Exhibit 99.1
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Ronald E. Seeholzer
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| Vice President | |
| Investor Relations | |
| First Energy Corp. | |
| 76. S. Main Street | |
| Akron, Ohio 44308 | |
| Tel 330-384-5415 | |
| March 31, 2009 |
TO
THE INVESTMENT COMMUNITY:
1
FirstEnergy Corp.’s
Ohio electric utility operating companies Ohio Edison Company, The Cleveland
Electric Illuminating Company (CEI) and The Toledo Edison Company (collectively,
the Ohio Companies), will implement their amended Electric Security Plan
(Amended ESP), filed as a Stipulation and Recommendation on February 19, 2009,
as supplemented on February 26, 2009 through the filing of a Supplemental
Stipulation (Case No. 08-935-EL-SSO). The Public Utilities Commission
of Ohio (PUCO) approved certain provisions of the ESP in an Order on March 4,
2009, and the remaining provisions in an Order on March 25,
2009. Both Orders are available at
www.puco.ohio.gov
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This letter provides a summary of certain significant provisions of the Amended
ESP.
Overview of the Amended
ESP:
The
Amended ESP results in generation price stability through May 2011, provides the
PUCO flexibility to phase in the generation prices that become effective
June 1, 2009, and settles pricing and service arrangements for the distribution
of electric service through December 2011.
The
Amended ESP captures many of the elements of the Ohio Companies’ original filing
on July 31, 2008, with the inclusion of a competitive bidding process (CBP) to
establish retail generation rates. This Amended ESP addresses the
diverse interests and concerns of the signatory parties, including the Staff of
the PUCO and nearly 30 intervening parties.
Major
Amended
ESP
P
rovisions:
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In April and
May 2009, generation will be supplied from FirstEnergy Solutions Corp.
(FES) to the Ohio Companies at the average wholesale rate established in
the December 2008 Request for Proposal (RFP) process of $66.68 per
megawatt-hour. This wholesale rate, adjusted for distribution
line losses of 4.78%, yields a retail rate of $69.87 per megawatt-hour on
average for customers (excluding transmission
costs).
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1
Please
see the forward-looking statements at the end of this
letter.
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The deferral
of a portion of the purchased power costs for CEI will continue during
April and May 2009, with recovery of the deferred balance plus carrying
costs commencing June 1, 2011, over a 10-year period. This
deferral results from CEI retaining its retail rates at or near January
2009 levels.
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For the period
beginning June 1, 2009, and extending through May 31, 2011, retail
generation rates will be calculated based upon the results of a
descending-clock CBP. In this process, the Ohio Companies will
seek to procure, on a slice-of-system basis, 100% of their full
requirements supply, which includes energy and capacity, resource adequacy
requirements, transmission and ancillary services. The bidding
will occur for a single, two-year product and there will not be a load cap
for the bidders. FES may participate without
limitation. This bidding process will be conducted in May 2009
by CRA International (CRA), an independent bid manager. CRA
will select the winning bidders, but the PUCO may reject the results
within 48 hours of the conclusion of the auction consistent with the terms
of the Amended ESP. A detailed competitive bid timeline is
included in Exhibit 1. Additional information regarding the
auction process is available at
http://www.firstenergy-auction.com/2009/Auction/index.html
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The PUCO has
the option to phase in the resulting generation pricing for retail
customers subject to specified limits of $300 million in 2009, $500
million in 2010, and $200 million in 2011 in the aggregate for all three
Ohio Companies, provided the Ohio Companies have the ability to finance
the additional funds at commercially reasonable rates and
terms. Purchased power costs equal to the amounts constituting
the phase-in discount will be deferred and collected through a
rider. Recovery of generation deferrals, including carrying
charges, would commence June 1, 2011, for a period of up to 10
years.
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Winning
wholesale bid prices will be incrementally adjusted to the extent that
certain Midwest Independent Transmission System Operator, Inc. or other
non-market-based, Federal Energy Regulatory Commission (FERC)-approved
charges change, or are newly approved during the period June 1, 2009,
through May 31, 2011.
