarantees of $0.3 billion
(included in the $0.8 billion discussed above) as of December 31, 2010 would increase amounts otherwise payable
by FirstEnergy to meet its obligations incurred in connection with financings and ongoing energy
and energy-related activities.
While these types of guarantees are normally parental commitments for the future payment of
subsidiary obligations, subsequent to the occurrence of a credit rating downgrade or “material
adverse event,” the immediate posting of cash collateral, provision of an LOC or accelerated
payments may be required of the subsidiary. As of December 31, 2010, FirstEnergy’s maximum exposure
under these collateral provisions was $468 million, consisting of $429 million due to a below
investment grade credit rating (of which $224 million is due to an acceleration of payment or
funding obligation) and $39 million due to “material adverse event” contractual clauses.
Additionally, stress case conditions of a credit rating downgrade or “material adverse event” and
hypothetical adverse price movements in the underlying commodity markets would increase this amount
to $532 million, consisting of $486 million due to a below investment grade credit rating (of which
$224 million is related to an acceleration of payment or funding obligation) and $46 million due to
“material adverse event” contractual clauses.
Most of FirstEnergy’s surety bonds are backed by various indemnities common within the insurance
industry. Surety bonds and related guarantees of $82 million provide additional assurance to
outside parties that contractual and statutory obligations will be met in a number of areas
including construction contracts, environmental commitments and various retail transactions.
In addition to guarantees and surety bonds, FES’ contracts, including power contracts with
affiliates awarded through competitive bidding processes, typically contain margining provisions
which require the posting of cash or LOCs in amounts determined by future power price movements.
Based on FES’ power portfolio as of December 31, 2010, and forward prices as of that date, FES has
posted collateral of $185 million. Under a hypothetical adverse change in forward prices (95%
confidence level change in forward prices over a one year time horizon), FES would be required to
post an additional $28 million. Depending on the volume of forward contracts and future price
movements, FES could be required to post higher amounts for margining.
In connection with FES’ obligations to post and maintain collateral under the two-year PSA entered
into by FES and the Ohio Companies following the CBP auction on May 13-14, 2009, NGC entered into a
Surplus Margin Guaranty in an amount up to $500 million. The Surplus Margin Guaranty is secured by
an NGC FMB issued in favor of the Ohio Companies.
FES’ debt obligations are generally guaranteed by its subsidiaries, FGCO and NGC, and FES
guarantees the debt obligations of each of FGCO and NGC. Accordingly, present and future holders of
indebtedness of FES, FGCO and NGC will have claims against each of FES, FGCO and NGC regardless of
whether their primary obligor is FES, FGCO or NGC.
On October 22, 2010, Signal Peak and Global Rail entered into a $350 million syndicated two-year
senior secured term loan facility among the two limited liability companies that comprise Signal
Peak and Global Rail, as borrowers. FirstEnergy, together with WMB Loan Ventures LLC and WMB Loan
Ventures II LLC, the entities that share ownership with FEV, the borrowers have provided a guaranty
of the borrowers’ obligations under the facility. In addition, FEV and the other entities that
directly own the equity interest in the borrowers have pledged those interests to the banks as
collateral for the facility.
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Table of Contents
(C) ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. Compliance with environmental regulations could have a
material adverse effect on FirstEnergy’s earnings and competitive position to the extent that
FirstEnergy competes with companies that are not subject to such regulations and, therefore, do not
bear the risk of costs associated with compliance, or failure to comply, with such regulations.
Clean Air Act Compliance
FirstEnergy is required to meet federally-approved SO
2
and NOx emissions regulations
under the CAA. FirstEnergy complies with SO
2
and NOx reduction requirements under the
CAA and SIP(s) under the CAA by burning lower-sulfur fuel, combustion controls and post-combustion
controls, generating more electricity from lower-emitting plants and/or using emission allowances.
Violations can result in the shutdown of the generating unit involved and/or civil or criminal
penalties.
The Sammis, Eastlake and Mansfield coal-fired plants are operated under a consent decree with the
EPA and DOJ that requires reductions of NOx and SO
2
emissions through the installation
of pollution control devices or repowering. OE and Penn are subject to stipulated penalties for
failure to install and operate such pollution controls or complete repowering in accordance with
that agreement.
In July 2008, three complaints were filed against FGCO in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on Bruce Mansfield Plant air emissions. Two of these
complaints also seek to enjoin the Bruce Mansfield Plant from operating except in a “safe,
responsible, prudent and proper manner”, one being a complaint filed on behalf of twenty-one
individuals and the other being a class action complaint seeking certification as a class action
with the eight named plaintiffs as the class representatives. FGCO believes the claims are without
merit and intends to defend itself against the allegations made in those three complaints.
The states of New Jersey and Connecticut filed CAA citizen suits in 2007 alleging NSR violations at
the Portland Generation Station against GenOn Energy, Inc. (the current owner and operator), Sithe
Energy (the purchaser of the Portland Station from Met-Ed in 1999) and Met-Ed. Specifically, these
suits allege that “modifications” at Portland Units 1 and 2 occurred between 1980 and 2005 without
preconstruction NSR permitting in violation of the CAA’s PSD program, and seek injunctive relief,
penalties, attorney fees and mitigation of the harm caused by excess emissions. In September 2009,
the Court granted Met-Ed’s motion to dismiss New Jersey’s and Connecticut’s claims for injunctive
relief against Met-Ed, but denied Met-Ed’s motion to dismiss the claims for civil penalties. The
parties dispute the scope of Met-Ed’s indemnity obligation to and from Sithe Energy.
In January 2009, the EPA issued a NOV to GenOn alleging NSR violations at the Portland Generation
Station based on “modifications” dating back to 1986 and also alleged NSR violations at the
Keystone and Shawville Stations based on “modifications” dating back to 1984. Met-Ed, JCP&L, as the
former owner of 16.67% of the Keystone Station, and Penelec, as former owner and operator of the
Shawville Station, are unable to predict the outcome of this matter.
In June 2008, the EPA issued a Notice and Finding of Violation to Mission Energy Westside, Inc.
alleging that “modifications” at the Homer City Power Station occurred since 1988 to the present
without preconstruction NSR permitting in violation of the CAA’s PSD program. In May 2010, the EPA
issued a second NOV to Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an
ownership interest in the Homer City Power Station containing in all material respects identical
allegations as the June 2008 NOV. On July 20, 2010, the states of New York and Pennsylvania
provided Mission Energy Westside, Inc., Penelec, NYSEG and others that have had an ownership
interest in the Homer City Power Station a notification that was required 60 days prior to filing a
citizen suit under the CAA. In January, 2011, the DOJ filed a complaint against Penelec in the U.S.
District Court for the Western District of Pennsylvania seeking damages based on alleged
“modifications” at the Homer City Power Station between 1991 to 1994 without preconstruction NSR
permitting in violation of the CAA’s PSD and Title V permitting programs. The complaint was also
filed against the former co-owner, NYSEG, and various current owners of the Homer City Station,
including EME Homer City Generation L.P. and affiliated companies, including Edison International.
In addition, the Commonwealth of Pennsylvania and the State of New York intervened and have filed a
separate complaint regarding the Homer City Station. Mission Energy Westside, Inc. is seeking
indemnification from Penelec, the co-owner and operator of the Homer City Power Station prior to
its sale in 1999. The scope of Penelec’s indemnity obligation to and from Mission Energy Westside,
Inc. is under dispute and Penelec is unable to predict the outcome of this matter.
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In January 2011, a complaint was filed against Penelec in the U.S. District Court for the Western
District of Pennsylvania seeking damages based on the Homer City Station’s air emissions. The
complaint was also filed against the former co-owner, NYSEG and various current owners of the Homer
City Station, including EME Homer City Generation L.P. and affiliated companies, including Edison
International. The complaint also seeks certification as a class action and to enjoin the Homer
City Station from operating except in a “safe, responsible, prudent and proper manner.” Penelec
believes the claims are without merit and intends to defend itself against the allegations made in
the complaint.
In August 2009, the EPA issued a Finding of Violation and NOV alleging violations of the CAA and
Ohio regulations, including the PSD, NNSR, and Title V regulations at the Eastlake, Lakeshore, Bay
Shore and Ashtabula generating plants. The EPA’s NOV alleges equipment replacements occurring
during maintenance outages dating back to 1990 triggered the pre-construction permitting
requirements under the PSD and NNSR programs. FGCO received a request for certain operating and
maintenance information and planning information for these same generating plants and notification
that the EPA is evaluating whether certain maintenance at the Eastlake generating plant may
constitute a major modification under the NSR provision of the CAA. Later in 2009, FGCO also
received another information request regarding emission projections for the Eastlake generating
plant. FGCO intends to comply with the CAA, including the EPA’s information requests, but, at this
time, is unable to predict the outcome of this matter.
National Ambient Air Quality Standards
The EPA’s CAIR requires reductions of NOx and SO
2
emissions in two phases (2009/2010 and
2015), ultimately capping SO
2
emissions in affected states to 2.5 million tons annually
and NOx emissions to 1.3 million tons annually. In 2008, the U.S. Court of Appeals for the District
of Columbia vacated CAIR “in its entirety” and directed the EPA to “redo its analysis from the
ground up.” In December 2008, the Court reconsidered its prior ruling and allowed CAIR to remain in
effect to “temporarily preserve its environmental values” until the EPA replaces CAIR with a new
rule consistent with the Court’s opinion. The Court ruled in a different case that a cap-and-trade
program similar to CAIR, called the “NOx SIP Call,” cannot be used to satisfy certain CAA
requirements (known as reasonably available control technology) for areas in non-attainment under
the “8-hour” ozone NAAQS. In July 2010, the EPA proposed the CATR to replace CAIR, which remains in
effect until the EPA finalizes CATR. CATR requires reductions of NOx and SO
2
emissions
in two phases (2012 and 2014), ultimately capping SO
2
emissions in affected states to 2.6 million tons annually
and NOx emissions to 1.3 million tons annually. The EPA proposed a preferred regulatory approach
that allows trading of NOx and SO
2
emission allowances between power plants located in
the same state and severely limits interstate trading of NOx and SO
2
emission
allowances. The EPA also requested comment on two alternative approaches—the first eliminates
interstate trading of NOx and SO
2
emission allowances and the second eliminates trading
of NOx and SO
2
emission allowances in its entirety. Depending on the actions taken by
the EPA with respect to CATR, the proposed MACT regulations discussed below and any future
regulations that are ultimately implemented, FGCO’s future cost of compliance may be substantial.
Management continues to assess the impact of these environmental proposals and other factors on
FGCO’s facilities, particularly on the operation of its smaller, non-supercritical units. In August
2010, for example, management decided to idle certain units or operate them on a seasonal basis
until developments clarify.
Hazardous Air Pollutant Emissions
The EPA’s CAMR provides for a cap-and-trade program to reduce mercury emissions from coal-fired
power plants in two phases; initially, capping nationwide emissions of mercury at 38 tons by 2010
(as a “co-benefit” from implementation of SO
2
and NOx emission caps under the EPA’s CAIR
program) and 15 tons per year by 2018. The U.S. Court of Appeals for the District of Columbia, at
the urging of several states and environmental groups, vacated the CAMR, ruling that the EPA failed
to take the necessary steps to “de-list” coal-fired power plants from its hazardous air pollutant
program and, therefore, could not promulgate a cap-and-trade program. On April 29, 2010, the EPA
issued proposed MACT regulations requiring emissions reductions of mercury and other hazardous air
pollutants from non-electric generating unit boilers. If finalized,
the non-electric generating unit MACT regulations could also provide precedent for MACT standards
applicable to electric generating units. On January 20, 2011, the U.S. District Court for the
District of Columbia denied a motion by the EPA for an extension of the deadline to issue final
rules, ordering the EPA to issue such rules by February 21, 2011. The EPA also entered into a
consent decree requiring it to propose MACT regulations for mercury and other hazardous air
pollutants from electric generating units by March 16, 2011, and to finalize the regulations by
November 16, 2011. Depending on the action taken by the EPA and on how any future regulations are
ultimately implemented, FGCO’s future cost of compliance with MACT regulations may be substantial
and changes to FGCO’s operations may result.
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Climate Change
There are a number of initiatives to reduce GHG emissions under consideration at the federal, state
and international level. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the House of Representatives passed
one such bill, the American Clean Energy and Security Act of 2009, on June 26, 2009. The Senate
continues to consider a number of measures to regulate GHG emissions. President Obama has announced
his Administration’s “New Energy for America Plan” that includes, among other provisions, ensuring
that 10% of electricity used in the United States comes from renewable sources by 2012, increasing
to 25% by 2025, and implementing an economy-wide cap-and-trade program to reduce GHG emissions by
80% by 2050. State activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states, led by California, have coordinated efforts to
develop regional strategies to control emissions of certain GHGs.
In September 2009, the EPA finalized a national GHG emissions collection and reporting rule that
will require FirstEnergy to measure GHG emissions commencing in 2010 and submit reports commencing
in 2011. In December 2009, the EPA released its final “Endangerment and Cause or Contribute
Findings for Greenhouse Gases under the Clean Air Act.” The EPA’s finding concludes that
concentrations of several key GHGs increase the threat of climate change and may be regulated as
“air pollutants” under the CAA. In April 2010, the EPA finalized new GHG standards for model years
2012 to 2016 passenger cars, light-duty trucks and medium-duty passenger vehicles and clarified
that GHG regulation under the CAA would not be triggered for electric generating plants and other
stationary sources until January 2, 2011, at the earliest. In May 2010, the EPA finalized new
thresholds for GHG emissions that define when permits under the CAA’s NSR program would be
required. The EPA established an emissions applicability threshold of 75,000 tons per year (tpy) of
carbon dioxide equivalents (CO2e) effective January 2, 2011 for existing facilities under the CAA’s
PSD program, but until July 1, 2011 that emissions applicability threshold will only apply if PSD
is triggered by non-carbon dioxide pollutants.
At the international level, the Kyoto Protocol, signed by the U.S. in 1998 but never submitted for
ratification by the U.S. Senate, was intended to address global warming by reducing the amount of
man-made GHG, including CO
2
, emitted by developed countries by 2012. A December 2009
U.N. Climate Change Conference in Copenhagen did not reach a consensus on a successor treaty to the
Kyoto Protocol, but did take note of the Copenhagen Accord, a non-binding political agreement which
recognized the scientific view that the increase in global temperature should be below two degrees
Celsius; include a commitment by developed countries to provide funds, approaching $30 billion over
the next three years with a goal of increasing to $100 billion by 2020; and establish the
“Copenhagen Green Climate Fund” to support mitigation, adaptation, and other climate-related
activities in developing countries. Once they have become a party to the Copenhagen Accord,
developed economies, such as the European Union, Japan, Russia and the United States, would commit
to quantified economy-wide emissions targets from 2020, while developing countries, including
Brazil, China and India, would agree to take mitigation actions, subject to their domestic
measurement, reporting and verification.
On September 21, 2009, the U.S. Court of Appeals for the Second Circuit and on October 16, 2009,
the U.S. Court of Appeals for the Fifth Circuit reversed and remanded lower court decisions that
had dismissed complaints alleging damage from GHG emissions on jurisdictional grounds. However, a
subsequent ruling from the U.S. Court of Appeals for the Fifth Circuit reinstated the lower court
dismissal of a complaint alleging damage from GHG emissions. These cases involve common law tort
claims, including public and private nuisance, alleging that GHG emissions contribute to global
warming and result in property damages. On December 6, 2010, the U.S. Supreme Court granted a writ
of certiorari to the Second Circuit in
Connecticut v. AEP
. Briefing and oral argument are expected
to be completed in early 2011 and a decision issued in or around June 2011. While FirstEnergy is
not a party to this litigation, FirstEnergy and/or one or more of its subsidiaries could be named
in actions making similar allegations.
FirstEnergy cannot currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO
2
emissions, or litigation
alleging damages from GHG emissions, could require significant capital and other expenditures or
result in changes to its operations. The CO
2
emissions per KWH of electricity generated
by FirstEnergy is lower than many regional competitors due to its diversified generation sources,
which include low or non-CO
2
emitting gas-fired and nuclear generators.
Clean Water Act
Various water quality regulations, the majority of which are the result of the federal Clean Water
Act and its amendments, apply to FirstEnergy’s plants. In addition, Ohio, New Jersey and
Pennsylvania have water quality standards applicable to FirstEnergy’s operations.
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The EPA established new performance standards under Section 316(b) of the Clean Water Act for
reducing impacts on fish and shellfish from cooling water intake structures at certain existing
electric generating plants. The regulations call for reductions in impingement mortality (when
aquatic organisms are pinned against screens or other parts of a cooling water intake system) and
entrainment (which occurs when aquatic life is drawn into a facility’s cooling water system). The
EPA has taken the position that until further rulemaking occurs, permitting authorities should
continue the existing practice of applying their best professional judgment to minimize impacts on
fish and shellfish from cooling water intake structures. On April 1, 2009, the U.S. Supreme Court
reversed one significant aspect of the Second Circuit’s opinion and decided that Section 316(b) of
the Clean Water Act authorizes the EPA to compare costs with benefits in determining the best
technology available for minimizing adverse environmental impact at cooling water intake
structures. The EPA is developing a new regulation under Section 316(b) of the Clean Water Act
consistent with the opinions of the Supreme Court and the Court of Appeals which have created
significant uncertainty about the specific nature, scope and timing of the final performance
standard. FirstEnergy is studying various control options and their costs and effectiveness,
including pilot testing of reverse louvers in a portion of the Bay Shore power plant’s water intake
channel to divert fish away from the plant’s water intake system. On November 19, 2010, the Ohio
EPA issued a permit for the Bay Shore power plant requiring installation of reverse louvers in its
entire water intake channel by December 31, 2014. Depending on the results of such studies and the
EPA’s further rulemaking and any final action taken by the states exercising best professional
judgment, the future costs of compliance with these standards may require material capital
expenditures.
In June 2008, the U.S. Attorney’s Office in Cleveland, Ohio advised FGCO that it is considering
prosecution under the Clean Water Act and the Migratory Bird Treaty Act for three petroleum spills
at the Edgewater, Lakeshore and Bay Shore plants which occurred on November 1, 2005, January 26,
2007 and February 27, 2007. FGCO is unable to predict the outcome of this matter.
Regulation of Waste Disposal
Federal and state hazardous waste regulations have been promulgated as a result of the Resource
Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976.
Certain fossil-fuel combustion residuals, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA’s evaluation of the need for future regulation. In February
2009, the EPA requested comments from the states on options for regulating coal combustion
residuals, including whether they should be regulated as hazardous or non-hazardous waste.
On December 30, 2009, in an advanced notice of public rulemaking, the EPA said that the large
volumes of coal combustion residuals produced by electric utilities pose significant financial risk
to the industry. On May 4, 2010, the EPA proposed two options for additional regulation of coal
combustion residuals, including the option of regulation as a special waste under the EPA’s
hazardous waste management program which could have a significant impact on the management,
beneficial use and disposal of coal combustion residuals. FGCO’s future cost of compliance with any
coal combustion residuals regulations which may be promulgated could be substantial and would
depend, in part, on the regulatory action taken by the EPA and implementation by the EPA or the
states.
The Utilities have been named as potentially responsible parties at waste disposal sites, which may
require cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act of
1980. Allegations of disposal of hazardous substances at historical sites and the liability involved are often unsubstantiated and
subject to dispute; however, federal law provides that all potentially responsible parties for a
particular site may be liable on a joint and several basis. Environmental liabilities that are
considered probable have been recognized on the consolidated balance sheet as of December 31, 2010,
based on estimates of the total costs of cleanup, the Utilities’ proportionate responsibility for
such costs and the financial ability of other unaffiliated entities to pay. Total liabilities of
approximately $104 million (JCP&L — $69 million, TE — $1 million, CEI — $1 million, FGCO — $1
million and FirstEnergy — $32 million) have been accrued through December 31, 2010. Included in the
total are accrued liabilities of approximately $64 million for environmental remediation of former
MGPs and gas holder facilities in New Jersey, which are being recovered by JCP&L through a
non-bypassable SBC.
(D) OTHER LEGAL PROCEEDINGS
Power Outages and Related Litigation
In July 1999, the Mid-Atlantic States experienced a severe heat wave, which resulted in power
outages throughout the service territories of many electric utilities, including JCP&L’s territory.
Two class action lawsuits (subsequently consolidated into a single proceeding) were filed in New
Jersey Superior Court in July 1999 against JCP&L, GPU and other GPU companies, seeking compensatory
and punitive damages due to the outages. After various motions, rulings and appeals, the
Plaintiffs’ claims for consumer fraud, common law fraud, negligent misrepresentation, strict
product liability and punitive damages were dismissed, leaving only the negligence and breach of
contract causes of actions. On July 29, 2010, the Appellate Division upheld the trial court’s
decision decertifying the class. Plaintiffs have filed, and JCP&L has opposed, a motion for leave
to appeal to the New Jersey Supreme Court. JCP&L is waiting for the Court’s decision.
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Litigation Relating to the Proposed Allegheny Merger
In connection with the proposed merger (Note 22), purported shareholders of Allegheny have filed
putative shareholder class action and/or derivative lawsuits against Allegheny and its directors
and certain officers, referred to as the Allegheny Energy defendants, FirstEnergy and Merger Sub.
Four putative class action and derivative lawsuits were filed in the Circuit Court for Baltimore
City, Maryland (Maryland Court). One was withdrawn. The Maryland Court has consolidated the
remaining three cases under the caption: In re Allegheny Energy Shareholder and Derivative
Litigation, C.A. No. 24-C-10-1301. Three shareholder lawsuits were filed in the Court of Common
Pleas of Westmoreland County, Pennsylvania and the court has consolidated these actions under the
caption: In re Allegheny Energy, Inc. Shareholder Class and Derivative, Litigation, Lead Case No.
1101 of 2010. One putative shareholder class action was filed in the U.S. District Court for the
Western District of Pennsylvania and is captioned Louisiana Municipal Police Employees’ Retirement
System v. Evanson, et al., C.A. No. 10-319 NBF. In summary, the lawsuits allege, among other
things, that the Allegheny Energy directors breached their fiduciary duties by approving the merger
agreement, and that Allegheny, FirstEnergy and Merger Sub aided and abetted in these alleged
breaches of fiduciary duty. The complaints seek, among other things, jury trials, money damages and
injunctive relief. While FirstEnergy believes the lawsuits are without merit and has defended
vigorously against the claims, in order to avoid the costs associated with the litigation, the
defendants have agreed to the terms of a disclosure-based settlement of all these shareholder
lawsuits and have reached agreement with counsel for all of the plaintiffs concerning fee
applications. Under the terms of the settlement, no payments are being made by FirstEnergy or
Merger Sub. A formal stipulation of settlement was filed with the Maryland Court on October 18,
2010 and it was approved and became final on January 12, 2011. The separate Pennsylvania federal
and state proceedings were dismissed on January 14, 2011 and January 18, 2011, respectively. The
above shareholder actions have been fully and finally resolved.
Nuclear Plant Matters
During a planned refueling outage that began on February 28, 2010, FENOC conducted a non
destructive examination and testing of the CRDM nozzles of the Davis-Besse reactor pressure vessel
head. FENOC identified flaws in CRDM nozzles that required modification. The NRC was notified of
these findings, along with federal, state and local officials. On March 17, 2010, the NRC sent a
special inspection team to Davis-Besse to assess the adequacy of FENOC’s identification, analyses
and resolution of the CRDM nozzle flaws and to ensure acceptable modifications were made prior to
placing the RPV head back in service. After successfully completing the modifications, FENOC
committed to take a number of corrective actions including strengthening leakage monitoring
procedures and shutting Davis-Besse down no later than October 1, 2011, to replace the reactor
pressure vessel head with nozzles made of material less susceptible to primary water stress
corrosion cracking, further enhancing the safe and reliable operations of the plant. On June 29,
2010, FENOC returned Davis-Besse to service. On September 9, 2010, the NRC held a public exit
meeting describing the results of the NRC special inspection team inspection of FENOC’s
identification of the CRDM nozzles with flaws and the modifications to those nozzles. On October
22, 2010, the NRC issued its final report of the special inspection. The report contained three
findings characterized as very low safety significance that were promptly corrected prior to plant
operation.
On April 5, 2010, the Union of Concerned Scientists (UCS) requested that the NRC issue a Show Cause
Order, or otherwise delay the restart of the Davis-Besse Nuclear Power Station until the NRC
determines that adequate protection
standards have been met and reasonable assurance exists that these standards will continue to be
met after the plant’s operation is resumed. By a letter dated July 13, 2010, the NRC denied UCS’s
request for immediate action because “the NRC has conducted rigorous and independent assessments of
returning the Davis-Besse reactor vessel head to service and its continued operation, and
determined that it was safe for the plant to restart.” The UCS petition was referred to a petition
manager for further review. What additional actions, if any, that the NRC takes in response to the
UCS request have not been determined.
Under NRC regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities. As of December 31, 2010, FirstEnergy had approximately $2
billion invested in external trusts to be used for the decommissioning and environmental
remediation of Davis-Besse, Beaver Valley, Perry and TMI-2. FirstEnergy provides an additional $15
million parental guarantee associated with the funding of decommissioning costs for these units. As
required by the NRC, FirstEnergy annually recalculates and adjusts the amount of its parental
guarantee, as appropriate. The values of FirstEnergy’s nuclear decommissioning trusts fluctuate
based on market conditions. If the value of the trusts decline by a material amount, FirstEnergy’s
obligation to fund the trusts may increase. Disruptions in the capital markets and its effects on
particular businesses and the economy could also affect the values of the nuclear decommissioning
trusts. The NRC issued guidance anticipating an increase in low-level radioactive waste disposal
costs associated the decommissioning of FirstEnergy’s nuclear facilities. As a result,
FirstEnergy’s decommissioning funding obligations are expected to increase. FirstEnergy continues
to evaluate the status of its funding obligations for the decommissioning of these nuclear
facilities.
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On August 27, 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse
Nuclear Power Station operating license for an additional twenty years, until 2037. On December 27
and 28, 2010, a group of petitioners filed a request for hearing contending that FENOC failed to
adequately consider wind or solar generation, or some combination thereof, as an alternative to
license extension at Davis-Besse. They further argued FENOC had failed to adequately assess the
cost of a severe accident at Davis-Besse. FENOC and the NRC staff responded to this pleading on
January 21, 2011, demonstrating that none of the petitioners’ arguments were admissible contentions
under the National Environmental Policy Act or NRC regulations. An Atomic Safety and Licensing
Board panel is expected to determine whether a hearing is necessary.
Ohio Legal Matters
On February 16, 2010, a class action lawsuit was filed in Geauga County Court of Common Pleas
against FirstEnergy, CEI and OE seeking declaratory judgment and injunctive relief, as well as
compensatory, incidental and consequential damages, on behalf of a class of customers related to
the reduction of a discount that had previously been in place for residential customers with
electric heating, electric water heating, or load management systems. The reduction in the discount
was approved by the PUCO. On March 18, 2010, the named-defendant companies filed a motion to
dismiss the case due to the lack of jurisdiction of the court of common pleas. The court granted
the motion to dismiss on September 7, 2010. The plaintiffs appealed the decision to the Court of
Appeals of Ohio, which has not yet rendered an opinion.
Other Legal Matters
There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related
to FirstEnergy’s normal business operations pending against FirstEnergy and its subsidiaries. The
other potentially material items not otherwise discussed above are described below.
FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an
obligation for such costs and can reasonably estimate the amount of such costs. If it were
ultimately determined that FirstEnergy or its subsidiaries have legal liability or are otherwise
made subject to liability based on the above matters, it could have a material adverse effect on
FirstEnergy’s or its subsidiaries’ financial condition, results of operations and cash flows.
15. SEGMENT INFORMATION
Financial information for each of FirstEnergy’s reportable segments is presented in the following
table. FES and the Utilities do not have separate reportable operating segments.
The Energy Delivery Services segment transmits and distributes electricity through FirstEnergy’s
eight utility operating companies, serving 4.5 million customers within 36,100 square miles of
Ohio, Pennsylvania and New Jersey, and purchases power for its POLR and default service
requirements in Ohio, Pennsylvania and New Jersey. Its revenues are primarily derived from the
delivery of electricity within FirstEnergy’s service areas, cost recovery of regulatory assets and
the sale of electric generation service to retail customers who have not selected an alternative
supplier (default service) in its Ohio, Pennsylvania and New Jersey franchise areas. Its results
reflect the commodity costs of securing electric generation from FES and from non-affiliated power
suppliers, the net PJM and MISO transmission expenses related to the delivery of the respective
generation loads and the deferral and amortization of purchased power costs.
The Competitive Energy Services segment supplies electric power to end-use customers through retail
and wholesale arrangements, including associated company power sales to meet all or a portion of
the POLR and default service requirements of FirstEnergy’s Ohio and Pennsylvania utility
subsidiaries and competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois,
Maryland, Michigan and New Jersey. This business segment controls approximately 13,236 MWs of
capacity and also purchases electricity to meet sales obligations. The segment’s net income is
primarily derived from affiliated and non-affiliated electric generation sales revenues less the
related costs of electricity generation, including purchased power and net transmission (including
congestion) and ancillary costs charged by PJM and MISO to deliver energy to the segment’s
customers.
The other segment contains corporate items and other businesses that are below the quantifiable
threshold for separate disclosure as a reportable segment.
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Segment Financial Information
| Energy | Competitive | |||||||||||||||||||
| For the Years Ended | Delivery | Energy | Reconciling | |||||||||||||||||
| December 31, | Services | Services | Other | Adjustments | Consolidated | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
2010
|
||||||||||||||||||||
|
External revenues
|
$ | 9,813 | $ | 3,544 | $ | 33 | $ | (125 | ) | $ | 13,265 | |||||||||
|
Internal revenues*
|
139 | 2,301 | — | (2,366 | ) | 74 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
9,952 | 5,845 | 33 | (2,491 | ) | 13,339 | ||||||||||||||
|
Depreciation and
amortization
|
1,173 | 254 | 32 | 9 | 1,468 | |||||||||||||||
|
Investment income
|
102 | 51 | 1 | (37 | ) | 117 | ||||||||||||||
|
Net interest charges
|
491 | 129 | 6 | 54 | 680 | |||||||||||||||
|
Income taxes
|
372 | 158 | (13 | ) | (35 | ) | 482 | |||||||||||||
|
Net income
|
607 | 258 | (4 | ) | (101 | ) | 760 | |||||||||||||
|
Total assets
|
22,613 | 11,240 | 618 | 334 | 34,805 | |||||||||||||||
|
Total goodwill
|
5,551 | 24 | — | — | 5,575 | |||||||||||||||
|
Property additions
|
745 | 1,129 | 24 | 65 | 1,963 | |||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
External revenues
|
$ | 11,144 | $ | 1,894 | $ | 37 | $ | (119 | ) | $ | 12,956 | |||||||||
|
Internal revenues*
|
— | 2,843 | — | (2,826 | ) | 17 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
11,144 | 4,737 | 37 | (2,945 | ) | 12,973 | ||||||||||||||
|
Depreciation and
amortization
|
1,464 | 270 | 10 | 11 | 1,755 | |||||||||||||||
|
Investment income
|
139 | 121 | — | (56 | ) | 204 | ||||||||||||||
|
Net interest charges
|
469 | 106 | 8 | 265 | 848 | |||||||||||||||
|
Income taxes
|
290 | 345 | (265 | ) | (125 | ) | 245 | |||||||||||||
|
Net income
|
435 | 517 | 257 | (219 | ) | 990 | ||||||||||||||
|
Total assets
|
22,978 | 10,584 | 607 | 135 | 34,304 | |||||||||||||||
|
Total goodwill
|
5,551 | 24 | — | — | 5,575 | |||||||||||||||
|
Property additions
|
750 | 1,262 | 149 | 42 | 2,203 | |||||||||||||||
|
|
||||||||||||||||||||
|
2008
|
||||||||||||||||||||
|
External revenues
|
$ | 12,068 | $ | 1,571 | $ | 72 | $ | (84 | ) | $ | 13,627 | |||||||||
|
Internal revenues
|
— | 2,968 | — | (2,968 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
|
12,068 | 4,539 | 72 | (3,052 | ) | 13,627 | ||||||||||||||
|
Depreciation and
amortization
|
1,154 | 243 | 4 | 13 | 1,414 | |||||||||||||||
|
Investment income
|
171 | (34 | ) | 6 | (84 | ) | 59 | |||||||||||||
|
Net interest charges
|
408 | 108 | 2 | 184 | 702 | |||||||||||||||
|
Income taxes
|
611 | 314 | (53 | ) | (95 | ) | 777 | |||||||||||||
|
Net income
|
916 | 472 | 116 | (165 | ) | 1,339 | ||||||||||||||
|
Total assets
|
23,025 | 9,559 | 539 | 398 | 33,521 | |||||||||||||||
|
Total goodwill
|
5,551 | 24 | — | — | 5,575 | |||||||||||||||
|
Property additions
|
839 | 1,835 | 176 | 38 | 2,888 | |||||||||||||||
| * |
Under the accounting standard for the effects of certain types of regulation, internal
revenues are not fully offset for sales of RECs by FES to the Ohio Companies that are retained
in inventory.
|
Reconciling adjustments to segment operating results from internal management reporting to
consolidated external financial reporting primarily consist of interest expense related to holding
company debt, corporate support services revenues and expenses and elimination of intersegment
transactions.
