-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JA0gbERqUGDZjUd2+zWh3LVyQnTZVptiD6y5mkNLYFC9iF2VPFOEexAHYZwq4FeM fEyaZfD/PvQeu2Aqh2a3WQ== 0000950120-05-000801.txt : 20051202 0000950120-05-000801.hdr.sgml : 20051202 20051202110745 ACCESSION NUMBER: 0000950120-05-000801 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20051202 DATE AS OF CHANGE: 20051202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-10322 FILM NUMBER: 051239455 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 3303845100 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 U-1/A 1 d205314.txt AMENDMENT NO. 2 TO FORM U-1 (As filed with the Securities and Exchange Commission on December 2, 2005) File No. 70-10322 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------------------- FORM U-1/A AMENDMENT NO. 2 TO APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 FirstEnergy Corp. Ohio Edison Company The Cleveland Electric Illuminating Company The Toledo Edison Company Pennsylvania Power Company FirstEnergy Nuclear Generation Corp. 76 South Main Street Akron, Ohio 44308 (Names of companies filing this statement and address of principal executive offices) ---------------------------------------------------------------------- FIRSTENERGY CORP. (Name of top registered holding company parent of applicants) ----------------------------------------------------------------------- Leila L. Vespoli Douglas E. Davidson, Esq. Senior Vice President and Thelen Reid & Priest LLP General Counsel 875 Third Avenue FirstEnergy Corp. New York, New York 10022 76 South Main Street Akron, Ohio 44308 (Names and addresses of agents for service) ------------------------------------------------------------------- The Application-Declaration filed in this proceeding on July 18, 2005, as heretofore amended and restated in its entirety by Amendment No. 1, filed on October 27, 2005, is hereby further amended and restated in its entirety to read as follows: ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS ------------------------------------ 1.1 Introduction. ------------ FirstEnergy Corp., an Ohio corporation ("FirstEnergy"), is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act")./1/ FirstEnergy directly owns all of the outstanding common stock of Ohio Edison Company ("Ohio Edison"), The Cleveland Electric Illuminating Company ("Cleveland Electric"), and The Toledo Edison Company ("Toledo Edison"), and indirectly through Ohio Edison owns all of the outstanding common stock of Pennsylvania Power Company ("Penn Power")./2/ Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison are referred to herein as the "Utility Subsidiaries." When the transactions described below are completed, FirstEnergy will become the parent holding company of FirstEnergy Nuclear Generation Corp. ("FE Nuclear"), a newly organized Ohio corporation. FE Nuclear will be a non-exempt electric generation company subsidiary of FirstEnergy. FirstEnergy, the Utility Subsidiaries, and FE Nuclear are referred to herein as the "Applicants." 1.2 Description of Utility Subsidiaries' Operations. ----------------------------------------------- Ohio Edison was organized under the laws of the State of Ohio in 1930 and owns property and does business as an electric public utility in that state. Ohio Edison also has ownership interests in certain generating facilities located in the Commonwealth of Pennsylvania. Ohio Edison engages in the generation, distribution and sale of electric energy to communities in a 7,500 square mile area of central and northeastern Ohio having a population of approximately 2.8 million. - ---------- 1 See FirstEnergy Corp., Holding Co. Act Release No. 27459 (Oct. 29, 2001), as supplemented by Holding Co. Act Release No. 27463 (Nov. 8, 2001) (the "Merger Order"). 2 FirstEnergy's other public utility subsidiaries are Jersey Central Power & Light Company, Pennsylvania Electric Company, Metropolitan Edison Company, York Haven Power Company, The Waverly Electric Power & Light Company and American Transmission Systems, Incorporated. These companies are not applicants in this proceeding. 2 Ohio Edison owns all of Penn Power's outstanding common stock. Penn Power was organized under the laws of the Commonwealth of Pennsylvania in 1930 and owns property and does business as an electric public utility in that state. Penn Power engages in the generation, distribution and sale of electric energy in a 1,500 square mile-area of western Pennsylvania having a population of approximately 300,000. Penn Power is also authorized to do business and owns property in the State of Ohio. Cleveland Electric was organized under the laws of the State of Ohio in 1892 and does business as an electric public utility in that state. Cleveland Electric engages in the generation, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio having a population of approximately 1.9 million. It also has ownership interests in certain generating facilities located in Pennsylvania. Toledo Edison was organized under the laws of the State of Ohio in 1901 and does business as an electric public utility in that state. Toledo Edison engages in the generation, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio having a population of approximately 800,000. It also has interests in certain generating facilities located in Pennsylvania. Filed herewith as Exhibit H is a table showing the components of consolidated capitalization as of September 30, 2005, of FirstEnergy, Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison. The Utility Subsidiaries are requesting authorization herein to transfer ownership of their respective interests in certain nuclear generating plants and related assets and liabilities to FE Nuclear. These asset transfers are in furtherance of FirstEnergy's Ohio and Pennsylvania corporate separation plans, which were described in FirstEnergy's Application/Declaration for authorization to merge with GPU, Inc. ("GPU"). In addition, FirstEnergy and FE Nuclear are requesting authorization to engage in financing and other related transactions for the period commencing on the effective of the order issued in this proceeding and ending on February 8, 2006 (the "Authorization Period"). 1.3 Transfer of Nuclear Generating Plants to FE Nuclear. --------------------------------------------------- The Utility Subsidiaries own, as tenants in common, interests in the following nuclear generating plants:
- -------------------------------------------------------------------------------- Plant Location MW Ownership % - -------------------------------------------------------------------------------- Beaver Valley 1 Shippingport, PA 821 Ohio Edison 35% Penn Power 65% - -------------------------------------------------------------------------------- Beaver Valley 2 Shippingport, PA 831 Ohio Edison 20.22% Penn Power 13.74% Cleveland Electric 24.47% Toledo Edison 1.65% - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Davis-Besse Oak Harbor, OH 883 Cleveland Electric 51.38% Toledo Edison 48.62% - -------------------------------------------------------------------------------- Perry North Perry Village, OH 1,260 OES Nuclear 17.42% Penn Power 5.245% Toledo Edison 19.91% Cleveland Electric 44.85% - --------------------------------------------------------------------------------
The Utility Subsidiaries propose to sell or otherwise transfer their respective ownership interests in the nuclear plants to FE Nuclear by means of the following transactions, all of which will be carried out concurrently:/3/ Transfer of Nuclear Plants by Penn Power. Initially, pursuant to the terms of a Subscription and Capital Contribution Agreement ("Penn Power Contribution Agreement"), filed herewith as Exhibit B-1, Penn Power will acquire 100 shares of common stock of FE Nuclear in consideration for Penn Power's contribution to FE Nuclear of its undivided interests in the two Beaver Valley units and Beaver Valley common facilities and its undivided interest in Perry Unit 1. In connection with such contribution, FE Nuclear will assume Penn Power's obligations in respect of $63 million aggregate principal amount of pollution control revenue bonds ("PCRBs") and certain other liabilities associated with the transferred units. The parties to the Penn Power Contribution Agreement have agreed that the value of the contributed assets will be the net book value thereof as of the end of the fiscal quarter immediately preceding the closing. Simultaneously, Penn Power will receive from FE Nuclear a promissory note in the form of Exhibit B-5 hereto ("FE Nuclear Note") in respect of the book value of certain related assets, including construction work in progress, nuclear plant decommissioning funds, inventories and spare parts (totaling, as of September 30, 2005, approximately $328 million), less the agreed upon value of other liabilities assumed by FE Nuclear (approximately $162 million as of September 30, 2005). The FE Nuclear Note will bear interest at a rate equal to Penn Power's weighted average cost of long-term debt, determined as shown in Exhibit I hereto, will mature 20 years after its date of issuance, and will be prepayable at any time, in whole or in part, by FE Nuclear. Following the contribution to FE Nuclear, Penn Power will distribute the stock of FE Nuclear as a dividend to its parent, Ohio Edison, such that FE Nuclear will become, momentarily, a direct wholly-owned subsidiary of Ohio Edison. If the transactions described in the previous paragraph had occurred on September 30, 2005, Penn Power's cost basis for the stock of FE Nuclear would have been equal to the net book value of the transferred interests in the Beaver Valley and Perry units and associated assets (approximately $176 million), less the PCRB obligations ($63 million) and the distribution of the stock of FE Nuclear to Ohio Edison would have resulted in a charge to Penn Power's retained earnings of $113 million. - ---------- 3 The Utility Subsidiaries do not propose to transfer to FE Nuclear their remaining percentage ownership interests in Beaver Valley Unit 2 (approximately 40%) and the Perry unit (approximately 12.6%), which are currently subject to sale and leaseback arrangements with third parties. 4 Transfer of Nuclear Plants by Ohio Edison. Pursuant to the terms of a Capital Contribution Agreement ("Ohio Edison Contribution Agreement"), filed as Exhibit B-2 hereto, Ohio Edison will contribute its undivided interests in the two Beaver Valley units and Beaver Valley common facilities and the common stock of OES Nuclear Incorporated ("OES Nuclear"), a wholly-owned subsidiary of Ohio Edison, which holds an undivided interest in Perry Unit 1, together with associated decommissioning funds and its interests in other assets, inventories, fuel, spare parts, equipment, supplies and contract rights relating to the transferred units, to FE Nuclear as an additional capital contribution to FE Nuclear. In connection with such transfer, FE Nuclear will initially assume Ohio Edison's obligations in respect of $115 million aggregate principal amount of PCRB obligations and certain other liabilities associated with the transferred units. An additional $297 million of Ohio Edison's PCRBs will be assumed and/or refinanced by FE Nuclear after the distribution described in the next paragraph. The parties to the Ohio Edison Contribution Agreement have agreed that the value of the contributed assets will be the net book value thereof as of the end of the fiscal quarter immediately preceding the closing. Following the transfer of Ohio Edison's nuclear assets to FE Nuclear, it is anticipated that OES Nuclear will be merged with and into FE Nuclear, and Ohio Edison will distribute the stock of FE Nuclear as a dividend to its parent, FirstEnergy, such that FE Nuclear will momentarily become a direct wholly-owned subsidiary of FirstEnergy. If the transactions described above had occurred on September 30, 2005, Ohio Edison's cost basis for the stock of FE Nuclear would have been equal to the net book value of the transferred interests in the Beaver Valley and Perry units and associated assets (approximately $514 million), less the initial PCRB obligations to be assumed at closing ($115 million), less accumulated other comprehensive income (approximately $7 million) and the agreed upon value of other liabilities (principally an asset retirement obligation and accumulated deferred income taxes) assumed by FE Nuclear (totaling approximately $160 million). Simply in order to account for the difference between Ohio Edison's capital contribution to FE Nuclear and the additional Ohio Edison nuclear assets which FE Nuclear is acquiring from Ohio Edison as part of the transaction, an intercompany receivable (represented for accounting purposes by a long term FE Nuclear Note) will be set up on the Ohio Edison balance sheet in the amount of $232 million. FE Nuclear will repay that obligation, together with interest determined as shown on Exhibit I, through the assumption and/or refinancing after closing of the additional outstanding Ohio Edison PCRBs which, as noted above, total $297 million, an amount greater than the intercompany receivable that is created in the transaction. Sale of Nuclear Plants by Cleveland Electric and Toledo Edison. Cleveland Electric and Toledo Edison have each entered into a Nuclear Purchase and Sale Agreement with FE Nuclear ("Nuclear PSA"), filed herewith as Exhibits B-3 and B-4, respectively, under which FE Nuclear has agreed to purchase Cleveland Electric's and Toledo Edison's respective undivided ownership interests in Beaver Valley Unit 2, Perry Unit 1 and Davis-Besse for a purchase price equal to the net book value thereof, determined as of the end of the fiscal quarter immediately preceding the closing, together with the respective interests of Cleveland Electric and Toledo Edison in nuclear decommissioning trust funds associated with those plants and their respective right, title and interest in and to all contracts, fuel, spare parts, inventories, equipment, supplies and other assets associated with each transferred unit, less the amount of obligations of Cleveland Electric and Toledo Edison under PCRBs associated with the transferred units ($367 million and $246 million, respectively, as of 5 September 30, 2005) that FE Nuclear has agreed to assume, and the agreed upon value of certain other liabilities (principally asset retirement obligations and accumulated deferred income taxes), totaling approximately $343 million and $209 million, respectively, associated with the transferred units. At closing, FE Nuclear will pay the purchase price, determined as described in the previous paragraph, by delivering to Cleveland Electric and Toledo Edison FE Nuclear Notes, in the form of Exhibit B-5 hereto, secured by a lien on the transferred assets. Each FE Nuclear Note will bear interest at a rate per annum based on the average weighted cost of long-term debt of Cleveland Electric and Toledo Edison, as the case may be, determined as shown in Exhibit I hereto, will mature 20 years after the date of issuance, and will be prepayable at any time, in whole or in part, at the option of FE Nuclear, without penalty. If the transactions described above had been consummated as of September 30, 2005, the principal amounts of the FE Nuclear Notes delivered to Cleveland Electric and Toledo Edison would have been approximately $993 million and $706 million, respectively. The existing PCRB obligations of Cleveland Electric and Toledo Edison will remain liabilities of those companies. As previously indicated (and as further described in Item 1.5.1 below), FE Nuclear has agreed to assume the existing PCRB obligations by entering into agreements with issuing authorities for the issuance of new PCRBs, the proceeds of which would be used by FE Nuclear to repay principal of the FE Nuclear Notes issued at closing to Cleveland Electric and Toledo Edison. Cleveland Electric and Toledo Edison, in turn, will use the proceeds so received from repayments of FE Nuclear Notes to retire a like principal amount of the existing PCRB obligations. Repurchases of Common Stock of Cleveland Electric, Toledo Edison and Penn Power. In connection with the transfer of the nuclear plants to FE Nuclear, FirstEnergy intends to make a cash capital contribution to FE Nuclear of up to $750 million. FE Nuclear will use the proceeds of this investment at or subsequent to closing to prepay a like amount of the FE Nuclear Notes delivered at closing to Penn Power, Cleveland Electric and Toledo Edison. In turn, Penn Power, Cleveland Electric and Toledo Edison will apply the proceeds of such prepayment of the FE Nuclear Notes, first, to repay outstanding borrowings under the FirstEnergy System Utility Money Pool ("Money Pool")/4/ and, second, to the extent that there are any remaining prepayment proceeds, to repurchase shares of common stock of Cleveland Electric and Toledo Edison that are held by FirstEnergy and shares of common stock of Penn Power that are held by Ohio Edison. The purpose of these transactions is to adjust (i.e., reduce) the equity and debt capitalization of Cleveland Electric, Toledo Edison and Penn Power to mirror their smaller asset base after the transfer of their undivided interests - ---------- 4 The Commission has previously authorized FirstEnergy and the Utility Subsidiaries to participate in the Utility Money Pool. See FirstEnergy Corp., et al., Holding Co. Act Release No. 27694 (June 30, 2003) (the "2003 Financing Order"). At September 30, 2005, outstanding borrowings under the Utility Money Pool by Cleveland Electric, Toledo Edison and Penn Power totaled $466.4 million, $378.1 million, and $22.2 million, respectively. 6 in the nuclear plants to FE Nuclear. On a pro forma basis, taking into account the transfer of the nuclear plants to FE Nuclear and the related intercompany financing transactions, common equity as a percentage of total capitalization of Cleveland Electric, Toledo Edison, and Penn Power as of September 30, 2005 will equal 47%, 61% and 72%, respectively./5/ On a pro forma basis, assuming completion of the transactions described above, the $750 million capital contribution by FirstEnergy, and FE Nuclear's repayment of the FE Nuclear Notes, common equity as a percentage of FE Nuclear's total capitalization as of September 30, 2005 would equal approximately 35%. 