8-KFinancial Events

FIRSTENERGY CORP 8-K Report, Material Impairment (Aug 21, 2013)

Filed August 21, 2013For Securities:FE

Summary

FirstEnergy Corp. (FE) subsidiary Monongahela Power Company (MP) has entered into a Joint Stipulation and Agreement for Settlement regarding a generation resource transaction. Under this agreement, MP will acquire full ownership of the Harrison Power Station and sell its minority interest in the Pleasants Power Station. This transaction is expected to result in a significant impairment charge of approximately $330 million ($196 million after-tax) for FirstEnergy, reducing its diluted earnings per share by an estimated $0.47. The impairment is due to the book value of the Harrison Power Station needing to be adjusted to the rate base permitted by the Public Service Commission of West Virginia (PSC). The full financial impact and closing of this transaction are contingent upon the PSC's unconditional approval of the Settlement Agreement. If approved without modification and the transaction closes, it is anticipated to occur in the third or early fourth quarter of 2013. Importantly, the company states that this impairment charge will not result in any future cash expenditures. Investors should monitor the PSC's decision as it is a critical determinant for the realization of this agreement and its associated financial adjustments.

Key Highlights

  • 1FirstEnergy's subsidiaries, Monongahela Power Company (MP) and The Potomac Edison Company (PE), have agreed to a settlement for a generation resource transaction.
  • 2MP will acquire the remaining ownership of Harrison Power Station and sell its stake in Pleasants Power Station.
  • 3A material impairment charge of approximately $330 million ($196 million after-tax) is expected for FirstEnergy.
  • 4The impairment charge is anticipated to reduce FirstEnergy's diluted earnings per share by $0.47.
  • 5The impairment arises from adjusting the book value of the Harrison Power Station to its permissible rate base.
  • 6The transaction's closing and the recognition of the impairment are contingent on the Public Service Commission of West Virginia's approval without modification.
  • 7The impairment charge is non-cash and will not result in future cash expenditures for the company.

Frequently Asked Questions

The primary financial impact is an expected impairment charge of approximately $330 million ($196 million after-tax) on the Harrison Power Station. This charge is anticipated to reduce FirstEnergy's diluted earnings per share by $0.47 and is a non-cash expense.

The transaction and the recording of the impairment charge are contingent upon the Public Service Commission of West Virginia (PSC) approving the Joint Stipulation and Agreement for Settlement without any modifications. The subsequent closing of the proposed asset transfer is also a requirement.

If approved by the PSC without modification, the transaction is likely to close in the third quarter or early in the fourth quarter of 2013. The impairment charge would be recognized in conjunction with the closing of the transaction.

No, the company explicitly states that the impairment charge is not expected to result in any future cash expenditures for FirstEnergy.