Recent Developments
Dividend
On July 19, 2011, the FirstEnergy Corp. (FirstEnergy or FE) Board of Directors declared an unchanged dividend of $0.55 per share of outstanding common stock. The dividend is payable September 1, 2011 to shareholders of record as of August 5, 2011.
Financing Activities
On April 29, 2011, Metropolitan Edison Company (Met-Ed) redeemed $13.69 million of Pollution Control Revenue Bonds (PCRBs) at par value.
On May 4, 2011, Allegheny Energy Inc. (AE Inc.) terminated its $250 million credit facility due to other available funding sources following completion of the merger with FE.
On June 1, 2011, FirstEnergy Generation Corp. (FGCO) repurchased $40 million of PCRBs and is holding these bonds for future remarketing or refinancing.
On June 17, 2011, FE and certain of its subsidiaries entered into $4.5 billion of 5-year revolving credit facilities. These facilities consist of a $2 billion 5-year revolving credit facility for FE and its regulated entities and a $2.5 billion 5-year revolving credit facility for FirstEnergy Solutions and Allegheny Energy Supply (AE Supply). As a result of the new facilities, FE’s $2.75 billion facility, AE Supply’s $1 billion facility, Monongahela Power Company’s $150 million facility, The Potomac Edison Company’s $150 million facility, and West Penn Power Company’s $200 million facility, were terminated.
On July 25, 2011, AE Supply redeemed at par $15.4 million of PCRBs.
On July 29, 2011, FGCO and FirstEnergy Nuclear Generation Corp. (NGC) provided notice to the trustee for $317 million of PCRBs and of termination of supporting letters of credit. As a result, the PCRBs will be subject to mandatory purchase on September 1, 2011. Subject to market conditions and other considerations, FGCO and NGC currently expect to hold these bonds for future remarketing or refinancing.
Marginal Transmission Loss Recovery
On March 3, 2010, the Pennsylvania Public Utility Commission (PPUC) issued an order denying Met-Ed’s and Pennsylvania Electric Company’s (Penelec) ability to recover marginal transmission losses through the transmission service charge riders in their respective tariffs which applies to the periods including June 1, 2008 through December 31, 2010. Subsequently, Met-Ed and Penelec (Companies) filed a Petition for Review with the Commonwealth Court of Pennsylvania (Commonwealth Court) appealing the PPUC’s order. On June 14, 2011, the Commonwealth Court affirmed the PPUC’s decision that marginal transmission losses are not recoverable as transmission costs. On July 13, 2011, the Companies filed a federal complaint with the United States District Court for the Eastern District of Pennsylvania, and on the following day filed a Petition for Allowance of Appeal to the Pennsylvania Supreme Court. The Companies believe the Commonwealth Court’s decision contradicts federal law and is inconsistent with prior PPUC and court decisions and therefore expect to fully recover the related regulatory assets ($189 million for Met-Ed and $65 million for Penelec). In January 2011 and continuing for 29 months, pursuant to a related PPUC order, the Companies began crediting customers for the amounts at issue pending outcome of the court appeals. The effect of the credits is included in FE’s estimated cash from operating activities.
| Consolidated Report to the Financial Community - 2nd Quarter 2011 | 19 |
Litigation
On July 11, 2011, FE was found to be a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), indirectly liable for a portion of past and future clean-up costs of certain manufactured gas plant sites in New York. As a result, FE recognized an additional expense of $29 million during the second quarter of 2011; $30 million had previously been reserved prior to 2011.
New Nuclear Emergency Operations Facilities
In June 2011, FirstEnergy Nuclear Operating Company (FENOC) broke ground for new Emergency Operations Facilities for the Beaver Valley Power Station and Perry Nuclear Power Plant (Perry Plant). Each of the 12,000 square-foot facilities will house activities related to maintaining public health and safety during the unlikely event of an emergency at the plant and allow for improved coordination between the plant, state and local emergency management agencies. FENOC is expected to break ground for a similar facility for the Davis-Besse Nuclear Power Station in August 2011.
Perry Plant Returns to Service after Refueling
On June 7, 2011, the Perry Plant (1,268 MW) returned to service following a scheduled shutdown for refueling and maintenance which began on April 18, 2011. During the outage, 248 of the 748 fuel assemblies were replaced and safety inspections were successfully conducted. Additionally, numerous preventative maintenance activities and improvement projects were completed that we believe will result in continued safe and reliable operations, including replacement of several control rod blades, rewind of the generator, and routine work on more than 150 valves, pumps and motors.
American Transmission Systems, Incorporated (ATSI) Integrated into PJM Interconnection (PJM)
On June 1, 2011, ATSI successfully integrated into PJM. With this transition, all of FE’s generation, transmission and distribution facilities are now in PJM.
Fremont Energy CenterOn July 28, 2011, FE closed on the previously announced sale of Fremont Energy Center to American Municipal Power, Inc. for $510 million based on 685 MW of output. The purchase price can be incrementally increased, not to exceed an additional $16 million, to reflect additional transmission export capacity up to 707 MW. The proceeds are expected to be used to reduce FE’s net debt position.
TrAIL UpdateOn May 19, 2011, TrAILCo’s new 500-kilovolt transmission line, spanning more than 150 miles from southwestern Pennsylvania through West Virginia to northern Virginia, was completed and fully energized.
| Consolidated Report to the Financial Community - 2nd Quarter 2011 | 20 |
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, 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 including the Cross-State Air Pollution Rule (CSAPR) 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 with respect to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or operating permits 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 ability to recover certain transmission costs through their transmission service charge riders, the continuing availability of generating units and changes in their ability to operate at or near full capacity, replacement power costs being higher than anticipated or inadequately hedged, 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.
