-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JHu2dCEqArOPFGhGulBAVxtAi26HdrtunJTyPsUo2yeYMUURLzmtaNi5+X6WGub+ GKrz1cjLAqx01dw7OlezIA== 0001031296-02-000188.txt : 20021015 0001031296-02-000188.hdr.sgml : 20021014 20021015165420 ACCESSION NUMBER: 0001031296-02-000188 CONFORMED SUBMISSION TYPE: POS AMC PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20021015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AMC SEC ACT: 1935 Act SEC FILE NUMBER: 070-09793 FILM NUMBER: 02789542 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 3303845100 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 POS AMC 1 u1_70-9793.txt SERVICE CO. U1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POS AMC Amendment No. 5 (Post-Effective Amendment No. 2) to FORM U-l APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ------------------------------------------------------------------ FirstEnergy Corp. FIRSTENERGY SERVICE COMPANY GPU service, inc. 76 South Main Street Akron, Ohio 44308 (Names of companies filing this statement and address of principal executive office) --------------------------------------------------------------------------- FirstEnergy corp. (Name of top registered holding company parent of applicant) --------------------------------------------------------------------------- Leila L. Vespoli, Douglas E. Davidson, Senior Vice President and General Esq. Counsel Thelen Reid & Priest LLP FirstEnergy Corp. 40 West 57th Street 76 South Main Street New York, New York 10019 Akron, Ohio 44308 --------------------------------------------------------------------------- (Names and addresses of agents for service) ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS. ------------------------------------ A. Background. By Order dated October 29, 2001 in this proceeding ---------- (Holding Co. Act Release No. 27459) (the "Merger Order"), as supplemented by order dated November 8, 2001 (Holding Company Act Release No. 27483), the Commission authorized the merger between FirstEnergy Corp. ("FirstEnergy"), an Ohio corporation, and GPU, Inc. ("GPU"), a Pennsylvania corporation. The merger became effective on November 7, 2001, with FirstEnergy as the surviving entity, and FirstEnergy registered under the Act as a holding company on the same day. As a result of the merger, FirstEnergy directly or indirectly owns all of the outstanding common stock of ten electric utility subsidiaries, Ohio Edison Company ("Ohio Edison"), The Cleveland Electric Illuminating Company ("Cleveland Electric"), The Toledo Edison Company ("Toledo Edison"), American Transmission Systems, Incorporated, Jersey Central Power & Light Company ("JCP&L"), Pennsylvania Electric Company ("Penelec"), Metropolitan Edison Company ("Met-Ed"), Pennsylvania Power Company ("Penn Power"), York Haven Power Company, and The Waverly Electric Power & Light Company, which together provide service to approximately 4,300,000 retail and wholesale electric customers in a 37,200 square-mile area in Ohio, New Jersey, New York and Pennsylvania; and one gas utility subsidiary, Northeast Ohio Natural Gas Corp. ("Northeast"), which provides gas distribution and transportation service to approximately 5,000 customers in central and northeast Ohio. FirstEnergy's electric and gas utility subsidiaries are referred to herein collectively as the "Utility Subsidiaries." FirstEnergy also directly owns all of the issued and outstanding common stock of FirstEnergy Service Company ("ServeCo"), an Ohio corporation, which was organized in 2001 in order to become a new service company subsidiary of FirstEnergy, and GPU Service, Inc. ("GPU Service"), a Pennsylvania corporation, which was formerly a direct service company subsidiary of GPU. FirstEnergy also directly or indirectly holds investments in numerous non-utility subsidiaries that are engaged in a variety of energy-related, exempt, or otherwise functionally related non-utility businesses (collectively, the "Non-Utility Subsidiaries"), including FirstEnergy Generation Corp. ("GenCo") and FirstEnergy Nuclear Operating Company ("FENOC"). Reference is made to Appendix A to the Merger Order for a description of these Non-Utility Subsidiaries. The Utility and Non-Utility Subsidiaries of FirstEnergy are collectively referred to herein as the "Subsidiaries." Under the Merger Order, the Commission granted FirstEnergy a temporary exemption under its rules in order to enable FirstEnergy to continue to provide to the pre-merger Subsidiaries of FirstEnergy certain common corporate services,(1) until such time as all of the service functions performed by - -------------------- (1) These services include: energy supply management of the bulk power and natural gas supply, fuel procurement, coordination of gas and electric systems, maintenance, construction and engineering work; customer billing; materials management; facilities management; human resources; finance; accounting; internal auditing; information systems; corporate planning and research; public affairs; legal; environmental matters; and executive services. 2 FirstEnergy and GPU Service have been consolidated in ServeCo.(2) The Merger Order specified that ServeCo would begin at least minimal operations within 90 days following closing of the merger, and that all service functions of FirstEnergy and GPU Service would be transferred to ServeCo not later than February 1, 2003. Employees of FirstEnergy were transferred to ServeCo by January 1, 2002 and FirstEnergy no longer has any employees and no longer provides any services. ServeCo's authorized capitalization consists of 850 shares of common stock with no par value, of which one (1) share is issued and outstanding and held by FirstEnergy. ServeCo will derive substantially all of its needs for additional working capital from borrowings under FirstEnergy's non-utility money pool (as authorized in the Merger Order) and/or additional equity investments by FirstEnergy pursuant to Rule 45(b)(4) or Rule 52(b), as applicable. B. Summary of Requested Action. In this Post-Effective Amendment, ---------------------------- FirstEnergy, ServeCo and GPU Service are requesting authorization to consolidate all common corporate services provided during the pre-merger period to associate companies in the FirstEnergy system by FirstEnergy and GPU Service in ServeCo.(3) In addition, FirstEnergy asks for a delay of the original February 1, 2003 date for full compliance to April 1, 2003 in order to coincide with FirstEnergy's implementation of the SAP Enterprise IT Solution project.(4) Filed herewith as Exhibit N-7 is the proposed form of Service Agreement, including cost allocation methods, which ServeCo proposes to enter into with FirstEnergy and each Subsidiary that requests services. In addition, FirstEnergy requests authorization for a separate Service Agreement in the form filed herewith as Exhibit N-8 among certain of its Ohio Utility Subsidiaries and Penn Power which will enable these Utility Subsidiaries to render certain services to each other, all as further described below. Exhibit N-9 is ServeCo's Policies and Procedures Manual. On January 1, 2003, personnel of GPU Service who currently provide corporate services to associate companies will be transferred to and become employees of ServeCo. On April 1, 2003, certain employees who provide service only to one Utility Subsidiary will be transferred from ServeCo to the appropriate Utility Subsidiary. Upon full implementation of this reorganization, it is expected that ServeCo will have approximately 3,580 employees in multiple locations organized in thirty departments. C. Services to be rendered by ServeCo. Following the proposed --------------------------------------- consolidation of service functions in ServeCo, ServeCo will enter into a Service Agreement with FirstEnergy, each of the Utility Subsidiaries, and each other associate company in the FE system that requests services from ServeCo. - -------------------- (2) The Merger Order states that FirstEnergy will file a separate application with the Commission on or before September 1, 2002 (extended upon request to the Staff to October 15, 2002) to seek authorization for ServeCo to consolidate service company functions now performed by FirstEnergy and GPU Service, including a form of the proposed service agreement, policies and procedures and cost allocation methods to be used by ServeCo. (3) FirstEnergy may seek approval to form one or more additional service companies in the future including FirstEnergy Nuclear Operating Company and GPU Nuclear, Inc., which provide operating services to the FirstEnergy nuclear generating plants under the direction and supervision of the owners thereof. (4) SAP is an Enterprise Resource Planning (ERP) system that links and coordinates business processes. It will replace existing systems in Human Resources, Finance, Supply Chain, Distribution and Fossil/Nuclear areas, and will be used to manage work, share information, track customer accounts, and meet other business needs. 