Form 10-Q
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                    
         
Commission   Registrant; State of Incorporation;   I.R.S. Employer
File Number   Address; and Telephone Number   Identification No.
         
333-21011   FIRSTENERGY CORP.   34-1843785
    (An Ohio Corporation)    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
000-53742   FIRSTENERGY SOLUTIONS CORP.   31-1560186
    (An Ohio Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-2578   OHIO EDISON COMPANY
(An Ohio Corporation)
  34-0437786
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-2323   THE CLEVELAND ELECTRIC ILLUMINATING COMPANY   34-0150020
    (An Ohio Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-3583   THE TOLEDO EDISON COMPANY   34-4375005
    (An Ohio Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-3141   JERSEY CENTRAL POWER & LIGHT COMPANY   21-0485010
    (A New Jersey Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-446   METROPOLITAN EDISON COMPANY   23-0870160
    (A Pennsylvania Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
         
1-3522   PENNSYLVANIA ELECTRIC COMPANY   25-0718085
    (A Pennsylvania Corporation)    
    c/o FirstEnergy Corp.    
    76 South Main Street    
    Akron, OH 44308    
    Telephone (800)736-3402    
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
     
Yes þ No o
  FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
     
Yes þ No o
  FirstEnergy Corp.
     
Yes o No o
  FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
     
Large Accelerated Filer þ
  FirstEnergy Corp.
 
   
Accelerated Filer o
  N/A
 
   
Non-accelerated Filer (Do not check if a smaller reporting company) þ
  FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company
     
Smaller Reporting Company o
  N/A
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
     
Yes o No þ
  FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
         
    OUTSTANDING  
CLASS   AS OF JULY 31, 2010  
FirstEnergy Corp., $10 par value
    304,835,407  
FirstEnergy Solutions Corp., no par value
    7  
Ohio Edison Company, no par value
    60  
The Cleveland Electric Illuminating Company, no par value
    67,930,743  
The Toledo Edison Company, $5 par value
    29,402,054  
Jersey Central Power & Light Company, $10 par value
    13,628,447  
Metropolitan Edison Company, no par value
    859,500  
Pennsylvania Electric Company, $20 par value
    4,427,577  
FirstEnergy Corp. is the sole holder of FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company common stock.
 
 

 

 


Table of Contents

This combined Form 10-Q is separately filed by FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to any of the FirstEnergy subsidiary registrants is also attributed to FirstEnergy Corp.
FirstEnergy Web Site
Each of the registrants’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also made available free of charge on or through FirstEnergy’s internet web site at www.firstenergycorp.com.
These reports are posted on the web site as soon as reasonably practicable after they are electronically filed with the SEC. Additionally, the registrants routinely post important information on the web site and recognize the web site is a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under SEC Regulation FD. Information contained on FirstEnergy’s web site shall not be deemed incorporated into, or to be part of, this report.
OMISSION OF CERTAIN INFORMATION
FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q.

 

 


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Forward-Looking Statements: This Form 10-Q 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 ATSI’s realignment into PJM.
 
   
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 recover regulatory assets or increased costs.
 
   
Operation and maintenance costs being higher than anticipated.
 
   
Other legislative and regulatory changes, and revised environmental requirements, including possible GHG emission regulations.
 
   
The potential impacts of the proposed rules promulgated by EPA on July 6, 2010, in response to the U.S. Court of Appeals’ July 11, 2008 decision requiring revisions to the CAIR rules.
 
   
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 NSR litigation or other potential similar 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 NRC.
 
   
Ultimate resolution of Met-Ed’s and Penelec’s TSC 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 and energy efficiency mandates.
 
   
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 the registrants’ nuclear decommissioning trusts, pension trusts and other trust funds, and cause FirstEnergy to make additional contributions sooner, or in amounts that are 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 registrants.
 
   
The state of the capital and credit markets affecting the registrants.
 
   
Interest rates and any actions taken by credit rating agencies that could negatively affect the registrants’ access to financing or their costs and increase requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees.
 
   
The state of the national and regional economies and associated impacts on the registrants’ major industrial and commercial customers.
 
   
Issues concerning the soundness of financial institutions and counterparties with which the registrants do 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 FirstEnergy’s 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.
 
   
The risks and other factors discussed from time to time in the registrants’ 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 management to predict all such factors, nor assess the impact of any such factor on the registrants’ 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. A security rating is not a recommendation to buy, sell or hold securities that may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. The registrants expressly disclaim any current intention to update any forward-looking statements contained herein as a result of new information, future events or otherwise.

 

 


 

TABLE OF CONTENTS
         
    Page  
 
       
  iii-v  
 
       
       
 
       
FirstEnergy Corp.
       
 
       
    1  
 
       
    2  
 
       
    3  
 
       
    4  
 
       
FirstEnergy Solutions Corp.
       
 
       
    5  
 
       
    6  
 
       
    7  
 
       
Ohio Edison Company
       
 
       
    8  
 
       
    9  
 
       
    10  
 
       
The Cleveland Electric Illuminating Company
       
 
       
    11  
 
       
    12  
 
       
    13  
 
       
The Toledo Edison Company
       
 
       
    14  
 
       
    15  
 
       
    16  
 
       
Jersey Central Power & Light Company
       
 
       
    17  
 
       
    18  
 
       
    19  
 
       
Metropolitan Edison Company
       
 
       
    20  
 
       
    21  
 
       
    22  
 
       
Pennsylvania Electric Company
       
 
       
    23  
 
       
    24  
 
       
    25  
 Exhibit 12
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

i


Table of Contents

TABLE OF CONTENTS (Cont’d)
         
    Page  
 
       
    26  
 
       
    65  
 
       
Management’s Narrative Analysis of Results of Operations
       
 
       
    103  
 
       
    106  
 
       
    108  
 
       
    110  
 
       
    112  
 
       
    114  
 
       
    116
 
       
    118  
 
       
    118  
 
       
    118  
 
       
       
 
       
    119  
 
       
    119  
 
       
    119  
 
       
    119  
 
       
    120  
 
       

 

ii


Table of Contents

GLOSSARY OF TERMS
The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:
     
ATSI
  American Transmission Systems, Incorporated, owns and operates transmission facilities
CEI
  The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
FENOC
  FirstEnergy Nuclear Operating Company, operates nuclear generating facilities
FES
  FirstEnergy Solutions Corp., provides energy-related products and services
FESC
  FirstEnergy Service Company, provides legal, financial and other corporate support services
FEV
  FirstEnergy Ventures Corp., invests in certain unregulated enterprises and business ventures
FGCO
  FirstEnergy Generation Corp., owns and operates non-nuclear generating facilities
FirstEnergy
  FirstEnergy Corp., a public utility holding company
GPU
  GPU, Inc., former parent of JCP&L, Met-Ed and Penelec, which merged with FirstEnergy on November 7, 2001
JCP&L
  Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
Met-Ed
  Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary
NGC
  FirstEnergy Nuclear Generation Corp., owns nuclear generating facilities
OE
  Ohio Edison Company, an Ohio electric utility operating subsidiary
Ohio Companies
  CEI, OE and TE
Penelec
  Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
Penn
  Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
Pennsylvania Companies
  Met-Ed, Penelec and Penn
PNBV
  PNBV Capital Trust, a special purpose entity created by OE in 1996
Shippingport
  Shippingport Capital Trust, a special purpose entity created by CEI and TE in 1997
Signal Peak
  A joint venture between FirstEnergy Ventures Corp. and Boich Companies, that owns mining and coal transportation operations near Roundup, Montana
TE
  The Toledo Edison Company, an Ohio electric utility operating subsidiary
Utilities
  OE, CEI, TE, Penn, JCP&L, Met-Ed and Penelec
The following abbreviations and acronyms are used to identify frequently used terms in this report:
     
AEP
  American Electric Power Company, Inc.
ALJ
  Administrative Law Judge
AOCL
  Accumulated Other Comprehensive Loss
AQC
  Air Quality Control
ARO
  Asset Retirement Obligation
BGS
CAA
  Basic Generation Service
Clean Air Act
CAIR
  Clean Air Interstate Rule
CAMR
  Clean Air Mercury Rule
CBP
  Competitive Bid Process
CO2
  Carbon Dioxide
CTC
  Competitive Transition Charge
DOE
  United States Department of Energy
DOJ
  United States Department of Justice
DPA
  Department of the Public Advocate, Division of Rate Counsel (New Jersey)
EDCP
  Executive Deferred Compensation Plan
EE&C
  Energy Efficiency and Conservation
EMAAC
  Eastern Mid-Atlantic Area Council
EMP
  Energy Master Plan
EPA
  United States Environmental Protection Agency
EPRI
  Electric Power Research Institute

 

iii


Table of Contents

GLOSSARY OF TERMS, Cont’d.
     
ESP
  Electric Security Plan
FASB
  Financial Accounting Standards Board
FERC
  Federal Energy Regulatory Commission
FMB
  First Mortgage Bond
FPA
  Federal Power Act
FRR
  Fixed Resource Requirement
GAAP
  Generally Accepted Accounting Principles in the United States
GHG
  Greenhouse Gases
IRS
  Internal Revenue Service
JOA
  Joint Operating Agreement
kV
  Kilovolt
KWH
  Kilowatt-hours
LED
  Light-Emitting Diode
LOC
  Letter of Credit
MAAC
  Mid-Atlantic Area Council
MACT
  Maximum Achievable Control Technology
MDPSC
  Maryland Public Service Commission
MISO
  Midwest Independent Transmission System Operator, Inc.
Moody’s
  Moody’s Investors Service, Inc.
MRO
  Market Rate Offer
MW
  Megawatts
MWH
  Megawatt-hours
NAAQS
  National Ambient Air Quality Standards
NERC
  North American Electric Reliability Corporation
NJBPU
  New Jersey Board of Public Utilities
NNSR
  Non-Attainment New Source Review
NOAC
  Northwest Ohio Aggregation Coalition
NOPEC
  Northeast Ohio Public Energy Council
NOV
  Notice of Violation
NOX
  Nitrogen Oxide
NRC
  Nuclear Regulatory Commission
NSR
  New Source Review
NUG
  Non-Utility Generation
NUGC
  Non-Utility Generation Charge
OCI
  Other Comprehensive Income
OPEB
  Other Post-Employment Benefits
OVEC
  Ohio Valley Electric Corporation
PCRB
  Pollution Control Revenue Bond
PJM
  PJM Interconnection L. L. C.
POLR
  Provider of Last Resort; an electric utility’s obligation to provide generation service to customers whose alternative supplier fails to deliver service
PPUC
  Pennsylvania Public Utility Commission
PSCWV
  Public Service Commission of West Virginia
PSA
  Power Supply Agreement
PSD
  Prevention of Significant Deterioration
PPUC
  Pennsylvania Public Utility Commission
PUCO
  Public Utilities Commission of Ohio
RCP
  Rate Certainty Plan
RECs
  Renewable Energy Credits
RFP
  Request for Proposal
RPM
  Reliability Pricing Model
RTEP
  Regional Transmission Expansion Plan
RTC
  Regulatory Transition Charge
RTO
  Regional Transmission Organization
S&P
  Standard & Poor’s Ratings Service
SB221
  Amended Substitute Senate Bill 221
SBC
  Societal Benefits Charge

 

iv


Table of Contents

GLOSSARY OF TERMS, Cont’d.
     
