(As filed with the Securities and Exchange Commission on December 22, 2005)
File No. 70-9793
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POS AMC
Amendment No. 11
(Post-Effective Amendment No. 8)
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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FIRSTENERGY CORP.
FIRSTENERGY SERVICE COMPANY
76 South Main Street
Akron, Ohio 44308
(Names of companies filing this statement
and address of principal executive office)
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FIRSTENERGY CORP.
(Name of top registered holding company parent of applicant)
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Leila L. Vespoli, Douglas E. Davidson, Esq.
Senior Vice President and General Counsel Thelen Reid & Priest LLP
FirstEnergy Corp. 875 Third Avenue
76 South Main Street New York, New York 10022
Akron, Ohio 44308
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(Names and addresses of agents for service)
FirstEnergy Corp. ("FirstEnergy"), a registered holding company, and
FirstEnergy Service Company ("ServeCo"), a service company subsidiary of
FirstEnergy, hereby supplement Amendment No. 10 (Post-Effective Amendment No. 7)
filed in this proceeding on June 30, 2003, as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
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FirstEnergy directly or indirectly owns all of the outstanding common stock
of ten electric utility subsidiaries, Ohio Edison Company, The Cleveland
Electric Illuminating Company, The Toledo Edison Company, American Transmission
Systems, Incorporated, Jersey Central Power & Light Company ("JCP&L"),
Pennsylvania Electric Company, Metropolitan Edison Company, Pennsylvania Power
Company, York Haven Power Company, and The Waverly Electric Power & Light
Company, which together provide service to approximately 4.3 million retail and
wholesale electric customers in a 37,200 square-mile area in Ohio, New Jersey,
New York and Pennsylvania. FirstEnergy also directly owns all of the issued and
outstanding common stock of ServeCo, an Ohio corporation, which was organized in
2001 in order to become a new service company subsidiary of FirstEnergy.
By Supplemental Order dated June 30, 2003 in this proceeding (Holding Co.
Act Release No. 27695) (the "Service Company Order"), the Commission, among
other things, authorized the consolidation of service functions previously
performed by FirstEnergy and GPU Service, Inc. in ServeCo and approved the form
of service agreement (the "Service Agreement") to be entered into between
ServeCo and its associate companies in the FirstEnergy system. The Commission
reserved jurisdiction over JCP&L's participation in the Service Agreement
pending completion of the record with the filing in this proceeding of the order
of the New Jersey Board of Public Utilities ("NJBPU") approving the Service
Agreement as it relates to JCP&L. On December 14, 2005, the NJBPU issued an
order approving the Service Agreement and the allocation formulas and
methodologies set forth therein to be applicable for ratemaking purposes. A copy
of the NJBPU order is filed as Exhibit D-13 hereto. With the completion of the
record as it relates to JCP&L's participation in the Service Agreement,
FirstEnergy and ServeCo respectfully request that the Commission issue a further
supplemental order in this proceeding to release jurisdiction previously
reserved.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
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The additional fees, commissions and expenses incurred or to be incurred in
connection with the request made herein will not exceed $2,000.
2
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
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The Rule 54 disclosure is updated to read as follows:
The proposed transaction is also subject to the requirements of Rule 54.
Rule 54 provides that in determining whether to approve an application by a
registered holding company which does not relate to any exempt wholesale
generator ("EWG") or "foreign utility company" ("FUCO"), the Commission shall
not consider the effect of the capitalization or earnings of any subsidiary
which is an EWG or a FUCO upon the registered holding company if paragraphs (a),
(b) and (c) of Rule 53 are satisfied. Under Rule 53(a), the Commission shall not
make certain specified findings under Sections 7 and 12 in connection with a
proposal by a holding company to issue securities for the purpose of acquiring
the securities of or other interest in an EWG, or to guarantee the securities of
an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof
are met, provided that none of the conditions specified in paragraphs (b)(1)
through (b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of subsidiaries of a
registered holding company that are EWGs or FUCOs in determining whether to
approve other transactions if Rule 53(a), (b) and (c) are satisfied.
FirstEnergy currently meets all of the conditions of Rule 53(a), except for
clause (1). Under the Commission's order dated October 29, 2001 (Holding Co. Act
Release No. 27459) (the "Merger Order") approving the merger of GPU, Inc.
