EX-99.2 3 ex99_2.htm CONSOLIDATED REPORT TO THE FINANCIAL COMMUNITY, DATED AUGUST 3, 2010 ex99_2.htm
 
EXHIBIT 99.2
              
        
Consolidated Report to the Financial Community                                                                           
Second Quarter 2010
 
(Released August 3, 2010) (Unaudited) 
           
            HIGHLIGHTS  
After-Tax EPS Variance Analysis
        2nd.Qtr.
     
2Q 2009 Basic EPS – GAAP Basis
$1.36
       
Special Items – 2009
  (0.49)
● Normalized non-GAAP* earnings, excluding special items, were $0.82 per  
2Q 2009 Normalized Earnings – Non-GAAP Basis*
$0.87
 
share for the second quarter of 2010, compared with $0.87 per share for the 
   
Distribution Deliveries
  0.07
  second quarter of 2009.  GAAP earnings for the second quarter of 2010 were    
CEI Distribution Rate Increase
  0.01
  $0.87 per share, compared with $1.36 per share for the second quarter of    
CEI Transition Cost Recovery Margin
  (0.11)
  2009.     
Commodity Margin
  (0.09)
       
O&M Expenses
  (0.02)
            2Q 2010 Results vs. 2Q 2009                                                                         
General Taxes
  0.01
       
Investment Income
  0.01
● Electric distribution deliveries increased 1.9 million MWH, or 8%, due to an    
Capitalized Interest
  0.01
  improvement in the economy and warmer weather.  Heating-degree-days    
Effective Income Tax Rate
  0.05
  were 30% lower than the same period last year, while cooling-degree-days    
Other
  0.01
  were 94% higher. Residential deliveries increased 547,000 MWH, or 7%,  
2Q 2010 Normalized Earnings – Non-GAAP Basis*
$0.82
  while commercial deliveries increased by 436,000 MWH, or 5%.  Industrial    
Special Items – 2010
  0.05
  deliveries increased 963,000 MWH, or 13%, primarily related to increased  
2Q 2010 Basic EPS – GAAP Basis
$0.87
  usage by steel and automotive customers and accounted for 50% of the        
  total increase in distribution deliveries.  Higher distribution delivery revenues        
  increased earnings by $0.07 per share.        
 
  ●
The distribution rate increase implemented in May 2009 for The Cleveland Electric Illuminating Company (CEI) increased earnings by $0.01 per share in the second quarter of 2010.
 
  ●
CEI’s transition cost recovery margin reduced earnings by $0.11 per share. Lower transition revenues in the second quarter of 2010 reduced earnings by $0.07 per share and higher transition cost amortization reduced earnings by $0.04 per share.  In accordance with the Ohio Rate Certainty Plan, recovery of transition revenues for CEI will end in December 2010.
 
  ●
Commodity margin reduced earnings by $0.09 per share, as the result of several factors.
 
 
FirstEnergy Solutions Corp.’s (FES) generation sales increased 2.9 million MWH, or 20%, and increased earnings by $0.21 per share.  FirstEnergy successfully executed its retail strategy by switching customers in Ohio from Provider of Last Resort (POLR) to the direct and governmental aggregation sales channels.    FES retail sales also grew significantly in all other markets it serves, with expansion into multiple new territories, including the Columbus and Dayton Ohio areas, as well as PPL’s service territory in Pennsylvania.
 
 
 
 
 
 
 
 
 
 
 
                     
  FES Generation Sales - 2Q10 vs. 2Q09              
  (thousand MWH)    POLR    Direct    Aggregation     Total  
 
MISO
  
(6,490)
  
5,398
  
2,711
  
1,619
  
 
PJM
  
787
  
475
      
1,262
  
 
Total Increase/ (Decrease)
(5,703)
  
5,873
  
2,711
  
2,881
  
                     
 
 
FES wholesale electricity sales decreased 468,000 MWH, or 22%, reducing earnings by $0.06 per share.
 
 
                 
 
FES - Wholesale Sales - 2Q10 vs. 2Q09
          
 
(thousand MWH)
MISO
  
PJM
  
Total
  
 
Wholesale Sales Decrease
(366)
  
(102)
  
(468)
  
                 
 
 
Generation output for the quarter was nearly 3 million MWH higher than the same period last year, primarily related to increased utilization of the FES load-following fossil units.  Nuclear output was also higher, due to multiple nuclear outages in the second quarter of 2009 vs. one outage this year.
 
 
                 
 
Generation Output - 2Q10 vs. 2Q09
          
 
(thousand MWH)
Fossil
  
Nuclear
  
Total
  
 
Generation Output Increase
2,504
  
449
  
2,953
  
                 
 

Higher fuel expenses reduced earnings by $0.15 per share, primarily due to the 20% increase in generation output compared to the same period last year as well as an increase in the average cost of nuclear fuel.
 
Increased purchased power costs reduced earnings by $0.02 per share. Higher power prices in PJM more than offset a reduction in overall power purchases.  The increase in PJM energy purchases resulted from higher POLR and retail load requirements.
 
 
                 
 
FES - Purchased Power - 2Q10 vs. 2Q09
            
 
(thousand MWH)
MISO
  
PJM
  
Total
  
 
Purchased Power Increase / (Decrease)
(999)
  
468
  
(531)
  
                 
 
 
Net PJM RPM capacity revenues and expenses reduced earnings by $0.07 per share due to increased capacity rates as of June 1, 2010.  Capacity expenses for FES, Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec) reduced earnings by $0.13 per share, while capacity revenues increased earnings by $0.06 per share.
 
 
 
 
 
 
 
   Consolidated Report to the Financial Community - 2nd Quarter 2010
                    2
 
 
 
 
 
 
 
 
Commodity Margin EPS Summary
 
 
 
Revenues - 2Q10 vs. 2Q09
  
 
EPS
FES Generation Sales
  
Wholesale
PJM RPM
 Total EPS
 
    Variance  
POLR
  
Direct
  
Aggregation
     Sales     Capacity     Variance  
 
Rate
  
($0.13)
  
($0.07)
      
($0.03)
  
$0.06
  
($0.17)
  
 
Volume
  
($0.68)
  
$0.74
  
$0.35
  
($0.03)
      
$0.38
  
 
Total
  
($0.81)
  
$0.67
  
$0.35
  
($0.06)
  
$0.06
  
$0.21
  
                             
 
 
 
Expenses - 2Q10 vs. 2Q09
  
   EPS        Purchased    PJM RPM    Total EPS  
   Variance    Fuel    Power    Capacity    Variance  
 
Rate
      
($0.06)
  
($0.13)
  
($0.19)
  
 
Volume
  
($0.15)
  
$0.04
      
($0.11)
  
 
Total
  
($0.15)
  
($0.02)
  
($0.13)
  
($0.30)
  
                     
 
 
●  
Higher O&M expenses reduced earnings by $0.02 per share.
 
