Financing Activities
On April 1, 2010, FirstEnergy Generation Corp. (FGCO) purchased $234.5 million variable rate Pollution Control Revenue Bonds (PCRBs) originally issued on its behalf and cancelled the related letter of credit with KeyBank. Subject to market conditions, FGCO plans to remarket the purchased PCRBs in the near future.
Electric Security Plan (ESP)
On March 23, 2010, OE, CEI and TE (collectively the Ohio Companies) filed an ESP with the Public Utilities Commission of Ohio (PUCO). The ESP was filed as a Stipulation and Recommendation and incorporates the substantial evidentiary record developed in the Ohio Companies’ earlier filing for a Market Rate Offer. The ESP is a three-year plan that would commence June 1, 2011, and provides for a competitive bidding process to procure generation for non-shopping customers, more certain rate levels for customers, and timely recovery of PUCO-authorized charges, while promoting energy efficiency and economic development. The PUCO held hearings that began on April 20, 2010 and the Ohio Companies have requested PUCO approval by May 5, 2010. On April 29, 2010, the PUCO Chairman issued a statement that the PUCO will not issue a de cision on May 5, 2010, and will take additional time to review the case record. In connection with the filing FirstEnergy recorded approximately $39.5 million ($25.3 million after tax) of regulatory asset impairments and expenses related to the ESP commitments.
Smart Meter Plan
Pennsylvania’s Act 129 requires all Pennsylvania electric distribution companies with more than 100,000 customers to install smart meter technology within 15 years. On April 15, 2010, the Pennsylvania Public Utility Commission (PPUC) adopted a Motion by Chairman Cawley that modified the Administrative Law Judge’s initial decision issued on January 28, 2010 and decided various issues regarding the Smart Meter Implementation Plan (SMIP) for Pennsylvania Power Company (Penn Power), Met-Ed, and Penelec (collectively the Pennsylvania Companies). An order consistent with Chairman Cawley’s Motion is anticipated to be entered in the near future. The Pennsylvania Companies’ SMIP will assess the technologies, vendors, capital cost, and potential benefits of smart meter technology during an assessment period that covers th e next 24 months. The Pennsylvania Companies
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expect to incur approximately $29.5 million of costs during the Assessment Period; these costs are expected to be recovered through the Smart Meter Technologies Charge rider. At the end of the assessment period, the Pennsylvania Companies will submit to the PPUC a deployment plan for the full scale deployment of smart meters.
Pennsylvania Energy Efficiency
On February 25, 2010, the PPUC approved the Pennsylvania Companies’ Energy Efficiency and Conservation Plans which were refiled on February 5, 2010, in order to comply with Pennsylvania Act 129. The Act requires utilities to reduce energy consumption and peak demand, with electricity consumption reduction targets of 1% by May 31, 2011, and 3% by May 31, 2013, and a peak demand reduction target of 4.5% by May 31, 2013. The Pennsylvania Companies are offering a wide variety of programs to residential, commercial, industrial, governmental and non-profit customers.
Met-Ed and Penelec Transmission Service Charge (TSC)
On March 3, 2010, the PPUC issued an order which denies Met-Ed and Penelec the recovery of PJM charges for marginal transmission losses for the period of June 1, 2007 – March 31, 2008 through their TSC riders. The order directed Met-Ed and Penelec to file a recommendation regarding the establishment of a separate account for marginal transmission losses collected from ratepayers plus interest to be used to mitigate future generation increases beginning January 1, 2011. On March 18, 2010, Met-Ed and Penelec requested that the PPUC grant a stay of its order; the PPUC granted the stay on March 25, 2010, allowing for the continued collection of marginal transmission losses subject to refund. On April 1, 2010, Met-Ed and Penelec filed with the Commonwealth Court of Pennsylvania a Petition for Review of the PPUC's March 3, 2010 Order.& #160; On April 2, 2010, Met-Ed and Penelec filed a proposal with the PPUC to use the funds collected to mitigate future rate increases.
Met-Ed and Penelec Default Service Plan
Consistent with the approved default service plan, Met-Ed and Penelec held two auctions through which they purchased 50 percent of their default service requirements for the first five months of 2011. The auctions were conducted by NERA Economic Consulting and the results were approved by the PPUC on January 22 and March 24, 2010. The tranche-weighted average prices ($/MWh) for Met-Ed’s residential and commercial classes were $77.76 and $76.74, respectively; Penelec’s tranche-weighted average prices were $64.34 and $66.39 for its residential and commercial classes, respectively. There will be two more auctions, in May 2010 and October 2010, to procure the remaining supply for these customers.
