Exhibit 99-2
Consolidated Report to the Financial Community - 3rd Quarter
Consolidated Report to the Financial Community
Third Quarter 2004 - Unaudited
(Released October 21, 2004)
- -------------------------------------------------------------------------------
________________________________________________________________
| |
| After-Tax EPS Variance Analysis 3rd Qtr. |
| ------------------------------- -------- |
HIGHLIGHTS | 3Q 2003 Basic EPS - GAAP Basis $ 0.51 |
o Normalized non-GAAP | Unusual Charges - 2003 0.29 |
earnings for the third quarter | ------- |
of 2004, excluding unusual | 3Q 2003 Basic EPS - Non-GAAP Basis $ 0.80 |
charges, were $0.97 per share, | Davis-Besse Incremental Expenses - 2003 0.14 |
compared with third quarter | ------- |
2003 normalized non-GAAP | 3Q 2003 Normalized Earnings - Non-GAAP Basis $ 0.94 |
earnings of $0.94 per share. | Electric Gross Margin (0.12) |
GAAP earnings were $0.91 per | JCP&L Rate Reduction (0.02) |
share compared with GAAP | Generation Operating Expenses 0.06 |
earnings of $0.51 per share in | Energy Delivery Expenses 0.08 |
the third quarter of 2003, | Pension and Other Employee Benefits 0.04 |
which included unusual charges | Depreciation and Amortization 0.01 |
and incremental expenses | Financing Costs 0.09 |
associated with the | Common Stock Dilution (0.09) |
Davis-Besse outage. | Mark-to-Market Adjustment (0.02) |
| ------- |
| 3Q 2004 Normalized Earnings - Non-GAAP Basis $ 0.97 |
| Unusual Charges - 2004 (0.06) |
| ------- |
| 3Q 2004 Basic EPS - GAAP Basis $ 0.91 |
| ======= |
|_______________________________________________________________|
3Q 2004 Results vs. 3Q 2003
- ---------------------------
o| Electric distribution deliveries were flat as a 2% decrease in residential
deliveries from milder weather was offset by modest increases in commercial
and industrial deliveries. Cooling-degree-days were 7% below the same
period last year and 4% below normal. Total electric generation sales rose
5% due to a 20% increase in wholesale sales.
o Electric gross margin decreased $67 million after adjusting for changes in
regulatory deferrals, the impact of JCP&L's rate decision in August 2003,
and last year's Davis-Besse replacement power costs. The decrease in
electric gross margin resulted from reduced regulated generation sales and
distribution deliveries due to milder weather, and lower unregulated
generation sales as a result of non-renewal of expiring contracts.
o Generation operating expenses decreased $34 million primarily due to the
absence of a nuclear refueling outage this quarter, compared with the
Beaver Valley Unit #1 outage last year, and lower fossil maintenance
expenses.
o Energy delivery expenses decreased $45 million principally due to lower
storm-related maintenance this quarter compared to expenses from hurricane
Isabel last year, and a higher level of construction activities this
quarter compared to more maintenance activities last year.
o Pension, OPEB, and other employee benefit costs decreased approximately $23
million as a result of favorable market returns in 2003, changes to health
care benefits for retirees, and Medicare legislation regarding prescription
drugs.
o Total depreciation and amortization expenses, adjusted for the regulatory
deferrals and the JCP&L rate case impact, decreased $6 million. The
decrease was primarily due to increased shopping incentive deferrals ($15
million) and capitalization of carrying charges on the deferrals ($9
million), partially offset by higher Ohio transition cost amortization ($20
million).
o Net interest charges decreased $49 million. Financing activities during the
quarter included $533 million in mandatory long-term debt redemptions, $17
million in optional debt redemptions, and $236 million of refinancing and
repricing transactions. These are expected to result in annualized savings
of approximately $47 million. The issuance of 32 million additional shares
of common stock in the third quarter of 2003 diluted earnings by $0.09 per
share.
o During the quarter, we recognized two unusual charges totaling $0.06 per
share. The first reflects a $0.05 per share charge for losses and
impairments relating to the divestiture of certain non-core, technology-
related investments. The second charge of $0.01 per share relates to the
severance costs associated with the reorganization at FENOC announced in
August.
2004 Earnings and Free Cash Flow Guidance*
- ------------------------------------------
o Earnings guidance for 2004, excluding unusual charges, remains at $2.70 to
$2.85 per share. Year-to-date normalized non-GAAP earnings now stand at
$2.18 per share.
o Free cash flow (cash flow less capital expenditures and common stock
dividend) guidance for 2004 remains at $825 million.