3 The Service Agreement will be in the form attached hereto as Exhibit N-7. ServeCo will provide its associate companies with services in the following departments, which are described in fuller detail in Exhibit A to the Service Agreement: administrative services, business development, call center, claims, communications, controllers, corporate and shareholder services, corporate affairs and community involvement, credit management, energy delivery and customer service, economic development, enterprise risk management, FirstEnergy technologies, FirstEnergy telecom, governmental affairs, human resources, industrial relations, information services, insurance services, internal audit, investment management, investor relations, legal, performance planning, rates and regulatory affairs, real estate, supply chain, transmission & distribution technical services, treasury and workforce development. Services rendered by ServeCo will be rendered at cost in accordance with Rules 90 and 91. The costs of services provided by ServeCo will be directly assigned, distributed or allocated by work order numbers (or equivalent cost collectors, collectively, "workorders")(5) in accordance with the SEC's Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies. The primary basis for charges to associate companies is the direct charge method. Other costs that are not directly assigned, including overheads and other general administrative costs which will include costs of operating ServeCo as a separate corporate entity, will be allocated to associate companies using one or a combination of the methods of allocation that are described in Exhibit "A" to the Service Agreement. ServeCo will maintain its accounts, cost-accounting procedures and other records in accordance with the requirements of the Commission's Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies. ServeCo will file an annual report on Form U-13-60 in accordance with Rule 94. As provided in the Merger Order, and for so long as FirstEnergy remains a "registered holding company" under PUHCA, no change in the organization of ServeCo, the type and character of the companies to be serviced, the methods of allocating costs to associate companies, or in the scope or character of the services to be rendered subject to Section 13 of the Act, or any rule, regulation or order thereunder, shall be made unless and until ServeCo shall first have given the Commission written notice of the proposed change not less than 60 days prior to the proposed effectiveness of any such change. If, upon the receipt of any such notice, the Commission shall notify ServeCo within the 60-day period that a question exists as to whether the proposed change is consistent with the provisions of Section 13 of the Act, or of any rule, regulation or order thereunder, then the proposed change shall not become - -------------------- (5) There are four cost collectors which are equivalent to work orders: "orders", "cost centers", "networks" and "work breakdown structures" ("WBSs"). Orders include work orders, sales orders, internal orders and service orders. Each employee will be assigned to a cost center which will be responsible for collecting routine costs. WBSs are analogous to work orders and can be used for projects exceeding certain dollar thresholds or durations, or which involve investing in capital assets. To ensure proper recordkeeping, each employee will be required to charge time against a designated order, network, WBS or cost center number. 4 effective unless and until the ServeCo shall have filed with the Commission an appropriate declaration regarding such proposed change and the Commission shall have permitted such declaration to become effective. 1. Cost Allocation Methodology ServeCo categorizes costs of services provided to affiliates into three primary categories. Directly Assignable costs represents expenses incurred for activities and services exclusively for the benefit of one affiliate, and in many respects, are captured through individual department workorder systems for specific project billing purposes. Directly Attributable costs represent expenses incurred for activities and services that benefit more than one affiliate and which can be assigned using direct measures of costs causation. The majority of costs incurred by ServeCo fall into the above two categories. By the very nature of a service corporation, a portion of ServeCo's expenses will not be directly related to specific current operations or functions of individual Subsidiaries. Nor are these costs amenable to many of the cost accounting procedures, which frequently concentrate upon identification of variable, fixed and semi-fixed costs. Accordingly, it is necessary to develop formulae that recognize the overall contribution of ServeCo to both the current and future operations of the FirstEnergy system. After all direct charges have been made, the remaining costs (Indirect Costs) in each department in ServeCo must be fairly and equitably allocated among FirstEnergy and the Subsidiaries. As a registered public utility holding company, FirstEnergy's primary business is that of owning and operating electric public utilities. As the electric industry moves through restructuring to permit competition in business areas once the sole province of historical monopolies, FirstEnergy has begun to enter competitive energy and energy services businesses to the extent permitted by state and federal restrictions. Codes of conduct govern the relationship between the Utility Subsidiaries and their affiliated competitive businesses, namely, the Non-Utility Subsidiaries. As a public utility holding company, FirstEnergy has invested capital for infrastructure over many years in the Utility Subsidiaries so that they may develop the support services necessary to serve their customers. The costs associated with these infrastructure investments (e.g., accounting and human resources systems, telephone circuits and other communications equipment, mainframe CPU, printers and data storage development tools and client servers and storage not dedicated to the competitive unit) were originally incurred, and would continue to be incurred, regardless of whether or not the Non-Utility Subsidiaries were part of FirstEnergy. These Indirect Costs will be allocated using a multi-variable formula, which gives weight to more than one measure of the size of the various Subsidiaries' operations within the FirstEnergy system, and is particularly relevant under these circumstances. In accordance with Rule 90(b), ServeCo will direct charge its associate companies for all costs of products and services where possible. The costs of products and services provided by ServeCo that cannot be charged 5 directly to the Subsidiary or Subsidiaries receiving the product or service will be allocated among all Subsidiaries (and FirstEnergy, where applicable) by utilizing one of the methods described below. The key determinants in assigning the allocation methods were the business operations of the Subsidiary or Subsidiaries receiving the benefit of the product and service, and the associated cost driver for each product and service. FirstEnergy has developed sixteen (16) methods of allocation for charging a share of the Indirect Costs to the Subsidiaries benefiting from the particular product or service being provided: a. "Multiple Factor - All" - For the Indirect Costs for products or services benefiting the entire FirstEnergy system, FirstEnergy and all Subsidiaries will bear a fair and equitable portion of such costs. FirstEnergy will bear 5% of these Indirect Allocations. The remaining Indirect Allocations will be allocated among the Utility Subsidiaries and the Non-Utility Subsidiaries based on FirstEnergy's equity investment in the respective groups. A subsequent allocation step will then occur. Among the Utility Subsidiaries, allocations will be based upon the "Multiple Factor - Utility" method. Among the Non-Utility Subsidiaries, allocations will be based upon the "Multiple Factor - Non-Utility" method. b. "Multiple Factor - Utility" - For the Indirect Costs for a product or service solely benefiting one or more of the Utility Subsidiaries, each such Utility Subsidiary will be charged a portion of the Indirect Costs based on the sum of the weighted averages of the following factors: 1. Gross transmission and/or distribution plant 2. Operating and maintenance expense excluding purchase power and fuel costs 3. Transmission and/or distribution revenues, excluding transactions with affiliates These three (3) factors have been determined to be the most appropriate for the Utility Subsidiaries in the FirstEnergy system. Each factor will be weighted equally so that no one facet of the electric utility operations inordinately influences the distribution of Indirect Costs. c. "Multiple Factor - Non-Utility" - For the Indirect Costs for products or services solely benefiting the Non-Utility Subsidiaries, each Non-Utility Subsidiary receiving the product or service will be charged a proportion of the Indirect Costs based upon the total assets of each Non-Utility Subsidiary, including the generating assets under operating leases from the Utility Subsidiaries. d. "Multiple Factor - Utility and Non-Utility" - For the Indirect Costs for a product or service benefiting one or more of the Utility and Non-Utility Subsidiaries, each such Subsidiary is first assigned a distribution ratio that is in proportion to the Indirect Costs based on FirstEnergy's equity investment in such Subsidiaries. Following this distribution, a subsequent allocation step will then occur. Among the Utility Subsidiaries, allocations will be based upon the "Multiple 6 Factor-Utility." Among the Non-Utility Subsidiaries, allocations will be based upon "Multiple Factor - Non-Utility" e. "Direct Charge Ratio" - The ratio of direct charges for a particular product or service to an individual Subsidiary as a percentage of the total direct charges for a particular product or service to all Subsidiaries. Indirect costs are then allocated to each Subsidiary based on the calculated ratios. f. "Enterprise Distribution - For the Indirect Costs for products and services that benefit the entire FirstEnergy system, FirstEnergy and all Subsidiaries will bear a fair and equitable portion of such costs. FirstEnergy will bear 5% of these Indirect Costs. The remaining Indirect Costs will be allocated among the Utility Subsidiaries and Non-Utility Subsidiaries based on FirstEnergy's equity investment in the respective groups. g. "Number of Customers Ratio" - For costs of products and services driven by the number of Utility customers, the allocation method that will be used will be the number of Utility customers for the respective Utility Subsidiary receiving the product or service divided by the total number of Utility customers. h. "Number of Shopping Customers" - A "shopping customer" is defined as a Utility customer who has selected a competitive electric generation supplier. For costs of products and services driven by the number of shopping customers, the allocation method that will be used will be the number of shopping customers for the respective Utility Subsidiary receiving the product or service divided by the total number of shopping customers. i. "Number of Participating Employees - General" - For costs of products and services driven by all participating employees within the FirstEnergy system, the allocation method that will be used will be the number of participating employees for the respective Subsidiary receiving the product or service divided by the total number of participating employees. j. "Number of Participating Employees - Utility and Non-Utility" - For costs of products and services driven by participating employees who work for the Utility and Non-Utility Subsidiaries, the Subsidiaries receiving the product or service are first assigned a distribution ratio that is in proportion to the Indirect Costs based on FirstEnergy's equity investment in the respective groups. Costs are further allocated by using the number of participating employees for the respective Subsidiary divided by the total number of participating FirstEnergy employees. 