q108_main10-qamended.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q/A
Amendment
No. 1
(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, 2008
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
|
|
Address; and Telephone
Number
|
|
|
|
|
1-2578
|
OHIO
EDISON COMPANY
|
34-0437786
|
|
(An
Ohio Corporation)
|
|
|
c/o
FirstEnergy Corp.
|
|
|
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
|
|
|
|
|
1-3522
|
PENNSYLVANIA
ELECTRIC COMPANY
|
25-0718085
|
|
(A
Pennsylvania Corporation)
|
|
|
c/o
FirstEnergy Corp.
|
|
|
76
South Main Street
|
|
|
Akron,
OH 44308
|
|
|
Telephone (800)736-3402
|
|
Indicate by check
mark whether the registrant (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 ( )
|
Ohio Edison
Company and Pennsylvania Electric Company
|
Yes ( ) No (X)
|
The Cleveland
Electric Illuminating Company and The Toledo Edison
Company
|
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer,” “accelerated filer” and “smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
( )
|
N/A
|
Accelerated
Filer
( )
|
N/A
|
Non-accelerated
Filer (Do not check if a smaller reporting company)
(X)
|
Ohio Edison
Company, The Cleveland Electric Illuminating Company, The Toledo Edison
Company and Pennsylvania Electric
Company
|
Smaller
Reporting Company
( )
|
N/A
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes ( )
No (X)
|
Ohio Edison
Company, The Cleveland Electric Illuminating Company, The Toledo Edison
Company and Pennsylvania Electric
Company
|
Indicate the number
of shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date:
|
OUTSTANDING
|
CLASS
|
|
Ohio Edison
Company, no par value
|
60
|
The Cleveland
Electric Illuminating Company, no par value
|
67,930,743
|
The Toledo
Edison Company, $5 par value
|
29,402,054
|
Pennsylvania
Electric Company, $20 par value
|
4,427,577
|
This combined Form
10-Q/A is separately filed by Ohio Edison Company, The Cleveland Electric
Illuminating Company, The Toledo Edison Company and Pennsylvania Electric
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf.
OMISSION OF CERTAIN
INFORMATION
Ohio Edison Company,
The Cleveland Electric Illuminating Company, The Toledo Edison Company and
Pennsylvania Electric Company meet the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
10-Q/A with the reduced disclosure format specified in General Instruction H(2)
to Form 10-Q.
Forward-Looking Statements:
This Form 10-Q/A includes forward-looking statements based on information
currently available to management. Such statements are subject to certain risks
and uncertainties. These statements include declarations regarding management’s
intents, beliefs and current expectations. These statements typically contain,
but are not limited to, the terms “anticipate,” “potential,” “expect,”
“believe,” “estimate” and similar words. Forward-looking statements involve
estimates, assumptions, known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Actual results may
differ materially due to:
·
|
the speed and
nature of increased competition in the electric utility industry and
legislative and regulatory changes affecting how generation rates will be
determined following the expiration of existing rate plans in Ohio and
Pennsylvania,
|
·
|
the impact of
the PUCO’s rulemaking process on the Ohio Companies’ ESP and MRO
filings,
|
·
|
economic or
weather conditions affecting future sales and
margins,
|
·
|
changes in
markets for energy services,
|
·
|
changing
energy and commodity market prices and
availability,
|
·
|
replacement
power costs being higher than anticipated or inadequately
hedged,
|
·
|
the continued
ability of FirstEnergy’s regulated utilities to collect transition and
other charges or to recover increased transmission
costs,
|
·
|
maintenance
costs being higher than
anticipated,
|
·
|
other
legislative and regulatory changes, revised environmental requirements,
including possible GHG emission
regulations,
|
·
|
the impact of
the U.S. Court of Appeals’ July 11, 2008 decision to vacate the CAIR
rules and the scope of any laws, rules or regulations that may ultimately
take their place,
|
·
|
the
uncertainty of the timing and amounts of the capital expenditures needed
to, among other things, implement the Air Quality Compliance Plan
(including that such amounts could be higher than anticipated) or levels
of emission reductions related to the Consent Decree resolving the NSR
litigation or other potential regulatory
initiatives,
|
·
|
adverse
regulatory or legal decisions and outcomes (including, but not limited to,
the revocation of necessary licenses or operating permits and oversight)
by the NRC (including, but not limited to, the Demand for Information
issued to FENOC on May 14,
2007),
|
·
|
the timing and
outcome of various proceedings before the PUCO (including, but not limited
to, the ESP and MRO proceedings as well as the distribution rate cases and
the generation supply plan filing for the Ohio Companies and the
successful resolution of the issues remanded to the PUCO by the Ohio
Supreme Court regarding the RSP and RCP, including the recovery of
deferred fuel costs),
|
·
|
Met-Ed’s and
Penelec’s transmission service charge filings with the PPUC as well as the
resolution of the Petitions for Review filed with the Commonwealth Court
of Pennsylvania with respect to the transition rate plan for Met-Ed and
Penelec,
|
·
|
the continuing
availability of generating units and their ability to operate at or near
full capacity,
|
·
|
the ability to
comply with applicable state and federal reliability
standards,
|
·
|
the ability to
accomplish or realize anticipated benefits from strategic goals (including
employee workforce initiatives),
|
·
|
the ability to
improve electric commodity margins and to experience growth in the
distribution business,
|
·
|
the changing
market conditions that could affect the value of assets held in the
registrants’ nuclear decommissioning trusts, pension trusts and other
trust funds, and cause FirstEnergy to make additional contributions
sooner, or in an amount that is larger than currently
anticipated,
|
·
|
the ability to
access the public securities and other capital and credit markets in
accordance with FirstEnergy’s financing plan and the cost of such
capital,
|
·
|
changes in
general economic conditions affecting the
registrants,
|
·
|
the state of
the capital and credit markets affecting the registrants,
and
|
·
|
the risks and
other factors discussed from time to time in the registrants’ SEC filings,
and other similar factors.
|
The foregoing review
of factors should not be construed as exhaustive. New factors emerge from time
to time, and it is not possible for management to predict all such factors, nor
assess the impact of any such factor on the registrants’ business or the extent
to which any factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statements. Also, a
security rating is not a recommendation to buy, sell or hold securities, and it
may be subject to revision or withdrawal at any time and each such rating should
be evaluated independently of any other rating. The registrants expressly
disclaim any current intention to update any forward-looking statements
contained herein as a result of new information, future events or
otherwise.
EXPLANATORY
NOTE
This combined
Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 2008 is being
filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The
Toledo Edison Company and Pennsylvania Electric Company (the “registrants”) to
correct common stock dividend payments reported in their respective consolidated
statements of cash flows for the three months ended March 31, 2008, contained in
Part I, Item 1, Consolidated Financial Statements. This correction does not
affect the respective registrants’ previously reported consolidated statements
of income and comprehensive income for the three months ended March 31, 2008 and
consolidated balance sheets as of March 31, 2008 contained in the combined
Form 10-Q for the quarter ended March 31, 2008, as originally filed on
May 8, 2008 (the “original Form 10-Q”). Except for Part I, Items 1 and 4T
and certain exhibits under Part II, Item 6, no other information included in the
Form 10-Q as originally filed is being revised by, or repeated in this
amendment.
As discussed under
“Restatement of the Consolidated Statements of Cash Flows” in Note 1 to the
revised Combined Notes Consolidated Financial Statements of the registrants
included in the Form 10-Q/A, the registrants have restated their respective
consolidated statements of cash flows to correct common stock dividend payments
reported in cash flows from financing activities. The consolidated statements of
cash flows for those registrants, as originally filed, erroneously did not
reflect the payment of common stock dividends in the first quarter of 2008,
which were declared in the third quarter of 2007. The corrections resulted in a
corresponding change in operating liabilities - accounts payable, included in
cash flows from operating activities.
The original Form
10-Q was a combined Form 10-Q representing separate filings by each of the
registrants and their affiliates, FirstEnergy Corp., FirstEnergy Solutions
Corp., Jersey Central Power & Light Company, Metropolitan Edison Company
(the “affiliates”). However, this Form 10-Q/A constitutes an amendment only to
Part I, Items 1 and 4T and Part II, Item 6 of the Original Form 10-Q filed by
each registrant. In addition, information contained herein relating to any
individual registrant is filed by such registrant on its own behalf and no
registrant makes any representation as to information contained herein relating
to any other registrant or any of the affiliates, including, but not limited to,
any such information contained in the revised Combined Notes to Consolidated
Financial Statements included herein.
Please note that the
information contained in this Amendment No. 1, including the consolidated
financial statements and notes thereto, does not reflect events occurring after
the date of the original Form 10-Q filing on May 8, 2008, except to the extent
described above.
TABLE
OF CONTENTS
|
|
Pages
|
Glossary of Terms
|
ii-iv
|
|
|
|
Part
I. Financial Information
|
|
|
|
|
Item 1. Financial
Statements.
|
1
|
|
|
|
Ohio Edison
Company
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
2
|
|
Consolidated
Statements of Income and Comprehensive Income
|
3
|
|
Consolidated
Balance Sheets
|
4
|
|
Consolidated
Statements of Cash Flows
|
5
|
|
|
|
The Cleveland Electric
Illuminating Company
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
6
|
|
Consolidated
Statements of Income and Comprehensive Income
|
7
|
|
Consolidated
Balance Sheets
|
8
|
|
Consolidated
Statements of Cash Flows
|
9
|
|
|
|
The Toledo Edison
Company
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
10
|
|
Consolidated
Statements of Income and Comprehensive Income
|
11
|
|
Consolidated
Balance Sheets
|
12
|
|
Consolidated
Statements of Cash Flows
|
13
|
|
|
|
Pennsylvania Electric
Company
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
14
|
|
Consolidated
Statements of Income and Comprehensive Income
|
15
|
|
Consolidated
Balance Sheets
|
16
|
|
Consolidated
Statements of Cash Flows
|
17
|
|
|
Combined Notes to Consolidated
Financial Statements
|
18-50
|
|
|
Item
4T. Controls and Procedures – OE, CEI, TE and
Penelec.
|
51
|
|
|
|
Part
II. Other Information
|
|
|
|
|
Item 6.
Exhibits.
|
52
|
GLOSSARY
OF TERMS
The
following abbreviations and acronyms are used in this report to identify
FirstEnergy Corp. and its current and former subsidiaries:
ATSI
|
American
Transmission Systems, Inc., owns and operates transmission
facilities
|
|
CEI
|
The Cleveland
Electric Illuminating Company, an Ohio electric utility operating
subsidiary
|
|
Companies
|
OE, CEI, TE,
JCP&L, Met-Ed and Penelec
|
|
FENOC
|
FirstEnergy
Nuclear Operating Company, operates nuclear generating
facilities
|
|
FES
|
FirstEnergy
Solutions Corp., provides energy-related products and
services
|
|
FESC
|
FirstEnergy
Service Company, provides legal, financial and other corporate support
services
|
|
FGCO
|
FirstEnergy
Generation Corp., owns and operates non-nuclear generating
facilities
|
|
FirstEnergy
|
FirstEnergy
Corp., a public utility holding company
|
|
GPU
|
GPU, Inc.,
former parent of JCP&L, Met-Ed and Penelec, which merged with
FirstEnergy on
November 7,
2001
|
|
JCP&L
|
Jersey Central
Power & Light Company, a New Jersey electric utility operating
subsidiary
|
|
JCP&L
Transition
Funding
|
JCP&L
Transition Funding LLC, a Delaware limited liability company and issuer of
transition
bonds
|
|
JCP&L
Transition
Funding
II
|
JCP&L
Transition Funding II LLC, a Delaware limited liability company and issuer
of transition bonds
|
|
Met-Ed
|
Metropolitan
Edison Company, a Pennsylvania electric utility operating
subsidiary
|
|
NGC
|
FirstEnergy
Nuclear Generation Corp., owns nuclear generating
facilities
|
|
OE
|
Ohio Edison
Company, an Ohio electric utility operating subsidiary
|
|
Ohio
Companies
|
CEI, OE and
TE
|
|
Penelec
|
Pennsylvania
Electric Company, a Pennsylvania electric utility operating
subsidiary
|
|
Penn
|
Pennsylvania
Power Company, a Pennsylvania electric utility operating subsidiary of
OE
|
|
Pennsylvania
Companies
|
Met-Ed,
Penelec and Penn
|
|
PNBV
|
PNBV Capital
Trust, a special purpose entity created by OE in 1996
|
|
Shippingport
|
Shippingport
Capital Trust, a special purpose entity created by CEI and TE in
1997
|
|
TE
|
The Toledo
Edison Company, an Ohio electric utility operating
subsidiary
|
|
TEBSA
|
Termobarranquila
S.A. Empresa de Servicios Publicos
|
|
|
|
|
The following
abbreviations and acronyms are used to identify frequently used terms in
this report:
|
|
|
|
|
AEP
|
American
Electric Power Company, Inc.
|
|
AOCL
|
Accumulated
Other Comprehensive Loss
|
|
AQC
|
Air Quality
Control
|
|
ARB
|
Accounting
Research Bulletin
|
|
ARO
|
Asset
Retirement Obligation
|
|
ASM
|
Ancillary
Services Market
|
|
BGS
|
Basic
Generation Service
|
|
BPJ
|
Best
Professional Judgment
|
|
CAA
|
Clean Air
Act
|
|
CAIR
|
Clean Air
Interstate Rule
|
|
CAMR
|
Clean Air
Mercury Rule
|
|
CBP
|
Competitive
Bid Process
|
|
CO2
|
Carbon
Dioxide
|
|
DFI
|
Demand for
Information
|
DOJ
|
United States
Department of Justice
|
DRA
|
Division of
Ratepayer Advocate
|
EIS
|
Energy
Independence Strategy
|
EITF
|
Emerging
Issues Task Force
|
EMP
|
Energy Master
Plan
|
EPA
|
United States
Environmental Protection Agency
|
EPACT
|
Energy Policy
Act of 2005
|
ESP
|
Electric
Security Plan
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal Energy
Regulatory Commission
|
FIN
|
FASB
Interpretation
|
FIN
46R
|
FIN 46
(revised December 2003), "Consolidation of Variable Interest
Entities"
|
GLOSSARY
OF TERMS, Cont’d.
FIN
47
|
FIN 47,
"Accounting for Conditional Asset Retirement Obligations - an
interpretation of FASB
Statement No. 143"
|
FIN
48
|
FIN 48,
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement
No. 109”
|
FirstCom
|
First
Communications, Inc.
|
FMB
|
First Mortgage
Bonds
|
FSP
|
FASB Staff
Position
|
FSP FAS
157-2
|
FSP FAS 157-2,
“Effective Date of FASB Statement No. 157”
|
FTR
|
Financial
Transmission Rights
|
GAAP
|
Accounting
Principles Generally Accepted in the United States
|
GHG
|
Greenhouse
Gases
|
ICE
|
Intercontinental
Exchange
|
IRS
|
Internal
Revenue Service
|
ISO
|
Independent
System Operator
|
kV
|
Kilovolt
|
KWH
|
Kilowatt-hours
|
LIBOR
|
London
Interbank Offered Rate
|
LOC
|
Letter of
Credit
|
MEIUG
|
Met-Ed
Industrial Users Group
|
MISO
|
Midwest
Independent Transmission System Operator, Inc.
|
Moody’s
|
Moody’s
Investors Service
|
MRO
|
Market Rate
Offer
|
MW
|
Megawatts
|
NAAQS
|
National
Ambient Air Quality Standards
|
NERC
|
North American
Electric Reliability Corporation
|
NJBPU
|
New Jersey
Board of Public Utilities
|
NOPR
|
Notice of
Proposed Rulemaking
|
NOV
|
Notice of
Violation
|
NOX
|
Nitrogen
Oxide
|
NRC
|
Nuclear
Regulatory Commission
|
NSR
|
New Source
Review
|
NUG
|
Non-Utility
Generation
|
NUGC
|
Non-Utility
Generation Charge
|
NYMEX
|
New York
Mercantile Exchange
|
OCA
|
Office of
Consumer Advocate
|
OTC
|
Over the
Counter
|
OVEC
|
Ohio Valley
Electric Corporation
|
PCRB
|
Pollution
Control Revenue Bond
|
PICA
|
Penelec
Industrial Customer Alliance
|
PJM
|
PJM
Interconnection L. L. C.
|
PLR
|
Provider of
Last Resort
|
PPUC
|
Pennsylvania
Public Utility Commission
|
PRP
|
Potentially
Responsible Party
|
PSA
|
Power Supply
Agreement
|
PUCO
|
Public
Utilities Commission of Ohio
|
PUHCA
|
Public Utility
Holding Company Act of 1935
|
RCP
|
Rate Certainty
Plan
|
|
RECB
|
Regional
Expansion Criteria and Benefits
|
|
RFP
|
Request for
Proposal
|
|
RPM
|
Reliability
Pricing Model
|
|
RSP
|
Rate
Stabilization Plan
|
|
RTO
|
Regional
Transmission Organization
|
|
S&P
|
Standard &
Poor’s Ratings Service
|
|
SBC
|
Societal
Benefits Charge
|
|
SEC
|
U.S.
Securities and Exchange Commission
|
|
SECA
|
Seams
Elimination Cost Adjustment
|
|
SFAS
|
Statement of
Financial Accounting Standards
|
|
SFAS
109
|
SFAS No. 109,
“Accounting for Income Taxes”
|
|
SFAS
123(R)
|
SFAS No.
123(R), "Share-Based Payment"
|
|
SFAS
133
|
SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”
|
|
GLOSSARY
OF TERMS, Cont’d.
SFAS
141(R)
|
SFAS No
141(R), “Business Combinations”
|
SFAS
143
|
SFAS No. 143,
“Accounting for Asset Retirement Obligations”
|
SFAS
157
|
SFAS No. 157,
“Fair Value Measurements”
|
SFAS
159
|
SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities –
Including an
Amendment of FASB Statement No. 115”
|
SFAS
160
|
SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements – an
Amendment
of
ARB No. 51”
|
SFAS
161
|
SFAS No 161,
“Disclosure about Derivative Instruments and Hedging Activities – an
Amendment
of FASB Statement No. 133”
|
SIP
|
State
Implementation Plan(s) Under the Clean Air Act
|
SNCR
|
Selective
Non-Catalytic Reduction
|
SO2
|
Sulfur
Dioxide
|
TBC
|
Transition
Bond Charge
|
TMI-1
|
Three Mile
Island Unit 1
|
TMI-2
|
Three Mile
Island Unit 2
|
TSC
|
Transmission
Service Charge
|
VIE
|
Variable
Interest Entity
|
PART I. FINANCIAL
INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
Report
of Independent Registered Public Accounting Firm
To the Stockholder
and Board of
Directors of Ohio
Edison Company:
We have reviewed the
accompanying consolidated balance sheet of Ohio Edison Company and its
subsidiaries as of March 31, 2008 and the related consolidated statements
of income, comprehensive income and cash flows for each of the three-month
periods ended March 31, 2008 and 2007. These interim financial statements are
the responsibility of the Company’s management.
We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (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 review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
|
PricewaterhouseCoopers
LLP
Cleveland,
Ohio
May 7, 2008,
except as to the error correction described in Note 1,
which is as of
November 24, 2008.
|
OHIO
EDISON COMPANY
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS
OF INCOME AND COMPREHENSIVE INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Electric
sales
|
|
$ |
622,271 |
|
|
$ |
594,344 |
|
Excise tax
collections
|
|
|
30,378 |
|
|
|
31,254 |
|
Total
revenues
|
|
|
652,649 |
|
|
|
625,598 |
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
3,170 |
|
|
|
3,015 |
|
Purchased
power
|
|
|
340,186 |
|
|
|
349,852 |
|
Nuclear
operating costs
|
|
|
43,021 |
|
|
|
41,514 |
|
Other
operating costs
|
|
|
94,135 |
|
|
|
88,486 |
|
Provision for
depreciation
|
|
|
21,493 |
|
|
|
18,848 |
|
Amortization
of regulatory assets
|
|
|
48,538 |
|
|
|
45,417 |
|
Deferral of
new regulatory assets
|
|
|
(25,411 |
) |
|
|
(36,649 |
) |
General
taxes
|
|
|
50,453 |
|
|
|
49,745 |
|
Total
expenses
|
|
|
575,585 |
|
|
|
560,228 |
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
77,064 |
|
|
|
65,370 |
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
15,055 |
|
|
|
26,630 |
|
Miscellaneous
income (expense)
|
|
|
(3,806 |
) |
|
|
373 |
|
Interest
expense
|
|
|
(17,641 |
) |
|
|
(21,022 |
) |
Capitalized
interest
|
|
|
110 |
|
|
|
110 |
|
Total other
income (expense)
|
|
|
(6,282 |
) |
|
|
6,091 |
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
70,782 |
|
|
|
71,461 |
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
26,873 |
|
|
|
17,426 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
43,909 |
|
|
|
54,035 |
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Pension and
other postretirement benefits
|
|
|
(3,994 |
) |
|
|
(3,423 |
) |
Change in
unrealized gain on available-for-sale securities
|
|
|
(7,571 |
) |
|
|
(126 |
) |
Other
comprehensive loss
|
|
|
(11,565 |
) |
|
|
(3,549 |
) |
Income tax
benefit related to other comprehensive loss
|
|
|
(4,262 |
) |
|
|
(1,503 |
) |
Other
comprehensive loss, net of tax
|
|
|
(7,303 |
) |
|
|
(2,046 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$ |
36,606 |
|
|
$ |
51,989 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
732 |
|
|
$ |
732 |
|
Receivables-
|
|
|
|
|
|
|
|
|
Customers
(less accumulated provisions of $7,870,000 and $8,032,000,
|
|
|
|
|
|
|
|
|
respectively,
for uncollectible accounts)
|
|
|
266,360 |
|
|
|
248,990 |
|
Associated
companies
|
|
|
179,875 |
|
|
|
185,437 |
|
Other (less
accumulated provisions of $5,638,000 and $5,639,000,
|
|
|
|
|
|
|
|
|
respectively,
for uncollectible accounts)
|
|
|
16,474 |
|
|
|
12,395 |
|
Notes
receivable from associated companies
|
|
|
589,790 |
|
|
|
595,859 |
|
Prepayments
and other
|
|
|
17,785 |
|
|
|
10,341 |
|
|
|
|
1,071,016 |
|
|
|
1,053,754 |
|
UTILITY
PLANT:
|
|
|
|
|
|
|
|
|
In
service
|
|
|
2,804,505 |
|
|
|
2,769,880 |
|
Less -
Accumulated provision for depreciation
|
|
|
1,106,174 |
|
|
|
1,090,862 |
|
|
|
|
1,698,331 |
|
|
|
1,679,018 |
|
Construction
work in progress
|
|
|
60,617 |
|
|
|
50,061 |
|
|
|
|
1,758,948 |
|
|
|
1,729,079 |
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
Long-term
notes receivable from associated companies
|
|
|
258,405 |
|
|
|
258,870 |
|
Investment in
lease obligation bonds
|
|
|
253,747 |
|
|
|
253,894 |
|
Nuclear plant
decommissioning trusts
|
|
|
119,948 |
|
|
|
127,252 |
|
Other
|
|
|
33,014 |
|
|
|
36,037 |
|
|
|
|
665,114 |
|
|
|
676,053 |
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Regulatory
assets
|
|
|
709,969 |
|
|
|
737,326 |
|
Pension
assets
|
|
|
235,933 |
|
|
|
228,518 |
|
Property
taxes
|
|
|
65,520 |
|
|
|
65,520 |
|
Unamortized
sale and leaseback costs
|
|
|
43,882 |
|
|
|
45,133 |
|
Other
|
|
|
44,640 |
|
|
|
48,075 |
|
|
|
|
1,099,944 |
|
|
|
1,124,572 |
|
|
|
$ |
4,595,022 |
|
|
$ |
4,583,458 |
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Currently
payable long-term debt
|
|
$ |
334,656 |
|
|
$ |
333,224 |
|
Short-term
borrowings-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
50,692 |
|
|
|
50,692 |
|
Other
|
|
|
2,609 |
|
|
|
2,609 |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
155,654 |
|
|
|
174,088 |
|
Other
|
|
|
19,376 |
|
|
|
19,881 |
|
Accrued
taxes
|
|
|
93,390 |
|
|
|
89,571 |
|
Accrued
interest
|
|
|
16,459 |
|
|
|
22,378 |
|
Other
|
|
|
99,532 |
|
|
|
65,163 |
|
|
|
|
772,368 |
|
|
|
757,606 |
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
Common
stockholder's equity-
|
|
|
|
|
|
|
|
|
Common stock,
without par value, authorized 175,000,000 shares -
|
|
|
|
|
|
|
|
|
60 shares
outstanding
|
|
|
1,220,368 |
|
|
|
1,220,512 |
|
Accumulated
other comprehensive income
|
|
|
41,083 |
|
|
|
48,386 |
|
Retained
earnings
|
|
|
351,186 |
|
|
|
307,277 |
|
Total common
stockholder's equity
|
|
|
1,612,637 |
|
|
|
1,576,175 |
|
Long-term debt
and other long-term obligations
|
|
|
839,107 |
|
|
|
840,591 |
|
|
|
|
2,451,744 |
|
|
|
2,416,766 |
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accumulated
deferred income taxes
|
|
|
783,777 |
|
|
|
781,012 |
|
Accumulated
deferred investment tax credits
|
|
|
15,990 |
|
|
|
16,964 |
|
Asset
retirement obligations
|
|
|
95,009 |
|
|
|
93,571 |
|
Retirement
benefits
|
|
|
176,597 |
|
|
|
178,343 |
|
Deferred
revenues - electric service programs
|
|
|
36,821 |
|
|
|
46,849 |
|
Other
|
|
|
262,716 |
|
|
|
292,347 |
|
|
|
|
1,370,910 |
|
|
|
1,409,086 |
|
COMMITMENTS
AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
$ |
4,595,022 |
|
|
$ |
4,583,458 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
Restated
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
43,909 |
|
|
$ |
54,035 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
21,493 |
|
|
|
18,848 |
|
Amortization
of regulatory assets
|
|
|
48,538 |
|
|
|
45,417 |
|
Deferral of
new regulatory assets
|
|
|
(25,411 |
) |
|
|
(36,649 |
) |
Amortization
of lease costs
|
|
|
32,934 |
|
|
|
32,934 |
|
Deferred
income taxes and investment tax credits, net
|
|
|
6,866 |
|
|
|
(3,992 |
) |
Accrued
compensation and retirement benefits
|
|
|
(19,482 |
) |
|
|
(16,794 |
) |
Pension trust
contribution
|
|
|
- |
|
|
|
(20,261 |
) |
Increase in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(27,496 |
) |
|
|
(102,469 |
) |
Prepayments
and other current assets
|
|
|
(7,451 |
) |
|
|
(6,339 |
) |
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(3,939 |
) |
|
|
42,095 |
|
Accrued
taxes
|
|
|
2,991 |
|
|
|
(46,791 |
) |
Accrued
interest
|
|
|
(5,919 |
) |
|
|
(6,812 |
) |
Electric
service prepayment programs
|
|
|
(10,028 |
) |
|
|
(9,053 |
) |
Other
|
|
|
(2,066 |
) |
|
|
(3,283 |
) |
Net cash
provided from (used for) operating activities
|
|
|
54,939 |
|
|
|
(59,114 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
- |
|
|
|
77,473 |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
- |
|
|
|
(500,000 |
) |
Long-term
debt
|
|
|
(80 |
) |
|
|
(72 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(15,000 |
) |
|
|
- |
|
Net cash
used for financing activities
|
|
|
(15,080 |
) |
|
|
(422,599 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(49,011 |
) |
|
|
(29,888 |
) |
Sales of
investment securities held in trusts
|
|
|
62,344 |
|
|
|
12,951 |
|
Purchases of
investment securities held in trusts
|
|
|
(63,797 |
) |
|
|
(13,805 |
) |
Loan
repayments from associated companies, net
|
|
|
6,534 |
|
|
|
511,082 |
|
Cash
investments
|
|
|
147 |
|
|
|
168 |
|
Other
|
|
|
3,924 |
|
|
|
1,187 |
|
Net cash
provided from (used for) investing activities
|
|
|
(39,859 |
) |
|
|
481,695 |
|
|
|
|
|
|
|
|
|
|
Net change in
cash and cash equivalents
|
|
|
- |
|
|
|
(18 |
) |
Cash and cash
equivalents at beginning of period
|
|
|
732 |
|
|
|
712 |
|
Cash and cash
equivalents at end of period
|
|
$ |
732 |
|
|
$ |
694 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
Ohio Edison Company are an integral part
|
|
of these
statements.
