EX-99.2 3 ex99_2.htm EXHIBIT 99.2 - CONSOLIDATED REPORT TO THE FINANCIAL COMMUNITY ex99_2.htm
 
EXHIBIT 99.2
Consolidated Report to the Financial Community
Second Quarter 2007
(Released August 7, 2007) (Unaudited)
 
             
  HIGHLIGHTS  
After-Tax EPS Variance Analysis
2nd Qtr.
    
     
2Q 2006 Basic EPS – GAAP Basis                                                              
$
 0.92    
 ▪
Normalized non-GAAP* earnings, excluding special items, were $1.13
 
Special Items – 2006
  
0.03
    
  per share for the second quarter of 2007, compared with $0.95 per   
2Q 2006 Normalized Earnings – Non-GAAP Basis*
$
 0.95    
  share for the second quarter of 2006. GAAP earnings for the second  
Distribution Deliveries 
   0.04    
  quarter of 2007 were $1.11 per share compared with $0.92 per share  
Met-Ed and Penelec Distribution Rate Decrease                    
  
(0.05
 )   
  in the prior year.  
Generation Revenues
  
0.25
    
     
Purchased Power
  
(0.09
 )  
 
  
Deferred Transmission Costs – PA (1Q06) 
  
(0.05
 )   
 2Q 2007 Results vs. 2Q 2006   
Pensions and Other Post-retirement Benefits 
  
0.06
    
     
Depreciation
  
(0.03
 )   
 ▪ Electric distribution deliveries increased 4%, primarily due to higher  
General Taxes
  
(0.03
 )   
 
weather-related usage. Residential and commercial deliveries  
  
Investment Income – NDT and COLI
  
0.05
    
  increased 9% and 5%, respectively, while industrial deliveries were   
Financing Costs
  
(0.05
 )   
  flat. Higher distribution deliveries increased earnings by $0.04 per  
Reduced Common Shares 
  
0.07
    
 
share, excluding the impact of a $0.05 per share earnings reduction
  
Other
  
0.01
    
  resulting from the distribution rate decrease at Metropolitan Edison  
2Q 2007 Normalized Earnings – Non-GAAP Basis*
 $
  1.13
    
 
Company (Met-Ed) and Pennsylvania Electric Company (Penelec),
  
Special Items - 2007 
  
(0.02
 )   
 
effective January 11, 2007.
  
2Q 2007 Basic EPS – GAAP Basis 
 $
1.11
    
               
               
           
 ▪
Total electric generation sales increased 3%, as an increase of 1.1 million MWh or 5% in retail generation sales was partially offset by a 0.2 million MWh or 3%
       
 
reduction in wholesale sales.  Generation revenues, excluding power sourced from third-party auction suppliers for our Jersey Central Power & Light Company
       
 
(JCP&L) and Pennsylvania Power Company (Penn Power) customers, increased earnings by $0.25 per share. This increase was attributable to higher
       
 
generation sales as well as higher retail and wholesale prices.   
        
            
 ▪
Higher purchased power expense, excluding JCP&L and Penn Power purchases from third-party auction suppliers, reduced earnings by $0.09 per share
       
 
primarily due to higher market prices compared to the same period last year.
        
           
 ▪
The deferral of incremental first quarter 2006 Met-Ed and Penelec transmission charges in the second quarter of 2006 caused a comparative reduction in
        
 
second quarter 2007 earnings by $0.05 per share.  The companies were authorized by the Pennsylvania Public Utility Commission in May 2006 to defer these
       
 
charges, retroactive to the beginning of the year.  Thus, results for the second quarter of 2006 included the deferrals that were applicable to the first quarter of
       
 
2006.
        
 
 
 
 
 ▪
Reduced pension and other post-retirement benefit costs increased earnings by $0.06 per share mainly due to retiree health care design changes and the
 
impact of the $300 million voluntary contribution to the pension plan made in January 2007.
   
 ▪
Incremental property additions increased depreciation by $0.03 per share.
   
 ▪
Higher general taxes reduced earnings by $0.03 per share primarily due to increased property tax payments, Pennsylvania gross receipts taxes, and Ohio
 
kilowatt-hour taxes.
   