* The GAAP to Non-GAAP reconciliation statements are attached and available on
FirstEnergy Corp.'s website at www.firstenergycorp.com/ir.
--------------------------
For additional information, please contact:
Kurt E. Turosky Terrance G. Howson Thomas C. Navin
Director, Investor Relations Vice President, Investor Relations Treasurer
(330) 384-5500 (973) 401-8519 (330) 384-5889
__________________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter
2
FirstEnergy Corp.
Consolidated Statements of Income (unaudited)
(In thousands except for share amounts)
Consolidated Statements of Income
----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2004 Nine Months Ended September 30, 2004
2004 2003 Change 2004 2003 Change
----------- ----------- ----------- ----------- ----------- -----------
(1)Revenues
(2)Electric sales $ 3,029,597 $ 2,962,909 $ 66,688 $ 8,330,374 $ 7,960,766 $ 369,608
(3)Natural gas 101,430 110,719 (9,289) 379,562 485,180 (105,618)
(4)FE facilities 107,147 86,337 20,810 289,811 242,469 47,342
(5)MYR 83,330 102,616 (19,286) 254,486 333,204 (78,718)
(6)International - 7,509 (7,509) - 21,831 (21,831)
(7)Other 214,815 152,724 62,091 614,433 453,200 161,233
----------- ----------- ----------- ----------- ----------- ----------
(8) Total Revenues 3,536,319 3,422,814 113,505 9,868,666 9,496,650 372,016
(9)Expenses
(10) Fuel 214,408 209,026 5,382 604,328 563,595 40,733
(11) Purchased power 1,070,947 990,382 80,565 2,910,488 2,774,766 135,722
(12) Purchased gas 96,836 105,213 (8,377) 353,327 453,824 (100,497)
(13) Other operating expenses 727,677 771,997 (44,320) 2,096,213 2,231,835 (135,622)
(14) FE facilities 104,049 83,988 20,061 283,764 239,833 43,931
(15) MYR 85,489 104,289 (18,800) 258,046 330,125 (72,079)
(16) International - (1,298) 1,298 707 18,948 (18,241)
(17) Mark-to-market adjustment 130 (12,129) 12,259 3,140 (7,550) 10,690
(18) Provision for depreciation 147,684 144,572 3,112 440,893 475,583 (34,690)
(19) Amortization of regulatory assets 245,534 244,829 705 714,002 644,371 69,631
(20) Goodwill Impairment - 116,988 (116,988) - 116,988 (116,988)
(21) General taxes 177,452 177,499 (47) 514,269 518,451 (4,182)
----------- ----------- ----------- ----------- ----------- ----------
(22) Total Expenses 2,870,206 2,935,356 (65,150) 8,179,177 8,360,769 (181,592)
------------ ----------- ----------- ----------- ----------- ----------
Income Before Interest and 666,113 487,458 178,655 1,689,489 1,135,881 553,608
(23) Income Taxes
----------- ----------- ----------- ----------- ----------- ----------
(24) Net interest charges:
(25) Interest expense 152,703 199,106 (46,403) 505,448 598,645 (93,197)
(26) Capitalized interest (6,536) (6,513) (23) (18,286) (23,287) 5,001
(27) Subsidiaries' preferred stock dividends 5,354 8,021 (2,667) 16,024 36,423 (20,399)
----------- ----------- ----------- ----------- ------------ ----------
(28) Net interest charges 151,521 200,614 (49,093) 503,186 611,781 (108,595)
----------- ----------- ----------- ----------- ------------ ----------
(29) Income taxes 215,970 135,151 80,819 509,637 247,692 261,945
----------- ----------- ----------- ----------- ------------ ----------
Income before discontinued operations
(30) and accounting change 298,622 151,693 146,929 676,666 276,408 400,258
(31) Discontinued operations - 1,026 (1,026) - (65,222) 65,222
(32) Cumulative effect of accounting change - - - - 102,147 (102,147)
----------- ----------- ----------- ----------- ------------ ----------
(33) Net Income $ 298,622 $ 152,719 $ 145,903 $ 676,666 $ 313,333 $ 363,333
=========== =========== =========== =========== =========== ==========
(34) Basic Earnings Per Common Share:
Before discontinued operations $ 0.91 $ 0.51 $ 0.40 $ 2.07 $ 0.93 $ 1.14
(35) and accounting change
(36) Discontinued operations - - - - (0.22) 0.22
(37) Cumulative effect of accounting change - - - - 0.35 (0.35)
------- ------- ------- ------- ------- -------
(38) Basic Earnings Per Common Share $ 0.91 $ 0.51 $ 0.40 $ 2.07 $ 1.06 $ 1.01
======= ======= ======= ======= ======= =======
Weighted Average Number
(39) of Basic Shares Outstanding 327,499 299,422 28,077 327,280 295,825 31,455
======= ======= ======= ======= ======= =======
(40) Diluted Earnings Per Common Share:
Before discontinued operations $ 0.91 $ 0.50 $ 0.41 $ 2.06 $ 0.93 $ 1.13
(41) and accounting change
(42) Discontinued operations - - - - (0.22) 0.22
(43) Cumulative effect of accounting change - - - - 0.34 (0.34)
------- ------- -------- ------- ------- ------
(45) Diluted Earnings Per Common Share $ 0.91 $ 0.50 $ 0.41 $ 2.06 $ 1.05 $ 1.01
======= ======= ======= ======= ======= =======
Weighted Average Number
(46) of Diluted Shares Outstanding 329,099 300,751 28,348 328,850 297,153 31,69
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated Report to the Financial Community 3rd Quarter 3
3
FirstEnergy Corp.