Products and Services
| Electricity | ||||
| Year | Sales | |||
| (in millions) | ||||
|
2010
|
$ | 12,523 | ||
|
2009
|
12,032 | |||
|
2008
|
12,693 | |||
243
Table of Contents
16. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
In 2010, the FASB Emerging Issues Task Force amended the Goodwill and Other Topic of the FASB
Accounting Standards Codification. The amendment requires entities with a zero or negative carrying
value to assess whether it is more likely than not that a goodwill impairment exists through the
consideration of qualitative factors. If an entity concludes that it is more likely than not that a
goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. The
amendment is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2010. FirstEnergy does not expect this amendment to have a material effect on its
financial statements.
In 2010, the FASB Emerging Issues Task Force amended the Business Combinations Topic of the FASB
Accounting Standards Codification. The amendment addresses how entities prepare pro forma financial
information as a result of a business combination. Under the amendment, if comparative financial
statements are presented an entity should present the pro forma disclosures as if the business
combination occurred at the beginning of the prior annual period. An entity must provide additional
disclosures describing the nature and amount of material, nonrecurring pro forma adjustments. The
amendment is effective for business combinations consummated in periods beginning after December
15, 2010. FirstEnergy will implement the amendment to Business Combinations guidance for
acquisitions consummated after January 1, 2011.
17. TRANSACTIONS WITH AFFILIATED COMPANIES
FES’ and the Utilities’ operating revenues, operating expenses, investment income and interest
expense include transactions with affiliated companies. These affiliated company transactions
include PSAs between FES and the Utilities, support service billings from FESC and FENOC, interest
on associated company notes and other transactions
(see Note 7).
The
Ohio Companies had a full requirements PSA with FES through December 31, 2008 to meet their POLR and default
service obligations. Met-Ed and Penelec had a partial requirement PSA with FES to meet a portion of
their POLR and default service obligations through the end of 2010 (see Note 9). FES is incurring
interest expense through FGCO and NGC on associated company notes payable to the Ohio Companies and
Penn related to the 2005 intra-system generation asset transfers. The primary affiliated company
transactions for FES and the Utilities during the three years ended December 31, 2010 are as
follows:
| Affiliated Company Transactions — 2010 | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||
|
Electric sales to affiliates
|
$ | 2,227 | $ | 190 | $ | 2 | $ | 46 | $ | — | $ | 73 | $ | 65 | ||||||||||||||
|
Ground lease with ATSI
|
— | 12 | 7 | 2 | — | — | — | |||||||||||||||||||||
|
Other
|
88 | 1 | 7 | 1 | — | 10 | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||
|
Purchased power from affiliates
|
371 | 521 | 361 | 181 | — | 612 | 643 | |||||||||||||||||||||
|
Fuel
|
46 | — | — | — | — | — | — | |||||||||||||||||||||
|
Support services
|
620 | 128 | 64 | 52 | 94 | 59 | 58 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investment Income:
|
||||||||||||||||||||||||||||
|
Interest income from affiliates
|
— | — | — | 12 | — | — | — | |||||||||||||||||||||
|
Interest income from FirstEnergy
|
3 | — | — | — | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Interest Expense:
|
||||||||||||||||||||||||||||
|
Interest expense to affiliates
|
9 | 3 | 14 | 1 | 4 | 2 | 2 | |||||||||||||||||||||
|
Interest expense to FirstEnergy
|
— | — | 1 | — | — | — | — | |||||||||||||||||||||
244
Table of Contents
| Affiliated Company Transactions — 2009 | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||
|
Electric sales to affiliates
|
$ | 2,826 | $ | 189 | $ | 2 | $ | 38 | $ | — | $ | — | $ | — | ||||||||||||||
|
Ground lease with ATSI
|
— | 12 | 7 | 2 | — | — | — | |||||||||||||||||||||
|
Other
|
30 | 1 | 6 | 1 | — | 10 | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||
|
Purchased power from affiliates
|
222 | 991 | 735 | 393 | — | 365 | 342 | |||||||||||||||||||||
|
Fuel
|
15 | — | — | — | — | — | — | |||||||||||||||||||||
|
Support services
|
584 | 141 | 62 | 59 | 91 | 54 | 57 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investment Income:
|
||||||||||||||||||||||||||||
|
Interest income from affiliates
|
— | 15 | — | 17 | — | — | — | |||||||||||||||||||||
|
Interest income from FirstEnergy
|
4 | 1 | — | — | — | 1 | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Interest Expense:
|
||||||||||||||||||||||||||||
|
Interest expense to affiliates
|
6 | 5 | 17 | 2 | 4 | 3 | 2 | |||||||||||||||||||||
|
Interest expense to FirstEnergy
|
4 | 1 | 1 | 1 | — | — | 1 | |||||||||||||||||||||
| Affiliated Company Transactions — 2008 | FES | OE | CEI | TE | JCP&L | Met-Ed | Penelec | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||
|
Electric sales to affiliates
|
$ | 2,968 | $ | 75 | $ | 6 | $ | 32 | $ | — | $ | — | $ | — | ||||||||||||||
|
Ground lease with ATSI
|
— | 12 | 7 | 2 | — | — | — | |||||||||||||||||||||
|
Other
|
6 | 1 | 12 | 3 | 1 | 10 | 1 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||
|
Purchased power from affiliates
|
101 | 1,203 | 766 | 411 | — | 304 | 284 | |||||||||||||||||||||
|
Fuel
|
5 | — | — | — | — | — | — | |||||||||||||||||||||
|
Support services
|
584 | 146 | 69 | 71 | 95 | 57 | 59 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investment Income:
|
||||||||||||||||||||||||||||
|
Interest income from affiliates
|
1 | 15 | 1 | 20 | 1 | — | 1 | |||||||||||||||||||||
|
Interest income from FirstEnergy
|
12 | 13 | — | — | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Interest Expense:
|
||||||||||||||||||||||||||||
|
Interest expense to affiliates
|
4 | 3 | 19 | 1 | 3 | 2 | 2 | |||||||||||||||||||||
|
Interest expense to FirstEnergy
|
26 | — | 7 | 2 | 5 | 4 | 5 | |||||||||||||||||||||
FirstEnergy does not bill directly or allocate any of its costs to any subsidiary company.
Costs are allocated to FES and the Utilities from FESC and FENOC. The majority of costs are
directly billed or assigned at no more than cost. The remaining costs are for services that are
provided on behalf of more than one company, or costs that cannot be precisely identified and are
allocated using formulas developed by FESC and FENOC. The current allocation or assignment formulas
used and their bases include multiple factor formulas: each company’s proportionate amount of
FirstEnergy’s aggregate direct payroll, number of employees, asset balances, revenues, number of
customers, other factors and specific departmental charge ratios. Management believes that these
allocation methods are reasonable. Intercompany transactions with FirstEnergy and its other
subsidiaries are generally settled under commercial terms within thirty days.
245
Table of Contents
18. SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in Note 7, FES has fully and unconditionally guaranteed all of FGCO’s obligations
under each of the leases associated with Bruce Mansfield Unit 1. The Consolidating Statements of
Income for the three years ended December 31, 2010, Consolidating Balance Sheets as of December 31,
2010, and December 31, 2009, and Condensed Consolidating Statements of Cash Flows for the three
years ended December 31, 2010, for FES (parent and guarantor), FGCO and NGC (non-guarantor) are
presented below. Investments in wholly owned subsidiaries are accounted for by FES using the equity
method. Results of operations for FGCO and NGC are, therefore, reflected in FES’ investment
accounts and earnings as if operating lease treatment was achieved (see Note 7). The principal
elimination entries eliminate investments in subsidiaries and intercompany balances and
transactions and the entries required to reflect operating lease treatment associated with the 2007
Bruce Mansfield Unit 1 sale and leaseback transaction.
246
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATING STATEMENTS OF INCOME
| For the Year Ended December 31, 2010 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | 5,665,077 | $ | 2,435,027 | $ | 1,567,728 | $ | (3,840,218 | ) | $ | 5,827,614 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
EXPENSES:
|
||||||||||||||||||||
|
Fuel
|
30,618 | 1,200,432 | 171,789 | — | 1,402,839 | |||||||||||||||
|
Purchased power from affiliates
|
3,948,399 | 30,496 | 232,015 | (3,840,218 | ) | 370,692 | ||||||||||||||
|
Purchased power from non-affiliates
|
1,585,207 | — | — | — | 1,585,207 | |||||||||||||||
|
Other operating expenses
|
315,767 | 377,534 | 537,281 | 48,758 | 1,279,340 | |||||||||||||||
|
Provision for depreciation
|
3,083 | 99,386 | 146,051 | (5,224 | ) | 243,296 | ||||||||||||||
|
General taxes
|
23,869 | 42,337 | 27,571 | — | 93,777 | |||||||||||||||
|
Impairment of long-lived assets
|
— | 383,665 | — | — | 383,665 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total expenses
|
5,906,943 | 2,133,850 | 1,114,707 | (3,796,684 | ) | 5,358,816 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME (LOSS)
|
(241,866 | ) | 301,177 | 453,021 | (43,534 | ) | 468,798 | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Investment income
|
4,679 | 908 | 53,615 | — | 59,202 | |||||||||||||||
|
Miscellaneous income, including
net income from equity investees
|
485,467 | 647 | 56 | (469,503 | ) | 16,667 | ||||||||||||||
|
Interest expense — affiliates
|
(240 | ) | (7,830 | ) | (1,685 | ) | — | (9,755 | ) | |||||||||||
|
Interest expense — other
|
(95,825 | ) | (108,543 | ) | (65,385 | ) | 63,653 | (206,100 | ) | |||||||||||
|
Capitalized interest
|
399 | 74,655 | 16,619 | — | 91,673 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other income (expense)
|
394,480 | (40,163 | ) | 3,220 | (405,850 | ) | (48,313 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
152,614 | 261,014 | 456,241 | (449,384 | ) | 420,485 | ||||||||||||||
|
|
||||||||||||||||||||
|
INCOME TAXES (BENEFITS)
|
(116,814 | ) | 81,621 | 167,435 | 18,815 | 151,057 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 269,428 | $ | 179,393 | $ | 288,806 | $ | (468,199 | ) | $ | 269,428 | |||||||||
|
|
||||||||||||||||||||
247
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATING STATEMENTS OF INCOME
| For the Year Ended December 31, 2009 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | 4,390,111 | $ | 2,216,237 | $ | 1,360,522 | $ | (3,238,533 | ) | $ | 4,728,337 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
EXPENSES:
|
||||||||||||||||||||
|
Fuel
|
18,416 | 971,021 | 138,026 | — | 1,127,463 | |||||||||||||||
|
Purchased power from affiliates
|
3,220,197 | 18,336 | 222,406 | (3,238,533 | ) | 222,406 | ||||||||||||||
|
Purchased power from non-affiliates
|
996,383 | — | — | — | 996,383 | |||||||||||||||
|
Other operating expenses
|
220,660 | 395,330 | 518,473 | 48,762 | 1,183,225 | |||||||||||||||
|
Provision for depreciation
|
4,147 | 121,007 | 139,488 | (5,249 | ) | 259,393 | ||||||||||||||
|
General taxes
|
18,214 | 44,075 | 24,626 | — | 86,915 | |||||||||||||||
|
Impairment of long-lived assets
|
— | 6,067 | — | — | 6,067 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total expenses
|
4,478,017 | 1,555,836 | 1,043,019 | (3,195,020 | ) | 3,881,852 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME (LOSS)
|
(87,906 | ) | 660,401 | 317,503 | (43,513 | ) | 846,485 | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Investment income
|
5,297 | 683 | 119,246 | — | 125,226 | |||||||||||||||
|
Miscellaneous income (expense), including
net income from equity investees
|
656,451 | 2,136 | 61 | (645,911 | ) | 12,737 | ||||||||||||||
|
Interest expense — affiliates
|
(135 | ) | (5,619 | ) | (4,352 | ) | — | (10,106 | ) | |||||||||||
|
Interest expense — other
|
(44,837 | ) | (99,802 | ) | (62,034 | ) | 64,553 | (142,120 | ) | |||||||||||
|
Capitalized interest
|
212 | 49,577 | 10,363 | — | 60,152 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other income (expense)
|
616,988 | (53,025 | ) | 63,284 | (581,358 | ) | 45,889 | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
529,082 | 607,376 | 380,787 | (624,871 | ) | 892,374 | ||||||||||||||
|
|
||||||||||||||||||||
|
INCOME TAXES (BENEFITS)
|
(48,002 | ) | 207,171 | 135,785 | 20,336 | 315,290 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 577,084 | $ | 400,205 | $ | 245,002 | $ | (645,207 | ) | $ | 577,084 | |||||||||
|
|
||||||||||||||||||||
248
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATING STATEMENTS OF INCOME
| For the Year Ended December 31, 2008 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | 4,470,112 | $ | 2,275,451 | $ | 1,204,534 | $ | (3,431,744 | ) | $ | 4,518,353 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
EXPENSES:
|
||||||||||||||||||||
|
Fuel
|
16,322 | 1,171,993 | 126,978 | — | 1,315,293 | |||||||||||||||
|
Purchased power from affiliates
|
3,417,126 | 14,618 | 101,409 | (3,431,744 | ) | 101,409 | ||||||||||||||
|
Purchased power from non-affiliates
|
778,882 | — | — | — | 778,882 | |||||||||||||||
|
Other operating expenses
|
116,972 | 416,723 | 502,096 | 48,757 | 1,084,548 | |||||||||||||||
|
Provision for depreciation
|
5,986 | 119,763 | 111,529 | (5,379 | ) | 231,899 | ||||||||||||||
|
General taxes
|
19,260 | 46,153 | 22,591 | — | 88,004 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total expenses
|
4,354,548 | 1,769,250 | 864,603 | (3,388,366 | ) | 3,600,035 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
115,564 | 506,201 | 339,931 | (43,378 | ) | 918,318 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Investment income
|
10,953 | 2,034 | (35,665 | ) | — | (22,678 | ) | |||||||||||||
|
Miscellaneous income (expense), including
net income from equity investees
|
438,214 | (5,400 | ) | — | (431,116 | ) | 1,698 | |||||||||||||
|
Interest expense to affiliates
|
(314 | ) | (20,342 | ) | (9,173 | ) | — | (29,829 | ) | |||||||||||
|
Interest expense — other
|
(24,674 | ) | (95,926 | ) | (56,486 | ) | 65,404 | (111,682 | ) | |||||||||||
|
Capitalized interest
|
142 | 39,934 | 3,688 | — | 43,764 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other income (expense)
|
424,321 | (79,700 | ) | (97,636 | ) | (365,712 | ) | (118,727 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
539,885 | 426,501 | 242,295 | (409,090 | ) | 799,591 | ||||||||||||||
|
|
||||||||||||||||||||
|
INCOME TAXES
|
33,475 | 155,100 | 90,247 | 14,359 | 293,181 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 506,410 | $ | 271,401 | $ | 152,048 | $ | (423,449 | ) | $ | 506,410 | |||||||||
|
|
||||||||||||||||||||
249
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATING BALANCE SHEETS
| As of December 31, 2010 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 9,273 | $ | 8 | $ | — | $ | 9,281 | ||||||||||
|
Receivables-
|
||||||||||||||||||||
|
Customers
|
365,758 | — | — | — | 365,758 | |||||||||||||||
|
Associated companies
|
333,323 | 356,564 | 125,716 | (338,038 | ) | 477,565 | ||||||||||||||
|
Other
|
21,010 | 55,758 | 12,782 | — | 89,550 | |||||||||||||||
|
Notes receivable from associated companies
|
34,331 | 188,796 | 173,643 | — | 396,770 | |||||||||||||||
|
Materials and supplies, at average cost
|
40,713 | 276,149 | 228,480 | — | 545,342 | |||||||||||||||
|
Derivatives
|
181,660 | — | — | — | 181,660 | |||||||||||||||
|
Prepayments and other
|
47,712 | 11,352 | 1,107 | — | 60,171 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
1,024,507 | 897,892 | 541,736 | (338,038 | ) | 2,126,097 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY, PLANT AND EQUIPMENT:
|
||||||||||||||||||||
|
In service
|
96,371 | 6,197,776 | 5,411,852 | (384,681 | ) | 11,321,318 | ||||||||||||||
|
Less — Accumulated provision for depreciation
|
17,039 | 2,020,463 | 2,162,173 | (175,395 | ) | 4,024,280 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
79,332 | 4,177,313 | 3,249,679 | (209,286 | ) | 7,297,038 | ||||||||||||||
|
Construction work in progress
|
8,809 | 519,651 | 534,284 | — | 1,062,744 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
88,141 | 4,696,964 | 3,783,963 | (209,286 | ) | 8,359,782 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INVESTMENTS:
|
||||||||||||||||||||
|
Nuclear plant decommissioning trusts
|
— | — | 1,145,846 | — | 1,145,846 | |||||||||||||||
|
Investment in associated companies
|
4,941,763 | — | — | (4,941,763 | ) | — | ||||||||||||||
|
Other
|
374 | 11,128 | 202 | — | 11,704 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
4,942,137 | 11,128 | 1,146,048 | (4,941,763 | ) | 1,157,550 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||||||||||||||
|
Accumulated deferred income tax benefits
|
42,986 | 412,427 | — | (455,413 | ) | — | ||||||||||||||
|
Customer intangibles
|
133,968 | — | — | — | 133,968 | |||||||||||||||
|
Goodwill
|
24,248 | — | — | — | 24,248 | |||||||||||||||
|
Property taxes
|
— | 16,463 | 24,649 | — | 41,112 | |||||||||||||||
|
Unamortized sale and leaseback costs
|
— | 10,828 | — | 62,558 | 73,386 | |||||||||||||||
|
Derivatives
|
97,603 | — | — | — | 97,603 | |||||||||||||||
|
Other
|
21,018 | 70,810 | 14,463 | (57,602 | ) | 48,689 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
319,823 | 510,528 | 39,112 | (450,457 | ) | 419,006 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 6,374,608 | $ | 6,116,512 | $ | 5,510,859 | $ | (5,939,544 | ) | $ | 12,062,435 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||||||||||||||
|
CURRENT LIABILITIES:
|
||||||||||||||||||||
|
Currently payable long-term debt
|
$ | 100,775 | $ | 418,832 | $ | 632,106 | $ | (19,578 | ) | $ | 1,132,135 | |||||||||
|
Short-term borrowings-
|
||||||||||||||||||||
|
Associated companies
|
— | 11,561 | — | — | 11,561 | |||||||||||||||
|
Accounts payable-
|
||||||||||||||||||||
|
Associated companies
|
351,172 | 212,620 | 249,820 | (346,989 | ) | 466,623 | ||||||||||||||
|
Other
|
139,037 | 102,154 | — | — | 241,191 | |||||||||||||||
|
Accrued taxes
|
3,358 | 36,187 | 30,726 | (142 | ) | 70,129 | ||||||||||||||
|
Derivatives
|
266,411 | — | — | — | 266,411 | |||||||||||||||
|
Other
|
51,619 | 147,754 | 15,156 | 37,142 | 251,671 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
912,372 | 929,108 | 927,808 | (329,567 | ) | 2,439,721 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CAPITALIZATION:
|
||||||||||||||||||||
|
Total equity
|
3,788,245 | 2,514,775 | 2,413,580 | (4,928,859 | ) | 3,787,741 | ||||||||||||||
|
Long-term debt and other long-term obligations
|
1,518,586 | 2,118,791 | 793,250 | (1,249,752 | ) | 3,180,875 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
5,306,831 | 4,633,566 | 3,206,830 | (6,178,611 | ) | 6,968,616 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NONCURRENT LIABILITIES:
|
||||||||||||||||||||
|
Deferred gain on sale and leaseback transaction
|
— | — | — | 959,154 | 959,154 | |||||||||||||||
|
Accumulated deferred income taxes
|
— | — | 448,115 | (390,520 | ) | 57,595 | ||||||||||||||
|
Accumulated deferred investment tax credits
|
— | 33,280 | 20,944 | — | 54,224 | |||||||||||||||
|
Asset retirement obligations
|
— | 26,780 | 865,271 | — | 892,051 | |||||||||||||||
|
Retirement benefits
|
48,214 | 236,946 | — | — | 285,160 | |||||||||||||||
|
Property taxes
|
— | 16,463 | 24,649 | — | 41,112 | |||||||||||||||
|
Lease market valuation liability
|
— | 216,695 | — | — | 216,695 | |||||||||||||||
|
Other
|
107,191 | 23,674 | 17,242 | — | 148,107 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
155,405 | 553,838 | 1,376,221 | 568,634 | 2,654,098 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 6,374,608 | $ | 6,116,512 | $ | 5,510,859 | $ | (5,939,544 | ) | $ | 12,062,435 | |||||||||
|
|
||||||||||||||||||||
250
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATING BALANCE SHEETS
| As of December 31, 2009 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 3 | $ | 9 | $ | — | $ | 12 | ||||||||||
|
Receivables-
|
||||||||||||||||||||
|
Customers
|
195,107 | — | — | — | 195,107 | |||||||||||||||
|
Associated companies
|
305,298 | 175,730 | 134,841 | (297,308 | ) | 318,561 | ||||||||||||||
|
Other
|
28,394 | 10,960 | 12,518 | — | 51,872 | |||||||||||||||
|
Notes receivable from associated companies
|
416,404 | 240,836 | 147,863 | — | 805,103 | |||||||||||||||
|
Materials and supplies, at average cost
|
17,265 | 307,079 | 215,197 | — | 539,541 | |||||||||||||||
|
Derivatives
|
31,485 | — | — | — | 31,485 | |||||||||||||||
|
Prepayments and other
|
48,540 | 18,356 | 9,401 | — | 76,297 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
1,042,493 | 752,964 | 519,829 | (297,308 | ) | 2,017,978 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY, PLANT AND EQUIPMENT:
|
||||||||||||||||||||
|
In service
|
90,474 | 5,478,346 | 5,174,835 | (386,023 | ) | 10,357,632 | ||||||||||||||
|
Less — Accumulated provision for depreciation
|
13,649 | 2,778,320 | 1,910,701 | (171,512 | ) | 4,531,158 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
76,825 | 2,700,026 | 3,264,134 | (214,511 | ) | 5,826,474 | ||||||||||||||
|
Construction work in progress
|
6,032 | 2,049,078 | 368,336 | — | 2,423,446 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
82,857 | 4,749,104 | 3,632,470 | (214,511 | ) | 8,249,920 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INVESTMENTS:
|
||||||||||||||||||||
|
Nuclear plant decommissioning trusts
|
— | — | 1,088,641 | — | 1,088,641 | |||||||||||||||
|
Investment in associated companies
|
4,477,602 | — | — | (4,477,602 | ) | — | ||||||||||||||
|
Other
|
1,137 | 21,127 | 202 | — | 22,466 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
4,478,739 | 21,127 | 1,088,843 | (4,477,602 | ) | 1,111,107 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
DEFERRED CHARGES AND OTHER ASSETS:
|
||||||||||||||||||||
|
Accumulated deferred income taxes
|
93,379 | 381,849 | — | (388,602 | ) | 86,626 | ||||||||||||||
|
Customer intangibles
|
16,566 | — | — | — | 16,566 | |||||||||||||||
|
Goodwill
|
24,248 | — | — | — | 24,248 | |||||||||||||||
|
Property taxes
|
— | 27,811 | 22,314 | — | 50,125 | |||||||||||||||
|
Unamortized sale and leaseback costs
|
— | 16,454 | — | 56,099 | 72,553 | |||||||||||||||
|
Derivatives
|
28,368 | — | — | — | 28,368 | |||||||||||||||
|
Other
|
54,477 | 71,179 | 18,755 | (51,114 | ) | 93,297 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
217,038 | 497,293 | 41,069 | (383,617 | ) | 371,783 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 5,821,127 | $ | 6,020,488 | $ | 5,282,211 | $ | (5,373,038 | ) | $ | 11,750,788 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND CAPITALIZATION
|
||||||||||||||||||||
|
CURRENT LIABILITIES:
|
||||||||||||||||||||
|
Currently payable long-term debt
|
$ | 736 | $ | 646,402 | $ | 922,429 | $ | (18,640 | ) | $ | 1,550,927 | |||||||||
|
Short-term borrowings-
|
||||||||||||||||||||
|
Associated companies
|
— | 9,237 | — | — | 9,237 | |||||||||||||||
|
Accounts payable-
|
||||||||||||||||||||
|
Associated companies
|
261,788 | 170,446 | 295,045 | (261,201 | ) | 466,078 | ||||||||||||||
|
Other
|
51,722 | 193,641 | — | — | 245,363 | |||||||||||||||
|
Accrued taxes
|
44,213 | 61,055 | 22,777 | (44,887 | ) | 83,158 | ||||||||||||||
|
Derivatives
|
125,609 | — | — | — | 125,609 | |||||||||||||||
|
Other
|
47,406 | 132,314 | 16,734 | 36,994 | 233,448 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
531,474 | 1,213,095 | 1,256,985 | (287,734 | ) | 2,713,820 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CAPITALIZATION:
|
||||||||||||||||||||
|
Common stockholder’s equity
|
3,514,571 | 2,346,515 | 2,119,488 | (4,466,003 | ) | 3,514,571 | ||||||||||||||
|
Long-term debt and other long-term obligations
|
1,619,339 | 1,906,818 | 554,825 | (1,269,330 | ) | 2,811,652 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
5,133,910 | 4,253,333 | 2,674,313 | (5,735,333 | ) | 6,326,223 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NONCURRENT LIABILITIES:
|
||||||||||||||||||||
|
Deferred gain on sale and leaseback transaction
|
— | — | — | 992,869 | 992,869 | |||||||||||||||
|
Accumulated deferred income taxes
|
— | — | 342,840 | (342,840 | ) | — | ||||||||||||||
|
Accumulated deferred investment tax credits
|
— | 36,359 | 22,037 | — | 58,396 | |||||||||||||||
|
Asset retirement obligations
|
— | 25,714 | 895,734 | — | 921,448 | |||||||||||||||
|
Retirement benefits
|
33,144 | 170,891 | — | — | 204,035 | |||||||||||||||
|
Property taxes
|
— | 27,811 | 22,314 | — | 50,125 | |||||||||||||||
|
Lease market valuation liability
|
— | 262,200 | — | — | 262,200 | |||||||||||||||
|
Other
|
122,599 | 31,085 | 67,988 | — | 221,672 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
155,743 | 554,060 | 1,350,913 | 650,029 | 2,710,745 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 5,821,127 | $ | 6,020,488 | $ | 5,282,211 | $ | (5,373,038 | ) | $ | 11,750,788 | |||||||||
|
|
||||||||||||||||||||
251
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| For the Year Ended December 31, 2010 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
|
$ | (259,812 | ) | $ | 379,829 | $ | 684,745 | $ | (18,640 | ) | $ | 786,122 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
|
New Financing-
|
||||||||||||||||||||
|
Long-term debt
|
— | 318,520 | 396,850 | — | 715,370 | |||||||||||||||
|
Short-term borrowings, net
|
— | 2,324 | — | — | 2,324 | |||||||||||||||
|
Redemptions and Repayments-
|
||||||||||||||||||||
|
Long-term debt
|
(804 | ) | (341,542 | ) | (448,748 | ) | 18,640 | (772,454 | ) | |||||||||||
|
Other
|
(460 | ) | (750 | ) | (930 | ) | — | (2,140 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net cash used for financing activities
|
(1,264 | ) | (21,448 | ) | (52,828 | ) | 18,640 | (56,900 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
|
Property additions
|
(8,367 | ) | (518,731 | ) | (507,587 | ) | — | (1,034,685 | ) | |||||||||||
|
Proceeds from asset sales
|
— | 117,333 | — | — | 117,333 | |||||||||||||||
|
Sales of investment securities held in trusts
|
— | — | 1,926,684 | — | 1,926,684 | |||||||||||||||
|
Purchases of investment securities held in trusts
|
— | — | (1,974,020 | ) | — | (1,974,020 | ) | |||||||||||||
|
Loans from (to) associated companies, net
|
382,073 | 52,040 | (25,780 | ) | — | 408,333 | ||||||||||||||
|
Customer acquisition costs
|
(113,336 | ) | — | — | — | (113,336 | ) | |||||||||||||
|
Leasehold improvement payments to associated companies
|
— | — | (51,204 | ) | — | (51,204 | ) | |||||||||||||
|
Other
|
706 | 247 | (11 | ) | — | 942 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided from (used for) investing activities
|
261,076 | (349,111 | ) | (631,918 | ) | — | (719,953 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net change in cash and cash equivalents
|
— | 9,270 | (1 | ) | — | 9,269 | ||||||||||||||
|
Cash and cash equivalents at beginning of period
|
— | 3 | 9 | — | 12 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | — | $ | 9,273 | $ | 8 | $ | — | $ | 9,281 | ||||||||||
|
|
||||||||||||||||||||
252
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| For the Year Ended December 31, 2009 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
|
$ | (20,027 | ) | $ | 790,411 | $ | 621,649 | $ | (17,744 | ) | $ | 1,374,289 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
|
New Financing-
|
||||||||||||||||||||
|
Long-term debt
|
1,498,087 | 576,800 | 363,515 | — | 2,438,402 | |||||||||||||||
|
Equity contributions from parent
|
— | 100,000 | 150,000 | (250,000 | ) | — | ||||||||||||||
|
Redemptions and Repayments-
|
||||||||||||||||||||
|
Long-term debt
|
(1,766 | ) | (320,754 | ) | (404,383 | ) | 17,747 | (709,156 | ) | |||||||||||
|
Short-term borrowings, net
|
(901,119 | ) | (248,120 | ) | (6,347 | ) | — | (1,155,586 | ) | |||||||||||
|
Other
|
(12,054 | ) | (6,157 | ) | (3,576 | ) | (3 | ) | (21,790 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Net cash provided from financing activities
|
583,148 | 101,769 | 99,209 | (232,256 | ) | 551,870 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
|
Property additions
|
(4,372 | ) | (671,691 | ) | (546,869 | ) | — | (1,222,932 | ) | |||||||||||
|
Proceeds from asset sales
|
— | 18,371 | — | — | 18,371 | |||||||||||||||
|
Sales of investment securities held in trusts
|
— | — | 1,379,154 | — | 1,379,154 | |||||||||||||||
|
Purchases of investment securities held in trusts
|
— | — | (1,405,996 | ) | — | (1,405,996 | ) | |||||||||||||
|
Loans to associated companies, net
|
(309,175 | ) | (218,890 | ) | (147,863 | ) | — | (675,928 | ) | |||||||||||
|
Investment in subsidiary
|
(250,000 | ) | — | — | 250,000 | — | ||||||||||||||
|
Other
|
426 | (20,006 | ) | 725 | — | (18,855 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Net cash used for investing activities
|
(563,121 | ) | (892,216 | ) | (720,849 | ) | 250,000 | (1,926,186 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net change in cash and cash equivalents
|
— | (36 | ) | 9 | — | (27 | ) | |||||||||||||
|
Cash and cash equivalents at beginning of period
|
— | 39 | — | — | 39 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | — | $ | 3 | $ | 9 | $ | — | $ | 12 | ||||||||||
|
|
||||||||||||||||||||
253
Table of Contents
FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| For the Year Ended December 31, 2008 | FES | FGCO | NGC | Eliminations | Consolidated | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
NET CASH PROVIDED FROM OPERATING ACTIVITIES
|
$ | 40,791 | $ | 350,986 | $ | 478,047 | $ | (16,896 | ) | $ | 852,928 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
|
New Financing-
|
||||||||||||||||||||
|
Long-term debt
|
— | 353,325 | 265,050 | — | 618,375 | |||||||||||||||
|
Equity contributions from parent
|
280,000 | 675,000 | 175,000 | (850,000 | ) | 280,000 | ||||||||||||||
|
Short-term borrowings, net
|
701,119 | 18,571 | — | (18,931 | ) | 700,759 | ||||||||||||||
|
Redemptions and Repayments-
|
||||||||||||||||||||
|
Long-term debt
|
(2,955 | ) | (293,349 | ) | (183,132 | ) | 16,896 | (462,540 | ) | |||||||||||
|
Short-term borrowings, net
|
— | — | (18,931 | ) | 18,931 | — | ||||||||||||||
|
Common stock dividend payment
|
(43,000 | ) | — | — | — | (43,000 | ) | |||||||||||||
|
Other
|
— | (3,107 | ) | (2,040 | ) | — | (5,147 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided from financing activities
|
935,164 | 750,440 | 235,947 | (833,104 | ) | 1,088,447 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
|
Property additions
|
(43,244 | ) | (1,047,917 | ) | (744,468 | ) | — | (1,835,629 | ) | |||||||||||
|
Proceeds from asset sales
|
— | 23,077 | — | — | 23,077 | |||||||||||||||
|
Sales of investment securities held in trusts
|
— | — | 950,688 | — | 950,688 | |||||||||||||||
|
Purchases of investment securities held in trusts
|
— | — | (987,304 | ) | — | (987,304 | ) | |||||||||||||
|
Loans to associated companies, net
|
(83,457 | ) | (21,946 | ) | 69,012 | — | (36,391 | ) | ||||||||||||
|
Investment in subsidiary
|
(850,000 | ) | — | — | 850,000 | — | ||||||||||||||
|
Other
|
744 | (54,601 | ) | (1,922 | ) | — | (55,779 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net cash used for investing activities
|
(975,957 | ) | (1,101,387 | ) | (713,994 | ) | 850,000 | (1,941,338 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net change in cash and cash equivalents
|
(2 | ) | 39 | — | — | 37 | ||||||||||||||
|
Cash and cash equivalents at beginning of period
|
2 | — | — | — | 2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | — | $ | 39 | $ | — | $ | — | $ | 39 | ||||||||||
|
|
||||||||||||||||||||
19. IMPAIRMENT OF LONG-LIVED ASSETS
FirstEnergy reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. The recoverability of a
long-lived asset is measured by comparing its carrying value to the sum of undiscounted future cash
flows expected to result from the use and eventual disposition of the asset. If the carrying value
is greater than the undiscounted cash flows, impairment exists and a loss is recognized for the
amount by which the carrying value of the long-lived asset exceeds its estimated fair value.
