Recent Developments
Rating Agency Update
On August 3, 2009, Moody's Investor Service upgraded the senior secured debt ratings of FirstEnergy’s seven regulated utilities as follows: CEI and TE were upgraded to Baa1 from Baa2, and Jersey Central Power & Light Company (JCP&L), Met-Ed, OE, Penelec and Pennsylvania Power Company (Penn) were upgraded to A3 from Baa1.
Financing Activities
On August 7, 2009, FES issued 5, 12 and 30-year unsecured senior notes totaling $1.5 billion. The notes bear interest at an annual rate of 4.80%, 6.05%, and 6.80%, respectively. Proceeds were used to pay down borrowings under the FirstEnergy companies’ Revolving Credit Facility and other general corporate purposes.
On August 14, 2009, $177 million of pollution control revenue bonds (PCRBs) were issued on behalf of FirstEnergy Generation Corp. (FGCO) relating to air quality compliance expenditures at the Sammis Plant. The bonds have a fixed rate coupon of 5.7% and a maturity date of August 1, 2020.
On August 18, 2009, CEI issued $300 million of FMBs. The FMBs have a coupon rate of 5.5% and a maturity date of August 15, 2024. A portion of the proceeds will be used to replace $150 million of CEI’s 7.43% Series D Secured Notes due 2009. The remaining proceeds were used to repay a portion of CEI’s short-term borrowings and other general corporate purposes.
On September 1, 2009, FirstEnergy Corp. completed a cash tender offer for $1.2 billion of 6.45% notes, Series B, due 2011. $250 million is left outstanding on the 2011 6.45% FE Corp. notes.
On September 2, 2009, FirstEnergy’s regulated utilities contributed $500 million to the pension plan.
On September 30, 2009, Penelec issued $500 million of unsecured notes with $250 million maturing in 2020 and $250 million maturing in 2038. The 2020 and 2038 coupons were 5.20% and 6.15%, respectively. Proceeds were used to pay down short-term borrowings, including $250 million borrowed under the FirstEnergy companies’ Revolving Credit Facility.
On October 1, 2009, FGCO and FirstEnergy Nuclear Generation Corp. (NGC), purchased $81.6 million of PCRBs subject to mandatory purchase. Subject to market conditions, FGCO and NGC plan to remarket the purchased PCRBs in the near future.
Summary of New Issuances
| Obligor | Principal (in millions) | Rate | Interest Rate Mode | Maturity Date |
| FES | $400 | 4.80% | Fixed | 2/15/2015 |
| FES | $600 | 6.05% | Fixed | 8/15/2021 |
| FES | $500 | 6.80% | Fixed | 8/15/2039 |
| FGCO | $177 | 5.70% | Fixed | 8/1/2020 |
| CEI | $300 | 5.50% | Fixed | 8/15/2024 |
| Penelec | $250 | 5.20% | Fixed | 4/1/2020 |
| Penelec | $250 | 6.15% | Fixed | 10/1/2038 |
| Consolidated Report to the Financial Community - 3rd Quarter 2009 | 15 |
Ohio Regulatory Update
On August 6, 2009, the Public Utilities Commission of Ohio (PUCO) withdrew proposed rules it had forwarded to the Joint Committee on Agency Rules Review (JCARR) regarding implementation of 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. On October 15, 2009, the PUCO issued modified rules. On October 16 and October 19, 2009, the PUCO submitted revised rules to JCARR for review.
On August 19, 2009, the PUCO approved the Ohio Utilities’ (OE, CEI and TE) proposal to accelerate the recovery of deferred costs. The principal amount plus carrying charges through August 31, 2009, for these deferrals was approximately $300 million. Accelerated recovery began September 1, 2009, for collection during the 18 non-summer months through May 31, 2011.
On September 2, 2009, FirstEnergy announced a second Request for Proposal (RFP) to secure Renewable Energy Credits (RECs) for customers of the Ohio Utilities. The RFP includes solar and other renewable energy RECs generated in Ohio. The RECs, combined with those acquired in an initial RFP conducted earlier this year, will be used to help meet the renewable energy requirements established under Senate Bill 221 for 2009, 2010, and 2011.