SEC
  U.S. Securities and Exchange Commission
SIP
  State Implementation Plan(s) Under the Clean Air Act
SNCR
  Selective Non-Catalytic Reduction
SO2
  Sulfur Dioxide
TBC
  Transition Bond Charge
TMI-2
  Three Mile Island Unit 2
TSC
  Transmission Service Charge
VIE
  Variable Interest Entity
VSCC
  Virginia State Corporation Commission
VIE
  Variable Interest Entity

 

v


Table of Contents

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                 
    Three Months     Six Months  
    Ended June 30     Ended June 30  
    2010     2009     2010     2009  
    (In millions, except per share amounts)  
REVENUES:
                               
Electric utilities
  $ 2,373     $ 2,791     $ 4,916     $ 5,811  
Unregulated businesses
    755       480       1,511       794  
 
                       
Total revenues*
    3,128       3,271       6,427       6,605  
 
                       
 
                               
EXPENSES:
                               
Fuel
    350       276       684       588  
Purchased power
    1,052       1,024       2,290       2,167  
Other operating expenses
    673       612       1,374       1,439  
Provision for depreciation
    190       185       383       362  
Amortization of regulatory assets
    161       233       373       642  
Deferral of new regulatory assets
          (45 )           (136 )
General taxes
    176       184       381       395  
 
                       
Total expenses
    2,602       2,469       5,485       5,457  
 
                       
 
                               
OPERATING INCOME
    526       802       942       1,148  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    31       27       47       16  
Interest expense
    (207 )     (206 )     (420 )     (400 )
Capitalized interest
    40       33       81       61  
 
                       
Total other expense
    (136 )     (146 )     (292 )     (323 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    390       656       650       825  
 
                               
INCOME TAXES
    134       248       245       302  
 
                       
 
                               
NET INCOME
    256       408       405       523  
 
                               
Noncontrolling interest loss
    (9 )     (6 )     (15 )     (10 )
 
                       
 
                               
EARNINGS AVAILABLE TO FIRSTENERGY CORP.
  $ 265     $ 414     $ 420     $ 533  
 
                       
 
                               
BASIC EARNINGS PER SHARE OF COMMON STOCK
  $ 0.87     $ 1.36     $ 1.38     $ 1.75  
 
                       
 
                               
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
    304       304       304       304  
 
                       
 
                               
DILUTED EARNINGS PER SHARE OF COMMON STOCK
  $ 0.87     $ 1.36     $ 1.37     $ 1.75  
 
                       
 
                               
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
    305       305       305       306  
 
                       
 
                               
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
  $     $     $ 0.55     $ 0.55  
 
                       
     
*  
Includes excise tax collections of $99 million and $95 million in the three months ended June 30, 2010 and 2009, respectively, and $208 million and $204 million in the six months ended June 30, 2010 and 2009, respectively.
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months     Six Months  
    Ended June 30     Ended June 30  
    2010     2009     2010     2009  
    (In millions)  
 
                               
NET INCOME
  $ 256     $ 408     $ 405     $ 523  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME:
                               
Pension and other postretirement benefits
    17       469       30       504  
Unrealized gain on derivative hedges
    6       23       10       38  
Change in unrealized gain on available-for-sale securities
    6       37       12       32  
 
                       
Other comprehensive income
    29       529       52       574  
Income tax expense related to other comprehensive income
    9       227       16       242  
 
                       
Other comprehensive income, net of tax
    20       302       36       332  
 
                       
 
                               
COMPREHENSIVE INCOME
    276       710       441       855  
 
                               
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
    (9 )     (6 )     (15 )     (10 )
 
                       
 
                               
COMPREHENSIVE INCOME AVAILABLE TO FIRSTENERGY CORP.
  $ 285     $ 716     $ 456     $ 865  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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Table of Contents

FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In millions)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 281     $ 874  
Receivables-
               
Customers (less allowances of $33 million in 2010 and 2009)
    1,409       1,244  
Other (less allowances of $7 million in 2010 and 2009)
    146       153  
Materials and supplies, at average cost
    675       647  
Prepaid taxes
    397       248  
Other
    206       154  
 
           
 
    3,114       3,320  
 
           
PROPERTY, PLANT AND EQUIPMENT:
               
In service
    28,274       27,826  
Less — Accumulated provision for depreciation
    11,724       11,397  
 
           
 
    16,550       16,429  
Construction work in progress
    3,000       2,735  
 
           
 
    19,550       19,164  
 
           
INVESTMENTS:
               
Nuclear plant decommissioning trusts
    1,880       1,859  
Investments in lease obligation bonds
    486       543  
Other
    589       621  
 
           
 
    2,955       3,023  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    5,575       5,575  
Regulatory assets
    2,313       2,356  
Power purchase contract asset
    134       200  
Other
    825       666  
 
           
 
    8,847       8,797  
 
           
 
  $ 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  
Accrued taxes
    256       314  
Other
    907       1,130  
 
           
 
    5,045       5,288  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, $0.10 par value, authorized 375,000,000 shares- 304,835,407 shares outstanding
    31       31  
Other paid-in capital
    5,440       5,448  
Accumulated other comprehensive loss
    (1,379 )     (1,415 )
Retained earnings
    4,747       4,495  
 
           
Total common stockholders’ equity
    8,839       8,559  
Noncontrolling interest
    (20 )     (2 )
 
           
Total equity
    8,819       8,557  
Long-term debt and other long-term obligations
    11,861       11,908  
 
           
 
    20,680       20,465  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    2,710       2,468  
Retirement benefits
    1,531       1,534  
Asset retirement obligations
    1,372       1,425  
Deferred gain on sale and leaseback transaction
    976       993  
Power purchase contract liability
    691       643  
Lease market valuation liability
    239       262  
Other
    1,222       1,226  
 
           
 
    8,741       8,551  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
               
 
  $ 34,466     $ 34,304  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In millions)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 405     $ 523  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    383       362  
Amortization of regulatory assets
    373       642  
Deferral of new regulatory assets
          (136 )
Nuclear fuel and lease amortization
    76       52  
Deferred purchased power and other costs
    (146 )     (135 )
Deferred income taxes and investment tax credits, net
    159       69  
Investment impairment
    19       39  
Deferred rents and lease market valuation liability
    (62 )     (59 )
Stock-based compensation
    (6 )     (2 )
Accrued compensation and retirement benefits
    (27 )     (93 )
Interest rate swap transactions
    43        
Commodity derivative transactions, net
    (29 )     18  
Cash collateral received (paid), net
    (63 )     48  
Decrease (increase) in operating assets-
               
Receivables
    (156 )     32  
Materials and supplies
    (17 )     6  
Prepayments and other current assets
    (81 )     (179 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    18       (11 )
Accrued taxes
    (58 )     (101 )
Other
    27       27  
 
           
Net cash provided from operating activities
    858       1,102  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          1,679  
Short-term borrowings, net
    281        
Redemptions and Repayments-
               
Long-term debt
    (407 )     (881 )
Common stock dividend payments
    (335 )     (335 )
Other
    (23 )     (37 )
 
           
Net cash provided from (used for) financing activities
    (484 )     426  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (997 )     (1,143 )
Proceeds from asset sales
    116       19  
Sales of investment securities held in trusts
    1,915       1,001  
Purchases of investment securities held in trusts
    (1,934 )     (1,041 )
Customer acquisition costs
    (105 )      
Cash investments
    59       40  
Other
    (21 )     (49 )
 
           
Net cash used for investing activities
    (967 )     (1,173 )
 
           
 
               
Net change in cash and cash equivalents
    (593 )     355  
Cash and cash equivalents at beginning of period
    874       545  
 
           
Cash and cash equivalents at end of period
  $ 281     $ 900  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
    (In thousands)  
REVENUES:
                               
Electric sales to affiliates
  $ 538,545     $ 839,751     $ 1,145,847     $ 1,732,441  
Electric sales to non-affiliates
    728,803       205,379       1,397,488       485,125  
Other
    47,326       296,022       159,432       349,692  
 
                       
Total revenues
    1,314,674       1,341,152       2,702,767       2,567,258  
 
                       
 
                               
EXPENSES:
                               
Fuel
    342,411       270,309       670,632       576,467  
Purchased power from affiliates
    68,898       51,249       129,851       114,456  
Purchased power from non-affiliates
    298,820       185,613       749,035       345,955  
Other operating expenses
    303,895       278,264       608,406       585,620  
Provision for depreciation
    63,319       65,548       126,237       126,921  
General taxes
    22,272       21,285       49,018       44,661  
 
                       
Total expenses
    1,099,615       872,268       2,333,179       1,794,080  
 
                       
 
                               
OPERATING INCOME
    215,059       468,884       369,588       773,178  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income (loss)
    13,366       5,643       14,083       (23,231 )
Miscellaneous income
    4,393       7,622       5,703       10,133  
Interest expense to affiliates
    (2,560 )     (3,315 )     (4,865 )     (6,294 )
Interest expense — other
    (51,372 )     (26,271 )     (101,016 )     (48,798 )
Capitalized interest
    23,905       14,028       43,595       24,106  
 
                       
Total other expense
    (12,268 )     (2,293 )     (42,500 )     (44,084 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    202,791       466,591       327,088       729,094  
 
                               
INCOME TAXES
    68,866       169,189       113,237       261,011  
 
                       
 
                               
NET INCOME
    133,925       297,402       213,851       468,083  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME:
                               
Pension and other postretirement benefits
    885       72,121       (8,949 )     74,689  
Unrealized gain on derivative hedges
    3,017       15,041       4,291       26,057  
Change in unrealized gain on available-for-sale securities
    6,060       39,504       11,088       38,027  
 
                       
Other comprehensive income
    9,962       126,666       6,430       138,773  
Income tax expense related to other comprehensive income
    3,544       50,625       2,204       55,334  
 
                       
Other comprehensive income, net of tax
    6,418       76,041       4,226       83,439  
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME
  $ 140,343     $ 373,443     $ 218,077     $ 551,522  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 11     $ 12  
Receivables-
               