7 k. "Square Footage Used Ratio" - Amount of square footage occupied by a Subsidiary receiving the product or service divided by the total amount of square footage occupied by all FirstEnergy system companies applicable to that respective product or service. l. "Gigabytes Used Ratio" - Number of gigabytes utilized by a Subsidiary receiving the product or service divided by the total number of gigabytes used by the FirstEnergy system companies applicable to that respective product or service. m. "Number of Computer Workstations Ratio" - Number of computer workstations utilized by a Subsidiary receiving the product or service divided by the total number of computer workstations in use by the FirstEnergy system companies applicable to that respective product or service. n. "Number of Billing Inserts Ratio" - Number of billing inserts performed for a Subsidiary receiving the product or service divided by the total number of billing inserts performed for the FirstEnergy system companies applicable to that respective product or service. o. "Number of Invoices Ratio" - Number of invoices processed for a Subsidiary receiving the product or service divided by the total number of invoices processed for the FirstEnergy system companies applicable to that respective product or service. p. "Number of Payments Ratio" - Number of monthly payments processed for a Subsidiary divided by the total monthly number of payments processed for the FirstEnergy system companies applicable to that respective product or service. D. Services to be rendered by certain Utility Subsidiaries to each --------------------------------------------------------------- other. FirstEnergy organizes and conducts its Utility Subsidiary operations on a - ----- regional basis.(6) These regions operate and are managed as separate business units. The regional structure focuses on moving accountability and decision - -------------------- (6) There are nine regions in three states: Western Region - Ohio; Northern Region - Ohio; Central Region - Ohio; Southern Region - Ohio; Eastern Region- Ohio; Western Region - Pennsylvania; Eastern Region - Pennsylvania; Northern Region - New Jersey; and Central Region - New Jersey. Each region has a "Regional President", as well as a management and support team that reports to the Regional President. For the most part, each region is entirely within a particular Utility Subsidiary's service territory. However, two regions - Western Region - Ohio and Eastern Region - Ohio -- include parts of several Utility Subsidiaries. Western Region - Ohio, includes all of Toledo Edison and 990 square miles of Ohio Edison's service territory in Sandusky, Ohio. The Eastern Region - Ohio covers the eastern 2,517 square miles of Ohio Edison, 661 square miles of Cleveland Electric and all 1,112 square miles of Penn Power. 8 making closer to customers with an emphasis on decentralized operations and providing cost effective, high-quality service to customers. Because of this decentralized, regional approach, certain regional support services (such as Human Resources, Workforce Development and Business Services) will be accounted for in the appropriate Utility Subsidiary. In the case of Western Region - Ohio and Eastern Region - Ohio, the employees who must provide service to more than one legal entity will continue to charge their time in a fair and equitable manner to all Utility Subsidiaries within that region, rather than be accounted for in the ServeCo.(7) In addition, from time to time, one Utility Subsidiary may request other services from another Utility Subsidiary. These services will be provided at cost in accordance with Rules 90 and 91 and billed to the receiving Utility Subsidiary(ies), at cost as set forth in accordance with Utility-to-Utility Service Agreement, the form of which is filed herewith as Exhibit N-8.(8) This will allow the regional management to operate regions as separate units, and provide the most effective service possible to the customers of the Utility Subsidiaries. ITEM 2. FEES, COMMISSIONS AND EXPENSES. ------------------------------ FirstEnergy estimates that the additional fees, commissions and expenses incurred or to be incurred in connection with the proposed transaction will not exceed $25,000. ITEM 3. APPLICABLE STATUTORY PROVISIONS. ------------------------------- Section 13(b) of the Act and Rule 88 thereunder are applicable to the proposed transaction. FirstEnergy believes that ServeCo has been organized so as to comply with Section 13(b) of the Act and the Commission's rules and regulations thereunder. In this regard, Rule 88 provides that "[a] finding by the Commission that a subsidiary company of a registered holding company . . . is so organized and conducted, or to be conducted, as to meet the requirements of Section 13(b) of the Act with respect to reasonable assurance of efficient and economical performance of services or construction or sale of goods for the benefit of associate companies, at cost fairly and equitably allocated among them (or as permitted by Rule 90), will be made only pursuant to a declaration filed with the Commission on Form U-13-1, as specified" in the instructions for that form, by such company or the persons proposing to organize it. Notwithstanding the foregoing language, the Commission has on several recent occasions made findings under Section 13(b) based on information set forth in an Application/Declaration on Form U-1, without requiring the formal filing of a Form U-13-1. See SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000); --------------- New Century Energies, Holding Co. Act Release No. 26748 (Aug. 1, 1997); CINergy - -------------------- ------- Corp., Holding Co. Act Release No. 26146 (Oct. 21, 1994); UNITIL Corp., Holding - ----- ------------- Co. Act Release No. 25524 (April 24, 1992). In this Post-Effective Amendment, FirstEnergy has submitted substantially the same information for ServeCo as - -------------------- (7) Of the approximately 5,500 employees in nine Regions, less than 200 employees provide the "regional" support services discussed herein. (8) The Commission has previously authorized utility companies in a holding company system to render service to each other. See e.g., Ameren Corporation, -------- ------------------- Holding Co. Act Release No. 26809 (Dec.30, 1997); CP&L Energy, Holding Co. Act ----------- Release No. 27284 (Nov.27, 2000) 9 would have been submitted in a Form U-13-1. Accordingly, it is submitted that it is appropriate to find that ServeCo is so organized and its business will be so conducted as to meet the requirements of Section 13(b), and that the filing of a Form U-13-1 is unnecessary, or, alternatively, that this Post-Effective Amendment should be deemed to constitute a filing on Form U-13-1 for purposes of Rule 88. 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. FirstEnergy currently meets all of the conditions of Rule 53(a), except for clause (1). In the Merger Order, the Commission, among other things, authorized FirstEnergy to invest in EWGs and FUCOs so that FirstEnergy's "aggregate investment," as defined in Rule 53(a)(1), in EWGs and FUCOs does not exceed $5 billion, which amount is above the level which would be permitted by clause (1) of Rule 53(a) if such amount were to be currently calculated. The Merger Order also specifies 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 June 30, 2003, its aggregate investment in EWGs and FUCOs other than the Current Investments and GenCo Investments ("Other Investments") will not exceed $1.5 billion. The Commission has reserved jurisdiction over investments that exceed such amount. As of June 30, 2002, and on the same basis as set forth in the Merger Order, FirstEnergy's aggregate investment in EWGs and FUCOs was approximately $1.2 billion(9), an amount significantly below the $5 billion amount authorized in the Merger Order. 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. Additionally, the proposed transactions will not have any material impact on FirstEnergy's capitalization. Further, since the date of the Merger Order, and, after taking into account the effects of the Merger, there has been no material change in FirstEnergy's level of earnings from EWGs and FUCOs. - -------------------- (9) This $1.2 billion amount represents Current Investments only. As of September 30, 2002, FirstEnergy's Ohio Utility Subsidiaries and Penn Power had not transferred any generating facilities to GenCo. 10 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. Finally, Rule 53(c) by its terms is inapplicable since the proposed transaction does not involve the issue or sale of a security to finance the acquisition of an EWG or FUCO. ITEM 4. REGULATORY APPROVALS. -------------------- The New Jersey Board of Public Utilities ("NJBPU") and the Pennsylvania Pubic Utility Commission ("PPUC") have jurisdiction under their respective state affiliate interests statutes over the proposed Service Agreement, as it relates to the Utility Subsidiaries that are subject to regulation by those commissions. No other State commission, and no Federal commission, other than this Commission has jurisdiction over the proposed transaction. ITEM 5. PROCEDURE. --------- FirstEnergy requests that the Commission issue a supplemental order approving the proposed transaction at the earliest practicable date, but in any event not later than February 1, 2003, so that FirstEnergy can implement the new service company structure on or before April 1, 2003. 