FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
- ----------- --------------------------------------- ------------------
333-21011 FIRSTENERGY CORP. 34-1843785
(An Ohio Corporation)
76 South Main Street
Akron, Ohio 44308
Telephone (800)736-3402
1-2578 OHIO EDISON COMPANY 34-0437786
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-2323 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 34-0150020
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3491 PENNSYLVANIA POWER COMPANY 25-0718810
(A Pennsylvania Corporation)
1 East Washington Street
P. O. Box 891
New Castle, Pennsylvania 16103
Telephone (412)652-5531
Indicate by check mark whether each of the registrants (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
OUTSTANDING
CLASS AS OF MAY 10, 2001
----- ------------------
FirstEnergy Corp., $.10 par value 223,981,580
Ohio Edison Company, no par value 100
The Cleveland Electric Illuminating Company,
no par value 79,590,689
The Toledo Edison Company, $5 par value 39,133,887
Pennsylvania Power Company, $30 par value 6,290,000
FirstEnergy Corp. is the sole holder of Ohio Edison Company, The Cleveland
Electric Illuminating Company and The Toledo Edison Company common stock;
Ohio Edison Company is the sole holder of Pennsylvania Power Company
common stock.
This combined Form 10-Q is separately filed by FirstEnergy
Corp., Ohio Edison Company, Pennsylvania Power Company, The Cleveland
Electric Illuminating Company and The Toledo Edison Company. Information
contained herein relating to any individual registrant is filed by such
registrant on its own behalf. No registrant makes any representation as to
information relating to any other registrant, except that information
relating to any of the four FirstEnergy subsidiaries is also attributed to
FirstEnergy.
This Form 10-Q includes forward-looking statements based on
information currently available to management. Such statements are subject
to certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms "anticipate", "potential", "expect",
"believe", "estimate" and similar words. Actual results may differ
materially due to the speed and nature of increased competition and
deregulation in the electric utility industry, economic or weather
conditions affecting future sales and margins, changes in markets for
energy services, changing energy and commodity market prices, legislative
and regulatory changes (including revised environmental requirements), the
availability and cost of capital, inability to accomplish or realize
anticipated benefits of strategic goals (including the merger with GPU,
Inc.) and other similar factors.
TABLE OF CONTENTS
Pages
Part I. Financial Information
Notes to Financial Statements 1-5
FirstEnergy Corp.
Consolidated Statements of Income 6
Consolidated Balance Sheets 7-8
Consolidated Statements of Cash Flows 9
Report of Independent Public Accountants 10
Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-15
Ohio Edison Company
Consolidated Statements of Income 16
Consolidated Balance Sheets 17-18
Consolidated Statements of Cash Flows 19
Report of Independent Public Accountants 20
Management's Discussion and Analysis of Results
of Operations and Financial Condition 21-23
The Cleveland Electric Illuminating Company
Consolidated Statements of Income 24
Consolidated Balance Sheets 25-26
Consolidated Statements of Cash Flows 27
Report of Independent Public Accountants 28
Management's Discussion and Analysis of Results
of Operations and Financial Condition 29-30
The Toledo Edison Company
Consolidated Statements of Income 31
Consolidated Balance Sheets 32-33
Consolidated Statements of Cash Flows 34
Report of Independent Public Accountants 35
Management's Discussion and Analysis of Results
of Operations and Financial Condition 36-37
Pennsylvania Power Company
Statements of Income 38
Balance Sheets 39-40
Statements of Cash Flows 41
Report of Independent Public Accountants 42
Management's Discussion and Analysis of Results
of Operations and Financial Condition 43-44
Part II. Other Information
PART I. FINANCIAL INFORMATION
- ------------------------------
FIRSTENERGY CORP. AND SUBSIDIARIES
OHIO EDISON COMPANY AND SUBSIDIARIES
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
THE TOLEDO EDISON COMPANY AND SUBSIDIARY
PENNSYLVANIA POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1 - FINANCIAL STATEMENTS:
The principal business of FirstEnergy Corp. (FirstEnergy) is the
holding, directly or indirectly, of all of the outstanding common stock of
its five principal electric utility operating subsidiaries, Ohio Edison
Company (OE), The Cleveland Electric Illuminating Company (CEI), The
Toledo Edison Company (TE), Pennsylvania Power Company (Penn) and American
Transmission Systems, Inc. (ATSI). These utility subsidiaries are referred
to throughout as "Companies." Penn is a wholly owned subsidiary of OE.
FirstEnergy's other principal subsidiaries include FirstEnergy Services
Corp. (FE Services); FirstEnergy Facilities Services Group, LLC (FE
Facilities); MARBEL Energy Corporation (MARBEL) and FirstEnergy Nuclear
Operating Company (FENOC). FE Services provides energy-related products
and services and has two subsidiaries, Penn Power Energy, Inc., which
provides electric generation services and other energy services to
Pennsylvania customers and FirstEnergy Generation Corp., which operates
the nonnuclear generating facilities of the Companies. FENOC operates the
nuclear generating facilities of the Companies.
The condensed unaudited financial statements of FirstEnergy and
each of the Companies reflect all normal recurring adjustments that, in
the opinion of management, are necessary to fairly present results of
operations for the interim periods. These statements should be read in
connection with the financial statements and notes included in the
combined Annual Report on Form 10-K for the year ended December 31, 2000
for FirstEnergy and the Companies. Significant intercompany transactions
have been eliminated. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make periodic estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. The reported results of
operations are not indicative of results of operations for any future
period. Certain prior year amounts have been reclassified to conform with
the current year presentation.
The sole assets of the subsidiary trust that is the obligor on
the preferred securities included in FirstEnergy's and OE's capitalization
are $123,711,350 principal amount of 9% Junior Subordinated Debentures of
OE due December 31, 2025.
2 - COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
FirstEnergy's current forecast reflects expenditures of
approximately $2.55 billion (OE-$360 million, CEI-$455 million, TE-
$218 million, Penn-$153 million, ATSI-$112 million, FE Services-$830
million and other subsidiaries-$422 million) for property additions and
improvements from 2001-2005, of which approximately $679 million (OE-
$89 million, CEI-$99 million, TE-$51 million, Penn-$28 million, ATSI-$21
million, FE Services-$314 million and other subsidiaries-$77 million) is
applicable to 2001. Investments for additional nuclear fuel during the
2001-2005 period are estimated to be approximately $376 million (OE-
$103 million, CEI-$117 million, TE-$81 million and Penn-$75 million), of
which approximately $56 million (OE-$15 million, CEI-$12 million, TE-
$9 million and Penn-$20 million) applies to 2001.
STOCK REPURCHASE PROGRAM-
On November 17, 1998, the Board of Directors authorized the
repurchase of up to 15 million shares of FirstEnergy's common stock over a
three-year period beginning in 1999. Repurchases are made on the open
market, at prevailing prices, and are funded primarily through the use of
operating cash flows. During the first quarter of 2001, FirstEnergy
repurchased and retired 550,000 shares of its common stock at an average
price of $27.82 per share.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Companies with regard to air and water quality and other environmental
matters. FirstEnergy estimates additional capital expenditures for
environmental compliance of approximately $201 million, which is included
in the construction forecast provided under "Capital Expenditures" for
2001 through 2005.
The Companies are required to meet federally approved sulfur
dioxide (SO2) regulations. Violations of such regulations can result in
shutdown of the generating unit involved and/or civil or criminal
penalties of up to $27,500 for each day the unit is in violation. The
Environmental Protection Agency (EPA) has an interim enforcement policy
for SO2 regulations in Ohio that allows for compliance based on a 30-day
averaging period. The Companies cannot predict what action the EPA may
take in the future with respect to the interim enforcement policy.
The Companies are in compliance with the current SO2 and
nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions are being achieved by burning lower-
sulfur fuel, generating more electricity from lower-emitting plants,
and/or using emission allowances. NOx reductions are being achieved
through combustion controls and the generation of more electricity at
lower-emitting plants. In September 1998, the EPA finalized regulations
requiring additional NOx reductions from the Companies' Ohio and
Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform
reductions of NOx emissions (an approximate 85% reduction in utility plant
NOx emissions from projected 2007 emissions) across a region of twenty-two
states and the District of Columbia, including Ohio and Pennsylvania,
based on a conclusion that such NOx emissions are contributing
significantly to ozone pollution in the eastern United States. In March
2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx
Transport Rule except as applied to the State of Wisconsin and portions of
Georgia and Missouri. By October 2000, states were to submit revised State
Implementation Plans (SIP) to comply by May 31, 2004 with individual state
NOx budgets established by the EPA. Pennsylvania submitted a SIP that
requires compliance with the NOx budgets at the Companies' Pennsylvania
facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires
compliance with the NOx budgets at the Companies' Ohio facilities by
May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport
Rule and may be implemented by the EPA in states which fail to revise
their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA position is that the
Section 126 petitions will be adequately addressed by the NOx Transport
Program, but a December 17, 1999 rulemaking established an alternative
program which would require nearly identical 85% NOx reductions at 392
utility plants, including the Companies' Ohio and Pennsylvania plants, by
May 2003, in the event implementation of the NOx Transport Rule is not
implemented by a state. Additional Section 126 petitions were filed by New
Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and
are still under evaluation by the EPA. The Companies continue to evaluate
their compliance plans and other compliance options.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a
new NAAQS for previously unregulated ultra-fine particulate matter. In May
1999, the U.S. Court of Appeals found constitutional and other defects in
the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the
new NAAQS rules regulating ultra-fine particulates but found defects in
the new NAAQS rules for ozone and decided that the EPA must revise those
rules. The future cost of compliance with these regulations may be
substantial and will depend on the manner in which they are ultimately
implemented, if at all, by the states in which the Companies operate
affected facilities.
In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a
Compliance Order to nine utilities covering 44 power plants, including the
W. H. Sammis Plant. In addition, the U.S. Department of Justice filed
eight civil complaints against various investor-owned utilities, which
included a complaint against OE and Penn in the U.S. District Court for
the Southern District of Ohio. The NOV and complaint allege violations of
the Clean Air Act based on operation and maintenance of the Sammis Plant
dating back to 1984. The complaint requests permanent injunctive relief to
require the installation of "best available control technology" and civil
penalties of up to $27,500 per day of violation. Although unable to
predict the outcome of these proceedings, FirstEnergy believes the Sammis
Plant is in full compliance with the Clean Air Act and the NOV and
complaint are without merit. Penalties could be imposed if the Sammis
Plant continues to operate without correcting the alleged violations and a
court determines that the allegations are valid. The Sammis Plant
continues to operate while these proceedings are pending.
In December 2000, the EPA announced it would proceed with the
development of regulations regarding hazardous air pollutants from
electric power plants. The EPA identified mercury as the hazardous air
pollutant of greatest concern. The EPA established a schedule to propose
regulations by December 2003 and issue final regulations by December 2004.
The future cost of compliance with these regulations may be substantial.
As a result of the Resource Conservation and Recovery Act of
1976, as amended, and the Toxic Substances Control Act of 1976, federal
and state hazardous waste regulations have been promulgated. Certain
fossil-fuel combustion waste products, such as coal ash, were exempted
from hazardous waste disposal requirements pending the EPA's evaluation of
the need for future regulation. The EPA has issued its final regulatory
determination that regulation of coal ash as a hazardous waste is
unnecessary. On April 25, 2000, the EPA announced that it will develop
national standards regulating disposal of coal ash under its authority to
regulate nonhazardous waste.