Coal-Fired FGCO Units
On August 12, 2010, FirstEnergy announced its intention to make operational changes at certain
coal-fired FGCO units. The announcement of the operational change indicated a need to evaluate the
future recoverability of the carrying value of the assets associated with the affected FGCO units.
As a result of the recoverability evaluation, FirstEnergy recorded an impairment of $303 million to
continuing operations of its competitive energy services segment during the year ended December 31,
2010. This impairment represents a $296 million write down of the carrying value of the assets
associated with the affected FGCO units to their estimated fair value and a charge of $7 million
for excessive or obsolete inventory identified as a result of the operational changes.
FirstEnergy used various assumptions in evaluating whether the FGCO units’ carrying value was
recoverable. The estimated undiscounted cash flows were based on assumptions about budgeted net
operating income; the impact of current market conditions on future revenues including a long-term
view of future market prices; the impact of reduced customer demand; and the estimated cost of
remedial retro-fitting of the FGCO units to comply with proposed changes in federal environmental
laws. The result of this evaluation indicated that the carrying costs of the FGCO units were not
fully recoverable.
FirstEnergy further evaluated the extent to which the carrying value of the FGCO units exceeded
their estimated fair value. FirstEnergy applied the income approach to estimating fair value under
a discounted cash flow valuation technique to convert future cash flows expected over the remaining
life of the asset group to a single present value. The assumptions used to estimate the
non-recurring fair value measurement of the FGCO units applied significant unobservable inputs
considered Level 3 under the fair value hierarchy. The estimated cash flows used during the
recoverability test were discounted using the weighted average cost of capital for a market
participant.
254
Table of Contents
Mad River
On November 10, 2010, a planned demolition of a 275-foot stack at FGCO’s Mad River Plant
resulted in the demolished stack falling in the wrong direction and destroying two generating units
at the Mad River plant. The accident resulted in a $5 million write-off of the total carrying value
of the assets associated with the destroyed units and a charge of $1 million for fuel oil inventory
deemed to be excessive or obsolete as a result of the accident. FirstEnergy recorded an impairment
of $6 million to continuing operations of its competitive energy services segment for the year
ended December 31, 2010.
R.E. Burger Biomass Units
In 2010 FirstEnergy announced that it was canceling its plan to repower Units 4 and 5 at its R. E.
Burger Plant to generate electricity principally with biomass, and instead permanently shut down
the units as of December 31, 2010. Since the Burger biomass repowering project was announced,
market prices for electricity have fallen significantly and no longer supported a repowered Burger
Plant. FirstEnergy’s announcement indicated a need to evaluate the future recoverability of the
carrying value of the assets associated with the affected Burger units. As a result of the
recoverability evaluation, FirstEnergy recorded an impairment of $72 million to continuing
operations of its competitive energy services segment for the year ended December 31, 2010. This
impairment represents a $69 million write down of the carrying value of the assets associated with
the affected Burger units to their estimated fair value and a charge of $3 million for excessive or
obsolete inventory identified as a result of the permanent shut down of the Burger units.
20. INTANGIBLE ASSETS
FES has acquired certain customer contract rights, which were capitalized as intangible assets.
These rights allow FES to supply electric generation to customers, and the recorded value is being
amortized ratably over the term of the related contracts. Net intangible assets of $134 million are
included in other assets on FirstEnergy’s Consolidated Balance Sheet as of December 31, 2010.
The weighted-average amortization period of these certain customer contract rights as of December
31, 2010, is 9 years. For the year ended December 31, 2010, amortization expense was approximately
$9 million. The expected estimated aggregate amortization expense for each of the next five years
and for all years thereafter is as follows:
| Future Amortization | ||||
| (In millions) | ||||
|
2011
|
$ | 12 | ||
|
2012
|
14 | |||
|
2013
|
16 | |||
|
2014
|
17 | |||
|
2015
|
17 | |||
|
Years thereafter
|
58 | |||
|
|
||||
|
Total amortization
|
$ | 134 | ||
|
|
||||
255
Table of Contents
21. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes certain consolidated operating results by quarter for 2010 and 2009.
| Operating | Income (Loss) | Income | Earnings | |||||||||||||||||
| Income | Before | Taxes | Available | |||||||||||||||||
| Three Months Ended | Revenues | (Loss) | Income Taxes | (Benefit) | To FirstEnergy | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
FE
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 3,299.0 | $ | 416.0 | $ | 260.0 | $ | 111.0 | $ | 155.0 | ||||||||||
|
March 31, 2009
|
3,334.0 | 346.0 | 169.0 | 54.0 | 119.0 | |||||||||||||||
|
June 30, 2010
|
3,128.0 | 526.0 | 390.0 | 134.0 | 265.0 | |||||||||||||||
|
June 30, 2009
|
3,271.0 | 802.0 | 656.0 | 248.0 | 414.0 | |||||||||||||||
|
September 30, 2010
|
3,693.0 | 415.0 | 294.0 | 119.0 | 179.0 | |||||||||||||||
|
September 30, 2009
|
3,408.0 | 487.0 | 358.0 | 128.0 | 234.0 | |||||||||||||||
|
December 31, 2010
|
3,219.0 | 448.0 | 298.0 | 118.0 | 185.0 | |||||||||||||||
|
December 31, 2009
|
2,960.0 | 244.0 | 52.0 | (185.0 | ) | 239.0 | ||||||||||||||
|
|
||||||||||||||||||||
|
FES
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 1,388.1 | $ | 154.5 | $ | 124.3 | $ | 44.4 | $ | 79.9 | ||||||||||
|
March 31, 2009
|
1,226.1 | 304.3 | 262.5 | 91.8 | 170.7 | |||||||||||||||
|
June 30, 2010
|
1,314.7 | 215.1 | 202.8 | 68.9 | 133.9 | |||||||||||||||
|
June 30, 2009
|
1,341.2 | 468.9 | 466.6 | 169.2 | 297.4 | |||||||||||||||
|
September 30, 2010
|
1,553.7 | (47.7 | ) | (42.1 | ) | (5.4 | ) | (36.7 | ) | |||||||||||
|
September 30, 2009
|
1,104.6 | 175.7 | 310.8 | 111.2 | 199.7 | |||||||||||||||
|
December 31, 2010
|
1,571.1 | 146.9 | 135.5 | 43.2 | 92.3 | |||||||||||||||
|
December 31, 2009
|
1,056.4 | (102.4 | ) | (147.5 | ) | (56.9 | ) | (90.7 | ) | |||||||||||
|
|
||||||||||||||||||||
|
OE
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 508.4 | $ | 72.9 | $ | 55.8 | $ | 19.6 | $ | 36.0 | ||||||||||
|
March 31, 2009
|
749.0 | 30.2 | 15.7 | 4.0 | 11.5 | |||||||||||||||
|
June 30, 2010
|
439.4 | 63.4 | 49.2 | 11.9 | 37.2 | |||||||||||||||
|
June 30, 2009
|
672.2 | 58.8 | 50.5 | 16.9 | 33.5 | |||||||||||||||
|
September 30, 2010
|
486.6 | 90.1 | 75.6 | 29.3 | 46.1 | |||||||||||||||
|
September 30, 2009
|
602.5 | 52.8 | 50.6 | 15.9 | 34.6 | |||||||||||||||
|
December 31, 2010
|
401.7 | 74.0 | 58.6 | 21.2 | 37.4 | |||||||||||||||
|
December 31, 2009
*
|
493.2 | 87.1 | 71.8 | 29.4 | 42.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
CEI
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 330.1 | $ | 50.3 | $ | 24.8 | $ | 10.8 | $ | 13.6 | ||||||||||
|
March 31, 2009
|
449.7 | (144.1 | ) | (166.9 | ) | (61.5 | ) | (105.9 | ) | |||||||||||
|
June 30, 2010
|
295.7 | 56.7 | 30.7 | 8.8 | 21.6 | |||||||||||||||
|
June 30, 2009
|
475.1 | 98.5 | 74.2 | 26.5 | 47.3 | |||||||||||||||
|
September 30, 2010
|
328.7 | 64.7 | 38.4 | 13.5 | 24.6 | |||||||||||||||
|
September 30, 2009
|
435.5 | 61.6 | 35.1 | 9.8 | 25.0 | |||||||||||||||
|
December 31, 2010
|
266.9 | 43.7 | 17.9 | 5.6 | 11.9 | |||||||||||||||
|
December 31, 2009
|
315.8 | 64.7 | 36.4 | 15.0 | 20.9 | |||||||||||||||
| * |
Includes a $4.8 million adjustment that increased net income in the fourth quarter of
2009 related to prior periods. (See Note 9 for description of adjustment).
|
256
Table of Contents
| Operating | Income (Loss) | Income | Earnings | |||||||||||||||||
| Income | Before | Taxes | Available | |||||||||||||||||
| Three Months Ended | Revenues | (Loss) | Income Taxes | (Benefit) | To FirstEnergy | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
TE
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 132.5 | $ | 20.9 | $ | 12.9 | $ | 5.4 | $ | 7.5 | ||||||||||
|
March 31, 2009
|
244.8 | 2.2 | 0.9 | (0.1 | ) | 1.0 | ||||||||||||||
|
June 30, 2010
|
120.8 | 14.4 | 8.2 | 0.9 | 7.2 | |||||||||||||||
|
June 30, 2009
|
226.2 | 10.1 | 9.8 | 3.4 | 6.4 | |||||||||||||||
|
September 30, 2010
|
144.0 | 27.9 | 20.0 | 6.9 | 13.1 | |||||||||||||||
|
September 30, 2009
|
213.5 | 10.2 | 7.0 | (0.1 | ) | 7.1 | ||||||||||||||
|
December 31, 2010
|
119.4 | 18.5 | 9.6 | 4.4 | 5.2 | |||||||||||||||
|
December 31, 2009
**
|
149.4 | 23.8 | 14.2 | 4.7 | 9.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Met-Ed
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 473.1 | $ | 34.8 | $ | 24.6 | $ | 12.3 | $ | 12.3 | ||||||||||
|
March 31, 2009
|
429.7 | 37.7 | 28.4 | 11.7 | 16.6 | |||||||||||||||
|
June 30, 2010
|
442.7 | 36.3 | 25.7 | 8.6 | 17.1 | |||||||||||||||
|
June 30, 2009
|
377.6 | 27.8 | 17.0 | 7.0 | 10.0 | |||||||||||||||
|
September 30, 2010
|
483.9 | 35.1 | 24.3 | 10.1 | 14.2 | |||||||||||||||
|
September 30, 2009
|
445.5 | 24.2 | 13.1 | 2.3 | 10.7 | |||||||||||||||
|
December 31, 2010
|
418.8 | 37.9 | 26.3 | 11.9 | 14.4 | |||||||||||||||
|
December 31, 2009
|
436.2 | 37.2 | 25.6 | 7.6 | 18.2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Penelec
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 403.5 | $ | 50.0 | $ | 34.5 | $ | 17.2 | $ | 17.3 | ||||||||||
|
March 31, 2009
|
388.6 | 44.2 | 31.8 | 13.1 | 18.7 | |||||||||||||||
|
June 30, 2010
|
366.5 | 34.9 | 18.8 | 5.8 | 13.0 | |||||||||||||||
|
June 30, 2009
|
331.7 | 36.0 | 25.1 | 10.2 | 14.8 | |||||||||||||||
|
September 30, 2010
|
389.9 | 41.0 | 25.1 | 5.3 | 19.8 | |||||||||||||||
|
September 30, 2009
|
355.5 | 32.3 | 21.8 | 6.0 | 15.8 | |||||||||||||||
|
December 31, 2010
|
380.0 | 38.0 | 22.3 | 12.9 | 9.4 | |||||||||||||||
|
December 31, 2009
|
373.1 | 49.4 | 32.4 | 16.4 | 16.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
JCP&L
|
||||||||||||||||||||
|
March 31, 2010
|
$ | 703.7 | $ | 80.2 | $ | 52.8 | $ | 23.5 | $ | 29.2 | ||||||||||
|
March 31, 2009
|
773.7 | 77.1 | 50.1 | 22.6 | 27.6 | |||||||||||||||
|
June 30, 2010
|
720.6 | 111.7 | 83.4 | 33.5 | 49.9 | |||||||||||||||
|
June 30, 2009
|
708.1 | 95.4 | 67.9 | 29.8 | 38.1 | |||||||||||||||
|
September 30, 2010
|
968.5 | 175.7 | 147.3 | 64.4 | 82.9 | |||||||||||||||
|
September 30, 2009
|
868.2 | 133.7 | 105.6 | 43.4 | 62.2 | |||||||||||||||
|
December 31, 2010
|
634.3 | 85.9 | 56.9 | 26.9 | 30.1 | |||||||||||||||
|
December 31, 2009
|
642.7 | 84.1 | 55.7 | 13.0 | 42.6 | |||||||||||||||
| ** |
Includes a $2.5 million adjustment that increased net income in the fourth quarter
of 2009 related to prior periods. (See Note 9 for description of adjustment).
|
257
Table of Contents
22. PROPOSED MERGER WITH ALLEGHENY
As previously disclosed, on February 10, 2010, FirstEnergy entered into an Agreement and Plan of
Merger, subsequently amended on June 4, 2010 (Merger Agreement), with Element Merger Sub, Inc., a
Maryland corporation, its wholly-owned subsidiary (Merger Sub) and Allegheny, a Maryland
corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger
Sub would merge with and into Allegheny with Allegheny continuing as the surviving corporation and
a wholly-owned subsidiary of FirstEnergy. Pursuant to the Merger Agreement, upon the closing of the
merger, each issued and outstanding share of Allegheny common stock, including grants of restricted
common stock, would automatically be converted into the right to receive 0.667 of a share of common
stock of FirstEnergy, and Allegheny stockholders would own approximately 27% of the combined
company.
FirstEnergy would also assume all outstanding Allegheny debt.
Pursuant to the Merger Agreement, completion of the merger is conditioned upon, among other things,
shareholder approval of both companies, which was received on September 14, 2010; the SEC’s
clearance of a registration statement registering the FirstEnergy common stock to be issued in
connection with the merger, which occurred on July 16, 2010. Approval of the merger was received from
the VSCC on September 9, 2010. Approval from the FERC and from the PSCWV was received on December
16, 2010. Approval from the MDPSC was received on January 18, 2011. On January 7, 2011, we were
notified by the DOJ that it had completed its review of the merger and closed its investigation.
The proposed merger is also conditioned upon receipt of the approval of the PPUC. The Merger
Agreement also contains certain termination rights for both FirstEnergy and Allegheny, and further
provides for the payment of fees and expenses upon termination under specified circumstances.
FirstEnergy and Allegheny currently anticipate completing the merger in the first quarter of 2011.
Although FirstEnergy and Allegheny believe that they will receive the required authorizations,
approvals and consents to complete the merger, there can be no assurance as to the timing of these
authorizations, approvals and consents or as to FirstEnergy’s and Allegheny’s ultimate ability to
obtain such authorizations, consents or approvals (or any additional authorizations, approvals or
consents which may otherwise become necessary) or that such authorizations, approvals or consents
will be obtained on terms and subject to conditions satisfactory to Allegheny and FirstEnergy.
Further information concerning the proposed merger is included in the Registration Statement filed
by FirstEnergy with the SEC in connection with the merger.
In connection with the proposed merger, FirstEnergy recorded approximately $65 million ($47 million
after tax) of merger transaction costs in the year ended December 31, 2010. These costs are
expensed as incurred.
258
Table of Contents
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
| ITEM 9A. |
CONTROLS AND PROCEDURES — FIRSTENERGY
|
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officers and Chief Financial Officers of FirstEnergy, FES, OE, CEI, TE, JCP&L,
Met-Ed and Penelec have reviewed and evaluated the registrants’ disclosure controls and procedures,
as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as of the end date
covered by this report. Based upon this evaluation, the respective Chief Executive Officer and
Chief Financial Officer concluded that each registrant’s disclosure controls and procedures were
effective as of December 31, 2010.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control — Integrated Framework, management conducted an evaluation of the effectiveness of each
registrant’s internal control over financial reporting under the supervision of each registrant’s
Chief Executive Officer and Chief Financial Officer. Based on that evaluation, management concluded
that each registrant’s internal control over financial reporting was effective as of December 31,
2010. The effectiveness of FirstEnergy’s internal control over financial reporting, as of December
31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report included herein.
The effectiveness of internal control over financial reporting of FES, OE, CEI, TE, JCP&L, Met-Ed
and Penelec, as of December 31, 2010, has not been audited by the registrants’ independent
registered public accounting firm.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the fourth quarter of
2010 that have materially affected, or are reasonably likely to materially affect, internal control
over financial reporting for each registrant.
259
Table of Contents
| ITEM 9B. |
OTHER INFORMATION
|
Signal Peak Mine Safety
FirstEnergy, through its FEV wholly-owned subsidiary, has a 50% interest in Global Mining Group
LLC, a joint venture that owns Signal Peak which is a company that constructed and operates the
Bull Mountain Mine No. 1 (Mine), an underground coal mine near Roundup, Montana. The operation of
the Mine is subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under
the Federal Mine Safety and Health Act of 1977 (Mine Act).
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),
which was enacted on July 21, 2010, contains new reporting requirements regarding mine safety,
including, to the extent applicable, disclosing in periodic reports filed under the Securities
Exchange Act of 1934 the receipt of certain notifications from the MSHA.
On November 19, 2010, Signal Peak received a letter from MSHA placing it on notice that the Mine
has a potential pattern of violations of mandatory health or safety standards under Section 104(e)
of the Mine Act. If implemented, Section 104(e) requires all subsequent violations designated as
Significant and Substantial be issued as closure orders with all persons withdrawn from the
affected area except those necessary to correct the violation.
In addition, Signal Peak received the following notices of violation and proposed assessments for
the Mine under the Mine Act during the three months ended December 31, 2010:
| Signal | ||||
| Peak | ||||
|
Number of significant and substantial violations of mandatory
health or safety standards under 104*
|
6 | |||
|
Number of orders issued under 104(b)*
|
— | |||
|
|
||||
|
Number of citations and orders for unwarrantable failure to comply
with mandatory health or safety standards under 104(d)*
|
2 | |||
|
Number of flagrant violations under 110(b)(2)*
|
— | |||
|
Number of imminent danger orders issued under 107(a)*
|
— | |||
|
MSHA written notices under Mine Act section 104(e)* of a pattern of
violation of mandatory health or safety standards or of the
potential to have such a pattern
|
1 | |||
|
Pending Mine Safety Commission legal actions (including any
contested citations issued)
|
1 | |||
|
Number of mining-related fatalities
|
— | |||
|
Total dollar value of proposed assessments
|
$ | 1,188 | ||
| * |
References to sections under the Mine Act
|
The inclusion of this information in this report is not an admission by FirstEnergy that it
controls Signal Peak or that Signal Peak is FirstEnergy’s subsidiary for purposes of Section 1503
or for any other purpose.
More detailed information about the Mine, including safety-related data, can be found at MSHA’s
website, www.MSHA.gov. Signal Peak operates the Mine under the MSHA identification number 2401950.
260
Table of Contents
PART III
| ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by Item 10, with respect to identification of FirstEnergy’s directors and
with respect to reports required to be filed under Section 16 of the Securities Exchange Act of
1934, is incorporated herein by reference to FirstEnergy’s 2011 Proxy Statement filed with the SEC
pursuant to Regulation 14A under the Securities Exchange Act of 1934 and, with respect to
identification of executive officers, to “Part I, Item 1. Business — Executive Officers” herein.
The Board of Directors, upon recommendation of the Corporate Governance and Audit Committees, has
determined that Ernest J. Novak, Jr., an independent director, is the audit committee financial
expert.
FirstEnergy makes available on its Web site at http://www.firstenergycorp.com/ir its Corporate
Governance Policies and the charters for each of the following committees of the Board of
Directors: Audit; Compensation; Corporate Governance; Finance; and Nuclear.
FirstEnergy has adopted a Code of Business Conduct, which applies to all employees, including the
Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer. In addition,
the Board of Directors has its own Code of Business Conduct. These Codes can be found on the Web
site provided in the previous paragraph.
| ITEM 11. |
EXECUTIVE COMPENSATION
|
The information required by Item 11 is incorporated herein by reference to FirstEnergy’s 2011 Proxy
Statement filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information required by Item 12 is incorporated herein by reference to FirstEnergy’s 2011 Proxy
Statement filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The information required by Item 13 is incorporated herein by reference to FirstEnergy’s 2011 Proxy
Statement filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
A summary of the audit and audit-related fees rendered by PricewaterhouseCoopers LLP for the years
ended December 31, 2010 and 2009 are as follows:
| Audit Fees (1) | Audit-Related Fees (2) | |||||||||||||||
| Company | 2010 | 2009 | 2010 | 2009 | ||||||||||||
| (In thousands) | ||||||||||||||||
|
FES
|
$ | 1,181 | $ | 991 | $ | — | $ | — | ||||||||
|
OE
|
636 | 1,019 | — | — | ||||||||||||
|
CEI
|
542 | 734 | — | — | ||||||||||||
|
TE
|
589 | 626 | — | — | ||||||||||||
|
JCP&L
|
589 | 715 | — | — | ||||||||||||
|
Met-Ed
|
495 | 607 | — | — | ||||||||||||
|
Penelec
|
495 | 613 | — | — | ||||||||||||
|
FirstEnergy and other subsidiaries
|
976 | 690 | 548 | — | ||||||||||||
|
|
||||||||||||||||
|
Total FirstEnergy
|
$ | 5,503 | $ | 5,995 | $ | 548 | $ | — | ||||||||
|
|
||||||||||||||||
| (1) |
Professional services rendered for the audits of FirstEnergy’s annual financial
statements and reviews of financial statements included in FirstEnergy’s Quarterly Reports
on Form 10-Q and for services in connection with statutory and regulatory filings or
engagements, including comfort letters and consents for financings and filings made with the SEC.
|
|
| (2) |
Professional services
rendered in 2010 related to due diligence activities in connection
with the proposed acquisition of Allegheny.
|
261
Table of Contents
Tax and Other Fees
PricewaterhouseCoopers LLP billed to FirstEnergy and its subsidiaries $134,000 for tax services and
no fees for other services in 2010 — there were no other fees billed for tax or other services in
2009. Tax services rendered in 2010 related to the preparation and support of Signal Peak and
Global Rail Group tax returns.
Additional information required by this item is incorporated herein by reference to FirstEnergy’s
2011 Proxy Statement filed with the SEC pursuant to Regulation 14A under the Securities Exchange
Act of 1934.
262
Table of Contents
PART IV
| ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as a part of this report on Form 10-K:
1. Financial Statements:
Management’s Report on Internal Control Over Financial Reporting for FirstEnergy Corp., FES, OE,
CEI, TE, JCP&L, Met-Ed, and Penelec is listed under Item 8 herein.
Reports of Independent Registered Public Accounting Firm for FirstEnergy Corp., FES, OE, CEI, TE,
JCP&L, Met-Ed, and Penelec are listed under Item 8 herein.
The financial statements filed as a part of this report for FirstEnergy Corp., FES, OE, CEI, TE,
JCP&L, Met-Ed, and Penelec are listed under Item 8 herein.
2. Financial Statement Schedules:
Reports of Independent Registered Public Accounting Firm as to Schedules for FirstEnergy Corp.,
FES, OE, CEI, TE, JCP&L, Met-Ed, and Penelec are included herein
on pages 132, 133, 134, 135, 136,
137, 138 and 139.
Schedule II — Consolidated Valuation and Qualifying Accounts for FirstEnergy Corp., FES, OE, CEI,
TE, JCP&L, Met-Ed, and Penelec are included herein on pages 306,
307, 308, 309, 310, 311, 312 and
313.
3. Exhibits — FirstEnergy
| Exhibit | |||
| Number | |||
|
|
|||
| 2-1 | † |
Agreement and Plan of Merger, dated as of February 10, 2010, by
and among FirstEnergy Corp., Element Merger Sub, Inc. and
Allegheny Energy, Inc. (incorporated by reference to FE’s Form
8-K filed February 11, 2010, Exhibit 2.1, File No. 333-21011)
|
|
|
|
|||
| 3-1 |
Amended Articles of Incorporation of FirstEnergy Corp. (incorporated by reference to FE’s Form 10-K filed February 19, 2010, Exhibit 3-1, File No.
333-21011)
|
||
|
|
|||
| 3-2 |
FirstEnergy Corp. Amended Code of Regulations. (incorporated by
reference to FE’s Form 10-K filed February 25, 2009, Exhibit
3.1, File No. 333-21011)
|
||
|
|
|||
| 4-1 |
Indenture, dated November 15, 2001, between FirstEnergy Corp.
and The Bank of New York Mellon, as Trustee. (incorporated by
reference to FE’s Form S-3 filed September 21, 2001, Exhibit
4(a), File No. 333-69856)
|
||
|
|
|||
| (B) 10-1 |
FirstEnergy Corp. 2007 Incentive Plan, effective May 15, 2007.
(incorporated by reference to FE’s Form 10-K filed February 25,
2009, Exhibit 10.1, File No. 333-21011)
|
||
|
|
|||
| (B) 10-2 |
Amended FirstEnergy Corp. Deferred Compensation Plan for Outside
Directors, amended and restated as of January 1, 2005 and
ratified as of September 18, 2007. (incorporated by reference to
FE’s Form 10-K filed February 25, 2009, Exhibit 10.2, File No.
333-21011)
|
||
|
|
|||
| (B) 10-3 |
FirstEnergy Corp. Supplemental Executive Retirement Plan,
amended January 1, 1999. (incorporated by reference to FE’s Form
10-K filed March 20, 2000, Exhibit 10-4, File No. 333-21011)
|
||
|
|
|||
| (B) 10-4 |
Stock Option Agreement between FirstEnergy Corp. and officers
dated November 22, 2000. (incorporated by reference to FE’s Form
10-K filed March 28, 2001, Exhibit 10-3, File No. 333-21011)
|
||
|
|
|||
| (B) 10-5 |
Stock Option Agreement between FirstEnergy Corp. and officers
dated March 1, 2000. (incorporated by reference to FE’s Form
10-K filed March 28, 2001, Exhibit 10-4, File No. 333-21011)
|
||
|
|
|||
| (B) 10-6 |
Stock Option Agreement between FirstEnergy Corp. and director
dated January 1, 2000. (incorporated by reference to FE’s Form
10-K filed March 28, 2001, Exhibit 10-5, File No. 333-21011)
|
||
263
Table of Contents
| Exhibit | |||
| Number | |||
|
|
|||
| (B) 10-7 |
Stock Option Agreement between FirstEnergy Corp. and two
directors dated January 1, 2001. (incorporated by reference to
FE’s Form 10-K filed March 28, 2001, Exhibit 10-6, File No.
333-21011)
|
||
|
|
|||
| (B) 10-8 |
Stock Option Agreements between FirstEnergy Corp. and One
Director dated January 1, 2002. (incorporated by reference to
FE’s Form 10-K filed April 1, 2002, Exhibit 10-5, File No.
333-21011)
|
||
|
|
|||
| (B) 10-9 |
FirstEnergy Corp. Executive Deferred Compensation Plan, amended
and restated as of January 1, 2005 and ratified as of September
18, 2007. (incorporated by reference to FE’s 10-Q filed October
31, 2007, Exhibit 10.2, File No. 333-21011)
|
||
|
|
|||
| (B) 10-10 |
Executive Incentive Compensation Plan-Tier 2. (incorporated by
reference to FE’s Form 10-K filed April 1, 2002, Exhibit 10-7,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-11 |
Executive Incentive Compensation Plan-Tier 3. (incorporated by
reference to FE’s Form 10-K filed April 1, 2002, Exhibit 10-8,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-12 |
Executive Incentive Compensation Plan-Tier 4. (incorporated by
reference to FE’s Form 10-K filed April 1, 2002, Exhibit 10-9,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-13 |
Executive Incentive Compensation Plan-Tier 5. (incorporated by
reference to FE’s Form 10-K filed April 1, 2002, Exhibit 10-10,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-14 |
Amendment to GPU, Inc. 1990 Stock Plan for Employees of GPU,
Inc. and Subsidiaries, effective April 5, 2001. (incorporated by
reference to FE’s Form 10-K filed April 1, 2002, Exhibit 10-11,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-15 |
Form of Amendment, effective November 7, 2001, to GPU, Inc. 1990
Stock Plan for Employees of GPU, Inc. and Subsidiaries, Deferred
Remuneration Plan for Outside Directors of GPU, Inc., and
Retirement Plan for Outside Directors of GPU, Inc. (incorporated
by reference to FE’s Form 10-K filed April 1, 2002, Exhibit
10-12, File No. 333-21011)
|
||
|
|
|||
| (B) 10-16 |
GPU, Inc. Stock Option and Restricted Stock Plan for MYR Group,
Inc. Employees. (incorporated by reference to FE’s Form 10-K
filed April 1, 2002, Exhibit 10-13, File No. 333-21011, File No.