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To the Stockholder
and Board of Directors of
The Cleveland
Electric Illuminating Company:
We have reviewed the
accompanying consolidated balance sheet of The Cleveland Electric Illuminating
Company and its subsidiaries as of March 31, 2008 and the related consolidated
statements of income, comprehensive income and cash flows for each of the
three-month periods ended March 31, 2008 and 2007. These interim financial
statements are the responsibility of the Company’s management.
We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (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 review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
|
PricewaterhouseCoopers
LLP
Cleveland,
Ohio
May 7, 2008,
except as to the error correction described in Note 1,
which is as of
November 24, 2008.
|
THE
CLEVELAND ELECTRIC ILLUMINATING COMPANY
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Electric
sales
|
|
$ |
418,708 |
|
|
$ |
422,805 |
|
Excise tax
collections
|
|
|
18,600 |
|
|
|
18,027 |
|
Total
revenues
|
|
|
437,308 |
|
|
|
440,832 |
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
- |
|
|
|
13,191 |
|
Purchased
power
|
|
|
193,244 |
|
|
|
180,657 |
|
Other
operating costs
|
|
|
65,118 |
|
|
|
74,951 |
|
Provision for
depreciation
|
|
|
19,076 |
|
|
|
18,468 |
|
Amortization
of regulatory assets
|
|
|
38,256 |
|
|
|
33,129 |
|
Deferral of
new regulatory assets
|
|
|
(29,248 |
) |
|
|
(33,957 |
) |
General
taxes
|
|
|
40,083 |
|
|
|
38,894 |
|
Total
expenses
|
|
|
326,529 |
|
|
|
325,333 |
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
110,779 |
|
|
|
115,499 |
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
9,188 |
|
|
|
17,687 |
|
Miscellaneous
income
|
|
|
534 |
|
|
|
731 |
|
Interest
expense
|
|
|
(32,520 |
) |
|
|
(35,740 |
) |
Capitalized
interest
|
|
|
196 |
|
|
|
205 |
|
Total other
expense
|
|
|
(22,602 |
) |
|
|
(17,117 |
) |
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
88,177 |
|
|
|
98,382 |
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
30,326 |
|
|
|
34,833 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
57,851 |
|
|
|
63,549 |
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Pension and
other postretirement benefits
|
|
|
(213 |
) |
|
|
1,202 |
|
Income tax
expense related to other comprehensive income
|
|
|
281 |
|
|
|
355 |
|
Other
comprehensive income (loss), net of tax
|
|
|
(494 |
) |
|
|
847 |
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$ |
57,357 |
|
|
$ |
64,396 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
241 |
|
|
$ |
232 |
|
Receivables-
|
|
|
|
|
|
|
|
|
Customers
(less accumulated provisions of $7,224,000 and $7,540,000,
|
|
|
266,701 |
|
|
|
251,000 |
|
respectively,
for uncollectible accounts)
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
70,727 |
|
|
|
166,587 |
|
Other
|
|
|
3,643 |
|
|
|
12,184 |
|
Notes
receivable from associated companies
|
|
|
54,679 |
|
|
|
52,306 |
|
Prepayments
and other
|
|
|
1,728 |
|
|
|
2,327 |
|
|
|
|
397,719 |
|
|
|
484,636 |
|
UTILITY
PLANT:
|
|
|
|
|
|
|
|
|
In
service
|
|
|
2,142,458 |
|
|
|
2,256,956 |
|
Less -
Accumulated provision for depreciation
|
|
|
827,160 |
|
|
|
872,801 |
|
|
|
|
1,315,298 |
|
|
|
1,384,155 |
|
Construction
work in progress
|
|
|
40,834 |
|
|
|
41,163 |
|
|
|
|
1,356,132 |
|
|
|
1,425,318 |
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
Investment in
lessor notes
|
|
|
425,722 |
|
|
|
463,431 |
|
Other
|
|
|
10,275 |
|
|
|
10,285 |
|
|
|
|
435,997 |
|
|
|
473,716 |
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,688,521 |
|
|
|
1,688,521 |
|
Regulatory
assets
|
|
|
853,716 |
|
|
|
870,695 |
|
Pension
assets
|
|
|
64,497 |
|
|
|
62,471 |
|
Property
taxes
|
|
|
76,000 |
|
|
|
76,000 |
|
Other
|
|
|
32,735 |
|
|
|
32,987 |
|
|
|
|
2,715,469 |
|
|
|
2,730,674 |
|
|
|
$ |
4,905,317 |
|
|
$ |
5,114,344 |
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Currently
payable long-term debt
|
|
$ |
207,281 |
|
|
$ |
207,266 |
|
Short-term
borrowings-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
365,816 |
|
|
|
531,943 |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
139,423 |
|
|
|
169,187 |
|
Other
|
|
|
6,169 |
|
|
|
5,295 |
|
Accrued
taxes
|
|
|
118,102 |
|
|
|
94,991 |
|
Accrued
interest
|
|
|
37,726 |
|
|
|
13,895 |
|
Other
|
|
|
35,044 |
|
|
|
34,350 |
|
|
|
|
909,561 |
|
|
|
1,056,927 |
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
Common
stockholder's equity
|
|
|
|
|
|
|
|
|
Common stock,
without par value, authorized 105,000,000 shares -
|
|
|
|
|
|
|
|
|
67,930,743
shares outstanding
|
|
|
873,353 |
|
|
|
873,536 |
|
Accumulated
other comprehensive loss
|
|
|
(69,623 |
) |
|
|
(69,129 |
) |
Retained
earnings
|
|
|
743,278 |
|
|
|
685,428 |
|
Total common
stockholder's equity
|
|
|
1,547,008 |
|
|
|
1,489,835 |
|
Long-term debt
and other long-term obligations
|
|
|
1,447,980 |
|
|
|
1,459,939 |
|
|
|
|
2,994,988 |
|
|
|
2,949,774 |
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accumulated
deferred income taxes
|
|
|
719,938 |
|
|
|
725,523 |
|
Accumulated
deferred investment tax credits
|
|
|
18,102 |
|
|
|
18,567 |
|
Retirement
benefits
|
|
|
94,322 |
|
|
|
93,456 |
|
Deferred
revenues - electric service programs
|
|
|
21,297 |
|
|
|
27,145 |
|
Lease
assignment payable to associated companies
|
|
|
38,420 |
|
|
|
131,773 |
|
Other
|
|
|
108,689 |
|
|
|
111,179 |
|
|
|
|
1,000,768 |
|
|
|
1,107,643 |
|
COMMITMENTS
AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
$ |
4,905,317 |
|
|
$ |
5,114,344 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
Restated
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
57,851 |
|
|
$ |
63,549 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
19,076 |
|
|
|
18,468 |
|
Amortization
of regulatory assets
|
|
|
38,256 |
|
|
|
33,129 |
|
Deferral of
new regulatory assets
|
|
|
(29,248 |
) |
|
|
(33,957 |
) |
Deferred rents
and lease market valuation liability
|
|
|
- |
|
|
|
(46,528 |
) |
Deferred
income taxes and investment tax credits, net
|
|
|
(4,965 |
) |
|
|
(5,453 |
) |
Accrued
compensation and retirement benefits
|
|
|
(3,507 |
) |
|
|
(890 |
) |
Pension trust
contribution
|
|
|
- |
|
|
|
(24,800 |
) |
Decrease in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
90,280 |
|
|
|
224,011 |
|
Prepayments
and other current assets
|
|
|
604 |
|
|
|
592 |
|
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
1,111 |
|
|
|
(256,808 |
) |
Accrued
taxes
|
|
|
23,196 |
|
|
|
13,959 |
|
Accrued
interest
|
|
|
23,831 |
|
|
|
18,122 |
|
Electric
service prepayment programs
|
|
|
(5,847 |
) |
|
|
(5,313 |
) |
Other
|
|
|
(63 |
) |
|
|
(167 |
) |
Net cash
provided from (used for) operating activities
|
|
|
210,575 |
|
|
|
(2,086 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
- |
|
|
|
247,715 |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(165 |
) |
|
|
(150 |
) |
Short-term
borrowings, net
|
|
|
(177,960 |
) |
|
|
(130,585 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(30,000 |
) |
|
|
(24,000 |
) |
Net cash
provided from (used for) financing activities
|
|
|
(208,125 |
) |
|
|
92,980 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(37,203 |
) |
|
|
(36,682 |
) |
Loans to
associated companies, net
|
|
|
(2,373 |
) |
|
|
(231,907 |
) |
Collection of
principal on long-term notes receivable
|
|
|
- |
|
|
|
133,341 |
|
Redemptions of
lessor notes
|
|
|
37,709 |
|
|
|
35,614 |
|
Other
|
|
|
(574 |
) |
|
|
9,294 |
|
Net cash used
for investing activities
|
|
|
(2,441 |
) |
|
|
(90,340 |
) |
|
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
|
|
9 |
|
|
|
554 |
|
Cash and cash
equivalents at beginning of period
|
|
|
232 |
|
|
|
221 |
|
Cash and cash
equivalents at end of period
|
|
$ |
241 |
|
|
$ |
775 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
The Cleveland Electric Illuminating
|
|
Company are an
integral part of these statements.
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To the Stockholder
and Board of
Directors of The
Toledo Edison Company:
We have reviewed the
accompanying consolidated balance sheet of The Toledo Edison Company and its
subsidiary as of March 31, 2008 and the related consolidated statements of
income, comprehensive income and cash flows for each of the three-month periods
ended March 31, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (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 review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
|
PricewaterhouseCoopers
LLP
Cleveland,
Ohio
May 7, 2008,
except as to the error correction described in Note 1,
which is as of
November 24, 2008.
|
THE
TOLEDO EDISON COMPANY
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Electric
sales
|
|
$ |
203,669 |
|
|
$ |
233,056 |
|
Excise tax
collections
|
|
|
8,025 |
|
|
|
7,400 |
|
Total
revenues
|
|
|
211,694 |
|
|
|
240,456 |
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
1,482 |
|
|
|
10,147 |
|
Purchased
power
|
|
|
101,298 |
|
|
|
96,169 |
|
Nuclear
operating costs
|
|
|
10,457 |
|
|
|
17,721 |
|
Other
operating costs
|
|
|
33,390 |
|
|
|
42,921 |
|
Provision for
depreciation
|
|
|
9,025 |
|
|
|
9,117 |
|
Amortization
of regulatory assets
|
|
|
25,025 |
|
|
|
23,876 |
|
Deferral of
new regulatory assets
|
|
|
(9,494 |
) |
|
|
(13,481 |
) |
General
taxes
|
|
|
14,377 |
|
|
|
13,734 |
|
Total
expenses
|
|
|
185,560 |
|
|
|
200,204 |
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
26,134 |
|
|
|
40,252 |
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
6,481 |
|
|
|
7,225 |
|
Miscellaneous
expense
|
|
|
(1,514 |
) |
|
|
(3,100 |
) |
Interest
expense
|
|
|
(6,035 |
) |
|
|
(7,503 |
) |
Capitalized
interest
|
|
|
37 |
|
|
|
83 |
|
Total other
expense
|
|
|
(1,031 |
) |
|
|
(3,295 |
) |
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
25,103 |
|
|
|
36,957 |
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
8,088 |
|
|
|
11,097 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
17,015 |
|
|
|
25,860 |
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Pension and
other postretirement benefits
|
|
|
(63 |
) |
|
|
573 |
|
Change in
unrealized gain on available-for-sale securities
|
|
|
1,961 |
|
|
|
379 |
|
Other
comprehensive income
|
|
|
1,898 |
|
|
|
952 |
|
Income tax
expense related to other comprehensive income
|
|
|
728 |
|
|
|
334 |
|
Other
comprehensive income, net of tax
|
|
|
1,170 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$ |
18,185 |
|
|
$ |
26,478 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
213 |
|
|
$ |
22 |
|
Receivables-
|
|
|
|
|
|
|
|
|
Customers
|
|
|
966 |
|
|
|
449 |
|
Associated
companies
|
|
|
42,232 |
|
|
|
88,796 |
|
Other (less
accumulated provisions of $471,000 and $615,000,
|
|
|
|
|
|
respectively,
for uncollectible accounts)
|
|
|
4,241 |
|
|
|
3,116 |
|
Notes
receivable from associated companies
|
|
|
107,664 |
|
|
|
154,380 |
|
Prepayments
and other
|
|
|
684 |
|
|
|
865 |
|
|
|
|
156,000 |
|
|
|
247,628 |
|
UTILITY
PLANT:
|
|
|
|
|
|
|
|
|
In
service
|
|
|
854,457 |
|
|
|
931,263 |
|
Less -
Accumulated provision for depreciation
|
|
|
397,670 |
|
|
|
420,445 |
|
|
|
|
456,787 |
|
|
|
510,818 |
|
Construction
work in progress
|
|
|
28,735 |
|
|
|
19,740 |
|
|
|
|
485,522 |
|
|
|
530,558 |
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
Investment in
lessor notes
|
|
|
142,657 |
|
|
|
154,646 |
|
Long-term
notes receivable from associated companies
|
|
|
37,457 |
|
|
|
37,530 |
|
Nuclear plant
decommissioning trusts
|
|
|
69,491 |
|
|
|
66,759 |
|
Other
|
|
|
1,734 |
|
|
|
1,756 |
|
|
|
|
251,339 |
|
|
|
260,691 |
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
500,576 |
|
|
|
500,576 |
|
Regulatory
assets
|
|
|
187,579 |
|
|
|
203,719 |
|
Pension
assets
|
|
|
29,420 |
|
|
|
28,601 |
|
Property
taxes
|
|
|
21,010 |
|
|
|
21,010 |
|
Other
|
|
|
28,959 |
|
|
|
20,496 |
|
|
|
|
767,544 |
|
|
|
774,402 |
|
|
|
$ |
1,660,405 |
|
|
$ |
1,813,279 |
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Currently
payable long-term debt
|
|
$ |
34 |
|
|
$ |
34 |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
56,448 |
|
|
|
245,215 |
|
Other
|
|
|
3,973 |
|
|
|
4,449 |
|
Notes payable
to associated companies
|
|
|
66,217 |
|
|
|
13,396 |
|
Accrued
taxes
|
|
|
37,085 |
|
|
|
30,245 |
|
Lease market
valuation liability
|
|
|
36,900 |
|
|
|
36,900 |
|
Other
|
|
|
51,563 |
|
|
|
22,747 |
|
|
|
|
252,220 |
|
|
|
352,986 |
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
Common
stockholder's equity-
|
|
|
|
|
|
|
|
|
Common stock,
$5 par value, authorized 60,000,000 shares -
|
|
|
|
|
|
29,402,054
shares outstanding
|
|
|
147,010 |
|
|
|
147,010 |
|
Other paid-in
capital
|
|
|
173,141 |
|
|
|
173,169 |
|
Accumulated
other comprehensive loss
|
|
|
(9,436 |
) |
|
|
(10,606 |
) |
Retained
earnings
|
|
|
192,633 |
|
|
|
175,618 |
|
Total common
stockholder's equity
|
|
|
503,348 |
|
|
|
485,191 |
|
Long-term debt
and other long-term obligations
|
|
|
303,392 |
|
|
|
303,397 |
|
|
|
|
806,740 |
|
|
|
788,588 |
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accumulated
deferred income taxes
|
|
|
99,732 |
|
|
|
103,463 |
|
Accumulated
deferred investment tax credits
|
|
|
9,967 |
|
|
|
10,180 |
|
Lease market
valuation liability
|
|
|
300,775 |
|
|
|
310,000 |
|
Retirement
benefits
|
|
|
64,422 |
|
|
|
63,215 |
|
Asset
retirement obligations
|
|
|
28,744 |
|
|
|
28,366 |
|
Deferred
revenues - electric service programs
|
|
|
9,969 |
|
|
|
12,639 |
|
Lease
assignment payable to associated companies
|
|
|
28,835 |
|
|
|
83,485 |
|
Other
|
|
|
59,001 |
|
|
|
60,357 |
|
|
|
|
601,445 |
|
|
|
671,705 |
|
COMMITMENTS
AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
$ |
1,660,405 |
|
|
$ |
1,813,279 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated 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,
|
|
|
|
Restated
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
17,015 |
|
|
$ |
25,860 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
9,025 |
|
|
|
9,117 |
|
Amortization
of regulatory assets
|
|
|
25,025 |
|
|
|
23,876 |
|
Deferral of
new regulatory assets
|
|
|
(9,494 |
) |
|
|
(13,481 |
) |
Deferred rents
and lease market valuation liability
|
|
|
6,099 |
|
|
|
(10,891 |
) |
Deferred
income taxes and investment tax credits, net
|
|
|
(3,404 |
) |
|
|
(3,639 |
) |
Accrued
compensation and retirement benefits
|
|
|
(1,813 |
) |
|
|
(756 |
) |
Pension trust
contribution
|
|
|
- |
|
|
|
(7,659 |
) |
Decrease in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
45,738 |
|
|
|
158 |
|
Prepayments
and other current assets
|
|
|
181 |
|
|
|
312 |
|
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(174,243 |
) |
|
|
(17,533 |
) |
Accrued
taxes
|
|
|
6,840 |
|
|
|
9,379 |
|
Accrued
interest
|
|
|
4,663 |
|
|
|
3,951 |
|
Electric
service prepayment programs
|
|
|
(2,670 |
) |
|
|
(2,616 |
) |
Other
|
|
|
991 |
|
|
|
(541 |
) |
Net cash
provided from (used for) operating activities
|
|
|
(76,047 |
) |
|
|
15,537 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
52,821 |
|
|
|
- |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(9 |
) |
|
|
- |
|
Short-term
borrowings, net
|
|
|
- |
|
|
|
(46,518 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(15,000 |
) |
|
|
- |
|
Net cash
provided from (used for) financing activities
|
|
|
37,812 |
|
|
|
(46,518 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(19,435 |
) |
|
|
(6,064 |
) |
Loans
repayments from (loans to) associated companies, net
|
|
|
46,789 |
|
|
|
(8,583 |
) |
Collection of
principal on long-term notes receivable
|
|
|
- |
|
|
|
32,202 |
|
Redemption of
lessor notes
|
|
|
11,989 |
|
|
|
14,804 |
|
Sales of
investment securities held in trusts
|
|
|
3,908 |
|
|
|
16,863 |
|
Purchases of
investment securities held in trusts
|
|
|
(4,715 |
) |
|
|
(17,642 |
) |
Other
|
|
|
(110 |
) |
|
|
(420 |
) |
Net cash
provided from investing activities
|
|
|
38,426 |
|
|
|
31,160 |
|
|
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
|
|
191 |
|
|
|
179 |
|
Cash and cash
equivalents at beginning of period
|
|
|
22 |
|
|
|
22 |
|
Cash and cash
equivalents at end of period
|
|
$ |
213 |
|
|
$ |
201 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
The Toledo Edison Company are an
|
|
|
|
|
|
integral part
of these statements.