 ▪
Investment income related to nuclear decommissioning trusts and corporate-owned life insurance increased earnings by $0.05 per share.
   
 ▪
Increased financing costs lowered earnings by $0.05 per share, primarily attributable to higher short-term borrowing levels related largely to the temporary
 
funding of the accelerated share repurchase programs and the recent pension plan contribution.
   
 ▪
The reduction in shares outstanding due to the accelerated repurchases of 10.6 million and 14.4 million common shares in August 2006 and March 2007,
 
respectively, enhanced earnings by $0.07 per share.
   
 ▪ During the quarter, a $0.02 per share reduction in earnings was recognized from impairment of securities held in trust for future nuclear decommissioning
 
activities.
   
  2007 Earnings Guidance
   
 ▪
Normalized non-GAAP earnings guidance for 2007, excluding special items, remains at $4.05 to $4.25 per share.   Year-to-date normalized non-GAAP
 
earnings now stand at $2.01 per share.  Earnings for the remainder of the year, exclusive of any special items, are expected to be allocated approximately
 
56% to the third quarter and 44% to the fourth quarter.
   
* The 2007 GAAP to non-GAAP reconciliation statements can be found on page 10 of this report and all GAAP to non-GAAP reconciliation statements are available on the Investor Information section of FirstEnergy Corp.'s Web site at www.firstenergycorp.com/ir.
 
 
For additional information, please contact:
  Ronald E. Seeholzer Kurt E. Turosky
Rey Y. Jimenez
 
Vice President, Investor Relations
 Director, Investor Relations
Principal, Investor Relations
 
(330) 384-5783
(330) 384-5500
(330) 761-4239
 
 
Consolidated Report to the Financial Community –2nd Quarter 2007                                                                                                                                                                                             2
 
 
FirstEnergy Corp.
Consolidated Statements of Income
(Unaudited)
(In millions, except for per share amounts)
        
              
 
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
2007
    
2006
    
Change
    
2007
    
2006
    
Change
  
 
Revenues 
                              
 
  
 (1)
Electric sales 
 $
2,904
     $
2,553
     $
351
     $
5,669
     $
5,064
     $
605
  
 (2)
FE Facilities 
  
-
      
23
       (23 )    
-
      
38
       (38 )
 (3)
Other 
  
205
      
175
      
30
      
413
      
354
      
59
  
 (4)
Total Revenues 
  
3,109
      
2,751
      
358
      
6,082
      
5,456
      
626
  
   
 
                                              
   
Expenses 
                                              
 (5)
Fuel 
  
299
      
303
       (4 )    
560
      
585
       (25 )
 (6)
Purchased power 
  
886
      
688
      
198
      
1,746
      
1,404
      
342
  
 (7)
Other operating expenses 
  
750
      
702
      
48
      
1,499
      
1,440
      
59
  
 (8)
FE Facilities 
  
-
      
16
       (16 )    
-
      
31
       (31 )
 (9)
Provision for depreciation 
  
159
      
144
      
15
      
315
      
292
      
23
  
 (10)
Amortization of regulatory assets 
  
246
      
201
      
45
      
497
      
422
      
75
  
 (11)
Deferral of new regulatory assets 
   (148 )     (146 )     (2 )     (292 )     (226 )     (66 )
 (12)
General taxes 
  
189
      
173
      
16
      
392
      
366
      
26
  
 (13)
Total Expenses 
  
2,381
      
2,081
      
300
      
4,717
      
4,314
      
403
  
   
 
                                              
 (14)
Operating Income  
  
728
      
670
      
58
      
1,365
      
1,142
      
223
  
   
 
                                              
   
Other Income (Expense) 
                                              
 (15)
Investment income 
  
30
      
31
       (1 )    
63
      
74
       (11 )
 (16)
Interest expense 
   (205 )     (178 )     (27 )     (390 )     (343 )     (47 )
 (17)
Capitalized interest 
  
7
      
7
      
-
      
12
      
14
       (2 )
 (18)
Subsidiaries' preferred stock dividends 
  
-
       (2 )    
2
      
-
       (4 )    
4
  
 (19)
Total Other Income (Expense) 
   (168 )     (142 )     (26 )     (315 )     (259 )     (56 )
   
 
                                              