1.4 External Debt Financing by FE Nuclear. ------------------------------------- As indicated, upon completion of the transactions described in Item 1.3 above, FE Nuclear will become a direct public-utility subsidiary of FirstEnergy. It is contemplated that FE Nuclear's requirements for additional common equity (including the $750 million equity infusion by FirstEnergy at closing) will be satisfied by capital contributions by FirstEnergy pursuant to Rule 45(b)(4). FE Nuclear herein requests authorization to issue and sell to unaffiliated lenders, from time to time during the Authorization Period, long-term debt securities having maturities of up to 50 years ("Long-term Debt") and short-term debt securities having maturities of less than one year ("Short-term Debt") in an aggregate amount at any time outstanding not to exceed $1.5 billion (the "FE Nuclear Debt Limit"). The following general terms will be applicable where appropriate to Long-term Debt and Short-term Debt of FE Nuclear: Effective Cost of Money. The effective cost of capital (i.e., the aggregate of all payments, including interest, dividend distributions and other periodic payments) in respect of Long-term Debt and Short-term Debt of FE Nuclear will not exceed competitive market rates available at the time of issuance for securities having the same or reasonably similar terms and conditions issued by similar companies of reasonably comparable credit quality; provided that, in no event will the effective cost of capital (i) on Long-term Debt exceed at the time of issuance 500 basis points over the yield to maturity of comparable-term U.S. Treasury securities if the interest rate on such Long-term Debt securities is a fixed rate or, if the rate on such Long-term Debt securities is a floating rate, 500 basis points over the London Interbank Offered Rate ("LIBOR") for maturities of less than one year; and (ii) on Short-term Debt exceed at the time of issuance, (A) in the case of commercial paper or any other short-term borrowing that is not tied to a reference rate, 300 basis points over LIBOR, and (B) in the case of any short-term borrowing that is tied to a reference rate, either (1) 300 basis points over LIBOR, (2) 50 basis points over the prime rate, as announced from time to time by CitiBank, or any successor thereto, or (3) 100 basis points over the Federal Funds Rate, whichever reference rate is applicable. - ---------- 5 See pro forma balance sheets of Penn Power, Cleveland Electric and Toledo Edison, filed herewith as Exhibits FS-12, FS-13 and FS-14, respectively. Since the aggregate of Money Pool borrowings by Penn Power, Cleveland Electric and Toledo Edison exceeds $750 million at September 30, 2005, the pro formas do not reflect any stock repurchases. 7 Issuance Expenses. The underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of a security pursuant to this Application/Declaration (not including any original issue discount) will not exceed 5% of the principal or total amount of the security being issued. Use of Proceeds. The proceeds from the sale of securities in external financing transactions will be used for general corporate purposes, including financing, in part, of the capital expenditures of FE Nuclear, financing of working capital requirements of FE Nuclear, the acquisition, retirement or redemption of securities (including PCRB obligations) previously issued by or on behalf FE Nuclear, and other lawful purposes. The Applicants represent that no such financing proceeds will be used to acquire the securities of any new subsidiary unless such acquisition is consummated in accordance with an order of the Commission (including the order issued in this proceeding) or an available exemption under the Act or rules thereunder. Common Equity Ratio. FE Nuclear and each of the Utility Subsidiaries commits that it will maintain common equity as a percentage of consolidated capitalization (common stock equity, long-term debt and short-term debt, including current maturities of long-term debt) at 30% or higher. Ratings Event. With respect to the securities issuance authority proposed in this Application/Declaration: (a) within four business days after the occurrence of a Ratings Event,/6/ Applicants will notify the Commission of its occurrence (by means of a letter, via fax, email or overnight mail to the Office of Public Utility Regulation), and (b) within 30 days after the occurrence of a Ratings Event, Applicants will submit a post-effective amendment to this Application/Declaration explaining the material facts and circumstances relating to that Ratings Event (including the basis on which, taking into account the interests of investors, consumers and the public as well as other applicable criteria under the Act, it remains appropriate for FE Nuclear to issue the securities for which authorization has been requested in this Application/Declaration, so long as FE Nuclear continues to comply with the other applicable terms and conditions specified in the Commission's order authorizing the transactions requested in this Application/Declaration). Furthermore, except in accordance with a further order of the Commission, no securities authorized as a result of this Application/Declaration will be issued following the 60th day after a Ratings Event (other than Short-term Debt) if the downgraded rating(s) has or have not been upgraded to investment grade. Applicants request that the Commission reserve jurisdiction, through the remainder of the Authorization Period, over the issuance of any securities (other than Short-term Debt) that FE Nuclear is prohibited from issuing as a - ---------- 6 A "Ratings Event" will be deemed to have occurred if, during the Authorization Period, (i) any security issued by FirstEnergy or FE Nuclear upon original issuance, if rated, is rated below investment grade, or (ii) any outstanding security of FirstEnergy or FE Nuclear that is rated is downgraded below investment grade. For purposes of this provision, a security will be deemed "investment grade" if it is rated investment grade by at least one nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 of the Securities Exchange Act of 1934, as amended). 8 result of the occurrence of a Ratings Event if no revised rating reflecting an investment grade rating has been issued. 1.5 Description of Specific Types of External Debt Securities of FE Nuclear. --------------------------------------------------------- All debt securities issued by FE Nuclear in accordance with the authorization requested herein, including, without limitation, securities issued for the purpose of refunding or retiring outstanding securities, will comply with the applicable parameters set forth in Item 1.4 above. 1.5.1. Long-term Debt. Each series of Long-term Debt would have such designation, aggregate principal amount, maturity, interest rate(s) or methods of determining the same, terms of payment of interest, redemption provisions, sinking fund terms and other terms and conditions as FE Nuclear may determine at the time of issuance. Any Long-term Debt (a) may be secured or unsecured, (b) may be senior or subordinated, (c) will have maturities ranging from one to 50 years, (d) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount thereof, (e) may be entitled to mandatory or optional sinking fund provisions, (f) may provide for reset of the coupon pursuant to a remarketing arrangement, (g) may be subject to tender or the obligation of the issuer to repurchase at the election of the holder or upon the occurrence of a specified event, (h) may be called from existing investors by a third party, and (i) may be entitled to the benefit of affirmative or negative financial or other covenants. Long-term Debt may also be in the form of agreements between FE Nuclear and one or more industrial development authorities ("IDAs") pursuant to which an IDA agrees to issue PCRBs for the purpose of financing or refinancing pollution control revenue facilities relating to FE Nuclear's nuclear power plants./7/ Under the terms of any such agreement, payments to the issuing IDA would be designed to match payments of principal of and interest on the PCRBs to which such agreement relates. As security for FE Nuclear's obligations under any agreement relating to any series of PCRBs, FE Nuclear requests authority to (1) issue its promissory note or notes to evidence the loan to FE Nuclear of the proceeds of the PCRBs by the issuing IDA, (2) acquire and deliver a letter of credit ("LOC") guaranteeing payment of the PCRBs and enter into reimbursement agreements with respect to any such LOC, (3) acquire insurance policies guaranteeing payment of the PCRBs, and/or (4) pledge its first mortgage bonds as collateral for its - ---------- 7 As described in Item 1.3 above, in connection with the transfer of the nuclear plants to FE Nuclear, FE Nuclear will assume approximately $1.1 billion of PCRB obligations of the Utility Subsidiaries. FE Nuclear proposes to enter into agreements with the issuing IDAs to refinance these outstanding PCRBs. 9 obligations to the issuing IDA, any trustee, LOC bank or PCRB insurer./8/ To avoid double counting, it is proposed that the amount of any note or notes issued by FE Nuclear to evidence the loan to FE Nuclear of the proceeds of any PCRBs or first mortgage bonds issued by FE Nuclear as collateral security for PCRB obligations not count against the FE Nuclear Debt Limit. The maturity date and interest rate and the redemption, sinking fund, tender or repurchase features, if any, with respect to Long-term Debt of a particular series (including any PCRBs), as well as any associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding. 1.5.2. Short-term Debt. Short-term Debt of FE Nuclear may be in the form of commercial paper, promissory notes and/or other forms of unsecured short-term indebtedness. FE Nuclear may establish from time to time new committed bank lines of credit, provided that only the principal amount of any borrowings outstanding thereunder will be counted against the proposed FE Nuclear Debt Limit. Credit lines may be set up for use by FE Nuclear for general corporate purposes in addition to credit lines to support commercial paper as described in this subsection. FE Nuclear will borrow and repay under such lines of credit, from time to time, as it is deemed appropriate or necessary. FE Nuclear may also engage in other types of short-term financing, including borrowings under uncommitted lines, generally available to borrowers with comparable credit ratings as it may deem appropriate in light of its needs and market conditions at the time of issuance. Commercial paper would be sold in established domestic or European commercial paper markets from time to time. Such commercial paper would be sold to dealers at the discount rate or the coupon rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring commercial paper from FE Nuclear will reoffer such paper at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. Institutional investors are expected to include commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities and finance companies. 1.6 Intrasystem Financing Transactions. ---------------------------------- FE Nuclear further requests authorization to make direct long-term and short-term borrowings from FirstEnergy ("Direct Borrowings"). All such Direct Borrowings would be evidenced by FE Nuclear's promissory notes and would be prepayable at any time without premium or penalty at FE Nuclear's option. The aggregate principal amount of Direct Borrowings by FE Nuclear at any time - ---------- 8 FirstEnergy may also guarantee PCRB obligations of FE Nuclear pursuant to the authority previously granted under the 2003 Financing Order or any subsequent order issued by the Commission that authorizes FirstEnergy to guarantee obligations of its subsidiaries. 10 outstanding will be counted against and will in no event exceed the FE Nuclear Debt Limit. The interest rate and maturity of any Direct Borrowings will be designed to parallel the terms (i.e, effective cost of funds and maturity) of similar debt securities issued by FirstEnergy, as authorized by the Commission in a separate proceeding./9/ In addition, FE Nuclear requests authorization to become a participant in and to make borrowings under the FirstEnergy System Non-Utility Money Pool Agreement ("Non-Utility Money Pool") subject to terms and conditions previously approved by the Commission./10/ FE Nuclear requests authorization to borrow up to $1 billion at any time outstanding under the Non-Utility Money Pool. Borrowings by FE Nuclear under the Non-Utility Money Pool would also be counted against the proposed FE Nuclear Debt Limit. ITEM 2. FEES, COMMISSIONS AND EXPENSES ------------------------------ The fees, commissions and expenses incurred or to be incurred in connection with the preparation and filing of this Application/Declaration are not expected to exceed $35,000. ITEM 3. APPLICABLE STATUTORY PROVISIONS ------------------------------- 3.1 General. ------- Sections 9(a) and 10 of the Act are applicable to Penn Power's acquisition of the common stock of FE Nuclear, and Sections 9(a), 10, and 12(b) of the Act and Rule 45 thereunder are applicable to the proposed acquisition by the Utility Subsidiaries of the FE Nuclear Notes. Sections 12(d) and 12(f) of the Act and Rules 43 and 44 thereunder are applicable to the transfer by the Utility Subsidiaries of their respective interests in the nuclear plants to FE Nuclear, and Section 12(b) of the Act and Rule 45 thereunder are applicable to FE Nuclear's assumption of PCRB obligations and other liabilities of the Utility Subsidiaries related to the transferred nuclear plants. Sections 9(a), 10 and 12(c) of the Act are applicable to the proposed acquisition by Cleveland Electric and Toledo Edison of shares of their common stock held by FirstEnergy and to the proposed acquisition by Penn Power of shares of its common stock held by Ohio Edison. Section 12(c) of the Act and Rule 46 thereunder are applicable to the transfer, by in-kind dividend, of the common stock of FE Nuclear by Penn Power to Ohio Edison and of the common stock of FE Nuclear by Ohio Edison to - ---------- 9 Under the 2003 Financing Order, FirstEnergy is authorized to issue long-term and short-term debt securities, subject to various restrictions and limitations, from time to time through December 31, 2005. FirstEnergy has filed a post-effective amendment in File No. 70-10122 to request an extension to the authorization period under the 2003 Financing Order through February 8, 2006. 10 Under the 2003 Financing Order, FirstEnergy is currently authorized to maintain and make loans to its non-utility subsidiaries through the Non-Utility Money Pool. Although FE Nuclear will be an "electric utility company" for purposes of the Act, it will not be a state-regulated utility and therefore will be considered to be on the non-regulated side of FirstEnergy's business. 11 FirstEnergy. However, the dividend distribution will be charged to retained earnings and not to capital or unearned surplus and, therefore, should not require separate authorization by the Commission. Sections 6(a) and 7 of the Act are applicable to FE Nuclear's issuance of Long-term Debt and Short-term Debt. Sections 6(a), 7, 9, 10, and 12(b) of the Act are or may be applicable to agreements FE Nuclear enters into with respect to PCRBs and to the intrasystem financing transactions described herein. 3.2 Rules 53 and 54. --------------- Under Rule 53(a), the Commission shall not make certain specified findings under Sections 7 and 12 in connection with a proposal by a holding company to issue securities for the purpose of acquiring the securities of or other interest in any "exempt wholesale generator" ("EWG"), or to guarantee the securities of any EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof are met, provided that none of the conditions specified in paragraphs (b)(1) through (b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or "foreign utility companies" ("FUCOs") in determining whether to approve other transactions if Rule 53(a), (b) and (c) are satisfied. FirstEnergy currently meets all of the conditions of Rule 53(a), except for clause (1). Under the Merger Order and 2003 Financing Order, the Commission, among other things, authorized FirstEnergy to invest in EWGs and FUCOs so long as FirstEnergy's "aggregate investment," as defined in Rule 53(a)(1), in EWGs and FUCOs does not exceed $5 billion, which $5 billion amount is greater than the amount which would be permitted by clause (1) of Rule 53(a) which, based on FirstEnergy's "consolidated retained earning," also as defined in Rule 53(a)(1), of $2.1 billion as of September 30, 2005, would be $1.05 billion. The Merger Order and 2003 Financing Order also specify that this $5 billion amount may include amounts invested in EWGs and FUCOs by FirstEnergy and GPU at the time of the Merger Order ("Current Investments") and amounts relating to possible transfers to EWGs of certain generating facilities owned by certain of FirstEnergy's operating utilities ("GenCo Investments"). FirstEnergy has made the commitment that through December 31, 2005, its aggregate investment in EWGs and FUCOs other than the Current Investments and GenCo Investments ("Other Investments") will not exceed $1.5 billion (the "Modified Rule 53 Test"). Under the Merger Order and 2003 Financing Order, the Commission reserved jurisdiction over Other Investments that exceed such $1.5 billion amount. As of September 30, 2005, pro forma to take into account the recent transfer of certain fossil and hydroelectric generating plants of the Utility Subsidiaries to FirstEnergy Generation Corp., FirstEnergy's aggregate investment in EWGs and FUCOs was approximately $2.5 billion,/11/ an amount significantly below the $5 billion amount authorized in the Merger Order and 2003 Financing Order. Additionally, as of September 30, 2005, FirstEnergy's consolidated - ---------- 11 This $2.5 billion amount represents Current Investments and GenCo Investments. 12 retained earnings were $2.1 billion. By way of comparison, FirstEnergy's consolidated retained earnings as of December 31, 2001 were $1.52 billion. In any event, even taking into account the capitalization of and earnings from EWGs and FUCOs in which FirstEnergy currently has an interest, there would be no basis for the Commission to withhold approval of the transactions proposed herein. With respect to capitalization, since the date of the Merger Order, there has been no material adverse impact on FirstEnergy's consolidated capitalization resulting from FirstEnergy's investments in EWGs and FUCOs. As of September 30, 2005, FirstEnergy's consolidated capitalization consisted of 44.9% common equity, 0.9% cumulative preferred stock, 52.9% long-term debt and 1.3% notes payable. As of December 31, 2001, those ratios were as follows: 30.3% common equity, 3.1% cumulative preferred stock, 2.2% subsidiary-obligated mandatorily redeemable preferred securities, 60.9% long term debt and 3.5% notes payable. Additionally, the proposed transactions will not have any impact on FirstEnergy's consolidated capitalization. Further, since the date of the Merger Order, FirstEnergy's investments in EWGs and FUCOs have contributed positively to its level of earnings, other than for the negative impact on earnings due to FirstEnergy's writedowns of its investments in Avon Energy Partners Holdings ("Avon") and GPU Empresa Distribuidora Electrica Regional S.A. ("Emdersa")./12/ The domestic public utility subsidiaries of FirstEnergy are financially sound companies as indicated by their investment grade ratings from the nationally recognized rating agencies for their senior secured debt. The following chart includes a breakdown of the senior, secured credit ratings for those utility subsidiaries that currently have ratings for senior, secured debt: - ---------- 12 At the time of the Merger Order, FirstEnergy identified certain former GPU EWG and FUCO investments for divestiture within one year. Among those identified were Avon, a holding company for Midlands Electricity plc, an electric distribution business in the United Kingdom and Emdersa and affiliates, an electric distribution business in Argentina. In May 2002, FirstEnergy sold 79.9% of its interest in Avon, and in the fourth quarter of 2002, recorded a $50 million charge ($32.5 million net of tax) to reduce the carrying value of its remaining 20.1% interest. The remaining 20.1% interest in Avon was sold on January 16, 2004. Through 2002, FirstEnergy was unsuccessful in divesting GPU's former Argentina operations and made the decision to abandon its interest in Emdersa in early 2003. On April 18, 2003, FirstEnergy divested its ownership in Emdersa through the abandonment of its shares in Emdersa's parent company. FirstEnergy included in discontinued operations Emdersa's net income of $7 million and a $67 million charge for the abandonment in the second quarter of 2003. An after-tax loss of $87 million (including $109 million in currency transaction losses arising principally from U.S. dollar denominated debt) was included in discontinued operations in 2002. In December 2003, Emdersa Guaracachi S. A. ("EGSA"), GPU Power's Bolivia subsidiary, was sold to Bolivia Integrated Energy Limited. FirstEnergy included in discontinued operations a $33 million loss on the sale of EGSA in the fourth quarter of 2003 and an operating loss for the year of $2 million. On January 30, 2004, FirstEnergy sold its 28.67% interest in Termobarranquilla S. A., Empresa de Servicios Publicos ("TEBSA") for $12 million. An impairment loss of $26 million related to TEBSA was recorded in December 2003 in Other Operating Expenses on the consolidated statement of income and no gain or loss was recognized upon the sale in 2004. 13