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To the Stockholder
and Board of
Directors of
Pennsylvania Electric Company:
We have reviewed the
accompanying consolidated balance sheet of Pennsylvania Electric Company and its
subsidiaries as of March 31, 2008 and the related consolidated statements of
income, comprehensive income and cash flows for each of the three-month periods
ended March 31, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (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 review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
|
PricewaterhouseCoopers
LLP
Cleveland,
Ohio
May 7, 2008,
except as to the error correction described in Note 1,
which is as of
November 24, 2008.
|
PENNSYLVANIA
ELECTRIC COMPANY
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Electric
sales
|
|
$ |
376,028 |
|
|
$ |
339,226 |
|
Gross receipts
tax collections
|
|
|
19,464 |
|
|
|
16,680 |
|
Total
revenues
|
|
|
395,492 |
|
|
|
355,906 |
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Purchased
power
|
|
|
221,234 |
|
|
|
200,842 |
|
Other
operating costs
|
|
|
71,077 |
|
|
|
59,461 |
|
Provision for
depreciation
|
|
|
12,516 |
|
|
|
11,777 |
|
Amortization
of regulatory assets
|
|
|
16,346 |
|
|
|
15,394 |
|
Deferral of
new regulatory assets
|
|
|
(3,526 |
) |
|
|
(17,088 |
) |
General
taxes
|
|
|
21,855 |
|
|
|
19,851 |
|
Total
expenses
|
|
|
339,502 |
|
|
|
290,237 |
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
55,990 |
|
|
|
65,669 |
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Miscellaneous
income (expense)
|
|
|
(191 |
) |
|
|
1,417 |
|
Interest
expense
|
|
|
(15,322 |
) |
|
|
(11,337 |
) |
Capitalized
interest
|
|
|
(806 |
) |
|
|
258 |
|
Total other
expense
|
|
|
(16,319 |
) |
|
|
(9,662 |
) |
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
39,671 |
|
|
|
56,007 |
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
18,279 |
|
|
|
24,263 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
21,392 |
|
|
|
31,744 |
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Pension and
other postretirement benefits
|
|
|
(3,473 |
) |
|
|
(2,825 |
) |
Unrealized
gain on derivative hedges
|
|
|
16 |
|
|
|
16 |
|
Change in
unrealized gain on available-for-sale securities
|
|
|
11 |
|
|
|
(3 |
) |
Other
comprehensive loss
|
|
|
(3,446 |
) |
|
|
(2,812 |
) |
Income tax
benefit related to other comprehensive loss
|
|
|
(1,506 |
) |
|
|
(1,298 |
) |
Other
comprehensive loss, net of tax
|
|
|
(1,940 |
) |
|
|
(1,514 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$ |
19,452 |
|
|
$ |
30,230 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
Pennsylvania Electric Company
|
|
are an
integral part of these statements.
|
|
|
|
|
|
|
|
|
PENNSYLVANIA
ELECTRIC COMPANY
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
43 |
|
|
$ |
46 |
|
Receivables-
|
|
|
|
|
|
|
|
|
Customers
(less accumulated provisions of $4,201,000 and $3,905,000,
|
|
|
|
|
|
|
|
|
respectively,
for uncollectible accounts)
|
|
|
141,316 |
|
|
|
137,455 |
|
Associated
companies
|
|
|
23,396 |
|
|
|
22,014 |
|
Other
|
|
|
28,833 |
|
|
|
19,529 |
|
Notes
receivable from associated companies
|
|
|
16,923 |
|
|
|
16,313 |
|
Prepaid gross
receipts taxes
|
|
|
41,242 |
|
|
|
- |
|
Other
|
|
|
2,426 |
|
|
|
3,077 |
|
|
|
|
254,179 |
|
|
|
198,434 |
|
UTILITY
PLANT:
|
|
|
|
|
|
|
|
|
In
service
|
|
|
2,230,667 |
|
|
|
2,219,002 |
|
Less -
Accumulated provision for depreciation
|
|
|
843,500 |
|
|
|
838,621 |
|
|
|
|
1,387,167 |
|
|
|
1,380,381 |
|
Construction
work in progress
|
|
|
33,727 |
|
|
|
24,251 |
|
|
|
|
1,420,894 |
|
|
|
1,404,632 |
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
Nuclear plant
decommissioning trusts
|
|
|
132,152 |
|
|
|
137,859 |
|
Non-utility
generation trusts
|
|
|
113,958 |
|
|
|
112,670 |
|
Other
|
|
|
536 |
|
|
|
531 |
|
|
|
|
246,646 |
|
|
|
251,060 |
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
777,616 |
|
|
|
777,904 |
|
Pension
assets
|
|
|
69,405 |
|
|
|
66,111 |
|
Other
|
|
|
29,770 |
|
|
|
33,893 |
|
|
|
|
876,791 |
|
|
|
877,908 |
|
|
|
$ |
2,798,510 |
|
|
$ |
2,732,034 |
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Short-term
borrowings-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
$ |
183,102 |
|
|
$ |
214,893 |
|
Other
|
|
|
150,000 |
|
|
|
- |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
61,476 |
|
|
|
83,359 |
|
Other
|
|
|
50,516 |
|
|
|
51,777 |
|
Accrued
taxes
|
|
|
9,302 |
|
|
|
15,111 |
|
Accrued
interest
|
|
|
13,677 |
|
|
|
13,167 |
|
Other
|
|
|
23,330 |
|
|
|
25,311 |
|
|
|
|
491,403 |
|
|
|
403,618 |
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
Common
stockholder's equity-
|
|
|
|
|
|
|
|
|
Common stock,
$20 par value, authorized 5,400,000 shares-
|
|
|
|
|
|
|
|
|
4,427,577
shares outstanding
|
|
|
88,552 |
|
|
|
88,552 |
|
Other paid-in
capital
|
|
|
920,265 |
|
|
|
920,616 |
|
Accumulated
other comprehensive income
|
|
|
3,006 |
|
|
|
4,946 |
|
Retained
earnings
|
|
|
79,336 |
|
|
|
57,943 |
|
Total common
stockholder's equity
|
|
|
1,091,159 |
|
|
|
1,072,057 |
|
Long-term debt
and other long-term obligations
|
|
|
732,465 |
|
|
|
777,243 |
|
|
|
|
1,823,624 |
|
|
|
1,849,300 |
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Regulatory
liabilities
|
|
|
67,347 |
|
|
|
73,559 |
|
Accumulated
deferred income taxes
|
|
|
220,500 |
|
|
|
210,776 |
|
Retirement
benefits
|
|
|
41,644 |
|
|
|
41,298 |
|
Asset
retirement obligations
|
|
|
83,129 |
|
|
|
81,849 |
|
Other
|
|
|
70,863 |
|
|
|
71,634 |
|
|
|
|
483,483 |
|
|
|
479,116 |
|
COMMITMENTS
AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
$ |
2,798,510 |
|
|
$ |
2,732,034 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
Pennsylvania Electric Company are an
|
|
integral part
of these balance sheets.
|
|
|
|
|
|
|
|
|
PENNSYLVANIA
ELECTRIC COMPANY
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
Restated
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,392 |
|
|
$ |
31,744 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
12,516 |
|
|
|
11,777 |
|
Amortization
of regulatory assets
|
|
|
16,346 |
|
|
|
15,394 |
|
Deferral of
new regulatory assets
|
|
|
(3,526 |
) |
|
|
(17,088 |
) |
Deferred costs
recoverable as regulatory assets
|
|
|
(8,403 |
) |
|
|
(18,433 |
) |
Deferred
income taxes and investment tax credits, net
|
|
|
10,541 |
|
|
|
13,366 |
|
Accrued
compensation and retirement benefits
|
|
|
(10,488 |
) |
|
|
(8,786 |
) |
Cash
collateral
|
|
|
301 |
|
|
|
1,450 |
|
Pension trust
contribution
|
|
|
- |
|
|
|
(13,436 |
) |
Increase in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(13,701 |
) |
|
|
(30,050 |
) |
Prepayments
and other current assets
|
|
|
(40,591 |
) |
|
|
(36,225 |
) |
Increase
(Decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(3,144 |
) |
|
|
(46,168 |
) |
Accrued
taxes
|
|
|
(5,809 |
) |
|
|
(9,152 |
) |
Accrued
interest
|
|
|
510 |
|
|
|
5,518 |
|
Other
|
|
|
4,991 |
|
|
|
3,920 |
|
Net cash used
for operating activities
|
|
|
(19,065 |
) |
|
|
(96,169 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
118,209 |
|
|
|
119,361 |
|
Redemptions
and Repayments
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(45,112 |
) |
|
|
- |
|
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(20,000 |
) |
|
|
- |
|
Net cash
provided from financing activities
|
|
|
53,097 |
|
|
|
119,361 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(28,902 |
) |
|
|
(20,404 |
) |
Sales of
investment securities held in trusts
|
|
|
24,407 |
|
|
|
12,758 |
|
Purchases of
investment securities held in trusts
|
|
|
(29,083 |
) |
|
|
(15,509 |
) |
Loan
repayments from (loans to) associated companies, net
|
|
|
(610 |
) |
|
|
708 |
|
Other
|
|
|
153 |
|
|
|
(747 |
) |
Net cash used
for investing activities
|
|
|
(34,035 |
) |
|
|
(23,194 |
) |
|
|
|
|
|
|
|
|
|
Net decrease
in cash and cash equivalents
|
|
|
(3 |
) |
|
|
(2 |
) |
Cash and cash
equivalents at beginning of period
|
|
|
46 |
|
|
|
44 |
|
Cash and cash
equivalents at end of period
|
|
$ |
43 |
|
|
$ |
42 |
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements as they relate to
Pennsylvania Electric Company are
|
|
an integral
part of these statements.
|
|
|
|
|
|
|
|
|
COMBINED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND BASIS OF PRESENTATION
FirstEnergy is a
diversified energy company that holds, directly or indirectly, all of the
outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a
wholly owned subsidiary of OE), ATSI, JCP&L, Met-Ed, Penelec, FENOC, FES and
its subsidiaries FGCO and NGC, and FESC.
FirstEnergy and its
subsidiaries follow GAAP and comply with the regulations, orders, policies and
practices prescribed by the SEC, the FERC and, as applicable, the PUCO, the PPUC
and the NJBPU. The preparation of financial statements in conformity with GAAP
requires management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates. The reported results of operations are not indicative of results of
operations for any future period.
These statements
should be read in conjunction with the financial statements and notes included
in the combined Annual Report on Form 10-K for the year ended December 31,
2007 for FirstEnergy, FES and the Companies. The consolidated unaudited
financial statements of FirstEnergy, FES 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. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Unless otherwise indicated, defined terms used herein have the meanings set
forth in the accompanying Glossary of Terms.
FirstEnergy and its
subsidiaries consolidate all majority-owned subsidiaries over which they
exercise control and, when applicable, entities for which they have a
controlling financial interest. Intercompany transactions and balances are
eliminated in consolidation. FirstEnergy consolidates a VIE (see Note 8)
when it is determined to be the VIE's primary beneficiary. Investments in
non-consolidated affiliates over which FirstEnergy and its subsidiaries have the
ability to exercise significant influence, but not control (20-50% owned
companies, joint ventures and partnerships) follow the equity method of
accounting. Under the equity method, the interest in the entity is reported as
an investment in the Consolidated Balance Sheets and the percentage share of the
entity’s earnings is reported in the Consolidated Statements of
Income.
The consolidated
financial statements as of March 31, 2008 and for the three-month periods
ended March 31, 2008 and 2007 have been reviewed by PricewaterhouseCoopers
LLP, an independent registered public accounting firm. Their report (dated
May 7, 2008, except as to the error correction described in Note 1, which
is as of November 24, 2008) is included herein. The report of
PricewaterhouseCoopers LLP states that they did not audit and they do not
express an opinion on that unaudited financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a “report” or a “part” of a registration
statement prepared or certified by PricewaterhouseCoopers LLP within the meaning
of Sections 7 and 11 of the Securities Act of 1933.
Restatement
of the Consolidated Statements of Cash Flows
OE, CEI, TE and
Penelec are restating their respective Consolidated Statements of Cash Flows for
the three months ended March 31, 2008, to correct common stock dividend payments
reported in cash flows from financing activities. The consolidated statements of
cash flows for those registrants, as originally filed, erroneously did not
reflect the payment of common stock dividends in the first quarter of 2008,
which were declared in the third quarter of 2007. The corrections
resulted in a corresponding change in operating liabilities - accounts payable,
included in cash flows from operating activities.
This correction does
not affect the respective registrants’ previously reported consolidated
statements of income and comprehensive income for the three months ended March
31, 2008 and consolidated balance sheets as of March 31, 2008 contained in the
combined Form 10-Q for the quarter ended March 31, 2008, as originally filed on
May 8, 2008.
The effects of the
corrections on OE’s, CEI’s, TE’s and Penelec’s Consolidated Statements of Cash
Flows for the three months ended March 31, 2008 are as
follows:
OE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
|
Ended
March 31, 2008
|
|
|
|
As
Previously
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
43,909 |
|
|
$ |
43,909 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
Provision for
depreciation
|
|
|
21,493 |
|
|
|
21,493 |
|
Amortization
of regulatory assets
|
|
|
48,538 |
|
|
|
48,538 |
|
Deferral of
new regulatory assets
|
|
|
(25,411 |
) |
|
|
(25,411 |
) |
Amortization
of lease costs
|
|
|
32,934 |
|
|
|
32,934 |
|
Deferred
income taxes and investment tax credits, net
|
|
|
6,866 |
|
|
|
6,866 |
|
Accrued
compensation and retirement benefits
|
|
|
(19,482 |
) |
|
|
(19,482 |
) |
Increase in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(27,496 |
) |
|
|
(27,496 |
) |
Prepayments
and other current assets
|
|
|
(7,451 |
) |
|
|
(7,451 |
) |
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(18,939 |
) |
|
|
(3,939 |
) |
Accrued
taxes
|
|
|
2,991 |
|
|
|
2,991 |
|
Accrued
interest
|
|
|
(5,919 |
) |
|
|
(5,919 |
) |
Electric
service prepayment programs
|
|
|
(10,028 |
) |
|
|
(10,028 |
) |
Other
|
|
|
(2,066 |
) |
|
|
(2,066 |
) |
Net cash
provided from operating activities
|
|
|
39,939 |
|
|
|
54,939 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(80 |
) |
|
|
(80 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
- |
|
|
|
(15,000 |
) |
Net cash used
for financing activities
|
|
|
(80 |
) |
|
|
(15,080 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(49,011 |
) |
|
|
(49,011 |
) |
Sales of
investment securities held in trusts
|
|
|
62,344 |
|
|
|
62,344 |
|
Purchases of
investment securities held in trusts
|
|
|
(63,797 |
) |
|
|
(63,797 |
) |
Loan
repayments from associated companies, net
|
|
|
6,534 |
|
|
|
6,534 |
|
Cash
investments
|
|
|
147 |
|
|
|
147 |
|
|
|
|
3,924 |
|
|
|
3,924 |
|
Net cash used
for investing activities
|
|
|
(39,859 |
) |
|
|
(39,859 |
) |
|
|
|
|
|
|
|
|
|
Net change in
cash and cash equivalents
|
|
$ |
- |
|
|
$ |
- |
|
CEI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
|
Ended
March 31, 2008
|
|
|
|
As
Previously
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
57,851 |
|
|
$ |
57,851 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
19,076 |
|
|
|
19,076 |
|
Amortization
of regulatory assets
|
|
|
38,256 |
|
|
|
38,256 |
|
Deferral of
new regulatory assets
|
|
|
(29,248 |
) |
|
|
(29,248 |
) |
Deferred rents
and lease market valuation liability
|
|
|
- |
|
|
|
- |
|
Deferred
income taxes and investment tax credits, net
|
|
|
(4,965 |
) |
|
|
(4,965 |
) |
Accrued
compensation and retirement benefits
|
|
|
(3,507 |
) |
|
|
(3,507 |
) |
Decrease in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
90,280 |
|
|
|
90,280 |
|
Prepayments
and other current assets
|
|
|
604 |
|
|
|
604 |
|
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(28,889 |
) |
|
|
1,111 |
|
Accrued
taxes
|
|
|
23,196 |
|
|
|
23,196 |
|
Accrued
interest
|
|
|
23,831 |
|
|
|
23,831 |
|
Electric
service prepayment programs
|
|
|
(5,847 |
) |
|
|
(5,847 |
) |
Other
|
|
|
(63 |
) |
|
|
(63 |
) |
Net cash
provided from operating activities
|
|
|
180,575 |
|
|
|
210,575 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(165 |
) |
|
|
(165 |
) |
Short-term
borrowings, net
|
|
|
(177,960 |
) |
|
|
(177,960 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
- |
|
|
|
(30,000 |
) |
Net cash used
for financing activities
|
|
|
(178,125 |
) |
|
|
(208,125 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(37,203 |
) |
|
|
(37,203 |
) |
Loans to
associated companies, net
|
|
|
(2,373 |
) |
|
|
(2,373 |
) |
Redemptions of
lessor notes
|
|
|
37,709 |
|
|
|
37,709 |
|
Other
|
|
|
(574 |
) |
|
|
(574 |
) |
Net cash used
for investing activities
|
|
|
(2,441 |
) |
|
|
(2,441 |
) |
|
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
|
$ |
9 |
|
|
$ |
9 |
|
TE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
|
Ended
March 31, 2008
|
|
|
|
As
Previously
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
17,015 |
|
|
$ |
17,015 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
|
|
|
Provision for
depreciation
|
|
|
9,025 |
|
|
|
9,025 |
|
Amortization
of regulatory assets
|
|
|
25,025 |
|
|
|
25,025 |
|
Deferral of
new regulatory assets
|
|
|
(9,494 |
) |
|
|
(9,494 |
) |
Deferred rents
and lease market valuation liability
|
|
|
6,099 |
|
|
|
6,099 |
|
Deferred
income taxes and investment tax credits, net
|
|
|
(3,404 |
) |
|
|
(3,404 |
) |
Accrued
compensation and retirement benefits
|
|
|
(1,813 |
) |
|
|
(1,813 |
) |
Decrease in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
45,738 |
|
|
|
45,738 |
|
Prepayments
and other current assets
|
|
|
181 |
|
|
|
181 |
|
Increase
(decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(189,243 |
) |
|
|
(174,243 |
) |
Accrued
taxes
|
|
|
6,840 |
|
|
|
6,840 |
|
Accrued
interest
|
|
|
4,663 |
|
|
|
4,663 |
|
Electric
service prepayment programs
|
|
|
(2,670 |
) |
|
|
(2,670 |
) |
Other
|
|
|
991 |
|
|
|
991 |
|
Net cash used
for operating activities
|
|
|
(91,047 |
) |
|
|
(76,047 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
52,821 |
|
|
|
52,821 |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(9 |
) |
|
|
(9 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
- |
|
|
|
(15,000 |
) |
Net cash
provided from financing activities
|
|
|
52,812 |
|
|
|
37,812 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(19,435 |
) |
|
|
(19,435 |
) |
Loans
repayments from (loans to) associated companies, net
|
|
|
46,789 |
|
|
|
46,789 |
|
Redemption of
lessor notes
|
|
|
11,989 |
|
|
|
11,989 |
|
Sales of
investment securities held in trusts
|
|
|
3,908 |
|
|
|
3,908 |
|
Purchases of
investment securities held in trusts
|
|
|
(4,715 |
) |
|
|
(4,715 |
) |
Other
|
|
|
(110 |
) |
|
|
(110 |
) |
Net cash
provided from investing activities
|
|
|
38,426 |
|
|
|
38,426 |
|
|
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
|
$ |
191 |
|
|
$ |
191 |
|
PENELEC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
|
Ended
March 31, 2008
|
|
|
|
As
Previously
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,392 |
|
|
$ |
21,392 |
|
Adjustments to
reconcile net income to net cash from operating
activities-
|
|
|
|
|
|
Provision for
depreciation
|
|
|
12,516 |
|
|
|
12,516 |
|
Amortization
of regulatory assets
|
|
|
16,346 |
|
|
|
16,346 |
|
Deferral of
new regulatory assets
|
|
|
(3,526 |
) |
|
|
(3,526 |
) |
Deferred costs
recoverable as regulatory assets
|
|
|
(8,403 |
) |
|
|
(8,403 |
) |
Deferred
income taxes and investment tax credits, net
|
|
|
10,541 |
|
|
|
10,541 |
|
Accrued
compensation and retirement benefits
|
|
|
(10,488 |
) |
|
|
(10,488 |
) |
Cash
collateral
|
|
|
301 |
|
|
|
301 |
|
Increase in
operating assets-
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(13,701 |
) |
|
|
(13,701 |
) |
Prepayments
and other current assets
|
|
|
(40,591 |
) |
|
|
(40,591 |
) |
Increase
(Decrease) in operating liabilities-
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(23,144 |
) |
|
|
(3,144 |
) |
Accrued
taxes
|
|
|
(5,809 |
) |
|
|
(5,809 |
) |
Accrued
interest
|
|
|
510 |
|
|
|
510 |
|
Other
|
|
|
4,991 |
|
|
|
4,991 |
|
Net cash used
for operating activities
|
|
|
(39,065 |
) |
|
|
(19,065 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
118,209 |
|
|
|
118,209 |
|
Redemptions
and Repayments
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
(45,112 |
) |
|
|
(45,112 |
) |
Dividend
Payments-
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
- |
|
|
|
(20,000 |
) |
Net cash
provided from financing activities
|
|
|
73,097 |
|
|
|
53,097 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(28,902 |
) |
|
|
(28,902 |
) |
Sales of
investment securities held in trusts
|
|
|
24,407 |
|
|
|
24,407 |
|
Purchases of
investment securities held in trusts
|
|
|
(29,083 |
) |
|
|
(29,083 |
) |
Loans to
associated companies, net
|
|
|
(610 |
) |
|
|
(610 |
) |
Other
|
|
|
153 |
|
|
|
153 |
|
Net cash used
for investing activities
|
|
|
(34,035 |
) |
|
|
(34,035 |
) |
|
|
|
|
|
|
|
|
|
Net decrease
in cash and cash equivalents
|
|
$ |
(3 |
) |
|
$ |
(3 |
) |
2. EARNINGS
PER SHARE
Basic earnings per
share of common stock is computed using the weighted average of actual common
shares outstanding during the respective period as the denominator. The
denominator for diluted earnings per share of common stock reflects the weighted
average of common shares outstanding plus the potential additional common shares
that could result if dilutive securities and other agreements to issue common
stock were exercised. The pool of stock-based compensation tax benefits is
calculated in accordance with SFAS 123(R). On March 2, 2007, FirstEnergy
repurchased approximately 14.4 million shares, or 4.5%, of its outstanding
common stock through an accelerated share repurchase program at an initial price
of approximately $900 million. A final purchase price adjustment of
$51 million was settled in cash on December 13, 2007. The following
table reconciles basic and diluted earnings per share of common
stock:
Reconciliation
of Basic and Diluted
|
|
Three
Months Ended
March
31,
|
|
Earnings
per Share of Common Stock
|
|
2008
|
|
2007
|
|
|
(In
millions, except
per
share amounts)
|
Net
income
|
|
$
|
276
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
Average shares
of common stock outstanding – Basic
|
|
|
304
|
|
|
314
|
|
Assumed
exercise of dilutive stock options and awards
|
|
|
3
|
|
|
2
|
|
Average shares
of common stock outstanding – Dilutive
|
|
|
307
|
|
|
316
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share of common stock
|
|
$
|
0.91
|
|
$
|
0.92
|
|
Diluted
earnings per share of common stock
|
|
$
|
0.90
|
|
$
|
0.92
|
|
3. DIVESTITURES
AND DISCONTINUED OPERATIONS
On March 7, 2008,
FirstEnergy sold certain telecommunication assets, resulting in a net after-tax
gain of $19.3 million. As a result of the sale, FirstEnergy adjusted
goodwill by $1 million for the former GPU companies due to the realization of
tax benefits that had been reserved in purchase accounting. The sale of assets
did not meet the criteria for classification as discontinued operations as of
March 31, 2008.
4. FAIR
VALUE MEASURES
Effective January 1,
2008, FirstEnergy adopted SFAS 157, which provides a framework for measuring
fair value under GAAP and, among other things, requires enhanced disclosures
about assets and liabilities recognized at fair value. FirstEnergy also adopted
SFAS 159 on January 1, 2008, which provides the option to measure certain
financial assets and financial liabilities at fair value. FirstEnergy has
analyzed its financial assets and financial liabilities within the scope of
SFAS 159 and, as of March 31, 2008, has elected not to record eligible
assets and liabilities at fair value.