CEI and TE have been named as "potentially responsible parties"
(PRPs) at waste disposal sites which may require cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980. Allegations of disposal of hazardous substances at historical sites
and the liability involved, are often unsubstantiated and subject to
dispute. Federal law provides that all PRPs for a particular site be held
liable on a joint and several basis. CEI and TE have accrued liabilities
of $3.4 million and $0.2 million, respectively, as of March 31, 2001,
based on estimates of the total costs of cleanup, the proportionate
responsibility of other PRPs for such costs and the financial ability of
other PRPs to pay. CEI and TE believe that waste disposal costs will not
have a material adverse effect on their financial condition, cash flows or
results of operations.
MERGER AGREEMENT-
On August 8, 2000, FirstEnergy and GPU, Inc. (GPU), a
Pennsylvania corporation, entered into an Agreement and Plan of Merger.
Under the merger agreement, FirstEnergy would acquire all of the
outstanding shares of GPU's common stock for approximately $4.5 billion in
cash and FirstEnergy common stock. Approximately $7.4 billion of debt and
preferred stock of GPU's subsidiaries would still be outstanding. The
transaction would be accounted for by the purchase method. The combined
company's principal electric utility operating companies would include OE,
CEI, TE, Penn and ATSI, as well as GPU's electric utility operating
companies - Jersey Central Power & Light Company, Metropolitan Edison
Company and Pennsylvania Electric Company, which serve customers in New
Jersey and Pennsylvania.
Under the agreement, GPU shareholders would receive the
equivalent of $36.50 for each share of GPU common stock they own, payable
in cash or in FirstEnergy common stock, as long as FirstEnergy's common
stock price is between $24.2438 and $29.6313. GPU shareholders would be
able to elect the form of consideration they wish to receive, subject to
proration so that the aggregate consideration to all GPU shareholders will
be 50 percent cash and 50 percent FirstEnergy common stock. Each GPU share
converted into FirstEnergy common stock would receive not less than 1.2318
and not more than 1.5055 shares of FirstEnergy common stock, depending on
the average closing price of FirstEnergy stock during the 20-day trading
period ending on the seventh trading date prior to the merger closing. The
stock portion of the consideration is expected to be tax-free to GPU
shareholders.
The merger has been approved by the respective shareholders of
the Company and GPU, and necessary regulatory approvals have been received
from the Federal Energy Regulatory Commission, the Nuclear Regulatory
Commission, the New York State Public Service Commission and the Federal
Communications Commission, and is expected to close promptly after all of
the conditions to the consummation of the merger, including the receipt of
all necessary regulatory approvals, are fulfilled or waived. The Company
and GPU are working to secure the receipt of all remaining necessary
regulatory approvals, including, but not limited to, the Securities and
Exchange Commission, in the third quarter of 2001.
3 - REGULATORY MATTERS:
In July 2000, the Public Utilities Commission of Ohio (PUCO)
approved FirstEnergy's transition plan as modified by a settlement
agreement with major parties to the transition plan, which it filed on
behalf of its Ohio electric utility operating companies - OE, CEI and TE -
under Ohio's new electric utility restructuring law. Major provisions of
the settlement agreement included approval for recovery of transition
costs in the amounts filed in the transition plan through no later than
2006 for OE, mid-2007 for TE and 2008 for CEI, except where a longer
period of recovery is provided for in the settlement agreement.
FirstEnergy also gives preferred access over FirstEnergy's subsidiaries to
nonaffiliated marketers, brokers and aggregators to 1,120 megawatts of
generation capacity through 2005 at established prices for sales to the
Ohio operating companies' retail customers. The base electric rates for
distribution service for OE, CEI and TE under their prior respective
regulatory plans will be extended from December 31, 2005 through
December 31, 2007. The transition rate credits for customers under their
prior regulatory plans will also be extended through the Companies'
respective transition cost recovery periods.
The transition plan itemized, or unbundled, the current price of
electricity into its component elements -- including generation,
transmission, distribution and transition charges. As required by the
PUCO's rules, FirstEnergy's transition plan also included its proposals on
corporate separation of its regulated and unregulated operations,
operational and technical support changes needed to accommodate customer
choice, an education program to inform customers of their options under
the law, and how FirstEnergy's transmission system will be operated to
ensure access to all users. Customer prices are frozen through a five-year
market development period (2001-2005), except for certain limited
statutory exceptions including the 5% reduction in the price of generation
for residential customers.
Ohio's electric utility restructuring law allowed Ohio electric
customers to select their generation suppliers beginning January 1, 2001.
FirstEnergy's Ohio customers electing alternative suppliers receive an
additional incentive applied to the shopping credit of 45% for residential
customers, 30% for commercial customers and 15% for industrial customers.
The amount of the incentive serves to reduce the amortization of
transition costs during the market development period and will be
recovered through the extension of the transition cost recovery periods.
If the customer shopping goals established in the agreement are not
achieved by the end of 2005, the transition cost recovery periods could be
shortened for OE, CEI and TE to reduce recovery by as much as $500 million
(OE-$250 million, CEI-$170 million and TE-$80 million), but any such
adjustment would be computed on a class-by-class and pro-rata basis.
4 - CHANGE IN ACCOUNTING FOR DERIVATIVES:
On January 1, 2001, FirstEnergy adopted Statement of Financial
Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), as amended by SFAS 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement No. 133." The cumulative effect to January 1,
2001 was a charge of $8.5 million (net of $5.8 million of income taxes) or
$.04 per share of common stock. The reported results of operations for the
years ended December 31, 2000 and 1999 would not have been materially
different if this accounting had been in effect during those years.
FirstEnergy is exposed to financial risks resulting from the
fluctuation of interest rates and commodity prices, including
electricity, natural gas and coal. To manage the volatility relating to
these exposures, FirstEnergy uses a variety of derivative instruments,
including forward contracts, options, futures contracts and swaps. These
derivatives are used principally for hedging purposes and to a lesser
extent for trading purposes. FirstEnergy has a Risk Policy Committee
comprised of executive officers, which exercises an independent risk
oversight function to ensure compliance with corporate risk management
policies and prudent risk management practices.
FirstEnergy uses derivatives to hedge the risk of commodity
price and interest rate fluctuations. FirstEnergy's primary hedging
activity involves cash flow hedges of electricity, natural gas and coal
purchases. The maximum periods over which the variability of electricity,
natural gas and coal cash flows are hedged are two, three and four years,
respectively. Gains and losses from hedges of commodity price risks are
included in net income when the underlying hedged commodities are
delivered. Of the $34.3 million included in Accumulated Other
Comprehensive Income as of March 31, 2001, FirstEnergy expects net gains
of approximately $14.5 million (after tax) to be recognized in net income
within the next twelve months. FirstEnergy entered into interest rate
derivative transactions during the first quarter of 2001 to hedge a
portion of the expected acquisition-related debt. For the quarter ended
March 31, 2001, there were no effects to net income as a result of the
discontinuance of a cash flow hedge, and the ineffective portion of
derivative commodity contracts was not material.
FirstEnergy engages in the trading of commodity derivatives, and
therefore, periodically experiences net open positions. FirstEnergy's risk
management policies limit the exposure to market risk from open positions
and require daily reporting to management of potential financial
exposures.
Derivatives classified as "normal-purchase/normal sale" (NPNS)
transactions were documented and excluded from further treatment under
SFAS 133. However, the Derivatives Implementation Group, a task force
created to assist the Financial Accounting Standards Board (FASB)
responsible for providing guidance on the implementation of SFAS 133, has
not reached a final conclusion regarding the appropriate accounting
treatment of certain types of energy contracts under SFAS 133. The FASB's
final decision could affect those contracts considered eligible for the
NPNS exception.
5 - SEGMENT INFORMATION:
FirstEnergy operates under the following reportable segments:
regulated services, competitive services and other (primarily corporate
support services). These business units reflect FirstEnergy's
organizational changes to accommodate its retail strategy and the impact
of moving the generation portion of its electricity services from the
regulated segment to the competitive segment as reflected in its approved
Ohio transition plan. These reportable segments are strategic businesses,
which are managed and operated differently based on the degree of
regulation, and the products and services offered.
The regulated services segment designs, constructs, operates and
maintains FirstEnergy's regulated transmission and distribution systems.
It also provides generation services to regulated franchise customers who
have not chosen an alternative, competitive generation supplier. The
regulated services segment obtains generation through power supply
agreements with the competitive services segment.
The competitive services segment includes all unregulated energy
and energy-related services including commodity sales (both electricity
and natural gas) in the retail and wholesale markets, marketing,
generation, trading and sourcing of commodity requirements, as well as
other competitive energy-application services. Competitive products are
increasingly marketed to customers as bundled services.
2000 financial data are pro forma amounts to represent current
year business segment organizations and operations. Financial data for
these business segments are as follows:
Segment Financial Information
------------------------------
Regulated Competitive Reconciling
Services Services Other Adjustments Consolidated
--------- ----------- ----- ----------- ------------
(In millions)
Three Months Ended:
- -----------------
March 31, 2001
--------------
External revenues $ 1,309 $ 633 $ 1 $ 43 (a) $ 1,986
Internal revenues 334 571 65 (970) (b) --
Total revenues 1,643 1,204 66 (927) 1,986
Depreciation and amortization 215 4 8 -- 227
Net interest charges 145 (4) 8 (23) (b) 126
Income taxes 67 13 4 -- 84
Income before cumulative effect of a
change in accounting 84 18 7 (3) (b) 106
Net income 84 10 7 (3) (b) 98
Total assets 15,624 1,896 481 -- 18,001
Property additions 53 94 4 -- 151
March 31, 2000
--------------
External revenues $ 1,272 $ 320 $ 16 $ -- $ 1,608
Internal revenues 328 578 24 (930) (b) --
Total revenues 1,600 898 40 (930) 1,608
Depreciation and amortization 198 4 -- -- 202
Net interest charges 133 -- 2 -- 135
Income taxes 60 38 -- -- 98
Net income 86 55 -- -- 141
Total assets 14,904 2,347 857 -- 18,108
Property additions 118 34 -- -- 152
<FN>
Reconciling adjustments to segment operating results from internal
management reporting to consolidated external financial reporting:
(a) Principally fuel marketing revenues which are reflected as
reductions to expenses for internal management reporting purposes.
(b) Elimination of intersegment transactions.