 
                     -  
Earnings were reduced by $0.12 per share mainly from two factors:  (1) a higher level of earned performance incentives in 2010, compared against a lower achievement rate in the second quarter of 2009; and (2) expenses in the prior year benefited from reduced liabilities associated with employee non-health care benefit program changes.
 
 
                     -  
Lower nuclear operating expenses increased earnings by $0.06 per share, mainly due to reduced  nuclear outage costs in the second quarter of 2010 (Davis-Besse) compared to the same period last year (Beaver Valley 1 and Perry).
 
 
                     -  
Lower pension and Other Post-Employment Benefits (OPEB) expense in the second quarter of 2010 increased earnings by $0.01 and $0.03 per share, respectively.  In June 2009, FirstEnergy amended its health care benefits plan to reduce future subsidies it will be required to pay.    
 
 
●  
Lower general taxes increased earnings by $0.01 per share, primarily due to settlement of tax issues in Ohio and Pennsylvania.
 
 
●  
Higher nuclear decommissioning trust income increased earnings by $0.01 per share.
 
 
●  
Higher capitalized interest related to construction programs increased earnings by $0.01 per share.  Interest expense in the second quarter of 2010 was unchanged compared to the same period last year.  In the second quarter of 2010, FirstEnergy executed multiple fixed-for-floating interest rate swap agreements reducing interest expense by $0.02 per share.
 
 
●  
A lower effective income tax rate increased earnings by $0.05 per share.  The difference reflects favorable resolution in 2010 of formerly uncertain tax positions.
 
 
  Consolidated Report to the Financial Community - 2nd Quarter 2010
                    3
 
 
 
 
 
 
 
●  
Several special items were recognized during the second quarter of 2010.
                            
 
                       
 
Special Items
              
EPS
  
 
Power contract mark-to-market adjustments
        
$0.07
  
 
Litigation settlement
              
$0.01
  
 
Impairment of securities held in trust for future nuclear decommissioning activities
($0.02)
  
 
Merger transaction costs
            
($0.01)
  
                       
 
 
 
 
2010 Earnings Guidance
Normalized non-GAAP* earnings guidance for 2010, excluding special items, has been revised to $3.60 to $3.70 per share from our previous non-GAAP guidance of $3.50 to $3.70 per share.  Year-to-date normalized non-GAAP earnings now stand at $1.63 per share.
 
 
 
 
* The 2010 GAAP to non-GAAP reconciliation statements can be found on page 16 of this report and all GAAP to non-GAAP reconciliation statements are available on the Investor Information section of FirstEnergy Corp.'s website at www.firstenergycorp.com/ir.
 
 
 
 
 
 
 
 
For additional information, please contact:    
     
Ronald E. Seeholzer
  Irene M. Prezelj  Rey Y. Jimenez
Vice President, Investor Relations
  Director, Investor Relations  Manager, Investor Relations
(330) 384-5415
  (330) 384-3859  (330) 761-4239
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
4
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Statements of Income
 (In millions, except for per share amounts)
 
 
     
Three Months Ended June 30
    
Six Months Ended June 30
  
     
2010
    
2009
    
Change
    
2010
    
2009
    
Change
  
   
  Revenues
                                  
(1 )
Electric utilities
 $ 2,392     $ 2,792     $ (400 )   $ 4,935     $ 5,813     $ (878 )
(2 )
Unregulated businesses
   1,323       1,348       (25 )     2,717       2,583       134  
(3 )
Intersegment revenues
   (587 )     (869 )     282       (1,225 )     (1,791 )     566  
(4 )
  Total Revenues
   3,128       3,271       (143 )     6,427       6,605       (178 )
                                                   
   
  Expenses
                                              
(5 )
Fuel
   350       276       74       684       588       96  
(6 )
Purchased power
   1,052       1,024       28       2,290       2,167       123  
(7 )
Other operating expenses
   673       612       61       1,374       1,439       (65 )
(8 )
Provision for depreciation
   190       185       5       383       362       21  
(9 )
Amortization of regulatory assets
   161       233       (72 )     373       642       (269 )
(10 )
Deferral of new regulatory assets
   -       (45 )     45       -       (136 )     136  
(11 )
General taxes
   176       184       (8 )     381       395       (14 )
(12 )
  Total Expenses
   2,602       2,469       133       5,485       5,457       28  
(13 )
  Operating Income
   526       802       (276 )     942       1,148       (206 )
                                                   
   
  Other Income (Expense)
                                              
(14 )
Investment income (loss)
   31       27       4       47       16       31  
(15 )
Interest expense
   (207 )     (206 )     (1 )     (420 )     (400 )     (20 )
(16 )
Capitalized interest
   40       33       7       81       61       20  
(17 )
  Total Other Expense
   (136 )     (146 )     10       (292 )     (323 )     31  
                                                   
(18 )
  Income Before Income Taxes
   390       656       (266 )     650       825       (175 )
(19 )
Income taxes
   134       248       (114 )     245       302       (57 )
(20 )
  Net Income
   256       408       (152 )     405       523       (118 )
(21 )
  Noncontrolling interest loss
   (9 )     (6 )     (3 )     (15 )     (10 )     (5 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 265     $ 414     $ (149 )   $ 420     $ 533     $ (113 )
                                                   
(23 )
  Earnings Per Share of Common Stock
                                          
(24 )
Basic
 $ 0.87     $ 1.36     $ (0.49 )   $ 1.38     $ 1.75     $ (0.37 )
(25 )
Diluted
 $ 0.87     $ 1.36     $ (0.49 )   $ 1.37     $ 1.75     $ (0.38 )
(26 )
  Weighted Average Number of
                                              
   
  Common Shares Outstanding
                                              
(27 )
Basic
   304       304       -       304       304       -  
(28 )
Diluted
   305       305       -       305       306       (1 )
                                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
5
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Three Months Ended June 30, 2010
  
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
    
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ 2,243     $ 728     $ -     $ 2,971  
(2 )
Other
   130       50       (23 )     157  
(3 )
Internal revenues
   19       539       (558 )     -  
(4 )
  Total Revenues
   2,392       1,317       (581 )     3,128  
                                   
   
  Expenses
                              
(5 )
Fuel
   -       351       (1 )     350  
(6 )
Purchased power
   1,291       319       (558 )     1,052  
(7 )
Other operating expenses
   352       337       (16 )     673  
(8 )
Provision for depreciation
   115       66       9       190  
(9 )
Amortization of regulatory assets
   161       -       -       161  
(10 )
Deferral of new regulatory assets
   -       -       -       -  
(11 )
General taxes
   145       25       6       176  
(12 )
  Total Expenses
   2,064       1,098       (560 )     2,602  
(13 )
  Operating Income
   328       219       (21 )     526  
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   27       13       (9 )     31  
(15 )
Interest expense
   (124 )     (55 )     (28 )     (207 )
(16 )
Capitalized interest
   1       24       15       40  
(17 )
  Total Other Expense
   (96 )     (18 )     (22 )     (136 )
                                   
