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 September 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.
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  34-1843785
         
000-53742   FIRSTENERGY SOLUTIONS CORP.
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
  31-1560186
         
1-2578   OHIO EDISON COMPANY
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  34-0437786
         
1-2323   THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  34-0150020
         
1-3583   THE TOLEDO EDISON COMPANY
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  34-4375005
         
1-3141   JERSEY CENTRAL POWER & LIGHT COMPANY
(A New Jersey Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  21-0485010
         
1-446   METROPOLITAN EDISON COMPANY
(A Pennsylvania Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  23-0870160
         
1-3522   PENNSYLVANIA ELECTRIC COMPANY
(A Pennsylvania Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736
-3402
  25-0718085
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 OCTOBER 22, 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 FirstEnergy’s Internet web site and recognize FirstEnergy’s Internet web site as 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 Internet 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.

 

 


Table of Contents

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.
   
Financial derivative reforms that could increase our liquidity needs and collateral costs.
   
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 and coal combustion residual regulations.
   
The potential impacts of the proposed rules promulgated by the EPA on July 6, 2010, in response to the U.S. Court of Appeals’ July 11, 2008 decision requiring revisions to the CAIR rules or any final laws, rules or regulations that may ultimately replace CAIR.
   
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.

 

 


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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  

 

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Table of Contents

TABLE OF CONTENTS (Cont’d)
         
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 Exhibit 10.1
 Exhibit 10.2
 Exhibit 10.3
 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

 

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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
Global Rail
 
A joint venture between FirstEnergy Ventures Corp. and WMB Loan Ventures II LLC, that owns coal transportation operations near Roundup, Montana
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 WMB Loan Ventures LLC, that owns mining 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:
     
ALJ
  Administrative Law Judge
AOCL
 
Accumulated Other Comprehensive Loss
AQC
 
Air Quality Control
ARO
 
Asset Retirement Obligation
BGS
 
Basic Generation Service
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAMR
 
Clean Air Mercury Rule
CATR
 
Clean Air Transport 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)
EE&C
 
Energy Efficiency and Conservation
EMP
 
Energy Master Plan
EPA
 
United States Environmental Protection Agency

 

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
MACT
  Maximum Achievable Control Technology
MDPSC
  Maryland Public Service Commission
MEIUG
  Met-Ed Industrial users Group
MISO
  Midwest Independent Transmission System Operator, Inc.
Moody’s
  Moody’s Investors Service, Inc.
MRO
  Market Rate Offer
MTEP
  MISO Regional Transmission Expansion Plan
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
NYSEG
  New York State Electric and Gas
OCC
  Ohio Consumers’ Counsel
OCI
  Other Comprehensive Income
OPEB
  Other Post-Employment Benefits
OVEC
  Ohio Valley Electric Corporation
PCRB
  Pollution Control Revenue Bond
PICA
  Pennsylvania Intergovernmental Cooperation Authority
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
PUCO
  Public Utilities Commission of Ohio
RECs
  Renewable Energy Credits
RFP
  Request for Proposal
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

 

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Table of Contents

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                 
    Three Months     Nine Months  
    Ended September 30     Ended September 30  
    2010     2009     2010     2009  
    (In millions, except per share amounts)  
REVENUES:
                               
Electric utilities
  $ 2,757     $ 2,940     $ 7,673     $ 8,751  
Unregulated businesses
    936       468       2,449       1,262  
 
                       
Total revenues*
    3,693       3,408       10,122       10,013  
 
                       
 
                               
EXPENSES:
                               
Fuel
    400       302       1,084       890  
Purchased power
    1,284       1,313       3,574       3,480  
Other operating expenses
    738       665       2,112       2,103  
Provision for depreciation
    182       188       565       550  
Amortization of regulatory assets
    176       261       549       903  
Deferral of new regulatory assets
                      (136 )
General taxes
    206       192       587       587  
Impairment of long-lived assets
    292             294        
 
                       
Total expenses
    3,278       2,921       8,765       8,377  
 
                       
 
                               
OPERATING INCOME
    415       487       1,357       1,636  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    46       191       93       207  
Interest expense
    (208 )     (355 )     (628 )     (755 )
Capitalized interest
    41       35       122       96  
 
                       
Total other expense
    (121 )     (129 )     (413 )     (452 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    294       358       944       1,184  
 
                               
INCOME TAXES
    119       128       364       430  
 
                       
 
                               
NET INCOME
    175       230       580       754  
 
                               
Loss attributable to noncontrolling interest
    (4 )     (4 )     (19 )     (14 )
 
                       
 
                               
EARNINGS AVAILABLE TO FIRSTENERGY CORP.
  $ 179     $ 234     $ 599     $ 768  
 
                       
 
                               
BASIC EARNINGS PER SHARE OF COMMON STOCK
  $ 0.59     $ 0.77     $ 1.97     $ 2.52  
 
                       
 
                               
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
    304       304       304       304  
 
                       
 
                               
DILUTED EARNINGS PER SHARE OF COMMON STOCK
  $ 0.59     $ 0.77     $ 1.96     $ 2.51  
 
                       
 
                               
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
    305       306       305       306  
 
                       
 
                               
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
  $ 1.10     $ 1.10     $ 1.65     $ 1.65  
 
                       
     
*  
Includes excise tax collections of $120 million and $106 million in the three months ended September 30, 2010 and 2009, respectively, and $328 million and $310 million in the nine months ended September 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     Nine Months  
    Ended September 30     Ended September 30  
    2010     2009     2010     2009  
    (In millions)  
 
                               
NET INCOME
  $ 175     $ 230     $ 580     $ 754  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    17       (480 )     47       24  
Unrealized gain on derivative hedges
    6       19       16       57  
Change in unrealized gain on available-for-sale securities
    20       (108 )     32       (76 )
 
                       
Other comprehensive income (loss)
    43       (569 )     95       5  
Income tax expense (benefit) related to other comprehensive income
    14       (216 )     30       26  
 
                       
Other comprehensive income (loss), net of tax
    29       (353 )     65       (21 )
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS)
    204       (123 )     645       733  
 
                               
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
    (4 )     (4 )     (19 )     (14 )
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO FIRSTENERGY CORP.
  $ 208     $ (119 )   $ 664     $ 747  
 
                       
The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

 

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FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    September 30,     December 31,  
    2010     2009  
    (In millions)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 632     $ 874  
Receivables-
               
Customers (less allowances of $39 million in 2010 and $33 million in 2009)
    1,414       1,244  
Other (less allowances of $7 million in 2010 and 2009)
    150       153  
Materials and supplies, at average cost
    652       647  
Prepaid taxes
    291       248  
Other
    252       154  
 
           
 
    3,391       3,320  
 
           
PROPERTY, PLANT AND EQUIPMENT:
               
In service
    27,590       27,826  
Less — Accumulated provision for depreciation
    11,206       11,397  
 
           
 
    16,384       16,429  
Construction work in progress
    3,154       2,735  
 
           
 
    19,538       19,164  
 
           
INVESTMENTS:
               
Nuclear plant decommissioning trusts
    1,965       1,859  
Investments in lease obligation bonds
    486       543  
Other
    564       621  
 
           
 
    3,015       3,023  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    5,575       5,575  
Regulatory assets
    2,246       2,356  
Power purchase contract asset
    116       200  
Other
    826       666  
 
           
 
    8,763       8,797  
 
           
 
  $ 34,707     $ 34,304  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 1,590     $ 1,834  
Short-term borrowings
    1,000       1,181  
Accounts payable
    813       829  
Accrued taxes
    230       314  
Other
    1,339       1,130  
 
           
 
    4,972       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
    5,445       5,448  
Accumulated other comprehensive loss
    (1,350 )     (1,415 )
Retained earnings
    4,591       4,495  
 
           
Total common stockholders’ equity
    8,717       8,559  
Noncontrolling interest
    (26 )     (2 )
 
           
Total equity
    8,691       8,557  
Long-term debt and other long-term obligations
    12,104       11,908  
 
           
 
    20,795       20,465  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    2,824       2,468  
Retirement benefits
    1,541       1,534  
Asset retirement obligations
    1,394       1,425  
Deferred gain on sale and leaseback transaction
    968       993  
Power purchase contract liability
    756       643  
Lease market valuation liability
    228       262  
Other
    1,229       1,226  
 
           
 
    8,940       8,551  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 9)
               
 
  $ 34,707     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In millions)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 580     $ 754  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    565       550  
Amortization of regulatory assets
    549       903  
Deferral of new regulatory assets
          (136 )
Nuclear fuel and lease amortization
    123       92  
Deferred purchased power and other costs
    (192 )     (235 )
Deferred income taxes and investment tax credits, net
    259       421  
Impairment of long-lived assets
    294        
Investment impairment
    21       39  
Gain on investment securities held in trusts
    (39 )     (172 )
Loss on debt redemption
          142  
Deferred rents and lease market valuation liability
    (21 )     (20 )
Accrued compensation and retirement benefits
    48       20  
Interest rate swap transactions
    129        
Commodity derivative transactions, net
    (40 )     26  
Cash collateral paid, net
    (54 )     (85 )
Pension trust contribution
          (500 )
Decrease (increase) in operating assets-
               