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 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. --------------------------------- (a) Exhibits: D-12 - Application of JCP&L to NJBPU for Approval of Service Agreement -- to be filed by amendment. D-13 - NJBPU Order -- to be filed by amendment. D-14 - Application of Penn Power, Penelec and Met-Ed to PPUC for Approval of Service Agreement -- to be filed by amendment. 11 D-15 - PPUC Order -- to be filed by amendment. N-7 - Form of Service Agreement (including Allocation Methods). N-8 - Utility-to-Utility Service Agreement -- to be filed by amendment N-9 - Policies and Procedures Manual -- to be filed by amendment (in paper copy only) (b) Financial Statements: Omitted as not relevant to the proposed transaction. ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS. --------------------------------------- (a) The proposed transaction does not involve a major Federal action significantly affecting the quality of the human environment. (b) No federal agency has prepared or is preparing an environmental impact statement with respect to the proposed transaction. 12 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 GPU SERVICE, INC. By:________________________________ Harvey L. Wagner Vice President and Controller Date: October 15, 2002 13 EX-99 3 u1_exhibitn-7.txt EXHIBIT N-7 Exhibit N-7 FORM OF SERVICE AGREEMENT This Service Agreement ("Agreement") is entered into as of the 1st day of April, 2003, by and between each of the associate companies listed on the signature page hereto (each a "Client Company"), and FirstEnergy Service Company, an Ohio corporation ("Service Company"). WHEREAS, Service Company is a direct wholly-owned subsidiary of FirstEnergy Corp., a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"); WHEREAS, Service Company has been formed for the purpose of providing administrative, management and other services to FirstEnergy Corp. and its associate companies, including Client Company (together, the "Client Companies"); and WHEREAS, Client Company believes that it is in its interest to enter into an arrangement whereby Client Company may agree to purchase such administrative, management and other services from Service Company as Client Company may choose at cost as determined in accordance with this Agreement and Rules 90 and 91 under the Act; NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DESCRIPTION OF SERVICES. ----------------------- Service Company agrees to provide certain administrative, management or other services (the "Services") to Client Company similar to those supplied to other Client Companies of Service Company. Such services are and will be provided to Client Company only at the request of Client Company. Exhibit A hereto lists and describes all of the Services that are available from Service Company. 2. PERSONNEL. --------- In order to provide the Services, Service Company will employ executive officers, accountants, financial advisers, technical advisers, attorneys and other persons with the necessary qualifications. If necessary, Service Company may also arrange for the services of nonaffiliated experts, consultants and attorneys in connection with the performance of any of the Services provided under this Agreement. 1 3. COMPENSATION AND ALLOCATION. --------------------------- As and to the extent required by law, Service Company provides and will provide such services at fully allocated cost, determined in accordance with Rules 90 and 91 under the Act. Exhibit A hereof contains rules for determining and allocating such costs. 4. TERMINATION AND MODIFICATION. ---------------------------- Either party to this Agreement may terminate this Agreement by providing 60 days written notice of such termination to the other party. This Agreement is subject to termination or modification at any time to the extent its performance may conflict with the provisions of the Act or with any rule, regulation or order of the Securities and Exchange Commission (the "Commission") adopted before or after the making of this Agreement. This Agreement shall be subject to the approval of any state commission or other state regulatory body whose approval is, by the laws of said state, a legal prerequisite to the execution and delivery or the performance of this Agreement. 5. SERVICE REQUESTS. ---------------- Client Company and Service Company will prepare a Service Request on or before September 30th of each year listing Services to be provided to Client Company by Service Company and any special arrangements related to the provision of such Services for the coming year, based on Services provided during the preceding year. Client Company and Service Company may supplement the Service Request during the year to reflect any additional or special Services that Client Company wishes to obtain from Service Company, and the arrangements relating thereto. 6. BILLING AND PAYMENT. ------------------- Unless otherwise set forth in a Service Request, payment for Services provided by Service Company shall be by making remittance of the amount billed or by making appropriate accounting entries on the books of Client Company and Service Company. Billing will be made on a monthly basis, with the bill to be rendered as soon as practicable after the close of the month, and remittance or accounting entries completed within 30 days of billing. Any amount remaining unpaid after 30 days following receipt of the bill shall bear interest thereon from the due date of the bill until payment at a rate equal to the prime rate on the due date. 7. NOTICE. ------ Where written notice is required by this Agreement, all notices, consents, certificates, or other communications hereunder shall be in writing and shall be deemed given when mailed by United States registered or certified mail, postage prepaid, return receipt requested, addressed as follows: 2 To Client Company: c/o President 76 South Main St. Akron, Ohio 44308 To Service Company: c/o Vice President and Controller 76 South Main Street Akron, Ohio 44308 8. GOVERNING LAW. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to its conflict of laws provisions. 9. MODIFICATION. ------------ No amendment, change or modification to this Agreement shall be valid, unless made in writing and signed by both parties hereto. 10. ENTIRE AGREEMENT. ---------------- This Agreement, together with its exhibits, constitutes the entire understanding and agreement of the parties with respect to its subject matter, and effective upon the execution of this Agreement by the respective parties hereof, any and all prior agreements, understandings or representations with respect to this subject matter are hereby terminated and canceled in their entirety and are of no further force and effect, except to the extent transactions thereunder have taken place prior to such effective date in which case such agreements will govern the terms of such transactions. 11. WAIVER. ------ No waiver by either party hereto of a breach of any provision of this Agreement shall constitute a waiver of any preceding or succeeding breach of the same or any other provision hereof. 12. ASSIGNMENT. ---------- This Agreement shall inure to the benefit and shall be binding upon the parties and their respective successors and assigns. No assignment of this Agreement or either party's rights, interests or obligations hereunder may be made without the other party's consent, which shall not be unreasonably withheld, delayed or conditioned. 13. SEVERABILITY. ------------ If any provision or provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of this 1st day of April, 2003. FirstEnergy Service Company By:_________________________________ Harvey L. Wagner, Vice President & Controller Client Companies: [LIST] By: __________________________________ Name: ________________________________ Title: _________________________________ 4 EXHIBIT A --------- DESCRIPTION OF SERVICES AND ALLOCATION METHODOLOGY -------------------------------------------------- 1. Description Of Services ----------------------- Overview This Exhibit provides a description of all services provided by Service Company departments and the cost allocation methodologies to be used in connection therewith. All products and services are subject to Service Level Standards as negotiated between the Service Company department and Client Company. Each Client Company is classified as either a "Utility Subsidiary" or a "Non-Utility Subsidiary" as defined in the Commission's Order dated October 29, 2001 (Holding Co. Act Release No. 27459), as supplemented by a supplemental order dated November 8, 2001 (Holding Company Act Release No. 27483). 