(18 )
  Income Before Income Taxes
   232       201       (43 )     390  
(19 )
Income taxes (benefits)
   89       76       (31 )     134  
(20 )
  Net Income
   143       125       (12 )     256  
(21 )
  Noncontrolling interest loss
   -       -       (9 )     (9 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 143     $ 125     $ (3 )   $ 265  
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                               
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
6
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Three Months Ended June 30, 2009
  
                           
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
    
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ 2,657     $ 205     $ -     $ 2,862  
(2 )
Other
   135       299       (25 )     409  
(3 )
Internal revenues
   -       839       (839 )     -  
(4 )
  Total Revenues
   2,792       1,343       (864 )     3,271  
                                   
   
  Expenses
                              
(5 )
Fuel
   -       276       -       276  
(6 )
Purchased power
   1,677       186       (839 )     1,024  
(7 )
Other operating expenses
   328       315       (31 )     612  
(8 )
Provision for depreciation
   110       68       7       185  
(9 )
Amortization of regulatory assets
   233       -       -       233  
(10 )
Deferral of new regulatory assets
   (45 )     -       -       (45 )
(11 )
General taxes
   154       25       5       184  
(12 )
  Total Expenses
   2,457       870       (858 )     2,469  
(13 )
  Operating Income
   335       473       (6 )     802  
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   35       6       (14 )     27  
(15 )
Interest expense
   (114 )     (32 )     (60 )     (206 )
(16 )
Capitalized interest
   1       14       18       33  
(17 )
  Total Other Expense
   (78 )     (12 )     (56 )     (146 )
                                   
(18 )
  Income Before Income Taxes
   257       461       (62 )     656  
(19 )
Income taxes (benefits)
   103       185       (40 )     248  
(20 )
  Net Income
   154       276       (22 )     408  
(21 )
  Noncontrolling interest loss
   -       -       (6 )     (6 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 154     $ 276     $ (16 )   $ 414  
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
7
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009
  
                           
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
    
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ (414 )   $ 523     $ -     $ 109  
(2 )
Other
   (5 )     (249 )     2       (252 )
(3 )
Internal revenues
   19       (300 )     281       -  
(4 )
  Total Revenues
   (400 )     (26 )     283       (143 )
                                   
   
  Expenses
                              
(5 )
Fuel
   -       75       (1 )     74  
(6 )
Purchased power
   (386 )     133       281       28  
(7 )
Other operating expenses
   24       22       15       61  
(8 )
Provision for depreciation
   5       (2 )     2       5  
(9 )
Amortization of regulatory assets
   (72 )     -       -       (72 )
(10 )
Deferral of new regulatory assets
   45       -       -       45  
(11 )
General taxes
   (9 )     -       1       (8 )
(12 )
  Total Expenses
   (393 )     228       298       133  
(13 )
  Operating Income
   (7 )     (254 )     (15 )     (276 )
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   (8 )     7       5       4  
(15 )
Interest expense
   (10 )     (23 )     32       (1 )
(16 )
Capitalized interest
   -       10       (3 )     7  
(17 )
  Total Other Expense
   (18 )     (6 )     34       10  
                                   
(18 )
  Income Before Income Taxes
   (25 )     (260 )     19       (266 )
(19 )
Income taxes (benefits)
   (14 )     (109 )     9       (114 )
(20 )
  Net Income
   (11 )     (151 )     10       (152 )
(21 )
  Noncontrolling interest loss
   -       -       (3 )     (3 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ (11 )   $ (151 )   $ 13     $ (149 )
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
8
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Six Months Ended June 30, 2010
  
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
  
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ 4,641     $ 1,397     $ -     $ 6,038  
(2 )
Other
   275       97       (50 )     322  
(3 )
Internal revenues*
   19       1,213       (1,165 )     67  
(4 )
  Total Revenues
   4,935       2,707       (1,215 )     6,427  
                                   
   
  Expenses
                              
(5 )
Fuel
   -       688       (4 )     684  
(6 )
Purchased power
   2,686       769       (1,165 )     2,290  
(7 )
Other operating expenses
   732       684       (42 )     1,374  
(8 )
Provision for depreciation
   228       132       23       383  
(9 )
Amortization of regulatory assets
   373       -       -       373  
(10 )
Deferral of new regulatory assets
   -       -       -       -  
(11 )
General taxes
   307       60       14       381  
(12 )
  Total Expenses
   4,326       2,333       (1,174 )     5,485  
(13 )
  Operating Income
   609       374       (41 )     942  
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   52       14       (19 )     47  
(15 )
Interest expense
   (248 )     (108 )     (64 )     (420 )
(16 )
Capitalized interest
   2       44       35       81  
(17 )
  Total Other Expense
   (194 )     (50 )     (48 )     (292 )
                                   
(18 )
  Income Before Income Taxes
   415       324       (89 )     650  
(19 )
Income taxes (benefits)
   158       123       (36 )     245  
(20 )
  Net Income
   257       201       (53 )     405  
(21 )
  Noncontrolling interest loss
   -       -       (15 )     (15 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 257     $ 201     $ (38 )   $ 420  
                                   
*  
  Under the accounting standard for the effects of certain types of regulation, internal revenues are not fully offset for sale of
  
   
  Renewable Energy Credits by FES to the Ohio Companies that are retained in inventory.
          
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
9
 
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Six Months Ended June 30, 2009
  
                           
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
    
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ 5,518     $ 485     $ -     $ 6,003  
(2 )
Other
   295       354       (47 )     602  
(3 )
Internal revenues
   -       1,732       (1,732 )     -  
(4 )
  Total Revenues
   5,813       2,571       (1,779 )     6,605  
                                   
   
  Expenses
                              
(5 )
Fuel
   -       588       -       588  
(6 )
Purchased power
   3,553       346       (1,732 )     2,167  
(7 )
Other operating expenses
   827       670       (58 )     1,439  
(8 )
Provision for depreciation
   219       132       11       362  
(9 )
Amortization of regulatory assets
   642       -       -       642  
(10 )
Deferral of new regulatory assets
   (136 )     -       -       (136 )
(11 )
General taxes
   324       57       14       395  
(12 )
  Total Expenses
   5,429       1,793       (1,765 )     5,457  
(13 )
  Operating Income
   384       778       (14 )     1,148  
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   65       (23 )     (26 )     16  
(15 )
Interest expense
   (224 )     (60 )     (116 )     (400 )
(16 )
Capitalized interest
   2       24       35       61  
(17 )
  Total Other Expense
   (157 )     (59 )     (107 )     (323 )
                                   