As defined in SFAS
157, fair value is the price that would be received for an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between willing market
participants on the measurement date. SFAS 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted market prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
defined by SFAS 157 are as follows:
Level 1 – Quoted
prices are available in active markets for identical assets or liabilities as of
the reporting date. Active markets are those where transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis. FirstEnergy’s Level 1 assets and liabilities
primarily consist of exchange-traded derivatives and equity securities listed on
active exchanges that are held in various trusts.
Level 2 – Pricing
inputs are either directly or indirectly observable in the market as of the
reporting date, other than quoted prices in active markets included in Level 1.
FirstEnergy’s Level 2 consists primarily of investments in debt securities held
in various trusts and commodity forwards. Additionally, Level 2 includes those
financial instruments that are valued using models or other valuation
methodologies based on assumptions that are observable in the marketplace
throughout the full term of the instrument, can be derived from observable data
or are supported by observable levels at which transactions are executed in the
marketplace. These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Instruments
in this category include non-exchange-traded derivatives such as forwards and
certain interest rate swaps.
Level 3 – Pricing
inputs include inputs that are generally less observable from objective sources.
These inputs may be used with internally developed methodologies that result in
management’s best estimate of fair value. FirstEnergy develops its view of the
future market price of key commodities through a combination of market
observation and assessment (generally for the short term) and fundamental
modeling (generally for the longer term). Key fundamental electricity model
inputs are generally directly observable in the market or derived from publicly
available historic and forecast data. Some key inputs reflect forecasts
published by industry leading consultants who generally employ similar
fundamental modeling approaches. Fundamental model inputs and results, as well
as the selection of consultants, reflect the consensus of appropriate
FirstEnergy management. Level 3 instruments include those that may be more
structured or otherwise tailored to customers’ needs. FirstEnergy’s Level 3
instruments consist of NUG contracts.
FirstEnergy utilizes
market data and assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in
the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. FirstEnergy primarily applies
the market approach for recurring fair value measurements using the best
information available. Accordingly, FirstEnergy maximizes the use of observable
inputs and minimizes the use of unobservable inputs.
The following table
sets forth FirstEnergy’s financial assets and financial liabilities that are
accounted for at fair value by level within the fair value hierarchy as of March
31, 2008. As required by SFAS 157, assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the
fair value measurement. FirstEnergy’s assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect
the valuation of fair value assets and liabilities and their placement within
the fair value hierarchy levels.
|
|
March
31, 2008
|
|
Recurring
Fair Value Measures
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
|
|
(In
millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4
|
|
$
|
98
|
|
$
|
-
|
|
$
|
102
|
|
Nuclear
decommissioning trusts(1)
|
|
|
1,070
|
|
|
953
|
|
|
-
|
|
|
2,023
|
|
Other
investments(2)
|
|
|
21
|
|
|
303
|
|
|
-
|
|
|
324
|
|
Total
|
|
$
|
1,095
|
|
$
|
1,354
|
|
$
|
-
|
|
$
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
-
|
|
$
|
98
|
|
$
|
-
|
|
$
|
98
|
|
NUG
contracts(3)
|
|
|
-
|
|
|
-
|
|
|
682
|
|
|
682
|
|
Total
|
|
$
|
-
|
|
$
|
98
|
|
$
|
682
|
|
$
|
780
|
|
|
(1)
|
Balance
excludes $2 million of receivables, payables and accrued
income.
|
|
(2)
|
Excludes
$318 million of the cash surrender value of life insurance
contracts.
|
|
(3)
|
NUG contracts
are completely offset by regulatory
assets.
|
The determination of
the above fair value measures takes into consideration various factors required
under SFAS 157. These factors include the credit standing of the
counterparties involved, the impact of credit enhancements (such as cash
deposits, LOCs and priority interests) and the impact of nonperformance
risk.
Exchange-traded
derivative contracts, which include some futures and options, are generally
based on unadjusted quoted market prices in active markets and are classified
within Level 1. Forwards, options and swap contracts that are not
exchange-traded are classified as Level 2 as the fair values of these items are
based on ICE quotes or market transactions in the OTC markets. In addition,
complex or longer term structured transactions can introduce the need for
internally-developed model inputs that may not be observable in or corroborated
by the market. When such inputs have a significant impact on the measurement of
fair value, the instrument is classified as Level 3.
Nuclear
decommissioning trusts consist of equity securities listed on active exchanges
classified as Level 1 and various debt securities and collective trusts
classified as Level 2. Other investments represent the NUG trusts, spent nuclear
fuel trusts and rabbi trust investments, which primarily consist of various debt
securities and collective trusts classified as Level 2.
The following table
sets forth a reconciliation of changes in the fair value of NUG contracts
classified as Level 3 in the fair value hierarchy for the three months ended
March 31, 2008 (in millions):
Balance as of
January 1, 2008
|
|
$
|
750
|
|
Realized
and unrealized gains (losses)(1)
|
|
|
(58
|
)
|
Purchases,
sales, issuances and settlements, net(1)
|
|
|
(10
|
)
|
Net
transfers to (from) Level 3
|
|
|
-
|
|
Balance as of
March 31, 2008
|
|
$
|
682
|
|
|
|
|
|
|
Change in
unrealized gains (losses) relating to
|
|
|
|
|
instruments
held as of March 31, 2008
|
|
$
|
(58
|
)
|
|
|
|
|
|
(1) Changes in the
fair value of NUG contracts are completely offset by regulatory
assets and do not impact earnings.
|
|
Under FSP FAS 157-2,
FirstEnergy has elected to defer, for one year, the election of SFAS 157 for
financial assets and financial liabilities measured at fair value on a
non-recurring basis. FirstEnergy is currently evaluating the impact of
FAS 157 on those financial assets and financial liabilities measured at
fair value on a non-recurring basis.
5. DERIVATIVE
INSTRUMENTS
FirstEnergy is
exposed to financial risks resulting from the fluctuation of interest rates and
commodity prices, including prices for electricity, natural gas, coal and energy
transmission. To manage the volatility relating to these exposures, FirstEnergy
uses a variety of derivative instruments, including forward contracts, options,
futures contracts and swaps. The derivatives are used principally for hedging
purposes. FirstEnergy's Risk Policy Committee, comprised of members of senior
management, provides general management oversight for risk management activities
throughout FirstEnergy. They are responsible for promoting the effective design
and implementation of sound risk management programs. They also oversee
compliance with corporate risk management policies and established risk
management practices.
FirstEnergy accounts
for derivative instruments on its Consolidated Balance Sheet at their fair value
unless they meet the normal purchases and normal sales criteria. Derivatives
that meet those criteria are accounted for at cost. The changes in the fair
value of derivative instruments that do not meet the normal purchases and normal
sales criteria are recorded as other expense, as AOCL, or as part of the value
of the hedged item, depending on whether or not it is designated as part of a
hedge transaction, the nature of the hedge transaction and hedge effectiveness.
FirstEnergy does not offset fair value for the right to reclaim collateral or
the obligation to return collateral.
FirstEnergy hedges
anticipated transactions using cash flow hedges. Such transactions include
hedges of anticipated electricity and natural gas purchases and anticipated
interest payments associated with future debt issues. The effective portion of
such hedges are initially recorded in equity as other comprehensive income or
loss and are subsequently included in net income as the underlying hedged
commodities are delivered or interest payments are made. Gains and losses from
any ineffective portion of cash flow hedges are included directly in
earnings.
The net deferred
losses of $84 million included in AOCL as of March 31, 2008, for
derivative hedging activity, as compared to $75 million as of
December 31, 2007, resulted from a net $21 million increase related to
current hedging activity and a $12 million decrease due to net hedge losses
reclassified to earnings during the three months ended March 31, 2008.
Based on current estimates, approximately $19 million (after tax) of the
net deferred losses on derivative instruments in AOCL as of March 31, 2008
are expected to be reclassified to earnings during the next twelve months as
hedged transactions occur. The fair value of these derivative instruments
fluctuate from period to period based on various market factors.
FirstEnergy has
entered into swaps that have been designated as fair value hedges of fixed-rate,
long-term debt issues to protect against the risk of changes in the fair value
of fixed-rate debt instruments due to lower interest rates. Swap maturities,
call options, fixed interest rates received, and interest payment dates match
those of the underlying debt obligations. As of March 31, 2008, FirstEnergy
had interest rate swaps with an aggregate notional value of $250 million
and a fair value of $5 million.
During 2007 and the
first three months of 2008, FirstEnergy entered into several forward starting
swap agreements (forward swaps) in order to hedge a portion of the consolidated
interest rate risk associated with the anticipated issuance of variable-rate,
short-term debt and fixed-rate, long-term debt securities by one or more of its
subsidiaries as outstanding debt matures during 2008 and 2009. These derivatives
are treated as cash flow hedges, protecting against the risk of changes in
future interest payments resulting from changes in benchmark U.S. Treasury and
LIBOR rates between the date of hedge inception and the date of the debt
issuance. During the first three months of 2008, FirstEnergy terminated swaps
with a notional value of $300 million and entered into swaps with a
notional value of $500 million. FirstEnergy paid $18 million related
to the terminations, $1 million of which was deemed ineffective and
recognized in current period earnings. FirstEnergy will recognize the remaining
$17 million loss over the life of the associated future debt. As of
March 31, 2008, FirstEnergy had forward swaps with an aggregate notional
amount of $600 million and a fair value of $(8) million.
6. ASSET
RETIREMENT OBLIGATIONS
FirstEnergy has
recognized applicable legal obligations under SFAS 143 for nuclear power plant
decommissioning, reclamation of a sludge disposal pond and closure of two coal
ash disposal sites. In addition, FirstEnergy has recognized conditional
retirement obligations (primarily for asbestos remediation) in accordance with
FIN 47.
The ARO liability of
$1.3 billion as of March 31, 2008 is primarily related to the future
nuclear decommissioning of the Beaver Valley, Davis-Besse, Perry and TMI-2
nuclear generating facilities. FirstEnergy utilized an expected cash flow
approach to measure the fair value of the nuclear decommissioning
ARO.
FirstEnergy
maintains nuclear decommissioning trust funds that are legally restricted for
purposes of settling the nuclear decommissioning ARO. As of March 31, 2008,
the fair value of the decommissioning trust assets was approximately
$2.0 billion.
The following tables
analyze changes to the ARO balance during the first quarters of 2008 and 2007,
respectively.
ARO
Reconciliation
|
|
FirstEnergy
|
|
FES
|
|
OE
|
|
CEI
|
|
TE
|
|
JCP&L
|
|
Met-Ed
|
|
Penelec
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions in
estimated cash flows
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions in
estimated cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. PENSION
AND OTHER POSTRETIREMENT BENEFITS
FirstEnergy provides
noncontributory defined benefit pension plans that cover substantially all of
its employees and those of its subsidiaries. The trusteed plans provide defined
benefits based on years of service and compensation levels. FirstEnergy’s
funding policy is based on actuarial computations using the projected unit
credit method. FirstEnergy uses a December 31 measurement date for its
pension and other postretirement benefit plans. The fair value of the plan
assets represents the actual market value as of December 31, 2007.
FirstEnergy also provides a minimum amount of noncontributory life insurance to
retired employees in addition to optional contributory insurance. Health care
benefits, which include certain employee contributions, deductibles and
co-payments, are available upon retirement to employees hired prior to
January 1, 2005, their dependents and, under certain circumstances, their
survivors. FirstEnergy recognizes the expected cost of providing pension
benefits and other postretirement benefits from the time employees are hired
until they become eligible to receive those benefits. In addition, FirstEnergy
has obligations to former or inactive employees after employment, but before
retirement, for disability-related benefits.
The components of
FirstEnergy's net periodic pension cost and other postretirement benefit cost
(including amounts capitalized) for the three months ended March 31, 2008 and
2007, consisted of the following:
|
|
Pension
Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net
actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
cost (credit)
|
|
|
|
)
|
|
|
|
|
|
)
|
|
|
)
|
Pension and
postretirement benefit obligations are allocated to FirstEnergy’s subsidiaries
employing the plan participants. The Companies capitalize employee benefits
related to construction projects. The net periodic pension costs and net
periodic postretirement benefit costs (including amounts capitalized) recognized
by each of the Companies for the three months ended March 31, 2008 and 2007
were as follows:
|
|
Pension
Benefit Cost (Credit)
|
|
Other
Postretirement
Benefit
Cost (Credit)
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
|
|
|
|
|
)
|
|
|
)
|
|
|
)
|
|
|
)
|
|
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
)
|
Other
FirstEnergy
subsidiaries
|
|
|
|
|
|
|
|
|
|
)
|
|
|
)
|
|
|
|
|
)
|
|
|
)
|
|
|
)
|
|
|
)
|
8. VARIABLE
INTEREST ENTITIES
FIN 46R addresses
the consolidation of VIEs, including special-purpose entities, that are not
controlled through voting interests or in which the equity investors do not bear
the entity's residual economic risks and rewards. FirstEnergy and its
subsidiaries consolidate VIEs when they are determined to be the VIE's primary
beneficiary as defined by FIN 46R.
Trusts
FirstEnergy’s
consolidated financial statements include PNBV and Shippingport, VIEs created in
1996 and 1997, respectively, to refinance debt originally issued in connection
with sale and leaseback transactions. PNBV and Shippingport financial data are
included in the consolidated financial statements of OE and CEI,
respectively.
PNBV was established
to purchase a portion of the lease obligation bonds issued in connection with
OE’s 1987 sale and leaseback of its interests in the Perry Plant and Beaver
Valley Unit 2. OE used debt and available funds to purchase the notes issued by
PNBV. Ownership of PNBV includes a 3% equity interest by an unaffiliated third
party and a 3% equity interest held by OES Ventures, a wholly owned subsidiary
of OE. Shippingport was established to purchase all of the lease obligation
bonds issued in connection with CEI’s and TE’s Bruce Mansfield Plant sale and
leaseback transaction in 1987. CEI and TE used debt and available funds to
purchase the notes issued by Shippingport.
Loss
Contingencies
FES and the Ohio
Companies are exposed to losses under their applicable sale-leaseback agreements
upon the occurrence of certain contingent events that each company considers
unlikely to occur. The maximum exposure under these provisions represents the
net amount of casualty value payments due upon the occurrence of specified
casualty events that render the applicable plant worthless. Net discounted lease
payments would not be payable if the casualty loss payments are made. The
following table shows each company’s net exposure to loss based upon the
casualty value provisions mentioned above as of March 31, 2008:
|
|
Maximum
Exposure
|
|
Discounted
Lease
Payments,
net
|
|
Net
Exposure
|
|
|
(in
millions)
|
FES
|
|
$
|
1,364
|
|
$
|
1,216
|
|
$
|
148
|
OE
|
|
819
|
|
628
|
|
191
|
CEI
|
|
782
|
|
77
|
|
705
|
TE
|
|
782
|
|
457
|
|
325
|
In
October 2007, CEI and TE assigned their leasehold interests in the Bruce
Mansfield Plant to FGCO. FGCO assumed all of CEI’s and TE’s obligations arising
under those leases. FGCO subsequently transferred the Unit 1 portion of these
leasehold interests, as well as FGCO’s leasehold interests under its
July 2007 Bruce Mansfield Unit 1 sale and leaseback transaction to a newly
formed wholly-owned subsidiary in December 2007. The subsidiary assumed all
of the lessee obligations associated with the assigned interests. However, CEI
and TE will remain primarily liable on the 1987 leases and related agreements as
to the lessors and other parties to the agreements. FGCO remains primarily
liable on the 2007 leases and related agreements, and FES remains primarily
liable as a guarantor under the related 2007 guarantees, as to the lessors and
other parties to the respective agreements. These assignments terminate
automatically upon the termination of the underlying leases.
On March 3, 2008,
notice was given to the nine owner trusts that are lessors under sale and
leaseback transactions, originally entered into by TE in 1987, that NGC would
acquire the related 18.26% undivided interest in Beaver Valley Unit 2 through
the exercise of the periodic purchase option provided for in the applicable
facility leases. The purchase price to be paid by NGC for the undivided interest
will be equal to the higher of a specified casualty value under the applicable
facility leases (approximately $239 million in the aggregate for the equity
portion of all nine facility leases) and the fair market sales value of such
undivided interests. Determination of the fair market sales value may become
subject to an appraisal procedure provided for in the lease documentation. An
additional payment of approximately $236 million would be required to
prepay in full the outstanding principal of, and accrued but unpaid interest on,
the lessor notes of the nine owner trusts. Alternatively, this amount would not
be paid as part of the aggregate purchase price if the lessor notes are instead
assumed at the time of the exercise of the option. If NGC determines to prepay
the notes, it is possible that the proceeds from such prepayment may not be
sufficient to pay the principal of, and interest on, the bonds as they become
due. If that is the case, NGC would provide a mechanism to address any such
potential shortfall in a timely manner.
Power Purchase Agreements
In accordance with
FIN 46R, FirstEnergy evaluated its power purchase agreements and determined that
certain NUG entities may be VIEs to the extent they own a plant that sells
substantially all of its output to the Companies and the contract price for
power is correlated with the plant’s variable costs of production. FirstEnergy,
through its subsidiaries JCP&L, Met-Ed and Penelec, maintains approximately
30 long-term power purchase agreements with NUG entities. The agreements were
entered into pursuant to the Public Utility Regulatory Policies Act of 1978.
FirstEnergy was not involved in the creation of, and has no equity or debt
invested in, these entities.
FirstEnergy has
determined that for all but eight of these entities, neither JCP&L, Met-Ed
nor Penelec have variable interests in the entities or the entities are
governmental or not-for-profit organizations not within the scope of
FIN 46R. JCP&L, Met-Ed or Penelec may hold variable interests in the
remaining eight entities, which sell their output at variable prices that
correlate to some extent with the operating costs of the plants. As required by
FIN 46R, FirstEnergy periodically requests from these eight entities the
information necessary to determine whether they are VIEs or whether JCP&L,
Met-Ed or Penelec is the primary beneficiary. FirstEnergy has been unable to
obtain the requested information, which in most cases was deemed by the
requested entity to be proprietary. As such, FirstEnergy applied the scope
exception that exempts enterprises unable to obtain the necessary information to
evaluate entities under FIN 46R.
Since FirstEnergy
has no equity or debt interests in the NUG entities, its maximum exposure to
loss relates primarily to the above-market costs it may incur for power.
FirstEnergy expects any above-market costs it incurs to be recovered from
customers. Purchased power costs from these entities during the three months
ended March 31, 2008 and 2007 are shown in the following
table:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Bonds
The consolidated
financial statements of FirstEnergy and JCP&L include the results of
JCP&L Transition Funding and JCP&L Transition Funding II, wholly owned
limited liability companies of JCP&L. In June 2002, JCP&L Transition
Funding sold $320 million of transition bonds to securitize the recovery of
JCP&L's bondable stranded costs associated with the previously divested
Oyster Creek Nuclear Generating Station. In August 2006, JCP&L Transition
Funding II sold $182 million of transition bonds to securitize the recovery
of deferred costs associated with JCP&L’s supply of BGS.
JCP&L did not
purchase and does not own any of the transition bonds, which are included as
long-term debt on FirstEnergy's and JCP&L's Consolidated Balance Sheets. As
of March 31, 2008, $391 million of the transition bonds were
outstanding. The transition bonds are the sole obligations of JCP&L
Transition Funding and JCP&L Transition Funding II and are collateralized by
each company’s equity and assets, which consists primarily of bondable
transition property.
Bondable transition
property represents the irrevocable right under New Jersey law of a utility
company to charge, collect and receive from its customers, through a
non-bypassable TBC, the principal amount and interest on transition bonds and
other fees and expenses associated with their issuance. JCP&L sold its
bondable transition property to JCP&L Transition Funding and JCP&L
Transition Funding II and, as servicer, manages and administers the bondable
transition property, including the billing, collection and remittance of the
TBC, pursuant to separate servicing agreements with JCP&L Transition Funding
and JCP&L Transition Funding II. For the two series of transition bonds,
JCP&L is entitled to aggregate quarterly servicing fees of $157,000 payable
from TBC collections.
9. INCOME
TAXES
On January 1, 2007,
FirstEnergy adopted FIN 48, which provides guidance for accounting for
uncertainty in income taxes recognized in a company’s financial statements in
accordance with SFAS 109. This interpretation prescribes a recognition
threshold and measurement attribute for financial statement recognition and
measurement of tax positions taken or expected to be taken on a company’s tax
return. FIN 48 also provides guidance on derecognition, classification,
interest, penalties, accounting in interim periods, disclosure and transition.
The evaluation of a tax position in accordance with this interpretation is a
two-step process. The first step is to determine if it is more likely than not
that a tax position will be sustained upon examination, based on the merits of
the position, and should therefore be recognized. The second step is to measure
a tax position that meets the more likely than not recognition threshold to
determine the amount of income tax benefit to recognize in the financial
statements.
As of January 1,
2007, the total amount of FirstEnergy’s unrecognized tax benefits was
$268 million. FirstEnergy recorded a $2.7 million cumulative effect
adjustment to the January 1, 2007 balance of retained earnings to increase
reserves for uncertain tax positions. Of the total amount of unrecognized income
tax benefits, $92 million would favorably affect FirstEnergy’s effective tax
rate upon recognition. The majority of items that would not have affected the
effective tax rate would be purchase accounting adjustments to goodwill upon
recognition. During the first three months of 2008 and 2007, there were no
material changes to FirstEnergy’s unrecognized tax benefits. As of
March 31, 2008, FirstEnergy expects that it is reasonably possible that
$8 million of the unrecognized benefits will be resolved within the next
twelve months and is included in the caption “accrued taxes,” with the remaining
$263 million included in the caption “other non-current liabilities” on the
Consolidated Balance Sheets.
FIN 48 also requires
companies to recognize interest expense or income related to uncertain tax
positions. That amount is computed by applying the applicable statutory interest
rate to the difference between the tax position recognized in accordance with
FIN 48 and the amount previously taken or expected to be taken on the tax
return. FirstEnergy includes net interest and penalties in the provision for
income taxes, consistent with its policy prior to implementing FIN 48. The
net amount of interest accrued as of March 31, 2008 was $57 million,
as compared to $53 million as of December 31, 2007. During the first
three months of 2008 and 2007, there were no material changes to the amount of
interest accrued.
FirstEnergy has tax
returns that are under review at the audit or appeals level by the IRS and state
tax authorities. All state jurisdictions are open from 2001-2007. The IRS began
reviewing returns for the years 2001-2003 in July 2004 and several items are
under appeal. The federal audits for the years 2004-2006 are expected to close
before December 2008, but management anticipates certain items to be under
appeal. The IRS began auditing the year 2007 in February 2007 and year 2008 in
February 2008 under its Compliance Assurance Process experimental program.
Neither audit is expected to close before December 2008. Management believes
that adequate reserves have been recognized and final settlement of these audits
is not expected to have a material adverse effect on FirstEnergy’s financial
condition or results of operations.
10. COMMITMENTS,
GUARANTEES AND CONTINGENCIES
(A) GUARANTEES
AND OTHER ASSURANCES
As part of normal
business activities, FirstEnergy enters into various agreements on behalf of its
subsidiaries to provide financial or performance assurances to third parties.
These agreements include contract guarantees, surety bonds and LOCs. As of
March 31, 2008, outstanding guarantees and other assurances aggregated
approximately $4.4 billion, consisting of parental guarantees -
$0.9 billion, subsidiaries’ guarantees - $2.7 billion, surety bonds -
$0.1 billion and LOCs - $0.7 billion.
FirstEnergy
guarantees energy and energy-related payments of its subsidiaries involved in
energy commodity activities principally to facilitate normal physical
transactions involving electricity, gas, emission allowances and coal.
FirstEnergy also provides guarantees to various providers of credit support for
the financing or refinancing by subsidiaries of costs related to the acquisition
of property, plant and equipment. These agreements legally obligate FirstEnergy
to fulfill the obligations of those subsidiaries directly involved in energy and
energy-related transactions or financing where the law might otherwise limit the
counterparties' claims. If demands of a counterparty were to exceed the ability
of a subsidiary to satisfy existing obligations, FirstEnergy's guarantee enables
the counterparty's legal claim to be satisfied by other FirstEnergy assets. The
likelihood is remote that such parental guarantees of $0.4 billion
(included in the $0.9 billion discussed above) as of March 31, 2008
would increase amounts otherwise payable by FirstEnergy to meet its obligations
incurred in connection with financings and ongoing energy and energy-related
activities.
