UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20062007
OR
[ ] 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 1-2578 | FIRSTENERGY CORP. OHIO EDISON COMPANY | 34-1843785 34-0437786 |
| (An Ohio Corporation) | |
| 76 South Main Street c/o FirstEnergy Corp. | |
| Akron, OH 44308 76 South Main Street | |
| Akron, OH 44308 | |
| Telephone (800)736-3402 | |
| | |
1-2578 1-2323 | OHIO EDISONTHE CLEVELAND ELECTRIC ILLUMINATING COMPANY
| 34-0437786 34-0150020 |
| (An Ohio Corporation) | |
| c/o FirstEnergy Corp. | |
| 76 South Main Street | |
| Akron, OH 44308 | |
| Telephone (800)736-3402 | |
| | |
1-2323 1-3583 | THE CLEVELAND ELECTRIC ILLUMINATINGTOLEDO EDISON COMPANY | 34-0150020 34-4375005 |
| (An Ohio Corporation) | |
| c/o FirstEnergy Corp. | |
| 76 South Main Street | |
| Akron, OH 44308 | |
| Telephone (800)736-3402 | |
| | |
1-3583 1-3522 | THE TOLEDO EDISONPENNSYLVANIA ELECTRIC COMPANY
| 34-4375005 25-0718085 |
| (An OhioA Pennsylvania 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
| |
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 |
The Cleveland Electric Illuminating Company | | 9% Cumulative Trust Preferred Securities,
$25 per preferred security
| | |
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (X) No ( ) | FirstEnergy Corp. |
Yes ( ) No (X) | 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 (X) No ( ) | Ohio Edison Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company Jersey Central Power & Light Company, Metropolitan |
Yes ( ) No (X) | Ohio Edison Company and Pennsylvania Electric Company |
Yes ( ) No (X) | FirstEnergy 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:days.
Yes (X) No ( ) | 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 |
Yes ( ) No (X) | The Cleveland Electric Illuminating Company and The Toledo Edison 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'sregistrant’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.
( ) | FirstEnergy Corp. |
(X) | Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company.Company |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer (X)( )
| FirstEnergy Corp.N/A |
Accelerated Filer ( ) | N/A |
Non-accelerated Filer (do not check if a Smaller Reporting Company) (X) | 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 ( ) | N/A |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ( ) No (X) | 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 |
Securities registered pursuant to Section 12(g) of the Act:
None
State the aggregate market value of the voting and non-voting common stockequity 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 registrants: FirstEnergy Corp., $17,795,189,814 aslast business day of June 30, 2006; and for all other registrants, none.the registrant’s most recently completed second fiscal quarter.
None
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date:date.
| | OUTSTANDING |
CLASS | | As of February 27, 2007AS OF FEBRUARY 28, 2008 |
| | |
FirstEnergy Corp., $0.10 par value | | 319,205,517 |
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 | | 15,009,335 |
Metropolitan Edison Company, no par value | | 859,500 |
Pennsylvania Electric Company, $20 par value | | 5,290,5964,427,577 |
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 |
| | |
| | |
FirstEnergy Corp. Annual Report to Stockholders for | | |
the fiscal year ended December 31, 2006 (Pages 3-104)2007 | | Part II |
| | |
Proxy Statement for 20072008 Annual Meeting of Stockholders | | |
to be held May 15, 200720, 2008 | | Part III |
This combined Form 10-K10-K/A is separately filed by 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. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No
OMISSION OF CERTAIN INFORMATION
Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo 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/A with the reduced disclosure format specified in General Instruction I(2) to Form 10-K.
Forward-Looking Statements: This Form 10-K/A 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 and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Ohio and Pennsylvania, |
· | the impact of the PUCO’s rulemaking process on the Ohio Companies’ ESP and MRO filings, |
· | economic or weather conditions affecting future sales and margins, |
· | changes in markets for energy services, |
· | changing energy and commodity market prices and availability, |
· | replacement power costs being higher than anticipated or inadequately hedged, |
· | the continued ability of FirstEnergy’s regulated utilities to collect transition and other charges or to recover increased transmission costs, |
· | maintenance costs being higher than anticipated, |
· | other legislative and regulatory changes, revised environmental requirements, including possible GHG emission regulations, |
· | the impact of the U.S. Court of Appeals’ July 11, 2008 decision to vacate the CAIR rules and the scope of any laws, rules or regulations that may ultimately take their place, |
· | the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated) or levels of emission reductions related to the Consent Decree resolving the NSR litigation or other potential regulatory initiatives, |
· | 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 (including, but not limited to, the Demand for Information issued to FENOC on May 14, 2007), |
· | the timing and outcome of various proceedings before the PUCO (including, but not limited to, the ESP and MRO proceedings as well as the distribution rate cases and the generation supply plan filing for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the RSP and RCP, including the recovery of deferred fuel costs), |
· | Met-Ed’s and Penelec’s transmission service charge filings with the PPUC as well as the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan for Met-Ed and Penelec, |
· | 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, |
· | the ability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), |
· | the ability to improve electric commodity margins and 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 an amount that is 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, and |
· | the risks and other factors discussed from time to time in the registrants’ SEC filings, and other similar factors. |
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. Also, a security rating is not a recommendation to buy, sell or hold securities, and it may be subject to revision or withdrawal at any time and each such rating should be evaluated independently of any other rating. 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.
EXPLANATORY NOTE
This combined Amendment No. 1 on Form 10-K/A for the fiscal year ended December 31, 2007 is being filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company (the “registrants”) to correct common stock dividend payments reported in their respective consolidated statements of cash flows for the year ended December 31, 2007, contained in Part II, Item 8, Financial Statements and Supplementary Data. This correction does not affect the respective registrants’ previously reported consolidated statements of income for the year ended December 31, 2007, nor the consolidated balance sheets, consolidated statements of capitalization and consolidated statements of common stockholder's equity as of December 31, 2007 contained in the combined Form 10-K for the fiscal year ended December 31, 2007, as originally filed on February 29, 2008 (the “original Form 10-K”). Except for Part II, Items 8 and 9(A)T and certain exhibits under Part IV, Item 15, no other information included in the Form 10-K as originally filed is being revised by, or repeated in this amendment.
As discussed under “Restatement of the Consolidated Statements of Cash Flows” in Note 1 to the revised Combined Notes to Consolidated Financial Statements of the registrants included in this Form 10-K/A, the registrants have restated their respective consolidated statements of cash flows to correct common stock dividend payments reported in cash flows from financing activities. The consolidated statements of cash flows for those registrants, as originally filed, erroneously reflected the dividends declared in the third quarter of 2007 applicable to future quarters' payments as dividends paid in the quarter that they were declared. The corrections resulted in a corresponding change in operating liabilities - accounts payable, included in cash flows from operating activities.
The original Form 10-K was a combined Form 10-K representing separate filings by each of the registrants and their affiliates, FirstEnergy Corp., FirstEnergy Solutions Corp., Jersey Central Power & Light Company and Metropolitan Edison Company (the “affiliates”). However, this Form 10-K/A constitutes an amendment only to Part II, Items 8 and 9(A)T and Part IV, Item 15 of the original Form 10-K filed by each registrant. In addition, information contained herein relating to any individual registrant is filed by such registrant on its own behalf and no registrant makes any representation as to information contained herein relating to any other registrant except that information relating toor any of the six FirstEnergy subsidiary registrants is also attributedaffiliates, including, but not limited to, FirstEnergy.any such information contained in the revised Combined Notes to Consolidated Financial Statements included herein.
Please note that the information contained in this Amendment No. 1, including the consolidated financial statements and notes thereto, does not reflect events occurring after the date of the original Form 10-K filing on February 29, 2008, except to the extent described above.
TABLE OF CONTENTS
Contents | Page |
| |
Glossary of Terms | ii-iv |
| |
Part II. Item 8. Financial Statements and Supplementary Data. | 1 |
| |
Ohio Edison Company | |
| | |
| Report of Independent Registered Public Accounting Firm | 2 |
| Consolidated Statements of Income | 3 |
| Consolidated Balance Sheets | 4 |
| Consolidated Statements of Capitalization | 5 |
| Consolidated Statements of Common Stockholder’s Equity | 6 |
| Consolidated Statements of Cash Flows | 7 |
| | |
The Cleveland Electric Illuminating Company | |
| | |
| Report of Independent Registered Public Accounting Firm | 8 |
| Consolidated Statements of Income | 9 |
| Consolidated Balance Sheets | 10 |
| Consolidated Statements of Capitalization | 11 |
| Consolidated Statements of Common Stockholder’s Equity | 12 |
| Consolidated Statements of Cash Flows | 13 |
| | |
The Toledo Edison Company | |
| | |
| Report of Independent Registered Public Accounting Firm | 14 |
| Consolidated Statements of Income | 15 |
| Consolidated Balance Sheets | 16 |
| Consolidated Statements of Capitalization | 17 |
| Consolidated Statements of Common Stockholder’s Equity | 18 |
| Consolidated Statements of Cash Flows | 19 |
| | |
Pennsylvania Electric Company | |
| | |
| Report of Independent Registered Public Accounting Firm | 20 |
| Consolidated Statements of Income | 21 |
| Consolidated Balance Sheets | 22 |
| Consolidated Statements of Capitalization | 23 |
| Consolidated Statements of Common Stockholder’s Equity | 24 |
| Consolidated Statements of Cash Flows | 25 |
| | |
Combined Notes to Consolidated Financial Statements | 26-86 |
| |
Item 9A(T). Controls and Procedures. | 87 |
| |
Item 15. Exhibits. | 88 |
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, Inc., owns and operates transmission facilities |
CEI | The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary |
Centerior | Centerior Energy Corporation, former parent of CEI and TE, which merged with OE to form FirstEnergy on November 8, 1997 |
Companies | OE, CEI, TE, Penn, JCP&L, Met-Ed and Penelec |
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 |
FGCO | FirstEnergy Generation Corp., owns and operates nonnuclearnon-nuclear generating facilities |
FirstEnergy | FirstEnergy Corp., a public utility holding company |
FSG | FirstEnergy Facilities Services Group, LLC, the parent company of several heating,
ventilation, air conditioning and energy management companies
|
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 |
MYR | MYR Group, Inc., a utility infrastructure construction service company |
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 |
Pennsylvania Companies | Met-Ed, Penelec and Penn |
Penelec | Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary |
Penn | Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE |
PNBV | PNBV Capital Trust, a special purpose entity created by OE in 1996 |
Shippingport | Shippingport Capital Trust, a special purpose entity created by CEI and TE in 1997 |
TE | The Toledo Edison Company, an Ohio electric utility operating subsidiary |
| |
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 |
BechtelAOCI | Bechtel Power CorporationAccumulated Other Comprehensive Income |
AOCL | Accumulated Other Comprehensive Loss |
APIC | Additional Paid-In Capital |
AQC | Air Quality Control |
ARB | Accounting Research Bulletin |
ARO | Asset Retirement Obligation |
BGS | Basic Generation Service |
B&WBPJ | Babcock & Wilcox CompanyBest Professional Judgment |
CAA | Clean Air Act |
CAIR | Clean Air Interstate Rule |
CAL | Confirmatory Action Letter |
CAMR | Clean Air Mercury Rule |
CAVR | Clean Air Visibility Rule |
CAT | Commercial Activity Tax |
CBP | Competitive Bid Process |
CO22 | Carbon Dioxide |
CTC | Competitive Transition Charge |
DFI | Demand for Information |
DOE | United States Department of Energy |
DOJ | United States Department of Justice |
DPL | Dayton Power & Light Company |
DRA | Division of the Rate PayerRatepayer Advocate |
ECAR | East Central Area Reliability Coordination Agreement |
ECO | Electro-Catalytic Oxidation |
GLOSSARY OF TERMS Cont’d.
EIS | Energy Independence Strategy |
EITF | Emerging Issues Task Force |
EITF 06-11 | EITF 06-11, “Accounting for Income Tax Benefits of Dividends or Share-based Payment Awards” |
EMP | Energy Master Plan |
EPA | Environmental Protection Agency only in various other terms |
EPACT | Energy Policy Act of 2005 |
EPRIFASB | Electric Power Research Institute |
ERO | Electric Reliability OrganizationFinancial Accounting Standards Board |
FERC | Federal Energy Regulatory Commission |
FIN | FASB Interpretation |
FIN 39-1 | FIN 39-1, “Amendment of FASB Interpretation No. 39” |
FIN 46R | FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" |
FIN 47 | FIN 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" |
FIN 48 | FIN 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” |
FMB | First Mortgage Bonds |
FSP | FASB Staff Position |
FSP SFAS 115-1 and SFAS 124-1 | FSP SFAS 115-1 and SFAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” |
FTR | Financial Transmission Rights |
GAAP | Accounting Principles Generally Accepted in the United States |
GHG | Greenhouse Gases |
HVAC | Heating, Ventilation and Air-conditioning |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
kv | Kilovolt |
KWH | Kilowatt-hours |
LOC | Letter of Credit |
MEIUG | Met-Ed Industrial Users Group |
MISO | Midwest Independent Transmission System Operator, Inc. |
MOUMTC | Memorandum of UnderstandingMarket Transition Charge |
MW | Megawatts |
NAAQS | National Ambient Air Quality Standards |
NERC | North American Electric Reliability Corporation |
NEIL | Nuclear Electric Insurance Limited |
NJBPU | New Jersey Board of Public Utilities |
NOPR | Notice of Proposed Rulemaking |
NOV | NoticesNotice of Violation |
NOXX | Nitrogen Oxide |
NRC | Nuclear Regulatory Commission |
NSR | New Source Review |
NUG | Non-Utility GeneratorGeneration |
NUGC | Non-Utility Generation Charge |
GLOSSARY OF TERMS, Cont'd
NYSEOCA | New York Stock ExchangeOffice of Consumer Advocate |
OCCOCI | Ohio Consumers' CounselOther Comprehensive Income |
OVECOPEB | Ohio Valley Electric CorporationOther Post-Employment Benefits |
PICA | Penelec Industrial Customer Alliance |
PJM | PJM Interconnection L.L.C.L. L. C. |
PLR | Provider of Last ResortResort; an electric utility’s obligation to provide generation service to customers whose alternative supplier fails to deliver service |
PPUC | Pennsylvania Public Utility Commission |
PRP | Potentially Responsible Party |
PSA | Power Supply Agreement |
PUCO | Public Utilities Commission of Ohio |
PUHCA | Public Utility Holding Company Act of 1935 |
RCP | Rate Certainty Plan |
REC | Renewable Energy Certificate |
RECB | Regional Expansion Criteria and Benefits |
RFP | Request Forfor Proposal |
ROP | Reactor Oversight Process |
RSP | Rate Stabilization Plan |
RTC | Regulatory Transition Charge |
RTO | Regional Transmission Organization |
GLOSSARY OF TERMS Cont’d.
S&P | Standard & Poor’s Ratings Service |
SBC | Societal Benefits Charge |
SCR | Selective Catalytic Reduction |
SEC | U.S. Securities and Exchange Commission |
SECA | Seams Elimination Cost Adjustment |
SERP | Supplemental Executive Retirement Plan |
SFAS | Statement of Financial Accounting Standards |
SFAS 13 | SFAS No. 13, “Accounting for Leases” |
SFAS 71 | SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" |
SFAS 101 | SFAS No. 101, "Accounting for Discontinuation of Application of SFAS 71" |
SFAS 107 | SFAS No. 107, “Disclosure about Fair Value of Financial Instruments” |
SFAS 109 | SFAS No. 109, “Accounting for Income Taxes” |
SFAS 115 | SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" |
SFAS 123(R) | SFAS No. 123(R), "Share-Based Payment" |
SFAS 133 | SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” |
SFAS 141(R) | SFAS No. 141(R), “Business Combinations” |
SFAS 142 | SFAS No. 142, "Goodwill and Other Intangible Assets" |
SFAS 143 | SFAS No. 143, "Accounting for Asset Retirement Obligations" |
SFAS 144 | SFAS No. 144, "Accounting for the Impairment ofor Disposal of Long-Lived Assets" |
SFAS 157 | SFAS No. 157, “Fair Value Measurements” |
SFAS 158 | SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R)” |
SFAS 159 | SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” |
SFAS 160 | SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51” |
SIP | State Implementation Plan(s) Under the Clean Air Act |
SNCR | Selective Non-Catalytic Reduction |
SO22 | Sulfur Dioxide |
TBC | Transition Bond Charge |
TMI-1 | Three Mile Island Unit 1 |
TMI-2 | Three Mile Island Unit 2 |
VIE | Variable Interest Entity |
FORM 10-K
TABLE OF CONTENTS
| Page
|
Part I
| |
Item 1.Business
| 1 |
The Company | 1 |
Generation Asset Transfers | 2 |
Divestitures | 2 |
Utility Regulation | 2 |
Regulatory Accounting | 3 |
Reliability Initiatives | 3 |
PUCO Rate Matters | 5 |
PPUC Rate Matters | 6 |
NJBPU Rate Matters | 8 |
FERC Rate Matters | 10 |
Capital Requirements | 11 |
Nuclear Regulation | 14 |
Nuclear Insurance | 14 |
Environmental Matters | 15 |
Clean Air Act Compliance | 15 |
National Ambient Air Quality Standards | 16 |
Mercury Emissions | 16 |
W. H. Sammis Plant | 17 |
Climate Change | 17 |
Clean Water Act | 17 |
Regulation of Hazardous Waste | 18 |
Fuel Supply | 18 |
System Capacity and Reserves | 19 |
Regional Reliability | 19 |
Competition | 19 |
Research and Development | 20 |
Executive Officers | 21 |
Employees | 22 |
FirstEnergy Website | 22 |
| |
Item 1A.Risk Factors
| 22 |
| |
Item 1B.Unresolved Staff Comments
| 30 |
| |
Item 2. Properties | 30 |
| |
Item 3. Legal Proceedings | 32 |
| |
Item 4. Submission of Matters to a Vote of Security Holders | 32 |
| |
Part II
| |
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities | 32 |
| |
Item 6. Selected Financial Data | 33 |
| |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 33 |
| |
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
| 33 |
| |
Item 8. Financial Statements and Supplementary Data | 33 |
| |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | 33 |
| |
Item 9A.Controls and Procedures
| 33 |
| |
Item 9B.Other Information
| 34 |
| |
Part III
| |
Item 10.Directors and Executive Officers of the Registrant
| 34 |
| |
Item 11.Executive Compensation
| 35 |
| |
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
| 35 |
| |
Item 13.Certain Relationships and Related Transactions
| 35 |
| |
Item 14.Principal Accounting Fees and Services
| 35 |
| |
Part IV
| |
Item 15.Exhibits, Financial Statement Schedules
| 36 |
PART I
ITEM 1. BUSINESSII
The CompanyITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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. 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., FirstEnergy Ventures Corp., FENOC, FirstEnergy Securities Transfer Company, GPU Diversified Holdings, LLC, GPU Telecom Services, Inc., GPU Nuclear, Inc. and FESC.
The Companies' 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 a 1,100 square mile area of western Pennsylvania. The area it serves has a population of approximately 0.3 million. Penn complies with the regulations, orders, policies and practices prescribed by the 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 1.9 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 and operates major, high-voltage transmission facilities, which consist of approximately 7,100 circuit miles (5,814 pole miles) of transmission lines with nominal voltages of 345 kV, 138 kV and 69 kV. ATSI is the control area operator for the Ohio Companies and Penn service areas. ATSI plans, operates and maintains the transmission system in accordance with the requirements of the FERC, NERC and other applicable regulatory agencies to ensure reliable service to FirstEnergy's customers (see Transmission Rate Matters for a discussion of ATSI's participation in MISO).
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 1.2 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 1.7 million. Penelec, as lessee of the property of its subsidiary, The Waverly Electric Light & Power Company, also serves a population of about 8,400 in Waverly, New York and its vicinity. Penelec complies with the regulations, orders, policies and practices prescribed by the SEC, FERC and PPUC.
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 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.
As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8), defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4) and conditional asset retirement obligations as of December 31, 2005 (Note 2(G) and Note 11).
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2007 financial statements to correct an error.
|
PricewaterhouseCoopers LLP Cleveland, Ohio February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008. |
OHIO EDISON COMPANY | |
| | | | | | | |
CONSOLIDATED STATEMENTS OF INCOME | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the Years Ended December 31, | | 2007 | | 2006 | | 2005 | |
| | (In thousands) | |
REVENUES (Note 3): | | | | | | | |
Electric sales | | $ | 2,375,306 | | $ | 2,312,956 | | $ | 2,861,043 | |
Excise and gross receipts tax collections | | | 116,223 | | | 114,500 | | | 114,510 | |
Total revenues | | | 2,491,529 | | | 2,427,456 | | | 2,975,553 | |
| | | | | | | | | | |
EXPENSES (Note 3): | | | | | | | | | | |
Fuel | | | 11,691 | | | 11,047 | | | 53,113 | |
Purchased power | | | 1,359,783 | | | 1,275,975 | | | 939,193 | |
Nuclear operating costs | | | 174,696 | | | 186,377 | | | 337,901 | |
Other operating costs | | | 381,339 | | | 378,717 | | | 404,763 | |
Provision for depreciation | | | 77,405 | | | 72,982 | | | 108,583 | |
Amortization of regulatory assets | | | 191,885 | | | 190,245 | | | 457,205 | |
Deferral of new regulatory assets | | | (177,633 | ) | | (159,465 | ) | | (151,032 | ) |
General taxes | | | 181,104 | | | 180,446 | | | 193,284 | |
Total expenses | | | 2,200,270 | | | 2,136,324 | | | 2,343,010 | |
| | | | | | | | | | |
OPERATING INCOME | | | 291,259 | | | 291,132 | | | 632,543 | |
| | | | | | | | | | |
OTHER INCOME (EXPENSE) (Note 3): | | | | | | | | | | |
Investment income | | | 85,848 | | | 130,853 | | | 99,269 | |
Miscellaneous income (expense) | | | 4,409 | | | 1,751 | | | (25,190 | ) |
Interest expense | | | (83,343 | ) | | (90,355 | ) | | (75,388 | ) |
Capitalized interest | | | 266 | | | 2,198 | | | 10,849 | |
Subsidiary's preferred stock dividend requirements | | | - | | | (597 | ) | | (1,689 | ) |
Total other income | | | 7,180 | | | 43,850 | | | 7,851 | |
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES AND CUMULATIVE | | | | | | | |
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE | | | 298,439 | | | 334,982 | | | 640,394 | |
| | | | | | | | | | |
INCOME TAXES | | | 101,273 | | | 123,343 | | | 309,996 | |
| | | | | | | | | | |
INCOME BEFORE CUMULATIVE EFFECT OF | | | | | | | | | | |
A CHANGE IN ACCOUNTING PRINCIPLE | | | 197,166 | | | 211,639 | | | 330,398 | |
| | | | | | | | | | |
Cumulative effect of a change in accounting principle | | | | | | | |
(net of income tax benefit of $9,223,000) (Note 2(G)) | | | - | | | - | | | (16,343 | ) |
| | | | | | | | | | |
NET INCOME | | | 197,166 | | | 211,639 | | | 314,055 | |
| | | | | | | | | | |
PREFERRED STOCK DIVIDEND REQUIREMENTS | | | | | | | |
AND REDEMPTION PREMIUM | | | - | | | 4,552 | | | 2,635 | |
| | | | | | | | | | |
EARNINGS ON COMMON STOCK | | $ | 197,166 | | $ | 207,087 | | $ | 311,420 | |
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company | |
are an integral part of these statements. | | | | | | | | | | |
OHIO EDISON COMPANY |
| | | | | |
CONSOLIDATED BALANCE SHEETS |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 732 | | $ | 712 | |
Receivables- | | | | | | | |
Customers (less accumulated provisions of $8,032,000 and $15,033,000, respectively, | |
for uncollectible accounts) | | | 248,990 | | | 234,781 | |
Associated companies | | | 185,437 | | | 141,084 | |
Other (less accumulated provisions of $5,639,000 and $1,985,000, respectively, | | | | |
for uncollectible accounts) | | | 12,395 | | | 13,496 | |
Notes receivable from associated companies | | | 595,859 | | | 458,647 | |
Prepayments and other | | | 10,341 | | | 13,606 | |
| | | 1,053,754 | | | 862,326 | |
UTILITY PLANT: | | | | | | | |
In service | | | 2,769,880 | | | 2,632,207 | |
Less - Accumulated provision for depreciation | | | 1,090,862 | | | 1,021,918 | |
| | | 1,679,018 | | | 1,610,289 | |
Construction work in progress | | | 50,061 | | | 42,016 | |
| | | 1,729,079 | | | 1,652,305 | |
OTHER PROPERTY AND INVESTMENTS: | | | | | | | |
Long-term notes receivable from associated companies | | | 258,870 | | | 1,219,325 | |
Investment in lease obligation bonds (Note 6) | | | 253,894 | | | 291,393 | |
Nuclear plant decommissioning trusts | | | 127,252 | | | 118,209 | |
Other | | | 36,037 | | | 38,160 | |
| | | 676,053 | | | 1,667,087 | |
DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | |
Regulatory assets | | | 737,326 | | | 741,564 | |
Pension assets | | | 228,518 | | | 68,420 | |
Property taxes | | | 65,520 | | | 60,080 | |
Unamortized sale and leaseback costs | | | 45,133 | | | 50,136 | |
Other | | | 48,075 | | | 18,696 | |
| | | 1,124,572 | | | 938,896 | |
| | $ | 4,583,458 | | $ | 5,120,614 | |
LIABILITIES AND CAPITALIZATION | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Currently payable long-term debt | | $ | 333,224 | | $ | 159,852 | |
Short-term borrowings- | | | | | | | |
Associated companies | | | 50,692 | | | 113,987 | |
Other | | | 2,609 | | | 3,097 | |
Accounts payable- | | | | | | | |
Associated companies | | | 174,088 | | | 115,252 | |
Other | | | 19,881 | | | 13,068 | |
Accrued taxes | | | 89,571 | | | 187,306 | |
Accrued interest | | | 22,378 | | | 24,712 | |
Other | | | 65,163 | | | 64,519 | |
| | | 757,606 | | | 681,793 | |
CAPITALIZATION (See Consolidated Statements of Capitalization): | | | | | | | |
Common stockholder's equity | | | 1,576,175 | | | 1,972,385 | |
Long-term debt and other long-term obligations | | | 840,591 | | | 1,118,576 | |
| | | 2,416,766 | | | 3,090,961 | |
NONCURRENT LIABILITIES: | | | | | | | |
Accumulated deferred income taxes | | | 781,012 | | | 674,288 | |
Accumulated deferred investment tax credits | | | 16,964 | | | 20,532 | |
Asset retirement obligations | | | 93,571 | | | 88,223 | |
Retirement benefits | | | 178,343 | | | 167,379 | |
Deferred revenues - electric service programs | | | 46,849 | | | 86,710 | |
Other | | | 292,347 | | | 310,728 | |
| | | 1,409,086 | | | 1,347,860 | |
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13) | | | | | | | |
| | $ | 4,583,458 | | $ | 5,120,614 | |
| | | | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral part of | |
these balance sheets. | | | | | | | |
OHIO EDISON COMPANY | |
| | | | | |
CONSOLIDATED STATEMENTS OF CAPITALIZATION | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
COMMON STOCKHOLDER'S EQUITY: | | | | | |
Common stock, without par value, 175,000,000 shares authorized, | | | | | |
60 and 80 shares outstanding, respectively | | $ | 1,220,512 | | $ | 1,708,441 | |
Accumulated other comprehensive income (Note 2(F)) | | | 48,386 | | | 3,208 | |
Retained earnings (Note 10(A)) | | | 307,277 | | | 260,736 | |
Total | | | 1,576,175 | | | 1,972,385 | |
| | | | | | | |
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 10(C)): | | | | |
Ohio Edison Company- | | | | | | | |
Secured notes: | | | | | | | |
5.375% due 2028 | | | 13,522 | | | 13,522 | |
* 3.780% due 2029 | | | - | | | 100,000 | |
* 3.750% due 2029 | | | - | | | 6,450 | |
7.008% weighted average interest rate due 2007-2010 | | | 3,900 | | | 8,253 | |
Total | | | 17,422 | | | 128,225 | |
| | | | | | | |
Unsecured notes: | | | | | | | |
4.000% due 2008 | | | 175,000 | | | 175,000 | |
* 3.400% due 2014 | | | 50,000 | | | 50,000 | |
5.450% due 2015 | | | 150,000 | | | 150,000 | |
6.400% due 2016 | | | 250,000 | | | 250,000 | |
* 3.850% due 2018 | | | 33,000 | | | 33,000 | |
* 3.800% due 2018 | | | 23,000 | | | 23,000 | |
* 3.750% due 2023 | | | 50,000 | | | 50,000 | |
6.875% due 2036 | | | 350,000 | | | 350,000 | |
Total | | | 1,081,000 | | | 1,081,000 | |
| | | | | | | |
Pennsylvania Power Company- | | | | | | | |
First mortgage bonds: | | | | | | | |
9.740% due 2007-2019 | | | 11,721 | | | 12,695 | |
7.625% due 2023 | | | 6,500 | | | 6,500 | |
Total | | | 18,221 | | | 19,195 | |
| | | | | | | |
Secured notes: | | | | | | | |
5.400% due 2013 | | | 1,000 | | | 1,000 | |
5.375% due 2028 | | | 1,734 | | | 1,734 | |
Total | | | 2,734 | | | 2,734 | |
| | | | | | | |
Unsecured notes: | | | | | | | |
5.390% due 2010 to associated company | | | 62,900 | | | 62,900 | |
Total | | | 62,900 | | | 62,900 | |
| | | | | | | |
Capital lease obligations (Note 6) | | | 329 | | | 362 | |
Net unamortized discount on debt | | | (8,791 | ) | | (15,988 | ) |
Long-term debt due within one year | | | (333,224 | ) | | (159,852 | ) |
Total long-term debt and other long-term obligations | | | 840,591 | | | 1,118,576 | |
TOTAL CAPITALIZATION | | $ | 2,416,766 | | $ | 3,090,961 | |
| | | | | | | |
* Denotes variable rate issue with applicable year-end interest rate shown. | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an | |
integral part of these statements. | | | | | | | |
OHIO EDISON COMPANY | |
| | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY | |
| | | | | | | | | | | |
| | | | | | Accumulated | | | |
| | | | Common Stock | | Other | | | |
| | Comprehensive | | Number | | Carrying | | Comprehensive | | Retained | |
| | Income | | of Shares | | Value | | Income (Loss) | | Earnings | |
| | (Dollars in thousands) | |
Balance, January 1, 2005 | | | | | 100 | | $ | 2,098,729 | | $ | (47,118 | ) | $ | 442,198 | |
Net income | | $ | 314,055 | | | | | | | | | | | | 314,055 | |
Minimum liability for unfunded retirement | | | | | | | | | | | | | | | | |
benefits, net of $49,027,000 of income taxes | | | 69,463 | | | | | | | | | 69,463 | | | | |
Unrealized loss on investments, net of | | | | | | | | | | | | | | | | |
$13,068,000 of income tax benefits | | | (18,251 | ) | | | | | | | | (18,251 | ) | | | |
Comprehensive income | | $ | 365,267 | | | | | | | | | | | | | |
Affiliated company asset transfers | | | | | | | | | 198,147 | | | | | | (106,774 | ) |
Restricted stock units | | | | | | | | | 32 | | | | | | | |
Preferred stock redemption adjustment | | | | | | | | | 345 | | | | | | | |
Cash dividends on preferred stock | | | | | | | | | | | | | | | (2,635 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | (446,000 | ) |
Balance, December 31, 2005 | | | | | | 100 | | | 2,297,253 | | | 4,094 | | | 200,844 | |
Net income | | $ | 211,639 | | | | | | | | | | | | 211,639 | |
Unrealized gain on investments, net of | | | | | | | | | | | | | | | | |
$4,455,000 of income taxes | | | 7,954 | | | | | | | | | 7,954 | | | | |
Comprehensive income | | $ | 219,593 | | | | | | | | | | | | | |
Net liability for unfunded retirement benefits | | | | | | | | | | | | | |
due to the implementation of SFAS 158, net | | | | | | | | | | | | | |
of $22,287,000 of income tax benefits (Note 4) | | | | | | | | | (8,840 | ) | | | |
Affiliated company asset transfers | | | | | | | | | (87,893 | ) | | | | | | |
Restricted stock units | | | | | | | | | 58 | | | | | | | |
Stock based compensation | | | | | | | | | 82 | | | | | | | |
Repurchase of common stock | | | | | | (20 | ) | | (500,000 | ) | | | | | | |
Preferred stock redemption adjustments | | | | | | | | | (1,059 | ) | | | | | 604 | |
Preferred stock redemption premiums | | | | | | | | | | | | | | | (2,928 | ) |
Cash dividends on preferred stock | | | | | | | | | | | | | | | (1,423 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | (148,000 | ) |
Balance, December 31, 2006 | | | | | | 80 | | | 1,708,441 | | | 3,208 | | | 260,736 | |
Net income | | $ | 197,166 | | | | | | | | | | | | 197,166 | |
Unrealized gain on investments, net of | | | | | | | | | | | | | | | | |
$2,784,000 of income taxes | | | 3,874 | | | | | | | | | 3,874 | | | | |
Pension and other postretirement benefits, net | | | | | | | | | | | | | |
of $37,820,000 of income taxes (Note 4) | | | 41,304 | | | | | | | | | 41,304 | | | | |
Comprehensive income | | $ | 242,344 | | | | | | | | | | | | | |
Restricted stock units | | | | | | | | | 129 | | | | | | | |
Stock based compensation | | | | | | | | | 17 | | | | | | | |
Repurchase of common stock | | | | | | (20 | ) | | (500,000 | ) | | | | | | |
Consolidated tax benefit allocation | | | | | | | | | 11,925 | | | | | | | |
FIN 48 cumulative effect adjustment | | | | | | | | | | | | | | | (625 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | (150,000 | ) |
Balance, December 31, 2007 | | | | | | 60 | | $ | 1,220,512 | | $ | 48,386 | | $ | 307,277 | |
| | | | | | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as the relate to Ohio Edison Company are an integral | |
part of these statements. | | | | | | | | | | | | | | | | |
OHIO EDISON COMPANY | |
| | | | | | | | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | Restated | | | | | | | |
For the Years Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| | | | | (In thousands) | | | | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income | | $ | 197,166 | | | $ | 211,639 | | | $ | 314,055 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | | | | | |
Provision for depreciation | | | 77,405 | | | | 72,982 | | | | 108,583 | |
Amortization of regulatory assets | | | 191,885 | | | | 190,245 | | | | 457,205 | |
Deferral of new regulatory assets | | | (177,633 | ) | | | (159,465 | ) | | | (151,032 | ) |
Nuclear fuel and lease amortization | | | 33 | | | | 735 | | | | 45,769 | |
Amortization of lease costs | | | (7,425 | ) | | | (7,928 | ) | | | (6,365 | ) |
Deferred income taxes and investment tax credits, net | | | 423 | | | | (68,259 | ) | | | (29,750 | ) |
Accrued compensation and retirement benefits | | | (46,313 | ) | | | 5,004 | | | | 14,506 | |
Cumulative effect of a change in accounting principle | | | - | | | | - | | | | 16,343 | |
Pension trust contributions | | | (20,261 | ) | | | - | | | | (106,760 | ) |
Decrease (increase) in operating assets- | | | | | | | | | | | | |
Receivables | | | (57,461 | ) | | | 103,925 | | | | 84,688 | |
Materials and supplies | | | - | | | | - | | | | (3,367 | ) |
Prepayments and other current assets | | | 3,265 | | | | 1,275 | | | | (1,778 | ) |
Increase (decrease) in operating liabilities- | | | | | | | | | | | | |
Accounts payable | | | 15,649 | | | | (53,798 | ) | | | 45,149 | |
Accrued taxes | | | (81,079 | ) | | | 23,436 | | | | 10,470 | |
Accrued interest | | | (2,334 | ) | | | 16,379 | | | | (3,659 | ) |
Electric service prepayment programs | | | (39,861 | ) | | | (34,983 | ) | | | 121,692 | |
Other | | | 6,096 | | | | 5,882 | | | | (464 | ) |
Net cash provided from operating activities | | | 59,555 | | | | 307,069 | | | | 915,285 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
New Financing- | | | | | | | | | | | | |
Long-term debt | | | - | | | | 592,180 | | | | 146,450 | |
Short-term borrowings, net | | | - | | | | - | | | | 26,404 | |
Redemptions and Repayments- | | | | | | | | | | | | |
Common stock | | | (500,000 | ) | | | (500,000 | ) | | | - | |
Preferred stock | | | - | | | | (78,480 | ) | | | (37,750 | ) |
Long-term debt | | | (112,497 | ) | | | (613,002 | ) | | | (414,020 | ) |
Short-term borrowings, net | | | (114,475 | ) | | | (186,511 | ) | | | - | |
Dividend Payments- | | | | | | | | | | | | |
Common stock | | | (100,000 | ) | | | (148,000 | ) | | | (446,000 | ) |
Preferred stock | | | - | | | | (1,423 | ) | | | (2,635 | ) |
Net cash used for financing activities | | | (826,972 | ) | | | (935,236 | ) | | | (727,551 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property additions | | | (145,311 | ) | | | (123,210 | ) | | | (266,823 | ) |
Sales of investment securities held in trusts | | | 37,736 | | | | 39,226 | | | | 283,816 | |
Purchases of investment securities held in trusts | | | (43,758 | ) | | | (41,300 | ) | | | (315,356 | ) |
Loan repayments from (loans to) associated companies, net | | | (79,115 | ) | | | 78,101 | | | | (35,553 | ) |
Collection of principal on long-term notes receivable | | | 960,327 | | | | 553,734 | | | | 199,848 | |
Cash investments | | | 37,499 | | | | 112,584 | | | | (49,270 | ) |
Other | | | 59 | | | | 8,815 | | | | (4,697 | ) |
Net cash provided from (used for) investing activities | | | 767,437 | | | | 627,950 | | | | (188,035 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 20 | | | | (217 | ) | | | (301 | ) |
Cash and cash equivalents at beginning of year | | | 712 | | | | 929 | | | | 1,230 | |
Cash and cash equivalents at end of year | | $ | 732 | | | $ | 712 | | | $ | 929 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash Paid During the Year- | | | | | | | | | | | | |
Interest (net of amounts capitalized) | | $ | 80,958 | | | $ | 57,243 | | | $ | 67,239 | |
Income taxes | | $ | 133,170 | | | $ | 156,610 | | | $ | 285,819 | |
| | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as the relate to Ohio Edison Company are an integral part of | |
these statements. | | | | | | | | | | | | |
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors of
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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 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.
As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8), defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4) and conditional asset retirement obligations as of December 31, 2005 (Note 2(G) and Note 11).
FES was organized underAs discussed in Note 1 to the lawsconsolidated financial statements, the Company has restated its 2007 financial statements to correct an error.
|
PricewaterhouseCoopers LLP Cleveland, Ohio February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008. |
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | | | |
CONSOLIDATED STATEMENTS OF INCOME | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the Years Ended December 31, | | 2007 | | 2006 | | 2005 | |
| | (In thousands) | |
REVENUES (Note 3): | | | | | | | |
Electric sales | | $ | 1,753,385 | | $ | 1,702,089 | | $ | 1,799,211 | |
Excise tax collections | | | 69,465 | | | 67,619 | | | 68,950 | |
Total revenues | | | 1,822,850 | | | 1,769,708 | | | 1,868,161 | |
| | | | | | | | | | |
EXPENSES (Note 3): | | | | | | | | | | |
Fuel | | | 40,551 | | | 50,291 | | | 85,993 | |
Purchased power | | | 748,214 | | | 704,517 | | | 557,593 | |
Nuclear operating costs | | | - | | | - | | | 142,698 | |
Other operating costs | | | 310,274 | | | 290,904 | | | 301,366 | |
Provision for depreciation | | | 75,238 | | | 63,589 | | | 127,959 | |
Amortization of regulatory assets | | | 144,370 | | | 127,403 | | | 227,221 | |
Deferral of new regulatory assets | | | (149,556 | ) | | (128,220 | ) | | (163,245 | ) |
General taxes | | | 141,551 | | | 134,663 | | | 152,678 | |
Total expenses | | | 1,310,642 | | | 1,243,147 | | | 1,432,263 | |
| | | | | | | | | | |
OPERATING INCOME | | | 512,208 | | | 526,561 | | | 435,898 | |
| | | | | | | | | | |
OTHER INCOME (EXPENSE) (Note 3): | | | | | | | | | | |
Investment income | | | 57,724 | | | 100,816 | | | 86,898 | |
Miscellaneous income (expense) | | | 7,902 | | | 6,428 | | | (9,031 | ) |
Interest expense | | | (138,977 | ) | | (141,710 | ) | | (132,226 | ) |
Capitalized interest | | | 918 | | | 2,618 | | | 2,533 | |
Total other expense | | | (72,433 | ) | | (31,848 | ) | | (51,826 | ) |
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES AND CUMULATIVE | | | | | | | |
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE | | | 439,775 | | | 494,713 | | | 384,072 | |
| | | | | | | | | | |
INCOME TAXES | | | 163,363 | | | 188,662 | | | 153,014 | |
| | | | | | | | | | |
INCOME BEFORE CUMULATIVE EFFECT OF | | | | | | | | | | |
A CHANGE IN ACCOUNTING PRINCIPLE | | | 276,412 | | | 306,051 | | | 231,058 | |
| | | | | | | | | | |
Cumulative effect of a change in accounting principle (net of income | | | | | | | |
tax benefit of $2,101,000) (Note 2(G)) | | | - | | | - | | | (3,724 | ) |
| | | | | | | | | | |
NET INCOME | | | 276,412 | | | 306,051 | | | 227,334 | |
| | | | | | | | | | |
PREFERRED STOCK DIVIDEND REQUIREMENTS | | | - | | | - | | | 2,918 | |
| | | | | | | | | | |
EARNINGS ON COMMON STOCK | | $ | 276,412 | | $ | 306,051 | | $ | 224,416 | |
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company | |
are an integral part of these statements. | | | | | | | | | | |
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | |
CONSOLIDATED BALANCE SHEETS | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 232 | | $ | 221 | |
Receivables- | | | | | | | |
Customers (less accumulated provisions of $7,540,000 and | | | 251,000 | | | 245,193 | |
$6,783,000, respectively, for uncollectible accounts) | | | | | | | |
Associated companies | | | 166,587 | | | 249,735 | |
Other | | | 12,184 | | | 14,240 | |
Notes receivable from associated companies | | | 52,306 | | | 27,191 | |
Prepayments and other | | | 2,327 | | | 2,314 | |
| | | 484,636 | | | 538,894 | |
UTILITY PLANT: | | | | | | | |
In service | | | 2,256,956 | | | 2,136,766 | |
Less - Accumulated provision for depreciation | | | 872,801 | | | 819,633 | |
| | | 1,384,155 | | | 1,317,133 | |
Construction work in progress | | | 41,163 | | | 46,385 | |
| | | 1,425,318 | | | 1,363,518 | |
OTHER PROPERTY AND INVESTMENTS: | | | | | | | |
Long-term notes receivable from associated companies | | | - | | | 486,634 | |
Investment in lessor notes (Note 7) | | | 463,431 | | | 519,611 | |
Other | | | 10,285 | | | 13,426 | |
| | | 473,716 | | | 1,019,671 | |
DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | |
Goodwill | | | 1,688,521 | | | 1,688,521 | |
Regulatory assets | | | 870,695 | | | 854,588 | |
Pension assets (Note 4) | | | 62,471 | | | - | |
Property taxes | | | 76,000 | | | 65,000 | |
Other | | | 32,987 | | | 33,306 | |
| | | 2,730,674 | | | 2,641,415 | |
| | $ | 5,114,344 | | $ | 5,563,498 | |
LIABILITIES AND CAPITALIZATION | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Currently payable long-term debt | | $ | 207,266 | | $ | 120,569 | |
Short-term borrowings- | | | | | | | |
Associated companies | | | 531,943 | | | 218,134 | |
Accounts payable- | | | | | | | |
Associated companies | | | 169,187 | | | 365,678 | |
Other | | | 5,295 | | | 7,194 | |
Accrued taxes | | | 94,991 | | | 128,829 | |
Accrued interest | | | 13,895 | | | 19,033 | |
Lease market valuation liability | | | - | | | 60,200 | |
Other | | | 34,350 | | | 52,101 | |
| | | 1,056,927 | | | 971,738 | |
CAPITALIZATION (See Consolidated Statements of Capitalization): | | | | | | | |
Common stockholder's equity | | | 1,489,835 | | | 1,468,903 | |
Long-term debt and other long-term obligations | | | 1,459,939 | | | 1,805,871 | |
| | | 2,949,774 | | | 3,274,774 | |
NONCURRENT LIABILITIES: | | | | | | | |
Accumulated deferred income taxes | | | 725,523 | | | 470,707 | |
Accumulated deferred investment tax credits | | | 18,567 | | | 20,277 | |
Lease market valuation liability | | | - | | | 547,800 | |
Retirement benefits | | | 93,456 | | | 122,862 | |
Deferred revenues - electric service programs | | | 27,145 | | | 51,588 | |
Lease assignment payable to associated companies | | | 131,773 | | | - | |
| | | 111,179 | | | 103,752 | |
| | | 1,107,643 | | | 1,316,986 | |
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13) | | | | | | | |
| | $ | 5,114,344 | | $ | 5,563,498 | |
| | | | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating | |
Company are an integral part of these balance sheets. | | | | | | | |
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | |
CONSOLIDATED STATEMENTS OF CAPITALIZATION | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
| | | | | |
COMMON STOCKHOLDER'S EQUITY: | | | | | |
Common stock, without par value, 105,000,000 shares authorized, | | | | | |
67,930,743 shares outstanding | | $ | 873,536 | | $ | 860,133 | |
Accumulated other comprehensive loss (Note 2(F)) | | | (69,129 | ) | | (104,431 | ) |
Retained earnings (Note 10(A)) | | | 685,428 | | | 713,201 | |
Total | | | 1,489,835 | | | 1,468,903 | |
| | | | | | | |
| | | | | | | |
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 10(C)): | | | | | | | |
First mortgage bonds- | | | | | | | |
6.860% due 2008 | | | 125,000 | | | 125,000 | |
Total | | | 125,000 | | | 125,000 | |
| | | | | | | |
Secured notes- | | | | | | | |
7.130% due 2007 | | | - | | | 120,000 | |
7.430% due 2009 | | | 150,000 | | | 150,000 | |
7.880% due 2017 | | | 300,000 | | | 300,000 | |
6.000% due 2020 | | | - | | | 62,560 | |
6.100% due 2020 | | | - | | | 70,500 | |
5.375% due 2028 | | | 5,993 | | | 5,993 | |
* 3.750% due 2030 | | | 81,640 | | | 81,640 | |
* 3.650% due 2035 | | | - | | | 53,900 | |
Total | | | 537,633 | | | 844,593 | |
| | | | | | | |
Unsecured notes- | | | | | | | |
6.000% due 2013 | | | - | | | 78,700 | |
5.650% due 2013 | | | 300,000 | | | 300,000 | |
5.700% due 2017 | | | 250,000 | | | - | |
9.000% due 2031 | | | - | | | 103,093 | |
5.950% due 2036 | | | 300,000 | | | 300,000 | |
7.651% due to associated companies 2008-2016 (Note 7) | | | 153,044 | | | 167,696 | |
Total | | | 1,003,044 | | | 949,489 | |
| | | | | | | |
| | | | | | | |
Capital lease obligations (Note 6) | | | 3,748 | | | 4,371 | |
Net unamortized premium (discount) on debt | | | (2,220 | ) | | 2,987 | |
Long-term debt due within one year | | | (207,266 | ) | | (120,569 | ) |
Total long-term debt and other long-term obligations | | | 1,459,939 | | | 1,805,871 | |
TOTAL CAPITALIZATION | | $ | 2,949,774 | | $ | 3,274,774 | |
| | | | | | | |
| | | | | | | |
* Denotes variable rate issue with applicable year-end interest rate shown. | | | | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating | |
Company are an integral part of these statements. | | | | | | | |
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY | |
| | | | | | | | | | | |
| | | | | | | | Accumulated | | | |
| | | | Common Stock | | Other | | | |
| | Comprehensive | | Number | | Carrying | | Comprehensive | | Retained | |
| | Income | | of Shares | | Value | | Income (Loss) | | Earnings | |
| | (Dollars in thousands) | |
| | | | | | | | | | | |
Balance, January 1, 2005 | | | | | 79,590,689 | | $ | 1,281,962 | | $ | 17,859 | | $ | 553,740 | |
Net income | | $ | 227,334 | | | | | | | | | | | | 227,334 | |
Unrealized loss on investments, net of | | | | | | | | | | | | | | | | |
$27,734,000 of income tax benefits | | | (39,472 | ) | | | | | | | | (39,472 | ) | | | |
Minimum liability for unfunded retirement benefits, | | | | | | | | | | | | | | | | |
net of $15,186,000 of income taxes | | | 21,613 | | | | | | | | | 21,613 | | | | |
Comprehensive income | | $ | 209,475 | | | | | | | | | | | | | |
Equity contribution from parent | | | | | | | | | 75,000 | | | | | | | |
Affiliated company asset transfers | | | | | | | | | (2,086 | ) | | | | | | |
Restricted stock units | | | | | | | | | 48 | | | | | | | |
Cash dividends on preferred stock | | | | | | | | | | | | | | | (2,924 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | (191,000 | ) |
Balance, December 31, 2005 | | | | | | 79,590,689 | | | 1,354,924 | | | - | | | 587,150 | |
Net income and comprehensive income | | $ | 306,051 | | | | | | | | | | | | 306,051 | |
Net liability for unfunded retirement benefits | | | | | | | | | | | | | | | | |
due to the implementation of SFAS 158, net | | | | | | | | | | | | | | | | |
of $69,609,000 of income tax benefits (Note 4) | | | | | | | | | | | | (104,431 | ) | | | |
Repurchase of common stock | | | | | | (11,659,946 | ) | | (300,000 | ) | | | | | | |
Affiliated company asset transfers | | | | | | | | | (194,910 | ) | | | | | | |
Restricted stock units | | | | | | | | | 86 | | | | | | | |
Stock based compensation | | | | | | | | | 33 | | | | | | | |
Cash dividends on common stock | | | | | | | | | | | | | | | (180,000 | ) |
Balance, December 31, 2006 | | | | | | 67,930,743 | | | 860,133 | | | (104,431 | ) | | 713,201 | |
Net income | | $ | 276,412 | | | | | | | | | | | | 276,412 | |
Pension and other postretirement benefits, net | | | | | | | | | | | | | | | | |
of $30,705,000 of income taxes (Note 4) | | | 35,302 | | | | | | | | | 35,302 | | | | |
Comprehensive income | | $ | 311,714 | | | | | | | | | | | | | |
Restricted stock units | | | | | | | | | 184 | | | | | | | |
Stock based compensation | | | | | | | | | 10 | | | | | | | |
Consolidated tax benefit allocation | | | | | | | | | 13,209 | | | | | | | |
FIN 48 cumulative effect adjustment | | | | | | | | | | | | | | | (185 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | (304,000 | ) |
Balance, December 31, 2007 | | | | | | 67,930,743 | | $ | 873,536 | | $ | (69,129 | ) | $ | 685,428 | |
| | | | | | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company | |
are an integral part of these statements. | | | | | | | | | | | | | | | | |
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | | | | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | Restated | | | | | | | |
For the Years Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| | | | | (In thousands) | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income | | $ | 276,412 | | | $ | 306,051 | | | $ | 227,334 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | | | | | |
Provision for depreciation | | | 75,238 | | | | 63,589 | | | | 127,959 | |
Amortization of regulatory assets | | | 144,370 | | | | 127,403 | | | | 227,221 | |
Deferral of new regulatory assets | | | (149,556 | ) | | | (128,220 | ) | | | (163,245 | ) |
Nuclear fuel and capital lease amortization | | | 235 | | | | 239 | | | | 25,803 | |
Deferred rents and lease market valuation liability | | | (357,679 | ) | | | (71,943 | ) | | | (67,353 | ) |
Deferred income taxes and investment tax credits, net | | | (22,767 | ) | | | (17,093 | ) | | | 42,024 | |
Accrued compensation and retirement benefits | | | 3,196 | | | | 2,367 | | | | 4,624 | |
Cumulative effect of a change in accounting principle | | | - | | | | - | | | | 3,724 | |
Pension trust contributions | | | (24,800 | ) | | | - | | | | (93,269 | ) |
Tax refund related to pre-merger period | | | - | | | | - | | | | 9,636 | |
Decrease (increase) in operating assets- | | | | | | | | | | | | |
Receivables | | | 209,426 | | | | (137,711 | ) | | | (103,018 | ) |
Materials and supplies | | | - | | | | - | | | | (12,934 | ) |
Prepayments and other current assets | | | (152 | ) | | | 160 | | | | 233 | |
Increase (decrease) in operating liabilities- | | | | | | | | | | | | |
Accounts payable | | | (316,638 | ) | | | 293,214 | | | | (82,434 | ) |
Accrued taxes | | | (33,659 | ) | | | 7,342 | | | | (7,967 | ) |
Accrued interest | | | (5,138 | ) | | | 147 | | | | (3,216 | ) |
Electric service prepayment programs | | | (24,443 | ) | | | (19,673 | ) | | | 53,447 | |
Other | | | 471 | | | | (6,626 | ) | | | (40,878 | ) |
Net cash provided from (used for) operating activities | | | (225,484 | ) | | | 419,246 | | | | 147,691 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
New Financing- | | | | | | | | | | | | |
Long-term debt | | | 247,362 | | | | 295,662 | | | | 141,004 | |
Short-term borrowings, net | | | 277,581 | | | | - | | | | 155,883 | |
Equity contribution from parent | | | - | | | | - | | | | 75,000 | |
Redemptions and Repayments- | | | | | | | | | | | | |
Common stock | | | - | | | | (300,000 | ) | | | - | |
Preferred stock | | | - | | | | - | | | | (101,900 | ) |
Long-term debt | | | (493,294 | ) | | | (376,702 | ) | | | (147,923 | ) |
Short-term borrowings, net | | | - | | | | (143,272 | ) | | | - | |
Dividend Payments- | | | | | | | | | | | | |
Common stock | | | (204,000 | ) | | | (180,000 | ) | | | (191,000 | ) |
Preferred stock | | | - | | | | - | | | | (2,260 | ) |
Net cash used for financing activities | | | (172,351 | ) | | | (704,312 | ) | | | (71,196 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property additions | | | (149,131 | ) | | | (119,795 | ) | | | (148,783 | ) |
Loan repayments from (loans to) associated companies, net | | | 6,714 | | | | (7,813 | ) | | | (387,746 | ) |
Collection of principal on long-term notes receivable | | | 486,634 | | | | 376,135 | | | | 466,378 | |
Investments in lessor notes | | | 56,179 | | | | 44,556 | | | | 32,479 | |
Sales of investment securities held in trusts | | | - | | | | - | | | | 490,126 | |
Purchases of investment securities held in trusts | | | - | | | | - | | | | (519,150 | ) |
Other | | | (2,550 | ) | | | (8,003 | ) | | | (9,789 | ) |
Net cash provided from (used for) investing activities | | | 397,846 | | | | 285,080 | | | | (76,485 | ) |
| | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 11 | | | | 14 | | | | 10 | |
Cash and cash equivalents at beginning of year | | | 221 | | | | 207 | | | | 197 | |
Cash and cash equivalents at end of year | | $ | 232 | | | $ | 221 | | | $ | 207 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash Paid During the Year- | | | | | | | | | | | | |
Interest (net of amounts capitalized) | | $ | 141,390 | | | $ | 135,276 | | | $ | 144,730 | |
Income taxes | | $ | 186,874 | | | $ | 180,941 | | | $ | 116,323 | |
| | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company | |
are an integral part of these statements. | | | | | | | | | | | | |
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
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, 2007 and 2006, and the results of their operations and their cash flows for each of the Statethree years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of OhioAmerica. 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 1997accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and provides energy-related productsperform 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 servicesdisclosures in the financial statements, assessing the accounting principles used and throughsignificant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8) and defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4).
