RECENT DEVELOPMENTS
Regulatory Update
On May 18, 2005, the Public Utilities Commission of Ohio (PUCO) granted the accounting authority for FirstEnergy’s Ohio utility operating companies to defer, for future recovery, incremental transmission and ancillary service-related charges incurred as a participant in the Midwest Independent Transmission System Operator, Inc. The PUCO’s order applies to charges incurred from December 30, 2004, through January 1, 2006, and authorizes the companies to accrue carrying charges on the deferral balances. The amount to be deferred will reflect actual incremental expenses, including line losses and carrying charges. In a separate case, pending before the PUCO, the companies propose to begin recovery of these incremental costs on January 1, 2006, through a tariff rider, which also would amortize the deferred balance over five years. On July 22, we filed a settlement stipulation reached with various parties including the Ohio Consumers’ Counsel and the PUCO staff that provides for the requested recovery. If the settlement stipulation is approved by the PUCO, the actual amounts to be recovered in 2006 will be submitted to the PUCO on or before November 1, 2005.
On May 25, 2005, the New Jersey Board of Public Utilities approved a stipulated settlement agreement resolving the Jersey Central Power & Light (JCP&L) Phase II rate case filing, and a second stipulated settlement agreement resolving the motion for reconsideration of the 2003 decision in the JCP&L Phase I rate proceeding. The stipulated agreements are expected to increase JCP&L’s annual revenues by $51.1 million and result in a net annual earnings per share impact of approximately $0.12 per share. For 2005, the total impact is expected to be approximately $0.11 per share, which includes a $0.06 per share increase from revenues commencing on June 1 of this year and a one-time benefit of $0.05 per share from the creation of a new regulatory asset associated with accelerated tree trimming costs expensed in 2003 and 2004.
On May 27, 2005, FirstEnergy’s Ohio utility operating companies filed a request with the PUCO to establish a generation charge adjustment factor (GCAF) rider, as permitted under the Rate Stabilization Plan. The filing reflects projected increases in fuel and related costs in 2006 compared with 2002 costs. The companies request the tariff rider be implemented on January 1, 2006. Based on projected fuel costs and 2006 Ohio retail sales to which the GCAF rider will apply, the estimated revenue from the implementation of this rider is approximately $93 million in 2006.
Rating Agency Actions
On May 16, 2005, Standard & Poor's Ratings Services revised its outlook on FirstEnergy and its subsidiaries to "positive" from "stable" and affirmed its 'BBB-' corporate credit ratings on the companies. Standard & Poor’s stated that the outlook revision and rating affirmation reflect the successful restart of the Perry and Beaver Valley nuclear stations after their respective refueling outages.
On July 18, 2005, Moody's Investors Service changed its ratings outlook on FirstEnergy and its subsidiaries to "positive" from "stable", citing the companies’ improved finances and utility operations. FirstEnergy’s senior unsecured rating by Moody’s is ‘Baa3’.
Intra-System Generation Asset Transfers
In May 2005, Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE), and Pennsylvania Power Company entered into certain agreements implementing a series of intra-system generation asset transfers, required under the restructuring plans approved in Ohio and Pennsylvania. When concluded, these transfers will result in the respective undivided ownership interests of the above utilities in FirstEnergy’s nuclear, fossil and hydroelectric plants being owned by FirstEnergy subsidiaries, FirstEnergy Nuclear Generation Corp., a new Ohio corporation, and FirstEnergy Generation Corp., respectively, separate and apart from the above utility subsidiaries. The generating plant interests that are being transferred do not include interests of CEI, TE and OE in certain of the plants that are currently subject to sale and leaseback arrangements with unaffiliated third parties.
Record Generation Output
FirstEnergy set a new generation output record of 19.1 million MWhs in the second quarter and 37.9 million MWhs for the first six months of the year. The output record was attributable to the outstanding performance of our generation fleet, particularly the 2,360 MW Bruce Mansfield Plant, which operated at a 97.4% availability factor for the six-month period.
On May 3, 2005, FirstEnergy’s Sammis Unit 2 became the longest-running single-turbine steam generating unit in the nation’s history when it surpassed a continuous-operation record of 819 days.
Consolidated Report to the Financial Community - 2nd Quarter 13
New Credit Facility
On June 14, 2005, FirstEnergy and certain of its subsidiaries, including all of its operating utility subsidiaries, entered into a new five-year syndicated credit facility totaling $2 billion. The new facility replaced FirstEnergy’s $1 billion and $375 million three-year credit agreements, as well as OE's $125 million three-year credit agreement and $250 million two-year credit agreement, which expired in May 2005. Borrowings under the facility must be repaid within 364 days. Available amounts for each borrower are subject to a specified sublimit as well as applicable regulatory and other limitations.
Nuclear Plant Update
On April 28, 2005, Beaver Valley Unit 2 returned to service following a scheduled refueling outage. Major work included replacement of fuel assemblies and a thorough inspection of the reactor vessel head and under-vessel, which were found to be in good condition.
On May 6, 2005, the Perry Plant returned to service following a scheduled refueling outage. The scope of the outage was increased by about 30% to enhance plant reliability, including work on the main generator, refurbishment of high-voltage breakers and modification of the emergency diesel generators’ exhaust system.
On May 20, 2005, the Nuclear Regulatory Commission (NRC) announced the return of Davis-Besse to the standard oversight process, effective July 1, 2005, augmented to include inspections supporting the NRC’s start-up order of March 8, 2004.
On July 8, 2005, the NRC issued their 95003 inspection report on the Perry plant. The inspection report concluded that Perry is being operated safely, however, the NRC will continue to provide increased oversight as FirstEnergy Nuclear Operating Company continues to implement Perry’s Performance Improvement Initiative.
Forward-Looking Statements: This Consolidated Report to the Financial Community includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "believe," "estimate" and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of our regulated utilities to collect transition and other charges, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), the uncertainty of the timing and amounts of the capital expenditures (including that such amounts could be higher than anticipated) or levels of emission reductions related to the settlement agreement resolving the New Source Review litigation, adverse regulatory or legal decisions and outcomes (including revocation of necessary licenses or operating permits, fines or other enforcement actions and remedies) of governmental investigations and oversight, including by the Securities and Exchange Commission, the United States Attorney's Office and the Nuclear Regulatory Commission as disclosed in our Securities and Exchange Commission filings, generally, and with respect to the Davis-Besse Nuclear Power Station outage and heightened scrutiny at the Perry Nuclear Power Plant in particular, the availability and cost of capital, the continuing availability and operation of generating units, our inability to accomplish or realize anticipated benefits from strategic goals, our ability to improve electric commodity margins and to experience growth in the distribution business, our ability to access the public securities and other capital markets, the outcome, cost and other effects of present and potential legal and administrative proceedings and claims related to the August 14, 2003 regional power outage, the final outcome in the proceeding related to FirstEnergy's Application for a Rate Stabilization Plan in Ohio, the risks and other factors discussed from time to time in our Securities and Exchange Commission filings, and other similar factors. FirstEnergy expressly disclaims any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.
Consolidated Report to the Financial Community - 2nd Quarter 14