Receivables
    (172 )     78  
Materials and supplies
    (6 )     30  
Prepayments and other current assets
    (4 )     (349 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (16 )     (103 )
Accrued taxes
    (18 )     (97 )
Accrued interest
    63       121  
Other
    4       (15 )
 
           
Net cash provided from operating activities
    2,073       1,464  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
    251       4,151  
Redemptions and Repayments-
               
Long-term debt
    (422 )     (2,213 )
Short-term borrowings, net
    (171 )     (764 )
Common stock dividend payments
    (503 )     (503 )
Other
    (25 )     (54 )
 
           
Net cash provided from (used for) financing activities
    (870 )     617  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (1,467 )     (1,575 )
Proceeds from asset sales
    117       19  
Sales of investment securities held in trusts
    2,577       3,039  
Purchases of investment securities held in trusts
    (2,610 )     (3,101 )
Customer acquisition costs
    (110 )      
Cash investments
    56       (4 )
Restricted funds for debt redemption
          (150 )
Other
    (8 )     (16 )
 
           
Net cash used for investing activities
    (1,445 )     (1,788 )
 
           
 
               
Net change in cash and cash equivalents
    (242 )     293  
Cash and cash equivalents at beginning of period
    874       545  
 
           
Cash and cash equivalents at end of period
  $ 632     $ 838  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
REVENUES:
                               
Electric sales to affiliates
  $ 599,695     $ 616,300     $ 1,745,542     $ 2,348,741  
Electric sales to non-affiliates
    904,752       443,819       2,302,240       928,944  
Other
    49,230       44,453       208,662       394,145  
 
                       
Total revenues
    1,553,677       1,104,572       4,256,444       3,671,830  
 
                       
 
                               
EXPENSES:
                               
Fuel
    391,087       294,693       1,061,719       871,160  
Purchased power from affiliates
    116,381       35,290       246,232       149,746  
Purchased power from non-affiliates
    411,084       205,200       1,160,119       551,155  
Other operating expenses
    309,793       305,935       916,366       891,555  
Provision for depreciation
    59,298       66,041       185,535       192,962  
General taxes
    21,804       21,700       70,822       66,361  
Impairment of long-lived assets
    291,934             293,767        
 
                       
Total expenses
    1,601,381       928,859       3,934,560       2,722,939  
 
                       
 
                               
OPERATING INCOME (LOSS)
    (47,704 )     175,713       321,884       948,891  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    29,895       158,857       43,978       135,723  
Miscellaneous income
    4,765       2,804       10,468       12,840  
Interest expense — affiliates
    (2,497 )     (2,209 )     (7,362 )     (8,503 )
Interest expense — other
    (49,544 )     (42,187 )     (150,560 )     (90,985 )
Capitalized interest
    22,955       17,869       66,550       41,975  
 
                       
Total other income (expense)
    5,574       135,134       (36,926 )     91,050  
 
                       
 
                               
INCOME (LOSS) BEFORE INCOME TAXES
    (42,130 )     310,847       284,958       1,039,941  
 
                               
INCOME TAXES
    (5,404 )     111,164       107,833       372,175  
 
                       
 
                               
NET INCOME (LOSS)
    (36,726 )     199,683       177,125       667,766  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    886       (61,085 )     (8,063 )     13,604  
Unrealized gain on derivative hedges
    2,818       790       7,109       26,847  
Change in unrealized gain on available-for-sale securities
    17,445       (89,401 )     28,533       (51,374 )
 
                       
Other comprehensive income (loss)
    21,149       (149,696 )     27,579       (10,923 )
Income taxes related to other comprehensive income (loss)
    7,694       (58,883 )     9,898       (3,549 )
 
                       
Other comprehensive income (loss), net of tax
    13,455       (90,813 )     17,681       (7,374 )
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME (LOSS)
  $ (23,271 )   $ 108,870     $ 194,806     $ 660,392  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 10     $ 12  
Receivables-
               
Customers (less accumulated provisions of $16,277,000 and $12,041,000, respectively, for uncollectible accounts)
    325,265       195,107  
Associated companies
    269,986       318,561  
Other (less accumulated provisions of $6,702,000 for uncollectible accounts)
    57,407       51,872  
Notes receivable from associated companies
    501,648       805,103  
Materials and supplies, at average cost
    554,043       539,541  
Prepayments and other
    204,065       107,782  
 
           
 
    1,912,424       2,017,978  
 
           
PROPERTY, PLANT AND EQUIPMENT:
               
In service
    9,663,264       10,357,632  
Less — Accumulated provision for depreciation
    4,114,381       4,531,158  
 
           
 
    5,548,883       5,826,474  
Construction work in progress
    2,736,635       2,423,446  
 
           
 
    8,285,518       8,249,920  
 
           
INVESTMENTS:
               
Nuclear plant decommissioning trusts
    1,158,376       1,088,641  
Other
    7,400       22,466  
 
           
 
    1,165,776       1,111,107  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Accumulated deferred income tax benefits
    3,357       86,626  
Customer intangibles
    127,420       16,566  
Goodwill
    24,248       24,248  
Property taxes
    50,125       50,125  
Unamortized sale and leaseback costs
    61,934       72,553  
Other
    164,332       121,665  
 
           
 
    431,416       371,783  
 
           
 
  $ 11,795,134     $ 11,750,788  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 1,396,792     $ 1,550,927  
Short-term borrowings-
               
Associated companies
    9,642       9,237  
Other
    100,000       100,000  
Accounts payable-
               
Associated companies
    472,018       466,078  
Other
    204,928       245,363  
Accrued taxes
    59,422       83,158  
Other
    430,824       359,057  
 
           
 
    2,673,626       2,813,820  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 750 shares, 7 shares outstanding
    1,490,010       1,468,423  
Accumulated other comprehensive loss
    (85,320 )     (103,001 )
Retained earnings
    2,326,274       2,149,149  
 
           
Total common stockholders’ equity
    3,730,964       3,514,571  
Long-term debt and other long-term obligations
    2,819,150       2,711,652  
 
           
 
    6,550,114       6,226,223  
 
           
NONCURRENT LIABILITIES:
               
Deferred gain on sale and leaseback transaction
    967,583       992,869  
Accumulated deferred investment tax credits
    55,267       58,396  
Asset retirement obligations
    877,522       921,448  
Retirement benefits
    228,779       204,035  
Property taxes
    50,125       50,125  
Lease market valuation liability
    228,119       262,200  
Other
    163,999       221,672  
 
           
 
    2,571,394       2,710,745  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 9)
               
 
  $ 11,795,134     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 177,125     $ 667,766  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    185,535       192,962  
Nuclear fuel and lease amortization
    126,071       94,244  
Deferred rents and lease market valuation liability
    (41,493 )     (40,143 )
Deferred income taxes and investment tax credits, net
    96,152       268,812  
Impairment of long-lived assets
    293,767        
Investment impairment
    21,089       36,169  
Accrued compensation and retirement benefits
    15,887       5,860  
Commodity derivative transactions, net
    (40,048 )     25,794  
Gain on asset sales
    (2,213 )     (9,832 )
Gain on investment securities held in trusts
    (34,292 )     (154,723 )
Cash collateral, net
    (53,900 )     (92,618 )
Decrease (increase) in operating assets-
               
Receivables
    (91,134 )     (55,774 )
Materials and supplies
    (15,324 )     38,543  
Prepayments and other current assets
    36,004       (35,315 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (50,114 )     (72,181 )
Accrued taxes
    (8,404 )     23,846  
Accrued interest
    (14,130 )     31,770  
Other
    23,349       (43,369 )
 
           
Net cash provided from operating activities
    623,927       881,811  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
    249,520       2,356,762  
Short-term borrowings, net
    405        
Redemptions and Repayments-
               
Long-term debt
    (296,339 )     (618,213 )
Short-term borrowings, net
          (1,164,823 )
Other
    (798 )     (20,006 )
 
           
Net cash provided from (used for) financing activities
    (47,212 )     553,720  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (801,238 )     (842,600 )
Proceeds from asset sales
    117,213       16,129  
Sales of investment securities held in trusts
    1,478,086       2,152,717  
Purchases of investment securities held in trusts
    (1,511,273 )     (2,175,135 )
Loans from (to) associated companies, net
    303,455       (298,841 )
Customer acquisition costs
    (110,073 )      
Leasehold improvement payments to associated companies
    (51,204 )      
Other
    (1,683 )     (20,882 )
 
           
Net cash used for investing activities
    (576,717 )     (1,168,612 )
 
           
 
               
Net change in cash and cash equivalents
    (2 )     266,919  
Cash and cash equivalents at beginning of period
    12       39  
 
           
Cash and cash equivalents at end of period
  $ 10     $ 266,958  
 
           
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 INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
 
                               
REVENUES:
                               
Electric sales
  $ 456,531     $ 575,377     $ 1,351,893     $ 1,942,612  
Excise and gross receipts tax collections
    30,058       27,127       82,482       81,055  
 