 (20)
Income From Continuing Operations  
                                              
   
Before Income Taxes 
  
560
      
528
      
32
      
1,050
      
883
      
167
  
 (21)
Income taxes 
  
222
      
216
      
6
      
422
      
352
      
70
  
 (22)
Income From Continuing Operations  
  
338
      
312
      
26
      
628
      
531
      
97
  
 (23)
Discontinued operations 
  
-
       (8 )    
8
      
-
       (6 )    
6
  
 (24)
Net Income 
 $
338
     $
304
     $
34
     $
628
     $
525
     $
103
  
   
 
                                              
   
Basic Earnings Per Common Share: 
                                              
 (25)
Income from continuing operations 
 $
1.11
     $
0.94
     $
0.17
     $
2.03
     $
1.61
     $
0.42
  
 (26)
Discontinued operations 
  
-
       (0.02 )    
0.02
      
-
       (0.02 )    
0.02
  
 (27)
Basic Earnings Per Common Share 
 $
1.11
     $
0.92
     $
0.19
     $
2.03
     $
1.59
     $
0.44
  
 (28)
Weighted Average Number of 
                                              
   
Basic Shares Outstanding 
  
304
      
328
       (24 )    
309
      
328
       (19 )
   
 
                                              
   
Diluted Earnings Per Common Share: 
                                              
 (29)
Income from continuing operations 
 $
1.10
     $
0.93
     $
0.17
     $
2.01
     $
1.60
     $
0.41
  
 (30)
Discontinued operations 
  
-
       (0.02 )    
0.02
      
-
       (0.02 )    
0.02
  
 (31)
Diluted Earnings Per Common Share 
 $
1.10
     $
0.91
     $
0.19
     $
2.01
     $
1.58
     $
0.43
  
 (32)
Weighted Average Number of 
                                              
   
Diluted Shares Outstanding 
  
308
      
330
       (22 )    
313
      
330
       (17 )
   
 
                                                
 
 
 
Consolidated Report to the Financial Community –2nd Quarter 2007                                                                                                                                                                                             3
 
          FirstEnergy Corp.
Consolidated Income Segments
(Unaudited)
    (In millions)   
       
 
 
  
    Three Months Ended June 30, 2007      
  
 
    
 
    
 
    
Ohio
    
 
    
 
    
 
  
 
    
Energy
    
Competitive
    
Transitional
    
 
    
 
    
 
  
 
    
Delivery
    
Energy
    
Generation
    
 
    
Reconciling
    
 
  
 
    
Services (a)
    
Services (b)
    
Services (c)
    
Other (d)
    
Adjustments
    
Consolidated
  
 
Revenues
  
 
    
 
    
 
    
 
    
 
    
 
  
(1)
 Electric sales
   $
1,933
     $
359
     $
612
     $
-
     $
-
     $
2,904
  
(2)
 FE Facilities
    
-
      
-
      
-
      
-
      
-
      
-
  
(3)
 Other
    
162
      
45
      
13
      
9
       (24 )    
205
  
(4)
 Internal revenues
    
-
      
691
      
-
      
-
       (691 )    
-
  
(5)
Total Revenues
    
2,095
      
1,095
      
625
      
9
       (715 )    
3,109
  
                                                   
 
Expenses
                                                
(6)
 Fuel
    
2
      
297
      
-
      
-
      
-
      
299
  
(7)
 Purchased power
    
877
      
163
      
537
      
-
       (691 )    
886
  
(8)
 Other operating expenses
    
410
      
283
      
87
      
4
       (34 )    
750
  
(9)
 FE Facilities
    
-
      
-
      
-
      
-
      
-
      
-
  
(10)
 Provision for depreciation
    
100
      
51
      
-
      
1
      
7
      
159
  
(11)
 Amortization of regulatory assets
    
242
      
-
      
6
      
-
       (2 )    
246
  
(12)
 Deferral of new regulatory assets
     (93 )    
-
       (55 )    
-
      
-
       (148 )
(13)
 General taxes
    
155
      
26
      
1
      
-
      
7
      
189
  
(14)
Total Expenses
    
1,693
      
820
      
576
      
5
       (713 )    
2,381
  
(15)
Operating Income
    
402
      
275
      
49
      
4
       (2 )    
728
  
 
Other Income (Expense)
                                                