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
---------- ----------
(In thousands, except per share amounts)
REVENUES:
Electric utilities $1,311,289 $1,280,930
Unregulated businesses 674,452 327,000
---------- ----------
Total revenues 1,985,741 1,607,930
---------- ----------
EXPENSES:
Fuel and purchased power 324,579 244,640
Purchased gas 352,817 102,038
Other operating expenses 645,403 544,269
Provision for depreciation and amortization 227,214 202,084
General taxes 119,422 141,055
---------- ----------
Total expenses 1,669,435 1,234,086
---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 316,306 373,844
---------- ----------
NET INTEREST CHARGES:
Interest expense 118,219 122,843
Capitalized interest (8,823) (6,104)
Subsidiaries' preferred stock dividends 16,934 18,288
---------- ----------
Net interest charges 126,330 135,027
---------- ----------
INCOME TAXES 83,769 97,899
---------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING 106,207 140,918
Cumulative effect of accounting change (net of income taxes
of $5,839,000) (Note 4) (8,499) --
---------- ----------
NET INCOME $ 97,708 $ 140,918
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 218,107 224,859
======= =======
BASIC AND DILUTED EARNINGS PER SHARE:
Before cumulative effect of accounting change $.49 $.63
Cumulative effect of accounting change (.04) --
---- ----
$.45 $.63
==== ====
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $.375 $.375
===== =====
<FN>
The preceding Notes to Financial Statements as they relate to FirstEnergy Corp.
are an integral part of these statements.
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
---------- -----------
(In thousands)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 42,496 $ 49,258
Receivables-
Customers (less accumulated provisions of $29,163,000
and $32,251,000, respectively, for uncollectible accounts) 562,315 541,924
Other (less accumulated provisions of $4,350,000 and
$4,035,000, respectively, for uncollectible accounts) 326,940 376,525
Materials and supplies, at average cost-
Owned 161,811 171,563
Under consignment 128,950 112,155
Prepayments and other 207,374 189,869
----------- -----------
1,429,886 1,441,294
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
In service 12,449,813 12,417,684
Less--Accumulated provision for depreciation 5,294,605 5,263,483
----------- -----------
7,155,208 7,154,201
Construction work in progress 443,395 420,875
----------- -----------
7,598,603 7,575,076
----------- -----------
INVESTMENTS:
Capital trust investments 1,190,885 1,223,794
Nuclear plant decommissioning trusts 617,581 584,288
Letter of credit collateralization 277,763 277,763
Other 683,712 669,057
----------- -----------
2,769,941 2,754,902
----------- -----------
DEFERRED CHARGES:
Regulatory assets 3,599,642 3,727,662
Goodwill 2,074,712 2,088,770
Other 528,495 353,590
----------- -----------
6,202,849 6,170,022
----------- -----------
$18,001,279 $17,941,294
=========== ===========
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
--------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock $ 491,568 $ 536,482
Short-term borrowings 741,879 699,765
Accounts payable 409,001 478,661
Accrued taxes 405,912 409,640
Accrued interest 128,976 116,544
Other 281,885 352,713
----------- -----------
2,459,221 2,593,805
----------- -----------
CAPITALIZATION:
Common stockholders' equity-
Common stock, $.10 par value, authorized 375,000,000
shares - 223,981,580 and 224,531,580 shares outstanding,
respectively 22,398 22,453
Other paid-in capital 3,519,049 3,531,821
Accumulated other comprehensive income 39,071 593
Retained earnings 1,225,945 1,209,991
Unallocated employee stock ownership plan common stock -
5,741,074 and 5,952,032 shares, respectively (106,711) (111,732)
----------- -----------
Total common stockholders' equity 4,699,752 4,653,126
Preferred stock of consolidated subsidiaries-
Not subject to mandatory redemption 648,395 648,395
Subject to mandatory redemption 40,628 41,105
OE obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely OE subordinated debentures 120,000 120,000
Long-term debt 5,767,079 5,742,048
----------- -----------
11,275,854 11,204,674
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 2,081,695 2,094,107
Accumulated deferred investment tax credits 236,642 241,005
Nuclear plant decommissioning costs 632,279 598,985
Other postretirement benefits 564,351 544,541
Other 751,237 664,177
----------- -----------
4,266,204 4,142,815
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 2) ----------- -----------
$18,001,279 $17,941,294
=========== ===========
<FN>
The preceding Notes to Financial Statements as they relate to FirstEnergy Corp.
are an integral part of these balance sheets.
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,708 $140,918
Adjustments to reconcile net income to net cash from operating
activities-
Provision for depreciation and amortization 227,214 202,084
Nuclear fuel and lease amortization 23,975 29,761
Other amortization, net (3,633) (3,167)
Deferred income taxes, net (15,935) (5,373)
Investment tax credits, net (4,998) (5,554)
Cumulative effect of accounting change 14,338 --
Receivables 29,194 26,101
Materials and supplies (7,043) 6,838
Accounts payable (69,660) (18,319)
Other (69,057) (45,374)
-------- --------
Net cash provided from operating activities 222,103 327,915
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 622 17,319
Short-term borrowings, net 42,114 --
Redemptions and Repayments-
Common stock 15,308 33,962
Long-term debt 21,216 102,055
Short-term borrowings, net -- 63,992
Common stock dividend payments 81,753 84,455
-------- --------
Net cash used for financing activities 75,541 267,145
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 151,176 151,680
Cash investments (29,138) (39,106)
Other 31,286 16,938
-------- --------
Net cash used for investing activities 153,324 129,512
-------- --------
Net decrease in cash and cash equivalents 6,762 68,742
Cash and cash equivalents at beginning of period 49,258 111,788
-------- --------
Cash and cash equivalents at end of period $ 42,496 $ 43,046
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to FirstEnergy Corp.
are an integral part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FirstEnergy Corp.:
We have reviewed the accompanying consolidated balance sheet of
FirstEnergy Corp. (an Ohio corporation) and subsidiaries as of March 31,
2001, and the related consolidated statements of income and cash flows for
the three-month periods ended March 31, 2001 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the
United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of
FirstEnergy Corp. and subsidiaries as of December 31, 2000 (not presented
herein), and, in our report dated February 16, 2001, we expressed an
unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31,
2000, is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 14, 2001.
FIRSTENERGY CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Net income in the first quarter of 2001 was $106.2 million, or
$0.49 per share of common stock (basic and diluted) - before the
cumulative effect of an accounting change (as described below), compared
to $140.9 million, or $0.63 per share of common stock in the same period
in 2000. After the accounting change, first quarter 2001 net income was
$97.7 million, or $0.45 per share of common stock. The decrease resulted
in part from changes in depreciation and amortization patterns under
FirstEnergy's transition plan that began on January 1, 2001, as compared
to prior regulatory plans in 2000. This transition plan allows Ohio
electric customers to select their generation suppliers and unbundled the
price for electricity into its component elements - including generation,
transmission, distribution and transition charges.
Revenues
Total revenues increased by $377.8 million in the first quarter
of 2001, compared to the same period last year. FirstEnergy's competitive
services business segment provided the majority of the revenue increase,
mostly from expanded gas sales. The sources of changes in revenues during
the first quarter of 2001 are summarized in the following table:
Sources of Revenue Changes
- --------------------------
Increase (Decrease) (In millions)
Electric Utilities:
(Regulated Services)
Retail electric sales $ 42.3
Other revenues (11.9)
------
Total Electric Utilities 30.4
------
Unregulated Businesses:
(Competitive Services)
Retail electric sales 4.1
Wholesale electric sales 85.8
Gas sales 225.9
Other businesses 31.6
------
Total Unregulated Businesses 347.4
------
Net Revenue Increase $377.8
======
Electric Sales
Revenues from the electric utilities increased by $30.4 million
in the first quarter of 2001, compared to the same period in 2000, as a
result of higher unit prices for energy sold and additional kilowatt-hour
sales of electric generation. However, implementation of a 5% reduction in
generation charges for residential customers as part of Ohio's electric
utility restructuring law that began in 2001, partially offset the
increase in electric sales revenues. This lower residential rate reduced
electric sales revenues by approximately $9 million in the first quarter
of 2001 and is expected to lower revenues for all of 2001 by approximately
$50 million. Higher kilowatt-hour deliveries to franchise customers
increased revenues for transmission and distribution services. A 3.6%
increase in kilowatt-hour deliveries was the result of higher deliveries
to both residential and industrial customers in the first quarter of 2001,
compared to the first quarter of last year. Weather was a major factor
giving rise to the increased residential kilowatt-hour sales. Although
weather was warmer than normal in the first quarter of 2001, average
temperatures were still significantly colder than the first quarter of
2000. Deliveries to commercial customers decreased partially as a result
of a softening in the service economy in the franchise areas. Kilowatt-
hour sales by other suppliers (including unregulated affiliates), which
are included in the kilowatt-hour deliveries, increased to 3.0% of total
energy delivered in the first quarter of 2001 from 1.1% in the first
quarter of 2000 as a result of opening Ohio to competitive generation
suppliers in 2001. Other regulated electric revenues decreased in the
first quarter of 2001, compared to the same period of 2000, primarily due
to the absence of income received last year from a settlement with a
supplier.
Retail kilowatt-hour sales for the FirstEnergy competitive
services business segment decreased by 2% in the first three months of
2001, compared to the same period last year partially offset by increased
revenues of $4.1 million due to higher unit prices. This reduction
resulted from lower sales in markets outside Ohio as opportunities for
profitable sales became more limited in those markets. The reduction was
partially offset by expanded kilowatt-hour sales within Ohio as a result
of retail customers switching to FirstEnergy's unregulated affiliate - FE
Services, a wholly owned subsidiary, under Ohio's electricity choice
program.
Total electric generation sales increased by 13.1% in the first
three months of 2001 compared to the same period last year. Sales to the
wholesale market more than doubled in the first quarter of 2001, compared
to the first three months of 2000, which contributed the most to this
increase. The additional kilowatt-hour sales to the wholesale market
resulted from FirstEnergy's opportunistic transactions, as well as first-
time, nonaffiliated retail energy suppliers having access to 1,120
megawatts of FirstEnergy's generation capacity being made available under
its transition plan. As of March 31, 2001, over 900 megawatts of the 1,120
megawatts supply commitment had been secured by alternative suppliers.
Changes in electric generation sales and kilowatt-hour
deliveries in the first quarter of 2001, compared to the same period of
2000, are summarized in the following table:
% Increase
Changes in KWH Sales (Decrease)
-------------------- ----------
Electric Generation Sales:
Retail --
Regulated Services 1.5%
Competitive Services (2.0)%
Wholesale 127.7%
-----
Total Electric Generation Sales 13.1%
====
Distribution Deliveries:
Residential 8.1%
Commercial (1.3)%
Industrial 3.6%
----
Total Retail Distribution Deliveries 3.6%
====
Other Sales
Residential and small business customers in the Dominion East
Ohio service area began shopping among alternative gas suppliers last year
as part of a customer choice program, with gas deliveries beginning
November 1, 2000. FE Services took advantage of this opportunity to expand
its customer base. Total gas sales increased by $225.9 million in the
first three months of 2001 and the number of gas customers served by FE
Services increased to over 167,000 by the end of the first quarter of 2001
from approximately 30,000 a year earlier. Additionally, the competitive
services business segment's energy-related services experienced strong
growth. Revenues for FE Facilities, a wholly owned subsidiary, increased
by $21.9 million or 19% in the first quarter of 2001 compared to the same
period last year, reflecting growth in both construction and service
contracts.