Consolidated Income Segments (unaudited)
(in thousands)
Three Months Ended September 30, 2004
-----------------------------------------------------------------------------
Regulated Competitive Other (c) Reconciling Consolidated
Services Services Adjustments
-----------------------------------------------------------------------------
(1)REVENUES
(2) Electric sales $1,307,744 $1,721,853 $ - $ - $3,029,597
(3) Natural gas - 101,430 - - 101,430
(4) FE facilities - 107,147 - - 107,147
(5) MYR - 83,330 - - 83,330
(6) International - - - - -
(7) Other 172,640 49,886 619 (8,330)(a) 214,815
(8) Internal revenues - - 106,498 (106,498)(b) -
---------- ---------- -------- --------- ----------
(9)Total Revenues 1,480,384 2,063,646 107,117 (114,828) 3,536,319
---------- ---------- -------- --------- ----------
(10)EXPENSES
(11) Fuel - 214,408 - - 214,408
(12) Purchased power - 1,070,947 - - 1,070,947
(13) Purchased gas - 96,836 - - 96,836
(14) Other operating expenses 316,580 383,032 127,606 (99,541)(a)(b) 727,677
(15) FE facilities - 104,049 - - 104,049
(16) MYR - 85,489 - - 85,489
(17) International - - - - -
(18) Mark-to-market adjustment - 130 - - 130
(19) Provision for depreciation 129,858 8,929 8,897 - 147,684
(20) Amortization of regulatory assets 245,534 - - - 245,534
(21) Goodwill Impairment - - - - -
(22) General taxes 162,371 10,781 4,300 - 177,452
---------- ---------- -------- --------- ----------
(23)Total Expenses 854,343 1,974,601 140,803 (99,541) 2,870,206
---------- ---------- -------- --------- ----------
(24)Income before Interest 626,041 89,045 (33,686) (15,287) 666,113
and Income taxes
---------- ---------- -------- --------- ----------
(25)Net interest charges:
(26) Interest expense 85,422 10,898 71,670 (15,287)(b) 152,703
(27) Capitalized interest (4,591) (1,377) (568) - (6,536)
(28) Subsidiaries' preferred stock dividends 5,354 - - - 5,354
---------- ---------- -------- --------- ----------
(29)Net interest charges 86,185 9,521 71,102 (15,287) 151,521
---------- ---------- -------- --------- ----------
(30)Income Taxes 225,339 32,605 (41,974) - 215,970
---------- ---------- -------- --------- ----------
(31)Income before discontinued operations 314,517 46,919 (62,814) - 298,622
and an accounting change
(32)Discontinued operations - - - - -
(33)Cumulative effect of an accounting change - - - - -
---------- ---------- -------- --------- ----------
(34)Net Income $ 314,517 $ 46,919 $(62,814) $ - $ 298,622
========== ========== ======== ========= ==========
<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.
(c) "Other" segment primarily consists of corporate support services.
</FN>
4
FirstEnergy Corp.
