EXHIBIT 99.1
Terrance G. Howson
Vice President
Investor Relations
FirstEnergy Corp.
76 S. Main Street
Akron, Ohio 44308
Tel 973-401-8519
March 25, 2002
TO THE INVESTMENT COMMUNITY: 1
As detailed in today's news release, FirstEnergy has filed a petition for the
allowance of an appeal from the February 21, 2002, order of the Commonwealth
Court of Pennsylvania. The appeal filing was made to the Pennsylvania Supreme
Court. This letter provides additional details about today's filing.
Background
- ----------
The February 21, 2002, Commonwealth Court's decision involved two separate
proceedings, which were consolidated and decided by the Pennsylvania Public
Utility Commission (Commission) last spring. The first proceeding involved the
merger between FirstEnergy and GPU and the Commission's decision in that case
was appealed by Clean Air Council and Citizen Power. The second proceeding
involved the Commission granting deferred energy cost accounting treatment for
Met-Ed's and Penelec's Provider of Last Resort (POLR) energy costs. That
decision was also appealed by Clean Air Council and Citizen Power along with
ARIPPA, Mid-Atlantic Power Supply Association and York County Solid Waste and
Refuse Authority.
On May 24, 2001, the Commission issued an order approving the merger between
FirstEnergy and GPU. The Commission did not rule on the POLR rate request at
that time but held its disposition in abeyance to afford the parties an
opportunity to attempt to resolve the matter in a Commission-facilitated
collaborative.
The collaborative was convened on May 29, 2001, but failed to achieve a
consensus resolution of the issues. However, on June 11, 2001, a settlement
stipulation was proposed. The settlement, among other things, proposed deferred
energy cost accounting under which Met-Ed and Penelec would defer the difference
between its charges to retail customers for POLR service and its actual cost of
supply beginning January 1, 2001, and continuing through year-end 2005.
- ----------
1 This letter 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," "expect," "believe," "estimate," and
similar words. Actual results may differ materially due to a number of
factors including, but not limited to, the speed and nature of regulatory
approvals.
-3-
To The Investment Community March 25, 2002
Page 2
- ------------------------------------------------------------------------------
The settlement also stipulated that the merged company would flow merger-related
savings through to customers by a three-year extension of the distribution rate
caps from year-end 2004 to year-end 2007. The settlement also eliminated the GPU
GENCO Code of Conduct that had been continued under the Commission's May 24th
order. The Commission adopted the proposed settlement (Settlement Order) without
modification on June 20, 2001.
The February 21, 2002, Commonwealth Court's decision contained four key
elements:
o Merger Approval
The Court found that "the Commission did not err in finding that the
public interest was served by allowing the merger" and "there is no
evidence that retail competition will suffer". As a result, the Court
affirmed the Commission's order approving the merger.
o Merger Savings
FirstEnergy had estimated during the merger proceeding that the merger
would result in approximately $150 million in annual merger-related
savings across all of FirstEnergy. As mentioned previously, the
settlement accounted for these cost savings through a three-year
extension of the distribution rate caps. The Court found that the
Commission did not err in its treatment of cost savings. However, not
realizing that cost savings are, in fact, the same thing as merger
savings, the Court also found that the record on merger savings was
inadequate and remanded the merger savings issue back to the Commission
to determine the amount of merger savings and the allocation of those
savings.
o Provider of Last Resort Relief
The Court found that the Company had not met the statutory standards
for relief, which was provided in the form of deferred cost accounting
treatment for POLR costs in excess of the companies' fixed generation
tariff. Furthermore, the Court found that the CTC charge could not be
used for recovery of deferred POLR costs even if the Company had met
the statutory standards for relief. Based on these findings, the Court
overturned the Commission's order on POLR relief.
o GENCO Code of Conduct
The GPU GENCO Code of Conduct details certain aspects of the business
relation between the regulated distributions company (in its POLR role)
and a company-affiliated GENCO, which has received generation assets
from the utility as a part of the electric utility restructuring
process in Pennsylvania.
-4-
To The Investment Community March 25, 2002
Page 3
- -----------------------------------------------------------------------------
The GENCO Code of Conduct was eliminated by the Commission's Settlement Order.
The Court found that the Commission did not adequately explain its reasoning for
eliminating the Code of Conduct and ruled that the Code would remain in effect
as a condition of the merger.
FirstEnergy's Appeal
- --------------------
FirstEnergy has appealed the Provider of Last Resort issue. In its appeal,
FirstEnergy said that the Commonwealth Court had mistakenly treated the
Settlement Order as a rate increase order issued under a specific Pennsylvania
statute. That statute permits an exception to the generation rate cap when an
electric utility demonstrates that is incurring significant increases in the
price of purchased power that are beyond its control and prevent it from earning
a fair rate of return. In reversing the Settlement Order for failure to meet the
requirements of the statute, the Commonwealth Court applied the wrong standard
of review, and improperly reevaluated findings of fact by the Commission which
were supported by substantial evidence in the record.
In overturning the Settlement Order, FirstEnergy said that the Commonwealth
Court exceeded permissible appellate review by (1) rendering an unnecessary,
anticipatory and advisory opinion, (2) substituting its own fact-finding and
conclusion for the judgment of the Commission lawfully exercised, and (3)
misapplying Pennsylvania law that governs Commission review of utility
management decisions.
FirstEnergy did not appeal the merger savings issue. Although disappointed in
the Court's remand of this issue back to the Commission, we are confident that
the Commission will implement an appropriate review process given the Court's
confusion.
FirstEnergy also did not appeal the GENCO Code of Conduct issue. Because the
Seneca Pumped Storage facility is the only former GPU generation asset which is
owned by a FirstEnergy subsidiary (CEI), we believe that the Code of Conduct has
very limited applicability to FirstEnergy and will not interfere with our
ability to provide energy supply to help meet Met-Ed and Penelec's POLR
obligations.
The Appeal Process
- ------------------
The Pennsylvania Supreme Court must decide whether they will accept our
application for review. There is no specific timetable for that decision, but it
usually takes the Court many months to decide. If the Court accepted our
application, the case would be heard and decided by the Court. That process
would also take many months.
-5-
To The Investment Community March 25, 2002
Page 4
- -----------------------------------------------------------------------------
Because of the possible lengthy and uncertain appeal process, we are continuing
to carefully review our future uncommitted supply position in Pennsylvania.
Today's relatively favorable forward energy cost curve provides us with
opportunities to mitigate our financial exposure to any open supply obligations
in Pennsylvania.
At this time we do not know what appeal actions may have been taken by the other
parties to this case. Should you have any questions, please call Kurt Turosky,
Director of Investor Relations, at (330) 384-5500 or me at (973) 401-8519.
Very truly yours,
Terrance G. Howson
Vice President - Investor Relations
-6-