10-K/APeriod: FY2002

FIRSTENERGY CORP Annual Report (Amendment), Year Ended Dec 31, 2002

Filed August 19, 2003For Securities:FE

Summary

This filing is an amended annual report (10-K/A) for FirstEnergy Corp. and its subsidiaries for the fiscal year ended December 31, 2002. A significant aspect of this amendment is the restatement of financial statements for FirstEnergy and its subsidiaries due to changes in accounting methods for amortizing costs under the Ohio transition plan and the recognition of above-market values for leased generation facilities. Investors should note potential material adverse impacts on the company's financial condition and results of operations stemming from ongoing litigation regarding environmental matters at the W.H. Sammis Plant, where a court ruled that pre-construction permits were required under the Clean Air Act, and the remedy phase concerning civil penalties and emission reductions is yet to be determined. Furthermore, the report details significant regulatory developments, including a rate reduction for Jersey Central Power & Light (JCP&L) in New Jersey and ongoing disputes regarding merger savings and Provider of Last Resort (PLR) cost recovery for Met-Ed and Penelec in Pennsylvania. The company is also actively divesting international operations, notably the sale of its interest in Avon and abandonment of its stake in Emdersa, which resulted in significant charges and impairments. Investors should monitor the outcomes of these regulatory and legal proceedings, as well as the company's capital expenditure plans and debt maturities totaling nearly $5 billion through 2007.

Key Highlights

  • 1Restatement of 2002 financial statements due to changes in accounting for Ohio transition plan costs and leased generation facilities.
  • 2Ongoing litigation regarding environmental violations at the W.H. Sammis Plant with potential for material adverse impact on financial condition and results.
  • 3New Jersey regulatory decision reducing JCP&L's annual revenues by approximately $62 million.
  • 4Disputes and court remands concerning merger savings and PLR cost recovery for Pennsylvania subsidiaries Met-Ed and Penelec.
  • 5Divestiture of international operations (Avon and Emdersa) resulting in substantial charges and impairments.
  • 6Significant capital expenditure forecast of over $3 billion through 2007 for various infrastructure improvements.
  • 7Long-term debt and preferred stock redemptions totaling nearly $5 billion through 2007.

Frequently Asked Questions

FirstEnergy is filing an amended annual report (10-K/A) to restate its financial statements for the year ended December 31, 2002. This restatement is primarily due to a change in the method of amortizing costs recovered under the Ohio transition plan and the recognition of above-market values for certain leased generation facilities.

A significant risk identified is the ongoing litigation concerning environmental matters at the W.H. Sammis Plant. A court ruled that 11 projects undertaken between 1984 and 1998 required pre-construction permits under the Clean Air Act. The 'remedy phase' of this case, which will determine civil penalties and potential emission reduction actions, could have a material adverse impact on the company's financial condition and results of operations. Management cannot predict the ultimate outcome.

In New Jersey, the NJBPU reduced JCP&L's annual revenues by approximately $62 million, effective August 1, 2003, and set an interim return on equity. In Pennsylvania, there have been complex proceedings regarding merger savings and the recovery of Provider of Last Resort (PLR) costs for Met-Ed and Penelec, leading to the voiding of a settlement stipulation by the companies while voluntarily retaining certain customer benefits. These regulatory decisions and disputes can significantly affect the companies' financial performance.

FirstEnergy is actively divesting its international operations. This includes reaching an agreement to sell its interest in Avon, which involved an impairment charge and the sale of a note receivable. Additionally, the company divested its ownership in Emdersa (Argentina operations) through abandonment, resulting in a significant one-time non-cash charge of $67.4 million in the second quarter of 2003, primarily due to currency translation adjustment losses.