Customers (less accumulated provisions of $14,523,000 and $12,041,000, respectively, for uncollectible accounts)
    315,178       195,107  
Associated companies
    354,127       318,561  
Other (less accumulated provisions of $6,702,000 for uncollectible accounts)
    36,392       51,872  
Notes receivable from associated companies
    173,931       805,103  
Materials and supplies, at average cost
    578,521       539,541  
Prepayments and other
    172,514       107,782  
 
           
 
    1,630,674       2,017,978  
 
           
PROPERTY, PLANT AND EQUIPMENT:
               
In service
    10,500,405       10,357,632  
Less — Accumulated provision for depreciation
    4,695,180       4,531,158  
 
           
 
    5,805,225       5,826,474  
Construction work in progress
    2,622,865       2,423,446  
 
           
 
    8,428,090       8,249,920  
 
           
INVESTMENTS:
               
Nuclear plant decommissioning trusts
    1,107,594       1,088,641  
Other
    7,965       22,466  
 
           
 
    1,115,559       1,111,107  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Accumulated deferred income tax benefits
          86,626  
Customer intangibles
    118,219       16,566  
Goodwill
    24,248       24,248  
Property taxes
    50,125       50,125  
Unamortized sales and leaseback costs
    77,646       72,553  
Other
    128,315       121,665  
 
           
 
    398,553       371,783  
 
           
 
  $ 11,572,876     $ 11,750,788  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 1,381,783     $ 1,550,927  
Short-term borrowings-
               
Associated companies
    85,128       9,237  
Other
    100,000       100,000  
Accounts payable-
               
Associated companies
    412,507       466,078  
Other
    236,720       245,363  
Accrued taxes
    109,082       83,158  
Other
    369,086       359,057  
 
           
 
    2,694,306       2,813,820  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 750 shares, 7 shares outstanding
    1,467,158       1,468,423  
Accumulated other comprehensive loss
    (98,775 )     (103,001 )
Retained earnings
    2,363,000       2,149,149  
 
           
Total common stockholders’ equity
    3,731,383       3,514,571  
Long-term debt and other long-term obligations
    2,585,918       2,711,652  
 
           
 
    6,317,301       6,226,223  
 
           
NONCURRENT LIABILITIES:
               
Deferred gain on sale and leaseback transaction
    976,012       992,869  
Accumulated deferred investment tax credits
    56,310       58,396  
Asset retirement obligations
    863,409       921,448  
Retirement benefits
    223,853       204,035  
Property taxes
    50,125       50,125  
Lease market valuation liability
    239,447       262,200  
Other
    152,113       221,672  
 
           
 
    2,561,269       2,710,745  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
               
 
  $ 11,572,876     $ 11,750,788  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 213,851     $ 468,083  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    126,237       126,921  
Nuclear fuel and lease amortization
    78,324       53,265  
Deferred rents and lease market valuation liability
    (59,254 )     (55,493 )
Deferred income taxes and investment tax credits, net
    113,978       63,309  
Investment impairment
    19,093       36,154  
Accrued compensation and retirement benefits
    7,132       (10,594 )
Commodity derivative transactions, net
    (29,308 )     17,688  
Gain on asset sales
    (1,021 )     (9,635 )
Cash collateral, net
    (38,211 )     40,471  
Decrease (increase) in operating assets-
               
Receivables
    (192,792 )     179,373  
Materials and supplies
    (28,470 )     16,609  
Prepayments and other current assets
    24,518       7,555  
Increase (decrease) in operating liabilities-
               
Accounts payable
    (31,610 )     (102,907 )
Accrued taxes
    (8,462 )     (14,333 )
Accrued interest
    (457 )     1,871  
Other
    24,907       (6,121 )
 
           
Net cash provided from operating activities
    218,455       812,216  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          681,675  
Short-term borrowings, net
    75,891       145,009  
Redemptions and Repayments-
               
Long-term debt
    (295,037 )     (622,853 )
Other
    (686 )      
 
           
Net cash provided from (used for) financing activities
    (219,832 )     203,831  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (566,187 )     (634,967 )
Proceeds from asset sales
    115,657       15,771  
Sales of investment securities held in trusts
    956,813       537,078  
Purchases of investment securities held in trusts
    (978,785 )     (550,730 )
Loans from (to) associated companies, net
    631,172       (241,170 )
Customer acquisition costs
    (104,795 )      
Leasehold improvement payments to associated companies
    (51,204 )      
Other
    (1,295 )     (22,034 )
 
           
Net cash provided from (used for) investing activities
    1,376       (896,052 )
 
           
 
               
Net change in cash and cash equivalents
    (1 )     119,995  
Cash and cash equivalents at beginning of period
    12       39  
 
           
Cash and cash equivalents at end of period
  $ 11     $ 120,034  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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Table of Contents

OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
 
                               
REVENUES:
                               
Electric sales
  $ 415,437     $ 647,224     $ 895,362     $ 1,367,235  
Excise and gross receipts tax collections
    23,949       24,948       52,424       53,928  
 
                       
Total revenues
    439,386       672,172       947,786       1,421,163  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    114,414       314,870       250,271       647,206  
Purchased power from non-affiliates
    98,462       98,330       210,513       236,143  
Other operating expenses
    88,275       111,938       177,130       269,768  
Provision for depreciation
    22,014       21,996       43,894       43,509  
Amortization of regulatory assets, net
    9,424       22,295       38,769       42,506  
General taxes
    43,362       43,903       90,854       93,023  
 
                       
Total expenses
    375,951       613,332       811,431       1,332,155  
 
                       
 
                               
OPERATING INCOME
    63,435       58,840       136,355       89,008  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    6,309       10,149       11,553       19,511  
Miscellaneous income
    1,295       2,681       1,003       1,871  
Interest expense
    (22,155 )     (21,469 )     (44,465 )     (44,756 )
Capitalized interest
    295       279       503       499  
 
                       
Total other expense
    (14,256 )     (8,360 )     (31,406 )     (22,875 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    49,179       50,480       104,949       66,133  
 
                               
INCOME TAXES
    11,856       16,852       31,465       20,857  
 
                       
 
                               
NET INCOME
    37,323       33,628       73,484       45,276  
 
                       
 
                               
Noncontrolling interest income
    130       143       262       289  
 
                       
 
                               
EARNINGS AVAILABLE TO PARENT
  $ 37,193     $ 33,485     $ 73,222     $ 44,987  
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME
  $ 37,323     $ 33,628     $ 73,484     $ 45,276  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    322       89,864       4,337       95,602  
Change in unrealized gain on available-for-sale securities
    520       728       811       (1,981 )
 
                       
Other comprehensive income
    842       90,592       5,148       93,621  
Income tax expense (benefit) related to other
                               
comprehensive income
    (26 )     37,310       667       37,839  
 
                       
Other comprehensive income, net of tax
    868       53,282       4,481       55,782  
 
                       
 
                               
COMPREHENSIVE INCOME
    38,191       86,910       77,965       101,058  
 
                               
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
    130       143       262       289  
 
                       
 
                               
COMPREHENSIVE INCOME AVAILABLE TO PARENT
  $ 38,061     $ 86,767     $ 77,703     $ 100,769  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 51,679     $ 324,175  
Receivables-
               
Customers (less accumulated provisions of $4,685,000 and $5,119,000, respectively, for uncollectible accounts)
    202,983       209,384  
Associated companies
    68,005       98,874  
Other (less accumulated provisions of $6,000 and $18,000, respectively, for uncollectible accounts)
    13,065       14,155  
Notes receivable from associated companies
    106,232       118,651  
Prepayments and other
    14,748       15,964  
 
           
 
    456,712       781,203  
 
           
UTILITY PLANT:
               
In service
    3,086,689       3,036,467  
Less — Accumulated provision for depreciation
    1,189,802       1,165,394  
 
           
 
    1,896,887       1,871,073  
Construction work in progress
    36,866       31,171  
 
           
 
    1,933,753       1,902,244  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lease obligation bonds
    204,812       216,600  
Nuclear plant decommissioning trusts
    126,405       120,812  
Other
    96,633       96,861  
 
           
 
    427,850       434,273  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Regulatory assets
    422,559       465,331  
Pension assets
    36,199       19,881  
Property taxes
    67,037       67,037  
Unamortized sales and leaseback costs
    32,626       35,127  
Other
    17,765       39,881  
 
           
 
    576,186       627,257  
 
           
 
  $ 3,394,501     $ 3,744,977  
 
           
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 7,975     $ 2,723  
Short-term borrowings-
               
Associated companies
          92,863  
Other
    653       807  
Accounts payable-
               
Associated companies
    54,891       102,763  
Other
    31,087       40,423  
Accrued taxes
    55,976       81,868  
Accrued interest
    25,639       25,749  
Other
    79,382       81,424  
 
           
 
    255,603       428,620  
 
           
CAPITALIZATION:
               
Common stockholder’s equity-
               
Common stock, without par value, authorized 175,000,000 shares - 60 shares outstanding
    949,822       1,154,797  
Accumulated other comprehensive loss
    (159,096 )     (163,577 )
Retained earnings
    58,112       29,890  
 
           
Total common stockholder’s equity
    848,838       1,021,110  
Noncontrolling interest
    6,100       6,442  
 
           
Total equity
    854,938       1,027,552  
Long-term debt and other long-term obligations
    1,152,303       1,160,208  
 
           
 
    2,007,241       2,187,760  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    678,669       660,114  
Accumulated deferred investment tax credits
    10,882       11,406  
Retirement benefits
    171,056       174,925  
Asset retirement obligations
    81,941       85,926  
Other
    189,109       196,226  
 
           
 
    1,131,657       1,128,597  
 
           
COMMITMENTS AND CONTINGENCIES (Note 8)
               
 
  $ 3,394,501     $ 3,744,977  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 73,484     $ 45,276  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    43,894       43,509  
Amortization of regulatory assets, net
    38,769       42,506  
Purchased power cost recovery reconciliation
    (1,514 )     11,068  
Amortization of lease costs
    (4,619 )     (4,540 )
Deferred income taxes and investment tax credits, net
    4,964       (11,252 )
Accrued compensation and retirement benefits
    (16,154 )     (4,593 )
Accrued regulatory obligations
    (2,309 )     18,350  
Electric service prepayment programs
          (4,603 )
Cash collateral from suppliers
    1,215       6,380  
Decrease (increase) in operating assets-
               
Receivables
    49,250       (16,509 )
Prepayments and other current assets
    5,072       (6,290 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (57,208 )     (4,820 )
Accrued taxes
    (25,685 )     (19,523 )
Accrued interest
    (110 )     36  
Other
    (4 )     10,086  
 
           
Net cash provided from operating activities
    109,045       105,081  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          100,000  
Short-term borrowings, net
          114,617  
Redemptions and Repayments-
               
Long-term debt
    (2,957 )     (100,984 )
Short-term borrowings, net
    (93,017 )      
Common stock dividend payments
    (250,000 )     (125,000 )
Other
    (881 )     (1,627 )
 