2. Cost Allocation Methodology --------------------------- Overview The costs of services provided by Service Company will be directly assigned, distributed or allocated by activity, project, program, work order or other appropriate basis. The primary basis for charges to affiliates is the direct charge method. The methodologies listed below pertain to all other costs which are not directly assigned but which make up the fully allocated cost of providing the product or service. The costs of product and services provided by the ServeCo that cannot be charged directly to the Subsidiary receiving the product or service will be allocated among the associate companies by utilizing one of the methods described below that most accurately distributes the costs. The method of cost allocation varies based on the department rendering the service. The allocation methods used by Service Company are as follows: a. "Multiple Factor - All" - For the Indirect Costs for products or services benefiting the entire FirstEnergy system, FirstEnergy and all Subsidiaries will bear a fair and equitable portion of such costs. FirstEnergy will bear 5% of these Indirect Costs. The remaining Indirect Costs will be allocated among the Utility Subsidiaries and the Non-Utility Subsidiaries based on FirstEnergy's equity investment in the respective groups. A subsequent allocation step will then occur. Among the Utility Subsidiaries, allocations will be based upon the "Multiple Factor - Utility" method. Among the Non-Utility Subsidiaries, allocations will be based upon the "Multiple Factor - Non-Utility" method. b. "Multiple Factor - Utility" - For the Indirect Costs for a product or service solely benefiting one or more of the Utility Subsidiaries, each such Utility Subsidiary will be charged a portion of the Indirect Costs based on the sum of the weighted averages of the following factors: A-1 1. Gross transmission and/or distribution plant 2. Operating and maintenance expense excluding purchase power and fuel costs 3. Transmission and/or distribution revenues, excluding transactions with affiliates These three (3) factors have been determined to be the most appropriate for the Utility Subsidiaries in the FirstEnergy system. Each factor will be weighted equally so that no one facet of the electric utility operations inordinately influences the distribution of Indirect Costs. c. "Multiple Factor - Non-Utility" - For the Indirect Costs for products or services solely benefiting the Non-Utility Subsidiaries, each Non-Utility Subsidiary receiving the product or service will be charged a proportion of the Indirect Costs based upon the total assets of each Non-Utility Subsidiary, including the generating assets under operating leases from the Utility Subsidiaries. d. "Multiple Factor - Utility and Non-Utility" - For the Indirect Costs for a product or service benefiting one or more of the Utility and Non-Utility Subsidiaries, each such Subsidiary is first assigned a distribution ratio that is in proportion to the Indirect Costs based on FirstEnergy's equity investment in such Subsidiaries. Following this distribution, a subsequent allocation step will then occur. Among the Utility Subsidiaries, allocations will be based upon the "Multiple Factor-Utility." Among the Non-Utility Subsidiaries, allocations will be based upon "Multiple Factor - Non-Utility" e. "Direct Charge Ratio" - The ratio of direct charges for a particular product or service to an individual Subsidiary as a percentage of the total direct charges for a particular product or service to all Subsidiaries. Indirect costs are then allocated to each Subsidiary based on the calculated ratios. f. "Enterprise Distribution - For the Indirect Costs for products and services that benefit the entire FirstEnergy system, FirstEnergy and all Subsidiaries will bear a fair and equitable portion of such costs. FirstEnergy will bear 5% of these Indirect Costs. The remaining Indirect Costs will be allocated among the Utility Subsidiaries and Non-Utility Subsidiaries based on FirstEnergy's equity investment in the respective groups. g. "Number of Customers Ratio" - For costs of products and services driven by the number of Utility customers, the allocation method that will be used will be the number of Utility customers for the respective Utility Subsidiary receiving the product or service divided by the total number of utility customers. h. "Number of Shopping Customers Ratio" - A "shopping customer" is defined as a Utility customer who has selected a competitive electric generation supplier. For costs of products and services driven by the number of shopping customers, the allocation method that will be used will be the number of shopping customers for the respective Utility Subsidiary receiving the product or service divided by the total number of shopping customers. A-2 i. "Number of Participating Employees - General" - For costs of products and services driven by all participating employees within the FirstEnergy system, the allocation method that will be used will be the number of participating employees for the respective Subsidiary receiving the product or service divided by the total number of participating employees. j. "Number of Participating Employees - Utility and Non-Utility" - For costs of products and services driven by participating employees who work for the Utility and Non-Utility Subsidiaries, the Subsidiaries receiving the product or service are first assigned a distribution ratio that is in proportion to the Indirect Costs based on FirstEnergy's equity investment in the respective groups. Costs are further allocated by using the number of participating employees for the respective Subsidiary divided by the total number of participating FirstEnergy employees. k. "Square Footage Used Ratio" - Amount of square footage occupied by a Subsidiary receiving the product or service divided by the total amount of square footage occupied by all FirstEnergy system companies applicable to that respective product or service. l. "Gigabytes Used Ratio" - Number of gigabytes utilized by a Subsidiary receiving the product or service divided by the total number of gigabytes used by the FirstEnergy system companies applicable to that respective product or service. m. "Number of Computer Workstations Ratio" - Number of computer workstations utilized by a Subsidiary receiving the product or service divided by the total number of computer workstations in use by the FirstEnergy system companies applicable to that respective product or service. n. "Number of Billing Inserts Ratio" - Number of billing inserts performed for a Subsidiary receiving the product or service divided by the total number of billing inserts performed for the FirstEnergy system companies applicable to that respective product or service. o. "Number of Invoices Ratio" - Number of invoices processed for a Subsidiary receiving the product or service divided by the total number of invoices processed for the FirstEnergy system companies applicable to that respective product or service. p. "Number of Payments Ratio" - Number of monthly payments processed for a Subsidiary divided by the total monthly number of payments processed for the FirstEnergy system companies applicable to that respective product or service. A-3 3. Descriptions of Products and Services ------------------------------------- CALL CENTER - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Field All Inbound Field calls related to billing, Number of Customers Regulated Calls credit, new service, service order Ratio completion, outages, and other miscellaneous activities. Field All Inbound Field calls related to billing, Number of Shopping Unregulated Calls credit, new service, service order Customers Ratio completion, outages, and other miscellaneous activities. - -------------------------------------------------------------------------------- CUSTOMER SERVICE - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Supplier Services Provide customer services support Number of Shopping to electric generation suppliers, Customers Ratio administer and maintain Electronic Data Interface (EDI) functions and invoice suppliers. Regulatory Interface Liaison to ensure Customer Choice Number of Shopping and Process requirements and develop and Customers Ratio Improvement: execute plans to improve Supplier supplier services processes. Market Support Administer and support MSG supplier Number of Shopping Generation (MSG) functions. Customers Ratio Administration Regulatory Respond to regulatory complaints Number of Customers Interface and from customers and develop and Ratio Process execute plans to improve regulatory Improvement: compliance processes. Regulatory Compliance Work with regions to communicate Multiple Factor - and ensure regulatory requirements. Utility Power Billing Provide billing functions for Number of Customers large commercial/industrial Ratio contract customers. Revenue Reporting Perform and manage revenue Number of Customers reporting functions. Ratio Billing Exception Process billing exceptions. Number of Customers Processing Ratio Remittance Process customer payments and Number of Payments Processing deposit funds. Ratio Human Services Coordinate and administer the Number of Customers various social services programs. Ratio A-4 Arrears Management/ Coordinate and perform arrears, Number of Customers Outsourcing Services credit and bankruptcy functions. Ratio Incorporated (OSI) Manage outside collections Administration agencies'performance and OSI credit activities. Revenue Protection Perform revenue reporting and Number of Customers Administration compliance functions. Ratio Metrics and Manage Customer Services and Call Number of Customers Budget/Customer Center Departments' budgets and Ratio Satisfaction measure performance and customer Measurement satisfaction results. Policy/Procedures Develop, document and communicate Number of Customers Development and Customer Services policies and Ratio Documentation procedures. Bill Administration/ Design standardized customer Number of Customers Forms Administration bills, envelopes, and forms. Ratio Meter Reading Coordinate Meter Reading schedules Number of Customers Support and routing activities. Ratio Customer Information Operate and maintain CIS. Number of Customers System (CIS) Control Ratio - -------------------------------------------------------------------------------- ECONOMIC DEVELOPMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Economic Foster economic development to Multiple Factor - Development encourage capital investment in Utility Services FirstEnergy's service areas. - -------------------------------------------------------------------------------- TRANSMISSION & DISTRIBUTION TECHNICAL SERVICES - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Forestry Provide forestry services. Multiple Factor - Utility Distribution Services include Joint User Multiple Factor - Reliability and contracts, public works Utility Asset Records coordination, reliability reporting to regions and Public Utility Commissions, mutual assistance coordination, PowerOn support, cable locate ticket screening and