                       
Total revenues
    486,589       602,504       1,434,375       2,023,667  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    136,804       200,506       424,530       847,712  
Purchased power from non-affiliates
    84,264       161,732       257,322       397,875  
Other operating expenses
    94,804       102,463       271,934       372,231  
Provision for depreciation
    21,990       22,407       65,884       65,916  
Amortization of regulatory assets, net
    9,704       17,404       48,473       59,910  
General taxes
    48,909       45,164       139,763       138,187  
 
                       
Total expenses
    396,475       549,676       1,207,906       1,881,831  
 
                       
 
                               
OPERATING INCOME
    90,114       52,828       226,469       141,836  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    5,438       20,285       16,991       39,796  
Miscellaneous income
    1,673       237       2,676       2,108  
Interest expense
    (21,975 )     (22,961 )     (66,440 )     (67,717 )
Capitalized interest
    335       231       838       730  
 
                       
Total other expense
    (14,529 )     (2,208 )     (45,935 )     (25,083 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    75,585       50,620       180,534       116,753  
 
                               
INCOME TAXES
    29,332       15,885       60,797       36,742  
 
                       
 
                               
NET INCOME
    46,253       34,735       119,737       80,011  
 
                       
 
                               
Income from noncontrolling interest
    124       140       386       429  
 
                       
 
                               
EARNINGS AVAILABLE TO PARENT
  $ 46,129     $ 34,595     $ 119,351     $ 79,582  
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME
  $ 46,253     $ 34,735     $ 119,737     $ 80,011  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME LOSS:
                               
Pension and other postretirement benefits
    321       (49,043 )     4,658       46,559  
Change in unrealized gain on available-for-sale securities
    2,178       (7,695 )     2,989       (9,676 )
 
                       
Other comprehensive income (loss)
    2,499       (56,738 )     7,647       36,883  
Income tax expense (benefit) related to other comprehensive income
    562       (21,924 )     1,229       15,915  
 
                       
Other comprehensive income (loss), net of tax
    1,937       (34,814 )     6,418       20,968  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS)
    48,190       (79 )     126,155       100,979  
 
                               
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
    124       140       386       429  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO PARENT
  $ 48,066     $ (219 )   $ 125,769     $ 100,550  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 288,092     $ 324,175  
Receivables-
               
Customers (less accumulated provisions of $4,951,000 and $5,119,000, respectively, for uncollectible accounts)
    182,894       209,384  
Associated companies
    38,499       98,874  
Other
    20,777       14,155  
Notes receivable from associated companies
    16,234       118,651  
Prepayments and other
    9,490       15,964  
 
           
 
    555,986       781,203  
 
           
UTILITY PLANT:
               
In service
    3,118,239       3,036,467  
Less — Accumulated provision for depreciation
    1,199,401       1,165,394  
 
           
 
    1,918,838       1,871,073  
Construction work in progress
    38,915       31,171  
 
           
 
    1,957,753       1,902,244  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lease obligation bonds
    204,707       216,600  
Nuclear plant decommissioning trusts
    129,685       120,812  
Other
    96,897       96,861  
 
           
 
    431,289       434,273  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Regulatory assets
    413,596       465,331  
Pension assets
    39,271       19,881  
Property taxes
    67,037       67,037  
Unamortized sale and leaseback costs
    31,376       35,127  
Other
    17,540       39,881  
 
           
 
    568,820       627,257  
 
           
 
  $ 3,513,848     $ 3,744,977  
 
           
LIABILITIES AND CAPITALIZATION
               
 
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 1,479     $ 2,723  
Short-term borrowings-
               
Associated companies
    47,648       92,863  
Other
    320       807  
Accounts payable-
               
Associated companies
    32,084       102,763  
Other
    23,994       40,423  
Accrued taxes
    55,236       81,868  
Accrued interest
    25,354       25,749  
Other
    133,060       81,424  
 
           
 
    319,175       428,620  
 
           
CAPITALIZATION:
               
Common stockholder’s equity-
               
Common stock, without par value, authorized 175,000,000 shares - 60 shares outstanding
    951,839       1,154,797  
Accumulated other comprehensive loss
    (157,159 )     (163,577 )
Retained earnings
    104,241       29,890  
 
           
Total common stockholder’s equity
    898,921       1,021,110  
Noncontrolling interest
    6,225       6,442  
 
           
Total equity
    905,146       1,027,552  
Long-term debt and other long-term obligations
    1,152,370       1,160,208  
 
           
 
    2,057,516       2,187,760  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    678,815       660,114  
Accumulated deferred investment tax credits
    10,521       11,406  
Retirement benefits
    169,070       174,925  
Asset retirement obligations
    83,194       85,926  
Other
    195,557       196,226  
 
           
 
    1,137,157       1,128,597  
 
           
COMMITMENTS AND CONTINGENCIES (Note 9)
               
 
  $ 3,513,848     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 119,737     $ 80,011  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    65,884       65,916  
Amortization of regulatory assets, net
    48,473       59,910  
Purchased power cost recovery reconciliation
    3,906       15,372  
Amortization of lease costs
    28,314       28,394  
Deferred income taxes and investment tax credits, net
    7,612       32,658  
Accrued compensation and retirement benefits
    (16,659 )     (3,542 )
Accrued regulatory obligations
    1,301       19,172  
Electric service prepayment programs
          (4,634 )
Cash collateral from suppliers
    23,286       6,469  
Pension trust contributions
          (103,035 )
Decrease (increase) in operating assets-
               
Receivables
    91,971       128,688  
Prepayments and other current assets
    10,331       (2,553 )
Decrease in operating liabilities-
               
Accounts payable
    (87,108 )     (60,125 )
Accrued taxes
    (26,425 )     (17,196 )
Accrued interest
    (395 )     (59 )
Other
    (9,695 )     (8,596 )
 
           
Net cash provided from operating activities
    260,533       236,850  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          100,000  
Short-term borrowings, net
          74,514  
Redemptions and Repayments-
               
Long-term debt
    (9,628 )     (101,088 )
Short-term borrowings, net
    (45,702 )      
Common stock dividend payments
    (250,000 )     (150,000 )
Other
    (892 )     (2,138 )
 
           
Net cash used for financing activities
    (306,222 )     (78,712 )
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (110,645 )     (108,253 )
Leasehold improvement payments from associated companies
    18,375        
Sales of investment securities held in trusts
    78,599       207,280  
Purchases of investment securities held in trusts
    (83,725 )     (214,592 )
Loan repayments from associated companies, net
    102,417       134,975  
Cash investments
    12,296       7,070  
Other
    (7,711 )     (1,216 )
 
           
Net cash provided from investing activities
    9,606       25,264  
 
           
 
               
Net change in cash and cash equivalents
    (36,083 )     183,402  
Cash and cash equivalents at beginning of period
    324,175       146,343  
 
           
Cash and cash equivalents at end of period
  $ 288,092     $ 329,745  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
 
                               
REVENUES:
                               
Electric sales
  $ 309,236     $ 417,900     $ 901,913     $ 1,307,592  
Excise tax collections
    19,480       17,629       52,548       52,748  
 
                       
Total revenues
    328,716       435,529       954,461       1,360,340  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    89,389       153,556       298,204       635,927  
Purchased power from non-affiliates
    35,151       87,689       105,200       208,849  
Other operating expenses
    36,441       37,822       96,613       141,829  
Provision for depreciation
    18,057       17,753       54,504       53,885  
Amortization of regulatory assets
    45,136       39,313       121,082       325,630  
Deferral of new regulatory assets
                      (134,587 )
General taxes
    39,878       37,752       107,207       112,749  
 
                       
Total expenses
    264,052       373,885       782,810       1,344,282  
 
                       
 
                               
OPERATING INCOME
    64,664       61,644       171,651       16,058  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    6,604       7,565       20,756       23,599  
Miscellaneous income
    533       645       1,790       3,437  
Interest expense
    (33,384 )     (34,740 )     (100,267 )     (100,819 )
Capitalized interest
    10       27       43       145  
 
                       
Total other expense
    (26,237 )     (26,503 )     (77,678 )     (73,638 )
 
                       
 
                               
INCOME (LOSS) BEFORE INCOME TAXES
    38,427       35,141       93,973       (57,580 )
 
                               
INCOME TAX EXPENSE (BENEFIT)
    13,479       9,755       33,107       (25,290 )
 
                       
 
                               
NET INCOME (LOSS)
    24,948       25,386       60,866       (32,290 )
 
                       
 
                               
Income from noncontrolling interest
    366       418       1,151       1,295  
 
                       
 
                               
EARNINGS (LOSS) AVAILABLE TO PARENT
  $ 24,582     $ 24,968     $ 59,715     $ (33,585 )
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME (LOSS)
  $ 24,948     $ 25,386     $ 60,866     $ (32,290 )
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    3,228       (48,024 )     (16,129 )     (154 )
Unrealized loss on derivative hedges
          (1,451 )           (1,451 )
 