333-21011)
|
||
|
|
|||
| (B) 10-17 |
Executive and Director Stock Option Agreement dated June 11,
2002. (incorporated by reference to FE’s Form 10-K, Exhibit
10-1, File No. 333-21011)
|
||
|
|
|||
| (B) 10-18 |
Director Stock Option Agreement. (incorporated by reference to
FE’s Form 10-K filed March 26, 2003, Exhibit 10-2, File No.
333-21011)
|
||
|
|
|||
| (B) 10-19 |
Executive Incentive Compensation Plan 2002. (incorporated by
reference to FE’s Form 10-K filed March 26, 2003, Exhibit 10-28,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-20 |
GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments
through June 3, 1999. (incorporated by reference to GPU, Inc.
Form 10-K filed March 20, 2000, Exhibit 10-V, File No.
001-06047)
|
||
|
|
|||
| (B) 10-21 |
Form of 1998 Stock Option Agreement under the GPU, Inc. 1990
Stock Plan for Employees of GPU, Inc. and Subsidiaries.
(incorporated by reference to GPU, Inc. Form 10-K filed March
20, 2000, Exhibit 10-Q, File No. 001-06047)
|
||
|
|
|||
| (B) 10-22 |
Form of 1999 Stock Option Agreement under the GPU, Inc. 1990
Stock Plan for Employees of GPU, Inc. and Subsidiaries.
(incorporated by reference to GPU, Inc. Form 10-K filed March
20, 2000, Exhibit 10-W, File No. 001-06047)
|
||
|
|
|||
| (B) 10-23 |
Form of 2000 Stock Option Agreement under the GPU, Inc. 1990
Stock Plan for Employees of GPU, Inc. and Subsidiaries.
(incorporated by reference to GPU, Inc. Form 10-K filed March
20, 2000, Exhibit 10-W, File No. 001-06047)
|
||
|
|
|||
| (B) 10-24 |
Deferred Remuneration Plan for Outside Directors of GPU, Inc. as
amended and restated effective August 8, 2000. (incorporated by
reference to GPU, Inc. Form 10-K filed March 20, 2000, Exhibit
10-O, File No. 001-06047)
|
||
264
Table of Contents
| Exhibit | |||
| Number | |||
|
|
|||
| (B) 10-25 |
Retirement Plan for Outside Directors of GPU, Inc. as amended
and restated as of August 8, 2000. (incorporated by reference to
GPU, Inc. Form 10-K filed March 20, 2000, Exhibit 10-N, File No.
001-06047)
|
||
|
|
|||
| (B) 10-26 |
Forms of Estate Enhancement Program Agreements entered into by
certain former GPU directors. (incorporated by reference to GPU,
Inc. Form 10-K filed March 20, 2000, Exhibit 10-JJ, File No.
001-06047)
|
||
|
|
|||
| (B) 10-27 |
Employment Agreement for Richard R. Grigg dated February 26,
2008, (incorporated by reference to FE’s Form 10-K filed
February 29, 2008, Exhibit 10.5, File No. 333-21011), as
amended on January 29, 2010.
|
||
|
|
|||
| (B) 10-28 |
Stock Option Agreement between FirstEnergy Corp. and an officer
dated August 20, 2004. (incorporated by reference to FE’s Form
10-Q filed November 4, 2004, Exhibit 10-42, File No. 333-21011)
|
||
|
|
|||
| (B) 10-29 |
Executive Bonus Plan between FirstEnergy Corp. and Officers
effective November 3, 2004. (incorporated by reference to FE’s
Form 10-Q filed November 4, 2004, Exhibit 10-44, File No.
333-21011)
|
||
|
|
|||
| 10-30 |
Consent Decree dated March 18, 2005. (incorporated by reference
to FE’s Form 8-K filed March 18, 2005, Exhibit 10-1, File No.
333-21011)
|
||
|
|
|||
| (C) 10-32 |
Form of Guaranty Agreement dated as of April 3, 2006 by
FirstEnergy Corp. in favor of the Participating Banks, Barclays
Bank PLC, as administrative agent and fronting bank, and KeyBank
National Association, as syndication agent, under the related
Letter of Credit and Reimbursement Agreement. (incorporated by
reference to FE’s Form 10-Q filed May 9, 2006, Exhibit 10-1,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-33 |
Form of Restricted Stock Agreement between FirstEnergy Corp. and
A. J. Alexander, dated February 27, 2006. (incorporated by
reference to FE’s Form 10-Q filed May 9, 2006, Exhibit 10-6,
File No. 333-21011)
|
||
|
|
|||
| (B) 10-34 |
Form of Restricted Stock Unit Agreement (Performance Adjusted)
between FirstEnergy Corp. and A. J. Alexander, dated March 1,
2006. (incorporated by reference to FE’s Form 10-Q filed May 9,
2006, Exhibit 10-7, File No. 333-21011)
|
||
|
|
|||
| (B) 10-35 |
Form of Restricted Stock Unit Agreement (Performance Adjusted)
between FirstEnergy Corp. and named executive officers, dated
March 1, 2006. (incorporated by reference to FE’s Form 10-Q
filed May 9, 2006, Exhibit 10-8, File No. 333-21011)
|
||
|
|
|||
| (B) 10-36 |
Form of Restricted Stock Unit Agreement (Performance Adjusted)
between FirstEnergy Corp. and R. H. Marsh, dated March 1, 2006.
(incorporated by reference to FE’s Form 10-Q filed May 9, 2006,
Exhibit 10-9, File No. 333-21011)
|
||
|
|
|||
| (B) 10-38 |
FirstEnergy Corp. Supplemental Executive Retirement Plan as
amended September 18, 2007. (incorporated by reference to FE’s
Form 10-Q filed October 31, 2007, Exhibit 10.2, File No.
333-21011)
|
||
|
|
|||
| (B) 10-39 |
Employment Agreement between FirstEnergy Corp. and Gary R. Leidich, dated February 26, 2008
(incorporated by reference to FE’s Form 10-K filed February 29, 2008, Exhibit 10-88, File No.
333-21011), as amended on January 29, 2010. (incorporated by reference to FE’s Form 10-K filed February 19, 2010, Exhibit 10-39, File No.
333-21011)
|
||
|
|
|||
| (B) 10-40 |
Form of Restricted Stock Unit Agreement for Gary R. Leidich (per Employment Agreement dated
February 26, 2008). (incorporated by reference to FE’s Form 10-K filed February 29, 2008, Exhibit
10-90, File No. 333-21011)
|
||
265
Table of Contents
| Exhibit | |||
| Number | |||
|
|
|||
| (B) 10-41 |
Form of Restricted Stock Agreement Amendment for Gary R. Leidich dated February 26, 2008.
(incorporated by reference to FE’s Form 10-K filed February 29, 2008, Exhibit 10-91, File No.
333-21011)
|
||
|
|
|||
| (B) 10-42 |
Form of Restricted Stock Unit Agreement for Richard R. Grigg (per Employment Agreement dated
February 26, 2008). (incorporated by reference to FE’s Form 10-K filed February 29, 2008, Exhibit
10-92, File No. 333-21011)
|
||
|
|
|||
| (B) 10-43 |
Form of Performance-Adjusted Restricted Stock Unit Award Agreement as of March 3, 2008.
(incorporated by reference to FE’s Form 10-K filed February 29, 2008, Exhibit 10-93, File No.
333-21011)
|
||
|
|
|||
| (B) 10-44 |
Form of 2008-2010 Performance Share Award Agreement effective January 1, 2008. (incorporated by
reference to FE’s Form 10-K filed February 29, 2008, Exhibit 10-94, File No. 333-21011)
|
||
|
|
|||
| (B) 10-46 |
Form of 2009-2011 Performance Share Award Agreement effective January 1, 2009 (incorporated by
reference to FE’s Form 10-K filed February 25, 2009, Exhibit 10-48, File No. 333-21011)
|
||
|
|
|||
| (B) 10-47 |
Form of Performance-Adjusted Restricted Stock Unit Award Agreement as of March 2, 2009
(incorporated by reference to FE’s Form 10-K filed February 25, 2009, Exhibit 10-49, File No.
333-21011)
|
||
|
|
|||
| (B) 10-48 |
Form of 2010-2012 Performance Share Award Agreement effective January 1, 2010 (incorporated by reference to FE’s Form 10-K filed February 19, 2010, Exhibit 10-48, File No.
333-21011)
|
||
|
|
|||
| (B) 10-49 |
Form of Performance-Adjusted Restricted Stock Unit Award Agreement as of March 8, 2010 (incorporated by reference to FE’s Form 10-K filed February 19, 2010, Exhibit 10-49, File No.
333-21011)
|
||
|
|
|||
| (B) 10-50 |
Form of Director Indemnification Agreement (incorporated by reference to FE’s 10-Q filed May 7,
2009, Exhibit 10.1, File No. 333-21011)
|
||
|
|
|||
| (B) 10-51 |
Form of Management Director Indemnification Agreement (incorporated by reference to FE’s 10-Q
filed May 7, 2009, Exhibit 10.2, File No. 333-21011)
|
||
|
|
|||
| (B) 10-52 |
Amended FirstEnergy Corp. Deferred Compensation
Plan for Outside Directors, amended and restated as of September 21, 2010
(incorporated by reference to FE’s 10-Q filed October 26, 2010,
Exhibit 10.1, File No. 333-21011)
|
||
|
|
|||
| (B) 10-53 |
Amended FirstEnergy Corp. Executive Deferred
Compensation Plan, amended and restated as of September 21, 2010
(incorporated by reference to FE’s 10-Q filed October 26, 2010,
Exhibit 10.2, File No. 333-21011)
|
||
|
|
|||
| 10-54 |
Signal Peak Credit Agreement, including the
forms of the guaranty and pledge agreement attached as exhibits thereto
(incorporated by reference to FE’s 10-Q filed October 26, 2010,
Exhibit 10.3, File No. 333-21011)
|
||
|
|
|||
| (A) 12-1 |
Consolidated ratios of earnings to fixed charges.
|
||
|
|
|||
| (A) 21 |
List
of Subsidiaries of the Registrant at December 31, 2010.
|
||
|
|
|||
| (A) 23-1 |
Consent of Independent Registered Public Accounting Firm.
|
||
|
|
|||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
||
|
|
|||
| † |
Schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Registrant will furnish the
omitted schedules to the Securities and Exchange Commission upon request by the
Commission
|
||
|
|
|||
| (A) |
Provided herein in electronic format as an exhibit.
|
||
|
|
|||
| (B) |
Management contract or compensatory plan contract or arrangement filed
pursuant to Item 601 of Regulation S-K.
|
||
|
|
|||
266
Table of Contents
| Exhibit | |||
| Number | |||
|
|
|||
| (C) |
Three substantially similar agreements, each dated as of the same
date, were executed and delivered by the registrant and its affiliates
with respect to three other series of pollution control revenue
refunding bonds issued by the Ohio Water Development Authority and the
Beaver County Industrial Development Authority relating to pollution
control notes of FirstEnergy Generation Corp. and FirstEnergy Nuclear
Generation Corp.
|
||
3. Exhibits — FES
| 3-1 |
Articles of Incorporation of FirstEnergy Solutions Corp., as
amended August 31, 2001. (incorporated by reference to FES’ Form
S-4 filed August 6, 2007, Exhibit 3.1,
File No. 333-145140-01)
|
||
|
|
|||
| 3-2 |
Amended and Restated Code of Regulations of FirstEnergy Solutions
Corp. effective as of August 26, 2009 (incorporated by reference to
FES’ Form 8-K filed August 7, 2009, Exhibit 3.4, File No.
000-53742)
|
||
|
|
|||
| 4-1 |
Open-End Mortgage, General Mortgage Indenture and Deed of Trust,
dated as of June 19, 2008, of FirstEnergy Generation Corp. to The
Bank of New York Trust Company, N.A., as Trustee (incorporated by
reference to FES’ 10-Q filed May 7, 2009, Exhibit 4.1, File No.
333-145140-01)
|
||
|
|
|||
| 4-1 | (a) |
First Supplemental Indenture dated as of June 25, 2008 (including
Form of First Mortgage Bonds, Guarantee Series A of 2008 due 2009
and Form First Mortgage Bonds, Guarantee Series B of 2008 due
2009). (incorporated by reference to FES’ 10-Q filed May 7, 2009,
Exhibit 4.1(a), File No.
333-145140-01)
|
|
|
|
|||
| 4-1 | (b) |
Second Supplemental Indenture dated as of March 1, 2009 (including
Form of First Mortgage Bonds, Guarantee Series A of 2009 due 2014
and Form of First Mortgage Bonds, Guarantee Series B of 2009 due
2023). (incorporated by reference to FES’ 10-Q filed May 7, 2009,
Exhibit 4.1(b), File No. 333-145140-01)
|
|
|
|
|||
| 4-1 | (c) |
Third Supplemental Indenture dated as of March 31, 2009 (including
Form of First Mortgage Bonds, Collateral Series A of 2009 due
2011). (incorporated by reference to FES’ 10-Q filed May 7, 2009,
Exhibit 4.1(c), File No. 333-145140-01)
|
|
|
|
|||
| 4-1 | (d) |
Fourth Supplemental Indenture, dated as of June 1, 2009 (including
Form of First Mortgage Bonds, Guarantee Series C of 2009 due 2018,
Form of First Mortgage Bonds, Guarantee Series D of 2009 due 2029,
Form of First Mortgage Bonds, Guarantee Series E of 2009 due 2029,
Form of First Mortgage Bonds, Collateral Series B of 2009 due 2011
and Form of First Mortgage Bonds, Collateral Series C of 2009 due
2011). (incorporated by reference to FES’ Form 8-K filed June 19,
2009, Exhibit 4.3, File No. 333-145140-01)
|
|
|
|
|||
| 4-1 | (e) |
Fifth Supplemental Indenture, dated as of June 30, 2009 (including
Form of First Mortgage Bonds, Guarantee Series F of 2009 due 2047,
Form of First Mortgage Bonds, Guarantee Series G of 2009 due 2018
and Form of First Mortgage Bonds, Guarantee Series H of 2009 due
2018). (incorporated by reference to FES’ Form 8-K filed July 6,
2009, Exhibit 4.2, File No. 333-145140-01)
|
|
|
|
|||
| 4-1 | (f) |
Sixth Supplemental Indenture, dated as of December 1, 2009
(including Form of First Mortgage Bonds, Collateral Series D of
2009 due 2012 (incorporated by reference to FES’ Form 8-K filed
December 4, 2009, Exhibit 4.2, File No. 000-53742)
|
|
|
|
|||
| 4-2 |
Open-End Mortgage, General Mortgage Indenture and Deed of Trust,
dated as of June 1, 2009, by and between FirstEnergy Nuclear
Generation Corp. and The Bank of New York Mellon Trust Company,
N.A., as trustee (incorporated by reference to FES’ Form 8-K filed
June 19, 2009, Exhibit 4.1, File No. 333-145140-01)
|
267
Table of Contents
|
|
|||
| 4-2 | (a) |
First Supplemental Indenture, dated as of June 15, 2009 (including
Form of First Mortgage Bonds, Guarantee Series A of 2009 due 2033,
Form of First Mortgage Bonds, Guarantee Series B of 2009 due 2011,
Form of First Mortgage Bonds, Collateral Series A of 2009 due 2010,
Form of First Mortgage Bonds, Collateral Series B of 2009 due 2010,
Form of First Mortgage Bonds, Collateral Series C of 2009 due 2010,
Form of First Mortgage Bonds, Collateral Series D of 2009 due 2010,
Form of First Mortgage Bonds, Collateral Series E of 2009 due 2010,
Form of First Mortgage Bonds, Collateral Series F of 2009 due 2011
and Form of First Mortgage Bonds, Collateral Series G of 2009 due
2011). (incorporated by reference to FES’ Form 8-K filed June 19,
2009, Exhibit 4.2(i), File No. 333-145140-01)
|
|
|
|
|||
| 4-2 | (b) |
Second Supplemental Indenture, dated as of June 30, 2009 (including
Form of First Mortgage Bonds, Guarantee Series C of 2009 due 2033,
Form of First Mortgage Bonds, Guarantee Series D of 2009 due 2033,
Form of First Mortgage Bonds, Guarantee Series E of 2009 due 2033,
Form of First Mortgage Bonds, Collateral Series H of 2009 due 2011,
Form of First Mortgage Bonds, Collateral Series I of 2009 due 2011
and Form of First Mortgage Bonds, Collateral Series J of 2009 due
2010). (incorporated by reference to FES’ Form 8-K filed July 6,
2009, Exhibit 4.1(f), File No. 333-145140-01)
|
|
|
|
|||
| 4-2 | (c) |
Third Supplemental Indenture, dated as of December 1, 2009
(including Form of First Mortgage Bonds, Collateral Series K of
2009 due 2012). (incorporated by reference to FES’ Form 8-K filed
December 4, 2009, Exhibit 4.1, File No. 000-53742)
|
|
|
|
|||
| 4-3 |
Indenture, dated as of August 1, 2009, between FirstEnergy
Solutions Corp. and The Bank of New York Mellon Trust Company, N.A.
(incorporated by reference to FES’ Form 8-K filed August 7, 2009,
Exhibit 4.1, File No. 000-53742)
|
||
|
|
|||
| 4-3 | (a) |
First Supplemental Indenture, dated as of August 1, 2009 (including
Form of 4.80% Senior Notes due 2015, Form of 6.05% Senior Notes due
2021 and Form of 6.80% Senior Notes due 2039). (incorporated by
reference to FES’ Form 8-K filed August 7, 2009, Exhibit 4.2, File
No. 000-53742)
|
|
|
|
|||
| 10-1 |
Form of 6.85% Exchange Certificate due 2034. (incorporated by
reference to FES’ Form S-4 filed August 6, 2007, Exhibit 4.1, File
No. 333-145140-01)
|
||
|
|
|||
| 10-2 |
Guaranty of FirstEnergy Solutions Corp., dated as of July 1, 2007.
(incorporated by reference to FE’s Form 8-K/A filed August 2, 2007,
Exhibit 10-9, File No. 333-21011)
|
||
|
|
|||
| 10-3 |
Indenture of Trust, Open-End Mortgage and Security Agreement, dated
as of July 1, 2007, between the applicable Lessor and The Bank of
New York Trust Company, N.A., as Indenture Trustee. (incorporated
by reference to FE’s Form 8-K/A filed August 2, 2007, Exhibit 10-3,
File No. 333-21011)
|
||
|
|
|||
| 10-4 |
6.85% Lessor Note due 2034. (incorporated by reference to FE’s Form
8-K/A filed August 2, 2007, Exhibit 10-3, File No. 333-21011)
|
||
|
|
|||
| 10-6 |
Participation Agreement, dated as of June 26, 2007, among
FirstEnergy Generation Corp., as Lessee, FirstEnergy Solutions
Corp., as Guarantor, the applicable Lessor, U.S. Bank Trust National
Association, as Trust Company, the applicable Owner Participant, The
Bank of New York Trust Company, N.A., as Indenture Trustee, and The
Bank of New York Trust Company, N.A., as Pass Through Trustee.
(incorporated by reference to FE’s Form 8-K/A filed August 2, 2007,
Exhibit 10-1, File No. 333-21011)
|
||
| 10-7 |
Trust Agreement, dated as of June 26, 2007, between the applicable
Owner Participant and U.S. Bank Trust National Association, as Owner
Trustee. (incorporated by reference to FE’s Form 8-K/A filed August
2, 2007, Exhibit 10-2, File No. 333-21011)
|
||
|
|
|||
| 10-8 |
Pass Through Trust Agreement, dated as of June 26, 2007, among
FirstEnergy Generation Corp., FirstEnergy Solutions Corp., and The
Bank of New York Trust Company, N.A., as Pass Through Trustee.
(incorporated by reference to FE’s Form 8-K/A filed August 2, 2007,
Exhibit 10-12, File No. 333-21011)
|
268
Table of Contents
|
|
||
| 10-9 |
Bill of Sale and Transfer, dated as of July 1, 2007, between
FirstEnergy Generation Corp. and the applicable Lessor.
(incorporated by reference to FE’s Form 8-K/A filed August 2, 2007,
Exhibit 10-5, File No. 333-21011)
|
|
|
|
||
| 10-10 |
Facility Lease Agreement, dated as of July 1, 2007, between
FirstEnergy Generation Corp. and the applicable Lessor.
(incorporated by reference to FE’s Form 8-K/A filed August 2, 2007,
Exhibit 10-6, File No. 333-21011)
|
|
|
|
||
| 10-11 |
Site Lease, dated as of July 1, 2007, between FirstEnergy Generation
Corp. and the applicable Lessor. (incorporated by reference to FE’s
Form 8-K/A filed August 2, 2007, Exhibit 10-7, File No. 333-21011)
|
|
|
|
||
| 10-12 |
Site Sublease, dated as of July 1, 2007, between FirstEnergy
Generation Corp. and the applicable Lessor. (incorporated by
reference to FE’s Form 8-K/A filed August 2, 2007, Exhibit 10-8,
File No. 333-21011)
|
|
|
|
||
| 10-13 |
Support Agreement, dated as of July 1, 2007, between FirstEnergy
Generation Corp. and the applicable Lessor. (incorporated by
reference to FE’s Form 8-K/A filed August 2, 2007, Exhibit 10-10,
File No. 333-21011)
|
|
|
|
||
| 10-14 |
Second Amendment to the Bruce Mansfield Units 1, 2, and 3 Operating
Agreement, dated as of July 1, 2007, between FirstEnergy Generation
Corp., The Cleveland Electric Illuminating Company and The Toledo
Edison Company. (incorporated by reference to FE’s Form 8-K/A filed
August 2, 2007, Exhibit 10-11, File No. 333-21011)
|
|
|
|
||
| 10-15 |
OE Fossil Purchase and Sale Agreement by and between Ohio Edison
Company (Seller) and FirstEnergy Generation Corp. (Purchaser).
(incorporated by reference to FE’s Form 10-Q filed August 1, 2005,
Exhibit 10.2, File No. 333-21011)
|
|
|
|
||
| 10-16 |
CEI Fossil Purchase and Sale Agreement by and between The Cleveland
Electric Illuminating Company (Seller) and FirstEnergy Generation
Corp. (Purchaser). (incorporated by reference to FE’s Form 10-Q
filed August 1, 2005, Exhibit 10.6, File No. 333-21011)
|
|
|
|
||
| 10-17 |
TE Fossil Purchase and Sale Agreement by and between The Toledo
Edison Company (Seller) and FirstEnergy Generation Corp.
(Purchaser). (incorporated by reference to FE’s Form 10-Q filed
August 1, 2005, Exhibit 10.2, File No. 333-21011)
|
|
|
|
||
| 10-18 |
Agreement, dated August 26, 2005, by and between FirstEnergy
Generation Corp. and Bechtel Power Corporation. (incorporated by
reference to FE’s Form 10-Q filed November 2, 2005, Exhibit 10-2,
File No. 333-21011)
|
|
|
|
||
| 10-19 |
CEI Fossil Note, dated October 24, 2005, of FirstEnergy Generation
Corp. (incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.15, File No. 333-145140-01)
|
|
|
|
||
| 10-20 |
CEI Fossil Security Agreement, dated October 24, 2005, by and
between FirstEnergy Generation Corp. and The Cleveland Electric
Illuminating Company. (incorporated by reference to FES’ Form S-4/A
filed August 20, 2007, Exhibit 10.16, File No. 333-145140-01)
|
|
|
|
||
| 10-21 |
OE Fossil Note, dated October 24, 2005, of FirstEnergy Generation
Corp. (incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.17, File No. 333-145140-01)
|
|
|
|
||
| 10-22 |
OE Fossil Security Agreement, dated October 24, 2005, by and between
FirstEnergy Generation Corp. and Ohio Edison Company. (incorporated
by reference to FES’ Form S-4/A filed August 20, 2007, Exhibit
10.18, File No. 333-145140-01)
|
|
|
|
||
| 10-23 |
Amendment No. 1 to OE Fossil Security Agreement, dated as of June
30, 2007, between FirstEnergy Generation Corp. and Ohio Edison
Company. (incorporated by reference to FES’ Form S-4/A filed August
20, 2007, Exhibit 10.19, File No. 333-145140-01)
|
|
|
|
||
| 10-24 |
PP Fossil Note, dated October 24, 2005, of FirstEnergy Generation
Corp. (incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.20, File No. 333-145140-01)
|
269
Table of Contents
|
|
||
| 10-25 |
PP Fossil Security Agreement, dated October 24, 2005, by and between
FirstEnergy Generation Corp. and Pennsylvania Power Company.
(incorporated by reference to FES’ Form S-4/A filed August 20, 2007,
Exhibit 10.21, File No. 333-145140-01)
|
|
|
|
||
| 10-26 |
Amendment No. 1 to PP Fossil Security Agreement, dated as of June
30, 2007, between FirstEnergy Generation Corp. and Pennsylvania
Power Company. (incorporated by reference to FES’ Form S-4/A filed
August 20, 2007, Exhibit 10.22, File No. 333-145140-01)
|
|
|
|
||
| 10-27 |
TE Fossil Note, dated October 24, 2005, of FirstEnergy Generation
Corp. (incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.23, File No. 333-145140-01)
|
|
|
|
||
| 10-28 |
TE Fossil Security Agreement, dated October 24, 2005, by and between
FirstEnergy Generation Corp. and The Toledo Edison Company.
(incorporated by reference to FES’ Form S-4/A filed August 20, 2007,
Exhibit 10.24, File No. 333-145140-01)
|
|
|
|
||
| 10-29 |
CEI Nuclear Note, dated December 16, 2005, of FirstEnergy Nuclear
Generation Corp. (incorporated by reference to FES’ Form S-4/A filed
August 20, 2007, Exhibit 10.25, File No. 333-145140-01)
|
|
|
|
||
| 10-30 |
CEI Nuclear Security Agreement, dated December 16, 2005, by and
between FirstEnergy Nuclear Generation Corp. and The Cleveland
Electric Illuminating Company. (incorporated by reference to FES’
Form S-4/A filed August 20, 2007, Exhibit 10.26, File No.
333-145140-01)
|
|
|
|
||
| 10-31 |
OE Nuclear Note, dated December 16, 2005, of FirstEnergy Nuclear
Generation Corp. (incorporated by reference to FES’ Form S-4/A filed
August 20, 2007, Exhibit 10.27, File No. 333-145140-01)
|
|
|
|
||
| 10-32 |
PP Nuclear Note, dated December 16, 2005, of FirstEnergy Nuclear
Generation Corp. (incorporated by reference to FES’ Form S-4/A filed
August 20, 2007, Exhibit 10.28, File No. 333-145140-01)
|
|
|
|
||
| 10-33 |
TE Nuclear Note, dated December 16, 2005, of FirstEnergy Nuclear
Generation Corp. (incorporated by reference to FES’ Form S-4/A filed
August 20, 2007, Exhibit 10.29, File No. 333-145140-01)
|
|
|
|
||
| 10-34 |
TE Nuclear Security Agreement, dated December 16, 2005, by and
between FirstEnergy Nuclear Generation Corp. and The Toledo Edison
Company. (incorporated by reference to FES’ Form S-4/A filed August
20, 2007, Exhibit 10.30, File No. 333-145140-01)
|
|
|
|
||
| 10-35 |
Mansfield Power Supply Agreement, dated August 10, 2006, among The
Cleveland Electric Illuminating Company, The Toledo Edison Company
and FirstEnergy Generation Corp. (incorporated by reference to FES’
Form S-4/A filed August 20, 2007, Exhibit 10.31, File No.
333-145140-01)
|
|
|
|
||
| 10-36 |
Nuclear Power Supply Agreement, dated August 10, 2006, between
FirstEnergy Nuclear Generation Corp. and FirstEnergy Solutions Corp.
(incorporated by reference to FES’ Form S-4/A filed August 20, 2007,
Exhibit 10.32, File No. 333-145140-01)
|
|
|
|
||
| 10-37 |
Revised Power Supply Agreement, dated December 8, 2006, among
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland
Electric Illuminating Company and The Toledo Edison Company.
(incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.34, File No. 333-145140-01)
|
|
|
|
||
| 10-38 |
GENCO Power Supply Agreement, dated January 1, 2007, between
FirstEnergy Generation Corp. and FirstEnergy Solutions Corp.
(incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.36, File No. 333-145140-01)
|
|
|
|
||
| 10-39 |
Form of Guaranty dated as of March 2, 2007, between FirstEnergy
Corp., as Guarantor, and Morgan Stanley Senior Funding, Inc., as
Lender under the U.S. $250,000,000 Credit Agreement, dated as of
March 2, 2007, with FirstEnergy Solutions Corp., as Borrower.
(incorporated by reference to FE’s Form 10-Q filed May 9, 2007,
Exhibit 10-23, File No. 333-145140-01)
|
270
Table of Contents
|
|
||
| 10-40 |
Guaranty, dated as of March 26, 2007, by FirstEnergy Generation
Corp. on behalf of FirstEnergy Solutions Corp. (incorporated by
reference to FES’ Form S-4/A filed August 20, 2007, Exhibit
10.39, File No. 333-145140-01)
|
|
|
|
||
| 10-41 |
Guaranty, dated as of March 26, 2007, by FirstEnergy Solutions
Corp. on behalf of FirstEnergy Generation Corp. (incorporated by
reference to FES’ Form S-4/A filed August 20, 2007, Exhibit
10.40, File No. 333-145140-01)
|
|
|
|
||
| 10-42 |
Guaranty, dated as of March 26, 2007, by FirstEnergy Solutions
Corp. on behalf of FirstEnergy Nuclear Generation Corp.
(incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.41, File No. 333-145140-01)
|
|
|
|
||
| 10-43 |
Guaranty, dated as of March 26, 2007, by FirstEnergy Nuclear
Generation Corp. on behalf of FirstEnergy Solutions Corp.
(incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.42, File No. 333-145140-01)
|
|
|
|
||
| (B) 10-44 |
Form of Guaranty Agreement dated as of December 16, 2005 between
FirstEnergy Corp. and FirstEnergy Solutions Corp. in Favor of
Barclays Bank PLC as Administrative Agent for the Banks.
(incorporated by reference to FE’s Form 10-K filed March 3,
2006, Exhibit 10-58, File No. 333-21011)
|
|
|
|
||
| (B) 10-45 |
Form of Trust Indenture dated as of December 1, 2005 between
Ohio Water Development Authority and JP Morgan Trust Company
related to issuance of FirstEnergy Nuclear Generation Corp.
pollution control revenue refunding bonds. (incorporated by
reference to FE’s Form 10-K filed March 3, 2006, Exhibit 10-59,
File No. 333-21011)
|
|
|
|
||
| 10-46 |
GENCO Power Supply Agreement dated as of October 14, 2005
between FirstEnergy Generation Corp. (Seller) and FirstEnergy
Solutions Corp. (Buyer). (incorporated by reference to FE’s Form
10-K filed March 3, 2006, Exhibit 10-60, File No. 333-21011)
|
|
|
|
||
| 10-47 |
Nuclear Power Supply Agreement dated as of October 14, 2005
between FirstEnergy Nuclear Generation Corp. (Seller) and
FirstEnergy Solutions Corp. (Buyer). (incorporated by reference
to FE’s Form 10-K filed March 3, 2006, Exhibit 10-61, File No.
