8-KOther Events

FIRSTENERGY CORP 8-K Report, Corporate Update (Aug 21, 2006)

Filed August 21, 2006For Securities:FE

Summary

FirstEnergy Corp. (FE), through its subsidiaries Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec), is reporting on a Pennsylvania Public Utility Commission (PPUC) order regarding Non-Utility Generation (NUG) purchased power stranded cost accounting. The PPUC has mandated that Met-Ed and Penelec reverse a January 2006 modification to their NUG stranded cost accounting methodology, which had increased their deferred NUG cost balances. This reversal will result in FirstEnergy and Met-Ed recognizing a pre-tax charge of approximately $10.3 million ($0.02 per share) in the third quarter of 2006, as a significant portion of the costs were incurred prior to FirstEnergy's acquisition of these companies and were already reserved. Despite the PPUC's order, FirstEnergy, Met-Ed, and Penelec maintain that the January 2006 modification was appropriate. The companies intend to petition the PPUC to reinstate the modified methodology retroactively to January 1, 1999. The ultimate success and timing of this petition remain uncertain.

Key Highlights

  • 1PPUC orders Met-Ed and Penelec to reverse a January 2006 NUG stranded cost accounting modification.
  • 2Reversal of the modification leads to a pre-tax charge of approximately $10.3 million for FirstEnergy and Met-Ed.
  • 3The charge, approximately $0.02 per share after tax, will be recognized in Q3 2006.
  • 4A significant portion of the reversed costs predates FirstEnergy's acquisition of Met-Ed and Penelec and was previously reserved.
  • 5FirstEnergy, Met-Ed, and Penelec believe the January 2006 modification was appropriate.
  • 6The companies plan to petition the PPUC to reinstate the modified accounting methodology retroactively from January 1, 1999.
  • 7The outcome and timing of the petition to the PPUC are uncertain.

Frequently Asked Questions

This filing is to report on an order from the Pennsylvania Public Utility Commission (PPUC) that requires FirstEnergy's subsidiaries, Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec), to reverse a recent modification to their Non-Utility Generation (NUG) purchased power stranded cost accounting methodology. This reversal will result in a financial charge for the company.

FirstEnergy and Met-Ed will recognize a pre-tax charge of approximately $10.3 million, which translates to an after-tax charge of about $6.0 million, or $0.02 per share of FirstEnergy common stock, in the third quarter of 2006. This charge arises because the PPUC is disallowing the January 2006 accounting modification.

No, FirstEnergy, along with Met-Ed and Penelec, believes the January 2006 stranded cost accounting methodology modification was appropriate. They plan to petition the PPUC to allow them to reflect this modification retroactively from January 1, 1999. However, there is no guarantee that this petition will be successful or as to its timing.

The filing states that all of Penelec's incremental deferred NUG costs from the modification and approximately $8.7 million of Met-Ed's incremental costs were incurred before FirstEnergy acquired these companies in 2001. These pre-acquisition costs had already been fully reserved when the January 2006 modification was implemented, meaning that the current PPUC order primarily impacts the accounting for costs incurred under FirstEnergy's ownership of Met-Ed.