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2007 financial statements to correct an error.
|
PricewaterhouseCoopers LLP Cleveland, Ohio February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008. |
THE TOLEDO EDISON COMPANY | |
| | | | | | | |
CONSOLIDATED STATEMENTS OF INCOME | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the Years Ended December 31, | | 2007 | | 2006 | | 2005 | |
| | (In thousands) | |
REVENUES (Note 3): | | | | | | | |
Electric sales | | $ | 934,772 | | $ | 899,930 | | $ | 1,011,239 | |
Excise tax collections | | | 29,173 | | | 28,071 | | | 28,947 | |
Total revenues | | | 963,945 | | | 928,001 | | | 1,040,186 | |
| | | | | | | | | | |
EXPENSES (Note 3): | | | | | | | | | | |
Fuel | | | 31,199 | | | 36,313 | | | 58,897 | |
Purchased power | | | 398,423 | | | 368,654 | | | 296,720 | |
Nuclear operating costs | | | 71,657 | | | 81,845 | | | 181,410 | |
Other operating costs | | | 176,191 | | | 166,403 | | | 168,522 | |
Provision for depreciation | | | 36,743 | | | 33,310 | | | 62,486 | |
Amortization of regulatory assets | | | 104,348 | | | 95,032 | | | 141,343 | |
Deferral of new regulatory assets | | | (62,664 | ) | | (54,946 | ) | | (58,566 | ) |
General taxes | | | 50,640 | | | 50,869 | | | 57,108 | |
Total expenses | | | 806,537 | | | 777,480 | | | 907,920 | |
| | | | | | | | | | |
OPERATING INCOME | | | 157,408 | | | 150,521 | | | 132,266 | |
| | | | | | | | | | |
OTHER INCOME (EXPENSE) (Note 3): | | | | | | | | | | |
Investment income | | | 27,713 | | | 38,187 | | | 49,440 | |
Miscellaneous expense | | | (6,651 | ) | | (7,379 | ) | | (10,587 | ) |
Interest expense | | | (34,135 | ) | | (23,179 | ) | | (21,489 | ) |
Capitalized interest | | | 640 | | | 1,123 | | | 465 | |
Total other income (expense) | | | (12,433 | ) | | 8,752 | | | 17,829 | |
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 144,975 | | | 159,273 | | | 150,095 | |
| | | | | | | | | | |
INCOME TAXES | | | 53,736 | | | 59,869 | | | 73,931 | |
| | | | | | | | | | |
NET INCOME | | | 91,239 | | | 99,404 | | | 76,164 | |
| | | | | | | | | | |
PREFERRED STOCK DIVIDEND REQUIREMENTS | | | - | | | 9,409 | | | 7,795 | |
| | | | | | | | | | |
EARNINGS ON COMMON STOCK | | $ | 91,239 | | $ | 89,995 | | $ | 68,369 | |
| | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company | |
are an integral part of these statements. | | | | | | | | | | |
THE TOLEDO EDISON COMPANY | |
| | | | | |
CONSOLIDATED BALANCE SHEETS | |
| | | | | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 22 | | $ | 22 | |
Receivables- | | | | | | | |
Customers | | | 449 | | | 772 | |
Associated companies | | | 88,796 | | | 13,940 | |
Other (less accumulated provisions of $615,000 and $430,000, | | | | |
respectively, for uncollectible accounts) | | | 3,116 | | | 3,831 | |
Notes receivable from associated companies | | | 154,380 | | | 100,545 | |
Prepayments and other | | | 865 | | | 851 | |
| | | 247,628 | | | 119,961 | |
UTILITY PLANT: | | | | | | | |
In service | | | 931,263 | | | 894,888 | |
Less - Accumulated provision for depreciation | | | 420,445 | | | 394,225 | |
| | | 510,818 | | | 500,663 | |
Construction work in progress | | | 19,740 | | | 16,479 | |
| | | 530,558 | | | 517,142 | |
OTHER PROPERTY AND INVESTMENTS: | | | | | | | |
Investment in lessor notes | | | 154,646 | | | 169,493 | |
Long-term notes receivable from associated companies | | | 37,530 | | | 128,858 | |
Nuclear plant decommissioning trusts | | | 66,759 | | | 61,094 | |
Other | | | 1,756 | | | 1,871 | |
| | | 260,691 | | | 361,316 | |
DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | |
Goodwill | | | 500,576 | | | 500,576 | |
Regulatory assets | | | 203,719 | | | 247,595 | |
Pension assets (Note 4) | | | 28,601 | | | - | |
Property taxes | | | 21,010 | | | 22,010 | |
Other | | | 20,496 | | | 30,042 | |
| | | 774,402 | | | 800,223 | |
| | $ | 1,813,279 | | $ | 1,798,642 | |
LIABILITIES AND CAPITALIZATION | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Currently payable long-term debt | | $ | 34 | | $ | 30,000 | |
Accounts payable- | | | | | | | |
Associated companies | | | 245,215 | | | 84,884 | |
Other | | | 4,449 | | | 4,021 | |
Notes payable to associated companies | | | 13,396 | | | 153,567 | |
Accrued taxes | | | 30,245 | | | 47,318 | |
Lease market valuation liability | | | 36,900 | | | 24,600 | |
Other | | | 22,747 | | | 37,551 | |
| | | 352,986 | | | 381,941 | |
CAPITALIZATION (See Statements of Capitalization): | | | | | | | |
Common stockholder's equity | | | 485,191 | | | 481,415 | |
Long-term debt and other long-term obligations | | | 303,397 | | | 358,281 | |
| | | 788,588 | | | 839,696 | |
NONCURRENT LIABILITIES: | | | | | | | |
Accumulated deferred income taxes | | | 103,463 | | | 161,024 | |
Accumulated deferred investment tax credits | | | 10,180 | | | 11,014 | |
Lease market valuation liability | | | 310,000 | | | 218,800 | |
Retirement benefits | | | 63,215 | | | 77,843 | |
Asset retirement obligations | | | 28,366 | | | 26,543 | |
Deferred revenues - electric service programs | | | 12,639 | | | 23,546 | |
Lease assignment payable to associated companies | | | 83,485 | | | - | |
Other | | | 60,357 | | | 58,235 | |
| | | 671,705 | | | 577,005 | |
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13) | | | | | | | |
| | $ | 1,813,279 | | $ | 1,798,642 | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an | |
integral part of these balance sheets. | | | | | | | |
THE TOLEDO EDISON COMPANY | |
| | | | | |
CONSOLIDATED STATEMENTS OF CAPITALIZATION | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
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 | | | 173,169 | | | 166,786 | |
Accumulated other comprehensive loss (Note 2(F)) | | | (10,606 | ) | | (36,804 | ) |
Retained earnings (Note 10(A)) | | | 175,618 | | | 204,423 | |
Total | | | 485,191 | | | 481,415 | |
| | | | | | | |
| | | | | | | |
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 10(C)): | | | |
Secured notes- | | | | | | | |
7.130% due 2007 | | | - | | | 30,000 | |
6.100% due 2027 | | | - | | | 10,100 | |
5.375% due 2028 | | | 3,751 | | | 3,751 | |
* 3.750% due 2035 | | | - | | | 45,000 | |
Total | | | 3,751 | | | 88,851 | |
| | | | | | | |
Unsecured notes- | | | | | | | |
6.150% due 2037 | | | 300,000 | | | 300,000 | |
Total | | | 300,000 | | | 300,000 | |
| | | | | | | |
| | | | | | | |
Capital lease obligations (Note 6) | | | 114 | | | - | |
Net unamortized discount on debt | | | (434 | ) | | (570 | ) |
Long-term debt due within one year | | | (34 | ) | | (30,000 | ) |
Total long-term debt | | | 303,397 | | | 358,281 | |
TOTAL CAPITALIZATION | | $ | 788,588 | | $ | 839,696 | |
| | | | | | | |
| | | | | | | |
* Denotes variable-rate issue with applicable year-end interest rate shown. | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company | |
are an integral part of these statements. | | | | | | | |
THE TOLEDO EDISON COMPANY | |
| | | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | |
| | | | Common Stock | | Other | | Other | | | |
| | Comprehensive | | Number | | Par | | Paid-In | | Comprehensive | | Retained | |
| | Income | | of Shares | | Value | | Capital | | Income (Loss) | | Earnings | |
| | (Dollars in thousands) | |
| | | | | | | | | | | | | |
Balance, January 1, 2005 | | | | | 39,133,887 | | $ | 195,670 | | $ | 428,559 | | $ | 20,039 | | $ | 191,059 | |
Net income | | $ | 76,164 | | | | | | | | | | | | | | | 76,164 | |
Unrealized loss on investments, net | | | | | | | | | | | | | | | | | | | |
of $16,884,000 of income tax benefits | | | (23,654 | ) | | | | | | | | | | | (23,654 | ) | | | |
Minimum liability for unfunded retirement benefits, | | | | | | | | | | | | | | | | |
net of $5,836,000 of income taxes | | | 8,305 | | | | | | | | | | | | 8,305 | | | | |
Comprehensive income | | $ | 60,815 | | | | | | | | | | | | | | | | |
Affiliated company asset transfers | | | | | | | | | | | | 45,060 | | | | | | | |
Restricted stock units | | | | | | | | | | | | 19 | | | | | | | |
Cash dividends on preferred stock | | | | | | | | | | | | | | | | | | (7,795 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (70,000 | ) |
Balance, December 31, 2005 | | | | | | 39,133,887 | | | 195,670 | | | 473,638 | | | 4,690 | | | 189,428 | |
Net income | | $ | 99,404 | | | | | | | | | | | | | | | 99,404 | |
Unrealized gain on investments, net | | | | | | | | | | | | | | | | | | | |
of $211,000 of income taxes | | | 462 | | | | | | | | | | | | 462 | | | | |
Comprehensive income | | $ | 99,866 | | | | | | | | | | | | | | | | |
Net liability for unfunded retirement benefits | | | | | | | | | | | | | | | | | | | |
due to the implementation of SFAS 158, net | | | | | | | | | | | | | | | | | | | |
of $26,929,000 of income tax benefits (Note 4) | | | | | | | | | | | | | | | (41,956 | ) | | | |
Affiliated company asset transfers | | | | | | | | | | | | (130,571 | ) | | | | | | |
Repurchase of common stock | | | | | | (9,731,833 | ) | | (48,660 | ) | | (176,341 | ) | | | | | | |
Preferred stock redemption premiums | | | | | | | | | | | | | | | | | | (4,840 | ) |
Restricted stock units | | | | | | | | | | | | 38 | | | | | | | |
Stock based compensation | | | | | | | | | | | | 22 | | | | | | | |
Cash dividends on preferred stock | | | | | | | | | | | | | | | | | | (4,569 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (75,000 | ) |
Balance, December 31, 2006 | | | | | | 29,402,054 | | | 147,010 | | | 166,786 | | | (36,804 | ) | | 204,423 | |
Net income | | $ | 91,239 | | | | | | | | | | | | | | | 91,239 | |
Unrealized gain on investments, net | | | | | | | | | | | | | | | | | | | |
of $1,089,000 of income taxes | | | 1,901 | | | | | | | | | | | | 1,901 | | | | |
Pension and other postretirement benefits, net | | | | | | | | | | | | | | | | | | | |
of $15,077,000 of income taxes (Note 4) | | | 24,297 | | | | | | | | | | | | 24,297 | | | | |
Comprehensive income | | $ | 117,437 | | | | | | | | | | | | | | | | |
Restricted stock units | | | | | | | | | | | | 53 | | | | | | | |
Stock based compensation | | | | | | | | | | | | 2 | | | | | | | |
Consolidated tax benefit allocation | | | | | | | | | | | | 6,328 | | | | | | | |
FIN 48 cumulative effect adjustment | | | | | | | | | | | | | | | | | | (44 | ) |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (120,000 | ) |
Balance, December 31, 2007 | | | | | | 29,402,054 | | $ | 147,010 | | $ | 173,169 | | $ | (10,606 | ) | $ | 175,618 | |
| | | | | | | | | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral | |
part of these statements. | | | | | | | | | | | | | | | | | | | |
THE TOLEDO EDISON COMPANY | | | | |
| | | | | | | | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | |
| | | | | | | | | |
| | Restated | | | | | | | |
For the Years Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| | | | | (In thousands) | | | | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income | | $ | 91,239 | | | $ | 99,404 | | | $ | 76,164 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | | | | | |
Provision for depreciation | | | 36,743 | | | | 33,310 | | | | 62,486 | |
Amortization of regulatory assets | | | 104,348 | | | | 95,032 | | | | 141,343 | |
Deferral of new regulatory assets | | | (62,664 | ) | | | (54,946 | ) | | | (58,566 | ) |
Nuclear fuel and capital lease amortization | | | 23 | | | | - | | | | 18,463 | |
Deferred rents and lease market valuation liability | | | 265,981 | | | | (32,925 | ) | | | (30,088 | ) |
Deferred income taxes and investment tax credits, net | | | (26,318 | ) | | | (37,133 | ) | | | (6,519 | ) |
Accrued compensation and retirement benefits | | | 5,276 | | | | 4,415 | | | | 5,396 | |
Pension trust contributions | | | (7,659 | ) | | | - | | | | (19,933 | ) |
Tax refund related to pre-merger period | | | - | | | | - | | | | 8,164 | |
Decrease (increase) in operating assets- | | | | | | | | | | | | |
Receivables | | | (64,489 | ) | | | 6,387 | | | | 10,813 | |
Materials and supplies | | | - | | | | - | | | | (3,210 | ) |
Prepayments and other current assets | | | (13 | ) | | | 208 | | | | 91 | |
Increase (decrease) in operating liabilities- | | | | | | | | | | | | |
Accounts payable | | | 8,722 | | | | 39,847 | | | | (45,416 | ) |
Accrued taxes | | | (14,954 | ) | | | (2,026 | ) | | | 2,387 | |
Accrued interest | | | (1,350 | ) | | | 1,899 | | | | (1,557 | ) |
Electric service prepayment programs | | | (10,907 | ) | | | (9,060 | ) | | | 32,605 | |
Other | | | 5,165 | | | | 4,640 | | | | (36,939 | ) |
Net cash provided from operating activities | | | 329,143 | | | | 149,052 | | | | 155,684 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
New Financing- | | | | | | | | | | | | |
Long-term debt | | | - | | | | 296,663 | | | | 45,000 | |
Short-term borrowings, net | | | - | | | | 62,909 | | | | - | |
Redemptions and Repayments- | | | | | | | | | | | | |
Common stock | | | - | | | | (225,000 | ) | | | - | |
Preferred stock | | | - | | | | (100,840 | ) | | | (30,000 | ) |
Long-term debt | | | (85,797 | ) | | | (202,550 | ) | | | (138,859 | ) |
Short-term borrowings, net | | | (153,567 | ) | | | - | | | | (8,996 | ) |
Dividend Payments- | | | | | | | | | | | | |
Common stock | | | (85,000 | ) | | | (75,000 | ) | | | (70,000 | ) |
Preferred stock | | | - | | | | (4,569 | ) | | | (7,795 | ) |
Net cash used for financing activities | | | (324,364 | ) | | | (248,387 | ) | | | (210,650 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property additions | | | (58,871 | ) | | | (61,232 | ) | | | (71,976 | ) |
Loans to associated companies | | | (51,002 | ) | | | (52,178 | ) | | | (409,409 | ) |
Collection of principal on long-term notes receivable | | | 91,308 | | | | 202,787 | | | | 552,613 | |
Redemption of lessor notes (Note 6) | | | 14,847 | | | | 9,305 | | | | 11,894 | |
Sales of investment securities held in trusts | | | 44,682 | | | | 53,458 | | | | 365,807 | |
Purchases of investment securities held in trusts | | | (47,853 | ) | | | (53,724 | ) | | | (394,348 | ) |
Other | | | 2,110 | | | | 926 | | | | 385 | |
Net cash provided from (used for) investing activities | | | (4,779 | ) | | | 99,342 | | | | 54,966 | |
| | | | | | | | | | | | |
Net change in cash and cash equivalents | | | - | | | | 7 | | | | - | |
Cash and cash equivalents at beginning of year | | | 22 | | | | 15 | | | | 15 | |
Cash and cash equivalents at end of year | | $ | 22 | | | $ | 22 | | | $ | 15 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash Paid During the Year- | | | | | | | | | | | | |
Interest (net of amounts capitalized) | | $ | 33,841 | | | $ | 17,785 | | | $ | 29,709 | |
Income taxes | | $ | 73,845 | | | $ | 95,753 | | | $ | 78,265 | |
| | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral | |
part of these statements. | | | | | | | | | | | | |
Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of
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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 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.
As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8), defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4) and conditional asset retirement obligations as of December 31, 2005 (Note 2(G) and Note 11).
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2007 financial statements to correct an error.
|
PricewaterhouseCoopers LLP Cleveland, Ohio February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008. |
PENNSYLVANIA ELECTRIC COMPANY | |
| | | | | | | |
CONSOLIDATED STATEMENTS OF INCOME | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the Years Ended December 31, | | 2007 | | 2006 | | 2005 | |
| | (In thousands) | |
| | | | | | | |
REVENUES: | | | | | | | |
Electric sales | | $ | 1,336,517 | | $ | 1,086,781 | | $ | 1,063,841 | |
Gross receipts tax collections | | | 65,508 | | | 61,679 | | | 58,184 | |
Total revenues | | | 1,402,025 | | | 1,148,460 | | | 1,122,025 | |
| | | | | | | | | | |
EXPENSES: | | | | | | | | | | |
Purchased power (Note 3) | | | 790,354 | | | 626,367 | | | 620,509 | |
Other operating costs (Note 3) | | | 234,949 | | | 203,868 | | | 257,869 | |
Provision for depreciation | | | 49,558 | | | 48,003 | | | 49,410 | |
Amortization of regulatory assets | | | 55,863 | | | 52,477 | | | 50,348 | |
Deferral of new regulatory assets | | | (9,102 | ) | | (30,590 | ) | | (3,239 | ) |
General taxes | | | 76,050 | | | 72,612 | | | 68,984 | |
Total expenses | | | 1,197,672 | | | 972,737 | | | 1,043,881 | |
| | | | | | | | | | |
OPERATING INCOME | | | 204,353 | | | 175,723 | | | 78,144 | |
| | | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | | |
Miscellaneous income | | | 6,501 | | | 8,986 | | | 5,013 | |
Interest expense (Note 3) | | | (54,840 | ) | | (45,278 | ) | | (39,900 | ) |
Capitalized interest | | | 939 | | | 1,290 | | | 908 | |
Total other expense | | | (47,400 | ) | | (35,002 | ) | | (33,979 | ) |
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 156,953 | | | 140,721 | | | 44,165 | |
| | | | | | | | | | |
INCOME TAX EXPENSE | | | 64,015 | | | 56,539 | | | 16,612 | |
| | | | | | | | | | |
INCOME BEFORE CUMULATIVE EFFECT | | | | | | | | | | |
OF A CHANGE IN ACCOUNTING PRINCIPLE | | | 92,938 | | | 84,182 | | | 27,553 | |
| | | | | | | | | | |
Cumulative effect of a change in accounting principle | | | | | | | |
(net of income tax benefit of $566,000) (Note 2(G)) | | | - | | | - | | | (798 | ) |
| | | | | | | | | | |
NET INCOME | | $ | 92,938 | | $ | 84,182 | | $ | 26,755 | |
| | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Pennsylvania Electric Company are an integral part of these statements. | |
| | | | | | | | | | |
PENNSYLVANIA ELECTRIC COMPANY | |
| | | | | |
CONSOLIDATED BALANCE SHEETS | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 46 | | $ | 44 | |
Receivables- | | | | | | | |
Customers (less accumulated provisions of $3,905,000 and $3,814,000, | | | | |
respectively, for uncollectible accounts) | | | 137,455 | | | 126,639 | |
Associated companies | | | 22,014 | | | 49,728 | |
Other | | | 19,529 | | | 16,367 | |
Notes receivable from associated companies | | | 16,313 | | | 19,548 | |
Prepayments and other | | | 3,077 | | | 4,236 | |
| | | 198,434 | | | 216,562 | |
UTILITY PLANT: | | | | | | | |
In service | | | 2,219,002 | | | 2,141,324 | |
Less - Accumulated provision for depreciation | | | 838,621 | | | 809,028 | |
| | | 1,380,381 | | | 1,332,296 | |
Construction work in progress | | | 24,251 | | | 22,124 | |
| | | 1,404,632 | | | 1,354,420 | |
OTHER PROPERTY AND INVESTMENTS: | | | | | | | |
Nuclear plant decommissioning trusts | | | 137,859 | | | 125,216 | |
Non-utility generation trusts | | | 112,670 | | | 99,814 | |
Other | | | 531 | | | 531 | |
| | | 251,060 | | | 225,561 | |
DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | |
Goodwill | | | 777,904 | | | 860,716 | |
Pension assets | | | 66,111 | | | 11,474 | |
Other | | | 33,893 | | | 36,059 | |
| | | 877,908 | | | 908,249 | |
| | $ | 2,732,034 | | $ | 2,704,792 | |
LIABILITIES AND CAPITALIZATION | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Short-term borrowings- | | | | | | | |
Associated companies | | $ | 214,893 | | $ | 199,231 | |
Accounts payable- | | | | | | | |
Associated companies | | | 83,359 | | | 92,020 | |
Other | | | 51,777 | | | 47,629 | |
Accrued taxes | | | 15,111 | | | 11,670 | |
Accrued interest | | | 13,167 | | | 7,224 | |
Other | | | 25,311 | | | 21,178 | |
| | | 403,618 | | | 378,952 | |
CAPITALIZATION (See Consolidated Statements of Capitalization): | | | | |
Common stockholder's equity | | | 1,072,057 | | | 1,378,058 | |
Long-term debt and other long-term obligations | | | 777,243 | | | 477,304 | |
| | | 1,849,300 | | | 1,855,362 | |
NONCURRENT LIABILITIES: | | | | | | | |
Regulatory liabilities | | | 73,559 | | | 96,151 | |
Accumulated deferred income taxes | | | 210,776 | | | 193,662 | |
Retirement benefits | | | 41,298 | | | 50,394 | |
Asset retirement obligations | | | 81,849 | | | 76,924 | |
Other | | | 71,634 | | | 53,347 | |
| | | 479,116 | | | 470,478 | |
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13) | | | | | | | |
| | $ | 2,732,034 | | $ | 2,704,792 | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Pennsylvania Electric Company are an integral part of these statements. | |
| | | | | | | |
PENNSYLVANIA ELECTRIC COMPANY | |
| | | | | |
CONSOLIDATED STATEMENTS OF CAPITALIZATION | |
| | | | | |
As of December 31, | | 2007 | | 2006 | |
| | (In thousands) | |
COMMON STOCKHOLDER'S EQUITY: | | | | | |
Common stock, $20 par value, 5,400,000 shares authorized, | | | | | |
4,427,577 and 5,290,596 shares outstanding, respectively | | $ | 88,552 | | $ | 105,812 | |
Other paid-in capital | | | 920,616 | | | 1,189,434 | |
Accumulated other comprehensive income (loss) (Note 2(F)) | | | 4,946 | | | (7,193 | ) |
Retained earnings (Note 10(A)) | | | 57,943 | | | 90,005 | |
Total | | | 1,072,057 | | | 1,378,058 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
LONG-TERM DEBT (Note 10(C)): | | | | | | | |
First mortgage bonds- | | | | | | | |
5.350% due 2010 | | | 12,310 | | | 12,310 | |
5.350% due 2010 | | | 12,000 | | | 12,000 | |
Total | | | 24,310 | | | 24,310 | |
| | | | | | | |
Unsecured notes- | | | | | | | |
6.125% due 2009 | | | 100,000 | | | 100,000 | |
7.770% due 2010 | | | 35,000 | | | 35,000 | |
5.125% due 2014 | | | 150,000 | | | 150,000 | |
6.050% due 2017 | | | 300,000 | | | - | |
6.625% due 2019 | | | 125,000 | | | 125,000 | |
* 4.250% due 2020 | | | 20,000 | | | 20,000 | |
* 4.350% due 2025 | | | 25,000 | | | 25,000 | |
Total | | | 755,000 | | | 455,000 | |
| | | | | | | |
| | | | | | | |
Net unamortized discount on debt | | | (2,067 | ) | | (2,006 | ) |
Total long-term debt | | | 777,243 | | | 477,304 | |
TOTAL CAPITALIZATION | | $ | 1,849,300 | | $ | 1,855,362 | |
| | | | | | | |
| | | | | | | |
* Denotes variable rate issue with applicable year-end interest rate shown. | | | | |
| | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Pennsylvania Electric Company | |
are an integral part of these statements. | | | | | | | |
PENNSYLVANIA ELECTRIC COMPANY | |
| | | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | Accumulated | | | |
| | | | Common Stock | | Other | | Other | | | |
| | Comprehensive | | Number | | Par | | Paid-In | | Comprehensive | | Retained | |
| | Income (Loss) | | of Shares | | Value | | Capital | | Income (Loss) | | Earnings | |
| | (Dollars in thousands) | |
| | | | | | | | | | | | | |
Balance, January 1, 2005 | | | | | 5,290,596 | | $ | 105,812 | | $ | 1,205,948 | | $ | (52,813 | ) | $ | 46,068 | |
Net income | | $ | 26,755 | | | | | | | | | | | | | | | 26,755 | |
Net unrealized gain on investments, net | | | | | | | | | | | | | | | | | | | |
of $4,000 of income taxes | | | 3 | | | | | | | | | | | | 3 | | | | |
Net unrealized gain on derivative instruments, net | | | | | | | | | | | | | | | | | | | |
of $24,000 of income taxes | | | 40 | | | | | | | | | | | | 40 | | | | |
Minimum liability for unfunded retirement benefits, | | | | | | | | | | | | | | | | | | | |
net of $37,206,000 of income taxes | | | 52,461 | | | | | | | | | | | | 52,461 | | | | |
Comprehensive income | | $ | 79,259 | | | | | | | | | | | | | | | | |
Restricted stock units | | | | | | | | | | | | 20 | | | | | | | |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (47,000 | ) |
Purchase accounting fair value adjustment | | | | | | | | | | | | (3,417 | ) | | | | | | |
Balance, December 31, 2005 | | | | | | 5,290,596 | | | 105,812 | | | 1,202,551 | | | (309 | ) | | 25,823 | |
Net income | | $ | 84,182 | | | | | | | | | | | | | | | 84,182 | |
Net unrealized gain on investments, net | | | | | | | | | | | | | | | | | | | |
of $4,000 of income taxes | | | 2 | | | | | | | | | | | | 2 | | | | |
Net unrealized gain on derivative instruments, net | | | | | | | | | | | | | | | | | | | |
of $27,000 of income taxes | | | 38 | | | | | | | | | | | | 38 | | | | |
Comprehensive income | | $ | 84,222 | | | | | | | | | | | | | | | | |
Net liability for unfunded retirement benefits | | | | | | | | | | | | | | | | | | | |
due to the implementation of SFAS 158, net | | | | | | | | | | | | | | | | | | | |
of $17,340,000 of income tax benefits (Note 4) | | | | | | | | | | | | | | | (6,924 | ) | | | |
Restricted stock units | | | | | | | | | | | | 46 | | | | | | | |
Stock based compensation | | | | | | | | | | | | 21 | | | | | | | |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (20,000 | ) |
Purchase accounting fair value adjustment | | | | | | | | | | | | (13,184 | ) | | | | | | |
Balance, December 31, 2006 | | | | | | 5,290,596 | | | 105,812 | | | 1,189,434 | | | (7,193 | ) | | 90,005 | |
Net income | | $ | 92,938 | | | | | | | | | | | | | | | 92,938 | |
Net unrealized gain on investments net of | | | | | | | | | | | | | | | | | | | |
of $12,000 of income tax benefits | | | 21 | | | | | | | | | | | | 21 | | | | |
Net unrealized gain on derivative instruments, net | | | | | | | | | | | | | | | | | | | |
of $16,000 of income taxes | | | 49 | | | | | | | | | | | | 49 | | | | |
Pension and other postretirement benefits, net | | | | | | | | | | | | | | | | | | | |
of $15,413,000 of income taxes (Note 4) | | | 12,069 | | | | | | | | | | | | 12,069 | | | | |
Comprehensive income | | $ | 105,077 | | | | | | | | | | | | | | | | |
Restricted stock units | | | | | | | | | | | | 107 | | | | | | | |
Stock based compensation | | | | | | | | | | | | 7 | | | | | | | |
Consolidated tax benefit allocation | | | | | | | | | | | | 1,261 | | | | | | | |
Repurchase of common stock | | | | | | (863,019 | ) | | (17,260 | ) | | (182,740 | ) | | | | | | |
Cash dividends on common stock | | | | | | | | | | | | | | | | | | (125,000 | ) |
Purchase accounting fair value adjustment | | | | | | | | | | | | (87,453 | ) | | | | | | |
Balance, December 31, 2007 | | | | | | 4,427,577 | | $ | 88,552 | | $ | 920,616 | | $ | 4,946 | | $ | 57,943 | |
| | | | | | | | | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Pennsylvania Electric Company are an integral part of these statements. | |
| | | | | | | | | | | | | | | | | | | |
PENNSYLVANIA ELECTRIC COMPANY | |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | Restated | | | | | | | |
For the Years Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| | | | | (In thousands) | | | | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income | | $ | 92,938 | | | $ | 84,182 | | | $ | 26,755 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | | |
Provision for depreciation | | | 49,558 | | | | 48,003 | | | | 49,410 | |
Amortization of regulatory assets | | | 55,863 | | | | 52,477 | | | | 50,348 | |
Deferral of new regulatory assets | | | (9,102 | ) | | | (30,590 | ) | | | (3,239 | ) |
Deferred costs recoverable as regulatory assets | | | (71,939 | ) | | | (80,942 | ) | | | (59,224 | ) |
Deferred income taxes and investment tax credits, net | | | 10,713 | | | | 28,568 | | | | 8,823 | |
Accrued compensation and retirement benefits | | | (20,830 | ) | | | 5,125 | | | | 3,596 | |
Cumulative effect of a change in accounting principle | | | - | | | | - | | | | 798 | |
Pension trust contributions | | | (13,436 | ) | | | - | | | | (20,000 | ) |
Decrease (increase) in operating assets- | | | | | | | | | | | | |
Receivables | | | 18,771 | | | | 14,299 | | | | 70,330 | |
Prepayments and other current assets | | | 1,159 | | | | 683 | | | | (737 | ) |
Increase (decrease) in operating liabilities- | | | | | | | | | | | | |
Accounts payable | | | (59,513 | ) | | | 67,602 | | | | (10,067 | ) |
Accrued taxes | | | 4,743 | | | | (1,524 | ) | | | 19,905 | |
Accrued interest | | | 5,943 | | | | (638 | ) | | | (790 | ) |
Other | | | 13,125 | | | | 8,363 | | | | 7,158 | |
Net cash provided from operating activities | | | 77,993 | | | | 195,608 | | | | 143,066 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
New Financing- | | | | | | | | | | | | |
Long-term debt | | | 296,899 | | | | - | | | | 45,000 | |
Short-term borrowings, net | | | 15,662 | | | | - | | | | 19,663 | |
Redemptions and Repayments- | | | | | | | | | | | | |
Common Stock | | | (200,000 | ) | | | - | | | | - | |
Long-term debt | | | - | | | | - | | | | (56,538 | ) |
Short-term borrowings, net | | | - | | | | (61,928 | ) | | | - | |
Dividend Payments- | | | | | | | | | | | | |
Common stock | | | (70,000 | ) | | | (20,000 | ) | | | (47,000 | ) |
Net cash provided from (used for) financing activities | | | 42,561 | | | | (81,928 | ) | | | (38,875 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Property additions | | | (94,991 | ) | | | (106,980 | ) | | | (107,602 | ) |
Loan repayments from (loans to) associated companies, net | | | 3,235 | | | | (1,924 | ) | | | 3,730 | |
Sales of investment securities held in trusts | | | 175,222 | | | | 99,469 | | | | 92,623 | |
Purchases of investment securities held in trusts | | | (199,375 | ) | | | (99,469 | ) | | | (92,623 | ) |
Other, net | | | (4,643 | ) | | | (4,767 | ) | | | (320 | ) |
Net cash used for investing activities | | | (120,552 | ) | | | (113,671 | ) | | | (104,192 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 2 | | | | 9 | | | | (1 | ) |
Cash and cash equivalents at beginning of year | | | 44 | | | | 35 | | | | 36 | |
Cash and cash equivalents at end of year | | $ | 46 | | | $ | 44 | | | $ | 35 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash Paid During the Year- | | | | | | | | | | | | |
Interest (net of amounts capitalized) | | $ | 44,503 | | | $ | 41,976 | | | $ | 35,387 | |
Income taxes (refund) | | $ | 2,996 | | | $ | 29,189 | | | $ | (42,324 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Pennsylvania Electric Company are an integral part of these statements. | |
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
FES and the Companies are wholly owned subsidiaries of FirstEnergy. FES’ consolidated financial statements include its wholly owned subsidiaries, FGCO and NGC, owns and operates FirstEnergy's non-nuclear generation facilities and owns FirstEnergy's nuclear generation facilities, respectively (see Generation Asset Transfers below). FENOC was organized under the laws of the State of Ohio in 1998 and operates and maintains nuclear generating facilities. NGC and FENOC comply with the regulations, orders, policies and practices prescribed by the NRC. FESC provides legal,NGC. OE’s consolidated financial and other corporate support services to affiliated FirstEnergy companies.
Reference is made to Note 16, Segment Information, of the Notes to Consolidated Financial Statements contained in Item 8 for information regarding FirstEnergy's reportable segments.
Generation Asset Transfers
statements include its wholly owned subsidiary, Penn. In 2005, the Ohio Companies and Penn entered into certain agreements implementing a series of intra-system generation asset transfers that were completed in the fourth quarter of 2005. The asset transfers resulted in the respective undivided ownership interests of the Ohio Companies and Penn in FirstEnergy's nuclear and non-nuclear generation assets being owned by NGC and FGCO, respectively. The generating plant interests transferred do not include leasehold interests of CEI, TE and OE in certain of the plants that are currently subject to sale and leaseback arrangements with non-affiliates.
On October 24, 2005, the Ohio Companies and Penn completed the intra-system transfertransfers of their non-nuclear and nuclear generation assets to FGCO. PriorFGCO and NGC, respectively (see Note 14).
FES’ consolidated financial statements as of December 31, 2007 and 2006 and for the three years ended December 31, 2007 represent the financial position, results of operations and cash flows as if the intra-system generation asset transfers had occurred as of December 31, 2003. Certain financial results, net assets and net cash flows related to the transfer, FGCO, as lessee under a Master Facility Lease withownership of the Ohio Companies and Penn leased, operated and maintainedof the non-nucleartransferred generation assets that it now owns. Theprior to the asset transfers were consummated pursuant to FGCO's purchase option under the Master Facility Lease.are reflected in FES’ consolidated financial statements.
On December 16, 2005, the Ohio Companies and Penn completed the intra-system transfer of their respective ownership in the nuclear generation assets to NGC through, in the case of OE and Penn, an asset spin-off by way of dividend and, in the case of CEI and TE, a sale at net book value.
On December 28, 2006, the NRC approved the transfer of ownership in NGC from FirstEnergy to FES. Effective December 31, 2006, NGC becameis a wholly owned subsidiary of FES and a second tier subsidiary of FirstEnergy. FENOC continues to operate and maintain the nuclear generation assets.
These transactions were pursuant to the Ohio Companies' and Penn's FES’ consolidated financial statements assume that this corporate restructuring plans that were approved by the PUCO and the PPUC, respectively, under applicable Ohio and Pennsylvania electric utility restructuring legislation. Consistent with the restructuring plans, generation assets that had been owned by the Ohio Companies and Penn were required to be separated from the regulated delivery business of those companies through transfer to a separate corporate entity. The transactions essentially completed the divestitures contemplated by the restructuring plans by transferring the ownership interests to NGC and FGCO without impacting the operation of the plants.
Divestitures
In 2006, FirstEnergy sold its remaining FSG subsidiaries (Roth Bros., Hattenbach, Dunbar, Edwards and RPC) for an aggregate net after-tax gain of $2.2 million. Based on SFAS 144, Hattenbach, Dunbar, Edwards, and RPC are accounted for as discontinued operationsoccurred as of December 31, 2006. Roth Bros.2003, with the FES’ and NGC’s financial position, results of operations and cash flows combined at the end of 2003 and associated company transactions and balances eliminated in consolidation.
FES and the Companies 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.
FES and the Companies 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. FES and the Companies consolidate a VIE (see Note 7) when they are determined to be the VIE's primary beneficiary. Investments in non-consolidated affiliates over which FES and the Companies 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.
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not meetchange previously reported earnings for 2006 and 2005. Unless otherwise indicated, defined terms used herein have the criteriameanings set forth in the accompanying Glossary of Terms.
Restatement of the Consolidated Statements of Cash Flows
OE, CEI, TE and Penelec are restating their respective Consolidated Statements of Cash Flows for classificationthe year ended December 31, 2007, to correct common stock dividend payments reported in cash flows from financing activities. The consolidated statements of cash flows, as discontinued operationsoriginally filed, erroneously reflected the dividends declared in the third quarter of 2007 applicable to future quarters' payments as dividends paid in the quarter that they were declared. The corrections resulted in a corresponding change in operating liabilities - accounts payable, included in cash flows from operating activities.
This correction does not affect the respective registrants’ previously reported consolidated statements of income for the year ended December 31, 2007, nor the consolidated balance sheets, consolidated statements of capitalization and consolidated statements of common stockholder's equity as of December 31, 2006.2007 contained in the combined Form 10-K for the fiscal year ended December 31, 2007, as originally filed on February 29, 2008.
The effects of the corrections on OE’s, CEI’s, TE’s and Penelec’s Consolidated Statements of Cash Flows for the year ended December 31, 2007 are as follows:
OE | | | | | | |
| | | | | | |
| | Year Ended | |
| | December 31, 2007 | |
| | As Previously | | | As | |
| | Reported | | | Restated | |
| | (In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 197,166 | | | $ | 197,166 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | |
Provision for depreciation | | | 77,405 | | | | 77,405 | |
Amortization of regulatory assets | | | 191,885 | | | | 191,885 | |
Deferral of new regulatory assets | | | (177,633 | ) | | | (177,633 | ) |
Nuclear fuel and lease amortization | | | 33 | | | | 33 | |
Amortization of lease costs | | | (7,425 | ) | | | (7,425 | ) |
Deferred income taxes and investment tax credits, net | | | 423 | | | | 423 | |
Accrued compensation and retirement benefits | | | (46,313 | ) | | | (46,313 | ) |
Pension trust contributions | | | (20,261 | ) | | | (20,261 | ) |
Decrease (increase) in operating assets- | | | | | | | | |
Receivables | | | (57,461 | ) | | | (57,461 | ) |
Prepayments and other current assets | | | 3,265 | | | | 3,265 | |
Increase (decrease) in operating liabilities- | | | | | | | | |
Accounts payable | | | 65,649 | | | | 15,649 | |
Accrued taxes | | | (81,079 | ) | | | (81,079 | ) |
Accrued interest | | | (2,334 | ) | | | (2,334 | ) |
Electric service prepayment programs | | | (39,861 | ) | | | (39,861 | ) |
Other | | | 6,096 | | | | 6,096 | |
Net cash provided from operating activities | | | 109,555 | | | | 59,555 | |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Redemptions and Repayments- | | | | | | | | |
Common stock | | | (500,000 | ) | | | (500,000 | ) |
Long-term debt | | | (112,497 | ) | | | (112,497 | ) |
Short-term borrowings, net | | | (114,475 | ) | | | (114,475 | ) |
Dividend Payments- | | | | | | | | |
Common stock | | | (150,000 | ) | | | (100,000 | ) |
Net cash used for financing activities | | | (876,972 | ) | | | (826,972 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Property additions | | | (145,311 | ) | | | (145,311 | ) |
Sales of investment securities held in trusts | | | 37,736 | | | | 37,736 | |
Purchases of investment securities held in trusts | | | (43,758 | ) | | | (43,758 | ) |
Loans to associated companies, net | | | (79,115 | ) | | | (79,115 | ) |
Collection of principal on long-term notes receivable | | | 960,327 | | | | 960,327 | |
Cash investments | | | 37,499 | | | | 37,499 | |
Other | | | 59 | | | | 59 | |
Net cash provided from investing activities | | | 767,437 | | | | 767,437 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | $ | 20 | | | $ | 20 | |
In March 2006, FirstEnergy sold 60% of its interest in MYR for an after-tax gain of $0.2 million. In June 2006, as part of the March 2006 agreement, FirstEnergy sold an additional 1.67% interest. As a result of the March sale, FirstEnergy deconsolidated MYR in the first quarter of 2006 and accounted for its remaining interest under the equity method. In November 2006, FirstEnergy sold the remaining 38.33% interest in MYR for an after-tax gain of $8.6 million. In accordance with SFAS 144, the income for the time period that MYR was accounted for as an equity method investment has not been included in discontinued operations; however, results for all reporting periods prior to the initial sale in March 2006, including the portion of 2006 prior to the sale are reported as discontinued operations.
Utility Regulation
On August 8, 2005 President Bush signed into law the EPACT. The EPACT repealed PUHCA effective February 2006. PUHCA imposed financial and operational restrictions on many aspects of FirstEnergy's business. Some of PUHCA's consumer protection authority was transferred to the FERC and state utility commissions. The EPACT also provides for tax credits for the development of certain clean coal and emissions technologies.
CEI | | | | | | |
| | | | | | |
| | Year Ended | |
| | December 31, 2007 | |
| | As Previously | | | As | |
| | Reported | | | Restated | |
| | (In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 276,412 | | | $ | 276,412 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | |
Provision for depreciation | | | 75,238 | | | | 75,238 | |
Amortization of regulatory assets | | | 144,370 | | | | 144,370 | |
Deferral of new regulatory assets | | | (149,556 | ) | | | (149,556 | ) |
Nuclear fuel and capital lease amortization | | | 235 | | | | 235 | |
Deferred rents and lease market valuation liability | | | (357,679 | ) | | | (357,679 | ) |
Deferred income taxes and investment tax credits, net | | | (22,767 | ) | | | (22,767 | ) |
Accrued compensation and retirement benefits | | | 3,196 | | | | 3,196 | |
Pension trust contributions | | | (24,800 | ) | | | (24,800 | ) |
Decrease (increase) in operating assets- | | | | | | | | |
Receivables | | | 209,426 | | | | 209,426 | |
Prepayments and other current assets | | | (152 | ) | | | (152 | ) |
Increase (decrease) in operating liabilities- | | | | | | | | |
Accounts payable | | | (216,638 | ) | | | (316,638 | ) |
Accrued taxes | | | (33,659 | ) | | | (33,659 | ) |
Accrued interest | | | (5,138 | ) | | | (5,138 | ) |
Electric service prepayment programs | | | (24,443 | ) | | | (24,443 | ) |
Other | | | 471 | | | | 471 | |
Net cash used for operating activities | | | (125,484 | ) | | | (225,484 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
New Financing- | | | | | | | | |
Long-term debt | | | 247,362 | | | | 247,362 | |
Short-term borrowings, net | | | 277,581 | | | | 277,581 | |
Redemptions and Repayments- | | | | | | | | |
Long-term debt | | | (493,294 | ) | | | (493,294 | ) |
Dividend Payments- | | | | | | | | |
Common stock | | | (304,000 | ) | | | (204,000 | ) |
Net cash used for financing activities | | | (272,351 | ) | | | (172,351 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Property additions | | | (149,131 | ) | | | (149,131 | ) |
Loan repayments from associated companies, net | | | 6,714 | | | | 6,714 | |
Collection of principal on long-term notes receivable | | | 486,634 | | | | 486,634 | |
Investments in lessor notes | | | 56,179 | | | | 56,179 | |
Other | | | (2,550 | ) | | | (2,550 | ) |
Net cash provided from investing activities | | | 397,846 | | | | 397,846 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | $ | 11 | | | $ | 11 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
TE | | | | | | |
| | Year Ended | |
| | December 31, 2007 | |
| | As Previously | | | As | |
| | Reported | | | Restated | |
| | (In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 91,239 | | | $ | 91,239 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | |
Provision for depreciation | | | 36,743 | | | | 36,743 | |
Amortization of regulatory assets | | | 104,348 | | | | 104,348 | |
Deferral of new regulatory assets | | | (62,664 | ) | | | (62,664 | ) |
Nuclear fuel and capital lease amortization | | | 23 | | | | 23 | |
Deferred rents and lease market valuation liability | | | 265,981 | | | | 265,981 | |
Deferred income taxes and investment tax credits, net | | | (26,318 | ) | | | (26,318 | ) |
Accrued compensation and retirement benefits | | | 5,276 | | | | 5,276 | |
Pension trust contributions | | | (7,659 | ) | | | (7,659 | ) |
Decrease (increase) in operating assets- | | | | | | | | |
Receivables | | | (64,489 | ) | | | (64,489 | ) |
Prepayments and other current assets | | | (13 | ) | | | (13 | ) |
Increase (decrease) in operating liabilities- | | | | | | | | |
Accounts payable | | | 43,722 | | | | 8,722 | |
Accrued taxes | | | (14,954 | ) | | | (14,954 | ) |
Accrued interest | | | (1,350 | ) | | | (1,350 | ) |
Electric service prepayment programs | | | (10,907 | ) | | | (10,907 | ) |
Other | | | 5,165 | | | | 5,165 | |
Net cash provided from operating activities | | | 364,143 | | | | 329,143 | |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Redemptions and Repayments- | | | | | | | | |
Long-term debt | | | (85,797 | ) | | | (85,797 | ) |
Short-term borrowings, net | | | (153,567 | ) | | | (153,567 | ) |
Dividend Payments- | | | | | | | | |
Common stock | | | (120,000 | ) | | | (85,000 | ) |
Net cash used for financing activities | | | (359,364 | ) | | | (324,364 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Property additions | | | (58,871 | ) | | | (58,871 | ) |
Loans to associated companies | | | (51,002 | ) | | | (51,002 | ) |
Collection of principal on long-term notes receivable | | | 91,308 | | | | 91,308 | |
Redemption of lessor notes | | | 14,847 | | | | 14,847 | |
Sales of investment securities held in trusts | | | 44,682 | | | | 44,682 | |
Purchases of investment securities held in trusts | | | (47,853 | ) | | | (47,853 | ) |
Other | | | 2,110 | | | | 2,110 | |
Net cash used for investing activities | | | (4,779 | ) | | | (4,779 | ) |
| | | | | | | | |
Net change in cash and cash equivalents | | $ | - | | | $ | - | |
PENELEC | | | | | | |
| | | | | | |
| | Year Ended | |
| | December 31, 2007 | |
| | As Previously | | | As | |
| | Reported | | | Restated | |
| | (In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 92,938 | | | $ | 92,938 | |
Adjustments to reconcile net income to net cash from operating activities- | | | | | | | | |
Provision for depreciation | | | 49,558 | | | | 49,558 | |
Amortization of regulatory assets | | | 55,863 | | | | 55,863 | |
Deferral of new regulatory assets | | | (9,102 | ) | | | (9,102 | ) |
Deferred costs recoverable as regulatory assets | | | (71,939 | ) | | | (71,939 | ) |
Deferred income taxes and investment tax credits, net | | | 10,713 | | | | 10,713 | |
Accrued compensation and retirement benefits | | | (20,830 | ) | | | (20,830 | ) |
Pension trust contributions | | | (13,436 | ) | | | (13,436 | ) |
Decrease in operating assets- | | | | | | | | |
Receivables | | | 18,771 | | | | 18,771 | |
Prepayments and other current assets | | | 1,159 | | | | 1,159 | |
Increase (decrease) in operating liabilities- | | | | | | | | |
Accounts payable | | | (4,513 | ) | | | (59,513 | ) |
Accrued taxes | | | 4,743 | | | | 4,743 | |
Accrued interest | | | 5,943 | | | | 5,943 | |
Other | | | 13,125 | | | | 13,125 | |
Net cash provided from operating activities | | | 132,993 | | | | 77,993 | |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
New Financing- | | | | | | | | |
Long-term debt | | | 296,899 | | | | 296,899 | |
Short-term borrowings, net | | | 15,662 | | | | 15,662 | |
Redemptions and Repayments- | | | | | | | | |
Common Stock | | | (200,000 | ) | | | (200,000 | ) |
Dividend Payments- | | | | | | | | |
Common stock | | | (125,000 | ) | | | (70,000 | ) |
Net cash provided from (used for) financing activities | | | (12,439 | ) | | | 42,561 | |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Property additions | | | (94,991 | ) | | | (94,991 | ) |
Loan repayments from associated companies, net | | | 3,235 | | | | 3,235 | |
Sales of investment securities held in trusts | | | 175,222 | | | | 175,222 | |
Purchases of investment securities held in trusts | | | (199,375 | ) | | | (199,375 | ) |
Other, net | | | (4,643 | ) | | | (4,643 | ) |
Net cash used for investing activities | | | (120,552 | ) | | | (120,552 | ) |
| | | | | | | | |
Net increase in cash and cash equivalents | | $ | 2 | | | $ | 2 | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Each of the Companies' retail rates, conditions of service, issuance of securities and other matters are also subject to regulation in the state in which each operates - Ohio by the PUCO, New Jersey by the NJBPU and in Pennsylvania by the PPUC. With respect to their wholesale and interstate electric operations and rates, the Companies are subject to regulation, including regulation of their accounting policies and practices, by the FERC. Under Ohio law, municipalities may regulate rates, subject to appeal to the PUCO if not acceptable to the utility.(A) ACCOUNTING FOR THE EFFECTS OF REGULATION
Regulatory Accounting
The Companies 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 Companies' respective transition and regulatory plans. Based on those plans, the Companies continue to bill and collect cost-based rates for their transmission and distribution services, which remain regulated; accordingly, it is appropriate that the Companies continue the application of SFAS 71 to those operations.
FirstEnergy accountsaccount for the effects of regulation through the application of SFAS 71 to its operating utilities since their rates:
| | are established by a third-party regulator with the authority to set rates that bind customers; |
| | can be charged to and collected from customers. |
An enterprise meeting all of these criteria capitalizes costs that would otherwise be charged to expense if the rate actions of its regulator make it probable that those costs will be recovered in future revenue. SFAS 71 is applied only to the parts of the business that meet the above criteria. If a portion of the business applying SFAS 71 no longer meets those requirements, previously recorded net regulatory assets are removed from the balance sheet in accordance with the guidance in SFAS 101.
In Ohio, PennsylvaniaNew Jersey and New Jersey,Pennsylvania, laws applicable to electric industry restructuring contain similar provisions that are reflected in the Companies' respective state regulatory plans. These provisions include:
| | restructuring the electric generation business and allowing the Companies' customers to select a competitive electric generation supplier other than the Companies; |
| | establishing or defining the PLR obligations to customers in the Companies' service areas; |
| | providing the Companies 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 Companies' transmission and distribution systems; and |
| | requiring corporate separation of regulated and unregulated business activities. |
Reliability InitiativesRegulatory Assets
The Companies 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. Regulatory assets that do not earn a current return totaled approximately $140 million as of December 31, 2007 (JCP&L - $84 million, Met-Ed - $54 million and Penelec - $2 million). Regulatory assets not earning a current return will be recovered by 2014 for JCP&L and by 2020 for Met-Ed and Penelec.
Regulatory assets on the Companies' Consolidated Balance Sheets are comprised of the following:
Regulatory Assets * | | OE | | CEI | | TE | | JCP&L | | Met-Ed | |
| | (In millions) | |
Regulatory transition costs | | $ | 197 | | $ | 227 | | $ | 71 | | $ | 1,630 | | $ | 237 | |
Customer shopping incentives | | | 91 | | | 393 | | | 32 | | | - | | | - | |
Customer receivables (payables) for future income taxes | | | 101 | | | 18 | | | (1 | ) | | 51 | | | 126 | |
Loss (Gain) on reacquired debt | | | 23 | | | 2 | | | (3 | ) | | 25 | | | 10 | |
Employee postretirement benefit costs | | | - | | | 8 | | | 4 | | | 17 | | | 10 | |
Nuclear decommissioning, decontamination | | | | | | | | | | | | | | | | |
and spent fuel disposal costs | | | - | | | - | | | - | | | - | | | (115 | ) |
| | | (6 | ) | | (18 | ) | | (11 | ) | | (148 | ) | | - | |
Property losses and unrecovered plant costs | | | - | | | - | | | - | | | 9 | | | - | |
MISO/PJM transmission costs | | | 56 | | | 34 | | | 24 | | | - | | | 226 | |
| | | 111 | | | 77 | | | 33 | | | - | | | - | |
| | | 148 | | | 122 | | | 51 | | | - | | | - | |
| | | 16 | | | 8 | | | 4 | | | 12 | | | 1 | |
| | $ | 737 | | $ | 871 | | $ | 204 | | $ | 1,596 | | $ | 495 | |
| | | | | | | | | | | | | | | | |
December 31, 2006 | | | | | | | | | | | | | | | | |
Regulatory transition costs | | $ | 280 | | $ | 360 | | $ | 134 | | $ | 2,207 | | $ | 285 | |
Customer shopping incentives | | | 174 | | | 368 | | | 61 | | | - | | | - | |
Customer receivables (payables) for future income taxes | | | 81 | | | 3 | | | (4 | ) | | 22 | | | 116 | |
| | | - | | | - | | | - | | | 11 | | | - | |
Loss (Gain) on reacquired debt | | | 24 | | | - | | | (3 | ) | | 11 | | | 11 | |
Employee postretirement benefit costs | | | - | | | 10 | | | 5 | | | 20 | | | 12 | |
Nuclear decommissioning, decontamination | | | | | | | | | | | | | | | | |
and spent fuel disposal costs | | | - | | | - | | | - | | | (1 | ) | | (144 | ) |
| | | (2 | ) | | (12 | ) | | (5 | ) | | (148 | ) | | - | |
Property losses and unrecovered plant costs | | | - | | | - | | | - | | | 19 | | | - | |
MISO/PJM transmission costs | | | 44 | | | 26 | | | 16 | | | - | | | 127 | |
| | | 57 | | | 39 | | | 17 | | | - | | | - | |
| | | 74 | | | 57 | | | 24 | | | - | | | - | |
| | | 9 | | | 4 | | | 3 | | | 11 | | | 2 | |
| | $ | 741 | | $ | 855 | | $ | 248 | | $ | 2,152 | | $ | 409 | |
* | Penn had net regulatory liabilities of approximately $67 million and $68 million as of December 31, 2007 and 2006, respectively. Penelec had net regulatory liabilities of approximately $74 million and $96 million as of December 31, 2007 and 2006, respectively. These net regulatory liabilities are included in Other Non-current Liabilities on the Consolidated Balance Sheets. |
In accordance with the RCP, recovery of the aggregate of the regulatory transition costs and the Extended RTC (deferred customer shopping incentives and interest costs) amounts are expected to be complete for OE and TE by December 31, 2008. CEI's recovery of regulatory transition costs is projected to be complete by April 2009 at which time recovery of its Extended RTC will begin, with recovery estimated to be complete as of December 31, 2010. At the end of their respective recovery periods, any remaining unamortized regulatory transition costs and Extended RTC balances will be reduced by applying any remaining cost of removal regulatory liability balances -- any remaining regulatory transition costs and Extended RTC balances will be written off. The RCP allows the Ohio Companies to defer and capitalize certain distribution costs during the period January 1, 2006 through December 31, 2008, not to exceed $150 million in each of the years 2006, 2007 and 2008. These deferrals will be recovered in distribution rates effective on or after January 1, 2009. In addition, the Ohio Companies deferred certain fuel costs through December 31, 2007 that were incurred above the amount collected through a fuel recovery mechanism in accordance with the RCP (see Note 9(B)).
Transition Cost Amortization
The Ohio Companies amortize transition costs using the effective interest method. Extended RTC amortization is equal to the related revenue recovery that is recognized. The following table provides the estimated net amortization of regulatory transition costs and Extended RTC amounts (including associated carrying charges) under the RCP for the period 2008 through 2010:
Amortization | | | | | | | |
| | | | | | | |
| | (In millions) | |
2008 | | $ | 207 | | $ | 126 | | $ | 113 | |
2009 | | | - | | | 212 | | | - | |
2010 | | | - | | | 273 | | | - | |
Total Amortization | | $ | 207 | | $ | 611 | | $ | 113 | |
JCP&L's and Met-Ed's regulatory transition costs include the deferral of above-market costs for power supplied from NUGs of $875 million for JCP&L (recovered through BGS and MTC revenues) and $185 million for Met-Ed (recovered through CTC revenues). The liability for JCP&L's projected above-market NUG costs and corresponding regulatory asset are adjusted to fair value at the end of each quarter. Recovery of the remaining regulatory transition costs is expected to continue pursuant to various regulatory proceedings in New Jersey and Pennsylvania (See Note 9).
(B) REVENUES AND RECEIVABLES
Electric service provided to FES and the Companies' retail customers is 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 between the last meter reading and the end of the month. This estimate includes many factors including historical customer usage, load profiles, estimated weather impacts, customer shopping activity and prices in effect for each class of customer. In each accounting period, FES and the Companies accrue the estimated unbilled amount receivable as revenue and reverse the related prior period estimate.
Receivables from customers include sales to residential, commercial and industrial customers and sales to wholesale customers. There was no material concentration of receivables as of December 31, 2007 with respect to any particular segment of customers. Billed and unbilled customer receivables for FES and the Companies as of December 31, 2007 and 2006 are shown below.
Customer Receivables | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
December 31, 2007 | | (In millions) | |
Billed | | $ | 107 | | $ | 143 | | $ | 144 | | $ | - | | $ | 162 | | $ | 80 | | $ | 75 | |
Unbilled | | | 27 | | | 106 | | | 107 | | | - | | | 159 | | | 63 | | | 62 | |
Total | | $ | 134 | | $ | 249 | | $ | 251 | | $ | - | | $ | 321 | | $ | 143 | | $ | 137 | |
December 31, 2006 | | | | | | | | | | | | | | | | | | | | | | |
Billed | | $ | 104 | | $ | 127 | | $ | 137 | | $ | 1 | | $ | 128 | | $ | 70 | | $ | 69 | |
Unbilled | | | 26 | | | 108 | | | 108 | | | - | | | 126 | | | 57 | | | 58 | |
Total | | $ | 130 | | $ | 235 | | $ | 245 | | $ | 1 | | $ | 254 | | $ | 127 | | $ | 127 | |
| | | | | | | | | | | | | | | | | | | | | | |
FES holds emission allowances for SO2 and NOX in order to comply with programs implemented by the EPA designed to regulate emissions of SO2 and NOX 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. FES recognizes emission allowance costs as fuel expense during the periods that emissions are produced by its 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.
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment reflects original cost (except for nuclear generating assets which were adjusted to fair value in accordance with SFAS 144), 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. FES' accounting policy for planned major maintenance projects is to recognize liabilities as they are incurred.
FES and the Companies provide 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 FES and the Companies electric plant in 2007, 2006 and 2005 are shown in the following table:
| | Annual Composite | |
| | Depreciation Rate | |
| | 2007 | | 2006 | | 2005 | |
| | | 2.9 | % | | 2.8 | % | | 2.1 | % |
| | | 3.6 | | | 3.2 | | | 2.9 | |
| | | 3.9 | | | 3.8 | | | 3.1 | |
| | | 2.3 | | | 2.6 | | | 2.4 | |
| | | 2.1 | | | 2.1 | | | 2.2 | |
| | | 2.3 | | | 2.3 | | | 2.4 | |
| | | 2.3 | | | 2.3 | | | 2.6 | |
| | | 4.0 | | | 4.1 | | | N/A | |
| | | 2.8 | | | 2.7 | | | N/A | |
Jointly-Owned Generating Stations
JCP&L holds a 50% ownership interest in Yards Creek Pumped Storage Facility with a net book value of approximately $19.5 million as of December 31, 2007.
Asset Retirement Obligations
FES and the Companies recognize liabilities for retirement obligations associated with tangible assets in accordance with SFAS 143 and FIN 47. These standards require recognition of the fair value of a liability for an ARO 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 depreciated over time, as described further in Note 11.
Nuclear Fuel
FES property, plant and equipment includes nuclear fuel recorded at original cost, which includes material, enrichment, fabrication and interest costs incurred prior to reactor load. Nuclear fuel is amortized based on the units of production method.
(E) ASSET IMPAIRMENTS
Long-Lived Assets
FES and the Companies evaluate the carrying value of their long-lived assets when events or circumstances indicate that the carrying amount may not be recoverable. In accordance with SFAS 144, the carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists, 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 estimated by using available market valuations or the long-lived asset's expected future net discounted cash flows. The calculation of expected cash flows is based on estimates and assumptions about future events.
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recognized as goodwill. Based on the guidance provided by SFAS 142, FES and the Companies evaluate their goodwill for impairment at least annually and make such evaluations more frequently if indicators of impairment arise. In accordance with the accounting standard, if the fair value of a reporting unit is less than its carrying value (including goodwill), the goodwill is tested for impairment. If an impairment is indicated, a loss is recognized - calculated as the difference between the implied fair value of goodwill and the carrying value of goodwill. FES' and the Companies' 2007 annual review was completed in the third quarter of 2007 with no impairment indicated. In the third quarter of 2007, JCP&L, Met-Ed and Penelec adjusted goodwill due to the realization of tax benefits that had been reserved in purchase accounting.
FES' and the Companies' 2006 annual review was completed in the third quarter of 2006 with no impairment indicated. On January 11, 2007, the PPUC issued its order related to the comprehensive rate filing made by Met-Ed and Penelec on April 10, 2006 (see Note 9). The rate increase granted was substantially lower than the amounts Met-Ed and Penelec had requested. Prior to issuing the order, the PPUC conducted an informal, nonbinding polling of Commissioners at its public meeting on December 21, 2006 that indicated the rate increase ultimately granted would be substantially below the amounts requested. As a result of the polling, Met-Ed and Penelec determined that an interim review of goodwill would be required. As a result, Met-Ed recognized an impairment charge of $355 million in the fourth quarter of 2006. No impairment was indicated for Penelec.
The forecasts used in the evaluations of goodwill reflect operations consistent with FES' and the Companies' general business assumptions. Unanticipated changes in those assumptions could have a significant effect on future evaluations of goodwill. The impairment analysis includes a significant source of cash representing the Companies' recovery of transition costs as described in Note 9. The Companies estimate that the completion of their transition cost recovery will not result in an impairment of goodwill.
A summary of the changes in FES' and the Companies' goodwill for the three years ended December 31, 2007 is shown below.
Goodwill | | FES | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Balance as of January 1, 2005 | | $ | 26 | | $ | 1,694 | | $ | 505 | | $ | 1,998 | | $ | 870 | | $ | 888 | |
Non-core sset sales | | | (2 | ) | | - | | | - | | | - | | | - | | | - | |
Adjustments related to GPU acquisition | | | | | | | | | | | | (12 | ) | | (6 | ) | | (6 | ) |
Adjustments related to Centerior acquisition | | | | | | (5 | ) | | (4 | ) | | | | | | | | | |
Balance as of December 31, 2005 | | | 24 | | | 1,689 | | | 501 | | | 1,986 | | | 864 | | | 882 | |
| | | | | | | | | | | | | | | (355 | ) | | | |
Adjustments related to Centerior acquisition | | | | | | | | | | | | | | | | | | | |
Adjustments related to GPU acquisition | | | | | | | | | | | | (24 | ) | | (13 | ) | | (21 | ) |
Balance as of December 31, 2006 | | | 24 | | | 1,689 | | | 501 | | | 1,962 | | | 496 | | | 861 | |
Adjustments related to GPU acquisition | | | | | | | | | | | | (136 | ) | | (72 | ) | | (83 | ) |
Balance as of December 31, 2007 | | $ | 24 | | $ | 1,689 | | $ | 501 | | $ | 1,826 | | $ | 424 | | $ | 778 | |
Investments
At the end of each reporting period, FES and the Companies evaluate their investments for impairment. In accordance with SFAS 115 and FSP SFAS 115-1 and SFAS 124-1, 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. FES and the Companies first consider their intent and ability to hold the 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 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. Upon adoption of FSP SFAS 115-1 and SFAS 124-1, FES, OE and TE began recognizing in earnings the unrealized losses on available-for-sale securities held in their 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. The fair value and unrealized gains and losses of FES' and the Companies' investments are disclosed in Note 5.