                       
Other comprehensive income (loss)
    3,228       (49,475 )     (16,129 )     (1,605 )
Income tax expense (benefit) related to other comprehensive income
    976       (17,854 )     (6,325 )     1,452  
 
                       
Other comprehensive income (loss), net of tax
    2,252       (31,621 )     (9,804 )     (3,057 )
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS)
    27,200       (6,235 )     51,062       (35,347 )
 
                               
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
    366       418       1,151       1,295  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO PARENT
  $ 26,834     $ (6,653 )   $ 49,911     $ (36,642 )
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 247     $ 86,230  
Receivables-
               
Customers (less accumulated provisions of $5,271,000 and $5,239,000, respectively, for uncollectible accounts)
    186,044       209,335  
Associated companies
    59,339       98,954  
Other
    4,910       11,661  
Notes receivable from associated companies
    23,905       26,802  
Prepayments and other
    4,362       9,973  
 
           
 
    278,807       442,955  
 
           
UTILITY PLANT:
               
In service
    2,373,419       2,310,074  
Less — Accumulated provision for depreciation
    921,040       888,169  
 
           
 
    1,452,379       1,421,905  
Construction work in progress
    30,482       36,907  
 
           
 
    1,482,861       1,458,812  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    340,031       388,641  
Other
    10,084       10,220  
 
           
 
    350,115       398,861  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,688,521       1,688,521  
Regulatory assets
    420,144       545,505  
Pension assets (Note 6)
          13,380  
Property taxes
    77,319       77,319  
Other
    12,897       12,777  
 
           
 
    2,198,881       2,337,502  
 
           
 
  $ 4,310,664     $ 4,638,130  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 148     $ 117  
Short-term borrowings-
               
Associated companies
    129,912       339,728  
Accounts payable-
               
Associated companies
    14,803       68,634  
Other
    13,725       17,166  
Accrued taxes
    64,492       90,511  
Accrued interest
    39,261       18,466  
Other
    63,732       45,440  
 
           
 
    326,073       580,062  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 105,000,000 shares, 67,930,743 shares outstanding
    886,927       884,897  
Accumulated other comprehensive loss
    (147,962 )     (138,158 )
Retained earnings
    556,963       597,248  
 
           
Total common stockholders’ equity
    1,295,928       1,343,987  
Noncontrolling interest
    17,651       20,592  
 
           
Total equity
    1,313,579       1,364,579  
Long-term debt and other long-term obligations
    1,852,511       1,872,750  
 
           
 
    3,166,090       3,237,329  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    628,244       644,745  
Accumulated deferred investment tax credits
    11,205       11,836  
Retirement benefits
    82,070       69,733  
Other
    96,982       94,425  
 
           
 
    818,501       820,739  
 
           
COMMITMENTS AND CONTINGENCIES (Note 9)
               
 
  $ 4,310,664     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income (Loss)
  $ 60,866     $ (32,290 )
Adjustments to reconcile net income (loss) to net cash from operating activities-
               
Provision for depreciation
    54,504       53,885  
Amortization of regulatory assets, net
    121,082       325,630  
Deferral of new regulatory assets
          (134,587 )
Purchased power cost recovery reconciliation
          (3,478 )
Deferred income taxes and investment tax credits, net
    (24,283 )     (41,939 )
Accrued compensation and retirement benefits
    10,467       10,311  
Pension trust contribution
          (89,789 )
Electric service prepayment programs
          (3,510 )
Cash collateral from suppliers, net
    19,245       5,404  
Decrease (increase) in operating assets-
               
Receivables
    86,725       30,977  
Prepayments and other current assets
    5,421       (633 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (57,272 )     (32,240 )
Accrued taxes
    (23,876 )     (17,003 )
Accrued interest
    20,795       29,816  
Other
    740       11,489  
 
           
Net cash provided from operating activities
    274,414       112,043  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          298,398  
Redemptions and Repayments-
               
Long-term debt
    (84 )     (558 )
Short-term borrowings, net
    (230,132 )     (111,128 )
Common stock dividend payments
    (100,000 )     (93,000 )
Other
    (4,100 )     (6,161 )
 
           
Net cash provided from (used for) financing activities
    (334,316 )     87,551  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (70,812 )     (73,577 )
Restricted cash
          (155,573 )
Loan repayments from (to) associated companies, net
    2,897       (4,638 )
Redemptions of lessor notes
    48,610       37,072  
Other
    (6,776 )     (2,871 )
 
           
Net cash used for investing activities
    (26,081 )     (199,587 )
 
           
 
               
Net change in cash and cash equivalents
    (85,983 )     7  
Cash and cash equivalents at beginning of period
    86,230       226  
 
           
Cash and cash equivalents at end of period
  $ 247     $ 233  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
STATEMENTS OF INCOME
                               
 
                               
REVENUES:
                               
Electric sales
  $ 136,058     $ 206,086     $ 376,180     $ 663,082  
Excise tax collections
    7,979       7,422       21,079       21,448  
 
                       
Total revenues
    144,037       213,508       397,259       684,530  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    42,338       86,278       144,062       342,166  
Purchased power from non-affiliates
    16,663       56,494       50,377       115,275  
Other operating expenses
    28,746       30,238       79,790       110,722  
Provision for depreciation
    7,800       7,847       23,763       23,136  
Amortization (deferral) of regulatory assets, net
    6,591       9,253       (3,708 )     30,921  
General taxes
    14,023       13,205       39,766       39,804  
 
                       
Total expenses
    116,161       203,315       334,050       662,024  
 
                       
 
                               
OPERATING INCOME
    27,876       10,193       63,209       22,506  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Investment income
    3,018       9,302       11,875       22,315  
Miscellaneous expense
    (502 )     (1,725 )     (2,853 )     (1,690 )
Interest expense
    (10,479 )     (10,854 )     (31,421 )     (25,649 )
Capitalized interest
    94       46       252       138  
 
                       
Total other expense
    (7,869 )     (3,231 )     (22,147 )     (4,886 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    20,007       6,962       41,062       17,620  
 
                               
INCOME TAX EXPENSE (BENEFIT)
    6,911       (138 )     13,241       3,123  
 
                       
 
                               
NET INCOME
    13,096       7,100       27,821       14,497  
 
                       
 
                               
Income from noncontrolling interest
    (4 )     14       1       17  
 
                       
 
                               
EARNINGS AVAILABLE TO PARENT
  $ 13,100     $ 7,086     $ 27,820     $ 14,480  
 
                       
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
 
                               
NET INCOME
  $ 13,096     $ 7,100     $ 27,821     $ 14,497  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    713       (24,201 )     1,723       (5,052 )
Change in unrealized gain on available-for-sale securities
    427       (11,633 )     466       (15,181 )
 
                       
Other comprehensive income (loss)
    1,140       (35,834 )     2,189       (20,233 )
Income tax expense (benefit) related to other comprehensive income
    330       (13,187 )     565       (5,982 )
 
                       
Other comprehensive income (loss), net of tax
    810       (22,647 )     1,624       (14,251 )
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS)
    13,906       (15,547 )     29,445       246  
 
                               
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
    (4 )     14       1       17  
 
                       
 
                               
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO PARENT
  $ 13,910     $ (15,561 )   $ 29,444     $ 229  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 134,158     $ 436,712  
Receivables-
               
Customers
    30       75  
Associated companies
    44,075       90,191  
Other (less accumulated provisions of $224,000 and $208,000, respectively, for uncollectible accounts)
    19,146       20,180  
Notes receivable from associated companies
    81,254       85,101  
Prepayments and other
    4,272       7,111  
 
           
 
    282,935       639,370  
 
           
UTILITY PLANT:
               
In service
    938,532       912,930  
Less — Accumulated provision for depreciation
    440,510       427,376  
 
           
 
    498,022       485,554  
Construction work in progress
    9,946       9,069  
 
           
 
    507,968       494,623  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    103,848       124,357  
Nuclear plant decommissioning trusts
    76,051       73,935  
Other
    1,514       1,580  
 
           
 
    181,413       199,872  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    500,576       500,576  
Regulatory assets
    74,297       69,557  
Property taxes
    23,658       23,658  
Other
    27,215       55,622  
 
           
 
    625,746       649,413  
 
           
 
  $ 1,598,062     $ 1,983,278  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 208     $ 222  
Accounts payable-
               
Associated companies
    8,644       78,341  
Other
    6,212       8,312  
Notes payable to associated companies
          225,975  
Accrued taxes
    17,904       25,734  
Lease market valuation liability
    36,900       36,900  
Other
    44,745       29,273  
 
           
 
    114,613       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
    178,170       178,181  
Accumulated other comprehensive loss
    (48,179 )     (49,803 )
Retained earnings
    112,310       214,490  
 
           
Total common stockholders’ equity
    389,311       489,878  
Noncontrolling interest
    2,587       2,696  
 
           
Total equity
    391,898       492,574  
Long-term debt and other long-term obligations
    600,478       600,443  
 
           
 
    992,376       1,093,017  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    116,090       80,508  
Accumulated deferred investment tax credits
    6,039       6,367  
Retirement benefits
    67,953       65,988  
Asset retirement obligations
    28,287       32,290  
Lease market valuation liability
    208,525       236,200  
Other
    64,179       64,151  
 