--------------------------------------------------------------------- Subsidiary Standard & Poors/13/ Moody's/14/ Fitch/15/ --------------------------------------------------------------------- Cleveland Electric BBB Baa2 BBB- Toledo Edison BBB Baa2 BBB- Penn Power BBB+ Baa1 BBB+ Jersey Central Power BBB+ Baa1 BBB+ Metropolitan Edison Co. BBB+ Baa1 BBB+ ---------------------------------------------------------------------
Ohio Edison and Pennsylvania Electric Company no longer have ratings for the senior secured debt category. However, Ohio Edison's senior unsecured debt is rated BBB- by S&P, Baa2 by Moodys and BBB by Fitch; and Pennsylvania Electric Company's senior unsecured debt is rated BBB by S&P, Baa2 by Moodys and BBB by Fitch. FirstEnergy satisfies all of the other conditions of paragraphs (a) and (b) of Rule 53. With respect to Rule 53(a)(2), FirstEnergy maintains books and records in conformity with, and otherwise adheres to, the requirements thereof. With respect to Rule 53(a)(3), no more than 2% of the employees of FirstEnergy's domestic public utility companies render services, at any one time, directly or indirectly, to EWGs or FUCOs in which FirstEnergy directly or indirectly holds an interest. With respect to Rule 53(a)(4), FirstEnergy will continue to provide a copy of each application and certificate relating to EWGs and FUCOs and relevant portions of its Form U5S to each regulator referred to therein, and will otherwise comply with the requirements thereof concerning the furnishing of information. With respect to Rule 53(b), none of the circumstances enumerated in subparagraphs (1), (2) and (3) thereunder have occurred. ITEM 4. REGULATORY APPROVALS -------------------- The transfer of the Utility Subsidiaries' interests in the nuclear power plants to FE Nuclear has been approved by the Federal Energy Regulatory Commission ("FERC") and the Nuclear Regulatory Commission ("NRC"). (See Exhibits D-4 and D-6(a) and D-6(b).) In addition, Penn Power has obtained approval from the Pennsylvania Public Utility Commission ("PPUC") for the proposed transactions under Pennsylvania's affiliated interest statute. (See Exhibit D-2.) No other state or federal commission or agency, other than this Commission, has jurisdiction over the transactions for which authorization is sought in this amended Application/Declaration. - ---------- 13 Standard & Poor's Rating Services 14 Moody's Investors Service, Inc. 15 Fitch, Inc. 14 ITEM 5. PROCEDURE --------- The Commission has issued a notice of filing of this Application/Declaration (Holding Co. Act Release No. 28051) and no hearing has been requested. It is requested that the Commission issue an order approving the transactions proposed herein as soon as practicable. The Applicants further request that there be no 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. The Applicants submit that a recommended decision by a hearing or other responsible officer of the Commission is not needed with respect to the proposed transactions and that the Division of Investment Management may assist with the preparation of the Commission's decision and/or order in this matter unless the Division of Investment Management opposes the matters covered hereby. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS --------------------------------- (a) EXHIBITS. -------- A Articles of Incorporation of FirstEnergy Nuclear Generation Corp. (previously filed). B-1 Nuclear Subscription and Capital Contribution Agreement by and between Pennsylvania Power Company and FirstEnergy Nuclear Generation Corp. (previously filed). B-2 Nuclear Capital Contribution Agreement by and between Ohio Edison Company and FirstEnergy Nuclear Generation Corp. (previously filed). B-3 Nuclear Purchase and Sale Agreement by and between The Cleveland Electric Illuminating Company, as Seller, and FirstEnergy Nuclear Generation Corp., as Purchaser (previously filed). B-4 Nuclear Purchase and Sale Agreement by and between The Toledo Edison Company, as Seller, and FirstEnergy Nuclear Generation Corp., as Purchaser (previously filed). B-5 Form of FE Nuclear Note (previously filed). C Not applicable. D-1 Application of Penn Power to Pennsylvania Public Utility Commission for Approval of Affiliated Interest Agreements (previously filed). D-2 Order of the Pennsylvania Public Utility Commission Approving Affiliated Interest Agreements (previously filed). D-3 Application filed with the Federal Energy Regulatory Commission (previously filed). D-4 Order of the Federal Energy Regulatory Commission (previously filed). 15 D-5(a) Application filed with the Nuclear Regulatory Commission by Ohio Utility Applicants (previously filed). D-5(b) Application filed with the Nuclear Regulatory Commission by Penn Power (previously filed). D-6 Order of the Nuclear Regulatory Commission Approving Transfer of Licenses and Conforming Amendments (filed herewith). E Not applicable. F-1 Opinion of Thelen Reid & Priest, LLP (filed herewith). F-2 Opinion of Gary Benz, Esq. (filed herewith). G Form of Federal Register Notice (previously filed). H Consolidated Capitalization Ratios of FirstEnergy, Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison as of September 30, 2005, actual and pro forma (revised exhibit filed herewith). I Average Weighted Cost of Long-term Debt of Utility Subsidiaries as of September 30, 2005 (previously filed). (B) FINANCIAL STATEMENTS. -------------------- FS-1 FirstEnergy Corp. Consolidated Balance Sheets as of December 31, 2004, and Consolidated Statements of Income, Statement of Retained Earnings, and Consolidated Statements of Cash Flows for the year ended December 31, 2004. (Incorporated by reference to FirstEnergy Form 10-K for the period ended December 31, 2004) (File No. 333-21011). FS-2 Ohio Edison Company Consolidated Balance Sheet as of December 31, 2004, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed Statements of Cash Flows for the year ended December 31, 2004. (Incorporated by reference to Ohio Edison Company Form 10-K for the period ended December 31, 2004) (File No. 1-2578). FS-3 The Cleveland Electric Illuminating Company Consolidated Balance Sheet as of December 31, 2004, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed Statements of Cash Flows for the year ended December 31, 2004. (Incorporated by reference to The Cleveland Electric Illuminating Company Form 10-K for the period ended December 31, 2004) (File No. 1-2323). FS-4 The Toledo Edison Company Consolidated Balance Sheet as of December 31, 2004, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed 16 Statements of Cash Flows for the year ended December 31, 2004. (Incorporated by reference to The Toledo Edison Company Form 10-K for the period ended December 31, 2004) (File No. 1-3583). FS-5 Pennsylvania Power Company Consolidated Balance Sheet as of December 31, 2004, and Consolidated Statements of Income, Statement of Retained Earnings, and Consolidated Condensed Statements of Cash Flows for the year ended December 31, 2004. (Incorporated by reference to Pennsylvania Power Company Form 10-K for the period ended December 31, 2004) (File No. 1-3491). FS-6 FirstEnergy Corp. Consolidated Balance Sheets as of September 30, 2005, and Consolidated Statements of Income, Statement of Retained Earnings, and Consolidated Statements of Cash Flows for the nine months ended September 30, 2005. (Incorporated by reference to FirstEnergy Form 10-Q for the period ended September 30, 2005) (File No. 333-21011). FS-7 Ohio Edison Company Consolidated Balance Sheet as of September 30, 2005, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2005. (Incorporated by reference to Ohio Edison Company Form 10-Q for the period ended September 30, 2005) (File No. 1-2578). FS-8 The Cleveland Electric Illuminating Company Consolidated Balance Sheet as of September 30, 2005, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2005. (Incorporated by reference to The Cleveland Electric Illuminating Company Form 10-Q for the period ended September 30, 2005) (File No. 1-2323). FS-9 The Toledo Edison Company Consolidated Balance Sheet as of September 30, 2005, and Consolidated Statements of Income, Statement of Retained Earnings and Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2005. (Incorporated by reference to The Toledo Edison Company Form 10-Q for the period ended September 30, 2005) (File No. 1-3583). FS-10 Pennsylvania Power Company Consolidated Balance Sheet as of September 30, 2005, and Consolidated Statements of Income, Statement of Retained Earnings, and Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2005. (Incorporated by reference to Pennsylvania Power Company Form 10-Q for the period ended September 30, 2005) (File No. 1-3491). 17 FS-11 Pro forma Balance Sheet of Ohio Edison Company, together with journal entries (revised exhibit filed herewith). FS-12 Pro forma Balance Sheet of Pennsylvania Power Company, together with journal entries (revised exhibit filed herewith). FS-13 Pro forma Balance Sheet of Cleveland Electric Illuminating Company, together with journal entries (revised exhibit filed herewith). FS-14 Pro forma Balance Sheet of Toledo Edison Company, together with journal entries (revised exhibit filed herewith). FS-15 Pro forma Balance Sheet of FirstEnergy Corp. (stand-alone), together with journal entries (revised exhibit filed herewith). FS-16 Pro forma Balance Sheet of FirstEnergy Nuclear Generation Corp. (revised exhibit filed herewith). There have been no material changes, not in the ordinary course of business, to the aforementioned balance sheets from September 30, 2005, to the date of this Application/Declaration. ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS --------------------------------------- The proposed transactions do not involve "major federal actions significantly affecting the quality of the human environment" as set forth in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq. Consummation of the proposed transactions will not result in changes in the operations of the Applicants that would have any impact on the environment. No federal agency is preparing an environmental impact statement with respect to this matter. 18 SIGNATURES Pursuant to the requirements of the 1935 Act, the undersigned companies have duly caused this amended Application/Declaration to be signed on their behalves by the undersigned thereunto duly authorized. FirstEnergy Corp. Ohio Edison Company The Cleveland Electric Illuminating Company The Toledo Edison Company Pennsylvania Power Company FirstEnergy Nuclear Generation Corp. By: /s/ Harvey L. Wagner ---------------- Name: Harvey L. Wagner Title: Vice President, Controller and Chief Accounting Officer Date: December 2, 2005 19 EX-99 2 e206517_exd-6.txt EX. D-6 - NRC ORDER APPROVING TRANSFER EXHIBIT D-6 7590-01-P UNITED STATES OF AMERICA ------------------------ NUCLEAR REGULATORY COMMISSION ----------------------------- In the Matter of ) ) PENNSYLVANIA POWER COMPANY ) ) OHIO EDISON COMPANY ) ) OES NUCLEAR, INC. ) ) THE CLEVELAND ELECTRIC ) ILLUMINATING COMPANY ) ) THE TOLEDO EDISON COMPANY ) ) FIRSTENERGY NUCLEAR OPERATING ) COMPANY ) ) (Beaver Valley Power Station, Units 1 ) Docket Nos. 50-334 and 50-412 and 2 ) License Nos. DPR-66 and NPF-73 ) (Davis-Besse Nuclear Power Station, Unit 1) ) Docket No. 50-346 ) License No. NPF-3 ) (Perry Nuclear Power Plant, Unit 1) ) Docket No. 50-440 ) License No. NPF-58 ORDER APPROVING TRANSFER OF LICENSES AND CONFORMING AMENDMENTS I. FirstEnergy Nuclear Operating Company (FENOC) and Pennsylvania Power Company (Penn Power), Ohio Edison Company (Ohio Edison), OES Nuclear, Inc. (OES Nuclear), the Cleveland Electric Illuminating Company (Cleveland Electric), and the Toledo Edison Company (Toledo Edison), are holders of Facility Operating License Nos. DPR-66, NPF-73, NPF-3 and NPF-58, which authorize the possession, use, and operation of Beaver Valley Power Station, Units 1 (BVPS 1) and 2 (BVPS 2; together with BVPS 1, BVPS), Davis-Besse Nuclear Power Station, Unit 1 -2- (Davis-Besse), and Perry Nuclear Power Plant, Unit 1 (Perry), respectively. FENOC is licensed by the U.S. Nuclear Regulatory Commission (NRC, the Commission) to operate BVPS, Davis-Besse, and Perry (the facilities). The facilities are located at the licensees' sites in Beaver County, Pennsylvania, Ottawa County, Ohio, and Lake County, Ohio, respectively. II. By letter dated May 18, 2005, FENOC submitted an application requesting approval of direct license transfers that would be necessary in connection with the following proposed transfers to FirstEnergy Nuclear Generation Corp. (FENGenCo), a new nuclear generation subsidiary of FirstEnergy: Penn Power's 65-percent undivided ownership interest in BVPS 1, 13.74-percent undivided ownership interest in BVPS 2, and 5.25-percent undivided ownership interest in Perry. By letter dated June 1, 2005, FENOC submitted a second application requesting approval of direct license transfers that would be necessary in connection with the following proposed transfers to FENGenCo: Ohio Edison's 35-percent undivided ownership interest in BVPS 1 and 20.22-percent undivided ownership interest in BVPS 2; OES Nuclear's 17.42-percent undivided ownership interest in Perry; Cleveland Electric's 24.47-percent undivided ownership interest in BVPS 2, 44.85-percent undivided ownership interest in Perry, and 51.38-percent undivided ownership interest in Davis-Besse; and, Toledo Edison's 1.65-percent undivided ownership interest in BVPS 2, 19.91-percent undivided ownership interest in Perry, and 48.62-percent undivided ownership interest in Davis-Besse. Supplemental information was provided by letters dated July 15 and October 31, 2005, (hereinafter, the May 18 and June 1, 2005, applications and supplemental information will be referred to collectively as the "applications"). FENOC also requested approval of conforming license amendments that would reflect the proposed transfer of ownership of Penn Power's interests -3- in BVPS and Perry to FENGenCo; delete the references to Penn Power in the licenses; authorize FENGenCo to possess the respective ownership interests in BVPS and Perry; reflect the proposed transfer of ownership interests in BVPS, Davis-Besse, and Perry from Ohio Edison, OES Nuclear, Cleveland Electric, and Toledo Edison (Ohio Companies) to FENGenCo; delete the Ohio Companies from the licenses; and, authorize FENGenCo to possess the respective ownership interests in BVPS, Davis-Besse, and Perry being transferred by the Ohio Companies. Ohio Edison's 21.66-percent leased interest in BVPS 2, Toledo Edison's 18.26-percent leased interest in BVPS 2, and Ohio Edison's 12.58-percent leased interest in Perry would not be changed. No physical changes to the facilities or operational changes were proposed in the applications. After completion of the proposed transfers, FENGenCo and, to a limited extent, Ohio Edison and Toledo Edison, would be the sole owners of the facilities; the role of FENOC would be unchanged. Approval of the transfer of the facility operating licenses and conforming license amendments is requested by FENOC pursuant to Sections 50.80 and 50.90 of Title 10 of the Code of Federal Regulations (10 CFR). Notices of the requests for approval and opportunity for a hearing were published in the Federal Register on August 2, 2005 (70 FR 44390-44395). No comments were received. Two petitions for leave to intervene pursuant to 10 CFR 2.309 were received on August 22, 2005, from the City of Cleveland, Ohio, and American Municipal Power-Ohio, Inc. A joint motion to lodge by the City of Cleveland, Ohio and Municipal Power Ohio, Inc., was received on September 12, 2006. The petitions and motion are under consideration by the Commission. Pursuant to 10 CFR 50.80, no license, or any right thereunder, shall be transferred, directly or indirectly, through transfer of control of the license, unless the Commission shall give its consent in writing. Upon review of the information in the application and other information before the Commission, and relying upon the representations and agreements contained in the application, -4- the NRC staff has determined that FENGenCo is qualified to hold the ownership interests in the facilities previously held by Penn Power and the Ohio Companies, and that the transfers of undivided ownership interests in the facilities to FENGenCo described in the applications are otherwise consistent with applicable provisions of law, regulations, and orders issued by the Commission, subject to the conditions set forth below. The NRC staff has further found that the applications for the proposed license amendments comply with the standards and requirements of the Atomic Energy Act of 1954, as amended (the Act), and the Commission's rules and regulations set forth in 10 CFR Chapter I. The facilities will operate in conformity