(F) COMPREHENSIVE INCOME
Comprehensive income includes net income as reported on the Consolidated Statements of Income and all other changes in common stockholder's equity except those resulting from transactions with stockholders and from the adoption of SFAS 158. Accumulated other comprehensive income (loss), net of tax, included on FES' and the Companies' Consolidated Balance Sheets as of December 31, 2007 and 2006 is comprised of the following components:
Accumulated Other Comprehensive Income (Loss) | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Net liability for unfunded retirement benefits including the implementation of SFAS 158 | | $ | (4 | ) | $ | (9 | ) | $ | (104 | ) | $ | (42 | ) | $ | (42 | ) | $ | (25 | ) | $ | (7 | ) |
Unrealized gain on investments | | | 126 | | | 12 | | | - | | | 5 | | | - | | | - | | | - | |
Unrealized gain (loss) on derivative hedges | | | (10 | ) | | - | | | - | | | - | | | (2 | ) | | (1 | ) | | - | |
AOCI (AOCL) Balance, December 31, 2006 | | $ | 112 | | $ | 3 | | $ | (104 | ) | $ | (37 | ) | $ | (44 | ) | $ | (26 | ) | $ | (7 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net liability for unfunded retirement benefits including the implementation of SFAS 158 | | $ | (11 | ) | $ | 32 | | $ | (69 | ) | $ | (18 | ) | $ | (18 | ) | $ | (14 | ) | $ | 5 | |
Unrealized gain on investments | | | 168 | | | 16 | | | - | | | 7 | | | - | | | - | | | - | |
Unrealized gain (loss) on derivative hedges | | | (16 | ) | | - | | | - | | | - | | | (2 | ) | | (1 | ) | | - | |
AOCI (AOCL) Balance, December 31, 2007 | | $ | 141 | | $ | 48 | | $ | (69 | ) | $ | (11 | ) | $ | (20 | ) | $ | (15 | ) | $ | 5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) reclassified to net income in the three years ended December 31, 2007 is as follows:
2007 | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Pension and other postretirement benefits | | $ | (5 | ) | $ | (14 | ) | $ | 5 | | $ | 2 | | $ | (8 | ) | $ | (6 | ) | $ | (11 | ) |
Loss on investments | | | (13 | ) | | (3 | ) | | - | | | - | | | - | | | - | | | - | |
Loss on derivative hedges | | | (12 | ) | | - | | | - | | | - | | | - | | | - | | | - | |
Reclassification to net income | | | (30 | ) | | (17 | ) | | 5 | | | 2 | | | (8 | ) | | (6 | ) | | (11 | ) |
Income taxes (benefits) related to reclassification to net income | | | (13 | ) | | (6 | ) | | 2 | | | 1 | | | (4 | ) | | (3 | ) | | (5 | ) |
Reclassification to net income, net of income taxes (benefits) | | $ | (17 | ) | $ | (11 | ) | $ | 3 | | $ | 1 | | $ | (4 | ) | $ | (3 | ) | $ | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | | | | | | |
Gain (Loss) on investments | | $ | 28 | | $ | - | | $ | - | | $ | (1 | ) | $ | - | | $ | - | | $ | - | |
Loss on derivative hedges | | | (9 | ) | | - | | | - | | | - | | | - | | | - | | | - | |
Reclassification to net income | | | 19 | | | - | | | - | | | (1 | ) | | - | | | - | | | - | |
Income taxes related to reclassification to net income | | | 7 | | | - | | | - | | | - | | | - | | | - | | | - | |
Reclassification to net income, net of income taxes | | $ | 12 | | $ | - | | $ | - | | $ | (1 | ) | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | | | | | | |
Gain on investments | | $ | 1 | | $ | 18 | | $ | 28 | | $ | 20 | | $ | - | | $ | - | | $ | - | |
Gain on derivative hedges | | | 3 | | | - | | | - | | | - | | | - | | | - | | | - | |
Reclassification to net income | | | 4 | | | 18 | | | 28 | | | 20 | | | - | | | - | | | - | |
Income taxes related to reclassification to net income | | | 2 | | | 7 | | | 11 | | | 8 | | | - | | | - | | | - | |
Reclassification to net income, net of income taxes | | $ | 2 | | $ | 11 | | $ | 17 | | $ | 12 | | $ | - | | $ | - | | $ | - | |
(G) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Results in 2005 included after-tax charges of $8.8 million for FES, $16.3 million for OE, $3.7 million for CEI, $0.3 million for Met-Ed and $0.8 million for Penelec recorded as the cumulative effect of a change in accounting principle upon the adoption of FIN 47 in December 2005. Applicable legal obligations as defined under FIN 47 were identified at FES' active and retired generating units and the Companies' substation control rooms, service center buildings, line shops and office buildings, with asbestos remediation recognized as the primary conditional ARO. See Note 11 for further discussion of FES' and the Companies' asset retirement obligations.
(H) DIVESTITURES AND DISCONTINUED OPERATIONS
On October 1, 2007, Met-Ed sold 100% of its interest in York Haven Power Company for $5 million. The sale was subject to regulatory accounting and did not have a material impact on Met-Ed's earnings.
On March 31, 2005, FES completed the sale of its retail natural gas business for an after-tax gain of $5 million. The net results of $5 million (including the gain on the sale of assets) associated with the divested business are reported as discontinued operations on its Consolidated Statements of Income for 2005. Revenues and pre-tax operating results associated with discontinued operations in 2005 were $146 million and $1 million, respectively.
3. TRANSACTIONS WITH AFFILIATED COMPANIES
FES' and the Companies' operating revenues, operating expenses, investment income and interest expense include transactions with affiliated companies. These affiliated company transactions include PSAs between FES and the Companies, support service billings from FESC, FENOC and interest on associated company notes. In the fourth quarter of 2005, the Ohio Companies and Penn completed the intra-system transfers of their non-nuclear and nuclear generation assets to FGCO and NGC, respectively, excluding the leasehold interests of the Ohio Companies in certain of the plants that are currently subject to sale and leaseback arrangements with non-affiliated entities (see Note 14). This resulted in the elimination of the fossil generating units lease arrangement and the nuclear generation PSA between FES and the Ohio Companies with the exception of those arrangements related to the leasehold interests not included in the transfer. The Ohio Companies continue to have a PSA with FES to meet their PLR and default service obligations. Met-Ed and Penelec also have a partial requirements PSA with FES to meet a portion of their PLR and default service obligations (see Note 9(C)). FES was a supplier to JCP&L as a result of the BGS auction process through May 31, 2006. FES is incurring interest expense through FGCO and NGC on associated company notes payable to the Ohio Companies and Penn related to the intra-system generation asset transfers. The primary affiliated company transactions for FES and the Companies for the three years ended December 31, 2007 are as follows:
Affiliated Company Transactions - 2007 | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Revenues: | | | | | | | | | | | | | | | |
Electric sales to affiliates | | $ | 2,901 | | $ | 73 | | $ | 92 | | $ | 167 | | $ | - | | $ | - | | $ | - | |
Ground lease with ATSI | | | - | | | 12 | | | 7 | | | 2 | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Purchased power from affiliates | | | 234 | | | 1,261 | | | 770 | | | 392 | | | - | | | 290 | | | 285 | |
| | | 560 | | | 146 | | | 70 | | | 55 | | | 100 | | | 54 | | | 58 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest income from affiliates | | | - | | | 30 | | | 17 | | | 18 | | | 1 | | | 1 | | | 1 | |
Interest income from FirstEnergy | | | 28 | | | 29 | | | 2 | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest expense to affiliates | | | 31 | | | 1 | | | 1 | | | - | | | 1 | | | 1 | | | 1 | |
Interest expense to FirstEnergy | | | 34 | | | - | | | 1 | | | 10 | | | 11 | | | 10 | | | 11 | |
Affiliated Company Transactions - 2006 | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Revenues: | | | | | | | | | | | | | | | |
Electric sales to affiliates | | $ | 2,609 | | $ | 80 | | $ | 95 | | $ | 170 | | $ | 14 | | $ | - | | $ | - | |
Ground lease with ATSI | | | - | | | 12 | | | 7 | | | 2 | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Purchased power from affiliates | | | 257 | | | 1,264 | | | 727 | | | 363 | | | 25 | | | 178 | | | 154 | |
| | | 602 | | | 143 | | | 63 | | | 63 | | | 93 | | | 51 | | | 55 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest income from affiliates | | | - | | | 75 | | | 58 | | | 32 | | | 1 | | | 1 | | | 1 | |
Interest income from FirstEnergy | | | 12 | | | 25 | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest expense to affiliates | | | 109 | | | - | | | - | | | - | | | - | | | - | | | - | |
Interest expense to FirstEnergy | | | 53 | | | - | | | 7 | | | 7 | | | 11 | | | 5 | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | |
Affiliated Company Transactions - 2005 | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Revenues: | | | | | | | | | | | | | | | |
Electric sales to affiliates | | $ | 2,425 | | $ | 355 | | $ | 362 | | $ | 300 | | $ | 33 | | $ | - | | $ | - | |
Generating units rent from FES | | | - | | | 146 | | | 49 | | | 12 | | | - | | | - | | | - | |
Ground lease with ATSI | | | - | | | 12 | | | 7 | | | 2 | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Purchased power from affiliates | | | 308 | | | 938 | | | 557 | | | 295 | | | 78 | | | 348 | | | 321 | |
| | | 64 | | | 314 | | | 257 | | | 171 | | | 94 | | | 45 | | | 51 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest income from affiliates | | | - | | | 25 | | | 7 | | | 22 | | | - | | | - | | | - | |
Interest income from FirstEnergy | | | - | | | 22 | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest expense to affiliates | | | 129 | | | - | | | - | | | - | | | - | | | - | | | - | |
Interest expense to FirstEnergy | | | 55 | | | 1 | | | - | | | 11 | | | 4 | | | 2 | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | |
FirstEnergy does not bill directly or allocate any of its costs to any subsidiary company. Costs are allocated to FES and the Companies from FESC and FENOC subsidiaries of FirstEnergy. 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.
In the three years ended December 31, 2007, TE sold 150 MW of its Beaver Valley Unit 2 leased capacity entitlement to CEI ($98 million in 2007, $102 million in 2006 and $105 million in 2005). This sale agreement was terminated at the end of 2007.
4. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
FirstEnergy provides noncontributory defined benefit pension plans that cover substantially all of its employees and non-qualified plans that cover certain employees. The trusteed 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 January 2, 2007, FirstEnergy made a $300 million voluntary cash contribution to its qualified pension plan. Projections indicated that additional cash contributions will not be required before 2017.
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. FES and the Companies recognize 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 2006, FirstEnergy amended the OPEB plan effective in 2008 to cap the monthly contribution for many of the retirees and their spouses receiving subsidized healthcare coverage. In addition, FirstEnergy 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. Such factors may be further affected by business combinations which impact employee demographics, plan experience and other factors. 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 and 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 December 31, 2007.
In December 2006, FirstEnergy adopted SFAS 158. This Statement requires employers to recognize an asset or liability for the overfunded or underfunded status of their pension and other postretirement benefit plans. For a pension plan, the asset or liability is the difference between the fair value of the plan's assets and the projected benefit obligation. For any other postretirement benefit plan, the asset or liability is the difference between the fair value of the plan's assets and the accumulated postretirement benefit obligation. The Statement required employers to recognize all unrecognized prior service costs and credits and unrecognized actuarial gains and losses in AOCL, net of tax. Such amounts will be adjusted as they are subsequently recognized as components of net periodic benefit cost or income pursuant to the current recognition and amortization provisions. The incremental impact of adopting SFAS 158 was a decrease of $1.0 billion in pension assets, a decrease of $383 million in pension liabilities and a decrease in AOCL of $327 million, net of tax.
Obligations and Funded Status | | Pension Benefits | | Other Benefits | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | (In millions) | |
Change in benefit obligation | | | | | | | | | |
Benefit obligation as of January 1 | | $ | 5,031 | | $ | 4,911 | | $ | 1,201 | | $ | 1,884 | |
| | | 88 | | | 87 | | | 21 | | | 34 | |
| | | 294 | | | 276 | | | 69 | | | 105 | |
Plan participants' contributions | | | - | | | - | | | 23 | | | 20 | |
| | | - | | | - | | | - | | | (620 | ) |
Medicare retiree drug subsidy | | | - | | | - | | | - | | | 6 | |
| | | (381 | ) | | 38 | | | (30 | ) | | (119 | ) |
| | | (282 | ) | | (281 | ) | | (102 | ) | | (109 | ) |
Benefit obligation as of December 31 | | $ | 4,750 | | $ | 5,031 | | $ | 1,182 | | $ | 1,201 | |
| | | | | | | | | | | | | |
Change in fair value of plan assets | | | | | | | | | | | | | |
Fair value of plan assets as of January 1 | | $ | 4,818 | | $ | 4,525 | | $ | 607 | | $ | 573 | |
Actual return on plan assets | | | 438 | | | 567 | | | 43 | | | 69 | |
| | | 311 | | | 7 | | | 47 | | | 54 | |
Plan participants' contribution | | | - | | | - | | | 23 | | | 20 | |
| | | (282 | ) | | (281 | ) | | (102 | ) | | (109 | ) |
Fair value of plan assets as of December 31 | | $ | 5,285 | | $ | 4,818 | | $ | 618 | | $ | 607 | |
| | | | | | | | | | | | | |
Qualified plan | | $ | 700 | | $ | (43 | ) | | | | | | |
Non qualified plans | | | (165 | ) | | (170 | ) | | | | | | |
| | $ | 535 | | $ | (213 | ) | $ | (564 | ) | $ | (594 | ) |
| | | | | | | | | | | | | |
Accumulated benefit obligation | | $ | 4,397 | | $ | 4,585 | | | | | | | |
| | | | | | | | | | | | | |
Amounts Recognized in the Statement of | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | $ | 700 | | $ | - | | $ | - | | $ | - | |
| | | (7 | ) | | (7 | ) | | - | | | - | |
| | | (158 | ) | | (206 | ) | | (564 | ) | | (594 | ) |
Net asset (liability) as of December 31 | | $ | 535 | | $ | (213 | )) | $ | (564 | ) | $ | (594 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Accumulated Other Comprehensive Income | | | | | | | | | | | | | |
Prior service cost (credit) | | $ | 83 | | $ | 97 | | $ | (1,041 | ) | $ | (1,190 | ) |
| | | 623 | | | 1,039 | | | 635 | | | 702 | |
| | $ | 706 | | $ | 1,136 | | $ | (406 | ) | $ | (488 | ) |
| | | | | | | | | | | | | |
Assumptions Used to Determine | | | | | | | | | | | | | |
Benefit Obligations As of December 31 | | | | | | | | | | | | | |
| | | 6.50 | % | | 6.00 | % | | 6.50 | % | | 6.00 | % |
Rate of compensation increase | | | 5.20 | % | | 3.50 | % | | | | | | |
| | | | | | | | | | | | | |
Allocation of Plan Assets | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 61 | % | | 64 | % | | 69 | % | | 72 | % |
| | | 30 | | | 29 | | | 27 | | | 26 | |
| | | 7 | | | 5 | | | 2 | | | 1 | |
| | | 1 | | | 1 | | | - | | | - | |
| | | 1 | | | 1 | | | 2 | | | 1 | |
| | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
FES' and the Companies' share of the net pension and OPEB asset (liability) as of December 31, 2007 and 2006 is as follows:
| | Pension Benefits | | Other Benefits | |
Net Pension and OPEB Asset (Liability) | | 2007 | | 2006 | | 2007 | | 2006 | |
| | (In millions) | |
| | $ | 42 | | $ | (157 | ) | $ | (102 | ) | $ | (81 | ) |
| | | 229 | | | 68 | | | (178 | ) | | (167 | ) |
| | | 62 | | | (13 | ) | | (93 | ) | | (110 | ) |
| | | 29 | | | (3 | ) | | (63 | ) | | (74 | ) |
| | | 93 | | | 15 | | | 8 | | | (8 | ) |
| | | 51 | | | 7 | | | (8 | ) | | (19 | ) |
| | | 66 | | | 11 | | | (40 | ) | | (49 | ) |
Estimated Items to be Amortized in 2008 | | | | | |
Net Periodic Pension Cost from | | Pension | | Other | |
Accumulated Other Comprehensive Income | | Benefits | | Benefits | |
| | (In millions) | |
Prior service cost (credit) | | $ | 13 | | $ | (149 | ) |
Actuarial loss | | $ | 8 | | $ | 47 | |
| | Pension Benefits | | Other Benefits | |
Components of Net Periodic Benefit Costs | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
| (In millions) | |
Service cost | | $ | 88 | | $ | 87 | | $ | 80 | | $ | 21 | | $ | 34 | | $ | 40 | |
Interest cost | | | 294 | | | 276 | | | 262 | | | 69 | | | 105 | | | 111 | |
Expected return on plan assets | | | (449 | ) | | (396 | ) | | (345 | ) | | (50 | ) | | (46 | ) | | (45 | ) |
Amortization of prior service cost | | | 13 | | | 13 | | | 10 | | | (149 | ) | | (76 | ) | | (45 | ) |
Recognized net actuarial loss | | | 45 | | | 62 | | | 39 | | | 45 | | | 56 | | | 40 | |
Net periodic cost | | $ | (9 | ) | $ | 42 | | $ | 46 | | $ | (64 | ) | $ | 73 | | $ | 101 | |
| | | | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions Used | | | | | | | | | | | | | | | | | | | |
to Determine Net Periodic Benefit Cost | | Pension Benefits | | Other Benefits | |
for Years Ended December 31 | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | |
Discount rate | | | 6.00 | % | | 5.75 | % | | 6.00 | % | | 6.00 | % | | 5.75 | % | | 6.00 | % |
Expected long-term return on plan assets | | | 9.00 | % | | 9.00 | % | | 9.00 | % | | 9.00 | % | | 9.00 | % | | 9.00 | % |
Rate of compensation increase | | | 3.50 | % | | 3.50 | % | | 3.50 | % | | | | | | | | | |
FES' and the Companies' share of the net periodic pension and OPEB cost for the three years ended December 31, 2007 is as follows:
| | Pension Benefits | | Other Benefits | |
Net Periodic Pension and OPEB Costs | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | |
| | (In millions) | |
| | $ | 21 | | $ | 40 | | $ | 33 | | $ | (10 | ) | $ | 14 | | $ | 23 | |
| | | (16 | ) | | (6 | ) | | 0 | | | (11 | ) | | 17 | | | 28 | |
| | | 1 | | | 4 | | | 1 | | | 4 | | | 11 | | | 15 | |
| | | - | | | 1 | | | 1 | | | 5 | | | 8 | | | 9 | |
| | | (9 | ) | | (5 | ) | | (1 | ) | | (16 | ) | | 2 | | | 7 | |
| | | (7 | ) | | (7 | ) | | (4 | ) | | (10 | ) | | 3 | | | 1 | |
| | | (10 | ) | | (5 | ) | | (5 | ) | | (13 | ) | | 7 | | | 8 | |
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 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. Furthermore, 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 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.
FES and the Companies have assessed the impact of recent market developments, including a series of rating agency downgrades of subprime mortgage-related assets, on the value of the assets held in their pension and other postretirement benefit trusts. Based on this assessment, FES and the Companies believe that the fair value of their investments as of December 31, 2007 will not be materially affected by the subprime credit crisis due to their relatively small exposure to subprime assets.
Assumed Health Care Cost Trend Rates | | | | | |
| | 2007 | | 2006 | |
Health care cost trend rate assumed for next | | | | | |
| | | 9-11 | % | | 9-11 | % |
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 | | | | | | | |
| | | 2015-2017 | | | 2011-2013 | |
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 | | $ | 5 | | $ | (4 | ) |
Effect on accumulated postretirement benefit obligation | | $ | 48 | | $ | (42 | ) |
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:
| | Pension | | Other | |
| | Benefits | | Benefits | |
| | (In millions) | |
| | $ | 300 | | $ | 83 | |
| | | 300 | | | 86 | |
| | | 307 | | | 90 | |
| | | 313 | | | 94 | |
| | | 322 | | | 95 | |
| | | 1,808 | | | 495 | |
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 shown in the Consolidated Statements of Capitalization as of December 31:
| | | | |
| Carrying | | Fair | | Carrying | | Fair | |
| | | | | | | | |
| (In millions) | |
| $ | 1,975 | | $ | 1,971 | | $ | 3,084 | | $ | 3,084 | |
| | 1,182 | | | 1,197 | | | 1,294 | | | 1,337 | |
| | 1,666 | | | 1,706 | | | 1,919 | | | 2,000 | |
| | 304 | | | 283 | | | 389 | | | 388 | |
| | 1,597 | | | 1,560 | | | 1,366 | | | 1,388 | |
| | 542 | | | 535 | | | 592 | | | 572 | |
| | 779 | | | 779 | | | 479 | | | 490 | |
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 year. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FES and the Companies.
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 and available-for-sale securities. FES and the Companies periodically evaluate their investments for other-than-temporary impairment. They first consider their intent and ability to hold the investment until recovery and then consider, among other factors, the duration and the extent to which the securitys fair value has been less than cost and the near-term financial prospects of the security issuer when evaluating investments for impairment.
FES and the Companies have assessed the impact of recent market developments, including a series of rating agency downgrades of subprime mortgage-related assets, on the value of the assets held in their nuclear decommissioning trusts. Based on this assessment, FES and the Companies believe that the fair value of their investments as of December 31, 2007 will not be materially affected by the subprime credit crisis due to their relatively small exposure to subprime assets.
Available-For-Sale Securities
FES and the Companies hold debt and equity securities within their nuclear decommissioning trusts, nuclear fuel disposal trusts and NUG trusts. These trust investments are classified as available-for-sale with the fair value representing quoted market prices. FES and the Companies have no securities held for trading purposes.
The following table provides the carrying value, which approximates fair value, of investments in available-for-sale securities as of December 31, 2007 and 2006. The fair value was determined using the specific identification method.
| | | | |
| Debt | | Equity | | Debt | | Equity | |
| | | | | | | | |
| (In millions) | |
| $ | 417 | | $ | 916 | | $ | 365 | | $ | 873 | |
| | 45 | | | 82 | | | 38 | | | 80 | |
| | 67 | | | - | | | 61 | | | - | |
| | 248 | | | 102 | | | 235 | | | 97 | |
| | 115 | | | 172 | | | 106 | | | 164 | |
| | 167 | | | 83 | | | 151 | | | 72 | |
| | | | | | | | | | | | |
| Excludes $2 million and $3 million of cash in 2007 and 2006, respectively |
| Excludes $1 million and $2 million of cash in 2007 and 2006, respectively |
The following table summarizes the amortized cost basis, unrealized gains and losses and fair values of investments in available-for-sale securities as of December 31:
| | 2007 | | 2006 | |
| | Cost | | Unrealized | | Unrealized | | Fair | | Cost | | Unrealized | | Unrealized | | Fair | |
| | Basis | | Gains | | Losses | | Value | | Basis | | Gains | | Losses | | Value | |
Debt securities | | (In millions) | |
| | $ | 402 | | $ | 15 | | $ | - | | $ | 417 | | $ | 360 | | $ | 5 | | $ | - | | $ | 365 | |
| | | 43 | | | 2 | | | - | | | 45 | | | 38 | | | - | | | - | | | 38 | |
| | | 63 | | | 4 | | | - | | | 67 | | | 61 | | | - | | | - | | | 61 | |
| | | 249 | | | 3 | | | 4 | | | 248 | | | 237 | | | 2 | | | 4 | | | 235 | |
| | | 112 | | | 3 | | | - | | | 115 | | | 105 | | | 1 | | | - | | | 106 | |
| | | 166 | | | 1 | | | - | | | 167 | | | 150 | | | 1 | | | - | | | 151 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 631 | | $ | 285 | | $ | - | | $ | 916 | | $ | 652 | | $ | 221 | | $ | - | | $ | 873 | |
| | | 59 | | | 23 | | | - | | | 82 | | | 61 | | | 19 | | | - | | | 80 | |
| | | 89 | | | 13 | | | - | | | 102 | | | 73 | | | 24 | | | - | | | 97 | |
| | | 136 | | | 36 | | | - | | | 172 | | | 114 | | | 50 | | | - | | | 164 | |
| | | 80 | | | 3 | | | - | | | 83 | | | 55 | | | 17 | | | - | | | 72 | |
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, 2007 were as follows:
| | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2007 | | | | | | | | | | | | | | | |
| | $ | 656 | | $ | 38 | | $ | - | | $ | 45 | | $ | 196 | | $ | 185 | | $ | 175 | |
| | | 29 | | | 1 | | | - | | | 1 | | | 23 | | | 30 | | | 19 | |
| | | 42 | | | 4 | | | - | | | 1 | | | 3 | | | 2 | | | 1 | |
Interest and dividend income | | | 42 | | | 4 | | | - | | | 3 | | | 13 | | | 8 | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,066 | | $ | 39 | | $ | - | | $ | 53 | | $ | 217 | | $ | 176 | | $ | 99 | |
| | | 118 | | | 1 | | | - | | | - | | | 1 | | | 1 | | | - | |
| | | 90 | | | 1 | | | - | | | 1 | | | 5 | | | 4 | | | 4 | |
Interest and dividend income | | | 36 | | | 3 | | | - | | | 3 | | | 13 | | | 7 | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,097 | | $ | 284 | | $ | 490 | | $ | 366 | | $ | 165 | | $ | 167 | | $ | 93 | |
| | | 109 | | | 35 | | | 49 | | | 35 | | | 4 | | | 6 | | | 4 | |
| | | 39 | | | 7 | | | 20 | | | 15 | | | 5 | | | 7 | | | 6 | |
Interest and dividend income | | | 32 | | | 13 | | | 12 | | | 9 | | | 13 | | | 6 | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | |
Upon adoption of FSP SFAS 115-1 and SFAS 124-1, FES, OE and TE began expensing 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.
Unrealized gains applicable to OE's, TE's and the majority of FES' decommissioning trusts are recognized in OCI in accordance with SFAS 115, as fluctuations in fair value will eventually impact earnings. The decommissioning trusts of JCP&L, Met-Ed and Penelec are subject to regulatory accounting in accordance with SFAS 71. 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.
Held-To-Maturity Securities
The following table provides the amortized cost basis (carrying value), unrealized gains and losses and fair values of investments in held-to-maturity securities with maturity dates ranging from 2008 to 2017 excluding; restricted funds, whose carrying value is assumed to approximate market value, notes receivable, whose fair value represents the present value of the cash inflows based on the yield to maturity, and other investments of $87 million and $127 million in 2007 and 2006, respectively, excluded by SFAS 107, "Disclosures about Fair Values of Financial Instruments," as of December 31:
| | 2007 | | 2006 |
| | Cost | | Unrealized | | Unrealized | | Fair | | Cost | | Unrealized | | Unrealized | | Fair |
| | Basis | | Gains | | Losses | | Value | | Basis | | Gains | | Losses | | Value |
Debt securities | | (In millions) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
The following table provides the approximate fair value and related carrying amounts of notes receivable as of December 31:
| | | | |
| | Carrying | | Fair | | Carrying | | Fair |
| | | | | | | | |
Notes receivable | | (In millions) |
FES | | | 65 | | 63 | | | 69 | | 66 |
OE | | | 259 | | 299 | | | 1,219 | | 1,251 |
| | | | | | | | | | |
| | | | | | | | | | |
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 2008 to 2040.
FES and the Companies are exposed to financial risks resulting from the fluctuation of interest rates and commodity prices, including prices for electricity, natural gas, coal and energy transmission. To manage the volatility relating to these exposures, they use a variety of derivative instruments, including forward contracts, options, futures contracts and swaps. The derivatives are used principally for hedging purposes. FirstEnergy's Risk Policy Committee, comprised of members of senior management, provides general management oversight for risk management activities throughout FES and the Companies. They are responsible for promoting the effective design and implementation of sound risk management programs. They also oversee compliance with corporate risk management policies and established risk management practices.
FES and the Companies account for derivative instruments on their Consolidated Balance Sheets at their fair value unless they meet the normal purchase and normal sales criteria. Derivatives that meet that criteria are accounted for using traditional accrual accounting. The changes in the fair value of derivative instruments that do not meet the normal purchase and normal sales criteria are recorded as other expense, as AOCL, or as part of the value of the hedged item, depending on whether or not it is designated as part of a hedge transaction, the nature of the hedge transaction and hedge effectiveness.
FES hedges anticipated transactions using cash flow hedges. Such transactions include hedges of anticipated electricity and natural gas purchases. FES maximum hedge terms are typically two years. The effective portion of such hedges are initially recorded in equity as other comprehensive income or loss and are subsequently included in net income as the underlying hedged commodities are delivered. Gains and losses from any ineffective portion of cash flow hedges are included directly in earnings. The ineffective portion of cash flow hedge was immaterial during this period.
FES net deferred losses of $16 million included in AOCL as of December 31, 2007, for derivative hedging activity, as compared to $10 million as of December 31, 2006, resulted from a net $14 million increase related to current hedging activity and an $8 million decrease due to net hedge losses reclassified to earnings during 2007. Based on current estimates, approximately $15 million (after tax) of the net deferred losses on derivative instruments in AOCL as of December 31, 2007 is expected to be reclassified to earnings during the next twelve months as hedged transactions occur. The fair value of these derivative instruments fluctuate from period to period based on various market factors.
FES and the Companies lease certain generating facilities, office space and other property and equipment under cancelable and noncancelable leases.
On July 13, 2007, FGCO completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1, representing 779 MW of net demonstrated capacity. The purchase price of approximately $1.329 billion (net after-tax proceeds of approximately $1.2 billion) for the undivided interest was funded through a combination of equity investments by affiliates of AIG Financial Products Corp. and Union Bank of California, N.A. in six lessor trusts and proceeds from the sale of $1.135 billion aggregate principal amount of 6.85% pass through certificates due 2034. A like principal amount of secured notes maturing June 1, 2034 were issued by the lessor trusts to the pass through trust that issued and sold the certificates. The lessor trusts leased the undivided interest back to FGCO for a term of approximately 33 years under substantially identical leases. FES has unconditionally and irrevocably guaranteed all of FGCOs obligations under each of the leases. This transaction, which is classified as an operating lease under GAAP for FES and a financing for FGCO, generated tax capital gains of approximately $742 million, all of which were offset by existing tax capital loss carryforwards.
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 continue to be 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. 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 FGCOs 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.
The rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2007 are summarized as follows:
| | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2007 | | | | | | | | | | | | | | | |
Operating leases | | | | | | | | | | | | | | | |
| | $ | 29.8 | | $ | 82.8 | | $ | 23.8 | | $ | 38.2 | | $ | 2.9 | | $ | 2.1 | | $ | 0.8 | |
| | | 14.6 | | | 62.2 | | | 37.6 | | | 62.8 | | | 5.4 | | | 1.6 | | | 3.9 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | - | | | 0.1 | | | 0.4 | | | - | | | - | | | - | | | - | |
| | | 0.1 | | | - | | | 0.6 | | | - | | | - | | | - | | | - | |
| | $ | 44.5 | | $ | 145.1 | | $ | 62.4 | | $ | 101.0 | | $ | 8.3 | | $ | 3.7 | | $ | 4.7 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating leases | | | | | | | | | | | | | | | | | | | | | | |
| | $ | - | | $ | 87.1 | | $ | 26.3 | | $ | 41.1 | | $ | 2.8 | | $ | 2.0 | | $ | 0.6 | |
| | | - | | | 57.5 | | | 48.1 | | | 68.2 | | | 4.5 | | | 1.4 | | | 3.8 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | - | | | 0.3 | | | 0.4 | | | - | | | - | | | - | | | - | |
| | | - | | | 1.3 | | | 0.6 | | | - | | | - | | | - | | | - | |
| | $ | - | | $ | 146.2 | | $ | 75.4 | | $ | 109.3 | | $ | 7.3 | | $ | 3.4 | | $ | 4.4 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating leases | | | | | | | | | | | | | | | | | | | | | | |
| | $ | - | | $ | 93.4 | | $ | 28.4 | | $ | 43.9 | | $ | 2.6 | | $ | 1.9 | | $ | 0.7 | |
| | | - | | | 52.3 | | | 40.9 | | | 62.3 | | | 3.2 | | | 1.0 | | | 2.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | - | | | 0.8 | | | 0.5 | | | - | | | - | | | - | | | - | |
| | | - | | | 1.9 | | | 0.5 | | | - | | | - | | | - | | | - | |
| | $ | - | | $ | 148.4 | | $ | 70.3 | | $ | 106.2 | | $ | 5.8 | | $ | 2.9 | | $ | 2.8 | |
| | | | | | | | | | | | | | | | | | | | | | |
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 future minimum capital lease payments as of December 31, 2007 are as follows:
Capital Leases | | FES | | OE | | CEI | | TE | |
| | (In millions) | |
2008 | | $ | 0.1 | | $ | 0.1 | | $ | 1.0 | | $ | - | |
2009 | | | - | | | 0.2 | | | 1.0 | | | 0.1 | |
2010 | | | 0.1 | | | 0.1 | | | 1.0 | | | - | |
2011 | | | - | | | 0.2 | | | 1.0 | | | - | |
2012 | | | - | | | 0.1 | | | 0.6 | | | - | |
Years thereafter | | | - | | | - | | | - | | | - | |
Total minimum lease payments | | | 0.2 | | | 0.7 | | | 4.6 | | | 0.1 | |
Executory costs | | | - | | | - | | | - | | | - | |
Net minimum lease payments | | | 0.2 | | | 0.7 | | | 4.6 | | | 0.1 | |
Interest portion | | | - | | | 0.4 | | | 0.9 | | | - | |
Present value of net minimum | | | | | | | | | | | | | |
lease payments | | | 0.2 | | | 0.3 | | | 3.7 | | | 0.1 | |
Less current portion | | | 0.1 | | | 0.1 | | | 0.6 | | | - | |
Noncurrent portion | | $ | 0.1 | | $ | 0.2 | | $ | 3.1 | | $ | 0.1 | |
| | | | | | | | | | | | | |
The future minimum operating lease payments as of December 31, 2007 are as follows:
Operating Leases | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2008 | | $ | 172.7 | | $ | 147.8 | | $ | 5.7 | | $ | 64.9 | | $ | 8.9 | | $ | 4.2 | | $ | 5.5 | |
2009 | | | 175.9 | | | 148.8 | | | 6.2 | | | 65.0 | | | 9.4 | | | 4.7 | | | 5.8 | |
2010 | | | 176.8 | | | 149.5 | | | 6.1 | | | 65.0 | | | 8.9 | | | 4.6 | | | 5.6 | |
2011 | | | 171.8 | | | 148.5 | | | 5.8 | | | 64.9 | | | 7.9 | | | 4.2 | | | 5.1 | |
2012 | | | 215.0 | | | 148.3 | | | 5.2 | | | 64.8 | | | 7.0 | | | 3.8 | | | 4.5 | |
Years thereafter | | | 2,544.6 | | | 615.8 | | | 29.6 | | | 275.2 | | | 64.3 | | | 47.1 | | | 15.0 | |
Total minimum lease payments | | $ | 3,456.8 | | $ | 1,358.7 | | $ | 58.6 | | $ | 599.8 | | $ | 106.4 | | $ | 68.6 | | $ | 41.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
CEI and TE had 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 total above-market lease obligation of $722 million associated with Beaver Valley Unit 2 has been amortized on a straight-line basis (approximately $31 million and $6 million per year for CEI and TE, respectively). Effective December 31, 2007, TE terminated the sale of its 150 MW of Beaver Valley Unit 2 leased capacity entitlement to CEI. The remaining above-market lease liability for Beaver Valley Unit 2 of $347 million as of December 31, 2007, of which $37 million is classified as current, will be amortized by TE on straight-line basis through the end of the lease term in 2017. The total above-market lease obligation of $755 million associated with the Bruce Mansfield Plant has been amortized on a straight-line basis (approximately $29 million and $19 million per year for CEI and TE, respectively). Effective October 16, 2007, CEI and TE assigned their leasehold interests in the Bruce Mansfield Plant to FGCO. The remaining above-market lease liability for the Bruce Mansfield Plant of $399 million as of December 31, 2007, of which $46 million is classified as current, will be amortized by FGCO on straight-line basis through the end of the lease term in 2016.
7. | VARIABLE INTEREST ENTITIES |
FIN 46R addresses the consolidation of VIEs, including special-purpose entities, that are not controlled through voting interests or in which the equity investors do not bear the entity's residual economic risks and rewards. FES and the Companies consolidate VIEs when they are determined to be the VIE's primary beneficiary as defined by FIN 46R.
Trusts
PNBV and Shippingport were 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. Ownership of PNBV includes a 3% equity interest by an unaffiliated third party and a 3% equity interest held by OE's 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.
Loss Contingencies
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 are made. The following table shows each companys net exposure to loss based upon the casualty value provisions mentioned above:
| | Maximum Exposure | | Discounted Lease Payments, net | | Net Exposure | |
| | (In millions) | |
FES | | $ | 1,338 | | $ | 1,198 | | $ | 140 | |
OE | | | 837 | | | 610 | | | 227 | |
CEI | | | 753 | | | 85 | | | 668 | |
TE | | | 753 | | | 449 | | | 304 | |
Effective October 16, 2007, CEI and TE assigned their leasehold interests in the Bruce Mansfield Plant under their 1987 sale and leaseback transactions to FGCO. 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 FGCOs leasehold interests under its July 13, 2007 Bruce Mansfield Unit 1 sale and leaseback transaction discussed above, 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.
Power Purchase Agreements
In accordance with FIN 46R, FES and the Companies evaluated their power purchase agreements and determined that certain NUG entities may be VIEs to the extent they own a plant that sells substantially all of its output to FES and the Companies and the contract price for power is correlated with the plants variable costs of production. JCP&L, Met-Ed and Penelec, maintain approximately 30 long-term power purchase agreements with NUG entities. The agreements were entered into pursuant to the Public Utility Regulatory Policies Act of 1978. JCP&L, Met-Ed and Penelec were not involved in the creation of, and have no equity or debt invested in, these entities.
Management has determined that for all but eight of these entities, neither JCP&L, Met-Ed nor Penelec have variable interests in the entities or the entities are governmental or not-for-profit organizations not within the scope of FIN 46R. JCP&L, Met-Ed or Penelec may hold variable interests in the remaining eight entities, which sell their output at variable prices that correlate to some extent with the operating costs of the plants. As required by FIN 46R, management periodically requests from these eight entities the information necessary to determine whether they are VIEs or whether JCP&L, Met-Ed or Penelec is the primary beneficiary. Management has been unable to obtain the requested information, which in most cases was deemed by the requested entity to be proprietary. As such, JCP&L, Met-Ed and Penelec applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities under FIN 46R.
Since JCP&L, Met-Ed and Penelec have no equity or debt interests in the NUG entities, their maximum exposure to loss relates primarily to the above-market costs they incur for power. JCP&L, Met-Ed and Penelec expect any above-market costs they incur to be recovered from customers. Purchased power costs from these entities during the three years ended December 31, 2007 are shown in the following table:
| 2007 | | 2006 | | 2005 | |
| (In millions) | |
JCP&L | $ | 90 | | $ | 81 | | $ | 101 | |
Met-Ed | | 56 | | | 60 | | | 50 | |
Penelec | | 30 | | | 29 | | | 28 | |
8. TAXES
Income Taxes
FES and the Companies 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 loss carryforwards 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, 2007 are shown below:
| | | | | | | | | | | | | | | |
PROVISION FOR INCOME TAXES | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2007 | | | | | | | | | | | | | | | |
Currently payable- | | | | | | | | | | | | | | | |
Federal | | $ | 528 | | $ | 105 | | $ | 166 | | $ | 73 | | $ | 138 | | $ | 26 | | $ | 41 | |
State | | | 111 | | | (4 | ) | | 20 | | | 7 | | | 42 | | | 7 | | | 12 | |
| | | 639 | | | 101 | | | 186 | | | 80 | | | 180 | | | 33 | | | 53 | |
Deferred, net- | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | (288 | ) | | - | | | (23 | ) | | (27 | ) | | (25 | ) | | 30 | | | 10 | |
State | | | (42 | ) | | 4 | | | 2 | | | 2 | | | (5 | ) | | 6 | | | 1 | |
| | | (330 | ) | | 4 | | | (21 | ) | | (25 | ) | | (30 | ) | | 36 | | | 11 | |
Investment tax credit amortization | | | (4 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | - | |
Total provision for income taxes | | $ | 305 | | $ | 101 | | $ | 163 | | $ | 54 | | $ | 149 | | $ | 68 | | $ | 64 | |
| | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | | | | | | |
Currently payable- | | | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 102 | | $ | 162 | | $ | 174 | | $ | 83 | | $ | 79 | | $ | 21 | | $ | 21 | |
State | | | 18 | | | 30 | | | 32 | | | 14 | | | 24 | | | 6 | | | 7 | |
| | | 120 | | | 192 | | | 206 | | | 97 | | | 103 | | | 27 | | | 28 | |
Deferred, net- | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | 110 | | | (58 | ) | | (14 | ) | | (35 | ) | | 34 | | | 40 | | | 26 | |
State | | | 11 | | | (7 | ) | | 1 | | | (1 | ) | | 11 | | | 11 | | | 3 | |
| | | 121 | | | (65 | ) | | (13 | ) | | (36 | ) | | 45 | | | 51 | | | 29 | |
Investment tax credit amortization | | | (5 | ) | | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | - | |
Total provision for income taxes | | $ | 236 | | $ | 123 | | $ | 189 | | $ | 60 | | $ | 147 | | $ | 77 | | $ | 57 | |
| | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | | | | | | |
Currently payable- | | | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 29 | | $ | 275 | | $ | 90 | | $ | 62 | | $ | 78 | | $ | 24 | | $ | 7 | |
State | | | 1 | | | 74 | | | 23 | | | 18 | | | 22 | | | 8 | | | 1 | |
| | | 30 | | | 349 | | | 113 | | | 80 | | | 100 | | | 32 | | | 8 | |
Deferred, net- | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | 94 | | | (60 | ) | | 28 | | | (19 | ) | | 27 | | | 2 | | | 11 | |
State | | | 5 | | | 37 | | | 17 | | | 15 | | | 10 | | | (3 | ) | | (1 | ) |
| | | 99 | | | (23 | ) | | 45 | | | (4 | ) | | 37 | | | (1 | ) | | 10 | |
Investment tax credit amortization | | | (5 | ) | | (16 | ) | | (5 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Total provision for income taxes | | $ | 124 | | $ | 310 | | $ | 153 | | $ | 74 | | $ | 136 | | $ | 30 | | $ | 17 | |
FES and the Companies are all 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, is 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 FES and the Companies statutory rate to their total provision for income taxes for the three years ended December 31, 2007.
| | | | | | | | | | | | | | | |
| | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2007 | | | | | | | | | | | | | | | |
Book income before provision for income taxes | | $ | 833 | | $ | 298 | | $ | 440 | | $ | 145 | | $ | 335 | | $ | 164 | | $ | 157 | |
Federal income tax expense at statutory rate | | $ | 292 | | $ | 104 | | $ | 154 | | $ | 51 | | $ | 117 | | $ | 57 | | $ | 55 | |
Increases (reductions) in taxes resulting from- | | | | | | | | | | | | | | | | | | | | | | |
Amortization of investment tax credits | | | (4 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | - | |
State income taxes, net of federal tax benefit | | | 45 | | | - | | | 14 | | | 6 | | | 24 | | | 9 | | | 8 | |
Manufacturing deduction | | | (6 | ) | | (2 | ) | | (1 | ) | | - | | | - | | | - | | | - | |
Other, net | | | (22 | ) | | 3 | | | (2 | ) | | (2 | ) | | 9 | | | 3 | | | 1 | |
Total provision for income taxes | | $ | 305 | | $ | 101 | | $ | 163 | | $ | 54 | | $ | 149 | | $ | 68 | | $ | 64 | |
| | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | | | | | | |
Book income before provision for income taxes | | $ | 655 | | $ | 335 | | $ | 495 | | $ | 159 | | $ | 337 | | $ | (163 | ) | $ | 141 | |
Federal income tax expense at statutory rate | | $ | 229 | | $ | 117 | | $ | 173 | | $ | 56 | | $ | 118 | | $ | (57 | ) | $ | 49 | |
Increases (reductions) in taxes resulting from- | | | | | | | | | | | | | | | | | | | | | | |
Amortization of investment tax credits | | | (5 | ) | | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | - | |
State income taxes, net of federal tax benefit | | | 18 | | | 15 | | | 22 | | | 8 | | | 23 | | | 11 | | | 6 | |
Goodwill impairment | | | - | | | - | | | - | | | - | | | - | | | 124 | | | - | |
Other, net | | | (6 | ) | | (5 | ) | | (2 | ) | | (3 | ) | | 7 | | | - | | | 2 | |
Total provision for income taxes | | $ | 236 | | $ | 123 | | $ | 189 | | $ | 60 | | $ | 147 | | $ | 77 | | $ | 57 | |
| | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | | | | | | |
Book income before provision for income taxes | | $ | 333 | | $ | 640 | | $ | 384 | | $ | 150 | | $ | 319 | | $ | 76 | | $ | 44 | |
Federal income tax expense at statutory rate | | $ | 117 | | $ | 224 | | $ | 134 | | $ | 52 | | $ | 112 | | $ | 27 | | $ | 16 | |
Increases (reductions) in taxes resulting from- | | | | | | | | | | | | | | | | | | | | | | |
Amortization of investment tax credits | | | (5 | ) | | (16 | ) | | (5 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
State income taxes, net of federal tax benefit | | | 4 | | | 72 | | | 26 | | | 22 | | | 21 | | | 3 | | | - | |
Penalties | | | 10 | | | 3 | | | - | | | - | | | - | | | - | | | - | |
Other, net | | | (2 | ) | | 27 | | | (2 | ) | | 2 | | | 4 | | | 1 | | | 2 | |
Total provision for income taxes | | $ | 124 | | $ | 310 | | $ | 153 | | $ | 74 | | $ | 136 | | $ | 30 | | $ | 17 | |
Accumulated deferred income taxes as of December 31, 2007 and 2006 are as follows:
| | | | | | | | | | | | | | | |
ACCUMULATED DEFERRED INCOME TAXES | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
| | | | | | | | | | | | | | | |
AS OF DECEMBER 31, 2007 | | | | | | | | | | | | | | | |
Property basis differences | | $ | 281 | | $ | 463 | | $ | 372 | | $ | 154 | | $ | 439 | | $ | 266 | | $ | 319 | |
Regulatory transition charge | | | - | | | 139 | | | 156 | | | 116 | | | 235 | | | 60 | | | - | |
Customer receivables for future income taxes | | | - | | | 22 | | | 1 | | | - | | | 14 | | | 49 | | | 62 | |
Deferred customer shopping incentive | | | - | | | 61 | | | 172 | | | 29 | | | - | | | - | | | - | |
Deferred sale and leaseback gain | | | (455 | ) | | (49 | ) | | - | | | - | | | (20 | ) | | (11 | ) | | - | |
Nonutility generation costs | | | - | | | - | | | - | | | - | | | - | | | 22 | | | (112 | ) |
Unamortized investment tax credits | | | (23 | ) | | (6 | ) | | (7 | ) | | (4 | ) | | (2 | ) | | (6 | ) | | (5 | ) |
Other comprehensive income | | | 84 | | | 25 | | | (39 | ) | | (8 | ) | | (20 | ) | | (16 | ) | | (2 | ) |
Retirement benefits | | | (13 | ) | | (14 | ) | | 25 | | | (1 | ) | | 39 | | | 16 | | | (17 | ) |
Lease market valuation liability | | | (148 | ) | | - | | | - | | | (135 | ) | | - | | | - | | | - | |
Oyster Creek securitization (Note 10(C)) | | | - | | | - | | | - | | | - | | | 149 | | | - | | | - | |
Asset retirement obligations | | | 34 | | | (2 | ) | | (3 | ) | | 7 | | | (48 | ) | | (57 | ) | | (64 | ) |
Deferred gain for asset sales - affiliated companies | | | - | | | 45 | | | 30 | | | 10 | | | - | | | - | | | - | |
Allowance for equity funds used during construction | | | - | | | 21 | | | - | | | - | | | - | | | - | | | - | |
PJM transmission costs | | | - | | | - | | | - | | | - | | | - | | | 97 | | | 13 | |
All other | | | (37 | ) | | 76 | | | 19 | | | (65 | ) | | 14 | | | 19 | | | 17 | |
Net deferred income tax liability (asset) | | $ | (277 | ) | $ | 781 | | $ | 726 | | $ | 103 | | $ | 800 | | $ | 439 | | $ | 211 | |
| | | | | | | | | | | | | | | | | | | | | | |
AS OF DECEMBER 31, 2006 | | | | | | | | | | | | | | | | | | | | | | |
Property basis differences | | $ | 112 | | $ | 497 | | $ | 534 | | $ | 243 | | $ | 436 | | $ | 277 | | $ | 329 | |
Regulatory transition charge | | | - | | | (28 | ) | | 116 | | | 33 | | | 254 | | | 82 | | | - | |
Customer receivables for future income taxes | | | - | | | 31 | | | 3 | | | (3 | ) | | 4 | | | 44 | | | 62 | |
Deferred customer shopping incentive | | | - | | | 68 | | | 132 | | | 18 | | | - | | | - | | | - | |
Deferred sale and leaseback gain | | | - | | | (55 | ) | | - | | | - | | | (20 | ) | | (11 | ) | | - | |
Nonutility generation costs | | | - | | | - | | | - | | | - | | | - | | | 1 | | | (123 | ) |
Unamortized investment tax credits | | | (24 | ) | | (8 | ) | | (9 | ) | | (3 | ) | | (3 | ) | | (7 | ) | | (5 | ) |
Other comprehensive income | | | 60 | | | (15 | ) | | (70 | ) | | (24 | ) | | (44 | ) | | (28 | ) | | (18 | ) |
Retirement benefits | | | (28 | ) | | 30 | | | 11 | | | 8 | | | 36 | | | 12 | | | (19 | ) |
Lease market valuation liability | | | - | | | - | | | (235 | ) | | (96 | ) | | - | | | - | | | - | |
Oyster Creek securitization (Note 10(C)) | | | - | | | - | | | - | | | - | | | 162 | | | - | | | - | |
Asset retirement obligations | | | 29 | | | 10 | | | 2 | | | 4 | | | (16 | ) | | (42 | ) | | (59 | ) |
Deferred gain for asset sales - affiliated companies | | | - | | | 47 | | | 31 | | | 10 | | | - | | | - | | | - | |
Allowance for equity funds used during construction | | | - | | | 23 | | | - | | | - | | | - | | | - | | | - | |
PJM transmission costs | | | - | | | - | | | - | | | - | | | - | | | 53 | | | 13 | |
All other | | | (28 | ) | | 74 | | | (44 | ) | | (29 | ) | | (5 | ) | | 6 | | | 14 | |
Net deferred income tax liability | | $ | 121 | | $ | 674 | | $ | 471 | | $ | 161 | | $ | 804 | | $ | 387 | | $ | 194 | |
On January 1, 2007, FES and the Companies adopted FIN 48, which provides guidance for accounting for uncertainty in income taxes in a companys financial statements in accordance with SFAS 109. This interpretation prescribes a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken on a companys tax return. FIN 48 also provides guidance on derecognition, classification, interest, penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is to determine if it is more likely than not that a tax position will be sustained upon examination, based on the merits of the position, and should therefore be recognized. The second step is to measure a tax position that meets the more likely than not recognition threshold to determine the amount of income tax benefit to recognize in the financial statements.
As of January 1, 2007, the total amount of FirstEnergy's unrecognized tax benefits was $268 million (see table below for amounts included for FES and the Companies). FirstEnergy recorded a $2.7 million (OE - $0.6 million, CEI - $0.2 million, FES - $0.5 million and other subsidiaries of FirstEnergy - $1.4 million) cumulative effect adjustment to the January 1, 2007 balance of retained earnings to increase reserves for uncertain tax positions. Of the total amount of unrecognized income tax benefits, $92 million would favorably affect FirstEnergy's effective tax rate upon recognition. The majority of items that would not have affected the effective tax rate resulted from purchase accounting adjustments that would reduce goodwill upon recognition through December 31, 2008.
A reconciliation of the change in the unrecognized tax benefits for the year ended December 31, 2007 is as follows:
| | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Balance as of January 1, 2007 | | $ | 14 | | $ | (19 | ) | $ | (15 | ) | $ | (3 | ) | $ | 44 | | $ | 18 | | $ | 20 | |
Increase for tax positions related to the | | | - | | | 1 | | | - | | | - | | | - | | | - | | | - | |
Increase for tax positions related to | | | 4 | | | 10 | | | 2 | | | 2 | | | - | | | 6 | | | - | |
Decrease for tax positions of | | | (4 | ) | | (4 | ) | | (4 | ) | | - | | | (6 | ) | | - | | | (4 | ) |
Balance as of December 31, 2007 | | $ | 14 | | $ | (12 | ) | $ | (17 | ) | $ | (1 | ) | $ | 38 | | $ | 24 | | $ | 16 | |
As of December 31, 2007, FES and the Companies expect that $7 million of the unrecognized benefits will be resolved within the next twelve months and are included in the caption Accrued taxes, with the remaining amount included in Other assets and Other non-current liabilities on the Consolidated Balance Sheets as follows:
Balance Sheet Classifications | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
| | | | | | | | | | | | | | | |
| | $ | 3 | | $ | 4 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (16 | ) | | (17 | ) | | (1 | ) | | | | | | | | | |
Other non-current liabilities | | | 11 | | | - | | | - | | | - | | | 38 | | | 24 | | | 16 | |
| | $ | 14 | | $ | (12 | ) | $ | (17 | ) | $ | (1 | ) | $ | 38 | | $ | 24 | | $ | 16 | |
FIN 48 also requires companies to recognize 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 in accordance with FIN 48 and the amount previously taken or expected to be taken on the tax return. FES and the Companies include net interest and penalties in the provision for income taxes, consistent with their policy prior to implementing FIN 48.
The following table summarizes the net interest expense (income) recognized by FES and the Companies for the three years ended December 31, 2007 and the cumulative net interest payable (receivable) as of December 31, 2007 and 2006:
| Net Interest Expense (Income) | | Net Interest Payable | |
| For the Years Ended | | (Receivable) | |
| December 31, | | As of December 31, | |
| 2007 | | 2006 | | 2005 | | 2007 | | 2006 | |
| (In millions) | | (In millions) | |
| $ | - | | $ | 1 | | $ | - | | $ | 2 | | $ | 3 | |
| | 1 | | | 1 | | | (8 | ) | | (5 | ) | | (6 | ) |
| | (1 | ) | | 1 | | | (3 | ) | | (2 | ) | | (3 | ) |
| | - | | | 1 | | | (1 | ) | | - | | | - | |
| | 1 | | | (2 | ) | | 5 | | | 10 | | | 9 | |
| | 2 | | | - | | | 2 | | | 5 | | | 3 | |
| | - | | | (1 | ) | | 3 | | | 4 | | | 4 | |
FES and the Companies have tax returns that are under review at the audit or appeals level by the IRS and state tax authorities. All state jurisdictions are open from 2001-2006. The IRS began reviewing returns for the years 2001-2003 in July 2004 and several items are under appeal. The federal audit for years 2004 and 2005 began in June 2006 and are not expected to close before December 2008. The IRS began auditing the year 2006 in April 2006 and the year 2007 in February 2007 under its Compliance Assurance Process experimental program. Neither audits are expected to close before December 2008. Management believes that adequate reserves have been recognized and final settlement of these audits is not expected to have a material adverse effect on FES or the Companies financial condition or results of operations.
On July 13, 2007, FGCO completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1, representing 779 MW of net demonstrated capacity (see Note 6). This transaction generated tax capital gains of approximately $742 million, all of which were offset by existing tax capital loss carryforwards. Accordingly, FirstEnergy reduced its tax loss carryforward valuation allowance in the third quarter of 2007, with a corresponding reduction to goodwill (see Note 2(E)).
FES, Met-Ed and Penelec have pre-tax net operating loss carryforwards for state and local income tax purposes. These losses expire as follows:
| | FES | | Met-Ed | | Penelec | |
| | (In millions) | |
2008-2012 | | $ | - | | $ | - | | $ | - | |
2013-2017 | | | - | | | - | | | - | |
2018-2022 | | | 22 | | | 5 | | | 229 | |
2023-2027 | | | 16 | | | - | | | 14 | |
| | $ | 38 | | $ | 5 | | $ | 243 | |
General Taxes
Details of general taxes for the three years ended December 31, 2007 are shown below:
| | | | | | | | | | | | | | | |
GENERAL TAXES | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | |
Kilowatt-hour excise | | $ | 1 | | $ | 99 | | $ | 69 | | $ | 29 | | $ | 52 | | $ | - | | $ | - | |
State gross receipts | | | 18 | | | 17 | | | - | | | - | | | - | | | 73 | | | 66 | |
Real and personal property | | | 53 | | | 59 | | | 65 | | | 19 | | | 5 | | | 2 | | | 2 | |
Social security and unemployment | | | 14 | | | 8 | | | 6 | | | 3 | | | 9 | | | 5 | | | 5 | |
Other | | | 1 | | | (2 | ) | | 2 | | | - | | | - | | | - | | | 3 | |
Total general taxes | | $ | 87 | | $ | 181 | | $ | 142 | | $ | 51 | | $ | 66 | | $ | 80 | | $ | 76 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | | | | | | |
Kilowatt-hour excise | | $ | - | | $ | 95 | | $ | 68 | | $ | 28 | | $ | 50 | | $ | - | | $ | - | |
State gross receipts | | | 10 | | | 19 | | | - | | | - | | | - | | | 67 | | | 62 | |
Real and personal property | | | 49 | | | 55 | | | 61 | | | 20 | | | 5 | | | 2 | | | 1 | |
Social security and unemployment | | | 13 | | | 7 | | | 5 | | | 2 | | | 9 | | | 4 | | | 5 | |
Other | | | 1 | | | 4 | | | 1 | | | 1 | | | - | | | 4 | | | 5 | |
Total general taxes | | $ | 73 | | $ | 180 | | $ | 135 | | $ | 51 | | $ | 64 | | $ | 77 | | $ | 73 | |
| | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | | | | | | |
Kilowatt-hour excise | | $ | - | | $ | 94 | | $ | 69 | | $ | 29 | | $ | 52 | | $ | - | | $ | - | |
State gross receipts | | | 9 | | | 20 | | | - | | | - | | | - | | | 63 | | | 58 | |
Real and personal property | | | 44 | | | 67 | | | 78 | | | 25 | | | 5 | | | 2 | | | 1 | |
Social security and unemployment | | | 12 | | | 8 | | | 5 | | | 2 | | | 8 | | | 4 | | | 5 | |
Other | | | 2 | | | 4 | | | 1 | | | 1 | | | - | | | 5 | | | 5 | |
Total general taxes | | $ | 67 | | $ | 193 | | $ | 153 | | $ | 57 | | $ | 65 | | $ | 74 | | $ | 69 | |
Commercial Activity Tax
On June 30, 2005, tax legislation was enacted in the State of Ohio that created a new CAT tax, which is based on qualifying taxable gross receipts and does not consider any expenses or costs incurred to generate such receipts, except for items such as cash discounts, returns and allowances, and bad debts. The CAT tax was effective July 1, 2005, and replaces the Ohio income-based franchise tax and the Ohio personal property tax. The CAT tax is phased-in while the current income-based franchise tax is phased-out over a five-year period at a rate of 20% annually, beginning with the year ended 2005, and the personal property tax is phased-out over a four-year period at a rate of approximately 25% annually, beginning with the year ended 2005. During the phase-out period the Ohio income-based franchise tax was or will be computed consistent with the prior tax law, except that the tax liability as computed was multiplied by 80% in 2005; 60% in 2006; 40% in 2007 and 20% in 2008, therefore eliminating the current income-based franchise tax over a five-year period. As a result of the new tax structure, all net deferred tax benefits that were not expected to reverse during the five-year phase-in period were written-off as of June 30, 2005.