(16)
 Investment income
    
62
      
5
      
-
      
-
       (37 )    
30
  
(17)
 Interest expense
     (118 )     (47 )    
-
       (1 )     (39 )     (205 )
(18)
 Capitalized interest
    
2
      
5
      
-
      
-
      
-
      
7
  
(19)
 Subsidiaries' preferred stock dividends
    
-
      
-
      
-
      
-
      
-
      
-
  
(20)
Total Other Income (Expense)
     (54 )     (37 )    
-
       (1 )     (76 )     (168 )
 
 
                                                
(21)
Income From Continuing Operations
                                          
 
 Before Income Taxes
    
348
      
238
      
49
      
3
       (78 )    
560
  
(22)
Income taxes
    
141
      
96
      
19
       (3 )     (31 )    
222
  
(23)
Income From Continuing Operations
    
207
      
142
      
30
      
6
       (47 )    
338
  
(24)
 Discontinued operations
    
-
      
-
      
-
      
-
      
-
      
-
  
(25)
Net Income
   $
207
     $
142
     $
30
     $
6
     $ (47 )   $
338
  
                                                   
 (a) Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort generation service for  
FirstEnergy's Pennsylvania and New Jersey electric utility subsidiaries.                    
        
 (b) Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to affiliated electric utilities.                         
 (c) Represents provider of last resort generation service by FirstEnergy's Ohio electric utility subsidiaries.  
 (d) Primarily consists of telecommunications services.  
 
 
Consolidated Report to the Financial Community –2nd Quarter 2007                                                                                                                                                                                             4
 
FirstEnergy Corp.
Consolidated Income Segments
(Unaudited)
(In millions)
 
 
 
  
Three Months Ended June 30, 2006 
 
 
  
 
    
 
    
Ohio
    
 
    
 
    
 
  
 
 
  
Energy
    
Competitive
    
Transitional
    
 
    
 
    
 
  
 
 
  
Delivery
    
Energy
    
Generation
    
 
    
Reconciling
    
 
  
 
 
  
 Services (a)
    
 Services (b)
    
 Services (c)
    
Other (d)
    
Adjustments
    
Consolidated
  
 
Revenues
                                    
(1)
Electric sales 
   $
1,646
     $
338
     $
569
     $
-
     $
-
     $
2,553
  
(2)
FE Facilities 
    
-
      
-
      
-
      
23
      
-
      
23
  
(3)
Other 
    
127
      
46
      
6
      
16
       (20 )    
175
  
(4)
Internal revenues 
    
6
      
623
      
-
      
-
       (629 )    
-
  
(5)
Total Revenues
    
1,779
      
1,007
      
575
      
39
       (649 )    
2,751
  
 
 
                                                
 
Expenses
                                                
(6)
Fuel 
    
-
      
303
      
-
      
-
      
-
      
303
  
(7)
Purchased power 
    
690
      
131
      
496
      
-
       (629 )    
688
  
(8)
Other operating expenses 
    
363
      
289
      
53
      
25
       (28 )    
702
  
(9)
FE Facilities 
    
-
      
-
      
-
      
16
      
-
      
16
  
(10)
Provision for depreciation 
    
89
      
48
      
-
      
1
      
6
      
144
  
(11)
Amortization of regulatory assets 
    
197
      
-
      
4
      
-
      
-
      
201
  
(12)
Deferral of new regulatory assets 
     (113 )    
-
       (33 )    
-
      
-
       (146 )
(13)
General taxes 
    
144
      
23
      
2
      
-
      
4
      
173
  
(14)
Total Expenses
    
1,370
      
794
      
522
      
42
       (647 )    
2,081
  
 
 
                                                
(15)
Operating Income
    
409
      
213
      
53
       (3 )     (2 )    
670
  
 
 
                                                
 
Other Income (Expense)
                                                
(16)
Investment income 
    
81
      
2
      
-
      
-
       (52 )    
31
  
(17)
Interest expense 
     (101 )     (50 )    
-
       (2 )     (25 )     (178 )
(18)
Capitalized interest 
    
