2009 Non-GAAP Earnings Guidance
On June 2, 2009, FirstEnergy issued 2009 non-GAAP earnings guidance of $3.70 to $3.85 per share, with more than $250 million in non-GAAP positive cash flow – cash flow from operating activities and assets sales after capital expenditures and dividend payments.
Rating Agency Updates
On June 17, 2009, Moody’s Investor Service issued a report affirming FirstEnergy’s ‘Baa3’ and FES’ ‘Baa2’ credit ratings and maintained the stable outlook. On July 9, 2009, Standard & Poor’s Ratings Services reaffirmed ratings on FirstEnergy and its subsidiaries, including its ‘BBB’ corporate credit rating, and maintained the stable outlook.
Financing Activities
On June 30, 2009, Pennsylvania Power Company (Penn) privately placed $100 million of first mortgage bonds at 6.09%, due 2022. The proceeds were used to repurchase Penn equity from OE and for capital expenditures.
In June 2009, FirstEnergy Nuclear Generation Corp. (NGC) and FirstEnergy Generation Corp. (FGCO) refinanced $519 million Pollution Control Revenue Bonds with $355 million converted from a variable to a fixed-rate mode. Details of these transactions may be seen in the table below.
| Obligor | Principal | Rate | Interest Rate |
| | (in millions) | | Mode |
| NGC | $164.0 | - | Variable |
| NGC | $107.5 | 5.88% | Fixed |
| FGCO | $100.0 | 4.75% | Fixed |
| FGCO | $141.3 | 5.63% | Fixed |
| FGCO | $6.5 | 4.75% | Fixed |
Ohio Regulatory Update
On May 14, 2009, FirstEnergy announced that an auction to secure generation supply and pricing for the period June 1, 2009, through May 31, 2011, for its Ohio utility companies - OE, CEI and TE (collectively, the Ohio Companies) was completed and the results were approved by the PUCO. The auction resulted in an average weighted wholesale price for generation and transmission of 6.15 cents per kilowatt-hour (KWH). FES was a successful bidder for 51 percent of the Ohio Companies’ Provider of Last Resort (POLR) generation requirements. A total of 12 bidders qualified to participate in the auction with 9 successful bidders each securing a portion of the Ohio utility companies’ load. Subsequent to the auction FES purchased tranches totaling an additional 11 percent of the load from other winning bidders. Effective August 1, 2009, FES is supplying 62 percent of the Ohio Companies’ POLR generation requirements.
On June 17, 2009, the PUCO modified rules that implement the alternative energy portfolio standards created by Senate Bill 221, incorporating energy efficiency requirements, long-term forecasting and planning for greenhouse gas reporting and carbon dioxide control. The PUCO filed the rules with the Joint Committee on Agency Rule Review on July 7, 2009, which begins a 65-day review period. The Ohio Companies and one other party filed applications for rehearing on the rules with the PUCO.
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On July 27, 2009, the Ohio Companies filed applications with the PUCO to recover three different categories of deferred distribution costs on an accelerated basis. In the Ohio Companies' Amended ESP, the PUCO approved the recovery of these deferrals, with collection originally set to begin in January 2011 and to continue over a 5-or 25-year period. The principal amount plus carrying charges through August 31, 2009, for these deferrals is a total of $298.4 million. If the applications are approved, recovery of this amount, together with carrying charges calculated as approved in the Amended ESP, will be collected in the 18 non-summer months from September 2009 through May 2011, subject to reconciliation until fully collected, with $165 million of the above amount being recovered from residential customers, and $133.4 million being recovered from non-residential customers. Pursuant to the applications, customers would pay significantly less over the life of the recovery of the deferral through the reduction in carrying charges as compared to the expected recovery under the previously approved recovery mechanism.
Met-Ed and Penelec Procurement Plan
On February 20, 2009, Met-Ed and Penelec filed with the Pennsylvania Public Utility Commission (PPUC) a generation procurement plan covering the period January 1, 2011, through May 31, 2013. The companies’ plan was designed to provide adequate and reliable service as required by Pennsylvania law through a prudent mix of long-term, short-term and spot-market generation supply as required by Act 129. The plan proposed a staggered procurement schedule, which varies by customer class. On March 30, 2009, Met-Ed and Penelec filed direct testimony pursuant to the March 5, 2009, case schedule issued by the Administrative Law Judge. The PPUC is expected to issue a final decision in November 2009.
PPUC Establishes Smart Meter Standards
On June 18, 2009, the PPUC issued standards for the smart meter technology procurement and installation plans required by Act 129 to be filed by the state’s large electric distribution companies by August 14, 2009. The PPUC also provided guidance on the procedures to be followed for submittal, review and approval of all aspects of the smart meter plans. On June 18, 2009, the PPUC also adopted a total resource cost test to analyze the costs and benefits of energy efficiency and conservation plans filed under Act 129.
On July 1, 2009, Met-Ed, Penelec and Penn filed energy efficiency and conservation plans in compliance with the requirements of Act 129.
PJM Consolidation
On July 31, 2009, FirstEnergy announced that it plans to consolidate all of its transmission assets into PJM. FirstEnergy believes that consolidation will enhance operating efficiency, better support retail choice in Ohio and Pennsylvania, and provide customers with greater access to long-term supplies of generation capacity. Most of FirstEnergy’s transmission assets in Pennsylvania, and those in New Jersey, already operate within PJM. The company’s transmission assets in Ohio and Penn, which are a part of American Transmission Systems, Incorporated (ATSI), currently operate within the Midwest Independent Transmission System Operator. Virtually all of FirstEnergy’s generation is connected to the ATSI transmission system. FirstEnergy will request integration into PJM on June 1, 2011, in a filing to be made with the Federal Energy Regulatory Commission.