Operating Expenses
Fuel and purchased power costs increased by $79.9 million in the
first quarter of 2001 from the same period last year. Fuel expense
decreased by $8.5 million as a result of a 5.8% reduction in generation
output (7.4% reduction in fossil generation and 3.6% reduction in nuclear
generation). The reduction in fossil generation resulted from higher
planned maintenance activities in the first quarter of 2001, compared to
the first quarter of 2000, as well as difficulties transporting coal to
FirstEnergy's generating plants along the Ohio River during a period of
unusually cold winter weather and supplier constraints. The reduction in
nuclear generation resulted from a scheduled refueling outage at the Perry
Plant. Lower generation levels from FirstEnergy's fossil and nuclear
plants combined with higher customer demand to increase the need for
purchased power in the first quarter of 2001, compared to the same period
of 2000. Those increased requirements and higher spot purchase prices
during this period resulted in an $88.4 million increase in purchased
power costs.
Purchased gas costs for FirstEnergy's competitive services
business segment more than tripled in the first quarter of 2001,
increasing by $250.8 million from the same quarter of 2000. This increase
resulted from the expansion of FE Services' gas business described above.
Due to the unanticipated size of customer enrollments and consumption
under the gas choice program, FE Services' supply costs this winter
exceeded its annual fixed rate contract prices as additional spot
purchases were necessary during a period of rising market prices for
natural gas. FirstEnergy expects the earnings contribution from the
natural gas operations to improve over the remainder of 2001.
Other operating expenses increased by $101.1 million in the
first quarter of 2001, compared to the same period of 2000. Increased
operating costs for the competitive services business segment accounted
for slightly more than half of the increase in other operating expenses as
a result of increased sales activity. Most of the remaining increase in
other operating expenses were from higher fossil operating expenses and
increased employee benefit costs.
A $21.9 million increase in fossil operating expenses in the
first quarter of 2001 from the first quarter of 2000 was due principally
to planned maintenance work at the Bay Shore, Eastlake and Mansfield
generating plants, which included work performed as part of FirstEnergy's
availability improvement program.
Pension costs increased by $20.6 million in the first quarter of
2001 from the same period last year. The increase included $6.1 million
related to last year's early retirement program, with the remaining
increase primarily due to pension plan enhancements, lower expected
returns on plan assets (due to significant market-related reductions in
the value of plan assets) and the completion of the 15-year amortization
of OE's transition asset. Health care benefit costs increased by $4.3
million in the first quarter of 2001, compared to the same period of 2000,
principally due to the impact of last year's early retirement program,
which added $2.3 million, and an increase in the anticipated health care
cost trend rate assumption for computing post-retirement health care
benefit liabilities.
Charges for depreciation and amortization increased by $25.1
million in the first quarter of 2001 from the same period last year.
Approximately $18 million of this increase resulted from higher transition
cost amortization under FirstEnergy's transition plan compared to
accelerated cost recovery in connection with OE's prior regulatory plan.
FirstEnergy expects total transition plan accelerations during 2001 to be
lower than the rate plan accelerations recognized in 2000, with higher
first quarter costs in 2001 resulting from a different pattern of expense
recognition under the transition plan. Transition cost accelerations
(including related income tax amortization) totaled $79.0 million in the
first quarter of 2001, compared to cost accelerations under OE's rate plan
and Penn's restructuring plan of $57.3 million in the first quarter of
2000. Depreciation on recently completed combustion turbines and
additional software amortization due to a change in estimated useful life
also contributed to the increase in depreciation and amortization.
General taxes were $21.6 million lower in the first quarter of
2001, compared to the same period of 2000, primarily due to reduced
property taxes in connection with the Ohio electric industry
restructuring.
Net Interest Charges
Net interest charges continue to trend lower, decreasing by $8.7
million in the first quarter of 2001, compared to the same period in 2000,
primarily due to debt and preferred stock redemption and refinancing
activities undertaken after the end of the first quarter of 2000.
Cumulative Effect of Accounting Change
In the first quarter of 2001, FirstEnergy recorded an after-tax
charge of $8.5 million ($0.04 per share of common stock) to reflect the
adoption (as of January 1, 2001) of a new accounting standard required by
the Financial Accounting Standards Board - SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement 133." SFAS 133 establishes
accounting and reporting standards which require that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recognized on the balance sheet as either an asset or
liability, measured at its fair value, unless specifically excluded from
the statement's scope.
Capital Resources and Liquidity
- -------------------------------
FirstEnergy and its subsidiaries have continuing cash needs for
planned capital expenditures, maturing debt and preferred stock sinking
fund requirements. During the last three quarters of 2001, capital
requirements for property additions and capital leases are expected to be
about $590 million, including $52 million for nuclear fuel. FirstEnergy
has additional cash requirements of approximately $184.4 million to meet
sinking fund requirements for preferred stock and maturing long-term debt
during the remainder of 2001. These cash requirements are expected to be
satisfied from internal cash and/or short-term credit arrangements.
However, FirstEnergy's pending merger (see Pending Business Combination)
with GPU, Inc. (GPU) is expected to require approximately $2.2 billion of
acquisition-related debt during 2001 and issuing between 74 million and 95
million additional shares of common stock.
During the first quarter of 2001, FirstEnergy repurchased
550,000 shares of its common stock at an average price of $27.82 per
share. As of March 31, 2001, FirstEnergy had repurchased 13 million of the
15 million shares authorized by the Board of Directors under the three-
year program which began in March 1999.
As of March 31, 2001, FirstEnergy and its subsidiaries had about
$42.5 million of cash and temporary investments and $741.9 million of
short-term indebtedness. Available borrowings included $160 million from
unused revolving lines of credit. As of March 31, 2001, the operating
companies in the regulated services business segment (OE, CEI, TE and
Penn) had the capability to issue $2.6 billion of additional first
mortgage bonds on the basis of property additions and retired bonds. Based
upon applicable earnings coverage tests and their respective charters, OE,
Penn and TE could issue $2.3 billion of preferred stock (assuming no
additional debt was issued). CEI has no restrictions on the issuance of
preferred stock.
Transmission Business
- ---------------------
On January 24, 2001, the companies seeking to form the Alliance
Regional Transmission Organization (Alliance RTO), including FirstEnergy's
ATSI subsidiary, received Federal Energy Regulatory Commission (FERC)
approval in all material respects, meeting the four RTO characteristics
and most of the RTO functions laid out in FERC Order 2000. In February
2001, the Alliance Companies reached a settlement agreement with the
Midwest Independent System Operator, Inc. and certain midwest transmission
owners. This settlement agreement provides for inter-RTO coordination,
transmission pricing, and the ability for three Illinois companies to
leave the Midwest ISO and join the Alliance. On March 21, 2001, the
Administrative Law Judge certified the settlement agreement and forwarded
it to the FERC for final approval, which was received on May 8, 2001. The
Alliance RTO's goal is to be operational by mid-December 2001.
Pending Business Combination
- ----------------------------
The merger of FirstEnergy and GPU is expected to be completed by
mid-summer 2001. Regulatory approvals for the business combination have
been obtained from the FERC, the Nuclear Regulatory Commission, the New
York Public Service Commission, Argentina and the Federal Communications
Commission. Information was submitted to the Department of Justice and
Federal Trade Commission as required under the Hart-Scott-Rodino Act and
the required waiting period passed without comment. Remaining approvals
are needed from the New Jersey Board of Public Utilities, the Pennsylvania
Public Utility Commission and the Securities and Exchange Commission
(SEC). Approval in Pennsylvania is expected in May, while approval in New
Jersey is anticipated by early summer. SEC approval is expected within
thirty days after the last state regulatory approval.
Market Risk - Commodity Prices
- ------------------------------
FirstEnergy is exposed to market risks due to fluctuations in
electricity, natural gas, coal and oil prices. To manage the volatility
relating to these exposures, FirstEnergy uses a variety of derivative
instruments, including forward contracts, options, futures contracts and
swaps. These derivatives are used principally for hedging purposes, and to
a lesser extent, for trading purposes. Although FirstEnergy believes that
the policies and procedures it has adopted are prudent, its financial
position, results of operations or cash flow may be adversely affected by
unanticipated fluctuations in the commodity prices for electricity,
natural gas, coal, oil, or by the failure of contract counterparties to
perform.
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------- --------
(In thousands)
OPERATING REVENUES $783,103 $644,365
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel 14,146 76,066
Purchased power 306,417 19,512
Nuclear operating costs 92,245 111,619
Other operating costs 80,956 97,594
-------- --------
Total operation and maintenance expenses 493,764 304,791
Provision for depreciation and amortization 116,956 113,951
General taxes 44,954 59,453
Income taxes 38,601 46,621
-------- --------
Total operating expenses and taxes 694,275 524,816
-------- --------
OPERATING INCOME 88,828 119,549
OTHER INCOME 12,365 12,323
-------- --------
INCOME BEFORE NET INTEREST CHARGES 101,193 131,872
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 39,387 42,539
Allowance for borrowed funds used during construction and
capitalized interest (2,918) (2,559)
Other interest expense 6,912 7,471
Subsidiaries' preferred stock dividend requirements 3,626 3,626
-------- --------
Net interest charges 47,007 51,077
-------- --------
NET INCOME 54,186 80,795
PREFERRED STOCK DIVIDEND REQUIREMENTS 2,702 2,808
-------- --------
EARNINGS ON COMMON STOCK $ 51,484 $ 77,987
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to Ohio Edison
Company are an integral part of these statements.
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
---------- ------------
(In thousands)
ASSETS
------
UTILITY PLANT:
In service $4,952,557 $4,930,844
Less--Accumulated provision for depreciation 2,387,818 2,376,457
---------- ----------
2,564,739 2,554,387
---------- ----------
Construction work in progress-
Electric plant 91,735 219,623
Nuclear fuel 27 18,898
---------- ----------
91,762 238,521
---------- ----------
2,656,501 2,792,908
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
PNBV Capital Trust 451,612 452,128
Letter of credit collateralization 277,763 277,763
Nuclear plant decommissioning trusts 271,344 262,042
Long-term notes receivable from associated companies 470,951 351,545
Other 296,574 305,848
---------- ----------
1,768,244 1,649,326
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 11,399 18,269
Receivables-
Customers (less accumulated provisions of $11,808,000
and $11,777,000, respectively for uncollectible accounts) 305,387 304,719
Associated companies 591,858 478,025
Other (less accumulated provisions of $1,000,000 for
uncollectible accounts at both dates) 33,650 34,281
Materials and supplies, at average cost-
Owned 49,147 80,534
Under consignment 29,729 51,488
Prepayments and other 89,112 76,934
---------- ----------
1,110,282 1,044,250
---------- ----------
DEFERRED CHARGES:
Regulatory assets 2,404,894 2,498,837
Other 182,399 168,830
---------- ----------
2,587,293 2,667,667
---------- ----------
$8,122,320 $8,154,151
========== ==========
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
------------ ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholder's equity-
Common stock, without par value, authorized
175,000,000 shares - 100 shares outstanding $2,098,729 $2,098,729
Accumulated other comprehensive income 8,929 --
Retained earnings 472,451 458,263
---------- ----------
Total common stockholder's equity 2,580,109 2,556,992
Preferred stock not subject to mandatory redemption 160,965 160,965
Preferred stock of consolidated subsidiary-
Not subject to mandatory redemption 39,105 39,105
Subject to mandatory redemption 15,000 15,000
OE obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely OE
subordinated debentures 120,000 120,000
Long-term debt 2,046,364 2,000,622
---------- ----------
4,961,543 4,892,684
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 260,363 311,358
Short-term borrowings-
Associated companies 36,315 19,131
Other 284,732 296,301
Accounts payable-
Associated companies 88,222 123,859
Other 7,788 60,332
Accrued taxes 270,499 232,225
Accrued interest 39,416 34,106
Other 85,892 75,288
---------- ----------
1,073,227 1,152,600
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,269,125 1,298,845
Accumulated deferred investment tax credits 107,346 110,064
Nuclear plant decommissioning costs 270,506 261,204
Other postretirement benefits 162,639 160,719
Other 277,934 278,035
---------- ----------
2,087,550 2,108,867
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2) ---------- ----------
$8,122,320 $8,154,151
========== ==========
<FN>
The preceding Notes to Financial Statements as they relate to Ohio Edison
Company are an integral part of these balance sheets.