tariff support. A-5 Design Standards Services include line material Multiple Factor - and - construction standards, Utility distribution line and underground maintenance practices and support, new business process support, and service practices. Substation Services include Substation Multiple Factor - Services Support maintenance plan coordination, Utility practices and support, mobile substation administration and planning, and environmental compliance support. Equipment Services include the maintenance, Multiple Factor - Repair/Testing installation, maintenance, testing Utility Services and repair of utility equipment. Fleet Services Develop fleet strategy, and perform Multiple Factor - perform fleet maintenance Utility practices support. Financial Services Identify revenue enhancements and Multiple Factor - cost reductions. Utility Substation Design Perform substation and transmission Multiple Factor - and Transmission- line design and project management Utility Line Maintenance and transmission line and substation Support design and material standards, right-of-way and survey services, transmission line maintenance plan coordination, practices and support, FAA activity coordination. Planning and Perform planning and protection Multiple Factor - Protection support for subtransmission system Utility and overall radial system capacity planning overview, and interconnection coordination for distributed technology applications on distribution system. Capital Budget and Capital budget development and Multiple Factor - Equipment Support support, and major equipment Utility specifications and procurement/ repair activities for major equipment. - -------------------------------------------------------------------------------- WORKFORCE DEVELOPMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Transmission and Develop and facilitate technical Number of Distribution and safety training for workers Participating Skills Training associated with distribution Employees - General activities, including line, substation, meter, fleet, warehouse, field engineering, and dispatch. Provide support through equipment evaluation, training analyses, job assessments, and project coordination. A-6 Customer Service Develop and facilitate skills Multiple Factor - Skills Training training for customer service Utility groups. External Learning Develop educational partnerships Multiple Factor - Opportunities with colleges to offer two-year Utility Through the Power degrees in electric utility Systems Institute technology. - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Provide Provides services in production Multiple Factor - Administrative printing, document imaging, graphic Utility and Support Services services, food services, corporate Non-Utility mailroom and corporate courier. Provide Records Provides services in records Multiple Factor - Management Services storage, records retrieval, Utility and records retention, records Non-Utility planning and engineering records. Provide Business Provides services in convenience Multiple Factor - Services copiers, fax machines, pagers, Utility and printers, and business information Non-Utility center. - -------------------------------------------------------------------------------- COMMUNICATIONS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Public Relations Provides services in Multiple Factor - media relations, financial All communications, annual reports, executive presentation, public relations counsel, corporate writing, internet support and special projects. Employee Provides services with update, Number of Communications retirees, satellite broadcast, Participating human resource-related Employees - Utility communications and and Non-Utility special projects. Production Provides services related to Multiple Factor - display,photography, Corporate ID, All video and employee merchandise. Sponsorship Provides services related to Multiple Factor - sports marketing, university All support and special projects. Non-Utility Provides services related to Multiple Factor - Advertising broadcast/print, collateral, direct Non-Utility mail, internet/intranet, display/merchandise, yellow/white pages, production/agency support and special projects. Utility Provides services related to TV, Multiple Factor - Advertising radio, print, outdoors, Utility Internet/Intranet, special projects, production, agency support and creative media placement. A-7 Utility Provides services developing Multiple Factor - Bill Inserts regulated bill service to Ohio, Utility Pennsylvania and New Jersey. Utility : Yellow/ Provides services with regulated Multiple Factor - White Pages yellow/white pages. Utility Utility: Research Provides research services. Multiple Factor - Utility Ohio Consumer Provides services related to Ohio Multiple Factor - Education Consumer Education statewide and Utility locally. Ohio Deregulation Provides service related to Multiple Factor - Education Deregulation Education. Utility - -------------------------------------------------------------------------------- CORPORATE AFFAIRS AND COMMUNITY INVOLVEMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Corporate Affairs Provide administrative support Multiple Factor - Activities through oversight of the business All practices and planning and implementation of staff, senior management and related meetings. Serves as community liaison. Direct Community Provides direction in employee Multiple Factor - Involvement volunteerism, supports viable All Initiatives community partnerships and educational initiatives. Energy Efficiency Directing and coordinating Ohio Multiple Factor - Programs Weatherization and Energy Utility Efficiency Programs for Low Income Customers. Community Consults to regional operations and Multiple Factor - Initiatives other business units and client Utility Consulting Services managers for the various community programs. Contributions Directs, coordinates, monitors, Multiple Factor - Management and manages contributions. All - -------------------------------------------------------------------------------- A-8 CORPORATE - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Investor Services Perform recordkeeping, transfer Multiple Factor - agent, registrar, paying agent, All reinvestment plan administration and other services for shareholders. Board of Directors Support and administration of Board Multiple Factor - Support of Directors meetings and director All compensation. Annual Meeting Coordinate the Annual Meeting of Multiple Factor - Coordination Shareholders, including the All preparation and mailing of proxy materials and annual reports and the tabulation of proxies. Stock Based Administration of the stock based Number of Benefit Program benefit program. Participating Employees - General Compliance Provide reporting to regulatory Multiple Factor - Reporting bodies. All Indenture Administer the company's indentures Multiple Factor - Compliance Utility - -------------------------------------------------------------------------------- HUMAN RESOURCES - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Manage Employee Provide management and supervision Number of Executive for employee and executive Participating Compensation and compensation and benefits. Employees - Utility Benefits and Non-Utility Manage Workers Provide management and supervision Number of Compensation and for workers compensation and Participating Disability disability programs. Employees - Utility Management and Non-Utility Provide and Design, prepare and conduct Number of Coordinate Human training. Participating Resources Training Employees - Utility and Non-Utility Provide Employment Provide staffing, relocation and Number of Services employment expertise. Participating Employees - Utility and Non-Utility Provide HRIS Provide and maintain Human Number of Services Resources information. Participating Employees - Utility and Non-Utility A-9 Provide Diversity Manage Affirmative Action programs, Number of Management Services provide EEO/AA consulting services, Participating and respond to charges. Employees - Utility and Non-Utility Manage/Administer Establish compliance, develop, Number of Medical Services implement, and administer medical Participating and Wellness and wellness programs. Employees - Utility Programs and Non-Utility - -------------------------------------------------------------------------------- INDUSTRIAL RELATIONS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Provide Labor Provide contract negotiation Number of Contract services for all labor agreements. Participating Negotiations Employees - General Provide Labor Provide labor consulting services. Number of Consulting Services Participating Employees - General Manage/Administer Develop, implement and administer Number of Safety Programs occupational safety programs. Participating Employees - General - -------------------------------------------------------------------------------- REAL ESTATE - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Facilities Management and maintenance of Square Footage Management office facilities. Ratio Facilities Manage office design services, Square Footage Planning and furniture, project management and Ratio Project Management other capital improvements. Management of Real Support internal and external Multiple Factor - Estate Assets inquiries regarding the Utility and acquisition,divestiture and Non-Utility management of real estate assets Manage/Administer Administer physical security, Multiple Factor - Security Programs special investigations, security Utility and audits, security consultation Non-Utility and contract guard services. - -------------------------------------------------------------------------------- FIRSTENERGY TECHNOLOGIES - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Strategic Develop, support and implement EPRI Multiple Factor - Technologies programs, industry initiatives, Utility research and development programs collaboratives and activities with universities, labs and the Department of Energy. A-10 New Technology Perform assessment activities for Multiple