           
Net cash used for financing activities
    (346,855 )     (12,994 )
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (71,698 )     (69,512 )
Lease improvement payments from associated companies
    18,375        
Sales of investment securities held in trusts
    59,804       24,941  
Purchases of investment securities held in trusts
    (64,063 )     (30,877 )
Loan repayments from associated companies, net
    12,420       51,803  
Cash investments
    11,774       7,929  
Other
    (1,298 )     1,098  
 
           
Net cash used for investing activities
    (34,686 )     (14,618 )
 
           
 
               
Net change in cash and cash equivalents
    (272,496 )     77,469  
Cash and cash equivalents at beginning of period
    324,175       146,343  
 
           
Cash and cash equivalents at end of period
  $ 51,679     $ 223,812  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
REVENUES:
                               
Electric sales
  $ 280,180     $ 458,287     $ 592,677     $ 889,692  
Excise tax collections
    15,495       16,799       33,068       35,119  
 
                       
Total revenues
    295,675       475,086       625,745       924,811  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    83,532       243,499       178,497       482,371  
Purchased power from non-affiliates
    48,541       49,414       100,367       121,160  
Other operating expenses
    28,937       39,177       60,172       104,007  
Provision for depreciation
    18,336       17,852       36,447       36,132  
Amortization of regulatory assets
    30,807       29,580       75,946       286,317  
Deferral of new regulatory assets
          (39,771 )           (134,587 )
General taxes
    28,840       36,856       67,329       74,997  
 
                       
Total expenses
    238,993       376,607       518,758       970,397  
 
                       
 
                               
OPERATING INCOME (LOSS)
    56,682       98,479       106,987       (45,586 )
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    6,605       7,614       14,152       16,034  
Miscellaneous expense
    675       798       1,257       2,792  
Interest expense
    (33,262 )     (32,757 )     (66,883 )     (66,079 )
Capitalized interest
    7       51       33       118  
 
                       
Total other expense
    (25,975 )     (24,294 )     (51,441 )     (47,135 )
 
                       
 
                               
INCOME (LOSS) BEFORE INCOME TAXES
    30,707       74,185       55,546       (92,721 )
 
                               
INCOME TAX EXPENSE (BENEFIT)
    8,785       26,461       19,628       (35,045 )
 
                       
 
                               
NET INCOME (LOSS)
    21,922       47,724       35,918       (57,676 )
 
                       
 
                               
Noncontrolling interest income
    366       419       785       877  
 
                       
 
                               
EARNINGS (LOSS) AVAILABLE TO PARENT
  $ 21,556     $ 47,305     $ 35,133     $ (58,553 )
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME (LOSS)
  $ 21,922     $ 47,724     $ 35,918     $ (57,676 )
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    3,228       43,903       (19,357 )     47,870  
Income tax expense (benefit) related to other comprehensive income
    976       17,936       (7,301 )     19,306  
 
                       
Other comprehensive income (loss), net of tax
    2,252       25,967       (12,056 )     28,564  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS)
    24,174       73,691       23,862       (29,112 )
 
                               
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
    366       419       785       877  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO PARENT
  $ 23,808     $ 73,272     $ 23,077     $ (29,989 )
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 245     $ 86,230  
Receivables-
               
Customers (less accumulated provisions of $4,809,000 and $5,239,000, respectively, for uncollectible accounts)
    198,970       209,335  
Associated companies
    73,008       98,954  
Other
    10,377       11,661  
Notes receivable from associated companies
    24,480       26,802  
Prepayments and other
    4,390       9,973  
 
           
 
    311,470       442,955  
 
           
UTILITY PLANT:
               
In service
    2,350,804       2,310,074  
Less — Accumulated provision for depreciation
    911,368       888,169  
 
           
 
    1,439,436       1,421,905  
Construction work in progress
    30,665       36,907  
 
           
 
    1,470,101       1,458,812  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    340,033       388,641  
Other
    10,108       10,220  
 
           
 
    350,141       398,861  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,688,521       1,688,521  
Regulatory assets
    468,119       545,505  
Pension assets (Note 5)
          13,380  
Property taxes
    77,319       77,319  
Other
    12,912       12,777  
 
           
 
    2,246,872       2,337,502  
 
           
 
  $ 4,378,584     $ 4,638,130  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 137     $ 117  
Short-term borrowings-
               
Associated companies
    224,031       339,728  
Accounts payable-
               
Associated companies
    35,605       68,634  
Other
    15,707       17,166  
Accrued taxes
    77,051       90,511  
Accrued interest
    18,557       18,466  
Other
    49,897       45,440  
 
           
 
    420,985       580,062  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 105,000,000 shares, 67,930,743 shares outstanding
    884,878       884,897  
Accumulated other comprehensive loss
    (150,214 )     (138,158 )
Retained earnings
    532,380       597,248  
 
           
Total common stockholders’ equity
    1,267,044       1,343,987  
Noncontrolling interest
    18,017       20,592  
 
           
Total equity
    1,285,061       1,364,579  
Long-term debt and other long-term obligations
    1,852,488       1,872,750  
 
           
 
    3,137,549       3,237,329  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    632,696       644,745  
Accumulated deferred investment tax credits
    11,415       11,836  
Retirement benefits
    81,872       69,733  
Other
    94,067       94,425  
 
           
 
    820,050       820,739  
 
           
COMMITMENTS AND CONTINGENCIES (Note 8)
               
 
  $ 4,378,584     $ 4,638,130  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income (Loss)
  $ 35,918     $ (57,676 )
Adjustments to reconcile net income (loss) to net cash from operating activities-
               
Provision for depreciation
    36,447       36,132  
Amortization of regulatory assets, net
    75,946       286,317  
Deferral of new regulatory assets
          (134,587 )
Purchased power cost recovery reconciliation
          2,072  
Deferred income taxes and investment tax credits, net
    (18,083 )     (58,506 )
Accrued compensation and retirement benefits
    5,421       2,092  
Accrued regulatory obligations
    (444 )     12,057  
Electric service prepayment programs
          (3,510 )
Cash collateral from suppliers
    685       5,365  
Decrease (increase) in operating assets-
               
Receivables
    51,757       (84,469 )
Prepayments and other current assets
    5,392       (1,145 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (34,488 )     18,991  
Accrued taxes
    (11,317 )     (29,434 )
Accrued interest
    91       232  
Other
    1,932       3,265  
 
           
Net cash provided from (used for) operating activities
    149,257       (2,804 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Short-term borrowings, net
          47,423  
Redemptions and Repayments-
               
Long-term debt
    (54 )     (368 )
Short-term borrowings, net
    (136,013 )      
Common stock dividend payments
    (100,000 )     (25,000 )
Other
    (3,367 )     (3,019 )
 
           
Net cash provided from (used for) financing activities
    (239,434 )     19,036  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (44,373 )     (46,434 )
Loan repayments from (loans to) associated companies, net
    2,322       (5,449 )
Redemptions of lessor notes
    48,608       37,070  
Other
    (2,365 )     (1,415 )
 
           
Net cash provided from (used for) investing activities
    4,192       (16,228 )
 
           
 
               
Net change in cash and cash equivalents
    (85,985 )     4  
Cash and cash equivalents at beginning of period
    86,230       226  
 
           
Cash and cash equivalents at end of period
  $ 245     $ 230  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
 
                               
REVENUES:
                               
Electric sales
  $ 114,691     $ 219,911     $ 240,122     $ 456,996  
Excise tax collections
    6,059       6,297       13,100       14,026  
 
                       
Total revenues
    120,750       226,208       253,222       471,022  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    38,654       130,564       85,654       255,888  
Purchased power from non-affiliates
    23,675       18,244       49,784       58,781  
Other operating expenses
    25,499       35,480       51,044       80,484  
Provision for depreciation
    8,013       7,717       15,963       15,289  
Amortization (deferral) of regulatory assets, net
    (1,800 )     11,771       (10,299 )     21,668  
General taxes
    12,282       12,349       25,743       26,599  
 
                       
Total expenses
    106,323       216,125       217,889       458,709  
 
                       
 
                               
OPERATING INCOME
    14,427       10,083       35,333       12,313  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    5,057       7,529       8,857       13,013  
Miscellaneous income (expense)
    (945 )     1,375       (2,351 )     35  
Interest expense
    (10,455 )     (9,262 )     (20,942 )     (14,795 )
Capitalized interest
    80       50       158       92  
 
                       
Total other expense
    (6,263 )     (308 )     (14,278 )     (1,655 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    8,164       9,775       21,055       10,658  
 
                               
INCOME TAXES
    948       3,370       6,330       3,261  
 
                       
 
                               
NET INCOME
    7,216       6,405       14,725       7,397  
 
                       
 
                               
Noncontrolling interest income
    2       1       5       3  
 
                       
 
                               
EARNINGS AVAILABLE TO PARENT
  $ 7,214     $ 6,404     $ 14,720     $ 7,394  
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME
  $ 7,216     $ 6,405     $ 14,725     $ 7,397  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    714       19,016       1,010       19,149  
Change in unrealized gain on available-for-sale securities
    (330 )     (2,739 )     39       (3,548 )
 
                       
Other comprehensive income
    384       16,277       1,049       15,601  
Income tax expense related to other comprehensive income
    65       7,224       235       7,205  
 
                       
Other comprehensive income, net of tax
    319       9,053       814       8,396  
 
                       
 
                               
COMPREHENSIVE INCOME
    7,535       15,458       15,539       15,793  
 
                               
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
    2       1       5       3  
 
                       
 
                               
COMPREHENSIVE INCOME AVAILABLE TO PARENT
  $ 7,533     $ 15,457     $ 15,534     $ 15,790  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 77,843     $ 436,712  
Receivables-
               
Customers
    128       75  
Associated companies
    52,068       90,191  
Other (less accumulated provisions of $298,000 and $208,000, respectively, for uncollectible accounts)
    18,866       20,180  
Notes receivable from associated companies
    95,919       85,101  
Prepayments and other
    3,503       7,111  
 
           
 
    248,327       639,370  
 
           
UTILITY PLANT:
               
In service
    932,788       912,930  
Less — Accumulated provision for depreciation
    437,327       427,376  
 
           
 
    495,461       485,554  
Construction work in progress
    7,906       9,069  
 
           
 
    503,367       494,623  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    103,872       124,357  
Nuclear plant decommissioning trusts
    75,540       73,935  
Other
    1,539       1,580  
 
           
 
    180,951       199,872  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    500,576       500,576  
Regulatory assets
    81,799       69,557  
Property taxes
    23,658       23,658  
Other
    38,655       55,622  
 
           
 
    644,688       649,413  
 
           
 