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
---------- ----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54,186 $ 80,795
Adjustments to reconcile net income to net cash from operating
activities-
Provision for depreciation and amortization 116,956 113,951
Nuclear fuel and lease amortization 11,757 13,102
Deferred income taxes, net (20,402) (15,958)
Investment tax credits, net (3,353) (4,093)
Receivables (57,704) 7,055
Materials and supplies 53,146 3,742
Accounts payable (88,181) 53,360
Other 45,655 37,829
--------- --------
Net cash provided from operating activities 112,060 289,783
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 500 17,318
Short-term borrowings, net 5,615 --
Redemptions and Repayments-
Long-term debt 7,150 71,033
Short-term borrowings, net -- 50,939
Dividend Payments-
Common stock 37,300 59,000
Preferred stock 2,698 2,808
--------- --------
Net cash used for financing activities 41,033 166,462
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 25,398 88,121
Loans to associated companies 175,572 100,713
Sale of assets to associated companies (121,594) --
Other (1,479) 13,055
--------- --------
Net cash used for investing activities 77,897 201,889
--------- --------
Net decrease in cash and cash equivalents 6,870 78,568
Cash and cash equivalents at beginning of period 18,269 87,175
--------- --------
Cash and cash equivalents at end of period $ 11,399 $ 8,607
========= ========
<FN>
The preceding Notes to Financial Statements as they relate to Ohio Edison
Company are an integral part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ohio Edison Company:
We have reviewed the accompanying consolidated balance sheet of Ohio
Edison Company (an Ohio corporation and wholly owned subsidiary of
FirstEnergy Corp.) and subsidiaries as of March 31, 2001, and the related
consolidated statements of income and cash flows for the three-month
periods ended March 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the
United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of
Ohio Edison Company and subsidiaries as of December 31, 2000 (not
presented herein), and, in our report dated February 16, 2001, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2000, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 14, 2001.
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Corporate Separation
- --------------------
Beginning in 2001, Ohio electric customers can select their
generation suppliers as a result of legislation which restructured the
electric utility industry. That legislation also required unbundling the
price for electricity into its component elements -- including generation,
transmission, distribution and transition charges. Also, Ohio utilities
that offer both competitive and regulated retail electric services were
required to implement a corporate separation plan approved by the PUCO --
one which provides a clear separation between regulated and competitive
operations. In connection with FirstEnergy's transition plan, FirstEnergy
separated its businesses into three distinct units -- a competitive
services unit, a utility services unit and a corporate support services
unit. The OE Companies (OE and Penn) are included in the utility services
unit which continues to deliver power to homes and businesses through
their existing distribution systems and maintains the "provider of last
resort" (PLR) obligation under their respective rate plans.
As a result of the transition plan, FirstEnergy's EUOC entered
into power supply agreements whereby FE Services purchases all of the
electric utility operating companies (EUOC) nuclear generation, as well as
generation from leased fossil generating facilities. FirstEnergy
Generation Corp. (FE Generation), a wholly owned subsidiary of FE
Services, leases fossil generating units owned by the EUOC. The EUOC are
"full requirements" customers of FE Services to enable them to meet their
PLR responsibilities in their respective service areas. OE continues to
provide power directly to wholesale customers under previously negotiated
contracts as well as to alternative energy suppliers as part of OE's
market support generation program of 560 megawatts.
The effect on the OE Companies' reported results of operations
during the first quarter of 2001 from FirstEnergy's corporate separation
plan and the OE Companies' sale of transmission assets to ATSI in
September 2000, are summarized in the following table:
Income Statement Effects Corporate
------------------------
Increase (Decrease) Separation ATSI Total
---------- ---- -----
(in millions)
Operating Revenues:
Power supply agreement with FE Services $ 89.8 $ -- $ 89.8
Generating units lease rent 44.9 -- 44.9
------ ----- ------
Total Operating Revenues Effect $134.7 $ -- $134.7
====== ===== ======
Operating Expenses:
Fossil fuel costs $(63.9) (a) $ -- $(63.9)
Purchased power costs 297.5 (b) -- 297.5
Other operating costs (40.5) (a) 20.1 (d) (20.4)
Provision for depreciation and
amortization -- (4.3)(e) (4.3)
General taxes (1.2) (c) (3.6)(e) (4.8)
------ ----- ------
Total Operating Expenses Effect $191.9 $12.2 $204.1
====== ===== ======
Other Income $ -- $ 4.0 (f) $ 4.0
====== ===== ======
(a) Transfer of fossil operations to FE Generation.
(b) Purchased power for PLR.
(c) Payroll taxes related to employees transferred to FE Generation.
(d) Transmission services received from ATSI.
(e) Depreciation and property taxes on transmission assets sold to ATSI.
(f) Interest on note receivable from ATSI.
Results of Operations
- ---------------------
Operating revenues increased by $138.7 million or 21.5% in the
first quarter of 2001, compared to the same period in 2000, with nearly
all of that increase resulting from the implementation of FirstEnergy's
corporate separation as shown on the table above. The OE Companies'
electric sales to retail customers also increased by $10.5 million,
offsetting reduced wholesale sales of $13.3 million in the first quarter
of 2001, compared with the first quarter of 2000. As part of Ohio's
electric utility restructuring law, the implementation of a 5% reduction
in generation charges for Ohio's residential customers, partially offset
the increase in electric sales revenues in 2001. The lower residential
rate reduced electric sales revenues by approximately $4.9 million in the
first quarter of 2001 and is expected to lower revenues for all of 2001 by
more than $29 million.
Higher revenues from distribution services also contributed
favorably to the increase in operating revenues. Residential kilowatt-hour
deliveries in the first quarter of 2001 were 8.6% higher than the first
quarter of 2000, partially due to weather. Although weather was warmer
than normal in the first quarter of 2001, average temperatures were still
significantly colder than the first quarter of 2000. Commercial and
industrial deliveries were approximately unchanged in the first quarter of
2001 from the same period last year. Total kilowatt-hour deliveries, which
represents all kilowatt-hours delivered to customers in the OE Companies'
franchise areas, increased by 2.9% in the first quarter of 2001 from the
same period last year. Additional revenues from OE's market support
generation to alternative energy suppliers also contributed to higher
revenues, as well as several existing committed wholesale contracts.
Operating Expenses and Taxes
Total operating expenses and taxes increased by $169.5 million
in the first quarter of 2001, compared to the same quarter of 2000,
principally due to the implementation of FirstEnergy's corporate
separation plan as shown on the preceding table. Excluding the effect of
corporate separation, purchased power costs decreased by $10.6 million.
Nuclear fuel costs were $2.0 million higher in the first quarter of 2001
from the same period last year due to additional nuclear generation.
Nuclear operating costs decreased by $19.4 million in the first quarter of
2001, compared to the first quarter of 2000, due primarily to lower
refueling outage costs. The reduced costs resulted from the OE Companies'
smaller ownership share (35.24%) of a scheduled Perry Plant refueling
outage in the first quarter of 2001 versus their 100% ownership share in
the Beaver Valley Unit 1 refueling outage in the same period last year.
Other operating costs decreased by $16.6 million in the first quarter of
2001 from the corresponding period in 2000 as a result of corporate
separation; these reductions were partially offset by increased pension
costs resulting from last year's early retirement program.
Excluding the effect from corporate separation, charges for
depreciation and amortization increased $7.3 million in the first quarter
of 2001 from the same period last year. Higher transition cost
amortization under FirstEnergy's transition plan compared to the
accelerated cost recovery in connection with OE's prior regulatory plan
accounted for this increase. The OE Companies expect total transition plan
accelerations during 2001 to be lower than the rate plan accelerations
recognized in 2000, with higher first quarter costs in 2001 resulting from
a different pattern of expense recognition under the transition plan.
General taxes were $14.5 million lower in the first quarter of
2001, compared to the same period of 2000, primarily due to reduced
property taxes in connection with the Ohio electric industry
restructuring.
Net Interest Charges
Net interest charges continue to trend lower, decreasing $4.1
million in the first quarter of 2001, compared to the same period in 2000,
primarily due to debt redemption and refinancing activities in 2000.
Financing activity was minimal in the first quarter of 2001, with only
$3.3 million of debt redeemed.
Capital Resources and Liquidity
- -------------------------------
The OE Companies have continuing cash requirements for planned
capital expenditures and maturing debt. During the last three quarters of
2001, capital requirements for property additions and capital leases are
expected to be about $131 million, including $34 million for nuclear fuel.
The OE companies will need additional cash of approximately $18.0 million
to meet sinking fund payments for preferred stock and maturing long-term
debt during the remainder of 2001. These cash requirements are expected to
be satisfied from internal cash and/or short-term credit arrangements.
As of March 31, 2001, the OE companies had about $11.4 million
of cash and temporary investments and $321.0 million of short-term
indebtedness. In addition, the OE companies' available borrowing
capability included $160 million from unused revolving lines of credit and
up to $2 million from short-term bank facilities at the banks' discretion.