333-21011)
|
|
|
|
||
| (B) 10-48 |
Form of Letter of Credit and Reimbursement Agreement Dated as of
December 16, 2005 among FirstEnergy Nuclear Generation Corp.,
and the Participating Banks and Barclays Bank PLC. (incorporated
by reference to FE’s Form 10-K filed March 3, 2006, Exhibit
10-62, File No. 333-21011)
|
|
|
|
||
| (B) 10-49 |
Form of Waste Water Facilities and Solid Waste Facilities Loan
Agreement between Ohio Water Development Authority and
FirstEnergy Nuclear Generation Corp., dated as of December 1,
2005. (incorporated by reference to FE’s Form 10-K filed March
3, 2006, Exhibit 10-63, File No. 333-21011)
|
|
|
|
||
| 10-50 |
Nuclear Sale/Leaseback Power Supply Agreement dated as of
October 14, 2005 between Ohio Edison Company and the Toledo
Edison Company (Sellers) and FirstEnergy Nuclear Generation
Corp. (Buyer). (incorporated by reference to FE’s Form 10-K
filed March 3, 2006, Exhibit 10-64, File No. 333-21011)
|
|
|
|
||
| 10-51 |
Mansfield Power Supply Agreement dated as of October 14, 2005
between Cleveland Electric Illuminating Company and The
Toledo Edison Company (Sellers) and FirstEnergy Generation
Corp. (Buyer). (incorporated by reference to FE’s Form 10-K
filed March 3, 2006, Exhibit 10-65, File No. 333-21011)
|
|
|
|
||
| (C) 10-54 |
Form of Letter of Credit and Reimbursement Agreement dated as
of April 3, 2006 among FirstEnergy Generation Corp., the
Participating Banks, Barclays Bank PLC, as administrative
agent and fronting bank, and KeyBank National Association, as
syndication agent. (incorporated by reference to FE’s Form
10-Q filed May 9, 2006, Exhibit 10-2, File No. 333-21011)
|
271
Table of Contents
|
|
|||
| (C) 10-54 | (a) |
Form of Amendment No. 2 to Letter of Credit and Reimbursement
Agreement, dated as of June 12, 2009, by and among
FirstEnergy Generation Corp., FirstEnergy Corp. and
FirstEnergy Solutions Corp., as guarantors, the banks party
thereto, Barclays Bank PLC, as fronting Bank and
administrative agent and KeyBank National Association, as
syndication agent, to Letter of Credit and Reimbursement
Agreement dated as of April 3, 2006 (incorporated by
reference to FES’ Form 8-K filed June 19, 2009, Exhibit 10.2,
File No. 333-145140-01)
|
|
|
|
|||
| (C) 10-55 |
Form of Trust Indenture dated as of April 1, 2006 between the
Ohio Water Development Authority and The Bank of New York
Trust Company, N.A. as Trustee securing pollution control
revenue refunding bonds issued on behalf of FirstEnergy
Generation Corp. (incorporated by reference to FE’s Form 10-Q
filed May 9, 2006, Exhibit 10-3, File No. 333-21011)
|
||
|
|
|||
| (C) 10-56 |
Form of Waste Water Facilities Loan Agreement between the
Ohio Water Development Authority and FirstEnergy Generation
Corp. dated as of April 1, 2006. (incorporated by reference
to FE’s Form 10-Q filed May 9, 2006, Exhibit 10-4, File No.
333-21011)
|
||
|
|
|||
| (D) 10-57 |
Form of Trust Indenture dated as of December 1, 2006 between
the Ohio Water Development Authority and The Bank of New York
Trust Company, N.A. as Trustee securing State of Ohio
Pollution Control Revenue Refunding Bonds (FirstEnergy
Nuclear Generation Corp. Project). (incorporated by reference
to FE’s Form 10-K filed February 28, 2007, Exhibit 10-77,
File No. 333-21011)
|
||
|
|
|||
| (D) 10-58 |
Form of Waste Water Facilities and Solid Waste Facilities
Loan Agreement between the Ohio Water Development Authority
and FirstEnergy Nuclear Generation Corp. dated as of December
1, 2006. (incorporated by reference to FE’s Form 10-K filed
February 28, 2007, Exhibit 10-80, File No. 333-21011)
|
||
|
|
|||
| 10-59 |
Consent Decree dated March 18, 2005. (incorporated by
reference to FE’s Form 8-K filed March 18, 2005, Exhibit
10.1, File No. 333-21011)
|
||
|
|
|||
| 10-61 |
Amendment to Agreement for Engineering, Procurement and
Construction of Air Quality Control Systems by and between
FirstEnergy Generation Corp. and Bechtel Power Corporation
dated September 14, 2007. (incorporated by reference to FE’s
Form 10-Q filed October 31, 2007, Exhibit 10.1, File No.
333-21011)
|
||
|
|
|||
| 10-61 |
Asset Purchase Agreement by and between Calpine Corporation,
as Seller, and FirstEnergy Generation Corp., as Buyer, dated
as of January 28, 2008. (incorporated by reference to FE’s
Form 10-K filed February 29, 2008, Exhibit 10-48, File No.
333-21011)
|
||
|
|
|||
| 10-63 |
Master SSO Supply Agreement, entered into May 18, 2009, by and between The Cleveland Electric
Illuminating Company, the Toledo Edison Company and Ohio Edison Company and FirstEnergy Solutions
Corp. (incorporated by reference to FE’s Form 10-Q filed August 3, 2009, Exhibit 10.2, File No.
333-21011)
|
||
|
|
|||
| 10-64 |
Surplus Margin Guaranty, dated as of June 16, 2009, made by FirstEnergy Nuclear Generation Corp.
in favor of The Cleveland Electric Illuminating Company, The Toledo Edison Company and Ohio
Edison Company (incorporated by reference to FES’ Form 8-K filed June 19, 2009, Exhibit 10.3,
File No. 333-145140-01)
|
||
|
|
|||
| (A) 12-2 |
Consolidated ratios of earnings to fixed charges.
|
||
|
|
|||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
272
Table of Contents
|
|
||
| (A) |
Provided herein in electronic format as an exhibit.
|
|
|
|
||
| (B) |
Four substantially similar agreements, each dated as of the same date, were executed and
delivered by the registrant and its affiliates with respect to four other series of pollution
control revenue refunding bonds issued by the Ohio Water Development Authority, the Ohio Air
Quality Authority and Beaver County Industrial Development Authority, Pennsylvania, relating to
pollution control notes of FirstEnergy Nuclear Generation Corp.
|
|
|
|
||
| (C) |
Three substantially similar agreements, each dated as of the same date, were executed and
delivered by the registrant and its affiliates with respect to three other series of pollution
control revenue refunding bonds issued by the Ohio Water Development Authority and the Beaver
County Industrial Development Authority relating to pollution control notes of FirstEnergy
Generation Corp. and FirstEnergy Nuclear Generation Corp.
|
|
|
|
||
| (D) |
Seven substantially similar agreements, each dated as of the same date, were executed and
delivered by the registrant and its affiliates with respect to one other series of pollution
control revenue refunding bonds issued by the Ohio Water Development Authority, three other
series of pollution control bonds issued by the Ohio Air Quality Development Authority and the
three other series of pollution control bonds issued by the Beaver County Industrial Development
Authority, relating to pollution control notes of FirstEnergy Generation Corp. and FirstEnergy
Nuclear Generation Corp.
|
3. Exhibits — OE
| 2-1 |
Agreement and Plan of Merger, dated as of September 13, 1996, between
Ohio Edison Company and Centerior Energy Corporation. (incorporated by
reference to OE’s Form 8—K filed September 17, 1996, Exhibit 2—1,
File No. 001-02578)
|
||
|
|
|||
| 3-1 |
Amended and Restated Articles of Incorporation
of Ohio Edison Company, Effective December 18,
2007. (incorporated by reference to OE’s Form
10-K filed February 29, 2008, Exhibit 3-4, File
No. 001-02578)
|
||
|
|
|||
| 3-2 |
Amended and Restated Code of Regulations of Ohio
Edison Company, dated December 14, 2007.
(incorporated by reference to OE’s Form 10-K
filed February 29, 2008, Exhibit 3-5, File No.
001-02578)
|
||
|
|
|||
| 4-1 |
General Mortgage Indenture and Deed of Trust dated as of January
1, 1998 between Ohio Edison Company and the Bank of New York, as
Trustee, as amended and supplemented by Supplemental Indentures: (incorporated by reference to OE’s Form S-3 filed June 5, 1996,
Exhibit 4(b), File No. 333-05277)
|
||
|
|
|||
| 4-1 | (a) |
February 1, 2003 (incorporated by reference to OE’s Form 10-K
filed March 15, 2004, Exhibit 4-4, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (b) |
March 1, 2003 (incorporated by reference to OE’s Form 10-K filed
March 15, 2004, Exhibit 4-5, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (c) |
August 1, 2003 (incorporated by reference to OE’s Form 10-K filed
March 15, 2004, Exhibit 4-6, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (d) |
June 1, 2004 (incorporated by reference to OE’s Form 10-K filed
March 10, 2005, Exhibit 4-4, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (e) |
December 1, 2004 (incorporated by reference to OE’s Form 10-K
filed March 10, 2005, Exhibit 4-4, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (f) |
April 1, 2005 (incorporated by reference to OE’s Form 10-Q filed
August 1, 2005, Exhibit 4-4, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (g) |
April 15, 2005 (incorporated by reference to OE’s Form 10-Q
filed August 1, 2005, Exhibit 4-5, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (h) |
June 1, 2005 (incorporated by reference to OE’s Form 10-Q filed
August 1, 2005, Exhibit 4-6, File No. 001-02578)
|
|
|
|
|||
| 4-1 | (i) |
October 1, 2008 (incorporated by reference to OE’s Form 8-K
filed October 22, 2008, Exhibit 4.1, File No. 001-02578)
|
|
|
|
|||
| 4-2 |
Indenture dated as of April 1, 2003 between Ohio Edison Company
and The Bank of New York, as Trustee. (incorporated by reference
to OE’s Form 10-K filed March 15, 2004, Exhibit 4-3, File No.
001-02578)
|
273
Table of Contents
|
|
|||
| 4-2 | (a) |
Officer’s Certificate (including the forms of the 6.40% Senior
Notes due 2016 and the 6.875% Senior Notes due 2036), dated June
21, 2006. (incorporated by reference to OE’s Form 8-K filed June
27, 2006, Exhibit 4, File No. 001-02578)
|
|
|
|
|||
| 10-1 |
Amendment No. 4 dated as of July 1, 1985 to the Bond Guaranty
dated as of October 1, 1973, as amended, by the CAPCO Companies
to National City Bank as Bond Trustee. (incorporated by
reference to 1985 Form 10-K, Exhibit 10-30)
|
||
|
|
|||
| 10-2 |
Amendment No. 5 dated as of May 1, 1986, to the Bond Guaranty by
the CAPCO Companies to National City Bank as Bond Trustee.
(incorporated by reference to 1986 Form 10-K, Exhibit 10-33)
|
||
|
|
|||
| 10-3 |
Amendment No. 6A dated as of December 1, 1991, to the Bond
Guaranty dated as of October 1, 1973, by The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio Edison
Company, Pennsylvania Power Company, The Toledo Edison Company
to National City Bank, as Bond Trustee. (incorporated by
reference to 1991 Form 10-K, Exhibit 10-33)
|
||
|
|
|||
| 10-4 |
Amendment No. 6B dated as of December 30, 1991, to the Bond
Guaranty dated as of October 1, 1973 by The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio Edison
Company, Pennsylvania Power Company, The Toledo Edison Company
to National City Bank, as Bond Trustee. (incorporated by
reference to 1991 Form 10-K, Exhibit 10-34)
|
||
|
|
|||
| (B) 10-5 |
Ohio Edison System Executive Supplemental Life Insurance Plan.
(incorporated by reference to OE’s Form 10-K filed March 19,
1996, Exhibit 10-44, File No. 001-02578)
|
||
|
|
|||
| (B) 10-6 |
Ohio Edison System Executive Incentive Compensation Plan.
(incorporated by reference to OE’s Form 10-K filed March 19,
1996, Exhibit 10-45, File No. 001-02578)
|
||
|
|
|||
| (B) 10-7 |
Ohio Edison System Restated and Amended Supplemental Executive
Retirement Plan. (incorporated by reference to OE’s Form 10-K
filed March 19, 1996, Exhibit 10-47, File No. 001-02578)
|
||
|
|
|||
| (B) 10-8 |
Form of Amendment, effective November 7, 2001, to GPU, Inc. 1990
Stock Plan for Employees of GPU, Inc. and Subsidiaries, Deferred
Remuneration Plan for Outside Directors of GPU, Inc., and
Retirement Plan for Outside Directors of GPU, Inc. (incorporated
by reference to OE’s Form 10-K filed April 1, 2002, Exhibit
10-26, File No. 001-02578)
|
||
|
|
|||
| (B) 10-9 |
GPU, Inc. Stock Option and Restricted Stock Plan for MYR Group,
Inc. Employees. (incorporated by reference to OE’s Form 10-K
filed April 1, 2002, Exhibit 10-27, File No. 001-02578))
|
||
|
|
|||
| (B) 10-10 |
Severance pay agreement between Ohio Edison Company and A. J.
Alexander. (incorporated by reference to OE’s Form 10-K filed
March 19, 1996, Exhibit 10-50, File No. 001-02578)
|
||
|
|
|||
| (C) 10-11 |
Participation Agreement dated as of March 16, 1987 among Perry
One Alpha Limited Partnership, as Owner Participant, the
Original Loan Participants listed in Schedule 1 Hereto, as
Original Loan Participants, PNPP Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee and Ohio
Edison Company, as Lessee. (incorporated by reference to 1986
Form 10-K, Exhibit 28-1)
|
||
|
|
|||
| (C) 10-12 |
Amendment No. 1 dated as of September 1, 1987 to Participation
Agreement dated as of March 16, 1987 among Perry One Alpha
Limited Partnership, as Owner Participant, the Original Loan
Participants listed in Schedule 1 thereto, as Original Loan
Participants, PNPP Funding Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee, Irving
Trust Company (now The Bank of New York), as Indenture Trustee,
and Ohio Edison Company, as Lessee. (incorporated by reference
to 1991 Form 10-K, Exhibit 10-46)
|
||
|
|
|||
| (C) 10-13 |
Amendment No. 3 dated as of May 16, 1988 to Participation
Agreement dated as of March 16, 1987, as amended among Perry One
Alpha Limited Partnership, as Owner Participant, PNPP Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee, and Ohio
Edison Company, as Lessee. (incorporated by reference to 1992
Form 10-K, Exhibit 10-47)
|
274
Table of Contents
|
|
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| (C) 10-14 |
Amendment No. 4 dated as of November 1, 1991 to Participation
Agreement dated as of March 16, 1987 among Perry One Alpha
Limited Partnership, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to 1991 Form 10-K, Exhibit 10-47)
|
|
|
|
||
| (C) 10-15 |
Amendment No. 5 dated as of November 24, 1992 to Participation
Agreement dated as of March 16, 1987, as amended, among Perry
One Alpha Limited Partnership, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company as Lessee. (incorporated by
reference to 1992 Form 10-K, Exhibit 10-49)
|
|
|
|
||
| (C) 10-16 |
Amendment No. 6 dated as of January 12, 1993 to Participation
Agreement dated as of March 16, 1987 among Perry One Alpha
Limited Partnership, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to 1992 Form 10-K, Exhibit 10-50)
|
|
|
|
||
| (C) 10-17 |
Amendment No. 7 dated as of October 12, 1994 to Participation
Agreement dated as of March 16, 1987 as amended, among Perry One
Alpha Limited Partnership, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to OE’s Form 10-K filed March 21, 1995, Exhibit 10-54,
File No. 001-02578))
|
|
|
|
||
| (C) 10-18 |
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee, with Perry One Alpha
Limited Partnership, Lessor, and Ohio Edison Company, Lessee.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-2)
|
|
|
|
||
| (C) 10-19 |
Amendment No. 1 dated as of September 1, 1987 to Facility Lease
dated as of March 16, 1997 between The First National Bank of
Boston, as Owner Trustee, Lessor and Ohio Edison Company,
Lessee. (incorporated by reference to 1991 Form 10-K, Exhibit
10-49)
|
|
|
|
||
| (C) 10-20 |
Amendment No. 2 dated as of November 1, 1991, to Facility Lease
dated as of March 16, 1987, between The First National Bank of
Boston, as Owner Trustee, Lessor and Ohio Edison Company,
Lessee. (incorporated by reference to 1991 Form 10-K, Exhibit
10-50)
|
|
|
|
||
| (C) 10-21 |
Amendment No. 3 dated as of November 24, 1992 to Facility Lease
dated as March 16, 1987 as amended, between The First National
Bank of Boston, as Owner Trustee, with Perry One Alpha Limited
partnership, as Owner Participant and Ohio Edison Company, as
Lessee. (incorporated by reference to 1992 Form 10-K, Exhibit
10-54)
|
|
|
|
||
| (C) 10-22 |
Amendment No. 4 dated as of January 12, 1993 to Facility Lease
dated as of March 16, 1987 as amended, between, The First
National Bank of Boston, as Owner Trustee, with Perry One Alpha
Limited Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (incorporated by reference to OE’s Form 10-K
filed March 21, 1995, Exhibit 10-59, File No. 001-02578))
|
|
|
|
||
| (C) 10-23 |
Amendment No. 5 dated as of October 12, 1994 to Facility Lease
dated as of March 16, 1987 as amended, between, The First
National Bank of Boston, as Owner Trustee, with Perry One Alpha
Limited Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (incorporated by reference to OE’s Form 10-K
filed March 21, 1995, Exhibit 10-60, File No. 001-02578)
|
|
|
|
||
| (C) 10-24 |
Letter Agreement dated as of March 19, 1987 between Ohio Edison
Company, Lessee, and The First National Bank of Boston, Owner
Trustee under a Trust dated March 16, 1987 with Chase Manhattan
Realty Leasing Corporation, required by Section 3(d) of the
Facility Lease. (incorporated by reference to 1986 Form 10-K,
Exhibit 28-3)
|
|
|
|
||
| (C) 10-25 |
Ground Lease dated as of March 16, 1987 between Ohio Edison
Company, Ground Lessor, and The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of March 16,
1987, with the Owner Participant, Tenant. (incorporated by
reference to 1986 Form 10-K, Exhibit 28-4)
|
275
Table of Contents
|
|
||
| (C) 10-26 |
Trust Agreement dated as of March 16, 1987 between Perry One
Alpha Limited Partnership, as Owner Participant, and The First
National Bank of Boston. (incorporated by reference to 1986 Form
10-K, Exhibit 28-5)
|
|
|
|
||
| (C) 10-27 |
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of March 16, 1987 with Perry One Alpha
Limited Partnership, and Irving Trust Company, as Indenture
Trustee. (incorporated by reference to 1986 Form 10-K, Exhibit
28-6)
|
|
|
|
||
| (C) 10-28 |
Supplemental Indenture No. 1 dated as of September 1, 1987 to
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston as Owner Trustee and Irving Trust
Company (now The Bank of New York), as Indenture Trustee.
(incorporated by reference to 1991 Form 10-K, Exhibit 10-55)
|
|
|
|
||
| (C) 10-29 |
Supplemental Indenture No. 2 dated as of November 1, 1991 to
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee and The Bank of New
York, as Indenture Trustee. (incorporated by reference to 1991
Form 10-K, Exhibit 10-56)
|
|
|
|
||
| (C) 10-30 |
Tax Indemnification Agreement dated as of March 16, 1987 between
Perry One, Inc. and PARock Limited Partnership as General
Partners and Ohio Edison Company, as Lessee. (incorporated by
reference to 1986 Form 10-K, Exhibit 28-7)
|
|
|
|
||
| (C) 10-31 |
Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Perry One, Inc. and PARock Limited Partnership and Ohio Edison
Company. (incorporated by reference to 1991 Form 10-K, Exhibit
10-58)
|
|
|
|
||
| (C) 10-32 |
Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Perry One, Inc. and PARock Limited Partnership and Ohio Edison
Company. (incorporated by reference to OE’s Form 10-K filed
March 21, 1995, Exhibit 10-69, File No. 001-02578)
|
|
|
|
||
| (C) 10-33 |
Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Perry One, Inc. and PARock Limited Partnership and Ohio Edison
Company. (incorporated by reference to OE’s Form 10-K filed
March 21, 1995, Exhibit 10-70, File No. 001-02578)
|
|
|
|
||
| (C) 10-34 |
Partial Mortgage Release dated as of March 19, 1987 under the
Indenture between Ohio Edison Company and Bankers Trust Company,
as Trustee, dated as of the 1st day of August 1930.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-8)
|
|
|
|
||
| (C) 10-35 |
Assignment, Assumption and Further Agreement dated as of March
16, 1987 among The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16, 1987,
with Perry One Alpha Limited Partnership, The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio Edison
Company, Pennsylvania Power Company and Toledo Edison Company.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-9)
|
|
|
|
||
| (C) 10-36 |
Additional Support Agreement dated as of March 16, 1987 between
The First National Bank of Boston, as Owner Trustee under a
Trust Agreement, dated as of March 16, 1987, with Perry One
Alpha Limited Partnership, and Ohio Edison Company.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-10)
|
|
|
|
||
| (C) 10-37 |
Bill of Sale, Instrument of Transfer and Severance Agreement
dated as of March 19, 1987 between Ohio Edison Company, Seller,
and The First National Bank of Boston, as Owner Trustee under a
Trust Agreement, dated as of March 16, 1987, with Perry One
Alpha Limited Partnership. (incorporated by reference to 1986
Form 10-K, Exhibit 28-11)
|
|
|
|
||
| (C) 10-38 |
Easement dated as of March 16, 1987 from Ohio Edison Company,
Grantor, to The First National Bank of Boston, as Owner Trustee
under a Trust Agreement, dated as of March 16, 1987, with Perry
One Alpha Limited Partnership, Grantee. (incorporated by
reference to 1986 Form 10-K, Exhibit 28-12)
|
276
Table of Contents
|
|
||
| 10-39 |
Participation Agreement dated as of March 16, 1987 among
Security Pacific Capital Leasing Corporation, as Owner
Participant, the Original Loan Participants listed in Schedule 1
Hereto, as Original Loan Participants, PNPP Funding Corporation,
as Funding Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture Trustee and
Ohio Edison Company, as Lessee. (incorporated by reference to
1986 Form 10-K, Exhibit 28-13)
|
|
|
|
||
| 10-40 |
Amendment No. 1 dated as of September 1, 1987 to Participation
Agreement dated as of March 16, 1987 among Security Pacific
Capital Leasing Corporation, as Owner Participant, The Original
Loan Participants Listed in Schedule 1 thereto, as Original Loan
Participants, PNPP Funding Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee, Irving
Trust Company, as Indenture Trustee and Ohio Edison Company, as
Lessee. (incorporated by reference to 1991 Form 10-K, Exhibit
10-65)
|
|
|
|
||
| 10-41 |
Amendment No. 4 dated as of November 1, 1991, to Participation
Agreement dated as of March 16, 1987 among Security Pacific
Capital Leasing Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to 1991 Form 10-K, Exhibit 10-66)
|
|
|
|
||
| 10-42 |
Amendment No. 5 dated as of November 24, 1992 to Participation
Agreement dated as of March 16, 1987 as amended among Security
Pacific Capital Leasing Corporation, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to 1992 Form 10-K, Exhibit 10-71)
|
|
|
|
||
| 10-43 |
Amendment No. 6 dated as of January 12, 1993 to Participation
Agreement dated as of March 16, 1987 as amended among Security
Pacific Capital Leasing Corporation, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to OE’s Form 10-K filed March 21, 1995, Exhibit 10-80,
File No. 001-02578)
|
|
|
|
||
| 10-44 |
Amendment No. 7 dated as of October 12, 1994 to Participation
Agreement dated as of March 16, 1987 as amended among Security
Pacific Capital Leasing Corporation, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (incorporated by
reference to OE’s Form 10-K filed March 21, 1995, File No.
001-02578)
|
|
|
|
||
| 10-45 |
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee, with Security Pacific
Capital Leasing Corporation, Lessor, and Ohio Edison Company, as
Lessee. (incorporated by reference to 1986 Form 10-K, Exhibit
28-14)
|
|
|
|
||
| 10-46 |
Amendment No. 1 dated as of September 1, 1987 to Facility Lease
dated as of March 16, 1987 between The First National Bank of
Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee.
(incorporated by reference to 1991 Form 10-K, Exhibit 10-68)
|
|
|
|
||
| 10-47 |
Amendment No. 2 dated as of November 1, 1991 to Facility Lease
dated as of March 16, 1987 between The First National Bank of
Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee.
(incorporated by reference to 1991 Form 10-K, Exhibit 10-69)
|
|
|
|
||
| 10-48 |
Amendment No. 3 dated as of November 24, 1992 to Facility Lease
dated as of March 16, 1987, as amended, between, The First
National Bank of Boston, as Owner Trustee, with Security Pacific
Capital Leasing Corporation, as Owner Participant and Ohio
Edison Company, as Lessee. (incorporated by reference to 1992
Form 10-K, Exhibit 10-75)
|
|
|
|
||
| 10-49 |
Amendment No. 4 dated as of January 12, 1993 to Facility Lease
dated as of March 16, 1987 as amended between, The First
National Bank of Boston, as Owner Trustee, with Security Pacific
Capital Leasing Corporation, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to 1992
Form 10-K, Exhibit 10-76)
|
277
Table of Contents
|
|
||
| 10-50 |
Amendment No. 5 dated as of October 12, 1994 to Facility Lease
dated as of March 16, 1987 as amended between, The First
National Bank of Boston, as Owner Trustee, with Security Pacific
Capital Leasing Corporation, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to OE’s
Form 10-K filed March 21, 1995, Exhibit 10-87, File No.
001-02578)
|
|
|
|
||
| 10-51 |
Letter Agreement dated as of March 19, 1987 between Ohio Edison
Company, as Lessee, and The First National Bank of Boston, as
Owner Trustee under a Trust, dated as of March 16, 1987, with
Security Pacific Capital Leasing Corporation, required by
Section 3(d) of the Facility Lease. (incorporated by reference
to 1986 Form 10-K, Exhibit 28-15)
|
|
|
|
||
| 10-52 |
Ground Lease dated as of March 16, 1987 between Ohio Edison
Company, Ground Lessor, and The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of March 16,
1987, with Perry One Alpha Limited Partnership, Tenant.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-16)
|
|
|
|
||
| 10-53 |
Trust Agreement dated as of March 16, 1987 between Security
Pacific Capital Leasing Corporation, as Owner Participant, and
The First National Bank of Boston. (incorporated by reference to
1986 Form 10-K, Exhibit 28-17)
|
|
|
|
||
| 10-54 |
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of March 16, 1987, with Security Pacific
Capital Leasing Corporation, and Irving Trust Company, as
Indenture Trustee. (incorporated by reference to 1986 Form 10-K,
Exhibit 28-18)
|
|
|
|
||
| 10-55 |
Supplemental Indenture No. 1 dated as of September 1, 1987 to
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee and Irving Trust
Company (now The Bank of New York), as Indenture Trustee.
(incorporated by reference to 1991 Form 10-K, Exhibit 10-74)
|
|
|
|
||
| 10-56 |
Supplemental Indenture No. 2 dated as of November 1, 1991 to
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of March 16, 1987 between The First
National Bank of Boston, as Owner Trustee and The Bank of New
York, as Indenture Trustee. (incorporated by reference to 1991
Form 10-K, Exhibit 10-75)
|
|
|
|
||
| 10-57 |
Tax Indemnification Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (incorporated
by reference to 1986 Form 10-K, Exhibit 28-19)
|
|
|
|
||
| 10-58 |
Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation and Ohio Edison
Company. (incorporated by reference to 1991 Form 10-K, Exhibit
10-77)
|
|
|
|
||
| 10-59 |
Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation and Ohio Edison
Company. (incorporated by reference to OE’s Form 10-K filed
March 21, 1995, Exhibit 10-96, File No. 001-02578)
|
|
|
|
||
| 10-60 |
Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation and Ohio Edison
Company. (incorporated by reference to OE’s Form 10-K filed
March 21, 1995, Exhibit 10-97, File No. 001-02578)
|
|
|
|
||
| 10-61 |
Assignment, Assumption and Further Agreement dated as of March
16, 1987 among The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16, 1987,
with Security Pacific Capital Leasing Corporation, The Cleveland
Electric Illuminating Company, Duquesne Light Company, Ohio
Edison Company, Pennsylvania Power Company and Toledo Edison
Company. (incorporated by reference to 1986 Form 10-K, Exhibit
28-20)
|
|
|
|
||
| 10-62 |
Additional Support Agreement dated as of March 16, 1987 between
The First National Bank of Boston, as Owner Trustee under a
Trust Agreement, dated as of March 16, 1987, with Security
Pacific Capital Leasing Corporation, and Ohio Edison Company.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-21)
|
278
Table of Contents
|
|
|||
| 10-63 |
Bill of Sale, Instrument of Transfer and Severance Agreement
dated as of March 19, 1987 between Ohio Edison Company, Seller,
and The First National Bank of Boston, as Owner Trustee under a
Trust Agreement, dated as of March 16, 1987, with Security
Pacific Capital Leasing Corporation, Buyer. (incorporated by
reference to 1986 Form 10-K, Exhibit 28-22)
|
||
|
|
|||
| 10-64 |
Easement dated as of March 16, 1987 from Ohio Edison Company,
Grantor, to The First National Bank of Boston, as Owner Trustee
under a Trust Agreement, dated as of March 16, 1987, with
Security Pacific Capital Leasing Corporation, Grantee.
(incorporated by reference to 1986 Form 10-K, Exhibit 28-23)
|
||
|
|
|||
| 10-65 |
Refinancing Agreement dated as of November 1, 1991 among Perry
One Alpha Limited Partnership, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee, The Bank of New York, as Collateral Trust Trustee, The
Bank of New York, as New Collateral Trust Trustee and Ohio
Edison Company, as Lessee. (incorporated by reference to 1991
Form 10-K, Exhibit 10-82)
|
||
|
|
|||
| 10-66 |
Refinancing Agreement dated as of November 1, 1991 among
Security Pacific Leasing Corporation, as Owner Participant, PNPP
Funding Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First National Bank
of Boston, as Owner Trustee, The Bank of New York, as Indenture
Trustee, The Bank of New York, as Collateral Trust Trustee, The
Bank of New York as New Collateral Trust Trustee and Ohio Edison
Company, as Lessee. (incorporated by reference to 1991 Form
10-K, Exhibit 10-83)
|
||
|
|
|||
| 10-67 |
Ohio Edison Company Master Decommissioning Trust Agreement for
Perry Nuclear Power Plant Unit One, Perry Nuclear Power Plant
Unit Two, Beaver Valley Power Station Unit One and Beaver Valley
Power Station Unit Two dated July 1, 1993. (1993 Form 10-K,
Exhibit 10-94)
|
||
|
|
|||
| (D) 10-68 |
Participation Agreement dated as of September 15, 1987, among
Beaver Valley Two Pi Limited Partnership, as Owner Participant,
the Original Loan Participants listed in Schedule 1 Thereto, as
Original Loan Participants, BVPS Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee and Ohio
Edison Company as Lessee. (incorporated by reference to 1987
Form 10-K, Exhibit 28-1)
|
||
|
|
|||
| (D) 10-69 |
Amendment No. 1 dated as of February 1, 1988, to Participation
Agreement dated as of September 15, 1987, among Beaver Valley
Two Pi Limited Partnership, as Owner Participant, the Original
Loan Participants listed in Schedule 1 Thereto, as Original Loan
Participants, BVPS Funding Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee, Irving
Trust Company, as Indenture Trustee and Ohio Edison Company, as
Lessee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-2)
|
||
|
|
|||
| (D) 10-70 |
Amendment No. 3 dated as of March 16, 1988 to Participation
Agreement dated as of September 15, 1987, as amended, among
Beaver Valley Two Pi Limited Partnership, as Owner Participant,
BVPS Funding Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture Trustee and
Ohio Edison Company, as Lessee. (incorporated by reference to
1992 Form 10-K, Exhibit 10-99)
|
||
|
|
|||
| (D) 10-71 |
Amendment No. 4 dated as of November 5, 1992 to Participation
Agreement dated as of September 15, 1987, as amended, among
Beaver Valley Two Pi Limited Partnership, as Owner Participant,
BVPS Funding Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of New York,
as Indenture Trustee and Ohio Edison Company, as Lessee.
(incorporated by reference to 1992 Form 10-K, Exhibit 10-100)
|
||
|
|
|||
| (D) 10-72 |
Amendment No. 5 dated as of September 30, 1994 to Participation
Agreement dated as of September 15, 1987, as amended, among
Beaver Valley Two Pi Limited Partnership, as Owner Participant,
BVPS Funding Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of New York,
as Indenture Trustee and Ohio Edison Company, as Lessee.
