May 23, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Proposed Acceleration of Periodic Report Filing Dates
(File No. S7-08-02)
Dear Mr. Katz:
FirstEnergy Corp. welcomes the opportunity to comment and to express its concerns regarding the proposed rulemaking by the Securities and Exchange Commission. FirstEnergy is a registered public utility holding company headquartered in Akron, Ohio. Its subsidiaries and affiliates are involved in the generation, transmission and distribution of electricity; exploration and production of oil and natural gas; transmission and marketing of natural gas; energy management and other energy-related services.
Acceleration of Quarterly and Annual Report Due Dates
FirstEnergy agrees with the Commission's objective to make information publicly available that is clear, accurate and timely. The current filing requirements for these SEC forms - 45 days after the period end for the quarterly Form 10-Q reports and 90 days after fiscal year end for the annual Form 10-K reports - have been in place and are largely effective because they afford registrants the required time to gather, process and analyze information on their companies and their subsidiaries, and present information clearly and accurately in financial reports filed with the Commission. Therefore, we generally do not support the proposal to accelerate the filing dates to 30 days for Form 10-Q and 60 days for Form 10-K. Our view is based on the perspective that:
Required Financial Reporting Process
While advances in technology have facilitated efficiencies in transaction processing and compiling data, there are growing numbers of unique and complex transactions that require a higher level of attention, estimation and disclosure. The key driver behind quality disclosure in a company's "Management's Discussion and Analysis of Results of Operations and Financial Condition" is a manual process to analyze and interpret the data and to apply knowledge and experience of the industry to make conclusions and judgments regarding the potential impact of market events on the company. Included in this manual process is the necessary and appropriate review by senior management, legal counsel, auditors, audit committees and the Board of Directors. This expanded level of disclosure and review -- coupled with additional disclosures mandated by complex accounting standards such as SFAS No. 133 -- have more than offset any efficiencies gained from technological advances in the financial reporting process.
Due to the complexity of our financial statements and related disclosures, we generally need all of the time currently allotted to file our Reports. We do not believe that the benefits of accelerated reporting outweigh the negative impact on quality. Companies can use traditional means such as filing current reports on Form 8-K to provide investors with timely information without compromising the quality of financial reporting that could result from this proposal.
FirstEnergy currently schedules the release of its earnings on the fourth Wednesday of the month following the end of each calendar quarter. Our Board of Directors meets one week prior to the earnings release, which provides Board members with sufficient time to review and understand the financial results and the key judgments underlying those results. We strongly believe that the accelerated reporting schedule could negatively impact the quality of the corporate governance process, which runs contrary to the recent initiatives and proposals intended to strengthen the corporate governance process.
Independent Accountant Review / Audit
We believe the proposed acceleration of the periodic reporting dates could also have a negative impact on the quality of the independent quarterly reviews and annual audits of the consolidated financial statements, absent significant fee increases to support inevitably increased resource requirements. The landscape of our industry often changes rapidly, which places more pressure on our independent accountant's ability to stay abreast of such changes -- a more recent example includes the effects of deregulation to FirstEnergy and their impact on financial statements and related disclosures. Often, difficult technical accounting and/or regulatory issues arise, which require additional time for these matters to be appropriately documented and reviewed with our independent accountants. In fact, many of these accounting/tax matters require consultation at the national level. As a result of the November 7, 2001 consummation of our merger with GPU, Inc. and the additional year end disclosures, our independent accountant's report for 2001 was dated March 18, 2002 -- well beyond the proposed 60 day filing date.
The independent accountant's review and audit is a foundational element of the integrity of the financial reporting process. Our audit committee of the Board of Directors appropriately relies on the results of quarterly reviews and annual audits performed by the independent accountants, and we believe we should be working to strengthen these reviews and audits rather than reducing the time available to conduct these important reviews and discussions.
Acceleration of the periodic reporting deadlines will cause significant compression of the window in the calendar in which companies release earnings, schedule investor conference calls and file periodic reports. Finance staffs that are involved in these matters currently work long hours during these periods and will more than likely increase costs to the company in satisfying the proposed accelerated reporting dates, possibly compromising the quality of the resulting financial reporting.
If the proposed rules are adopted by the Commission, we believe that a longer transition period should be permitted to meet the April 30, 2003 filing deadline for our March 31, 2003 Form 10-Q. We would suggest that the Commission transition to a timetable no sooner than April 30, 2004, allowing us to make the appropriate changes to our internal and external reporting processes and requirements.
Website Access to Information
We strongly agree with the website access provisions of this proposal, but we believe that companies should be permitted to make the filed reports available on their website on the next business day following the date of filing with the Commission. As a practical matter, most reports can be posted on the same day, but providing the additional day will allow sufficient time to coordinate these efforts, as well as overcome any unusual technical issues regarding file conversion.
We appreciate the opportunity to express our comments regarding this Proposal. We hope that the Commission carefully considers our comments in developing the final provisions of its rulemaking.
Richard H. Marsh
Senior Vice President and Chief Financial Officer