(18 )
  Income Before Income Taxes
   227       719       (121 )     825  
(19 )
Income taxes (benefits)
   91       288       (77 )     302  
(20 )
  Net Income
   136       431       (44 )     523  
(21 )
  Noncontrolling interest loss
   -       -       (10 )     (10 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 136     $ 431     $ (34 )   $ 533  
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
10
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Consolidated Income Segments
 (In millions)
 
 
     
Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009
  
                           
                           
     
Energy
    
Competitive
    
Other &
        
     
Delivery
    
Energy
    
Reconciling
        
     
Services (a)
    
Services (b)
    
Adjustments (c)
    
Consolidated
  
   
  Revenues
                      
(1 )
Electric sales
 $ (877 )   $ 912     $ -     $ 35  
(2 )
Other
   (20 )     (257 )     (3 )     (280 )
(3 )
Internal revenues*
   19       (519 )     567       67  
(4 )
  Total Revenues
   (878 )     136       564       (178 )
                                   
   
  Expenses
                              
(5 )
Fuel
   -       100       (4 )     96  
(6 )
Purchased power
   (867 )     423       567       123  
(7 )
Other operating expenses
   (95 )     14       16       (65 )
(8 )
Provision for depreciation
   9       -       12       21  
(9 )
Amortization of regulatory assets
   (269 )     -       -       (269 )
(10 )
Deferral of new regulatory assets
   136       -       -       136  
(11 )
General taxes
   (17 )     3       -       (14 )
(12 )
  Total Expenses
   (1,103 )     540       591       28  
(13 )
  Operating Income
   225       (404 )     (27 )     (206 )
                                   
   
  Other Income (Expense)
                              
(14 )
Investment income (loss)
   (13 )     37       7       31  
(15 )
Interest expense
   (24 )     (48 )     52       (20 )
(16 )
Capitalized interest
   -       20       -       20  
(17 )
  Total Other Expense
   (37 )     9       59       31  
                                   
(18 )
  Income Before Income Taxes
   188       (395 )     32       (175 )
(19 )
Income taxes (benefits)
   67       (165 )     41       (57 )
(20 )
  Net Income
   121       (230 )     (9 )     (118 )
(21 )
  Noncontrolling interest loss
   -       -       (5 )     (5 )
(22 )
  Earnings Available to FirstEnergy Corp.
 $ 121     $ (230 )   $ (4 )   $ (113 )
                                   
*  
  Under the accounting standard for the effects of certain types of regulation, internal revenues are not fully offset for sale of
  
   
  Renewable Energy Credits by FES to the Ohio Companies that are retained in inventory.
          
                                   
(a)
  
  Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort
  
   
  generation service for FirstEnergy's electric utility subsidiaries.
                  
(b)
  
  Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to
  
   
  affiliated electric utilities.
                              
(c)
  
  Consists primarily of interest expense related to holding company debt, corporate support services revenues and expenses
  
   
  and elimination of intersegment transactions.
                          
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
11
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Financial Statements
 (In millions)
 
 
  Condensed Consolidated Balance Sheets
  
           
   
As of
  
As of
  
  Assets
  
June 30, 2010
  
Dec. 31, 2009
  
  Current Assets:
          
     Cash and cash equivalents
   $ 281   $ 874  
     Receivables
     1,555     1,397  
     Other
     1,278     1,049  
  Total Current Assets
     3,114     3,320  
               
  Property, Plant and Equipment
     19,550     19,164  
  Investments
     2,955     3,023  
  Deferred Charges and Other Assets
     8,847     8,797  
  Total Assets
   $ 34,466   $ 34,304  
               
  Liabilities and Capitalization
              
  Current Liabilities:
              
     Currently payable long-term debt
   $ 1,571   $ 1,834  
     Short-term borrowings
     1,463     1,181  
     Accounts payable
     848     829  
     Other
     1,163     1,444  
  Total Current Liabilities
     5,045     5,288  
               
  Capitalization:
              
     Total equity
     8,819     8,557  
      Long-term debt and other long-term obligations
     11,861     11,908  
  Total Capitalization
     20,680     20,465  
  Noncurrent Liabilities
     8,741     8,551  
  Total Liabilities and Capitalization
   $ 34,466   $ 34,304  
               
 
 
  General Information
  
 
Three Months Ended June 30
    
Six Months Ended June 30
  
 
2010
    
2009
    
2010
    
2009
  
  Debt redemptions
 $ (298 )   $ (437 )   $ (407 )   $ (881 )
  New long-term debt issues
 $ -     $ 979     $ -     $ 1,679  
  Short-term borrowings increase
 $ 576     $ -     $ 281     $ -  
  Property additions
 $ (489 )   $ (489 )   $ (997 )   $ (1,143 )
                               
 
 
  Adjusted Capitalization
  
 
As of June 30
    
As of December 31
  
   
2010
      
% Total
      
2009
      
% Total
  
  Total equity*
 $ 8,819       36 %   $ 8,557       36 %
  Long-term debt and other long-term obligations
   11,861       48 %     11,908       50 %
  Currently payable long-term debt
   1,571       6 %     1,834       8 %
  Short-term borrowings
   1,463       6 %     1,181       5 %
  Adjustments:
                              
     Sale-leaseback net debt equivalents
   1,362       6 %     1,391       6 %
     JCP&L securitization debt and cash
   (588 )     -2 %     (1,189 )     -5 %
  Total
 $ 24,488       100 %   $ 23,682       100 %
                               
  *Includes $(1,379) million and $(1,415) million, respectively, of Accumulated Other Comprehensive Loss
                               
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
12
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Financial Statements
 (In millions)
 
 
  Condensed Consolidated Statements of Cash Flows
  
 
Three Months Ended June 30
    
Six Months Ended June 30
  
 
2010
    
2009
    
2010
    
2009
  
  Cash flows from operating activities
                      
  Net income
 $ 256     $ 408     $ 405     $ 523  
  Adjustments to reconcile net income to net cash from operating activities:
  
    Depreciation, amortization, and deferral of regulatory assets
   351       373       756       868  
    Deferred purchased power and other costs
   (69 )     (73 )     (146 )     (135 )
    Deferred income taxes and investment tax credits
   100       97       159       69  
    Deferred rents and lease market valuation liability
   (45 )     (45 )     (62 )     (59 )
    Cash collateral received (paid), net
   (17 )     63       (63 )     48  
    Commodity derivative transactions, net
   (62 )     2       (29 )     18  
    Interest rate swap transactions
   43       -       43       -  
    Change in working capital and other
   (205 )     (185 )     (205 )     (230 )
  Cash flows provided from operating activities
   352       640       858       1,102  
  Cash flows provided from (used for) financing activities
   110       356       (484 )     426  
  Cash flows used for investing activities
   (491 )     (495 )     (967 )     (1,173 )
  Net change in cash and cash equivalents
 $ (29 )   $ 501     $ (593 )   $ 355  
                               