Consolidated Income Segments (unaudited)
(in thousands)
Three Months Ended September 30, 2003
--------------------------------------------------------------------------------------
Regulated Competitive Other (c) Reconciling Consolidated
Services Services Adjustments
--------------------------------------------------------------------------------------
(1)REVENUES
(2) Electric sales $1,359,750 $1,603,159 $ - $ - $2,962,909
(3) Natural gas - 110,719 - - 110,719
(4) FE facilities - 86,337 - - 86,337
(5) MYR - 102,616 - - 102,616
(6) International - - 7,509 - 7,509
(7) Other 118,557 25,686 9,989 (1,508)(a) 152,724
(8) Internal revenues - - 135,648 (135,648)(b) -
---------- ---------- -------- --------- ----------
(9)Total Revenues 1,478,307 1,928,517 153,146 (137,156) 3,422,814
---------- ---------- -------- --------- ----------
(10)EXPENSES
(11) Fuel - 209,026 - - 209,026
(12) Purchased power - 990,382 - - 990,382
(13) Purchased gas - 105,213 - - 105,213
(14) Other operating expenses 325,272 429,598 172,389 (155,262)(a)(b) 771,997
(15) FE facilities - 83,988 - - 83,988
(16) MYR - 104,289 - - 104,289
(17) International - - (1,298) - (1,298)
(18) Mark-to-market adjustment - (12,129) - - (12,129)
(19) Provision for depreciation 125,745 7,990 10,837 - 144,572
(20) Amortization of regulatory assets 244,829 - - - 244,829
(21) Goodwill Impairment - 116,988 - - 116,988
(22) General taxes 161,355 10,686 5,458 - 177,499
---------- ---------- -------- --------- ----------
(23)Total Expenses 857,201 2,046,031 187,386 (155,262) 2,935,356
---------- --------- -------- --------- ----------
(24)Income before Interest 621,106 (117,514) (34,240) 18,106 487,458
and Income taxes
---------- --------- -------- --------- ----------
(25)Net interest charges:
(26) Interest expense 109,766 14,056 57,178 18,106(b) 199,106
(27) Capitalized interest (2,378) (982) (3,153) - (6,513)
(28) Subsidiaries' preferred stock dividends 8,021 - - - 8,021
---------- ---------- -------- --------- ----------
(29)Net interest charges 115,409 13,074 54,025 18,106 200,614
---------- ---------- -------- --------- ----------
(30)Income Taxes 212,661 (42,580) (34,930) - 135,151
---------- ---------- -------- --------- ----------
(31)Income before discontinued operations 293,036 (88,008) (53,335) - 151,693
and an accounting change
(32)Discontinued operations - 1,451 (425) - 1,026
(33)Cumulative effect of an accounting change - - - - -
---------- ---------- -------- --------- ----------
(34)Net Income $ 293,036 $ (86,557) $(53,760) $ - $ 152,719
========== ========== ======== ========= ==========
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.
(c) "Other" segment primarily consists of corporate support services.
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated Report to the Financial Community - 3rd Quarter 5
5
FirstEnergy Corp.
Consolidated Income Segments (unaudited)
(in thousands)
Three Months Ended September 30, 2004 vs. Three Months Ended September 30, 2003
------------------------------------------------------------------------------
Regulated Competitive Other (c) Reconciling Consolidated
Services Services Adjustments
------------------------------------------------------------------------------
(1)REVENUES
(2) Electric sales $ (52,006) $ 118,694 $ - $ - $ 66,688
(3) Natural gas - (9,289) - - (9,289)
(4) FE facilities - 20,810 - - 20,810
(5) MYR - (19,286) - - (19,286)
(6) International - - (7,509) - (7,509)
(7) Other 54,083 24,200 (9,370) (6,822)(a) 62,091
(8) Internal revenues - - (29,150) 29,150 (b) -
---------- ---------- -------- --------- ----------
(9)Total Revenues 2,077 135,129 (46,029) 22,328 113,505
---------- ---------- -------- --------- ----------
(10)EXPENSES
(11) Fuel - 5,382 - - 5,382
(12) Purchased power - 80,565 - - 80,565
(13) Purchased gas - (8,377) - - (8,377)
(14) Other operating expenses (8,692) (46,566) (44,783) 55,721 (a)(b) (44,320)
(15) FE facilities - 20,061 - - 20,061
(16) MYR - (18,800) - - (18,800)
(17) International - - 1,298 - 1,298
(18) Mark-to-market adjustment - 12,259 - - 12,259
(19) Provision for depreciation 4,113 939 (1,940) - 3,112
(20) Amortization of regulatory assets 705 - - - 705
(21) Goodwill Impairment - (116,988) - - (116,988)
(22) General taxes 1,016 95 (1,158) - (47)
(23)Total Expenses (2,858) (71,430) (46,583) 55,721 (65,150)
---------- ---------- -------- --------- ----------
(24)Income before Interest 4,935 206,559 554 (33,393) 178,655
and Income taxes
---------- ---------- -------- --------- ----------
(25)Net interest charges:
(26) Interest expense (24,344) (3,158) 14,492 (33,393) (b) (46,403)
(27) Capitalized interest (2,213) (395) 2,585 - (23)
(28) Subsidiaries' preferred stock
dividends (2,667) - - - (2,667)
---------- ---------- -------- --------- ----------
(29)Net interest charges (29,224) (3,553) 17,077 (33,393) (49,093)
---------- ---------- -------- --------- ----------
(30)Income Taxes 12,678 75,185 (7,044) - 80,819
---------- ---------- -------- --------- ----------
(31)Income before discontinued operations 21,481 134,927 (9,479) - 146,929
and an accounting change
(32)Discontinued operations - (1,451) 425 - (1,026)
(33)Cumulative effect of an accounting
change - - - - -
---------- ---------- -------- --------- ----------
(34)Net Income $ 21,481 $ 133,476 $ (9,054) $ - $ 145,903
========== ========== ======== ========= ==========
<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.