While these types of
guarantees are normally parental commitments for the future payment of
subsidiary obligations, subsequent to the occurrence of a credit rating
downgrade or “material adverse event,” the immediate posting of cash collateral
or provision of an LOC may be required of the subsidiary. As of March 31,
2008, FirstEnergy's maximum exposure under these collateral provisions was
$440 million.
Most of
FirstEnergy's surety bonds are backed by various indemnities common within the
insurance industry. Surety bonds and related guarantees of $66 million
provide additional assurance to outside parties that contractual and statutory
obligations will be met in a number of areas including construction contracts,
environmental commitments and various retail transactions.
FirstEnergy has also
guaranteed the obligations of the operators of the TEBSA project, up to a
maximum of $2 million (subject to escalation) under the project's
operations and maintenance agreement. In connection with the sale of TEBSA in
January 2004, the purchaser indemnified FirstEnergy against any loss under this
guarantee. FirstEnergy has also provided an LOC ($19 million as of
March 31, 2008), which is renewable and declines yearly based upon the
senior outstanding debt of TEBSA.
In July 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases. The related
lessor notes and pass through certificates are not guaranteed by FES or FGCO,
but the notes are secured by, among other things, each lessor trust’s undivided
interest in Unit 1, rights and interests under the applicable lease and rights
and interests under other related agreements, including FES’ lease
guaranty.
(B)
|
ENVIRONMENTAL
MATTERS
|
Various federal,
state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. The effects of compliance on
FirstEnergy with regard to environmental matters could have a material adverse
effect on FirstEnergy's earnings and competitive position to the extent that it
competes with companies that are not subject to such regulations and, therefore,
do not bear the risk of costs associated with compliance, or failure to comply,
with such regulations. FirstEnergy estimates capital expenditures for
environmental compliance of approximately $1.4 billion for the period
2008-2012.
FirstEnergy accrues
environmental liabilities only when it concludes that it is probable that it has
an obligation for such costs and can reasonably estimate the amount of such
costs. Unasserted claims are reflected in FirstEnergy’s determination of
environmental liabilities and are accrued in the period that they become both
probable and reasonably estimable.
Clean Air Act Compliance
FirstEnergy is
required to meet federally-approved SO2 emissions
regulations. Violations of such regulations can result in the shutdown of the
generating unit involved and/or civil or criminal penalties of up to $32,500 for
each day the unit is in violation. The EPA has an interim enforcement policy for
SO2
regulations in Ohio that allows for compliance based on a 30-day averaging
period. FirstEnergy believes it is currently in compliance with this policy, but
cannot predict what action the EPA may take in the future with respect to the
interim enforcement policy.
The EPA Region 5
issued a Finding of Violation and NOV to the Bay Shore Power Plant dated June
15, 2006, alleging violations to various sections of the CAA. FirstEnergy has
disputed those alleged violations based on its CAA permit, the Ohio SIP and
other information provided to the EPA at an August 2006 meeting with the EPA.
The EPA has several enforcement options (administrative compliance order,
administrative penalty order, and/or judicial, civil or criminal action) and has
indicated that such option may depend on the time needed to achieve and
demonstrate compliance with the rules alleged to have been violated. On
June 5, 2007, the EPA requested another meeting to discuss “an appropriate
compliance program” and a disagreement regarding the opacity limit applicable to
the common stack for Bay Shore Units 2, 3 and 4.
FirstEnergy complies
with SO2 reduction
requirements under the Clean Air Act Amendments of 1990 by burning lower-sulfur
fuel, generating more electricity from lower-emitting plants, and/or using
emission allowances. NOX reductions
required by the 1990 Amendments 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
at FirstEnergy's 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 nineteen states (including
Michigan, New Jersey, Ohio and Pennsylvania) and the District of Columbia based
on a conclusion that such NOX emissions
are contributing significantly to ozone levels in the eastern United States.
FirstEnergy believes its facilities are also complying with the NOX budgets
established under SIPs through combustion controls and post-combustion controls,
including Selective Catalytic Reduction and SNCR systems, and/or using emission
allowances.
On May 22, 2007,
FirstEnergy and FGCO received a notice letter, required 60 days prior to the
filing of a citizen suit under the federal CAA, alleging violations of air
pollution laws at the Bruce Mansfield Plant, including opacity limitations.
Prior to the receipt of this notice, the Plant was subject to a Consent Order
and Agreement with the Pennsylvania Department of Environmental Protection
concerning opacity emissions under which efforts to achieve compliance with the
applicable laws will continue. On October 18, 2007, PennFuture filed a
complaint, joined by three of its members, in the United States District Court
for the Western District of Pennsylvania. On January 11, 2008, FirstEnergy filed
a motion to dismiss claims alleging a public nuisance. On April 24, 2008, the
Court denied the motion to dismiss, but also ruled that monetary damages could
not be recovered under the public nuisance claim.
On December 18,
2007, the state of New Jersey filed a CAA citizen suit alleging NSR violations
at the Portland Generation Station against Reliant (the current owner and
operator), Sithe Energy (the purchaser of the Portland Station from Met-Ed in
1999), GPU, Inc. and Met-Ed. Specifically, New Jersey alleges that
"modifications" at Portland Units 1 and 2 occurred between 1980 and 1995 without
preconstruction NSR or permitting under the CAA's prevention of significant
deterioration program, and seeks injunctive relief, penalties, attorney fees and
mitigation of the harm caused by excess emissions. On March 14, 2008, Met-Ed
filed a motion to dismiss the citizen suit claims against it and a stipulation
in which the parties agreed that GPU, Inc. should be dismissed from this case.
On March 26, 2008, GPU, Inc. was dismissed by the Court. Although it remains
liable for civil or criminal penalties and fines that may be assessed relating
to events prior to the sale of the Portland Station in 1999, Met-Ed is
indemnified by Sithe Energy against any other liability arising under the CAA
whether it arises out of pre-1999 or post-1999 events.
National Ambient Air Quality
Standards
In March 2005,
the EPA finalized the CAIR covering a total of 28 states (including Michigan,
New Jersey, Ohio and Pennsylvania) and the District of Columbia based on
proposed findings that air emissions from 28 eastern states and the District of
Columbia significantly contribute to non-attainment of the NAAQS for fine
particles and/or the "8-hour" ozone NAAQS in other states. CAIR requires
reductions of NOX and
SO2
emissions in two phases (Phase I in 2009 for NOX, 2010 for
SO2
and Phase II in 2015 for both NOX and
SO2).
FirstEnergy's Michigan, Ohio and Pennsylvania fossil generation facilities will
be subject to caps on SO2 and
NOX
emissions, whereas its New Jersey fossil generation facility will be subject to
only a cap on NOX emissions.
According to the EPA, SO2 emissions
will be reduced by 45% (from 2003 levels) by 2010 across the states covered by
the rule, with reductions reaching 73% (from 2003 levels) by 2015, capping
SO2
emissions in affected states to just 2.5 million tons annually. NOX emissions
will be reduced by 53% (from 2003 levels) by 2009 across the states covered by
the rule, with reductions reaching 61% (from 2003 levels) by 2015, achieving a
regional NOX cap of 1.3
million tons annually. CAIR has been challenged in the United States Court of
Appeals for the District of Columbia. The future cost of compliance with these
regulations may be substantial and may depend on the outcome of this litigation
and how CAIR is ultimately implemented.
Mercury Emissions
In December 2000,
the EPA announced it would proceed with the development of regulations regarding
hazardous air pollutants from electric power plants, identifying mercury as the
hazardous air pollutant of greatest concern. In March 2005, the EPA finalized
the CAMR, which provides a cap-and-trade program to reduce mercury emissions
from coal-fired power plants in two phases; initially, capping national mercury
emissions at 38 tons by 2010 (as a "co-benefit" from implementation of
SO2
and NOX emission
caps under the EPA's CAIR program) and 15 tons per year by 2018. Several states
and environmental groups appealed the CAMR to the United States Court of Appeals
for the District of Columbia. On February 8, 2008, the court vacated the
CAMR ruling that the EPA failed to take the necessary steps to “de-list”
coal-fired power plants from its hazardous air pollutant program and, therefore,
could not promulgate a cap-and-trade program. The EPA must now seek further
judicial review of that ruling or take regulatory action to promulgate new
mercury emission standards for coal-fired power plants. FGCO’s future cost of
compliance with mercury regulations may be substantial and will depend on the
action taken by the EPA and on how they are ultimately implemented.
Pennsylvania has
submitted a new mercury rule for EPA approval that does not provide a
cap-and-trade approach as in the CAMR, but rather follows a command-and-control
approach imposing emission limits on individual sources. It is anticipated that
compliance with these regulations, if approved by the EPA and implemented, would
not require the addition of mercury controls at the Bruce Mansfield Plant,
FirstEnergy’s only Pennsylvania coal-fired power plant, until 2015, if at
all.
W. H. Sammis Plant
In 1999 and 2000,
the EPA issued an NOV and the DOJ filed a civil complaint against OE and Penn
based on operation and maintenance of the W.H. Sammis Plant (Sammis NSR
Litigation) and filed similar complaints involving 44 other U.S. power plants.
This case, along with seven other similar cases, are referred to as the NSR
cases.
On March 18, 2005,
OE and Penn announced that they had reached a settlement with the EPA, the DOJ
and three states (Connecticut, New Jersey and New York) that resolved all issues
related to the Sammis NSR litigation. This settlement agreement, which is in the
form of a consent decree, was approved by the court on July 11, 2005, and
requires reductions of NOX and
SO2
emissions at the Sammis, Burger, Eastlake and Mansfield coal-fired plants
through the installation of pollution control devices and provides for
stipulated penalties for failure to install and operate such pollution controls
in accordance with that agreement. Consequently, if FirstEnergy fails to install
such pollution control devices, for any reason, including, but not limited to,
the failure of any third-party contractor to timely meet its delivery
obligations for such devices, FirstEnergy could be exposed to penalties under
the Sammis NSR Litigation consent decree. Capital expenditures necessary to
complete requirements of the Sammis NSR Litigation consent decree are currently
estimated to be $1.3 billion for 2008-2012 ($650 million of which is
expected to be spent during 2008, with the largest portion of the remaining
$650 million expected to be spent in 2009). This amount is included in the
estimated capital expenditures for environmental compliance referenced
above.
On April 2,
2007, the United States Supreme Court ruled that changes in annual emissions (in
tons/year) rather than changes in hourly emissions rate (in kilograms/hour) must
be used to determine whether an emissions increase triggers NSR. Subsequently,
on May 8, 2007, the EPA proposed to revise the NSR regulations to utilize
changes in the hourly emission rate (in kilograms/hour) to determine whether an
emissions increase triggers NSR. The EPA has not yet issued a
final regulation. FGCO’s future cost of compliance with those regulations may be
substantial and will depend on how they are ultimately implemented.
Climate Change
In December 1997,
delegates to the United Nations' climate summit in Japan adopted an agreement,
the Kyoto Protocol, to address global warming by reducing the amount of man-made
GHG emitted by developed countries by 2012. The United States signed the Kyoto
Protocol in 1998 but it failed to receive the two-thirds vote required for
ratification by the United States Senate. However, the Bush administration has
committed the United States to a voluntary climate change strategy to reduce
domestic GHG intensity – the ratio of emissions to economic output – by 18%
through 2012. Also, in an April 16, 2008 speech, President Bush set a
policy goal of stopping the growth of GHG emissions by 2025, as the next step
beyond the 2012 strategy. In addition, the EPACT established a Committee on
Climate Change Technology to coordinate federal climate change activities and
promote the development and deployment of GHG reducing
technologies.
There are a number
of initiatives to reduce GHG emissions under consideration at the federal, state
and international level. At the international level, efforts to reach
a new global agreement to reduce GHG emissions post-2012 have begun with the
Bali Roadmap, which outlines a two-year process designed to lead to an agreement
in 2009. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the Senate
Environmental and Public Works Committees have passed one such bill. State
activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states led by California, have coordinated
efforts to develop regional strategies to control emissions of certain
GHGs.
On April 2, 2007,
the United States Supreme Court found that the EPA has the authority to regulate
CO2
emissions from automobiles as “air pollutants” under the CAA. Although this
decision did not address CO2 emissions
from electric generating plants, the EPA has similar authority under the CAA to
regulate “air pollutants” from those and other facilities.
FirstEnergy cannot
currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO2 emissions
could require significant capital and other expenditures. The CO2 emissions
per KWH of electricity generated by FirstEnergy is lower than many regional
competitors due to its diversified generation sources, which include low or
non-CO2 emitting
gas-fired and nuclear generators.
Clean Water Act
Various water
quality regulations, the majority of which are the result of the federal Clean
Water Act and its amendments, apply to FirstEnergy's plants. In addition, Ohio,
New Jersey and Pennsylvania have water quality standards applicable to
FirstEnergy's operations. As provided in the Clean Water Act, authority to grant
federal National Pollutant Discharge Elimination System water discharge permits
can be assumed by a state. Ohio, New Jersey and Pennsylvania have assumed such
authority.
On September 7,
2004, the EPA established new performance standards under Section 316(b) of the
Clean Water Act for reducing impacts on fish and shellfish from cooling water
intake structures at certain existing large electric generating plants. The
regulations call for reductions in impingement mortality (when aquatic organisms
are pinned against screens or other parts of a cooling water intake system) and
entrainment (which occurs when aquatic life is drawn into a facility's cooling
water system). On January 26, 2007, the United States Court of Appeals for the
Second Circuit remanded portions of the rulemaking dealing with impingement
mortality and entrainment back to the EPA for further rulemaking and eliminated
the restoration option from the EPA’s regulations. On July 9, 2007, the EPA
suspended this rule, noting that until further rulemaking occurs, permitting
authorities should continue the existing practice of applying their best
professional judgment (BPJ) to minimize impacts on fish and shellfish from
cooling water intake structures. On April 14, 2008, the Supreme Court of
the United States granted a petition for a writ of certiorari to review certain
aspects of the Second Circuit’s decision. FirstEnergy is studying various
control options and their costs and effectiveness. Depending on the results of
such studies, the outcome of the Supreme Court’s review of the Second Circuit’s
decision, the EPA’s further rulemaking and any action taken by the states
exercising BPJ, the future costs of compliance with these standards may require
material capital expenditures.
Regulation of Hazardous
Waste
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 subsequently
determined that regulation of coal ash as a hazardous waste is unnecessary. In
April 2000, the EPA announced that it will develop national standards regulating
disposal of coal ash under its authority to regulate non-hazardous
waste.
Under NRC
regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities. As of March 31, 2008,
FirstEnergy had approximately $2.0 billion invested in external trusts to
be used for the decommissioning and environmental remediation of Davis-Besse,
Beaver Valley, Perry and TMI-2. As part of the application to the NRC to
transfer the ownership of Davis-Besse, Beaver Valley and Perry to NGC in 2005,
FirstEnergy agreed to contribute another $80 million to these trusts by 2010.
Consistent with NRC guidance, utilizing a “real” rate of return on these funds
of approximately 2% over inflation, these trusts are expected to exceed the
minimum decommissioning funding requirements set by the NRC. Conservatively,
these estimates do not include any rate of return that the trusts may earn over
the 20-year plant useful life extensions that FirstEnergy (and Exelon for TMI-1
as it relates to the timing of the decommissioning of TMI-2) seeks for these
facilities.
The Companies have
been named as 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; however,
federal law provides that all PRPs for a particular site may be liable on a
joint and several basis. Therefore, environmental liabilities that are
considered probable have been recognized on the Consolidated Balance Sheet as of
March 31, 2008, based on estimates of the total costs of cleanup, the Companies'
proportionate responsibility for such costs and the financial ability of other
unaffiliated entities to pay. Total liabilities of approximately
$92 million (JCP&L - $65 million, TE - $1 million, CEI -
$1 million and FirstEnergy Corp. - $25 million) have been accrued
through March 31, 2008. Included in the total for JCP&L are accrued
liabilities of approximately $56 million for environmental remediation of
former manufactured gas plants in New Jersey; which are being recovered by
JCP&L through a non-bypassable SBC.
(C) OTHER LEGAL
PROCEEDINGS
Power Outages and Related
Litigation
In July 1999, the
Mid-Atlantic States experienced a severe heat wave, which resulted in power
outages throughout the service territories of many electric utilities, including
JCP&L's territory. In an investigation into the causes of the outages and
the reliability of the transmission and distribution systems of all four of New
Jersey’s electric utilities, the NJBPU concluded that there was not a prima
facie case demonstrating that, overall, JCP&L provided unsafe, inadequate or
improper service to its customers. Two class action lawsuits (subsequently
consolidated into a single proceeding) were filed in New Jersey Superior Court
in July 1999 against JCP&L, GPU and other GPU companies, seeking
compensatory and punitive damages arising from the July 1999 service
interruptions in the JCP&L territory.
In August 2002, the
trial court granted partial summary judgment to JCP&L and dismissed the
plaintiffs' claims for consumer fraud, common law fraud, negligent
misrepresentation, and strict product liability. In November 2003, the trial
court granted JCP&L's motion to decertify the class and denied plaintiffs'
motion to permit into evidence their class-wide damage model indicating damages
in excess of $50 million. These class decertification and damage rulings were
appealed to the Appellate Division. The Appellate Division issued a decision in
July 2004, affirming the decertification of the originally certified class, but
remanding for certification of a class limited to those customers directly
impacted by the outages of JCP&L transformers in Red Bank, NJ, based on a
common incident involving the failure of the bushings of two large transformers
in the Red Bank substation resulting in planned and unplanned outages in the
area during a 2-3 day period. In 2005, JCP&L renewed its motion to decertify
the class based on a very limited number of class members who incurred damages
and also filed a motion for summary judgment on the remaining plaintiffs’ claims
for negligence, breach of contract and punitive damages. In July 2006, the New
Jersey Superior Court dismissed the punitive damage claim and again decertified
the class based on the fact that a vast majority of the class members did not
suffer damages and those that did would be more appropriately addressed in
individual actions. Plaintiffs appealed this ruling to the New Jersey Appellate
Division which, in March 2007, reversed the decertification of the Red Bank
class and remanded this matter back to the Trial Court to allow plaintiffs
sufficient time to establish a damage model or individual proof of damages.
JCP&L filed a petition for allowance of an appeal of the Appellate Division
ruling to the New Jersey Supreme Court which was denied in May
2007. Proceedings are continuing in the Superior Court and a case
management conference with the presiding Judge is scheduled for June 13,
2008. FirstEnergy is defending this class action but is unable to
predict the outcome of this matter. No liability has been accrued as
of March 31, 2008.
Nuclear Plant Matters
On May 14, 2007, the
Office of Enforcement of the NRC issued a DFI to FENOC, following FENOC’s reply
to an April 2, 2007 NRC request for information, about two reports prepared by
expert witnesses for an insurance arbitration (the insurance claim was
subsequently withdrawn by FirstEnergy in December 2007) related to Davis-Besse.
The NRC indicated that this information was needed for the NRC “to determine
whether an Order or other action should be taken pursuant to 10 CFR 2.202, to
provide reasonable assurance that FENOC will continue to operate its licensed
facilities in accordance with the terms of its licenses and the Commission’s
regulations.” FENOC was directed to submit the information to the NRC within 30
days. On June 13, 2007, FENOC filed a response to the NRC’s DFI reaffirming that
it accepts full responsibility for the mistakes and omissions leading up to the
damage to the reactor vessel head and that it remains committed to operating
Davis-Besse and FirstEnergy’s other nuclear plants safely and responsibly. FENOC
submitted a supplemental response clarifying certain aspects of the DFI response
to the NRC on July 16, 2007. On August 15, 2007, the NRC issued a
confirmatory order imposing these commitments. FENOC must inform the NRC’s
Office of Enforcement after it completes the key commitments embodied in the
NRC’s order. FENOC’s compliance with these commitments is subject to future NRC
review.
Other Legal Matters
There are various
lawsuits, claims (including claims for asbestos exposure) and proceedings
related to FirstEnergy's normal business operations pending against FirstEnergy
and its subsidiaries. The other potentially material items not otherwise
discussed above are described below.
On August 22, 2005,
a class action complaint was filed against OE in Jefferson County, Ohio Common
Pleas Court, seeking compensatory and punitive damages to be determined at trial
based on claims of negligence and eight other tort counts alleging damages from
W.H. Sammis Plant air emissions. The two named plaintiffs are also seeking
injunctive relief to eliminate harmful emissions and repair property damage and
the institution of a medical monitoring program for class members. On
April 5, 2007, the Court rejected the plaintiffs’ request to certify this
case as a class action and, accordingly, did not appoint the plaintiffs as class
representatives or their counsel as class counsel. On July 30, 2007,
plaintiffs’ counsel voluntarily withdrew their request for reconsideration of
the April 5, 2007 Court order denying class certification and the Court
heard oral argument on the plaintiffs’ motion to amend their complaint which OE
opposed. On August 2, 2007, the Court denied the plaintiffs’ motion to
amend their complaint. The plaintiffs have appealed the Court’s denial of the
motion for certification as a class action and motion to amend their
complaint.
JCP&L's
bargaining unit employees filed a grievance challenging JCP&L's 2002
call-out procedure that required bargaining unit employees to respond to
emergency power outages. On May 20, 2004, an arbitration panel concluded
that the call-out procedure violated the parties' collective bargaining
agreement. At the conclusion of the June 1, 2005 hearing, the arbitration
panel decided not to hear testimony on damages and closed the proceedings. On
September 9, 2005, the arbitration panel issued an opinion to award
approximately $16 million to the bargaining unit employees. On February 6,
2006, a federal district court granted a union motion to dismiss, as premature,
a JCP&L appeal of the award filed on October 18, 2005. A final order
identifying the individual damage amounts was issued on October 31, 2007.
The award appeal process was initiated. The union filed a motion with the
federal court to confirm the award and JCP&L filed its answer and
counterclaim to vacate the award on December 31, 2007. The court held a
scheduling conference in April 2008 where it set a briefing schedule with all
briefs to be concluded by July 2008. JCP&L recognized a liability for the
potential $16 million award in 2005.
The union employees
at the Bruce Mansfield Plant have been working without a labor contract since
February 15, 2008. The parties are continuing to bargain with the
assistance of a federal mediator. FirstEnergy has a strike mitigation plan ready
in the event of a strike.
FirstEnergy accrues
legal liabilities only when it concludes that it is probable that it has an
obligation for such costs and can reasonably estimate the amount of such costs.
If it were ultimately determined that FirstEnergy or its subsidiaries have legal
liability or are otherwise made subject to liability based on the above matters,
it could have a material adverse effect on FirstEnergy's or its subsidiaries'
financial condition, results of operations and cash flows.
11. REGULATORY
MATTERS
(A) RELIABILITY
INITIATIVES
In late 2003 and
early 2004, a series of letters, reports and recommendations were issued from
various entities, including governmental, industry and ad hoc reliability
entities (PUCO, FERC, NERC and the U.S. – Canada Power System Outage Task Force)
regarding enhancements to regional reliability. The proposed enhancements were
divided into two groups: enhancements that were to be completed in
2004; and enhancements that were to be completed after 2004. In 2004,
FirstEnergy completed all of the enhancements that were recommended for
completion in 2004. FirstEnergy is also proceeding with the implementation of
the recommendations that were to be completed subsequent to 2004 and will
continue to periodically assess the FERC-ordered Reliability Study
recommendations for forecasted 2009 system conditions, recognizing revised load
forecasts and other changing system conditions which may impact the
recommendations. Thus far, implementation of the recommendations has not
required, nor is expected to require, substantial investment in new or material
upgrades to existing equipment. The FERC or other applicable government agencies
and reliability coordinators may, however, take a different view as to
recommended enhancements or may recommend additional enhancements in the future
that could require additional material expenditures.