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A generation
service uncollectible rider will be established effective April 1, 2009,
and initially set at an average rate of $0.000539 per kilowatt-hour
(kWh). The rider will be reconciled quarterly to reflect actual
uncollectible generation costs from
customers.
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Ohio renewable
energy resource requirements for January 1, 2009, through May 31, 2011,
are expected to be met using a separate, future RFP for renewable energy
credits.
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CEI will write
off 50% of the Extended Regulatory Transition Charge (RTC) balance as of
May 31, 2009, estimated to be $216 million, and CEI RTC charges will be
reduced as a result commencing June 1, 2009. Recovery of the
remaining RTC balance and Extended RTC balance has been modified from the
process established in the Rate Certainty Plan as
follows:
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The
current RTC rate and residential rate credits will remain in effect until
May 31, 2009; and
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The
RTC rate and residential rate credits for the remainder of 2009 and 2010
will be the levelized amount necessary to recover any remaining RTC
balance and Extended RTC balance, including carrying charges. See Exhibit
2 for additional details.
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The Ohio
Companies commit to a base distribution rate freeze, subject to the
significantly excessive earnings test, until December 31, 2011, except in
cases of emergencies, for new or increased taxes or as otherwise provided
for in the Amended ESP and to make aggregate capital investments in their
distribution systems of no less than $615 million during the period
January 1, 2009, through December 31,
2011.
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The Amended
ESP provides for the implementation of a delivery service improvement
rider effective April 1, 2009, through December 31, 2011, on average in
the amount of $0.002 per kWh.
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The
significantly excessive earnings test will specifically exclude the impact
associated with the write-off of CEI regulatory assets, revenues
associated with the delivery service improvement rider, a reduction of
equity resulting from any write-off of goodwill and deferred carrying
charges.
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The Amended
ESP provides for the recovery of both new deferrals and those previously
approved by the PUCO, including carrying charges. A listing of
deferrals is included as Exhibit 3.
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The Amended
ESP promotes economic development, provides rate discounts for qualifying
schools, and supports an energy efficiency collaborative
process.
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If the PUCO
phases in generation rates for the Ohio Companies, a government
aggregation group may elect to phase in generation rates for its members
in an amount equal to any phase-in credit approved by the
PUCO.
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Total
regulatory one-time charges, including implementing the Amended ESP, are
expected to be approximately $262 million, or $0.55 per share of common
stock. This includes CEI’s $216 million Extended RTC regulatory
asset impairment and $46 million relating to other commitments made by the
Ohio Companies. These one-time charges will be reflected in
earnings for the first quarter of
2009.
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The Amended
ESP is conditioned upon all necessary FERC approvals to carry out the
terms and conditions of the Amended
ESP.
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Upcoming
FirstEnergy
I
nvestor
Event
s
1st
Quarter, 2009 Earnings Release Conference Call
May
5, 2009
Deutsche
Bank Energy, Utilities and Power Conference
May
27-28, 2009
Miami,
FL
Bernstein
Strategic Decisions Conference
May
28-29, 2009
New
York, NY
Citi
Power, Gas and Utilities Conference
June 4,
2009
New
York, NY
If
you have any questions concerning the information in this update, please contact
me at (330) 384-5415, Irene Prezelj, manager of Investor Relations, at (330)
384-3859, or Rey Jimenez, manager of Investor Relations, at (330)
761-4239.
Sincerely,
Ronald E.
Seeholzer
Vice President,
Investor Relations
Exhibit 1.