The increase (decrease) to income taxes associated with the adjustment to net deferred taxes in 2005 is summarized below (in millions):
Income tax expenses were reduced during 2005 by the initial phase-out of the Ohio income-based franchise tax and phase-in of the CAT tax as summarized below (in millions):
9. REGULATORY MATTERS
(A) RELIABILITY INITIATIVES
In late 2003 and early 2004, a series of letters, reports and recommendations were issued from various entities, including governmental, industry and ad hoc reliability entities (PUCO, FERC, NERC and the U.S. - Canada Power System Outage Task Force) regarding enhancements to regional reliability. The proposed enhancements were divided into two groups: enhancements that were to be completed in 2004; and enhancements that were to be completed after 2004. In 2004, FirstEnergy completed implementationall of all actions and initiatives related to enhancing area reliability, improving voltage and reactive management, operator readiness and training and emergency response preparednessthe enhancements that were recommended for completion in 2004. On July 14, 2004, NERC independently verified thatSubsequently, FirstEnergy had implemented the various initiativeshas worked systematically to be completed by June 30 or summer 2004, with minor exceptions noted by FirstEnergy, which exceptions are now essentially complete. FirstEnergy is proceeding with the implementationcomplete all of the recommendationsenhancements that were to be completed subsequent toidentified for completion after 2004, and will continueFirstEnergy expects to periodically assesscomplete this work prior to the FERC-ordered Reliability Study recommendations for forecasted 2009 system conditions, recognizing revised load forecasts and other changing system conditions which may impact the recommendations. Thus far, implementationsummer of the recommendations has not required, nor is expected to require, substantial investment in new equipment or material upgrades to existing equipment.2008. The FERC orand the other applicableaffected government agencies and reliability entities may however, take a different view as to recommended enhancements orreview FirstEnergy's work and, on the basis of any such review, may recommend additional enhancements in the future, which could require additional, material expenditures.
As a result of outages experienced in JCP&L's service area in 2002 and 2003, the NJBPU had implemented reviews intoperformed a review of JCP&L's service reliability. In 2004, the NJBPU adopted an MOU that set out specific tasks related to service reliability to be performed by JCP&L and a timetable for completion and endorsed JCP&L's ongoing actions to implement the MOU. On June 9, 2004, the NJBPU approved a Stipulationstipulation that incorporates the final report of an SRM who madeaddresses a third-party consultants recommendations on appropriate courses of action necessary to ensure system-wide reliability. The Stipulation alsostipulation incorporates the Executive Summary and Recommendation portions of the final report of aconsultants focused audit of, and recommendations regarding, JCP&L's Planning and Operations and Maintenance programs and practices (Focused Audit).practices. On February 11,June 1, 2005, JCP&L met with the DRA to discuss reliability improvements. The SRMconsultant completed his work and issued his final report to the NJBPU on June 1, 2006.NJBPU. On July 14, 2006, JCP&L filed a comprehensive response to the NJBPU on July 14, 2006.consultants report with the NJBPU. JCP&L will complete the remaining substantive work described in the stipulation in 2008. JCP&L continues to file compliance reports with the NJBPU reflecting JCP&L's activities associated with implementing the MOU and Stipulation.stipulation.
In 2005, Congress amended the Federal Power Act to provide for federally-enforceable mandatory reliability standards. The EPACT provides for the creation of an ERO to establish and enforcemandatory reliability standards forapply to the bulk power system subject to FERC's review. On February 3, 2006,and impose certain operating, record-keeping and reporting requirements on the FERC adopted a rule establishing certification requirements for the ERO, as well as regional entities envisioned to assume compliance monitoringCompanies and enforcement responsibility for the new reliability standards. The FERC issued an order on rehearing on March 30, 2006, providing certain clarifications and essentially affirming the rule.
ATSI. The NERC is charged with establishing and enforcing these reliability standards, although it has been preparing thedelegated day-to-day implementation aspects of reorganizing its structure to meet the FERC's certification requirements for the ERO. The NERC made a filing with the FERC on April 4, 2006 to obtain certification as the ERO and to obtain FERC approval of pro forma delegation agreements with regional reliability organizations (regional entities). The new FERC rule referred to above, further provides for reorganizing regional entities that would replace the current regional councils and for rearranging their relationship with the ERO. The "regional entity" may be delegated authority by the ERO, subject to FERC approval, for compliance and enforcement of reliability standards adopted byits responsibilities to eight regional entities, including the ERO and approved by the FERC. The ERO filing was noticed on April 7, 2006 and comments and reply comments were filed in May, June and July 2006. On July 20, 2006, the FERC certified the NERC as the ERO to implement the provisions of Section 215 of the Federal Power Act and directed the NERC to make compliance filings addressing governance and non-governance issues and the regional delegation agreements. On September 18, 2006 and October 18, 2006, NERC submitted compliance filings addressing the governance and non-governance issues identified in the FERC ERO Certification Order, dated July 20, 2006. On October 30, 2006, the FERC issued an order accepting most of NERC's governance filings. On January 18, 2007, the FERC issued an order largely accepting NERC's compliance filings addressing non-governance issues, subject to an additional compliance filing requirement.
ReliabiltyOn April 4, 2006, NERC also submitted a filing with the FERC seeking approval of mandatory reliability standards, as well as for approval with the relevant Canadian authorities. These reliability standards are based, with some modifications and additions, on the current NERC Version 0 reliability standards. The reliability standards filing was subsequently evaluated by the FERC on May 11, 2006, leading to the FERC staff's release of a preliminary assessment that cited many deficiencies in the proposed reliability standards. The NERC and industry participants filed comments in response to the Staff's preliminary assessment. The FERC held a technical conference on the proposed reliability standards on July 6, 2006. The FERC issued a NOPR on the proposed reliability standards on October 20, 2006. In the NOPR, the FERC proposed to approve 83 of the 107 reliability standards and directed NERC to make technical improvements to 62 of the 83 standards approved. The 24 standards that were not approved remain pending at the FERC awaiting further clarification and filings by the NERC and regional entities. The FERC also provided additional clarification within the NOPR regarding the proposed application of final standards and guidance with regard to technical improvements of the standards. On November 15, 2006, NERC submitted several revised reliability standards and three new proposed reliability standards. Interested parties were provided the opportunity to comment on the NOPR (including the revised standards submitted by NERC in November) by January 3, 2007. Numerous parties, including FirstEnergy, filed comments on the NOPR on January 3, 2007. Mandatory reliability standards enforceable with penalties are expected to be in place by the summer of 2007. In a separate order issued October 24, 2006, the FERC approved NERC's 2007 budget and business plan subject to certain compliance filings.First
On November 29, 2006, NERC submitted an additional compliance filing with the FERC regarding the Compliance Monitoring and Enforcement Program (CMEP) along with the proposed Delegation Agreements between the ERO and the regional reliability entities. The FERC provided opportunity for interested parties to comment on the CMEP by January 10, 2007. We, as well as other parties, moved to intervene and submitted responsive comments on January 10, 2007. This filing is pending before the FERC.
The ECAR, Mid-Atlantic Area Council, and Mid-American Interconnected Network reliability councils completed the consolidation of these regions into a single new regional reliability organization known as ReliabilityFirst Corporation. ReliabilityFirst began operations as a regional reliability council under NERC on January 1, 2006 and on November 29, 2006 filed a proposed Delegation Agreement with NERC to obtain certification consistent with the final rule as a "regional entity" under the ERO. All of FirstEnergy's facilities are located within the ReliabilityReliabiltyFirstFirst region.
On May 2, 2006, FirstEnergy actively participates in the NERC Board of Trustees adopted eight new cyber security standards that replaced interim standards putand ReliabiltyFirst stakeholder processes, and otherwise monitors and manages its companies in place inresponse to the wakeongoing development, implementation and enforcement of the September 11, 2001 terrorist attacks, and thirteen additional reliability standards. The security standards became effective on June 1, 2006, and the remaining standards will become effective throughout 2006 and 2007. NERC filed these proposed standards with the FERC and relevant Canadian authorities for approval. The cyber security standards were not included in the October 20, 2006 NOPR and are being addressed in a separate FERC docket. On December 11, 2006, the FERC Staff provided its preliminary assessment of these proposed mandatory reliability standards and again cited various deficiencies in the proposed standards, providing interested parties with the opportunity to comment on the assessment by February 12, 2007.
FirstEnergy believes that it is in compliance with all current NERCcurrently-effective and enforceable reliability standards. However, based upon a review of the October 20, 2006 NOPR,Nevertheless, it appearsis clear that NERC, ReliabiltyFirst and the FERC will adopt more strictcontinue to refine existing reliability standards than those contained in the current NERCas well as to develop and adopt new reliability standards. The financial impact of complying with the new or amended standards cannot be determined at this time. However, the EPACT required2005 amendments to the Federal Power Act 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 have a material adverse effect on its financial condition, results of operations and cash flows.
PUCO Rate MattersIn April 2007, ReliabilityFirst 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, ReliabilityFirst has scheduled a compliance audit of FirstEnergy's bulk-power system within the PJM region in 2008. FirstEnergy currently does not expect any material adverse financial impact as a result of these audits.
(B) OHIO
On October 21, 2003,September 9, 2005, the Ohio Companies filed their RSP caseRCP with the PUCO. The filing included a stipulation and supplemental stipulation with several parties agreeing to the provisions set forth in the plan. On August 5, 2004, the Ohio Companies accepted the RSP as modified and approved byJanuary 4, 2006, the PUCO inissued an August 4, 2004 Entry on Rehearing, subjectorder which approved the stipulations clarifying certain provisions. Several parties subsequently filed appeals to a CBP. The RSP was intended to establish generation service rates beginning January 1, 2006, in response to the PUCO's concerns about price and supply uncertainty following the end of the Ohio Companies' transition plan market development period. On May 3, 2006, the Supreme Court of Ohio issuedin connection with certain portions of the approved RCP. In its order, the PUCO authorized the Ohio Companies to recover certain increased fuel costs through a fuel rider, and to defer certain other increased fuel costs to be incurred from January 1, 2006 through December 31, 2008, including interest on the deferred balances. The order also provided for recovery of the deferred costs over a 25-year period through distribution rates, which are expected to be effective on January 1, 2009 for OE and TE, and approximately May 2009 for CEI. Through December 31, 2007, the deferred fuel costs, including interest, were $111 million, $76 million and $33 million for OE, CEI and TE, respectively.
On August 29, 2007, the Supreme Court of Ohio concluded that the PUCO violated a provision of the Ohio Revised Code by permitting the Ohio Companies to collect deferred increased fuel costs through future distribution rate cases, or to alternatively use excess fuel-cost recovery to reduce deferred distribution-related expenses because fuel costs are a component of generation service, not distribution service, and permitting recovery of deferred fuel costs through distribution rates constituted an opinion affirmingimpermissible subsidy. The Court remanded the matter to the PUCO for further consideration consistent with the Courts Opinion on this issue and affirmed the PUCO's order in all respects, except it remanded back to the PUCO the matter of ensuring the availability of sufficient means for customer participation in the marketplace. The RSP contained a provision that permitted the Ohio Companies to withdraw and terminate the RSP in the event that the PUCO, or the Supreme Court of Ohio, rejected all or part of the RSP. In such event, the Ohio Companies have 30 days from the final order or decision to provide notice of termination.other respects. On July 20, 2006September 10, 2007 the Ohio Companies filed an Application with the PUCO a Requestthat requested the implementation of two generation-related fuel cost riders to Initiate a Proceeding on Remand. In their Request,collect the increased fuel costs that were previously authorized to be deferred. The Ohio Companies requested the riders to become effective in October 2007 and end in December 2008, subject to reconciliation that would be expected to continue through the first quarter of 2009. On January 9, 2008 the PUCO approved the Ohio Companies provided notice of terminationproposed fuel cost rider to those provisions of the RSP subjectrecover increased fuel costs to termination, subjectbe incurred commencing January 1, 2008 through December 31, 2008, which is expected to being withdrawn,be approximately $167 million. The fuel cost rider became effective January 11, 2008 and also set forth a framework for addressing the Supreme Court of Ohio's findings on customer participation. Ifwill be adjusted and reconciled quarterly. In addition, the PUCO approves a resolution to the issues raised by the Supreme Court of Ohio that is acceptable to the Ohio Companies, the Ohio Companies' termination will be withdrawn and considered to be null and void. On July 26, 2006, the PUCO issued an Entry directingordered the Ohio Companies to file a plan inseparate application for an alternate recovery mechanism to collect the 2006 and 2007 deferred fuel costs. On February 8, 2008, the Ohio Companies filed an application proposing to recover $220 million of deferred fuel costs and carrying charges for 2006 and 2007 pursuant to a new docketseparate fuel rider, with alternative options for the recovery period ranging from five to addresstwenty-five years. This second application is currently pending before the Court's concern. PUCO.
The Ohio Companies recover all MISO transmission and ancillary service related costs incurred through a reconcilable rider that is updated annually on July 1. The riders that became effective on July 1, 2007, represent an increase over the amounts collected through the 2006 riders of approximately $64 million annually (OE - $28 million, CEI - $22 million and TE - $14 million). If it is subsequently determined by the PUCO that adjustments to the riders as filed their RSP Remand CBP on September 29, 2006. Initial comments were filed on January 12, 2007 and reply comments were filed on January 29, 2007. In their reply commentsare necessary, such adjustments, with carrying costs, will be incorporated into the Ohio Companies described the highlights of a new tariff offering they would be willing to make available to customers that would allow customers to purchase renewable energy certificates associated with a renewable generation source, subject to PUCO approval. No further proceedings are scheduled at this time.2008 transmission rider filing.
The Ohio Companies filed an application and stipulationrate request for an increase in electric distribution rates with the PUCO on September 9, 2005 seeking approvalJune 7, 2007. The requested increase is expected to be more than offset by the elimination or reduction of transition charges at the time the rates go into effect and would result in lowering the overall non-generation portion of the RCP,average electric bill for most Ohio customers. The distribution rate increases reflect capital expenditures since the Ohio Companies last distribution rate proceedings, increases in operation and maintenance expenses and recovery of regulatory assets that were authorized in prior cases. On August 6, 2007, the Ohio Companies updated their filing supporting a supplementdistribution rate increase of $332 million (OE - $156 million, CEI - $108 million and TE - $68 million). On December 4, 2007, the PUCO Staff issued its Staff Reports containing the results of their investigation into the distribution rate request. In its reports, the PUCO Staff recommended a distribution rate increase in the range of $161 million to $180 million (OE - $57 million to $66 million, CEI - $54 million to $61 million and TE - $50 million to $53 million), with $108 million to $127 million for distribution revenue increases and $53 million for recovery of costs deferred under prior cases. This amount excludes the recovery of deferred fuel costs, whose recovery is now being sought in a separate proceeding before the PUCO, discussed above. On January 3, 2008, the Ohio Companies and intervening parties filed objections to the RSP. On November 4, 2005,Staff Reports and on January 10, 2008, the Ohio Companies filed a supplemental stipulation withtestimony. Evidentiary hearings began on January 29, 2008 and continued through February 2008. During the evidentiary hearings, the PUCO which constituted an additional componentStaff submitted testimony decreasing their recommended revenue increase to a range of $114 million to $132 million. Additionally, in testimony submitted on February 11, 2008, the PUCO Staff adopted a position regarding interest deferred pursuant to the RCP filed on September 9, 2005. Major provisionsthat, if upheld by the PUCO, would result in the write-off of approximately $13 million (OE - $6 million, CEI - $5 million and TE - $2 million) of interest costs deferred through December 31, 2007. The PUCO is expected to render its decision during the RCP include:second or third quarter of 2008. The new rates would become effective January 1, 2009 for OE and TE, and approximately May 2009 for CEI.
| Maintaining the existing level of base distribution rates through December 31, 2008 for OE and TE, and April 30, 2009 for CEI; |
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| Deferring and capitalizing for future recovery (over a 25-year period) with carrying charges certain distribution costs to be incurred during the period January 1, 2006 through December 31, 2008, not to exceed $150 million in each of the three years; |
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| Adjusting the RTC and extended RTC recovery periods and rate levels so that full recovery of authorized costs will occur as of December 31, 2008 for OE and TE and as of December 31, 2010 for CEI; |
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| Reducing the deferred shopping incentive balances as of January 1, 2006 by up to $75 million for OE, $45 million for TE, and $85 million for CEI by accelerating the application of each respective company's accumulated cost of removal regulatory liability; and |
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| Recovering increased fuel costs (compared to a 2002 baseline) of up to $75 million, $77 million, and $79 million, in 2006, 2007, and 2008, respectively, from all OE and TE distribution and transmission customers through a fuel recovery mechanism. OE, TE, and CEI may defer and capitalize (for recovery over a 25-year period) increased fuel costs above the amount collected through the fuel recovery mechanism. |
On January 4, 2006, the PUCO approved, with modifications, the Ohio Companies' RCP to supplement the RSP to provide customers with more certain rate levels than otherwise available under the RSP during the plan period. On JanuaryJuly 10, 2006, the Ohio Companies filed a Motion for Clarification seeking clarity on a number of issues. On January 25, 2006, the PUCO issued an Entry on Rehearing granting in part, and denying in part, the Ohio Companies' previous requests and clarifying issues referred to above. The PUCO granted the Ohio Companies' requests to:
| | Recognize fuel and distribution deferrals commencing January 1, 2006; |
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| | Recognize distribution deferrals on a monthly basis prior to review by the PUCO Staff; |
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| | Clarify that the types of distribution expenditures included in the Supplemental Stipulation may be deferred; and |
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| | Clarify that distribution expenditures do not have to be "accelerated" in order to be deferred. |
The PUCO approved the Ohio Companies' methodology for determining distribution deferral amounts, but denied the Motion in that the PUCO Staff must verify the level of distribution expenditures contained in current rates, as opposed to simply accepting the amounts contained in the Ohio Companies' Motion. On February 3, 2006, several other parties filed applications for rehearing, which the PUCO denied on March 1, 2006. Two of these parties subsequently filed notices of appeal with the Supreme Court of Ohio. The Ohio Supreme Court scheduled this case for oral argument on February 27, 2007. On January 31, 2007, the Ohio Companies filed a stipulation which, among other matters and subject to PUCO approval, affirmed that the supplemental stipulation in the RCP would be implemented. This stipulation was approved byan application with the PUCO on February 14, 2007.
On December 30, 2004,requesting approval of a comprehensive supply plan for providing retail generation service to customers who do not purchase electricity from an alternative supplier, beginning January 1, 2009. The proposed competitive bidding process would average the results of multiple bidding sessions conducted at different times during the year. The final price per kilowatt-hour would reflect an average of the prices resulting from all bids. In their filing, the Ohio Companies filed withoffered two alternatives for structuring the bids, either by customer class or a slice-of-system approach. A slice-of-system approach would require the successful bidder to be responsible for supplying a fixed percentage of the utilitys total load notwithstanding the customers classification. The proposal provides the PUCO two applications relatedwith an option to phase in generation price increases for residential tariff groups who would experience a change in their average total price of 15 percent or more. The PUCO held a technical conference on August 16, 2007 regarding the filing. Initial and reply comments on the proposal were filed by various parties in September and October, 2007, respectively. The proposal is currently pending before the PUCO.
On September 25, 2007, the Ohio Governors proposed energy plan was officially introduced into the Ohio Senate. The bill proposes to revise state energy policy to address electric generation pricing after 2008, establish advanced energy portfolio standards and energy efficiency standards, and create GHG emissions reporting and carbon control planning requirements. The bill also proposes to move to a hybrid system for determining rates for default service in which electric utilities would provide regulated generation service unless they satisfy a statutory burden to demonstrate the existence of a competitive market for retail electricity. The Senate Energy & Public Utilities Committee conducted hearings on the bill and received testimony from interested parties, including the Governors Energy Advisor, the Chairman of the PUCO, consumer groups, utility executives and others. Several proposed amendments to the recoverybill were submitted, including those from Ohios investor-owned electric utilities. A substitute version of transmissionthe bill, which incorporated certain of the proposed amendments, was introduced into the Senate Energy & Public Utilities Committee on October 25, 2007 and ancillary service related costs. The first application sought recovery of these costs beginning January 1, 2006. The Ohio Companies requested that these costs be recovered through a rider that would be effective on January 1, 2006 and adjusted each July 1 thereafter. The parties reached a settlement agreement that was approvedpassed by the PUCOOhio Senate on AugustOctober 31, 2005.2007. The incremental transmission and ancillary service revenues recoveredbill as passed by the Senate is now being considered by the House Public Utilities Committee, which has conducted hearings on the bill. Testimony has been received from January 1 through June 30, 2006 were approximately $54 million. That amount includedinterested parties, including the recovery of a portionChairman of the 2005 deferred MISO expenses as described below. On April 27, 2006,PUCO, consumer groups, utility executives and others. At this time, the Ohio Companies filedcannot predict the annual update rider tooutcome of this process nor determine revenues ($124 million) from July 2006 through June 2007. The filed rider went into effectthe impact, if any, such legislation may have on July 1, 2006.their operations.
(C) PENNSYLVANIA
The second application sought authority to defer costs associated with transmission and ancillary service related costs incurred during the period October 1, 2003 through December 31, 2005. On May 18, 2005, the PUCO granted the accounting authority for the Ohio Companies to defer incremental transmission and ancillary service-related charges incurred as a participant in MISO, but only for those costs incurred during the period December 30, 2004 through December 31, 2005. Permission to defer costs incurred prior to December 30, 2004 was denied. The PUCO also authorized the Ohio Companies to accrue carrying charges on the deferred balances. On August 31, 2005, the OCC appealed the PUCO's decision. On January 20, 2006, the OCC sought rehearing of the PUCO's approval of the recovery of deferred costs through the rider during the period January 1, 2006 through June 30, 2006. The PUCO denied the OCC's application on February 6, 2006. On March 23, 2006, the OCC appealed the PUCO's order to the Ohio Supreme Court. On March 27, 2006, the OCC filed a motion to consolidate this appeal with the deferral appeals discussed above and to postpone oral arguments in the deferral appeal until after all briefs are filed in this most recent appeal of the rider recovery mechanism. On March 20, 2006, the Ohio Supreme Court, on its own motion, consolidated the OCC's appeal of the Ohio Companies' case with a similar case involving Dayton Power & Light Company. Oral arguments were heard on May 10, 2006. On November 29, 2006, the Ohio Supreme Court issued its opinion upholding the PUCO's determination that the Ohio Companies may defer transmission and ancillary service related costs incurred on and after December 30, 2004. The Ohio Supreme Court also determined that the PUCO erred when it denied the OCC intervention, but further ruled that such error did not prejudice OCC and, therefore, the Ohio Supreme Court did not reverse or remand the PUCO on this ground. The Ohio Supreme Court also determined that the OCC's appeal was not premature. No party filed a motion for reconsideration with the Ohio Supreme Court.
PPUC Rate Matters
A February 2002 Commonwealth Court of Pennsylvania decision affirmed the June 2001 PPUC decision regarding approval of the FirstEnergy/GPU merger, remanded the issues of quantification and allocation of merger savings to the PPUC and denied Met-Ed and Penelec the rate relief initially approved in the PPUC decision. On May 4, 2006, the PPUC consolidated the merger savings proceeding with the April 10, 2006 comprehensive rate filing proceeding discussed below. On January 11, 2007, the PPUC entered an order in that rate filing proceeding and determined that no merger savings from prior years should be considered in determining customers' rates.
On January 12, 2005, Met-Ed and Penelec filed, before the PPUC, a request for deferral of transmission-related costs beginning January 1, 2005. Met-Ed and Penelec sought to consolidate this proceeding (and modified their request to provide deferral of 2006 transmission-related costs only) with the comprehensive rate filing made on April 10, 2006, described below. On May 4, 2006, the PPUC approved the modified request.
Met-Ed and Penelec have been purchasing a portion of their PLR and default service requirements from FES through a partial requirements wholesale power sales agreement and various amendments. Under these agreements, FES retained the supply obligation and the supply profit and loss risk for the portion of power supply requirements not self-supplied by Met-Ed and Penelec. The FES agreements have reduced Met-Ed's and Penelec's exposure to high wholesale power prices by providing power at a fixed price for their uncommitted PLR capacity and energy costs during the term of these agreements with FES.
On April 7, 2006, the parties entered into a Tolling Agreement that arose from FES' notice to Met-Ed and Penelec that FES elected to exercise its right to terminate the partial requirements agreement effective midnight December 31, 2006. On November 29, 2006, Met-Ed, Penelec and FES agreed to suspend the April 7 Tolling Agreement pending resolution of the PPUC's proceedings regarding the Met-Ed and Penelec Transition Rate cases filed April 10, 2006, described below. Separately, on September 26, 2006, Met-Ed and Penelec successfully conducted a competitive RFP for a portion of their PLR obligation for the period December 1, 2006 through December 31, 2008. FES was one of the successful bidders in that RFP process and on September 26, 2006 entered into a Supplier Master Agreement to supply a certain portion of Met-Ed's and Penelec's PLR requirements at market prices that substantially exceed the fixed price in the partial requirements agreements.
Based on the outcome of the Transition Rate2006 comprehensive transition rate filing, as described below, Met-Ed, Penelec and FES agreed to restate the partial requirements power sales agreement effective January 1, 2007. The restated agreement incorporates the same fixed price for residual capacity and energy supplied by FES as in the prior arrangements between the parties, and automatically extends for successive one year terms unless any party gives 60 days'days notice prior to the end of the year. The restated agreement also allows Met-Ed and Penelec to sell the output of NUG generationenergy to the market and requires FES to provide energy at fixed prices to replace any NUG energy thus sold to the extent needed for Met-Ed and Penelec to satisfy their PLR and default service obligations. The parties have also separately terminated the Tolling, Suspension and Supplier Master agreements in connection with the restatement of the partial requirements agreement. Accordingly, the energy that would have been supplied under the Master Supplier Agreement will now be providedfixed price under the restated partial requirementsagreement is expected to remain below wholesale market prices during the term of the agreement.
If Met-Ed and Penelec were to replace the entire FES supply at current market power prices without corresponding regulatory authorization to increase their generation prices to customers, each company would likely incur a significant increase in operating expenses and experience a material deterioration in credit quality metrics. Under such a scenario, each company's credit profile would no longer be expected to support an investment grade rating for itstheir fixed income securities. Based on the PPUC's January 11, 2007 order described below, if FES ultimately determines to terminate, reduce, or significantly modify the agreement prior to the expiration of Met-Ed's and Penelec's generation rate caps in 2010, timely regulatory relief is not likely to be granted by the PPUC.
Met-Ed and Penelec made a comprehensive transition rate filing with the PPUC on April 10, 2006 to address a number of transmission, distribution and supply issues. If Met-Ed's and Penelec's preferred approach involving accounting deferrals washad been approved, the filingannual revenues would have increased annual revenues by $216 million and $157 million, respectively. That filing included, among other things, a request to charge customers for an increasing amount of market pricedmarket-priced power procured through a CBP as the amount of supply provided under the then existing FES agreement iswas to be phased out in accordance with the April 7, 2006 Tolling Agreement described above.out. Met-Ed and Penelec also requested approval of thea January 12, 2005 petition for the deferral of transmission-related costs discussed above, but only for those costs incurred during 2006. In this rate filing, Met-Ed and Penelec also requested recovery of annual transmission and related costs incurred on or after January 1, 2007, plus the amortized portion of 2006 costs over a ten-year period, along with applicable carrying charges, through an adjustable rider similar to that implemented in Ohio.rider. Changes in the recovery of NUG expenses and the recovery of Met-Ed's non-NUG stranded costs were also included in the filing. Hearings were held in late AugustOn May 4, 2006, the PPUC consolidated the remand of the FirstEnergy and briefing occurred in SeptemberGPU merger proceeding, related to the quantification and October. The ALJs issued their Recommended Decision on November 2, 2006.allocation of merger savings, with the comprehensive transition rate filing case.
The PPUC entered its Opinionopinion and Orderorder in the comprehensive rate filing proceeding on January 11, 2007. The Orderorder approved the recovery of transmission costs, including the transmission-related deferral for January 1, 2006 deferral,through January 10, 2007, and determined that no merger savings from prior years should be considered in determining customers'customers rates. The request for increases in generation supply rates was denied as were the requested changes into NUG expense recovery and Met-Ed's non-NUG stranded costs. The order decreased Met-Ed's and Penelec's distribution rates by $80 million and $19 million, respectively. These decreases were offset by the increases allowed for the recovery of transmission expensescosts. Met-Ed's and the 2006 transmission deferral.Penelec's request for recovery of Saxton decommissioning costs was granted and, in January 2007, Met-Ed and Penelec recognized income of $15 million and $12 million, respectively, to establish regulatory assets for those previously expensed decommissioning costs. Overall rates increased by 5.0% for Met-Ed ($59 million) and 4.5% for Penelec ($50 million). Met-Ed and Penelec filed a Petition for Reconsideration on January 26, 2007, on the issues of consolidated tax savings and rate of return on equity. Other parties filed Petitions for Reconsideration on transmission congestion,(including congestion), transmission deferrals and rate design issues. TheOn March 1, 2007, the PPUC issued three orders: (1) a tentative order regarding the reconsideration by the PPUC of its own order; (2) an order denying the Petitions for Reconsideration of Met-Ed, Penelec and the OCA and denying in part and accepting in part the MEIUGs and PICAs Petition for Reconsideration; and (3) an order approving the compliance filing. Comments to the PPUC for reconsideration of its order were filed on FebruaryMarch 8, 2007, entered an order granting Met-Ed's, Penelec's and the PPUC ruled on the reconsideration on April 13, 2007, making minor changes to rate design as agreed upon by Met-Ed, Penelec and certain other parties' petitionsparties.
On March 30, 2007, MEIUG and PICA filed a Petition for procedural purposes. Due to that ruling, the period for appeals toReview with the Commonwealth Court is tolled until 30 days afterof Pennsylvania asking the PPUC enterscourt to review the PPUC's determination on transmission (including congestion) and the transmission deferral. Met-Ed and Penelec filed a subsequent order rulingPetition for Review on April 13, 2007 on the substantive issues raised inof consolidated tax savings and the petitions.requested generation rate increase. The OCA filed its Petition for Review on April 13, 2007, on the issues of transmission (including congestion) and recovery of universal service costs from only the residential rate class. From June through October 2007, initial responsive and reply briefs were filed by various parties. Oral arguments are expected to take place on April 7, 2008. If Met-Ed and Penelec do not prevail on the issue of congestion, it could have a material adverse effect on their results of operations.
As of December 31, 2006,2007, Met-Ed's and Penelec's unrecovered regulatory deferrals pursuant to the 2006 comprehensive transition rate case, the 1998 Restructuring Settlement (including the Phase 2 Proceedings)proceedings) and the FirstEnergy/GPU Merger Settlement Stipulation were $303$512 million and $70$55 million, respectively. Penelec's $70 million deferral is subject to final resolution of an IRS settlement associated with NUG trust fund proceeds. During the PPUC's annual audit of Met-Ed's and Penelec's NUG stranded cost balances in 2006, it noted a modification to the NUG purchased power stranded cost accounting methodology made by Met-Ed and Penelec. On August 18, 2006, a PPUC Orderorder was entered requiring Met-Ed and Penelec to reflect the deferred NUG cost balances as if the stranded cost accounting methodology modification had not been implemented. As a result of the PPUC's Order,this PPUC order, Met-Ed recognized a pre-tax charge of approximately $10.3 million in the third quarter of 2006, representing incremental costs deferred under the revised methodology in 2005. Met-Ed and Penelec continue to believe that the stranded cost accounting methodology modification is appropriate and on August 24, 2006 filed a petition with the PPUC pursuant to its Orderorder for authorization to reflect the stranded cost accounting methodology modification effective January 1, 1999. Hearings on this petition are scheduled for latewere held in February 2007 and briefing was completed on March 28, 2007. It is not known whenThe ALJs initial decision denied Met-Ed's and Penelec's request to modify their NUG stranded cost accounting methodology. The companies filed exceptions to the initial decision on May 23, 2007 and replies to those exceptions were filed on June 4, 2007. On November 8, 2007, the PPUC mayissued an order denying any changes in the accounting methodology for NUGs.
On May 2, 2007, Penn filed a plan with the PPUC for the procurement of default service supply from June 2008 through May 2011. The filing proposed multiple, competitive RFPs with staggered delivery periods for fixed-price, tranche-based, pay as bid default service supply to the residential and commercial classes. The proposal would phase out existing promotional rates and eliminates the declining block and the demand components on generation rates for residential and commercial customers. The industrial class default service would be provided through an hourly-priced service provided by Penn. Quarterly reconciliation of the differences between the costs of supply and revenues from customers was also proposed. On September 28, 2007, Penn filed a Joint Petition for Settlement resolving all but one issue a final decision in the case. Briefs were also filed on September 28, 2007 on the unresolved issue of incremental uncollectible accounts expense. The settlement was either supported, or not opposed, by all parties. On December 20, 2007, the PPUC approved the settlement except for the full requirements tranche approach for residential customers, which was remanded to the ALJ for hearings. Under the terms of the Settlement Agreement, the default service procurement for small commercial customers will be done with multiple RFPs, while the default service procurement for large commercial and industrial customers will utilize hourly pricing. Bids in the first RFP for small commercial load were received on February 20, 2008. In February 2008, parties filed direct and rebuttal testimony in the remand proceeding for the residential procurement approach. An evidentiary hearing was held on for February 26, 2008, and this matter.matter will be presented to the PPUC for its consideration by March 13, 2008.
On February 1, 2007, the Governor of Pennsylvania proposed an Energy Independence Strategy (EIS).EIS. The EIS includes four pieces of preliminary draftproposed legislation that, according to the Governor, is designed to reduce energy costs, promote energy independence and stimulate the economy. Elements of the EIS include the installation of smart meters, funding for solar panels on residences and small businesses, conservation and demand reduction programs to meet demandenergy growth, a requirement that electric distribution companies acquire power throughthat results in the lowest reasonable rate on a "Least Cost Portfolio",long-term basis, the utilization of micro-grids and a three year phase-in of rate increases. SinceOn July 17, 2007 the EISGovernor signed into law two pieces of energy legislation. The first amended the Alternative Energy Portfolio Standards Act of 2004 to, among other things, increase the percentage of solar energy that must be supplied at the conclusion of an electric distribution companys transition period. The second law allows electric distribution companies, at their sole discretion, to enter into long term contracts with large customers and to build or acquire interests in electric generation facilities specifically to supply long-term contracts with such customers. A special legislative session on energy was convened in mid-September 2007 to consider other aspects of the EIS. On December 12, 2007, the Pennsylvania Senate passed the Alternative Energy Investment Act which, as amended, provides over $650 million over ten years to implement the Governor's proposal. The bill was then referred to the House Environmental Resources and Energy Committee where it awaits consideration. On February 12, 2008, the Pennsylvania House passed House Bill 2200 which provides for energy efficiency and demand management programs and targets as well as the installation of smart meters within ten years. Other legislation has only recently been proposed, theintroduced to address generation procurement, expiration of rate caps, conservation and renewable energy. The final form of anythis pending legislation is uncertain. Consequently, FirstEnergy isthe Pennsylvania Companies are unable to predict what impact, if any, such legislation may have on itstheir operations.
NJBPU Rate Matters(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 and costs incurred under NUG agreements exceed amounts collected through BGS and NUGC rates and market sales of NUG energy and capacity. As of December 31, 2006,2007, the accumulated deferred cost balance totaled approximately $369$322 million. New Jersey law allows for securitization of JCP&L's deferred balance upon application by JCP&L and a determination by the NJBPU that the conditions of the New Jersey restructuring legislation are met. On February 14, 2003, JCP&L filed for approval to securitize the July 31, 2003 deferred balance. On June 8, 2006, the NJBPU approved JCP&L's request to issue securitization bonds associated with BGS stranded cost deferrals. On August 10, 2006, JCP&L Transition Funding II, a wholly owned subsidiary of JCP&L, issued $182 million of transition bonds with a weighted average interest rate of 5.5%.
On December 2, 2005, JCP&L filed its request for recovery of $165 million of actual above-market NUG costs incurred from August 1, 2003 through October 31, 2005 and forecasted above-market NUG costs for November and December 2005. On February 23, 2006, JCP&L filed updated data reflecting actual amounts through December 31, 2005 of $154 million of costs incurred since July 31, 2003. On July 18, 2006, JCP&L further requested an additional $14 million of costs that had been eliminated from the securitized amount. A Stipulation of Settlement was signed by all parties, approved by the ALJ and adopted by the NJBPU in its Order dated December 6, 2006. The Order approves an annual $110 million increase in NUGC rates designed to recover deferred costs incurred since August 1, 2003, and a portion of costs incurred prior to August 1, 2003 that were not securitized. The Order requires that JCP&L absorb any net annual operating losses associated with the Forked River Generating Station. In the Settlement, JCP&L also agreed not to seek an increase to the NUGC to become effective before January 2010, unless the deferred balance exceeds $350 million any time after June 30, 2007.
Reacting to the higher closing prices of the 2006 BGS fixed rate auction, the NJBPU, on March 16, 2006, initiated a generic proceeding to evaluate the auction process and potential options for the future. On April 6, 2006, initial comments were submitted. A public meeting was held on April 21, 2006 and a legislative-type hearing was held on April 28, 2006. On June 21, 2006, the NJBPU approved the continued use of a descending block auction for the Fixed Price Residential Class. JCP&L filed its 2007 BGS company specific addendum on July 10, 2006. On October 27, 2006, the NJBPU approved the auction format to procure the 2007 Commercial Industrial Energy Price as well as the specific rules for both the Fixed Price and Commercial Industrial Energy Price auctions. These rules were essentially unchanged from the prior auctions.
In accordance with an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7, 2004 supporting a continuation of the current level and duration of the funding of TMI-2 decommissioning costs by New Jersey customers without a reduction, termination or capping of the funding. On September 30, 2004, JCP&L filed an updated TMI-2 decommissioning study. This study resulted in an updated total decommissioning cost estimate of $729 million (in 2003 dollars) compared to the estimated $528 million (in 2003 dollars) from the prior 1995 decommissioning study. The DRA filed comments on February 28, 2005 requesting that decommissioning funding be suspended. On March 18, 2005, JCP&L filed a response to the Ratepayer Advocate'sthose comments. A schedule for further NJBPU proceedings has not yet been set.
On August 1, 2005, the NJBPU established a proceeding to determine whether additional ratepayer protections are required at the state level in light of the repeal of the PUHCA pursuant to the EPACT. The NJBPU approved regulations effective October 2, 2006 that would prevent a holding company that owns a gas or electric public utility from investing more than 25% of the combined assets of its utility and utility-related subsidiaries into businesses unrelated to the utility industry. These regulations are not expected to materially impact FirstEnergy or JCP&L. Also, in the same proceeding, the NJBPU Staff issued an additional draft proposal on March 31, 2006 addressing various issues including access to books and records, ring-fencing, cross subsidization, corporate governance and related matters. With the approval of the NJBPU Staff, the affected utilities jointly submitted an alternative proposal on June 1, 2006. Comments on the alternative proposal were submitted on June 15, 2006. On November 3, 2006, the NJPBUThe NJBPU Staff circulated a revised draftdrafts of the proposal to interested stakeholders.stakeholders in November 2006 and again in February 2007. On February 1, 2008, the NJBPU accepted proposed rules for publication in the New Jersey Register on March 17, 2008. An April 23, 2008 public hearing on these proposed rules is expected to be scheduled with comments from interested parties expected to be due on May 17, 2008.
New Jersey statutes require that the state periodically undertake a planning process, known as the Energy Master Plan (EMP),EMP, to address energy related issues including energy security, economic growth, and environmental impact. The EMP is to be developed with involvement of the Governor's Office and the Governor's Office of Economic Growth, and is to be prepared by a Master Plan Committee, which is chaired by the NJBPU President and includes representatives of several State departments.
In October 2006, the current EMP process was initiated with the issuance of a proposed set of objectives which, as to electricity, included the following:
·Reduce the total projected electricity demand by 20% by 2020;
· Meet 22.5% of the State's electricity needs with renewable energy resources by that date;
·Reduce air pollution related to energy use;
·Encourage and maintain economic growth and development; | | Reduce the total projected electricity demand by 20% by 2020; |
· | | Meet 22.5% of New Jerseys electricity needs with renewable energy resources by that date; |
| | Reduce air pollution related to energy use; |
| | Encourage and maintain economic growth and development; |
| | Achieve a 20% reduction in both Customer Average Interruption Duration Index and System Average Interruption Frequency Index by 2020; |
· | | Maintain unit prices for electricity should remainto no more than +5% of the regional average price (region includes New York, New Jersey, Pennsylvania, Delaware, Maryland and the District of Columbia); and |
·Eliminate transmission congestion by 2020. | | Eliminate transmission congestion by 2020. |
Comments on the objectives and participation in the development of the EMP have been solicited and a number of working groups have been formed to attainobtain input from a broad range of interested stakeholders including utilities, environmental groups, customer groups, and major customers. EMP working groups addressing: (1) energy efficiency and demand response; (2) renewables; (3) reliability; and (4) pricing issues, have completed their assigned tasks of data gathering and analysis and have provided reports to the EMP Committee. Public stakeholder meetings were held in the fall of 2006 and in early 2007, and further public meetings are expected in the summer of 2007. A final draft of the EMP is expected to be presented to the Governor in the fall of 2007 with further public hearings anticipated in early 2008. At this time, FirstEnergyJCP&L cannot predict the outcome of this process nor determine the impact, if any, such legislation may have on its impact.operations.
On February 13, 2007, the NJBPU Staff informally issued a draft proposal relating to changes to the regulations addressing electric distribution service reliability and quality standards. Meetings between the NJBPU Staff and interested stakeholders to discuss the proposal were held and additional, revised informal proposals were subsequently circulated by the Staff. On September 4, 2007, proposed regulations were published in the New Jersey Register, which proposal will be subsequently considered by the NJBPU following comments that were submitted in September and October 2007. At this time, JCP&L cannot predict the outcome of this process nor determine the impact, if any, such regulations may have on its operations.
(E) FERC Rate MattersMATTERS
On March 28, 2006, ATSITransmission Service between MISO and MISO filed with the FERC a request to modify ATSI's Attachment O formula rate to include revenue requirements associated with recovery of deferred Vegetation Management Enhancement Program (VMEP) costs. ATSI estimated that it may defer approximately $54 million of such costs over a five-year period. Approximately $42 million has been deferred as of December 31, 2006. The effective date for recovery was June 1, 2006. The FERC conditionally approved the filing on May 22, 2006, and on July 14, 2006 FERC accepted the ATSI compliance filing. A request for rehearing of the FERC's May 22, 2006 Order was denied by FERC on October 25, 2006. The estimated annual revenues to ATSI from the VMEP cost recovery is $12 million for each of the five years beginning June 1, 2006.
On January 24, 2006, ATSI and MISO filed a request with the FERC to correct ATSI's Attachment 0 formula rate to reverse revenue credits associated with termination of revenue streams from transitional rates stemming from FERC's elimination of RTOR between the Midwest ISO and PJM. Revenues formerly collected under these transitional rates were included in, and served to reduce, ATSI's zonal transmission rate under the Attachment O formula. Absent the requested correction, elimination of these revenue credits would not be fully reflected in ATSI's formula rate until June 1, 2008. On March 16, 2006, the FERC approved the revenue credit correction without suspension, effective April 1, 2006. One party sought rehearing of the FERC's order, which was denied on June 27, 2006. No petition for review of the FERC's decision was filed. The estimated revenue impact of the correction mechanism is approximately $37 million for the period June 1, 2006 though May 31, 2007.PJM
On November 18, 2004, the FERC issued an order eliminating the RTORthrough and out rate for transmission service between the MISO and PJM regions. FERC's intent was to eliminate so-called pancaking of transmission charges between the MISO and PJM regions. The FERC also ordered the MISO, PJM and the transmission owners within MISO and PJM to submit compliance filings containing a SECArate mechanism to recover lost RTORtransmission revenues created by elimination of this charge (referred to as the Seams Elimination Cost Adjustment or SECA) during a 16-month transition period from load serving entities.period. The FERC issued orders in 2005 setting the SECA for hearing. ATSI, JCP&L, Met-Ed, Penelec, and FES participated in the FERC hearings held in May 2006 concerning the calculation and imposition of the SECA charges. The Presiding Judgepresiding judge issued an Initial Decisioninitial decision on August 10, 2006, rejecting the compliance filings made by MISO, PJM, and the RTOs and transmission owners, ruling on various issues and directing new compliance filings. This decision is subject to review and approval by the FERC. Briefs addressing the Initial Decisioninitial decision were filed on September 11, 2006 and October 20, 2006. A final order could be issued by the FERC in early 2007.the first quarter of 2008.
PJM Transmission Rate Design
On January 31, 2005, certain PJM transmission owners made three filings with the FERC pursuant to a settlement agreement previously approved by the FERC. JCP&L, Met-Ed and Penelec were parties to that proceeding and joined in two of the filings. In the first filing, the settling transmission owners submitted a filing justifying continuation of their existing rate design within the PJM RTO. In the second filing, the settling transmission ownersHearings were held and numerous parties appeared and litigated various issues concerning PJM rate design; notably AEP, which proposed a revised Schedule 12 to the PJM tariff designed to harmonize the rate treatment of new and existing transmission facilities. Interventions and protests were filed on February 22, 2005. In the third filing, Baltimore Gas and Electric Company and Pepco Holdings, Inc. requested a formula rate for transmission service provided within their respective zones. On May 31, 2005, the FERC issued an order on these cases. First, it set for hearing the existing rate design and indicated that it will issue a final order within six months. American Electric Power Company, Inc. filed in opposition proposing to create a "postage stamp", or average rate for all high voltage transmission facilities across PJM. Second,PJM and a zonal transmission rate for facilities below 345 kV. This proposal would have the FERC approved the proposed Schedule 12 rate harmonization. Third, the FERC accepted the proposed formula rate, subject to refund and hearing procedures. On June 30, 2005, the settling PJM transmission owners filed a request for rehearingeffect of shifting recovery of the May 31, 2005 order. On March 20, 2006, a settlement was filed with FERC in the formula rate proceeding that generally accepts the companies' formula rate proposal.costs of high voltage transmission lines to other transmission zones, including those where JCP&L, Met-Ed, and Penelec serve load. The FERCALJ issued an order approving this settlement on April 19, 2006. Hearings in the PJM rate design case concluded in April 2006. On July 13, 2006, an Initial Decision was issued by the ALJ. The ALJ adopted the FERC Trial Staff's positioninitial decision directing that the cost of all PJM transmission facilities, regardless of voltage, should be recovered through a postage stamp rate.The ALJ recommended an April 1, 2006 effective date for this change in rate design. IfNumerous parties, including FirstEnergy, submitted briefs opposing the ALJ's decision and recommendations. On April 19, 2007, the FERC accepts this recommendation,issued an order rejecting the ALJ's findings and recommendations in nearly every respect. The FERC found that the PJM transmission owners existing license plate or zonal rate applicable to many load zones in PJM would increase. FirstEnergy believesdesign was just and reasonable and ordered that significant additionalthe current license plate rates for existing transmission revenues would havefacilities be retained. On the issue of rates for new transmission facilities, the FERC directed that costs for new transmission facilities that are rated at 500 kV or higher are to be recoveredcollected from the JCP&L, Met-Ed and Penelecall transmission zones within PJM. JCP&L, Met-Edthroughout the PJM footprint by means of a postage-stamp rate. Costs for new transmission facilities that are rated at less than 500 kV, however, are to be allocated on a beneficiary pays basis. FERC found that PJM's current beneficiary-pays cost allocation methodology is not sufficiently detailed and, Penelec, as part of the Responsible Pricing Alliance, filed a brief addressing the Initial Decision on August 14, 2006 and September 5, 2006. The case will be reviewed by the FERC with a decision anticipated in early 2007.
On November 1, 2005, FES filed two power sales agreements for approval with the FERC. One power sales agreement provided for FES to provide the PLR requirements of the Ohio Companies at a price equal to the retail generation rates approved by the PUCO for a period of three years beginning January 1, 2006. The Ohio Companies will be relieved of their obligation to obtain PLR power requirements from FES if the Ohio CBP results in a lower pricerelated order that also was issued on April 19, 2007, directed that hearings be held for retail customers. A similar power sales agreement between FESthe purpose of establishing a just and Penn permits Penn to obtain its PLR power requirements from FES at a fixed price equal to the retail generation price during 2006.reasonable cost allocation methodology for inclusion in PJM's tariff.
On May 18, 2007, certain parties filed for rehearing of the FERC's April 19, 2007 order. On January 31, 2008, the requests for rehearing were denied. The FERC's orders on PJM rate design will prevent the allocation of a portion of the revenue requirement of existing transmission facilities of other utilities to JCP&L, Met-Ed and Penelec. In addition, the FERC's decision to allocate the cost of new 500 kV and above transmission facilities on a PJM-wide basis will reduce future transmission revenue recovery from the JCP&L, Met-Ed and Penelec zones. A partial settlement agreement addressing the beneficiary pays methodology for below 500 kV facilities, but excluding the issue of allocating new facilities costs to merchant transmission entities, was filed on September 14, 2007. The agreement was supported by the FERC's Trial Staff, and was certified by the Presiding Judge. The FERC's action on the settlement agreement is pending. The remaining merchant transmission cost allocation issues will proceed to hearing in May 2008. On February 13, 2008, AEP appealed the FERC's orders to the federal Court of Appeals for the D.C. Circuit. The Illinois Commerce Commission has also appealed these orders.
Post Transition Period Rate Design
FERC had directed MISO, PJM, and the respective transmission owners to make filings on or before August 1, 2007 to reevaluate transmission rate design within the MISO, and between MISO and PJM. On August 1, 2007, filings were made by MISO, PJM, and the vast majority of transmission owners, including FirstEnergy affiliates, which proposed to retain the existing transmission rate design. These filings were approved by the FERC on January 31, 2008. As a result of FERC's approval, the rates charged to FirstEnergy's load-serving affiliates for transmission service over existing transmission facilities in MISO and PJM are unchanged. In a related filing, MISO and MISO transmission owners requested that the current MISO pricing for new transmission facilities that spreads 20% of the cost of new 345 kV and higher transmission facilities across the entire MISO footprint (known as the RECB methodology) be retained.
Certain stand-alone transmission companies in MISO made a filing under Section 205 of the Federal Power Act requesting that 100% of the cost of new qualifying 345 kV and higher transmission facilities be spread throughout the entire MISO footprint. Further, Indianapolis Power and Light Company separately moved the FERC to reopen the record to address the cost allocation under the RECB methodology. FERC rejected these requests in an order issued January 31, 2008 again maintaining the status quo with respect to allocation of the cost of new transmission facilities in the MISO.
On September 17, 2007, AEP filed a complaint under Sections 206 and 306 of the Federal Power Act seeking to have the entire transmission rate design and cost allocation methods used by MISO and PJM declared unjust, unreasonable, and unduly discriminatory, and to have FERC fix a uniform regional transmission rate design and cost allocation method for the entire MISO and PJM Super Region that recovers the average cost of new and existing transmission facilities operated at voltages of 345 kV and above from all transmission customers. Lower voltage facilities would continue to be recovered in the local utility transmission rate zone through a license plate rate. AEP requested a refund effective October 1, 2007, or alternatively, February 1, 2008. On January 31, 2008, FERC issued an order denying the complaint.
Distribution of MISO Network Service Revenues
Effective February 1, 2008, the MISO Transmission Owners Agreement provides for a change in the method of distributing transmission revenues among the transmission owners. MISO and a majority of the MISO transmission owners filed on December 3, 2007 to change the MISO tariff to clarify, for purposes of distributing network transmission revenue to the transmission owners, that all network transmission service revenues, whether collected by MISO or directly by the transmission owner, are included in the revenue distribution calculation. This clarification was necessary because some network transmission service revenues are collected and retained by transmission owners in states where retail choice does not exist, and their unbundled retail load is currently exempt from MISO network service charges. The tariff changes filed with FERC ensure that revenues collected by transmission owners from bundled load are taken into account in the revenue distribution calculation, and that transmission owners with bundled load do not collect more than their revenue requirements. Absent the changes, transmission owners, and ultimately their customers, with unbundled load or in retail choice states, such as ATSI, would subsidize transmission owners with bundled load, who would collect their revenue requirement from bundled load, plus share in revenues collected by MISO from unbundled customers. This would result in a large revenue shortfall for ATSI, which would eventually be passed on to customers in the form of higher transmission rates as calculated pursuant to ATSIs Attachment O formula under the MISO tariff.
Numerous parties filed in support of the tariff changes, including the public service commissions of Michigan, Ohio and Wisconsin. Ameren filed a protest on December 26, 2007, arguing that the December 3 filing violates the MISO Transmission Owners Agreement as well as an agreement among Ameren (Union Electric), MISO, and the Missouri Public Service Commission, which provides that Union Electrics bundled load cannot be charged by MISO for network service. On January 31, 2008, FERC issued an order conditionally accepting the tariff amendment subject to a minor compliance filing. This order ensures that ATSI will continue to receive transmission revenues from MISO equivalent to its transmission revenue requirement.
MISO Ancillary Services Market and Balancing Area Consolidation
MISO made a filing on September 14, 2007 to establish Ancillary Services markets for regulation, spinning and supplemental reserves, to consolidate the existing 24 balancing areas within the MISO footprint, and to establish MISO as the NERC registered balancing authority for the region. This filing would permit load serving entities to purchase their operating reserve requirements in a competitive market. An effective date of June 1, 2008 was requested in the filing.
MISO's previous filing to establish an Ancillary Services market was rejected without prejudice by FERC on June 22, 2007, subject to MISO providing an analysis of market power within its footprint and a plan to ensure reliability during the consolidation of balancing areas. MISO made a September 14 filing addressing the FERC's directives. FirstEnergy supports the proposal to establish markets for Ancillary Services and consolidate existing balancing areas, but filed objections on specific aspects of the MISO proposal. Interventions and protests to MISO's filing were made with FERC on October 15, 2007. FERC conducted a technical conference on certain aspects of the MISO proposal on December 6, 2007, and additional comments were filed by FirstEnergy and other parties on December 19, 2007. FERC action is anticipated in the first quarter of 2008.
Duquesnes Request to Withdraw from PJM
On November 8, 2007, Duquesne Light Company (Duquesne) filed a request with the FERC to exit PJM and to join the MISO. In its filing, Duquesne asked FERC to be relieved of certain capacity payment obligations to PJM for capacity auctions conducted prior to its departure from PJM, but covering service for planning periods through May 31, 2010. Duquesne asserted that its primary reason for exiting PJM is to avoid paying future obligations created by PJM's forward capacity market. FirstEnergy believes that Duquesnes filing did not identify or address numerous legal, financial or operational issues that are implicated or affected directly by Duquesnes proposal. Consequently, on December 4, 2007 and January 3, 2008, FirstEnergy submitted responsive filings that, while conceding Duquesnes rights to exit PJM, contested various aspects of Duquesnes proposal. FirstEnergy particularly focused on Duquesnes proposal that it be allowed to exit PJM without payment of its share of existing capacity market commitments. FirstEnergy also objected to Duquesnes failure to address the firm transmission service requirements that would be necessary for FirstEnergy to continue to use the Beaver Valley Plant to meet existing commitments in the PJM capacity markets and to serve native load. Additionally, FirstEnergy protested Duquesnes failure to identify or address a number of legal, financial or operational issues and uncertainties that may or will result for both PJM and MISO market participants. Other market participants also submitted filings contesting Duquesnes plans.
On January 17, 2008, the FERC conditionally approved Duquesnes request to exit PJM. Among other conditions, FERC obligated Duquesne to pay the PJM capacity obligations that had accrued prior to January 17, 2008. Duquesne was given until February 1, 2008 to provide FERC written notice of its intent to withdraw and Duquesne filed the notice on February 1st. The FERC's order took notice of the numerous transmission and other issues raised by FirstEnergy and other parties to the proceeding, but did not provide any responsive rulings or other guidance. Rather, FERC ordered Duquesne to make a compliance filing in forty-five days from the FERC order (or by March 3, 2008) detailing how Duquesne will satisfy its obligations under the PJM Transmission Owner's Agreement. The FERC likewise directed the MISO to submit a compliance filing in forty-five days (or by March 3, 2008) detailing the MISO's plans to integrate Duquesne into the MISO. Finally, the FERC directed MISO and PJM to work together to resolve the substantive and procedural issues implicated by Duquesnes transition into the MISO. On February 19, 2008, FirstEnergy asked for clarification or rehearing of certain of the matters addressed in FERC's January 17, 2008 Order.
MISO Resource Adequacy Proposal
MISO made a filing on December 28, 2007 that would create an enforceable planning reserve requirement in the MISO tariff for load serving entities such as the Ohio Companies, Penn, and FES. This requirement is proposed to become effective for the planning year beginning June 1, 2009. The filing would permit MISO to establish the reserve margin requirement for load serving entities based upon a one day loss of load in ten years standard, unless the state utility regulatory agency establishes a different planning reserve for load serving entities in its state. FirstEnergy generally supports the proposal as it promotes a mechanism that will result in long-term commitments from both load-serving entities and resources, including both generation and demand side resources, that are necessary for reliable resource adequacy and planning in the MISO footprint. FirstEnergy does not expect this filing to impose additional supply costs since its load serving entities in MISO are already bound by similar planning reserve requirements established by ReliabilityFirst Corporation. Comments on the filing were filed on January 28, 2008. An effective date of June 1, 2009 was requested in the filing, but MISO has requested FERC approval by the end of the first quarter of 2008.
Organized Wholesale Power Markets
On February 21, 2008, the FERC issued a NOPR through which it proposes to adopt new rules that it states will “improve operations in organized electric markets, boost competition and bring additional benefits to consumers.” The proposed rule addresses demand response and market pricing during reserve shortages, long-term power contracting, market-monitoring policies, and responsiveness of RTOs and ISOs to stakeholders and customers. FirstEnergy has not yet had an opportunity to evaluate the impact of the proposed rule on its operations.
10. CAPITALIZATION
(A) RETAINED EARNINGS (ACCUMULATED DEFICIT)
There are no restrictions on retained earnings for payment of cash dividends on OE's, CEI's, TE's, JCP&L's and FES' common stock. In general, Met-Ed's and Penelec's respective first mortgage indentures restrict the payment of dividends or distributions on or with respect to each of the company's common stock to amounts credited to earned surplus since the date of its indenture. As of December 31, 2007, Penelec had retained earnings available to pay common stock dividends of $48 million, net of amounts restricted under its first mortgage indenture. Met-Ed had an accumulated deficit of $139 million as of December 31, 2007, and is therefore restricted from making cash dividend distributions to FirstEnergy.
