Recent Developments
On February 25, 2011, the FirstEnergy Corp. (FirstEnergy or FE) and Allegheny Energy Inc. (Allegheny Energy) merger closed.
Dividend
With the completion of the merger, the dividend synchronization plan announced in December 2010 became effective. FE shareholders of record as of February 7, 2011, received a pro rata dividend of $0.5255 per share, payable March 1, 2011. FE shareholders of record as of February 25, 2011, received a pro rata dividend of $0.0245 per share, payable March 7, 2011. Allegheny Energy shareholders of record as of February 24, 2011 received a pro rated final dividend of $0.12045 per share, payable March 11, 2011.
On February 15, 2011, the FE Board of Directors declared an unchanged dividend of $0.55 per share of outstanding common stock. The dividend is payable June 1, 2011 to shareholders of record as of May 6, 2011.
Financing Activities
On March 16, 2011, Pennsylvania Electric Company (Penelec) and Metropolitan Edison Company (Met-Ed) extended for three years a Letter of Credit (LOC) supporting two series of Pollution Control Revenue Bonds (PCRBs) totaling $49 million.
On March 17 and April 1, 2011, FES and Penelec completed the remarketing of six series of PCRBs totaling $328 million. Each of these series either remained in, or were converted to, a variable rate mode supported with a three year LOC.
On March 29, 2011, FES paid off a $100 million two year secured term loan facility that was set to mature on March 31, 2011. On April 8, 2011, FE entered into a $150 million unsecured term loan facility with an April 2013 maturity.
During March 2011, the utility accounts receivable financing arrangements for Ohio Edison Company (Ohio Edison), The Toledo Edison Company (Toledo Edison), Penelec and Met-Ed were terminated. FE determined that it was more economical to use other sources of liquidity.
Pension Contribution
In March and April 2011, FE voluntarily contributed an aggregate $250 million to its pension plan. In addition, $11.2 million was contributed to Allegheny Energy’s pension plan during the first quarter of 2011.
Ohio Energy Efficiency (EE) and Peak Demand Reduction (DR) Portfolio Plan
On March 23, 2011, the Public Utilities Commission of Ohio approved the three-year EE and DR portfolio plan for Ohio Edison, Cleveland Electric Illuminating Company and Toledo Edison (Ohio Utilities). The Ohio Utilities’ plan was developed to comply with the EE mandate in Ohio’s Senate Bill 221, passed in 2008. This law requires that all Ohio utilities reduce energy usage by 22.2% by 2025 and peak demand 7.75% by 2018, develop a portfolio plan, and meet annual benchmarks to measure progress.
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Met-Ed, Penelec and Penn Power Generation Procurement
On March 21, 2011, auctions were conducted to procure a portion of the default service requirements for Met-Ed, Penelec and Pennsylvania Power Company (Penn Power) customers who choose not to shop with an alternative supplier. The March 2011 auction was the final of four auctions for Met-Ed and Penelec and the final of two auctions for Penn Power to procure commercial default service requirements for the 12-month period of June 1, 2011 to May 31, 2012 and residential requirements for the 24-month period of June 1, 2011 to May 31, 2013. For Met-Ed, Penelec and Penn Power commercial customers the tranche-weighted average price ($/MWH) was $67.34, $59.55 and $56.03, respectively, and for residential customers the tranche-weighted average price was $70.09, $60.27 and $56.49, respectively. This was also the final of two auctions held to procure residential service requirements for the 12-month period of June 1, 2011 to May 31, 2012. For Met-Ed, Penelec and Penn Power residential customers the tranche-weighted average price ($/MWH) was $67.35, $57.88 and $55.85, respectively.
Penn Power Solar Renewable Energy Credits (SREC)
On March 11, 2011, the Pennsylvania Public Utility Commission approved the results of the Penn Power procurement of SRECs to meet Pennsylvania’s Alternative Energy Portfolio Standards through 2020. Penn Power contracted for 19,800 SRECs. One SREC represents the solar renewable energy attributes of one MWH of generation from a solar generating facility. This purchase of SRECs is equivalent to approximately 2,200 MWH of solar power generation annually over the next nine years. The average cost is $199.09 per SREC, with deliveries scheduled to begin in June 2011 and continuing through May 2020.
Perry Plant Begins Refueling
On April 18, 2011, FirstEnergy Nuclear Operating Company (FENOC) announced that Perry Nuclear Power Plant (1,268 MW) shutdown for a scheduled refueling and maintenance outage. During the outage, 284 of the 748 fuel assemblies will be replaced, numerous safety inspections will be conducted, and many maintenance projects will be completed. On April 25, 2011, the Nuclear Regulatory Commission began a Special Inspection to review the circumstances surrounding work activities to remove a source range monitor from the reactor core on April 22, 2011.