4
      
3
      
-
      
-
      
-
      
7
  
(19)
Subsidiaries' preferred stock dividends 
     (5 )    
-
      
-
      
-
      
3
       (2 )
(20)
Total Other Income (Expense)
     (21 )     (45 )    
-
       (2 )     (74 )     (142 )
 
 
                                                
(21)
Income From Continuing Operations
                                          
 
 Before Income Taxes 
    
388
      
168
      
53
       (5 )     (76 )    
528
  
 
 
                                            
 
  
(22)
Income taxes 
    
155
      
67
      
22
      
2
       (30 )    
216
  
 
 
                                                
(23)
Income From Continuing Operations
    
233
      
101
      
31
       (7 )     (46 )    
312
  
(24)
 Discontinued operations 
    
-
      
-
      
-
       (8 )    
-
       (8 )
(25)
Net Income
   $
233
     $
101
     $
31
     $ (15 )   $ (46 )   $
304
  
 
 
                                                
(a) Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort generation service for
         
        FirstEnergy's Pennsylvania and New Jersey electric utility subsidiaries.          
(b) Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to affiliated electric utilities.    
(c) Represents provider of last resort generation service by FirstEnergy's Ohio electric utility subsidiaries.    
(d) Consists of telecommunications services and non-core businesses divested in 2006 (Facilities Services Group and MYR).    
 
 
Consolidated Report to the Financial Community –2nd Quarter 2007                                                                                                                                                                                             5
 
 
    FirstEnergy Corp.
  
 Consolidated Income Segments   
  
 (Unaudited)   
  
(In millions)
  
     
     
           Three Months Ended June 30, 2007 vs. Three Months Ended June 30, 2006
  
 
 
  
 
    
 
    
 
    
 
    
 
    
 
  
 
 
  
 
    
 
    
Ohio
    
 
    
 
    
 
  
 
 
  
Energy
    
Competitive
    
Transitional
    
 
    
 
    
 
  
 
 
  
Delivery
    
Energy
    
Generation
    
 
    
Reconciling
    
 
  
 
 
  
Services (a)
    
Services (b)
    
Services (c)
    
Other (d)
    
Adjustments
    
Consolidated
  
 
Revenues
                                    
(1)
Electric sales
   $
287
     $
21
     $
43
     $
-
     $
-
     $
351
  
(2)
FE Facilities
    
-
      
-
      
-
       (23 )    
-
       (23 )
(3)
Other
    
35
       (1 )    
7
       (7 )     (4 )    
30
  
(4)
Internal revenues
     (6 )    
68
      
-
      
-
       (62 )    
-
  
(5)
Total Revenues
    
316
      
88
      
50
       (30 )     (66 )    
358
  
                                                   
 
Expenses
                                                
(6)
Fuel
    
2
       (6 )    
-
      
-
      
-
       (4 )
(7)
Purchased power
    
187
      
32
      
41
      
-
       (62 )    
198
  
(8)
Other operating expenses
    
47
       (6 )    
34
       (21 )     (6 )    
48
  
(9)
FE Facilities
    
-
      
-
      
-
       (16 )    
-
       (16 )
(10)
Provision for depreciation
    
11
      
3
      
-
      
-
      
1
      
15
  
(11)
Amortization of regulatory assets
    
45
      
-
      
2
      
-
       (2 )    
45
  
(12)
Deferral of new regulatory assets
    
20
      
-
       (22 )    
-
      
-
       (2 )
(13)
General taxes
    
11
      
3
       (1 )    
-
      
3
      
16
  
(14)
Total Expenses
    
323
      
26
      
54
       (37 )     (66 )    
300
  
 
 
                                                
(15)
Operating Income
     (7 )    
62
       (4 )    
7
       -       58   
                                                   
 
 Other Income (Expense)
                                                
(16)
Investment income
     (19 )    
3
      
-
      
-
      
15
       (1 )
(17)
Interest expense
     (17 )    
3
      
-
      
1
       (14 )     (27 )
(18)
Capitalized interest
     (2 )    
2
      
-
      
-
      
-
      
-
  
(19)
Subsidiaries' preferred stock dividends
    
5
      
-
      
-
      
-
       (3 )    
2
  
(20)
Total Other Income (Expense)
     (33 )    
8
      
-
      
1
       (2 )     (26 )
 
