Attached files
Exhibit 99.2 | |
Ronald E.
Seeholzer
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Vice
President
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Investor
Relations
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FirstEnergy
Corp.
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76 S. Main
Street
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Akron, Ohio
44308
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Tel
330-384-5415
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March 23,
2010
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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), today filed with the Public Utilities Commission of Ohio
(PUCO) an Electric Security Plan (ESP). The ESP was filed as a
Stipulation and Recommendation in Case No. 10-388-EL-SSO and is available at
www.puco.ohio.gov.
This letter provides a summary of certain significant provisions of the
ESP.
Overview of the
ESP:
The
ESP is a three-year plan that, if approved by the PUCO, commences June 1, 2011,
and results in more certain rate levels for customers, timely recovery of
PUCO-authorized charges, deferral of certain costs, promotes energy efficiency
and economic development, and provides support for low-income
customers.
The
ESP incorporates and builds upon the substantial record developed in the Ohio
Companies’ filing for a Market Rate Offer (MRO) in Case No. 09-906-EL-SSO and
addresses the diverse interests and concerns of the signatory parties, including
the Staff of the PUCO. The Ohio Companies have requested PUCO
approval of the ESP by May 5, 2010.
Major ESP
Provisions:
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For the period
beginning June 1, 2011, and extending through May 31, 2014, retail
generation rates will be calculated based upon the results of a
descending-clock competitive bidding process (CBP). In this
process, the Ohio Companies will seek to procure, on a slice-of-system
basis, wholesale full requirements supply, including energy and capacity,
resource adequacy requirements, and market-based transmission and
ancillary services. The bidding will occur initially for three
products of varying lengths, and multiple bid processes will be conducted
over the three-year term of the ESP. The PUCO may order a
load cap of 80% for the bidders, and FirstEnergy Solutions Corp. (FES) may
participate subject to the same conditions as any other
bidder. The initial CBP will be conducted in July 2010 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 any auction if that auction violated the CBP
rules. A detailed competitive bid timeline is included as
Exhibits 1 and 2.
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1
Please see the forward-looking statements at the end of this
letter.
1
§
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The ESP
provides certainty for cost recovery related to FirstEnergy’s integration
into PJM Interconnection (PJM), which is scheduled for June 1,
2011. Network integration transmission service and other
non-market based Federal Energy Regulatory Commission (FERC) or regional
transmission organization charges will be paid by the Ohio Companies and
recovered from customers through a rider. This rider will include all
Midwest Independent Transmission System Operator, Inc. (MISO) transmission
expansion charges that were approved prior to June 1, 2011. The
Ohio Companies will not seek recovery for any MISO exit fees, PJM
integration costs, or any legacy regional transmission expansion plan
costs billed by PJM from June 1, 2011, through May 31, 2016, for projects
approved prior to June 1, 2011.
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§
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Ohio renewable
energy resource requirements for June 1, 2011, through May 31, 2014, are
expected to be met using a separate, future RFP process for renewable
energy credits.
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§
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The retail
load of low-income customers participating in the Ohio Companies’
Percentage of Income Payment Plan (PIPP) will be excluded from the CBP and
will instead be supplied by the Ohio Companies at a 6% discount from their
price-to-compare. The Ohio Companies will enter into a
wholesale bilateral contract with FES for three years of power supply
commencing June 1, 2011 to supply this load. PIPP customers represent
approximately 2% of the Ohio Companies’ total retail
sales.
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§
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The generation
service uncollectible rider established effective April 1, 2009 in the
current Amended ESP will continue. The rider will be reconciled
quarterly to reflect actual uncollectible non-distribution costs from
customers.
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§
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Base
distribution rates will remain unchanged during the term of the ESP,
except in cases of emergencies, subject to riders and other changes
provided in the Ohio Companies’ tariffs and subject to the significantly
excessive earnings test.
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§
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The ESP
provides for the implementation of a delivery capital recovery rider with
charges effective January 1, 2012, for recovery of certain taxes and for
the opportunity to earn a return on and of plant-in-service associated
with distribution, sub-transmission, general and intangible plant that was
not included in the Ohio Companies’ rate base as determined in the last
distribution rate case. This rider is limited to expenditures through May
31, 2014, and recovery is capped at $150 million for 2012, $165 million
for 2013, and $75 million for the first five months of
2014.
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§
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The
significantly excessive earnings test will specifically exclude the impact
of: 1) a reduction of equity resulting from any write-off of goodwill; 2)
deferred carrying charges; and 3) any additional liability or write-off of
regulatory assets due to implementing this
ESP.
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2
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The ESP
provides for the continued accrual and recovery of deferrals previously
approved by the PUCO, including carrying charges. The Ohio
Companies may seek to accelerate the recovery of 2006/2007 deferred fuel
expenses and 2009 CEI purchased power deferrals. Additional
information regarding deferrals is included as Exhibit
3.