As a result of
outages experienced in JCP&L’s service area in 2002 and 2003, the NJBPU
performed a review of JCP&L’s service reliability. On June 9, 2004, the
NJBPU approved a stipulation that addresses a third-party consultant’s
recommendations on appropriate courses of action necessary to ensure system-wide
reliability. The stipulation incorporates the consultant’s focused audit of, and
recommendations regarding, JCP&L’s Planning and Operations and Maintenance
programs and practices. On June 1, 2005, the consultant completed his work and
issued his final report to the NJBPU. On July 14, 2006, JCP&L filed a
comprehensive response to the consultant’s report with the NJBPU. JCP&L will
complete the remaining substantive work described in the stipulation in
2008. JCP&L continues to file compliance reports with the NJBPU
reflecting JCP&L’s activities associated with implementing the
stipulation.
In 2005, Congress
amended the Federal Power Act to provide for federally-enforceable mandatory
reliability standards. The mandatory reliability standards apply to the bulk
power system and impose certain operating, record-keeping and reporting
requirements on the Companies and ATSI. The NERC is charged with establishing
and enforcing these reliability standards, although it has delegated day-to-day
implementation and enforcement of its responsibilities to eight regional
entities, including the ReliabilityFirst
Corporation. All of FirstEnergy’s facilities are located within the
ReliabilityFirst
region. FirstEnergy actively participates in the NERC and ReliabilityFirst stakeholder processes,
and otherwise monitors and manages its companies in response to the ongoing
development, implementation and enforcement of the reliability
standards.
FirstEnergy believes
that it is in compliance with all currently-effective and enforceable
reliability standards. Nevertheless, it is clear that NERC,
ReliabilityFirst and
the FERC will continue to refine existing reliability standards as well as to
develop and adopt new reliability standards. The financial impact of complying
with new or amended standards cannot be determined at this time. However, the
2005 amendments to the Federal Power Act provide that all prudent costs incurred
to comply with the new reliability standards be recovered in rates. Still, any
future inability on FirstEnergy’s part to comply with the reliability standards
for its bulk power system could have a material adverse effect on its financial
condition, results of operations and cash flows.
In April 2007,
ReliabilityFirst
performed a routine compliance audit of FirstEnergy’s bulk-power system within
the Midwest ISO region and found it to be in full compliance with all audited
reliability standards. Similarly, ReliabilityFirst has scheduled a
compliance audit of FirstEnergy’s bulk-power system within the PJM region in
2008. FirstEnergy currently does not expect any material adverse financial
impact as a result of these audits.
(B) OHIO
On January 4,
2006, the PUCO issued an order authorizing the Ohio Companies to recover certain
increased fuel costs through a fuel rider and to defer certain other increased
fuel costs to be incurred from January 1, 2006 through December 31,
2008, including interest on the deferred balances. The order also provided for
recovery of the deferred costs over a twenty-five-year period through
distribution rates. On August 29, 2007, the Supreme Court of Ohio concluded that
the PUCO violated a provision of the Ohio Revised Code by permitting the Ohio
Companies “to collect deferred increased fuel costs through future distribution
rate cases, or to alternatively use excess fuel-cost recovery to reduce deferred
distribution-related expenses” and remanded the matter to the PUCO for further
consideration. On September 10, 2007 the Ohio Companies filed an
application with the PUCO that requested the implementation of two
generation-related fuel cost riders to collect the increased fuel costs that
were previously authorized to be deferred. On January 9, 2008 the PUCO approved
the Ohio Companies’ proposed fuel cost rider to recover increased fuel costs to
be incurred in 2008 commencing January 1, 2008 through December 31, 2008, which
is expected to be approximately $189 million. In addition, the PUCO ordered
the Ohio Companies to file a separate application for an alternate recovery
mechanism to collect the 2006 and 2007 deferred fuel costs. On February 8,
2008, the Ohio Companies filed an application proposing to recover
$226 million of deferred fuel costs and carrying charges for 2006 and 2007
pursuant to a separate fuel rider, with alternative options for the recovery
period ranging from five to twenty-five years. This second application is
currently pending before the PUCO and a hearing has been set for July 15,
2008.
The Ohio Companies
filed an application and rate request for an increase in electric distribution
rates with the PUCO on June 7, 2007. The requested increase is expected to
be more than offset by the elimination or reduction of transition charges at the
time the rates go into effect and would result in lowering the overall
non-generation portion of the average electric bill for most Ohio
customers. The distribution rate increases reflect capital
expenditures since the Ohio Companies’ last distribution rate proceedings,
increases in operation and maintenance expenses and recovery of regulatory
assets that were authorized in prior cases. On August 6, 2007, the Ohio
Companies updated their filing supporting a distribution rate increase of
$332 million. On December 4, 2007, the PUCO Staff issued its Staff Reports
containing the results of their investigation into the distribution rate
request. In its reports, the PUCO Staff recommended a distribution rate increase
in the range of $161 million to $180 million, with $108 million to $127 million
for distribution revenue increases and $53 million for recovery of costs
deferred under prior cases. This amount excludes the recovery of deferred fuel
costs, whose recovery is now being sought in a separate proceeding before the
PUCO, discussed above. On January 3, 2008, the Ohio Companies and intervening
parties filed objections to the Staff Reports and on January 10, 2008, the Ohio
Companies filed supplemental testimony. Evidentiary hearings began on January
29, 2008 and continued through February 25, 2008. During the evidentiary
hearings, the PUCO Staff submitted testimony decreasing their recommended
revenue increase to a range of $114 million to $132 million.
Additionally, in testimony submitted on February 11, 2008, the PUCO Staff
adopted a position regarding interest deferred for RCP-related deferrals, line
extension deferrals and transition tax deferrals that, if upheld by the PUCO,
would result in the write-off of approximately $45 million of interest
costs deferred through March 31, 2008 ($0.09 per share of common stock).
The PUCO is expected to render its decision during the second or third quarter
of 2008. The new rates would become effective January 1, 2009 for OE and
TE, and approximately May 2009 for CEI.
On July 10, 2007,
the Ohio Companies filed an application with the PUCO requesting approval of a
comprehensive supply plan for providing retail generation service to customers
who do not purchase electricity from an alternative supplier, beginning
January 1, 2009. The proposed competitive bidding process would average the
results of multiple bidding sessions conducted at different times during the
year. The final price per KWH would reflect an average of the prices resulting
from all bids. In their filing, the Ohio Companies offered two alternatives for
structuring the bids, either by customer class or a “slice-of-system” approach.
A slice-of-system approach would require the successful bidder to be responsible
for supplying a fixed percentage of the utility’s total load notwithstanding the
customer’s classification. The proposal provides the PUCO with an option to
phase in generation price increases for residential tariff groups who would
experience a change in their average total price of 15 percent or more. The PUCO
held a technical conference on August 16, 2007 regarding the filing.
Initial and reply comments on the proposal were filed by various parties in
September and October 2007, respectively. The proposal is currently pending
before the PUCO.
On April 22,
2008, an amended version of Substitute SB221 was passed by the Ohio House of
Representatives and sent back to the Ohio Senate for concurrence. On
April 23, 2008, the Ohio Senate approved the House's amendments to
Substitute SB221 and forwarded the bill to the Governor for signature, which he
signed on May 1, 2008. Amended Substitute SB221 requires all electric
distribution utilities to file an RSP, now called an ESP, with the PUCO. An
ESP is required to contain a proposal for the supply and pricing of retail
generation and may include proposals, without limitation, related to one or more
of the following:
·
|
automatic
recovery of prudently incurred fuel, purchased power, emission allowance
costs and federally mandated energy
taxes;
|
·
|
construction
work in progress for costs of constructing an electric generating facility
or environmental expenditure for any electric generating
facility;
|
·
|
costs of an
electric generating facility;
|
·
|
terms related
to customer shopping, bypassability, standby, back-up and default
service;
|
·
|
accounting for
deferrals related to stabilizing retail electric
service;
|
·
|
automatic
increases or decreases in standard service offer
price;
|
·
|
phase-in and
securitization;
|
·
|
transmission
service and related costs;
|
·
|
distribution
service and related costs; and
|
·
|
economic
development and energy efficiency.
|
A utility could also
simultaneously file an MRO in which it would have to demonstrate the following
objective market criteria: The utility or its transmission service affiliate
belongs to a FERC-approved RTO having a market-monitor function and the ability
to mitigate market power, and a published source exists that identifies
information for traded electricity and energy products that are contracted for
delivery two years into the future. The PUCO would test the ESP and its pricing
and all other terms and conditions against the MRO and may only approve the ESP
if it is found to be more favorable to customers. As part of an ESP with a plan
period longer than three years, the PUCO shall prospectively determine every
fourth year of the plan whether it is substantially likely the plan will provide
the electric distribution utility a return on common equity significantly in
excess of the return likely to be earned by publicly traded companies, including
utilities, that face comparable business and financial risk (comparable
companies). If so, the PUCO may terminate the ESP. Annually under an ESP, the
PUCO shall determine whether an electric distribution utility's earned return on
common equity is significantly in excess of returns earned on common equity
during the same period by comparable companies, and if so, shall require the
utility to return such excess to customers by prospective adjustments. Amended
Substitute SB221 also includes provisions dealing with advanced and renewable
energy standards that contemplate 25% of electrical usage from these sources by
2025. Energy efficiency measures in the bill require energy savings in excess of
22% by 2025. Requirements are in place to meet annual benchmarks for renewable
energy resources and energy efficiency, subject to review by the PUCO.
FirstEnergy is currently evaluating this legislation and expects to file an ESP
in the second or third quarter of 2008.
(C) PENNSYLVANIA
Met-Ed and Penelec
purchase a portion of their PLR and default service requirements from FES
through a fixed-price partial requirements wholesale power sales agreement. The
agreement allows Met-Ed and Penelec to sell the output of NUG energy to the
market and requires FES to provide energy at fixed prices to replace any NUG
energy sold to the extent needed for Met-Ed and Penelec to satisfy their PLR and
default service obligations. The fixed price under the agreement is expected to
remain below wholesale market prices during the term of the agreement. If Met-Ed
and Penelec were to replace the entire FES supply at current market power prices
without corresponding regulatory authorization to increase their generation
prices to customers, each company would likely incur a significant increase in
operating expenses and experience a material deterioration in credit quality
metrics. Under such a scenario, each company's credit profile would no longer be
expected to support an investment grade rating for their fixed income
securities. Based on the PPUC’s January 11, 2007 order described below, if
FES ultimately determines to terminate, reduce, or significantly modify the
agreement prior to the expiration of Met-Ed’s and Penelec’s generation rate caps
in 2010, timely regulatory relief is not likely to be granted by the
PPUC.
Met-Ed and Penelec
made a comprehensive transition rate filing with the PPUC on April 10, 2006
to address a number of transmission, distribution and supply issues. If Met-Ed's
and Penelec's preferred approach involving accounting deferrals had been
approved, annual revenues would have increased by $216 million and
$157 million, respectively. That filing included, among other things, a
request to charge customers for an increasing amount of market-priced power
procured through a CBP as the amount of supply provided under the then existing
FES agreement was to be phased out. Met-Ed and Penelec also requested approval
of a January 12, 2005 petition for the deferral of transmission-related
costs incurred during 2006. In this rate filing, Met-Ed and Penelec requested
recovery of annual transmission and related costs incurred on or after
January 1, 2007, plus the amortized portion of 2006 costs over a ten-year
period, along with applicable carrying charges, through an adjustable rider.
Changes in the recovery of NUG expenses and the recovery of Met-Ed's non-NUG
stranded costs were also included in the filing. On May 4, 2006, the PPUC
consolidated the remand of the FirstEnergy and GPU merger proceeding, related to
the quantification and allocation of merger savings, with the comprehensive
transition rate filing case.
The PPUC entered its
opinion and order in the comprehensive rate filing proceeding on
January 11, 2007. The order approved the recovery of transmission costs,
including the transmission-related deferral for January 1, 2006 through
January 10, 2007, and determined that no merger savings from prior years
should be considered in determining customers’ rates. The request for increases
in generation supply rates was denied as were the requested changes to NUG
expense recovery and Met-Ed’s non-NUG stranded costs. The order decreased
Met-Ed’s and Penelec’s distribution rates by $80 million and
$19 million, respectively. These decreases were offset by the increases
allowed for the recovery of transmission costs. Met-Ed’s and Penelec’s request
for recovery of Saxton decommissioning costs was granted and, in January 2007,
Met-Ed and Penelec recognized income of $15 million and $12 million,
respectively, to establish regulatory assets for those previously expensed
decommissioning costs. Overall rates increased by 5.0% for Met-Ed
($59 million) and 4.5% for Penelec ($50 million).
On March 30, 2007,
MEIUG and PICA filed a Petition for Review with the Commonwealth Court of
Pennsylvania asking the court to review the PPUC’s determination on transmission
(including congestion) and the transmission deferral. Met-Ed and Penelec filed a
Petition for Review on April 13, 2007 on the issues of consolidated tax savings
and the requested generation rate increase. The OCA filed its Petition for
Review on April 13, 2007, on the issues of transmission (including
congestion) and recovery of universal service costs from only the residential
rate class. From June through October 2007, initial responsive and reply briefs
were filed by various parties. Oral arguments are scheduled to take place in
September 2008. If Met-Ed and Penelec do not prevail on the issue of congestion,
it could have a material adverse effect on the results of operations of Met-Ed,
Penelec and FirstEnergy.
On April 14, 2008,
Met-Ed and Penelec filed annual updates to the TSC rider for the period
June 1, 2008, through May 31, 2009. The proposed TSCs include a
component for under-recovery of actual transmission costs incurred during the
prior period (Met-Ed - $144 million and Penelec - $4 million) and future
transmission cost projections for June 2008 through May 2009 (Met-Ed - $258
million and Penelec - $92 million). Met-Ed has proposed a transition
approach that would recover past under-recovered costs plus carrying charges
through the new TSC over thirty-one months and defer a portion of the projected
costs ($92 million) plus carrying charges for recovery through future TSCs
by December 31, 2010.
On March 13, 2008,
the PPUC approved the residential procurement process in Penn’s Joint
Petition for Settlement. This RFP process calls for load-following,
full-requirements contracts for default service procurement for residential
customers for the period covering June 1, 2008 through May 31, 2011. The PPUC
had previously approved the default service procurement processes for
commercial and industrial customers. The default service procurement for small
commercial customers was conducted through multiple RFPs, while the default
service procurement for large commercial and industrial customers will utilize
hourly pricing. Bids in the two RFPs for small commercial load were approved by
the PPUC on February 22, 2008, and March 20, 2008. On March 28, 2008, Penn filed
compliance tariffs with the new default service generation rates based on the
approved RFP bids for small commercial customers which the PPUC then certified
on April 4, 2008. On April 14, 2008, the first RFP for residential
customers’ load was held consisting of tranches for both 12 and 24-month supply.
The PPUC approved the bids on April 16, 2008. The second RFP is scheduled to be
held on May 14, 2008, after which time the PPUC is expected to approve the
new rates to go into effect June 1, 2008.
On February 1, 2007,
the Governor of Pennsylvania proposed an EIS. The EIS includes four pieces of
proposed legislation that, according to the Governor, is designed to reduce
energy costs, promote energy independence and stimulate the economy. Elements of
the EIS include the installation of smart meters, funding for solar panels on
residences and small businesses, conservation and demand reduction programs to
meet energy growth, a requirement that electric distribution companies acquire
power that results in the “lowest reasonable rate on a long-term basis,” the
utilization of micro-grids and a three year phase-in of rate increases. On
July 17, 2007 the Governor signed into law two pieces of energy
legislation. The first amended the Alternative Energy Portfolio Standards Act of
2004 to, among other things, increase the percentage of solar energy that must
be supplied at the conclusion of an electric distribution company’s transition
period. The second law allows electric distribution companies, at their sole
discretion, to enter into long term contracts with large customers and to build
or acquire interests in electric generation facilities specifically to supply
long-term contracts with such customers. A special legislative session on energy
was convened in mid-September 2007 to consider other aspects of the EIS. The
Pennsylvania House and Senate on March 11, 2008 and December 12, 2007,
respectively, passed different versions of bills to fund the Governor’s EIS
proposal. Neither chamber has formally considered the other’s bill. On
February 12, 2008, the Pennsylvania House passed House Bill 2200 which
provides for energy efficiency and demand management programs and targets as
well as the installation of smart meters within ten years. Other legislation has
been introduced to address generation procurement, expiration of rate caps,
conservation and renewable energy. The final form of this pending legislation is
uncertain. Consequently, FirstEnergy is unable to predict what impact, if any,
such legislation may have on its operations.
(D) NEW JERSEY
JCP&L is
permitted to defer for future collection from customers the amounts by which its
costs of supplying BGS to non-shopping customers and costs incurred under NUG
agreements exceed amounts collected through BGS and NUGC rates and market sales
of NUG energy and capacity. As of March 31, 2008, the accumulated deferred cost
balance totaled approximately $264 million.
In accordance with
an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
2004 supporting continuation of the current level and duration of the funding of
TMI-2 decommissioning costs by New Jersey customers without a reduction,
termination or capping of the funding. On September 30, 2004, JCP&L
filed an updated TMI-2 decommissioning study. This study resulted in an updated
total decommissioning cost estimate of $729 million (in 2003 dollars)
compared to the estimated $528 million (in 2003 dollars) from the prior
1995 decommissioning study. The DRA filed comments on February 28, 2005
requesting that decommissioning funding be suspended. On March 18, 2005,
JCP&L filed a response to those comments. JCP&L responded to additional
NJBPU staff discovery requests in May and November 2007 and also submitted
comments in the proceeding in November 2007. A schedule for further NJBPU
proceedings has not yet been set.
On August 1, 2005,
the NJBPU established a proceeding to determine whether additional ratepayer
protections are required at the state level in light of the repeal of the PUHCA
pursuant to the EPACT. The NJBPU approved regulations effective October 2,
2006 that prevent a holding company that owns a gas or electric public utility
from investing more than 25% of the combined assets of its utility and
utility-related subsidiaries into businesses unrelated to the utility industry.
These regulations are not expected to materially impact FirstEnergy or
JCP&L. Also, in the same proceeding, the NJBPU Staff issued an additional
draft proposal on March 31, 2006 addressing various issues including access
to books and records, ring-fencing, cross subsidization, corporate governance
and related matters. With the approval of the NJBPU Staff, the affected
utilities jointly submitted an alternative proposal on June 1, 2006. The
NJBPU Staff circulated revised drafts of the proposal to interested stakeholders
in November 2006 and again in February 2007. On February 1, 2008, the NJBPU
accepted proposed rules for publication in the New Jersey Register on
March 17, 2008. A public hearing on these proposed rules was held on
April 23, 2008 with comments from interested parties due on May 16,
2008.
New Jersey statutes
require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic
growth, and environmental impact. The EMP is to be developed with involvement of
the Governor’s Office and the Governor’s Office of Economic Growth, and is to be
prepared by a Master Plan Committee, which is chaired by the NJBPU President and
includes representatives of several State departments. In October 2006, the
current EMP process was initiated through the creation of a number of working
groups to obtain input from a broad range of interested stakeholders including
utilities, environmental groups, customer groups, and major customers. In
addition, public stakeholder meetings were held in the fall of 2006 and in early
2007.
On April 17, 2008, a
draft EMP was released for public comment. The draft EMP establishes four major
goals:
·
|
maximize
energy efficiency to achieve a 20% reduction in energy consumption by
2020;
|
·
|
reduce peak
demand for electricity by 5,700 MW by 2020 (amounting to about a 22%
reduction in projected demand);
|
·
|
meet 22.5% of
the state’s electricity needs with renewable energy by 2020;
and
|
·
|
develop low
carbon emitting, efficient power plants and close the gap between the
supply and demand for electricity.
|
Following the public
comment period which is expected to extend into July 2008, a final EMP will be
issued to be followed by appropriate legislation and regulation as necessary. At
this time, FirstEnergy cannot predict the outcome of this process nor determine
the impact, if any, such legislation or regulation may have on its operations or
those of JCP&L.
On February 13,
2007, the NJBPU Staff informally issued a draft proposal relating to changes to
the regulations addressing electric distribution service reliability and quality
standards. Meetings between the NJBPU Staff and interested stakeholders to
discuss the proposal were held and additional, revised informal proposals were
subsequently circulated by the Staff. On September 4, 2007, proposed
regulations were published in the New Jersey Register, which proposal will be
subsequently considered by the NJBPU following comments that were submitted in
September and October 2007. Final regulations (effective upon publication) were
published in the New Jersey Register March 17, 2008. Upon preliminary review of
the new regulations, FirstEnergy does not expect a material impact on its
operations or those of JCP&L.
(E) FERC MATTERS
Transmission Service between MISO and
PJM
On November 18,
2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to
eliminate so-called “pancaking” of transmission charges between the MISO and PJM
regions. The FERC also ordered the MISO, PJM and the transmission owners within
MISO and PJM to submit compliance filings containing a rate mechanism to recover
lost transmission revenues created by elimination of this charge (referred to as
the Seams Elimination Cost Adjustment or “SECA”) during a 16-month transition
period. The FERC issued orders in 2005 setting the SECA for hearing. The
presiding judge issued an initial decision on August 10, 2006, rejecting
the compliance filings made by MISO, PJM, and the transmission owners, and
directing new compliance filings. This decision is subject to review and
approval by the FERC. Briefs addressing the initial decision were filed on
September 11, 2006 and October 20, 2006. A final order could be issued by
the FERC in the second quarter of 2008.
PJM
Transmission Rate Design
On January 31, 2005,
certain PJM transmission owners made filings with the FERC pursuant to a
settlement agreement previously approved by the FERC. JCP&L, Met-Ed and
Penelec were parties to that proceeding and joined in two of the filings. In the
first filing, the settling transmission owners submitted a filing justifying
continuation of their existing rate design within the PJM RTO. Hearings were
held and numerous parties appeared and litigated various issues concerning PJM
rate design; notably AEP, which proposed to create a "postage stamp", or average
rate for all high voltage transmission facilities across PJM and a zonal
transmission rate for facilities below 345 kV. This proposal would have the
effect of shifting recovery of the costs of high voltage transmission lines to
other transmission zones, including those where JCP&L, Met-Ed, and Penelec
serve load. On April 19, 2007, the FERC issued an order finding that the PJM
transmission owners’ existing “license plate” or zonal rate design was just and
reasonable and ordered that the current license plate rates for existing
transmission facilities be retained. On the issue of rates for new transmission
facilities, the FERC directed that costs for new transmission facilities that
are rated at 500 kV or higher are to be collected from all transmission zones
throughout the PJM footprint by means of a postage-stamp rate. Costs for new
transmission facilities that are rated at less than 500 kV, however, are to be
allocated on a “beneficiary pays” basis. The FERC found that PJM’s current
beneficiary-pays cost allocation methodology is not sufficiently detailed and,
in a related order that also was issued on April 19, 2007, directed that
hearings be held for the purpose of establishing a just and reasonable cost
allocation methodology for inclusion in PJM’s tariff.
On May 18, 2007,
certain parties filed for rehearing of the FERC’s April 19, 2007 order. On
January 31, 2008, the requests for rehearing were denied. The FERC’s orders on
PJM rate design will prevent the allocation of a portion of the revenue
requirement of existing transmission facilities of other utilities to JCP&L,
Met-Ed and Penelec. In addition, the FERC’s decision to allocate the cost of new
500 kV and above transmission facilities on a PJM-wide basis will reduce future
transmission revenue recovery from the JCP&L, Met-Ed and Penelec zones. A
partial settlement agreement addressing the “beneficiary pays” methodology for
below 500 kV facilities, but excluding the issue of allocating new facilities
costs to merchant transmission entities, was filed on September 14, 2007. The
agreement was supported by the FERC’s Trial Staff, and was certified by the
Presiding Judge. The FERC’s action on the settlement agreement is pending. The
remaining merchant transmission cost allocation issues will proceed to hearing
in May 2008. On February 13, 2008, AEP appealed the FERC’s orders to the
federal Court of Appeals for the D.C. Circuit. The Illinois Commerce Commission,
the PUCO and Dayton Power & Light have also appealed these orders to the
Seventh Circuit Court of Appeals. The appeals of these parties and others have
been consolidated for argument in the Seventh Circuit.
