10-QPeriod: Q2 FY2007

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 7, 2007For Securities:FE

Summary

FirstEnergy Corp. reported increased net income for the second quarter and the first six months of 2007 compared to the prior year, driven primarily by higher electric sales revenues, although this was partially offset by increased fuel and purchased power costs, higher operating expenses, and increased interest expense. The company completed a significant sale and leaseback transaction for a portion of its Bruce Mansfield Plant Unit 1, generating substantial net proceeds used to repay debt and fund a pension contribution. Capital expenditures remain robust, with a significant portion allocated to transmission and distribution facilities. The company also noted progress in its reliability initiatives and highlighted ongoing regulatory matters in Ohio, Pennsylvania, and New Jersey that could impact future results.

Key Highlights

  • 1Net income increased in both the second quarter and first six months of 2007 compared to 2006, driven by higher revenues.
  • 2The company completed a $1.3 billion sale and leaseback transaction for a portion of the Bruce Mansfield Plant Unit 1, using the proceeds to repay debt and fund a pension contribution.
  • 3FirstEnergy set new second quarter records for generation sales (32.8 billion KWH) and generation output (20.4 billion KWH), attributed to customer growth, weather impacts, and strong fossil generation fleet performance.
  • 4Significant regulatory developments occurred in Ohio, Pennsylvania, and New Jersey concerning distribution rate increases, generation supply plans, and environmental compliance.
  • 5The company made a $300 million voluntary cash contribution to its qualified pension plan in January 2007.
  • 6The Perry Nuclear Power Plant completed its scheduled refueling outage and subsequently underwent an unplanned outage for equipment replacement.
  • 7Environmental initiatives are ongoing, including plans for an ECO system at the R.E. Burger Plant and substantial capital expenditures for environmental compliance estimated at $1.8 billion from 2007 through 2011.

Frequently Asked Questions

FirstEnergy reported increased net income in the second quarter of 2007 to $338 million, or $1.11 per basic share ($1.10 diluted), compared to $304 million, or $0.92 per basic share ($0.91 diluted), in the second quarter of 2006. This increase was primarily driven by higher electric sales revenues, although partially offset by increased fuel and purchased power costs and higher operating and interest expenses.

The company completed a $1.3 billion sale and leaseback transaction for its interest in the Bruce Mansfield Plant Unit 1, generating approximately $1.2 billion in net after-tax proceeds. These proceeds were used to repay short-term debt incurred for a recent share repurchase program and a pension contribution. Additionally, JCP&L issued $550 million in senior unsecured debt securities.

Yes, FirstEnergy is actively managing several regulatory matters in its key operating states, including distribution rate increase requests in Ohio and ongoing proceedings in Pennsylvania and New Jersey that could affect future revenues. Operationally, the company set new records for generation sales and output in the second quarter of 2007, benefiting from customer growth and favorable weather conditions. Environmental compliance remains a focus, with significant capital expenditures planned for upgrades.

The Energy Delivery Services segment saw a decrease in net income due to higher purchased power and operating expenses, despite revenue growth. The Competitive Energy Services segment experienced a notable increase in net income, driven by improved gross generation margins and lower operating expenses. The Ohio Transitional Generation Services segment's net income remained relatively stable.