(incorporated by reference to OE’s Form 10-K filed March 21,
1995, Exhibit 10-118, File No. 001-02578)
|
||
|
|
|||
| (D) 10-73 |
Facility Lease dated as of September 15, 1987, between The First
National Bank of Boston, as Owner Trustee, with Beaver Valley
Two Pi Limited Partnership, Lessor, and Ohio Edison Company,
Lessee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-3)
|
279
Table of Contents
|
|
|||
| (D) 10-74 |
Amendment No. 1 dated as of February 1, 1988, to Facility Lease
dated as of September 15, 1987, between The First National Bank
of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited
Partnership, Lessor, and Ohio Edison Company, Lessee.
(incorporated by reference to 1987 Form 10-K, Exhibit 28-4)
|
||
|
|
|||
| (D) 10-75 |
Amendment No. 2 dated as of November 5, 1992, to Facility Lease
dated as of September 15, 1987, as amended, between The First
National Bank of Boston, as Owner Trustee, with Beaver Valley
Two Pi Limited Partnership, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to 1992
Form 10-K, Exhibit 10-103)
|
||
|
|
|||
| (D) 10-76 |
Amendment No. 3 dated as of September 30, 1994 to Facility Lease
dated as of September 15, 1987, as amended, between The First
National Bank of Boston, as Owner Trustee, with Beaver Valley
Two Pi Limited Partnership, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to OE’s
Form 10-K filed March 21, 1995, Exhibit 10-122, File No.
001-02578)
|
||
|
|
|||
| (D) 10-77 |
Ground Lease and Easement Agreement dated as of September 15,
1987, between Ohio Edison Company, Ground Lessor, and The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of September 15, 1987, with Beaver Valley
Two Pi Limited Partnership, Tenant. (incorporated by reference
to 1987 Form 10-K, Exhibit 28-5)
|
||
|
|
|||
| (D) 10-78 |
Trust Agreement dated as of September 15, 1987, between Beaver
Valley Two Pi Limited Partnership, as Owner Participant, and The
First National Bank of Boston. (incorporated by reference to
1987 Form 10-K, Exhibit 28-6)
|
||
|
|
|||
| (D) 10-79 |
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of September 15, 1987, between The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987, with Beaver Valley Two
Pi Limited Partnership, and Irving Trust Company, as Indenture
Trustee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-7)
|
||
|
|
|||
| (D) 10-80 |
Supplemental Indenture No. 1 dated as of February 1, 1988 to
Trust Indenture, Mortgage, Security Agreement and Assignment of
Facility Lease dated as of September 15, 1987 between The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987 with Beaver Valley Two
Pi Limited Partnership and Irving Trust Company, as Indenture
Trustee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-8)
|
||
|
|
|||
| (D) 10-81 |
Tax Indemnification Agreement dated as of September 15, 1987,
between Beaver Valley Two Pi Inc. and PARock Limited Partnership
as General Partners and Ohio Edison Company, as Lessee.
(incorporated by reference to 1987 Form 10-K, Exhibit 28-9)
|
||
|
|
|||
| (D) 10-82 |
Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15, 1987,
between Beaver Valley Two Pi Inc. and PARock Limited Partnership
as General Partners and Ohio Edison Company, as Lessee.
(incorporated by reference to OE’s Form 10-K filed March 21,
1995, Exhibit 10-128, File No. 001-02578)
|
||
|
|
|||
| (D) 10-83 |
Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15, 1987,
between Beaver Valley Two Pi Inc. and PARock Limited Partnership
as General Partners and Ohio Edison Company, as Lessee.
(incorporated by reference to OE’s Form 10-K filed March 21,
1995, Exhibit 10-129, File No. 001-02578)
|
||
|
|
|||
| (D) 10-84 |
Tax Indemnification Agreement dated as of September 15, 1987,
between HG Power Plant, Inc., as Limited Partner and Ohio Edison
Company, as Lessee. (1987 Form 10-K, Exhibit 28-10)
|
||
|
|
|||
| (D) 10-85 |
Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15, 1987,
between HG Power Plant, Inc., as Limited Partner and Ohio Edison
Company, as Lessee. (incorporated by reference to OE’s Form 10-K
filed March 21, 1995, Exhibit 10-131, File No. 001-02578)
|
||
|
|
|||
| (D) 10-86 |
Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15, 1987,
between HG Power Plant, Inc., as Limited Partner and Ohio Edison
Company, as Lessee. (incorporated by reference to OE’s Form 10-K
filed March 21, 1995, Exhibit 10-132, File No. 001-02578)
|
280
Table of Contents
|
|
|||
| (D) 10-87 |
Assignment, Assumption and Further Agreement dated as of
September 15, 1987, among The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of September 15,
1987, with Beaver Valley Two Pi Limited Partnership, The
Cleveland Electric Illuminating Company, Duquesne Light Company,
Ohio Edison Company, Pennsylvania Power Company and Toledo
Edison Company. (incorporated by reference to 1987 Form 10-K,
Exhibit 28-11)
|
||
|
|
|||
| (D) 10-88 |
Additional Support Agreement dated as of September 15, 1987,
between The First National Bank of Boston, as Owner Trustee
under a Trust Agreement, dated as of September 15, 1987, with
Beaver Valley Two Pi Limited Partnership, and Ohio Edison
Company. (incorporated by reference to 1987 Form 10-K, Exhibit
28-12)
|
||
|
|
|||
| (E) 10-89 |
Participation Agreement dated as of September 15, 1987, among
Chrysler Consortium Corporation, as Owner Participant, the
Original Loan Participants listed in Schedule 1 Thereto, as
Original Loan Participants, BVPS Funding Corporation as Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee and Ohio
Edison Company, as Lessee. (incorporated by reference to 1987
Form 10-K, Exhibit 28-13)
|
||
|
|
|||
| (E) 10-90 |
Amendment No. 1 dated as of February 1, 1988, to Participation
Agreement dated as of September 15, 1987, among Chrysler
Consortium Corporation, as Owner Participant, the Original Loan
Participants listed in Schedule 1 Thereto, as Original Loan
Participants, BVPS Funding Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee, Irving
Trust Company, as Indenture Trustee, and Ohio Edison Company, as
Lessee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-14)
|
||
|
|
|||
| (E) 10-91 |
Amendment No. 3 dated as of March 16, 1988 to Participation
Agreement dated as of September 15, 1987, as amended, among
Chrysler Consortium Corporation, as Owner Participant, BVPS
Funding Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee, and Ohio
Edison Company, as Lessee. (incorporated by reference to 1992
Form 10-K, Exhibit 10-114)
|
||
|
|
|||
| (E) 10-92 |
Amendment No. 4 dated as of November 5, 1992 to Participation
Agreement dated as of September 15, 1987, as amended, among
Chrysler Consortium Corporation, as Owner Participant, BVPS
Funding Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of New York,
as Indenture Trustee and Ohio Edison Company, as Lessee.
(incorporated by reference to 1992 Form 10-K, Exhibit 10-115)
|
||
|
|
|||
| (E) 10-93 |
Amendment No. 5 dated as of January 12, 1993 to Participation
Agreement dated as of September 15, 1987, as amended, among
Chrysler Consortium Corporation, as Owner Participant, BVPS
Funding Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of New York,
as Indenture Trustee and Ohio Edison Company, as Lessee.
(incorporated by reference to OE’s Form 10-K filed March 21,
1995, Exhibit 10-139, File No. 001-02578)
|
||
|
|
|||
| (E) 10-94 |
Amendment No. 6 dated as of September 30, 1994 to Participation
Agreement dated as of September 15, 1987, as amended, among
Chrysler Consortium Corporation, as Owner Participant, BVPS
Funding Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of New York,
as Indenture Trustee and Ohio Edison Company, as Lessee.
(incorporated by reference to OE’s Form 10-K filed March 21,
1995, Exhibit 10-140, File No. 001-02578)
|
||
|
|
|||
| (E) 10-95 |
Facility Lease dated as of September 15, 1987, between The First
National Bank of Boston, as Owner Trustee, with Chrysler
Consortium Corporation, Lessor, and Ohio Edison Company, as
Lessee. (incorporated by reference to 1987 Form 10-K, Exhibit
28-15)
|
||
|
|
|||
| (E) 10-96 |
Amendment No. 1 dated as of February 1, 1988, to Facility Lease
dated as of September 15, 1987, between The First National Bank
of Boston, as Owner Trustee, with Chrysler Consortium
Corporation, Lessor, and Ohio Edison Company, Lessee.
(incorporated by reference to 1987 Form 10-K,
Exhibit 28-16)
|
281
Table of Contents
|
|
|||
| (E) 10-97 |
Amendment No. 2 dated as of November 5, 1992 to Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium
Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (incorporated by reference
to 1992 Form 10-K, Exhibit 10-118)
|
||
|
|
|||
| (E) 10-98 |
Amendment No. 3 dated as of January 12, 1993 to Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium
Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (incorporated by reference
to 1992 Form 10-K, Exhibit 10-119)
|
||
|
|
|||
| (E) 10-99 |
Amendment No. 4 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987,
as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium
Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (incorporated by reference
to OE’s Form 10-K filed March 21, 1995, Exhibit 10-145, File No. 001-02578)
|
||
|
|
|||
| (E) 10-100 |
Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company,
Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement,
dated as of September 15, 1987, with Chrysler Consortium Corporation, Tenant. (incorporated by
reference to 1987 Form 10-K, Exhibit 28-17)
|
||
|
|
|||
| (E) 10-101 |
Trust Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner
Participant, and The First National Bank of Boston. (incorporated by reference to 1987 Form 10-K,
Exhibit 28-18)
|
||
|
|
|||
| (E) 10-102 |
Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of
September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation and Irving Trust
Company, as Indenture Trustee. (incorporated by reference to 1987 Form 10-K, Exhibit 28-19)
|
||
|
|
|||
| (E) 10-103 |
Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security
Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First
National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987
with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee.
(incorporated by reference to 1987 Form 10-K, Exhibit 28-20)
|
||
|
|
|||
| (E) 10-104 |
Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium
Corporation, as Owner Participant, and Ohio Edison Company, Lessee. (incorporated by reference to
1987 Form 10-K, Exhibit 28-21)
|
||
|
|
|||
| (E) 10-105 |
Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of
September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to OE’s Form 10-K filed March 21, 1995,
Exhibit 10-151, File No. 001-02578)
|
||
|
|
|||
| (E) 10-106 |
Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of
September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to OE’s Form 10-K filed March 21, 1995,
Exhibit 10-152, File No. 001-02578)
|
||
|
|
|||
| (E) 10-107 |
Amendment No. 3 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of
September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio
Edison Company, as Lessee. (incorporated by reference to OE’s Form 10-K filed March 21, 1995,
Exhibit 10-153, File No. 001-02578)
|
||
|
|
|||
| (E) 10-108 |
Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First
National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15,
1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne
Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company.
(incorporated by reference to 1987 Form 10-K, Exhibit 28-22)
|
282
Table of Contents
|
|
|||
| (E) 10-109 |
Additional Support Agreement dated as of September 15, 1987, between The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler
Consortium Corporation, and Ohio Edison Company. (incorporated by reference to 1987 Form 10-K,
Exhibit 28-23)
|
||
|
|
|||
| 10-110 |
Operating Agreement for Bruce Mansfield Units Nos. 1, 2 and 3 dated as of June 1, 1976, and
executed on September 15, 1987, by and between the CAPCO Companies. (incorporated by reference to
1987 Form 10-K, Exhibit 28-25)
|
||
|
|
|||
| 10-111 |
OE Nuclear Capital Contribution Agreement by and between Ohio Edison Company and FirstEnergy
Nuclear Generation Corp. (incorporated by reference to OE’s Form 10-Q filed August 1, 2005,
Exhibit 10.1, File No. 001-02578)
|
||
|
|
|||
| 10-112 |
OE Fossil Purchase and Sale Agreement by and between Ohio Edison Company (Seller) and FirstEnergy
Generation Corp. (Purchaser). (incorporated by reference to OE’s Form 10-Q filed August 1, 2005,
Exhibit 10.2, File No. 001-02578)
|
||
|
|
|||
| 10-113 |
OE Fossil Security Agreement, dated October 24, 2005, by and between FirstEnergy Generation Corp.
and Ohio Edison Company. (incorporated by reference to FES’ Form S-4/A filed August 20, 2007,
Exhibit 10.18, File No. 333-145140-01)
|
||
|
|
|||
| 10-114 |
Consent Decree dated March 18, 2005. (incorporated by reference to FE’s Form 8-K filed March 18,
2005, Exhibit 10.1, File No. 333-21011)
|
||
|
|
|||
| 10-115 |
Nuclear Sale/Leaseback Power Supply Agreement dated as of October 14, 2005 between Ohio Edison
Company and The Toledo Edison Company (Sellers) and FirstEnergy Nuclear Generation Corp. (Buyer).
(incorporated by reference to OE’s Form 10-K filed March 2, 2006, Exhibit 10-64, File No.
001-02578)
|
||
|
|
|||
| 10-118 |
Master SSO Supply Agreement, entered into May 18, 2009, by and between The Cleveland Electric
Illuminating Company, the Toledo Edison Company and Ohio Edison Company and FirstEnergy Solutions
Corp. (incorporated by reference to OE’s Form 10-Q filed August 3, 2009, Exhibit 10.2, File No.
001-02578)
|
||
|
|
|||
| (A) 12-3 |
Consolidated ratios of earnings to fixed charges.
|
||
|
|
|||
| (A) 23-2 |
Consent of Independent Registered Public Accounting Firm.
|
||
|
|
|||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
||
|
|
|||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
||
|
|
|||
| (A) |
Provided herein in electronic format as an exhibit.
|
||
|
|
|||
| (B) |
Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of
Regulation S-K.
|
||
|
|
|||
| (C) |
Substantially similar documents have been entered into relating to
three additional Owner Participants.
|
||
|
|
|||
| (D) |
Substantially similar documents have been entered into relating to
five additional Owner Participants.
|
||
|
|
|||
| (E) |
Substantially similar documents have been entered into relating to two
additional Owner Participants.
|
3. Exhibits — Common Exhibits for CEI and TE
| Exhibit | |||
| Number | |||
|
|
|||
| 2-1 |
Agreement and Plan of Merger between Ohio Edison Company
and Centerior Energy dated as of September 13, 1996.
(incorporated by reference to FE’s Form S-4 filed February
3, 1997, Exhibit (2)-1, File No. 333-21011)
|
||
283
Table of Contents
| Exhibit | |||
| Number | |||
|
|
|||
| 2-2 |
Merger Agreement by and among Centerior Acquisition
Corp., FirstEnergy Corp and Centerior Energy Corp.
(incorporated by reference to FE’s Form S-4 filed
February 3, 1997, Exhibit (2)-3, File No. 333-21011)
|
||
|
|
|||
| 10-1 |
CAPCO Administration Agreement dated November 1, 1971,
as of September 14, 1967, among the CAPCO Group members
regarding the organization and procedures for
implementing the objectives of the CAPCO Group.
(incorporated by reference to Amendment No. 1, Exhibit
5(p), File No. 2-42230)
|
||
|
|
|||
| 10-2 |
Amendment No. 1, dated January 4, 1974, to CAPCO
Administration Agreement among the CAPCO Group members.
(incorporated by reference to OE’s File No. 2-68906,
Exhibit 5(c)(3))
|
||
|
|
|||
| 10-3 |
Agreement for the Termination or Construction of Certain
Agreement By and Among the CAPCO Group members, dated
December 23, 1993 and effective as of September 1, 1980.
(incorporated by reference to CEI’s Form 10-K filed on
March 31, 1994, Exhibit 10b(4), File No. 001-02323)
|
||
|
|
|||
| 10-4 |
Second Amendment to the Bruce Mansfield Units 1, 2, and
3 Operating Agreement, dated as of July 1, 2007, between
FirstEnergy Generation Corp., The Cleveland Electric
Illuminating Company and The Toledo Edison Company.
(incorporated by reference to FE’s Form 8-K/A filed
August 2, 2007, Exhibit 10-11, File. No. 333-21011)
|
||
|
|
|||
| 10-5 |
Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, The Toledo Edison Company to National City
Bank, as Bond Trustee. (incorporated by reference to
OE’s 1991 Form 10-K , Exhibit 10-33)
|
||
|
|
|||
| 10-6 |
Amendment No. 6B dated as of December 30, 1991, to the
Bond Guaranty dated as of October 1, 1973 by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, The Toledo Edison Company to National City
Bank, as Bond Trustee. (incorporated by reference to
OE’s 1991 Form 10-K, Exhibit 10-34)
|
||
|
|
|||
| 10-7 |
Form of Collateral Trust Indenture among CTC Beaver
Valley Funding Corporation, The Cleveland Electric
Illuminating Company, The Toledo Edison Company and
Irving Trust Company, as Trustee. (incorporated by
reference to File No. 33-18755, Exhibit 4(a))
|
||
|
|
|||
| 10-8 |
Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10-10 above, including
form of Secured Lease Obligation bond. (incorporated by
reference to File No. 33-18755, Exhibit 4(b))
|
||
|
|
|||
| 10-9 |
Form of Collateral Trust Indenture among Beaver Valley
II Funding Corporation, The Cleveland Electric
Illuminating Company and The Toledo Edison Company and
The Bank of New York, as Trustee. (incorporated by
reference to File No. 33-46665, Exhibit (4)(a))
|
||
|
|
|||
| 10-10 |
Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10-12 above, including
form of Secured Lease Obligation Bond. (incorporated by
reference to File No. 33-46665, Exhibit (4)(b))
|
||
|
|
|||
| 10-11 |
Form of Collateral Trust Indenture among CTC Mansfield
Funding Corporation, Cleveland Electric, Toledo Edison
and IBJ Schroder Bank & Trust Company, as Trustee.
(incorporated by reference to File No. 33-20128, Exhibit
4(a))
|
||
|
|
|||
| 10-12 |
Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10-14 above, including
forms of Secured Lease Obligation bonds. (incorporated
by reference to File No. 33-20128, Exhibit 4(b))
|
||
|
|
|||
| 10-13 |
Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September
15, 1987 with the limited partnership Owner Participant
named therein, Lessor, and The Cleveland Electric
Illuminating Company and The Toledo Edison Company,
Lessee. (incorporated by reference to File No. 33-18755,
Exhibit 4(c))
|
||
|
|
|||
| 10-14 |
Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10-16 above. (incorporated by reference to File
No. 33-18755, Exhibit 4(e))
|
||
284
Table of Contents
| Exhibit | ||
| Number | ||
|
|
||
| 10-15 |
Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September
15, 1987 with the corporate Owner Participant named
therein, Lessor, and The Cleveland Electric Illuminating
Company and The Toledo Edison Company, Lessees.
(incorporated by reference to File No. 33-18755, Exhibit
4(d))
|
|
|
|
||
| 10-16 |
Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10-18 above. (incorporated by reference to File
No. 33-18755, Exhibit 4(f))
|
|
|
|
||
| 10-17 |
Form of Facility Lease dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, Lessor, and The
Cleveland Electric Illuminating Company and The Toledo
Edison Company, Lessees. (incorporated by reference to
File No. 33-20128, Exhibit 4(c))
|
|
|
|
||
| 10-18 |
Form of Amendment No. 1 to the Facility Lease
constituting Exhibit 10-20 above. (incorporated by
reference to File No. 33-20128, Exhibit 4(f))
|
|
|
|
||
| 10-19 |
Form of Participation Agreement dated as of September
15, 1987 among the limited partnership Owner Participant
named therein, the Original Loan Participants listed in
Schedule 1 thereto, as Original Loan Participants, CTC
Beaver Valley Fund Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee,
Irving Trust Company, as Indenture Trustee, and The
Cleveland Electric Illuminating Company and The Toledo
Edison Company, as Lessees. (incorporated by reference
to File No. 33-18755, Exhibit 28(a))
|
|
|
|
||
| 10-20 |
Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10-22 above (incorporated by
reference to File No. 33-18755, Exhibit 28(c))
|
|
|
|
||
| 10-21 |
Form of Participation Agreement dated as of September
15, 1987 among the corporate Owner Participant named
therein, the Original Loan Participants listed in
Schedule 1 thereto, as Owner Loan Participants, CTC
Beaver Valley Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee, and
The Cleveland Electric Illuminating Company and The
Toledo Edison Company, as Lessees. (incorporated by
reference to File No. 33-18755, Exhibit 28(b))
|
|
|
|
||
| 10-22 |
Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10-24 above (incorporated by
reference to File No. 33-18755, Exhibit 28(d))
|
|
|
|
||
| 10-23 |
Form of Participation Agreement dated as of September
30, 1987 among the Owner Participant named therein, the
Original Loan Participants listed in Schedule II
thereto, as Owner Loan Participants, CTC Mansfield
Funding Corporation, Meridian Trust Company, as Owner
Trustee, IBJ Schroder Bank & Trust Company, as Indenture
Trustee, and The Cleveland Electric Illuminating Company
and The Toledo Edison Company, as Lessees. (incorporated
by reference to File No. 33-0128, Exhibit 28(a))
|
|
|
|
||
| 10-24 |
Form of Amendment No. 1 to the Participation Agreement
constituting Exhibit 10-26 above (incorporated by
reference to File No. 33-20128, Exhibit 28(b))
|
|
|
|
||
| 10-25 |
Form of Ground Lease dated as of September 15, 1987
between Toledo Edison, Ground Lessor, and The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987 with the Owner
Participant named therein, Tenant. (incorporated by
reference to File No. 33-18755, Exhibit 28(e))
|
|
|
|
||
| 10-26 |
Form of Site Lease dated as of September 30, 1987
between Toledo Edison, Lessor, and Meridian Trust
Company, as Owner Trustee under a Trust Agreement dated
as of September 30, 1987 with the Owner Participant
named therein, Tenant. (incorporated by reference to
File No. 33-20128, Exhibit 28(c))
|
|
|
|
||
| 10-27 |
Form of Site Lease dated as of September 30, 1987
between The Cleveland Electric Illuminating Company,
Lessor, and Meridian Trust Company, as Owner Trustee
under a Trust Agreement dated as of September 30, 1987
with the Owner Participant named therein, Tenant.
(incorporated by reference to File No. 33-20128, Exhibit
28(d))
|
|
|
|
||
| 10-28 |
Form of Amendment No. 1 to the Site Leases constituting
Exhibits 10-29 and 10-30 above (incorporated by
reference to File No. 33-20128, Exhibit 4(f))
|
285
Table of Contents
| Exhibit | ||
| Number | ||
|
|
||
| 10-29 |
Form of Assignment, Assumption and Further Agreement
dated as of September 15, 1987 among The First National
Bank of Boston, as Owner Trustee under a Trust Agreement
dated as of September 15, 1987 with the Owner
Participant named therein, The Cleveland Electric
Illuminating Company, Duquesne, Ohio Edison Company,
Pennsylvania Power Company and The Toledo Edison
Company. (incorporated by reference to File No.
33-18755, Exhibit 28(f))
|
|
|
|
||
| 10-30 |
Form of Additional Support Agreement dated as of
September 15, 1987 between The First National Bank of
Boston, as Owner Trustee under a Trust Agreement dated
as of September 15, 1987 with the Owner Participant
named therein and The Toledo Edison Company.
(incorporated by reference to File No. 33-18755, Exhibit
28(g))
|
|
|
|
||
| 10-31 |
Form of Support Agreement dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, The Toledo Edison
Company, The Cleveland Electric Illuminating Company,
Duquesne, Ohio Edison Company and Pennsylvania Power
Company. (incorporated by reference to File No.
33-20128, Exhibit 28(e))
|
|
|
|
||
| 10-32 |
Form of Indenture, Bill of Sale, Instrument of Transfer
and Severance Agreement dated as of September 30, 1987
between The Toledo Edison Company, Seller, and The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987 with the Owner
Participant named therein, Buyer. (incorporated by
reference to File No. 33-18755, Exhibit 28(h))
|
|
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|
||
| 10-33 |
Form of Bill of Sale, Instrument of Transfer and
Severance Agreement dated as of September 30, 1987
between The Toledo Edison Company, Seller, and Meridian
Trust Company, as Owner Trustee under a Trust Agreement
dated as of September 30, 1987 with the Owner
Participant named therein, Buyer. (incorporated by
reference to File No. 33-20128, Exhibit 28(f))
|
|
|
|
||
| 10-34 |
Form of Bill of Sale, Instrument of Transfer and
Severance Agreement dated as of September 30, 1987
between The Cleveland Electric Illuminating Company,
Seller, and Meridian Trust Company, as Owner Trustee
under a Trust Agreement dated as of September 30, 1987
with the Owner Participant named therein, Buyer.
(incorporated by reference to File No. 33-20128, Exhibit
28(g))
|
|
|
|
||
| 10-35 |
Forms of Refinancing Agreement, including exhibits
thereto, among the Owner Participant named therein, as
Owner Participant, CTC Beaver Valley Funding
Corporation, as Funding Corporation, Beaver Valley II
Funding Corporation, as New Funding Corporation, The
Bank of New York, as Indenture Trustee, The Bank of New
York, as New Collateral Trust Trustee, and The Cleveland
Electric Illuminating Company and The Toledo Edison
Company, as Lessees. (incorporated by reference to File
No. 33-46665, Exhibit (28)(e)(i))
|
|
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|
||
| 10-36 |
Form of Amendment No. 2 to Facility Lease among Citicorp
Lescaman, Inc., The Cleveland Electric Illuminating
Company and The Toledo Edison Company. (incorporated by
reference to CEI’s Form S-4 filed March 10, 1998,
Exhibit 10(a), File No. 333-47651)
|
|
|
|
||
| 10-37 |
Form of Amendment No. 3 to Facility Lease among Citicorp
Lescaman, Inc., The Cleveland Electric Illuminating
Company and The Toledo Edison Company. (incorporated by
reference to CEI’s Form S-4 filed March 10, 1998,
Exhibit 10(b), File No. 333-47651)
|
|
|
|
||
| 10-38 |
Form of Amendment No. 2 to Facility Lease among US West
Financial Services, Inc., The Cleveland Electric
Illuminating Company and The Toledo Edison Company.
(incorporated by reference to CEI’s Form S-4 filed March
10, 1998, Exhibit 10(c), File No. 333-47651)
|
|
|
|
||
| 10-39 |
Form of Amendment No. 3 to Facility Lease among US West
Financial Services, Inc., The Cleveland Electric
Illuminating Company and The Toledo Edison Company.
(incorporated by reference to CEI’s Form S-4 filed March
10, 1998, Exhibit 10(d), File No. 333-47651)
|
|
|
|
||
| 10-40 |
Form of Amendment No. 2 to Facility Lease among Midwest
Power Company, The Cleveland Electric Illuminating
Company and The Toledo Edison Company. (incorporated by
reference to CEI’s Form S-4 filed March 10, 1998 ,
Exhibit 10(e), File No. 333-47651)
|
|
|
|
||
| 10-41 |
Centerior Energy Corporation Equity Compensation Plan.
(incorporated by reference to Centerior Energy
Corporation’s Form S-8 filed May 26, 1995, Exhibit 99,
File No. 33-59635)
|
286
Table of Contents
| Exhibit | ||
| Number | ||
|
|
||
| 10-42 |
Revised Power Supply Agreement, dated December 8, 2006,
among FirstEnergy Solutions Corp., Ohio Edison Company,
The Cleveland Electric Illuminating Company and The
Toledo Edison Company. (incorporated by reference to
FES’ Form S-4/A filed August 20, 2007, Exhibit 10.34,
File No. 333-145140-01)
|
3. Exhibits — CEI
| 3-1 |
Amended and Restated Articles of Incorporation of The Cleveland Electric Illuminating Company,
Effective December 21, 2007. (incorporated by reference to CEI’s Form 10-K filed February 29,
2008, Exhibit 3.3, File No. 001-02323)
|
|
|
|
||
| 3-2 |
Amended and Restated Code of Regulations of The Cleveland Electric Illuminating Company, dated
December 14, 2007. (incorporated by reference to CEI’s Form 10-K filed February 29, 2008, Exhibit
3.4, File No. 001-02323)
|
|
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|
||
| (B) 4-1 |
Mortgage and Deed of Trust between The Cleveland Electric Illuminating Company and Guaranty Trust
Company of New York (now The Chase Manhattan Bank (National Association)), as Trustee, dated July
1, 1940. (incorporated by reference to File No. 2-4450, Exhibit 7(a))
|
|
|
|
||
|
Supplemental Indentures between The Cleveland Electric Illuminating Company and the Trustee,
supplemental to Exhibit 4-1, dated as follows:
|
||
|
|
||
| 4-1(a) |
July 1, 1940 (incorporated by reference to File No. 2-4450, Exhibit 7(b))
|
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|
||
| 4-1(b) |
August 18, 1944 (incorporated by reference to File No. 2-9887, Exhibit 4(c))
|
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|
||
| 4-1(c) |
December 1, 1947 (incorporated by reference to File No. 2-7306, Exhibit 7(d))
|
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|
||
| 4-1(d) |
September 1, 1950 (incorporated by reference to File No. 2-8587, Exhibit 7(c))
|
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|
||
| 4-1(e) |
June 1, 1951 (incorporated by reference to File No. 2-8994, Exhibit 7(f))
|
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|
||
| 4-1(f) |
May 1, 1954 (incorporated by reference to File No. 2-10830, Exhibit 4(d))
|
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|
||
| 4-1(g) |
March 1, 1958 (incorporated by reference to File No. 2-13839, Exhibit 2(a)(4))
|
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|
||
| 4-1(h) |
April 1, 1959 (incorporated by reference to File No. 2-14753, Exhibit 2(a)(4))
|
|
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|
||
| 4-1(i) |
December 20, 1967 (incorporated by reference to File No. 2-30759, Exhibit 2(a)(4))
|
|
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|
||
| 4-1(j) |
January 15, 1969 (incorporated by reference to File No. 2-30759, Exhibit 2(a)(5))
|
|
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|
||
| 4-1(k) |
November 1, 1969 (incorporated by reference to File No. 2-35008, Exhibit 2(a)(4))
|
|
|
|
||
| 4-1(l) |
June 1, 1970 (incorporated by reference to File No. 2-37235, Exhibit 2(a)(4))
|
|
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|
||
| 4-1(m) |
November 15, 1970 (incorporated by reference to File No. 2-38460, Exhibit 2(a)(4))
|
|
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|
||
| 4-1(n) |
May 1, 1974 (incorporated by reference to File No. 2-50537, Exhibit 2(a)(4))
|
|
|
|
||
| 4-1(o) |
April 15, 1975 (incorporated by reference to File No. 2-52995, Exhibit 2(a)(4))
|
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|
|
||
| 4-1(p) |
April 16, 1975 (incorporated by reference to File No. 2-53309, Exhibit 2(a)(4))
|
|
|
|
||
| 4-1(q) |
May 28, 1975 (incorporated by reference to Form 8-A filed June 5, 1975, Exhibit 2(c), File No.
1-2323)
|
|
|
|
||
| 4-1(r) |
February 1, 1976 (incorporated by reference to 1975 Form 10-K, Exhibit 3(d)(6), File No. 1-2323)
|
|
|
|
||
| 4-1(s) |
November 23, 1976 (incorporated by reference to File No. 2-57375, Exhibit 2(a)(4))
|
|
|
|
||
| 4-1(t) |
July 26, 1977 (incorporated by reference to File No. 2-59401, Exhibit 2(a)(4))
|
|
|
|
||
| 4-1(u) |
September 7, 1977 (incorporated by reference to File No. 2-67221, Exhibit 2(a)(5))
|
|
|
|
||
| 4-1(v) |
May 1, 1978 (incorporated by reference to June 1978 Form 10-Q, Exhibit 2(b), File No. 1-2323)
|
|
|
|
||
| 4-1(w) |
September 1, 1979 (incorporated by reference to September 1979 Form 10-Q, Exhibit 2(a), File No.
1-2323)
|
|
|
|
||
| 4-1(x) |
April 1, 1980 (incorporated by reference to September 1980 Form 10-Q, Exhibit 4(a)(2), File No.
1-2323)
|
|
|
|
||
| 4-1(y) |
April 15, 1980 (incorporated by reference to September 1980 Form 10-Q, Exhibit 4(b), File No.
1-2323)
|
|
|
|
||
| 4-1(z) |
May 28, 1980 (incorporated by reference to Amendment No. 1, Exhibit 2(a)(4), File No. 2-67221)
|
|
|
|
||
| 4-1(aa) |
June 9, 1980 (incorporated by reference to September 1980 Form 10-Q, Exhibit 4(d), File No.