Post
Transition Period Rate Design
The FERC had
directed MISO, PJM, and the respective transmission owners to make filings on or
before August 1, 2007 to reevaluate transmission rate design within MISO, and
between MISO and PJM. On August 1, 2007, filings were made by MISO, PJM, and the
vast majority of transmission owners, including FirstEnergy affiliates, which
proposed to retain the existing transmission rate design. These filings were
approved by the FERC on January 31, 2008. As a result of the FERC’s approval,
the rates charged to FirstEnergy’s load-serving affiliates for transmission
service over existing transmission facilities in MISO and PJM are unchanged. In
a related filing, MISO and MISO transmission owners requested that the current
MISO pricing for new transmission facilities that spreads 20% of the cost of new
345 kV and higher transmission facilities across the entire MISO footprint
(known as the RECB methodology) be retained.
On September 17,
2007, AEP filed a complaint under Sections 206 and 306 of the Federal Power Act
seeking to have the entire transmission rate design and cost allocation methods
used by MISO and PJM declared unjust, unreasonable, and unduly discriminatory,
and to have the FERC fix a uniform regional transmission rate design and cost
allocation method for the entire MISO and PJM “Super Region” that recovers the
average cost of new and existing transmission facilities operated at voltages of
345 kV and above from all transmission customers. Lower voltage facilities would
continue to be recovered in the local utility transmission rate zone through a
license plate rate. AEP requested a refund effective October 1, 2007, or
alternatively, February 1, 2008. On January 31, 2008, the FERC issued an order
denying the complaint. A rehearing request by AEP is pending before the
FERC.
Distribution of MISO Network Service
Revenues
Effective February
1, 2008, the MISO Transmission Owners Agreement provides for a change in the
method of distributing transmission revenues among the transmission owners. MISO
and a majority of the MISO transmission owners filed on December 3, 2007 to
change the MISO tariff to clarify, for purposes of distributing network
transmission revenue to the transmission owners, that all network transmission
service revenues, whether collected by MISO or directly by the transmission
owner, are included in the revenue distribution calculation. This
clarification was necessary because some network transmission service revenues
are collected and retained by transmission owners in states where retail choice
does not exist, and their “unbundled” retail load is currently exempt from MISO
network service charges. The tariff changes filed with the FERC ensure that
revenues collected by transmission owners from bundled load are taken into
account in the revenue distribution calculation, and that transmission owners
with bundled load do not collect more than their revenue requirements. Absent
the changes, transmission owners, and ultimately their customers, with unbundled
load or in retail choice states, such as ATSI, would subsidize transmission
owners with bundled load, who would collect their revenue requirement from
bundled load, plus share in revenues collected by MISO from unbundled customers.
This would result in a large revenue shortfall for ATSI, which would eventually
be passed on to customers in the form of higher transmission rates as calculated
pursuant to ATSI’s Attachment O formula under the MISO tariff.
Numerous parties
filed in support of the tariff changes, including the public service commissions
of Michigan, Ohio and Wisconsin. Ameren filed a protest on December 26, 2007,
arguing that the December 3, 2007 filing violates the MISO Transmission Owners’
Agreement as well as an agreement among Ameren (Union Electric), MISO, and the
Missouri Public Service Commission, which provides that Union Electric’s bundled
load cannot be charged by MISO for network service. On February 2, 2008, the
FERC issued an order conditionally accepting the tariff amendment subject to a
minor compliance filing, which was made on March 3, 2008. This order ensures
that ATSI will continue to receive transmission revenues from MISO equivalent to
its transmission revenue requirement. A rehearing request by Ameren is pending
before the FERC.
On February 1, 2008,
MISO filed a request to continue using the existing revenue distribution
methodology on an interim basis pending amendment of the MISO Transmission
Owners’ Agreement. This request was accepted by the FERC on March 13, 2008. On
that same day, MISO and the MISO transmission owners made a filing to amend the
Transmission Owners’ Agreement to effectively continue the distribution of
transmission revenues that was in effect prior to February 1, 2008. This matter
is currently pending before the FERC.
MISO Ancillary Services Market and
Balancing Area Consolidation
MISO made a filing
on September 14, 2007 to establish an ASM for regulation, spinning and
supplemental reserves, to consolidate the existing 24 balancing areas within the
MISO footprint, and to establish MISO as the NERC registered balancing authority
for the region. This filing would permit load serving entities to purchase their
operating reserve requirements in a competitive market. FirstEnergy supports the
proposal to establish markets for Ancillary Services and consolidate existing
balancing areas. On February 25, 2008, the FERC issued an order approving the
ASM subject to certain compliance filings. MISO has since notified the FERC that
the start of its ASM is delayed until September of 2008.
Duquesne’s
Request to Withdraw from PJM
On November 8, 2007,
Duquesne Light Company (Duquesne) filed a request with the FERC to exit PJM and
to join the MISO. In its filing, Duquesne asked the FERC to be relieved of
certain capacity payment obligations to PJM for capacity auctions conducted
prior to its departure from PJM, but covering service for planning periods
through May 31, 2011. Duquesne asserted that its primary reason for exiting PJM
is to avoid paying future obligations created by PJM’s forward capacity market.
FirstEnergy believes that Duquesne’s filing did not identify or address numerous
legal, financial or operational issues that are implicated or affected directly
by Duquesne’s proposal. Consequently, FirstEnergy submitted responsive filings
that, while conceding Duquesne’s rights to exit PJM, contested various aspects
of Duquesne’s proposal. FirstEnergy particularly focused on Duquesne’s proposal
that it be allowed to exit PJM without payment of its share of existing capacity
market commitments. FirstEnergy also objected to Duquesne’s failure to address
the firm transmission service requirements that would be necessary for
FirstEnergy to continue to use the Beaver Valley Plant to meet existing
commitments in the PJM capacity markets and to serve native load. Other market
participants also submitted filings contesting Duquesne’s plans.
On January 17, 2008,
the FERC conditionally approved Duquesne’s request to exit PJM. Among other
conditions, the FERC obligated Duquesne to pay the PJM capacity obligations
through May 31, 2011. The FERC’s order took notice of the numerous transmission
and other issues raised by FirstEnergy and other parties to the proceeding, but
did not provide any responsive rulings or other guidance. Rather, the FERC
ordered Duquesne to make a compliance filing in forty-five days detailing how
Duquesne will satisfy its obligations under the PJM Transmission Owners’
Agreement. The FERC likewise directed the MISO to submit detailed plans to
integrate Duquesne into the MISO. Finally, the FERC directed MISO and PJM to
work together to resolve the substantive and procedural issues implicated by
Duquesne’s transition into the MISO. These issues remain unresolved. If Duquesne
satisfies all of the obligations set by the FERC, its planned transition date is
October 9, 2008.
On March 18, 2008,
the PJM Power Providers Group filed a request for emergency clarification
regarding whether Duquesne-zone generators (including the Beaver Valley Plant)
could participate in PJM’s May 2008 auction for the 2011-2012 RPM delivery year.
FirstEnergy and the other Duquesne-zone generators filed responsive pleadings.
On April 18, 2008, the FERC issued its Order on Motion for Emergency
Clarification, wherein the FERC ruled that although the status of the
Duquesne-zone generators will change to “External Resource” upon Duquesne’s exit
from PJM, these generators can contract with PJM for the transmission
reservations necessary to participate in the May 2008 auction. FirstEnergy has
complied with FERC’s order by obtaining executed transmission service agreements
for firm point-to-point transmission service for the 2011-2012 delivery year
and, as such, FirstEnergy satisfies the criteria to bid the Beaver Valley Plant
into the May 2008 RPM auction. Notwithstanding these events, on April 30, 2008
and May 1, 2008, certain members of the PJM Power Providers Group filed further
pleadings on these issues. On May 2, 2008, FirstEnergy filed a responsive
pleading. FirstEnergy is participating in the May 2008 RPM auction for
the 2011-2012 RPM delivery year.
MISO
Resource Adequacy Proposal
MISO made a filing
on December 28, 2007 that would create an enforceable planning reserve
requirement in the MISO tariff for load serving entities such as the Ohio
Companies, Penn Power, and FES. This requirement is proposed to become effective
for the planning year beginning June 1, 2009. The filing would permit MISO to
establish the reserve margin requirement for load serving entities based upon a
one day loss of load in ten years standard, unless the state utility regulatory
agency establishes a different planning reserve for load serving entities in its
state. FirstEnergy generally supports the proposal as it promotes a mechanism
that will result in long-term commitments from both load-serving entities and
resources, including both generation and demand side resources that are
necessary for reliable resource adequacy and planning in the MISO footprint.
Comments on the filing were filed on January 28, 2008. The FERC approved MISO’s
Resource Adequacy proposal on March 26, 2008. Rehearing requests are pending on
the FERC’s March 26 Order.
A compliance filing establishing the enforcement mechanism for the reserve
margin requirement is due on or before June 25, 2008.
Organized
Wholesale Power Markets
On February 21,
2008, the FERC issued a NOPR through which it proposes to adopt new rules that
it states will “improve operations in organized electric markets, boost
competition and bring additional benefits to consumers.” The proposed rule
addresses demand response and market pricing during reserve shortages, long-term
power contracting, market-monitoring policies, and responsiveness of RTOs and
ISOs to stakeholders and customers. FirstEnergy does not believe that the
proposed rule will have a significant impact on its operations. Comments on the
NOPR were filed on April 18, 2008.
12. NEW
ACCOUNTING STANDARDS AND
INTERPRETATIONS
|
SFAS 141(R) – “Business
Combinations”
In December 2007,
the FASB issued SFAS 141(R), which requires the acquiring entity in a business
combination to recognize all the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. SFAS 141(R) attempts to reduce the complexity of existing GAAP
related to business combinations. The Standard includes both core principles and
pertinent application guidance, eliminating the need for numerous EITF issues
and other interpretative guidance. SFAS 141(R) will affect business combinations
entered into by FirstEnergy that close after January 1, 2009. In addition,
the Standard also affects the accounting for changes in tax valuation allowances
made after January 1, 2009, that were established as part of a business
combination prior to the implementation of this Standard. FirstEnergy is
currently evaluating the impact of adopting this Standard on its financial
statements.
SFAS 160 - “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB No. 51”
In December 2007,
the FASB issued SFAS 160 that establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Early adoption is prohibited. The Statement is not expected
to have a material impact on FirstEnergy’s financial statements.
|
SFAS
161 - “Disclosures about Derivative Instruments and Hedging Activities –
an Amendment of FASB Statement No.
133”
|
In March 2008, the
FASB issued SFAS 161, which requires enhancements to the current
disclosure framework for derivative instruments and hedging activities. The
Statement requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. This disclosure is
intended to better convey the purpose of derivatives use in terms of the risks
that the entity is intending to manage. The FASB believes disclosing the fair
values of derivative instruments and their gains and losses in a tabular format
is designed to provide a more complete picture of the location in an entity’s
financial statements of both the derivative positions existing at period end and
the effect of using derivatives during the reporting period. Disclosing
information about credit-risk-related contingent features is designed to provide
financial statement users information on the potential effect on an entity’s
liquidity from using derivatives. Finally, this Statement requires
cross-referencing within the footnotes, which is intended to help users of
financial statements locate important information about derivative instruments.
FirstEnergy is currently evaluating the impact of adopting this Standard on its
financial statements.
13. SEGMENT
INFORMATION
FirstEnergy has
three reportable operating segments: energy delivery services, competitive
energy services and Ohio transitional generation services. The “Other” segment
primarily consists of telecommunications services. The assets and revenues for
the other business operations are below the quantifiable threshold for operating
segments for separate disclosure as “reportable operating
segments.”
The energy delivery
services segment designs, constructs, operates and maintains FirstEnergy's
regulated transmission and distribution systems and is responsible for the
regulated generation commodity operations of FirstEnergy’s Pennsylvania and New
Jersey electric utility subsidiaries. Its revenues are primarily derived from
the delivery of electricity, cost recovery of regulatory assets and default
service electric generation sales to non-shopping customers in its Pennsylvania
and New Jersey franchise areas. Its results reflect the commodity costs of
securing electric generation from FES under partial requirements purchased power
agreements and from non-affiliated power suppliers as well as the net PJM
transmission expenses related to the delivery of that generation
load.
The competitive
energy services segment supplies electric power to its electric utility
affiliates, provides competitive electric sales primarily in Ohio, Pennsylvania,
Maryland and Michigan, owns or leases and operates FirstEnergy’s generating
facilities and purchases electricity to meet its sales obligations. The
segment's net income is primarily derived from the affiliated company PSA sales
and the non-affiliated electric generation sales revenues less the related costs
of electricity generation, including purchased power and net transmission
(including congestion) and ancillary costs charged by PJM and MISO to deliver
electricity to the segment’s customers. The segment’s internal revenues
represent the affiliated company PSA sales.
The Ohio
transitional generation services segment represents the regulated generation
commodity operations of FirstEnergy’s Ohio electric utility subsidiaries. Its
revenues are primarily derived from electric generation sales to non-shopping
customers under the PLR obligations of the Ohio Companies. Its results reflect
the purchase of electricity from the competitive energy services segment through
full-requirements PSA arrangements, the deferral and amortization of certain
fuel costs authorized for recovery by the energy delivery services segment and
the net MISO transmission revenues and expenses related to the delivery of
generation load. This segment’s total assets consist of accounts receivable for
generation revenues from retail customers.
Segment
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Competitive
|
|
|
Transitional
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery
|
|
|
Energy
|
|
|
Generation
|
|
|
|
|
|
Reconciling
|
|
|
|
|
Three
Months Ended
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Other
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In
millions)
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
revenues
|
|
$ |
2,212 |
|
|
$ |
329 |
|
|
$ |
707 |
|
|
$ |
40 |
|
|
$ |
(11 |
) |
|
$ |
3,277 |
|
Internal
revenues
|
|
|
- |
|
|
|
776 |
|
|
|
- |
|
|
|
- |
|
|
|
(776 |
) |
|
|
- |
|
Total
revenues
|
|
|
2,212 |
|
|
|
1,105 |
|
|
|
707 |
|
|
|
40 |
|
|
|
(787 |
) |
|
|
3,277 |
|
Depreciation
and amortization
|
|
|
255 |
|
|
|
53 |
|
|
|
4 |
|
|
|
- |
|
|
|
5 |
|
|
|
317 |
|
Investment
income
|
|
|
45 |
|
|
|
(6 |
) |
|
|
1 |
|
|
|
- |
|
|
|
(23 |
) |
|
|
17 |
|
Net interest
charges
|
|
|
103 |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
|
|
171 |
|
Income
taxes
|
|
|
119 |
|
|
|
58 |
|
|
|
15 |
|
|
|
14 |
|
|
|
(19 |
) |
|
|
187 |
|
Net
income
|
|
|
179 |
|
|
|
87 |
|
|
|
23 |
|
|
|
22 |
|
|
|
(35 |
) |
|
|
276 |
|
Total
assets
|
|
|
23,211 |
|
|
|
8,108 |
|
|
|
257 |
|
|
|
281 |
|
|
|
558 |
|
|
|
32,415 |
|
Total
goodwill
|
|
|
5,582 |
|
|
|
24 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,606 |
|
Property
additions
|
|
|
255 |
|
|
|
462 |
|
|
|
- |
|
|
|
12 |
|
|
|
(18 |
) |
|
|
711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
revenues
|
|
$ |
2,040 |
|
|
$ |
321 |
|
|
$ |
619 |
|
|
$ |
12 |
|
|
$ |
(19 |
) |
|
$ |
2,973 |
|
Internal
revenues
|
|
|
- |
|
|
|
714 |
|
|
|
- |
|
|
|
- |
|
|
|
(714 |
) |
|
|
- |
|
Total
revenues
|
|
|
2,040 |
|
|
|
1,035 |
|
|
|
619 |
|
|
|
12 |
|
|
|
(733 |
) |
|
|
2,973 |
|
Depreciation
and amortization
|
|
|
220 |
|
|
|
51 |
|
|
|
(15 |
) |
|
|
1 |
|
|
|
6 |
|
|
|
263 |
|
Investment
income
|
|
|
70 |
|
|
|
3 |
|
|
|
1 |
|
|
|
- |
|
|
|
(41 |
) |
|
|
33 |
|
Net interest
charges
|
|
|
107 |
|
|
|
49 |
|
|
|
1 |
|
|
|
2 |
|
|
|
21 |
|
|
|
180 |
|
Income
taxes
|
|
|
148 |
|
|
|
65 |
|
|
|
15 |
|
|
|
5 |
|
|
|
(33 |
) |
|
|
200 |
|
Net
income
|
|
|
218 |
|
|
|
98 |
|
|
|
24 |
|
|
|
1 |
|
|
|
(51 |
) |
|
|
290 |
|
Total
assets
|
|
|
23,526 |
|
|
|
7,089 |
|
|
|
246 |
|
|
|
254 |
|
|
|
675 |
|
|
|
31,790 |
|
Total
goodwill
|
|
|
5,874 |
|
|
|
24 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,898 |
|
Property
additions
|
|
|
155 |
|
|
|
124 |
|
|
|
- |
|
|
|
1 |
|
|
|
16 |
|
|
|
296 |
|
Reconciling
adjustments to segment operating results from internal management reporting to
consolidated external financial reporting primarily consist of interest expense
related to holding company debt, corporate support services revenues and
expenses and elimination of intersegment transactions.
14. SUPPLEMENTAL
GUARANTOR INFORMATION
|
On July 13, 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases. The related
lessor notes and pass through certificates are not guaranteed by FES or FGCO,
but the notes are secured by, among other things, each lessor trust’s undivided
interest in Unit 1, rights and interests under the applicable lease and rights
and interests under other related agreements, including FES’ lease
guaranty.
The consolidating
statements of income for the three months ended March 31, 2008 and 2007,
consolidating balance sheets as of March 31, 2008 and December 31, 2007 and
condensed consolidating statements of cash flows for the three months ended
March 31, 2008 and 2007 for FES (parent and guarantor), FGCO and NGC
(non-guarantor) are presented below. Investments in wholly owned subsidiaries
are accounted for by FES using the equity method. Results of operations for FGCO
and NGC are, therefore, reflected in FES’ investment accounts and earnings as if
operating lease treatment was achieved. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances and transactions
and reflect operating lease treatment associated with the 2007 Bruce Mansfield
Unit 1 sale and leaseback transaction.