           
 
    491,073       485,504  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 9)
               
 
  $ 1,598,062     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 27,821     $ 14,497  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    23,763       23,136  
Amortization (deferral) of regulatory assets, net
    (3,708 )     30,921  
Deferred rents and lease market valuation liability
    (36,123 )     (34,556 )
Deferred income taxes and investment tax credits, net
    18,927       (2,242 )
Accrued compensation and retirement benefits
    4,529       3,039  
Accrued regulatory obligations
    40       4,841  
Electric service prepayment programs
          (1,458 )
Pension trust contribution
          (21,590 )
Cash collateral from suppliers
    9,874       2,830  
Decrease in operating assets-
               
Receivables
    61,051       24,561  
Prepayments and other current assets
    2,839       109  
Increase (decrease) in operating liabilities-
               
Accounts payable
    (69,846 )     (13,440 )
Accrued taxes
    (6,172 )     (5,057 )
Accrued interest
    10,050       14,033  
Other
    (10,971 )     (3,694 )
 
           
Net cash provided from operating activities
    32,074       35,930  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          297,422  
Redemptions and Repayments-
               
Long-term debt
    (167 )     (292 )
Short-term borrowings, net
    (225,975 )     (101,569 )
Common stock dividend payments
    (130,000 )     (25,000 )
Other
    (112 )     (351 )
 
           
Net cash provided from (used for) financing activities
    (356,254 )     170,210  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (29,592 )     (33,005 )
Leasehold improvement payments from associated companies
    32,829        
Loan repayments from associated companies, net
    3,847       10,256  
Redemptions of lessor notes
    20,509       18,358  
Sales of investment securities held in trusts
    118,360       171,061  
Purchases of investment securities held in trusts
    (119,777 )     (173,214 )
Other
    (4,550 )     (2,776 )
 
           
Net cash provided from (used for) investing activities
    21,626       (9,320 )
 
           
 
               
Net change in cash and cash equivalents
    (302,554 )     196,820  
Cash and cash equivalents at beginning of period
    436,712       14  
 
           
Cash and cash equivalents at end of period
  $ 134,158     $ 196,834  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
REVENUES:
                               
Electric sales
  $ 952,420     $ 854,108     $ 2,353,418     $ 2,312,089  
Excise tax collections
    16,080       14,128       39,444       37,890  
 
                       
Total revenues
    968,500       868,236       2,392,862       2,349,979  
 
                       
 
                               
EXPENSES:
                               
Purchased power
    556,618       509,035       1,381,104       1,414,226  
Other operating expenses
    89,167       84,495       260,004       241,241  
Provision for depreciation
    26,614       26,565       81,678       76,969  
Amortization of regulatory assets, net
    100,476       96,051       251,250       262,900  
General taxes
    19,974       18,344       51,312       48,427  
 
                       
Total expenses
    792,849       734,490       2,025,348       2,043,763  
 
                       
 
                               
OPERATING INCOME
    175,651       133,746       367,514       306,216  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Miscellaneous income
    1,662       1,301       5,144       4,113  
Interest expense
    (30,220 )     (29,593 )     (89,684 )     (87,132 )
Capitalized interest
    199       139       488       419  
 
                       
Total other expense
    (28,359 )     (28,153 )     (84,052 )     (82,600 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    147,292       105,593       283,462       223,616  
 
                               
INCOME TAXES
    64,440       43,435       121,491       95,834  
 
                       
 
                               
NET INCOME
    82,852       62,158       161,971       127,782  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    4,135       (51,932 )     24,198       (26,893 )
Unrealized gain on derivative hedges
    69       69       207       207  
 
                       
Other comprehensive income (loss)
    4,204       (51,863 )     24,405       (26,686 )
Income tax expense (benefit) related to other comprehensive income
    1,443       (21,295 )     9,442       (8,806 )
 
                       
Other comprehensive income (loss), net of tax
    2,761       (30,568 )     14,963       (17,880 )
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME
  $ 85,613     $ 31,590     $ 176,934     $ 109,902  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 1     $ 27  
Receivables-
               
Customers (less accumulated provisions of $4,736,000 and $3,506,000, respectively, for uncollectible accounts)
    378,822       300,991  
Associated companies
    3,900       12,884  
Other
    26,024       21,877  
Notes receivable — associated companies
    64,168       102,932  
Prepaid taxes
    71,153       34,930  
Other
    15,674       12,945  
 
           
 
    559,742       486,586  
 
           
UTILITY PLANT:
               
In service
    4,568,640       4,463,490  
Less — Accumulated provision for depreciation
    1,666,918       1,617,639  
 
           
 
    2,901,722       2,845,851  
Construction work in progress
    51,857       54,251  
 
           
 
    2,953,579       2,900,102  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    175,254       166,768  
Nuclear fuel disposal trust
    208,870       199,677  
Other
    2,136       2,149  
 
           
 
    386,260       368,594  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,810,936       1,810,936  
Regulatory assets
    722,086       888,143  
Other
    30,608       27,096  
 
           
 
    2,563,630       2,726,175  
 
           
 
  $ 6,463,211     $ 6,481,457  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 31,947     $ 30,639  
Accounts payable-
               
Associated companies
    12,743       26,882  
Other
    154,872       168,093  
Accrued taxes
    24,798       12,594  
Accrued interest
    30,003       18,256  
Other
    78,903       111,156  
 
           
 
    333,266       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
    2,508,852       2,507,049  
Accumulated other comprehensive loss
    (228,049 )     (243,012 )
Retained earnings
    197,046       200,075  
 
           
Total common stockholders’ equity
    2,614,133       2,600,396  
Long-term debt and other long-term obligations
    1,779,081       1,801,589  
 
           
 
    4,393,214       4,401,985  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    720,825       687,545  
Nuclear fuel disposal costs
    196,703       196,511  
Retirement benefits
    133,579       150,603  
Asset retirement obligations
    106,573       101,568  
Power purchase contract liability
    386,273       399,105  
Other
    192,778       176,520  
 
           
 
    1,736,731       1,711,852  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 9)
               
 
  $ 6,463,211     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 161,971     $ 127,782  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    81,678       76,969  
Amortization of regulatory assets, net
    251,250       262,900  
Deferred purchased power and other costs
    (85,136 )     (106,340 )
Deferred income taxes and investment tax credits, net
    14,984       40,989  
Accrued compensation and retirement benefits
    11,621       7,308  
Cash collateral paid, net
    (23,400 )     (210 )
Pension trust contribution
          (100,000 )
Decrease (increase) in operating assets-
               
Receivables
    (72,994 )     18,984  
Prepayments and other current assets
    (36,573 )     (83,538 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (37,668 )     (40,670 )
Accrued taxes
    35,326       (13,399 )
Accrued interest
    11,747       20,946  
Tax collections payable
          (9,714 )
Other
    (13,953 )     12,606  
 
           
Net cash provided from operating activities
    298,853       214,613  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          299,619  
Redemptions and Repayments-
               
Common stock
          (150,000 )
Long-term debt
    (21,703 )     (20,570 )
Short-term borrowings, net
          (114,766 )
Common stock dividend payments
    (165,000 )     (88,000 )
Other
    (2 )     (2,275 )
 
           
Net cash used for financing activities
    (186,705 )     (75,992 )
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (130,008 )     (121,342 )
Loans from (to) associated companies, net
    38,764       (660 )
Sales of investment securities held in trusts
    340,368       338,684  
Purchases of investment securities held in trusts
    (353,028 )     (351,216 )
Other
    (8,270 )     (4,152 )
 
           
Net cash used for investing activities
    (112,174 )     (138,686 )
 
           
 
               
Net change in cash and cash equivalents
    (26 )     (65 )
Cash and cash equivalents at beginning of period
    27       66  
 
           
Cash and cash equivalents at end of period
  $ 1     $ 1  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
REVENUES:
                               
Electric sales
  $ 460,864     $ 424,901     $ 1,334,454     $ 1,194,609  
Gross receipts tax collections
    23,049       20,612       65,245       58,181  
 
                       
Total revenues
    483,913       445,513       1,399,699       1,252,790  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    166,039       94,768       476,119       273,497  
Purchased power from non-affiliates
    87,561       142,495       264,765       389,705  
Other operating expenses
    141,761       63,654       333,895       221,320  
Provision for depreciation
    12,978       13,262       39,176       38,320  
Amortization of regulatory assets, net
    15,480       84,631       112,869       173,770  
General taxes
    25,029       22,540       66,663       66,509  
 
                       
Total expenses
    448,848       421,350       1,293,487       1,163,121  
 
                       
 
                               
OPERATING INCOME
    35,065       24,163       106,212       89,669  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Interest income
    581       2,169       2,678       8,124  
Miscellaneous income
    1,539       1,068       5,093       2,982  
Interest expense
    (13,037 )     (14,380 )     (39,812 )     (42,502 )
Capitalized interest
    176       47       461       124  
 