(c) "Other" segment primarily consists of corporate support services.
</FN>
6
FirstEnergy Corp.
Financial statements (unaudited)
(in thousands)
Condensed Consolidated Balance Sheet
--------------------------------------------------------------------------------------------------------------
As of As of
September 30, 2004 December 31, 2003
---------------------- --------------------
Assets
-----------------------------------------------------
Current Assets:
Cash and cash equivalents $ 67,892 $ 113,975
Receivables 1,392,621 1,505,500
Other 658,801 623,836
------------ -------------
2,119,314 2,243,311
Property, Plant and Equipment 13,338,369 13,268,922
Investments 3,154,731 3,497,691
Deferred Charges 12,612,702 13,900,024
------------ -------------
$ 31,225,116 $ 32,909,948
============ =============
Liabilities and Capitalization
----------------------------------------------------
Current Liabilities:
Currently payable long-term debt and preferred stock $ 674,901 $ 1,754,197
Short-term borrowings 302,508 521,540
Accounts payable 575,845 725,239
Other 1,929,097 1,471,191
------------ -------------
3,482,351 4,472,167
Capitalization:
Common stockholders' equity 8,624,410 8,289,341
Preferred stock not subject to mandatory redemption 335,123 335,123
Long-term debt and other long-term obligations 10,110,552 9,789,066
------------ -------------
19,070,085 18,413,530
Noncurrent Liabilities 8,672,680 10,024,251
------------ -------------
$ 31,225,116 $ 32,909,948
============ =============
- -----------------------------------------------------------------------------------------------------------------
Adjusted Capitalization (including Off-Balance Sheet Items)
- -------------------------------------------------------------------------------- --------------------------
As of September 30, 2004 As of December 31, 2003
------------------------- --------------------------
% Total % Total
------------- --------- ------------ --------
Total common equity $ 8,624,410 40% $ 8,289,341 37%
Preferred stock * 335,123 2% 335,123 2%
Long-term debt - all other* 10,785,453 50% 11,543,263 52%
Short-term debt 302,508 1% 521,540 2%
Off-balance sheet debt equivalents:
- Sale-leaseback net debt equivalents 1,380,879 6% 1,414,541 6%
- Accounts receivable factoring 199,000 1% 200,000 1%
------------ ------- ----------- -----
Total $ 21,627,373 100% $22,303,808 100%
============ ======= =========== =====
* Includes amounts due to be paid within one year, JCP&L securitization of $285 million and $301 million in 2004
and 2003, respectively.
- -----------------------------------------------------------------------------------------------------------------
GENERAL INFORMATION Three Months Ended September 30, Nine Months Ended September 30,
-----------------------------------------------------------------------
2004 2003 2004 2003
--------- ---------- ----------- -----------
L-T Debt and Preferred Stock Redemptions $ 758,972 $ 570,273 $ 1,748,915 $1,673,542
--------- ---------- ----------- ----------
New L-T Debt Issues $ - $ - $ 700,000 $ 725,000
--------- ---------- ------------ ----------
Short-term Debt Increase (Decrease) $ 228,072 $ (798,985) $ (219,032) $ (846,734)
--------- ---------- ------------ ----------
Capital Expenditures $ 211,243 $ 155,908 $ 545,743 $ 580,069
--------- ---------- ------------ ----------
- -----------------------------------------------------------------------------------------------------------------
Consolidated Report to the Financial Community - 3rd Quarter 7
7
FirstEnergy Corp.
