10-KPeriod: FY2005

FIRSTENERGY CORP Annual Report, Year Ended Dec 31, 2005

Filed March 2, 2006For Securities:FE

Summary

This 10-K filing for FirstEnergy Corp. as of December 31, 2005, indicates that the company and most of its subsidiaries maintained effective disclosure controls and procedures. However, Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec) identified a material weakness in their internal controls over financial reporting related to the accuracy of regulatory accounting for Non-Utility Generator (NUG) contracts. Management is implementing enhancements to address this weakness. Separately, Jersey Central Power & Light Company (JCP&L) addressed a restatement of its financial statements due to a tax matter, concluding it was not material. The filing also details executive compensation plans, including performance-adjusted restricted stock units and performance shares, with performance measured against earnings per share, safety, and operational metrics. The company's board has approved key performance indicators for executive compensation for 2006.

Key Highlights

  • 1Effective disclosure controls and procedures were reported for FirstEnergy and most subsidiaries, with the exception of Met-Ed and Penelec.
  • 2A material weakness was identified in Met-Ed and Penelec's internal controls related to NUG contract accounting, with remediation plans in place.
  • 3JCP&L undertook a restatement of its financial statements for the two years ended December 31, 2004, related to a tax audit, which was deemed not material.
  • 4FirstEnergy's Compensation Committee established Key Performance Indicators (KPIs) for 2006 compensation, focusing on operational and corporate objectives.
  • 5Performance-adjusted restricted stock units (RSUs) and performance shares were awarded to named executive officers, with vesting and payout dependent on achieving specific performance metrics over a three-year period.
  • 6The independent registered public accounting firm, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and internal controls for FirstEnergy Corp. and its subsidiaries.
  • 7Various agreements and contracts related to operations, financing, and executive compensation are listed in the exhibits section.

Frequently Asked Questions

Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec), subsidiaries of FirstEnergy, identified a material weakness in their internal controls over financial reporting. This weakness was specifically related to the accuracy of regulatory accounting for their Non-Utility Generator (NUG) contracts. Management has stated that they are implementing enhancements to strengthen these controls and expect to fully implement them in the first quarter of 2006.

Yes, Jersey Central Power & Light Company (JCP&L) restated its financial statements for the two years ended December 31, 2004. This restatement was a result of a tax audit from the State of New Jersey, which identified that the New Jersey Transitional Energy Facilities Assessment tax was not an allowable deduction for state income tax purposes. Management concluded that the restatement adjustments did not have a material impact on the financial statements of prior periods taken as a whole and that the cumulative impact on common stockholder's equity was not material.

FirstEnergy has implemented performance-adjusted restricted stock units (RSUs) and performance shares for its named executive officers. The vesting and number of shares ultimately awarded under these plans are subject to adjustment based on the company's performance over a three-year vesting period. Key performance metrics include earnings per share, safety measures, and operational performance. Specific KPIs for 2006 were also established by the Compensation Committee, focusing on earnings per share, free cash flow, customer service, and various operational and safety metrics.

The independent registered public accounting firm for FirstEnergy Corp. and its subsidiaries, including Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Pennsylvania Power Company, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company, is PricewaterhouseCoopers LLP. Their reports, dated February 27, 2006, indicate an unqualified opinion on the consolidated financial statements and financial statement schedules for the year ended December 31, 2005.