RECENT DEVELOPMENTS
Record Generation Output
FirstEnergy set new second quarter and year-to-date generation output records of 20.3 million and 40.4 million megawatt-hours, respectively. The second quarter output represented a 6.3% increase over the prior record established in the second quarter of 2005, while the year-to-date output represented a 6.7% increase over the record established in the same period last year.
NRC Approves Power Uprates for Beaver Valley Power Station
On July 20, the Nuclear Regulatory Commission (NRC) approved a request by FirstEnergy Nuclear Operating Company (FENOC) to increase the generating capacity of Beaver Valley Power Station by approximately 8%. The power uprates for Beaver Valley Unit 1 will increase generating capacity from approximately 821 to 889 megawatts and Unit 2's capacity from 821 to 886 megawatts. FENOC intends to operate Unit 1 at the higher power level no later than completion of its fall 2007 refueling outage and Unit 2 at the higher power level no later than its spring 2008 refueling outage.
Environmental Update
In June, FirstEnergy finalized its Air Quality Compliance (AQC) strategy for 2006 through 2011. The program, which is expected to cost approximately $1.7 billion, is consistent with previous estimates and assumptions reflected in the company’s long-term financial planning for air and water quality and other environmental matters. The majority of the expenditures will occur between 2007 and 2009.
Share Repurchase Program
On June 20, following the finalization of the AQC strategy, FirstEnergy's Board of Directors authorized a share repurchase program for up to 12 million shares of common stock. At management’s discretion, shares may be acquired on the open market or through privately negotiated transactions, subject to market conditions and other factors. The Board’s authorization of the repurchase program does not require the company to purchase any shares and the program may be terminated at any time. The 12 million shares represent 3.6% of the approximately 330 million shares of common stock currently outstanding.
Met-Ed and Penelec Rate Transition Plan Filing
On May 31, the Administrative Law Judge (ALJ) assigned to the Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec) Rate Transition Plan case established a new litigation schedule to support an ALJ Recommended Decision in this proceeding by November 8, 2006. In accordance with this revised schedule, intervening parties submitted their written testimonies on July 10. In addition, ten public hearings were held in various locations throughout the Met-Ed and Penelec service territories between June 20 and July 20. Other key dates in the procedural schedule include: rebuttal testimony by August 8, second pre-hearing conference on August 14, surrebuttal testimony by August 18, evidentiary hearings beginning on August 24, main briefs by September 22, and reply briefs by October 6.
Deferral of Incremental Met-Ed and Penelec Transmission Charges
On May 4, the Pennsylvania Public Utility Commission (PPUC) granted accounting authority for Met-Ed and Penelec to defer certain incremental transmission charges during 2006. The order allows the Companies to defer, commencing January 1, 2006, FERC-approved charges from the PJM Interconnection that are incremental to levels currently reflected in the transmission component of the Companies’ base rate tariffs. Consistent with the Companies’ petition, the order does not grant rate recovery of these costs, but allows Met-Ed and Penelec an opportunity to seek recovery in the pending Rate Transition Plan filing.
Competitive Electricity Supply for Penn Power
Following the PPUC’s approval of Pennsylvania Power Company’s (Penn Power) provider of last resort supply plan on April 20, 2006, a request for proposal (RFP) bidding process was conducted by the PPUC to secure competitively priced electricity from third-party suppliers for the period January 1, 2007 through May 31, 2008. Two rounds of bids were conducted for the approximate 900 megawatts of electricity (18 tranches of approximately 50 megawatts each). The round one and two bid results were subsequently approved by the PPUC and a residual bid is scheduled for mid-August for two remaining unfilled tranches. The results of the bidding process will be made public by the PPUC later this year.
