8-KMaterial AgreementsOther Events

FIRSTENERGY CORP 8-K Report, Material Agreement (Apr 5, 2016)

Filed April 5, 2016For Securities:FE

Summary

FirstEnergy Corp. (FE) announced through its subsidiary, FirstEnergy Solutions Corp. (FES), and its affiliates Ohio Edison Company, The Cleveland Electric Illuminating Company, and The Toledo Edison Company (collectively, the Ohio Companies), the entry into a Unit Power Agreement (PPA) on April 1, 2016. This PPA, effective June 1, 2016, involves the Ohio Companies purchasing 100% of FES's rights to the output of the W. H. Sammis Plant and the Davis-Besse Nuclear Power Station, along with a share of the Ohio Valley Electric Corporation Amended and Restated Inter-Company Power Agreement. The agreement spans eight years, through May 31, 2024, during which the Ohio Companies will manage the dispatch and offer capacity from these facilities into the PJM markets.

Key Highlights

  • 1The Ohio Companies will purchase power output and associated services from FES's Sammis and Davis-Besse plants, plus an OVEC entitlement, for eight years.
  • 2The agreement is structured as a "unit contingent" PPA, with FES responsible for replacement capacity and energy during certain outages.
  • 3Monthly payments by the Ohio Companies to FES will cover operating costs, capital investments, and FES's allocation of OVEC costs.
  • 4The Ohio Companies will manage the dispatch and capacity market offerings for these facilities within the PJM Interconnection.
  • 5The Public Utilities Commission of Ohio (PUCO) approved modifications to the Ohio Companies' Electric Security Plan IV (ESP IV) on March 31, 2016, which underpins this PPA.
  • 6Certain modifications to ESP IV by the PUCO include customer bill limitations, prohibition of certain facility retirement cost recovery, and assignment of capacity performance penalties/bonuses between FES and the Ohio Companies.
  • 7The PPA and ESP IV are subject to ongoing legal and regulatory challenges from various parties at FERC and potentially in courts.

Frequently Asked Questions

The PPA allows FES's wholly owned subsidiaries, the Ohio Companies, to purchase 100% of the power output, capacity, and associated services from FES's W. H. Sammis Plant and Davis-Besse Nuclear Power Station, along with a portion of the Ohio Valley Electric Corporation's power agreement. This secures power supply for the Ohio Companies for an eight-year period.

The Ohio Companies will make monthly payments to FES to cover the operating and maintenance costs, capital expenditures, and depreciation of the Sammis and Davis-Besse plants. FES is responsible for providing replacement power during certain prolonged or preventable outages. Additionally, the Ohio Companies will bear the financial burden of capacity performance penalties but will retain any capacity performance bonuses generated by these facilities, as per the modified ESP IV approved by the PUCO.

Yes, the PPA and the PUCO's approval of ESP IV are facing challenges. Complaints have been filed at the Federal Energy Regulatory Commission (FERC) seeking review of the PPA and expanded market rules. Management intends to vigorously defend against these and any other potential legal or regulatory challenges.

The PPA has a term of eight years, with the delivery period commencing on June 1, 2016, and ending on May 31, 2024.