Factor - Assessment strategic technology pilots, Utility and technology assessments, marketing Non-Utility tests, customer pilots and due diligence reviews. Technical Develop, analyze and support Multiple Factor - Application and strategic alliances, joint Utility and Product Innovation ventures, strategic startups, Non-Utility direct investments and Portfolio initiatives. New Technology and Develop, support and implement the Multiple Factor - Product Market following initiatives: tailored Utility and Deployment solutions with existing products, Non-Utility commercial packages, operational efficiencies and business area solutions. Demand Response Provide support for corporate Multiple Factor - Initiatives demand response initiatives. Utility and Non-Utility Renewable Energy Provide support for various Multiple Factor - Program and Strategy corporate and regulatory Utility initiatives to develop and implement renewable energy programs and products. Regulated Programs Develop, support and implement Multiple Factor - and Services programs and strategies to meet Utility corporate initiatives and regulatory mandates and commitments related to Comprehensive Resource Assessment (CRA), customer end-use technology, distributed generation and load management. Project Develop and implement end-use and Multiple Factor - Implementation distributed generation Utility and Management Services technology-based products and Non-Utility services. - -------------------------------------------------------------------------------- FIRSTENERGY TELECOM - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Provide Network Provide Network Services. Multiple Factor - Services Utility and Non-Utility Maintain wireless Maintain wireless cell sites and Multiple Factor - cell sites and fiber optic network; provide Utility and fiber optics engineering, procurement, and Non-Utility network installation services. A-11 INFORMATION SYSTEMS DEPARTMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Development and Create new or enhance existing Direct Charge Ratio Tool Support applications; including analysis, design coding, testing, system integration, and implementation, as well as any required technical writing or project manual development. Client Server Create and support the network Gigabytes Used Support and server infrastructure to Ratio accommodate client server applications. Service includes an appropriate portion of started tasks, backups and recoveries. Mainframe Support Execute mainframe applications, Gigabytes Used including an appropriate portion Ratio of support, started tasks, mainframe backups and microfiche services. Desktop Support Help desk and repair services, and Number of Computer workstation support. Workstations Ratio Network Support Includes E-mail, network access, Direct Charge Ratio client server access, mainframe access, internet access and intranet access. Inserting Services Provide document bursting, Number of Billing inserting and mailing. Inserts Ratio Printing Services Provide mainframe printing Direct Charge services Ratio for production and development environments. Remote Access Provide dial-in access to the Multiple Factor - network. Utility and Non-Utility Technical Provide consulting support to Multiple Factor - Consulting departments and end-users to Utility and enable them to leverage their IT Non-Utility capabilities. Provide advice and consultation regarding desktop setups and configurations. Training Provide IT training. Multiple Factor - Utility and Non-Utility Special Projects Supervise special projects. Multiple Factor - Utility and Non-Utility Business Support business application Multiple Factor - Application Support related software licenses and/or Utility and hardware maintenance provided by Non-Utility an outside vendor. Data Security Disaster recovery and data Multiple Factor - security services. Utility and Non-Utility Project Management Manage technology projects. Multiple Factor - Office Utility and Non-Utility Provide Provide telecommunication services Direct Charge Ratio Telecommunication and equipment. Services Web Hosting Support network and server Direct Charge Ratio infrastructure to accommodate e-business and intranet applications. Service includes an appropriate portion of started tasks, backups and recoveries. - -------------------------------------------------------------------------------- A-12 PERFORMANCE PLANNING - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Performance Develop, support and execute Enterprise Planning Services performance planning services. Distribution - -------------------------------------------------------------------------------- SUPPLY CHAIN - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Strategic Provide assistance in materials Multiple Factor - Planning, Demand and services planning (demand Utility and Management and management) and performs special Non-Utility Procurement procurement projects. Projects Goods and Services Procure material, equipment and Multiple Factor - Procurement contractor services. Establish, Utility and manage and administer programs, Non-Utility which allow internal customers to obtain goods without having to process the need through Procurement. Develop specifications, construction standards, schedules, and bills of materials. Materials Maintain the computerized Multiple Factor - Management Support purchasing and materials Utility and management systems, and material Non-Utility related modules; maintain and/or modify select management reports. Analyze Supply Chain processes and measure performance. Monitor and forecast demand to ensure a continuous supply of materials. Investment Develop and implement plans for Multiple Factor - Recovery Projects disposition of surplus assets. Utility and Non-Utility Process, Refurbish Perform recovery processing, Multiple Factor - and Sell Materials investment recovery processing, Utility and refurbishing and selling materials. Non-Utility Provide Receive and place material into Multiple Factor - Warehousing stock, insure quality requirements Utility and Services - are met at receipt, maintain Non-Utility Non-nuclear inventory counts, and update information systems. Fill customer requests for material from stock. Provide Receive and place material into None Warehousing stock, insure quality requirements (All direct Services - are met at receipt, maintain charged) Nuclear inventory counts, and update information systems. Fill customer requests for material from stock. A-13 Warehousing Space Provide warehousing space to Multiple Factor - Charge internal customers. Utility and Non-Utility - -------------------------------------------------------------------------------- CONTROLLERS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Accounting Research Provide accounting research and Enterprise consulting to ensure compliance Distribution with existing and proposed financial reporting, and regulatory accounting requirements. Accounts Payable Nonpayroll corporate disbursement Number of Invoices services including account Processed distribution to the general ledger. Resolve problems associated with invoice processing and maintain the accounts payable system. Billing Services Prepare non-retail electric None billings. (All direct charged) Infrastructure and Prepare Corporate Sustaining Multiple Factor - Corporate Reporting reports, subsidiary accounting and All Accounting and corporate budgeting, which includes Budgeting reporting and support of the ledger, property records and SAP system. Due Diligence Assist value centers to determine None whether proposed business (All direct acquisitions/combinations and charged) similar transactions are desirable from a financial perspective; extensive review/analysis following preliminary review and firm intent to proceed with transaction through commitment and closing phases. Value Center Maintain the property accounting Multiple Factor - Accounting and system and provide value center Utility and Budgeting accounting such as management Non-Utility reporting. Property Record Maintain corporate continuing Multiple Factor - Maintenance property records. Utility and Non-Utility Tax Consulting and Conduct tax research and tax Multiple Factor - Research consulting to assure compliance All with statues, while evaluating alternative tax strategies within the constraints of regulations that provide additional shareholder value to the company. In addition, provide tax-consulting advice to the value centers on tax compliance and reporting issues, which includes business "start-up" support to organizations requiring assistance. A-14 Tax Compliance Prepare and process all schedules Multiple Factor - and information associated with All corporate and subsidiary tax returns, audits, and tax litigation, assuring compliance with tax regulations and statues. - -------------------------------------------------------------------------------- CREDIT MANAGEMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Credit Analysis Provide detailed written credit Multiple Factor - and Supporting analysis issuing recommendations on Utility and Functions counterparty creditworthiness and Non-Utility assigning credit limits. Credit Policies Develop and support credit policies Multiple Factor - and Procedures and procedures for managing credit Utility and risk. Implement and support Non-Utility standardized credit approval processes. Credit Management Develop and support credit Multiple Factor - Information System management reports and calculate All credit exposure on a corporate wide basis. - -------------------------------------------------------------------------------- ENTERPRISE RISK MANAGEMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- General Risk Develop and maintain an enterprise Multiple Factor - Management risk management system. All - -------------------------------------------------------------------------------- INSURANCE SERVICES - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Insurance Policies Manage and support insurance Multiple Factor - policies for all the business Utility and units. Non-Utility