                       
Total other expense
    (10,741 )     (11,096 )     (31,580 )     (31,272 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    24,324       13,067       74,632       58,397  
 
                               
INCOME TAXES
    10,084       2,324       30,968       21,027  
 
                       
 
                               
NET INCOME
    14,240       10,743       43,664       37,370  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    2,161       (31,365 )     14,032       557  
Unrealized gain on derivative hedges
    84       84       252       252  
 
                       
Other comprehensive income (loss)
    2,245       (31,281 )     14,284       809  
Income tax expense (benefit) related to other comprehensive income
    723       (13,112 )     5,624       2,273  
 
                       
Other comprehensive income (loss), net of tax
    1,522       (18,169 )     8,660       (1,464 )
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME (LOSS)
  $ 15,762     $ (7,426 )   $ 52,324     $ 35,906  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 124     $ 120  
Receivables-
               
Customers (less accumulated provisions of $4,344,000 and $4,044,000, respectively, for uncollectible accounts)
    182,509       171,052  
Associated companies
    41,689       29,413  
Other
    13,654       11,650  
Notes receivable from associated companies
    11,201       97,150  
Prepaid taxes
    27,307       15,229  
Other
    2,523       1,459  
 
           
 
    279,007       326,073  
 
           
UTILITY PLANT:
               
In service
    2,213,765       2,162,815  
Less — Accumulated provision for depreciation
    836,821       810,746  
 
           
 
    1,376,944       1,352,069  
Construction work in progress
    31,488       14,901  
 
           
 
    1,408,432       1,366,970  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    277,823       266,479  
Other
    877       890  
 
           
 
    278,700       267,369  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    416,499       416,499  
Regulatory assets
    400,375       356,754  
Power purchase contract asset
    103,902       176,111  
Other
    64,084       36,544  
 
           
 
    984,860       985,908  
 
           
 
  $ 2,950,999     $ 2,946,320  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 28,500     $ 128,500  
Short-term borrowings-
               
Associated companies
    6,296        
Accounts payable-
               
Associated companies
    34,204       40,521  
Other
    28,604       41,050  
Accrued taxes
    2,967       11,170  
Accrued interest
    11,717       17,362  
Other
    31,993       24,520  
 
           
 
    144,281       263,123  
 
           
CAPITALIZATION:
               
Common stockholders’ equity-
               
Common stock, without par value, authorized 900,000 shares, 859,500 shares outstanding
    1,197,064       1,197,070  
Accumulated other comprehensive loss
    (134,891 )     (143,551 )
Retained earnings
    48,064       4,399  
 
           
Total common stockholders’ equity
    1,110,237       1,057,918  
Long-term debt and other long-term obligations
    713,941       713,873  
 
           
 
    1,824,178       1,771,791  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    489,608       453,462  
Accumulated deferred investment tax credits
    6,978       7,313  
Nuclear fuel disposal costs
    44,434       44,391  
Retirement benefits
    28,268       33,605  
Asset retirement obligations
    189,489       180,297  
Power purchase contract liability
    175,259       143,135  
Other
    48,504       49,203  
 
           
 
    982,540       911,406  
 
           
COMMITMENTS AND CONTINGENCIES (Note 9)
               
 
  $ 2,950,999     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 43,664     $ 37,370  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    39,176       38,320  
Amortization of regulatory assets, net
    112,869       173,770  
Deferred costs recoverable as regulatory assets
    (49,646 )     (70,044 )
Deferred income taxes and investment tax credits, net
    23,781       59,393  
Accrued compensation and retirement benefits
    (282 )     6,712  
Pension trust contribution
          (123,521 )
Cash collateral paid, net
    (17,647 )     (6,800 )
Decrease (increase) in operating assets-
               
Receivables
    (18,444 )     (23,370 )
Prepayments and other current assets
    (13,144 )     (22,614 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (18,763 )     (17,293 )
Accrued taxes
    (8,203 )     (11,095 )
Accrued interest
    (5,645 )     5,001  
Other
    7,721       11,891  
 
           
Net cash provided from operating activities
    95,437       57,720  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          300,000  
Short-term borrowings, net
    6,296        
Redemptions and Repayments-
               
Long-term debt
    (100,000 )      
Short-term borrowings, net
          (265,003 )
Other
          (2,268 )
 
           
Net cash provided from (used for) financing activities
    (93,704 )     32,729  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (77,921 )     (73,106 )
Sales of investment securities held in trusts
    420,116       88,802  
Purchases of investment securities held in trusts
    (427,150 )     (95,982 )
Loans from (to) associated companies, net
    85,949       (6,586 )
Other
    (2,723 )     (3,597 )
 
           
Net cash used for investing activities
    (1,729 )     (90,469 )
 
           
 
               
Net change in cash and cash equivalents
    4       (20 )
Cash and cash equivalents at beginning of period
    120       144  
 
           
Cash and cash equivalents at end of period
  $ 124     $ 124  
 
           
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     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In thousands)  
REVENUES:
                               
Electric sales
  $ 372,480     $ 340,246     $ 1,108,751     $ 1,028,420  
Gross receipts tax collections
    17,414       15,246       51,100       47,342  
 
                       
Total revenues
    389,894       355,492       1,159,851       1,075,762  
 
                       
 
                               
EXPENSES:
                               
Purchased power from affiliates
    165,125       81,191       486,470       249,438  
Purchased power from non-affiliates
    92,648       144,777       270,900       397,260  
Other operating expenses
    58,832       47,785       198,296       171,375  
Provision for depreciation
    14,859       15,038       46,146       45,074  
Amortization (deferral) of regulatory assets, net
    (1,771 )     17,201       (22,259 )     44,090  
General taxes
    19,194       17,230       54,375       56,074  
 
                       
Total expenses
    348,887       323,222       1,033,928       963,311  
 
                       
 
                               
OPERATING INCOME
    41,007       32,270       125,923       112,451  
 
                       
 
                               
OTHER INCOME (EXPENSE):
                               
Miscellaneous income
    1,508       1,156       4,431       2,865  
Interest expense
    (17,581 )     (11,614 )     (52,501 )     (36,690 )
Capitalized interest
    193       23       516       74  
 
                       
Total other expense
    (15,880 )     (10,435 )     (47,554 )     (33,751 )
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    25,127       21,835       78,369       78,700  
 
                               
INCOME TAXES
    5,311       6,039       28,280       29,393  
 
                       
 
                               
NET INCOME
    19,816       15,796       50,089       49,307  
 
                       
 
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    1,830       (79,579 )     12,207       (47,224 )
Unrealized gain on derivative hedges
    16       17       48       49  
Change in unrealized gain on available-for-sale securities
          19             3  
 
                       
Other comprehensive income (loss)
    1,846       (79,543 )     12,255       (47,172 )
Income tax expense (benefit) related to other comprehensive income
    484       (33,141 )     4,251       (16,986 )
 
                       
Other comprehensive income (loss), net of tax
    1,362       (46,402 )     8,004       (30,186 )
 
                       
 
                               
TOTAL COMPREHENSIVE INCOME (LOSS)
  $ 21,178     $ (30,606 )   $ 58,093     $ 19,121  
 
                       
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)
                 
    September 30,     December 31,  
    2010     2009  
    (In thousands)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 8     $ 14  
Receivables-
               
Customers (less accumulated provisions of $3,481,000 and $3,483,000, respectively, for uncollectible accounts)
    135,416       139,302  
Associated companies
    95,355       77,338  
Other
    14,413       18,320  
Notes receivable from associated companies
    14,569       14,589  
Prepaid taxes
    48,264       18,946  
Other
    2,115       1,400  
 
           
 
    310,140       269,909  
 
           
UTILITY PLANT:
               
In service
    2,503,555       2,431,737  
Less — Accumulated provision for depreciation
    925,894       901,990  
 
           
 
    1,577,661       1,529,747  
Construction work in progress
    28,498       24,205  
 
           
 
    1,606,159       1,553,952  
 
           
OTHER PROPERTY AND INVESTMENTS:
               
Nuclear plant decommissioning trusts
    147,675       142,603  
Non-utility generation trusts
    92,034       120,070  
Other
    294       289  
 
           
 
    240,003       262,962  
 
           
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    768,628       768,628  
Regulatory assets
    202,801       9,045  
Power purchase contract asset
    5,746       15,362  
Other
    28,780       19,143  
 
           
 
    1,005,955       812,178  
 
           
 
  $ 3,162,257     $ 2,899,001  
 
           
LIABILITIES AND CAPITALIZATION
               
 
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 69,310     $ 69,310  
Short-term borrowings-
               
Associated companies
    43,244       41,473  
Accounts payable-
               
Associated companies
    40,747       39,884  
Other
    28,427       41,990  
Accrued taxes
    4,164       6,409  
Accrued interest
    24,513       17,598  
Other
    25,871       22,741  
 
           
 
    236,276       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
    913,507       913,437  
Accumulated other comprehensive loss
    (154,100 )     (162,104 )
Retained earnings
    141,590       91,501  
 
           
Total common stockholders’ equity
    989,549       931,386  
Long-term debt and other long-term obligations
    1,072,207       1,072,181  
 