Financial Statements (unaudited)
(in thousands)
Condensed Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
----------- --------- ------------ ----------
Cash flows from operating activities:
Net income $ 298,622 $ 152,719 $ 676,666 $ 313,333
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization of 419,994 406,303 1,226,677 1,167,342
regulatory assets, nuclear fuel and leases
Deferred costs recoverable as regulatory assets (118,409) (93,652) (263,290) (302,651)
Deferred income taxes and investment tax credits 37,138 (47,421) (56,995) (80,362)
Goodwill impairment - 116,988 - 116,988
Disallowed purchased power costs - - - 152,500
Cumulative effect of accounting change - - - (174,663)
Loss (income) from discontinued operations - (1,026) - 65,222
Change in working capital and other 428,070 344,699 452,230 47,224
----------- --------- ------------ -----------
$ 1,065,415 $ 878,610 $ 2,035,288 $ 1,304,933
Cash flows from financing activities (601,719) (547,395) (1,415,103) (903,498)
Cash flows from investing activities:
Contributions to pension trust (500,000) - (500,000) -
Proceeds from certificates of deposit 277,763 - 277,763
Other (273,105) (218,877) (444,031) (387,473)
----------- --------- ------------ -----------
(495,342) (218,877) (666,268) (387,473)
Net increase (decrease) in cash and cash equivalents $ (31,646) $ 112,338 $ (46,083) $ 13,962
Cash and cash equivalents at beginning of period 99,538 127,556 113,975 225,932
----------- --------- ------------ -----------
Cash and cash equivalents at end of period $ 67,892 $ 239,894 $ 67,892 $ 239,894
=========== ========= ============ ===========
REGULATORY DEFERRALS Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------------------------------------
2004 2003 Change 2004 2003 Change
-------- -------- -------- -------- --------- --------
Ohio Transition Plan
Beginning Balance $565,124 $354,689 $453,005 $ 259,353
Deferral of Shopping Incentives 68,014 53,136 $ 14,878 161,813 140,785 $ 21,028
Deferral of New Regulatory Assets 10,454 1,921 8,533 28,774 9,608 19,166
-------- -------- -------- -------- --------- --------
Current period deferrals $ 78,468 $ 55,057 $ 23,411 $190,587 $ 150,393 $ 40,194
======== ========
Ending Balance-Ohio Deferrals $643,592 $409,746 $643,592 $ 409,746
======== ======== ======== =========
Deferred Energy Costs - New Jersey
Beginning Balance $402,700 $438,722 $440,900 $ 548,641
Deferral (recovery) of energy costs 1,700 18,480 $(16,780) (36,500) 61,061 $(97,561)
Rate case disallowance - (13,085) 13,085 - (165,585) 165,585
-------- -------- -------- -------- --------- --------
Current period change $ 1,700 $ 5,395 $ (3,695) $(36,500) $(104,524) $ 68,024
======== ========
Ending Balance $404,400 $444,117 $404,400 $ 444,117
======== ======== ======== =========
UNUSUAL ITEMS Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ --------------------------------------
2004 2003 Change 2004 2003 Change
-------- -------- -------- -------- --------- --------
Non-Core Asset Sales / Impairments $(28,288) $ - $(28,288) $(12,688) $ (18,763) $ 6,075
FENOC Severance (6,488) - (6,488) (6,488) - (6,488)
Lawsuits Settlement - - - (17,980) - (17,980)
Goodwill Impairment - (116,988) 116,988 - (116,988) 116,988
JCP&L Rate Case Disallowance - (13,085) 13,085 - (171,606) 171,606
-------- --------- -------- -------- --------- --------
Total - Pre-tax Amounts $(34,776) $(130,073) $ 95,297 $(37,156) $(307,357) $270,201
======== ========= ======== ======== ========= ========
EPS Effect ($0.06) ($0.29) $0.23 ($0.11) ($0.65) $0.54
======== ========= ======== ======== ========= ========
8
FirstEnergy Corp.