with the applications, the provisions of the Act and the rules and regulations of the Commission; there is reasonable assurance that the activities authorized by the proposed license amendments can be conducted without endangering the health and safety of the public and that such activities will be conducted in compliance with the Commission's regulations; the issuance of the proposed license amendments will not be inimical to the common defense and security or to the health and safety of the public; and the issuance of the proposed amendments will be in accordance with 10 CFR Part 51 of the Commission's regulations and all applicable requirements have been satisfied. The findings set forth above are supported by an NRC safety evaluation dated November , 2005. III. Accordingly, pursuant to Sections 161b, 161i, and 184 of the Act, 42 U.S.C. ss. 2201(b), 2201(i), and 2234; and 10 CFR 50.80, IT IS HEREBY ORDERED that the direct transfers of the licenses, as described herein, to FENGenCo are approved, subject to the following conditions: -5- (1) On the closing date(s) of the transfers to FENGenCo of their interests in BVPS 1, BVPS 2, Davis-Besse, and Perry, Penn Power, Cleveland Electric, Ohio Edison, OES Nuclear, and Toledo Edison shall transfer to FENGenCo all of each transferor's respective accumulated decommissioning funds for BVPS 1, BVPS 2, Davis-Besse, and Perry, except for funds associated with the leased portions of Perry and BVPS 2, and tender to FENGenCo additional amounts equal to remaining funds expected to be collected in 2005, as represented in the application dated June 1, 2005, but not yet collected by the time of closing. All of the funds shall be deposited in separate external trust funds for each of these four reactors in the same amounts as received with respect to each unit to be segregated from other assets of FENGenCo and outside its administrative control, as required by NRC regulations, and FENGenCo shall take all necessary steps to ensure that these external trust funds are maintained in accordance with the requirements of the order approving the transfer of the licenses and consistent with the safety evaluation supporting the order and in accordance with the requirements of 10 CFR Section 50.75, "Reporting and recordkeeping for decommissioning planning." (2) By the date of closing of the transfer of the ownership interests in BVPS 1, BVPS 2, and Perry, from Penn Power to FENGenCo, FENGenCo shall obtain a parent company guarantee from FirstEnergy in an initial amount of at least $80 million (in 2005 dollars) to provide additional decommissioning funding assurance regarding such ownership interests. Required funding levels shall be recalculated annually and, as necessary, FENGenCo shall either obtain appropriate adjustments to the parent company guarantee or otherwise provide any additional -6- decommissioning funding assurance necessary for FENGenCo to meet NRC requirements under 10 CFR 50.75. (3) The Support Agreements described in the applications dated May 18, 2005 (up to $80 million), and June 1, 2005 (up to $400 million), shall be effective consistent with the representations contained in the applications. FENGenCo shall take no action to cause FirstEnergy, or its successors and assigns, to void, cancel, or modify the Support Agreements without the prior written consent of the NRC staff, except, however, the $80 million Support Agreement in connection with the transfer of the Penn Power interests may be revoked or rescinded if and when the $400 million support agreement described in the June 1, 2005 application becomes effective. FENGenCo shall inform the Director of the Office of Nuclear Reactor Regulation, in writing, no later than 10 days after any funds are provided to FENGenCo by FirstEnergy under either Support Agreement. (4) Prior to completion of the transfers of the licenses, FENGenCo shall provide the Director of the Office of Nuclear Reactor Regulation satisfactory documentary evidence that it has obtained the appropriate amount of insurance required of licensees under 10 CFR Part 140 of the Commission's regulations. IT IS FURTHER ORDERED that, consistent with 10 CFR 2.1315(b), license amendments that make changes, as indicated in Enclosures 2 through 5 to the cover letter forwarding this Order, to conform the licenses to reflect the subject direct license transfers are approved. FirstEnergy has indicated that the Pennsylvania transfers described in the May 18, 2005, application and the Ohio transfers described in the June 1, 2005, application, will take place at the same time. The amendments shall be issued and made effective at the time the -7- proposed direct license transfers are completed. IT IS FURTHER ORDERED that FENOC shall inform the Director of the Office of Nuclear Reactor Regulation in writing of the date of closing of the transfer of the Penn Power, Cleveland Electric, Ohio Edison, OES Nuclear, and Toledo Edison interests in BVPS 1, BVPS 2, Davis-Besse, and Perry no later than 5 business days prior to closing. Should the transfer of the licenses not be completed by December 31, 2006, this Order shall become null and void, provided; however, that upon written application and for good cause shown, such date may be extended by order. This Order is effective upon issuance. For further details with respect to this Order, see the initial applications dated May 18 and June 1, 2005, as supplemented by letters dated July 15 and October 31, 2005, and the non-proprietary safety evaluation dated November , 2005, which are available for public inspection at the Commission's Public Document Room (PDR), located at One White Flint North, Public File Area 01 F21, 11555 Rockville Pike (first floor), Rockville, Maryland and accessible electronically from the Agencywide Documents Access and Management System (ADAMS) Public Electronic Reading Room on the Internet at the NRC Web site, http://www.nrc.gov/reading-rm/adams.html. Persons who do not have access to ADAMS or who encounter problems in accessing the documents located in ADAMS, should contact the NRC PDR Reference staff by telephone at 1-800-397-4209, 301-415-4737, or by e-mail to pdr@nrc.gov. Dated at Rockville, Maryland this 15th day of November 2005. FOR THE NUCLEAR REGULATORY COMMISSION J. E. Dyer, Director Office of Nuclear Reactor Regulation SAFETY EVALUATION BY THE OFFICE OF NUCLEAR REACTOR REGULATION ------------------------------------------------------------- RELATED TO DIRECT TRANSFER OF FACILITY OPERATING LICENSES --------------------------------------------------------- TO FIRSTENERGY NUCLEAR GENERATION CORPORATION --------------------------------------------- BEAVER VALLEY POWER STATION, UNITS 1 AND 2 ------------------------------------------ DAVIS-BESSE NUCLEAR POWER STATION, UNIT 1 ----------------------------------------- PERRY NUCLEAR POWER PLANT, UNIT 1 --------------------------------- DOCKET NOS. 50-334, 50-412, 50-346, AND 50-440 ---------------------------------------------- 1.0 INTRODUCTION ------------ FirstEnergy Nuclear Operating Company (FENOC) submitted two applications to the U.S. Nuclear Regulatory Commission (NRC, the Commission) requesting the direct transfer of the licenses with respect to the proposed transfer of all the ownership interests (all non-leasehold interests) in four nuclear power reactor units held by certain subsidiaries of FirstEnergy Corp. (FirstEnergy) to FirstEnergy Nuclear Generation Corp. (FENGenCo), a new nuclear generation subsidiary of FirstEnergy. FENOC is the licensed operator for the four reactor units. In the first application, dated May 18, 2005 (Agencywide Documents and Access Management System (ADAMS) Accession No. ML051450428), as supplemented by letters dated July 15 (ADAMS Accession No. ML052070592) and October 31, 2005 (ADAMS Accession No. ML052640021), FENOC, acting on behalf of FENGenCo and Pennsylvania Power Company (Penn Power), requested that the NRC approve the direct license transfers associated with the transfer of Penn Power's 65-percent undivided ownership interest in Beaver Valley Power Station, Unit 1 (BVPS 1), 13.74-percent undivided ownership interest in Beaver Valley Power Station, Unit 2 (BVPS 2; together with BVPS 1, BVPS), and 5.24-percent undivided ownership interest in Perry Nuclear Power Plant, Unit 1 (Perry) to FENGenCo. In the second application, dated June 1, 2005 (ADAMS Accession No. ML051570300), also supplemented by the above letters dated July 15 and October 31, 2005, FENOC, acting on behalf of FENGenCo, Ohio Edison Company (Ohio Edison), OES Nuclear, Inc. (OES Nuclear), the Cleveland Electric Illuminating Company (Cleveland Electric), and the Toledo Edison Company (Toledo Edison) (as a group, Ohio Edison, OES Nuclear, Cleveland Electric, and Toledo Edison are referred to as the Ohio Companies), requested that the NRC approve the following direct license transfers associated with transfer of the ownership interests of the Ohio Companies in BVPS 1, BVPS 2, Perry, and the Davis-Besse Nuclear Power Station, Unit 1 (Davis-Besse) to FENGenCo: -2- o Ohio Edison's 35-percent undivided ownership interest in BVPS 1 and 20.22-percent undivided ownership interest in BVPS 2; o OES Nuclear's 17.42-percent undivided ownership interest in Perry; o Cleveland Electric's 24.47-percent undivided ownership interest in BVPS 2, 44.85-percent undivided ownership interest in Perry, and 51.38-percent undivided ownership interest in Davis-Besse; and o Toledo Edison's 1.65-percent undivided ownership interest in BVPS 2, 19.91-percent undivided ownership interest in Perry, and 48.62-percent undivided ownership interest in Davis-Besse. No transfers or other changes are requested with respect to Ohio Edison's license to possess its 21.66-percent leased interest in BVPS 2 and 12.58-percent leased interest in Perry, nor with respect to Toledo Edison's license to possess its 18.26-percent leased interest in BVPS 2. Ohio Edison and Toledo Edison will remain responsible for their respective obligations under the licenses for these leased interests. Both applications requested conforming amendments to the licenses of the four units to reflect the proposed transfers of ownership interests in the four units to FENGenCo. Generally, the amendments would delete references to Penn Power, Ohio Edison, OES Nuclear, Cleveland Electric, and Toledo Edison in the licenses as appropriate, and authorize FENGenCo to possess the respective ownership interests in the four units being transferred by Penn Power and the Ohio Companies. The NRC staff's proposed no significant hazards consideration determinations, which included the July 15, 2005, supplement, were published in the Federal Register on August 2, 2005 (70 FR 44390-44395). The October 31, 2005, supplement, contained clarifying information and did not change the staff's initial proposed finding of no significant hazards consideration. 2.0 BACKGROUND ---------- FirstEnergy is a registered utility holding company based in Akron, Ohio. FirstEnergy and its affiliates are engaged in the generation, transmission, and distribution of electricity to wholesale and retail customers in the Eastern Interconnection. FirstEnergy's shares of common stock are widely held and are traded on the New York Stock Exchange. At the end of 2004, FirstEnergy had over $31 billion in assets and over $12 billion in annual revenues. The seven electric utility operating companies owned by FirstEnergy serve 4.4 million customers in Ohio, Pennsylvania, New Jersey, and New York. The two applications cited herein represent a reorganization by FirstEnergy to consolidate the ownership interests of Davis-Besse, BVPS, and Perry, except for the interests in BVPS 2 and Perry subject to third party lease obligations. -3- Subsidiaries of FirstEnergy collectively own or lease 100 percent of these reactor units. As noted, the first application requested license transfer approvals associated with a direct transfer of the ownership interests of Penn Power in the BVPS and Perry units to FENGenCo. The second application states that FENOC expects that the transfer of the ownership interests of Penn Power will occur prior to the transfer of the ownership interests of the FirstEnergy Ohio Companies. The second application also states that NRC approval of either application should be dependent upon approval of the other and that, in the event that approval of the second application precedes approval of the first one, FENOC will supplement the applications with the appropriate amended conforming Facility Operating License pages. Subsequently, FENOC stated to the NRC staff that all the transfers would occur at the same time. Should that change, the NRC staff should be informed by FENOC. FirstEnergy is undertaking the proposed transfer in ownership of these four reactors as part of its corporate restructuring in response to legislation passed at the Federal level and in the States of Pennsylvania and Ohio and to enhance its ability to compete in electric energy markets. In 1992, Congress passed the Energy Policy Act to promote competition in the wholesale electric energy market. In 1996, Pennsylvania enacted legislation to restructure the electric utility industry in the state by creating retail access to a competitive market for electricity generation. According to the description of this legislation on the Web site for the State of Pennsylvania, investor-owned utilities could either retain their generation assets in an affiliate company or divest these assets as part of their restructuring plan. In 1999, similar legislation enacted in Ohio included the requirement to establish a structural separation between the competitive generation portion of the electric power industry and the regulated wire delivery portion of the industry. Both applications initially stated that FENGenCo would be a direct, wholly-owned subsidiary of FirstEnergy Solutions Corp. (FE Solutions), which is a direct, wholly-owned subsidiary of FirstEnergy. As part of its restructuring, FirstEnergy established FE Solutions as the affiliate responsible for the purchase and sale of electricity in competitive markets. FENGenCo was created to own the nuclear facilities now owned by FirstEnergy subsidiaries Penn Power and the Ohio Companies and to sell the output of these facilities as an exempt wholesale generator (EWG) to FE Solutions. The power supply agreement (PSA), which is the contract for the sale of output of the interests of FENGenCo to FE Solutions, is subject to review and approval by the Federal Energy Regulatory Commission (FERC). The applications state that the PSA will be designed to ensure that FENGenCo will recover its costs to own and fund its operating, maintenance, and decommissioning obligations for the four reactor units from FE Solutions. However, the July 15, 2005, supplement to the applications states that FENGenCo will not be an EWG and will not be owned by FE Solutions, but instead will be "a direct, first-tier subsidiary of FirstEnergy." But the supplement states that FENGenCo and FE Solutions will still enter into the PSA described in the applications and that no financial qualifications or other types of qualifications (e.g., foreign ownership or control) as specified in the applications will be affected by these organizational structure changes described in the supplement. FENOC will remain the licensed operator for the four reactor units. The applications do not request or involve any change to FENOC's ongoing operation of these units, nor do the applications request approval of any physical changes to the units or any changes to the conduct of their operations. After any -4- approved license transfers to FENGenCo, FENOC will continue to operate and maintain the four units in accordance with their respective licensing bases, and FENGenCo will assume the obligations of Penn Power, Ohio Edison, OES Nuclear, Cleveland Electric, and Toledo Edison under the FENOC operating agreements. 3.0 REGULATORY EVALUATION --------------------- The applications requested the approval of the direct transfer of the licenses for the reactor units to FENGenCo, pursuant to Title 10 of the Code of Federal Regulations (10 CFR) Section 50.80, "Transfer of licenses." Section 50.80(a) states: "No license for a production or utilization facility, or any right thereunder, shall be transferred, assigned, or in any manner disposed of, either voluntarily or involuntarily, directly or indirectly, through the transfer of control of license to any person, unless the Commission shall give its consent in writing." In addition, the requirements of 10 CFR 50.80(b) and (c) apply. Section 50.80(b) states that an applicant for a license transfer shall include as much of the information described in 10 CFR 50.33, "Contents of applicatiions; general information" and 50.34, "Contents of application; technical information" of this part "with respect to the identity and technical and financial qualifications of the proposed transferee as would be required by those sections if the application were for an initial license..." Section 50.80(c) states that "the Commission will approve the application for the transfer of a license, if the Commission determines: (1) that the proposed transferee is qualified to be the holder of the license; and (2) that transfer of the license is otherwise consistent with applicable provisions of laws, regulations, and orders issued by the Commission pursuant thereto." 4.0 QUALIFICATIONS -------------- 4.1 Financial Qualifications ------------------------ The regulation at 10 CFR 50.33(f) requires that, except for an electric utility applicant for a license to operate a utilization facility of the type described in 10 CFR 50.21(b) or 10 CFR 50.22, each application shall provide "information sufficient to demonstrate to the Commission the financial qualification of the applicant to carry out, in accordance with regulations in this chapter, the activities for which the permit or license is sought." The regulation at 10 CFR 50.2 states that an electric utility is "any entity that generates or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by the entity itself or by a separate regulatory authority." The NRC staff finds that FENGenCo does not qualify as an "electric utility" because most or all of its electricity prices will not be set by rates established by a separate regulatory authority or by the entity itself. Thus, the NRC staff has determined that FENGenCo must meet the financial qualification requirements for a non-electric utility, pursuant to 10 CFR 50.33(f). FENGenCo is subject to a more detailed financial qualifications review than an electric utility and must provide information that demonstrates that it possesses or has reasonable assurance of obtaining the funds necessary to cover estimated operating costs for the period of the license. In this regard, it must submit estimates for total annual operating costs for each of the first 5 years of facility operation and indicate the sources of funds to cover these costs. Also, the NRC staff concludes that FENGenCo is a newly-formed entity. As such, under -5- 10 CFR 50.33(f)(3), it must provide information showing the legal and financial relationships it has or proposes to have with its stockholders or owners; their financial ability to meet any contractual obligation to FENGenCo which they have incurred or proposed to incur; and any other information considered necessary by the Commission to enable it to determine FENGenCo's financial qualifications. In accordance with 10 CFR 50.33(f), the applications provided a proprietary projected income statement for FENGenCo, with the first application providing the expected revenues, costs, and net income associated with the interests of Penn Power proposed to be transferred for the period of 2006 through 2010. The second application provides the equivalent information for the ownership interests of the Ohio Companies proposed to be transferred. The proprietary financial information [IN BOLD TEXT] in the following three tables first shows the projected income statement for both applications combined, providing the total revenues, costs, and net income for FENGenCo from 2006 through 2010. The second and third tables show, respectively, the specific portions associated with the Penn Power and the Ohio Companies interests, thereby allowing the projections for FENGenCo for each application to be considered separately. FENGENCO (SUMMARY OF) PROJECTED INCOME STATEMENT (COMBINED APPLICATIONS) (In $ millions) [PROPRIETARY INFORMATION]