  $ 1,577,333     $ 1,983,278  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 216     $ 222  
Accounts payable-
               
Associated companies
    16,535       78,341  
Other
    6,972       8,312  
Notes payable to associated companies
          225,975  
Accrued taxes
    20,069       25,734  
Lease market valuation liability
    36,900       36,900  
Other
    22,244       29,273  
 
           
 
    102,936       404,757  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, $5 par value, authorized 60,000,000 shares, 29,402,054 shares outstanding
    147,010       147,010  
Other paid-in-capital
    178,136       178,181  
Accumulated other comprehensive loss
    (48,989 )     (49,803 )
Retained earnings
    99,210       214,490  
 
           
Total common stockholders’ equity
    375,367       489,878  
Noncontrolling interest
    2,590       2,696  
 
           
Total equity
    377,957       492,574  
Long-term debt and other long-term obligations
    600,463       600,443  
 
           
 
    978,420       1,093,017  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    112,670       80,508  
Accumulated deferred investment tax credits
    6,148       6,367  
Retirement benefits
    67,507       65,988  
Asset retirement obligations
    27,819       32,290  
Lease market valuation liability
    217,750       236,200  
Other
    64,083       64,151  
 
           
 
    495,977       485,504  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
               
 
  $ 1,577,333     $ 1,983,278  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 14,725     $ 7,397  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    15,963       15,289  
Amortization (deferral) of regulatory assets, net
    (10,299 )     21,668  
Purchased power cost recovery reconciliation
    60       (4,197 )
Deferred rents and lease market valuation liability
    (42,264 )     (40,697 )
Deferred income taxes and investment tax credits, net
    16,503       (1,206 )
Accrued compensation and retirement benefits
    2,600       711  
Accrued regulatory obligations
    (632 )     4,450  
Electric service prepayment programs
          (1,458 )
Cash collateral from suppliers
    343       2,755  
Decrease (increase) in operating assets-
               
Receivables
    52,754       1,075  
Prepayments and other current assets
    3,608       (220 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (61,195 )     5,533  
Accrued taxes
    (4,007 )     (2,936 )
Accrued interest
          3,983  
Other
    (9,020 )     1,788  
 
           
Net cash provided from (used for) operating activities
    (20,861 )     13,935  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          297,422  
Short-term borrowings, net
          59,938  
Redemptions and Repayments-
               
Long-term debt
    (111 )     (236 )
Short-term borrowings, net
    (225,975 )      
Common stock dividend payments
    (130,000 )     (25,000 )
Other
    (112 )     (247 )
 
           
Net cash provided from (used for) financing activities
    (356,198 )     331,877  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (20,237 )     (21,661 )
Leasehold improvement payments from associated companies
    32,829        
Loans to associated companies, net
    (10,818 )     (19,819 )
Redemptions of lessor notes
    20,485       18,330  
Sales of investment securities held in trusts
    106,814       77,323  
Purchases of investment securities held in trusts
    (107,978 )     (78,700 )
Other
    (2,905 )     (1,845 )
 
           
Net cash provided from (used for) investing activities
    18,190       (26,372 )
 
           
 
               
Net change in cash and cash equivalents
    (358,869 )     319,440  
Cash and cash equivalents at beginning of period
    436,712       14  
 
           
Cash and cash equivalents at end of period
  $ 77,843     $ 319,454  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
            (In thousands)          
REVENUES:
                               
Electric sales
  $ 709,606     $ 697,061     $ 1,400,998     $ 1,457,981  
Excise tax collections
    11,012       11,031       23,364       23,762  
 
                       
Total revenues
    720,618       708,092       1,424,362       1,481,743  
 
                       
 
                               
EXPENSES:
                               
Purchased power
    410,470       423,950       824,486       905,191  
Other operating expenses
    75,177       70,876       170,837       156,746  
Provision for depreciation
    27,093       25,301       55,064       50,404  
Amortization of regulatory assets, net
    81,326       80,018       150,774       166,849  
General taxes
    14,902       12,587       31,338       30,083  
 
                       
Total expenses
    608,968       612,732       1,232,499       1,309,273  
 
                       
 
                               
OPERATING INCOME
    111,650       95,360       191,863       172,470  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Miscellaneous income
    1,649       2,007       3,482       2,812  
Interest expense
    (30,041 )     (29,671 )     (59,464 )     (57,539 )
Capitalized interest
    156       218       289       280  
 
                       
Total other expense
    (28,236 )     (27,446 )     (55,693 )     (54,447 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    83,414       67,914       136,170       118,023  
 
                               
INCOME TAXES
    33,521       29,848       57,051       52,399  
 
                       
 
                               
NET INCOME
    49,893       38,066       79,119       65,624  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME:
                               
Pension and other postretirement benefits
    4,135       20,918       20,063       25,039  
Unrealized gain on derivative hedges
    69       69       138       138  
 
                       
Other comprehensive income
    4,204       20,987       20,201       25,177  
Income tax expense related to other comprehensive income
    1,441       11,059       7,999       12,489  
 
                       
Other comprehensive income, net of tax
    2,763       9,928       12,202       12,688  
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME
  $ 52,656     $ 47,994     $ 91,321     $ 78,312  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 99     $ 27  
Receivables-
               
Customers (less accumulated provisions of $3,362,000 and $3,506,000, respectively, for uncollectible accounts)
    345,136       300,991  
Associated companies
    11,778       12,884  
Other
    25,626       21,877  
Notes receivable — associated companies
    17,883       102,932  
Prepaid taxes
    146,898       34,930  
Other
    11,357       12,945  
 
           
 
    558,777       486,586  
 
           
 
               
UTILITY PLANT:
               
In service
    4,524,706       4,463,490  
Less — Accumulated provision for depreciation
    1,651,304       1,617,639  
 
           
 
    2,873,402       2,845,851  
Construction work in progress
    55,825       54,251  
 
           
 
    2,929,227       2,900,102  
 
           
 
               
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    166,148       166,768  
Nuclear fuel disposal trust
    204,088       199,677  
Other
    2,209       2,149  
 
           
 
    372,445       368,594  
 
           
 
               
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,810,936       1,810,936  
Regulatory assets
    800,898       888,143  
Other
    29,849       27,096  
 
           
 
    2,641,683       2,726,175  
 
           
 
  $ 6,502,132     $ 6,481,457  
 
           
 
               
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 31,508     $ 30,639  
Short-term borrowings-
               
Associated companies
    57,850        
Accounts payable-
               
Associated companies
    15,158       26,882  
Other
    202,049       168,093  
Accrued taxes
    1,786       12,594  
Accrued interest
    18,189       18,256  
Other
    82,524       111,156  
 
           
 
    409,064       367,620  
 
           
 
               
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, $10 par value, authorized 16,000,000 shares, 13,628,447 shares outstanding
    136,284       136,284  
Other paid-in capital
    2,507,003       2,507,049  
Accumulated other comprehensive loss
    (230,810 )     (243,012 )
Retained earnings
    189,194       200,075  
 
           
Total common stockholders’ equity
    2,601,671       2,600,396  
Long-term debt and other long-term obligations
    1,787,235       1,801,589  
 
           
 
    4,388,906       4,401,985  
 
           
 
               
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    705,219       687,545  
Nuclear fuel disposal costs
    196,623       196,511  
Retirement benefits
    132,565       150,603  
Asset retirement obligations
    104,878       101,568  
Power purchase contract liability
    378,448       399,105  
Other
    186,429       176,520  
 
           
 
    1,704,162       1,711,852  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
               
 
  $ 6,502,132     $ 6,481,457  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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JERSEY CENTRAL POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 79,119     $ 65,624  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    55,064       50,404  
Amortization of regulatory assets, net
    150,774       166,849  
Deferred purchased power and other costs
    (67,664 )     (50,542 )
Deferred income taxes and investment tax credits, net
    (1,425 )     3,440  
Accrued compensation and retirement benefits
    2,608       (2,883 )
Cash collateral paid, net
    (23,400 )     (209 )
Decrease (increase) in operating assets-
               
Receivables
    (46,788 )     41,228  
Prepayments and other current assets
    (112,155 )     (145,740 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    11,924       (19,321 )
Accrued taxes
    10,368       (14,007 )
Accrued interest
    (67 )     9,373  
Tax collections payable
          (9,714 )
Other
    (6,192 )     4,555  
 
           
Net cash provided from operating activities
    52,166       99,057  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          299,619  
Short-term borrowings, net
    57,850        
Redemptions and Repayments-
               
Common stock
          (150,000 )
Long-term debt
    (13,830 )     (13,093 )
Short-term borrowings, net
          (56,267 )
Common stock dividend payments
    (90,000 )     (88,000 )
Other
          (2,260 )
 
           
Net cash used for financing activities
    (45,980 )     (10,001 )
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (80,727 )     (78,401 )
Loan repayments from (loans to) associated companies, net
    85,049       (1,341 )
Sales of investment securities held in trusts
    281,242       244,880  
Purchases of investment securities held in trusts
    (289,454 )     (252,856 )
Other
    (2,224 )     (1,266 )
 
           
Net cash used for investing activities
    (6,114 )     (88,984 )
 
           
 
               
Net change in cash and cash equivalents
    72       72  
Cash and cash equivalents at beginning of period
    27       66  
 
           
Cash and cash equivalents at end of period
  $ 99     $ 138  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
            (In thousands)          
REVENUES:
                               
Electric sales
  $ 422,030     $ 360,022     $ 873,590     $ 769,708  
Gross receipts tax collections
    20,629       17,586       42,196       37,569  
 
                       
Total revenues
    442,659       377,608       915,786       807,277  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    149,000       78,652       310,080       178,729  
Purchased power from non-affiliates
    85,276       123,299       177,204       247,210  
Other operating expenses
    90,151       51,309       192,134       157,666  
Provision for depreciation
    13,440       12,919       26,198       25,058  
Amortization of regulatory assets, net
    48,589       61,548       97,389       89,139  
General taxes
    19,894       22,034       41,634       43,969  
 
                       
Total expenses
    406,350       349,761       844,639       741,771  
 
                       
 
                               
OPERATING INCOME
    36,309       27,847       71,147       65,506  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Interest income
    880       2,769       2,097       5,955  
Miscellaneous income
    1,381       1,058       3,554       1,914  
Interest expense
    (13,002 )     (14,763 )     (26,775 )     (28,122 )
Capitalized interest
    159       62       285       77  
 
                       
Total other expense
    (10,582 )     (10,874 )     (20,839 )     (20,176 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    25,727       16,973       50,308       45,330  
 
                               
INCOME TAXES
    8,618       6,968       20,884       18,703  
 
                       
 
                               
NET INCOME
    17,109       10,005       29,424       26,627  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME:
                               