 
 
                                     
  Deferrals and Amortization
  
Three Months Ended June 30
    
Six Months Ended June 30
  
   
2010
    
2009
    
Change
    
2010
    
2009
    
Change
  
  Ohio Rate Certainty Plan Amortization (Deferrals)
                                    
     Ohio Transition costs
   $ -     $ 26     $ (26 )   $ -     $ 65     $ (65 )
     Shopping incentives & interest
     39       (6 )     45       81       203       (122 )
     RCP distribution reliability costs and interest
     -       (5 )     5       -       (11 )     11  
     RCP fuel & interest
     (5 )     (5 )     -       (10 )     (14 )     4  
                                                 
  Ohio Amended ESP Amortization (Deferrals)
                                                
     Uncollectible customer accounts
   $ (3 )     -     $ (3 )   $ (5 )   $ (7 )   $ 2  
     Economic development costs & interest
     12       6       6       9       6       3  
     Generation cost rider true-up & interest
     3       9       (6 )     7       9       (2 )
     CEI fuel & interest
     -       (45 )     45       -       (141 )     141  
     Distribution reliability costs (RDD/NDD)
     21       -       21       70       -       70  
                                                 
  Ohio Transmission Amortization (Deferrals)
                                                
     MISO transmission costs
   $ (11 )   $ 32     $ (43 )   $ (21 )   $ 86     $ (107 )
                                                 
  Ohio Other Amortization (Deferrals)
                                                
     Generation Related Deferrals
   $ (27 )   $ 3     $ (30 )   $ (50 )   $ 3     $ (53 )
     Distribution Related Deferrals
     5       10       (5 )     13       18       (5 )
     All Other
     5       2       3       46       1       45  
                                                 
  Pennsylvania Amortization (Deferrals)
                                                
     PJM transmission costs
   $ 11     $ 44     $ (33 )   $ 15     $ 31     $ (16 )
     NUG costs
     8       16       (8 )     23       41       (18 )
     Decommissioning Amortization
     1       3       (2 )     1       5       (4 )
     All Other
     20       18       2       43       44       (1 )
                                                 
  New Jersey Amortization (Deferrals)
                                                
     NUG costs
   $ 58     $ 57     $ 1     $ 126     $ 126     $ -  
     Decommissioning Amortization
     5       4       1       10       9       1  
     All Other
     19       19       -       15       32       (17 )
                                                 
  Total Amortization, net
   $ 161     $ 188     $ (27 )   $ 373     $ 506     $ (133 )
                                                 
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
13
 
 
 
 
 
 
 
FirstEnergy Corp.
Statistical Summary
 
  Electric Sales Statistics (kWh in millions)        
     
Three Months Ended June 30
    
Six Months Ended June 30
  
  Electric Distribution Deliveries
  
2010
    
2009
    
Change
    
2010
    
2009
    
Change
  
                                       
  Ohio                                - Residential   3,770     3,629     3.9 %   8,530     8,517     0.2 %
 - Commercial
   3,540     3,433     3.1 %   7,086     7,047     0.6 %
 - Industrial
   5,275     4,513     16.9 %   10,171     9,037     12.5 %
 - Other
   88     90     -2.2 %   174     180     -3.3 %
Total Ohio
   12,673     11,665     8.6 %   25,961     24,781     4.8 %
  Pennsylvania                 - Residential   2,590     2,444     6.0 %   5,958     5,934     0.4 %
 - Commercial
   2,871     2,653     8.2 %   5,637     5,433     3.8 %
 - Industrial
   2,322     2,126     9.2 %   4,569     4,279     6.8 %
 - Other
   21     20     5.0 %   42     40     5.0 %
Total Pennsylvania
   7,804     7,243     7.7 %   16,206     15,686     3.3 %
  New Jersey                    - Residential   2,299     2,039     12.8 %   4,621     4,396     5.1 %
 - Commercial
   2,336     2,224     5.0 %   4,568     4,493     1.7 %
 - Industrial
   629     624     0.8 %   1,251     1,238     1.1 %
 - Other
   22     22     0.0 %   44     43     2.3 %
Total New Jersey
   5,286     4,909     7.7 %   10,484     10,170     3.1 %
  Total Residential
   8,659     8,112     6.7 %   19,109     18,847     1.4 %
  Total Commercial
   8,747     8,310     5.3 %   17,291     16,973     1.9 %
  Total Industrial
   8,226     7,263     13.3 %   15,991     14,554     9.9 %
  Total Other
   131     132     -0.8 %   260     263     -1.1 %
  Total Distribution Deliveries
   25,763     23,817     8.2 %   52,651     50,637     4.0 %
                                       
 
 
  Generation Sales - Franchise (kWh in millions)
  
       
Three Months Ended June 30
    
Six Months Ended June 30
  
       
2010
    
2009
    
Change
    
2010
    
2009
    
Change
  
  Ohio
                                        
  FES
- POLR
     3,315     9,805     -66.2 %     7,959     19,292     -58.7 %
 
- Direct
     3,906     -     -       7,242     -     -  
 
- Aggregation
   2,711     -     -       5,385     -     -  
 
Subtotal
     9,932     9,805     1.3 %     20,586     19,292     6.7 %
                                           
  3rd Party
- POLR
     1,395     1,852     -24.7 %     3,183     5,477     -41.9 %
 
- Shopping
     1,346     8     -       2,192     12     -  
 
Subtotal
     2,741     1,860     47.4 %     5,375     5,489     -2.1 %
                        Total - OH   12,673     11,665     8.6 %     25,961     24,781     4.8 %
                                           
  Pennsylvania
                                        
  FES
- POLR
     3,752     3,517     6.7 %     8,113     8,147     -0.4 %
 
- Direct
     483     387     24.8 %     961     785     22.4 %
 
Subtotal
     4,235     3,904     8.5 %     9,074     8,932     1.6 %
                                           
  3rd Party
- POLR
     3,289     3,087     6.5 %     6,619     6,252     5.9 %
 
- Shopping
     280     252     11.1 %     513     502     2.2 %
 
Subtotal
     3,569     3,339     6.9 %     7,132     6,754     5.6 %
                        Total - PA   7,804     7,243     7.7 %     16,206     15,686     3.3 %
                                           