                                                  
(21)
Income From Continuing Operations
                                                
 
 Before Income Taxes
     (40 )    
70
       (4 )    
8
       (2 )    
32
  
 
 
                                                
(22)
 Income taxes
     (14 )    
29
       (3 )     (5 )     (1 )    
6
  
 
 
                                                
(23)
Income From Continuing Operations
     (26 )    
41
       (1 )    
13
       (1 )    
26
  
(24)
 Discontinued operations
    
-
      
-
      
-
      
8
      
-
      
8
  
 (25)
Net Income
   $ (26 )   $
41
     $ (1 )   $
21
     $ (1 )   $
34
  
 
 
                                                
(a) Consists of regulated transmission and distribution operations, including transition cost recovery, and provider of last resort generation service for                    
FirstEnergy's Pennsylvania and New Jersey electric utility subsidiaries.                 
(b) Consists of unregulated generation and commodity operations, including competitive electric sales, and generation sales to affiliated electric utilities.            
(c) Represents provider of last resort generation service by FirstEnergy's Ohio electric utility subsidiaries. 
(d) Consists of telecommunications services and non-core businesses divested in 2006 (Facilities Services Group and MYR). 
 
 
Consolidated Report to the Financial Community –2nd Quarter 2007                                                                                                                                                                                             6
 
FirstEnergy Corp.
Financial Statements
(Unaudited)
(In millions)
 
Condensed Consolidated Balance Sheets    
  
  
 
    
 
  
 
  
As of
 June 30,
2007
    
As of
 Dec 31,
2006
  
Assets
  
 
    
 
  
Current Assets:
  
 
    
 
  
Cash and cash equivalents
   $
37
     $
90
  
Receivables
    
1,594
      
1,267
  
Other
    
905
      
726
  
Total Current Assets
    
2,536
      
2,083
  
  
                
Property, Plant and Equipment
    
15,010
      
14,667
  
Investments
    
3,564
      
3,534
  
Deferred Charges and Other Assets
    
10,923
      
10,912
  
Total Assets
   $
32,033
     $
31,196
  
 
                
Liabilities and Capitalization
                
Current Liabilities:
                
Currently payable long-term debt
   $
2,000
     $
1,867
  
Short-term borrowings (a)
    
2,416
      
1,108
  
Accounts payable
    
801
      
726
  
Other
    
1,065
      
1,554
  
Total Current Liabilities
    
6,282
      
5,255
  
  
                
Capitalization:
                
Common stockholders' equity (b)
    
8,640
      
9,035
  
Long-term debt and other long-term obligations
    
8,742
      
8,535
  
Total Capitalization
    
17,382
      
17,570
  
Noncurrent Liabilities
    
8,369
      
8,371
  
Total Liabilities and Capitalization
   $
32,033
     $
31,196
  
                 
 (a)  Increase reflects interim financing of $300 million voluntary pension contribution and
                
$900 million accelerated common share repurchase program in 2007.
                
                 
 (b)  Reduction reflects $900 million common share repurchase in 2007.                
 
 
 
  
 
    
 
    
 
    
 
  
General Information
  
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
 
    
 
    
 
    
 
  
 
  
2007
    
2006
    
2007
    
2006
  
Debt and equity securities redemptions
   $ (485 )   $ (421 )   $ (1,389 )   $ (515 )
New long-term debt issues
   $
550
     $
1,053
     $
800
     $
1,053
  
Short-term debt increase
   $
169
     $
171
     $
1,308
     $
371
  
Capital expenditures
   $
401
     $
292
     $
697
     $
739
  
 
                                
 
 
Adjusted Capitalization (Including Off-Balance Sheet Items) - Rating Agency View  
  
 
  
As of June 30,
  
 
  
2007
    
% Total
    
2006
    
% Total
  
Total common equity
   $
8,640
       38 %   $
9,488
       43 %
Preferred stock
    
-
       -      
154
       1 %
Long-term debt (a)
    
10,331
       46 %    
10,477
       48 %
Short-term debt
    
2,416
       11 %    
557
       3 %
Off-balance sheet debt equivalents:
                                
Sale-leaseback net debt equivalents (b)
    
1,143
       5 %    
1,236
       5 %
Total
   $
22,530
       100 %   $
21,912
       100 %
 
                                
(a)  Includes amount due to be paid within one year and excludes JCP&L securitization debt of $411 million and $256 million in 2007 and 2006, respectively.
  