Pension and other postretirement benefits
    2,162       27,369       11,871       31,922  
Unrealized gain on derivative hedges
    84       84       168       168  
 
                       
Other comprehensive income
    2,246       27,453       12,039       32,090  
Income tax expense related to other comprehensive income
    724       13,592       4,901       15,385  
 
                       
Other comprehensive income, net of tax
    1,522       13,861       7,138       16,705  
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME
  $ 18,631     $ 23,866     $ 36,562     $ 43,332  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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METROPOLITAN EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 126     $ 120  
Receivables-
               
Customers (less accumulated provisions of $3,877,000 and $4,044,000, respectively, for uncollectible accounts)
    188,771       171,052  
Associated companies
    45,551       29,413  
Other
    13,221       11,650  
Notes receivable from associated companies
    11,207       97,150  
Prepaid taxes
    46,475       15,229  
Other
    649       1,459  
 
           
 
    306,000       326,073  
 
           
UTILITY PLANT:
               
In service
    2,196,713       2,162,815  
Less — Accumulated provision for depreciation
    830,042       810,746  
 
           
 
    1,366,671       1,352,069  
Construction work in progress
    30,214       14,901  
 
           
 
    1,396,885       1,366,970  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    263,752       266,479  
Other
    881       890  
 
           
 
    264,633       267,369  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    416,499       416,499  
Regulatory assets
    385,392       356,754  
Power purchase contract asset
    120,436       176,111  
Other
    42,546       36,544  
 
           
 
    964,873       985,908  
 
           
 
  $ 2,932,391     $ 2,946,320  
 
           
 
               
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 28,500     $ 128,500  
Short-term borrowings-
               
Associated companies
    17,898        
Accounts payable-
               
Associated companies
    51,308       40,521  
Other
    30,997       41,050  
Accrued taxes
    20,689       11,170  
Accrued interest
    16,085       17,362  
Other
    28,588       24,520  
 
           
 
    194,065       263,123  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 900,000 shares, 859,500 shares outstanding
    1,197,014       1,197,070  
Accumulated other comprehensive loss
    (136,413 )     (143,551 )
Retained earnings
    33,824       4,399  
 
           
Total common stockholders’ equity
    1,094,425       1,057,918  
Long-term debt and other long-term obligations
    713,920       713,873  
 
           
 
    1,808,345       1,771,791  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    454,777       453,462  
Accumulated deferred investment tax credits
    7,090       7,313  
Nuclear fuel disposal costs
    44,416       44,391  
Retirement benefits
    29,194       33,605  
Asset retirement obligations
    186,373       180,297  
Power purchase contract liability
    158,987       143,135  
Other
    49,144       49,203  
 
           
 
    929,981       911,406  
 
           
COMMITMENTS AND CONTINGENCIES (Note 8)
               
 
  $ 2,932,391     $ 2,946,320  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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METROPOLITAN EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 29,424     $ 26,627  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    26,198       25,058  
Amortization of regulatory assets, net
    97,389       89,139  
Deferral of regulatory assets
    (38,358 )     (47,592 )
Deferred income taxes and investment tax credits, net
    (12,079 )     30,135  
Accrued compensation and retirement benefits
    (1,573 )     3,250  
Cash collateral received (paid), net
    50       (6,800 )
Decrease (increase) in operating assets-
               
Receivables
    (29,439 )     346  
Prepayments and other current assets
    (30,436 )     (39,068 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    733       (18,624 )
Accrued taxes
    9,519       (1,754 )
Accrued interest
    (1,277 )     10,230  
Other
    6,743       7,870  
 
           
Net cash provided from operating activities
    56,894       78,817  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          300,000  
Short-term borrowings, net
    17,898        
Redemptions and Repayments-
               
Long-term debt
    (100,000 )      
Short-term borrowings, net
          (15,003 )
Other
          (2,267 )
 
           
Net cash provided from (used for) financing activities
    (82,102 )     282,730  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (54,405 )     (48,464 )
Sales of investment securities held in trusts
    376,610       63,086  
Purchases of investment securities held in trusts
    (381,219 )     (67,668 )
Loans from (to) associated companies, net
    85,943       (306,448 )
Other
    (1,715 )     (2,072 )
 
           
Net cash provided from (used for) investing activities
    25,214       (361,566 )
 
           
 
               
Net change in cash and cash equivalents
    6       (19 )
Cash and cash equivalents at beginning of period
    120       144  
 
           
Cash and cash equivalents at end of period
  $ 126     $ 125  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
            (In thousands)          
REVENUES:
                               
Electric sales
  $ 350,335     $ 316,881     $ 736,271     $ 688,174  
Gross receipts tax collections
    16,162       14,804       33,686       32,096  
 
                       
Total revenues
    366,497       331,685       769,957       720,270  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    152,945       72,166       321,345       168,247  
Purchased power from non-affiliates
    86,829       125,317       178,252       252,483  
Other operating expenses
    67,070       46,301       139,464       123,590  
Provision for depreciation
    16,605       15,581       31,287       30,036  
Amortization (deferral) of regulatory assets, net
    (10,522 )     18,113       (20,488 )     26,889  
General taxes
    18,647       18,251       35,181       38,844  
 
                       
Total expenses
    331,574       295,729       685,041       640,089  
 
                       
 
                               
OPERATING INCOME
    34,923       35,956       84,916       80,181  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Miscellaneous income
    1,310       911       2,923       1,709  
Interest expense
    (17,630 )     (11,843 )     (34,920 )     (25,076 )
Capitalized interest
    183       29       323       51  
 
                       
Total other expense
    (16,137 )     (10,903 )     (31,674 )     (23,316 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    18,786       25,053       53,242       56,865  
 
                               
INCOME TAXES
    5,812       10,232       22,969       23,354  
 
                       
 
                               
NET INCOME
    12,974       14,821       30,273       33,511  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME:
                               
Pension and other postretirement benefits
    1,830       29,400       10,377       32,355  
Unrealized gain on derivative hedges
    16       16       32       32  
Change in unrealized gain on available-for-sale securities
          6             (16 )
 
                       
Other comprehensive income
    1,846       29,422       10,409       32,371  
Income tax expense related to other comprehensive income
    483       15,100       3,767       16,155  
 
                       
Other comprehensive income, net of tax
    1,363       14,322       6,642       16,216  
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME
  $ 14,337     $ 29,143     $ 36,915     $ 49,727  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 10     $ 14  
Receivables-
               
Customers (less accumulated provisions of $3,428,000 and $3,483,000, respectively, for uncollectible accounts)
    137,450       139,302  
Associated companies
    88,612       77,338  
Other
    10,934       18,320  
Notes receivable from associated companies
    14,092       14,589  
Prepaid taxes
    56,450       18,946  
Other
    758       1,400  
 
           
 
    308,306       269,909  
 
           
UTILITY PLANT:
               
In service
    2,481,942       2,431,737  
Less — Accumulated provision for depreciation
    918,963       901,990  
 
           
 
    1,562,979       1,529,747  
Construction work in progress
    22,319       24,205  
 
           
 
    1,585,298       1,553,952  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    140,611       142,603  
Non-utility generation trusts
    96,988       120,070  
Other
    283       289  
 
           
 
    237,882       262,962  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    768,628       768,628  
Regulatory assets
    138,557       9,045  
Power purchase contract asset
    6,031       15,362  
Other
    20,245       19,143  
 
           
 
    933,461       812,178  
 
           
 
  $ 3,064,947     $ 2,899,001  
 
           
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 69,310     $ 69,310  
Short-term borrowings-
               
Associated companies
    66,786       41,473  
Accounts payable-
               
Associated companies
    48,876       39,884  
Other
    28,460       41,990  
Accrued taxes
    5,071       6,409  
Accrued interest
    17,625       17,598  
Other
    24,696       22,741  
 
           
 
    260,824       239,405  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, $20 par value, authorized 5,400,000 shares, 4,427,577 shares outstanding
    88,552       88,552  
Other paid-in capital
    913,460       913,437  
Accumulated other comprehensive loss
    (155,462 )     (162,104 )
Retained earnings
    121,774       91,501  
 
           
Total common stockholders’ equity
    968,324       931,386  
Long-term debt and other long-term obligations
    1,072,199       1,072,181  
 
           
 
    2,040,523       2,003,567  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    296,829       242,040  
Retirement benefits
    167,288       174,306  
Asset retirement obligations
    94,933       91,841  
Power purchase contract liability
    153,603       100,849  
Other
    50,947       46,993  
 
           
 
    763,600       656,029  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
               
 
  $ 3,064,947     $ 2,899,001  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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PENNSYLVANIA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30  
    2010     2009  
    (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 30,273     $ 33,511  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    31,287       30,036  
Amortization (deferral) of regulatory assets, net
    (20,488 )     26,889  
Deferred costs recoverable as regulatory assets
    (38,955 )     (46,349 )
Deferred income taxes and investment tax credits, net
    42,943       24,700  
Accrued compensation and retirement benefits
    4,216       490  
Cash collateral
    (3,613 )     2  
Decrease (increase) in operating assets-
               
Receivables
    3,266       42,494  
Prepayments and other current assets
    (36,864 )     (35,750 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (4,603 )     (10,108 )
Accrued taxes
    (1,339 )     (7,629 )
Accrued interest
    28       (1,669 )
Other
    9,559       2,302  
 
           
Net cash provided from operating activities
    15,710       58,919  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Short-term borrowings, net
    25,313       146,654  
Redemptions and Repayments-
               
Long-term debt
          (100,000 )
Common stock dividend payments
          (35,000 )
Other
    5        
 
           
Net cash provided from financing activities
    25,318       11,654  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (58,293 )     (59,606 )
Loans from associated companies, net
    498       63  
Sales of investment securities held in trusts
    133,934       53,504  
Purchases of investment securities held in trusts
    (113,067 )     (60,378 )
Other
    (4,104 )     (4,168 )
 
           
Net cash used for investing activities
    (41,032 )     (70,585 )
 
           
 
               
Net change in cash and cash equivalents
    (4 )     (12 )
Cash and cash equivalents at beginning of period
    14       23  
 
