Summary
This Form 8-K filing from FirstEnergy Corp. (FE) on March 18, 2003, reports on the Phase I audit findings for its wholly-owned subsidiary, Jersey Central Power & Light Company (JCP&L), related to New Jersey's electric utility restructuring. The audit, conducted by the New Jersey Board of Public Utilities, reviewed JCP&L's restructuring-related deferred balances and its Basic Generation Service (BGS) procurement practices. While the audit generally found JCP&L's energy procurement strategy and mitigation efforts for non-utility generation (NUG) contracts to be reasonable and prudent, it identified two specific areas of potential disallowance totaling $17.3 million.
Key Highlights
- 1JCP&L's Phase I audit report for restructuring deferred balances and BGS procurement was submitted on March 18, 2003.
- 2The audit covered deferred balances from August 1, 1999, to July 31, 2002, and examined JCP&L's Basic Generation Service (BGS) procurement and Non-Utility Generation (NUG) mitigation efforts.
- 3The Phase I report generally concluded that JCP&L's BGS procurement strategy was informed, reasonable, and effectively supplemented by external consultants.
- 4JCP&L's program for mitigating NUG contract costs was also deemed reasonable and prudent.
- 5The audit identified potential disallowances of deferred balance recovery totaling $17.3 million.
- 6Specifically, $11.7 million relates to deviations from a hedge procurement target in Spring/Summer 2001, and $5.6 million relates to less aggressive mitigation efforts on smaller NUG contracts.
- 7JCP&L disagrees with the potential disallowance findings but is pleased with the overall positive conclusions of the report and will have opportunities for discovery and rebuttal.
Frequently Asked Questions
The main purpose of this 8-K filing is to report on the initial findings (Phase I) of an audit by the New Jersey Board of Public Utilities concerning Jersey Central Power & Light Company's (JCP&L), a subsidiary of FirstEnergy Corp., restructuring-related deferred balances and energy procurement practices.
The Phase I audit report generally found JCP&L's energy procurement strategy for its Basic Generation Service (BGS) to be reasonable and prudent, noting the effective use of external consultants. JCP&L's efforts to mitigate costs related to Non-Utility Generation (NUG) contracts were also deemed reasonable and prudent. However, the report identified two specific areas where auditors suggest potential disallowances of deferred balance recovery totaling $17.3 million.
The proposed disallowance of $17.3 million stems from two primary concerns: an estimated $11.7 million in incremental costs due to deviations from a hedging procurement target in the spring and summer of 2001, and an estimated $5.6 million in foregone mitigation savings from smaller NUG contracts, where auditors believe JCP&L was not as aggressive as with larger contracts.
FirstEnergy, through JCP&L, disagrees with the findings that led to the $17.3 million in potential disallowances. However, the company is pleased with the overall positive conclusions regarding the reasonableness and prudence of its energy procurement strategy and processes. JCP&L has the opportunity to conduct discovery, cross-examine auditors, and present rebuttal testimony.