On (B) PREFERRED AND PREFERENCE STOCK
No preferred shares or preference shares are currently outstanding. The following table details the change in preferred shares outstanding for OE, CEI, TE and JCP&L for the three years ended December 29, 2005,31, 2007.
| | | | | | | | | |
| | Not Subject to | | Subject to | |
| | Mandatory Redemption | | Mandatory Redemption | |
| | | | Par or | | | | Par or | |
| | Number | | Stated | | Number | | Stated | |
| | of Shares | | Value | | of Shares | | Value | |
| | (Dollars in thousands) | |
OE | | | | | | | | | | |
Balance, January 1, 2005 | | | 1,000,699 | | $ | 100,070 | | | 127,500 | | $ | 12,750 | |
Redemptions- | | | | | | | | | | | | | |
7.750% Series | | | (250,000 | ) | | (25,000 | ) | | | | | | |
7.625% Series | | | | | | | | | (127,500 | ) | | (12,750 | ) |
Balance, December 31, 2005 | | | 750,699 | | | 75,070 | | | - | | | - | |
Redemptions- | | | | | | | | | | | | | |
3.90% Series | | | (152,510 | ) | | (15,251 | ) | | | | | | |
4.40% Series | | | (176,280 | ) | | (17,628 | ) | | | | | | |
4.44% Series | | | (136,560 | ) | | (13,656 | ) | | | | | | |
4.56% Series | | | (144,300 | ) | | (14,430 | ) | | | | | | |
4.24% Series | | | (40,000 | ) | | (4,000 | ) | | | | | | |
4.25% Series | | | (41,049 | ) | | (4,105 | ) | | | | | | |
4.64% Series | | | (60,000 | ) | | (6,000 | ) | | | | | | |
Balance, December 31, 2006 | | | - | | | - | | | - | | | - | |
Balance, December 31, 2007 | | | - | | $ | - | | | - | | $ | - | |
CEI | | | | | | | | | | | | | | |
Balance, January 1, 2005 | | | 974,000 | | $ | 96,404 | | | 40,000 | | $ | 4,009 | |
Redemptions- | | | | | | | | | | | | | |
$7.40 Series A | | | (500,000 | ) | | (50,000 | ) | | | | | | |
Adjustable Series L | | | (474,000 | ) | | (46,404 | ) | | | | | | |
$7.35 Series C | | | | | | | | | (40,000 | ) | | (4,000 | ) |
Amortization of fair market | | | | | | | | | | |
value adjustments- | | | | | | | | | | | | | |
$7.35 Series C | | | | | | | | | | | | (9 | ) |
Balance, December 31, 2005 | | | - | | | - | | | - | | | - | |
Balance, December 31, 2006 | | | - | | | - | | | - | | | - | |
Balance, December 31, 2007 | | | - | | $ | - | | | - | | $ | - | |
TE | | | | | | | | | | | | | | |
Balance, January 1, 2005 | | | 4,110,000 | | $ | 126,000 | | | | | | | |
Redemptions- | | | | | | | | | | | | | |
Adjustable Series A | | | (1,200,000 | ) | | (30,000 | ) | | | | | | |
Balance, December 31, 2005 | | | 2,910,000 | | | 96,000 | | | | | | | |
Redemptions- | | | | | | | | | | | | | |
$4.25 Series | | | (160,000 | ) | | (16,000 | ) | | | | | | |
$4.56 Series | | | (50,000 | ) | | (5,000 | ) | | | | | | |
$4.25 Series | | | (100,000 | ) | | (10,000 | ) | | | | | | |
$2.365 Series | | | (1,400,000 | ) | | (35,000 | ) | | | | | | |
Adjustable Series B | | | (1,200,000 | ) | | (30,000 | ) | | | | | | |
Balance, December 31, 2006 | | | - | | | - | | | | | | | |
Balance, December 31, 2007 | | | - | | $ | - | | | | | | | |
JCP&L | | | | | | | | | | | | | | |
Balance, January 1, 2005 | | | 125,000 | | $ | 12,649 | | | | | | | |
Balance, December 31, 2005 | | | 125,000 | | | 12,649 | | | | | | | |
Redemptions- | | | | | | | | | | | | | |
4.00% Series | | | (125,000 | ) | | (12,649 | ) | | | | | | |
Balance, December 31, 2006 | | | - | | | - | | | | | | | |
Balance, December 31, 2007 | | | - | | $ | - | | | | | | | |
The Companies preferred stock and preference stock authorizations are as follows:
| | Preferred Stock | | Preference Stock | |
| | Shares | | Par | | Shares | | Par | |
| | Authorized | | Value | | Authorized | | Value | |
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 | | | | | | | |
(C) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
Securitized Transition Bonds
JCP&L's consolidated financial statements include the FERC issued an order settingresults 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 $320 million of 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 $182 million of 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, 2007, $397 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 consists 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 power sales agreementsseries 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
Each of the Companies, except for hearing.JCP&L, has a first mortgage indenture under which it issues FMB secured by a direct first mortgage lien on substantially all of its property and franchises, other than specifically excepted property. JCP&L satisfied the provision of its senior note indenture for the release of all FMBs held as collateral for senior notes in May 2007, subsequently repaid its other remaining FMBs and, effective September 14, 2007, discharged and released its mortgage indenture.
FES and the Companies have various debt covenants under their respective financing arrangements. The order criticizedmost restrictive of the Ohio CBP,debt covenants relate to the nonpayment of interest and/or principal on debt and requiredthe maintenance of certain financial ratios. There also exist cross-default provisions among financing arrangements of FirstEnergy, FES and the Companies.
Based on the amount of FMB authenticated by the respective mortgage bond trustees through December 31, 2007, the Companies' annual sinking fund requirement for all FMB issued under the various mortgage indentures amounted to submit additional evidence$50 million (Penn - $5 million, JCP&L - $16 million, Met-Ed - $8 million and Penelec - $21 million). Penn expects to deposit funds with its mortgage bond trustee in 2008 that will then be withdrawn upon the surrender for cancellation of a like principal amount of FMB, specifically authenticated for such purposes against unfunded property additions or against previously retired FMB. This method can result in minor increases in the amount of the annual sinking fund requirement. Met-Ed and Penelec could fulfill their sinking fund obligations by providing bondable property additions, previously retired FMB or cash to the respective mortgage bond trustees.
The sinking fund requirements for FES and the Companies for FMB and maturing long-term debt (excluding capital leases) for the next five years are:
Sinking Fund Requirements | | FES | | OE | | CEI | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
2008 | | $ | 1,441 | | $ | 333 | | $ | 207 | | $ | 27 | | $ | - | | $ | - | |
2009 | | | - | | | 2 | | | 162 | | | 29 | | | - | | | 100 | |
2010 | | | 15 | | | 65 | | | 18 | | | 31 | | | 100 | | | 59 | |
2011 | | | - | | | 1 | | | 20 | | | 32 | | | - | | | - | |
2012 | | | - | | | 1 | | | 22 | | | 34 | | | - | | | - | |
TE has no sinking fund requirements for the next five years.
Included in the table above are amounts for certain variable interest rate pollution control revenue bonds that currently bear interest in an interest rate mode that permits individual debt holders to put the respective debt back to the issuer for purchase prior to maturity. These amounts are $1.7 billion and $15 million in 2008 and 2010, respectively, representing the next time the debt holders may exercise this right. The applicable pollution control revenue bond indentures provide that bonds so tendered for purchase will be remarketed by a designated remarketing agent. These amounts for FES, OE and CEI are shown as follows:
Year | | FES | | OE | | CEI | |
| | (In millions) | |
2008 | | $ | 1,441 | | $ | 156 | | $ | 82 | |
2010 | | | 15 | | | - | | | - | |
Obligations to repay certain pollution control revenue bonds are secured by several series of FMB. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank LOCs of $1.6 billion as of December 31, 2007, or noncancelable municipal bond insurance of $593 million as of December 31, 2007, to pay principal of, or interest on, the applicable pollution control revenue bonds. To the extent that drawings are made under the LOCs or the policies, FGCO, NGC and the Companies are entitled to a credit against their obligation to repay those bonds. FGCO, NGC and the Companies pay annual fees of 0.15% to 1.70% of the amounts of the LOCs to the issuing banks and 0.15% to 0.16% of the amounts of the insurance policies to the insurers and are obligated to reimburse the banks or insurers, as the case may be, for any drawings thereunder. Certain of the issuing banks and insurers hold FMB as security for such reimbursement obligations. These amounts and percentages for FES and the Companies are shown as follows:
| | FES | | OE | | CEI | | TE | | Met-Ed | | Penelec | |
| | (In millions) | |
Amounts | | | | | | | | | | | | | |
LOCs | | $ | 1,455 | * | $ | 158 | | $ | - | | $ | - | | $ | - | | $ | - | |
Insurance Policies | | | 456 | | | 16 | | | 6 | | | 4 | | | 42 | | | 69 | |
| | | | | | | | | | | | | | | | | | | |
Fees | | | | | | | | | | | | | | | | | | | |
LOCs | | 0.15% to 0.775 % | | | 1.70 | % | | - | | | - | | | - | | | - | |
Insurance Policies | | | 0.15 | % | | - | | | - | | | - | | | 0.16 | % | | 0.16 | % |
| | | | | | | | | | | | | | | | | | | |
* Includes LOC of $490 million issued for FirstEnergy on behalf of NGC | |
CEI and TE have unsecured LOCs of approximately $194 million in connection with the sale and leaseback of Beaver Valley Unit 2 for which they are jointly and severally liable. OE has LOCs of $291 million and $134 million in connection with the sale and leaseback of Beaver Valley Unit 2 and Perry Unit 1, respectively. OE entered into a Credit Agreement pursuant to which a standby LOC was issued in support of the reasonablenessapproximately $236 million of the prices chargedBeaver Valley Unit 2 LOCs and the issuer of the standby LOC obtained the right to pledge or assign participations in OE's reimbursement obligations under the power sales agreements. On July 14, 2006,credit agreement to a trust. The trust then issued and sold trust certificates to institutional investors that were designed to be the Chief Judge granted the joint motioncredit equivalent of an investment directly in OE.
11. ASSET RETIREMENT OBLIGATIONS
FES and the Trial Staff to appointCompanies have recognized applicable legal obligations under SFAS 143 for nuclear power plant decommissioning, reclamation of a settlement judge in this proceedingsludge disposal pond and the procedural schedule was suspended pending settlement discussions among the parties. A settlement conference was held on September 5, 2006.closure of two coal ash disposal sites. In addition, FES and the Ohio Companies Penn, and the PUCO, alonghave recognized conditional retirement obligations (primarily for asbestos remediation) in accordance with other parties, reached an agreement to settle the case. The settlementFIN 47, which was filed with the FERC on October 17, 2006, and was unopposed by the remaining parties, including the FERC Trial Staff. This settlement was accepted by the FERC on December 8, 2006.
The terms of the settlement provide for modification of both the Ohio and Penn power supply agreements with FES. Under the Ohio power supply agreement, separate rates are established for the Ohio Companies' PLR requirements; special retail contract requirements, wholesale contract requirements, and interruptible buy-through retail load requirements. For their PLR and special retail contract requirements, the Ohio Companies will pay FES no more than the lower of (i) the sum of the retail generation charge, the rate stabilization charge, the fuel recovery mechanism charge, and FES' actual incremental fuel costs for such sales; or (ii) the wholesale price cap. Different wholesale price caps are imposed for PLR sales, special retail contracts, and wholesale contracts. The wholesale price for interruptible buy-through retail load requirements is limited to the actual spot price of power obtained by FES to provide this power. FES billed the Ohio Companies for the additional amount payable to FES for incremental fuel costs on power supplied during 2006. The total power supply cost billed by FES was lower in each case than the wholesale price caps specified in the settlement accepted by the FERC. In addition, pursuant to the settlement, the wholesale rate charged by FES under the Penn power supply agreement can be no greater than the generation component of charges for retail PLR load in Pennsylvania. The modifications to the Ohio and Pennsylvania power supply agreements became effective January 1, 2006. The Penn supply agreement subject to the settlement expired at midnightimplemented on December 31, 2006.2005.
The ARO liabilities for FES, OE and TE primarily relate to the nuclear 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 nuclear decommissioning of the TMI-2 nuclear generating facility. FES and the Companies use an expected cash flow approach to measure the fair value of their nuclear decommissioning AROs.
In 2006, FES and OE revised the ARO associated with Perry as a result of revisions to the 2005 decommissioning study. The present value of revisions in the estimated cash flows associated with projected decommissioning costs increased the ARO and corresponding plant asset for Perry by $4 million. The ARO for FES sludge disposal pond located near the Bruce Mansfield Plant was revised in 2006 due to an updated cost study. The present value of revisions in the estimated cash flows associated with projected remediation costs associated with the site decreased the ARO and corresponding plant asset by $6 million. In May 2006, CEI sold its interest in the Ashtabula C plant. As part of the transaction, CEI settled the $6 million ARO that had been established with the adoption of FIN 47.
FES and the Companies maintain nuclear decommissioning trust funds that are legally restricted for purposes of settling the nuclear decommissioning ARO. The fair value of the decommissioning trust assets as of December 31, 2007 and 2006 were as follows:
| | | | | |
| | (In millions) | |
| | $ | 1,333 | | $ | 1,238 | |
| | | 127 | | | 118 | |
| | | 67 | | | 61 | |
| | | 176 | | | 164 | |
| | | 287 | | | 270 | |
| | | 138 | | | 125 | |
FIN 47 provides accounting standards for conditional retirement obligations associated with tangible long-lived assets, requiring recognition of the fair value of a liability for an ARO in the period in which it is incurred if a reasonable estimate can be identified. FIN 47 states that an obligation exists even though there may be uncertainty about timing or method of settlement and further clarifies SFAS 143, stating that the uncertainty surrounding the timing and method of settlement when settlement is conditional on a future event occurring should be reflected in the measurement of the liability, not in the recognition of the liability. Accounting for conditional ARO under FIN 47 is the same as described above for SFAS 143.
Applicable legal obligations as defined under the new standard were identified at FES active and retired generating units and the Companies substation control rooms, service center buildings, line shops and office buildings, identifying asbestos remediation as the primary conditional ARO. As a result of Penn's PLR competitive solicitation process approved by the PPUCadopting FIN 47 in December 2005, after-tax charges of $8.8 million for the period January 1, 2007 through May 31, 2008, FES, was selected$16.3 million for OE, $3.7 million for CEI, $0.3 million for Met-Ed and $0.8 million for Penelec were recorded as the winning bidder for a number of the tranches for individual customer classes. The balance of the tranches will be supplied by unaffiliated power suppliers. On October 2, 2006, FES filed an application with the FERC under Section 205 of the Federal Power Act for authorization to make these affiliate sales to Penn. Interventions or protests were due on this filing on October 23, 2006. Penn was the only party to file an intervention in this proceeding. This filing was accepted by the FERC on November 15, 2006, and no requests for rehearing were filed.
On February 15, 2007, MISO filed documents with the FERC to establish a market-based, competitive ancillary services market. MISO contends that the filing will integrate operating reserves into MISO's existing day-ahead and real-time settlements process, incorporate opportunity costs into these markets, address scarcity pricing through the implementationcumulative effect of a demand curve methodology, foster demand responsechange in accounting principle.
The following table describes the provision of operating reserves, and provide for various efficiencies and optimization with regard to generation dispatch. The filing also proposes amendments to existing documents to provide for the transfer of balancing functions from existing local balancing authorities to MISO. MISO will then carry out this reliability function as the NERC-certified balancing authority for the MISO region. MISO is targeting implementation for the second or third quarter of 2008. The FERC has established March 23, 2007, as the date for interested parties to submit comments addressing the filing. The filing has not yet been fully evaluated to assess its impact on FirstEnergy's operations.
On February 16, 2007, the FERC issued a final rule that revises its decade-old open access transmission regulations and policies. The FERC explained that the final rule is intended to strengthen non-discriminatory accesschanges to the transmission grid, facilitate FERC enforcement,ARO balances during 2007 and provide for a more open and coordinated transmission planning process. The final rule will not be effective until 60 days after publication in the Federal Register. The final rule has not yet been fully evaluated to assess its impact on FirstEnergy's operations.2006.
Capital RequirementsARO Reconciliation | | FES | | OE | | CEI | | TE | | JCP&L | | Met-Ed | | Penelec | |
| | (In millions) | |
Balance as of January 1, 2006 | | $ | 716 | | $ | 83 | | $ | 8 | | $ | 25 | | $ | 80 | | $ | 142 | | $ | 72 | |
Liabilities incurred | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
Liabilities settled | | | - | | | - | | | (6 | ) | | - | | | - | | | - | | | - | |
Accretion | | | 46 | | | 5 | | | - | | | 2 | | | 4 | | | 9 | | | 5 | |
Revisions in estimated | | | | | | | | | | | | | | | | | | | | | | |
cashflows | | | (2 | ) | | - | | | - | | | - | | | - | | | - | | | - | |
Balance as of December 31, 2006 | | | 760 | | | 88 | | | 2 | | | 27 | | | 84 | | | 151 | | | 77 | |
Liabilities incurred | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
Liabilities settled | | | (1 | ) | | - | | | - | | | - | | | - | | | - | | | - | |
Accretion | | | 51 | | | 6 | | | - | | | 1 | | | 6 | | | 10 | | | 5 | |
Revisions in estimated | | | | | | | | | | | | | | | | | | | | | | |
cashflows | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
Balance as of December 31, 2007 | | $ | 810 | | $ | 94 | | $ | 2 | | $ | 28 | | $ | 90 | | $ | 161 | | $ | 82 | |
| | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures for the Companies, FES and FirstEnergy's other subsidiaries for the years 2007 through 2011 excluding nuclear fuel, are shown in the following table. Such costs include expenditures for the betterment of existing facilities and for the construction of generating capacity, facilities for environmental compliance, transmission lines, distribution lines, substations and other assets.
| | 2006 | | Capital Expenditures Forecast | |
| | Actual | | 2007 | | 2008-2011 | | Total | |
| | (In millions) |
OE | | $ | 105 | | $ | 120 | | $ | 544 | | $ | 664 | |
Penn | | | 19 | | | 26 | | | 86 | | | 112 | |
CEI | | | 127 | | | 158 | | | 683 | | | 841 | |
TE | | | 61 | | | 64 | | | 261 | | | 325 | |
JCP&L | | | 160 | | | 192 | | | 1,144 | | | 1,336 | |
Met-Ed | | | 85 | | | 83 | | | 428 | | | 511 | |
Penelec | | | 111 | | | 92 | | | 522 | | | 614 | |
ATSI | | | 39 | | | 46 | | | 296 | | | 342 | |
FGCO | | | 213 | | | 445 | | | 1,712 | | | 2,157 | |
NGC | | | 204 | | | 126 | | | 534 | | | 660 | |
Other subsidiaries | | | 46 | | | 91 | | | 239 | | | 330 | |
Total | | $ | 1,170 | | $ | 1,443 | | $ | 6,449 | | $ | 7,892 | |
12. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT
DuringFirstEnergy, FES and the 2007-2011 period, maturities of, and sinking fund requirements for, long-term debt of FirstEnergy and its subsidiaries are:
| | Long-Term Debt Redemption Schedule | |
| | 2007 | | 2008-2011 | | Total | |
| | (In millions) | |
| | | | | | | |
OE | | $ | 3 | | $ | 180 | | $ | 183 | |
Penn* | | | 1 | | | 4 | | | 5 | |
CEI** | | | 120 | | | 275 | | | 395 | |
TE | | | 30 | | | - | | | 30 | |
JCP&L | | | 33 | | | 119 | | | 152 | |
Met-Ed | | | 50 | | | 100 | | | 150 | |
Penelec | | | - | | | 159 | | | 159 | |
FirstEnergy | | | - | | | 1,500 | | | 1,500 | |
Other subsidiaries | | | 4 | | | 25 | | | 29 | |
Total | | $ | 241 | | $ | 2,362 | | $ | 2,603 | |
| | | | | | | | | | |
* Penn has an additional $63 million due to associated companies in 2008-2011. |
** CEI has an additional $65 million due to associated companies in 2008-2011. |
FirstEnergy's investments for additional nuclear fuel during the 2007-2011 periodCompanies are estimatedparties to be approximately $893 million, of which about $86 million applies to 2007. During the same period, its nuclear fuel investments are expected to be reduced by approximately $702 million and $103 million, respectively, as the nuclear fuel is consumed. As a result of the intra-system generation assets transfers, NGC is now responsible for FirstEnergy's nuclear fuel investments. The following table displays the Companies' operating lease commitments, net of capital trust cash receipts for the 2007-2011 period.
| | Net Operating Lease Commitments | |
| | 2007 | | 2008-2011 | | Total | |
| | (In millions) |
OE | | $ | 86 | | $ | 428 | | $ | 514 | |
CEI | | | 14 | | | 52 | | | 66 | |
TE | | | 79 | | | 291 | | | 370 | |
JCP&L | | | 8 | | | 32 | | | 40 | |
Met-Ed | | | 4 | | | 16 | | | 20 | |
Penelec | | | 5 | | | 16 | | | 21 | |
FESC | | | 8 | | | 31 | | | 39 | |
Total | | $ | 204 | | $ | 866 | | $ | 1,070 | |
FirstEnergy had approximately $1.1 billion of short-term indebtedness as of December 31, 2006, comprised of $1.0 billion in borrowings from a $2.75 billion revolving line of credit and $103 million of other bank borrowings. Total short-term bank lines of committed credit to FirstEnergy and the Companies as of December 31, 2006 were approximately $3.4 billion.
On August 24, 2006, FirstEnergy and certain of its subsidiaries entered into a new $2.75 billion five-year revolving credit facility, which replaced FirstEnergy's prior $2 billion credit facility. FirstEnergy may request an increase in the total commitments available under the newthis facility up to a maximum of $3.25 billion. Commitments under the new facility are available until August 24, 2011,2012, unless the lenders agree, at the request of the Borrowers,borrowers, to twoan unlimited number of additional one-year extensions. Generally, borrowings under the facility must be repaid within 364 days. Available amounts for each Borrowerborrower are subject to a specified sublimit,sub-limit, as well as applicable regulatory and other limitations. As of December 31, 2006, FirstEnergy was the only borrower on this revolver with an outstanding balance of $1.0 billion. The annual facility fee is 0.125%.
FirstEnergy may borrow under these facilitiesOn December 28, 2007, the FERC issued an order authorizing JCP&L, Penn, Met-Ed and could transferPenelec to issue short-term debt securities up to $428 million, $39 million, $300 million and $300 million, respectively, during the period commencing January 1, 2008 through December 31, 2009.
The Companies, with the exception of TE and JCP&L, each have a wholly owned subsidiary whose borrowings are secured by customer accounts receivable purchased from its respective parent company. The CEI subsidiary's borrowings are also secured by customer accounts receivable purchased from TE. Each subsidiary company has its own receivables financing arrangement and, as a separate legal entity with separate creditors, would have to satisfy its obligations to creditors before any of its borrowingsremaining assets could be available to its subsidiaries. These revolving credit facilities, combined with an aggregate $550 million of accounts receivableparent company. The receivables financing facilities for OE, CEI, TE, Met-Ed, Penelec and Penn,borrowing capacity by company are intended to provide liquidity to meet FirstEnergy's short-term working capital requirements and those of its subsidiaries. Total unused borrowing capability under existing facilities and accounts receivable financing facilities totaled $1.8 billionshown in the following table. There were no outstanding borrowings as of December 31, 2006. An additional source of ongoing cash for FirstEnergy, as a holding company, is cash dividends from its subsidiaries. In 2006, the holding company received $560 million of cash dividends on common stock from its subsidiaries.2007.
Based | | | | | | | |
| | | | (In millions) | | | |
OE's Capital, Incorporated | | OE | | $ | 170 | | | 0.15 | % |
Centerior Funding Corp. | | CEI | | | 200 | | | 0.15 | |
Penn Power Funding LLC | | Penn | | | 25 | | | 0.13 | |
Met-Ed Funding LLC | | Met-Ed | | | 80 | | | 0.13 | |
Penelec Funding LLC | | Penelec | | | 75 | | | 0.13 | |
| | | | $ | 550 | | | | |
The weighted average interest rates on their present plans, the Companies could provide for their cash requirements in 2007 from the following sources: funds to be received from operations; available cash and temporary cash investmentsshort-term borrowings outstanding as of December 31, 2007 and 2006 (FirstEnergy's non-utility subsidiaries - $90 million and OE - $1 million); the issuance of long-term debt (for refunding purposes); funds from capital markets and funds available under revolving credit arrangements.were as follows:
| | | | | |
| | | 5.23 | % | | 5.62 | % |
| | | 4.80 | % | | 4.04 | % |
| | | 5.10 | % | | 5.66 | % |
| | | 5.04 | % | | 5.41 | % |
| | | 5.04 | % | | 5.62 | % |
| | | 5.17 | % | | 5.62 | % |
| | | 5.04 | % | | 5.62 | % |
13. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(A) NUCLEAR INSURANCE
The extent and type of future financings will depend on the need for external funds as well as market conditions, the maintenance of an appropriate capital structure and the ability of the Companies to comply with coverage requirements in order to issue FMB and preferred stock. The Companies will continue to monitor financial market conditions and, where appropriate, may take advantage of economic opportunities to refund debt to the extent that their financial resources permit.
The coverage requirements contained in the first mortgage indentures under which the Companies issue FMB provide that, except for certain refunding purposes, the Companies may not issue FMB unless applicable net earnings (before income taxes), calculated as provided in the indentures, for any period of twelve consecutive months within the fifteen calendar months preceding the month in which such additional bonds are issued, are at least twice annual interest requirements on outstanding FMB, including those being issued. As of December 31, 2006, the Ohio Companies and Penn had the aggregate capability to issue approximately $2.8 billion of additional FMB on the basis of property additions and retired bonds under the terms of their respective mortgage indentures. The issuance of FMB by OE, CEI and TE are 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 FMB) (i) supporting pollution control notes or similar obligations, or (ii) as an extension, renewal or replacement of previously outstanding secured debt. In addition, these provisions would permit OE, CEI and TE to incur additional secured debt not otherwise permitted by a specified exception of up to $543 million, $491 million and $126 million, respectively, as of December 31, 2006. Under the provisions of its senior note indenture, JCP&L may issue additional FMB only as collateral for senior notes. As of December 31, 2006, JCP&L had the capability to issue $678 million of additional senior notes upon the basis of FMB collateral.
As of December 31, 2006, each of OE, TE, Penn and JCP&L have redeemed all of their outstanding preferred stock. As a result of these redemptions, the applicable earnings coverage tests in each of their respective charters are inoperative. In the event that any of OE, TE, Penn and JCP&L issues preferred stock in the future, the applicable earnings coverage test will govern the amount of preferred stock that may be issued. CEI, Met-Ed and Penelec do not have similar restrictions and could issue up to the number of preferred shares authorized under their respective charters.
To the extent that coverage requirements or market conditions restrict the Companies' abilities to issue desired amounts of FMB or preferred stock, the Companies 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.
As of December 31, 2006, approximately $1.0 billion of capacity remained unused under an existing shelf registration statement, filed by FirstEnergy with the SEC in 2003, to support future securities issuances. The shelf registration provides the flexibility to issue and sell various types of securities, including common stock, debt securities, and share purchase contracts and related share purchase units. As of December 31, 2006, OE and CEI had approximately $400 million and $250 million, respectively, of capacity remaining unused under their existing shelf registrations for unsecured debt securities.
Nuclear Regulation
On January 20, 2006, FENOC announced that it had entered into a deferred prosecution agreement with the U.S. Attorney's Office for the Northern District of Ohio and the Environmental Crimes Section of the Environment and Natural Resources Division of the DOJ related to FENOC's communications with the NRC during the fall of 2001 in connection with the reactor head issue at the Davis-Besse Nuclear Power Station. Under the agreement, the United States acknowledged FENOC's extensive corrective actions at Davis-Besse, FENOC's cooperation during investigations by the DOJ and the NRC, FENOC's pledge of continued cooperation in any related criminal and administrative investigations and proceedings, FENOC's acknowledgement of responsibility for the behavior of its employees, and its agreement to pay a monetary penalty. The DOJ agreed to refrain from seeking an indictment or otherwise initiating criminal prosecution of FENOC for all conduct related to the statement of facts attached to the deferred prosecution agreement, as long as FENOC remained in compliance with the agreement, which FENOC has done. FENOC paid a monetary penalty of $28 million (not deductible for income tax purposes) which reduced FirstEnergy's earnings by $0.09 per common share in the fourth quarter of 2005. The deferred prosecution agreement expired on December 31, 2006.
On April 21, 2005, the NRC issued a NOV and proposed a $5.45 million civil penalty related to the degradation of the Davis-Besse reactor vessel head issue described above. FirstEnergy accrued $2 million for a potential fine prior to 2005 and accrued the remaining liability for the proposed fine during the first quarter of 2005. On September 14, 2005, FENOC filed its response to the NOV with the NRC. FENOC accepted full responsibility for the past failure to properly implement its boric acid corrosion control and corrective action programs. The NRC NOV indicated that the violations do not represent current licensee performance FirstEnergy paid the penalty in the third quarter of 2005. On January 23, 2006, FENOC supplemented its response to the NRC's NOV on the Davis-Besse head degradation to reflect the deferred prosecution agreement that FENOC had reached with the DOJ.
On August 12, 2004, the NRC notified FENOC that it would increase its regulatory oversight of the Perry Nuclear Power Plant as a result of problems with safety system equipment over the preceding two years and the licensee's failure to take prompt and corrective action. FENOC operates the Perry Nuclear Power Plant.
On April 4, 2005, the NRC held a public meeting to discuss FENOC's performance at the Perry Nuclear Power Plant as identified in the NRC's annual assessment letter to FENOC. Similar public meetings are held with all nuclear power plant licensees following issuance by the NRC of their annual assessments. According to the NRC, overall the Perry Plant operated "in a manner that preserved public health and safety" even though it remained under heightened NRC oversight. During the public meeting and in the annual assessment, the NRC indicated that additional inspections will continue and that the plant must improve performance to be removed from the Multiple/Repetitive Degraded Cornerstone Column of the Action Matrix.
On September 28, 2005, the NRC sent a CAL to FENOC describing commitments that FENOC had made to improve the performance at the Perry Nuclear Power Plant and stated that the CAL would remain open until substantial improvement was demonstrated. The CAL was anticipated as part of the NRC's Reactor Oversight Process. In the NRC's 2005 annual assessment letter dated March 2, 2006 and associated meetings to discuss the performance of the Perry Nuclear Power Plant on March 14, 2006, the NRC again stated that the Perry Nuclear Power Plant continued to operate in a manner that "preserved public health and safety." However, the NRC also stated that increased levels of regulatory oversight would continue until sustained improvement in the performance of the facility was realized. If performance does not improve, the NRC has a range of options under the Reactor Oversight Process, from increased oversight to possible impact to the plant's operating authority.
Nuclear Insurance
The Price-Anderson Act limits the public liability which can be assessed with respectrelative to a single incident at a nuclear power plant to $10.8 billion (assuming 104 units licensed to operate) for a single nuclear incident, whichbillion. The amount is covered by: (i)by a combination of private insurance amounting to $300 million; and (ii) $10.5 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 $100.6 million (but not more than $15 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 its present nuclear ownership and leasehold interests, FirstEnergy'splan. The maximum potential assessment under these provisionsthe industry retrospective rating plan would be $402.4$402 million (OE - $34.4 million, NGC - $349.6 million, and TE - $18.4 million) per incident but not more than $60 million (OE - $5.1 million, NGC - $52.1 million, and TE - $2.8 million) in any one year for each incident.
In additionFES and the Companies are also insured under policies for each nuclear plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination costs. FES and the public liability insurance provided pursuant to the Price-Anderson Act, FirstEnergy hasCompanies have also obtained approximately $2.0 billion of insurance coverage in limited amounts for economic loss and property damage arising out of nuclear incidents. FirstEnergy is a member of Nuclear Electric Insurance Limited (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 has policies, renewable yearly, corresponding to its nuclear interests, which provide an aggregate indemnity of up to approximately $1.96 billion (OE - $168 million, NGC - $1.703 billion, TE - $89 million) for replacement power costs incurred during an outage after an initial 20-week waiting period. Memberscosts. Under these policies, FES and the Companies can be assessed a maximum 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 assessmentapproximately $80.9 million for incidents at any covered nuclear facility occurring during a policy year would be approximately $15.1 million (OE - $1.3 million, NGC - $13.2 million, and TE - $0.6 million).
FirstEnergy is insured under property damage insurance provided by NEILwhich are in excess of accumulated funds available to the operating companyinsurer for each plant. Under these arrangements, up to $2.75 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 $56.8 million (OE - $5.3 million, NGC - $48.5 million, TE - $2.2 million, Met-Ed - $0.4 million, Penelec - $0.2 million and JCP&L - $0.2 million) during a policy year. On September 30, 2003, FirstEnergy tendered a Proof of Loss under the NEIL policies for property damage and accidental outage losses associated with the extended outage at the Davis-Besse Nuclear Power Station, which began in February 2002. In December 2004, NEIL denied FirstEnergy's claim. FirstEnergy requested binding arbitration under the policies and has submitted expert testimony to support its claim. Under NEIL's policies, the arbitrators shall award reasonable attorney's fees and costs to the prevailing party.paying losses.
FirstEnergy intendsFES and the Companies intend 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'stheir 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'stheir insurance policies, or to the extent such insurance becomes unavailable in the future, FirstEnergyFES and the Companies would remain at risk for such costs.
(B) GUARANTEES AND OTHER ASSURANCES
On July 13, 2007, FGCO completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1 (see Note 6). FES has unconditionally and irrevocably guaranteed all of FGCOs obligations under each of the leases. The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of $1.06 billionrelated lessor notes and pass through certificates are not guaranteed by FES or FGCO, but the amount generally available from private sources, whichever is less. The proceeds of this insurancenotes are required to be used first to ensure thatsecured by, among other things, each lessor trusts undivided interest in Unit 1, rights and interests under the licensed reactor is in a safeapplicable lease and stable conditionrights and can be maintained in that condition so as 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.interests under other related agreements, including FES lease guaranty.
(C) ENVIRONMENTAL MATTERS
Environmental Matters
Various federal, state and local authorities regulate FirstEnergyFES with regard to air and water quality and other environmental matters. The effects of compliance on FirstEnergyFES with regard to environmental matters could have a material adverse effect on FirstEnergy'sits earnings and competitive position to the extent that it 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. Overall, FirstEnergy believes it is in compliance with existing regulations but is unable to predict future changes in regulatory policies and what, if any, the effects of such changes would be. FirstEnergyFES estimates additional capital expenditures for environmental compliance of approximately $1.8$1.4 billion for 2007 through 2011.the period 2008-2012.
FirstEnergyFES accrues environmental 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. Unasserted claims are reflected in FirstEnergy'sFES determination of environmental liabilities and are accrued in the period that they become both probable and reasonably estimable.
Clean Air Act Compliance
FirstEnergyFES is required to meet federally-approved SO22 emissions regulations. Violations of such regulations can result in the shutdown of the generating unit involved and/or civil or criminal penalties of up to $32,500 for each day the unit is in violation. The EPA has an interim enforcement policy for SO22 regulations in Ohio that allows for compliance based on a 30-day averaging period. FirstEnergyFES believes it is currently in compliance with this policy, but cannot predict what action the EPA may take in the future with respect to the interim enforcement policy.
The EPA Region 5 issued a Finding of Violation and NOV to the Bay Shore Power Plant dated June 15, 2006, alleging violations to various sections of the Clean Air Act. FirstEnergyFES has disputed those alleged violations based on its Clean Air Act permit, the Ohio SIP and other information provided to the EPA at an August 2006 meeting with the EPA. The EPA has several enforcement options (administrative compliance order, administrative penalty order, and/or judicial, civil or criminal action) and has indicated that such option may depend on the time needed to achieve and demonstrate compliance with the rules alleged to have been violated. On June 5, 2007, the EPA requested another meeting to discuss an appropriate compliance program and a disagreement regarding the opacity limit applicable to the common stack for Bay Shore Units 2, 3 and 4.
FirstEnergyFES complies with SO22 reduction requirements under the Clean Air Act Amendments of 1990 by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOXX reductions required by the 1990 Amendments are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOXX reductions at FirstEnergy'sFES facilities. The EPA's NOXX Transport Rule imposes uniform reductions of NOXX emissions (an approximate 85% reduction in utility plant NOXX emissions from projected 2007 emissions) across a region of nineteen states (including Michigan, New Jersey, Ohio and Pennsylvania) and the District of Columbia based on a conclusion that such NOXX emissions are contributing significantly to ozone levels in the eastern United States. FirstEnergyFES believes its facilities are also complying with the NOXX budgets established under SIPs through combustion controls and post-combustion controls, including Selective Catalytic Reduction and Selective Non-Catalytic ReductionSNCR systems, and/or using emission allowances.
On May 22, 2007, FirstEnergy and FGCO received a notice letter, required 60 days prior to the filing of a citizen suit under the federal Clean Air Act, alleging violations of air pollution laws at the Bruce Mansfield Plant, including opacity limitations. Prior to the receipt of this notice, the Plant was subject to a Consent Order and Agreement with the Pennsylvania Department of Environmental Protection concerning opacity emissions under which efforts to achieve compliance with the applicable laws will continue. On October 16, 2007, PennFuture filed a complaint, joined by three of its members, in the United States District Court for the Western District of Pennsylvania. On January 11, 2008, FirstEnergy filed a motion to dismiss claims alleging a public nuisance. FGCO is not required to respond to other claims until the Court rules on this motion to dismiss.
On December 18, 2007, the state of New Jersey filed a Clean Air Act citizen suit alleging new source review violations at the Portland Generation Station against Reliant (the current owner and operator), Sithe Energy (the purchaser of the Portland Station from Met-Ed in 1999), GPU, Inc. and Met-Ed. Specifically, New Jersey alleges that "modifications" at Portland Units 1 and 2 occurred between 1980 and 1995 without preconstruction new source review or permitting required by the Clean Air Act's prevention of significant deterioration program, and seeks injunctive relief, penalties, attorney fees and mitigation of the harm caused by excess emissions. Although it remains liable for civil or criminal penalties and fines that may be assessed relating to events prior to the sale of the Portland Station in 1999, Met-Ed is indemnified by Sithe Energy against any other liability arising under the CAA whether it arises out of pre-1999 or post-1999 events.
National Ambient Air Quality Standards
In July 1997, the EPA promulgated changes in the NAAQS for ozone and fine particulate matter. In March 2005, the EPA finalized the CAIR covering a total of 28 states (including Michigan, New Jersey, Ohio and Pennsylvania) and the District of Columbia based on proposed findings that air emissions from 28 eastern states and the District of Columbia significantly contribute to non-attainment of the NAAQS for fine particles and/or the "8-hour" ozone NAAQS in other states. CAIR provided each affected state until 2006 to develop implementing regulations to achieve additionalrequires reductions of NOXNOX and SO22 emissions in two phases (Phase I in 2009 for NOXX, 2010 for SO22 and Phase II in 2015 for both NOXX and SO22). FirstEnergy'sFES' Michigan, Ohio and Pennsylvania fossil-firedfossil generation facilities will be subject to caps on SO22 and NOXX emissions, whereas its New Jersey fossil-fired generation facility will be subject to only a cap on NOX emissions. According to the EPA, SO22 emissions will be reduced by 45% (from 2003 levels) by 2010 across the states covered by the rule, with reductions reaching 73% (from 2003 levels) by 2015, capping SO22 emissions in affected states to just 2.5 million tons annually. NOXX emissions will be reduced by 53% (from 2003 levels) by 2009 across the states covered by the rule, with reductions reaching 61% (from 2003 levels) by 2015, achieving a regional NOXX cap of 1.3 million tons annually. CAIR has been challenged in the United States Court of Appeals for the District of Columbia. The future cost of compliance with these regulations may be substantial and willmay depend on the outcome of this litigation and how they areCAIR is ultimately implemented by the states in which FirstEnergy operates affected facilities.implemented.
Mercury Emissions
In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants, identifying mercury as the hazardous air pollutant of greatest concern. In March 2005, the EPA finalized the CAMR, which provides a cap-and-trade program to reduce mercury emissions from coal-fired power plants in two phases. Initially,phases; initially, capping national mercury emissions will be capped nationally at 38 tons by 2010 (as a "co-benefit" from implementation of SO22 and NOXX emission caps under the EPA's CAIR program). Phase II of the mercury cap-and-trade program will cap nationwide mercury emissions from coal-fired power plants at and 15 tons per year by 2018. However, the final rules giveSeveral states substantial discretion in developing rulesand environmental groups appealed CAMR to implement these programs. In addition, both the CAIR and the CAMR have been challenged in the United States Court of Appeals for the District of Columbia. FirstEnergy'sColumbia, which on February 8, 2008, vacated 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. The EPA must now seek judicial review of that ruling or take regulatory action to promulgate new mercury emission standards for coal-fired power plants. FGCO’s future cost of compliance with thesemercury regulations may be substantial and will depend on the action taken by the EPA and on how they are ultimately implemented by the states in which FirstEnergy operates affected facilities.implemented.
The model rules for both CAIR and CAMR contemplate an input-based methodology to allocate allowances to affected facilities. Under this approach, allowances would be allocated based on the amount of fuel consumed by the affected sources. FirstEnergy would prefer an output-based generation-neutral methodology in which allowances are allocated based on megawatts of power produced, allowing new and non-emitting generating facilities (including renewables and nuclear) to be entitled to their proportionate share of the allowances. Consequently, FirstEnergy will be disadvantaged if these model rules were implemented as proposed because FirstEnergy's substantial reliance on non-emitting (largely nuclear) generation is not recognized under the input-based allocation.
Pennsylvania has submitted a new mercury rule for EPA approval that does not provide a cap and tradecap-and-trade approach as in the CAMR, but rather follows a command and controlcommand-and-control approach imposing emission limits on individual sources. Pennsylvania's mercury regulation would deprive FES of mercury emission allowancesIt is anticipated that were to be allocated to the Mansfield Plant under the CAMR and that would otherwise be available for achieving FirstEnergy system-wide compliance. The future cost of compliance with these regulations, if approved by the EPA and implemented, may be substantial.
would not require the addition of mercury controls at the Bruce Mansfield Plant, FES only Pennsylvania coal-fired power plant, until 2015, if at all.
W. H. Sammis PlanPlant
In 1999 and 2000, the EPA issued an NOV or compliance orders to nine utilities alleging violations ofand the Clean Air ActDOJ filed a civil complaint against OE and Penn based on operation and maintenance of 44 power plants, including the W. H.W.H. Sammis Plant which was owned at that time by OE(Sammis NSR Litigation) and Penn. In addition, the DOJ filed eight civilsimilar complaints against various investor-owned utilities, including a complaint against OE and Penn in theinvolving 44 other U.S. District Court for the Southern District of Ohio. Thesepower plants. This case, along with seven other similar cases, are referred to as the New Source Review (NSR) cases.
On March 18, 2005, OE and Penn announced that they had reached a settlement with the EPA, the DOJ and three states (Connecticut, New Jersey and New York) that resolved all issues related to the New Source ReviewSammis NSR litigation. This settlement agreement, which is in the form of a consent decree, was approved by the Courtcourt on July 11, 2005, and requires reductions of NOXX and SO22 emissions at the W. H. Sammis, PlantBurger, Eastlake and otherMansfield coal-fired plants through the installation of pollution control devices and provides for stipulated penalties for failure to install and operate such pollution controls in accordance with that agreement. Consequently, if we failFirstEnergy fails to install such pollution control devices, for any reason, including, but not limited to, the failure of any third-party contractor to timely meet its delivery obligations for such devices, weFGCO, OE and Penn could be exposed to penalties under the Sammis NSR Litigation consent decree. Capital expenditures necessary to complete requirements of the Sammis NSR Litigation consent decree are currently estimated to be $1.5$1.3 billion for 2008-2012 ($400650 million of which is expected to be spent in 2007,during 2008, with the largest portion of the remaining $1.1 billion$650 million expected to be spent in 2008 and 2009). This amount is included in the estimated capital expenditures for environmental compliance referenced above.
The Sammis NSR Litigation consent decree also requires usFirstEnergy to spend up to $25 million toward environmentally beneficial projects, $14 million of which is satisfied by entering into 93 MW (or 23 MW if federal tax credits are not applicable) of wind energy purchased power agreements with a 20-year term. An initial 16 MW of the 93 MW consent decree obligation was satisfied during 2006.
On August 26, 2005, FGCO entered into an agreement with Bechtel Power Corporation, or Bechtel, under which Bechtel will engineer, procure and construct air quality controlAQC systems for the reduction of SO22 emissions. FGCO also entered into an agreement with Babcock & Wilcox Company, or B&W, on August 25, 2006 to supply flue gas desulfurization systems for the reduction of SO22 emissions. Selective Catalytic Reduction (SCR)SCR systems for the reduction of NOxNOX emissions are also are being installed at the W.H. Sammis Plant under a 1999 agreementAgreement with B&W.
OE and Penn agreedOn April 2, 2007, the United States Supreme Court ruled that changes in annual emissions (in tons/year) rather than changes in hourly emissions rate (in kilograms/hour) must be used to pay a civil penalty of $8.5 million. Results fordetermine whether an emissions increase triggers NSR. Subsequently, on May 8, 2007, the first quarter of 2005 includedEPA proposed to change the penalties paid by OE and Penn of $7.8 million and $0.7 million, respectively. OE and Penn also recognized liabilitiesNSR regulations to utilize changes in the first quarterhourly emission rate (in kilograms/hour) to determine whether an emissions increase triggers NSR. The EPA has not yet issued a final regulation. FGCO’s future cost of 2005 of $9.2 millioncompliance with those regulations may be substantial and $0.8 million, respectively, for probable future cash contributions toward environmentally beneficial projects.will depend on how they are ultimately implemented.
Climate Change
Climate Change
In December 1997, delegates to the United Nations' climate summit in Japan adopted an agreement, the Kyoto Protocol, to address global warming by reducing the amount of man-made GHG emitted by developed countries by 5.2% from 1990 levels between 2008 and 2012. The United States signed the Kyoto Protocol in 1998 but it failed to receive the two-thirds vote required for ratification by the United States Senate. However, the Bush administration has committed the United States to a voluntary climate change strategy to reduce domestic GHG intensity - the ratio of emissions to economic output - by 18% through 2012. TheIn addition, the EPACT established a Committee on Climate Change Technology to coordinate federal climate change activities and promote the development and deployment of GHG reducing technologies.
There are a number of initiatives to reduce GHG emissions under consideration at the federal, state and international level. At the international level, efforts to reach a new global agreement to reduce GHG emissions post-2012 have begun with the Bali Roadmap, which outlines a two-year process designed to lead to an agreement in 2009. At the federal level, members of Congress have introduced several bills seeking to reduce emissions of GHG in the United States, and the Senate Environmental and Public Works Committees passed one such bill. 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.
FirstEnergyOn April 2, 2007, the United States Supreme Court found that the EPA has the authority to regulate CO2 emissions from automobiles as air pollutants under the Clean Air Act. Although this decision did not address CO2 emissions from electric generating plants, the EPA has similar authority under the Clean Air Act to regulate air pollutants from those and other facilities.
FES cannot currently estimate the financial impact of climate change policies, although the potential restrictions onlegislative or regulatory programs restricting CO22 emissions could require significant capital and other expenditures. The CO22 emissions per KWH of electricity generated by FirstEnergyFES is lower than many regional competitors due to its diversified generation sources, which include low or non-CO22 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'sFES plants. In addition, Ohio, New Jersey and Pennsylvania have water quality standards applicable to FirstEnergy'sFES operations. As provided in the Clean Water Act, authority to grant federal National Pollutant Discharge Elimination System water discharge permits can be assumed by a state. Ohio, New Jersey and Pennsylvania have assumed such authority.
On September 7, 2004, 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 large electric generating plants. The regulations call for reductions in impingement mortality when(when aquatic organisms are pinned against screens or other parts of a cooling water intake system,system) and entrainment which(which occurs when aquatic life is drawn into a facility's cooling water system.system). On January 26, 2007, the federalUnited States Court of Appeals for the Second Circuit remanded portions of the rulemaking dealing with impingement mortality and entrainment back to the EPA for further rulemaking and eliminated the restoration option from EPA'sthe EPAs regulations. FirstEnergyOn July 9, 2007, the EPA suspended this rule, noting that until further rulemaking occurs, permitting authorities should continue the existing practice of applying their best professional judgment (BPJ) to minimize impacts on fish and shellfish from cooling water intake structures. FES is conducting comprehensive demonstration studies, due in 2008, to determine the operational measures or equipment, if any, necessary for compliance by its facilities with the performance standards. FirstEnergy is unable to predict the outcome of such studies or changes in these requirements from the remand to EPA.evaluating various control options and their costs and effectiveness. Depending on the outcome of such studies, and EPA'sthe EPAs further rulemaking and any action taken by the states exercising BPJ, the future cost of compliance with these standards may require material capital expenditures.
Regulation of Hazardous Waste
As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA subsequently determined that regulation of coal ash as a hazardous waste is unnecessary. In April 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardousnon-hazardous waste.
Under NRC regulations, FirstEnergy must ensure that adequate funds will be available to decommission its nuclear facilities. As of December 31, 2006, FirstEnergy2007, FES and the Companies had approximately $1.4$1.5 billion invested in external trusts to be used for the decommissioning and environmental remediation of Davis-Besse, Beaver Valley and Perry. As part of the application to the NRC to transfer the ownership of these nuclear facilities to NGC in 2005, FirstEnergy agreed to contribute another $80 million to these trusts by 2010. Consistent with NRC guidance, utilizing a "real"real rate of return on these funds of approximately 2% over inflation, these trusts are expected to exceed the minimum decommissioning funding requirements set by the NRC. Conservatively, these estimates do not include any rate of return that the trusts may earn over the 20-year plant useful life extensions that FirstEnergy plans(and Exelon for TMI-1 as it relates to seekthe timing of the decommissioning of TMI-2) seeks for these facilities.
The Companies have been named as PRPs 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 PRPs for a particular site aremay be liable on a joint and several basis. Therefore, environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheet as of December 31, 2006,2007, based on estimates of the total costs of cleanup, the Companies' proportionate responsibility for such costs and the financial ability of other unaffiliated entities to pay. In addition, JCP&L has accrued liabilities of approximately $56 million for environmental remediation of former manufactured gas plants in New Jersey; those costs are being recovered by JCP&L through a non-bypassable SBC. TotalCEI, TE and JCP&L have recognized liabilities of approximately $88$1.3 million, (JCP&L - $59 million, CEI - $2 million, TE - $3$2.5 million and other subsidiaries- $24 million) have been accrued through$64.9 million, respectively, as of December 31, 2006.2007.
(D) OTHER LEGAL PROCEEDINGS
Power Outages and Related Litigation
Fuel Supply
FirstEnergy currently has long-term coal contractsIn 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. In an investigation into the causes of the outages and the reliability of the transmission and distribution systems of all four of New Jerseys electric utilities, the NJBPU concluded that there was not a prima facie case demonstrating that, overall, JCP&L provided unsafe, inadequate or improper service to provide approximately 21.3 million tons of coal for the year 2007. This contract coal is produced primarily from mines locatedits customers. Two class action lawsuits (subsequently consolidated into a single proceeding) were filed in Pennsylvania, Kentucky, Wyoming, West VirginiaNew Jersey Superior Court in July 1999 against JCP&L, GPU and Ohio. The contracts expire at various times through December 31, 2028. FirstEnergy estimates its 2007 coal requirements to be approximately 23.2 million tons to be metother GPU companies, seeking compensatory and punitive damages arising from the long-term contracts as well as from spot market purchases. See "Environmental Matters" for factors pertaining to meeting environmental regulations affecting coal-fired generating units.
FirstEnergy is contracted for all uranium requirements through 2009 and a portion of uranium material requirements through 2014. Conversion services contracts fully cover requirements through 2010 and partially fill requirements through 2015. Enrichment services are contracted for all ofJuly 1999 service interruptions in the enrichment requirements for nuclear fuel through 2011. A portion of enrichment requirements is also contracted for through 2020. Fabrication services for fuel assemblies are contracted for both Beaver Valley units and Davis Besse through 2013 and through the operating license period for Perry (through approximately 2026). The Davis-Besse fabrication contract also has an extension provision for services for three additional consecutive reload batches through the current operating license period (approximately 2017). 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.JCP&L territory.
On-site spent fuel storage facilities are expectedIn August 2002, the trial court granted partial summary judgment to be adequateJCP&L and dismissed the plaintiffs' claims for Perry through 2011; facilities at Beaver Valley Units 1consumer fraud, common law fraud, negligent misrepresentation, and 2 are expectedstrict product liability. In November 2003, the trial court granted JCP&L's motion to be adequate through 2015decertify the class and 2008, respectively. With the plant modifications completeddenied plaintiffs' motion to permit into evidence their class-wide damage model indicating damages in 2002, Davis-Besse has adequate storage through the remainderexcess of its current operating license period. After current on-site storage capacity is exhausted, additional storage capacity will have to be obtained either through plant modifications, interim off-site disposal, or permanent waste disposal facilities. FENOC is currently taking actions to extend the storage capacity at both Perry$50 million. These class decertification and Beaver Valley Unit 2. The Federal Nuclear Waste Policy Act of 1982 provides 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. CEI, TE, OE and Penn have contracts with the U.S. Department of Energy (DOE) for the disposal of spent fuel for Beaver Valley, Davis-Besse and Perry. On February 15, 2002, President Bush approved the DOE's recommendation of Yucca Mountain for underground disposal of spent nuclear fuel from nuclear power plants and high level waste from U.S. defense programs. The approval by President Bush enables the process to proceeddamage rulings were appealed to the licensing phase. BasedAppellate Division. The Appellate Division issued a decision in July 2004, affirming the decertification of the originally certified class, but remanding for certification of a class limited to those customers directly impacted by the outages of JCP&L transformers in Red Bank, NJ, based on a common incident involving the failure of the bushings of two large transformers in the Red Bank substation resulting in planned and unplanned outages in the area during a 2-3 day period. In 2005, JCP&L renewed its motion to decertify the class based on a very limited number of class members who incurred damages and also filed a motion for summary judgment on the DOE schedule published onremaining plaintiffs claims for negligence, breach of contract and punitive damages. In July 19, 2006, the Yucca Mountain Repository is currently projected to start receiving spent fuel in 2017. The Companies intend to make additional arrangements for storage capacity as a contingency for further delays with the DOE acceptance of spent fuel for disposal past 2017.
System Capacity and Reserves
The 2006 net maximum hourly demand for each of the Companies was: OE-6,024 MW on August 1, 2006; Penn-1,024 MW on August 1, 2006; CEI-4,674 MW on August 1, 2006; TE-2,276 MW on July 31, 2006; JCP&L-6,702 MW on August 2, 2006; Met-Ed-2,996 MW on August 2, 2006; and Penelec-3,069 MW on August 2, 2006. JCP&L's load is supplied through the New Jersey BGS Auction process, transferring substantially allSuperior Court dismissed the punitive damage claim and again decertified the class based on the fact that a vast majority of its load obligationthe class members did not suffer damages and those that did would be more appropriately addressed in individual actions. Plaintiffs appealed this ruling to other parties.the New Jersey Appellate Division which, in March 2007, reversed the decertification of the Red Bank class and remanded this matter back to the Trial Court to allow plaintiffs sufficient time to establish a damage model or individual proof of damages. JCP&L filed a petition for allowance of an appeal of the Appellate Division ruling to the New Jersey Supreme Court which was denied in May 2007. Proceedings are continuing in the Superior Court. JCP&L is defending this class action but is unable to predict the outcome of this matter. No liability has been accrued as of December 31, 2007.
BasedOn August 14, 2003, various states and parts of southern Canada experienced widespread power outages. The outages affected approximately 1.4 million customers in FirstEnergy's service area. The U.S. Canada Power System Outage Task Forces final report in April 2004 on existing capacity plans, ongoing arrangements for firm purchase contracts,the outages concluded, among other things, that the problems leading to the outages began in FirstEnergy's Ohio service area. Specifically, the final report concluded, among other things, that the initiation of the August 14, 2003 power outages resulted from an alleged failure of both FirstEnergy and anticipated termECAR to assess and understand perceived inadequacies within the FirstEnergy system; inadequate situational awareness of the developing conditions; and a perceived failure to adequately manage tree growth in certain transmission rights of way. The Task Force also concluded that there was a failure of the interconnected grid's reliability organizations (MISO and PJM) to provide effective real-time diagnostic support. The final report is publicly available through the Department of Energys Web site (www.doe.gov). FirstEnergy believes that the final report does not provide a complete and comprehensive picture of the conditions that contributed to the August 14, 2003 power salesoutages and purchases,that it does not adequately address the underlying causes of the outages. FirstEnergy has sufficient supply resourcesremains convinced that the outages cannot be explained by events on any one utility's system. The final report contained 46 recommendations to meet load obligations. The currentprevent or minimize the scope of future blackouts. Forty-five of those recommendations related to broad industry or policy matters while one, including subparts, related to activities the Task Force recommended be undertaken by FirstEnergy, capacity portfolio contains 13,578 MWMISO, PJM, ECAR, and other parties to correct the causes of owned or leased generation, 463 MW of generation from our 20.5% ownership of OVEC,the August 14, 2003 power outages. FirstEnergy implemented several initiatives, both prior to and approximately 1,360 MW of long-term purchases from Pennsylvaniasince the August 14, 2003 power outages, which were independently verified by NERC as complete in 2004 and New Jersey NUGs. FirstEnergy has also entered into approximately 314 MW of long-term purchase contracts for renewable energy from wind resources. Any remaining load obligations will be met through a mix of multi-year forward purchases, short-term forward purchases (less than one year)were consistent with these and spot market purchases. FirstEnergy's sources of generation during 2006 were 64%other recommendations and 36% from non-nuclear and nuclear, respectively.
Regional Reliability
The Ohio Companies and Penn participate with 24 other electric companies operating in nine states in ECAR, which was organized for the purpose of furtheringcollectively enhance the reliability of bulk power supplyits electric system. FirstEnergy's implementation of these recommendations in 2004 included completion of the Task Force recommendations that were directed toward FirstEnergy. FirstEnergy is also proceeding with the implementation of the recommendations that were to be completed subsequent to 2004 and will continue to periodically assess the FERC-ordered Reliability Study recommendations for forecasted 2009 system conditions, recognizing revised load forecasts and other changing system conditions which may impact the recommendations. Thus far, implementation of the recommendations has not required, nor is expected to require, substantial investment in new or material upgrades to existing equipment. The FERC or other applicable government agencies and reliability coordinators may, however, take a different view as to recommended enhancements or may recommend additional enhancements in the area through coordinationfuture that could require additional material expenditures.
On February 5, 2008, the PUCO entered an order dismissing four separate complaint cases before it relating to the August 14, 2003 power outages. The dismissal was filed by the complainants in accordance with a resolution reached between the FirstEnergy companies and the complainants in those four cases. Two of those cases which were originally filed in Ohio State courts involved individual complainants and were subsequently dismissed for lack of subject matter jurisdiction. Further appeals were unsuccessful. The other two complaint cases were filed by various insurance carriers either in their own name as subrogees or in the name of their insured, seeking reimbursement from various FirstEnergy companies (and, in one case, from PJM, MISO and AEP, as well) for claims paid to insureds for damages allegedly arising as a result of the planning and operationloss of power on August 14, 2003. (Also relating to the August 14, 2003 power outages, a fifth case, involving another insurance company was voluntarily dismissed by the ECAR members of their bulk power supply facilities. The ECAR members have established principlesclaimant in April 2007; and procedures regarding matters affectinga sixth case, involving the reliability of the bulk power supply within the ECAR region. Procedures have been adopted regarding: i) the evaluation and simulated testing of systems' performance; ii) the establishment of minimum levels of daily operating reserves; iii) the developmentclaim of a program regarding emergency procedures during conditions of declining system frequency; and iv)non-customer seeking reimbursement for losses incurred when its store was burglarized on August 14, 2003 was dismissed by the basis for uniform rating of generating equipment.
court.) The ECAR, Mid-Atlantic Area Council, and Mid-American Interconnected Network reliability councils completedorder dismissing the consolidation of these regions into a single new regional reliability organization known as ReliabilityFirst Corporation. ReliabilityFirst began operations as a regional reliability council under NERC on January 1, 2006 and on November 29, 2006 filed a proposed Delegation Agreement with NERCPUCO cases, noted above, concludes all pending litigation related to obtain certification consistent with the final rule as a "regional entity" under the ERO. All of FirstEnergy's facilities are located within the ReliabilityFirst region.
The transmission facilities of JCP&L, Met-Ed, and Penelec are controlled by PJM. PJM is the organization responsible for the control of the bulk electric power system throughout major portions of thirteen Mid-Atlantic statesAugust 14, 2003 outages and the Districtresolution will not have a material adverse effect on the financial condition, results of Columbia. PJM is dedicated to meeting the reliability criteria and standardsoperations or cash flows of NERC and the ReliabilityFirst Regional Reliability Organization.
Competition
The Companies compete with other utilities for intersystem bulk power sales and for sales to municipalities and cooperatives. The Companies also compete with supplierseither FirstEnergy or any of natural gas and other forms of energy in connection with their industrial and commercial sales and in the home climate control market, both with respect to new customers and conversions, and with all other suppliers of electricity. To date, there has been no substantial cogeneration by the Companies' customers.its subsidiaries.