  New Jersey
                                        
  FES
- Direct
     111     42     163.8 %     203     56     262.5 %
 
Subtotal
     111     42     163.8 %     203     56     262.5 %
                                           
  3rd Party
- POLR
     3,445     3,562     -3.3 %     6,957     7,742     -10.1 %
 
- Shopping
     1,730     1,305     32.6 %     3,324     2,372     40.1 %
 
Subtotal
     5,175     4,867     6.3 %     10,281     10,114     1.7 %
                        Total - NJ   5,286     4,909     7.7 %     10,484     10,170     3.1 %
                                           
  Summary
                                        
  FES - POLR
     7,067     13,322     -47.0 %     16,072     27,439     -41.4 %
  FES - Direct
     4,500     429     949.0 %     8,406     841     899.5 %
  FES - Aggregation
     2,711     -     -       5,385     -     -  
                       Subtotal   14,278     13,751     3.8 %     29,863     28,280     5.6 %
                                           
  3rd Party Suppliers - POLR
   8,129     8,501     -4.4 %     16,759     19,471     -13.9 %
  3rd Party Suppliers - Shopping
   3,356     1,565     114.5 %     6,029     2,886     108.9 %
                        Subtotal   11,485     10,066     14.1 %     22,788     22,357     1.9 %
 
Total Franchise
   25,763     23,817     8.2 %     52,651     50,637     4.0 %
                                           
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
14
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Statistical Summary
 
 
Summary of Sales, Power Purchases and Generation Output (kWh in millions)
        
       
Three Months Ended June 30
    
Six Months Ended June 30
  
 
FES Sales
  
2010
  
2009
  
Change
    
2010
  
2009
  
Change
  
 
POLR
                            
   
- OH
   3,315   9,805   (6,490 )   7,959   19,292   (11,333 )
   
- PA
   7,147   3,517   3,630     14,982   8,147   6,835  
   
- PA (ME/PN 3rd Prty Contract)
 (2,843 ) -   (2,843 )   (5,546 ) -   (5,546 )
      Total POLR 7,619   13,322   (5,703 )   17,395   27,439   (10,044 )
                                 
 
Direct
                            
   
- OH
   4,588   4   4,584     8,376   7   8,369  
   
- PA
   1,078   863   215     2,107   1,717   390  
   
- NJ
   327   93   234     634   125   509  
   
- MI
   427   4   423     688   9   679  
   
- IL
   518   133   385     990   247   743  
   
- MD
   70   38   32     127   61   66  
      Total Direct 7,008   1,135   5,873     12,922   2,166   10,756  
                                 
 
Aggregation
                            
   
- OH
   2,711   -   2,711     5,385   -   5,385  
      Total Aggregation 2,711   -   2,711     5,385   -   5,385  
 
Total FES Sales
   17,338   14,457   2,881     35,702   29,605   6,097  
                                 
 
Wholesale Sales
                            
 
MISO
   1,288   1,654   (366 )   1,957   4,984   (3,027 )
 
PJM
     379   481   (102 )   608   941   (333 )
 
    Total Wholesale Sales
 1,667   2,135   (468 )   2,565   5,925   (3,360 )
                                 
 
Purchased Power
                            
 
MISO
   340   1,339   (999 )   861   1,407   (546 )
 
PJM
     1,950   1,482   468     4,531   3,274   1,257  
 
    Total Purchased Power
 2,290   2,821   (531 )   5,392   4,681   711  
                                 
 
Generation Output
                            
 
Fossil
   11,274   8,770   2,504     20,824   19,363   1,461  
 
Nuclear
   6,297   5,848   449     14,206   13,356   850  
 
    Total Generation Output
 17,571   14,618   2,953     35,030   32,719   2,311  
                                 
 
 
Operating Statistics
    Three Months Ended June 30          Six Months Ended June 30      
         
2010
  
2009
        
2010
  
2009
      
 
Capacity Factors:
                        
   
Nuclear
  
72%
  
67%
        
82%
  
77%
      
   
Fossil - Baseload
75%
  
71%
        
66%
  
75%
      
   
Fossil - Load Following
57%
  
25%
        
58%
  
35%
      
 
Generation Output:
                        
   
Nuclear
  
36%
  
40%
        
41%
  
41%
      
   
Fossil - Baseload
41%
  
47%
        
36%
  
44%
      
   
Fossil - Load Following
22%
  
11%
        
22%
  
14%
      
   
Peaking
  
1%
  
2%
        
1%
  
1%
      
                                   
           Three Months Ended June 30    Six Months Ended June 30  
     2010  
2009
       Normal    2010    2009    Normal  
  Composite Heating-Degree-Days    420    600    659      3,189    3,560    3,524  
  Composite Cooling-Degree-Days    380    196    235      380    196    236  
                                   
 
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
                    15
 
 
 
 
 
 
 
 
 
FirstEnergy Corp.
Special Items, EPS Reconciliations and Liquidity
 (In millions, except for per share amounts)
 
                                 
   Special Items            
           Three Months Ended June 30    
Six Months Ended June 30
    
         
2010
    
2009
    
2010
    
2009
    
   
 Pre-tax Items - Income Increase (Decrease)
                
   
 Regulatory charges (a)
   $ -     $ -     $ (40 )   $ (261 )  
   
 Trust securities impairment (b)
     (9 )     (3 )     (19 )     (39 )  
   
 Organizational restructuring costs (c)
     -       (7 )     -       (28 )  
   
 Non-core asset sales/impairments (d)
     -       254       (9 )     254    
   
 Merger transaction costs (c)
     (7 )     -       (21 )     -    
   
 Litigation settlement (c)
     7       -       7       -    
   
 Derivative mark-to-market adjustment (e)
     35       -       (17 )     -    
   
 Debt redemption premium/hedge write-off (f)
     -       (3 )     -       (3 )  
   
 Penelec incremental strike costs (c)
     -       (2 )     -       (2 )  
     
Total-Pretax Items
   $ 26     $ 239     $ (99 )   $ (79 )  
   
 Income tax charge/Income tax resolution
   $ -     $ -     $ (13 )   $ 13    
   
 EPS Effect
   $ 0.05     $ 0.49     $ (0.25 )   $ (0.14 )  
   
 (a)
For YTD 2010, $35 million included in "Amortization of regulatory
assets"; $5 million included in "Other operating expenses". For YTD
2009, $216 million included in "Amortization of regulatory assets"; $35
million included in "Other operating expenses"; $10 million included in
"Purchased Power"
  
(c)
 
(d)
  Included in "Other operating expenses"
 
  For YTD 2010, $7 million included in "Depreciation"; $2M
  included in "Revenues - Unregulated businesses". For YTD
  2009, included in "Revenues - Unregulated businesses"
  
                                         
               
(e)
  Included in "Purchased power"
    
                       
   
 (b)
Included in "Investment income"
  
(f)
  Included in "Interest expense"
    
                                         
 
                               
 
2010 Earnings Per Share (EPS)
  
 
(Reconciliation of GAAP to Non-GAAP)
  