Consolidated Report to the Financial Community - 2nd Quarter 2006 & #160; 12
Ohio Supreme Court Decision
On May 3, the Ohio Supreme Court affirmed all but one aspect of the provisions of FirstEnergy's Rate Stabilization Plan (RSP) for customers of its Ohio electric utility companies (Ohio Companies). The one issue, related to customer pricing options, was remanded to the Public Utilities Commission of Ohio (PUCO) for further consideration. The Court found that the Ohio restructuring law requires FirstEnergy to provide an alternative market-based offering to customers, even if the alternative is at a higher price than that offered through the RSP. On July 20, the Ohio Companies filed a request with the PUCO proposing a framework for conducting an RFP program under which suppliers could submit prices to serve a portion of each Ohio Company’s customer load. If adopted, customers would have the opportunity to switch to alternative generation suppliers at prices established through the RFP program. While the filing is designed to maintain the RSP by resolving the Court’s issue, the Ohio Companies also provided notice of termination of those portions of the RSP that are subject to termination in the event that the issue is not satisfactorily resolved. The companies reserved the right to withdraw the notice of termination. On July 26, the PUCO directed the Ohio Companies to file their plans for a competitive retail electric service option within 45 days.
Ohio Edison $600M Unsecured Senior Note Issuance
On June 26, Ohio Edison (OE) issued $600 million of unsecured Senior Notes, comprised of $250 million of 6.4%, 10-year Senior Notes due 2016 and $350 million of 6.875%, 30-year Senior Notes due 2036. In July, OE utilized the proceeds from its Senior Note offering to repurchase $500 million of its common stock from FirstEnergy Corp. and redeem all of its outstanding preferred stock at a total redemption price of approximately $64 million.
Partial Early Redemption of FirstEnergy Corp. 5.5% Senior Notes
On July 31, FirstEnergy redeemed, via a make-whole call provision, $400 million principal amount of its $1 billion, 5.50% Notes, Series A, in advance of the November 15, 2006 maturity date.
JCP&L Securitization
On June 8, the New Jersey Board of Public Utilities approved Jersey Central Power & Light’s (JCP&L) request to securitize approximately $180 million of Basic Generation Service-related transition costs through the issuance of transition bonds pursuant to New Jersey’s electric utility restructuring legislation. The amount financed would include up to $3.5 million in upfront transaction costs associated with the bond issuance. Yesterday, JCP&L Transition Funding II LLC, wholly owned by JCP&L, announced the issuance of $182.4 million of transition bonds.
New Coal Supply Agreement
On June 22, FirstEnergy Generation Corp. entered into a new coal supply agreement with CONSOL Energy, under which CONSOL will supply a total of more than 128 million tons of high-Btu coal to FirstEnergy for a 20-year period beginning in 2009. The new agreement will replace an existing coal supply agreement that took effect in 2003 and ran through 2020. Under the new agreement, CONSOL Energy will increase its coal shipments by approximately 2 million tons per year to provide coal for the Bruce Mansfield Plant and other power plants.
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 or to recover increased transmission costs, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), and the legal and regulatory changes resulting from the implementation of the Energy Policy Act of 2005 (including, but not limited to, the repeal of the Public Utility Holding Company Act of 1935), 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 New Source Review litigation, adverse regulatory or legal decisions and outcomes (including, but not limited to, the 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, the Nuclear Regulatory Commission and the various state public utility commissions 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 timing and outcome of various proceedings before the Public Utilities Commission of Ohio (including, but not limited to, the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the RSP) and the Pennsylvania Public Utility Commission, including the transition rate plan filings for Met-Ed and Penelec, the continuing availability and operation of generating units, the ability of generating units to continue to operate at, or near full capacity, the inability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the anticipated benefits from voluntary pension plan contributions, the ability to improve electric commodity margins and to experience growth in the distribution business, the ability to access the public securities and other capital markets and the cost of such capital, 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 successful implementation of the share repurchase program approved by the Board of Directors in June 2006, the risks and other factors discussed from time to time in our Securities and Exchange Commission filings, including our annual report on Form 10-K for the year ended December 31, 2005, and other similar factors. We expressly disclaim 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 2006 & #160; 13