2006 2007 2008 2009 2010 ---- ---- ---- ---- ---- Total Revenue [ ] [ ] [ ] [ ] [ ] Expenses/ Other Income [ ] [ ] [ ] [ ] [ ] Net Income [ ] [ ] [ ] [ ] [ ]
(SUMMARY OF) PROJECTED INCOME STATEMENT (PENN POWER PORTION) (In $ millions)
2006 2007 2008 2009 2010 ---- ---- ---- ---- ---- Total Revenue [ ] [ ] [ ] [ ] [ ] Expenses/ Other Income [ ] [ ] [ ] [ ] [ ] Net Income [ ] [ ] [ ] [ ] [ ]
-6- (SUMMARY OF) PROJECTED INCOME STATEMENT (OHIO COMPANIES PORTION) (In $ millions)
2006 2007 2008 2009 2010 ---- ---- ---- ---- ---- Total Revenue [ ] [ ] [ ] [ ] [ ] Expenses/ Other Income [ ] [ ] [ ] [ ] [ ] Net Income [ ] [ ] [ ] [ ] [ ]
Based on the revenues and costs provided above, FENGenCo expects to produce annual net income ranging from approximately [ ] during this 5-year period, as shown in the first table. Both portions of FENGenCo's net income associated with the Penn Power and Ohio Companies interests are also positive amounts. The primary source of most or all of the revenues is expected to be from the aforementioned PSA, through which FENGenCo will recover its operating, maintenance, and capital costs associated with the transferred assets for at least 5 years. The PSA is to be finalized this year and will be filed for review and approval by FERC. Furthermore, in addition to revenues received from generation associated with the transferred interests in the nuclear units, FENGenCo will have access to other funds from its affiliated companies on an as-needed basis. The PSA will include a formula rate provision permitting FENGenCo to recover increases in its capital expenditures and operating expenses that exceed its base demand and energy charges during the contract term. In the applications, FirstEnergy has also provided the terms of planned support agreements to be executed by FirstEnergy and FENGenCo that will make additional funds available to FENGenCo to provide assurance that FENGenCo will have funds that will exceed fixed operating and maintenance (O&M) costs in the event of unanticipated shutdowns for extended periods of one or more of the power reactors to be owned by FENGenCo. The first application represented that a support agreement for up to $80 million would be made available by FirstEnergy for FENGenCo's share of fixed O&M costs for any unanticipated extended shutdown periods of BVPS and Perry. The second application essentially provides that up to $400 million will be available under a support agreement to cover costs associated with all interests proposed to be transferred regarding each of the four reactor units covered by the applications, in lieu of the $80 million limit contained in the first application addressing only the transferred interests of Penn Power. If the Penn Power transfers take place contemporaneously with, as planned, or after the transfers for the Ohio Companies, the $400 million support agreement would be applicable to support the Penn Power transfers (in place of the $80 million agreement) as well as the Ohio Companies' transfers. The $400 million amount would be basically sufficient to fund FENGenCo's share of the estimated fixed O&M costs for a simultaneous 1-year outage of BVPS 1 and BVPS 2 ($151 million), Perry ($122 million), and Davis-Besse ($128 million), or approximately $401 million total. These amounts exclude the approximately $38 million in O&M costs of Ohio Edison and Toledo Edison for their respective leased shares of BVPS 2, as well as the approximately $17.5 million in costs of -7- Ohio Edison for its leased share of Perry. The $400 million amount would cover FENGenCo's share of estimated fixed O&M costs for a 2-year outage at either Perry, Davis-Besse, or BVPS (both units), or 18-month outages of any two units. In view of the foregoing, the NRC staff concludes that the applicants have provided sufficient information required for newly-formed entities, and have demonstrated reasonable assurance of adequate financial qualifications for FENGenCo as a non-electric utility pursuant to 10 CFR 50.33(f). Specifically, the NRC staff finds that FENGenCo is financially qualified to hold the Penn Power interests proposed to be transferred, is financially qualified to hold the Ohio Companies' interests proposed to be transferred, and is financially qualified to hold the Penn Power and Ohio Companies' interests simultaneously. However, to ensure that FENGenCo will continue to have an adequate source of funds, the NRC staff believes that the support agreements referenced in the applications should be subject to the following condition of the order approving the proposed license transfers and license conditions, essentially as follows: The Support Agreements described in the applications dated May 18, 2005 (up to $80 million), and June 1, 2005 (up to $400 million), shall be effective consistent with the representations contained in the applications. FENGenCo shall take no action to cause FirstEnergy, or its successors and assigns, to void, cancel, or modify the Support Agreements without the prior written consent of the NRC staff, except, however, the $80 million Support Agreement in connection with the transfer of the Penn Power interests may be revoked or rescinded if and when the $400 million support agreement described in the June 1, 2005 application becomes effective. FENGenCo shall inform the Director of the Office of Nuclear Reactor Regulation, in writing, no later than ten days after any funds are provided to FENGenCo by FirstEnergy under either Support Agreement. 4.2 Decommissioning Funding Assurance --------------------------------- The NRC staff has determined that the requirement to provide reasonable assurance of decommissioning funding is necessary to ensure the adequate protection of public health and safety. The regulation at 10 CFR 50.33(k), "Contents of Applications; General Information," requires that an application for an operating license for a production or utilization facility contain information on how reasonable assurance will be provided that funds will be available to decommission the facility. The May 18, 2005, application states that, at the time of the license transfers, all decommissioning funds in Penn Power's nuclear decommissioning trusts (NDTs) for BVPS and Perry will be transferred to FENGenCo. This application also states that FENGenCo's decommissioning trust funds are to be held in external trusts segregated from FENGenCo's assets and outside its administrative control. The funds are to be governed by a master NDT agreement with Mellon Bank, N.A., as trustee, and the agreement terms will comply with the requirements of 10 CFR 50.75(h)(1). A form of that agreement is provided in Exhibit J of the application. -8- The May 18, 2005, application also states that, as of December 31, 2004, the NRC minimum formula amount for decommissioning funding assurance required for Penn Power's pro rata shares for BVPS 1 was $231.9 million; $49.0 million for BVPS 2; and $24.3 million for Perry. It also indicates that the 2004 year-end market value of Penn Power's NDT funds was approximately $108.1 million for BVPS 1; $25.3 million for BVPS 2; and $9.7 million for Perry. The application also states that, taking into account the NRC's allowed real rate of return earnings credit for decommissioning funds of 2 percent being applied to existing funds, the funds to be transferred will be approximately $71 million less than the NRC minimum required amount for BVPS 1 and BVPS 2 to be considered fully prepaid, and approximately $6 million less than the required amount for Perry. Therefore, FENGenCo will provide additional decommissioning funding assurance by obtaining a parent company guarantee from FirstEnergy in an initial amount of $80 million (in 2005 dollars), as permitted by 10 CFR 50.75(e)(1)(iii). The initial $80 million amount will cover the $71 million for Penn Power's share of its funding requirement for BVPS plus the $6 million in additional assurance required for Perry. FENGenCo will recalculate the required funding levels each year, as required by 10 CFR 50.75(b)(2), and as necessary, it will either obtain appropriate adjustments to the parent company guarantee or otherwise provide for any required additional funding. Exhibit L of the application is a worksheet demonstrating compliance with the NRC financial test for parent guarantees, pursuant to 10 CFR 50.75(e)(1)(iii)(B) and 10 CFR Part 30, Appendix A. FENGenCo has selected the test in Section II.A.2 of Appendix A to demonstrate compliance, and Exhibit M provides the form of the guarantee. The June 1, 2005, application states that, at the time of the license transfers, all decommissioning funds held by the Ohio Companies (excluding funds associated with leased interests being retained by Ohio Edison and Toledo Edison) will be transferred to FENGenCo and will be held in external trust funds to be governed by a master NDT agreement with Mellon Bank, N.A., as trustee, as described for the funds in the first application. Ohio Edison and Toledo Edison will retain the NDT fund portions associated with the leased interests in BVPS 2 and Perry for which they will remain NRC possession licensees, including the earnings and the contributions related to those portions during 2005. The June 1, 2005, application states that, as of December 31, 2004, the NRC minimum amount for decommissioning funding assurance required for Davis-Besse was $354.7 million. Taking into account the 2-percent real rate of return credit, the Davis-Besse required prepaid amount was $261.5 million. The reported market value of the Davis-Besse NDT was $348.3 million as of December 31, 2004, with an additional $29.0 million to be collected in 2005. The application states that, as of December 31, 2004, the NRC required minimum decommissioning funding amount for the 82.18-percent share of Perry owned by the Ohio companies (excluding the 12.58-percent leased portion) was $381.3 million. Taking into account the 2-percent real rate of return credit, the required prepaid amount for Perry was $235.5 million. The reported market value of the Perry NDT was $290.6 million as of year-end 2004, with an additional expected 2005 collection of $24.1 million. The application states that, as of December 31, 2004, the NRC required minimum decommissioning funding amount for the Ohio companies' 35-percent owned share of BVPS 1 was $124.8 million and $165.3 million for their 46.34-percent owned share of BVPS 2. Taking into account the 2-percent real rate of return credit, the -9- required prepaid amount for BVPS 1 was $93.8 million. The reported market value of the BVPS 1 NDT was $93.8 million as of year-end 2004, with an additional expected 2005 collection of $6.6 million. Taking into account the 2-percent real rate of return credit, the required prepaid amount for BVPS 2 was $100 million. The reported market value of the BVPS 2 NDT was $98.2 million as of year-end 2004, with an additional expected 2005 collection of $9.7 million. The NRC staff finds upon analysis and review that the funds to be transferred to FENGenCo for the four reactors and other funding information as stated above provide reasonable assurance that FENGenCo will be able to pay for the decommissioning costs of these units following the proposed transfers in both applications. This finding is based in part on (1) the condition that Penn Power and the Ohio Companies will transfer all of their existing NDT funds (excluding those funds related to leased portions) for the four reactors, plus additional stated expected collections for 2005 to FENGenCo to be placed in corresponding external trusts for the four units; and, (2) the representation made in the first application that FENGenCo will obtain a parent company guarantee from FirstEnergy in an initial amount of $80 million (in 2005 dollars) to provide additional decommissioning funding assurance for Penn Power's ownership interests in Perry and BVPS, with funding levels for the guarantee to be recalculated each year, and as necessary, FENGenCo will either obtain appropriate adjustments to the guarantee or otherwise provide for any required additional funding. Thus, the following should be made conditions of the order approving the direct license transfers to FENGenCo as well as license conditions, in essentially the language set forth below: o On the closing date(s) of the transfers to FENGenCo of their interests in BVPS 1, BVPS 2, Davis-Besse, and Perry, Penn Power, Cleveland Electric, Ohio Edison, OES Nuclear, and Toledo Edison shall transfer to FENGenCo all of each transferor's respective accumulated decommissioning funds for BVPS 1, BVPS 2, Davis-Besse, and Perry, except for funds associated with the leased portions of Perry and BVPS 2, and tender to FENGenCo additional amounts equal to remaining funds expected to be collected in 2005 as represented in the application dated June 1, 2005, but not yet collected by the time of closing. All of the funds shall be deposited in separate external trust funds for each of these four reactors in the same amounts as received with respect to each unit to be segregated from other assets of FENGenCo and outside its administrative control, as required by NRC regulations, and FENGenCo shall take all necessary steps to ensure that these external trust funds are maintained in accordance with the requirements of the order approving the transfer of the licenses and consistent with the safety evaluation supporting the order and in accordance with the requirements of 10 CFR Section 50.75, "Reporting and recordkeeping for decommissioning planning." o By the date of closing of the transfer of the ownership interests in BVPS 1, BVPS 2, and Perry, from Penn Power to FENGenCo, FENGenCo shall obtain a parent company guarantee from FirstEnergy in an initial amount of at least $80 million (in 2005 dollars) to provide additional decommissioning funding assurance regarding such ownership interests. Required funding levels shall be recalculated annually and, as necessary, FENGenCo shall either obtain appropriate adjustments to the parent company guarantee or otherwise provide any additional decommissioning funding assurance necessary for FENGenCo to meet NRC requirements under 10 CFR 50.75. -10- 4.3 Antitrust Review and Existing Antitrust Conditions -------------------------------------------------- The Atomic Energy Act of 1954, as amended (the Act), does not require or authorize antitrust reviews of post-operating license transfer applications. Kansas Gas and Electric Co., et al. (Wolf Creek Generating Station, Unit 1), CLI-99-19, 49 NRC 441 (1999). The applications submitted by the licensee postdate the issuance of the operating licenses for the four reactor units, and therefore no antitrust review is required or authorized. The Department of Justice was contacted with respect to the proposed conforming license amendment changes to the existing antitrust conditions and had no comments. The Perry and Davis-Besse licenses contain antitrust conditions that date back to an Atomic Safety and Licensing Appeal Board decision in 1979 (ALAB-560, 10 NRC 265). The applications proposed conforming license amendments such that, among other things, FENGenCo, in place of the current licensees (except for Ohio Edison, which will continue to be a licensee maintaining its leased interest in Perry), would become subject to the antitrust conditions and be responsible for any actions of FENOC that contravene such conditions, while Cleveland Electric and Toledo Edison would be removed from (and thus no longer be subject to) the Davis-Besse antitrust conditions, and Cleveland Electric, OES Nuclear, Toledo Edison, and Penn Power would be removed from (and thus no longer be subject to) the Perry antitrust conditions. The applications are not proposing any changes to the substantive requirements set forth in the antitrust conditions, notwithstanding that FENGenCo is not an integrated utility with transmission and distribution facilities and, therefore, would not appear to be able to perform certain actions specified by the antitrust conditions, such as wheeling, strictly on its own. Given that the proposed conforming amendments only seek to reflect that FENGenCo will become the holder of the licenses and that Cleveland Electric, OES Nuclear, Toledo Edison, and Penn Power will no longer be NRC licensees, the NRC staff finds the proposed amendments to the existing antitrust license conditions acceptable. 