("GPU") and FirstEnergy and its order dated June 30, 2003 (Holding Co. Ac
Release No. 27694) (the "2003 Financing Order") authorizing FirstEnergy to
engage in various financing transactions, the Commission, among other things,
authorized FirstEnergy to invest in EWGs and FUCOs so long as FirstEnergy's
"aggregate investment," as defined in Rule 53(a)(1), in EWGs and FUCOs does not
exceed $5 billion, which $5 billion amount is greater than the amount which
would be permitted by clause (1) of Rule 53(a) which, based on FirstEnergy's
"consolidated retained earning," also as defined in Rule 53(a)(1), of $2.1
billion as of September 30, 2005, would be $1.05 billion. The Merger Order and
2003 Financing Order also specify that this $5 billion amount may include
amounts invested in EWGs and FUCOs by FirstEnergy and GPU at the time of the
Merger Order ("Current Investments") and amounts relating to possible transfers
to EWGs of certain generating facilities owned by certain of FirstEnergy's
operating utilities ("GenCo Investments"). FirstEnergy has made the commitment
that through December 31, 2005, its aggregate investment in EWGs and FUCOs other
than the Current Investments and GenCo Investments ("Other Investments") will
not exceed $1.5 billion (the "Modified Rule 53 Test"). Under the Merger Order
and 2003 Financing Order, the Commission reserved jurisdiction over Other
Investments that exceed such $1.5 billion amount.
As of September 30, 2005, pro forma to take into account the recent
transfer of certain fossil and hydroelectric generating plants of certain of
FirstEnergy's public utility subsidiaries to FirstEnergy Generation Corp.,
FirstEnergy's aggregate investment in EWGs and FUCOs was approximately $2.5
billion,/1/ an amount significantly below the $5 billion amount authorized in
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1 This $2.5 billion amount represents Current Investments and GenCo
Investments.
3
the Merger Order and 2003 Financing Order. Additionally, as of September 30,
2005, FirstEnergy's consolidated retained earnings were $2.1 billion. By way of
comparison, FirstEnergy's consolidated retained earnings as of December 31, 2001
were $1.52 billion. In any event, even taking into account the capitalization of
and earnings from EWGs and FUCOs in which FirstEnergy currently has an interest,
there would be no basis for the Commission to withhold approval of the
transactions proposed herein. With respect to capitalization, since the date of
the Merger Order, there has been no material adverse impact on FirstEnergy's
consolidated capitalization resulting from FirstEnergy's investments in EWGs and
FUCOs. As of September 30, 2005, FirstEnergy's consolidated capitalization
consisted of 44.9% common equity, 0.9% cumulative preferred stock, 52.9%
long-term debt and 1.3% notes payable. As of December 31, 2001, those ratios
were as follows: 30.3% common equity, 3.1% cumulative preferred stock, 2.2%
subsidiary-obligated mandatorily redeemable preferred securities, 60.9% long
term debt and 3.5% notes payable. Additionally, the proposed transactions will
not have any impact on FirstEnergy's consolidated capitalization. Further, since
the date of the Merger Order, FirstEnergy's investments in EWGs and FUCOs have
contributed positively to its level of earnings, other than for the negative
impact on earnings due to FirstEnergy's writedowns of its investments in Avon
Energy Partners Holdings ("Avon") and GPU Empresa Distribuidora Electrica
Regional S.A. ("Emdersa")./2/
The domestic public utility subsidiaries of FirstEnergy are financially
sound companies as indicated by their investment grade ratings from the
nationally recognized rating agencies for their senior secured debt. The
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2 At the time of the Merger Order, FirstEnergy identified certain former GPU
EWG and FUCO investments for divestiture within one year. Among those identified
were Avon, a holding company for Midlands Electricity plc, an electric
distribution business in the United Kingdom and Emdersa and affiliates, an
electric distribution business in Argentina. In May 2002, FirstEnergy sold 79.9%
of its interest in Avon, and in the fourth quarter of 2002, recorded a $50
million charge ($32.5 million net of tax) to reduce the carrying value of its
remaining 20.1% interest. The remaining 20.1% interest in Avon was sold on
January 16, 2004. Through 2002, FirstEnergy was unsuccessful in divesting GPU's
former Argentina operations and made the decision to abandon its interest in
Emdersa in early 2003. On April 18, 2003, FirstEnergy divested its ownership in
Emdersa through the abandonment of its shares in Emdersa's parent company.