Pennsylvania Power Default Service Plan
On January 28, 2010 the PPUC approved the bid results for the final portion of Penn Power’s competitive process to procure energy for residential and commercial customers for the period June 1, 2010, to May 31, 2011. The clearing price for residential supply was $61.17 and the small commercial price awarded to bidders was $54.76. On February 8, 2010, Penn Power filed for approval of its Default Service Plan for the period of June 1, 2010 through May 31, 2013. Penn Power expects to receive a decision by November 2010.
PJM Consolidation
From March 15-19, 2010, two Fixed Resource Requirement Integration Auctions were conducted by PJM on behalf of the Ohio Companies to secure electric capacity for delivery years June 1, 2011, through May 31, 2012, and June 1, 2012, through May 31, 2013. On March 26, 2010, the PJM Market Monitor, Monitoring Analytics, LLC, certified the auction results. In the 2011/2012 auction, 27 suppliers participated and 12,583 MW of unforced capacity cleared at a price of $108.89/MW-day. The 2012/2013 auction had 28 market participants, with 13,038 MW of unforced capacity clearing at a price of $20.46/MW-day.
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Davis-Besse Refueling Outage
On February 28, 2010, the Davis-Besse Nuclear Power Station (908-MW) shut down for a scheduled refueling outage to exchange 76 of the 177 fuel assemblies and to conduct numerous safety inspections. During the outage, it was determined through testing that modification work also needed to be performed on certain control rod nozzles that penetrate the reactor vessel head. A team of 80 contract engineers and technicians is using industry-proven methods, including robotic welding, to make modifications to 24 of the 69 nozzles on the reactor head. The contractor team has made nearly 100 similar modifications at other U.S. nuclear power plants. Additional testing will be performed to confirm the modifications, and the plant is expected to be ready for restart in July.
Sumpter Plant Sale
On March 31, 2010, FGCO closed the sale of its 340-MW Sumpter Plant in Sumpter, Michigan, to Wolverine Power Supply Cooperative, Inc., and recorded an immaterial loss in the first quarter for this transaction. The plant consists of four 85-MW natural gas turbines and represented FirstEnergy’s only generation assets in Michigan.
For additional information, please contact:
Ronald E. Seeholzer | Irene M. Prezelj | Rey Y. Jimenez |
Vice President, Investor Relations | Director, Investor Relations | Manager, Investor Relations |
| (330) 384-5415 | (330) 384-3859 | (330) 761-4239 |
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Forward-looking Statements: This Consolidated Report 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. Forward-looking statements relating to the proposed merger include, but are not limited to, statements about the benefits of the proposed merger involving Allegheny Energy and FirstEnergy, including future financial and operating results, Allegheny Energy's and FirstEnergy's plans, objectives, expectations and intentions, the expected timing of completion of the transaction, and other statements relating to the merger that are not historical facts.
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 Pennsylvania, the impact of the regulatory process on the pending matters in Ohio, Pennsylvania and New Jersey, business and regulatory impacts from American Transmission System, Incorporated’s realignment into PJM Interconnection L.L.C., economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices and availability, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy’s regulated utilities to collect transition and other charge s or to recover increased transmission costs, operating and maintenance costs being higher than anticipated, other legislative and regulatory changes, revised environmental requirements, including possible greenhouse gas emission regulations, the potential impacts of the U.S. Court of Appeals’ July 11, 2008 decision requiring revisions to the Clean Air Interstate 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 FirstEnergy’s Air Quality Compliance Plan (including that such amounts could be higher than anticipated or that certain generating units may need to be shut down) or levels of emission reductions related to the Consent Decree resolving the New Source Review litigation or other similar potential regulatory initiatives or actions, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the Nuclear Regulatory Commission, factors that may further delay, or increase the costs associated with (including replacement power costs), the restart of the Davis-Besse Nuclear Power Station from its current refueling outage, including that the modifications to control rod drive mechanism nozzles take longer than expected or are not effective, other conditions requiring remediation are discovered during the extended outage, or the NRC takes adverse action in connection with any of the foregoing; Met-Ed’s and Penelec’s transmission service charge filings with the PaPUC, 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 expe rience growth in the distribution business, the changing market conditions that could affect the value of assets held in FirstEnergy’s nuclear decommissioning trusts, pension trusts and other trust funds, and cause it 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 company, the state of the capital and credit markets affecting the company, interest rates and any actions taken by credit rating agencies that could negatively affect FirstEnergy’s access to financing or its costs or increase its requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees, the continuing decline of the national and regional economy and its impact on the company’s major ind ustrial and commercial customers, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy does business, and the risks and other factors discussed from time to time in its 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 FirstEnergy’s 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. FirstEnergy expressly disclaims any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.