On October 20, 2009, the Ohio Utilities filed an application with the PUCO for a Market Rate Offer (MRO) to provide electric generation service to retail customers who do not choose alternative energy suppliers. The proposed MRO establishes a Competitive Bidding Process (CBP) to secure generation supply and pricing beginning June 1, 2011. The MRO filing proposes a descending clock, slice-of-system auction similar to the one conducted in May 2009, with a staggered solicitation process. Solicitations would occur in June and October 2010 for 12, 24 and 36 month products, and would transition into a process in which one-third of the load for the Ohio utilities would be procured each year for three-year products. The Ohio Utilities have requested PUCO approval by January 18, 2010.
New Jersey Solar Renewable Energy Certificates
On July 30, 2009, JCP&L in collaboration with another New Jersey electric utility, Atlantic City Electric Company (ACE), announced an RFP to secure Solar Renewable Energy Certificates (SREC) as part of the New Jersey Board of Public Utilities' effort to support new solar energy projects. The RFP process was established to help create long-term agreements to purchase and sell SRECs to provide a stable basis for financing new solar generation projects in the companies' service areas. A total of 61 megawatts (MW) of solar generating capacity – 19 for ACE and 42 MW for JCP&L – will be solicited to help meet New Jersey Renewable Portfolio Standards. The first solicitation was conducted in August 2009; subsequent solicitations will occur over the next three years.
Met-Ed and Penelec Default Service Plan
On August 12, 2009, Met-Ed and Penelec filed a settlement agreement with the Pennsylvania Public Utility Commission (PPUC) for the generation procurement plan covering the period January 1, 2011, through May 31, 2013, reflecting settlement on all but two issues. The settlement plan is 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 settlement plan proposes a staggered procurement schedule, which varies by customer class. If approved, generation procurement would begin in January 2010.
On September 2, 2009, the Administrative Law Judge (ALJ) issued a Recommended Decision (RD) and adopted the two companies’ positions on two reserved issues. Exceptions to the ALJ RD were filed on September 22, 2009, with reply exceptions being filed on October 2, 2009. The PPUC final decision is expected in November 2009.
| Consolidated Report to the Financial Community - 3rd Quarter 2009 | 16 |
Pennsylvania Smart Meter Plan
On August 14, 2009, Penn, Met-Ed and Penelec (the Companies) filed a Smart Meter Technology, Procurement and Installation Plan with the PPUC as required by Act 129. The plan includes proposed tariff riders to recover the costs of implementation of the plan and an assessment period of 24 months to assess needs, select technology, secure vendors, train personnel, install and support test equipment and establish a detailed meter deployment schedule consistent with the requirements of Act 129. At the end of the assessment period, the Companies will submit to the PPUC a supplement to the plan to set forth in detail the Companies’ proposal for the full scale deployment of smart meters. The Companies are asking the PPUC to approve, as part of the plan, both the proposed recovery mechanism and the recovery of costs of the assessment period, currently estimated at $29.5 million, through such mechanism. A PPUC technical conference was conducted on October 20, 2009, evidentiary hearings are scheduled for mid-November and the ALJ’s RD is expected in late January 2010.
Fremont Energy Center
On September 22, 2009, FirstEnergy announced it expects to complete construction of the Fremont Energy Center by the end of 2010. Originally acquired in January 2008, the Fremont Energy Center includes two natural gas combined-cycle combustion turbines and a steam turbine capable of producing 544 MW of load-following capacity and 163 MW of peaking capacity. With the accelerated construction schedule, the remaining cost to complete the project is expected to be $180 million.