(b)  Associated with 1987 sale and leaseback transactions.   
                          
 
 
Consolidated Report to the Financial Community – 2nd Quarter                                                                                                                                                                                                      7
 
 
 
FirstEnergy Corp.
Financial Statements
(Unaudited)
(In millions)
 
  
  
 
    
 
    
 
    
 
  
Condensed Consolidated Statements of Cash Flows
  
 
    
 
    
 
    
 
  
 
  
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2007
    
2006
    
2007
    
2006
  
Cash flows from operating activities:
  
 
    
 
    
 
    
 
  
Net income
   $
338
     $
304
     $
628
     $
525
  
Adjustments to reconcile net income to net cash from operating activities:
                                
Depreciation, amortization, and deferral
                                
of regulatory assets
    
257
      
197
      
520
      
487
  
Deferred purchased power and other costs
     (69 )     (135 )     (185 )     (239 )
Deferred income taxes and investment tax credits
    
32
      
26
      
85
      
32
  
Deferred rents and lease market valuation liability
     (67 )     (67 )     (92 )     (105 )
Electric service prepayment programs
     (19 )     (15 )     (36 )     (29 )
Cash collateral, net
     (25 )    
51
       (19 )     (55 )
Pension trust contribution
    
-
      
-
       (300 )    
-
  
Change in working capital and other
     (241 )     (200 )     (470 )     (131 )
Cash flows provided from operating activities
    
206
      
161
      
131
      
485
  
 
                                
Cash flows provided from financing activities
    
108
      
668
      
454
      
618
  
 
                                
Cash flows used for investing activities
     (366 )     (274 )     (638 )     (584 )
Net increase (decrease) in cash and cash equivalents
   $ (52 )   $
555
     $ (53 )   $
519
  
 
                                
 
 
  
  
 
    
 
    
 
    
 
    
 
    
 
  
Deferrals and Amortizations                 
   
Three Months Ended June 30,       
  
Six Months Ended June 30,       
   
2007
    
2006
    
Change
    
2007
    
2006
    
Change
  
Ohio Regulatory Assets
                                
 
  
Deferred Balance - Beginning
   $
1,820
     $
1,891
           $
1,844
     $
1,924
    
 
  
                                         
 
  
Deferral of shopping incentives
    
-
      
-
      $
-
      
-
      
3
     $ (3 )
Interest on shopping incentives
    
9
      
11
       (2 )    
19
      
21
       (2 )
Deferral of MISO costs and interest
    
30
      
4
      
26
      
38
      
7
      
31
  
Deferral of RCP distribution reliability costs
    
44
      
41
      
3
      
91
      
81
      
10
  
Deferral of RCP fuel costs
    
27
      
30
       (3 )    
41
      
51
       (10 )
Deferral of other regulatory assets
    
5
      
2
      
3
      
11
      
5
      
6
  
Current period deferrals
   $
115
     $
88
     $
27
     $
200
     $
168
     $
32
  
                                                 
Amortization
                                                
Ohio transition costs amortization
   $ (72 )   $ (62 )   $ (10 )   $ (140 )   $ (134 )   $ (6 )
Shopping incentives amortization
     (29 )     (29 )    
-
       (59 )     (59 )    
-
  
MISO costs amortization
     (6 )     (5 )     (1 )     (11 )     (9 )     (2 )
Other
     (2 )     (1 )     (1 )     (8 )     (8 )    
-
  
Current period amortization
   $ (109 )   $ (97 )   $ (12 )   $ (218 )   $ (210 )   $ (8 )
                                                 
Deferred Balance - Ending
   $
1,826
     $
1,882
             $
1,826
     $
1,882
          
                                                 
Pennsylvania Deferred PJM Costs
                                                
Beginning Balance
   $
186
     $
-
     $
186
     $
157
      $
-
     $
157
  
Deferrals
    
30
      
57
       (27 )    
63
      
57
      
6
  
Interest
    
2
      
-
      
2
      
3
      
-
      
3
  
Amortizations
     (2 )    
-
       (2 )     (7 )    
-
       (7 )
Ending Balance
   $
216
     $
57
     $
159
     $
216
     $
57
     $
159
  