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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
In addition to historical information, this document may contain a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. Forward-looking statements relating to the proposed merger include, but are not limited to: statements about the benefits of the proposed merger involving FirstEnergy and Allegheny Energy, including future financial and operating results; FirstEnergy’s and Allegheny Energy’s plans, objectives, expectations and intentions; the expected timing of completion of the transaction; and other statements relating to the merger that are not histor ical facts. Forward-looking statements involve estimates, expectations and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Important factors could cause actual results to differ materially from those indicated by such forward-looking statements. With respect to the proposed merger, these factors include, but are not limited to: risks and uncertainties relating to the ability to obtain the requisite FirstEnergy and Allegheny Energy shareholder approvals; the risk that FirstEnergy or Allegheny Energy may be unable to obtain governmental and regulatory approvals required for the merger, or required governmental and regulatory approvals may delay the merger or result in the imposition of conditions that could reduce the anticipated benefits from the merger or cause the parties to abandon the merger; the risk that a condition to closing of the merger may not be satisfied; the length of time necessary to consummate the proposed merger; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the diversion of management time on merger-related issues; the effect of future regulatory or legislative actions on the companies; and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect. These risks, as well as other risks associated with the merger, are more fully discussed in the preliminary joint proxy statement/prospectus that is included in the Registration Statement on Form S-4 (Registration No. 333-165640) that was filed by FirstEnergy with the SEC in connection with the merger. Additional risks and uncertainties are identified and discussed in FirstEnergy’s and Allegheny Energy’s reports filed with the SEC and available at the SEC’s website at www.sec.gov. Forward-looking statements included in this document speak only as of the date of this document. Neither FirstEnergy nor Allegheny Energy undertakes any obligation to update its forward-looking statements to reflect events or circumstances after the date of this document.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FirstEnergy filed a Registration Statement on Form S-4 (Registration No. 333-165640) with the SEC that includes a preliminary joint proxy statement of FirstEnergy and Allegheny Energy and that also constitutes a preliminary prospectus of FirstEnergy. FirstEnergy and Allegheny Energy will mail the definitive joint proxy statement/prospectus to their respective shareholders. FirstEnergy and Allegheny Energy urge investors and shareholders to read the definitive joint proxy statement/prospectus regarding the proposed merger when it becomes available, as well as other documents filed with the SEC, because they will contain important information. You may obtain copies of all documents filed with the SEC regarding this proposed transaction, free of charge, a t the SEC’s website (www.sec.gov). You may also obtain these documents, free of charge, from FirstEnergy’s website (www.firstenergycorp.com) under the tab “Investors” and then under the heading “Financial Information” and then under the item “SEC Filings.” You may also obtain these documents, free of charge, from Allegheny Energy’s website (www.alleghenyenergy.com) under the tab “Investors” and then under the heading “SEC Filings.”
PARTICIPANTS IN THE MERGER SOLICITATION
FirstEnergy, Allegheny and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from FirstEnergy and Allegheny Energy shareholders in favor of the merger and related matters. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of FirstEnergy and Allegheny Energy shareholders in connection with the proposed merger is set forth in the preliminary joint proxy statement/prospectus contained in the above-referenced Registration Statement on Form S-4. You can find information about FirstEnergy’s executive officers and directors in its definitive proxy statement filed with the SEC on April 1, 2010 and Annual Report on Form 10-K filed with the SEC on February 19, 2010. You can find information about Allegheny Energ y’s executive officers and directors in its definitive proxy statement filed with the SEC on March 19, 2010 and Annual Report on Form 10-K filed with the SEC on March 1, 2010. Additional information about FirstEnergy’s executive officers and directors and Allegheny Energy’s executive officers and directors can be found in the above-referenced Registration Statement on Form S-4. You can obtain free copies of these documents from FirstEnergy and Allegheny Energy using the website information above.
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