Nuclear Outage
On October 12, 2009, the Beaver Valley Nuclear Power Station Unit 2, located in Shippingport, Pennsylvania, began a scheduled refueling and maintenance outage. During the outage, 60 of the 157 fuel assemblies will be exchanged and safety inspections conducted. In addition, numerous improvement projects will be completed to ensure continued safe and reliable operations. Prior to the outage, the unit had operated safely and reliably for 350 consecutive days.
PJM Regional Transmission Organization (RTO) Integration
On August 17, 2009, FirstEnergy filed an application with the Federal Energy Regulatory Commission (FERC) to consolidate its transmission assets and operations into PJM Interconnection (PJM). Currently the company's transmission assets and operations are divided between PJM and the Midwest Independent Transmission System Operator (MISO). The consolidation would move the transmission assets that are part of FirstEnergy's American Transmission Systems, Incorporated (ATSI) subsidiary and the generation assets of FES – which are located within the footprint of the Ohio Utilities and Penn – into PJM. If approved, the consolidation is expected to facilitate providing customers with the benefits of a more fully developed retail choice market, and the company with the operating efficiencies of a single RTO – with one set of rules, procedures and protocols. To ensure a definitive ruling at the same time FERC rules on its request to integrate ATSI into PJM, on October 19, 2009, FirstEnergy filed a related complaint with FERC on the issue of allocating Regional Transmission Expansion Plan costs to the ATSI footprint for high-voltage transmission projects approved prior to FirstEnergy’s integration into PJM.
FirstEnergy has requested that FERC rule on its application by December 17, 2009, to provide time to permit management to make a decision on whether to integrate ATSI into PJM prior to the 2010 Base Residual Auction for capacity. Subject to a satisfactory FERC ruling, the integration is expected to be complete on June 1, 2011, to coincide with delivery of power under the next competitive generation procurement process for the Ohio Utilities.
Voluntary Early Retirement Program
FirstEnergy’s Voluntary Enhanced Retirement Option (VERO) enrollment period concluded September 16, 2009. The VERO was accepted by a total of 397 non-represented employees and 318 union employees.
| Consolidated Report to the Financial Community - 3rd Quarter 2009 | 17 |
FirstEnergy Solutions Offers Economic Support Program
On September 22, 2009, FES introduced “Powering Our Communities,” an innovative program that offers economic support to communities in the OE, CEI, and TE service areas that purchase discounted electric generation supply from FES through government aggregation programs. The new program will provide up-front grants to local Ohio communities and long-term electric generation price savings.
Smart Grid Proposal
On August 6, 2009, FirstEnergy filed an application for economic stimulus funding with the U.S. Department of Energy under the American Recovery and Reinvestment Act that proposed investing $114 million on smart grid technologies to improve the reliability and interactivity of its electric distribution infrastructure in its three-state service area. The application requests $57 million – which represents half of the funding needed for targeted projects in communities served by FirstEnergy’s electric utility companies. FirstEnergy will seek to recover the remainder of the funds through retail rates.
| Consolidated Report to the Financial Community - 3rd Quarter 2009 | 18 |
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 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 Public Utilities Commission of Ohio's regulatory process on the Ohio Companies, associated with the distribution rate case, 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 FirstEnergy's 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 Clean Air Interstate 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 Air Quality Compliance 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 New Source Review litigation or other similar potential regulatory initiatives or actions, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the Nuclear Regulatory Commission, Metropolitan Edison Company's and Pennsylvania Electric Company's transmission service charge filings with the Pennsylvania Public Utility Commission, 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 FirstEnergy's nuclear decommissioning trusts, pension trusts and other trust funds, and cause it 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 FirstEnergy's financing plan and the cost of such capital, changes in general economic conditions affecting the company, the state of the capital and credit markets affecting the company, interest rates and any actions taken by credit rating agencies that could negatively affect FirstEnergy's access to financing or its costs or increase its requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees, the continuing decline of the national and regional economy and its impact on the company's major industrial and commercial customers, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy does business, and the risks and other factors discussed from time to time in its Securities and Exchange Commission 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 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.
| Consolidated Report to the Financial Community - 3rd Quarter 2009 | 19 |