Loss Control Manage and support property Multiple Factor - Services inspections to prevent losses. Utility and Non-Utility Surety Bonds Manage and support Surety Bonds. Multiple Factor- Utility and Non-Utility Risk Transfer and Manage and support risk transfer Multiple Factor - Risk Mitigation and risk mitigation services. Utility and Services Non-Utility Ancillary Coverages Manage and support ancillary None (All direct coverages. charged) - -------------------------------------------------------------------------------- A-15 INTERNAL AUDIT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Audit Services Perform the following internal Multiple Factor - audit services based on risk levels All and /or requests: financial, performance analysis, safeguarding of assets, computer- related and fraud investigations. - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Qualified and Establish and implement investment Number of Non-qualified policy and asset allocation Participating Pension and strategy and monitor investment Employees - Utility Savings Plan performance. and Non-Utility FirstEnergy Establish and implement investment Multiple Factor - Foundation policy and asset allocation All strategy and monitor investment performance. Voluntary Employee Establish and implement investment Number of Benefit Association policy and asset allocation Participating (VEBA) strategy and monitor investment Employees - Utility Trust performance. and Non-Utility Nuclear Establish and implement investment None Decommissioning policy and asset allocation (All direct strategy and monitor investment charged) performance. Non-Utility Establish and implement investment Multiple Factor - Generator Trust policy and asset allocation Non-Utility strategy and monitor investment performance. Spent Nuclear Fuel Establish and implement investment None policy and asset allocation (All direct strategy and monitor investment charged) performance. Low-Income Housing Establish and implement investment Multiple Factor - Tax Credit policy and asset allocation All Partnership strategy and monitor investment performance. - -------------------------------------------------------------------------------- INVESTOR RELATIONS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Investor Compile and communicate information Multiple Factor - Information to investors. All Investor Education Target and educate potential Multiple Factor - investors to promote FirstEnergy's All valuation characteristics and business strategy. Regulations Ensure compliance with SEC Fair Multiple Factor - Compliance Disclosure regulations. All FirstEnergy Provide education to management of Multiple Factor - Management business concerns and valuation All Education issues of analyst/investors FirstEnergy Actively promote understanding of Multiple Factor - Employee Education financial and investor relations' All issues. - -------------------------------------------------------------------------------- A-16 RATES AND REGULATORY AFFAIRS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Regulatory Manage regulatory activities and Multiple Factor - Activities and interfaces, including tariff Utility Consulting development and interpretation. Monitor and participate in regulatory affairs at the local, state and federal levels. Customer Pricing Develop pricing programs for Multiple Factor - and Contracting regulated electric service for Utility retail and wholesale customers, including "unbundled" costs and prices for generation, transmission and distribution service and support justification to regulators. Provide support in developing pricing for special-purpose customer programs and non-regulated energy services (e.g. prepayment, economic development, interruptible load, conjunctive- billing electric service programs). Billing Support Provide assistance calculating Multiple Factor - customer (external and internal) Utility invoices and operate and maintain systems to render, collect and account for these invoices. Sales and Load Develop short-term and long-term Multiple Factor - Forecasting sales forecast, peak load Utility projections and customer counts - -------------------------------------------------------------------------------- TREASURY - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Capital Structure Perform all activities related to Multiple Factor - Management and acquiring capital and establish and All Administration administer funding, legal documentation, and record-keeping activities associated with finance programs Corporate Funds Plan, manage, and operate the Multiple Factor - Management corporate "cash-flow-cycle." All Corporate Provide regulatory support, Multiple Factor - Forecasting strategy support, financial modeling All and forecasting, financial and economic analysis and development of annual corporate KPI target. A-17 Capital Project Provide analytical support in the Multiple Factor - Evaluation and areas of financing, profitability, Utility and Support capital structure and cash flow. Non-Utility Investor Relations Provide institutional and retail Multiple Factor - Activities security holder, buy and sell-side All analysts, rating agencies, and other key members of the financial community with qualitative and quantitative information. - -------------------------------------------------------------------------------- BUSINESS DEVELOPMENT - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Mergers and Support, evaluate and assist in the None (All direct Acquisitions management of merger, asset charged) Support acquisition and asset disposition activities. Internal Consulting Perform strategic analysis/business None (All direct fit, and economic analysis. Provide charged) integration and transitional management services as needed. - -------------------------------------------------------------------------------- GOVERNMENTAL AFFAIRS - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Federal Activities associated with None (All direct Governmental developing and maintaining charged) Affairs Support relationships with federal government institutions; includes lobbying, and other support activities. State Governmental Activities associated with None (All direct Affairs Support developing and maintaining charged) relationships with state government institutions; includes lobbying, and other support activities. - -------------------------------------------------------------------------------- LEGAL - -------------------------------------------------------------------------------- Product or Service Product / Service Description Indirect Allocation Methods - -------------------------------------------------------------------------------- Provide Activities associated with None (All direct Governmental developing and maintaining charged) Affairs Support relationships with government institutions; includes lobbying, litigation, and other support activities. Nuclear Legal Provide legal advice for federal None (All direct Consultation and and state nuclear matters. charged) Case Management A-18 Human Resources Provide legal advice for human Multiple Factor - Legal Consultation resource matters (including workers Utility and & Case Management compensation, union negotiations, Non-Utility arbitrations, class action lawsuits, etc.). Employee Benefits Provide legal advice for employee Number of Legal Consultation benefits matters (including health Participating & Case Management and welfare benefits, tax-qualified Employees - Utility and non-tax qualified benefit plans and Non-Utility and programs, pension administration, etc.). Tax Legal Provide legal advice for tax Multiple Factor - Consultation & matters including federal, state All Case Management & local tax matters (land tax, sales & use tax, IRS, etc.). Bankruptcy Legal Provide legal advice for bankruptcy Multiple Factor - Consultation & matters. Utility and Case Management Non-Utility International Provide legal advice for None (All direct Legal Consulation international matters- contract charged) & Case Management negotiations, sale/lease agreements. Non-Utility Legal Provide legal advice on federal and Multiple Factor - Consultation & state matters to Non-Utility Non-Utilities Case Management Subsidiaries. Regulatory Legal Provide legal advice for federal Multiple Factor - Consultation & and state regulatory matters. Utility Case Management Environmental Provide legal advice for None (All direct Legal Consultation environmental matters (other than charged) & Case Management PCB - related matters) - federal (EPA) and state (EPA), regulatory/legislative compliance issues. PCB Environmental Provide legal advice for PCB- Multiple Factor - Legal Consultation related matters - federal (EPA) Utility & Case Management and state (EPA), regulatory/ legislative compliance issues. Real Estate Legal Provide legal advice for real Multiple Factor - Consultation & estate matters. Utility and Case Management Non-Utility A-19 Corporate Legal Provide legal advice for general Multiple Factor - Consultation & corporate and transactional matters All Case Management (including SEC filings, Board of Directors matters, PUHCA, Financings, Securities Matters, Intellectual Property, Technology, General Counsel matters, etc.). Claims Legal Provide legal advice for Claims Direct Charge Ratio Consultation & matters. Case Management - -------------------------------------------------------------------------------- CLAIMS - -------------------------------------------------------------------------------- Indirect Allocation Product or Service Product / Service Description Methods - -------------------------------------------------------------------------------- Process Receivable Provide management, supervision, Direct Charge Ratio Claims and performance of tasks associated with the resolution and chargeback of receivable claims. Provide Corporate Claims support in evaluating Direct Charge Ratio Support claims, and procuring appropriate external/internal legal resources. - -------------------------------------------------------------------------------- A-20 -----END PRIVACY-ENHANCED MESSAGE-----