SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 11, 2003
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
1-446 Metropolitan Edison Company 23-0870160
(A Pennsylvania Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3522 Pennsylvania Electric Company 25-0718085
(A Pennsylvania Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
Item 9. Regulation FD Disclosure
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On June 11, 2003, FirstEnergy Corp.'s subsidiaries, Metropolitan Edison
Company and Pennsylvania Electric Company (collectively, the Companies), filed a
letter with the Pennsylvania Public Utility Commission (Commission)
Administrative Law Judge which voids a stipulation previously entered into by
the Companies.
Background
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During 2001, the Commission consolidated for hearing purposes two separate
proceedings. The first was a joint application for approval of the merger
between FirstEnergy and the former GPU, Inc., and the second was a petition by
the Companies for recovery of provider of last resort (POLR) costs.
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, some of the
parties entered into a settlement stipulation (Stipulation). The Stipulation,
among other things, proposed deferred energy cost accounting under which the
Companies would defer the difference between their charges to retail customers
for POLR service and its actual cost of supply beginning January 1, 2001, and
continuing through year-end 2005.
Among other items, the Stipulation also:
o Modified the allocation of revenues between the Companies' shopping
credit and the competitive transition charges (CTC)
o Beginning January 1, 2001, provided for non-utility generation (NUG)
stranded costs to be reconciled against the higher of actual market
prices or the applicable generation shopping credit, instead of only
against market costs
o Provided for a distribution rate freeze that would extend to year-end
2007
o Permitted the Companies to apply their NUG trust funds to the full
cost payable for NUG capacity and energy under the NUG agreements
instead of only the above-market costs
o Provided funding for, or spending on, Sustainable Energy Funds,
renewable energy projects and demand side response programs.
The Commission adopted the Stipulation without modification on June 20,
2001.
Several parties appealed parts of each of these two Commission Orders to
the Pennsylvania Commonwealth Court (Court) and the Court issued a decision on
February 21, 2002 which:
o Affirmed the merger approval
o Found the status of the record on merger savings inadequate and
remanded that issue back to the Commission
o Overturned the Commission's approval of POLR relief and the use of
deferred energy cost accounting
o Retained the GPU GENCO Code of Conduct.
Several parties, including FirstEnergy, filed appeals with The Supreme
Court of Pennsylvania. On January 16, 2003, the Supreme Court denied or quashed
all pending applications for appeal.
On April 2, 2003, the Commission remanded the merger savings issue to the
Office of Administrative Law Judge for hearings. Additionally, the Commission
directed the Companies to file a position paper by May 2 on the effect of the
Court's Order on the Stipulation. The other parties were directed to file their
comments to the Companies' position paper by June 2.
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The Companies' Position Paper and Parties' Responses
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In summary, the Companies' position paper stated the following:
o Because no stay of the Commission's June 20, 2001 Order approving the
Stipulation was issued or even sought, the Stipulation remained in
effect until the Pennsylvania Supreme Court denied all appeal
applications on January 16, 2003
o As of January 16, 2003, the Court's Order became final and the
portions of the Commission's June 20, 2001 Order that were
inconsistent with the Court's findings were reversed
o The Court's findings effectively amended the Stipulation to remove
paragraphs related to POLR cost recovery and POLR cost deferrals, and
reinstated the GENCO Code of Conduct as a merger condition
o All other provisions included in the Stipulation unrelated to these
three issues remain in effect (the Companies attached a "redlined"
version of the Stipulation consistent with the above).
Various parties filed responses to the Companies' position paper. In total,
there was significant disagreement with the Companies, and disagreement among
the parties themselves, including the original signatory parties. Some parties
believe that no portion of the Stipulation has survived the Commonwealth Court's
Order. Additionally, one party (ARIPPA) filed pleadings with the Commission and
with the Commonwealth Court to enforce its interpretation that the Court struck
down the Stipulation in its entirety.
Today's Letter Filing
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Because of the disagreements with the Companies' position paper, the
Companies filed a letter today with the Administrative Law Judge assigned to the
remanded case voiding the Stipulation in its entirety pursuant to the
termination provisions. The Companies believe this will significantly simplify
the issues in the pending action by reinstating the Companies' Restructuring
Settlement previously approved by the Commission.
The Companies recognize that certain merger-related benefits accrued to
various parties solely as a result of the Stipulation. Notwithstanding the
action by the Companies to render the Stipulation void, the Companies are
agreeing to voluntarily, among other items, provide funding for, or spending on,
Sustainable Energy Funds, renewable energy projects and demand side response
programs.
In addition, depending upon the resolution of the merger savings issues
remanded by the Court Order, the Companies will agree to a voluntary cap on
distribution rates at current levels through year-end 2007 consistent with the
terms of the Stipulation. This voluntary distribution rate cap is contingent
upon a finding that the Companies have satisfied the "public interest" test
applicable to mergers, and that any rate impacts of merger savings will be dealt
with in a subsequent rate case, consistent with traditional Commission practice.
FirstEnergy Solutions (FES) will continue to provide the Companies with
energy and capacity for meeting their non-self supplied POLR requirements under
the current Federal Energy Regulatory Commission contracts between FES and the
Companies.
In the third quarter last year, FirstEnergy reported a non-cash, pre-tax
charge of $56 million ($0.11 per common share after-tax) related to reversing
the Companies' energy cost deferrals subsequent to the merger with GPU through
September 30, 2002. This charge was taken in anticipation of an unfavorable
ruling by The Supreme Court of Pennsylvania. We believe this charge, which was
reduced by $63 million assuming the pre-stipulation reconciliation of NUG
stranded costs only to market costs, is consistent with our interpretation of
the accounting impacts associated with voiding the Stipulation.
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Additionally, the Stipulation enabled the Companies to withdraw
approximately $88 million of NUG trust funds for payment of NUG actual market
costs. Although the Companies believe this remains appropriate, certain parties
may argue that these monies should be refunded to the NUG trust. This refund
would have no direct earnings impact for the Companies.
Based upon today's letter filing, the Companies believe that the remaining
issues before the Administrative Law Judge are:
o The appropriate treatment of merger savings issues, and
o Whether the Companies accounting entries and related tariff
modifications are consistent with the Court Order.
This Form 8-K 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 market prices, legislative and
regulatory changes or approvals (including revised environmental requirements),
availability and cost of capital, inability to accomplish or realize anticipated
benefits of strategic goals and other similar factors.
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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.
June 11, 2003
FIRSTENERGY CORP.
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Registrant
METROPOLITAN EDISON COMPANY
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Registrant
PENNSYLVANIA ELECTRIC COMPANY
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Registrant
/s/Paulette R. Chatman
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Paulette R. Chatman
Assistant Controller
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