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§
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The signatory
parties agree to withdraw, and also recommend the PUCO withdraw, from FERC
cases related to FirstEnergy’s integration into PJM and also agree not to
object to recovery of other costs associated with FirstEnergy’s
integration into PJM. In addition, the parties agree that the
PUCO should not assert jurisdiction and review of the proposed
FirstEnergy/Allegheny Energy, Inc.
merger.
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§
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The ESP
promotes economic development, provides rate discounts for qualifying
customers, and supports energy
efficiency.
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§
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The ESP is
conditioned upon all necessary FERC approvals to carry out the terms and
conditions of the ESP.
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Upcoming FirstEnergy
Investor Events
Soleil
Securities Diversified Utility & Energy Conference
April 1,
2010
New
York, NY
1st
Quarter, 2010 Earnings Release Conference Call
May
4, 2010
Deutsche
Bank Energy, Utilities and Power Conference
May
11, 2010
Washington,
D.C.
If
you have any questions concerning the information in this update, please contact
me at (330) 384-5415, Irene Prezelj, director 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
3
Exhibit
1.
Procurement Date
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Tranches Procured
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Delivery Periods
June
2011
June
2012 June
2013 June
2014
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July
2010
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17
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12 month
June 2011 thru May 2012
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17
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24 month
June 2011 thru May 2013
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16
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36 month
June 2011 thru May 2014
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October
2010
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17
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12 month
June 2011 thru May 2012
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17
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24 month
June 2011 thru May 2013
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16
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36 month
June 2011 thru May 2014
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July
2011
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34
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2 year
June 2012 thru May 2014
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July
2012
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34
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1
year June 2013 thru May 2014
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Exhibit
2.
CBP
2010 Timeline
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Auction
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Date
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Activity
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1
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Thursday,
April 8, 2010
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CBP
Information Website goes live
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1
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Thursday,
April 15, 2010
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Information
Session #1
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1
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Friday, April
23, 2010
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Deadline:
CRA announces tranche target and tranche size (% and
MW)
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1
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Friday, April
30, 2010
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Information
Session #2
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1
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Tuesday, May
18, 2010
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Deadline
to submit Part 1 Applications
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1
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Thursday, June
3, 2010
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Information
Session #3 (if needed)
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1
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Wednesday,
June 9, 2010
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Information
Session #4 (if needed)
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1
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Wednesday,
June 9, 2010
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Deadline:
CRA announces any update to the tranche size (MW)
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1
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Tuesday, June
15, 2010
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Deadline
to submit Part 2 Applications
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1
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Wednesday,
June 30, 2010
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Bidder
User Manuals Distributed
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1
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Thursday, July
8, 2010
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Mock
Auction for Registered Bidders
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1
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Thursday, July
8, 2010
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Deadline:
CRA announces starting price to Registered Bidders
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1
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Tuesday, July
13, 2010
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Auction
for Registered Bidders
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1
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Tuesday, July
13, 2010
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CRA
notifies Companies and PUCO of results
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1
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Monday, July
19, 2010
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SSO
Master Agreement Signed
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2
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Friday, July
30, 2010
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Information
Session #1
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2
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Tuesday,
August 10, 2010
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Deadline:
CRA announces tranche target and tranche size (% and
MW)
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2
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Friday, August
20, 2010
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Information
Session #2
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2
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Wednesday,
August 25, 2010
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Deadline
for Bidders to submit new or updated Part 1
Applications
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2
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Thursday,
September 9, 2010
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Information
Session #3 (if needed)
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2
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Wednesday,
September 15, 2010
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Information
Session #4 (if needed)
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2
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Wednesday,
September 15, 2010
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Deadline:
CRA announces any update to the tranche size (MW)
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2
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Tuesday,
September 21, 2010
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Deadline
to submit Part 2 Applications
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2
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Wednesday,
September 29, 2010
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Bidder
User Manuals Distributed
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2
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Thursday,
October 7, 2010
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Mock
Auction for Registered Bidders
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2
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Thursday,
October 7, 2010
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Deadline:
CRA announces starting price to Registered Bidders
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2
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Tuesday,
October 12, 2010
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Auction
for Registered Bidders
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2
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Tuesday,
October 12, 2010
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CRA
notifies Companies and PUCO of results
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2
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Monday,
October 18, 2010
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SSO
Master Agreement Signed
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Wednesday,
June 1, 2011
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Power
Flow
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4
Exhibit
3.
ESP Deferrals Summary
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Amount*
(in
millions)
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(1)
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2006/2007 Deferred Fuel Expense
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$227
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Company
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Total
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OE
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$115.1
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CEI
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$79.4
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TE
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$32.2
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Total
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$226.7
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Balance as of 12/31/09
Recovery begins 1/1/11 over a 25 year
period*
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(2)
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CEI Purchased Power Deferrals
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$142
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Balance as of 12/31/09
Recovery
begins 6/1/11 over a period not to exceed 10 years*
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*
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Recovery periods stated above are those approved in Case No.
08-935-EL-SSO.
Per the
terms of this Stipulation, the Ohio Companies may request
accelerated
recovery of these deferred
costs.
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5
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 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.
6