FERC
On May 11, 2010, FirstEnergy (FE) and Allegheny Energy (AYE) filed an application with the Federal Energy Regulatory Commission (FERC) for approval of their proposed merger. Under the Federal Power Act, FERC has 180 days to rule on the merger application. FE and AYE subsequently submitted additional information regarding the merger application which was requested by FERC. Interventions and protests were filed with the FERC on July 12, 2010.
State Regulatory Filings
On May 14 and May 18, 2010, FE and AYE filed applications with the Pennsylvania Public Utility Commission (PAPUC) and the Public Service Commission of West Virginia, respectively, for approval of their proposed merger. On May 27, 2010, FE and AYE filed an application for approval of the proposed merger with the Maryland Public Service Commission (MDPSC). The MDPSC is required to issue an order no later than 180 days after an application is filed, but for good cause MDPSC may give itself a 45-day extension which it did when it issued its initial order on June 24, 2010. On June 14, 2010, FE and AYE completed their application with the Virginia State Corporation Commission (VSCC) for approval of their proposed merger. VSCC is required to rule on the merger application in 60 days, subject to up to a 120-day extension. In its or der issued on June 25, 2010, the VSCC extended the period for its review by 30 days; therefore, the companies expect a decision by September 13, 2010. Pennsylvania and West Virginia laws impose no statutory timeframe for their commissions’ consideration of a merger application, but procedural schedules have been established; and final decisions are anticipated in January and February, respectively.
Hart-Scott-Rodino (HSR) Act Filings
On May 25, 2010, FE and AYE made HSR filings with the Department of Justice (DOJ) and Federal Trade Commission. On June 24, 2010, FE and AYE each received a request for additional information from the DOJ, which extends the HSR Act waiting period for an additional 30 days from the date that the requested information is supplied to the DOJ.
S-4 Registration Statement
In June and July 2010, FE and AYE filed amended Form S-4 registration statements with the United States Securities and Exchange Commission (SEC). The Form S-4 registration statement, as amended, was declared effective by the SEC on July 16, 2010. The official record date for shareholders permitted to vote at the special shareholder meeting is July 16, 2010, and the FE and AYE special shareholder meetings are both scheduled for September 14, 2010.
Financing Activities
On June 1, 2010, FirstEnergy Generation Corp. (FGCO) purchased $15 million of fixed rate Pollution Control Revenue Bonds (PCRBs) originally issued on its behalf. Subject to market conditions, FGCO plans to remarket the $15 million of PCRBs, as well as an additional $235 million PCRBs purchased in April, in the near future.
On June 1, 2010, Penn Power redeemed $1 million of 5.40% Environmental Improvement Revenue Bonds, 1993 Series A, due October 1, 2013, and on July 30, 2010, redeemed $6.5 million of 7.65% First Mortgage Bonds Series of 1993 due in 2023.
In May of 2010, FE terminated fixed-for-floating interest rate swap agreements with a notional value of $3.15 billion, which resulted in cash proceeds of $43.1 million. These proceeds will generally be amortized to earnings over the life of the underlying debt.
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Effective June 1, 2010, FE executed multiple fixed-for-floating interest rate swap agreements with a combined notional value of $3.2 billion, which essentially replaced the swap agreements terminated in May of 2010. As of June 30, 2010, the debt underlying the $3.2 billion outstanding notional amount of interest rate swaps had a weighted average fixed interest rate of 6%, which the swaps have converted to a current weighted average variable rate of 4%.
On July 16, 2010, FE terminated these fixed-for-floating interest rate swap agreements with a notional value of $3.2 billion, which resulted in cash proceeds of $83.6 million. These proceeds will generally be amortized to earnings over the life of the underlying debt.
Ohio Electric Security Plan (ESP)
OE, CEI and TE (collectively the Ohio Companies) filed a second Supplemental Stipulation with the PUCO on July 22, 2010, to supplement the ESP Stipulation filed on March 23, 2010, and the Supplemental Stipulation filed on May 13, 2010. An additional four signatories were included in the Supplemental Stipulations, joining the Ohio Companies and 17 original signatory parties that support the ESP. A final PUCO order is pending.
Significantly Excessive Earnings Test (SEET)
On June 30, 2010, the PUCO issued an order that requires each electric utility in Ohio to file a SEET application by July 15, 2010. Subsequent to that order, the PUCO extended the filing date to September 1, 2010.
Met-Ed and Penelec Transmission Service Charges (TSC)
On May 20, 2010, the PAPUC approved the revised TSC for Metropolitan Edison (Met-Ed) and Pennsylvania Electric (Penelec). The revised TSC rates were slightly increased for Met-Ed and slightly decreased for Penelec, and are effective for the period of June 1, 2010 to December 31, 2010. The PAPUC’s Order of March 3, 2010, which denies the recovery of marginal transmission losses through the TSC for the period of June 1, 2007 through March 31, 2008, remains subject to an appeal that is currently pending in the Commonwealth Court of Pennsylvania.
Met-Ed and Penelec Default Service Plan
On May 27, 2010, the PAPUC approved the results of the third of four auctions held to procure the default service requirements for Met-Ed and Penelec customers who choose not to shop with an alternative supplier. For the five-month period of January 1, 2011 to May 31, 2011, the tranche-weighted average prices ($/MWh) for Met-Ed’s residential and commercial classes were $72.81 and $72.29, respectively; Penelec’s tranche-weighted average prices were $62.04 and $63.35 for its residential and commercial classes, respectively. There will be another auction in October 2010 to procure the remaining supply for this period. The May 2010 auction was also the first of four auctions to procure commercial default service requirements for the 12-month period of June 1, 2011 to May 31, 2012 and residential requireme nts for the 24-month period of June 1, 2011 to May 31, 2013. For Met-Ed and Penelec commercial customers the tranche-weighted average price ($/MWh) was $66.32 and $57.60, respectively, and for residential customers the tranche-weighted average price was $68.55 and $58.43, respectively. The remaining three auctions for these products will be conducted in October 2010, January 2011, and March 2011.
Department of Energy (DOE) Smart Grid Grants
On June 3, 2010, FE and the DOE signed grants totaling $57.4 million that were awarded as part of the American Recovery and Reinvestment Act to introduce smart grid technologies in targeted areas in Pennsylvania, Ohio, and New Jersey. The DOE grants represent 50% of the funding for the $114.9 million FE investment in smart grid technologies; the PAPUC and the State of New Jersey Board of Public Utilities have already approved recovery for the remaining portion of smart grid costs. The PUCO issued an order on June 30, 2010, approving FE’s smart grid program, but FE has delayed implementation of the Ohio portion of the program until there is more certainty regarding cost recovery for the portion of the costs not covered by the grant.
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