           
Cash and cash equivalents at end of period
  $ 10     $ 11  
 
           
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
FirstEnergy is a diversified energy company that holds, directly or indirectly, all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), ATSI, JCP&L, Met-Ed, Penelec, FENOC, FES and its subsidiaries FGCO and NGC, and FESC.
FirstEnergy and its subsidiaries follow GAAP and comply with the regulations, orders, policies and practices prescribed by the SEC, the FERC and, as applicable, the PUCO, the PPUC and the NJBPU. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not indicative of results of operations for any future period. In preparing the financial statements, FirstEnergy and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
These statements should be read in conjunction with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 2009 for FirstEnergy, FES and the Utilities, as applicable. The consolidated unaudited financial statements of FirstEnergy, FES and each of the Utilities reflect all normal recurring adjustments that, in the opinion of management, are necessary to fairly present results of operations for the interim periods. Certain prior year amounts have been reclassified to conform to the current year presentation. Unless otherwise indicated, defined terms used herein have the meanings set forth in the accompanying Glossary of Terms.
FirstEnergy and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. FirstEnergy consolidates a VIE when it is determined that it is the primary beneficiary (see Note 6). Investments in affiliates over which FirstEnergy and its subsidiaries have the ability to exercise significant influence, but are not the primary beneficiary and do not exercise control, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage share of the entity’s earnings is reported in the Consolidated Statements of Income.
2. EARNINGS PER SHARE
Basic earnings per share of common stock is computed using the weighted average of actual common shares outstanding during the respective period as the denominator. The denominator for diluted earnings per share of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised. The following table reconciles basic and diluted earnings per share of common stock:
                                 
    Three Months     Six Months  
Reconciliation of Basic and Diluted Earnings per Share   Ended June 30     Ended June 30  
of Common Stock   2010     2009     2010     2009  
    (In millions, except per share amounts)  
 
                               
Earnings available to FirstEnergy Corp.
  $ 265     $ 414     $ 420     $ 533  
 
                       
 
                               
Weighted average number of basic shares outstanding
    304       304       304       304  
Assumed exercise of dilutive stock options and awards
    1       1       1       2  
 
                       
Weighted average number of diluted shares outstanding
    305       305       305       306  
 
                       
 
                               
Basic earnings per share of common stock
  $ 0.87     $ 1.36     $ 1.38     $ 1.75  
 
                       
Diluted earnings per share of common stock
  $ 0.87     $ 1.36     $ 1.37     $ 1.75  
 
                       

 

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3. FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
All borrowings with initial maturities of less than one year are defined as short-term financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value, in the caption “short-term borrowings.” The following table provides the approximate fair value and related carrying amounts of long-term debt and other long-term obligations as of June 30, 2010 and December 31, 2009:
                                 
    June 30, 2010     December 31, 2009  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
            (In millions)          
FirstEnergy
  $ 13,346     $ 14,992     $ 13,753     $ 14,502  
FES
    3,932       4,386       4,224       4,306  
OE
    1,166       1,378       1,169       1,299  
CEI
    1,853       2,110       1,873       2,032  
TE
    600       682       600       638  
JCP&L
    1,826       2,013       1,840       1,950  
Met-Ed
    742       840       842       909  
Penelec
    1,144       1,233       1,144       1,177  
The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective period. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FES and the Utilities.
(B) INVESTMENTS
All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their fair market value. Investments other than cash and cash equivalents include held-to-maturity securities, available-for-sale securities, and notes receivable.
Available-For-Sale Securities
The following table summarizes the amortized cost basis, unrealized gains and losses and fair values of investments held in nuclear decommissioning trusts, nuclear fuel disposal trusts and NUG trusts as of June 30, 2010 and December 31, 2009:
                                                                 
    June 30, 2010(1)     December 31, 2009(2)  
    Cost     Unrealized     Unrealized     Fair     Cost     Unrealized     Unrealized     Fair  
    Basis     Gains     Losses     Value     Basis     Gains     Losses     Value  
    (In millions)  
Debt securities
                                                               
FirstEnergy
  $ 1,404     $ 40     $     $ 1,444     $ 1,727     $ 22     $     $ 1,749  
FES
    702       18             720       1,043       3             1,046  
OE
    119       1             120       55                   55  
TE
    14                   14       72                   72  
JCP&L
    278       11             289       271       9             280  
Met-Ed
    130       5             135       120       5             125  
Penelec
    161       5             166       166       5             171  
 
                                                               
Equity securities
                                                               
FirstEnergy
  $ 250     $ 24     $     $ 274     $ 252     $ 43     $     $ 295  
JCP&L
    74       4             78       74       11             85  
Met-Ed
    117       14             131       117       23             140  
Penelec
    59       6             65       61       9             70  
     
(1)  
Excludes cash balances: FirstEnergy — $463 million; FES — $388 million; OE — $6 million; TE — $61 million; JCP&L — $3 million; Met-Ed — $(2) million and Penelec - $7 million.
 
(2)  
Excludes cash balances: FirstEnergy — $137 million; FES — $43 million; OE - $66 million; TE — $2 million; JCP&L — $3 million and Penelec — $23 million.

 

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Proceeds from the sale of investments in available-for-sale securities, realized gains and losses on those sales, and interest and dividend income for the six-month period ended June 30, 2010 and 2009 were as follows:
                                                         
June 30, 2010   FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
                    (In millions)                          
Proceeds from sales
  $ 1,916     $ 957     $ 60     $ 107     $ 281     $ 377     $ 134  
Realized gains
    83       54       2       3       9       9       6  
Realized losses
    86       58                   9       12       7  
Interest and dividend income
    37       22       1       1       7       3       3  
                                                         
June 30, 2009   FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
                    (In millions)                          
Proceeds from sales
  $ 1,001     $ 537      $ 25      $ 77     $ 245      $ 63      $ 54  
Realized gains
    30       24                                
Realized losses
    91       58       3             11       12         
Interest and dividend income
    30        14       2                          
Held-To-Maturity Securities
The following table provides the amortized cost basis, unrealized gains and losses, and approximate fair values of investments in held-to-maturity securities as of June 30, 2010 and December 31, 2009 (excluding emission allowances, employee benefits, cost method investments and equity method investments of $251 million and $264 million, respectively, that are not required to be disclosed):
                                                                 
    June 30, 2010     December 31, 2009  
    Cost     Unrealized     Unrealized     Fair     Cost     Unrealized     Unrealized     Fair  
    Basis     Gains     Losses     Value     Basis     Gains     Losses     Value  
    (In millions)  
Debt Securities
                                                               
FirstEnergy
  $ 487     $ 93     $     $ 580     $ 544     $ 72     $     $ 616  
OE
    205       55             260       217       29             246  
CEI
    340       38             378       389       43             432  
Notes Receivable
The following table provides the approximate fair value and related carrying amounts of notes receivable as of June 30, 2010 and December 31, 2009:
                                 
    June 30, 2010     December 31, 2009  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
    (In millions)  
Notes Receivable
                               
FirstEnergy
  $ 36     $ 34     $ 36     $ 35  
FES
                2       1  
TE
    104       117       124       141  
The fair value of notes receivable represents the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms.
(C) RECURRING FAIR VALUE MEASUREMENTS
Fair value is the price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date. A fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those where transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. FirstEnergy’s Level 1 assets and liabilities primarily consist of exchange-traded derivatives and equity securities listed on active exchanges that are held in various trusts.
Level 2 — Pricing inputs are either directly or indirectly observable in the market as of the reporting date, other than quoted prices in active markets included in Level 1. FirstEnergy’s Level 2 assets and liabilities consist primarily of investments in debt securities held in various trusts and commodity forwards. Additionally, Level 2 includes those financial instruments that are valued using models or other valuation methodologies based on assumptions that are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Instruments in this category include non-exchange-traded derivatives such as forwards and certain interest rate swaps.

 

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Level 3 — Pricing inputs include inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. FirstEnergy develops its view of the future market price of key commodities through a combination of market observation and assessment (generally for the short term) and fundamental modeling (generally for the long term). Key fundamental electricity model inputs are generally directly observable in the market or derived from publicly available historic and forecast data. Some key inputs reflect forecasts published by industry leading consultants who generally employ similar fundamental modeling approaches. Fundamental model inputs and results, as well as the selection of consultants, reflect the consensus of appropriate FirstEnergy management. Level 3 instruments include those that may be more structured or otherwise tailored to customers’ needs. FirstEnergy’s Level 3 instruments consist exclusively of NUG contracts.
FirstEnergy utilizes market data and assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. FirstEnergy primarily applies the market approach for recurring fair value measurements using the best information available. Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following tables set forth financial assets and financial liabilities that are accounted for at fair value by level within the fair value hierarchy as of June 30, 2010 and December 31, 2009. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. FirstEnergy’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the fair valuation of assets and liabilities and their placement within the fair value hierarchy levels.
                                                         
    Recurring Fair Value Measures as of June 30, 2010  
                    Level 1                    
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Nuclear Decommissioning Trust Investments
                                                       
Equity securities — consumer products
  $ 122     $     $     $     $ 35     $ 58     $ 29  
Equity securities — technology
    51                         15       24       12  
Equity securities — utilities & energy
    52                         15       25       12  
Equity securities — financial
    42                         12       20       10  
Equity securities — other
    8                         2       4       2  
 
                                         
Total Assets(1)
  $ 275     $     $     $     $ 79     $ 131     $ 65  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — commodity contracts
  $ 5     $ 5     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 5     $ 5     $     $     $     $     $  
 
                                         

 

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    Level 2  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Nuclear Decommissioning Trust Investments
                                                       
U.S. government debt securities
  $ 538     $ 265     $ 121     $ 14     $ 36     $ 92     $ 10  
U.S. state debt securities
    94                         31       2       61  
Foreign government debt securities
    297       297                                
Corporate debt securities
    225       158                   20       42       5  
Other
    458       388       5       62       1       1       1  
 
                                         
Total nuclear decommissioning trust investments
  $ 1,612     $ 1,108     $ 126     $ 76     $ 88     $ 137     $ 77  
 
                                         
 
                                                       
Rabbi Trust Investments
                                                       
Equity securities — financial
  $ 1     $     $     $     $     $     $  
Other
    12             1                          
 
                                         
Total rabbi trust investments
  $ 13     $     $ 1     $     $     $     $  
 
                                         
 
                                                       
Nuclear Fuel Disposal Trust Investments
                                                       
U.S. state debt securities
  $ 196     $     $     $     $ 196     $     $  
Other
    8                         8              
 
                                         
Total nuclear fuel disposal trust investments
  $ 204     $     $     $     $ 204     $     $  
 
                                         
 
                                                       
NUG Trust Investments
                                                       
U.S. state debt securities
  $ 97     $     $     $     $     $     $ 97  
 
                                         
Total NUG trust investments
  $ 97     $     $     $     $     $     $ 97  
 
                                         
 
                                                       
Derivatives
                                                       
Commodity contracts
  $ 111     $ 102     $     $     $ 2     $ 5     $ 2  
Interest rate contracts
    62                                      
 
                                         
Total derivatives contracts
  $ 173     $ 102     $     $     $ 2     $ 5     $ 2  
 
                                         
Total Assets(1)
  $ 2,099     $ 1,210     $ 127     $ 76     $ 294     $ 142     $ 176  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives
                                                       
Commodity contracts
  $ 273     $ 273     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 273     $ 273     $     $     $     $     $  
 
                                         
                                                         
    Level 3  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Derivatives — NUG contracts(2)
  $ 134     $     $     $     $ 7     $ 121     $ 6  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — NUG contracts(2)
  $ 691     $     $     $     $ 378     $ 159     $ 154  
 
                                         
     
(1)  
Excludes $(7) million of receivables, payables and accrued income.
 
