10-QPeriod: Q3 FY2006

FIRSTENERGY CORP Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 2, 2006For Securities:FE

Summary

FirstEnergy Corp. reported a significant increase in net income for the third quarter and the first nine months of 2006 compared to the same periods in 2005. This improvement was primarily driven by reduced amortization of transition costs for its Ohio utilities, cost deferrals authorized by the Public Utilities Commission of Ohio (PUCO) and the Pennsylvania Public Utility Commission (PPUC), and lower operating expenses. For the nine months ended September 30, 2006, electric generation sales also increased, benefiting from customers returning to Ohio utilities from third-party suppliers exiting the market. FirstEnergy also completed a significant share repurchase program in August 2006, acquiring approximately 3.2% of its outstanding common stock. The company also entered into a new, larger syndicated credit facility in August 2006, providing greater financial flexibility. While the company is navigating various regulatory matters across its service territories and addressing environmental compliance costs, its financial performance in the reported periods shows a positive trend, supported by operational efficiencies and strategic financial management.

Key Highlights

  • 1Net income significantly increased in Q3 and the first nine months of 2006 compared to 2005, driven by cost reductions and regulatory approvals.
  • 2Electric generation sales saw an increase year-to-date, partly due to customers returning from third-party suppliers.
  • 3FirstEnergy repurchased approximately 3.2% of its outstanding common stock through an accelerated share repurchase program in August 2006.
  • 4A new, larger syndicated credit facility totaling $2.75 billion was established in August 2006, enhancing financial flexibility.
  • 5The company is actively managing regulatory matters in Ohio, Pennsylvania, and New Jersey, with several key filings and decisions impacting future revenues and costs.
  • 6Environmental compliance remains a focus, with significant capital expenditures estimated for 2006-2010.
  • 7FirstEnergy continues to assess and implement recommendations to enhance regional reliability and comply with evolving industry standards.

Frequently Asked Questions

The primary drivers for the increase in net income were reduced amortization of transition costs for its Ohio utilities, cost deferrals authorized by regulatory bodies (PUCO and PPUC), and lower operating expenses. Additionally, increased electric sales revenues contributed to the nine-month performance.

In August 2006, FirstEnergy repurchased approximately 3.2% of its outstanding common stock through an accelerated share repurchase program and entered into a new $2.75 billion syndicated credit facility, which replaced its previous credit facility and provided enhanced financial flexibility.

FirstEnergy is actively managing various regulatory matters across Ohio, Pennsylvania, and New Jersey. These include rate stabilization plans, transmission and ancillary cost recovery, generation service procurement, and compliance with evolving reliability standards. Decisions in these areas can impact future revenues and operating costs.

FirstEnergy estimates significant capital expenditures of approximately $1.8 billion for environmental compliance from 2006 through 2010. The company is also addressing various air and water quality regulations, including those related to SO2, NOX, mercury, and greenhouse gas emissions.