SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 17, 2003
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
----------- ----------------------------------- ------------------
333-21011 FIRSTENERGY CORP. 34-1843785
(An Ohio Corporation)
76 South Main Street
Akron, Ohio 44308
Telephone (800) 736-3402
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
Item 5. Other Events
FirstEnergy (Company) and its subsidiaries, Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec), are updating
several events that have been previously disclosed in either their Forms 10-Q
for the quarter ended September 30, 2002 (filed on November 14, 2002) or the
Company's Form 8-K filed on December 3, 2002.
Pennsylvania Supreme Court Action
---------------------------------
On January 17, 2003, the Pennsylvania Supreme Court denied further
appeals of the February 21, 2002, Pennsylvania Commonwealth Court's decision
related to FirstEnergy's merger with GPU, Inc. The Commonwealth Court's decision
involved two separate proceedings consolidated and decided by the Pennsylvania
Public Utility Commission (PPUC) in the spring of 2001. As a result of this
action, the Commonwealth Court's decision on several merger-related issues will
stand. The following summarizes key points and the impact on the financial
statements of FirstEnergy, Met-Ed and Penelec:
o Merger Approval
The Commonwealth Court had affirmed the PPUC's order approving the
merger between FirstEnergy and GPU. Thus, the lower court's approval of the
merger stands. Certain parties had sought to overturn this decision.
o Provider of Last Resort (POLR) Relief
The Commonwealth Court had overturned the PPUC's order allowing
Met-Ed and Penelec to apply Competitive Transition Charge (CTC) revenues
against POLR costs in excess of the respective companies' fixed generation
tariff; therefore, providing no basis for deferral accounting for such
costs. However, FirstEnergy does not believe this will have any significant
adverse financial impact on FirstEnergy, Met-Ed and Penelec following
several actions taken in the third quarter of 2002.
In the third quarter of 2002, FirstEnergy recorded a $56 million
reserve ($0.11 per share after-tax) against the energy costs deferred
subsequent to the merger with GPU through September 30, 2002. The remaining
$231 million of deferred energy costs (i.e., the deferred balance that
existed at the time of the merger close) were also reserved through
purchase accounting. As a result, there are no further adjustments required
for FirstEnergy.
Also in the third quarter of 2002, Met-Ed and Penelec entered into
a wholesale power transaction with their unregulated supply affiliate,
FirstEnergy Solutions (FES). Under this agreement, FES assumed the supply
obligation for the portion of the POLR power supply requirements that are
not self-supplied by Met-Ed and Penelec. FES sells this power to Met-Ed and
Penelec based on their respective shopping credits. FES has hedged most of
the Met-Ed and Penelec unfulfilled POLR obligation through 2005, the period
during which deferred accounting was previously allowed under the PPUC's
order.
Because FirstEnergy had already reserved for the deferred energy
costs and FES has largely hedged the anticipated POLR energy supply
requirements for Met-Ed and Penelec through 2005, FirstEnergy, Met-Ed and
Penelec believe that the disallowance of continued CTC recovery of POLR
costs will not produce any significant adverse financial impact.
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o Merger Savings
The Commonwealth Court remanded the merger savings issue back to
the PPUC to determine the amount of merger savings and the allocation of
those savings. The Company believes that the Commonwealth Court did not
realize that cost savings estimated in the merger proceeding were, in fact,
the same thing as merger savings. The PPUC's order had addressed the
sharing of merger savings through a three-year extension of the
distribution rate cap for Met-Ed and Penelec.
It is possible that the PPUC may choose to initiate further
administrative proceedings to address the Commonwealth Court's remand.