Nuclear Plant Matters
On May 14, 2007, the Office of Enforcement of the NRC issued a Demand for Information (DFI) to FENOC, following FENOCs reply to an April 2, 2007 NRC request for information, about two reports prepared by expert witnesses for an insurance arbitration (the insurance claim was subsequently withdrawn by FirstEnergy in December 2007) related to Davis-Besse. The NRC indicated that this information was needed for the NRC to determine whether an Order or other action should be taken pursuant to 10 CFR 2.202, to provide reasonable assurance that FENOC will continue to operate its licensed facilities in accordance with the terms of its licenses and the Commissions regulations. FENOC was directed to submit the information to the NRC within 30 days. On June 13, 2007, FENOC filed a response to the NRCs Demand for Information reaffirming that it accepts full responsibility for the mistakes and omissions leading up to the damage to the reactor vessel head and that it remains committed to operating Davis-Besse and FirstEnergy's other nuclear plants safely and responsibly. FENOC submitted a supplemental response clarifying certain aspects of the DFI response to the NRC on July 16, 2007. On August 15, 2007, the NRC issued a confirmatory order imposing these commitments. FENOC must inform the NRCs Office of Enforcement after it completes the key commitments embodied in the NRCs order. FENOCs compliance with these commitments is subject to future NRC review.
As a result of actions taken by state legislative bodies over the last few years, major changes in the electric utility business have occurred in parts of the United States, including Ohio, New Jersey and Pennsylvania where FirstEnergy's utility subsidiaries operate. These changes have resulted in fundamental alterations in the way traditional integrated utilities and holding company systems, like FirstEnergy, conduct their business. In accordance with the Ohio electric utility restructuring law under which Ohio electric customers could begin choosing their electric generation suppliers starting in January 2001, FirstEnergy has further aligned its business units to accommodate its retail strategy and participate in the competitive electricity marketplace in Ohio. The organizational changes deal with the unbundling of electric utility services and new ways of conducting business. FirstEnergy's Power Supply Management Services segment participates in deregulated energy markets in Ohio, Pennsylvania, Michigan, Maryland and New Jersey.Other Legal Matters
CompetitionThere are various lawsuits, claims (including claims for asbestos exposure) and proceedings related to normal business operations pending against FES and the Companies. The other potentially material items not otherwise discussed above are described below.
On August 22, 2005, a class action complaint was filed against OE in Ohio's electric generation market beganJefferson County, Ohio Common Pleas Court, seeking compensatory and punitive damages to be determined at trial based on January 1, 2001. Pursuantclaims of negligence and eight other tort counts alleging damages from W.H. Sammis Plant air emissions. The two named plaintiffs are also seeking injunctive relief to eliminate harmful emissions and repair property damage and the generation asset transfers on October 24, 2005institution of a medical monitoring program for class members. On April 5, 2007, the Court rejected the plaintiffs request to certify this case as a class action and, December 16, 2005, FGCO and NGC own allaccordingly, did not appoint the plaintiffs as class representatives or their counsel as class counsel. On July 30, 2007, plaintiffs counsel voluntarily withdrew their request for reconsideration of the fossil and nuclear generation assets, respectively, previously owned by the Ohio Companies and Penn, and continue to operate those companies' respective leasehold interests. The Ohio Companies continue to obtain their PLR requirements through power supply agreements with FES. JCP&L's obligation to provide BGS has been removed through a transitional mechanism of auctioning the obligation (see "NJBPU Rate Matters"). Met-Ed and Penelec have been purchasing a portion of their PLR requirements from FES through a partial requirements wholesale power sales agreement and various amendments. Under these agreements, FES retained the supply obligationApril 5, 2007 Court order denying class certification and the supply profit and loss risk forCourt heard oral argument on the portion of power supply requirements not self-supplied by Met-Ed and Penelec.plaintiffs motion to amend their complaint which OE has opposed. On January 17,August 2, 2007, Met-Ed, Penelec and FES agreedthe Court denied the plaintiffs motion to restate, effective January 1, 2007,amend their partial requirements wholesale power sales agreement.complaint. The restated agreement incorporatesplaintiffs have appealed the same fixed price for residual capacity and energy supplied by FES as in prior arrangements and allows Met-Ed and Penelec to sell the output of non-utility generation to the market (see "PPUC Rate Matters" for further discussion). As a result of Penn's PLR competitive solicitation process approved by the PPUC for the period January 1, 2007 through May 31, 2008, FES was selected as the winning bidder for a numberCourts denial of the tranchesmotion for individual customer classes. The balance of the tranches will be supplied by unaffiliated power suppliers.
Researchcertification as a class action and Developmentmotion to amend their complaint.
The Companies participate in funding EPRI, which was formed for the purpose of expanding electric research and development 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 major portion of EPRI research and development projects is directed toward practical solutions and their applications to problems currently facing the electric utility industry.
Executive Officers
Name
| Age
| Position Held During Past Five Years
| Dates
|
| | | |
A. J. Alexander (A)(B) | 55 | President and Chief Executive Officer | 2004-present |
| | President and Chief Operating Officer | *-2004 |
| | | |
L. M. Cavalier | 55 | Senior Vice President - Human Resources | 2005-present |
| | Vice President - Human Resources | *-2005 |
| | | |
M. T. Clark | 56 | Senior Vice President - Strategic Planning & Operations | 2004-present |
| | Vice President - Business Development | *-2004 |
| | | |
K. W. Dindo | 57 | Vice President and Chief Risk Officer | *-present |
| | | |
D. S. Elliott (B) | 52 | President - Pennsylvania Operations | 2005-present |
| | Senior Vice President | *-2005 |
| | | |
R. R. Grigg (A)(B) | 58 | Executive Vice President and Chief Operating Officer | 2004-present |
| | President and Chief Executive Officer - WE Generation
Executive Vice President - WEC
| 2003-2004
*-2003
|
| | | |
A. Jamshidi
C. E. Jones (A)(B)
| 52
51
| Vice President - Commodity Operations (FES)
Vice President - Energy Delivery
Vice President & Chief Information Officer
Senior Vice President - Energy Delivery & Customer Service
Regional Vice President - Operations
| 2006-present
2004-2006
*-2004
2003-present
*-2003
|
| | | |
C. D. Lasky | 44 | Vice President - Fossil Operations (FES) | 2004-present |
| | Plant Director | 2003-2004 |
| | Assistant Plant Director | *-2003 |
| | | |
G. R. Leidich | 56 | President and Chief Nuclear Officer - FENOC | 2003-present |
| | Executive Vice President - FENOC | 2002-2003 |
| | Executive Vice President - Institute of Nuclear Power Ops | *-2002 |
| | | |
D. C. Luff | 59 | Senior Vice President - Governmental Affairs | 2005-present |
| | Vice President | *-2005 |
| | | |
R. H. Marsh (A)(B)(C) | 56 | Senior Vice President and Chief Financial Officer | *-present |
| | | |
S. E. Morgan (C) | 56 | President - JCP&L | 2004-present |
| | Vice President - Energy Delivery | 2002-2004 |
| | Regional President - Central | *-2002 |
| | | |
J. M. Murray (A) | 60 | President - Ohio Operations
Regional President - West
| 2005-present
*-2005
|
| | | |
J. F. Pearson (A)(B)(C) | 52 | Vice President and Treasurer | 2006-present |
| | Treasurer
Group Controller - Strategic Planning and Operations
| 2005-2006
2004-2005
|
| | Group Controller - FES | 2003-2004 |
| | Director - FES | *-2003 |
| | | |
G. L. Pipitone | 56 | President - FES | 2004-present |
| | Senior Vice President | *-2004 |
| | | |
D. R. Schneider | 45 | Vice President - Energy Delivery
Vice President - Commodity Operations (FES)
| 2006-present
2004-2006
|
| | Vice President - Fossil Operations (FES) | *-2004 |
| | | |
C. B. Snyder | 61 | Senior Vice President | *-present |
| | | |
L.L. Vespoli (A)(B)(C) | 47 | Senior Vice President and General Counsel | *-present |
| | | |
H. L. Wagner (A)(B)(C) | 54 | Vice President, Controller and Chief Accounting Officer | *-present |
| | | |
T. M. Welsh | 57 | Senior Vice President - External Affairs | 2004-present |
| | Vice President - Communications | *-2004 |
(A) Denotes executive officers of OE, CEI and TE.
(B) Denotes executive officers of Met-Ed and Penelec
(C) Denotes executive officers of JCP&L.
*Indicates position held at least since January 1, 2002
Employees
As of January 1, 2007, FirstEnergy's nonutility subsidiaries and the Companies had a total of 13,739 employees located in the United States as follows:
FESC | 2,991 |
OE | 1,234 |
CEI | 943 |
TE | 420 |
Penn | 198 |
JCP&L | 1,448 |
Met-Ed | 701 |
Penelec | 888 |
ATSI | 36 |
FES | 2,082 |
FENOC | 2,798 |
Total | 13,739 |
Of the above employees 6,599 (including 253 for FESC; 739 for OE; 645 for CEI; 316 for TE; 149 for Penn; 1,137 for JCP&L; 520 for Met-Ed; 619 for Penelec; 1,252 for FES; and 969 for FENOC) are covered by collective bargaining agreements.
JCP&L's bargaining unit employees filed a grievance challenging JCP&L's 2002 call-out procedure that required bargaining unit employees to respond to emergency power outages. On May 20, 2004, an arbitration panel concluded that the call-out procedure violated the parties' collective bargaining agreement. At the conclusion of the June 1, 2005 hearing, the arbitration panel decided not to hear testimony on damages and closed the proceedings. On September 9, 2005, the arbitration panel issued an opinion to award approximately $16 million to the bargaining unit employees. On February 6, 2006, a federal district court granted a union motion to dismiss, as premature, a JCP&L appeal of the award filed on October 18, 2005. A final order identifying the individual damage amounts was issued on October 31, 2007. The award appeal process was initiated. The union filed a motion with the federal court to confirm the award and JCP&L intendsfiled its answer and counterclaim to re-file an appeal again in federal districtvacate the award on December 31, 2007. The court once the damages associated with this case are identifiedis expected to issue a briefing schedule at an individual employee level.its April 2008 scheduling conference. JCP&L recognized a liability for the potential $16 million award in 2005.
If it were ultimately determined that 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 amendmentsor its subsidiaries have legal liability or are otherwise made subject 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.
ITEM 1A. RISK FACTORS
We operate in a business environment that involves significant risks, many of which are beyond our control. Below, we have identified risks we currently consider material. However, our business, financial condition, cash flows or results of operations could be affected materially and adversely by additional risks not currently known to us or that we deem immaterial at this time. 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 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 potential breakdown or failure of equipment or processes, accidents, labor disputes 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 those facilities could be adversely affected by unexpected or uncontrollable events occurring on the systems of such third parties.
Operation of our power plants below expected capacity levels could result in lost revenues or increased expenses, including higher maintenance costs. Unplanned outages may require us to incur significant replacement power costs. Moreover, if we were unable to perform under contractual obligations, penalties or liability for damages could result. OE, CEI, and TE 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, OE, CEI and TE each have a maximum exposure to loss under those provisions of approximately $1 billion.
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 equipment failure and weather, could adversely affect our operating results through reduced revenues and increased capital and maintenance costs and the imposition of penalties/fines or other adverse regulatory outcomes.
Changes in Commodity Prices Could Adversely Affect Our Profit Margins
While much of our generation currently serves customers under retail rates set by regulatory bodies, we also purchase and sell electricity in the competitive wholesale and retail markets. Increases in the costs of fuel for our generation facilities (particularly coal and natural gas) can affect our profit margins in both competitive and non-competitive markets. Changes in the market prices 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 PLR obligations in Ohio and Pennsylvania.
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; |
| |
| liquidity 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; |
| and |
| |
· | natural disasters, wars, acts of sabatage, terrorist acts, embargeos 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 short-term 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.
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.
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 manage the market risk inherent in our energy and 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 against all of our exposures in these areas and our risk management program may not operate as planned. For instance, actual electricity and fuel prices may be significantly different or more volatile than the historical trends and assumptions upon which we based our risk management positions. 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.
We also face credit risks that parties with whom we contract 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 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 would likely be adversely affected.
Nuclear Generation Involves Risks that Include Uncertainties Relating to Health and Safety, Additional Capital Costs, the Adequacy of Insurance Coverage and Nuclear Plant Decommissioning
FirstEnergy is 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 certain 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. |
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.
FirstEnergy's nuclear facilities are insured under NEIL policies issued for each plant. Under these policies, up to $2.75 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 $72 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 which can be assessed with respect to a nuclear power plant to $10.8 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 $300.0 million; and (ii) $10.5 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 $100.6 million (but not more than $15.0 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. Based on our present nuclear ownership, the maximum potential assessment under these provisions would be $402.4 million per incident but not more than $60.0 million in any one year.
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 ISOs, 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.
Demand for electricity within our service areas could stress available transmission capacity requiring alternative routing or curtailing of electricity usage with consequent effects on operating costs, revenues and 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 through additional capital expenditures.
The FERC has issued regulations that require 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, there is the potential 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 ISOs 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
We purchase fuel from a number of suppliers. The lack of availability of fuel, or a disruption in the delivery of fuel, 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 adversely affect our ability to operate our facilities, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations.
Seasonal Temperature Variations, as well as Weather Conditions or other Natural Disasters Could Have a Negative Impact on Our Results of Operations Specifically with Respect to Our PLR Contracts that do not Provide for a Specific Level of Supply, and Demand Significantly Below or Above our Forecasts Could Adversely Affect our Energy Margins
Weather conditions directly influence the demand for electric power. In our service areas, demand for power peaks during the summer months, with market prices also typically peaking at that time. As a result, overall operating results may fluctuate on a seasonal and quarterly basis. 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.
Demand that we satisfy pursuant to our PLR contracts could increase as a result of severe weather conditions, economic development or other reasons 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 would adversely affect our energy margins because we are required under the terms of the PLR contracts to provide the energy supply to fulfill this increased demand at capped rates, which we expect to remain significantly 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 demandabove matters, it could have a material adverse effect on our results of operations or financial position.
We Are Subject to Financial Performance Risks Related to the Economic Cycles of the Electric Utility Industry
Our business follows the economic cycles of our customers. Sustained downturns or sluggishness in the economy generally affects the markets in which we operate and negatively influences our energy operations. Declines in demand for electricity as a result of economic downturns will reduce overall electricity sales and lessen our cash flows, especially as industrial customers reduce production, resulting in less consumption of electricity. Economic conditions also impact the rate of delinquent customer accounts receivable.
The Goodwill of One or More of Our Operating Subsidiaries May Become Impaired, Which Would Result in Write-Offs of the Impaired Amounts
There is a possibility that additional goodwill may be 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 uncertain variables, 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 and other factors.
We Face Certain Human Resource Risks Associated with the Availability of Trained and Qualified Labor to Meet Our Future Staffing Requirements
Workforce demographic issues challenge employers nationwide and are of particular concern to the electric utility industry. The median age of utility workers is significantly higher than the national average. Today, nearly one-half of the industry's workforce is age 45 or older. Consequently, we face the difficult challenge of finding 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.
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 to continue to face increased cost pressures, including health care and pension costs. We have experienced significant health care cost inflation in the last few years, and we expect our health care costs, including prescription drug coverage, to continue to increase despite measures that we have taken and expect to continue to take to require 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, costs and liabilities 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 improvements, salary increasesFES and the demographics of plan participants. If our assumptions prove to be inaccurate, our costs could be significantly increased.
Acts of War or Terrorism Could Negatively Impact Our Business
The possibility that our infrastructure, or that of an interconnected company, such as electric generation, transmission and distribution facilities could be direct targets of, or indirect casualties of, an act of war or terrorism could affect our operations. Our generation plants, transmission and distribution facilities, or those of interconnected companies, may be targets of terrorist activities that 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 ourCompanies financial condition, results of operations and financial condition.cash flows.
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.
Regulatory Changes in the Electric Industry Including a Reversal, Discontinuance or Delay of the Present Trend Towards Competitive Markets Could Affect Our Competitive Position and Result in Unrecoverable Costs Adversely Affecting Our Business and Results of Operations
As a result of the actions taken by state legislative bodies over the last few years, changes in the electric utility business have occurred and are continuing to take place throughout the United States, including Ohio, Pennsylvania and New Jersey. These changes have resulted, and are expected to continue to result, in fundamental alterations in the way integrated utilities conduct their business.
Some deregulated electricity markets have experienced difficulty in transition to market. In some of these markets, both state and federal government agencies and other interested parties have made proposals to delay market restructuring or even re-regulate areas of these markets that have previously been deregulated. For example, in 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. to address the extreme volatility in the California electricity markets. These price controls have had the effect of significantly reducing spot and forward electricity prices in the western market. In addition, the ISOs that oversee the transmission systems in certain wholesale electricity markets have from time to time been authorized to impose price limitations and other mechanisms to address volatility in the power markets. Similar types of price limitations and other mechanisms could reduce the profits that our wholesale power marketing business would have realized based on competitive market conditions absent such limitations and mechanisms. Although we expect the deregulated electricity markets to continue to be competitive, other 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 restructurings in the markets in which we operate could have an impact on our results of operations and financial condition. At a minimum, these types of actions raise uncertainty concerning the continued development of competitive power markets.
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 and deregulation efforts result in increased competition or unrecoverable costs, our business and results of operations may be adversely affected. We cannot predict the extent or timing of further efforts to restructure, deregulate or re-regulate our business or the industry.
Our Profitability is Impacted by Our Affiliated Companies' Continued Authorization to Sell Power at Market-Based Rates14. FIRSTENERGY INTRA-SYSTEM GENERATION ASSET TRANSFERS
In 2005, the FERC granted FES,Ohio Companies and Penn transferred their respective undivided ownership interests in FirstEnergy's nuclear and non-nuclear generation assets to NGC and FGCO, and NGC authority to sell electricity at market-based rates. 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 these 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. They will be required to renew this authority in 2008. If any of these companies were to lose its market-based rate authority or fail to have such authority renewed, it would be required to obtain the FERC's acceptance to sell power at cost-based rates. That company then would become subject to the accounting, record-keeping and reporting requirements that are imposed on utilities with cost-based rate schedules.
The FERC has issued a proposed rulemaking to revise the standards used to determine whether an applicant qualifies for market-based authority. In addition, the FERC is considering modifications to other aspects of its market-based rate authorizations, including whether to continue granting waivers of FERC's accounting, record-keeping and reporting requirements that are imposed on utilities with cost-based rates, whether to continue granting blanket approval for future securities issuances or assumptions of liabilities to entities with market-based rate authority, whether to adopt a uniform tariff that applies to all market-based rate sellers, and whether to modify the approach to the three-year market power update filing. The FERC has solicited comments from interested parties on these and other issues. The outcome of this proposed rulemaking proceeding could affect the regulatory requirements applicable to FES, FGCO, and NGC as market-based rate sellers.
The Amount We Charge Third Parties for Using Our Transmission Facilities May be Reduced and not Recovered.
In July 2003, the FERC issued an order directing PJM and the MISO to make compliance filings to eliminate the transaction-based charges for RTOR transmission service on transactions where the energy is delivered within the proposed MISO and PJM expanded regions (Combined Footprint). The eliminationrespectively. All of the T&O rates reduces the transmission service revenues collected by the RTOs and thereby reduces the revenues received by transmission ownersnon-nuclear assets were transferred to FGCO under the RTOs' revenue distribution protocols. To mitigate the impactpurchase option terms of lost RTOR revenues, the FERC approved SECA transition rates beginning in December 2004 and extending through March 2006.
A hearing in the SECA case was held in May 2006 to determine whether any of the SECA revenues should be refunded. In August 2006, the ALJ issued an initial decision, finding that the rate design for the recovery of SECA charges was flawed and that a large portion of the "lost revenues" reflected in the SECA rates were not recoverable. The ALJ found that the SECA rates charged were unfair, unjust and discriminatory, and that new compliance filings and refunds should be made. The ALJ also found that unpaid SECA rates must be paid in the recommended reduced amount.
Although we believe we have meritorious arguments, management cannot predict the ultimate outcome of any future FERC proceedings or court appeals. If the FERC adopts the ALJ's decision, it could have an impact on our future results of operations and cash flows. Also, management is unable to predict whether the FERC will approve either the ALJ's decision or when, or if, the effect of the loss of RTOR/SECA transmission revenues will be recoverable in the state retail jurisdictions and/or from transmission users within the PJM region. Therefore, the final amount of our SECA obligations, if any, remains uncertain.
There Are Uncertainties Relating to Our Participation in the PJM and MISO Regional Transmission Organizations
Market rules that govern the operation of RTOs 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 RTO 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. We are incurring significant additional fees and increased costs to participate in an RTO, and may be limited by state retail rate caps with respect to the price at which power can be sold to retail customers. While RTO rates for transmission service are designed to be revenue neutral, 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 due to state retail rate caps. In addition, we may be required to expand our transmission system according to decisions made by an RTO rather than our internal planning process. 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.
Costs of Compliance with Environmental Laws are Significant, and the Cost of Compliance with Future Environmental Laws Could Adversely Affect Cash Flow and Profitability
Certain of our subsidiaries' operations are subject to extensive federal, state and local environmental statutes, rules and regulations. Compliance with these legal requirements requires us to incur costs toward environmental monitoring, installation of pollution control equipment, emission fees, maintenance, upgrading, remediation and permitting at all of 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 FirstEnergy or its subsidiaries 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.
Also, we are generally responsible for on-site liabilities, and in some cases off-site liabilities, associated with the environmental condition of our facilities which we have acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with some acquisitions and sales of assets, we may obtain, or be required to provide, indemnification against some environmental liabilities. If we incur a material liability, or the other party to a transaction fails to meet its indemnification obligations to us, we could suffer material losses.
The EPA's final CAIR, CAMR and CAVR require significant reductions beginning in 2009 in air emissions from coal-fired power plants and the states have been given substantial discretion in developing their own rules to implement these programs. In addition, both the CAIR and the CAMR have been challenged in the United States Court of Appeals for the District of Columbia. As a result, the ultimate requirements under these air emission reduction programs may not be known for several years and may differ significantly from the current rules. If the final rules are remanded by the Court of Appeals, if states elect not to participate in the various federal programs under the rules, or if the states elect to impose additional requirements on individual units that are already subject to the CAIR, the CAMR and/or the CAVR, costs of compliance could increase significantly and could have an adverse effect on future results of operations, cash flows and financial condition. Alternatively, if the final rules are remanded by the Court and their implementation is postponed, we could be competitively disadvantaged because we are currently obligated to comply with essentially this same level of emission controls as a result of our settlement of the New Source Review Litigation related to our W. H. Sammis Plant.
There also is growing concern nationally and internationally about global warming. Further, many states and environmental groups have also challenged certain of the federal laws and regulations relating to air emissions as not being sufficiently strict. 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. Any such additional limitations on emissions may require us to make increased expenditures for pollution control devices which could have an adverse impact on our results of operations, cash flows and financial condition.
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. As provided in the Clean Water Act, authority to grant federal National Pollutant Discharge Elimination System water discharge permits can be assumed by a state. Ohio, New Jersey and Pennsylvania have assumed such authority.
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 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.
We May Ultimately Incur Liability in Connection with Federal Proceedings
On October 20, 2004, FirstEnergy was notified by the SEC that the previously disclosed informal inquiry initiated by the SEC's Division of Enforcement in September 2003 relating to the restatements in August 2003 of previously reported results by FirstEnergyMaster Facility Lease between FGCO and the Ohio Companies and Penn, under which FGCO leased, operated and maintained the Davis-Besse extended outage, have become the subject of a formal order of investigation. The SEC's formal order of investigation also encompasses issues raised during the SEC's examination of FirstEnergy and the Companies under the PUHCA. Concurrent with this notification, FirstEnergy received a subpoena asking for background documents and documents related to the restatements and Davis-Besse issues. On December 30, 2004, FirstEnergy received a subpoena asking for documents relating to issues raised during the SEC's PUHCA examination. On August 24, 2005, additional information was requested regarding Davis-Besse. FirstEnergy has cooperated fully with the informal inquiry and will continue to do so with the formal investigation.
Risks Associated With Financing and Capital Structure
Interest Rates and/or a Credit Ratings Downgrade Could Negatively Affect Our Financing Costs and Our Ability to Access Capital
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. Interest rates could change in significant ways as a result of economic or other eventsassets 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.
We rely on access to bank and capital markets as sources of liquidity for cash requirements not satisfied by cash flows 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 in place of letters of credit and other guarantees. A ratings downgrade would also increase the fees we pay on our various credit facilities, thus increasing the cost of our working capital. A ratings downgrade could also impact our ability to grow our businesses by substantially increasing the cost of, or limiting access to, capital. Our senior unsecured debt ratings from S&P, Moody's, and Fitch are investment grade. The current ratings outlook from S&P is stable and the ratings outlook from Moody's is positive. Fitch's ratings outlook is positive forit now owns. CEI and TE sold their interests in nuclear generation assets at net book value to NGC, while OE and stable for all other subsidiaries and FirstEnergy.
A rating is not a recommendationPenn transferred their interests 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.
We Must Rely on Cash from Our Subsidiaries
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 paidNGC through an asset spin-off in the future, or that, if paid, dividends will be atform of a dividend. On December 28, 2006, the same amount or withNRC approved the same frequency astransfer of ownership in NGC from FirstEnergy to FES. Effective December 31, 2006, NGC is a wholly owned subsidiary of FES and second tier subsidiary of FirstEnergy. FENOC continues to operate and maintain the past.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Companies' respective first mortgage indentures constitute, in the opinion of the Companies' counsel, direct first liens on substantially all of the respective Companies' 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 Companies' properties.
FirstEnergy has access, either through ownership or lease, to the followingnuclear generation sources as of February 27, 2007, shown in the table below. Except for the leasehold interests referenced in the footnotes to the table, substantially all of the generating units are owned by NGC (nuclear) and FGCO (non-nuclear). See "Generation Asset Transfers" under Item 1 above.assets.
| | | Net |
| | | Demonstrated |
| | | Capacity |
| Unit | | (MW) |
Plant-Location | | | |
Coal-Fired Units | | | |
Ashtabula- | | | |
Ashtabula, OH | 5 | | 244 |
Bay Shore- | | | |
Toledo, OH | 1-4 | | 631 |
R. E. Burger- | | | |
Shadyside, OH | 3-5 | | 406 |
Eastlake-Eastlake, OH | 1-5 | | 1,233 |
Lakeshore- | | | |
Cleveland, OH | 18 | | 245 |
Bruce Mansfield- | 1 | | 830(a) |
Shippingport, PA | 2 | | 830(b) |
| 3 | | 800(c) |
| | | |
W. H. Sammis- | 1-6 | | 1,620 |
Stratton, OH | 7 | | 600 |
Kyger Creek - Chesire, OH | 1-5 | | 210(d) |
Clifty Creek - Madison, IN | 1-6 | | 253(d) |
Total | | | 7,902 |
| | | |
Nuclear Units | | | |
Beaver Valley- | 1 | | 868 |
Shippingport, PA | 2 | | 854(e) |
Davis-Besse- | | | |
Oak Harbor, OH | 1 | | 898 |
Perry- | | | |
N. Perry Village, OH | 1 | | 1,258(f) |
Total | | | 3,878 |
| | | |
Oil/Gas-Fired/ | | | |
Pumped Storage Units | | | |
Richland-Defiance, OH | 1-3 | | 42 |
| 4-6 | | 390 |
Seneca-Warren, PA | 1-3 | | 443 |
Sumpter-Sumpter Twp, MI | 1-4 | | 340 |
West Lorain | 1-1 | | 120 |
Lorain, OH | 2-6 | | 425 |
Yard's Creek-Blairstown | | | |
Twp., NJ | 1-3 | | 200(g) |
Other | | | 301 |
Total | | | 2,261 |
Total | | | 14,041 |
Although the generating plant interests transferred in 2005 did not include leasehold interests of CEI, OE and TE in certain of the plants that are subject to sale and leaseback arrangements entered into in 1987 with non-affiliates, effective October 16, 2007, CEI and TE assigned their leasehold interests in the Bruce Mansfield Plant to FGCO. 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 transactions above were undertaken pursuant to the Ohio Companies and Penns restructuring plans that were approved by the PUCO and the PPUC, respectively, under applicable Ohio and Pennsylvania electric utility restructuring legislation. Consistent with the restructuring plans, generation assets that had been owned by the Ohio Companies and Penn were required to be separated from the regulated delivery business of those companies through transfer or sale to a separate corporate entity. The transactions essentially completed the divestitures of owned assets contemplated by the restructuring plans by transferring the ownership interests to NGC and FGCO without impacting the operation of the plants. The transfers were intracompany transactions and, therefore, had no impact on the Company's consolidated results.
15. SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in Note 6, on July 13, 2007, FGCO completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably guaranteed all of FGCO's obligations under each of the leases. The related lessor notes and pass through certificates are not guaranteed by FES or FGCO, but the notes are secured by, among other things, each lessor trusts undivided interest in Unit 1, rights and interests under the applicable lease and rights and interests under other related agreements, including FES lease guaranty.
The consolidating statements of income for the three years ended December 31 2007, consolidating balance sheets as of December 31, 2007 and December 31, 2006 and condensed consolidating statements of cash flows for the three years ended December 31, 2007 for FES (parent), 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 the parent’s investment accounts and earnings as if operating lease treatment was achieved (see Note 6). 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.
FIRSTENERGY SOLUTIONS CORP. | |
| | | | | | | | | | | |
CONSOLIDATING CONDENSED STATEMENTS OF INCOME | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
For the Year Ended December 31, 2007 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | |
| | (In thousands) | |
| | | | | | | | | | | |
REVENUES | | $ | 4,345,790 | | $ | 1,982,166 | | $ | 1,062,026 | | $ | (3,064,955 | ) | $ | 4,325,027 | |
| | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | |
Fuel | | | 26,169 | | | 942,946 | | | 117,895 | | | - | | | 1,087,010 | |
Purchased power from non-affiliates | | | 764,090 | | | - | | | - | | | - | | | 764,090 | |
Purchased power from affiliates | | | 3,038,786 | | | 186,415 | | | 73,844 | | | (3,064,955 | ) | | 234,090 | |
Other operating expenses | | | 161,797 | | | 352,856 | | | 514,389 | | | 11,997 | | | 1,041,039 | |
Provision for depreciation | | | 2,269 | | | 99,741 | | | 92,239 | | | (1,337 | ) | | 192,912 | |
General taxes | | | 20,953 | | | 41,456 | | | 24,689 | | | - | | | 87,098 | |
Total expenses | | | 4,014,064 | | | 1,623,414 | | | 823,056 | | | (3,054,295 | ) | | 3,406,239 | |
| | | | | | | | | | | | | | | | |
OPERATING INCOME | | | 331,726 | | | 358,752 | | | 238,970 | | | (10,660 | ) | | 918,788 | |
| | | | | | | | | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | |
Miscellaneous income (expense), including | | | | | | | |
net income from equity investees | | | 341,978 | | | 4,210 | | | 14,880 | | | (308,192 | ) | | 52,876 | |
Interest expense to affiliates | | | (1,320 | ) | | (48,536 | ) | | (15,645 | ) | | - | | | (65,501 | ) |
Interest expense - other | | | (9,503 | ) | | (59,412 | ) | | (39,458 | ) | | 16,174 | | | (92,199 | ) |
Capitalized interest | | | 35 | | | 14,369 | | | 5,104 | | | - | | | 19,508 | |
Total other income (expense) | | | 331,190 | | | (89,369 | ) | | (35,119 | ) | | (292,018 | ) | | (85,316 | ) |
| | | | | | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 662,916 | | | 269,383 | | | 203,851 | | | (302,678 | ) | | 833,472 | |
| | | | | | | | | | | | | | | | |
INCOME TAXES | | | 134,052 | | | 90,801 | | | 77,467 | | | 2,288 | | | 304,608 | |
| | | | | | | | | | | | | | | | |
NET INCOME | | $ | 528,864 | | $ | 178,582 | | $ | 126,384 | | $ | (304,966 | ) | $ | 528,864 | |
FIRSTENERGY SOLUTIONS CORP. | |
| | | | | | | | | | | |
CONSOLIDATING CONDENSED STATEMENTS OF INCOME | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
For the Year Ended December 31, 2006 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | |
| | (In thousands) | |
| | | | | | | | | | | |
REVENUES | | $ | 4,023,752 | | $ | 1,767,549 | | $ | 1,028,159 | | $ | (2,808,107 | ) | $ | 4,011,353 | |
| | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | |
Fuel | | | 18,265 | | | 983,492 | | | 103,900 | | | - | | | 1,105,657 | |
Purchased power from non-affiliates | | | 590,491 | | | - | | | - | | | - | | | 590,491 | |
Purchased power from affiliates | | | 2,804,110 | | | 180,759 | | | 80,239 | | | (2,808,107 | ) | | 257,001 | |
Other operating expenses | | | 202,369 | | | 271,718 | | | 553,477 | | | - | | | 1,027,564 | |
Provision for depreciation | | | 1,779 | | | 93,728 | | | 83,656 | | | - | | | 179,163 | |
General taxes | | | 12,459 | | | 38,781 | | | 22,092 | | | - | | | 73,332 | |
Total expenses | | | 3,629,473 | | | 1,568,478 | | | 843,364 | | | (2,808,107 | ) | | 3,233,208 | |
| | | | | | | | | | | | | | | | |
OPERATING INCOME | | | 394,279 | | | 199,071 | | | 184,795 | | | - | | | 778,145 | |
| | | | | | | | | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | |
Miscellaneous income (expense), including | | | | | | | |
net income from equity investees | | | 184,267 | | | (596 | ) | | 35,571 | | | (164,740 | ) | | 54,502 | |
Interest expense to affiliates | | | (241 | ) | | (117,639 | ) | | (44,793 | ) | | - | | | (162,673 | ) |
Interest expense - other | | | (720 | ) | | (9,125 | ) | | (16,623 | ) | | - | | | (26,468 | ) |
Capitalized interest | | | 1 | | | 4,941 | | | 6,553 | | | - | | | 11,495 | |
Total other income (expense) | | | 183,307 | | | (122,419 | ) | | (19,292 | ) | | (164,740 | ) | | (123,144 | ) |
| | | | | | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | 577,586 | | | 76,652 | | | 165,503 | | | (164,740 | ) | | 655,001 | |
| | | | | | | | | | | | | | | | |
INCOME TAXES | | | 158,933 | | | 17,605 | | | 59,810 | | | - | | | 236,348 | |
| | | | | | | | | | | | | | | | |
NET INCOME | | $ | 418,653 | | $ | 59,047 | | $ | 105,693 | | $ | (164,740 | ) | $ | 418,653 | |
Notes: | (a) | Includes CEI's leasehold interest in Bruce Mansfield Unit 1 of 6.50% (54 MW). |
| (b) | Includes CEI's and TE's leasehold interests in Bruce Mansfield Unit 2 of 28.6% (237 MW) and
17.30% (144 MW), respectively.FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONSOLIDATING CONDENSED STATEMENTS OF INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2005 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | | | | | | | | | | | | | REVENUES | | $ | 3,998,410 | | $ | 1,567,597 | | $ | 671,729 | | $ | (2,270,497 | ) | $ | 3,967,239 | | | | | | | | | | | | | | | | | | | EXPENSES: | | | | | | | | | | | | | | | | | Fuel | | | 37,955 | | | 866,583 | | | 101,339 | | | - | | | 1,005,877 | | Purchased power from non-affiliates | | | 957,570 | | | - | | | - | | | - | | | 957,570 | | Purchased power from affiliates | | | 2,516,399 | | | 60,207 | | | 2,493 | | | (2,270,497 | ) | | 308,602 | | Other operating expenses | | | 276,896 | | | 261,646 | | | 441,640 | | | - | | | 980,182 | | Provision for depreciation | | | 1,597 | | | 95,237 | | | 80,397 | | | - | | | 177,231 | | General taxes | | | 11,640 | | | 37,594 | | | 18,068 | | | - | | | 67,302 | | Total expenses | | | 3,802,057 | | | 1,321,267 | | | 643,937 | | | (2,270,497 | ) | | 3,496,764 | | | | | | | | | | | | | | | | | | | OPERATING INCOME | | | 196,353 | | | 246,330 | | | 27,792 | | | - | | | 470,475 | | | | | | | | | | | | | | | | | | | OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | Investment income | | | 4,462 | | | 6,964 | | | 67,361 | | | - | | | 78,787 | | Miscellaneous income (expense), including | | | | | | | | | | | net income from equity investees | | | 79,371 | | | (2,658 | ) | | (28,000 | ) | | (82,856 | ) | | (34,143 | ) | Interest expense to affiliates | | | (4,677 | ) | | (102,580 | ) | | (77,060 | ) | | - | | | (184,317 | ) | Interest expense - other | | | (204 | ) | | (2,220 | ) | | (9,614 | ) | | - | | | (12,038 | ) | Capitalized interest | | | 82 | | | 3,180 | | | 11,033 | | | - | | | 14,295 | | Total other income (expense) | | | 79,034 | | | (97,314 | ) | | (36,280 | ) | | (82,856 | ) | | (137,416 | ) | | | | | | | | | | | | | | | | | | INCOME (LOSS) FROM CONTINUING | | | | | | | | | | | | | OPERATIONS BEFORE INCOME TAXES | | | 275,387 | | | 149,016 | | | (8,488 | ) | | (82,856 | ) | | 333,059 | | | | | | | | | | | | | | | | | | | INCOME TAXES (BENEFIT) | | | 75,630 | | | 50,739 | | | (1,870 | ) | | - | | | 124,499 | | | | | | | | | | | | | | | | | | | INCOME (LOSS) FROM CONTINUING OPERATIONS | | | 199,757 | | | 98,277 | | | (6,618 | ) | | (82,856 | ) | | 208,560 | | | | | | | | | | | | | | | | | | | Discontinued operations (net of income taxes of $3,761,000) | | | 5,410 | | | - | | | - | | | - | | | 5,410 | | | | | | | | | | | | | | | | | | | INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF | | | | | | | | A CHANGE IN ACCOUNTING PRINCIPLE | | | 205,167 | | | 98,277 | | | (6,618 | ) | | (82,856 | ) | | 213,970 | | | | | | | | | | | | | | | | | | | Cumulative effect of a change in accounting principle (net | | | | | of income tax benefit of $5,507,000) | | | - | | | (8,803 | ) | | - | | | - | | | (8,803 | ) | | | | | | | | | | | | | | | | | | NET INCOME (LOSS) | | $ | 205,167 | | $ | 89,474 | | $ | (6,618 | ) | $ | (82,856 | ) | $ | 205,167 | |
FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONDENSED CONSOLIDATING BALANCE SHEETS | | | | | | | | | | | | | | As of December 31, 2007 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | CURRENT ASSETS: | | | | | | | | | | | | Cash and cash equivalents | | $ | 2 | | $ | - | | $ | - | | $ | - | | $ | 2 | | Receivables- | | | | | | | | | | | | | | | | | Customers | | | 133,846 | | | - | | | - | | | - | | | 133,846 | | Associated companies | | | 327,715 | | | 237,202 | | | 98,238 | | | (286,656 | ) | | 376,499 | | Other | | | 2,845 | | | 978 | | | - | | | - | | | 3,823 | | Notes receivable from associated companies | | | 23,772 | | | - | | | 69,012 | | | - | | | 92,784 | | Materials and supplies, at average cost | | | 195 | | | 215,986 | | | 210,834 | | | - | | | 427,015 | | Prepayments and other | | | 67,981 | | | 21,605 | | | 2,754 | | | - | | | 92,340 | | | | | 556,356 | | | 475,771 | | | 380,838 | | | (286,656 | ) | | 1,126,309 | | | | | | | | | | | | | | | | | | | PROPERTY, PLANT AND EQUIPMENT: | | | | | | | | | | | | | | In service | | | 25,513 | | | 5,065,373 | | | 3,595,964 | | | (392,082 | ) | | 8,294,768 | | Less - Accumulated provision for depreciation | | | 7,503 | | | 2,553,554 | | | 1,497,712 | | | (166,756 | ) | | 3,892,013 | | | | | 18,010 | | | 2,511,819 | | | 2,098,252 | | | (225,326 | ) | | 4,402,755 | | Construction work in progress | | | 1,176 | | | 571,672 | | | 188,853 | | | - | | | 761,701 | | | | | 19,186 | | | 3,083,491 | | | 2,287,105 | | | (225,326 | ) | | 5,164,456 | | | | | | | | | | | | | | | | | | | INVESTMENTS: | | | | | | | | | | | | | | | | | Nuclear plant decommissioning trusts | | | - | | | - | | | 1,332,913 | | | - | | | 1,332,913 | | Long-term notes receivable from associated companies | | | - | | | - | | | 62,900 | | | - | | | 62,900 | | Investment in associated companies | | | 2,516,838 | | | - | | | - | | | (2,516,838 | ) | | - | | Other | | | 2,732 | | | 37,071 | | | 201 | | | - | | | 40,004 | | | | | 2,519,570 | | | 37,071 | | | 1,396,014 | | | (2,516,838 | ) | | 1,435,817 | | | | | | | | | | | | | | | | | | | DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | | | | | Accumulated deferred income taxes | | | 16,978 | | | 522,216 | | | - | | | (262,271 | ) | | 276,923 | | Lease assignment receivable from associated companies | | | - | | | 215,258 | | | - | | | - | | | 215,258 | | Goodwill | | | 24,248 | | | - | | | - | | | - | | | 24,248 | | Property taxes | | | - | | | 25,007 | | | 22,767 | | | - | | | 47,774 | | Pension asset | | | 3,217 | | | 13,506 | | | - | | | - | | | 16,723 | | Unamortized sale and leaseback costs | | | - | | | 27,597 | | | - | | | 43,206 | | | 70,803 | | Other | | | 22,956 | | | 52,971 | | | 6,159 | | | (38,133 | ) | | 43,953 | | | | | 67,399 | | | 856,555 | | | 28,926 | | | (257,198 | ) | | 695,682 | | TOTAL ASSETS | | $ | 3,162,511 | | $ | 4,452,888 | | $ | 4,092,883 | | $ | (3,286,018 | ) | $ | 8,422,264 | | | | | | | | | | | | | | | | | | | LIABILITIES AND CAPITALIZATION | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | Currently payable long-term debt | | $ | - | | $ | 596,827 | | $ | 861,265 | | $ | (16,896 | ) | $ | 1,441,196 | | Short-term borrowings- | | | | | | | | | | | | | | | | | Associated companies | | | - | | | 238,786 | | | 25,278 | | | | | | 264,064 | | Other | | | 300,000 | | | - | | | - | | | - | | | 300,000 | | Accounts payable- | | | | | | | | | | | | | | | | | Associated companies | | | 287,029 | | | 175,965 | | | 268,926 | | | (286,656 | ) | | 445,264 | | Other | | | 56,194 | | | 120,927 | | | - | | | - | | | 177,121 | | Accrued taxes | | | 18,831 | | | 125,227 | | | 28,229 | | | (836 | ) | | 171,451 | | Other | | | 57,705 | | | 131,404 | | | 11,972 | | | 36,725 | | | 237,806 | | | | | 719,759 | | | 1,389,136 | | | 1,195,670 | | | (267,663 | ) | | 3,036,902 | | | | | | | | | | | | | | | | | | | CAPITALIZATION: | | | | | | | | | | | | | | | | | Common stockholder's equity | | | 2,414,231 | | | 951,542 | | | 1,562,069 | | | (2,513,611 | ) | | 2,414,231 | | Long-term debt | | | - | | | 1,597,028 | | | 242,400 | | | (1,305,716 | ) | | 533,712 | | | | | 2,414,231 | | | 2,548,570 | | | 1,804,469 | | | (3,819,327 | ) | | 2,947,943 | | | | | | | | | | | | | | | | | | | NONCURRENT LIABILITIES: | | | | | | | | | | | | | | | | | Deferred gain on sale and leaseback transaction | | | - | | | - | | | - | | | 1,060,119 | | | 1,060,119 | | Accumulated deferred income taxes | | | - | | | - | | | 259,147 | | | (259,147 | ) | | - | | Accumulated deferred investment tax credits | | | - | | | 36,054 | | | 25,062 | | | - | | | 61,116 | | Asset retirement obligations | | | - | | | 24,346 | | | 785,768 | | | - | | | 810,114 | | Retirement benefits | | | 8,721 | | | 54,415 | | | - | | | - | | | 63,136 | | Property taxes | | | - | | | 25,328 | | | 22,767 | | | - | | | 48,095 | | Lease market valuation liability | | | - | | | 353,210 | | | - | | | - | | | 353,210 | | Other | | | 19,800 | | | 21,829 | | | - | | | - | | | 41,629 | | | | | 28,521 | | | 515,182 | | | 1,092,744 | | | 800,972 | | | 2,437,419 | | TOTAL LIABILITIES AND CAPITALIZATION | | $ | 3,162,511 | | $ | 4,452,888 | | $ | 4,092,883 | | $ | (3,286,018 | ) | $ | 8,422,264 | |
FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONDENSED CONSOLIDATING BALANCE SHEETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2006 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | CURRENT ASSETS: | | | | | | | | | | | | Cash and cash equivalents | | $ | 2 | | $ | - | | $ | - | | $ | - | | $ | 2 | | Receivables- | | | | | | | | | | | | | | | | | Customers | | | 129,843 | | | - | | | - | | | - | | | 129,843 | | Associated companies | | | 201,281 | | | 160,965 | | | 69,751 | | | (196,465 | ) | | 235,532 | | Other | | | 2,383 | | | 1,702 | | | - | | | - | | | 4,085 | | Notes receivable from associated companies | | | 460,023 | | | - | | | 292,896 | | | - | | | 752,919 | | Materials and supplies, at average cost | | | 195 | | | 238,936 | | | 221,108 | | | - | | | 460,239 | | Prepayments and other | | | 45,314 | | | 10,389 | | | 1,843 | | | - | | | 57,546 | | | | | 839,041 | | | 411,992 | | | 585,598 | | | (196,465 | ) | | 1,640,166 | | | | | | | | | | | | | | | | | | | PROPERTY, PLANT AND EQUIPMENT: | | | | | | | | | | | | | | In service | | | 16,261 | | | 4,960,453 | | | 3,378,630 | | | - | | | 8,355,344 | | Less - Accumulated provision for depreciation | | | 5,738 | | | 2,477,004 | | | 1,335,526 | | | - | | | 3,818,268 | | | | | 10,523 | | | 2,483,449 | | | 2,043,104 | | | - | | | 4,537,076 | | Construction work in progress | | | 345 | | | 170,063 | | | 169,478 | | | - | | | 339,886 | | | | | 10,868 | | | 2,653,512 | | | 2,212,582 | | | - | | | 4,876,962 | | | | | | | | | | | | | | | | | | | INVESTMENTS: | | | | | | | | | | | | | | | | | Nuclear plant decommissioning trusts | | | - | | | - | | | 1,238,272 | | | - | | | 1,238,272 | | Long-term notes receivable from associated companies | | | - | | | - | | | 62,900 | | | - | | | 62,900 | | Investment in associated companies | | | 1,471,184 | | | - | | | - | | | (1,471,184 | ) | | - | | Other | | | 6,474 | | | 65,833 | | | 202 | | | - | | | 72,509 | | | | | 1,477,658 | | | 65,833 | | | 1,301,374 | | | (1,471,184 | ) | | 1,373,681 | | | | | | | | | | | | | | | | | | | DEFERRED CHARGES AND OTHER ASSETS: | | | | | | | | | | | Goodwill | | | 24,248 | | | - | | | - | | | - | | | 24,248 | | Property taxes | | | - | | | 20,946 | | | 23,165 | | | - | | | 44,111 | | Accumulated deferred income taxes | | | 32,939 | | | - | | | - | | | (32,939 | ) | | - | | Other | | | 23,544 | | | 11,542 | | | 4,753 | | | - | | | 39,839 | | | | | 80,731 | | | 32,488 | | | 27,918 | | | (32,939 | ) | | 108,198 | | TOTAL ASSETS | | $ | 2,408,298 | | $ | 3,163,825 | | $ | 4,127,472 | | $ | (1,700,588 | ) | $ | 7,999,007 | | | | | | | | | | | | | | | | | | | LIABILITIES AND CAPITALIZATION | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | Currently payable long-term debt | | $ | - | | $ | 608,395 | | $ | 861,265 | | $ | - | | $ | 1,469,660 | | Notes payable to associated companies | | | - | | | 1,022,197 | | | - | | | - | | | 1,022,197 | | Accounts payable- | | | | | | | | | | | | | | | | | Associated companies | | | 375,328 | | | 11,964 | | | 365,222 | | | (196,465 | ) | | 556,049 | | Other | | | 32,864 | | | 103,767 | | | - | | | - | | | 136,631 | | Accrued taxes | | | 54,537 | | | 32,028 | | | 26,666 | | | - | | | 113,231 | | Other | | | 49,906 | | | 41,401 | | | 9,634 | | | - | | | 100,941 | | | | | 512,635 | | | 1,819,752 | | | 1,262,787 | | | (196,465 | ) | | 3,398,709 | | | | | | | | | | | | | | | | | | | CAPITALIZATION: | | | | | | | | | | | | | | | | | Common stockholder's equity | | | 1,859,363 | | | 78,542 | | | 1,392,642 | | | (1,471,184 | ) | | 1,859,363 | | Long-term debt | | | - | | | 1,057,252 | | | 556,970 | | | - | | | 1,614,222 | | | | | 1,859,363 | | | 1,135,794 | | | 1,949,612 | | | (1,471,184 | ) | | 3,473,585 | | | | | | | | | | | | | | | | | | | NONCURRENT LIABILITIES: | | | | | | | | | | | | | | | | | Accumulated deferred income taxes | | | - | | | 25,293 | | | 129,095 | | | (32,939 | ) | | 121,449 | | Accumulated deferred investment tax credits | | | - | | | 38,894 | | | 26,857 | | | - | | | 65,751 | | Asset retirement obligations | | | - | | | 24,272 | | | 735,956 | | | - | | | 760,228 | | Retirement benefits | | | 10,255 | | | 92,772 | | | - | | | - | | | 103,027 | | Property taxes | | | - | | | 21,268 | | | 23,165 | | | - | | | 44,433 | | Other | | | 26,045 | | | 5,780 | | | - | | | - | | | 31,825 | | | | | 36,300 | | | 208,279 | | | 915,073 | | | (32,939 | ) | | 1,126,713 | | TOTAL LIABILITIES AND CAPITALIZATION | | $ | 2,408,298 | | $ | 3,163,825 | | $ | 4,127,472 | | $ | (1,700,588 | ) | $ | 7,999,007 | |
FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2007 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | | | | | | | | | | | | | NET CASH PROVIDED FROM (USED FOR) | | | | | | | | | | | | OPERATING ACTIVITIES | | $ | (18,017 | ) | $ | 55,172 | | $ | 263,468 | | $ | (6,306 | ) | $ | 294,317 | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | New financing- | | | | | | | | | | | | | | | | | Long-term debt | | | - | | | 1,576,629 | | | 179,500 | | | (1,328,919 | ) | | 427,210 | | Equity contribution from parent | | | 700,000 | | | 700,000 | | | - | | | (700,000 | ) | | 700,000 | | Short-term borrowings, net | | | 300,000 | | | - | | | 25,278 | | | (325,278 | ) | | - | | Redemptions and repayments- | | | | | | | | | | | | | | | | | Common stock | | | (600,000 | ) | | - | | | - | | | - | | | (600,000 | ) | Long-term debt | | | - | | | (1,052,121 | ) | | (495,795 | ) | | 6,306 | | | (1,541,610 | ) | Short-term borrowings, net | | | - | | | (783,599 | ) | | - | | | 325,278 | | | (458,321 | ) | Common stock dividend payments | | | (117,000 | ) | | - | | | - | | | - | | | (117,000 | ) | Net cash provided from (used for) financing activities | | | 283,000 | | | 440,909 | | | (291,017 | ) | | (2,022,613 | ) | | (1,589,721 | ) | | | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | Property additions | | | (10,603 | ) | | (502,311 | ) | | (225,795 | ) | | - | | | (738,709 | ) | Proceeds from asset sales | | | - | | | 12,990 | | | - | | | - | | | 12,990 | | Proceeds from sale and leaseback transaction | | | - | | | - | | | - | | | 1,328,919 | | | 1,328,919 | | Sales of investment securities held in trusts | | | - | | | - | | | 655,541 | | | - | | | 655,541 | | Purchases of investment securities held in trusts | | | - | | | - | | | (697,763 | ) | | - | | | (697,763 | ) | Loans to associated companies | | | 441,966 | | | - | | | 292,896 | | | - | | | 734,862 | | Investment in subsidiary | | | (700,000 | ) | | - | | | - | | | 700,000 | | | - | | Other | | | 3,654 | | | (6,760 | ) | | 2,670 | | | - | | | (436 | ) | Net cash provided from (used for) investing activities | | | (264,983 | ) | | (496,081 | ) | | 27,549 | | | 2,028,919 | | | 1,295,404 | | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | - | | | - | | | - | | | - | | | - | | Cash and cash equivalents at beginning of year | | | 2 | | | - | | | - | | | - | | | 2 | | Cash and cash equivalents at end of year | | $ | 2 | | $ | - | | $ | - | | $ | - | | $ | 2 | |
FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2006 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | | | | | | | | | | | | | NET CASH PROVIDED FROM OPERATING ACTIVITIES | | $ | 250,518 | | $ | 150,510 | | $ | 470,578 | | $ | (12,765 | ) | $ | 858,841 | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | New financing- | | | | | | | | | | | | | | | | | Long-term debt | | | - | | | 565,326 | | | 591,515 | | | - | | | 1,156,841 | | Short-term borrowings, net | | | - | | | 46,402 | | | - | | | - | | | 46,402 | | Redemptions and repayments- | | | | | | | | | | | | | | | | | Long-term debt | | | - | | | (543,064 | ) | | (594,676 | ) | | - | | | (1,137,740 | ) | Dividend payments | | | | | | | | | | | | | | | | | Common stock | | | (8,454 | ) | | - | | | (12,765 | ) | | 12,765 | | | (8,454 | ) | Net cash provided from (used for) financing activities | | | (8,454 | ) | | 68,664 | | | (15,926 | ) | | 12,765 | | | 57,049 | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | Property additions | | | (948 | ) | | (212,867 | ) | | (363,472 | ) | | - | | | (577,287 | ) | Proceeds from asset sales | | | - | | | 34,215 | | | - | | | - | | | 34,215 | | Sales of investment securities held in trusts | | | - | | | - | | | 1,066,271 | | | - | | | 1,066,271 | | Purchases of investment securities held in trusts | | | - | | | - | | | (1,066,271 | ) | | - | | | (1,066,271 | ) | Loans to associated companies | | | (242,597 | ) | | - | | | (90,433 | ) | | - | | | (333,030 | ) | Other | | | 1,481 | | | (40,522 | ) | | (747 | ) | | - | | | (39,788 | ) | Net cash used for investing activities | | | (242,064 | ) | | (219,174 | ) | | (454,652 | ) | | - | | | (915,890 | ) | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | - | | | - | | | - | | | - | | | - | | Cash and cash equivalents at beginning of year | | | 2 | | | - | | | - | | | - | | | 2 | | Cash and cash equivalents at end of year | | $ | 2 | | $ | - | | $ | - | | $ | - | | $ | 2 | |
FIRSTENERGY SOLUTIONS CORP. | | | | | | | | | | | | | | CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2005 | | FES | | FGCO | | NGC | | Eliminations | | Consolidated | | | | (In thousands) | | | | | | | | | | | | | | NET CASH PROVIDED FROM (USED FOR) | | | | | | | | OPERATING ACTIVITIES | | $ | 475,191 | | $ | 243,683 | | $ | (71,526 | ) | $ | - | | $ | 647,348 | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | New financing- | | | | | | | | | | | | | | | | | Short-term borrowings, net | | | - | | | 130,876 | | | - | | | (130,876 | ) | | - | | Equity contribution from parent | | | 262,200 | | | - | | | 459,498 | | | (459,498 | ) | | 262,200 | | Redemptions and repayments- | | | | | | | | | | | | | | | | | Short-term borrowings, net | | | (245,215 | ) | | - | | | - | | | 130,876 | | | (114,339 | ) | Return of capital to parent | | | - | | | (197,298 | ) | | | | | 197,298 | | | - | | Net cash provided from (used for) financing activities | | | 16,985 | | | (66,422 | ) | | 459,498 | | | (262,200 | ) | | 147,861 | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | Property additions | | | (1,340 | ) | | (186,176 | ) | | (224,044 | ) | | - | | | (411,560 | ) | Proceeds from asset sales | | | 15,000 | | | 43,087 | | | - | | | - | | | 58,087 | | Sales of investment securities held in trusts | | | - | | | - | | | 1,097,276 | | | - | | | 1,097,276 | | Purchases of investment securities held in trusts | | | - | | | - | | | (1,186,381 | ) | | - | | | (1,186,381 | ) | Loans to associated companies | | | (217,426 | ) | | - | | | (74,200 | ) | | - | | | (291,626 | ) | Return of capital from subsidiary | | | 197,298 | | | - | | | - | | | (197,298 | ) | | - | | Investment in subsidiary | | | (459,498 | ) | | - | | | - | | | 459,498 | | | - | | Other | | | (26,211 | ) | | (34,199 | ) | | (623 | ) | | - | | | (61,033 | ) | Net cash used for investing activities | | | (492,177 | ) | | (177,288 | ) | | (387,972 | ) | | 262,200 | | | (795,237 | ) | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | (1 | ) | | (27 | ) | | - | | | - | | | (28 | ) | Cash and cash equivalents at beginning of year | | | 3 | | | 27 | | | - | | | - | | | 30 | | Cash and cash equivalents at end of year | | $ | 2 | | $ | - | | $ | - | | $ | - | | $ | 2 | |
16. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS |
| (c) | Includes CEI's and TE's leasehold interests in Bruce Mansfield Unit 3 of 24.47% (196 MW) and
19.91% (159 MW), respectively.
|
| (d ) | Represents FGCO's 20.5% entitlement based on FirstEnergy's participation in OVEC. |
| (e) | Includes OE's and TE's leasehold interests in Beaver Valley Unit 2 of 21.66% (185 MW) and
18.26% (156 MW), respectively.
|
| (f) | Includes OE's leasehold interest in Perry of 12.58% (158 MW). |
| (g) | Represents JCP&L's 50% ownership interest. |
FirstEnergy's 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 Companies' overhead and underground transmission lines aggregate 15,009 pole miles.SFAS 157 - "Fair Value Measurements"
In September 2006, the FASB issued SFAS 157 that establishes how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. This Statement addresses the need for increased consistency and comparability in fair value measurements and for expanded disclosures about fair value measurements. The Companies' electric distribution systems include 116,469 mileskey changes to current practice are: (1) the definition of overhead pole linefair value, which focuses on an exit price rather than entry price; (2) the methods used to measure fair value, such as emphasis that fair value is a market-based measurement, not an entity-specific measurement, as well as the inclusion of an adjustment for risk, restrictions and underground conduit carrying primary, secondarycredit standing; and street lighting circuits. They own substations(3) the expanded disclosures about fair value measurements. This Statement and its related FSPs are effective for fiscal years beginning after November 15, 2007, and interim periods within those years. Under FSP FAS 157-2, FES and the Companies have elected to defer the election of SFAS 157 for financial assets and financial liabilities measured at fair value on a non-recurring basis for one year. FES and the Companies have evaluated the impact of this Statement and its FSPs, FAS 157-2 and FSP FAS 157-1, which excludes SFAS 13, Accounting for Leases, and its related pronouncements from the scope of SFAS 157, and are not expecting there to be a material effect on their financial statements. The majority of the FES and the Companies fair value measurements will be disclosed as level 1 or level 2 in the fair value hierarchy.
SFAS 159 - "The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115"
In February 2007, the FASB issued SFAS 159, which provides companies with an option to report selected financial assets and financial liabilities at fair value. This Statement attempts to provide additional information that will help investors and other users of financial statements to more easily understand the effect of a total installed transformer capacitycompany's choice to use fair value on its earnings. The Standard also requires companies to display the fair value of 90,948,000 kilovolt-amperes.those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. This guidance does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS 107. This Statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. FES and the Companies have analyzed their financial assets and financial liabilities within the scope of this Statement and no fair value elections were made as of January 1, 2008.