Statistical Summary
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC SALES STATISTICS Three Months Ended September 30 Nine Months Ended September 30
----------------------------------------- ----------------------------------------
(kWh in millions) 2004 2003 Change 2004 2003 Change
------------ ------------- ------------ ------------ ------------- -----------
Electric Generation Sales
Retail -
Regulated 21,299 21,672 -1.7% 61,286 63,176 -3.0%
Unregulated 3,798 4,037 -5.9% 11,565 10,602 9.1%
--------- --------- ------- --------- ---------- ---------
Total Retail 25,097 25,709 -2.4% 72,851 73,778 -1.3%
Wholesale 14,717 12,221 20.4% 40,522 32,384 25.1%
--------- --------- ------- --------- ---------- ---------
Total Electric Generation Sales 39,814 37,930 5.0% 113,373 106,162 6.8%
========= ========= ======= ========= ========== =========
Electric Distribution Deliveries
Residential 9,770 9,978 -2.1% 27,599 27,362 0.9%
Commercial 9,014 8,920 1.1% 25,573 25,065 2.0%
Industrial 9,115 9,082 0.4% 27,451 27,229 0.8%
Other 132 146 -9.6% 390 424 -8.0%
--------- --------- --------- --------- ---------- ---------
Total Distribution Deliveries 28,031 28,126 -0.3% 81,013 80,080 1.2%
========= ========= ========= ========= ========== =========
Electric Sales Shopped
Residential 1,924 2,074 -7.2% 5,876 5,120 14.8%
Commercial 2,539 2,108 20.4% 7,241 5,454 32.8%
Industrial 2,269 2,272 -0.1% 6,610 6,330 4.4%
--------- --------- --------- --------- ---------- ---------
Total Electric Sales Shopped 6,732 6,454 4.3% 19,727 16,904 16.7%
========= ========= ========= ========= ========== =========
- ----------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS SALES Three Months Ended September 30 Nine Months Ended September 30
----------------------------------------- ----------------------------------------
(decatherms in thousands) 2004 2003 Change 2004 2003 Change
--------- ---------- --------- --------- ---------- ----------
Retail 9,394 12,228 -23.2% 38,399 55,951 -31.4%
Wholesale 7,031 7,224 -2.7% 21,318 26,938 -20.9%
--------- ---------- ---------- --------- ---------- ---------
Total Natural Gas Sales 16,425 19,452 -15.6% 59,717 82,889 -28.0%
========= ========== ========= ========= ========== =========
- ----------------------------------------------------------------------------------------------------------------------------------
Twelve Months Ended September 30,
----------------------------------
OPERATING STATISTICS 2004 2003
--------- --------
System Load Factor 66.7% 64.9%
Capacity Factors:
Fossil 57.2% 58.4%
Nuclear 85.8% 64.0%
Generation Output:
Fossil 61% 69%
Nuclear 39% 31%
Weather
Composite Heating Days Year-to-Date 3,582 3,882
(Normal -3,592)
Composite Cooling Days Year-to-Date 897 803
(Normal -867)
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Report to the Financial Community - 3rd Quarter 9
9
FirstEnergy Corp.
2004 EPS and Cash Flow Guidance (unaudited)
2004 Earnings Per Share (EPS) Guidance
(Reconciliation of GAAP to Non-GAAP)
----------------------------------------------------------------------------------------------------------
Three Months Nine Months Annual
Ended September 30 Ended September 30 Guidance
------------------ ------------------ --------------
Basic EPS (GAAP Basis) $0.91 $2.07 $2.59 - $2.74
Unusual Charges:
Non-core Asset Sales / Impairments 0.05 0.07 0.07
FENOC Severance 0.01 0.01 0.01
Lawsuits Settlement 0.00 0.03 0.03
----- ----- -------------
EPS Guidance Basis (Non-GAAP Basis) (*) $0.97 $2.18 $2.70 - $2.85
===== ===== =============
<FN>
(*) - Earnings guidance for 2004 includes the incremental expenses associated with the Davis-Besse outage and the
impact resulting from approval of the Ohio Rate Stabilization Plan.
</FN>
Reconciliation of 2004 Estimated Cash From Operating Activities (GAAP) to
Estimated Free Cash Flow (Non-GAAP) and Estimated Cash Generation (Non-GAAP)
(in millions)
--------------------------------------------------------------------------------------
Net Cash from Operating Activities:
Non-GAAP Earnings Guidance $885-$935
Adjustments:
Depreciation 598
Amortization 822
Deferred costs recoverable as regulatory assets (125)
Deferred income taxes and ITC, net 115
Other, including changes in working capital 1 175
---------
Net Cash from Operating Activities (GAAP) 2,495
Other Items:
Capital expenditures (720)
Nuclear fuel fabrication (90)
Contributions to nuclear decommissioning trusts (100)
Common stock dividends (490)
NUG trust contributions (50)
Claim settlement 1 (100)
Tax benefit from pension plan contribution 2 (200)
Miscellaneous 80
---------
Free Cash Flow (Non-GAAP) 825
Claim settlement 1 100
Contribution to pension plan (500)
Tax benefit from pension plan contribution 2 200
Proceeds from sale of interest in GLEP 200
Miscellaneous asset sales / other 175
---------
Cash Generation (Non-GAAP) 3 $ 1,000
<FN>
Notes:
1 On a GAAP basis, the $100 million after-tax cash benefit from the claim settlement is
reflected in "Other, including changes in working capital." Since we do not consider this
one-time settlement to be part of "Free Cash Flow," we removed it from the subtotal and then
added it back to include it as a component of "Cash Generation."
2 On a Non-GAAP basis, we are reducing "Free Cash Flow" to exclude the tax benefit related to a
pension contribution.