           
 
    2,061,756       2,003,567  
 
           
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    356,536       242,040  
Retirement benefits
    167,542       174,306  
Asset retirement obligations
    96,519       91,841  
Power purchase contract liability
    194,102       100,849  
Other
    49,526       46,993  
 
           
 
    864,225       656,029  
 
           
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 9)
               
 
  $ 3,162,257     $ 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)
                 
    Nine Months Ended  
    September 30  
    2010     2009  
    (In thousands)  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 50,089     $ 49,307  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    46,146       45,074  
Amortization (deferral) of regulatory assets, net
    (22,259 )     44,090  
Deferred costs recoverable as regulatory assets
    (61,574 )     (76,953 )
Deferred income taxes and investment tax credits, net
    94,015       56,144  
Accrued compensation and retirement benefits
    7,634       6,271  
Cash collateral paid, net
    (11,760 )      
Pension trust contribution
          (60,000 )
Decrease (increase) in operating assets-
               
Receivables
    (2,584 )     3,687  
Prepayments and other current assets
    (30,034 )     (24,730 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (12,766 )     (8,988 )
Accrued taxes
    (2,245 )     (7,015 )
Accrued interest
    6,915       (2,570 )
Other
    10,127       13,392  
 
           
Net cash provided from operating activities
    71,704       37,709  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
          498,583  
Short-term borrowings, net
    1,771        
Redemptions and Repayments-
               
Long-term debt
          (100,000 )
Short-term borrowings, net
          (239,770 )
Common stock dividend payments
          (85,000 )
Other
    (125 )     (3,865 )
 
           
Net cash provided from financing activities
    1,646       69,948  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (91,924 )     (92,070 )
Sales of investment securities held in trusts
    141,392       80,986  
Purchases of investment securities held in trusts
    (116,240 )     (91,105 )
Other
    (6,584 )     (5,482 )
 
           
Net cash used for investing activities
    (73,356 )     (107,671 )
 
           
 
               
Net change in cash and cash equivalents
    (6 )     (14 )
Cash and cash equivalents at beginning of period
    14       23  
 
           
Cash and cash equivalents at end of period
  $ 8     $ 9  
 
           
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 7). 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     Nine Months  
Reconciliation of Basic and Diluted Earnings per Share   Ended September 30     Ended September 30  
of Common Stock   2010     2009     2010     2009  
    (In millions, except per share amounts)  
 
                               
Earnings available to FirstEnergy Corp.
  $ 179     $ 234     $ 599     $ 768  
 
                       
 
                               
Weighted average number of basic shares outstanding
    304       304       304       304  
Assumed exercise of dilutive stock options and awards
    1       2       1       2  
 
                       
Weighted average number of diluted shares outstanding
    305       306       305       306  
 
                       
 
                               
Basic earnings per share of common stock
  $ 0.59     $ 0.77     $ 1.97     $ 2.52  
 
                       
Diluted earnings per share of common stock
  $ 0.59     $ 0.77     $ 1.96     $ 2.51  
 
                       

 

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3. GOODWILL
In a business combination, the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill is evaluated for impairment at least annually and more frequently if indicators of impairment arise. In accordance with the accounting standards, if the fair value of a reporting unit is less than its carrying value (including goodwill), the goodwill is tested for impairment. Impairment is indicated and a loss is recognized if the implied fair value of a reporting unit’s goodwill is less than the carrying value of its goodwill.
FirstEnergy’s goodwill primarily relates to its energy delivery services segment. FirstEnergy’s aggregated reporting units are consistent with its operating segments, which are energy delivery services and competitive energy. Goodwill is allocated to these operating segments based on the original purchase price allocation for acquisitions within the various reporting units. The goodwill allocated to competitive energy is insignificant to that segment and to FirstEnergy.
Annual impairment testing is conducted during the third quarter of each year and for 2010 the analysis indicated no impairment of goodwill. For purposes of annual testing the estimated fair values of energy delivery services and the utilities were determined using a discounted cash flow approach.
The discounted cash flow model of the reporting units, which are aggregated into operating segments, is based on the forecasted operating cash flow for the current year, projected operating cash flows for the next five years (determined using forecasted amounts as well as an estimated growth rate) and a terminal value beyond five years. Discounted cash flows consist of the operating cash flows for each reporting unit less an estimate for capital expenditures. The key assumptions incorporated in the discounted cash flow approach include growth rates, projected operating income, changes in working capital, projected capital expenditures, planned funding of pension plans, anticipated funding of nuclear decommissioning trusts, expected results of future rate proceedings and a discount rate equal to our assumed long term cost of capital. Cash flows may be adjusted to exclude certain non-recurring or unusual items. Reporting unit income, which excludes non-recurring or unusual items, was the starting point for determining operating cash flow and there were no non- recurring or unusual items excluded from the calculations of operating cash flow in any of the periods included in the determination of fair value.
Unanticipated changes in assumptions could have a significant effect on FirstEnergy’s evaluation of goodwill. At the time of annual impairment testing, fair value would have to have declined in excess of 52% for energy delivery services to indicate a potential goodwill impairment. Fair value would have to have declined more than 26% for CEI, 64% for TE, 38% for JCP&L, 56% for Met-Ed, and 57% for Penelec to indicate potential goodwill impairment.

 

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4. 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 September 30, 2010 and December 31, 2009:
                                 
    September 30, 2010     December 31, 2009  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
    (In millions)  
 
                               
FirstEnergy (Consolidated)
  $ 13,592     $ 14,920     $ 13,753     $ 14,502  
FES
    4,181       4,228       4,224       4,306  
OE
    1,159       1,409       1,169       1,299  
CEI
    1,853       2,144       1,873       2,032  
TE
    600       706       600       638  
JCP&L
    1,819       2,076       1,840       1,950  
Met-Ed
    742       849       842       909  
Penelec
    1,144       1,269       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 September 30, 2010 and December 31, 2009:
                                                                 
    September 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
  $ 1,795     $ 73     $     $ 1,868     $ 1,727     $ 22     $     $ 1,749  
FES
    1,079       39             1,118       1,043       3             1,046  
OE
    124       4             128       55                   55  
TE
    31       1             32       72                   72  
JCP&L
    277       15             292       271       9             280  
Met-Ed
    129       8             137       120       5             125  
Penelec
    155       6             161       166       5             171  
 
                                                               
Equity securities
                                                               
FirstEnergy
  $ 261     $ 44     $     $ 305     $ 252     $ 43     $     $ 295  
JCP&L
    78       9             87       74       11             85  
Met-Ed
    122       23             145       117       23             140  
Penelec
    62       10             72       61       9             70  
(1)  
Excludes cash balances: FirstEnergy — $93 million; FES — $40 million; OE — $2 million; TE — $44 million; JCP&L — $5 million; Met-Ed — $(5) million and Penelec — $6 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 nine-month period ended September 30, 2010 and 2009 were as follows:
                                                         
September 30, 2010   FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Proceeds from sales
  $ 2,577     $ 1,478     $ 79     $ 118     $ 340     $ 420     $ 141  
Realized gains
    132       101       2       3       10       10       6  
Realized losses
    118       88             1       10       12       7  
Interest and dividend income
    56       33       2       1       10       5       5  
                                                         
September 30, 2009   FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Proceeds from sales
  $ 3,040     $ 2,153     $ 207     $ 171     $ 339     $ 89     $ 81  
Realized gains
    186       162       11       7       4       1       1  
Realized losses
    96       62       3             11       13       7  
Interest and dividend income
    47       22       4       2       10       5       4  
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 September 30, 2010 and December 31, 2009:
                                                                 
    September 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
  $ 486     $ 99     $     $ 585     $ 544     $ 72     $     $ 616  
OE
    205       60             265       217       29             246  
CEI
    340       31             371       389       43             432  
Investments in emission allowances, employee benefits and cost and equity method investments totaling $256 million as of September 30, 2010, and $264 million as of December 31, 2009 are not required to be disclosed and are therefore excluded from the amounts reported above.
Notes Receivable
The table below provides the approximate fair value and related carrying amounts of notes receivable as of September 30, 2010 and December 31, 2009. 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.
                                 
    September 30, 2010     December 31, 2009  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
    (In millions)  
Notes Receivable
                               
FirstEnergy
  $ 7     $ 8     $ 36     $ 35  
FES
                2       1  
TE
    104       114       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.