As of March 31, 2001, the OE Companies had the capability to issue up to
$1.3 billion of additional first mortgage bonds on the basis of property
additions and retired bonds. Under the earnings coverage tests contained
in the OE Companies' charters, $1.8 billion of preferred stock (assuming
no additional debt was issued) could be issued based on earnings through
the first quarter of 2001.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
-------- --------
(In thousands)
OPERATING REVENUES $516,417 $423,657
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel 17,865 47,160
Purchased power 214,505 41,818
Nuclear operating costs 49,950 29,431
Other operating costs 78,303 82,217
-------- --------
Total operation and maintenance expenses 360,623 200,626
Provision for depreciation and amortization 56,764 58,014
General taxes 37,870 56,904
Income taxes 7,715 21,330
-------- --------
Total operating expenses and taxes 462,972 336,874
-------- --------
OPERATING INCOME 53,445 86,783
OTHER INCOME 4,420 3,428
-------- --------
INCOME BEFORE NET INTEREST CHARGES 57,865 90,211
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 48,285 51,184
Allowance for borrowed funds used during construction (857) (512)
Other interest expense (credit) (1,196) 829
-------- --------
Net interest charges 46,232 51,501
-------- --------
NET INCOME 11,633 38,710
PREFERRED STOCK DIVIDEND REQUIREMENTS 6,561 7,790
-------- --------
EARNINGS ON COMMON STOCK $ 5,072 $ 30,920
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to The Cleveland
Electric Illuminating Company are an integral part of these statements.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
------------ ------------
(In thousands)
ASSETS
------
UTILITY PLANT:
In service $4,031,157 $4,036,590
Less--Accumulated provision for depreciation 1,620,232 1,624,672
---------- ----------
2,410,925 2,411,918
---------- ----------
Construction work in progress-
Electric plant 65,419 66,904
Nuclear fuel -- 24,145
---------- ----------
65,419 91,049
---------- ----------
2,476,344 2,502,967
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust 476,622 491,830
Nuclear plant decommissioning trusts 203,113 189,804
Long-term notes receivable from associated companies 92,621 92,722
Other 33,869 36,084
---------- ----------
806,225 810,440
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 214 2,855
Receivables-
Customers 13,676 14,748
Associated companies 41,562 81,090
Other (less accumulated provisions of $1,000,000 for
uncollectible accounts at both dates) 92,620 127,639
Notes receivable from associated companies 486 384
Materials and supplies, at average cost-
Owned 23,567 26,039
Under consignment 25,822 38,673
Prepayments and other 63,196 59,377
---------- ----------
261,143 350,805
---------- ----------
DEFERRED CHARGES:
Regulatory assets 808,804 816,143
Goodwill 1,399,311 1,408,869
Other 74,259 75,407
---------- ----------
2,282,374 2,300,419
---------- ----------
$5,826,086 $5,964,631
========== ==========
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
------------ ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholder's equity-
Common stock, without par value, authorized 105,000,000
shares - 79,590,689 shares outstanding $ 931,962 $ 931,962
Retained earnings 116,150 132,877
---------- ----------
Total common stockholder's equity 1,048,112 1,064,839
Preferred stock-
Not subject to mandatory redemption 238,325 238,325
Subject to mandatory redemption 25,628 26,105
Long-term debt 2,621,454 2,634,692
---------- ----------
3,933,519 3,963,961
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 170,149 165,696
Accounts payable-
Associated companies 90,082 102,915
Other 12,205 54,422
Notes payable to associated companies 60,849 28,586
Accrued taxes 130,238 178,707
Accrued interest 62,208 56,142
Other 35,785 82,195
---------- ----------
561,516 668,663
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 591,435 591,748
Accumulated deferred investment tax credits 78,988 79,957
Nuclear plant decommissioning costs 212,306 198,997
Pensions and other postretirement benefits 230,243 227,528
Other 218,079 233,777
---------- ----------
1,331,051 1,332,007
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2) ---------- ----------
$5,826,086 $5,964,631
========== ==========
<FN>
The preceding Notes to Financial Statements as they relate to The Cleveland
Electric Illuminating Company are an integral part of these balance sheets.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,633 $ 38,710
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation and amortization 56,764 58,014
Nuclear fuel and lease amortization 7,044 10,026
Other amortization (3,633) (3,167)
Deferred income taxes, net 53 4,085
Investment tax credits, net (969) (982)
Receivables 75,619 43,107
Materials and supplies 15,323 (3,613)
Accounts payable (55,050) (47,081)
Accrued taxes (48,469) 12,784
Other (53,583) (54,563)
-------- --------
Net cash provided from operating activities 4,732 57,320
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Short-term borrowings, net 32,263 7,993
Redemptions and Repayments-
Long-term debt 8,640 10,137
Dividend Payments-
Common stock 21,800 10,000
Preferred stock 7,037 7,790
-------- --------
Net cash used for financing activities 5,214 19,934
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 10,217 14,450
Loans to associated companies -- 32,820
Capital trust investments (15,208) (24,124)
Other 7,150 8,704
-------- --------
Net cash used for investing activities 2,159 31,850
-------- --------
Net increase (decrease) in cash and cash equivalents (2,641) 5,536
Cash and cash equivalents at beginning of period 2,855 376
-------- --------
Cash and cash equivalents at end of period $ 214 $ 5,912
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to The Cleveland
Electric Illuminating Company are an integral part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Cleveland Electric Illuminating Company:
We have reviewed the accompanying consolidated balance sheet of The
Cleveland Electric Illuminating Company (an Ohio corporation and wholly
owned subsidiary of FirstEnergy Corp.) and subsidiary as of March 31,
2001, and the related consolidated statements of income and cash flows for
the three-month periods ended March 31, 2001 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the
United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of
The Cleveland Electric Illuminating Company and subsidiary as of
December 31, 2000 (not presented herein), and, in our report dated
February 16, 2001, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2000, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 14, 2001.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Corporate Separation
- --------------------
Beginning in 2001, Ohio electric customers can select their
generation suppliers as a result of legislation which restructured the
electric utility industry. That legislation also required unbundling the
price for electricity into its component elements -- including generation,
transmission, distribution and transition charges. Also, Ohio utilities
that offer both competitive and regulated retail electric services were
required to implement a corporate separation plan approved by the PUCO --
one which provides a clear separation between regulated and competitive
operations. In connection with FirstEnergy's transition plan, FirstEnergy
separated its businesses into three distinct units -- a competitive
services unit, a utility services unit and a corporate support services
unit. CEI is included in the utility services unit which continues to
deliver power to homes and businesses through its existing distribution
system and maintains the "provider of last resort" (PLR) obligation under
the transition plan.
As a result of the transition plan, FirstEnergy's EUOC entered
into power supply agreements whereby FE Services purchases all of the EUOC
nuclear generation, as well as generation from leased fossil generating
facilities. FirstEnergy Generation Corp. (FE Generation), a wholly owned
subsidiary of FE Services, leases fossil generating units owned by the
EUOC. The EUOC are "full requirements" customers of FE Services to enable
them to meet their PLR responsibilities in their respective service areas.
CEI continues to provide power directly to wholesale customers under
negotiated contracts as well as to alternative energy suppliers as part of
CEI's market support generation program of 400 megawatts.
The effect on CEI's reported results of operations during the
first quarter of 2001 from FirstEnergy's corporate separation plan and
CEI's sale of transmission assets to ATSI in September 2000, are
summarized in the following table:
Income Statement Effects Corporate
- ------------------------
Increase (Decrease) Separation ATSI Total
---------- ---- -----
(in millions)
Operating Revenues:
Power supply agreement with FE
Services $ 77.5 $ -- $ 77.5
Generating units lease rent 15.0 -- 15.0
------ ------ ------
Total Operating Revenues Effect $ 92.5 $ -- $ 92.5
====== ====== ======
Operating Expenses:
Fossil fuel costs $(23.4)(a) $ -- $(23.4)
Purchased power costs 189.5 (b) -- 189.5
Other operating costs (17.1)(a) 11.0 (d) (6.1)
Provision for depreciation and
amortization -- (2.0)(e) (2.0)
General taxes (0.8)(c) (2.2)(e) (3.0)
------ ------- ------
Total Operating Expenses Effect $148.2 $ 6.8 $155.0
====== ======= ======
Other Income $ -- $ 1.8 (f) $ 1.8
====== ======= ======
(a) Transfer of fossil operations to FE Generation.
(b) Purchased power for PLR.
(c) Payroll taxes related to employees transferred to FE Generation.
(d) Transmission services received from ATSI.
(e) Depreciation and property taxes on transmission assets sold to ATSI.
(f) Interest on note receivable from ATSI.
Results of Operations
- ---------------------
Operating revenues increased by $92.8 million or 21.9% in the
first quarter of 2001, compared to the same period in 2000, with nearly
all of that increase resulting from the implementation of FirstEnergy's
corporate separation as shown on the table above. CEI's electric sales to
retail customers also increased by $20.4 million, offsetting reduced
wholesale sales of $17.7 million in the first quarter of 2001 compared
with the first quarter of 2000. As part of Ohio's electric utility
restructuring law, the implementation of a 5% reduction in generation
charges for Ohio's residential customers, that began in 2001, partially
offset the increase in electric sales revenues by approximately $2.8
million in the first quarter of 2001 and is expected to lower revenues for
all of 2001 by more than $16 million.
Higher revenues from distribution services also contributed
favorably to the increase in operating revenues. Residential kilowatt-hour
deliveries in the first quarter of 2001 were 6.7% higher than the first
quarter of 2000 primarily due to weather. Although weather was warmer than
normal in the first quarter of 2001, average temperatures were still
significantly colder than the first quarter of 2000. Commercial and
industrial deliveries also increased by 1.9% in the first quarter of 2001
from the same period last year. Total kilowatt-hour deliveries, which
represents all kilowatt-hours delivered to customers in CEI's franchise
area, increased by 3.1% in the first quarter of 2001 from the same period
last year. Additional revenues from CEI's market support generation to
alternative energy suppliers also contributed to the higher revenues.
Operating Expenses and Taxes
Total operating expenses and taxes increased by $126.1 million
in the first quarter of 2001, compared to the same quarter of 2000,
principally due to the implementation of FirstEnergy's corporate
separation plan as shown on the preceding table. Excluding the effect of
corporate separation, purchased power costs decreased by $16.8 million.
Nuclear fuel costs were $4.0 million lower in the first quarter of 2001
from the same period last year due to reduced nuclear generation resulting
from a scheduled refueling outage at the Perry Plant. The refueling outage
increased nuclear operating costs by $20.5 million in 2001 -- there were
no refueling outages in the first quarter of 2000.
General taxes were $19.0 million lower in the first quarter of
2001, compared to the same period of 2000, primarily due to reduced
property taxes in connection with the Ohio electric industry
restructuring.
Net Interest Charges
Net interest charges declined $5.3 million in the first quarter
of 2001 compared to the same quarter of 2000. Lower interest expense on
long-term debt contributed $2.9 million to the reduction as a result of
debt redemption and refinancing activities in 2000. Lower borrowings from
affiliates in the first quarter of 2001, compared to the same quarter of
2000, reduced other interest expense by $2.0 million.
Capital Resources and Liquidity
- -------------------------------
CEI has continuing cash needs for planned capital expenditures
and maturing debt. During the last three quarters of 2001, capital
requirements for property additions and capital leases are expected to be
about $89 million, including $10 million for nuclear fuel. CEI will need
additional cash of approximately $137 million to meet sinking fund
payments for preferred stock and maturing long-term debt during the
remainder of 2001. These cash requirements are expected to be satisfied
with internal cash and/or short-term credit arrangements.
As of March 31, 2001, CEI had approximately $700,000 of cash and
temporary investments and $60.8 million of short-term indebtedness to
associated companies. Under its first mortgage indenture, as of March 31,
2001, CEI had the capability to issue up to $830 million of additional
first mortgage bonds on the basis of property additions and retired bonds.
CEI has no restrictions on the issuance of preferred stock.
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
(In thousands)
OPERATING REVENUES $271,635 $217,391
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel 12,753 26,215
Purchased power 88,352 6,918
Nuclear operating costs 47,648 38,197
Other operating costs 38,626 37,213
-------- --------
Total operation and maintenance expenses 187,379 108,543
Provision for depreciation and amortization 32,775 26,180
General taxes 16,061 23,424
Income taxes 7,086 15,318
-------- --------
Total operating expenses and taxes 243,301 173,465
-------- --------
OPERATING INCOME 28,334 43,926
OTHER INCOME 3,788 2,689
-------- --------
INCOME BEFORE NET INTEREST CHARGES 32,122 46,615
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 17,244 19,141
Allowance for borrowed funds used during construction (349) (1,214)
Other interest expense (credit) (978) (832)
-------- --------
Net interest charges 15,917 17,095
-------- --------
NET INCOME 16,205 29,520
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,045 4,064
-------- --------
EARNINGS ON COMMON STOCK $ 12,160 $ 25,456
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to The Toledo
Edison Company are an integral part of these statements.