3 Potential proceeds from a JCP&L deferred energy cost securitization, not included in the above total,
would be an additional source of cash to be used for debt retirement in 2004.
</FN>
10
11
RECENT DEVELOPMENTS
Voluntary Pension Contribution
- ------------------------------
On September 14, FirstEnergy made a voluntary $500 million contribution to its
pension plan. The election to pre-fund the plan is expected to eliminate cash
contributions of approximately $600 million during the 2006 - 2007 time period.
Since the contribution resulted in a $200 million tax benefit, we have
effectively eliminated a $500 million liability through a net borrowing of $300
million. We estimate that the pre-funding election should be accretive to
earnings by about $0.06 per share during each of the next three years. The
pre-funding resulted in the plan being essentially fully funded on an
Accumulated Benefit Obligation (ABO) basis.
Ohio Rate Stabilization Plan
- ----------------------------
On August 5, FirstEnergy adopted the modified Rate Stabilization Plan approved
by the Public Utilities Commission of Ohio (PUCO). The approved plan provides
for continuing current generation prices, with opportunities to seek recovery of
increased fuel costs from 2006 through 2008. The approved plan also provides for
a competitive bid auction to be conducted to determine if the market can provide
lower generation prices than available under the Rate Stabilization Plan.
Competitive Bid Process
- -----------------------
On October 6, the PUCO approved the rules for the Competitive Bid Process (CBP)
for FirstEnergy's Ohio load. The CBP suppliers will be responsible for providing
firm generation service to meet the actual load requirements, less special
contract and shopping customers, for a three-year supply period (2006 - 2008).
The PUCO set the load cap for an individual supplier at 65% of the total load.
The PUCO and NERA Economic Consulting, the CPB Auction Manager, agreed on a
starting price of 5.5(cent)/kWh. Full details on the competitive bid process can
be found at www.firstenergy-auction.com. The CBP will commence on November 17,
and the PUCO will determine the acceptance or rejection of the CBP results
within two business days after the completion of the auction.
Reliability Settlement in Pennsylvania
- --------------------------------------
On September 30, FirstEnergy's Pennsylvania electric utility operating companies
entered into a settlement agreement that addresses all issues related to the
companies' reliability case pending before the Pennsylvania Public Utility
Commission. The agreement outlines steps to enhance service reliability,
performance reporting and communications, and requires the companies to spend no
less than $255 million annually on transmission and distribution. On October 14,
the Administrative Law Judge recommended adoption of the Settlement. We
anticipate the Commission will rule on the settlement by year-end.
Nuclear Update
- --------------
On August 23, FirstEnergy Nuclear Operating Company (FENOC) completed its
reorganization designed to further improve the safe operations and reliable
performance of its three nuclear plants. The reorganization resulted in a
staffing reduction of 7%. FENOC's new organization is based on extensive
benchmarking of the best performers in the industry from the perspective of
safety, performance, and staffing levels. Standardized organizational structures
are now in place at each plant and corporate oversight has been expanded.
On October 18, Beaver Valley Unit 1 began its scheduled refueling outage. Unit 1
operated for a unit record of 339 consecutive days and posted an availability
factor of 99.65% since the unit was last refueled in April 2003. During the
outage, inspections of the reactor head and steam generators will be conducted,
both of which are scheduled to be replaced during the unit's 2006 refueling
outage. The outage is anticipated to be approximately 30 days in duration.
11
Forward-Looking Statements: This Consolidated Report to the Financial Community
includes forward-looking statements based on information currently available to
management. Such statements are subject to certain risks and uncertainties.
These statements 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, replacement power
costs being higher than anticipated or inadequately hedged, maintenance costs
being higher than anticipated, legislative and regulatory changes (including
revised environmental requirements), adverse regulatory or legal decisions and
the outcome of governmental investigations, availability and cost of capital,
the continuing availability and operation of generating units, the inability to
accomplish or realize anticipated benefits of strategic goals, the ability to
improve electric commodity margins and to experience growth in the distribution
business, the ability to access the public securities markets, further
investigation into the causes of the August 14, 2003 regional power outage and
the outcome, cost and other effects of present and potential legal and
administrative proceedings and claims related to that outage, the final outcome
in the proceeding related to FirstEnergy's Rate Stabilization Plan, the risks
and other factors discussed from time to time in FirstEnergy's Securities and
Exchange Commission filings, including its annual report on Form 10-K (as
amended) for the year ended December 31, 2003, and its report on Form 10-Q for
the quarter ended June 30, 2004, and other similar factors. FirstEnergy
expressly disclaims any current intention to update any forward-looking
statements contained in this document as a result of new information, future
events, or otherwise.
12