 

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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.
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 September 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 September 30, 2010  
    Level 1  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Nuclear Decommissioning Trust Investments — equity securities(1)
  $ 305     $     $     $     $ 88     $ 145     $ 73  
 
                                         
Total Assets(2)
  $ 305     $     $     $     $ 88     $ 145     $ 73  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — commodity contracts
  $ 2     $ 2     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 2     $ 2     $     $     $     $     $  
 
                                         

 

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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
  $ 619     $ 337     $ 127     $ 26     $ 37     $ 82     $ 10  
U.S. state debt securities
    88                         29             59  
Foreign government debt securities
    285       285                                
Corporate debt securities
    580       496             6       23       47       8  
Other
    101       38       6       45       2       9       1  
 
                                         
Total Nuclear Decommissioning Trust Investments
  $ 1,673     $ 1,156     $ 133     $ 77     $ 91     $ 138     $ 78  
 
                                         
 
                                                       
Rabbi Trust Investments
                                                       
Equity securities — financial
  $ 1     $     $     $     $     $     $  
Other
    11                                      
 
                                         
Total Rabbi Trust Investments
  $ 12     $     $     $     $     $     $  
 
                                         
 
                                                       
Nuclear Fuel Disposal Trust Investments
                                                       
U.S. state debt securities
  $ 209     $     $     $     $ 209     $     $  
 
                                         
Total Nuclear Fuel Disposal Trust Investments
  $ 209     $     $     $     $ 209     $     $  
 
                                         
 
                                                       
NUG Trust Investments
                                                       
U.S. state debt securities
  $ 86     $     $     $     $     $     $ 86  
Other
    6                                     6  
 
                                         
Total NUG Trust Investments
  $ 92     $     $     $     $     $     $ 92  
 
                                         
 
                                                       
Derivatives
                                                       
Commodity contracts
  $ 183     $ 174     $     $     $ 2     $ 5     $ 2  
 
                                         
Total Derivatives Contracts
  $ 183     $ 174     $     $     $ 2     $ 5     $ 2  
 
                                         
Total Assets(2)
  $ 2,169     $ 1,330     $ 133     $ 77     $ 302     $ 143     $ 172  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives
                                                       
Commodity contracts
  $ 329     $ 329     $     $     $     $     $  
 
                                         
Total Liabilities
  $ 329     $ 329     $     $     $     $     $  
 
                                         
                                                         
    Level 3  
    FirstEnergy     FES     OE     TE     JCP&L     Met-Ed     Penelec  
    (In millions)  
Assets
                                                       
Derivatives — NUG contracts(3)
  $ 116     $     $     $     $ 7     $ 104     $ 6  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — NUG contracts(3)
  $ 756     $     $     $     $ 386     $ 175     $ 194  
 
                                         
(1)  
NDT funds hold equity portfolios whose performance is benchmarked against the S&P 500 Index or Russell 3000 Index.
 
(2)  
Excludes $(13) million of receivables, payables and accrued income.
 
(3)  
NUG contracts are subject to regulatory accounting and do not impact earnings.
                                                         
    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(1)
  $ 294     $     $     $     $ 87     $ 133     $ 74  
 
                                         
Total Assets(2)
  $ 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(2)
  $ 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(3)
  $ 200     $     $     $     $ 9     $ 176     $ 15  
 
                                         
 
                                                       
Liabilities
                                                       
Derivatives — NUG contracts(3)
  $ 643     $     $     $     $ 399     $ 143     $ 101  
 
                                         
(1)  
NDT funds hold equity portfolios whose performance is benchmarked against the S&P 500 Index or Russell 3000 Index.
 
(2)  
Excludes $21 million of receivables, payables and accrued income.
 
(3)  
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 nine months ended September 30, 2010 and 2009 (in millions):
                                 
    FirstEnergy     JCP&L     Met-Ed     Penelec  
Balance as of January 1, 2010
  $ (444 )   $ (391 )   $ 33     $ (86 )
Settlements(1)
    209       99       60       50  
Unrealized losses(1)
    (405 )     (88 )     (164 )     (153 )
 
                       
Balance as of September 30, 2010
  $ (640 )   $ (380 )   $ (71 )   $ (189 )
 
                       
 
                               
Balance as of July 1, 2010
  $ (557 )   $ (371 )   $ (38 )   $ (148 )
Settlements(1)
    63       29       23       11  
Unrealized losses(1)
    (146 )     (38 )     (56 )     (52 )
 
                       
Balance as of September 30, 2010
  $ (640 )   $ (380 )   $ (71 )   $ (189 )
 
                       
                                 
    FirstEnergy     JCP&L     Met-Ed     Penelec  
Balance as of January 1, 2009
  $ (332 )   $ (518 )   $ 150     $ 36  
Settlements(1)
    273       132       63       78  
Unrealized losses(1)
    (406 )     (30 )     (178 )     (198 )
 
                       
Balance as of September 30, 2009
  $ (465 )   $ (416 )   $ 35     $ (84 )
 
                       
 
                               
Balance as of July 1, 2009
  $ (536 )   $ (466 )   $ 23     $ (93 )
Settlements(1)
    93       42       20       31  
Unrealized gains (losses)(1)
    (22 )     8       (8 )     (22 )
 
                       
Balance as of September 30, 2009
  $ (465 )   $ (416 )   $ 35     $ (84 )
 
                       
(1)  
Changes in fair value of NUG contracts are subject to regulatory accounting and do not impact earnings.
5. 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 September 30, 2010, an adverse 10% change in commodity prices would decrease net income by approximately $6 million ($4 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 approximately $1 million for the three and nine months ended September 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 September 30, 2010, no forward starting swap agreements were outstanding.
Total unamortized losses included in AOCL associated with prior interest rate cash flow hedges totaled $95 million ($62 million net of tax) as of September 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 September 30, 2010 and 2009.
                                 
    Three Months Ended     Nine Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    (In millions)     (In millions)  
Effective Portion
                               
Gain (Loss) Recognized in AOCL
  $     $ (17 )   $     $ (18 )
Reclassification from AOCL into Interest Expense
    (3 )     (26 )     (9 )     (37 )

 

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Fair Value Hedges
FirstEnergy has used 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 were 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. As of September 30, 2010, no fixed-for-floating interest rate swap agreements were outstanding.
Total unamortized gains included in long-term debt associated with prior fixed-for-floating interest rate swap agreements totaled $129 million ($84 million net of tax) as of September 30, 2010. Based on current estimates, approximately $22 million will be amortized to interest expense during the next twelve months. Reclassifications from long-term debt into interest expense totaled $5 million and $7 million for the three and nine months ended September 30, 2010.
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.
The following tables summarize the fair value of commodity derivatives in FirstEnergy’s Consolidated Balance Sheets:
                                     
Cash Flow Hedges  
Derivative Assets     Derivative Liabilities  
    Fair Value         Fair Value  
    September 30,     December 31,         September 30,     December 31,  
    2010     2009         2010     2009  
    (In millions)         (In millions)  
       
Electricity Forwards
                  Electricity Forwards                
Current Assets
  $ 77     $ 3    
Current Liabilities
  $ 87     $ 7  
NonCurrent Assets
    73       11    
NonCurrent Liabilities
    70       12  
Natural Gas Futures
                  Natural Gas Futures                
Current Assets
             
Current Liabilities
    1       9  
NonCurrent Assets
             
NonCurrent Liabilities
           
Other
                  Other                
Current Assets
             
Current Liabilities
          2  
NonCurrent Assets
             
NonCurrent Liabilities
           
 
                           
 
  $ 150     $ 14         $ 158     $ 30  
 
                           
                                     
Economic Hedges  
Derivative Assets     Derivative Liabilities  
    Fair Value         Fair Value  
    September 30,     December 31,         September 30,     December 31,  
    2010     2009         2010     2009  
    (In millions)         (In millions)  
 
                                   
NUG Contracts
                  NUG Contracts                
Power Purchase
                 
Power Purchase
               
Contract Asset
  $ 116     $ 200    
Contract Liability
  $ 756     $ 643  
Other
                  Other                
Current Assets
    17          
Current Liabilities
    138       106  
NonCurrent Assets
    15       19    
NonCurrent Liabilities
    34       97  
 
                           
 
    148       219           928       846  
 
                           
Total Commodity Derivatives
  $ 298     $ 233     Total Commodity Derivatives   $ 1,086     $ 876  
 
                           
Electricity forwards are used to balance expected sales with expected generation and purchased power. Natural gas futures are entered into based on expected consumption of natural gas, primarily used in FirstEnergy’s peaking units. Heating oil futures are entered into based on expected consumption of oil and the financial risk in FirstEnergy’s coal transportation contracts. Derivative instruments are not used in quantities greater than forecasted needs. The following table summarizes the volume of FirstEnergy’s outstanding derivative transactions as of September 30, 2010:
                                 
    Purchases     Sales     Net     Units  
    (In thousands)  
Electricity Forwards
    28,456       (32,604 )     (4,148 )   MWH
Heating Oil Futures
    840             840     Gallons
Natural Gas Futures
    500       (500 )         mmBtu

 

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The effect of derivative instruments on the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2010 and 2009, are summarized in the following tables:
                                 
    Three Months Ended September 30,  
    Electricity     Natural Gas     Heating Oil        
Derivatives in Cash Flow Hedging Relationships   Forwards     Futures     Futures     Total  
    (In millions)  
2010
                               
Gain (Loss) Recognized in AOCL (Effective Portion)
  $ (2 )   $     $     $ (2 )
Effective Gain (Loss) Reclassified to:(1)
                               
Purchased Power Expense
    (1 )                 (1 )
Fuel Expense
          (3 )     (1 )     (4 )
 
                               
2009