Beaver Valley Refueling
On April 11, 2011, FENOC announced that Beaver Valley Unit 2 (911 MW) returned to service following a scheduled March 7, 2011 shutdown for refueling and maintenance. During the outage 60 of the 157 fuel assemblies were exchanged, safety inspections were conducted, and many maintenance and improvement projects were completed.
Signal Peak
On March 16, 2011, Signal Peak Energy received a letter from the Mine Safety and Health Administration that its mine is no longer being considered for the pattern of potential violations notice.
Fremont Energy Center
On March 11, 2011, FE entered into a definitive agreement to sell Fremont Energy Center (707 MW) to American Municipal Power, Inc. (AMP). Under the terms of the agreement, AMP will purchase the Fremont Energy Center for approximately $485 million, based on 685 MW of output. The purchase price could be incrementally increased, not to exceed an additional $16 million, if additional output and transmission export capacity permit an increase to the facilitiy’s nameplate capacity of 707 MW. In addition, AMP will reimburse FE up to $25.3 million for construction costs to be incurred from February 1, 2011 through the closing date. The transaction is expected to close on or about July 1, 2011.
Trans-Allegheny Interstate Line (TrAIL)
On April 15, 2011, the Meadow Brook to Loudoun 500 kV segment of the TrAIL transmission line was energized. The scheduled in-service date for the entire TrAIL line is June 1, 2011.
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Suspension of Potomac-Appalachian Transmission Highline (PATH)
On February 28, 2011, FE announced that it filed to withdraw its applications for state regulatory approval of the PATH project after an announcement by regional grid operator PJM Interconnection LLC (PJM) that the project was suspended. The Maryland Public Service Commission deemed the notice effective upon filing and the West Virginia Public Service Commission has granted the motion to withdraw. The Virginia State Corporation Commission has not ruled on the motion to withdraw.
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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 include declarations regarding management’s intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results may differ materially due to: the speed and nature of increased competition in the electric utility industry. the impact of the regulatory process on the pending matters in the various states in which we do business including, but not limited to, matters related to rates, the status of the PATH project in light of PJM's direction to suspend work on the project pending review of its planning process, its re-evaluation of the need for the project and the uncertainty of the timing and amounts of any related capital expenditures, business and regulatory impacts from ATSI’s realignment into PJM Interconnection, L.L.C, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices and availability, financial derivative reforms that could increase our liquidity needs and collateral costs, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy’s regulated utilities to collect transition and other costs, operation and maintenance costs being higher than anticipated, other legislative and regulatory changes, and revised environmental requirements, including possible GHG emission, water intake and coal combustion residual regulations, the potential impacts of any laws, rules or regulations that ultimately replace CAIR and the effects of the EPA’s recently released MACT proposal to establish certain mercury and other emission standards for electric generating units, the uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any NSR litigation or potential regulatory initiatives or rulemakings (including that such expenditures could result in our decision to shut down or idle certain generating units), adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits) and oversight by the NRC, including as a result of the incident at Japan’s Fukushima Daiichi Nuclear Plant, adverse legal decisions and outcomes related to Met-Ed’s and Penelec’s transmission service charge appeal at the Commonwealth Court of Pennsylvania, the continuing availability of generating units and changes in their ability to operate at or near full capacity, the ability to comply with applicable state and federal reliability standards and energy efficiency mandates, changes in customers’ demand for power, including but not limited to, changes resulting from the implementation of state and federal energy efficiency mandates, the ability to accomplish or realize anticipated benefits from strategic goals, efforts, and our ability, to improve electric commodity margins and the impact of, among other factors, the increased cost of coal and coal transportation on such margins, the ability to experience 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 FirstEnergy to make additional contributions sooner, or in amounts that are larger than currently anticipated, the ability to access the public securities and other capital and credit markets in accordance with FirstEnergy’s financing plan, the cost of such capital and overall condition of the capital and credit markets affecting FirstEnergy and its subsidiaries, changes in general economic conditions affecting FirstEnergy and its subsidiaries, interest rates and any actions taken by credit rating agencies that could negatively affect FirstEnergy’s and its subsidiaries’ access to financing or their costs and increase requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees, the continuing uncertainty of the national and regional economy and its impact on the major industrial and commercial customers of FirstEnergy’s subsidiaries, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy and its subsidiaries do business, issues arising from the recently completed merger of FirstEnergy and Allegheny Energy, Inc. and the ongoing coordination of their combined operations including FirstEnergy’s ability to maintain relationships with customers, employees or suppliers, as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect, the risks and other factors discussed from time to time in FirstEnergy’s and its applicable subsidiaries’ SEC filings, and other similar factors. Dividends declared from time to time on FirstEnergy's common stock during any annual period may in aggregate vary from the indicated amount due to circumstances considered by FirstEnergy's Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy, or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. 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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