1-2323)
|
|
|
|
||
| 4-1(bb) |
December 1, 1980 (incorporated by reference to 1980 Form 10-K, Exhibit 4(b)(29), File No. 1-2323)
|
|
|
|
||
| 4-1(cc) |
July 28, 1981 (incorporated by reference to September 1981 Form 10-Q, Exhibit 4(a), File No.
1-2323)
|
|
|
|
||
| 4-1(dd) |
August 1, 1981 (incorporated by reference to September 1981 Form 10-Q, Exhibit 4(b), File No.
1-2323)
|
|
|
|
||
| 4-1(ee) |
March 1, 1982 (incorporated by reference to Amendment No. 1, Exhibit 4(b)(3), File No. 2-76029)
|
|
|
|
||
| 4-1(ff) |
July 15, 1982 (incorporated by reference to September 1982 Form 10-Q, Exhibit 4(a), File No.
1-2323)
|
|
|
|
||
| 4-1(gg) |
September 1, 1982 (incorporated by reference to September 1982 Form 10-Q, Exhibit 4(a)(1), File
No. 1-2323)
|
287
Table of Contents
| 4-1(hh) |
November 1, 1982 (incorporated by reference to September 1982 Form 10-Q, Exhibit (a)(2), File No.
1-2323)
|
|
|
|
||
| 4-1(ii) |
November 15, 1982 (incorporated by reference to 1982 Form 10-K, Exhibit 4(b)(36), File No. 1-2323)
|
|
|
|
||
| 4-1(jj) |
May 24, 1983 (incorporated by reference to June 1983 Form 10-Q, Exhibit 4(a), File No. 1-2323)
|
|
|
|
||
| 4-1(kk) |
May 1, 1984 (incorporated by reference to June 1984 Form 10-Q, Exhibit 4, File No. 1-2323)
|
|
|
|
||
| 4-1(ll) |
May 23, 1984 (incorporated by reference to Form 8-K dated May 22, 1984, Exhibit 4, File No.
1-2323)
|
|
|
|
||
| 4-1(mm) |
June 27, 1984 (incorporated by reference to Form 8-K dated June 11, 1984, Exhibit 4, File No.
1-2323)
|
|
|
|
||
| 4-1(nn) |
September 4, 1984 (incorporated by reference to 1984 Form 10-K, Exhibit 4b(41), File No. 1-2323)
|
|
|
|
||
| 4-1(oo) |
November 14, 1984 (incorporated by reference to 1984 Form 10 K, Exhibit 4b(42), File No. 1-2323)
|
|
|
|
||
| 4-1(pp) |
November 15, 1984 (incorporated by reference to 1984 Form 10-K, Exhibit 4b(43), File No. 1-2323)
|
|
|
|
||
| 4-1(qq) |
April 15, 1985 incorporated by reference to (Form 8-K dated May 8, 1985, Exhibit 4(a), File No.
1-2323)
|
|
|
|
||
| 4-1(rr) |
May 28, 1985 (incorporated by reference to Form 8-K dated May 8, 1985, Exhibit 4(b), File No.
1-2323)
|
|
|
|
||
| 4-1(ss) |
August 1, 1985 (incorporated by reference to September 1985 Form 10-Q, Exhibit 4, File No. 1-2323)
|
|
|
|
||
| 4-1(tt) |
September 1, 1985 (incorporated by reference to Form 8-K dated September 30, 1985, Exhibit 4,
File No. 1-2323)
|
|
|
|
||
| 4-1(uu) |
November 1, 1985 (incorporated by reference to Form 8-K dated January 31, 1986, Exhibit 4, File
No. 1-2323)
|
|
|
|
||
| 4-1(vv) |
April 15, 1986 (incorporated by reference to March 1986 Form 10-Q, Exhibit 4, File No. 1-2323)
|
|
|
|
||
| 4-1(ww) |
May 14, 1986 (incorporated by reference to June 1986 Form 10-Q, Exhibit 4(a), File No. 1-2323)
|
|
|
|
||
| 4-1(xx) |
May 15, 1986 (incorporated by reference to June 1986 Form 10-Q, Exhibit 4(b), File No. 1-2323)
|
|
|
|
||
| 4-1(yy) |
February 25, 1987 (incorporated by reference to 1986 Form 10-K, Exhibit 4b(52), File No. 1-2323)
|
|
|
|
||
| 4-1(zz) |
October 15, 1987 (incorporated by reference to September 1987 Form 10-Q, Exhibit 4, File No.
1-2323)
|
|
|
|
||
| 4-1(aaa) |
February 24, 1988 (incorporated by reference to 1987 Form 10-K, Exhibit 4b(54), File No. 1-2323)
|
|
|
|
||
| 4-1(bbb) |
September 15, 1988 (incorporated by reference to 1988 Form 10-K, Exhibit 4b(55), File No. 1-2323)
|
|
|
|
||
| 4-1(ccc) |
May 15, 1989 (incorporated by reference to File No. 33-32724, Exhibit 4(a)(2)(i))
|
|
|
|
||
| 4-1(ddd) |
June 13, 1989 (incorporated by reference to File No. 33-32724, Exhibit 4(a)(2)(ii))
|
|
|
|
||
| 4-1(eee) |
October 15, 1989 (incorporated by reference to File No. 33-32724, Exhibit 4(a)(2)(iii))
|
|
|
|
||
| 4-1(fff) |
January 1, 1990 (incorporated by reference to 1989 Form 10-K, Exhibit 4b(59), File No. 1-2323)
|
|
|
|
||
| 4-1(ggg) |
June 1, 1990 (incorporated by reference to September 1990 Form 10-Q, Exhibit 4(a), File No.
1-2323)
|
|
|
|
||
| 4-1(hhh) |
August 1, 1990 (incorporated by reference to September 1990 Form 10-Q, Exhibit 4(b), File No.
1-2323)
|
|
|
|
||
| 4-1(iii) |
May 1, 1991 (incorporated by reference to June 1991 Form 10-Q, Exhibit 4(a), File No. 1-2323)
|
|
|
|
||
| 4-1(jjj) |
May 1, 1992 (incorporated by reference to File No. 33-48845, Exhibit 4(a)(3))
|
|
|
|
||
| 4-1(kkk) |
July 31, 1992 (incorporated by reference to File No. 33-57292, Exhibit 4(a)(3))
|
|
|
|
||
| 4-1(lll) |
January 1, 1993 (incorporated by reference to 1992 Form 10-K, Exhibit 4b(65), File No. 1-2323)
|
|
|
|
||
| 4-1(mmm) |
February 1, 1993 (incorporated by reference to 1992 Form 10-K, Exhibit 4b(66), File No. 1-2323)
|
|
|
|
||
| 4-1(nnn) |
May 20, 1993 (incorporated by reference to Form 8-K dated July 14, 1993, Exhibit 4(a), File No.
1-2323)
|
|
|
|
||
| 4-1(ooo) |
June 1, 1993 (incorporated by reference to Form 8-K dated July 14, 1993, Exhibit 4(b), File No.
1-2323)
|
|
|
|
||
| 4-1(ppp) |
September 15, 1994 (incorporated by reference to CEI’s Form 10-Q filed November 14, 1994, Exhibit
4(a), File No. 001-02323)
|
|
|
|
||
| 4-1(qqq) |
May 1, 1995 (incorporated by reference to CEI’s Form 10-Q filed November 13, 1995, Exhibit 4(a),
File No. 001-02323)
|
|
|
|
||
| 4-1(rrr) |
May 2, 1995 (incorporated by reference to CEI’s Form 10-Q filed November 13, 1995, Exhibit 4(b) ,
File No. 001-02323)
|
|
|
|
||
| 4-1(sss) |
June 1, 1995 (incorporated by reference to CEI’s Form 10-Q filed November 13, 1995,
Exhibit 4(c),
File No. 001-02323)
|
|
|
|
||
| 4-1(ttt) |
July 15, 1995 (incorporated by reference to CEI’s Form 10-K filed March 29, 1996,
Exhibit 4b(73),
File No. 001-02323)
|
|
|
|
||
| 4-1(uuu) |
August 1, 1995 (incorporated by reference to CEI’s Form 10-K filed March 29, 1996,
Exhibit 4b(74),
File No. 001-02323)
|
288
Table of Contents
| 4-1(vvv) |
June 15, 1997 (incorporated by reference to CEI’s Form S-4 filed September 18, 2007, Exhibit
4(a), File No. 333-35931)
|
|
|
|
||
| 4-1(www) |
October 15, 1997 (incorporated by reference to CEI’s Form S-4 filed March 10, 1998, Exhibit 4(a),
File No. 333-47651)
|
|
|
|
||
| 4-1(xxx) |
June 1, 1998 (incorporated by reference to CEI’s Form S-4, Exhibit 4b(77), File No. 333-72891)
|
|
|
|
||
| 4-1(yyy) |
October 1, 1998 (incorporated by reference to CEI’s Form S-4 filed February 24, 1999, Exhibit
4b(78), File No. 333-72891)
|
|
|
|
||
| 4-1(zzz) |
October 1, 1998 (incorporated by reference to CEI’s Form S-4 filed February 24, 1999, Exhibit
4b(79), File No. 333-72891)
|
|
|
|
||
| 4-1(aaaa) |
February 24, 1999 (incorporated by reference to CEI’s Form S-4 filed February 24, 1999, Exhibit
4b(80), File No. 333-72891)
|
|
|
|
||
| 4-1(bbbb) |
September 29, 1999 (incorporated by reference to CEI’s Form 10-K filed March 29, 2000, Exhibit
4b(81), File No. 001-02323)
|
|
|
|
||
| 4-1(cccc) |
January 15, 2000 (incorporated by reference to CEI’s Form 10-K filed March 29, 2000, Exhibit
4b(82), File No. 001-02323)
|
|
|
|
||
| 4-1(dddd) |
May 15, 2002 (incorporated by reference to CEI’s Form 10-K filed March 26, 2003, Exhibit 4b(83),
File No. 001-02323)
|
|
|
|
||
| 4-1(eeee) |
October 1, 2002 (incorporated by reference to CEI’s Form 10-K filed March 26, 2003, Exhibit
4b(84), File No. 001-02323)
|
|
|
|
||
| 4-1(ffff) |
Supplemental Indenture dated as of September 1, 2004 (incorporated by reference to CEI’s Form
10-Q filed November 4, 2004, Exhibit 4-1(85), File No. 001-02323)
|
|
|
|
||
| 4-1(gggg) |
Supplemental Indenture dated as of October 1, 2004 (incorporated by reference to CEI’s Form 10-Q
filed November 4, 2004, Exhibit 4-1(86), File No. 001-02323)
|
|
|
|
||
| 4-1(hhhh) |
Supplemental Indenture dated as of April 1, 2005 (incorporated by reference to CEI’s Form 10-Q
filed August 1, 2005, Exhibit 4.1, File No. 001-02323)
|
|
|
|
||
| 4-1(iiii) |
Supplemental Indenture dated as of July 1, 2005 (incorporated by reference to CEI’s Form 10-Q
filed August 1, 2005, Exhibit 4.2, File No. 001-02323)
|
|
|
|
||
| 4-1(jjjj) |
Eighty-Ninth Supplemental Indenture, dated as of November 1, 2008 (relating to First Mortgage
Bonds, 8.875% Series due 2018). (incorporated by reference to CEI’s Form 8-K filed November 19,
2008, Exhibit 4.1, File No. 001-02323)
|
|
|
|
||
| 4-1(kkk) |
Ninetieth Supplemental Indenture, dated as of August 1, 2009 (including Form of First Mortgage
Bonds, 5.50% Series due 2024). (incorporated by reference to CEI’s Form 8-K filed on August 18,
2009, Exhibit 4.1, File No. 001-02323)
|
|
|
|
||
| 4-2 |
Form of Note Indenture between The Cleveland Electric Illuminating Company and The Chase
Manhattan Bank, as Trustee dated as of October 24, 1997. (incorporated by reference to CEI’s Form
S-4 filed March 10, 1998, Exhibit 4(b), File No. 333-47651)
|
|
|
|
||
| 4-2(a) |
Form of Supplemental Note Indenture between The Cleveland Electric Illuminating Company and The
Chase Manhattan Bank, as Trustee dated as of October 24, 1997. (incorporated by reference to
CEI’s Form S-4 filed March 10, 1998, Exhibit 4(c), File No. 333-47651)
|
|
|
|
||
| 4-3 |
Indenture dated as of December 1, 2003 between The Cleveland Electric Illuminating Company and
JPMorgan Chase Bank, as Trustee. (incorporated by reference to CEI’s Form 10-K filed March 15,
2004, Exhibit 4-1, File No. 001-02323)
|
|
|
|
||
| 4-3(a) |
Officer’s Certificate (including the form of 5.95% Senior Notes due 2036), dated as of December
11, 2006. (incorporated by reference to CEI’s Form 8-K filed December 12, 2006, Exhibit 4, File
No. 001-02323)
|
|
|
|
||
| 4-3(b) |
Officer’s Certificate (including the form of 5.70% Senior Notes due 2017), dated as of March 27,
2007. (incorporated by reference to CEI’s Form 8-K filed March 28, 2007, Exhibit 4, File No.
001-02323)
|
|
|
|
||
| 10-1 |
CEI Nuclear Purchase and Sale Agreement by and between The Cleveland Electric Illuminating
Company and FirstEnergy Nuclear Generation Corp. (incorporated by reference to CEI’s Form 10-Q
filed August 1, 2005, Exhibit 10.1, File No. 001-02323)
|
|
|
|
||
| 10-2 |
CEI Fossil Purchase and Sale Agreement by and between The Cleveland Electric Illuminating Company
(Seller) and FirstEnergy Generation Corp. (Purchaser). (incorporated by reference to CEI’s Form
10-Q filed August 1, 2005, Exhibit 10.2, File No. 001-02323)
|
|
|
|
||
| 10-3 |
CEI Fossil Security Agreement, dated October 24, 2005, by and between FirstEnergy Generation
Corp. and The Cleveland Electric Illuminating Company. (Form S-4/A filed August 20, 2007, Exhibit
10.16, File No. 333-145140-01)
|
289
Table of Contents
| 10-4 |
CEI Nuclear Security Agreement, dated December 16, 2005, by and between FirstEnergy Nuclear
Generation Corp. and The Cleveland Electric Illuminating Company. (incorporated by reference to
FE’s Form S-4/A filed August 20, 2007, Exhibit 10.26, File No. 333-145140-01)
|
|
|
|
||
| 10-5 |
Nuclear Sale/Leaseback Power Supply Agreement dated as of October 14, 2005 between Ohio Edison
Company and The Toledo Edison Company (Sellers) and FirstEnergy Nuclear Generation Corp. (Buyer).
(incorporated by reference to CEI’s Form 10-K filed March 2, 2006, Exhibit 10-64, File No.
001-02323)
|
|
|
|
||
| 10-7 |
Mansfield Power Supply Agreement dated as of October 14, 2005 between The Cleveland Electric
Illuminating Company and The Toledo Edison Company (Sellers) and FirstEnergy Generation Corp.
(Buyer). (incorporated by reference to CEI’s Form 10-K filed March 2, 2006, Exhibit 10-65, File
No. 001-02323)
|
|
|
|
||
| 10-8 |
Master SSO Supply Agreement, entered into May 18, 2009, by and between The Cleveland Electric
Illuminating Company, the Toledo Edison Company and Ohio Edison Company and FirstEnergy Solutions
Corp. (incorporated by reference to CEI’s Form 10-Q filed August 3, 2009, Exhibit 10.2, File No.
001-02323)
|
|
|
|
||
| (A) 12-4 |
Consolidated ratios of earnings to fixed charges.
|
|
|
|
||
| (A) 23-3 |
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
|
|
|
||
| (A) |
Provided herein in electronic format as an exhibit.
|
|
|
|
||
| (B) |
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, CEI has not filed as an
exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of
securities authorized thereunder does not exceed 10% of the total assets of CEI, but hereby
agrees to furnish to the Commission on request any such instruments.
|
|
|
|
3. Exhibits — TE
| 3-1 |
Amended and Restated Articles of Incorporation of The Toledo Edison Company, effective December
18, 2007. (incorporated by reference to TE’s Form 10-K filed February 29, 2008, Exhibit 3c, File
No. 001-03583)
|
|
|
|
||
| 3-2 |
Amended and Restated Code of Regulations of The Toledo Edison Company, dated December 14, 2007.
(incorporated by reference to TE’s Form 10-K filed February 29, 2008, Exhibit 3d, File No.
001-03583)
|
|
|
|
||
| (B) 4-1 |
Indenture, dated as of April 1, 1947, between The Toledo Edison Company and The Chase National
Bank of the City of New York (now The Chase Manhattan Bank (National Association)), as Trustee.
(incorporated by reference to File No. 2-26908, Exhibit 2(b))
|
|
|
|
||
|
Supplemental Indentures between The Toledo Edison Company and the Trustee, supplemental to
Exhibit 4-1, dated as follows:
|
||
|
|
||
| 4-1(a) |
September 1, 1948 (incorporated by reference to File No. 2-26908, Exhibit 2(d))
|
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|
||
| 4-1(b) |
April 1, 1949 (incorporated by reference to File No. 2-26908, Exhibit 2(e))
|
|
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|
||
| 4-1(c) |
December 1, 1950 (incorporated by reference to File No. 2-26908, Exhibit 2(f))
|
|
|
|
||
| 4-1(d) |
March 1, 1954 (incorporated by reference to File No. 2-26908, Exhibit 2(g))
|
|
|
|
||
| 4-1(e) |
February 1, 1956 (incorporated by reference to File No. 2-26908, Exhibit 2(h))
|
|
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|
||
| 4-1(f) |
May 1, 1958 (incorporated by reference to File No. 2-59794, Exhibit 5(g))
|
|
|
|
||
| 4-1(g) |
August 1, 1967 (incorporated by reference to File No. 2-26908, Exhibit 2(c))
|
|
|
|
||
| 4-1(h) |
November 1, 1970 (incorporated by reference to File No. 2-38569, Exhibit 2(c))
|
|
|
|
||
| 4-1(i) |
August 1, 1972 (incorporated by reference to File No. 2-44873, Exhibit 2(c))
|
|
|
|
||
| 4-1(j) |
November 1, 1973 (incorporated by reference to File No. 2-49428, Exhibit 2(c))
|
|
|
|
||
| 4-1(k) |
July 1, 1974 (incorporated by reference to File No. 2-51429, Exhibit 2(c))
|
|
|
|
||
| 4-1(l) |
October 1, 1975 (incorporated by reference to File No. 2-54627, Exhibit 2(c))
|
|
|
|
||
| 4-1(m) |
June 1, 1976 (incorporated by reference to File No. 2-56396, Exhibit 2(c))
|
290
Table of Contents
| 4-1(n) |
October 1, 1978 (incorporated by reference to File No. 2-62568, Exhibit 2(c))
|
|
|
|
||
| 4-1(o) |
September 1, 1979 (incorporated by reference to File No. 2-65350, Exhibit 2(c))
|
|
|
|
||
| 4-1(p) |
September 1, 1980 (incorporated by reference to File No. 2-69190, Exhibit 4(s))
|
|
|
|
||
| 4-1(q) |
October 1, 1980 (incorporated by reference to File No. 2-69190, Exhibit 4(c))
|
|
|
|
||
| 4-1(r) |
April 1, 1981 (incorporated by reference to File No. 2-71580, Exhibit 4(c))
|
|
|
|
||
| 4-1(s) |
November 1, 1981 (incorporated by reference to File No. 2-74485, Exhibit 4(c))
|
|
|
|
||
| 4-1(t) |
June 1, 1982 (incorporated by reference to File No. 2-77763, Exhibit 4(c))
|
|
|
|
||
| 4-1(u) |
September 1, 1982 (incorporated by reference to File No. 2-87323, Exhibit 4(x))
|
|
|
|
||
| 4-1(v) |
April 1, 1983 (incorporated by reference to March 1983 Form 10-Q, Exhibit 4(c), File No. 1-3583)
|
|
|
|
||
| 4-1(w) |
December 1, 1983 (incorporated by reference to 1983 Form 10-K, Exhibit 4(x), File No. 1-3583)
|
|
|
|
||
| 4-1(x) |
April 1, 1984 (incorporated by reference to File No. 2-90059, Exhibit 4(c))
|
|
|
|
||
| 4-1(y) |
October 15, 1984 (incorporated by reference to 1984 Form 10-K, Exhibit 4(z), File No. 1-3583)
|
|
|
|
||
| 4-1(z) |
October 15, 1984 (incorporated by reference to 1984 Form 10-K, Exhibit 4(aa), File No. 1-3583)
|
|
|
|
||
| 4-1(aa) |
August 1, 1985 (incorporated by reference to File No. 33-1689, Exhibit 4(dd))
|
|
|
|
||
| 4-1(bb) |
August 1, 1985 (incorporated by reference to File No. 33-1689, Exhibit 4(ee))
|
|
|
|
||
| 4-1(cc) |
December 1, 1985 (incorporated by reference to File No. 33-1689, Exhibit 4(c))
|
|
|
|
||
| 4-1(dd) |
March 1, 1986 (incorporated by reference to 1986 Form 10-K, Exhibit 4b(31), File No. 1-3583)
|
|
|
|
||
| 4-1(ee) |
October 15, 1987 (incorporated by reference to September 30, 1987 Form 10-Q, Exhibit 4, File No.
1-3583)
|
|
|
|
||
| 4-1(ff) |
September 15, 1988 (incorporated by reference to 1988 Form 10-K, Exhibit 4b(33), File No. 1-3583)
|
|
|
|
||
| 4-1(gg) |
June 15, 1989 (incorporated by reference to 1989 Form 10-K, Exhibit 4b(34), File No. 1-3583)
|
|
|
|
||
| 4-1(hh) |
October 15, 1989 (incorporated by reference to 1989 Form 10-K, Exhibit 4b(35), File No. 1-3583)
|
|
|
|
||
| 4-1(ii) |
May 15, 1990 (incorporated by reference to June 30, 1990 Form 10-Q, Exhibit 4, File No. 1-3583)
|
|
|
|
||
| 4-1(jj) |
March 1, 1991 (incorporated by reference to June 30, 1991 Form 10-Q, Exhibit 4(b), File No.
1-3583)
|
|
|
|
||
| 4-1(kk) |
May 1, 1992 (incorporated by reference to File No. 33-48844, Exhibit 4(a)(3))
|
|
|
|
||
| 4-1(ll) |
August 1, 1992 (incorporated by reference to 1992 Form 10-K, Exhibit 4b(39), File No. 1-3583)
|
|
|
|
||
| 4-1(mm) |
October 1, 1992 (incorporated by reference to 1992 Form 10-K, Exhibit 4b(40), File No. 1-3583)
|
|
|
|
||
| 4-1(nn) |
January 1, 1993 (incorporated by reference to 1992 Form 10-K, Exhibit 4b(41), File No. 1-3583)
|
|
|
|
||
| 4-1(oo) |
September 15, 1994 (incorporated by reference to TE’s Form 10-Q filed November 14, 1994, Exhibit
4(b), File No. 001-03583)
|
|
|
|
||
| 4-1(pp) |
May 1, 1995 (incorporated by reference to TE’s Form 10-Q filed November 14, 1994, Exhibit 4(d),
File No. 001-03583)
|
|
|
|
||
| 4-1(qq) |
June 1, 1995 (incorporated by reference to TE’s Form 10-Q filed November 14, 1994, Exhibit 4(e),
File No. 001-03583)
|
|
|
|
||
| 4-1(rr) |
July 14, 1995 (incorporated by reference to TE’s Form 10-Q filed November 14, 1994, Exhibit 4(f),
File No. 001-03583)
|
|
|
|
||
| 4-1(ss) |
July 15, 1995 (incorporated by reference to TE’s Form 10-Q filed November 14, 1994, Exhibit 4(g),
File No. 1-3583)
|
|
|
|
||
| 4-1(tt) |
August 1, 1997 (incorporated by reference to TE’s Form 10-K filed March 29, 1999, Exhibit 4b(47),
File No. 001-03583)
|
|
|
|
||
| 4-1(uu) |
June 1, 1998 (incorporated by reference to TE’s Form 10-K filed March 29, 1999, Exhibit 4b(48),
File No. 001-03583)
|
|
|
|
||
| 4-1(vv) |
January 15, 2000 (incorporated by reference to TE’s Form 10-K filed March 29, 1999, Exhibit
4b(49), File No. 001-03583)
|
|
|
|
||
| 4-1(ww) |
May 1, 2000 (incorporated by reference to TE’s Form 10-K filed April 16, 2000, Exhibit 4b(50),
File No. 001-03583)
|
|
|
|
||
| 4-1(xx) |
September 1, 2000 (incorporated by reference to TE’s Form 10-K filed April 16, 2001, Exhibit
4b(51), File No. 001-03583)
|
|
|
|
||
| 4-1(yy) |
October 1, 2002 (incorporated by reference to TE’s Form 10-K filed March 26, 2003, Exhibit
4b(52), File No. 001-03583)
|
|
|
|
||
| 4-1(zz) |
April 1, 2003 (incorporated by reference to TE’s Form 10-K filed March 15, 2004, Exhibit 4b(53),
File No. 001-03583)
|
|
|
|
||
| 4-1(aaa) |
September 1, 2004 (incorporated by reference to TE’s 10-Q filed November 4, 2004, Exhibit 4.2.56,
File No. 001-03583)
|
|
|
|
||
| 4-1(bbb) |
April 1, 2005 (incorporated by reference to TE’s June 2005 10-Q, Exhibit 4.1, File No. 001-03583)
|
|
|
|
||
| 4-1(ccc) |
April 23, 2009 (incorporated by reference to TE’s Form 8-K filed April 24, 2009, Exhibit 4.3,
File No. 001-03583)
|
|
|
|
||
| 4-1(ddd) |
April 24, 2009 (incorporated by reference to TE’s Form 8-K filed April 24, 2009, Exhibit 4.4,
File No. 001-03583)
|
291
Table of Contents
| 4-2 |
Indenture dated as of November 1, 2006, between The Toledo Edison Company and The Bank of New
York Trust Company, N.A. (incorporated by reference to TE’s Form 10-K filed February 28, 2007,
Exhibit 4-2, File No. 001-03583)
|
|
|
|
||
| 4-2(a) |
Officer’s Certificate (including the form of 6.15% Senior Notes due 2037), dated November 16,
2006. (incorporated by reference to TE’s Form 8-K filed November 17, 2006, Exhibit 4, File No.
001-03583)
|
|
|
|
||
| 4-2(b) |
First Supplemental Indenture, dated as of April 24, 2009, between the Toledo Edison Company and
The Bank of New York Mellon Trust Company, N.A., as trustee to the Indenture dated as of November
1, 2006 (incorporated by reference to TE’s Form 8-K filed April 24, 2009, Exhibit 4.1, File No.
001-03583)
|
|
|
|
||
| 4-2(c) |
Officer’s Certificate (including the Form of the 7.25% Senior Secured Notes due 2020), dated
April 24, 2009 (incorporated by reference to TE’s Form 8-K filed April 24, 2009, Exhibit 4.2,
File No. 001-03583)
|
|
|
|
||
| 10-1 |
TE Nuclear Purchase and Sale Agreement by and between The Toledo Edison Company (Seller) and
FirstEnergy Nuclear Generation Corp. (Purchaser). (incorporated by reference to TE’s Form 10-Q
filed August 1, 2005, Exhibit 10.1, File No. 001-03583)
|
|
|
|
||
| 10-2 |
TE Fossil Purchase and Sale Agreement by and between The Toledo Edison Company (Seller) and
FirstEnergy Generation Corp. (Purchaser). (incorporated by reference to TE’s Form 10-Q filed
August 1, 2005, Exhibit 10.2, File No. 001-03583)
|
|
|
|
||
| 10-3 |
TE Fossil Security Agreement, dated October 24, 2005, by and between FirstEnergy Generation Corp.
and The Toledo Edison Company. (incorporated by reference to FES’ Form S-4/A filed August 20,
2007, Exhibit 10.24, File No. 333-145140-01)
|
|
|
|
||
| 10-4 |
Nuclear Sale/Leaseback Power Supply Agreement dated as of October 14, 2005 between Ohio Edison
Company and The Toledo Edison Company (Sellers) and FirstEnergy Nuclear Generation Corp. (Buyer).
(incorporated by reference to TE’s Form 10-K filed March 2, 2006, Exhibit 10-64, File No.
001-03583)
|
|
|
|
||
| 10-6 |
Mansfield Power Supply Agreement dated as of October 14, 2005 between The Cleveland Electric
Illuminating Company and The Toledo Edison Company (Sellers) and FirstEnergy Generation Corp.
(Buyer). (incorporated by reference to TE’s Form 10-K, Exhibit 10-65, File No. 001-03583)
|
|
|
|
||
| 10-7 |
Master SSO Supply Agreement, entered into May 18, 2009, by and between The Cleveland Electric
Illuminating Company, the Toledo Edison Company and Ohio Edison Company and FirstEnergy Solutions
Corp. (incorporated by reference to TE’s Form 10-Q filed August 3, 2009, Exhibit 10.2, File No.
001-03583
|
|
|
|
||
| (A) 12-5 |
Consolidated ratios of earnings to fixed charges.
|
|
|
|
||
| (A) 23-4 |
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
|
|
|
||
| (A) |
Provided herein in electronic format as an exhibit.
|
|
|
|
||
| (B) |
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, TE has not filed as an
exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of
securities authorized thereunder does not exceed 10% of the total assets of TE, but hereby agrees
to furnish to the Commission on request any such instruments.
|
3. Exhibits — JCP&L
| 3-1 |
Amended and Restated Certificate of Incorporation of Jersey Central Power & Light Company, filed
February 14, 2008. (incorporated by reference to JCP&L’s Form 10-K filed February 29, 2008,
Exhibit 3-D,
File No. 001-03141)
|
292
Table of Contents
| 3-2 |
Amended and Restated Bylaws of Jersey Central Power & Light Company, dated January 9, 2008.
(incorporated by reference to JCP&L’s Form 10-K filed February 29, 2008, Exhibit 3-E, File No.
001-03141)
|
|
|
|
||
| 4-1 |
Senior Note Indenture, dated as of July 1, 1999, between Jersey Central Power & Light Company and
The Bank of New York Mellon Trust Company, N.A., as successor trustee to United States Trust
Company of New York. (incorporated by reference to JCP&L’s Form S-3 filed May 18, 1999, Exhibit
4-A, File No. 333-78717)
|
|
|
|
||
| 4-1(a) |
First Supplemental Indenture, dated October 31, 2007, between Jersey Central Power & Light
Company, The Bank of New York, as resigning trustee, and The Bank of New York Trust Company,
N.A., as successor trustee. (incorporated by reference to JCP&L’s Form S-4/A filed November 11,
2007, Exhibit 4-2, File No. 333-146968)
|
|
|
|
||
| 4-1(b) |
Form of Jersey Central Power & Light Company 6.40% Senior Note due 2036. (incorporated by
reference to JCP&L’s Form 8-K filed May 12, 2006, Exhibit 10-1, File No. 001-03141)
|
|
|
|
||
| 4-1(c) |
Form of 7.35% Senior Notes due 2019. (incorporated by reference to JCP&L’s Form 8-K filed January
27, 2009, Exhibit 4.1, File No. 001-03141)
|
|
|
|
||
| 10-1 |
Indenture dated as of August 10, 2006 between JCP&L Transition Funding II LLC as Issuer and The
Bank of New York as Trustee. (incorporated by reference to JCP&L’s Form 8-K filed August 10,
2006, Exhibit 4-1, File No. 001-03141)
|
|
|
|
||
| 10-2 |
2006-A Series Supplement dated as of August 10, 2006 between JCP&L Transition Funding II LLC as
Issuer and The Bank of New York as Trustee. (incorporated by reference to JCP&L’s Form 8-K filed
August 10, 2006, Exhibit 4-2)
|
|
|
|
||
| 10-3 |
Bondable Transition Property Sale Agreement dated as of August 10, 2006 between JCP&L Transition
Funding II LLC as Issuer and Jersey Central Power & Light Company as Seller. (incorporated by
reference to JCP&L’s Form 8-K filed August 10, 2006, Exhibit 10-1, File No. 001-03141)
|
|
|
|
||
| 10-4 |
Bondable Transition Property Service Agreement dated as of August 10, 2006 between JCP&L
Transition Funding II LLC as Issuer and Jersey Central Power & Light Company as Servicer.