Pensions and Other Postretirement Benefits
------------------------------------------
In the third quarter of 2002, FirstEnergy discussed in its Form 10-Q
anticipated changes in pension and other postretirement employee benefit costs
and funding for 2003. Those estimates have been finalized and are summarized as
follows:
o The Company's assumptions in determining pension and other postretirement
employee benefit costs and funding for 2003 are: a return on plan assets of
9.0%, a discount rate of 6.75%, and a compensation increase of 3.5%. Those
assumptions compare to 9.5%, 7.25% and 4.0%, respectively, used in the
estimates for the third quarter Form 10-Q.
o Under ERISA minimum funding requirements, FirstEnergy did not make
a cash contribution to the pension plan in 2002 and is not required to
make one in 2003.
o In the fourth quarter of 2002, FirstEnergy recorded a non-cash, after-tax
charge to equity (through other comprehensive income) of $448 million to
recognize a minimum pension liability under SFAS No. 87. This compares to
the prior estimate of $328 million that was based on the preliminary
assumptions described above.
o FirstEnergy's non-cash, pre-tax pension and other postretirement expense
under SFAS Nos. 87 and 106 will increase by $125 million and $45 million,
respectively - a total of $170 million in 2003 as compared to 2002. This
compares to the prior estimate of $165 million.
Assets Pending Sale
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GPU Empressa Distribuidora Electrica Regional S.A. and affiliates
(Emdersa) is an electric distribution company in Argentina formerly owned by
GPU, and was acquired by FirstEnergy when the merger with GPU was completed in
November 2001. Emdersa was one of the international assets identified for
divestiture within one year of the merger with GPU. In accordance with EITF
Issue No. 87-11, FirstEnergy had classified Emdersa's assets and liabilities in
the Consolidated Balance Sheet as "Assets Pending Sale" and "Liabilities Related
to Assets Pending Sale". In addition, earnings contribution from this business
was excluded from our earnings guidance.
As of December 31, 2002, FirstEnergy neither completed the sale nor
reached a definitive agreement to sell Emdersa. Therefore, these assets will no
longer be classified as "Assets Pending Sale" on FirstEnergy's Consolidated
Balance Sheet and Emdersa 's results of operations will now be included on
FirstEnergy's Consolidated Statement of Income. As a result, under EITF Issue
No. 90-6, FirstEnergy will record in the fourth quarter a one-time, non-cash
"Cumulative Effect of Accounting Change" on its Consolidated Statement of Income
related to Emdersa's cumulative results of operations from November 7, 2001
through October 31, 2002. The amount of this one-time, after-tax charge was
$88.8 million, or $0.30 per share (comprised of $104.1 million in currency
transaction losses arising principally from U.S. denominated debt, offset by
$15.3 million of operating income).
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On November 1, 2002, FirstEnergy began consolidating the results of
Emdersa's operations in its financial statements. In addition to the currency
transaction losses of $104.1 million, FirstEnergy will recognize a currency
translation adjustment in other comprehensive income of $91.5 million as of
December 31, 2002, which will reduce FirstEnergy's common stockholders' equity.
This adjustment represents the impact of translating Emdersa's financial
statements from its functional currency to the U.S. dollar for FirstEnergy's
financial reporting.
Asset Retirement Obligations
----------------------------
As a result of implementing SFAS No. 143, "Accounting for Asset
Retirement Obligations", as of January 1, 2003, FirstEnergy has determined that
the impact of this new standard will increase common stockholders' equity by
$181 million. This will partially offset the effect of recognizing changes to
other comprehensive income described above. The cumulative effect of this
accounting change will be an increase of $0.57 per share to the Company's
reported net income in 2003. This amount is not included in FirstEnergy's
earnings guidance for 2003.
Earnings Guidance
-----------------
FirstEnergy's earnings per share guidance for 2003 remains unchanged
at $3.35 to $3.55. This guidance excludes Davis-Besse outage costs and the
cumulative effect of SFAS 143.
This Form 8-K includes forward-looking statements based on
information currently available to management. Such statements are subject to
certain risks and uncertainties. These statements typically contain, but are not
limited to, the terms "anticipate," "potential," "expect," "believe," "estimate"
and similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes or approvals (including revised environmental
requirements), availability and cost of capital, inability to accomplish or
realize anticipated benefits of strategic goals and other similar factors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
January 21, 2003
FIRSTENERGY CORP.
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Registrant
METROPOLITAN EDISON COMPANY
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Registrant
PENNSYLVANIA ELECTRIC COMPANY
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Registrant
/s/ Harvey L. Wagner
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Harvey L. Wagner
Vice President, Controller
and Chief Accounting Officer
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