SFAS 141(R) - "Business Combinations"
In December 2007, the FASB issued SFAS 141(R), which requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) attempts to reduce the complexity of existing GAAP related to business combinations. The Standard includes both core principles and pertinent application guidance, eliminating the need for numerous EITF issues and other interpretative guidance. SFAS 141(R) will impact business combinations entered into by FES and the Companies that close after January 1, 2009 and is not expected to have a material impact on FES and the Companies financial statements.
SFAS 160 - "Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51"
In December 2007, the FASB issued SFAS 160 that establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The Statement is not expected to have a material impact on FES and the Companies financial statements.
The transmission facilities that are owned and operated by ATSI also interconnect with thoseFSP FIN 39-1 - "Amendment of AEP, DPL, Duquesne, Allegheny, Met-Ed and Penelec. The transmission facilities of JCP&L, Met-Ed and Penelec are physically interconnected and are operated on an integrated basis as part of the PJM RTO.FASB Interpretation No. 39"
FirstEnergy's distributionIn April 2007, the FASB issued Staff Position (FSP) FIN 39-1, which permits an entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement as the derivative instruments. This FSP is effective for fiscal years beginning after November 15, 2007, with early application permitted. The effects of applying the guidance in this FSP should be recognized as a retrospective change in accounting principle for all financial statements presented. FSP FIN 39-1 is not expected to have a material effect on FES and transmission systems asthe Companies financial statements.
EITF 06-11 - "Accounting for Income Tax Benefits of December 31, 2006, consist of the following:Dividends or Share-based Payment Awards"
| | | | | Substation |
| Distribution | | Transmission | | Transformer |
| Lines | | Lines | | Capacity |
| (Miles) | | (kV-amperes) |
| | | | | |
OE | 30,008 | | 550 | | 8,298,000 |
Penn | 5,756 | | 44 | | 1,739,000 |
CEI | 25,130 | | 2,144 | | 9,301,000 |
TE | 1,851 | | 223 | | 3,677,000 |
JCP&L | 18,966 | | 2,135 | | 20,964,000 |
Met-Ed | 14,751 | | 1,407 | | 9,848,000 |
Penelec | 20,007 | | 2,690 | | 14,190,000 |
ATSI* | - | | 5,816 | | 22,931,000 |
Total | 116,469 | | 15,009 | | 90,948,000 |
In June 2007, the FASB released EITF 06-11, which provides guidance on the appropriate accounting for income tax benefits related to dividends earned on nonvested share units that are charged to retained earnings under SFAS 123(R). The consensus requires that an entity recognize the realized tax benefit associated with the dividends on nonvested shares as an increase to APIC. This amount should be included in the APIC pool, which is to be used when an entitys estimate of forfeitures increases or actual forfeitures exceed its estimates, at which time the tax benefits in the APIC pool would be reclassified to the income statement. The consensus is effective for income tax benefits of dividends declared during fiscal years beginning after December 15, 2007. EITF 06-11 is not expected to have a material effect on FES and the Companies' financial statements.
| * | Represents transmission lines of 69kv and above located in the service areas of OE, Penn,
CEI and TE.
|
ITEM 3.LEGAL PROCEEDINGS
Reference is made to Note 14, Commitments, Guarantees and Contingencies, of the Notes to Consolidated Financial Statements contained in Item 8 for a description of certain legal proceedings involving FirstEnergy, OE, CEI, TE, JCP&L, Met-Ed and Penelec.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 on page 3 of FirstEnergy's 2006 Annual Report to Stockholders (Exhibit 13). Information for OE, CEI, TE, JCP&L, Met-Ed and Penelec is not required to be disclosed because they are wholly owned subsidiaries.
Information regarding compensation plans for which shares of FirstEnergy common stock may be issued is incorporated herein by reference to FirstEnergy's 2007 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 for the fourth quarter, regarding purchases made by FirstEnergy of its common stock during the fourth quarter of 2006.
| Period |
| October 1-31, 2006 | | November 1-30, 2006 | | December 1-31, 2006 | | Fourth Quarter |
Total Number Of Shares Purchased (a) | 234,384 | | 76,844 | | 331,411 | | 642,639 |
Average Price Paid per Share | $58.02 | | $58.90 | | $60.58 | | $59.45 |
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 (b) | 1,369,241 | | 1,369,241 | | 1,369,241 | | 1,369,241 |
| ( a)
| Share amounts reflect purchases on the open market to satisfy FirstEnergy's obligations to deliver common stock under its Executive and Director 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 Executive and Director Incentive Compensation Plan and shares purchased as part of publicly announced plans. |
| (b)
| FirstEnergy initiated a share repurchase plan on August 10, 2006. |
ITEM 6.SELECTED FINANCIAL DATA
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS17. SUMMARY OF QUARTERLY FINANCIAL CONDITION AND
RESULTS OF OPERATIONSDATA (UNAUDITED)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe following summarizes certain consolidated operating results by quarter for 2007 and 2006.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | | | | | | Income (Loss) | | | | | |
| | | | | | | From Continuing | | | | | |
| | | | | Operating | | Operations | | | | | |
| | | | | Income | | Before | | Income | | Net | |
Three Months Ended | | | Revenues | | (Loss) | | Income Taxes | | Taxes | | Income | |
| | | (In millions) | |
FES | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 1018.2 | | $ | 188.7 | | $ | 164.9 | | $ | 62.4 | | $ | 102.5 | |
| March 31, 2006 | | | 956.5 | | | 89.7 | | | 56.6 | | | 19.4 | | | 37.2 | |
| June 30, 2007 | | | 1068.7 | | | 263.8 | | | 239.1 | | | 87.7 | | | 151.4 | |
| June 30, 2006 | | | 994.0 | | | 192.2 | | | 157.6 | | | 59.0 | | | 98.6 | |
| September 30,2007 | | | 1170.1 | | | 272.1 | | | 248.4 | | | 93.7 | | | 154.8 | |
| September 30,2006 | | | 1109.6 | | | 301.6 | | | 282.4 | | | 106.2 | | | 176.2 | |
| December 31, 2007 | | | 1068.0 | | | 194.2 | | | 181.1 | | | 60.8 | | | 120.2 | |
| December 31, 2006 | | | 951.2 | | | 194.6 | | | 158.4 | | | 51.7 | | | 106.7 | |
| | | | | | | | | | | | | | | | | |
OE | | | | | | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 625.6 | | $ | 65.4 | | $ | 71.5 | | $ | 17.4 | | $ | 54.0 | |
| March 31, 2006 | | | 586.2 | | | 86.8 | | | 102.1 | | | 38.3 | | | 63.8 | |
| June 30, 2007 | | | 596.8 | | | 70.8 | | | 73.2 | | | 27.6 | | | 45.7 | |
| June 30, 2006 | | | 573.1 | | | 79.3 | | | 94.2 | | | 35.0 | | | 59.2 | |
| September 30,2007 | | | 668.8 | | | 82.0 | | | 82.3 | | | 34.1 | | | 48.2 | |
| September 30,2006 | | | 673.7 | | | 50.8 | | | 61.4 | | | 17.9 | | | 43.5 | |
| December 31, 2007 | | | 600.3 | | | 73.1 | | | 71.4 | | | 22.2 | | | 49.3 | |
| December 31, 2006 | | | 594.5 | | | 74.2 | | | 77.2 | | | 32.1 | | | 45.1 | |
| | | | | | | | | | | | | | | | | |
CEI | | | | | | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 440.8 | | $ | 115.5 | | $ | 98.3 | | $ | 34.8 | | $ | 63.5 | |
| March 31, 2006 | | | 407.8 | | | 124.3 | | | 116.9 | | | 44.5 | | | 72.4 | |
| June 30, 2007 | | | 449.5 | | | 128.6 | | | 111.0 | | | 42.1 | | | 68.9 | |
| June 30, 2006 | | | 432.4 | | | 152.3 | | | 148.8 | | | 57.7 | | | 91.1 | |
| September 30,2007 | | | 529.1 | | | 154.4 | | | 133.3 | | | 54.6 | | | 78.7 | |
| September 30,2006 | | | 515.9 | | | 140.3 | | | 131.9 | | | 48.5 | | | 83.4 | |
| December 31, 2007 | | | 403.5 | | | 113.7 | | | 97.2 | | | 31.9 | | | 65.3 | |
| December 31, 2006 | | | 413.6 | | | 109.7 | | | 97.1 | | | 38.0 | | | 59.1 | |
| | | | | | | | | | | | | | | | | |
TE | | | | | | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 240.5 | | $ | 40.3 | | $ | 37.0 | | $ | 11.1 | | $ | 25.9 | |
| March 31, 2006 | | | 218.0 | | | 43.2 | | | 46.2 | | | 17.2 | | | 29.0 | |
| June 30, 2007 | | | 240.3 | | | 40.8 | | | 37.3 | | | 15.4 | | | 21.9 | |
| June 30, 2006 | | | 225.6 | | | 49.3 | | | 52.3 | | | 19.9 | | | 32.4 | |
| September 30,2007 | | | 269.7 | | | 47.5 | | | 43.5 | | | 18.4 | | | 25.1 | |
| September 30,2006 | | | 262.8 | | | 43.7 | | | 46.8 | | | 17.7 | | | 29.1 | |
| December 31, 2007 | | | 213.4 | | | 28.8 | | | 27.2 | | | 8.8 | | | 18.3 | |
| December 31, 2006 | | | 221.6 | | | 14.3 | | | 13.9 | | | 5.1 | | | 8.8 | |
The information required by Items 6 through 8 is incorporated herein by reference to Selected Financial Data, Management's Discussion and Analysis of Results of Operations and Financial Condition, and Financial Statements included on the pages shown in the following table in the respective company's 2006 Annual Report to Stockholders (Exhibit 13). | | | | | | Income (Loss) | | | | | |
| | | | | | From Continuing | | | | | |
| | | | Operating | | Operations | | | | Net | |
| | | | Income | | Before | | Income | | Income | |
Three Months Ended | | | Revenues | | (Loss) | | Income Taxes | | Taxes | | (Loss) | |
| | | (In millions) | |
Met-Ed | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 370.3 | | $ | 57.9 | | $ | 55.2 | | $ | 23.6 | | $ | 31.6 | |
| March 31, 2006 | | | 311.2 | | | 28.7 | | | 29.1 | | | 11.2 | | | 17.9 | |
| June 30, 2007 | | | 361.7 | | | 38.0 | | | 34.3 | | | 14.8 | | | 19.5 | |
| June 30, 2006 | | | 282.2 | | | 70.6 | | | 69.6 | | | 29.5 | | | 40.1 | |
| September 30,2007 | | | 410.6 | | | 43.8 | | | 39.4 | | | 14.7 | | | 24.7 | |
| September 30,2006 | | | 356.2 | | | 42.0 | | | 39.6 | | | 14.6 | | | 25.0 | |
| December 31, 2007 | | | 367.9 | | | 45.3 | | | 34.8 | | | 15.2 | | | 19.7 | |
| December 31, 2006 * | | | 293.5 | | | (300.2 | ) | | (301.2 | ) | | 22.0 | | | (323.2 | ) |
| | | | | | | | | | | | | | | | | |
Penelec | | | | | | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 355.9 | | $ | 65.7 | | $ | 56.0 | | $ | 24.3 | | $ | 31.7 | |
| March 31, 2006 | | | 291.8 | | | 45.0 | | | 37.1 | | | 14.0 | | | 23.1 | |
| June 30, 2007 | | | 331.4 | | | 44.5 | | | 33.8 | | | 14.4 | | | 19.5 | |
| June 30, 2006 | | | 265.0 | | | 39.6 | | | 30.0 | | | 14.5 | | | 15.5 | |
| September 30,2007 | | | 353.4 | | | 45.8 | | | 33.4 | | | 10.4 | | | 23.0 | |
| September 30,2006 | | | 303.4 | | | 38.1 | | | 28.8 | | | 10.7 | | | 18.1 | |
| December 31, 2007 | | | 361.3 | | | 48.4 | | | 33.8 | | | 14.9 | | | 18.7 | |
| December 31, 2006 | | | 288.3 | | | 53.1 | | | 44.8 | | | 17.3 | | | 27.5 | |
| | | | | | | | | | | | | | | | | |
JCP&L | | | | | | | | | | | | | | | | | | |
| March 31, 2007 | | $ | 683.7 | | $ | 89.9 | | $ | 71.0 | | $ | 32.7 | | $ | 38.3 | |
| March 31, 2006 | | | 575.8 | | | 73.5 | | | 57.3 | | | 23.6 | | | 33.7 | |
| June 30, 2007 | | | 780.0 | | | 110.2 | | | 89.5 | | | 39.7 | | | 49.8 | |
| June 30, 2006 | | | 611.5 | | | 95.7 | | | 78.9 | | | 38.6 | | | 40.3 | |
| September 30,2007 | | | 1033.2 | | | 143.3 | | | 122.1 | | | 46.3 | | | 75.8 | |
| September 30,2006 | | | 911.1 | | | 156.0 | | | 137.7 | | | 58.3 | | | 79.4 | |
| December 31, 2007 | | | 746.9 | | | 76.4 | | | 52.6 | | | 30.4 | | | 22.2 | |
| December 31, 2006 | | | 569.3 | | | 78.4 | | | 63.4 | | | 26.2 | | | 37.2 | |
| | | | | | | | | | | | | | | | | |
* | Met-Ed recognized a $355 million non-cash goodwill impairment charge in the fourth quarter of 2006. | |
| Item 6 | Item 7 | Item 7A | Item 8 |
| | | | |
FirstEnergy | 3 | 5-51 | 29-32 | 52-105 |
OE | 2 | 3-20 | 11-12 | 21-49 |
CEI | 2 | 3-19 | 11 | 20-46 |
TE | 2 | 3-19 | 11 | 20-45 |
JCP&L | 2 | 3-15 | 7-9 | 16-40 |
Met-Ed | 2 | 3-14 | 7-9 | 15-37 |
Penelec | 2 | 3-14 | 7-9 | 15-37 |
ITEM 9.CHANGES IN9A(T). CONTROLS AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSUREPROCEDURES -- OE, CEI, TE and Penelec (Restated)
None.
ITEM 9A. CONTROLS AND PROCEDURES
- FIRSTENERGY
Evaluation of Disclosure Controls and Procedures
FirstEnergy's Chief Executive OfficerIn the original Form 10-K for the year ended December 31, 2007, each registrant’s chief executive officer and Chief Financial Officer have reviewed and evaluated such registrant's disclosure controls and procedures, as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e),chief financial officer concluded that, as of the end dateof the period covered by this report. Based upon this evaluation,that report, the Chief Executive Officer and Chief Financial Officer concluded that FirstEnergy'sapplicable registrant's disclosure controls and procedures were effective as of December 31, 2006.2007. Subsequent to the restatement of the respective registrants’ Consolidated Statements of Cash Flows discussed in the revised Note 1 to the Combined Notes to Consolidated Financial Statements included in the Form 10-K/A, each registrant's chief executive officer and chief financial officer performed an updated review and evaluated such registrant's disclosure controls and procedures. Based upon that updated evaluation and as a result of the material weakness in the internal controls over one aspect of the preparation and review of the Consolidated Statement of Cash Flows discussed below, those officers concluded that, as of the end of the period covered by this report, the applicable registrant's disclosure controls and procedures were ineffective as of December 31, 2007. Based on the modification of internal controls over the preparation and review of the Consolidated Statements of Cash Flows during the fourth quarter of 2008, management believes that it has remediated the material weakness discussed below for each of the registrants.
Management'sManagement’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 FirstEnergy'seach registrant’s internal control over financial reporting under the supervision of FirstEnergy's Chief Executive Officersuch registrant’s chief executive officer and Chief Financial Officer. Based on that evaluation, managementchief financial officer. In the original Form 10-K for the year ended December 31,2007, each registrant’s chief executive officer and chief financial officer concluded that, FirstEnergy'sas of the end of the period covered by that report, the applicable registrant's internal control over financial reporting was effective as of December 31, 2006. Management's assessment2007. Subsequent to the restatement discussed in the revised Note 1 to the Combined Notes to Consolidated Financial Statements included in the Form 10-K/A, each registrant's chief executive officer and chief financial officer performed an updated review and evaluated such registrant's internal control over financial reporting. Based upon that updated evaluation and as a result of the material weakness in the internal controls discussed below, those officers concluded that, as of the end of the period covered by this report, the applicable registrant's internal control over financial reporting was ineffective as of December 31, 2007. The effectiveness of FirstEnergy'seach registrant's internal control over financial reporting, as of December 31, 2006,2007, has not been audited by PricewaterhouseCoopers LLP, ansuch registrant’s independent registered public accounting firm,firm.
As reported in this Form 10-K/A, each registrant has amended its original Form 10-K for the year ended December 31, 2007 to restate its Consolidated Statements of Cash Flows for the year ended December 31, 2007, to correct common stock dividend payments reported in cash flows from financing activities. The Consolidated Statements of Cash Flows for each registrant, as statedoriginally filed, erroneously reflected the dividends declared in their reportthe third quarter of 2007 applicable to future quarters' payments as dividends paid in the quarter that they were declared. The corrections resulted in a corresponding change in operating liabilities - accounts payable, included in FirstEnergy's 2006 Annual Reportcash flows from operating activities.
A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
The restatement described above resulted from a material weakness in the internal controls over one aspect of the preparation and review of the Consolidated Statements of Cash Flows. Specifically, the registrants did not have a control that was designed to Stockholdersensure that declared but unpaid dividends to the registrants’ parent were not reported as cash used for financing activities. This control deficiency resulted in a material misstatement of the registrants’ interim and incorporated by reference hereto.annual consolidated financial statements. Accordingly, management determined that this control deficiency constitutes a material weakness. The registrants modified their internal controls over the preparation and review of their Consolidated Statements of Cash Flows during the fourth quarter of 2008. Management has implemented a process to segregate dividend declarations with payments applicable to future reporting periods in a unique general ledger account in order to distinguish associated company dividends payable from other associated company accounts payable. Management believes that this process enhances the existing internal controls over financial reporting and remediated the material weakness discussed above for each of the registrants.
Changes in Internal Control over Financial Reporting
There were no changes in FirstEnergy's internal control over financial reporting duringDuring the fourth quarter of 2006 that have materially affected, or are reasonably likely to materially affect, FirstEnergy's internal control over financial reporting.
- OE, CEI, TE, JCP&L, Met-Ed and Penelec
Evaluation of Disclosure Controls and Procedures
Each registrant's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated such registrant's 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 such registrant's disclosure controls and procedures were effective as ofended December 31, 2006.
Changes in Internal Control over Financial Reporting
There2007, there were no changes in the registrants' internal control over financial reporting during the fourth quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the registrants' internal control over financial reporting.
PART IV
ITEM 9B.OTHER INFORMATION
None.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
FirstEnergy
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 2007 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 has determined that Ernest J. Novak, Jr., an independent director, is the audit committee financial expert.
FirstEnergy makes available on its website 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; Corporate Governance; Compensation; Finance; and Nuclear. The Corporate Governance Policies and Board committee charters are also available in print upon written request to David W. Whitehead, Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, OH 44308-1890.
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 our website provided in the previous paragraph or upon written request to the Corporate Secretary.
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the Company submitted the Annual CEO Certification to the NYSE on May 24, 2006.
OE, CEI, TE, JCP&L, Met-Ed and Penelec
A. J. Alexander, R. H. Marsh and R. R. Grigg are the Directors of OE, CEI, TE, Met-Ed and Penelec. Information concerning these individuals is shown in the "Executive Officers" section of Item 1. S. E. Morgan, C. E. Jones, L. L. Vespoli, B. S. Ewing, M. A. Julian, G. E. Persson and S. C. Van Ness are the Directors of JCP&L.
Mr. Ewing (Age 46) has served as FirstEnergy Service Company's Vice President - Energy Delivery since 2004. From 1999 to 2004, Mr. Ewing served as Director of Operations Services - Northern Region.
Mr. Julian (Age 50) has served as FirstEnergy Service Company's Vice President - Energy Delivery since 2003. From 2001 to 2003, Mr. Julian served as Director of Energy Delivery Technical Services.
Mrs. Persson (Age 76) has served in the New Jersey Division of Consumer Affairs Elder Fraud Investigation Unit since 1999. She previously served as liaison (Special Assistant Director) between the New Jersey Division of Consumer Affairs and various state boards. Prior to 1995, she was owner and President of Business Dynamics Associated of Red Bank, NJ. Mrs. Persson is a member of the United States Small Business Administration National Advisory Board, the New Jersey Small Business Advisory Council, the Board of Advisors of Brookdale Community College and the Board of Advisors of Georgian Court College.
Mr. Van Ness (Age 73) has been of Counsel in the firm of Herbert, Van Ness, Cayci & Goodell, PC of Princeton, NJ since 1998. Prior to that he was affiliated with the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton, NJ since 1990. He is also a director of The Prudential Insurance Company of America.
Information concerning the other Directors of JCP&L is shown in the "Executive Officers" section of Item 1 of this report.
15. EXHIBITS.
ITEM 11.Exhibit
Number | EXECUTIVE COMPENSATION
|
ITEM 12.
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
FirstEnergy, OE, CEI, TE, JCP&L, Met-Ed and Penelec -
The information required by Items 11, 12 and 13 is incorporated herein by reference to FirstEnergy's 2007 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, 2006 and 2005 are as follows:
| | Audit Fees(1) | | Audit-Related Fees | |
Company | | 2006 | | 2005 | | 2006 | | 2005 | |
| | (In thousands) | |
OE | | $ | 1,495 | | $ | 1,492 | | $ | - | | $ | - | |
CEI | | | 726 | | | 755 | | | - | | | - | |
TE | | | 643 | | | 610 | | | - | | | - | |
JCP&L | | | 816 | | | 728 | | | - | | | - | |
Met-Ed | | | 576 | | | 597 | | | - | | | - | |
Penelec | | | 576 | | | 605 | | | - | | | - | |
Other subsidiaries | | | 1,478 | | | 1,786 | | | - | | | - | |
| | | | | | | | | | | | | |
Total FirstEnergy | | $ | 6,310 | | $ | 6,573 | | $ | - | | $ | - | |
| (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. |
Tax and Other Fees
There were no other fees billed to FirstEnergy for tax or other services for the years ended December 31, 2006 and 2005.
Additional information required by this item is incorporated herein by reference to FirstEnergy's 2007 Proxy Statement filed with the SEC pursuant to Regulation 14A.
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)1.Financial Statements
Included in Part II of this report and incorporated herein by reference to the respective company's 2006 Annual Report to Stockholders (Exhibit 13 below) at the pages indicated.
| First- Energy | OE | CEI | TE | JCP&L | Met-Ed | Penelec |
|
| | | | | | | |
Management Reports | 1 | - | - | - | - | - | - |
Report of Independent Registered Public Accounting Firm | 2 | 1 | 1 | 1 | 1 | 1 | 1 |
Statements of Income-Three Years Ended December 31, 2006 | 52 | 21 | 20 | 20 | 16 | 15 | 15 |
Balance Sheets-December 31, 2006 and 2005 | 53 | 22 | 21 | 21 | 17 | 16 | 16 |
Statements of Capitalization-December 31, 2006 and 2005 | 54-55 | 23-24 | 22 | 22 | 18 | 17 | 17 |
Statements of Common Stockholders' Equity-Three Years Ended December 31, 2006 | 56 | 25 | 23 | 23 | 19 | 18 | 18 |
Statements of Preferred Stock-Three Years Ended December 31, 2006 | 57 | 25 | 23 | 23 | 19 | - | - |
Statements of Cash Flows-Three Years Ended December 31, 2006 | 58 | 26 | 24 | 24 | 20 | 19 | 19 |
Statements of Taxes-Three Years Ended December 31, 2006 | | 27 | 25 | 25 | 21 | 20 | 20 |
Notes to Financial Statements | 59-105 | 28-49 | 26-46 | 26-45 | 22-40 | 21-37 | 21-37 |
2. | Financial Statement Schedules
|
Included in Part IV of this report:
| First- Energy | OE | CEI | TE | JCP&L | Met-Ed | Penelec |
|
| | | | | | | |
Report of Independent Registered Public Accounting Firm | 71 | 72 | 73 | 74 | 75 | 76 | 77 |
| | | | | | | |
Schedule - Three Years Ended December 31, 2006: II - Consolidated Valuation and Qualifying Accounts | 78 | 79 | 80 | 81 | 82 | 83 | 84 |
Schedules other than the schedule listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto.
3. | Exhibits - FirstEnergy
|
Exhibit
Number
3-1 | Articles of Incorporation constituting FirstEnergy Corp.'s Articles of Incorporation, dated September 17, 1996. (September 17, 1996 Form 8-K, Exhibit C) |
| |
3-1(a) | Amended Articles of Incorporation of FirstEnergy Corp. (Registration No. 333-21011, Exhibit (3)-1) |
| |
3-2 | Regulations of FirstEnergy Corp. (September 17, 1996 Form 8-K, Exhibit D) |
| |
3-2(a) | FirstEnergy Corp. Amended Code of Regulations. (Registration No. 333-21011, Exhibit (3)-2) |
| |
4-1 | Rights Agreement (December 1, 1997 Form 8-K, Exhibit 4.1) |
| |
4-2 | FirstEnergy Corp. to The Bank of New York, Supplemental Indenture, dated November 7, 2001. (2001 Form 10-K, Exhibit 4-2) |
OE | |
(C)10-1 | FirstEnergy Corp. Executive and Director Incentive Compensation Plan, revised November 15, 1999. (1999 Form 10-K, Exhibit 10-1) |
| |
(C)10-2 | Amended FirstEnergy Corp. Deferred Compensation Plan for Directors, revised November 15, 1999. (1999 Form 10-K, Exhibit 10-2) |
| |
(C)10-3 | Form of Employment, severance and change of control agreement between FirstEnergy Corp. and the following executive officers: L.L. Vespoli, C.B. Snyder, and R.H. Marsh, through December 31, 2005. (1999 Form 10-K, Exhibit 10-3) |
| |
(C)10-4 | FirstEnergy Corp. Supplemental Executive Retirement Plan, amended January 1, 1999. (1999 Form 10-K, Exhibit 10-4) |
| |
(C)10-5 | FirstEnergy Corp. Executive Incentive Compensation Plan. (1999 Form 10-K, Exhibit 10-5) |
| |
(C)10-6 | Restricted stock agreement between FirstEnergy Corp. and A. J. Alexander. (1999 Form 10-K, Exhibit 10-6) |
| |
(C)10-7 | FirstEnergy Corp. Executive and Director Incentive Compensation Plan. (1998 Form 10-K, Exhibit 10-1) |
| |
(C)10-8 | Amended FirstEnergy Corp. Deferred Compensation Plan for Directors, amended February 15, 1999. (1998 Form 10-K, Exhibit 10-2) |
| |
(C)10-9 | Restricted Stock Agreement between FirstEnergy Corp. and A. J. Alexander. (2000 Form 10-K, Exhibit 10-1) |
| |
(C)10-10 | Restricted Stock Agreement between FirstEnergy Corp. and H. P. Burg. (2000 Form 10-K, Exhibit 10-2) |
| |
(C)10-11 | Stock Option Agreement between FirstEnergy Corp. and officers dated November 22, 2000. (2000 Form 10-K, Exhibit 10-3) |
| |
(C)10-12 | Stock Option Agreement between FirstEnergy Corp. and officers dated March 1, 2000. (2000 Form 10-K, Exhibit 10-4) |
| |
(C)10-13 | Stock Option Agreement between FirstEnergy Corp. and director dated January 1, 2000. (2000 Form 10-K, Exhibit 10-5) |
| |
(C)10-14 | Stock Option Agreement between FirstEnergy Corp. and two directors dated January 1, 2001. (2000 Form 10-K, Exhibit 10-6) |
| |
(C)10-15 | Executive and Director Incentive Compensation Plan dated May 15, 2001. (2001 Form 10-K, Exhibit 10-1) |
| |
(C)10-16 | Amended FirstEnergy Corp. Deferred Compensation Plan for Directors, revised September 18, 2000. (2001 Form 10-K, Exhibit 10-2) |
| |
(C)10-17 | Stock Option Agreements between FirstEnergy Corp. and Officers dated May 16, 2001. (2001 Form 10-K, Exhibit 10-3) |
| |
(C)10-18 | Form of Restricted Stock Agreements between FirstEnergy Corp. and Officers. (2001 Form 10-K, Exhibit 10-4) |
| |
(C)10-19 | Stock Option Agreements between FirstEnergy Corp. and One Director dated January 1, 2002. (2001 Form 10-K, Exhibit 10-5) |
| |
(C)10-20 | FirstEnergy Corp. Executive Deferred Compensation Plan. (2001 Form 10-K, Exhibit 10-6) |
| |
(C)10-21 | Executive Incentive Compensation Plan-Tier 2. (2001 Form 10-K, Exhibit 10-7) |
| |
(C)10-22 | Executive Incentive Compensation Plan-Tier 3. (2001 Form 10-K, Exhibit 10-8) |
| |
(C)10-23 | Executive Incentive Compensation Plan-Tier 4. (2001 Form 10-K, Exhibit 10-9) |
| |
(C)10-24 | Executive Incentive Compensation Plan-Tier 5. (2001 Form 10-K, Exhibit 10-10) |
| |
(C)10-25 | Amendment to GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries, effective April 5, 2001. (2001 Form 10-K, Exhibit 10-11) |
| |
(C)10-26 | 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. (2001 Form 10-K, Exhibit 10-12) |
| |
(C)10-27 | GPU, Inc. Stock Option and Restricted Stock Plan for MYR Group, Inc. Employees. (2001 Form 10-K, Exhibit 10-13) |
| |
(C)10-28 | Executive and Director Stock Option Agreement dated June 11, 2002. (2002 Form 10-K, Exhibit 10-1) |
| |
(C)10-29 | Director Stock Option Agreement. (2002 Form 10-K, Exhibit 10-2) |
| |
(C)10-30 | Executive and Director Executive Incentive Compensation Plan, Amendment dated May 21, 2002. (2002 Form 10-K, Exhibit 10-3) |
| |
(C)10-31 | Directors Deferred Compensation Plan, Revised Nov. 19, 2002. (2002 Form 10-K, Exhibit 10-4) |
| |
(C)10-32 | Executive Incentive Compensation Plan 2002. (2002 Form 10-K, Exhibit 10-5) |
| |
(C)10-33 | GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through June 3, 1999. (1999 Form 10-K, Exhibit 10-V, File No. 1-6047, GPU, Inc.) |
| |
(C)10-34 | Form of 1998 Stock Option Agreement under the GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. (1997 Form 10-K, Exhibit 10-Q, File No. 1-6047, GPU, Inc.) |
| |
(C)10-35 | Form of 1999 Stock Option Agreement under the GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. (1999 Form 10-K, Exhibit 10-W, File No. 1-6047, GPU, Inc.) |
| |
(C)10-36 | Form of 2000 Stock Option Agreement under the GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. (2000 Form 10-K, Exhibit 10-W, File No. 1-6047, GPU, Inc.) |
| |
(C)10-37 | Deferred Remuneration Plan for Outside Directors of GPU, Inc. as amended and restated effective August 8, 2000. (2000 Form 10-K, Exhibit 10-O, File No. 1-6047, GPU, Inc.) |
| |
(C)10-38 | Retirement Plan for Outside Directors of GPU, Inc. as amended and restated as of August 8, 2000. (2000 Form 10-K, Exhibit 10-N, File No. 1-6047, GPU, Inc.) |
| |
(C)10-39 | Forms of Estate Enhancement Program Agreements entered into by certain former GPU directors. (1999 Form 10-K, Exhibit 10-JJ, File No. 1-6047, GPU, Inc.) |
| |
(C)10-40 | Deferred Compensation Plan for Outside Directors, effective November 7, 2001. (Exhibit 4(f), Form S-8, File No. 333-101472) |
| |
(C)10-41 | Employment Agreement between FirstEnergy and an officer dated July 20, 2004. (September 30, 2004 Form 10-Q, Exhibit 10-41) |
| |
(C)10-42 | Stock Option Agreement between FirstEnergy and an officer dated August 20, 2004. (September 30, 2004 Form 10-Q, Exhibit 10-42) |
| |
(C)10-43 | Restricted Stock Agreement between FirstEnergy and an officer dated August 20, 2004. (September 30, 2004 Form 10-Q, Exhibit 10-43) |
| |
(C)10-44 | Executive Bonus Plan between FirstEnergy and Officers dated October 31, 2004. (September 30, 2004 Form 10-Q, Exhibit 10-44) |
| |
(C)10-45 | Form of Employment, Severance, and Change of Control Agreement, between FirstEnergy and A. J. Alexander. (2004 Form 10-K, Exhibit 10-12) |
| |
(C)10-46 | Form of Employment, Severance, and Change of Control Agreement, Tier 1, between FirstEnergy and the following executive officers: C.B. Snyder, L.L. Vespoli, and R.H. Marsh (effective January 1, 2006). (2004 Form 10-K, Exhibit 10-13) |
| |
(C)10-47 | Form of Employment, Severance, and Change of Control Agreement, Tier 1, between FirstEnergy and the following executive officers: L.M. Cavalier, M.T. Clark, and R.R. Grigg. (2004 Form 10-K, Exhibit 10-14) |
| |
(C)10-48 | Form of Employment, Severance, and Change of Control Agreement, Tier 2, between FirstEnergy and the following executive officers: K.J. Keough and K.W. Dindo (effective January 1, 2006). (2004 Form 10-K, Exhibit 10-15) |
| |
(C)10-49 | Form of Employment, Severance, and Change of Control Agreement, Tier 2, between FirstEnergy and G. L. Pipitone. (2004 Form 10-K, Exhibit 10-16) |
| |
(C)10-50 | Executive and Director Incentive Compensation Plan, Amendment dated January 18, 2005. (2004 Form 10-K, Exhibit 10-3) |
| |
(C)10-51 | Form of Restricted Stock Agreements, between FirstEnergy and Officers. (2004 Form 10-K, Exhibit 10-4) |
| |
(C)10-52 | Form of Restricted Stock Unit Agreements (Performance Adjusted), between FirstEnergy and Officers. (2004 Form 10-K, Exhibit 10-5) |
| |
(C)10-53 | Form of Restricted Stock Agreement, between FirstEnergy and an officer. (2004 Form 10-K, Exhibit 10-6) |
| |
10-54 | Notice of Termination Tolling Agreement, Restated Partial Requirements Agreement (September 2005 10-Q, Exhibit 10-1) |
| |
10-55 | Agreement by and between FirstEnergy Generation Corp. and Bechtel Power Corporation dated August 26, 2005. (September 2005 10-Q, Exhibit 10-2) |
| |
10-56 | Consent Decree dated as of March 18, 2005. (Form 8-K dated March 18, 2005, Exhibit 10-1.) |
| |
10-57 | Deferred Prosecution Agreement entered into January 20, 2006 among FirstEnergy Nuclear Operating Company, U.S. Attorney's Office for the Northern District of Ohio and the Environmental Crimes Section of the Environment and Natural Resources Division of the Department of Justice. (Form 8-K dated January 20, 2006, Exhibit 99-2) |
| |
(D)10-58 | Form of Guaranty Agreement dated as of December 16, 2005 between FirstEnergy Corp. and FirstEnergy Solutions Corp. in Favor of Barclays Bank PLC as Adminstrative Agent for the Banks. (2005 Form 10-K, Exhibit 10-1) |
| |
(D)10-59 | 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. (2005 Form 10-K, Exhibit 10-3) |
| |
10-60 | GENCO Power Supply Agreement dated as of October 14, 2005 between FirstEnergy Generation Corp. (Seller) and FirstEnergy Solutions Corp. (Buyer). (2005 Form 10-K, Exhibit 10-5) |
| |
10-61 | Nuclear Power Supply Agreement dated as of October 14, 2005 between FirstEnergy Nuclear Generation Corp. (Seller) and FirstEnergy Solutions Corp. (Buyer). (2005 Form 10-K, Exhibit 10-8) |
| |
(D)10-62 | 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. (2005 Form 10-K, Exhibit 10-2) |
| |
(D)10-63 | 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. (2005 Form 10-K, Exhibit 10-4) |
| |
10-64 | 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) (2005 Form 10-K, Exhibit 10-6) |
| |
10-65 | 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) (2005 Form 10-K, Exhibit 10-7) |
| |
10-66 | Power Supply Agreement dated as of October 31, 2005 between FirstEnergy Solutions Corp. (Seller) and the FirstEnergy Operating Companies - OE, CEI and TE (Buyers) (2005 Form 10-K, Exhibit 10-9) |
| |
10-67 | Electric Power Supply Agreement dated as of October 31, 2005 between FirstEnergy Solutions Corp. (Seller) and Pennsylvania Power Company (Buyer). (2005 Form 10-K, Exhibit 10-10) |
| |
(E)10-68 | 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. (March 2006 10-Q, Exhibit 10-1) |
| |
(E)10-69 | 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. (March 2006 10-Q, Exhibit 10-2) |
| |
(E)10-70 | 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. (March 2006 10-Q, Exhibit 10-3) |
| |
(E)10-71 | Form of Waste Water Facilities Loan Agreement between the Ohio Water Development Authority and FirstEnergy Generation Corp. dated as of April 1, 2006. (March 2006 10-Q, Exhibit 10-4) |
| |
(C)10-72 | Form of Restricted Stock Agreement between FirstEnergy and A. J. Alexander, dated February 27, 2006. (March 2006 10-Q, Exhibit 10-6) |
| |
(C)10-73 | Form of Restricted Stock Unit Agreement (Performance Adjusted) between FirstEnergy and A.J. Alexander, dated March 1, 2006. (March 2006 10-Q, Exhibit 10-7) |
| |
(C)10-74 | Form of Restricted Stock Unit Agreement (Performance Adjusted) between FirstEnergy and named executive officers, dated March 1, 2006. (March 2006 10-Q, Exhibit 10-8) |
| |
(C)10-75 | Form of Restricted Stock Unit Agreement (Discretionary) between FirstEnergy and R.H. Marsh, dated March 1, 2006. (March 2006 10-Q, Exhibit 10-9) |
| |
10-76 | Confirmation dated August 9, 2006 between FirstEnergy Corp and JP Morgan Chase Bank National Association (September 2006 10-Q, Exhibit 10-1) |
| |
(A)(F)10-77 | 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) (Form 8-K dated December 5, 2006) |
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(A)(G)10-78 | Form of Supplemental Letter of Credit Agreement, dated as of December 5, 2006 among FirstEnergy Corp., FirstEnergy Generation Corp. and Barclays Bank PLC, as Fronting Bank (FirstEnergy Generation Corp. Project) (Form 8-K dated December 5, 2006) |
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(A)10-79 | Form of Letter of Credit and Reimbursement Agreement dated as of December 28, 2006 among FirstEnergy Corp., as Obligor, The Lenders Named Herein, as Lender, and Wachovia Fixed Income Structured Trading Solutions, LLC as Administrative Agent and as Fronting Bank (Form 8-K dated December 5, 2006) |
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(A)(F)10-80 | 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. (Form 8-K dated December 5, 2006) |
| |
(A)(C)10-81 | Amendment to Employment Agreement for Richard R. Grigg dated January 16, 2007. (Form 8-K dated January 16, 2007) |
| |
(A)12.1 | Consolidated fixed charge ratios. |
| |
(A)13 | FirstEnergy 2006 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed 'filed' with the SEC.) |
| |
(A)21 | List of Subsidiaries of the Registrant at December 31, 2006. |
| |
(A)23 | 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. Section 1350.§1350. |
| |
(A) | Provided herein in electronic format as an exhibit. |
| |
(C) | Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S-K. |
CEI | |
| |
(D) | 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. |
| |
(E) | 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. |
| |
(F) | 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. |
| |
(G) | Two substantially similar agreements, each dated as of the same date, were executed and delivered by the registrant and its affiliates with respect to two other series of pollution control revenue refunding bonds issued by the Ohio Air Quality Development Authority, and the Beaver County Industrial Development Authority relating to pollution control notes of FirstEnergy Generation Corp. |
(B)3.Exhibits - OE
2-1 | Agreement and Plan of Merger, dated as of September 13, 1996, between Ohio Edison Company (OE) and Centerior Energy Corporation. (September 17, 1996 Form 8-K, Exhibit 2-1) |
| |
3-1 | Amended Articles of Incorporation, Effective June 21, 1994, constituting OE's Articles of Incorporation. (1994 Form 10-K, Exhibit 3-1). |
| |
3-2 | Amendment to Articles of Incorporation, Effective November 12, 1999 (2004 Form 10-K, Exhibit 3-2). |
| |
3-3 | Amended and Restated Code of Regulations, amended March 15, 2002. (2001 Form 10-K, Exhibit 3-2). |
| |
(B)4-1 | Indenture dated as of August 1, 1930 between OE and Bankers Trust Company (now the Bank of New York), as Trustee, as amended and supplemented by Supplemental Indentures: |
Exhibit
Number
| | Incorporated by
|
| | Reference to
|
Dated as of
| File Reference
| Exhibit No.
|
March 3, 1931 | 2-1725 | B1, B-1(a),B-1(b) |
November 1, 1935 | 2-2721 | B-4 |
January 1, 1937 | 2-3402 | B-5 |
September 1, 1937 | Form 8-A | B-6 |
June 13, 1939 | 2-5462 | 7(a)-7 |
August 1, 1974 | Form 8-A, August 28, 1974 | 2(b) |
July 1, 1976 | Form 8-A, July 28, 1976 | 2(b) |
December 1, 1976 | Form 8-A, December 15, 1976 | 2(b) |
June 15, 1977 | Form 8-A, June 27, 1977 | 2(b) |
| | |
Supplemental Indentures:
| | |
September 1, 1944 | 2-61146 | 2(b)(2) |
April 1, 1945 | 2-61146 | 2(b)(2) |
September 1, 1948 | 2-61146 | 2(b)(2) |
May 1, 1950 | 2-61146 | 2(b)(2) |
January 1, 1954 | 2-61146 | 2(b)(2) |
May 1, 1955 | 2-61146 | 2(b)(2) |
August 1, 1956 | 2-61146 | 2(b)(2) |
March 1, 1958 | 2-61146 | 2(b)(2) |
April 1, 1959 | 2-61146 | 2(b)(2) |
June 1, 1961 | 2-61146 | 2(b)(2) |
September 1, 1969 | 2-34351 | 2(b)(2) |
May 1, 1970 | 2-37146 | 2(b)(2) |
September 1, 1970 | 2-38172 | 2(b)(2) |
June 1, 1971 | 2-40379 | 2(b)(2) |
August 1, 1972 | 2-44803 | 2(b)(2) |
September 1, 1973 | 2-48867 | 2(b)(2) |
May 15, 1978 | 2-66957 | 2(b)(4) |
February 1, 1980 | 2-66957 | 2(b)(5) |
| | Incorporated by
|
| | Reference to
|
Dated as of
| File Reference
| Exhibit No.