4.4 Foreign Ownership, Control, or Domination ----------------------------------------- The Act prohibits the NRC from issuing a license for a nuclear power plant to "any corporation or other entity if the Commission knows or has reason to believe it is owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government." The NRC's regulation at 10 CFR 50.38, "Ineligibility of certain applicants," contains language to implement this prohibition. The applications initially stated that FENGenCo will be a wholly-owned subsidiary of FE Solutions, which in turn is a wholly-owned subsidiary of FirstEnergy, both owners being U.S. entities. All of the directors and principal officers of FE Solutions and FirstEnergy are U.S. citizens, and the directors and principal officers of FENGenCo will be U.S. citizens. However, the July 15, 2005, supplement stated that FENGenCo will not be owned by FE Solutions as initially proposed, but instead will be owned directly by FirstEnergy. Section 13 of the Securities Exchange Act of 1934, as amended, 15 United States Code 78m(d), requires that a person or entity that owns or controls more than 5 percent of the registered stock of a company must file certain schedules with the U.S. Securities and Exchange Commission (SEC). The applications state that -11- FENOC, based on its review of the relevant filings with the SEC, is not aware of any alien, foreign corporation, or foreign government that holds more than 5 percent of the common stock of FirstEnergy, which is the parent company of FENGenCo, FE Solutions, and FENOC. FENOC has identified Capital Research and Management Company, State Street Corporation, and Barclays Global Investors, NA (Barclays) as having ownership or beneficial ownership of more than 5 percent, but less than 10 percent, of the common stock of FirstEnergy. These three companies are U.S. entities, but Barclays is a subsidiary of Barclays PLC, a United Kingdom entity. According to the applications, Barclays does not have a controlling interest in FirstEnergy and does not exercise domination or control over FirstEnergy. The NRC staff notes that the schedules filed by each of the foregoing entities are 13G schedules, which indicate that the relevant stock is not being held for the purpose of changing or influencing control of the issuer. After reviewing the information provided in the applications, the NRC staff does not know or have reason to believe that FENGenCo will be owned, controlled, or dominated by a foreign interest. 4.5 Nuclear Insurance and Indemnity ------------------------------- The provisions of the Price-Anderson Act (Section 170 of the Act) and the Commission's regulations at 10 CFR Part 140, "Financial Protection Requirements and Indemnity Agreements," require that the current indemnity agreement be modified to reflect FENGenCo as the new owner of the current ownership interests (excluding leasehold interests) of Penn Power, Cleveland Electric, Ohio Edison, OES Nuclear, and Toledo Edison in BVPS 1, BVPS 2, Davis-Besse, and Perry. In accordance with the Price-Anderson Act, FENGenCo will be required to provide primary insurance and participate in the secondary retrospective insurance pool. It will also be required to maintain property insurance as specified in 10 CFR 50.54(w). Information provided in the applications concerning financial qualifications demonstrates that FENGenCo will be able to satisfy applicable insurance requirements of the NRC and the Price-Anderson Act. Pursuant to 10 CFR Part 140, the NRC staff will require FENGenCo to provide satisfactory documentary evidence that it has obtained the appropriate amount of insurance required of licensees, prior to the issuance of the amended licenses reflecting the new licensee. Because the issuance of the amended licenses is directly tied to completion of the license transfers, the order approving the transfers will be conditioned as follows: Prior to completion of the transfers of the licenses, FENGenCo shall provide the Director of the Office of Nuclear Reactor Regulation satisfactory documentary evidence that it has obtained the appropriate amount of insurance required of licensees under 10 CFR Part 140 of the Commission's regulations. 4.6 Technical Qualifications ------------------------ According to the applications, the proposed transfers of the ownership interests of Penn Power and the Ohio Companies will not result in any change to FENOC's -12- role as the licensed operator of BVPS, Davis-Besse, and Perry, and will not result in any changes to its technical qualifications. There will be no change in FENOC's senior management team. Thus, the NRC staff has concluded that it need not make any findings with respect to technical qualifications other than that there will no effect on FENOC's technical qualifications since there is no proposed change in operating authority or change in the current operator's qualifications to operate STP. 5.0 CONFORMING AMENDMENTS --------------------- 5.1 Introduction As stated previously, FENOC requested approval of proposed conforming amendments to Facility Operating License Nos. DPR-66, NPF-73, NPF-3, NPF-58, for BVPS 1, BVPS 2, Davis-Besse, and Perry, respectively. No physical or operating changes to the facilities are requested. 5.2 Discussion The changes to be made to the licenses are indicated in the conforming amendments in Enclosures 2, 3, 4, and 5 to the cover letter forwarding the NRC staff's order regarding the subject transfer. The changes do no more than accurately reflect the approved transfer action. The amendments involve no safety questions and are administrative in nature. Accordingly, the proposed amendments are acceptable. 5.3 State Consultation In accordance with the Commission's regulations, the Ohio and Pennsylvania State officials were notified of the proposed issuance of the amendments. The State officials had no comments. 5.4 Conclusion With Respect to the Conforming Amendments The Commission has concluded, based on the considerations discussed above, that: (1) there is reasonable assurance that the health and safety of the public will not be endangered by operation in the proposed manner, (2) such activities will be conducted in compliance with the Commission's regulations, and (3) the issuance of the amendments will not be inimical to the common defense and security or to the health and safety of the public. 6.0 ENVIRONMENTAL CONSIDERATION --------------------------- The subject application is for approval of a transfer of licenses issued by the NRC and approval of conforming amendments. Accordingly, the actions involved meet the eligibility criteria for categorical exclusion set forth in 10 CFR 51.22(c)(21). Pursuant to 10 CFR 51.22(b), no environmental impact statement or environmental assessment need be prepared in connection with approval of the application. -13- 7.0 CONCLUSION ---------- In view of the foregoing, the NRC staff finds that, subject to the conditions discussed herein, FENGenCo is qualified to hold the operating authority under the 10 CFR Part 50 licenses for BVPS 1, BVPS 2, Davis-Besse, and Perry, to the extent proposed in the applications, and that the transfers of these licenses to FENGenCo are otherwise consistent with applicable provisions of law, regulations, and orders issued by the Commission pursuant thereto. Principal Contributor: A.F. McKeigney Date: EX-99 3 e206332_exf-1.txt EX. F-1 - OPINION OF THELEN REID & PRIEST LLP EXHIBIT F-1 [Letterhead of Thelen Reid & Priest LLP] December 2, 2005 Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re: FirstEnergy Corp. - File No. 70-10322 ------------------------------------- Ladies and Gentlemen: We have examined the Application or Declaration on Form U-1, as amended (the "Application"), under the Public Utility Holding Company Act of 1935, as amended (the "Act"), filed in the above-referenced proceeding by FirstEnergy Corp. ("FirstEnergy") and certain of its public-utility subsidiary companies named therein, of which this opinion is to be a part. The Application requests authorization for Ohio Edison Company ("Ohio Ed"), Pennsylvania Power Company ("Penn Power"), The Cleveland Electric Illuminating Company ("Cleveland Electric"), and The Toledo Edison Company ("Toledo Edison") (collectively, the "Utility Subsidiaries") to transfer their respective undivided interests in certain nuclear power plants and related assets and liabilities to FirstEnergy Nuclear Generation Corp. ("FE Nuclear"), a new subsidiary of FirstEnergy, for FE Nuclear to issue promissory notes to Penn Power, Cleveland Electric and Toledo Edison in consideration for such assets and to assume certain liabilities of the Utility Subsidiaries, and for FE Nuclear to engage in future financing transactions. We have also examined copies, signed, certified or otherwise proven to our satisfaction, of the governing documents of FirstEnergy, the Utility Subsidiaries and FE Nuclear and such other documents, instruments and agreements, and have made such further investigation as we have deemed necessary as a basis for this opinion. We are members of the bars of the States of New Jersey and New York and are not expert in the laws of any jurisdiction other than the laws of such states and the federal laws of the United States of America. As to all matters herein which are governed by the laws of the State of Ohio and the Commonwealth of Pennsylvania, we have relied upon the opinion of Gary D. Benz, Esq., which is being filed as Exhibit F-2 to the Application. Based upon and subject to the foregoing, and assuming that the proposed transactions are carried out in accordance with the Commission's order in this proceeding, we are of the opinion that: (a) all State laws applicable to the proposed transactions will have been complied with; (b) FE Nuclear is validly organized and existing under the laws of the State of Ohio; and the promissory notes to be issued to Penn Power, Cleveland Electric and Toledo Edison and short-term and long-term debt securities to be issued by FE Nuclear to third parties, all as described in the Application, will be valid and binding obligations of FE Nuclear; (c) FE Nuclear will legally acquire the nuclear power plant assets to be transferred by the Utility Subsidiaries and Penn Power, Cleveland Electric and Toledo Edison will legally acquire the promissory notes to be issued by FE Nuclear; (d) the proposed transactions will not violate the legal rights of the holders of any securities issued by FirstEnergy. We hereby consent to the filing of this opinion as an exhibit to the Application and in any proceedings before the Commission that may be held in connection therewith. This opinion may not be relied upon by any other person for any other purpose. Very truly yours, THELEN REID & PRIEST LLP 2 EX-99 4 e206333_exf-2.txt EX. F-2 - OPINION OF GARY BENZ, ESQ. EXHIBIT F-2 [Letterhead of Gary D. Benz] December 2, 2005 Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re: FirstEnergy Corp., et al. - File No. 70-10322 --------------------------------------------- Ladies and Gentlemen: I have examined the Application or Declaration on Form U-1, as amended (the "Application"), under the Public Utility Holding Company Act of 1935, as amended (the "Act"), filed in the above-referenced proceeding by FirstEnergy Corp. ("FirstEnergy") and certain of its public-utility subsidiary companies named therein, of which this opinion is to be a part. The Application requests authorization for Ohio Edison Company ("Ohio Ed"), Pennsylvania Power Company ("Penn Power"), The Cleveland Electric Illuminating Company ("Cleveland Electric"), and The Toledo Edison Company ("Toledo Edison") (collectively, the "Utility Subsidiaries") to transfer their respective undivided interests in certain nuclear power plants and related assets and liabilities to FirstEnergy Nuclear Generation Corp. ("FE Nuclear"), a new subsidiary of FirstEnergy, for FE Nuclear to issue promissory notes to Penn Power, Cleveland Electric and Toledo Edison in consideration for such assets and to assume certain liabilities of the Utility Subsidiaries, and for FE Nuclear to engage in future financing transactions. I have also examined copies, signed, certified or otherwise proven to my satisfaction, of the governing documents of FirstEnergy, the Utility Subsidiaries and FE Nuclear and such other documents, instruments and agreements, and have made such further investigation as I have deemed necessary as a basis for this opinion. I am Associate General Counsel of FirstEnergy Corp. and have acted as such in connection with the filing of the Application. I am a member of the bars of the State of Ohio and Commonwealth of Pennsylvania and am not licensed to practice in any other jurisdiction. Based upon and subject to the foregoing, and assuming that the proposed transactions are carried out in accordance with the Commission's order in this proceeding, I am of the opinion that: (a) all State laws applicable to the proposed transactions will have been complied with; (b) FE Nuclear is validly organized and existing under the laws of the State of Ohio; and the promissory notes to be issued to Penn Power, Cleveland Electric and Toledo Edison and short-term and long-term debt securities to be issued by FE Nuclear to third parties, all as described in the Application, will be valid and binding obligations of FE Nuclear; (c) FE Nuclear will legally acquire the nuclear power plant assets to be transferred by the Utility Subsidiaries and Penn Power, Cleveland Electric and Toledo Edison will legally acquire the promissory notes to be issued by FE Nuclear; (d) the proposed transactions will not violate the legal rights of the holders of any securities issued by FirstEnergy or any associate company. I hereby consent to the filing of this opinion as an exhibit to the Application. This opinion may not be relied upon by any other person for any other purpose, except that Thelen Reid & Priest LLP may rely on this opinion in rendering their opinion filed as Exhibit F-1 to the Application. Very truly yours, /s/ Gary D. Benz 2 EX-99 5 e206622_exh.txt EX. H - CONSOLIDATED CAPITALIZATION RATIOS EXHIBIT H
As Reported at Proforma as of September 30, 2005 September 30, 2005 FirstEnergy Amount Ratio Amount Ratio - ----------- -------------- --------- -------------- --------- Common Equity $ 8,827,959 44.90% $ 8,827,959 44.90% Preferred Stock 183,719 0.93% 183,719 0.93% Long-Term Debt 10,402,146 52.91% 10,402,146 52.91% Short-Term Debt 246,505 1.25% 246,505 1.25% -------------- --------- -------------- --------- Total Capitalization $ 19,660,329 100.00% $ 19,660,329 100.00% -------------- --------- -------------- --------- Ohio Edison - ----------- Common Equity $ 2,475,088 59.40% $ 2,566,968 64.89% Preferred Stock 75,070 1.80% 75,070 1.91% Long-Term Debt 1,372,803 32.94% 1,089,575 27.54% Short-Term Debt 244,555 5.87% 224,555 5.68% -------------- --------- -------------- --------- Total Capitalization $ 4,167,516 100.00% $ 3,956,168 100.00% -------------- --------- -------------- --------- Cleveland Electric - ------------------ Common Equity $ 1,943,540 43.07% $ 1,881,979 47.21% Preferred Stock - 0.00% - 0.00% Long-Term Debt 2,015,436 44.66% 2,015,436 50.56% Short-Term Debt 553,784 12.27% 88,784 2.23% -------------- --------- -------------- --------- Total Capitalization $ 4,512,760 100.00% $ 3,986,199 100.00% -------------- --------- -------------- --------- Toledo Edison - ------------- Common Equity $ 865,338 51.22% $ 870,071 60.87% Preferred Stock 96,000 5.68% 96,000 6.73% Long-Term Debt 350,023 20.72% 350,023 24.49% Short-Term Debt 378,190 22.38% 113,190 7.92% -------------- --------- -------------- --------- Total Capitalization $ 1,689,551 100.00% $ 1,429,284 100.00% -------------- --------- -------------- --------- Penn Power - ---------- Common Equity $ 371,943 65.50% $ 298,634 72.59% Preferred Stock 14,105 2.48% 14,105 3.43% Long-Term Debt 146,944 25.88% 83,816 20.37% Short-Term Debt 34,821 6.13% 14,821 3.60% -------------- --------- -------------- --------- Total Capitalization $ 567,813 100.00% $ 411,376 100.00% -------------- --------- -------------- ---------
EX-99 6 exfs-11.txt EX. FS-11 - BALANCE SHEET OF OHIO EDISON FS-11 OHIO EDISON COMPANY - CORPORATE PRO FORMA BALANCE SHEETS AS OF SEPTEMBER 30, 2005
NON-NUCLEAR NUCLEAR AS REPORTED ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ------------ ------------- ------------ ----------- ------------ (IN THOUSANDS) ASSETS UTILITY PLANT: In service $ 4,814,592 $ (1,995,250) a $ 2,819,342 $ (758,078) k $ 2,061,264 Less-Accumulated provision for depreciation 2,462,849 (1,187,909) b 1,274,940 (509,541) l 765,399 ------------ ------------- ------------ ----------- ------------ 2,351,743 (807,341) 1,544,402 (248,537) 1,295,865 ------------ ------------- ------------ ----------- ------------ Construction work in progress- Electric plant 112,535 - 112,535 (94,207) m 18,328 Nuclear Fuel 7,544 - 7,544 (7,544) n - ------------ ------------- ------------ ----------- ------------ 120,079 - 120,079 (101,751) 18,328 ------------ ------------- ------------ ----------- ------------ 2,471,822 (807,341) 1,664,481 (350,288) 1,314,193 ------------ ------------- ------------ ----------- ------------ OTHER PROPERTY AND INVESTMENTS: Investment in lease obligation bonds 8,683 8,683 8,683 Nuclear plant decommissioning trusts 315,734 315,734 (215,393) o 100,341 Long-term notes receivable from associated companies 174,225 1,021,470 c,d 1,195,695 231,871 c,d 1,427,566 Other 884,569 (184) e 884,385 (202) p 884,183 ------------ ------------- ------------ ----------- ------------ 1,383,211 1,021,286 2,404,497 16,276 2,420,773 ------------ ------------- ------------ ----------- ------------ CURRENT ASSETS: Cash and cash equivalents 92 92 92 Receivables- Customers - - - Associated companies 124,786 124,786 124,786 Other 7,584 7,584 7,584 Notes receivable from associated companies 794,397 794,397 794,397 Materials and supplies, at average cost 54,636 (1,973) f 52,663 (52,663) q - Prepayments and other 5,183 5,183 5,183 ------------ ------------- ------------ ----------- ------------ 986,678 (1,973) 984,705 (52,663) 932,042 ------------ ------------- ------------ ----------- ------------ DEFERRED CHARGES: Regulatory assets 720,937 720,937 720,937 Property taxes 61,419 61,419 61,419 Unamortized sale and leaseback costs 56,477 56,477 56,477 Other 54,490 54,490 (1,201) s 53,289 ------------ ------------- ------------ ----------- ------------ 893,323 - 893,323 (1,201) 892,122 ------------ ------------- ------------ ----------- ------------ $ 5,735,034 $ 211,972 $ 5,947,006 $ (387,876) $ 5,559,130 ============ ============= ============ =========== ============ CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock, without par value, authorized 175,000,000 shares - 100 shares outstanding $ 2,099,099 $ 172,380 g $ 2,271,479 $ (10) aa $ 2,271,469 Accumulated other comprehensive loss (58,484) (58,484) (7,181) r (65,665) Retained earnings 434,473 434,473 434,473 ------------ ------------- ------------ ----------- ------------ Total common stockholder's equity 2,475,088 172,380 - 2,647,468 (7,191) 2,640,277 Preferred stock 60,965 60,965 60,965 Long-term debt and other long-term obligations 1,078,078 1,078,078 (214,900) x 863,178 ------------ ------------- ------------ ----------- ------------ 3,614,131 172,380 3,786,511 (222,091) 3,564,420 ------------ ------------- ------------ ----------- ------------ CURRENT LIABILITIES: Currently payable long-term debt 253,082 253,082 (5,200) y 247,882 Short-term borrowings- Associated companies 2,793 2,793 2,793 Other - - - Accounts payable- Associated companies 71,015 71,015 71,015 Other 9,256 9,256 9,256 Notes payable to associated companies - - - Accrued taxes 186,368 186,368 186,368 Accrued interest 11,310 11,310 (377) z 10,933 Other 86,247 86,247 (3,700) t 82,547 ------------ ------------- ------------ ----------- ------------ 620,071 - 620,071 (9,277) 610,794 ------------ ------------- ------------ ----------- ------------ NONCURRENT LIABILITIES: Accumulated deferred income taxes 590,642 70,099 h 660,741 (16,770) u 643,971 Accumulated deferred investment tax credits 49,101 (23,530) i 25,571 (185) v 25,386 Asset retirement obligation 208,566 (6,977) j 201,589 (139,553) w 62,036 Retirement benefits 268,655 268,655 268,655 Other 383,868 383,868 383,868 ------------ ------------- ------------ ----------- ------------ 1,500,832 39,592 1,540,424 (156,508) 1,383,916 ------------ ------------- ------------ ----------- ------------ COMMITMENTS AND CONTINGENCIES ------------ ------------- ------------ ----------- ------------ $ 5,735,034 $ 211,972 $ 5,947,006 $ (387,876) $ 5,559,130 ============ ============= ============ =========== ============