(2)  
NUG contracts are subject to regulatory accounting and do not impact earnings.

 

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    Recurring Fair Value Measures as of December 31, 2009  
    Level 1  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Nuclear Decommissioning Trust Investments
                                                       
Equity securities — consumer products
  $ 130     $     $     $     $ 38     $ 59     $ 33  
Equity securities — technology
    57                         17       26       14  
Equity securities — utilities & energy
    59                         17       27       15  
Equity securities — financial
    39                         12       17       10  
Equity securities — other
    9                         3       4       2  
 
                                         
Total Assets(1)
  $ 294     $     $     $     $ 87     $ 133     $ 74  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — commodity contracts
  $ 11     $ 11     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 11     $ 11     $     $     $     $     $  
 
                                         

 

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    Level 2  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Nuclear Decommissioning Trust Investments
                                                       
U.S. government debt securities
  $ 558     $ 306     $ 118     $ 72     $ 23     $ 30     $ 9  
U.S. state debt securities
    188       15                   41       82       50  
Foreign government debt securities
    279       279                                
Corporate debt securities
    484       443                   15       20       6  
Other
    35       29       2             1       2       1  
 
                                         
Total nuclear decommissioning trust investments
  $ 1,544     $ 1,072     $ 120     $ 72     $ 80     $ 134     $ 66  
 
                                         
 
                                                       
Rabbi Trust Investments
                                                       
Equity securities — financial
  $ 1     $     $     $     $     $     $  
Other
    9                                      
 
                                         
Total rabbi trust investments
  $ 10     $     $     $     $     $     $  
 
                                         
 
                                                       
Nuclear Fuel Disposal Trust Investments
                                                       
U.S. state debt securities
  $ 189     $     $     $     $ 189     $     $  
Other
    11                         11              
 
                                         
Total nuclear fuel disposal trust investments
  $ 200     $     $     $     $ 200     $     $  
 
                                         
 
                                                       
NUG Trust Investments
                                                       
U.S. state debt securities
  $ 101     $     $     $     $     $     $ 101  
Other
    19                                     19  
 
                                         
Total NUG trust investments
  $ 120     $     $     $     $     $     $ 120  
 
                                         
 
                                                       
Derivatives — Commodity Contracts
  $ 34     $ 15     $     $     $ 5     $ 9     $ 5  
 
                                                       
Other
  $ 1     $     $     $     $     $     $  
 
                                         
Total Assets(1)
  $ 1,909     $ 1,087     $ 120     $ 72     $ 285     $ 143     $ 191  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — commodity contracts
  $ 224     $ 224     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 224     $ 224     $     $     $     $     $  
 
                                         
                                                         
    Level 3  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Derivatives — NUG contracts(2)
  $ 200     $     $     $     $ 9     $ 176     $ 15  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — NUG contracts(2)
  $ 643     $     $     $     $ 399     $ 143     $ 101  
 
                                         
     
(1)  
Excludes $21 million of receivables, payables and accrued income.
 
(2)  
NUG contracts are subject to regulatory accounting and do not impact earnings.
The determination of the above fair value measures takes into consideration various factors. These factors include nonperformance risk, including counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of nonperformance risk was immaterial in the fair value measurements.

 

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The following tables set forth a reconciliation of changes in the fair value of NUG contracts classified as Level 3 in the fair value hierarchy for the three and six months ended June 30, 2010 and 2009 (in millions):
                                 
    FirstEnergy     JCP&L     Met-Ed     Penelec  
Balance as of January 1, 2010
  $ (444 )   $ (391 )   $ 33     $ (86 )
Settlements(1)
    146       70       36       40  
Unrealized losses(1)
    (259 )     (50 )     (107 )     (102 )
 
                       
Balance as of June 30, 2010
  $ (557 )   $ (371 )   $ (38 )   $ (148 )
 
                       
 
                               
Balance as of April 1, 2010
  $ (590 )   $ (394 )   $ (30 )   $ (166 )
Settlements(1)
    68       30       19       19  
Unrealized losses(1)
    (35 )     (7 )     (27 )     (1 )
 
                       
Balance as of June 30, 2010
  $ (557 )   $ (371 )   $ (38 )   $ (148 )
 
                       
                                 
    FirstEnergy     JCP&L     Met-Ed     Penelec  
Balance as of January 1, 2009
  $ (332 )   $ (518 )   $ 150     $ 36  
Settlements(1)
    179       90       43       47  
Unrealized losses(1)
    (383 )     (38 )     (170 )     (176 )
 
                       
Balance as of June 30, 2009
  $ (536 )   $ (466 )   $ 23     $ (93 )
 
                       
 
                               
Balance as of April 1, 2009
  $ (476 )   $ (518 )   $ 76     $ (34 )
Settlements(1)
    96       44       26       27  
Unrealized gains (losses)(1)
    (156 )     8       (79 )     (86 )
 
                       
Balance as of June 30, 2009
  $ (536 )   $ (466 )   $ 23     $ (93 )
 
                       
     
(1)  
Changes in fair value of NUG contracts are subject to regulatory accounting and do not impact earnings.
4. DERIVATIVE INSTRUMENTS
FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity, natural gas, coal and energy transmission. To manage the volatility relating to these exposures, FirstEnergy uses a variety of derivative instruments, including forward contracts, options, futures contracts and swaps. The derivatives are used for risk management purposes. In addition to derivatives, FirstEnergy also enters into master netting agreements with certain third parties. FirstEnergy’s Risk Policy Committee, comprised of members of senior management, provides general management oversight for risk management activities throughout FirstEnergy. The Committee is responsible for promoting the effective design and implementation of sound risk management programs and oversees compliance with corporate risk management policies and established risk management practices.
FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value unless they meet the normal purchases and normal sales criteria. Derivatives that meet those criteria are accounted for at cost under the accrual method of accounting. The changes in the fair value of derivative instruments that do not meet the normal purchases and normal sales criteria are included in purchased power, other expense, unrealized gain (loss) on derivative hedges in other comprehensive income (loss), or as part of the value of the hedged item. Based on derivative contracts held as of June 30, 2010, an adverse 10% change in commodity prices would decrease net income by approximately $9 million ($6 million net of tax) during the next twelve months. A hypothetical 10% increase in the interest rates associated with variable-rate debt would decrease net income by less than $1 million for the three and six months ended June 30, 2010.
Cash Flow Hedges
FirstEnergy has used forward starting swap agreements to hedge a portion of the consolidated interest rate risk associated with anticipated issuances of fixed-rate, long-term debt securities of its subsidiaries. These derivatives were treated as cash flow hedges, protecting against the risk of changes in future interest payments resulting from changes in benchmark U.S. Treasury rates between the date of hedge inception and the date of the debt issuance. As of June 30, 2010, no forward starting swap agreements were outstanding.
Total unamortized losses included in AOCL associated with prior interest rate cash flow hedges totaled $109 million ($71 million net of tax) as of June 30, 2010. Based on current estimates, approximately $11 million will be amortized to interest expense during the next twelve months. The table below provides the activity of AOCL related to interest rate cash flow hedges as of June 30, 2010 and 2009.

 

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    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2010     2009     2010     2009  
    (In millions)     (In millions)  
Effective Portion
                               
Gain Recognized in AOCL
  $     $ 2     $     $  
Reclassification from AOCL into Interest Expense
    (3 )     (6 )     (6 )     (11 )

Fair Value Hedges
FirstEnergy uses fixed-for-floating interest rate swap agreements to hedge a portion of the consolidated interest rate risk associated with the debt portfolio of its subsidiaries. These derivatives are treated as fair value hedges of fixed-rate, long-term debt issues, protecting against the risk of changes in the fair value of fixed-rate debt instruments due to lower interest rates. In May of 2010, FirstEnergy 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.
Effective June 1, 2010, FirstEnergy 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, FirstEnergy 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 be amortized to earnings over the life of the underlying debt. While FirstEnergy currently does not have any interest rate swaps outstanding, costs associated with entering into future swap transactions may be increased as a result of the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires increased regulation of swaps, swap dealers and major swap participants.
The following tables summarize the fair value of interest rate swaps in FirstEnergy’s Consolidated Balance Sheets:
                                     
Derivative Assets     Derivative Liabilities  
    Fair Value         Fair Value  
    June 30,     December 31,         June 30,     December 31,  
    2010     2009         2010     2009  
    (In millions)         (In millions)  
Fair Value Hedges
                  Fair Value Hedges                
Interest Rate Swaps
  $ 62     $     Interest Rate Swaps   $     $  
 
                           
Noncurrent Assets
  $ 62     $     Noncurrent Liabilities   $     $  
 
                           

Commodity Derivatives
FirstEnergy uses both physically and financially settled derivatives to manage its exposure to volatility in commodity prices. Commodity derivatives are used for risk management purposes to hedge exposures when it makes economic sense to do so, including circumstances where the hedging relationship does not qualify for hedge accounting.

 

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The following tables summarize the fair value of commodity derivatives in FirstEnergy’s Consolidated Balance Sheets:
                                     
Derivative Assets     Derivative Liabilities  
    Fair Value         Fair Value  
    June 30,     December 31,         June 30,     December 31,  
    2010     2009         2010     2009  
    (In millions)         (In millions)  
Cash Flow Hedges
                  Cash Flow Hedges                
Electricity Forwards
                  Electricity Forwards                
Current Assets
  $ 40     $ 3     Current Liabilities   $ 50     $ 7  
NonCurrent Assets
    57       11     NonCurrent Liabilities     54       12  
Natural Gas Futures
                  Natural Gas Futures                
Current Assets
              Current Liabilities     4       9  
NonCurrent Assets
              NonCurrent Liabilities            
Other
                  Other                
Current Assets
              Current Liabilities     1       2  
NonCurrent Assets
              NonCurrent Liabilities            
 
                           
 
  $ 97     $ 14         $ 109     $ 30  
 
                           
                                     
Derivative Assets     Derivative Liabilities  
    Fair Value         Fair Value  
    June 30,     December 31,         June 30,     December 31,  
    2010     2009         2010     2009  
    (In millions)         (In millions)  
Economic Hedges
                  Economic Hedges                
NUG Contracts
                  NUG Contracts                
Power Purchase
                  Power Purchase                
Contract Asset
  $ 134     $ 200     Contract Liability   $ 691     $ 643  
Other
                  Other                
Current Assets
    4           Current Liabilities     114       106  
NonCurrent Assets
    10       19     NonCurrent Liabilities     55       97  
 
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