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CBP
Timeline
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Date
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Activity
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Friday, March
20, 2009
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Information
Session #1
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Thursday,
March 26, 2009
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Deadline:
CRA announces tranche target and tranche size (% and
MW)
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Friday, March
27, 2009
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Information
Session #2 – in Columbus, OH
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Friday, April
3, 2009
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Deadline
to submit Part 1 Applications
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Tuesday, April
21, 2009
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Information
Session #3 (if needed)
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Thursday,
April 23, 2009
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Deadline:
CRA announces any update to the tranche size (MW)
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Monday, April
27, 2009
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Deadline
to submit Part 2 Applications
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Monday, May 4,
2009
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Mock
Auction for Registered Bidders
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Friday, May 8,
2009
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Deadline:
CRA announces starting price to Registered Bidders
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Wednesday, May
13, 2009
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Auction
for Registered Bidders
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Wednesday, May
13, 2009
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CRA
notifies Companies and PUCO of results
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Friday, May
15, 2009
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Deadline
for assessment from CRA and PUCO's consultant of whether the auction
violated the bidding
rules
per the Stipulation
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Monday, May
18, 2009
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Standard
Service Offer Master Agreements Signed
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Monday, June
1, 2009
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Power
Flow
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Exhibit 2.
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CEI
RTC Revenue/Expense
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2009
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2010
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(in
millions)
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RTC
Transition Revenue
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$164
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$0
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RTC
Extended Revenue
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$91
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$136
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Transition
Amortization
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($70)
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$0
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Extended
Amortization
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($91)
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($136)
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Exhibit 3.
Forward-looking
Statements
This Letter to the
Investment 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 our
management's intents, beliefs and current expectations. These statements
typically contain, but are not limited to, the terms "anticipate," "potential,"
"expect," "believe," "estimate" and similar words. Forward-looking statements
involve estimates, assumptions, known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Actual results may
differ materially due to the speed and nature of increased competition in the
electric utility industry and legislative and regulatory changes affecting how
generation rates will be determined following the expiration of existing rate
plans in Ohio and Pennsylvania, the impact of the PUCO's regulatory process on
the Ohio Companies associated with the ESP and MRO filings, including any
resultant mechanism under which the Ohio Companies may not fully recover costs
(including, but not limited to, the costs of generation supply procured by the
Ohio Companies, Regulatory Transition Charges and fuel charges), or the outcome
of any competitive generation procurement process in Ohio, 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 our regulated utilities to collect transition and other
charges or to recover increased transmission costs, maintenance costs being
higher than anticipated, other legislative and regulatory changes, revised
environmental requirements, including possible greenhouse gas emission
regulations, the potential impacts of the U.S. Court of Appeals' July 11, 2008
decision requiring revisions to the CAIR rules and the scope of any laws, rules
or regulations that may ultimately take their place, the uncertainty of the
timing and amounts of the capital expenditures needed to, among other things,
implement the AQC 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 NSR
litigation or other potential regulatory initiatives, adverse regulatory or
legal decisions and outcomes (including, but not limited to, the revocation of
necessary licenses or operating permits and oversight) by the NRC (including,
but not limited to, the Demand for Information issued to FENOC on May 14, 2007),
the timing and outcome of various proceedings before the PUCO (including, but
not limited to the distribution rate cases and the generation supply plan filing
for the Ohio Companies and the successful resolution of the issues remanded to
the PUCO by the Ohio Supreme Court regarding the RSP and the RCP, including the
recovery of deferred fuel costs), Met-Ed's and Penelec's transmission service
charge filings with the PPUC, 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 our nuclear
decommissioning trusts, pension trusts and other trust funds, and cause us 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 our financing plan and the cost of
such capital, changes in general economic conditions affecting us, the state of
the capital and credit markets affecting us, interest rates and any actions
taken by credit rating agencies that could negatively affect our access to
financing or its costs and increase our requirements to post additional
collateral to support outstanding commodity positions, LOCs and other financial
guarantees, the continuing decline of the national and regional economy and its
impact on our major industrial and commercial customers, issues concerning the
soundness of financial institutions and counterparties with which we do
business, and the risks and other factors discussed from time to time in our SEC
filings, and other similar factors. The foregoing review of factors should not
be construed as exhaustive. New factors emerge from time to time, and it is not
possible for our management to predict all such factors, nor assess the impact
of any such factor on our 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. We expressly disclaim any current
intention to update any forward-looking statements contained herein as a result
of new information, future events, or otherwise.