       
     Three Months Ended June 30      Six Months Ended June 30      Revised  
              2010          2009      2010      2009      2010 Guidance  
                               
 
  Basic EPS (GAAP basis)
 $ 0.87     $ 1.36     $ 1.38     $ 1.75       $3.29 - $3.39  
 
  Excluding Special Items:
                                      
 
Regulatory charges
   -       -       0.08       0.55       0.11  
 
Trust securities impairment
   0.02       0.01       0.04       0.08       0.04  
 
Organizational restructuring costs
   -       0.01       -       0.06       -  
 
Debt redemption premiums/strike costs
   -       0.01       -       0.01       -  
 
Income tax resolution
   -       -       -       (0.04 )     -  
 
Income tax charge - retiree drug change
   -       -       0.04       -       0.04  
 
Merger transaction costs
   0.01       -       0.05       -       0.08  
 
Litigation settlement
   (0.01 )     -       (0.01 )     -       (0.01)  
 
Non-core asset sales/impairments
   -       (0.52 )     0.02       (0.52 )     0.02  
 
Derivative mark-to-market adjustment
   (0.07 )     -       0.03       -       0.03  
 
  Basic EPS (Non-GAAP basis)
 $ 0.82     $ 0.87     $ 1.63     $ 1.89       $3.60 - $3.70  
                                         
 
           
 
Liquidity position as of July 31, 2010
        
               
 
 Company
     Type   Maturity   Amount (M)   Available (M)  
 
  FirstEnergy(1)
Revolving
Aug. 2012
$2,750
$1,407
  
 
  FirstEnergy Solutions
Bank Line
Mar. 2011
100
-
  
 
  OH & PA Utilities
Receivables Financing
Various(2)
395
267
  
 
  (1) FirstEnergy Corp. and subsidiary borrowers
  Subtotal:
$3,245
$1,674
  
 
  (2) OH - $250M matures March 30, 2011; PA $145M matures December 17, 2010
  Cash:
-
127
  
       
Total:
$3,245
$1,801
  
               
 
 
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
                    16
 
 
 
 
 
 
 
 
 
Recent Developments
 
Merger Matters

FERC
On May 11, 2010, FirstEnergy (FE) and Allegheny Energy (AYE) filed an application with the Federal Energy Regulatory Commission (FERC) for approval of their proposed merger. Under the Federal Power Act, FERC has 180 days to rule on the merger application. FE and AYE subsequently submitted additional information regarding the merger application which was requested by FERC. Interventions and protests were filed with the FERC on July 12, 2010.
 
State Regulatory Filings
On May 14 and May 18, 2010, FE and AYE filed applications with the Pennsylvania Public Utility Commission (PAPUC) and the Public Service Commission of West Virginia, respectively, for approval of their proposed merger. On May 27, 2010, FE and AYE filed an application for approval of the proposed merger with the Maryland Public Service Commission (MDPSC). The MDPSC is required to issue an order no later than 180 days after an application is filed, but for good cause MDPSC may give itself a 45-day extension which it did when it issued its initial order on June 24, 2010.  On June 14, 2010, FE and AYE completed their application with the Virginia State Corporation Commission (VSCC) for approval of their proposed merger. VSCC is required to rule on the merger application in 60 days, subject to up to a 120-day extension.  In its order issued on June 25, 2010, the VSCC extended the period for its review by 30 days; therefore, the companies expect a decision by September 13, 2010.  Pennsylvania and West Virginia laws impose no statutory timeframe for their commissions’ consideration of a merger application, but procedural schedules have been established; and final decisions are anticipated in January and February, respectively.

Hart-Scott-Rodino (HSR) Act Filings
On May 25, 2010, FE and AYE made HSR filings with the Department of Justice (DOJ) and Federal Trade Commission. On June 24, 2010, FE and AYE each received a request for additional information from the DOJ, which extends the HSR Act waiting period for an additional 30 days from the date that the requested information is supplied to the DOJ.
 
S-4 Registration Statement
In June and July 2010, FE and AYE filed amended Form S-4 registration statements with the United States Securities and Exchange Commission (SEC). The Form S-4 registration statement, as amended, was declared effective by the SEC on July 16, 2010. The official record date for shareholders permitted to vote at the special shareholder meeting is July 16, 2010, and the FE and AYE special shareholder meetings are both scheduled for September 14, 2010.


Financial Matters

Financing Activities
On June 1, 2010, FirstEnergy Generation Corp. (FGCO) purchased $15 million of fixed rate Pollution Control Revenue Bonds (PCRBs) originally issued on its behalf.   Subject to market conditions, FGCO plans to remarket the $15 million of PCRBs, as well as an additional $235 million PCRBs purchased in April, in the near future.

On June 1, 2010, Penn Power redeemed $1 million of 5.40% Environmental Improvement Revenue Bonds, 1993 Series A, due October 1, 2013, and on July 30, 2010, redeemed $6.5 million of 7.65% First Mortgage Bonds Series of 1993 due in 2023.

In May of 2010, FE terminated fixed-for-floating interest rate swap agreements with a notional value of $3.15 billion, which resulted in cash proceeds of $43.1 million. These proceeds will generally be amortized to earnings over the life of the underlying debt.
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
17
 
 
 
 
 
 
 
 
 
Effective June 1, 2010, FE executed multiple fixed-for-floating interest rate swap agreements with a combined notional value of $3.2 billion, which essentially replaced the swap agreements terminated in May of 2010. As of June 30, 2010, the debt underlying the $3.2 billion outstanding notional amount of interest rate swaps had a weighted average fixed interest rate of 6%, which the swaps have converted to a current weighted average variable rate of 4%.

On July 16, 2010, FE terminated these fixed-for-floating interest rate swap agreements with a notional value of $3.2 billion, which resulted in cash proceeds of $83.6 million. These proceeds will generally be amortized to earnings over the life of the underlying debt.

Regulatory Matters

Ohio Electric Security Plan (ESP)
OE, CEI and TE (collectively the Ohio Companies) filed a second Supplemental Stipulation with the PUCO on July 22, 2010, to supplement the ESP Stipulation filed on March 23, 2010, and the Supplemental Stipulation filed on May 13, 2010.  An additional four signatories were included in the Supplemental Stipulations, joining the Ohio Companies and 17 original signatory parties that support the ESP.  A final PUCO order is pending.

Significantly Excessive Earnings Test (SEET)
On June 30, 2010, the PUCO issued an order that requires each electric utility in Ohio to file a SEET application by July 15, 2010.   Subsequent to that order, the PUCO extended the filing date to September 1, 2010.