Explanatory Notes - ----------------- a. The transfer of non-nuclear generation plant in service to FGCO. b. The transfer of the accumulated provision for depreciation for non-nuclear plant in service to FGCO. c. The establishment of an associated company note receivable as consideration for PCNs ($470.6 million for non-nuclear; $297.1 million for nuclear) to be assumed by FGCO or NGC at a future date. d. The establishment of an associated company note receivable ($550.9 million for non-nuclear; $(65.2) million for nuclear) as consideration for the purchased assets and assumption of liabilities. e. The transfer of other property and investments related to non-nuclear plant assets to FGCO. f. The transfer of materials and supplies for non-nuclear plant to FGCO. g. To record in other paid-in capital the difference between the net book value and the purchase price, pursuant to the purchase option in the Master Lease, for the non-nuclear generation assets h. The transfer of accumulated deferred income taxes for non-nuclear generation plant to FGCO. i. The transfer of accumulated deferred investment tax credits for non-nuclear generation plant to FGCO. j. The transfer of asset retirement obligations related to the non-nuclear generation plants to FGCO. k. The transfer of nuclear plant in service and nuclear fuel in service to NGC. This amount includes the reversal of $156 million recorded as plant-in service capital leases with OES Nuclear. l. The transfer of the accumulated provision for depreciation and amortization for nuclear plant in service and nuclear fuel in service to NGC. This amount includes reversal of $50.7 million of accumulated amortization related to the capital lease discussed in note k. m. The transfer of nuclear plant construction work in progress to NGC. n. The transfer of nuclear fuel construction work in progress to NGC. o. The transfer of nuclear plant decommissioning trusts to NGC. p. The transfer of other property and investments related nuclear plant assets to NGC. q. The transfer of materials and supplies for nuclear plant to NGC. r. The transfer of unrealized gains and losses on decommissioning trust investments recorded as other comprehensive income to NGC. s. The transfer of other deferred charges for nuclear plant to NGC. t. The transfer of other current liabilities related to nuclear generation plant to NGC. u. The transfer of accumulated deferred income taxes for nuclear generation plant to NGC. v. The transfer of accumulated deferred income tax credits for nuclear plant to NGC. w. The transfer of asset retirement obligations related to the nuclear generation plants to NGC. x. The transfer of the long-term portion of pollution control revenue bonds ($114.8 million) related to nuclear generation plant to NGC. The total amount also includes reversal of $100.1 million of capital lease obligations related to the capital lease discussed in note k. y. The reversal of the current portion of the capital lease obligations discussed in note x. z. The transfer of accrued interest for debt related to nuclear generation plant to NGC. aa. The transfer of OES Nuclear common stock to NGC. Ohio Edison Company - Corporate Non-Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit ----------------------------- Non-nuclear - Plant in Service 1,995,250 Accumulated Depreciation 1,187,909 Other Property & Investments 184 Notes Rec. - Assoc. Co. 550,888 M&S 1,973 Common Stock Issued 172,380 Notes Rec. Assoc Co. - PCN Assumption 470,582 A/P - Assoc. Co. Deferred Taxes - Deprecation 218,602 Deferred Taxes - Other 280,790 Deferred Tax - Invest Tax Credit 8,489 Invest Tax Credit (ITC) 23,530 Def. Tax - ARO 578 Asset Retirement Obligation 6,977 ----------------------------- 2,459,066 2,459,066 ============================= Subsequent to Transfer - ---------------------- PCN Debt Non-nuclear - LT 320,582 PCN Debt Non-nuclear - ST 150,000 Notes Rec. Assoc Co. - PCN Assumption 470,582
Ohio Edison Company - Corporate Non-Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit ----------------------------- Nuclear Plant in Service 412,647 Accumulated Depreciation 319,616 Plant In Service - Cap Leases 156,000 Accumulated Amortrization 50,700 Nuclear Fuel In Service 189,431 Accumulated Amortization 139,225 Other Property & Investments 202 Nuclear - CWIP 94,207 Nuclear Fuel - CWIP 7,544 NDT Assets 215,393 Notes Receivable - Assoc. Co. 65,244 M&S - Nuclear 52,663 PCN Debt Nuclear - LT 114,800 PCN Debt Nuclear - ST - Notes Rec. Assoc Co. - PCN Assumption 297,115 Other Def Charges 1,201 Accrued Interest 377 Other Current Liabilities (242xxx) 3,700 Cap Lease Oblig - Current 5,200 Deferred Taxes - Depreciation 12,712 Deferred Taxes - Other 12,712 Deferred ITC 66 Invest Tax Credits (ITC) 185 Other Comprehensive Income 7,181 Deferred Tax - ARO 16,836 NDT Liabilities 139,553 Common Stock 10 Cap Lease Oblig - Noncurrent 100,100 ----------------------------- 1,207,310 1,207,310 ============================= Subsequent to Transfer - ---------------------- PCN Debt Nuclear - LT 241,115 PCN Debt Nuclear - ST 56,000 Notes Rec. Assoc Co. - PCN Assumption 297,115
EX-99 7 exfs-12.txt EX. FS-12 - BALANCE SHEET OF PENN POWER FS-12 PENNSYLVANIA POWER COMPANY PRO FORMA BALANCE SHEETS AS OF SEPTEMBER 30, 2005
TRANSFER NON-NUCLEAR NUCLEAR INVESTMENT AS REPORTED ADJUSTMENTS PRO FORMA ADJUSTMENTS IN SUBSIDIARY PRO FORMA ------------ ----------- ---------- ----------- ------------- ---------- (IN THOUSANDS) ASSETS UTILITY PLANT: In service $ 907,382 $ (252,767) a $ 654,615 $ (298,067) k $ - $ 356,548 Less-Accumulated provision for depreciation 378,707 (129,810) b 248,897 (122,028) l 126,869 ------------ ----------- ---------- ----------- ----------- ---------- 528,675 (122,957) 405,718 (176,039) - 229,679 ------------ ----------- ---------- ----------- ----------- ---------- Construction work in progress- Electric plant 133,790 133,790 (130,909) m 2,881 Nuclear Fuel 10,428 10,428 (10,428) n - ------------ ----------- ---------- ----------- ----------- ---------- 144,218 - 144,218 (141,337) - 2,881 ------------ ----------- ---------- ----------- ----------- ---------- 672,893 (122,957) 549,936 (317,376) - 232,560 ------------ ----------- ---------- ----------- ----------- ---------- OTHER PROPERTY AND INVESTMENTS: Nuclear plant decommissioning trusts 146,706 146,706 (146,706) o - Long-term notes receivable from associated companies 32,864 124,699 c,d 157,563 145,559 d 303,122 Other 502 (183) e 319 112,911 p (112,911) aa 319 ------------ ----------- ---------- ----------- ----------- ---------- 180,072 124,516 304,588 111,764 (112,911) 303,441 ------------ ----------- ---------- ----------- ----------- ---------- CURRENT ASSETS: Cash and cash equivalents 24 24 24 Notes receivable from associated companies 566 566 566 Receivables- Customers 44,990 44,990 44,990 Associated companies 6,206 6,206 6,206 Other 2,617 2,617 2,617 Materials and supplies, at average cost 37,974 (671) f 37,303 (37,303) q - Prepayments and other 12,110 12,110 12,110 ------------ ----------- ---------- ----------- ----------- ---------- 104,487 (671) 103,816 (37,303) - 66,513 ------------ ----------- ---------- ----------- ----------- ---------- DEFERRED CHARGES: Regulatory assets - - 15,558 r 15,558 Other 10,721 10,721 (2,253) t 8,468 ------------ ----------- ---------- ----------- ----------- ---------- 10,721 - 10,721 13,305 - 24,026 ------------ ----------- ---------- ----------- ----------- ---------- $ 968,173 $ 888 $ 969,061 $ (229,610) $ (112,911) $ 626,540 ============ =========== ========== =========== =========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock, $30 par value, authorized 6,500,000 shares - 6,290,000 shares outstanding $ 188,700 $ - $ 188,700 $ - $ - $ 188,700 Other paid-in capital 65,035 2,455 g 67,490 67,490 Accumulated other comprehensive loss (13,706) (13,706) (13,706) Retained earnings 131,914 131,914 37,147 r (112,911) aa 56,150 ------------ ----------- ---------- ----------- ----------- ---------- Total common stockholder's equity 371,943 2,455 374,398 37,147 (112,911) 298,634 Preferred stock not subject to mandatory redemption 14,105 14,105 14,105 Long-term debt and other long-term obligations 121,170 121,170 (52,828) x 68,342 ------------ ----------- ---------- ----------- ----------- ---------- 507,218 2,455 509,673 (15,681) (112,911) 381,081 ------------ ----------- ---------- ----------- ----------- ---------- CURRENT LIABILITIES: Currently payable long-term debt 25,774 25,774 (10,300) y 15,474 Short-term borrowings- Associated companies 34,821 34,821 (20,000) s 14,821 Other - - - Accounts payable- Associated companies 16,864 16,864 16,864 Other 1,884 1,884 1,884 Accrued taxes 26,163 26,163 26,163 Accrued interest 1,635 1,635 (679) z 956 Other 8,491 8,491 8,491 ------------ ----------- ---------- ----------- ----------- ---------- 115,632 - 115,632 (30,979) - 84,653 ------------ ----------- ---------- ----------- ----------- ---------- NONCURRENT LIABILITIES: Accumulated deferred income taxes 79,801 1,054 h 80,855 19,202 u 100,057 Asset retirement obligation 155,959 (2,243) j 153,716 (153,716) w - Retirement benefits 51,389 51,389 51,389 Regulatory liabilities 47,809 47,809 (47,809) r - Other 10,365 (378) i 9,987 (627) v 9,360 ------------ ----------- ---------- ----------- ----------- ---------- 345,323 (1,567) 343,756 (182,950) - 160,806 ------------ ----------- ---------- ----------- ----------- ---------- COMMITMENTS AND CONTINGENCIES ------------ ----------- ---------- ----------- ----------- ---------- $ 968,173 $ 888 $ 969,061 $ (229,610) $ (112,911) $ 626,540 ============ =========== ========== =========== =========== ==========
Explanatory Notes - ----------------- a. The transfer of non-nuclear generation plant in service to FGCO. b. The transfer of the accumulated provision for depreciation for non-nuclear plant in service to FGCO. c. The establishment of an associated company note receivable as consideration for PCNs ($63.2 million) to be assumed by FGCO at a future date. d. The establishment of an associated company note receivable as consideration for the purchased assets and assumption of liabilities. The amount of the non-nuclear note is $61.5 million. The initial nuclear note of $166.6 million is netted against a $20 million payment received from NGC on the date of the asset transfer. e. The transfer of other property and investments related to non-nuclear plant assets to FGCO. f. The transfer of materials and supplies for non-nuclear plant to FGCO. g. To record in other paid-in capital the difference between the net book value and the purchase price, pursuant to the purchase option in the Master Lease, for the non-nuclear generation assets h. The transfer of accumulated deferred income taxes for non-nuclear generation plant to FGCO. i. The transfer of accumulated deferred investment tax credits for non-nuclear generation plant to FGCO. j. The transfer of asset retirement obligations related to the non-nuclear generation plants to FGCO. k. The transfer of nuclear plant in service and nuclear fuel in service to NGC. l. The transfer of the accumulated provision for depreciation and amortization for nuclear plant in service and nuclear fuel in service to NGC. m. The transfer of nuclear plant construction work in progress to NGC. n. The transfer of nuclear fuel construction work in progress to NGC. o. The transfer of nuclear plant decommissioning trusts to NGC. p. The establishment of a parent company investment in NGC. q. The transfer of materials and supplies for nuclear plant to NGC. r. The reversal of regulatory liabilities due to no longer accounting for decommissioning trust activity per SFAS No. 71 s. The use of proceeds from the nuclear asset transfer to reduce associated company money pool debt. t. The transfer of other deferred charges for nuclear plant to NGC. u. The transfer of accumulated deferred income taxes for nuclear generation plant to NGC. $7 million is transferring to NGC. The liability is being increased at Penn by $26.2 million due to the reversal of regulatory liabilities discussed in note r. v. The transfer of accumulated deferred income tax credits for nuclear plant to NGC. w. The transfer of asset retirement obligations related to the nuclear generation plants to NGC. x. The transfer of the long-term portion of pollution control revenue bonds related to nuclear generation plant to NGC. y. The transfer of the current portion of pollution control revenue bonds related to nuclear generation plant to NGC. z. The transfer of accrued interest for debt related to nuclear generation plant to NGC. aa. The distribution of the nuclear net assets spin as a dividend to the parent company. Pennsylvania Power Company Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facility Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit ------------------------- Nuclear - Plant in Service 183,016 Accumulated Depreciation 31,461 Accumulated Amortization 217 Nuclear Fuel In Service 115,051 Accumulated Amortization 90,350 Nuclear - CWIP 130,909 CWIP - Nuclear Fuel 10,428 NDT Assets 146,706 LT Notes Rec. - Assoc. Co. 145,559 M&S - Nuclear 37,303 Regulatory Assets 15,558 Deferred Charges - Other 2,253 Retained Earnings (Dividend Investment - Spin) 112,911 Retained Earnings (Reg. Liabilitiy Reversal) 37,147 PCN Debt Nuclear - LT 52,907 PCN Debt Nuclear - ST 10,300 Unam. Disc. LTD 79 N/P - Assoc. Co. 20,000 Accrued Interest 679 Deferred Taxes - Depreciation 9,555 Deferred Taxes - ITC 260 Deferred Taxes - ARO 7,278 Deferred Taxes - Other 9,555 Deferred Taxes - Reg. Liability Reversal 26,220 NDT Liabilities 153,716 Regulatory Liabilities 47,809 Other Noncurrent Liabilities 627 ------------------------- 698,927 698,927 =========================
Pennsylvania Power Company Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facility Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit ------------------------- Non-nuclear - Plant in Service 252,767 Accumulated Depreciation 129,810 Notes Rec. - Assoc. Co. 61,501 Other Property & Investments 183 M&S 671 Paid-in Capital 2,455 Notes Rec. Assoc Co. - PCN Assumption 63,198 Deferred Taxes - Depreciation 38,813 Deferred Taxes - ARO 118 Deferred Taxes - ITC 156 Deferred Taxes - Other 39,829 Asset Retirement Obligation 2,243 Other Noncurrent Liabilities 378 ------------------------- 296,061 296,061 ========================= SUBSEQUENT TO TRANSFER - ---------------------- PCN Debt Non-nuclear - LT 48,698 PCN Debt Non-nuclear - ST 14,500 Notes Rec. Assoc Co. - PCN Assumption 63,198
EX-99 8 exfs-13.txt EX. FS-13 - BALANCE SHEET OF CLEVELAND ELECTRIC FS-13 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY PRO FORMA BALANCE SHEETS AS OF SEPTEMBER 30, 2005
NON-NUCLEAR NUCLEAR AS REPORTED ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ------------ ------------- ------------ ------------ ------------ (IN THOUSANDS) ASSETS UTILITY PLANT: In service $ 4,498,876 $ (1,252,552)a $ 3,246,324 $(1,235,420)k $ 2,010,904 Less-Accumulated provision for depreciation 2,020,868 (823,166)b 1,197,702 (422,802)l 774,900 ------------ ------------- ------------ ------------ ------------ 2,478,008 (429,386) 2,048,622 (812,618) 1,236,004 ------------ ------------- ----------- ------------ ------------ Construction work in progress- Electric plant 90,911 90,911 (53,982)m 36,929 Nuclear fuel 8,632 8,632 (8,632)n - ------------ ------------- ----------- ------------ ------------ 99,543 - 99,543 (62,614) 36,929 ------------ ------------- ----------- ------------ ------------ 2,577,551 (429,386) 2,148,165 (875,232) 1,272,933 ------------ ------------- ----------- ------------ ------------ OTHER PROPERTY AND INVESTMENTS: Investment in lessor notes 564,169 564,169 564,169 Nuclear plant decommissioning trusts 427,920 427,920 (427,920)o - Long-term notes receivable from associated companies 8,774 389,462 c,d 398,236 528,102 c,d 926,338 Other 16,028 (3,889)e 12,139 (1,518)p 10,621 ------------ ------------- ------------ ------------ ------------ 1,016,891 385,573 1,402,464 98,664 1,501,128 ------------ ------------- ------------ ------------ ------------ CURRENT ASSETS: Cash and cash equivalents 207 207 207 Receivables- Customers 255,769 255,769 255,769 Associated companies 19,883 19,883 19,883 Other 9,651 9,651 9,651 Materials and supplies, at average cost 72,506 (11,461)f 61,045 (61,045)q - Prepayments and other 2,769 2,769 2,769 ------------ ------------- ------------ ------------ ------------ 360,785 (11,461) 349,324 (61,045) 288,279 ------------ ------------- ------------ ------------ ------------ DEFERRED CHARGES: Goodwill 1,688,966 1,688,966 1,688,966 Regulatory assets 889,127 889,127 889,127 Property taxes 77,792 - 77,792 - 77,792 Other 29,995 29,995 29,995 ------------ ------------- ------------ ------------ ------------ 2,685,880 - 2,685,880 - 2,685,880 ------------ ------------- ------------ ------------ ------------ $ 6,641,107 $ (55,274) $ 6,585,833 $ (837,613) $ 5,748,220 ============ ============= ============ ============ ============ CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock, without par value, authorized 105,000,000 shares-79,590,689 shares outstanding $ 1,356,998 $ - $ 1,356,998 $ - $ 1,356,998 Other paid-in capital - (31,330)g (31,330) (31,330) Accumulated other comprehensive income 12,148 12,148 (30,231)r (18,083) Retained earnings 574,394 574,394 574,394 ------------ ------------- ------------ ------------ ------------ Total common stockholder's equity 1,943,540 (31,330) 1,912,210 (30,231) 1,881,979 Long-term debt and other long-term obligations 1,939,730 1,939,730 1,939,730 ------------ ------------- ------------ ------------ ------------ 3,883,270 (31,330) 3,851,940 (30,231) 3,821,709 ------------ ------------- ------------ ------------ ------------ CURRENT LIABILITIES: Currently payable long-term debt 75,706 75,706 75,706 Short-term borrowings- Associated companies 518,784 518,784 (465,000)s 53,784 Other 35,000 35,000 35,000 Accounts payable- Associated companies 33,802 33,802 33,802 Other 6,702 6,702 6,702 Accrued taxes 156,630 156,630 156,630 Accrued interest 27,242 27,242 27,242 Lease market valuation liability 60,200 60,200 60,200 Other 39,094 39,094 (4,412)t 34,682 ------------ ------------- ------------ ------------ ------------ 953,160 - 953,160 (469,412) 483,748 ------------ ------------- ------------ ------------ ------------ NONCURRENT LIABILITIES: Accumulated deferred income taxes 552,072 (6,472)h 545,600 (39,443)u 506,157 Accumulated deferred investment tax credits 58,736 (14,682)i 44,054 (21,552)v 22,502 Lease market valuation liability 623,100 623,100 623,100 Asset retirement obligation 280,765 (2,790)j 277,975 (276,975)w 1,000 Retirement benefits 86,597 86,597 86,597 Other 203,407 - 203,407 - 203,407 ------------ ------------- ------------ ------------ ------------ 1,804,677 (23,944) 1,780,733 (337,970) 1,442,763 ------------ ------------- ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES ------------ ------------- ------------ ------------ ------------ $ 6,641,107 $ (55,274) $ 6,585,833 $ (837,613) $ 5,748,220 ============ ============= ============ ============ ============ - - - - -