Nuclear Outages
On April 21, 2009, the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio, returned to service following a maintenance outage that began on April 5, 2009, to repair condenser and steam valves.
On May 13, 2009, the Perry Nuclear Power Plant in Perry, Ohio, returned to service after completing its twelfth refueling and maintenance outage which began on February 23, 2009. On June 21, 2009, the plant was taken offline due to a main turbine trip and returned to service on June 26, 2009.
On May 21, 2009, the Beaver Valley Power Station Unit 1 in Shippingport, Pennsylvania, returned to service after completing its nineteenth refueling outage, which began on April 20, 2009.
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Safety Record Set by Employees at Davis-Besse
A new FirstEnergy Nuclear Operating Company safety record was set in June by Davis-Besse Nuclear Power Station employees, who worked more than 10.2 million hours -- approximately six years -- without an injury that resulted in a missed day of work. The previous record was set in 2005 by employees of the Perry Nuclear Power Plant, who worked 10.1 million hours without an injury resulting in a missed day of work.
FES Retail Activities
As of August 1, 2009, FES has signed 50 government aggregation contracts that will provide discounted generation prices to approximately 600,000 residential and small commercial customers. The governmental aggregator may choose between a graduated or flat percentage discount. For residential customers, the graduated discount plan offers savings of 10 percent, 6 percent, 5 percent, and 4 percent in the years 2009-2012, respectively. The flat percentage contract offers a 6 percent discount through the end of the contract. Discounts will be based on the generation price customers would have been charged if they purchased electric generation service from their electric utility and will be effective beginning in late summer or early fall.
FirstEnergy Earns Edison Electric Institute (EEI) Award
On May 27, 2009, FirstEnergy was presented EEI’s 2009 Supplier Diversity Excellence Award in Phoenix, Arizona. The award recognizes EEI member companies for their excellence and outstanding achievements in advancing purchasing opportunities for small businesses and businesses with diverse ownership.
Union Contracts Update
On May 21, 2009, 517 Penelec employees, represented by the IBEW Local 459, elected to strike. In response, on May 22, 2009, Penelec implemented its work-continuation plan to use nearly 400 non-represented employees with previous line experience and training drawn from Penelec, other FirstEnergy operations and contractors to perform service reliability and priority maintenance work in the Penelec area for the duration of the strike. IBEW Local 459 employees of Penelec ratified a three-year contract agreement on July 17, 2009, and returned to work on Monday, July 20, 2009.
On June 26, 2009, FirstEnergy announced that seven of its union locals -- representing about 2,600 employees -- have ratified contract extensions. These unions include employees from Penelec, Penn, CEI, OE and TE, along with some power plant employees.
On July 8, 2009, FirstEnergy announced that employees of Met-Ed represented by IBEW Local 777 ratified a two-year contract. Union members had been working without a contract since the previous agreement expired April 30, 2009.
Voluntary Early Retirement Program
In June, FirstEnergy offered a Voluntary Enhanced Retirement Option (VERO), which provides additional benefits for qualified employees who elect to retire. The VERO was accepted by 382 non-represented employees. The VERO has also been extended to several unions, and, to date, 225 represented employees have accepted.
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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 our 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 and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Pennsylvania, the impact of the PUCO’s regulatory process on the Ohio Companies associated with the distribution rate case or implementing the recently-approved ESP, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices and availability, 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, other legislative and regulatory changes, revised environmental requirements, including possible greenhouse gas emission regulations, the potential impacts of the U.S. Court of Appeals' July 11, 2008 decision requiring revisions to the CAIR rules and the scope of any laws, rules or regulations that may ultimately take their place, the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the AQC Plan (including that such amounts could be higher than anticipated or that certain generating units may need to be shut down) or levels of emission reductions related to the Consent Decree resolving the NSR litigation or other potential regulatory initiatives, 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, Met-Ed's and Penelec's transmission service charge filings with the PPUC, the continuing availability of generating units and their ability to operate at or near full capacity, the ability to comply with applicable state and federal reliability standards, the ability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the ability to improve electric commodity margins and to experience growth in the distribution business, the changing market conditions that could affect the value of assets held in our nuclear decommissioning trusts, pension trusts and other trust funds, and cause us to make additional contributions sooner, or in an amount that is larger than currently anticipated, the ability to access the public securities and other capital and credit markets in accordance with our financing plan and the cost of such capital, changes in general economic conditions affecting us, the state of the capital and credit markets affecting us, interest rates and any actions taken by credit rating agencies that could negatively affect our access to financing or its costs and increase our requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees, the continuing decline of the national and regional economy and its impact on our major industrial and commercial customers, issues concerning the soundness of financial institutions and counterparties with which we do business, and the risks and other factors discussed from time to time in our SEC filings, and other similar factors. A credit rating is not a recommendation to buy, sell or hold debt and it may be subject to revision or withdrawal at any time. Each rating should be evaluated independently of any other rating that may be assigned to our securities. The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for our management to predict all such factors, nor assess the impact of any such factor on our 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. We expressly disclaim 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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