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING
STATEMENTS OF INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2008
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
1,099,848 |
|
|
$ |
567,701 |
|
|
$ |
325,684 |
|
|
$ |
(894,117 |
) |
|
$ |
1,099,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
2,138 |
|
|
|
291,239 |
|
|
|
28,312 |
|
|
|
- |
|
|
|
321,689 |
|
Purchased
power from non-affiliates
|
|
|
206,724 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
206,724 |
|
Purchased
power from affiliates
|
|
|
891,979 |
|
|
|
2,138 |
|
|
|
25,485 |
|
|
|
(894,117 |
) |
|
|
25,485 |
|
Other
operating expenses
|
|
|
37,596 |
|
|
|
107,167 |
|
|
|
139,595 |
|
|
|
12,188 |
|
|
|
296,546 |
|
Provision for
depreciation
|
|
|
307 |
|
|
|
26,599 |
|
|
|
24,194 |
|
|
|
(1,358 |
) |
|
|
49,742 |
|
General
taxes
|
|
|
5,415 |
|
|
|
11,570 |
|
|
|
6,212 |
|
|
|
- |
|
|
|
23,197 |
|
Total
expenses
|
|
|
1,144,159 |
|
|
|
438,713 |
|
|
|
223,798 |
|
|
|
(883,287 |
) |
|
|
923,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
(44,311 |
) |
|
|
128,988 |
|
|
|
101,886 |
|
|
|
(10,830 |
) |
|
|
175,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
income (expense), including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net income
from equity investees
|
|
|
121,725 |
|
|
|
(1,208 |
) |
|
|
(6,537 |
) |
|
|
(116,884 |
) |
|
|
(2,904 |
) |
Interest
expense to affiliates
|
|
|
(82 |
) |
|
|
(5,289 |
) |
|
|
(1,839 |
) |
|
|
- |
|
|
|
(7,210 |
) |
Interest
expense - other
|
|
|
(3,978 |
) |
|
|
(25,968 |
) |
|
|
(11,018 |
) |
|
|
16,429 |
|
|
|
(24,535 |
) |
Capitalized
interest
|
|
|
21 |
|
|
|
6,228 |
|
|
|
414 |
|
|
|
- |
|
|
|
6,663 |
|
Total other
income (expense)
|
|
|
117,686 |
|
|
|
(26,237 |
) |
|
|
(18,980 |
) |
|
|
(100,455 |
) |
|
|
(27,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
73,375 |
|
|
|
102,751 |
|
|
|
82,906 |
|
|
|
(111,285 |
) |
|
|
147,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES (BENEFIT)
|
|
|
(16,609 |
) |
|
|
39,285 |
|
|
|
32,764 |
|
|
|
2,323 |
|
|
|
57,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
89,984 |
|
|
$ |
63,466 |
|
|
$ |
50,142 |
|
|
$ |
(113,608 |
) |
|
$ |
89,984 |
|
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING
STATEMENTS OF INCOME
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2007
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
1,019,387 |
|
|
$ |
551,355 |
|
|
$ |
234,091 |
|
|
$ |
(786,540 |
) |
|
$ |
1,018,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
2,367 |
|
|
|
201,231 |
|
|
|
29,937 |
|
|
|
- |
|
|
|
233,535 |
|
Purchased
power from non-affiliates
|
|
|
186,203 |
|
|
|
2,367 |
|
|
|
- |
|
|
|
(2,367 |
) |
|
|
186,203 |
|
Purchased
power from affiliates
|
|
|
784,172 |
|
|
|
59,069 |
|
|
|
17,415 |
|
|
|
(784,173 |
) |
|
|
76,483 |
|
Other
operating expenses
|
|
|
51,249 |
|
|
|
99,095 |
|
|
|
113,252 |
|
|
|
- |
|
|
|
263,596 |
|
Provision for
depreciation
|
|
|
453 |
|
|
|
24,936 |
|
|
|
22,621 |
|
|
|
- |
|
|
|
48,010 |
|
General
taxes
|
|
|
4,934 |
|
|
|
10,568 |
|
|
|
6,216 |
|
|
|
- |
|
|
|
21,718 |
|
Total
expenses
|
|
|
1,029,378 |
|
|
|
397,266 |
|
|
|
189,441 |
|
|
|
(786,540 |
) |
|
|
829,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
(9,991 |
) |
|
|
154,089 |
|
|
|
44,650 |
|
|
|
- |
|
|
|
188,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
income (expense), including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net income
from equity investees
|
|
|
113,948 |
|
|
|
916 |
|
|
|
5,200 |
|
|
|
(100,332 |
) |
|
|
19,732 |
|
Interest
expense to affiliates
|
|
|
- |
|
|
|
(24,331 |
) |
|
|
(5,115 |
) |
|
|
- |
|
|
|
(29,446 |
) |
Interest
expense - other
|
|
|
(1,385 |
) |
|
|
(6,760 |
) |
|
|
(9,213 |
) |
|
|
- |
|
|
|
(17,358 |
) |
Capitalized
interest
|
|
|
5 |
|
|
|
2,099 |
|
|
|
1,105 |
|
|
|
- |
|
|
|
3,209 |
|
Total other
income (expense)
|
|
|
112,568 |
|
|
|
(28,076 |
) |
|
|
(8,023 |
) |
|
|
(100,332 |
) |
|
|
(23,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
102,577 |
|
|
|
126,013 |
|
|
|
36,627 |
|
|
|
(100,332 |
) |
|
|
164,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
73 |
|
|
|
49,289 |
|
|
|
13,019 |
|
|
|
- |
|
|
|
62,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
102,504 |
|
|
$ |
76,724 |
|
|
$ |
23,608 |
|
|
$ |
(100,332 |
) |
|
$ |
102,504 |
|
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING
BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2008
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
Receivables-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
|
125,116 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
125,116 |
|
Associated
companies
|
|
|
285,350 |
|
|
|
231,049 |
|
|
|
96,852 |
|
|
|
(295,511 |
) |
|
|
317,740 |
|
Other
|
|
|
1,174 |
|
|
|
1,050 |
|
|
|
- |
|
|
|
|
|
|
|
2,224 |
|
Notes
receivable from associated companies
|
|
|
668,376 |
|
|
|
- |
|
|
|
69,011 |
|
|
|
- |
|
|
|
737,387 |
|
Materials and
supplies, at average cost
|
|
|
2,849 |
|
|
|
264,501 |
|
|
|
207,275 |
|
|
|
- |
|
|
|
474,625 |
|
Prepayments
and other
|
|
|
107,798 |
|
|
|
26,208 |
|
|
|
1,728 |
|
|
|
- |
|
|
|
135,734 |
|
|
|
|
1,190,665 |
|
|
|
522,808 |
|
|
|
374,866 |
|
|
|
(295,511 |
) |
|
|
1,792,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
service
|
|
|
35,302 |
|
|
|
5,359,381 |
|
|
|
3,700,973 |
|
|
|
(391,896 |
) |
|
|
8,703,760 |
|
Less -
Accumulated provision for depreciation
|
|
|
7,810 |
|
|
|
2,655,103 |
|
|
|
1,537,747 |
|
|
|
(168,115 |
) |
|
|
4,032,545 |
|
|
|
|
27,492 |
|
|
|
2,704,278 |
|
|
|
2,163,226 |
|
|
|
(223,781 |
) |
|
|
4,671,215 |
|
Construction
work in progress
|
|
|
10,792 |
|
|
|
881,899 |
|
|
|
165,389 |
|
|
|
- |
|
|
|
1,058,080 |
|
|
|
|
38,284 |
|
|
|
3,586,177 |
|
|
|
2,328,615 |
|
|
|
(223,781 |
) |
|
|
5,729,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear plant
decommissioning trusts
|
|
|
- |
|
|
|
- |
|
|
|
1,263,338 |
|
|
|
- |
|
|
|
1,263,338 |
|
Long-term
notes receivable from associated companies
|
|
|
- |
|
|
|
- |
|
|
|
62,900 |
|
|
|
- |
|
|
|
62,900 |
|
Investment in
associated companies
|
|
|
2,598,022 |
|
|
|
- |
|
|
|
- |
|
|
|
(2,598,022 |
) |
|
|
- |
|
Other
|
|
|
2,529 |
|
|
|
21,657 |
|
|
|
202 |
|
|
|
- |
|
|
|
24,388 |
|
|
|
|
2,600,551 |
|
|
|
21,657 |
|
|
|
1,326,440 |
|
|
|
(2,598,022 |
) |
|
|
1,350,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deferred income taxes
|
|
|
10,518 |
|
|
|
495,131 |
|
|
|
- |
|
|
|
(248,666 |
) |
|
|
256,983 |
|
Lease
assignment receivable from associated companies
|
|
|
- |
|
|
|
67,256 |
|
|
|
- |
|
|
|
- |
|
|
|
67,256 |
|
Goodwill
|
|
|
24,248 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
24,248 |
|
Property
taxes
|
|
|
- |
|
|
|
25,007 |
|
|
|
22,767 |
|
|
|
- |
|
|
|
47,774 |
|
Pension
assets
|
|
|
3,214 |
|
|
|
12,856 |
|
|
|
- |
|
|
|
- |
|
|
|
16,070 |
|
Unamortized
sale and leaseback costs
|
|
|
- |
|
|
|
38,120 |
|
|
|
- |
|
|
|
47,575 |
|
|
|
85,695 |
|
Other
|
|
|
18,177 |
|
|
|
49,393 |
|
|
|
5,188 |
|
|
|
(37,939 |
) |
|
|
34,819 |
|
|
|
|
56,157 |
|
|
|
687,763 |
|
|
|
27,955 |
|
|
|
(239,030 |
) |
|
|
532,845 |
|
|
|
$ |
3,885,657 |
|
|
$ |
4,818,405 |
|
|
$ |
4,057,876 |
|
|
$ |
(3,356,344 |
) |
|
$ |
9,405,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently
payable long-term debt
|
|
$ |
- |
|
|
$ |
738,087 |
|
|
$ |
887,265 |
|
|
$ |
(16,896 |
) |
|
$ |
1,608,456 |
|
Notes
payable-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
- |
|
|
|
885,760 |
|
|
|
260,199 |
|
|
|
- |
|
|
|
1,145,959 |
|
Other
|
|
|
700,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
700,000 |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
554,844 |
|
|
|
1,419 |
|
|
|
119,773 |
|
|
|
(270,368 |
) |
|
|
405,668 |
|
Other
|
|
|
55,614 |
|
|
|
130,090 |
|
|
|
- |
|
|
|
- |
|
|
|
185,704 |
|
Accrued
taxes
|
|
|
3,378 |
|
|
|
116,383 |
|
|
|
47,292 |
|
|
|
(24,219 |
) |
|
|
142,834 |
|
Other
|
|
|
85,100 |
|
|
|
107,791 |
|
|
|
9,731 |
|
|
|
45,484 |
|
|
|
248,106 |
|
|
|
|
1,398,936 |
|
|
|
1,979,530 |
|
|
|
1,324,260 |
|
|
|
(265,999 |
) |
|
|
4,436,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stockholder's equity
|
|
|
2,460,215 |
|
|
|
1,011,907 |
|
|
|
1,579,614 |
|
|
|
(2,591,521 |
) |
|
|
2,460,215 |
|
Long-term debt
and other long-term obligations
|
|
|
- |
|
|
|
1,320,773 |
|
|
|
62,900 |
|
|
|
(1,305,717 |
) |
|
|
77,956 |
|
|
|
|
2,460,215 |
|
|
|
2,332,680 |
|
|
|
1,642,514 |
|
|
|
(3,897,238 |
) |
|
|
2,538,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain
on sale and leaseback transaction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,051,871 |
|
|
|
1,051,871 |
|
Accumulated
deferred income taxes
|
|
|
- |
|
|
|
- |
|
|
|
244,978 |
|
|
|
(244,978 |
) |
|
|
- |
|
Accumulated
deferred investment tax credits
|
|
|
- |
|
|
|
35,350 |
|
|
|
24,619 |
|
|
|
- |
|
|
|
59,969 |
|
Asset
retirement obligations
|
|
|
- |
|
|
|
24,947 |
|
|
|
798,739 |
|
|
|
- |
|
|
|
823,686 |
|
Retirement
benefits
|
|
|
9,332 |
|
|
|
56,016 |
|
|
|
- |
|
|
|
- |
|
|
|
65,348 |
|
Property
taxes
|
|
|
- |
|
|
|
25,329 |
|
|
|
22,766 |
|
|
|
- |
|
|
|
48,095 |
|
Lease market
valuation liability
|
|
|
- |
|
|
|
341,881 |
|
|
|
- |
|
|
|
- |
|
|
|
341,881 |
|
Other
|
|
|
17,174 |
|
|
|
22,672 |
|
|
|
- |
|
|
|
- |
|
|
|
39,846 |
|
|
|
|
26,506 |
|
|
|
506,195 |
|
|
|
1,091,102 |
|
|
|
806,893 |
|
|
|
2,430,696 |
|
|
|
$ |
3,885,657 |
|
|
$ |
4,818,405 |
|
|
$ |
4,057,876 |
|
|
$ |
(3,356,344 |
) |
|
$ |
9,405,594 |
|
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING
BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
Receivables-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
|
133,846 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
133,846 |
|
Associated
companies
|
|
|
327,715 |
|
|
|
237,202 |
|
|
|
98,238 |
|
|
|
(286,656 |
) |
|
|
376,499 |
|
Other
|
|
|
2,845 |
|
|
|
978 |
|
|
|
- |
|
|
|
- |
|
|
|
3,823 |
|
Notes
receivable from associated companies
|
|
|
23,772 |
|
|
|
- |
|
|
|
69,012 |
|
|
|
- |
|
|
|
92,784 |
|
Materials and
supplies, at average cost
|
|
|
195 |
|
|
|
215,986 |
|
|
|
210,834 |
|
|
|
- |
|
|
|
427,015 |
|
Prepayments
and other
|
|
|
67,981 |
|
|
|
21,605 |
|
|
|
2,754 |
|
|
|
- |
|
|
|
92,340 |
|
|
|
|
556,356 |
|
|
|
475,771 |
|
|
|
380,838 |
|
|
|
(286,656 |
) |
|
|
1,126,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
service
|
|
|
25,513 |
|
|
|
5,065,373 |
|
|
|
3,595,964 |
|
|
|
(392,082 |
) |
|
|
8,294,768 |
|
Less -
Accumulated provision for depreciation
|
|
|
7,503 |
|
|
|
2,553,554 |
|
|
|
1,497,712 |
|
|
|
(166,756 |
) |
|
|
3,892,013 |
|
|
|
|
18,010 |
|
|
|
2,511,819 |
|
|
|
2,098,252 |
|
|
|
(225,326 |
) |
|
|
4,402,755 |
|
Construction
work in progress
|
|
|
1,176 |
|
|
|
571,672 |
|
|
|
188,853 |
|
|
|
- |
|
|
|
761,701 |
|
|
|
|
19,186 |
|
|
|
3,083,491 |
|
|
|
2,287,105 |
|
|
|
(225,326 |
) |
|
|
5,164,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
PROPERTY AND INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear plant
decommissioning trusts
|
|
|
- |
|
|
|
- |
|
|
|
1,332,913 |
|
|
|
- |
|
|
|
1,332,913 |
|
Long-term
notes receivable from associated companies
|
|
|
- |
|
|
|
- |
|
|
|
62,900 |
|
|
|
- |
|
|
|
62,900 |
|
Investment in
associated companies
|
|
|
2,516,838 |
|
|
|
- |
|
|
|
- |
|
|
|
(2,516,838 |
) |
|
|
- |
|
Other
|
|
|
2,732 |
|
|
|
37,071 |
|
|
|
201 |
|
|
|
- |
|
|
|
40,004 |
|
|
|
|
2,519,570 |
|
|
|
37,071 |
|
|
|
1,396,014 |
|
|
|
(2,516,838 |
) |
|
|
1,435,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
CHARGES AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deferred income taxes
|
|
|
16,978 |
|
|
|
522,216 |
|
|
|
- |
|
|
|
(262,271 |
) |
|
|
276,923 |
|
Lease
assignment receivable from associated companies
|
|
|
- |
|
|
|
215,258 |
|
|
|
- |
|
|
|
- |
|
|
|
215,258 |
|
Goodwill
|
|
|
24,248 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,248 |
|
Property
taxes
|
|
|
- |
|
|
|
25,007 |
|
|
|
22,767 |
|
|
|
- |
|
|
|
47,774 |
|
Pension
asset
|
|
|
3,217 |
|
|
|
13,506 |
|
|
|
- |
|
|
|
- |
|
|
|
16,723 |
|
Unamortized
sale and leaseback costs
|
|
|
- |
|
|
|
27,597 |
|
|
|
- |
|
|
|
43,206 |
|
|
|
70,803 |
|
Other
|
|
|
22,956 |
|
|
|
52,971 |
|
|
|
6,159 |
|
|
|
(38,133 |
) |
|
|
43,953 |
|
|
|
|
67,399 |
|
|
|
856,555 |
|
|
|
28,926 |
|
|
|
(257,198 |
) |
|
|
695,682 |
|
TOTAL
ASSETS
|
|
$ |
3,162,511 |
|
|
$ |
4,452,888 |
|
|
$ |
4,092,883 |
|
|
$ |
(3,286,018 |
) |
|
$ |
8,422,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND CAPITALIZATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently
payable long-term debt
|
|
$ |
- |
|
|
$ |
596,827 |
|
|
$ |
861,265 |
|
|
$ |
(16,896 |
) |
|
$ |
1,441,196 |
|
Short-term
borrowings-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
- |
|
|
|
238,786 |
|
|
|
25,278 |
|
|
|
- |
|
|
|
264,064 |
|
Other
|
|
|
300,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
Accounts
payable-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated
companies
|
|
|
287,029 |
|
|
|
175,965 |
|
|
|
268,926 |
|
|
|
(286,656 |
) |
|
|
445,264 |
|
Other
|
|
|
56,194 |
|
|
|
120,927 |
|
|
|
- |
|
|
|
- |
|
|
|
177,121 |
|
Accrued
taxes
|
|
|
18,831 |
|
|
|
125,227 |
|
|
|
28,229 |
|
|
|
(836 |
) |
|
|
171,451 |
|
Other
|
|
|
57,705 |
|
|
|
131,404 |
|
|
|
11,972 |
|
|
|
36,725 |
|
|
|
237,806 |
|
|
|
|
719,759 |
|
|
|
1,389,136 |
|
|
|
1,195,670 |
|
|
|
(267,663 |
) |
|
|
3,036,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stockholder's equity
|
|
|
2,414,231 |
|
|
|
951,542 |
|
|
|
1,562,069 |
|
|
|
(2,513,611 |
) |
|
|
2,414,231 |
|
Long-term debt
and other long-term obligations
|
|
|
- |
|
|
|
1,597,028 |
|
|
|
242,400 |
|
|
|
(1,305,716 |
) |
|
|
533,712 |
|
|
|
|
2,414,231 |
|
|
|
2,548,570 |
|
|
|
1,804,469 |
|
|
|
(3,819,327 |
) |
|
|
2,947,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain
on sale and leaseback transaction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,060,119 |
|
|
|
1,060,119 |
|
Accumulated
deferred income taxes
|
|
|
- |
|
|
|
- |
|
|
|
259,147 |
|
|
|
(259,147 |
) |
|
|
- |
|
Accumulated
deferred investment tax credits
|
|
|
- |
|
|
|
36,054 |
|
|
|
25,062 |
|
|
|
- |
|
|
|
61,116 |
|
Asset
retirement obligations
|
|
|
- |
|
|
|
24,346 |
|
|
|
785,768 |
|
|
|
- |
|
|
|
810,114 |
|
Retirement
benefits
|
|
|
8,721 |
|
|
|
54,415 |
|
|
|
- |
|
|
|
- |
|
|
|
63,136 |
|
Property
taxes
|
|
|
- |
|
|
|
25,328 |
|
|
|
22,767 |
|
|
|
- |
|
|
|
48,095 |
|
Lease market
valuation liability
|
|
|
- |
|
|
|
353,210 |
|
|
|
- |
|
|
|
- |
|
|
|
353,210 |
|
Other
|
|
|
19,800 |
|
|
|
21,829 |
|
|
|
- |
|
|
|
- |
|
|
|
41,629 |
|
|
|
|
28,521 |
|
|
|
515,182 |
|
|
|
1,092,744 |
|
|
|
800,972 |
|
|
|
2,437,419 |
|
TOTAL
LIABILITIES AND CAPITALIZATION
|
|
$ |
3,162,511 |
|
|
$ |
4,452,888 |
|
|
$ |
4,092,883 |
|
|
$ |
(3,286,018 |
) |
|
$ |
8,422,264 |
|
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2008
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED FROM (USED FOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
$ |
273,827 |
|
|
$ |
(122,171 |
) |
|
$ |
8,108 |
|
|
$ |
188 |
|
|
$ |
159,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings, net
|
|
|
400,000 |
|
|
|
646,975 |
|
|
|
234,921 |
|
|
|
- |
|
|
|
1,281,896 |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
- |
|
|
|
(135,063 |
) |
|
|
(153,540 |
) |
|
|
- |
|
|
|
(288,603 |
) |
Common stock
dividend payments
|
|
|
(10,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
Net cash provided from financing activities
|
|
|
390,000 |
|
|
|
511,912 |
|
|
|
81,381 |
|
|
|
- |
|
|
|
983,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(19,406 |
) |
|
|
(375,391 |
) |
|
|
(81,545 |
) |
|
|
(187 |
) |
|
|
(476,529 |
) |
Proceeds from
asset sales
|
|
|
- |
|
|
|
5,088 |
|
|
|
- |
|
|
|
- |
|
|
|
5,088 |
|
Sales of
investment securities held in trusts
|
|
|
- |
|
|
|
- |
|
|
|
173,123 |
|
|
|
- |
|
|
|
173,123 |
|
Purchases of
investment securities held in trusts
|
|
|
- |
|
|
|
- |
|
|
|
(181,079 |
) |
|
|
- |
|
|
|
(181,079 |
) |
Loans to
associated companies, net
|
|
|
(644,604 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(644,604 |
) |
Other
|
|
|
183 |
|
|
|
(19,438 |
) |
|
|
12 |
|
|
|
(1 |
) |
|
|
(19,244 |
) |
Net
cash used for investing activities
|
|
|
(663,827 |
) |
|
|
(389,741 |
) |
|
|
(89,489 |
) |
|
|
(188 |
) |
|
|
(1,143,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash and cash equivalents
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash and cash
equivalents at beginning of period
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Cash and cash
equivalents at end of period
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
FIRSTENERGY
SOLUTIONS CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2007
|
|
FES
|
|
|
FGCO
|
|
|
NGC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED FROM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
$ |
65,870 |
|
|
$ |
55,003 |
|
|
$ |
177,456 |
|
|
$ |
- |
|
|
$ |
298,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Financing-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contribution from parent
|
|
|
700,000 |
|
|
|
700,000 |
|
|
|
- |
|
|
|
(700,000 |
) |
|
|
700,000 |
|
Short-term
borrowings, net
|
|
|
250,000 |
|
|
|
- |
|
|
|
- |
|
|
|
(52,269 |
) |
|
|
197,731 |
|
Redemptions
and Repayments-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
- |
|
|
|
(616,728 |
) |
|
|
(128,716 |
) |
|
|
- |
|
|
|
(745,444 |
) |
Short-term
borrowings, net
|
|
|
- |
|
|
|
(52,269 |
) |
|
|
- |
|
|
|
52,269 |
|
|
|
- |
|
Net cash provided from (used for) financing activities
|
|
|
950,000 |
|
|
|
31,003 |
|
|
|
(128,716 |
) |
|
|
(700,000 |
) |
|
|
152,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(214 |
) |
|
|
(81,400 |
) |
|
|
(35,892 |
) |
|
|
- |
|
|
|
(117,506 |
) |
Sales of
investment securities held in trusts
|
|
|
- |
|
|
|
- |
|
|
|
178,632 |
|
|
|
- |
|
|
|
178,632 |
|
Purchases of
investment securities held in trusts
|
|
|
- |
|
|
|
- |
|
|
|
(188,076 |
) |
|
|
- |
|
|
|
(188,076 |
) |
Loans to
associated companies, net
|
|
|
(316,003 |
) |
|
|
- |
|
|
|
(3,895 |
) |
|
|
- |
|
|
|
(319,898 |
) |
Investment in
subsidiary
|
|
|
(700,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
700,000 |
|
|
|
- |
|
Other
|
|
|
347 |
|
|
|
(4,606 |
) |
|
|
491 |
|
|
|
- |
|
|
|
(3,768 |
) |
Net cash used for investing activities
|
|
|
(1,015,870 |
) |
|
|
(86,006 |
) |
|
|
(48,740 |
) |
|
|
700,000 |
|
|
|
(450,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash and cash equivalents
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash and cash
equivalents at beginning of period
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Cash and cash
equivalents at end of period
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
ITEM
4T. CONTROLS AND PROCEDURES – OE, CEI, TE AND PENELEC (Restated)
(a) EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
In the original Form
10-Q for the first quarter of 2008, each registrant’s chief executive officer
and chief financial officer concluded that, as of the end of the period covered
by that report, the applicable registrant's disclosure controls and procedures
were effective as of March 31, 2008. Subsequent to the restatement of the
respective registrants’ Consolidated Statements of Cash Flows discussed in the
revised Note 1 to the Combined Notes to Consolidated Financial Statements
included in the Form 10-Q/A, each registrant's chief executive officer and chief
financial officer performed an updated review and evaluated such registrant's
disclosure controls and procedures. Based upon that updated evaluation and as a
result of the material weakness in the internal controls over the preparation
and review of the Consolidated Statement of Cash Flows discussed below, those
officers concluded that, as of the end of the period covered by this report, the
applicable registrant's disclosure controls and procedures were ineffective as
of March 31, 2008.
The term disclosure
controls and procedures means controls and other procedures of a registrant that
are designed to ensure that information required to be disclosed by the
registrant in the reports that it files or submits under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under that Act is accumulated and communicated to the registrant's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
As reported in this
Form 10-Q/A, each registrant has amended its original Form 10-Q for the first
quarter of 2008 to restate its Consolidated Statements of Cash Flows for the
three months ended March 31, 2008, to correct common stock dividend payments
reported in cash flows from financing activities. The Consolidated Statements of
Cash Flows for each registrant, as originally filed, erroneously did not reflect
the payment of common stock dividends in the first quarter of 2008, which were
declared in the third quarter of 2007. The corrections resulted in a
corresponding change in operating liabilities - accounts payable, included in
cash flows from operating activities.
A material weakness
is a deficiency, or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.
The restatement
described above resulted from a material weakness in the internal controls over
one aspect of the preparation and review of the Consolidated Statements of Cash
Flows. Specifically, the registrants did not have a control that was designed to
ensure that declared but unpaid dividends to the registrants’ parent were not
reported as cash used for financing activities. This control deficiency resulted
in a material misstatement of the registrants’ interim and annual consolidated
financial statements. Accordingly, management determined that this control
deficiency constitutes a material weakness. The registrants modified their
internal controls over the preparation and review of their Consolidated
Statements of Cash Flows during the fourth quarter of 2008. Management has
implemented a process to segregate dividend declarations with payments
applicable to future reporting periods in a unique general ledger account in
order to distinguish associated company dividends payable from other associated
company accounts payable. Management believes that this process enhances the
existing internal controls over financial reporting and remediated the material
weakness discussed above for each of the registrants.
(b) CHANGES
IN INTERNAL CONTROLS
During the quarter
ended March 31, 2008, there were no changes in the registrants' internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, the registrants' internal control over financial
reporting.
PART II. OTHER
INFORMATION
ITEM
6. EXHIBITS
Exhibit
Number
|
|
|
|
|
|
|
|
|
|
|
|
OE
|
|
|
|
15
|
Letter from
independent registered public accounting firm
|
|
|
31.1
|
Certification
of chief executive officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
31.2
|
Certification
of chief financial officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
32
|
Certification
of chief executive officer and chief financial officer, pursuant to 18
U.S.C. Section 1350
|
|
CEI
|
|
|
|
15 |
Letter from
independent registered public accounting firm
|
|
|
31.1
|
Certification
of chief executive officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
31.2
|
Certification
of chief financial officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
32
|
Certification
of chief executive officer and chief financial officer, pursuant to 18
U.S.C. Section 1350
|
|
TE
|
|
|
|
15 |
Letter from
independent registered public accounting firm
|
|
|
31.1
|
Certification
of chief executive officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
31.2
|
Certification
of chief financial officer, as adopted pursuant to Rule
13a-14(a)
|
|
|
32
|
Certification
of chief executive officer and chief financial officer, pursuant to 18
U.S.C. Section 1350
|
|
Penelec
|
|
|
15
|
Letter from
independent registered public accounting firm
|
|
31.1
|
Certification
of chief executive officer, as adopted pursuant to Rule
13a-14(a)
|
|
31.2
|
Certification
of chief financial officer, as adopted pursuant to Rule
13a-14(a)
|
|
32
|
Certification
of chief executive officer and chief financial officer, pursuant to 18
U.S.C. Section 1350
|
Pursuant to
reporting requirements of respective financings, OE and Penelec are required to
file fixed charge ratios as an exhibit to this Form 10-Q. Pursuant to paragraph
(b)(4)(iii)(A) of Item 601 of Regulation S-K, neither OE, CEI, TE nor Penelec
have 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 its respective total assets, but each hereby
agrees to furnish to the SEC on request any such documents.
SIGNATURES
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.
November 25,
2008
|
OHIO EDISON
COMPANY
|
|
Registrant
|
|
|
|
THE
CLEVELAND ELECTRIC
|
|
ILLUMINATING
COMPANY
|
|
Registrant
|
|
|
|
THE TOLEDO EDISON
COMPANY
|
|
Registrant
|
|
|
|
PENNSYLVANIA ELECTRIC
COMPANY
|
|
Registrant
|
|
|
|
Harvey L.
Wagner
|
|
Vice President
and Controller
|