Explanatory Notes - The Cleveland Electric Illuminating Company - --------------------------------------------------------------- a. The transfer of non-nuclear generation plant in service to FGCO. b. The transfer of the accumulated provision for depreciation for non-nuclear plant in service to FGCO. c. The establishment of an associated company note receivable as consideration for PCNs to be assumed by FGCO or NGC at a future date. d. The establishment of an associated company note receivable as consideration for the purchased assets and assumption of liabilities. e. The transfer of other property and investments related to non-nuclear plant assets to FGCO. f. The transfer of materials and supplies for non-nuclear plant to FGCO. g. To record in other paid-in capital the difference between the net book value and the purchase price, pursuant to the purchase option in the Master Lease, for the non-nuclear generation assets h. The transfer of accumulated deferred income taxes for non-nuclear generation plant to FGCO. i. The transfer of accumulated deferred investment tax credits for non-nuclear generation plant to FGCO. j. The transfer of asset retirement obligations related to the non-nuclear generation plants to FGCO. k. The transfer of nuclear plant in service and nuclear fuel in service to NGC. l. The transfer of the accumulated provision for depreciation and amortization for nuclear plant in service and nuclear fuel in service to NGC. m. The transfer of nuclear plant construction work in progress to NGC. n. The transfer of nuclear fuel construction work in progress to NGC. o. The transfer of nuclear plant decommissioning trusts to NGC. p. The transfer of other property and investments related nuclear plant assets to NGC. q. The transfer of materials and supplies for nuclear plant to NGC. r. The transfer of unrealized gains and losses on decommissioning trust investments recorded as other comprehensive income to NGC. s. The use of proceeds from the nuclear asset transfer to reduce associated company money pool debt. t. The transfer of other current liabilities related to nuclear generation plant to NGC. u. The transfer of accumulated deferred income taxes for nuclear generation plant to NGC. v. The transfer of accumulated deferred income tax credits for nuclear plant to NGC. w. The transfer of asset retirement obligations related to the nuclear generation plants to NGC. The Cleveland Electric Illuminating Company Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - ----------------------------------------------- Debit Credit ----------------------------- Nuclear - Plant in Service 997,829 Accumulated Depreciation 248,957 Nuclear Fuel in Service 237,591 Accumulated Amortization 173,845 Nuclear - CWIP 53,982 CWIP - Nuclear Fuel 8,632 NDT Assets 427,920 Other Property and Investments 1,518 Notes Rec. - Assoc. Co. 160,952 M&S - Nuclear 61,045 Notes Rec. Assoc Co. - PCN Assumption 367,150 Accumulated Other Comprehensive Income 30,231 Other Current Liabilities 4,412 Deferred Taxes - Depreciation 205,549 Deferred Taxes - ARO 47,217 Deferred Taxes - ITC 7,774 Deferred Taxes - Other 205,549 Investment Tax Credits 21,552 NDT Liabilities 276,975 Notes Payable - Assoc. com. 465,000 ----------------------------- 2,001,840 2,001,840 ============================= SUBSEQUENT TO TRANSFER - ---------------------- PCN Debt Nuclear - LT 339,450 PCN Debt Nuclear - ST 27,700 Notes Rec. Assoc Co. - PCN Assumption 367,150
The Cleveland Electric Illuminating Company Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - ----------------------------------------------- Debit Credit ----------------------------- Non-nuclear - Plant in Service 1,252,552 Accumulated Depreciation 823,166 Other Property and Investments 3,889 Notes Rec. - Assoc. Co. 27,184 M&S 11,461 Paid-in Capital 31,330 Notes Rec. Assoc Co. - PCN Assumption 362,278 Deferred Taxes - Depreciation 82,277 Deferred Taxes - ARO 467 Investment Tax Credits 14,682 Deferred Taxes - ITC 5,296 Deferred Taxes - Other 70,976 Asset Retirement Obligation 2,790 ----------------------------- 1,344,174 1,344,174 ============================= SUBSEQUENT TO TRANSFER - ---------------------- PCN Debt Non-nuclear - LT 314,778 PCN Debt Non-nuclear - ST 47,500 Notes Rec. Assoc Co. - PCN Assumption 362,278
EX-99 9 exfs-14.txt EX. FS-14 - BALANCE SHEET OF TOLEDO EDISON FS-14 THE TOLEDO EDISON COMPANY PRO FORMA BALANCE SHEETS AS OF SEPTEMBER 30, 2005
NON-NUCLEAR NUCLEAR AS REPORTED ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ------------ ------------- ------------ ------------ ------------ (IN THOUSANDS) ASSETS UTILITY PLANT: In service $ 1,906,941 $ (250,615) a $ 1,656,326 $ (839,701) k $ 816,625 Less-Accumulated provision for depreciation 820,562 (179,503) b 641,059 (273,936) l 367,123 ------------ ------------- ------------ ------------ ------------ 1,086,379 (71,112) 1,015,267 (565,765) 449,502 ------------ ------------- ------------ ------------ ------------ Construction work in progress- Electric plant 55,376 55,376 (42,989) m 12,387 Nuclear Fuel 7,370 7,370 (7,371) n (1) ------------ ------------- ------------ ------------ ------------ 62,746 - 62,746 (50,360) 12,386 ------------ ------------- ------------ ------------ ------------ 1,149,125 (71,112) 1,078,013 (616,125) 461,888 ------------ ------------- ------------ ------------ ------------ OTHER PROPERTY AND INVESTMENTS: Investment in lessor notes 178,765 178,765 178,765 Nuclear plant decommissioning trusts 335,553 335,553 (275,419) o 60,134 Long-term notes receivable from associated companies 39,964 99257 c,d 139,221 440,780 c,d 580,001 Other 1,741 (149) e 1,592 (62) p 1,530 ------------ ------------- ------------ ------------ ------------ 556,023 99,108 655,131 165,299 820,430 ------------ ------------- ------------ ------------ ------------ CURRENT ASSETS: Cash and cash equivalents 15 15 15 Receivables- Customers 2,412 2,412 2,412 Associated companies 10,168 10,168 10,168 Other 8,658 8,658 8,658 Notes receivable from associated companies 52,639 52,639 52,639 Materials and supplies, at average cost 42,404 (620) f 41,784 (41,783) q 1 Prepayments and other 1,712 1,712 1,712 ------------ ------------- ------------ ------------ ------------ 118,008 (620) 117,388 (41,783) 75,605 ------------ ------------- ------------ ------------ ------------ DEFERRED CHARGES: Regulatory assets 501,022 501,022 501,022 Goodwill 309,835 309,835 309,835 Property taxes 24,100 24,100 24,100 Other 26,520 26,520 26,520 ------------ ------------- ------------ ------------ ------------ 861,477 - 861,477 - 861,477 ------------ ------------- ------------ ------------ ------------ $ 2,684,633 $ 27,376 $ 2,712,009 $ (492,609) $ 2,219,400 ============ ============= ============ ============ ============ CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock, $5 par value, authorized 60,000,000 shares - 39,133,887 shares outstanding $ 195,670 $ 195,670 $ 195,670 Other paid-in capital 428,572 23,220 g 451,792 451,792 Accumulated other comprehensive income 15,878 15,878 (18,487) r (2,609) Retained earnings 225,218 225,218 225,218 ------------ ------------- ------------ ------------ ------------ Total common stockholder's equity 865,338 23,220 888,558 (18,487) 870,071 Preferred stock not subject to mandatory redemption 96,000 96,000 96,000 Long-term debt 296,373 296,373 296,373 ------------ ------------- ------------ ------------ ------------ 1,257,711 23,220 1,280,931 (18,487) 1,262,444 ------------ ------------- ------------ ------------ ------------ CURRENT LIABILITIES: Currently payable long-term debt 53,650 53,650 53,650 Accounts payable- Associated companies 28,456 28,456 28,456 Other 3,252 3,252 3,252 Notes payable to associated companies 378,190 378,190 (265,000) s 113,190 Accrued taxes 72,214 72,214 72,214 Lease market valuation liability 24,600 24,600 24,600 Other 28,735 28,735 (3,460) t 25,275 ------------ ------------- ------------ ------------ ------------ 589,097 - 589,097 (268,460) 320,637 ------------ ------------- ------------ ------------ ------------ NONCURRENT LIABILITIES: Accumulated deferred income taxes 222,985 9,510 h 232,495 (21,331) u 211,164 Accumulated deferred investment tax credits 24,697 (3,675) i 21,022 (8,953) v 12,069 Lease market valuation liability 249,550 249,550 249,550 Retirement benefits 42,998 42,998 42,998 Asset retirement obligation 200,078 (1,679) j 198,399 (175,378) w 23,021 Other 97,517 - 97,517 - 97,517 ------------ ------------- ------------ ------------ ------------ 837,825 4,156 841,981 (205,662) 636,319 ------------ ------------- ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTE 3) ------------ ------------- ------------ ------------ ------------ $ 2,684,633 $ 27,376 $ 2,712,009 $ (492,609) $ 2,219,400 ============ ============= ============ ============ ============
Explanatory Notes - ----------------- a. The transfer of non-nuclear generation plant in service to FGCO. b. The transfer of the accumulated provision for depreciation for non-nuclear plant in service to FGCO. c. The establishment of an associated company note receivable as consideration for PCNs to be assumed by FGCO or NGC at a future date. d. The establishment of an associated company note receivable as consideration for the purchased assets and assumption of liabilities. e. The transfer of other property and investments related to non-nuclear plant assets to FGCO. f. The transfer of materials and supplies for non-nuclear plant to FGCO. g. To record in other paid-in capital the difference between the net book value and the purchase price, pursuant to the purchase option in the Master Lease, for the non-nuclear generation assets h. The transfer of accumulated deferred income taxes for non-nuclear generation plant to FGCO. i. The transfer of accumulated deferred investment tax credits for non-nuclear generation plant to FGCO. j. The transfer of asset retirement obligations related to the non-nuclear generation plants to FGCO. k. The transfer of nuclear plant in service and nuclear fuel in service to NGC. l. The transfer of the accumulated provision for depreciation and amortization for nuclear plant in service and nuclear fuel in service to NGC. m. The transfer of nuclear plant construction work in progress to NGC. n. The transfer of nuclear fuel construction work in progress to NGC. o. The transfer of nuclear plant decommissioning trusts to NGC. p. The transfer of other property and investments related nuclear plant assets to NGC. q. The transfer of materials and supplies for nuclear plant to NGC. r. The transfer of unrealized gains and losses on decommissioning trust investments recorded as other comprehensive income to NGC. s. The use of proceeds from the nuclear asset transfer to reduce associated company money pool debt. t. The transfer of other current liabilities related to nuclear generation plant to NGC. u. The transfer of accumulated deferred income taxes for nuclear generation plant to NGC. v. The transfer of accumulated deferred income tax credits for nuclear plant to NGC. w. The transfer of asset retirement obligations related to the nuclear generation plants to NGC. The Toledo Edison Company Non-Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit --------------------------- Non-nuclear - Plant in Service 250,615 Accumulated Depreciaton 179,503 Other Property & Investments 149 Notes Rec. - Assoc. Co. 30,156 M&S 620 Paid-in Capital 23,220 Notes Rec. Assoc Co. - PCN Assumption 69,101 Def Tax - ITC 1,327 Def Tax - ARO 203 Deferred Taxes - Depreciation 15,486 Deferred Taxes - Other 23,872 ARO - LBR 1,679 Invest Tax Cr. (ITC) 3,675 --------------------------- 299,803 299,803 =========================== SUBSEQUENT TO TRANSFER PCN Debt Non-nuclear - LT 34,251 PCN Debt Non-nuclear - ST 34,850 Notes Rec. Assoc Co. - PCN Assumption 69,101
The Toledo Edison Company Non-Nuclear Journal Entry Summary As of September 30, 2005 Sales Price Non-nuclear - Master Facilty Lease Values Nuclear - Lower Book or FMV at time of transfer - -----------------------------------------------
Debit Credit --------------------------- Nuclear - Plant in Service 679,204 Accumulated Depreciation 153,356 Nuclear Fuel In Service 160,497 Accumulated Amortization 120,580 Nuclear - CWIP 42,989 CWIP - Nuclear Fuel 7,371 NDT Assets 275,419 Other Property & Investments 62 Notes Rec. - Assoc. Co. 194,480 M&S - Nuclear 41,783 Notes Rec. Assoc Co. - PCN Assumption 246,300 Other Current Liabilities 3,460 Deferred Taxes - Depreciation 140,681 Deferred Taxes - Other 140,681 Def Tax - ITC 3,233 Def Tax - ARO 24,564 ITC 8,953 OCI 18,487 NDT Liabilities 175,378 Notes Payable - Assoc. Co. 265,000 --------------------------- 1,351,239 1,351,239 =========================== SUBSEQUENT TO TRANSFER - ---------------------- PCN Debt Nuclear - LT 227,500 PCN Debt Nuclear - ST 18,800 Notes Rec. Assoc Co. - PCN Assumption 246,300
EX-99 10 exfs_15.txt EX. FS-15 - BALANCE SHEET OF FIRSTENERGY CORP. FS-15 FIRSTENERGY CORP. PRO FORMA BALANCE SHEETS AS OF SEPTEMBER 30, 2005
NON-NUCLEAR NUCLEAR AS REPORTED ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ------------ ------------- -------------- ----------- ------------ (IN THOUSANDS) ASSETS OTHER PROPERTY AND INVESTMENTS: Long-term notes receivable from associated companies $ 26,577 $ - $ 26,577 $ - 26,577 Investments in subsidiaries 12,045,644 12,045,644 750,000 12,795,644 Other 111,848 111,848 111,848 -------------- ----------- -------------- ------------ ------------- 12,184,069 - 12,184,069 750,000 12,934,069 -------------- ----------- -------------- ------------ ------------- CURRENT ASSETS: Cash and cash equivalents 100 100 100 Notes receivable from associated companies 1,139,455 1,139,455 (750,000) 389,455 Receivables- Associated companies 177,554 177,554 177,554 Other 19,177 19,177 19,177 Prepayments and other 40,097 40,097 40,097 -------------- ----------- -------------- ------------ ------------- 1,376,383 - 1,376,383 (750,000) 626,383 -------------- ----------- -------------- ------------ ------------- DEFERRED CHARGES: Accum. Deferred income taxes 47,545 47,545 47,545 Other 36,136 36,136 36,136 -------------- ----------- -------------- ------------ ------------- 83,681 - 83,681 - 83,681 -------------- ----------- -------------- ------------ ------------- $ 13,644,133 $ - $ 13,644,133 $ - $ 13,644,133 ============== =========== ============== ============ ============= CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock $ 32,984 $ - $ 32,984 $ - $ 32,984 Other paid-in capital 7,033,726 7,033,726 7,033,726 Accumulated other comprehensive loss (323,601) (323,601) (323,601) Retained earnings 2,105,361 2,105,361 2,105,361 Unallocated ESOP common shares (30,585) (30,585) (30,585) -------------- ----------- -------------- ------------ ------------- Total common stockholder's equity 8,817,885 - 8,817,885 - 8,817,885 Long-term debt 4,019,289 4,019,289 4,019,289 -------------- ----------- -------------- ------------ ------------- 12,837,174 - 12,837,174 - 12,837,174 -------------- ----------- -------------- ------------ ------------- CURRENT LIABILITIES: Currently payable long-term debt 300,000 300,000 300,000 Short-term borrowings- Associated companies - Other - Accounts payable- Associated companies 209,185 209,185 209,185 Other - Notes payable- Associated companies Other - - Accrued taxes 12,698 12,698 12,698 Accrued interest 107,510 107,510 107,510 Other 142,577 142,577 142,577 -------------- ----------- -------------- ------------ ------------- 771,970 - 771,970 - 771,970 -------------- ----------- -------------- ------------ ------------- NONCURRENT LIABILITIES: Accumulated deferred income taxes - Accumulated deferred investment tax credits - Asset retirement obligation - Retirement benefits 11,719 11,719 11,719 Other 23,270 23,270 23,270 -------------- ----------- --------------- ------------ ------------- 34,989 - 34,989 - 34,989 -------------- ----------- --------------- ------------ ------------- COMMITMENTS AND CONTINGENCIES -------------- ----------- --------------- ------------ ------------- $ 13,644,133 $ - $ 13,644,133 $ - $ 13,644,133 ============== =========== =============== ============ =============
Debit Credit --------------------------- Investment in Subsidiaries 750,000 Notes Rec. Assoc Co. 750,000 --------------------------- 750,000 750,000 ===========================
2 EX-99 11 exfs_16.txt EX. FS-16 - BALANCE SHEET OF FIRSTENERGY NUCLEAR FS-16 FIRSTENERGY NUCLEAR GENERATION CORP. PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 2005
($ in thousands) - -------------------------------------------------------------------------------- ASSETS UTILITY PLANT: In service $ 3,131,266 Less-Accumulated provision for depreciation 1,304,418 --------------- 1,826,848 --------------- Construction work in progress- Electric Plant 322,087 Nuclear Fuel 33,975 --------------- 356,062 --------------- 2,182,910 --------------- OTHER PROPERTY AND INVESTMENTS: Nuclear plant decommissioning trusts 1,065,438 Long-term notes receivable from associated companies - Other 1,782 --------------- 1,067,220 --------------- CURRENT ASSETS: Cash and cash equivalents - Receivables- Associated companies 1,325 Notes receivable from associated companies 66,028 Materials and supplies, at average cost 192,794 Prepayments and other - --------------- 260,147 --------------- DEFERRED CHARGES: Other 3,454 --------------- $ 3,513,731 =============== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stockholder's equity- Common stock, no par value, 100 shares authorized and outstanding $ 862,911 Accumulated Other Comprehensive Income 55,899 Retained earnings - --------------- Total common stockholder's equity 918,810 Long-term notes payable to associated companies 1,522,348 Long-term debt and other long-term obligations 167,628 --------------- 2,608,786 --------------- CURRENT LIABILITIES: Currently payable long-term debt 10,300 Accounts payable- Associated companies - Other - Notes payable to associated companies - Accrued taxes 300 Accrued interest 1,056 Other 11,572 --------------- 23,228 --------------- NONCURRENT LIABILITIES: Accumulated deferred income taxes 104,778 Asset retirement obligation 745,622 Other 31,317 --------------- 881,717 --------------- COMMITMENTS AND CONTINGENCIES --------------- $ 3,513,731 ===============
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