Met-Ed and Penelec Transmission Service Charges (TSC)
On May 20, 2010, the PAPUC approved the revised TSC for Metropolitan Edison (Met-Ed) and Pennsylvania Electric (Penelec). The revised TSC rates were slightly increased for Met-Ed and slightly decreased for Penelec, and are effective for the period of June 1, 2010 to December 31, 2010.  The PAPUC’s Order of March 3, 2010, which denies the recovery of marginal transmission losses through the TSC for the period of June 1, 2007 through March 31, 2008, remains subject to an appeal that is currently pending in the Commonwealth Court of Pennsylvania.

Met-Ed and Penelec Default Service Plan
On May 27, 2010, the PAPUC approved the results of the third of four auctions held to procure the default service requirements for Met-Ed and Penelec customers who choose not to shop with an alternative supplier.  For the five-month period of January 1, 2011 to May 31, 2011, the tranche-weighted average prices ($/MWh) for Met-Ed’s residential and commercial classes were $72.81 and $72.29, respectively; Penelec’s tranche-weighted average prices were $62.04 and $63.35 for its residential and commercial classes, respectively.  There will be another auction in October 2010 to procure the remaining supply for this period.  The May 2010 auction was also the first of four auctions to procure commercial default service requirements for the 12-month period of June 1, 2011 to May 31, 2012 and residential requirements for the 24-month period of June 1, 2011 to May 31, 2013.   For Met-Ed and Penelec commercial customers the tranche-weighted average price ($/MWh) was $66.32 and $57.60, respectively, and for residential customers the tranche-weighted average price was $68.55 and $58.43, respectively.  The remaining three auctions for these products will be conducted in October 2010, January 2011, and March 2011.

Department of Energy (DOE) Smart Grid Grants
On June 3, 2010, FE and the DOE signed grants totaling $57.4 million that were awarded as part of the American Recovery and Reinvestment Act to introduce smart grid technologies in targeted areas in Pennsylvania, Ohio, and New Jersey.  The DOE grants represent 50% of the funding for the $114.9 million FE investment in smart grid technologies; the PAPUC and the State of New Jersey Board of Public Utilities have already approved recovery for the remaining portion of smart grid costs.  The PUCO issued an order on June 30, 2010, approving FE’s smart grid program, but FE has delayed implementation of the Ohio portion of the program until there is more certainty regarding cost recovery for the portion of the costs not covered by the grant.
 
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2010
18
                                             
                                 
 
 
 
 
 
 
Reliability Pricing Model (RPM) Base Residual Auction
On May 14, 2010, PJM released the results of the 2013/2014 RPM Base Residual Auction.  The auction cleared 152,743 MW of unforced capacity in the RTO Zone, which includes the ATSI zone, at the Resource Clearing Price of $27.73/MW-day.  The Clearing Price in MAAC, which includes Met-Ed and Penelec zones, and EMAAC which includes the Jersey Central zone, were $226.15/MW-day and $245.00/MW-day, respectively.

Jersey Central Power & Light (JCP&L) Rate Filing
On July 26, 2010, JCP&L filed a request with the New Jersey Board of Public Utilities (BPU) for a rate decrease of $180 million in its Non-utility Generation Clause (NGC). The NGC reflects costs associated with contracts previously approved by the BPU for approximately 900 megawatts of non-utility generation capacity that JCP&L was required to enter into under the Public Utility Regulatory Policies Act (PURPA). The decrease is related to changes in JCP&L’s long-term contracts with non-utility generators and would become effective January 1, 2011, pending approval by the BPU.

Operational Matters

Davis-Besse Refueling Outage
On June 3, 2010, modifications of 24 of the 69 nozzles on the reactor head were completed at Davis-Besse Nuclear Power Station (Davis-Besse) and Davis-Besse returned to service on June 29, 2010.  These nozzles were identified during Davis-Besse’s 16th refueling outage and reactor head inspection which began February 28, 2010.  The plant was originally scheduled to have a new reactor head installed in 2014.  This timeline was voluntarily accelerated, and FE announced that a new reactor head will be installed in the fall of 2011.  The new head was manufactured in France and will arrive at the plant in the fall of 2010 to undergo a series of pre-service inspections.

Legacy Power Contracts
In July 2010, FES entered into financial transactions that offset the mark-to-market impact of legacy purchased power contracts totaling 500 MW entered into in 2008 for delivery in 2010 and 2011 and which were marked-to-market beginning in December 2009.  These financial transactions eliminate the volatility in GAAP earnings associated with marking these contracts to market through the end of 2011.

 
Consolidated Report to the Financial Community - 2nd Quarter 2010
19
                                             
 
 

 
 
 

 
 
Forward-Looking Statements: This Consolidated Report to the Financial Community includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management's intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "believe," "estimate" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results may differ materially due to the speed and nature of increased competition in the electric utility industry and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Pennsylvania, the impact of the regulatory process on the pending matters in Ohio, Pennsylvania and New Jersey, business and regulatory impacts from American Transmission Systems, Incorporated's realignment into PJM Interconnection, L.L.C., economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices and availability, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy's regulated utilities to collect transition and other charges or to recover increased transmission costs, operating and maintenance costs being higher than anticipated, other legislative and regulatory changes, revised environmental requirements, including possible greenhouse gas emission regulations, the potential impacts of the U.S. Court of Appeals' July 11, 2008 decision requiring revisions to the Clean Air Interstate Rules and the scope of any laws, rules or regulations that may ultimately take their place, the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated or that certain generating units may need to be shut down) or levels of emission reductions related to the Consent Decree resolving the New Source Review litigation or other similar potential regulatory initiatives or actions, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the Nuclear Regulatory Commission, Metropolitan Edison Company's and Pennsylvania Electric Company's transmission service charge filings with the Pennsylvania Public Utility Commission, the continuing availability of generating units and their ability to operate at or near full capacity, the ability to comply with applicable state and federal reliability standards, the ability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the ability to improve electric commodity margins and to experience growth in the distribution business, the changing market conditions that could affect the value of assets held in FirstEnergy's nuclear decommissioning trusts, pension trusts and other trust funds, and cause it to make additional contributions sooner, or in an amount that is larger than currently anticipated, the ability to access the public securities and other capital and credit markets in accordance with FirstEnergy's financing plan and the cost of such capital, changes in general economic conditions affecting the company, the state of the capital and credit markets affecting the company, interest rates and any actions taken by credit rating agencies that could negatively affect FirstEnergy's access to financing or its costs or increase its requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees, the continuing decline of the national and regional economy and its impact on the company's major industrial and commercial customers, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy does business, the expected timing and likelihood of completion of the proposed merger with Allegheny Energy, Inc., including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management's time and attention from our ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect and the risks and other factors discussed from time to time in its Securities and Exchange Commission filings, and other similar factors. The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on FirstEnergy's business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy expressly disclaims any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.

Consolidated Report to the Financial Community - 2nd Quarter 2010
20