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
---------- ------------
(In thousands)
ASSETS
------
UTILITY PLANT:
In service $1,564,004 $1,637,616
Less--Accumulated provision for depreciation 597,659 597,397
---------- ----------
966,345 1,040,219
---------- ----------
Construction work in progress-
Electric plant 27,878 73,565
Nuclear fuel -- 10,720
---------- ----------
27,878 84,285
---------- ----------
994,223 1,124,504
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust 262,651 279,836
Nuclear plant decommissioning trusts 143,124 132,442
Long-term notes receivable from associated companies 156,931 39,084
Other 4,193 4,601
---------- ----------
566,899 455,963
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 707 1,385
Receivables-
Customers 5,759 6,618
Associated companies 40,998 62,271
Other 6,087 1,572
Notes receivable from associated companies 29,112 32,617
Materials and supplies, at average cost-
Owned 8,641 17,388
Under consignment 19,318 21,994
Prepayments and other 28,942 27,151
---------- ----------
139,564 170,996
---------- ----------
DEFERRED CHARGES:
Regulatory assets 385,944 412,682
Goodwill 455,056 458,164
Other 28,948 29,958
---------- ----------
869,948 900,804
---------- ----------
$2,570,634 $2,652,267
========== ==========
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
----------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholder's equity-
Common stock, $5 par value, authorized 60,000,000 shares -
39,133,887 shares outstanding $ 195,670 $ 195,670
Other paid-in capital 328,559 328,559
Retained earnings 78,818 81,358
---------- ----------
Total common stockholder's equity 603,047 605,587
Preferred stock not subject to mandatory redemption 210,000 210,000
Long-term debt 936,192 944,193
---------- ----------
1,749,239 1,759,780
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt 58,046 56,230
Accounts payable-
Associated companies 53,567 36,564
Other 9,976 25,070
Notes payable to associated companies -- 41,936
Accrued taxes 49,872 57,519
Accrued interest 18,623 19,946
Other 30,899 49,908
---------- ----------
220,983 287,173
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 200,125 196,944
Accumulated deferred investment tax credits 34,688 35,174
Nuclear plant decommissioning costs 149,467 138,784
Pensions and other postretirement benefits 120,175 119,327
Other 95,957 115,085
---------- ----------
600,412 605,314
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2) ---------- ----------
$2,570,634 $2,652,267
========== ==========
<FN>
The preceding Notes to Financial Statements as they relate to The Toledo Edison
Company are an integral part of these balance sheets.
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------
2001 2000
---------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,205 $ 29,520
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation and amortization 32,775 26,180
Nuclear fuel and lease amortization 5,174 6,633
Deferred income taxes, net 2,158 6,608
Investment tax credits, net (486) (479)
Receivables 17,617 24,835
Materials and supplies 11,423 333
Accounts payable 1,909 (13,229)
Other (29,804) (33,058)
--------- --------
Net cash provided from operating activities 56,971 47,343
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Short-term borrowings, net -- 16,834
Redemptions and Repayments-
Long-term debt 5,863 20,884
Short-term borrowings, net 41,936 --
Dividend Payments-
Common stock 14,700 18,000
Preferred stock 4,045 4,064
--------- --------
Net cash used for financing activities 66,544 26,114
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 12,028 37,709
Loans to associated companies 117,890 --
Loan payments from associated companies (3,548) (5,166)
Capital trust investments (17,185) (14,982)
Sale of assets to associated companies (117,890) --
Other (190) 3,679
--------- --------
Net cash used for (provided from) investing activities (8,895) 21,240
--------- --------
Net decrease in cash and cash equivalents 678 11
Cash and cash equivalents at beginning of period 1,385 312
--------- --------
Cash and cash equivalents at end of period $ 707 $ 301
========= ========
<FN>
The preceding Notes to Financial Statements as they relate to The Toledo
Edison Company are an integral part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Toledo Edison Company:
We have reviewed the accompanying consolidated balance sheet of The Toledo
Edison Company (an Ohio corporation and wholly owned subsidiary of
FirstEnergy Corp.) and subsidiary as of March 31, 2001, and the related
consolidated statements of income and cash flows for the three-month
periods ended March 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the
United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of
The Toledo Edison Company and subsidiary as of December 31, 2000 (not
presented herein), and, in our report dated February 16, 2001, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2000, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 14, 2001.
THE TOLEDO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Corporate Separation
- --------------------
Beginning in 2001, Ohio electric customers can select their
generation suppliers as a result of legislation which restructured the
electric utility industry. That legislation also required unbundling the
price for electricity into its component elements -- including generation,
transmission, distribution and transition charges. Also, Ohio utilities
that offer both competitive and regulated retail electric services were
required to implement a corporate separation plan approved by the PUCO --
one which provides a clear separation between regulated and competitive
operations. In connection with FirstEnergy's transition plan, FirstEnergy
separated its businesses into three distinct units -- a competitive
services unit, a utility services unit and a corporate support services
unit. TE is included in the utility services unit which continues to
deliver power to homes and businesses through its existing distribution
system and maintains the "provider of last resort" (PLR) obligation under
the transition plan.
As a result of the transition plan, FirstEnergy's EUOC entered
into power supply agreements whereby FE Services purchases all of the EUOC
nuclear generation, as well as generation from leased fossil generating
facilities. FirstEnergy Generation Corp. (FE Generation), a wholly owned
subsidiary of FE Services, leases fossil generating units owned by the
EUOC. The EUOC are "full requirements" customers of FE Services to enable
them to meet their PLR responsibilities in their respective service areas.
TE continues to provide power directly to wholesale customers under
previously negotiated contracts as well as to alternative energy suppliers
as part of TE's market support generation program of 160 megawatts.
The effect on the TE's reported results of operations during the
first quarter of 2001 from FirstEnergy's corporate separation plan and
TE's sale of transmission assets to ATSI in September 2000, are summarized
in the following table:
Income Statement Effects Corporate
- ------------------------
Increase (Decrease) Separation ATSI Total
---------- ---- -----
(in millions)
Operating Revenues:
Power supply agreement with FE Services $ 43.0 $ -- $ 43.0
Generating units lease rent 3.6 -- 3.6
------ ------ ------
Total Operating Revenues Effect $ 46.6 $ -- $ 46.6
====== ====== ======
Operating Expenses:
Fossil fuel costs $(10.5) (a) $ -- $(10.5)
Purchased power costs 83.9 (b) -- 83.9
Other operating costs (3.0) (a) 5.8 (d) 2.8
Provision for depreciation and
amortization -- (0.9)(e) (0.9)
General taxes (0.5) (c) (0.8)(e) (1.3)
------ ------ ------
Total Operating Expenses Effect $ 69.9 $ 4.1 $ 74.0
====== ====== ======
Other Income $ -- $ 0.8 (f) $ 0.8
====== ====== ======
(a) Transfer of fossil operations to FE Generation.
(b) Purchased power for PLR.
(c) Payroll taxes related to employees transferred to FE Generation.
(d) Transmission services received from ATSI.
(e) Depreciation and property taxes on transmission assets sold to ATSI.
(f) Interest on note receivable from ATSI.
Results of Operations
- ---------------------
Operating revenues increased by $54.2 million or 25.0% in the
first quarter of 2001, compared to the same period in 2000, with nearly
all of that increase resulting from the implementation of FirstEnergy's
corporate separation as shown on the table above. TE's electric sales to
retail customers also increased by $12.1 million, offsetting reduced
wholesale sales of $7.3 million in the first quarter of 2001, compared
with the first quarter of 2000. As part of Ohio's electric utility
restructuring law, the implementation of a 5% reduction in generation
charges for Ohio's residential customers, that began in 2001, partially
offset the increase in electric sales revenues by approximately $1.4
million in the first quarter of 2001 and is expected to lower revenues for
all of 2001 by more than $8 million.
Higher revenues from distribution services also contributed
favorably to the increase in operating revenues. Residential kilowatt-hour
deliveries in the first quarter of 2001 were 9.7% higher than the first
quarter of 2000 partially due to weather. Although weather was warmer than
normal in the first quarter of 2001, average temperatures were still
significantly colder than the first quarter of 2000. Commercial and
industrial deliveries also increased by 6.0% in the first quarter of 2001
from the same period last year reflecting service area economic strength.
Total kilowatt-hour deliveries, which represent all kilowatt-hours
delivered to customers in TE's franchise area, increased by 7.0% in the
first quarter of 2001 from the same period last year. Additional revenues
from TE's market support generation to alternative energy suppliers also
contributed to higher revenues, as well as several existing committed
wholesale contracts.
Operating Expenses and Taxes
Total operating expenses and taxes increased by $69.8 million in
the first quarter of 2001, compared to the same quarter of 2000,
principally due to implementation of FirstEnergy's corporate separation
plan as shown on the preceding table. Excluding the effect of corporate
separation, purchased power costs decreased by $2.5 million. Nuclear fuel
costs were $2.0 million lower in the first quarter of 2001 from the same
period last year due to reduced nuclear generation resulting from a
scheduled refueling outage at the Perry Plant. The refueling outage
increased nuclear operating costs by $9.5 million in 2001 -- there were no
refueling outages in the first quarter of 2000.
Excluding the effect from corporate separation, charges for
depreciation and amortization increased by $7.5 million in the first
quarter of 2001 from the same period last year, due to higher transition
cost amortization under FirstEnergy's transition plan.
General taxes were $7.4 million lower in the first quarter of
2001, compared to the same period of 2000, primarily due to reduced
property taxes in connection with the Ohio electric industry
restructuring.
Net Interest Charges
Net interest charges continue to trend lower, decreasing by $1.2
million in the first quarter of 2001, compared to the same period in 2000,
due to debt redemption and refinancing activities in 2000.
Capital Resources and Liquidity
TE has continuing cash needs for planned capital expenditures
and maturing debt. During the last three quarters of 2001, capital
requirements for property additions and capital leases are expected to be
about $52 million, including $8 million for nuclear fuel. TE will need
additional cash of approximately $29.4 million for maturing long-term debt
during the remainder of 2001. These cash requirements are expected to be
satisfied with internal cash and/or short-term credit arrangements.
As of March 31, 2001, TE had approximately $29.8 million of cash
and temporary investments and no short-term indebtedness. Under its first
mortgage indenture, as of March 31, 2001, TE had the capability to issue
up to $523 million of additional first mortgage bonds on the basis of
property additions and retired bonds. Under the earnings coverage test
contained in the TE charter, $524 million of preferred stock (assuming no
additional debt was issued) could be issued based on earnings through the
first quarter of 2001.