FirstEnergy included in discontinued operations Emdersa's net income of $7
million and a $67 million charge for the abandonment in the second quarter of
2003. An after-tax loss of $87 million (including $109 million in currency
transaction losses arising principally from U.S. dollar denominated debt) was
included in discontinued operations in 2002. In December 2003, Emdersa
Guaracachi S. A. ("EGSA"), GPU Power's Bolivia subsidiary, was sold to Bolivia
Integrated Energy Limited. FirstEnergy included in discontinued operations a $33
million loss on the sale of EGSA in the fourth quarter of 2003 and an operating
loss for the year of $2 million. On January 30, 2004, FirstEnergy sold its
28.67% interest in Termobarranquilla S. A., Empresa de Servicios Publicos
("TEBSA") for $12 million. An impairment loss of $26 million related to TEBSA
was recorded in December 2003 in Other Operating Expenses on the consolidated
statement of income and no gain or loss was recognized upon the sale in 2004.
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following chart includes a breakdown of the senior, secured credit ratings for
those utility subsidiaries that currently have ratings for senior, secured debt:
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Subsidiary Standard & Poors/3/ Moody's/4/ Fitch/5/
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Cleveland Electric Illum. BBB Baa2 BBB-
Toledo Edison Co. BBB Baa2 BBB-
Penn Power Co BBB+ Baa1 BBB+
Jersey Central Power BBB+ Baa1 BBB+
Metropolitan Edison Co. BBB+ Baa1 BBB+
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Ohio Edison Company and Pennsylvania Electric Company no longer have
ratings for the senior secured debt category. However, Ohio Edison Company's
senior unsecured debt is rated BBB- by S&P, Baa2 by Moodys and BBB by Fitch; and
Pennsylvania Electric Company's senior unsecured debt is rated BBB by S&P, Baa2
by Moodys and BBB by Fitch.
FirstEnergy satisfies all of the other conditions of paragraphs (a) and (b)
of Rule 53. With respect to Rule 53(a)(2), FirstEnergy maintains books and
records in conformity with, and otherwise adheres to, the requirements thereof.
With respect to Rule 53(a)(3), no more than 2% of the employees of FirstEnergy's
domestic public utility companies render services, at any one time, directly or
indirectly, to EWGs or FUCOs in which FirstEnergy directly or indirectly holds
an interest. With respect to Rule 53(a)(4), FirstEnergy will continue to provide
a copy of each application and certificate relating to EWGs and FUCOs and
relevant portions of its Form U5S to each regulator referred to therein, and
will otherwise comply with the requirements thereof concerning the furnishing of
information. With respect to Rule 53(b), none of the circumstances enumerated in
subparagraphs (1), (2) and (3) thereunder have occurred.
ITEM 4. REGULATORY APPROVALS.
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The order of the NJBPU approving JCP&L's participation in the Service
Agreement is filed as Exhibit D-13 hereto.
ITEM 5. PROCEDURE.
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FirstEnergy and ServeCo request that the Commission issue a further
supplemental order in this proceeding to release jurisdiction over matters
previously reserved in the Service Company Order. It is further requested that:
(i) there not be a recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Division of Investment
Management be permitted to assist in the preparation of the Commission's
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3 Standard & Poor's Rating Services
4 Moody's Investors Service, Inc.
5 Fitch, Inc.
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decision and (iii) there be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
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(a) Additional Exhibits:
D-13 - NJBPU Order (filed herewith).
(b) Financial Statements:
Omitted as not relevant to the proposed transaction.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this statement to
be signed on their behalves by the undersigned thereunto duly authorized.
FIRSTENERGY CORP.
FIRSTENERGY SERVICE COMPANY
By: /s/ Harvey L. Wagner
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Harvey L. Wagner
Vice President, Controller and
Chief Accounting Officer
Date: December 22, 2005
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