|
April 15, 1980 | 2-66957 | 2(b)(6) |
June 15, 1980 | 2-68023 | (b)(4)(b)(5) |
October 1, 1981 | 2-74059 | (4)(d) |
October 15, 1981 | 2-75917 | (4)(e) |
February 15, 1982 | 2-75917 | (4)(e) |
July 1, 1982 | 2-89360 | (4)(d) |
March 1, 1983 | 2-89360 | (4)(e) |
March 1, 1984 | 2-89360 | (4)(f) |
September 15, 1984 | 2-92918 | (4)(d) |
September 27, 1984 | 33-2576 | (4)(d) |
November 8, 1984 | 33-2576 | (4)(d) |
December 1, 1984 | 33-2576 | (4)(d) |
December 5, 1984 | 33-2576 | (4)(e) |
January 30, 1985 | 33-2576 | (4)(e) |
February 25, 1985 | 33-2576 | (4)(e) |
July 1, 1985 | 33-2576 | (4)(e) |
October 1, 1985 | 33-2576 | (4)(e) |
January 15, 1986 | 33-8791 | (4)(d) |
May 20, 1986 | 33-8791 | (4)(d) |
June 3, 1986 | 33-8791 | (4)(e) |
October 1, 1986 | 33-29827 | (4)(d) |
August 25, 1989 | 33-34663 | (4)(d) |
February 15, 1991 | 33-39713 | (4)(d) |
May 1, 1991 | 33-45751 | (4)(d) |
May 15, 1991 | 33-45751 | (4)(d) |
September 15, 1991 | 33-45751 | (4)(d) |
April 1, 1992 | 33-48931 | (4)(d) |
June 15, 1992 | 33-48931 | (4)(d) |
September 15, 1992 | 33-48931 | (4)(e) |
April 1, 1993 | 33-51139 | (4)(d) |
June 15, 1993 | 33-51139 | (4)(d) |
September 15, 1993 | 33-51139 | (4)(d) |
November 15, 1993 | 1-2578 | (4)(2) |
April 1, 1995 | 1-2578 | (4)(2) |
May 1, 1995 | 1-2578 | (4)(2) |
July 1, 1995 | 1-2578 | (4)(2) |
June 1, 1997 | 1-2578 | (4)(2) |
April 1, 1998 | 1-2578 | (4)(2) |
June 1, 1998 | 1-2578 | (4)(2) |
September 29, 1999 | 1-2578 | (4)(2) |
April 1, 2000 | 1-2578 | (4)(2)(a) |
April 1, 2000 | 1-2578 | (4)(2)(b) |
June 1, 2001 | 1-2578 | |
February 1, 2003 | 1-2578 | 4(2) |
March 1, 2003 | 1-2578 | 4(2) |
August 1, 2003 | 1-2578 | 4(2) |
June 1, 2004 | 1-2578 | 4(2) |
June 1, 2004 | 1-2578 | 4(2) |
December 1, 2004 | 1-2578 | 4(2) |
April 1, 2005 | 1-2578 | 4(2) |
April 15, 2005 | 1-2578 | 4(2) |
June 1, 2005 | 1-2578 | 4(2) |
| | |
(B) 4-2 | General Mortgage Indenture and Deed of Trust dated as of January 1, 1998 between OE and the Bank of New York, as Trustee, as amended and supplemented by Supplemental Indentures; (Registration No. 333-05277, Exhibit 4(g)). |
February 1, 2003 | 1-2578 | 4-2 |
March 1, 2003 | 1-2578 | 4-2 |
August 1, 2003 | 1-2578 | 4-2 |
June 1, 2004 | 1-2578 | 4-2 |
June 1, 2004 | 1-2578 | 4-2 |
December 1, 2004 | 1-2578 | 4-2 |
April 1, 2005 | 1-2578 | 4(2) |
April 15, 2005 | 1-2578 | 4(2) |
June 1, 2005 | 1-2578 | 4(2) |
4-3 | Indenture dated as of April 1, 2003 between OE and The Bank of New York, as Trustee. |
| |
4-4 | 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. (Form 8-K dated June 26, 2006, Exhibit 4) |
| |
10-1 | Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2)) |
| |
10-2 | Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3)) |
| |
10-3 | Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3)) |
| |
10-4 | Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4) |
| |
10-5 | Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (Registration No. 2-68906, Exhibit 10-4) |
| |
10-6 | Amendment dated as of December 23 1993 to Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (1993 Form 10-K, Exhibit 10-6) |
| |
10-7 | CAPCO Basic Operating Agreement, as amended September 1, 1980. (Registration No. 2-68906, Exhibit 10-5) |
| |
10-8 | Amendment No. 1 dated August 1, 1981, and Amendment No. 2 dated September 1, 1982 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (September 30, 1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit 19-3, respectively) |
| |
10-9 | Amendment No. 3 dated July 1, 1984 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (1985 Form 10-K, Exhibit 10-7) |
| |
10-10 | Basic Operating Agreement between the CAPCO Companies as amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8) |
| |
10-11 | Basic Operating Agreement between the CAPCO Companies as amended January 1, 1993. (1993 Form 10-K, Exhibit 10-11) |
| |
10-12 | Memorandum of Agreement effective as of September 1, 1980 among the CAPCO Group. (1982 Form 10-K, Exhibit 19-2) |
| |
10-13 | Operating Agreement for Beaver Valley Power Station Units Nos. 1 and 2 as Amended and Restated September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 10-15) |
| |
10-14 | Construction Agreement with respect to Perry Plant between the CAPCO Group dated as of July 22, 1974. (Registration No. 2-52251 of Toledo Edison Company, Exhibit 5(yy)) |
| |
10-15 | Amendment No. 3 dated as of October 31, 1980 to the Bond Guaranty dated as of October 1, 1973, as amended, with respect to the CAPCO Group. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 10-16) |
| |
10-16 | Amendment No. 4 dated as of July 1, 1985 to the Bond Guaranty dated as October 1, 1973, as amended, by the CAPCO Companies to National City Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-30) |
| |
10-17 | Amendment No. 5 dated as of May 1, 1986, to the Bond Guaranty by the CAPCO Companies to National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-33) |
| |
10-18 | 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. (1991 Form 10-K, Exhibit 10-33) |
| |
10-19 | 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. (1991 Form 10-K, Exhibit 10-34) |
| |
10-20 | Bond Guaranty dated as of December 1, 1991, 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. (1991 Form 10-K, Exhibit 10-35) |
| |
10-21 | Memorandum of Understanding dated March 31, 1985 among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35) |
| |
(C)10-22 | Ohio Edison System Executive Supplemental Life Insurance Plan. (1995 Form 10-K, Exhibit 10-44) |
| |
(C)10-23 | Ohio Edison System Executive Incentive Compensation Plan. (1995 Form 10-K, Exhibit 10-45.) |
| |
(C)10-24 | Ohio Edison System Restated and Amended Executive Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-46.) |
| |
(C)10-25 | Ohio Edison System Restated and Amended Supplemental Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-47.) |
| |
(C)10-28 | Severance pay agreement between Ohio Edison Company and A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.) |
| |
(D)10-30 | 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. (1986 Form 10-K, Exhibit 28-1.) |
| |
(D)10-31 | 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. (1991 Form 10-K, Exhibit 10-46.) |
| |
(D)10-32 | 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. (1992 Form 10-K, Exhibit 10-47.) |
| |
(D)10-33 | 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. (1991 Form 10-K, Exhibit 10-47.) |
| |
(D)10-34 | 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. (1992 Form 10-K, Exhibit 10-49.) |
| |
(D)10-35 | 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. (1992 Form 10-K, Exhibit 10-50.) |
| |
(D)10-36 | 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. (1994 Form 10-K, Exhibit 10-54.) |
| |
(D)10-37 | 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. (1986 Form 10-K, Exhibit 28-2.) |
| |
(D)10-38 | 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. (1991 Form 10-K, Exhibit 10-49.) |
| |
(D)10-39 | 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. (1991 Form 10-K, Exhibit 10-50.) |
| |
(D)10-40 | 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. (1992 Form 10-K, Exhibit 10-54.) |
| |
(D)10-41 | 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. (1994 Form 10-K, Exhibit 10-59.) |
| |
(D)10-42 | 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. (1994 Form 10-K, Exhibit 10-60.) |
| |
(D)10-43 | 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. (1986 Form 10-K, Exhibit 28-3.) |
| |
(D)10-44 | 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. (1986 Form 10-K, Exhibit 28-4.) |
| |
(D)10-45 | Trust Agreement dated as of March 16, 1987 between Perry One Alpha Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-5.) |
| |
(D)10-46 | 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. (1986 Form 10-K, Exhibit 28-6.) |
| |
(D)10-47 | 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. (1991 Form 10-K, Exhibit 10-55.) |
| |
(D)10-48 | 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. (1991 Form 10-K, Exhibit 10-56.) |
| |
(D)10-49 | 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. (1986 Form 10-K, Exhibit 28-7.) |
| |
(D)10-50 | 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. (1991 Form 10-K, Exhibit 10-58.) |
| |
(D)10-51 | 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. (1994 Form 10-K, Exhibit 10-69.) |
| |
(D)10-52 | 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. (1994 Form 10-K, Exhibit 10-70.) |
| |
(D)10-53 | 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. (1986 Form 10-K, Exhibit 28-8.) |
| |
(D)10-54 | 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. (1986 Form 10-K, Exhibit 28-9.) |
| |
(D)10-55 | 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. (1986 Form 10-K, Exhibit 28-10.) |
| |
(D)10-56 | 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. (1986 Form 10-K, Exhibit 28-11.) |
| |
(D)10-57 | 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. (1986 Form 10-K, File Exhibit 28-12.) |
| |
10-58 | 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. (1986 Form 10-K, as Exhibit 28-13.) |
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10-59 | 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. (1991 Form 10-K, Exhibit 10-65.) |
| |
10-60 | 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. (1991 Form 10-K, Exhibit 10-66.) |
| |
10-61 | 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, PNNP 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. (1992 Form 10-K, Exhibit 10-71.) |
| |
10-62 | 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. (1994 Form 10-K, Exhibit 10-80.) |
| |
10-63 | 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. (1994 Form 10-K, Exhibit 10-81.) |
| |
10-64 | 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. (1986 Form 10-K, Exhibit 28-14.) |
| |
10-65 | 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. (1991 Form 10-K, Exhibit 10-68.) |
| |
10-66 | 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. (1991 Form 10-K, Exhibit 10-69.) |
| |
10-67 | 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. (1992 Form 10-K, Exhibit 10-75.) |
| |
10-68 | 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. (1992 Form 10-K, Exhibit 10-76.) |
| |
10-69 | 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. (1994 Form 10-K, Exhibit 10-87.) |
| |
10-70 | 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. (1986 Form 10-K, Exhibit 28-15.) |
| |
10-71 | 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. (1986 Form 10-K, Exhibit 28-16.) |
| |
10-72 | Trust Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-17.) |
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10-73 | 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. (1986 Form 10-K, Exhibit 28-18.) |
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10-74 | 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. (1991 Form 10-K, Exhibit 10-74.) |
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10-75 | 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. (1991 Form 10-K, Exhibit 10-75.) |
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10-76 | Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-19.) |
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10-77 | 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. (1991 Form 10-K, Exhibit 10-77.) |
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10-78 | 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. (1994 Form 10-K, Exhibit 10-96.) |
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10-79 | 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. (1994 Form 10-K, Exhibit 10-97.) |
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10-80 | 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. (1986 Form 10-K, Exhibit 28-20.) |
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10-81 | 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. (1986 Form 10-K, Exhibit 28-21.) |
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10-82 | 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. (1986 Form 10-K, Exhibit 28-22.) |
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10-83 | 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. (1986 Form 10-K, Exhibit 28-23.) |
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10-84 | 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. (1991 Form 10-K, Exhibit 10-82.) |
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10-85 | 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. (1991 Form 10-K, Exhibit 10-83.) |
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10-86 | 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.) |
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10-87 | Nuclear Fuel Lease dated as of March 31, 1989, between OES Fuel, Incorporated, as Lessor, and Ohio Edison Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.) |
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10-89 | Guarantee Agreement entered into by Ohio Edison Company dated as of January 17, 1991. (1990 Form 10-K, Exhibit 10-64.) |
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(E)10-90 | 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. (1987 Form 10-K, Exhibit 28-1.) |
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(E)10-91 | 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. (1987 Form 10-K, Exhibit 28-2.) |
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(E)10-92 | 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. (1992 Form 10-K, Exhibit 10-99.) |
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(E)10-93 | 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. (1992 Form 10-K, Exhibit 10-100.) |
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(E)10-94 | 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. (1994 Form 10-K, Exhibit 10-118.) |
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(E)10-95 | 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. (1987 Form 10-K, Exhibit 28-3.) |
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(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 Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-4.) |
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(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 Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.) |
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(E)10-98 | 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. (1994 Form 10-K, Exhibit 10-122.) |
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(E)10-99 | 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. (1987 Form 10-K, Exhibit 28-5.) |
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(E)10-100 | 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. (1987 Form 10-K, Exhibit 28-6.) |
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(E)10-101 | 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. (1987 Form 10-K, Exhibit 28-7.) |
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(E)10-102 | 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. (1987 Form 10-K, Exhibit 28-8.) |
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(E)10-103 | 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. (1987 Form 10-K, Exhibit 28-9.) |
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(E)10-104 | 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. (1994 Form 10-K, Exhibit 10-128.) |
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(E)10-105 | 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. (1994 Form 10-K, Exhibit 10-129.) |
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(E)10-106 | 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.) |
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(E)10-107 | 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. (1994 Form 10-K, Exhibit 10-131.) |
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(E)10-108 | 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. (1994 Form 10-K, Exhibit 10-132.) |
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(E)10-109 | 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. (1987 Form 10-K, Exhibit 28-11.) |
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(E)10-110 | 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. (1987 Form 10-K, Exhibit 28-12.) |
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(F)10-111 | 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. (1987 Form 10-K, Exhibit 28-13.) |
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(F)10-112 | 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. (1987 Form 10-K, Exhibit 28-14.) |
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(F)10-113 | 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. (1992 Form 10-K, Exhibit 10-114.) |
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(F)10-114 | 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. (1992 Form 10-K, Exhibit 10-115.) |
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(F)10-115 | 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. (1994 Form 10-K, Exhibit 10-139.) |
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(F)10-116 | 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. (1994 Form 10-K, Exhibit 10-140.) |
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(F)10-117 | 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. (1987 Form 10-K, Exhibit 28-15.) |
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(F)10-118 | 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. (1987 Form 10-K, Exhibit 28-16.) |
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(F)10-119 | 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. (1992 Form 10-K, Exhibit 10-118.) |
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(F)10-120 | 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. (1992 Form 10-K, Exhibit 10-119.) |
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(F)10-121 | 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. (1994 Form 10-K, Exhibit 10-145.) |
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(F)10-122 | 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. (1987 Form 10-K, Exhibit 28-17.) |
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(F)10-123 | Trust Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-18.) |
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(F)10-124 | 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. (1987 Form 10-K, Exhibit 28-19.) |
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(F)10-125 | 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. (1987 Form 10-K, Exhibit 28-20.) |
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(F)10-126 | Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-21.) |
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(F)10-127 | 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. (1994 Form 10-K, Exhibit 10-151.) |
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(F)10-128 | 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. (1994 Form 10-K, Exhibit 10-152.) |
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(F)10-129 | 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. (1994 Form 10-K, Exhibit 10-153.) |
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(F)10-130 | 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. (1987 Form 10-K, Exhibit 28-22.) |
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(F)10-131 | 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. (1987 Form 10-K, Exhibit 28-23.) |
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10-132 | Operating Agreement dated March 10, 1987 with respect to Perry Unit No. 1 between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-24.) |
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10-133 | 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. (1987 Form 10-K, Exhibit 28-25.) |
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10-134 | Operating Agreement for W. H. Sammis Unit No. 7 dated as of September 1, 1971 by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-26.) |
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10-135 | Electric Power Supply Agreement, between the Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company, and First Energy Solutions Corp. (f.k.a. FirstEnergy Services Corp.), dated January 1, 2001. (Form 10-K, Exhibit 10-145) |
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10-136 | Revised Electric Power Supply Agreement, between FirstEnergy Solutions Corp., the Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, and the Toledo Edison Company, dated October 1, 2003. (Form 10-K, Exhibit 10-146) |
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10-137 | OE Nuclear Capital Contribution Agreement by and between Ohio Edison Company and FirstEnergy Nuclear Generation Corp. (June 2005 10-Q, Exhibit 10.1) |
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10-138 | OE Fossil Purchase and Sale Agreement by and between Ohio Edison Company (Seller) and FirstEnergy Generation Corp. (Purchaser). (June 2005 10-Q, Exhibit 10.2) |
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10-139 | Consent Decree dated as of March 18, 2005. (Form 8-K dated March 18, 2005, Exhibit 10.1) |
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10-140 | 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). (2005 Form 10-K, Exhibit 10-6) |
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10-141 | Power Supply Agreement dated as of October 31, 2005 between FirstEnergy Solutions Corp. (Seller) and the FirstEnergy Operating Companies - OE, CEI and TE (Buyers). (2005 Form 10-K, Exhibit 10-9) |
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(A)12.2 | Consolidated Fixed Charged Ratios. |
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(A)13.1 | OE 2006 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) |
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(A)21.1 | List of Subsidiaries of the Registrant at December 31, 2006. |
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(A)23.1 | Consent of Independent Registered Public Accounting Firm. |
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(A)31.1 | Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)31.2 | Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)32 | Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350. |
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(A) | Provided herein in electronic format as an exhibit. |
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(B) | Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, OE 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 OE and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments. |
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(C) | Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S-K. |
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(D) | Substantially similar documents have been entered into relating to three additional Owner Participants. |
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(E) | Substantially similar documents have been entered into relating to five additional Owner Participants. |
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(F) | Substantially similar documents have been entered into relating to two additional Owner Participants. |
3.Exhibits - Common Exhibits for CEI and TE
Exhibit
Number
2(a) | Agreement and Plan of Merger between Ohio Edison and Centerior Energy dated as of September 13, 1996 (Exhibit (2)-1, Form S-4 File No. 333-21011, filed by FirstEnergy). |
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2(b) | Merger Agreement by and among Centerior Acquisition Corp., FirstEnergy and Centerior (Exhibit (2)-3, Form S-4 File No. 333-21011, filed by FirstEnergy). |
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4(a) | Rights Agreement (Exhibit 4, June 25, 1996 Form 8-K, File Nos. 1-9130, 1-2323 and 1-3583). |
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4(b)(1) | Form of Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(c), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison). |
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4(b)(2) | Form of First Supplemental Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(d), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison). |
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10b(1)(a) | 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 (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). |
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10b(1)(b) | Amendment No. 1, dated January 4, 1974, to CAPCO Administration Agreement among the CAPCO Group members (Exhibit 5(c)(3), File No. 2-68906, filed by Ohio Edison). |
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10b(2) | CAPCO Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and maintenance of transmission facilities to carry out the objectives of the CAPCO Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). |
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10b(2)(1) | Amendment No. 1 to CAPCO Transmission Facilities Agreement, dated December 23, 1993 and effective as of January 1, 1993, among the CAPCO Group members regarding requirements for payment of invoices at specified times, for payment of interest on non-timely paid invoices, for restricting adjustment of invoices after a four-year period, and for revising the method for computing the Investment Responsibility charge for use of a member's transmission facilities (Exhibit 10b(2)(1), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583). |
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10b(3) | CAPCO Basic Operating Agreement As Amended January 1, 1993 among the CAPCO Group members regarding coordinated operation of the members' systems (Exhibit 10b(3), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583). |
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10b(4) | 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 (Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583). |
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10b(5) | Construction Agreement, dated July 22, 1974, among the CAPCO Group members and relating to the Perry Nuclear Plant (Exhibit 5 (yy), File No. 2-52251, filed by Toledo Edison). |
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10b(6) | Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5 (g), File No. 2-52996, filed by Cleveland Electric). |
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10b(7) | Amendment No. 1, dated May 1, 1977, to Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4), File No. 2-60109, filed by Ohio Edison). |
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10d(1)(a) | Form of Collateral Trust Indenture among CTC Beaver Valley Funding Corporation, Cleveland Electric, Toledo Edison and Irving Trust Company, as Trustee (Exhibit 4(a), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(1)(b) | Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(1)(a) above, including form of Secured Lease Obligation bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(1)(c) | 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 (Exhibit (4)(a), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). |
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10d(1)(d) | Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(1)(c) above, including form of Secured Lease Obligation Bond (Exhibit (4)(b), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). |
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10d(2)(a) | Form of Collateral Trust Indenture among CTC Mansfield Funding Corporation, Cleveland Electric, Toledo Edison and IBJ Schroder Bank & Trust Company, as Trustee (Exhibit 4(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
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10d(2)(b) | Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(2)(a) above, including forms of Secured Lease Obligation bonds (Exhibit 4(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
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10d(3)(a) | 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 Cleveland Electric and Toledo Edison, Lessee (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(3)(b) | Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(4)(a) | 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 Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
10d(4)(b) | Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(5)(a) | 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 Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
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10d(5)(b) | Form of Amendment No. 1 to the Facility Lease constituting Exhibit 10d(5)(a) above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
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10d(6)(a) | 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 Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-18755, filed by Cleveland Electric And Toledo Edison). |
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10d(6)(b) | Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10d(6)(a) above (Exhibit 28(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(7)(a) | 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 Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(7)(b) | Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10d(7)(a) above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(8)(a) | 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 Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-0128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(8)(b) | Form of Amendment No. 1 to the Participation Agreement constituting Exhibit 10d(8)(a) above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(9) | 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 (Exhibit 28(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
| |
10d(10) | 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 (Exhibit 28(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(11) | Form of Site Lease dated as of September 30, 1987 between Cleveland Electric, 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 (Exhibit 28(d), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(12) | Form of Amendment No. 1 to the Site Leases constituting Exhibits 10d(10) and 10d(11) above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(13) | 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, Cleveland Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison (Exhibit 28(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
| |
10d(14) | 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 Toledo Edison (Exhibit 28(g), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
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10d(15) | 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, Toledo Edison, Cleveland Electric, Duquesne, Ohio Edison and Pennsylvania Power (Exhibit 28(e), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(16) | Form of Indenture, Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, 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 (Exhibit 28(h), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). |
| |
10d(17) | Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, 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 (Exhibit 28(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
| |
10d(18) | Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Cleveland Electric, 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 (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). |
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10d(19) | 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 (Exhibit (28)(e)(i), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). |
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10d(20)(a) | Form of Amendment No. 2 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
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10d(20)(b) | Form of Amendment No. 3 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(b), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
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10d(21)(a) | Form of Amendment No. 2 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(c), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
| |
10d(21)(b) | Form of Amendment No. 3 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(d), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
| |
10d(22) | Form of Amendment No. 2 to Facility Lease among Midwest Power Company, Cleveland Electric and Toledo Edison (Exhibit 10(e), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
| |
10e(1) | Centerior Energy Corporation Equity Compensation Plan (Exhibit 99, Form S-8, File No. 33-59635). |
3.Exhibits - CEI
3a
| Amended Articles of Incorporation of CEI, as amended, effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K, File No. 1-2323). |
| §1350. |
3bTE
| Regulations of CEI, dated April 29, 1981, as amended effective October 1, 1988 and April 24, 1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-2323). |
| |
3c
| Amended and Restated Code of Regulations, dated March 15, 2002, incorporated by reference to Exhibit 3-2, 2001 Form 10-K, File No. 1-02323. |
| |
(B)4b(1) | Mortgage and Deed of Trust between CEI and Guaranty Trust Company of New York (now The Chase Manhattan Bank (National Association)), as Trustee, dated July 1, 1940 (Exhibit 7(a), File No. 2-4450). |
| |
| Supplemental Indentures between CEI and the Trustee, supplemental to Exhibit 4b(1), dated as follows: |
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4b(2) | July 1, 1940 (Exhibit 7(b), File No. 2-4450). |
4b(3) | August 18, 1944 (Exhibit 4(c), File No. 2-9887). |
4b(4) | December 1, 1947 (Exhibit 7(d), File No. 2-7306). |
4b(5) | September 1, 1950 (Exhibit 7(c), File No. 2-8587). |
4b(6) | June 1, 1951 (Exhibit 7(f), File No. 2-8994). |
4b(7) | May 1, 1954 (Exhibit 4(d), File No. 2-10830). |
4b(8) | March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839). |
4b(9) | April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753). |
4b(10) | December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759). |
4b(11) | January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759). |
4b(12) | November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008). |
4b(13) | June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235). |
4b(14) | November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460). |
4b(15) | May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537). |
4b(16) | April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995). |
4b(17) | April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309). |
4b(18) | May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File No. 1-2323). |
4b(19) | February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10 K, File No. 1-2323). |
4b(20) | November 23 1976 (Exhibit 2(a)(4), File No. 2-57375). |
4b(21) | July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401). |
4b(22) | September 7, 1977 (Exhibit 2(a)(5), File No. 2-67221). |
4b(23) | May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File No. 1-2323). |
4b(24) | September 1, 1979 (Exhibit 2(a), September 30, 1979 Form 10-Q, File No. 1-2323). |
4b(25) | April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form 10-Q, File No. 1-2323). |
4b(26) | April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-Q, File No. 1-2323). |
4b(27) | May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No. 2-67221). |
4b(28) | June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-Q, File No. 1-2323). |
4b(29) | December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File No. 1-2323). |
4b(30) | July 28, 1981 (Exhibit 4(a), September 30, 1981, Form 10-Q, File No. 1-2323). |
4b(31) | August 1, 1981 (Exhibit 4(b), September 30, 1981, Form 10-Q, File No. 1-2323). |
4b(32) | March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No. 2-76029). |
4b(33) | July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-Q, File No. 1-2323). |
4b(34) | September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-Q, File No. 1-2323). |
4b(35) | November 1, 1982 (Exhibit (a)(2), September 30, 1982 Form 10-Q, File No. 1-2323). |
4b(36) | November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File No. 1-2323). |
4b(37) | May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-Q, File No. 1-2323). |
4b(38) | May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-Q, File No. 1-2323). |
4b(39) | May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No. 1-2323). |
4b(40) | June 27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File No. 1-2323). |
4b(41) | September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File No. 1-2323). |
4b(42) | November 14, 1984 (Exhibit 4b(42), 1984 Form 10 K, File No. 1-2323). |
4b(43) | November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File No. 1-2323). |
4b(44) | April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File No. 1-2323). |
4b(45) | May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No. 1-2323). |
4b(46) | August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-Q, File No. 1-2323). |
4b(47) | September 1, 1985 (Exhibit 4, September 30, 1985 Form 8-K, File No. 1-2323). |
4b(48) | November 1, 1985 (Exhibit 4, January 31, 1986 Form 8-K, File No. 1-2323). |
4b(49) | April 15, 1986 (Exhibit 4, March 31, 1986 Form 10-Q, File No. 1-2323). |
4b(50) | May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q, File No. 1-2323). |
4b(51) | May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q, File No. 1-2323). |
4b(52) | February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File No. 1-2323). |
4b(53) | October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-2323). |
4b(54) | February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File No. 1-2323). |
4b(55) | September 15, 1988 (Exhibit 4b(55), 1988 Form 10-K, File No. 1-2323). |
4b(56) | May 15, 1989 (Exhibit 4(a)(2)(i), File No. 33-32724). |
4b(57) | June 13, 1989 (Exhibit 4(a)(2)(ii), File No. 33-32724). |
4b(58) | October 15, 1989 (Exhibit 4(a)(2)(iii), File No. 33-32724). |
4b(59) | January 1, 1990 (Exhibit 4b(59), 1989 Form 10-K, File No. 1-2323). |
4b(60) | June 1, 1990 (Exhibit 4(a). September 30, 1990 Form 10-Q, File No. 1-2323). |
4b(61) | August 1, 1990 (Exhibit 4(b), September 30, 1990 Form 10-Q, File No. 1-2323). |
4b(62) | May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File No. 1-2323). |
4b(63) | May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845). |
4b(64) | July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292). |
4b(65) | January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No. 1-2323). |
4b(66) | February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File No. 1-2323). |
4b(67) | May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File No. 1-2323). |
4b(68) | June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File No. 1-2323). |
4b(69) | September 15, 1994 (Exhibit 4(a), September 30, 1994 Form 10-Q, File No. 1-2323). |
4b(70) | May 1, 1995 (Exhibit 4(a), September 30, 1995 Form 10-Q, File No. 1-2323). |
4b(71) | May 2, 1995 (Exhibit 4(b), September 30, 1995 Form 10-Q, File No. 1-2323). |
4b(72) | June 1, 1995 (Exhibit 4(c), September 30, 1995 Form 10-Q, File No. 1-2323). |
4b(73) | July 15, 1995 (Exhibit 4b(73), 1995 Form 10-K, File No. 1-2323). |
4b(74) | August 1, 1995 (Exhibit 4b(74), 1995 Form 10-K, File No. 1-2323). |
4b(75) | June 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison). |
4b(76) | October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
4b(77) | June 1, 1998 (Exhibit 4b(77), Form S-4 File No. 333-72891). |
4b(78) | October 1, 1998 (Exhibit 4b(78), Form S-4 File No. 333-72891). |
4b(79) | October 1, 1998 (Exhibit 4b(79), Form S-4 File No. 333-72891). |
4b(80) | February 24, 1999 (Exhibit 4b(80), Form S-4 File No. 333-72891). |
4b(81) | September 29, 1999. (Exhibit 4b(81), 1999 Form 10-K, File No. 1-2323). |
4b(82) | January 15, 2000. (Exhibit 4b(82), 1999 Form 10-K, File No. 1-2323). |
4b(83) | May 15, 2002 (Exhibit 4b(83), 2002 Form 10-K, File No. 1-2323). |
4b(84) | October 1, 2002 (Exhibit 4b(84), 2002 Form 10-K, File No. 1-2323). |
4b(85) | Supplemental Indenture dated as of September 1, 2004 (Exhibit 4-1(85), September 2004 10-Q, File No. 1-2323). |
4b(86) | Supplemental Indenture dated as of October 1, 2004 (Exhibit 4-1(86), September 2004 10-Q, File No. 1-2323). |
4b(87) | Supplemental Indenture dated as of April 1, 2005 (Exhibit 4.1, June 2005 10-Q, File No. 1-2323) |
4b(88) | Supplemental Indenture dated as of July 1, 2005 (Exhibit 4.2, June 2005 10-Q, File No. 1-2323) |
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4d | Form of Note Indenture between Cleveland Electric and The Chase Manhattan Bank, as Trustee dated as of October 24, 1997 (Exhibit 4(b), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
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4d(1) | Form of Supplemental Note Indenture between Cleveland Electric and The Chase Manhattan Bank, as Trustee dated as of October 24, 1997 (Exhibit 4(c), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
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4-1 | Indenture dated as of December 1, 2003 between CEI and JPMorgan Chase Bank, as Trustee, Incorporated by reference to Exhibit 4-8, 2003 Annual Report on Form 10-K, SEC File No. 1-02323. |
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4-2 | Officer's Certificate (including the form of 5.95% Senior Notes due 2036), dated as of December 11, 2006. (Form 8-K dated December 11, 2006, Exhibit 4) |
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10-1 | Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2).) |
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10-2 | Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).) |
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10-3 | Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) |
| |
10-4 | Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4.) |
| |
10-5 | Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980, October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). |
| |
10-6 | Electric Power Supply Agreement, between the Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company, and First Energy Solutions Corp. (f.k.a. FirstEnergy Services Corp.), dated January 1, 2001. (Filed as Ohio Edison Exhibit 10-145 in 2004 Form 10-K) |
| |
10-7 | Revised Electric Power Supply Agreement, between FirstEnergy Solutions Corp., the Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, and the Toledo Edison Company, dated October 1, 2003. (Filed as Ohio Edison Exhibit 10-146 in 2004 Form 10-K) |
| |
Exhibit
Number
10-8 | Master Facility Lease, between Ohio Edison Company, Pennsylvania Power Company, the Cleveland Electric Illuminating Company, the Toledo Edison Company, and FirstEnergy Generation Corp., dated January 1, 2001. (Filed as Ohio Edison Exhibit 10-147 in 2004 Form 10-K) |
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10-9 | CEI Nuclear Purchase and Sale Agreement by and between The Cleveland Electric Illuminating Company and FirstEnergy Nuclear Generation Corp. (June 2005 10-Q, Exhibit 10.1) |
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10-10 | CEI Fossil Purchase and Sale Agreement by and between The Cleveland Electric Illuminating Company (Seller) and FirstEnergy Generation Corp. (Purchaser). (June 2005 10-Q, Exhibit 10.2) |
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10-11 | 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) (2005 Form 10-K, Exhibit 10-6) |
| |
10-12 | Power Supply Agreement dated as of October 31, 2005 between FirstEnergy Solutions Corp. (Seller) and the FirstEnergy Operating Companies - OE, CEI and TE (Buyers) (2005 Form 10-K, Exhibit 10-9) |
| |
10-13 | 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) (2005 Form 10-K, Exhibit 10-7) |
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(A)12.3 | Consolidated fixed charge ratios. |
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(A)13.2 | CEI 2006 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) |
| |
(A)21.2 | List of Subsidiaries of the Registrant at December 31, 2006. |
| |
(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. Section 1350.§1350. |
| |
(A) | Provided herein in electronic format as an exhibit. |
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(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. |
3a | Amended Articles of Incorporation of TE, as amended effective October 2, 1992 (Exhibit 3a, 1992 Form 10-K, File No. 1-3583). |
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3b | Amended and Restated Code of Regulations, dated March 15, 2002. (2001 Form 10-K, Exhibit 3b) |
| |
(B)4b(1) | Indenture, dated as of April 1, 1947, between TE and The Chase National Bank of the City of New York (now The Chase Manhattan Bank (National Association)) (Exhibit 2(b), File No. 2-26908). |
4b(2) | September 1, 1948 (Exhibit 2(d), File No. 2-26908). |
4b(3) | April 1, 1949 (Exhibit 2(e), File No. 2-26908). |
4b(4) | December 1, 1950 (Exhibit 2(f), File No. 2-26908). |
4b(5) | March 1, 1954 (Exhibit 2(g), File No. 2-26908). |
4b(6) | February 1, 1956 (Exhibit 2(h), File No. 2-26908). |
4b(7) | May 1, 1958 (Exhibit 5(g), File No. 2-59794). |
4b(8) | August 1, 1967 (Exhibit 2(c), File No. 2-26908). |
4b(9) | November 1, 1970 (Exhibit 2(c), File No. 2-38569). |
4b(10) | August 1, 1972 (Exhibit 2(c), File No. 2-44873). |
4b(11) | November 1, 1973 (Exhibit 2(c), File No. 2-49428). |
4b(12) | July 1, 1974 (Exhibit 2(c), File No. 2-51429). |
4b(13) | October 1, 1975 (Exhibit 2(c), File No. 2-54627). |
4b(14) | June 1, 1976 (Exhibit 2(c), File No. 2-56396). |
4b(15) | October 1, 1978 (Exhibit 2(c), File No. 2-62568). |
4b(16) | September 1, 1979 (Exhibit 2(c), File No. 2-65350). |
4b(17) | September 1, 1980 (Exhibit 4(s), File No. 2-69190). |
4b(18) | October 1, 1980 (Exhibit 4(c), File No. 2-69190). |
4b(19) | April 1, 1981 (Exhibit 4(c), File No. 2-71580). |
4b(20) | November 1, 1981 (Exhibit 4(c), File No. 2-74485). |
4b(21) | June 1, 1982 (Exhibit 4(c), File No. 2-77763). |
4b(22) | September 1, 1982 (Exhibit 4(x), File No. 2-87323). |
4b(23) | April 1, 1983 (Exhibit 4(c), March 31, 1983, Form 10-Q, File No. 1-3583). |
4b(24) | December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No. 1-3583). |
4b(25) | April 1, 1984 (Exhibit 4(c), File No. 2-90059). |
4b(26) | October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No. 1-3583). |
4b(27) | October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No. 1-3583). |
4b(28) | August 1, 1985 (Exhibit 4(dd), File No. 33-1689). |
4b(29) | August 1, 1985 (Exhibit 4(ee), File No. 33-1689). |
4b(30) | December 1, 1985 (Exhibit 4(c), File No. 33-1689). |
4b(31) | March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. 1-3583). |
4b(32) | October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-3583). |
4b(33) | September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File No. 1-3583). |
4b(34) | June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No. 1-3583). |
4b(35) | October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File No. 1-3583). |
4b(36) | May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File No. 1-3583). |
4b(37) | March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q, File No. 1-3583). |
4b(38) | May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844). |
4b(39) | August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No. 1-3583). |
4b(40) | October 1, 1992 (Exhibit 4b(40), 1992 Form 10-K, File No. 1-3583). |
4b(41) | January 1, 1993 (Exhibit 4b(41), 1992 Form 10-K, File No. 1-3583). |
4b(42) | September 15, 1994 (Exhibit 4(b), September 30, 1994 Form 10-Q, File No. 1-3583). |
4b(43) | May 1, 1995 (Exhibit 4(d), September 30, 1995 Form 10-Q, File No. 1-3583). |
4b(44) | June 1, 1995 (Exhibit 4(e), September 30, 1995 Form 10-Q, File No. 1-3583). |
4b(45) | July 14, 1995 (Exhibit 4(f), September 30, 1995 Form 10-Q, File No. 1-3583). |
4b(46) | July 15, 1995 (Exhibit 4(g), September 30, 1995 Form 10-Q, File No. 1-3583). |
4b(47) | August 1, 1997 (Exhibit 4b(47), 1998 Form 10-K, File No. 1-3583). |
4b(48) | June 1, 1998 (Exhibit 4b (48), 1998 Form 10-K, File No. 1-3583). |
4b(49) | January 15, 2000 (Exhibit 4b(49), 1999 Form 10-K, File No. 1-3583). |
4b(50) | May 1, 2000 (Exhibit 4b(50), 2000 Form 10-K, File No. 1-3583). |
4b(51) | September 1, 2000 (Exhibit 4b(51), 2002 Form 10-K, File No. 1-3583). |
4b(52) | October 1, 2002 (Exhibit 4b(52), 2002 Form 10-K, File No. 1-3583). |
4b(53) | April 1, 2003 (Exhibit 4b(53). |
4b(55) | April 1, 2005 (Exhibit 4.1, June 2005 10-Q, File No. 1-3583). |
| |
4-1 | Officer's Certificate (including the form of 6.15% Senior Notes due 2037), dated November 16, 2006. (Form 8-K dated November 16, 2006, Exhibit 4) |
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(A) 4-2 | Indenture dated as of November 1, 2006, between TE and The Bank of New York Trust Company, N.A. |
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10-123 | TE Nuclear Purchase and Sale Agreement by and between The Toledo Edison Company (Seller) and FirstEnergy Nuclear Generation Corp. (Purchaser). (June 2005 10-Q, Exhibit 10.1)Consent of Independent Registered Public Accounting Firm. |
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10-2 | TE Fossil Purchase and Sale Agreement by and between The Toledo Edison Company (Seller) and FirstEnergy Generation Corp. (Purchaser). (June 2005 10-Q, Exhibit 10.2) |
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10-3 | 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) (2005 Form 10-K, Exhibit 10-6) |
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10-4 | Power Supply Agreement dated as of October 31, 2005 between FirstEnergy Solutions Corp. (Seller) and the FirstEnergy Operating Companies - OE, CEI and TE (Buyers) (2005 Form 10-K, Exhibit 10-9) |
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10-5 | 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) (2005 Form 10-K, Exhibit 10-7) |
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(A)12.4 | Consolidated fixed charge ratios. |
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(A)13.3 | TE 2006 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) |
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(A)21.3 | List of Subsidiaries of the Registrant at December 31, 2006. |
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(A)31.1 | Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)31.2 | Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)32 | Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350. |
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(A) | Provided herein in electronic format as an exhibit. |
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(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-A | Restated Certificate of Incorporation of JCP&L, as amended - Incorporated by reference to Exhibit 3-A, 1990 Annual Report on Form 10-K, SEC File No. 1-3141. |
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3-A-1 | Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a), Certificate Pursuant to Rule 24, SEC File No. 70-7949. |
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3-A-2 | Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7949. |
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3-B | By-Laws of JCP&L, as amended May 25, 1993 - Incorporated by reference to Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No. 1-3141. |
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4-A | Indenture of JCP&L, dated March 1, 1946, between JCP&L and United States Trust Company of New York, Successor Trustee, as amended and supplemented by eight supplemental indentures dated December 1, 1948 through June 1, 1960 - Incorporated by reference to JCP&L's Instruments of Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. |
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4-A-1 | Ninth Supplemental Indenture of JCP&L, dated November 1, 1962 - Incorporated by reference to Exhibit 2-C, Registration No. 2-20732. |
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4-A-2 | Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 - Incorporated by reference to Exhibit 2-C, Registration No. 2-21645. |
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4-A-3 | Eleventh Supplemental Indenture of JCP&L, dated October 1, 1964 - Incorporated by reference to Exhibit 5-A-3, Registration No. 2-59785. |
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4-A-4 | Twelfth Supplemental Indenture of JCP&L, dated November 1, 1965 - Incorporated by reference to Exhibit 5-A-4, Registration No. 2-59785. |
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4-A-5 | Thirteenth Supplemental Indenture of JCP&L, dated August 1, 1966 - Incorporated by reference to Exhibit 4-C, Registration No. 2-25124. |
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4-A-6 | Fourteenth Supplemental Indenture of JCP&L, dated September 1, 1967 - Incorporated by reference to Exhibit 5-A-6, Registration No. 2-59785. |
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4-A-7 | Fifteenth Supplemental Indenture of JCP&L, dated October 1, 1968 - Incorporated by reference to Exhibit 5-A-7, Registration No. 2-59785. |
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4-A-8 | Sixteenth Supplemental Indenture of JCP&L, dated October 1, 1969 - Incorporated by reference to Exhibit 5-A-8, Registration No. 2-59785. |
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4-A-9 | Seventeenth Supplemental Indenture of JCP&L, dated June 1, 1970 - Incorporated by reference to Exhibit 5-A-9, Registration No. 2-59785. |
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4-A-10 | Eighteenth Supplemental Indenture of JCP&L, dated December 1, 1970 - Incorporated by reference to Exhibit 5-A-10, Registration No. 2-59785. |
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4-A-11 | Nineteenth Supplemental Indenture of JCP&L, dated February 1, 1971 - Incorporated by reference to Exhibit 5-A-11, Registration No. 2-59785. |
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4-A-12 | Twentieth Supplemental Indenture of JCP&L, dated November 1, 1971 - Incorporated by reference to Exhibit 5-A-12, Registration No. 2-59875. |
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4-A-13 | Twenty-first Supplemental Indenture of JCP&L, dated August 1, 1972 - Incorporated by reference to Exhibit 5-A-13, Registration No. 2-59785. |
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4-A-14 | Twenty-second Supplemental Indenture of JCP&L, dated August 1, 1973 - Incorporated by reference to Exhibit 5-A-14, Registration No. 2-59785. |
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4-A-15 | Twenty-third Supplemental Indenture of JCP&L, dated October 1, 1973 - Incorporated by reference to Exhibit 5-A-15, Registration No. 2-59785. |
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4-A-16 | Twenty-fourth Supplemental Indenture of JCP&L, dated December 1, 1973 - Incorporated by reference to Exhibit 5-A-16, Registration No. 2-59785. |
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4-A-17 | Twenty-fifth Supplemental Indenture of JCP&L, dated November 1, 1974 - Incorporated by reference to Exhibit 5-A-17, Registration No. 2-59785. |
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4-A-18 | Twenty-sixth Supplemental Indenture of JCP&L, dated March 1, 1975 - Incorporated by reference to Exhibit 5-A-18, Registration No. 2-59785. |
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4-A-19 | Twenty-seventh Supplemental Indenture of JCP&L, dated July 1, 1975 - Incorporated by reference to Exhibit 5-A-19, Registration No. 2-59785. |
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4-A-20 | Twenty-eighth Supplemental Indenture of JCP&L, dated October 1, 1975 - Incorporated by reference to Exhibit 5-A-20, Registration No. 2-59785. |
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4-A-21 | Twenty-ninth Supplemental Indenture of JCP&L, dated February 1, 1976 - Incorporated by reference to Exhibit 5-A-21, Registration No. 2-59785. |
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4-A-22 | Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976 - Incorporated by reference to Exhibit 5-A-22, Registration No. 2-59785. |
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4-A-23 | Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976 - Incorporated by reference to Exhibit 5-A-23, Registration No. 2-59785. |
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4-A-24 | Thirty-first Supplemental Indenture of JCP&L, dated May 1, 1977 - Incorporated by reference to Exhibit 5-A-24, Registration No. 2-59785. |
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4-A-25 | Thirty-second Supplemental Indenture of JCP&L, dated January 20, 1978 - Incorporated by reference to Exhibit 5-A-25, Registration No. 2-60438. |
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4-A-26 | Thirty-third Supplemental Indenture of JCP&L, dated January 1, 1979 - Incorporated by reference to Exhibit A-20(b), Certificate Pursuant to Rule 24, SEC File No. 70-6242. |
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4-A-27 | Thirty-fourth Supplemental Indenture of JCP&L, dated June 1, 1979 - Incorporated by reference to Exhibit A-28, Certificate Pursuant to Rule 24, SEC File No. 70-6290. |
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4-A-28 | Thirty-sixth Supplemental Indenture of JCP&L, dated October 1, 1979 - Incorporated by reference to Exhibit A-30, Certificate Pursuant to Rule 24, SEC File No. 70-6354. |
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4-A-29 | Thirty-seventh Supplemental Indenture of JCP&L, dated September 1, 1984 - Incorporated by reference to Exhibit A-1(cc), Certificate Pursuant to Rule 24, SEC File No. 70-7001. |
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4-A-30 | Thirty-eighth Supplemental Indenture of JCP&L, dated July 1, 1985 - Incorporated by reference to Exhibit A-1(dd), Certificate Pursuant to Rule 24, SEC File No. 70-7109. |
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4-A-31 | Thirty-ninth Supplemental Indenture of JCP&L, dated April 1, 1988 - Incorporated by reference to Exhibit A-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-7263. |
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4-A-32 | Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988 - Incorporated by reference to Exhibit A-1(ff), Certificate Pursuant to Rule 24, SEC File No. 70-7603. |
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4-A-33 | Forty-first Supplemental Indenture of JCP&L, dated April 1, 1989 - Incorporated by reference to Exhibit A-1(gg), Certificate Pursuant to Rule 24, SEC File No. 70-7603. |
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4-A-34 | Forty-second Supplemental Indenture of JCP&L, dated July 1, 1989 - Incorporated by reference to Exhibit A-1(hh), Certificate Pursuant to Rule 24, SEC File No. 70-7603. |
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4-A-35 | Forty-third Supplemental Indenture of JCP&L, dated March 1, 1991 - Incorporated by reference to Exhibit 4-A-35, Registration No. 33-45314. |
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4-A-36 | Forty-fourth Supplemental Indenture of JCP&L, dated March 1, 1992 - Incorporated by reference to Exhibit 4-A-36, Registration No. 33-49405. |
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4-A-37 | Forty-fifth Supplemental Indenture of JCP&L, dated October 1, 1992 - Incorporated by reference to Exhibit 4-A-37, Registration No. 33-49405. |
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4-A-38 | Forty-sixth Supplemental Indenture of JCP&L, dated April 1, 1993 - Incorporated by reference to Exhibit C-15, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-A-39 | Forty-seventh Supplemental Indenture of JCP&L, dated April 10, 1993 - Incorporated by reference to Exhibit C-16, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-A-40 | Forty-eighth Supplemental Indenture of JCP&L, dated April 15, 1993 - Incorporated by reference to Exhibit C-17, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-A-41 | Forty-ninth Supplemental Indenture of JCP&L, dated October 1, 1993 - Incorporated by reference to Exhibit C-18, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-A-42 | Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994 - Incorporated by reference to Exhibit C-19, 1994 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-A-43 | Fifty-first Supplemental Indenture of JCP&L, dated August 15, 1996 - Incorporated by reference to Exhibit 4-A-43, 1996 Annual Report on Form 10-K, SEC File No. 1-6047. |
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4-A-44 | Fifty-second Supplemental Indenture of JCP&L, dated July 1, 1999 - Incorporated by reference to Exhibit 4-B-44, Registration No. 333-88783. |
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4-A-45 | Fifty-third Supplemental Indenture of JCP&L, dated November 1, 1999 - Incorporated by reference to Exhibit 4-A-45, 1999 Annual Report on Form 10-K, SEC File No. 1-3141. |
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4-A-46 | Subordinated Debenture Indenture of JCP&L, dated May 1, 1995 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. |
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4-A-47 | Fifty-fourth Supplemental Indenture of JCP&L, dated May 1, 2001, Incorporated by reference to Exhibit 4-4, 2001 Annual Report on Form 10-K, SEC File No. 1-3141. |
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4-A-48 | Fifty-fifth Supplemental Indenture of JCP&L, dated April 23, 2004. (2004 Form 10-K, Exhibit 4-A-48). |
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4-D | Amended and Restated Limited Partnership Agreement of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. |
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4-E | Action Creating Series A Preferred Securities of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. |
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4-F | Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. |
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4-G | Indenture dated as of August 10, 2006 between JCP&L Transition Funding II LLC as Issuer and The Bank of New York as Trustee. (Form 8-K dated August 10, 2006, Exhibit 4-1) |
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4-H | 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. (Form 8-K dated August 10, 2006, Exhibit 4-2) |
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10-1 | Form of Jersey Central Power & Light Company 6.40% Senior Note due 2036. (Form 8-K dated May 12, 2006, Exhibit 10-1) |
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10-2 | Registration Rights Agreement, dated as of May 12, 2006, among Jersey Central Power & Light Company and UBS Securities LLC and Greenwich Capital Markets, Inc., as representatives of the several initial purchasers named in the Purchase Agreement. (Form 8-K dated May 12, 2006, Exhibit 10-3) |
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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. (Form 8-K dated August 10, 2006, Exhibit 10-1) |
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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. (Form 8-K dated August 10, 2006, Exhibit 10-2) |
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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. (Form 8-K dated August 10, 2006, Exhibit 10-3) |
(A)12.5 | Consolidated fixed charge ratios. |
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(A)13.4 | JCP&L 2006 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with SEC.) |
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(A)21.4 | List of Subsidiaries of the Registrant at December 31, 2006. |
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(A)31.1 | Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)31.2 | Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)32 | Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350. |
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(A) | Provided herein electronic format as an exhibit. |
3. Exhibits - Met-Ed
3-C | Restated Articles of Incorporation of Met-Ed, dated March 8, 1999 - Incorporated by reference to Exhibit 3-E, 1999 Annual Report on Form 10-K, SEC File No. 1-446. |
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3-D | By-Laws of Met-Ed as amended May 16, 2000, Incorporated by reference to Exhibit 3-F, 2000 Annual Report on Form 10-K, SEC File No. 1-06047. |
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4-B | Indenture of Met-Ed, dated November 1, 1944, between Met-Ed 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 - Incorporated by reference to Met-Ed's Instruments of Indebtedness Nos. 1 to 14 inclusive, and 16, filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. |
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4-B-1 | Supplemental Indenture of Met-Ed, dated December 1, 1962 - Incorporated by reference to Exhibit 2-E(1), Registration No. 2-59678. |
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4-B-2 | Supplemental Indenture of Met-Ed, dated March 20, 1964 - Incorporated by reference to Exhibit 2-E(2), Registration No. 2-59678. |
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4-B-3 | Supplemental Indenture of Met-Ed, dated July 1, 1965 - Incorporated by reference to Exhibit 2-E(3), Registration No. 2-59678. |
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4-B-4 | Supplemental Indenture of Met-Ed, dated June 1, 1966 - Incorporated by reference to Exhibit 2-B-4, Registration No. 2-24883. |
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4-B-5 | Supplemental Indenture of Met-Ed, dated March 22, 1968 - Incorporated by reference to Exhibit 4-C-5, Registration No. 2-29644. |
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4-B-6 | Supplemental Indenture of Met-Ed, dated September 1, 1968 - Incorporated by reference to Exhibit 2-E(6), Registration No. 2-59678. |
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4-B-7 | Supplemental Indenture of Met-Ed, dated August 1, 1969 - Incorporated by reference to Exhibit 2-E(7), Registration No. 2-59678. |
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4-B-8 | Supplemental Indenture of Met-Ed, dated November 1, 1971 - Incorporated by reference to Exhibit 2-E(8), Registration No. 2-59678. |
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4-B-9 | Supplemental Indenture of Met-Ed, dated May 1, 1972 - Incorporated by reference to Exhibit 2-E(9), Registration No. 2-59678. |
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4-B-10 | Supplemental Indenture of Met-Ed, dated December 1, 1973 - Incorporated by reference to Exhibit 2-E(10), Registration No. 2-59678. |
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4-B-11 | Supplemental Indenture of Met-Ed, dated October 30, 1974 - Incorporated by reference to Exhibit 2-E(11), Registration No. 2-59678. |
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4-B-12 | Supplemental Indenture of Met-Ed, dated October 31, 1974 - Incorporated by reference to Exhibit 2-E(12), Registration No. 2-59678. |
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4-B-13 | Supplemental Indenture of Met-Ed, dated March 20, 1975 - Incorporated by reference to Exhibit 2-E(13), Registration No. 2-59678. |
4-B-14 | Supplemental Indenture of Met-Ed, dated September 25, 1975 - Incorporated by reference to Exhibit 2-E(15), Registration No. 2-59678. |
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4-B-15 | Supplemental Indenture of Met-Ed, dated January 12, 1976 - Incorporated by reference to Exhibit 2-E(16), Registration No. 2-59678. |
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4-B-16 | Supplemental Indenture of Met-Ed, dated March 1, 1976 - Incorporated by reference to Exhibit 2-E(17), Registration No. 2-59678. |
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4-B-17 | Supplemental Indenture of Met-Ed, dated September 28, 1977 - Incorporated by reference to Exhibit 2-E(18), Registration No. 2-62212. |
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4-B-18 | Supplemental Indenture of Met-Ed, dated January 1, 1978 - Incorporated by reference to Exhibit 2-E(19), Registration No. 2-62212. |
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4-B-19 | Supplemental Indenture of Met-Ed, dated September 1, 1978 - Incorporated by reference to Exhibit 4-A(19), Registration No. 33-48937. |
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4-B-20 | Supplemental Indenture of Met-Ed, dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(20), Registration No. 33-48937. |
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4-B-21 | Supplemental Indenture of Met-Ed, dated January 1, 1980 - Incorporated by reference to Exhibit 4-A(21), Registration No. 33-48937. |
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4-B-22 | Supplemental Indenture of Met-Ed, dated September 1, 1981 - Incorporated by reference to Exhibit 4-A(22), Registration No. 33-48937. |
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4-B-23 | Supplemental Indenture of Met-Ed, dated September 10, 1981 - Incorporated by reference to Exhibit 4-A(23), Registration No. 33-48937. |
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4-B-24 | Supplemental Indenture of Met-Ed, dated December 1, 1982 - Incorporated by reference to Exhibit 4-A(24), Registration No. 33-48937. |
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4-B-25 | Supplemental Indenture of Met-Ed, dated September 1, 1983 - Incorporated by reference to Exhibit 4-A(25), Registration No. 33-48937. |
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4-B-26 | Supplemental Indenture of Met-Ed, dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(26), Registration No. 33-48937. |
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4-B-27 | Supplemental Indenture of Met-Ed, dated March 1, 1985 - Incorporated by reference to Exhibit 4-A(27), Registration No. 33-48937. |
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4-B-28 | Supplemental Indenture of Met-Ed, dated September 1, 1985 - Incorporated by reference to Exhibit 4-A(28), Registration No. 33-48937. |
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4-B-29 | Supplemental Indenture of Met-Ed, dated June 1, 1988 - Incorporated by reference to Exhibit 4-A(29), Registration No. 33-48937. |
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4-B-30 | Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(30), Registration No. 33-48937. |
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4-B-31 | Amendment dated May 22, 1990 to Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(31), Registration No. 33-48937. |
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4-B-32 | Supplemental Indenture of Met-Ed, dated September 1, 1992 - Incorporated by reference to Exhibit 4-A(32)(a), Registration No. 33-48937. |
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4-B-33 | Supplemental Indenture of Met-Ed, dated December 1, 1993 - Incorporated by reference to Exhibit C-58, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-B-34 | Supplemental Indenture of Met-Ed, dated July 15, 1995 - Incorporated by reference to Exhibit 4-B-35, 1995 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-B-35 | Supplemental Indenture of Met-Ed, dated August 15, 1996 - Incorporated by reference to Exhibit 4-B-35, 1996 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-B-36 | Supplemental Indenture of Met-Ed, dated May 1, 1997 - Incorporated by reference to Exhibit 4-B-36, 1997 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-B-37 | Supplemental Indenture of Met-Ed, dated July 1, 1999 - Incorporated by reference to Exhibit 4-B-38, 1999 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-B-38 | Indenture between Met-Ed and United States Trust Company of New York, dated May 1, 1999 - Incorporated by reference to Exhibit A-11(a), Certificate Pursuant to Rule 24, SEC File No. 70-9329. |
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4-B-39 | Senior Note Indenture between Met-Ed and United States Trust Company of New York, dated July 1, 1999 Incorporated by reference to Exhibit C-154 to GPU, Inc.'s Annual Report on Form U5S for the year 1999, SEC File No. 30-126. |
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4-B-40 | First Supplemental Indenture between Met-Ed and United States Trust Company of New York, dated August 1, 2000 - Incorporated by reference to Exhibit 4-A, June 30, 2000 Quarterly Report on Form 10-Q, SEC File No. 1-446. |
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4-B-41 | Supplemental Indenture of Met-Ed, dated May 1, 2001 - Incorporated by reference to Exhibit 4-5, 2001 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-B-42 | Supplemental Indenture of Met-Ed, dated March 1,2003 - Incorporated by reference to Exhibit 4-10, 2003 Annual Report on Form 10-K, SEC File No. 1-446. |
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4-G | Payment and Guarantee Agreement of Met-Ed, dated May 28, 1999 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC No. 70-9329. |
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4-H | Amendment No. 1 to Payment and Guarantee Agreement of Met-Ed, dated November 23, 1999 - Incorporated by reference to Exhibit 4-H, 1999 Annual Report on Form 10-K, SEC File No. 1-446. |
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(A)12.6 | Consolidated fixed charge ratios. |
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(A)13.5 | Met-Ed 2006 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with SEC.) |
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(A)21.5 | List of Subsidiaries of the Registrant at December 31, 2006. |
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(A)31.1 | Certification of chief executive officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)31.2 | Certification of chief financial officer, as adopted pursuant to Rule 13a-15(e)/15d-15(e). |
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(A)32 | Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350. |
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(A) | Provided herein electronic format as an exhibit. |
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3. Exhibits - Penelec
3-E | Restated Articles of Incorporation of Penelec, dated March 8, 1999 - Incorporated by reference to Exhibit 3-G, 1999 Annual Report on Form 10-K, SEC File No. 1-3522. |
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3-F | By-Laws of Penelec as amended May 16, 2000, Incorporated by reference to Exhibit 3-F, 2000 Annual Report on Form 10-K, SEC File No. 1-03522. |
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4-C | Mortgage and Deed of Trust of Penelec, dated January 1, 1942, between Penelec and United States Trust Company of New York, Successor Trustee, and indentures supplemental thereto dated March 7, 1942 through May 1, 1960 - Incorporated by reference to Penelec's Instruments of Indebtedness Nos. 1-20, inclusive, filed as a part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. |
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4-C-1 | Supplemental Indentures to Mortgage and Deed of Trust of Penelec, dated May 1, 1961 through December 1, 1977 - Incorporated by reference to Exhibit 2-D(1) to 2-D(19), Registration No. 2-61502. |
4-C-2 | Supplemental Indenture of Penelec, dated June 1, 1978 - Incorporated by reference to Exhibit 4-A(2), Registration No. 33-49669. |
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4-C-3 | Supplemental Indenture of Penelec, dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(3), Registration No. 33-49669. |
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4-C-4 | Supplemental Indenture of Penelec, dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(4), Registration No. 33-49669. |
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4-C-5 | Supplemental Indenture of Penelec, dated December 1, 1985 - Incorporated by reference to Exhibit 4-A(5), Registration No. 33-49669. |
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4-C-6 | Supplemental Indenture of Penelec, dated December 1, 1986 - Incorporated by reference to Exhibit 4-A(6), Registration No. 33-49669. |
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4-C-7 | Supplemental Indenture of Penelec, dated May 1, 1989 - Incorporated by reference to Exhibit 4-A(7), Registration No. 33-49669. |
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4-C-8 | Supplemental Indenture of Penelec, dated December 1, 1990-Incorporated by reference to Exhibit 4-A(8), Registration No. 33-45312. |
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4-C-9 | Supplemental Indenture of Penelec, dated March 1, 1992 - Incorporated by reference to Exhibit 4-A(9), Registration No. 33-45312. |
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4-C-10 | Supplemental Indenture of Penelec, dated June 1, 1993 - Incorporated by reference to Exhibit C-73, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. |
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4-C-11 | Supplemental Indenture of Penelec, dated November 1, 1995 - Incorporated by reference to Exhibit 4-C-11, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. |
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4-C-12 | Supplemental Indenture of Penelec, dated August 15, 1996 - Incorporated by reference to Exhibit 4-C-12, 1996 Annual Report on Form 10-K, SEC File No. 1-3522. |
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4-C-13 | Senior Note Indenture between Penelec and United States Trust Company of New York, dated April 1, 1999 - Incorporated by reference to Exhibit 4-C-13, 1999 Annual Report on Form 10-K, SEC File No. 1-3522. |
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4-C-14 | Supplemental Indenture of Penelec, dated May 1, 2001. |
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4-C-15 | Supplemental Indenture No. 1 of Penelec, dated May 1, 2001. |
| |
4-I | Payment and Guarantee Agreement of Penelec, dated June 16, 1999 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-9327. |
| |
4-J | Amendment No. 1 to Payment and Guarantee Agreement of Penelec, dated November 23, 1999 - Incorporated by reference to Exhibit 4-J, 1999 Annual Report on Form 10-K, SEC File No. 1-3522. |
| |
10.1 | Term Loan Agreement, dated as of March 15, 2005, among Pennsylvania Electric Company, Union Bank of California, N.A., as Administrative Agent, Lead Arranger and Lender, and National City Bank as Arranger, Syndication Agent and Lender. (March 18, 2005 Form 8-K, Exhibit 10.1). |
| |
(A)12.7 | Consolidated fixed charge ratios. |
| |
(A)13.6 | Penelec 2006 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with SEC.) |
| |
(A)21.6 | List of Subsidiaries of the Registrant at December 31, 2006. |
| |
(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. Section 1350. |
| |
(A) | Provided here in electronic format as an exhibit. |
3. Exhibits - Common Exhibits for Met-Ed and Penelec
10-1 | First Amendment to Restated Partial Requirements Agreement, between Met-Ed, Penelec, and FES, dated January 1, 2003. (2004 Form 10-K, Exhibit 10-1). |
| |
10-2 | Notice of Termination Tolling Agreement, Restated Partial Requirements Agreement (September 2005 10-Q, Exhibit 10-1). |
| |
10-3 | 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"). (March 2006 10-Q, Exhibit 10-5) |
| |
(A)10-4 | Second Restated Partial Requirements Agreement, between Met-Ed, Penelec and FES, dated January 1, 2007. (Form 8-K dated January 17, 2007) |
| |
(A) | Provided here in electronic format as an exhibit. |
3. Exhibits - Common Exhibits for FirstEnergy, 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. (Form 8-K dated August 24, 2006, Exhibit 10-1) |
| §1350. |
SIGNATURES
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
FirstEnergy Corp.:
Our audits of the consolidated financial statements, of management's assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 27, 2007 appearing in the 2006 Annual Report to Stockholders of FirstEnergy Corp. (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
Ohio Edison Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007 appearing in the 2006 Annual Report to Stockholders of Ohio Edison Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
The Cleveland Electric Illuminating Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007appearing in the 2006 Annual Report to Stockholders of The Cleveland Electric Illuminating Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
The Toledo Edison Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007appearing in the 2006 Annual Report to Stockholders of The Toledo Edison Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
Jersey Central Power
& Light Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007appearing in the 2006 Annual Report to Stockholders of Jersey Central Power & Light Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
Metropolitan Edison Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007appearing in the 2006 Annual Report to Stockholders of Metropolitan Edison Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedules
To the Board of Directors of
Pennsylvania Electric Company:
Our audit of the consolidated financial statements, referred to in our report dated February 27, 2007appearing in the 2006 Annual Report to Stockholders of Pennsylvania Electric Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 27, 2007
SCHEDULE II
FIRSTENERGY CORP. | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 37,733 | | $ | 60,461 | | $ | 34,259 | | (a) | | | $ | 89,239 | | (b) | | | $ | 43,214 | |
- other | | $ | 26,566 | | $ | 3,956 | | $ | 2,554 | | (a) | | | $ | 9,112 | | (b) | | | $ | 23,964 | |
| | | | | | | | | | | | | | | | | | | | | | |
Loss carryforward | | | | | | | | | | | | | | | | | | | | | | |
tax valuation reserve | | $ | 402,142 | | $ | - | | $ | 13,389 | | | | | $ | - | | | | | $ | 415,531 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 34,476 | | $ | 52,653 | | $ | 33,216 | | (a) | | | $ | 82,612 | | (b) | | | $ | 37,733 | |
- other | | $ | 26,069 | | $ | (49 | ) | $ | 11,098 | | (a) | | | $ | 10,552 | | (b) | | | $ | 26,566 | |
| | | | | | | | | | | | | | | | | | | | | | |
Loss carryforward | | | | | | | | | | | | | | | | | | | | | | |
tax valuation reserve | | $ | 419,978 | | $ | (4,758 | ) | $ | (13,078 | ) | | | | $ | - | | | | | $ | 402,142 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 50,247 | | $ | 38,492 | | $ | 22,102 | | (a) | | | $ | 76,365 | | (b) | | | $ | 34,476 | |
- other | | $ | 18,283 | | $ | 1,038 | | $ | 15,836 | | (a) | | | $ | 9,087 | | (b) | | | $ | 26,070 | |
| | | | | | | | | | | | | | | | | | | | | | |
Loss carryforward | | | | | | | | | | | | | | | | | | | | | | |
tax valuation reserve | | $ | 470,813 | | $ | (34,803 | ) | $ | (16,032 | ) | | | | $ | - | | | | | $ | 419,978 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
OHIO EDISON COMPANY | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 7,619 | | $ | 22,466 | | $ | 11,817 | | (a) | | | $ | 26,869 | | (b) | | | $ | 15,033 | |
- other | | $ | 4 | | $ | 2,218 | | $ | 473 | | (a) | | | $ | 710 | | (b) | | | $ | 1,985 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 6,302 | | $ | 17,250 | | $ | 8,548 | | (a) | | | $ | 24,481 | | (b) | | | $ | 7,619 | |
- other | | $ | 64 | | $ | 182 | | $ | 90 | | (a) | | | $ | 332 | | (b) | | | $ | 4 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 8,747 | | $ | 17,477 | | $ | 7,275 | | (a) | | | $ | 27,197 | | (b) | | | $ | 6,302 | |
- other | | $ | 2,282 | | $ | 376 | | $ | 215 | | (a) | | | $ | 2,809 | | (b) | | | $ | 64 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
SCHEDULE II
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 5,180 | | $ | 14,890 | | $ | 10,067 | | (a) | | | $ | 23,354 | | (b) | | | $ | 6,783 | |
- other | | $ | - | | $ | 22 | | $ | 138 | | (a) | | | $ | 160 | | (b) | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | - | | $ | 12,238 | | $ | 13,704 | | (a) | | | $ | 20,762 | | (b) | | | $ | 5,180 | |
- other | | $ | 293 | | $ | 92 | | $ | (12 | ) | (a) | | | $ | 373 | | (b) | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - other | | $ | 1,765 | | $ | (1,181 | ) | $ | 12 | | (a) | | | $ | 303 | | (b) | | | $ | 293 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
THE TOLEDO EDISON COMPANY | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts | | $ | - | | $ | 440 | | $ | 118 | | (a) | | | $ | 128 | | (b) | | | $ | 430 | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts | | $ | 2 | | $ | - | | $ | (2 | ) | (a) | | | $ | - | | | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts | | $ | 34 | | $ | (33 | ) | $ | 2 | | (a) | | | $ | 1 | | (b) | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
JERSEY CENTRAL POWER & LIGHT COMPANY | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 3,830 | | $ | 4,945 | | $ | 4,643 | | (a) | | | $ | 9,894 | | (b) | | | $ | 3,524 | |
- other | | $ | 204 | | $ | (201 | ) | $ | 866 | | (a) | | | $ | 869 | | (b) | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 3,881 | | $ | 5,997 | | $ | 2,783 | | (a) | | | $ | 8,831 | | (b) | | | $ | 3,830 | |
- other | | $ | 162 | | $ | 112 | | $ | 949 | | (a) | | | $ | 1,019 | | (b) | | | $ | 204 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,296 | | $ | 6,515 | | $ | 3,664 | | (a) | | | $ | 10,594 | | (b) | | | $ | 3,881 | |
- other | | $ | 1,183 | | $ | (111 | ) | $ | (354 | ) | (a) | | | $ | 556 | | (b) | | | $ | 162 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
METROPOLITAN EDISON COMPANY | |
| | | | | | | | | | | | | | | |
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
| | | | | | | | | | | | | | | |
| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,352 | | $ | 7,070 | | $ | 4,108 | | (a) | | | $ | 11,377 | | (b) | | | $ | 4,153 | |
- other | | $ | - | | $ | 15 | | $ | 36 | | (a) | | | $ | 49 | | (b) | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,578 | | $ | 8,704 | | $ | 3,503 | | (a) | | | $ | 12,433 | | (b) | | | $ | 4,352 | |
- other | | $ | - | | $ | - | | $ | - | | | | | $ | - | | | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,943 | | $ | 7,841 | | $ | 5,128 | | (a) | | | $ | 13,334 | | (b) | | | $ | 4,578 | |
- other | | $ | 68 | | $ | (68 | ) | $ | - | | | | | $ | - | | | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
| | | | | | | | | | | | | | | | | | | | | | |
PENNSYLVANIA ELECTRIC COMPANY | |
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CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS | |
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 | |
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| | | | Additions | | | | | | | | | |
| | | | | | Charged | | | | | | | | | |
| | Beginning | | Charged | | to Other | | | | | | | | Ending | |
Description | | Balance | | to Income | | Accounts | | | | Deductions | | | | Balance | |
| | (In thousands) | |
Year Ended December 31, 2006: | | | | | | | | | | | | | | | |
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Accumulated provision for | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,184 | | $ | 6,381 | | $ | 4,368 | | (a) | | | $ | 11,119 | | (b) | | | $ | 3,814 | |
- other | | $ | 2 | | $ | 105 | | $ | 173 | | (a) | | | $ | 277 | | (b) | | | $ | 3 | |
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Year Ended December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | |
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Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 4,712 | | $ | 8,464 | | $ | 3,296 | | (a) | | | $ | 12,288 | | (b) | | | $ | 4,184 | |
- other | | $ | 4 | | $ | 70 | | $ | 2 | | (a) | | | $ | 74 | | (b) | | | $ | 2 | |
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Year Ended December 31, 2004: | | | | | | | | | | | | | | | | | | | | | | |
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Accumulated provision for | | | | | | | | | | | | | | | | | | | | | | |
uncollectible accounts - customers | | $ | 5,833 | | $ | 5,977 | | $ | 5,351 | | (a) | | | $ | 12,449 | | (b) | | | $ | 4,712 | |
- other | | $ | 399 | | $ | (324 | ) | $ | 24 | | (a) | | | $ | 95 | | (b) | | | $ | 4 | |
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(a) Represents recoveries and reinstatements of accounts previously written off. | |
(b) Represents the write-off of accounts considered to be uncollectible. | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registranteach Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 25, 2008
| FIRSTENERGY CORP. OHIO EDISON COMPANY |
| Registrant |
| |
| THE CLEVELAND ELECTRIC |
| BY:/s/Anthony J. Alexander ILLUMINATING COMPANY |
| Anthony J. Alexander |
| President and Chief Executive Officer |
Date: February 27, 2007
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:
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/s/George M. Smart
| | /s/Anthony J. Alexander
|
George M. Smart | | Anthony J. Alexander |
Chairman of the Board | | President and Chief Executive Officer |
| | and Director (Principal Executive Officer) |
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/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner
|
Senior Vice President and Chief Financial | | Vice President, Controller and Chief Accounting |
Officer (Principal Financial Officer) | | Officer (Principal Accounting Officer) |
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/s/Paul T. Addison
| | /s/Ernest J. Novak, Jr.
|
Paul T. Addison | | Ernest J. Novak, Jr. |
Director | | Director |
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/s/Michael J. Anderson
| | /s/Catherine A. Rein
|
Michael J. Anderson | | Catherine A. Rein |
Director | | Director |
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/s/Carol A. Cartwright
| | /s/Robert C. Savage
|
Carol A. Cartwright | | Robert C. Savage |
Director | | Director |
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/s/William T. Cottle
| | /s/Wes M. Taylor
|
William T. Cottle | | Wes M. Taylor |
Director | | Director |
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/s/Robert B. Heisler, Jr.
| | /s/Jesse T. Williams, Sr.
|
Robert B. Heisler, Jr. | | Jesse T. Williams, Sr. |
Director | | Director |
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/s/Russell W. Maier
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Russell W. Maier | | |
Director | | |
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Date: February 27, 2007
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 Registrant |
| |
| THE TOLEDO EDISON COMPANY |
| BY:/s/Anthony J. Alexander
|
| Anthony J. Alexander |
| President |
Date: February 27, 2007
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/Richard R. Grigg
|
Anthony J. Alexander | | Richard R. Grigg |
President and Director | | Executive Vice President and Chief |
(Principal Executive Officer) | | Operating Officer and Director |
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/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner |
Senior Vice President and Chief | | Vice President and Controller |
Financial Officer and Director | | (Principal Accounting Officer) |
(Principal Financial Officer) | | |
Date: February 27, 2007
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 Registrant |
| |
| PENNSYLVANIA ELECTRIC COMPANY |
| BY:/s/Anthony J. Alexander
|
| Anthony J. Alexander |
| PresidentRegistrant |
Date: February 27, 2007
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/Richard R. Grigg
|
Anthony J. Alexander | | Richard R. Grigg |
President and Director | | Executive Vice President and Chief |
(Principal Executive Officer) | | Operating Officer and Director |
| | |
| | |
| | |
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/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner |
Senior Vice President and Chief | | Vice President and Controller |
Financial Officer and Director | | (Principal Accounting Officer) |
(Principal Financial Officer) | | |
Date: February 27, 2007
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/s/ Harvey L. Wagner |
| Harvey L. Wagner |
| |
| BY:/s/Anthony J. Alexander
|
| Anthony J. Alexander |
| Vice President and Controller |
Date: February 27, 2007
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/Richard R. Grigg
|
Anthony J. Alexander | | Richard R. Grigg |
President and Director | | Executive Vice President and Chief |
(Principal Executive Officer) | | Operating Officer and Director |
| | |
| | |
| | |
| | |
/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner |
Senior Vice President and Chief | | Vice President and Controller |
Financial Officer and Director | | (Principal Accounting Officer) |
(Principal Financial Officer) | | |
Date: February 27, 2007
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
|
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| |
| BY:/s/Stephen E. Morgan
|
| Stephen E. Morgan |
| President |
Date: February 27, 2007
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/Stephen E. Morgan
| | /s/Richard H. Marsh
|
Stephen E. Morgan | | Richard H. Marsh |
President and Director
(Principal Executive Officer)
| | Senior Vice President and
Chief Financial Officer
|
| | (Principal Financial Officer) |
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/s/Harvey L. Wagner
| | /s/Leila L. Vespoli
|
Harvey L. Wagner | | Leila L. Vespoli |
Vice President and Controller
(Principal Accounting Officer)
| | Senior Vice President and
General Counsel and Director
|
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/s/Bradley S. Ewing
| | /s/Gelorma E. Persson
|
Bradley S. Ewing | | Gelorma E. Persson |
Director | | Director |
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/s/Charles E. Jones
| | /s/Stanley C. Van Ness
|
Charles E. Jones | | Stanley C. Van Ness |
Director | | Director |
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/s/Mark A. Julian
| | |
Mark A. Julian | | |
Director | | |
| | |
Date: February 27, 2007
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/Anthony J. Alexander
|
| Anthony J. Alexander |
| President |
Date: February 27, 2007
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/Richard R. Grigg
|
Anthony J. Alexander | | Richard R. Grigg |
President and Director | | Executive Vice President and Chief |
(Principal Executive Officer) | | Operating Officer and Director |
| | |
| | |
| | |
| | |
/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner |
Senior Vice President and Chief | | Vice President and Controller |
Financial Officer and Director | | (Principal Accounting Officer) |
(Principal Financial Officer) | | |
Date: February 27, 2007
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/Anthony J. Alexander
|
| Anthony J. Alexander |
| President |
Date: February 27, 2007
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/Richard R. Grigg
|
Anthony J. Alexander | | Richard R. Grigg |
President and Director | | Executive Vice President and Chief |
(Principal Executive Officer) | | Operating Officer and Director |
| | |
| | |
| | |
| | |
/s/Richard H. Marsh
| | /s/Harvey L. Wagner
|
Richard H. Marsh | | Harvey L. Wagner |
Senior Vice President and Chief | | Vice President and Controller |
Financial Officer and Director | | (Principal Accounting Officer) |
(Principal Financial Officer) | | |
Date: February 27, 2007