PENNSYLVANIA POWER COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
(In thousands)
OPERATING REVENUES $128,397 $ 83,951
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel 6,641 10,222
Purchased power 45,768 3,168
Nuclear operating costs 20,265 45,507
Other operating costs 10,296 13,535
-------- --------
Total operation and maintenance expenses 82,970 72,432
Provision for depreciation and amortization 14,263 15,731
General taxes 4,480 7,058
Income taxes (credit) 10,675 (4,903)
-------- --------
Total operating expenses and taxes 112,388 90,318
-------- --------
OPERATING INCOME (LOSS) 16,009 (6,367)
OTHER INCOME 875 413
-------- --------
INCOME (LOSS) BEFORE NET INTEREST CHARGES 16,884 (5,954)
-------- --------
NET INTEREST CHARGES:
Interest expense 4,728 5,407
Allowance for borrowed funds used during construction (232) (975)
-------- --------
Net interest charges 4,496 4,432
-------- --------
NET INCOME (LOSS) 12,388 (10,386)
PREFERRED STOCK DIVIDEND REQUIREMENTS 926 926
-------- --------
EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCK $ 11,462 $(11,312)
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to
Pennsylvania Power Company are an integral part of these
statements.
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
---------- ------------
(In thousands)
ASSETS
------
UTILITY PLANT:
In service $641,075 $636,418
Less--Accumulated provision for depreciation 280,174 275,699
-------- --------
360,901 360,719
-------- --------
Construction work in progress-
Electric plant 20,840 20,800
Nuclear fuel 17 2,810
-------- --------
20,857 23,610
-------- --------
381,758 384,329
-------- --------
OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts 118,951 117,453
Long-term notes receivable from associated companies 33,575 33,581
Other 21,215 21,279
-------- --------
173,741 172,313
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 2,444 3,475
Receivables-
Customers (less accumulated provisions of $688,000 and
$628,000, respectively, for uncollectible accounts) 42,772 40,980
Associated companies 33,882 40,685
Other 4,794 8,848
Notes receivable from associated companies 27,630 41,264
Materials and supplies, at average cost 21,631 29,595
Prepayments 9,747 2,044
-------- --------
142,900 166,891
-------- --------
DEFERRED CHARGES:
Regulatory assets 246,755 260,221
Other 4,674 5,155
-------- --------
251,429 265,376
-------- --------
$949,828 $988,909
======== ========
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
----------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholder's equity-
Common stock, $30 par value, authorized 6,500,000
shares - 6,290,000 shares outstanding $188,700 $188,700
Other paid-in capital (310) (310)
Retained earnings 30,623 25,461
-------- --------
Total common stockholder's equity 219,013 213,851
Preferred stock-
Not subject to mandatory redemption 39,105 39,105
Subject to mandatory redemption 15,000 15,000
Long-term debt-
Associated companies 15,001 18,135
Other 252,227 252,233
-------- --------
540,346 538,324
-------- --------
CURRENT LIABILITIES:
Currently payable long-term debt-
Associated companies 15,140 16,620
Other 1,033 1,036
Accounts payable-
Associated companies 29,646 42,293
Other 458 21,165
Accrued taxes 26,124 19,250
Accrued interest 3,818 5,972
Other 8,747 16,228
-------- --------
84,966 122,564
-------- --------
DEFERRED CREDITS:
Accumulated deferred income taxes 154,896 160,632
Accumulated deferred investment tax credits 4,332 4,407
Nuclear plant decommissioning costs 119,412 117,915
Other 45,876 45,067
-------- --------
324,516 328,021
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 2) -------- --------
$949,828 $988,909
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to Pennsylvania
Power Company are an integral part of these balance sheets.
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 12,388 $(10,386)
Adjustments to reconcile net income (loss) to net
cash from operating activities-
Provision for depreciation and amortization 14,263 15,731
Nuclear fuel and lease amortization 4,882 3,170
Deferred income taxes, net (2,481) (3,622)
Investment tax credits, net (711) (791)
Receivables 9,065 (526)
Materials and supplies 7,964 3,768
Accounts payable (33,354) 18,093
Other (8,870) (19,356)
-------- --------
Net cash provided from operating activities 3,146 6,081
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and Repayments-
Long-term debt 4,918 8,365
Dividend Payments-
Common stock 6,300 --
Preferred stock 926 926
-------- --------
Net cash used for financing activities 12,144 9,291
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 5,358 13,191
Loan payment from parent (13,640) (12,866)
Other 315 1,811
-------- --------
Net cash used for (provided from) investing activities (7,967) 2,136
-------- --------
Net decrease in cash and cash equivalents 1,031 5,346
Cash and cash equivalents at beginning of period 3,475 5,670
-------- --------
Cash and cash equivalents at end of period $ 2,444 $ 324
======== ========
<FN>
The preceding Notes to Financial Statements as they relate to Pennsylvania
Power Company are an integral part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Power Company:
We have reviewed the accompanying balance sheet of Pennsylvania Power
Company (a Pennsylvania corporation and wholly owned subsidiary of Ohio
Edison Company) as of March 31, 2001, and the related statements of income
and cash flows for the three-month periods ended March 31, 2001 and 2000.
These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the
United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of Pennsylvania
Power Company as of December 31, 2000 (not presented herein), and, in our
report dated February 16, 2001, we expressed an unqualified opinion on
that statement. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 2000, is fairly stated, in
all material respects, in relation to the balance sheet from which it has
been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 14, 2001.
PENNSYLVANIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Corporate Separation
- --------------------
Beginning in 2001, FirstEnergy was required to implement a
corporate separation plan which provides a clear separation between
regulated and competitive operations. In connection with FirstEnergy's
transition plan, FirstEnergy separated its businesses into three distinct
units -- a competitive services unit, a utility services unit and a
corporate support services unit. Penn is included in the utility services
unit which continues to deliver power to homes and businesses through its
existing distribution system and maintains the "provider of last
resort"(PLR) obligation under its rate restructuring plan.
As a result of the transition plan, FirstEnergy's EUOC entered
into power supply agreements whereby FE Services purchases all of the EUOC
nuclear generation, as well as generation from leased fossil generating
facilities. FirstEnergy Generation Corp. (FE Generation), a wholly owned
subsidiary of FE Services, leases fossil generating units owned by the
EUOC. The EUOC are "full requirements" customers of FE Services to enable
them to meet their PLR responsibilities in their respective service areas.
The effect on Penn's reported results of operations during the
first quarter of 2001 from FirstEnergy's corporate separation plan and
Penn's sale of transmission assets to ATSI in September 2000, are
summarized in the following table:
Income Statement Effects Corporate
- ------------------------
Increase (Decrease) Separation ATSI Total
---------- ---- -----
(in millions)
Operating Revenues:
Power supply agreement with FE Services $ 41.6 $ -- $ 41.6
Generating units lease rent 5.1 -- 5.1
------ ------ ------
Total Operating Revenues Effect $ 46.7 $ -- $ 46.7
====== ====== ======
Operating Expenses:
Fossil fuel costs $ (6.2)(a) $ -- $ (6.2)
Purchased power costs 45.9 (b) -- 45.9
Other operating costs (6.2)(a) 3.2 (d) (3.0)
Provision for depreciation and
amortization -- (0.8)(e) (0.8)
General taxes (0.6)(c) (0.1)(e) (0.7)
------ ----- ------
Total Operating Expenses Effect $ 32.9 $ 2.3 $ 35.2
====== ===== ======
Other Income $ -- $ 0.7 (f) $ 0.7
====== ===== ======
(a) Transfer of fossil operations to FE Generation.
(b) Purchased power for PLR.
(c) Payroll taxes related to employees transferred to FE Generation.
(d) Transmission services received from ATSI.
(e) Depreciation and property taxes on transmission assets sold to ATSI.
(f) Interest on note receivable from ATSI.
Results of Operations
- ---------------------
Operating revenues increased by $44.4 million or 52.9% in the
first quarter of 2001, compared to the same period in 2000, with nearly
all of that increase resulting from the implementation of FirstEnergy's
corporate separation as shown on the table above. Penn's electric sales to
retail customers also increased by $3.6 million, partially offsetting
reduced wholesale sales of $7.4 million in the first quarter of 2001,
compared with the first quarter of 2000. The return of customers
previously served by alternative generation suppliers contributed to the
electric generation sales growth.
Higher revenues from distribution services also contributed
favorably to the increase in operating revenues. Residential kilowatt-hour
deliveries in the first quarter of 2001 were 9.7% higher than the first
quarter of 2000 partially due to weather. Although weather was warmer than
normal in the first quarter of 2001, average temperatures were still
significantly colder than the first quarter of 2000. Commercial and
industrial deliveries also increased by 6.7% in the first quarter of 2001
from the same period last year reflecting service area economic strength.
Operating Expenses and Taxes
Total operating expenses and taxes increased by $22.1 million in
the first quarter of 2001, compared to the same quarter of 2000,
principally due to the implementation of FirstEnergy's corporate
separation plan as shown on the preceding table. Excluding the effect of
corporate separation, purchased power costs decreased by $3.3 million.
Nuclear fuel costs were $2.6 million higher in the first quarter of 2001
from the same period last year due to additional nuclear generation in
2001. Nuclear operating costs were $25.2 million lower in the first
quarter 2001, compared to the first quarter of 2000, due to Penn's smaller
ownership share (5.24%) of a scheduled Perry Plant refueling outage in the
first quarter 2001 versus its 65% ownership share in the Beaver Valley
Unit 1 refueling outage in the same period last year.
General taxes were $2.6 million lower in the first quarter of
2001, compared to the same period of 2000, partially due to reduced
property taxes in connection with the Ohio electric industry
restructuring.
Capital Resources and Liquidity
- -------------------------------
Penn has continuing cash requirements for planned capital
expenditures and maturing debt. During the last three quarters of 2001,
capital requirements for property additions and capital leases are
expected to be about $40 million, including $20 million for nuclear fuel.
Penn will need additional cash of approximately $974,000 for maturing
long-term debt during the remainder of 2001. These cash requirements are
expected to be satisfied with internal cash.
As of March 31, 2001, Penn had approximately $30.1 million of
cash and temporary investments and no short-term indebtedness. Also, Penn
had $2.0 million available from an unused bank facility as of March 31,
2001, which may be borrowed for up to several days at the bank's
discretion. Under its first mortgage indenture, as of March 31, 2001, Penn
had the capability to issue up to $226 million of additional first
mortgage bonds on the basis of property additions and retired bonds. Under
the earnings coverage test contained in the Penn charter, $190 million of
preferred stock (assuming no additional debt was issued) could be issued
based on earnings through the first quarter of 2001.
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number
-------
FirstEnergy, OE, CEI and Penn
-----------------------------
15 Letter from independent public accountants.
TE
--
None
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, neither FirstEnergy, OE, CEI, TE nor Penn has filed as an
exhibit to this Form 10-Q any instrument with respect to long-
term debt if the respective total amount of securities authorized
thereunder does not exceed 10% of their respective total assets
of FirstEnergy and its subsidiaries on a consolidated basis, or
respectively, OE, CEI, TE or Penn, but hereby agrees to furnish
to the Commission on request any such documents.
(b) Reports on Form 8-K
FirstEnergy, OE, CEI, TE and Penn
---------------------------------
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
May 15, 2001
FIRSTENERGY CORP.
-----------------
Registrant
OHIO EDISON COMPANY
-------------------
Registrant
THE CLEVELAND ELECTRIC
----------------------
ILLUMINATING COMPANY
--------------------
Registrant
THE TOLEDO EDISON COMPANY
-------------------------
Registrant
PENNSYLVANIA POWER COMPANY
--------------------------
Registrant
/s/ Harvey L. Wagner
-----------------------------------
Harvey L. Wagner
Controller
Principal Accounting Officer