(incorporated by reference to JCP&L’s Form 8-K filed August 10, 2006, Exhibit 10-2, File No.
001-03141)
|
|
|
|
||
| 10-5 |
Administration Agreement dated as of August 10, 2006 between JCP&L Transition Funding II LLC as
Issuer and FirstEnergy Service Company as Administrator. (incorporated by reference to JCP&L’s
Form 8-K filed August 10, 2006, Exhibit 10-3, File No. 001-03141)
|
|
|
|
||
| (A) 12-6 |
Consolidated ratios of earnings to fixed charges.
|
|
|
|
||
| (A) 23-5 |
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
|
|
|
||
| (A) |
Provided herein electronic format as an exhibit.
|
3. Exhibits — Met-Ed
| 3-1 |
Amended and Restated Articles of Incorporation of Metropolitan Edison Company, effective December
19, 2007. (incorporated by reference to Met-Ed’s Form 10-K filed February 29, 2008, Exhibit 3.9,
File No. 001-00446)
|
|
|
|
||
| 3-2 |
Amended and Restated Bylaws of Metropolitan Edison Company, dated December 14, 2007.
(incorporated by reference to Met-Ed’s Form 10-K filed February 29, 2008, Exhibit 3.10, File No.
001-00446)
|
293
Table of Contents
| 4-1 |
Indenture of Metropolitan Edison Company, dated November 1, 1944, between Metropolitan Edison
Company and United States Trust Company of New York, Successor Trustee, as amended and
supplemented by fourteen supplemental indentures dated February 1, 1947 through May 1, 1960.
(Metropolitan Edison Company’s Instruments of Indebtedness Nos. 1 to 14 inclusive, and 16,
incorporated by reference to Amendment No. 1 to 1959 Annual Report of GPU, Inc. on Form U5S, File
Nos. 30-126 and 1-3292)
|
|
|
|
||
| 4-1(a) |
Supplemental Indenture of Metropolitan Edison Company, dated December 1, 1962. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(1))
|
|
|
|
||
| 4-1(b) |
Supplemental Indenture of Metropolitan Edison Company, dated March 20, 1964. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(2))
|
|
|
|
||
| 4-1(c) |
Supplemental Indenture of Metropolitan Edison Company, dated July 1, 1965. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(3))
|
|
|
|
||
| 4-1(d) |
Supplemental Indenture of Metropolitan Edison Company, dated June 1, 1966. (incorporated by
reference to Registration No. 2-24883, Exhibit 2-B-4))
|
|
|
|
||
| 4-1(e) |
Supplemental Indenture of Metropolitan Edison Company, dated March 22, 1968. (incorporated by
reference to Registration No. 2-29644, Exhibit 4-C-5)
|
|
|
|
||
| 4-1(f) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1968. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(6))
|
|
|
|
||
| 4-1(g) |
Supplemental Indenture of Metropolitan Edison Company, dated August 1, 1969. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(7))
|
|
|
|
||
| 4-1(h) |
Supplemental Indenture of Metropolitan Edison Company, dated November 1, 1971. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(8))
|
|
|
|
||
| 4-1(i) |
Supplemental Indenture of Metropolitan Edison Company, dated May 1, 1972. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(9))
|
|
|
|
||
| 4-1(j) |
Supplemental Indenture of Metropolitan Edison Company, dated December 1, 1973. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(10))
|
|
|
|
||
| 4-1(k) |
Supplemental Indenture of Metropolitan Edison Company, dated October 30, 1974. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(11))
|
|
|
|
||
| 4-1(l) |
Supplemental Indenture of Metropolitan Edison Company, dated October 31, 1974. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(12))
|
|
|
|
||
| 4-1(m) |
Supplemental Indenture of Metropolitan Edison Company, dated March 20, 1975. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(13))
|
|
|
|
||
| 4-1(n) |
Supplemental Indenture of Metropolitan Edison Company, dated September 25, 1975. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(15))
|
|
|
|
||
| 4-1(o) |
Supplemental Indenture of Metropolitan Edison Company, dated January 12, 1976. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(16))
|
|
|
|
||
| 4-1(p) |
Supplemental Indenture of Metropolitan Edison Company, dated March 1, 1976. (incorporated by
reference to Registration No. 2-59678, Exhibit 2-E(17))
|
|
|
|
||
| 4-1(q) |
Supplemental Indenture of Metropolitan Edison Company, dated September 28, 1977. (incorporated by
reference to Registration No. 2-62212, Exhibit 2-E(18))
|
|
|
|
||
| 4-1(r) |
Supplemental Indenture of Metropolitan Edison Company, dated January 1, 1978. (incorporated by
reference to Registration No. 2-62212, Exhibit 2-E(19))
|
|
|
|
||
| 4-1(s) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1978. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(19))
|
|
|
|
||
| 4-1(t) |
Supplemental Indenture of Metropolitan Edison Company, dated June 1, 1979. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(20))
|
|
|
|
||
| 4-1(u) |
Supplemental Indenture of Metropolitan Edison Company, dated January 1, 1980. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(21))
|
|
|
|
||
| 4-1(v) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1981. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(22))
|
|
|
|
||
| 4-1(w) |
Supplemental Indenture of Metropolitan Edison Company, dated September 10, 1981. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(23))
|
|
|
|
||
| 4-1(x) |
Supplemental Indenture of Metropolitan Edison Company, dated December 1, 1982. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(24))
|
|
|
|
||
| 4-1(y) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1983. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(25))
|
|
|
|
||
| 4-1(z) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1984. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(26))
|
|
|
|
||
| 4-1(aa) |
Supplemental Indenture of Metropolitan Edison Company, dated March 1, 1985. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(27))
|
|
|
|
||
| 4-1(bb) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1985. (Registration
No. 33-48937, Exhibit 4-A(28))
|
|
|
|
||
| 4-1(cc) |
Supplemental Indenture of Metropolitan Edison Company, dated June 1, 1988. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(29))
|
|
|
|
||
| 4-1(dd) |
Supplemental Indenture of Metropolitan Edison Company, dated April 1, 1990. (incorporated by
|
294
Table of Contents
|
reference to Registration No. 33-48937, Exhibit 4-A(30))
|
||
|
|
||
| 4-1(ee) |
Amendment dated May 22, 1990 to Supplemental Indenture of Metropolitan Edison Company, dated
April 1, 1990. (incorporated by reference to Registration No. 33-48937, Exhibit 4-A(31))
|
|
|
|
||
| 4-1(ff) |
Supplemental Indenture of Metropolitan Edison Company, dated September 1, 1992. (incorporated by
reference to Registration No. 33-48937, Exhibit 4-A(32)(a))
|
|
|
|
||
| 4-1(gg) |
Supplemental Indenture of Metropolitan Edison Company, dated December 1, 1993. (incorporated by
reference to GPU, Inc.’s Form U5S filed May 2, 1994, Exhibit C-58, File No. 30-126)
|
|
|
|
||
| 4-1(hh) |
Supplemental Indenture of Metropolitan Edison Company, dated July 15, 1995. (incorporated by
reference to 1995 Form 10-K, Exhibit 4-B-35, File No. 1-446)
|
|
|
|
||
| 4-1(ii) |
Supplemental Indenture of Metropolitan Edison Company, dated August 15, 1996. (incorporated by
reference to Met-Ed’s Form 10-K filed March 10, 1997, Exhibit 4-B-35, File No. 033-51001)
|
|
|
|
||
| 4-1(jj) |
Supplemental Indenture of Metropolitan Edison Company, dated May 1, 1997. (incorporated by
reference to Met-Ed’s Form 10-K filed March 13, 1998, Exhibit 4-B-36, File No. 033-51001)
|
|
|
|
||
| 4-1(kk) |
Supplemental Indenture of Metropolitan Edison Company, dated July 1, 1999. (incorporated by
reference to Met-Ed’s Form 10-K filed March 20, 2000, Exhibit 4-B-38, File No. 033-51001)
|
|
|
|
||
| 4-1(ll) |
Supplemental Indenture of Metropolitan Edison Company, dated May 1, 2001. (incorporated by
reference to Met-Ed’s Form 10-K filed April 1, 2002, Exhibit 4-5, File No. 033-51001)
|
|
|
|
||
| 4-1(mm) |
Supplemental Indenture of Metropolitan Edison Company, dated March 1, 2003. (incorporated by
reference to Met-Ed’s Form 10-K filed March 15, 2004, Exhibit 4-10, File No. 033-51001)
|
|
|
|
||
| 4-2 |
Senior Note Indenture between Metropolitan Edison Company and United States Trust Company of New
York, dated July 1, 1999. (incorporated by reference to GPU, Inc.’s Form U5S filed May 2, 2002,
Exhibit C-154, File No. 001-06047)
|
|
|
|
||
| 4-2(a) |
Form of Metropolitan Edison Company 7.70% Senior Notes due 2019. (incorporated by reference to
Met-Ed’s Form 8-K filed January 21, 2009, Exhibit 4.1, File No. 001-00446)
|
|
|
|
||
| (A) 12-7 |
Consolidated ratios of earnings to fixed charges.
|
|
|
|
||
| (A) 23-6 |
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
|
|
|
||
| (A) |
Provided herein electronic format as an exhibit.
|
|
|
|
3. Exhibits — Penelec
| 3-1 |
Amended and Restated Articles of Incorporation of Pennsylvania Electric Company, effective
December 19, 2007. (incorporated by reference to Penelec’s Form 10-K filed February 29, 2008,
Exhibit 3.11, File No. 001-03522)
|
|
|
|
||
| 3-2 |
Amended and Restated Bylaws of Pennsylvania Electric Company, dated December 14, 2007.
(incorporated by reference to Penelec’s Form 10-K filed February 29, 2008, Exhibit 3.12, File No.
001-03522)
|
|
|
|
||
| 4-1 |
Mortgage and Deed of Trust of Pennsylvania Electric Company, dated January 1, 1942, between
Pennsylvania Electric Company and United States Trust Company of New York, Successor Trustee, and
indentures supplemental thereto dated March 7, 1942 through May 1, 1960 — (Pennsylvania Electric
Company’s Instruments of Indebtedness Nos. 1-20, inclusive, incorporated by reference to
Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, File Nos. 30-126 and 1-3292)
|
|
|
|
||
| 4-1(a) |
Supplemental Indentures to Mortgage and Deed of Trust of Pennsylvania Electric Company, dated May
1, 1961 through December 1, 1977. (incorporated by reference to Registration No. 2-61502, Exhibit
2-D(1) to 2-D(19))
|
|
|
|
||
| 4-1(b) |
Supplemental Indenture of Pennsylvania Electric Company, dated June 1, 1978. (incorporated by
reference to Registration No. 33-49669, Exhibit 4-A(2))
|
|
|
|
||
| 4-1(c) |
Supplemental Indenture of Pennsylvania Electric Company dated June 1, 1979. (incorporated by
reference to Registration No. 33-49669, Exhibit 4-A(3))
|
|
|
|
||
| 4-1(d) |
Supplemental Indenture of Pennsylvania Electric Company, dated September 1, 1984.
|
295
Table of Contents
|
(incorporated
by reference to Registration No. 33-49669, Exhibit 4-A(4))
|
||
|
|
||
| 4-1(e) |
Supplemental Indenture of Pennsylvania Electric Company, dated December 1, 1985. (incorporated by
reference to Registration No. 33-49669, Exhibit 4-A(5))
|
|
|
|
||
| 4-1(f) |
Supplemental Indenture of Pennsylvania Electric Company, dated December 1, 1986. (incorporated by
reference to Registration No. 33-49669, Exhibit 4-A(6))
|
|
|
|
||
| 4-1(g) |
Supplemental Indenture of Pennsylvania Electric Company, dated May 1, 1989. (incorporated by
reference to Registration No. 33-49669, Exhibit 4-A(7))
|
|
|
|
||
| 4-1(h) |
Supplemental Indenture of Pennsylvania Electric Company, dated December 1, 1990. (incorporated by
reference to Registration No. 33-45312, Exhibit 4-A(8))
|
|
|
|
||
| 4-1(i) |
Supplemental Indenture of Pennsylvania Electric Company, dated March 1, 1992. (incorporated by
reference to Registration No. 33-45312, Exhibit 4-A(9))
|
|
|
|
||
| 4-1(j) |
Supplemental Indenture of Pennsylvania Electric Company, dated June 1, 1993. (incorporated by
reference to GPU, Inc.’s Form U5S filed May 2, 1994, Exhibit C-73, File No. 001-06047)
|
|
|
|
||
| 4-1(k) |
Supplemental Indenture of Pennsylvania Electric Company, dated November 1, 1995. (incorporated by
reference to 1995 Form 10-K, Exhibit 4-C-11, File No. 1-3522)
|
|
|
|
||
| 4-1(l) |
Supplemental Indenture of Pennsylvania Electric Company, dated August 15, 1996. (incorporated by
reference to Penelec’s Form 10-K filed March 10, 1997, Exhibit 4-C-12, File No. 001-03522)
|
|
|
|
||
| 4-1(m) |
Supplemental Indenture of Pennsylvania Electric Company, dated May 1, 2001. (incorporated by
reference to Penelec’s Form 10-K filed April 1, 2002, Exhibit 4-C-16, File No. 001-03522)
|
|
|
|
||
| 4-2 |
Senior Note Indenture between Pennsylvania Electric Company and United States Trust Company of
New York, dated April 1, 1999. (incorporated by reference to Penelec’s Form 10-K filed March 20,
2000, Exhibit 4-C-13, File No. 001-03522)
|
|
|
|
||
| 4-2(a) |
Form of Pennsylvania Electric Company 6.05% Senior Notes due 2017. (incorporated by reference to
Penelec’s Form 8-K filed August 31, 2007, Exhibit 4.1, File No. 001-03522)
|
|
|
|
||
| 4-2(b) |
Company Order, dated as of September 30, 2009 establishing the terms of the 5.20% Senior Notes
due 2020 and 6.15% Senior Notes due 2038 (incorporated by reference to Penelec’s Form 8-K filed
October 6, 2009, Exhibit 4.1, File No. 001-03522)
|
|
|
|
||
| 4-2(c) |
Supplemental Indenture No. 2, dated as of October 1, 2009, to the Indenture dated as of April 1,
2009, as amended, between Pennsylvania Electric Company and The Bank of New York Mellon, as
successor trustee (incorporated by reference to Penelec’s Form 8-K filed October 6, 2009, Exhibit
4.4, File No. 001-03522)
|
|
|
|
||
| 4-2(d) |
Agreement of Resignation, Appointment and Acceptance among The Bank of New York Mellon, as
Resigning Trustee, The Bank of New York Mellon Trust Company, N.A., as Successor Trustee and
Pennsylvania Electric Company, dated October 1, 2009 (incorporated by reference to Penelec’s
Form
8-K
filed on October 6, 2009, Exhibit 4.5, File No. 001-03522)
|
|
|
|
||
| (A) 12-8 |
Consolidated ratios of earnings to fixed charges.
|
|
|
|
||
| (A) 23-7 |
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
||
| (A) 31-1 |
Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 31-2 |
Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e).
|
|
|
|
||
| (A) 32 |
Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
|
|
|
|
||
| (A) |
Provided here in electronic format as an exhibit.
|
3. Exhibits — Common Exhibits for FES, Met-Ed and Penelec
| 10-1 |
Notice of Termination Tolling Agreement dated as of April 7, 2006;
Restated Partial Requirements Agreement, dated January 1, 2003, by
and among, Metropolitan Edison Company, Pennsylvania Electric
Company, The Waverly Electric Power and Light Company and FirstEnergy
Solutions Corp., as amended by a First Amendment to Restated
Requirements Agreement, dated August 29, 2003 and by a Second
Amendment to Restated Requirements Agreement, dated June 8, 2004
(“Partial Requirements Agreement”). (incorporated by reference to
Met-Ed’s Form 10-Q filed May 9, 2006, Exhibit 10-5, File No.
001-00446)
|
296
Table of Contents
| 10-2 |
Third Restated Partial Requirements Agreement, among Metropolitan
Edison Company, Pennsylvania Electric Company, a Pennsylvania
corporation, The Waverly Electric Power and Light Company and
FirstEnergy Solutions Corp., dated November 1, 2008. (incorporated by
reference to Met-Ed’s
Form 10-Q
filed November 7, 2008, Exhibit 10-2,
File No. 001-00446)
|
|
|
|
||
| 10-3 |
Fourth Restated Partial Requirements Agreement, among Metropolitan
Edison Company, Pennsylvania Electric Company, a Pennsylvania
corporation, The Waverly Electric Power and Light Company and
FirstEnergy Solutions Corp., dated November 1, 2008. (incorporated by
reference to Met-Ed’s
Form 10-Q
filed November 9, 2009, Exhibit 10.2,
File No. 001-00446)
|
3. Exhibits — Common Exhibits for FirstEnergy, FES, OE, CEI, TE, JCP&L, Met-Ed and Penelec
| 10-1 |
$2,750,000,000 Credit Agreement dated as of August 24,
2006 among FirstEnergy Corp., FirstEnergy Solutions
Corp., American Transmission Systems, Inc., Ohio Edison
Company, Pennsylvania Power Company, The Cleveland
Electric Illuminating Company, The Toledo Edison Company
Jersey Central Power & Light Company, Metropolitan Edison
Company and Pennsylvania Electric Company, as Borrowers,
the banks party thereto, the fronting banks party thereto
and the swing line lenders party thereto. (incorporated
by reference to FE’s Form 8-K filed August 24, 2006,
Exhibit 10-1, File No. 333-21011)
|
|
|
|
||
| 10-2 |
Consent and Amendment to $2,750,000,000 Credit Agreement
dated November 2, 2007. (incorporated by reference to
FE’s Form 10-K filed February 29, 2008, Exhibit 10-2,
File No. 333-21011)
|
297
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholders and Board of Directors of
FirstEnergy Corp.:
FirstEnergy Corp.:
Our audits of the consolidated financial statements and of the effectiveness of internal control
over financial reporting referred to in our report dated February 16, 2011 also included an audit
of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
298
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
FirstEnergy Solutions Corp.:
FirstEnergy Solutions Corp.:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
299
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
Ohio Edison Company:
Ohio Edison Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
300
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
The Cleveland Electric Illuminating Company:
The Cleveland Electric Illuminating Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
301
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
The Toledo Edison Company:
The Toledo Edison Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
302
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
Jersey Central Power & Light Company:
Jersey Central Power & Light Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
303
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
Metropolitan Edison Company:
Metropolitan Edison Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
304
Table of Contents
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
on
Financial Statement Schedule
To the Stockholder and Board of Directors of
Pennsylvania Electric Company:
Pennsylvania Electric Company:
Our audits of the consolidated financial statements referred to in our report dated February 16,
2011 also included an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
|
||
|
PricewaterhouseCoopers LLP
|
||
|
Cleveland, Ohio
|
||
|
February 16, 2011
|
305
Table of Contents
SCHEDULE II
FIRSTENERGY CORP.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 33,431 | $ | 59,750 | $ | 37,813 | (a) | $ | 94,722 | (b) | $ | 36,272 | ||||||||
|
|
||||||||||||||||||||
|
— others
|
$ | 6,969 | $ | 2,687 | $ | 1,037 | (a) | $ | 2,441 | (b) | $ | 8,252 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Loss carryforward
tax valuation reserve
|
$ | 21,282 | $ | (65 | ) | $ | — | $ | — | $ | 21,217 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 27,847 | $ | 67,503 | $ | 32,975 | (a) | $ | 94,894 | (b) | $ | 33,431 | ||||||||
|
|
||||||||||||||||||||
|
— others
|
$ | 9,167 | $ | (405 | ) | $ | 10,457 | (a) | $ | 12,250 | (b) | $ | 6,969 | |||||||
|
|
||||||||||||||||||||
|
Loss carryforward
tax valuation reserve
|
$ | 27,294 | $ | (1,091 | ) | $ | (4,921 | ) | $ | — | $ | 21,282 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 35,567 | $ | 48,297 | $ | 31,308 | (a) | $ | 87,325 | (b) | $ | 27,847 | ||||||||
|
|
||||||||||||||||||||
|
— others
|
$ | 21,924 | $ | 11,339 | $ | 3,189 | (a) | $ | 27,285 | (b) | $ | 9,167 | ||||||||
|
|
||||||||||||||||||||
|
Loss carryforward
tax valuation reserve
|
$ | 30,616 | $ | 1,435 | $ | (4,757 | ) | $ | — | $ | 27,294 | |||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
306
Table of Contents
SCHEDULE II
FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 12,041 | $ | 9,397 | $ | — | (a) | $ | 4,847 | (b) | $ | 16,591 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 6,702 | $ | 64 | $ | — | (a) | $ | 1 | (b) | $ | 6,765 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 5,899 | $ | 7,745 | $ | — | (a) | $ | 1,603 | (b) | $ | 12,041 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 6,815 | $ | (161 | ) | $ | 57 | (a) | $ | 9 | (b) | $ | 6,702 | |||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 8,072 | $ | 649 | $ | 110 | (a) | $ | 2,932 | (b) | $ | 5,899 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 9 | $ | 4,374 | $ | 2,541 | (a) | $ | 109 | (b) | $ | 6,815 | ||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
307
Table of Contents
SCHEDULE II
OHIO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 5,119 | $ | 6,588 | $ | 11,074 | (a) | $ | 18,695 | (b) | $ | 4,086 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 18 | $ | 5 | $ | 180 | (a) | $ | 197 | (b) | $ | 6 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 6,065 | $ | 16,230 | $ | 11,252 | (a) | $ | 28,428 | (b) | $ | 5,119 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 7 | $ | 17 | $ | 326 | (a) | $ | 332 | (b) | $ | 18 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 8,032 | $ | 12,179 | $ | 10,027 | (a) | $ | 24,173 | (b) | $ | 6,065 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 5,639 | $ | 16,618 | $ | 394 | (a) | $ | 22,644 | (b) | $ | 7 | ||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
308
Table of Contents
SCHEDULE II
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 5,239 | $ | 14,716 | $ | 11,151 | (a) | $ | 26,517 | (b) | $ | 4,589 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 21 | $ | 33 | $ | 50 | (a) | $ | 103 | (b) | $ | 1 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 5,916 | $ | 16,764 | $ | 8,942 | (a) | $ | 26,383 | (b) | $ | 5,239 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 11 | $ | 50 | $ | 51 | (a) | $ | 91 | (b) | $ | 21 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 7,540 | $ | 11,323 | $ | 9,179 | (a) | $ | 22,126 | (b) | $ | 5,916 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 433 | $ | (183 | ) | $ | 30 | (a) | $ | 269 | (b) | $ | 11 | |||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
309
Table of Contents
SCHEDULE II
THE TOLEDO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | — | $ | 2 | $ | — | (a) | $ | 1 | (b) | $ | 1 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 208 | $ | 127 | $ | 13 | (a) | $ | 18 | (b) | $ | 330 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — other
|
$ | 203 | $ | (115 | ) | $ | 165 | (a) | $ | 45 | (b) | $ | 208 | |||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — other
|
$ | 615 | $ | (247 | ) | $ | 121 | (a) | $ | 286 | (b) | $ | 203 | |||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
310
Table of Contents
SCHEDULE II
JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,506 | $ | 12,487 | $ | 5,251 | (a) | $ | 17,475 | (b) | $ | 3,769 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | — | $ | 209 | $ | 70 | (a) | $ | 257 | (b) | $ | 22 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,230 | $ | 11,519 | $ | 5,424 | (a) | $ | 16,667 | (b) | $ | 3,506 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 45 | $ | (37 | ) | $ | 380 | (a) | $ | 388 | (b) | $ | — | |||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,691 | $ | 10,377 | $ | 3,504 | (a) | $ | 14,342 | (b) | $ | 3,230 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | — | $ | 44 | $ | 24 | (a) | $ | 23 | (b) | $ | 45 | ||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
311
Table of Contents
SCHEDULE II
METROPOLITAN EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 4,044 | $ | 10,021 | $ | 5,248 | (a) | $ | 15,445 | (b) | $ | 3,868 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | — | $ | 14 | $ | 39 | (a) | $ | 53 | (b) | $ | — | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,616 | $ | 9,583 | $ | 3,926 | (a) | $ | 13,081 | (b) | $ | 4,044 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | — | $ | 8 | $ | 26 | (a) | $ | 34 | (b) | $ | — | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 4,327 | $ | 9,004 | $ | 3,729 | (a) | $ | 13,444 | (b) | $ | 3,616 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 1 | $ | 19 | $ | 21 | (a) | $ | 41 | (b) | $ | — | ||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
312
Table of Contents
SCHEDULE II
PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
| Additions | ||||||||||||||||||||
| Charged | ||||||||||||||||||||
| Beginning | Charged | to Other | Ending | |||||||||||||||||
| Description | Balance | to Income | Accounts | Deductions | Balance | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Year Ended December 31, 2010:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,483 | $ | 6,538 | $ | 5,088 | (a) | $ | 11,740 | (b) | $ | 3,369 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 3 | $ | 5 | $ | 684 | (a) | $ | 691 | (b) | $ | 1 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,121 | $ | 7,264 | $ | 3,431 | (a) | $ | 10,333 | (b) | $ | 3,483 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 65 | $ | (57 | ) | $ | 7,557 | (a) | $ | 7,562 | (b) | $ | 3 | |||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated provision for
uncollectible accounts — customers
|
$ | 3,905 | $ | 7,589 | $ | 4,758 | (a) | $ | 13,131 | (b) | $ | 3,121 | ||||||||
|
|
||||||||||||||||||||
|
— other
|
$ | 105 | $ | 57 | $ | 36 | (a) | $ | 133 | (b) | $ | 65 | ||||||||
|
|
||||||||||||||||||||
| (a) |
Represents recoveries and reinstatements of accounts previously written off.
|
|
| (b) |
Represents the write-off of accounts considered to be uncollectible.
|
313
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
FIRSTENERGY CORP.
|
||||
| BY: | /s/ Anthony J. Alexander | |||
| Anthony J. Alexander | ||||
| President and Chief Executive Officer | ||||
Date: February 16, 2011
314
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ George M. Smart
|
/s/ Anthony J. Alexander
|
|||||
|
Chairman of the Board
|
President and Chief Executive Officer and Director | |||||
|
|
(Principal Executive Officer) | |||||
|
|
||||||
|
/s/ Mark T. Clark
|
/s/ Harvey L. Wagner
|
|||||
|
Executive Vice President and Chief Financial Officer
|
Vice President, Controller and Chief Accounting Officer | |||||
|
(Principal Financial Officer)
|
(Principal Accounting Officer) | |||||
|
|
||||||
|
/s/ Paul T. Addison
|
|
|||||
|
Director
|
||||||
|
|
||||||
|
/s/ Michael J. Anderson
|
/s/ Ernest J. Novak, Jr.
|
|||||
|
Director
|
Director | |||||
|
|
||||||
|
/s/ Carol A. Cartwright
|
/s/ Catherine A. Rein
|
|||||
|
Director
|
Director | |||||
|
|
||||||
|
/s/ William T. Cottle
|
/s/ Wes M. Taylor
|
|||||
|
Director
|
Director | |||||
|
|
||||||
|
/s/ Robert B. Heisler, Jr.
|
/s/ Jesse T. Williams, Sr.
|
|||||
|
Director
|
Director |
Date: February 16, 2011
315
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
FIRSTENERGY SOLUTIONS CORP.
|
||||
| BY: | /s/ Donald R. Schneider | |||
| Donald R. Schneider | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Donald R. Schneider
President (Principal Executive Officer) |
/s/ Mark T. Clark
Executive Vice President and Chief Financial Officer and Director (Principal Financial Officer) |
|||||
|
|
||||||
|
/s/ Anthony J. Alexander
|
/s/ Harvey L. Wagner
|
|||||
|
Director
|
Vice President and Controller | |||||
|
|
(Principal Accounting Officer) | |||||
|
|
||||||
|
/s/ Gary R. Leidich
|
||||||
|
Director
|
Date: February 16, 2011
316
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
OHIO EDISON COMPANY
|
||||
| BY: | /s/ Charles E. Jones | |||
| Charles E. Jones | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Anthony J. Alexander
|
/s/ Charles E. Jones
|
|||||
|
Director
|
President and Director | |||||
|
|
(Principal Executive Officer) | |||||
|
|
||||||
|
/s/ Mark T. Clark
|
/s/ Harvey L. Wagner
|
|||||
|
Executive Vice President and Chief
|
Vice President and Controller | |||||
|
Financial Officer and Director
|
(Principal Accounting Officer) | |||||
|
(Principal Financial Officer)
|
Date: February 16, 2011
317
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
|
||||
| BY: | /s/ Charles E. Jones | |||
| Charles E. Jones | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Anthony J. Alexander
|
/s/ Charles E. Jones
|
|||||
|
Director
|
President and Director
(Principal Executive Officer) |
|||||
|
|
||||||
|
/s/ Mark T. Clark
|
/s/ Harvey L. Wagner
|
|||||
|
Executive Vice President and Chief
|
Vice President and Controller | |||||
|
Financial Officer and Director
|
(Principal Accounting Officer) | |||||
|
(Principal Financial Officer)
|
Date: February 16, 2011
318
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
THE TOLEDO EDISON COMPANY
|
||||
| BY: | /s/ Charles E. Jones | |||
| Charles E. Jones | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Anthony J. Alexander
|
/s/ Charles E. Jones
|
|||||
|
Director
|
President and Director | |||||
|
|
(Principal Executive Officer) | |||||
|
|
||||||
|
/s/ Mark T. Clark
|
/s/ Harvey L. Wagner
|
|||||
|
Executive Vice President and Chief
|
Vice President and Controller | |||||
|
Financial Officer and Director
|
(Principal Accounting Officer) | |||||
|
(Principal Financial Officer)
|
Date: February 16, 2011
319
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
JERSEY CENTRAL POWER & LIGHT COMPANY
|
||||
| BY: | /s/ Donald M. Lynch | |||
| Donald M. Lynch | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Donald M. Lynch
|
/s/ K. Jon Taylor
|
|||||
|
President and Director
|
Controller | |||||
|
(Principal Executive Officer)
|
(Principal Financial and Accounting Officer) | |||||
|
|
||||||
|
/s/ Charles E. Jones
|
/s/ Gelorma E. Persson
|
|||||
|
Director
|
Director | |||||
|
|
||||||
|
/s/ Mark A. Julian
|
/s/ Jesse T. Williams, Sr.
|
|||||
|
Director
|
Director |
Date: February 16, 2011
320
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
METROPOLITAN EDISON COMPANY
|
||||
| BY: | /s/ Charles E. Jones | |||
| Charles E. Jones | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Charles E. Jones
|
/s/ Mark T. Clark
|
|||||
|
President and Director
|
Executive Vice President and Chief | |||||
|
(Principal Executive Officer)
|
Financial Officer
(Principal Financial Officer) |
|||||
|
|
||||||
|
/s/
Donald A. Brennan
|
/s/ Harvey L. Wagner
|
|||||
|
Regional President and Director
|
Vice President and Controller | |||||
|
|
(Principal Accounting Officer) | |||||
|
/s/ Randy Scilla
|
||||||
|
Assistant Treasurer and Director
|
Date: February 16, 2011
321
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
PENNSYLVANIA ELECTRIC COMPANY
|
||||
| BY: | /s/ Charles E. Jones | |||
| Charles E. Jones | ||||
| President | ||||
Date: February 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
/s/ Charles E. Jones
|
/s/ Mark T. Clark
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President and Director
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Executive Vice President and Chief | |||||
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(Principal Executive Officer)
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Financial Officer | |||||
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(Principal Financial Officer) | |||||
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/s/ John E. Skory
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/s/ Harvey L. Wagner
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Regional President and Director
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Vice President and Controller | |||||
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(Principal Accounting Officer) | |||||
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/s/ Randy Scilla
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Assistant Treasurer and Director
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Date: February 16, 2011
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TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Removed and ReservedprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Registrant and SubsidiariesprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and Procedures FirstenergyprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits, Financial Statement Schedulesprint