Recent Developments
On December 20, 2011, FirstEnergy Corp. (FirstEnergy or FE) announced the election of Donald T. Misheff to serve on its Board of Directors effective January 1, 2012. Misheff retired from Ernst & Young at the end of 2011, where he was the Northeast Ohio Managing Partner.
On February 21, 2012, FE announced that Jesse T. Williams, Sr., will retire from its Board of Directors, effective March 1, 2012, following 20 years of service.
Dividend
On December 20, 2011, the Board of Directors declared an unchanged quarterly dividend of $0.55 per share of outstanding FE common stock. The dividend will be payable March 1, 2012, to shareholders of record as of February 7, 2012.
Financing Activities
On November 15, 2011, FE retired $250 million of 6.45% senior unsecured notes.
On December 1, 2011, FirstEnergy Nuclear Generation Corp. (NGC) repurchased $54.6 million of Pollution Control Revenue Bonds. Subject to market conditions and other considerations, the company expects to hold these bonds for future remarketing.
On January 18, 2012, Moody's Investors Service upgraded Trans-Allegheny Interstate Line Company’s (TrAILCo) senior unsecured rating to A3 from Baa2 based on its low business risk profile, strong supportive regulatory environment provided by the Federal Energy Regulatory Commission, and strong expected financial performance. TrAILCo’s primary investment is the Trans-Allegheny Interstate Line, a transmission project completed in May 2011 that runs from southwestern Pennsylvania through West Virginia to northern Virginia.
On January 26, 2012, FE announced several initiatives designed to enhance the transparency of its operational performance and further strengthen its balance sheet, including changing the method of accounting for pensions and OPEB, contributing $600 million to its pension plan, lowering its assumed pension and OPEB asset rates of return from 8.25% in 2011 to 7.75% in 2012, reducing the pension discount rate from 5.50% at the end of 2010 to 5.00% at the end of 2011, and reducing the OPEB discount rate from 5.00% at the end of 2010 to 4.75% at the end of 2011. More information regarding these initiatives can be found in the Letter to the Investment Community issued on January 26, 2012, which is available on FE’s Investor Information website – www.firstenergycorp.com/ir.
West Virginia Fuel, Purchased Power Cost Decision
On December 30, 2011, Monongahela Power Company (MP) and Potomac Edison Company (PE), subsidiaries of FE, announced that the Public Service Commission of West Virginia (WVPSC) issued an order regarding MP’s and PE’s adjustment of fuel and purchased power costs. The WVPSC’s order approved a settlement agreement between MP and PE and the Consumer Advocate Division and Staff of the WVPSC and the West Virginia Energy Users Group. In the approved settlement, parties have agreed that MP and PE will recover an additional $19.6 million in 2012, an approximate 1.7% increase, primarily reflecting rising coal prices over the past two years, with certain additional amounts to be recovered in future years.
| Consolidated Report to the Financial Community - 4th Quarter 2011 | 20 |
Retiring of Coal-Fired Units
On February 8, 2012, FirstEnergy announced that its MP subsidiary will be retiring the following older coal-fired power plants located in West Virginia by September 1, 2012:
Albright 292 MW
Willow Island 242
Rivesville 126
Total 660 MW
On January 26, 2012, FE announced that its generation subsidiaries will retire the following older coal-fired plants located in Ohio, Pennsylvania and Maryland by September 1, 2012:
Ashtabula 244 MW
Armstrong 1-2 356
Bayshore 2-4 495
Eastlake 1-5 1,233
Lake Shore 245
R. Paul Smith 3-4 116
Total 2,689 MW
The decision to close the plants is based on the U.S. Environmental Protection Agency Mercury and Air Toxics Standards, which were recently finalized, and other environmental regulations. Additional investment to implement these standards would make these plants even more incapable of being dispatched under current market rules. These closures are subject to review for reliability impacts by PJM Interconnection LLC, the regional transmission organization that controls the area where these power plants are located. In addition, MP will file information with the WVPSC regarding the retirement of its plants. More information can be found in the forms 8-K filed with the Securities and Exchange Commission on January 24 and February 7, 2012.
Recently, these plants served mostly as peaking or intermediate facilities, generating, on average, approximately 10 percent of the electricity produced by the company over the past three years.
Davis-Besse Returns to Service
On December 6, 2011, FirstEnergy Nuclear Operating Company announced its Davis-Besse Nuclear Power Station returned to service following replacement of the reactor vessel head and other scheduled maintenance, which began on October 1, 2011. The new reactor vessel head features control rod nozzles made of an enhanced material and further promotes safe and reliable operation of the plant.
| Consolidated Report to the Financial Community - 4th Quarter 2011 | 21 |
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 before FERC and 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 the PJM Interconnection, L.L.C., (PJM) 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, 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 CSAPR which was stayed by the courts on December 30, 2011, and the effects of the EPA's MATS rules, the uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation including 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), the uncertainty associated with the company's plan to retire its older unscrubbed regulated and competitive fossil units, including the impact on vendor commitments and PJM's review of the company's plans, 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), issues that could result from our continuing investigation and analysis of the indications of cracking in the plant shield building at Davis-Besse, 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, FirstEnergy's ability to improve electric commodity margins and the impact of, among other factors, the increased cost of fuel and fuel 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 NDTs, pension trusts and other trust funds, and cause FirstEnergy and its subsidiaries to make additional contributions sooner, or in amounts that are larger than currently anticipated, the impact of changes to material accounting policies, 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 major industrial and commercial customers of FirstEnergy and its subsidiaries, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy and its subsidiaries do business, issues arising from the completed merger of FirstEnergy and Allegheny Energy and the ongoing coordination of their combined operations including FirstEnergy's ability to maintain relationships with customers, employees and suppliers, as well as the ability to continue to successfully integrate the businesses and realize cost savings and other synergies, 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 the 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, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.
| Consolidated Report to the Financial Community - 4th Quarter 2011 | 22 |