                                                 
New Jersey Deferred Energy Costs
                                                
Beginning Balance
   $
357
     $
558
             $
369
     $
541
          
Deferral of energy costs
    
35
      
80
     $ (45 )    
23
      
97
     $ (74 )
Ending Balance
   $
392
     $
638
             $
392
     $
638
          
                                                 

 
Consolidated Report to the Financial Community – 2nd Quarter 2007                                                                                                                                                                                            8
 
FirstEnergy Corp.
Statistical Summary
(Unaudited)
 
Electric Sales Statistics            
     
   Three Months Ended June 30,    
  
   Six Months Ended June 30,    
(in millions of kWhs)
    
2007
    
2006
    
Change
    
2007
    
2006
    
Change
  
Electric Generation Sales
    
 
    
 
    
 
    
 
    
 
    
 
  
Retail - Regulated
      
23,186
      
22,591
       2.6 %    
47,994
      
46,597
       3.0 %
Retail - Competitive
      
3,285
      
2,740
       19.9 %    
6,491
      
5,459
       18.9 %
Total Retail
      
26,471
      
25,331
       4.5 %    
54,485
      
52,056
       4.7 %
Wholesale
      
6,360
      
6,561
       -3.1 %    
11,423
      
11,983
       -4.7 %
Total Electric Generation Sales
      
32,831
      
31,892
       2.9 %    
65,908
      
64,039
       2.9 %
                                                   
Electric Distribution Deliveries
                                                  
Ohio                 
 -Residential    
3,835
      
3,583
       7.0 %    
8,666
      
8,026
       8.0 %
  
  -Commercial    
3,674
      
3,516
       4.5 %    
7,469
      
7,160
       4.3 %
 
 -Industrial    
5,908
      
5,902
       0.1 %    
11,587
      
11,561
       0.2 %
 
 -Other    
93
      
95
       -2.1 %    
186
      
186
       0 %
 
 Total Ohio    
13,510
      
13,096
       3.2 %    
27,908
      
26,933
       3.6 %
 
                                                  
Pennsylvania 
 -Residential    
2,564
      
2,365
       8.4 %    
5,868
      
5,457
       7.5 %
 
 -Commercial    
2,730
      
2,602
       4.9 %    
5,501
      
5,252
       4.7 %
 
 -Industrial    
2,567
      
2,611
       -1.7 %    
5,109
      
5,175
       -1.3 %
 
 -Other    
21
      
21
       -      
40
      
41
       -2.4 %
 
  Total Pennsylvania     7,882       7,599       3.7 %     16,518       15,925       3.7 %
 
                                                  
New Jersey  
 -Residential    
2,387
      
2,100
       13.7 %    
4,740
      
4,354
       8.9 %
 
 -Commercial    
2,416
      
2,292
       5.4 %    
4,713
      
4,496
       4.8 %
 
 -Industrial    
724
      
703
       3.0 %    
1,426
      
1,393
       2.4 %
 
  -Other    
21
      
21
       -      
43
      
43
       0 % 
  
  Total New Jersey    
5,548
      
5,116
       8.4 %    
10,922
      
10,286
       6.2 %
 
                                                  
Total Residential
      
8,786
      
8,048
       9.2 %    
19,274
      
17,837
       8.1 %
Total Commercial
      
8,820
      
8,410
       4.9 %    
17,683
      
16,908
       4.6 %
Total Industrial
      
9,199
      
9,216
       -0.2 %    
18,122
      
18,129
       0 % 
Total Other
      
135
      
137
       -1.5 %    
269
      
270
       -0.4 %
Total Distribution Deliveries
      
26,940
      
25,811
       4.4 %    
55,348
      
53,144
       4.1 %
 
                                                  
Electric Sales Shopped
                                                  
Ohio                 
  -Residential    
489
      
497
       -1.6 %    
1,050
      
1,093
       -3.9 %
 
 -Commercial    
872
      
910
       -4.2 %    
1,752
      
1,866
       -6.1 %
 
 -Industrial    
692
      
709
       -2.4 %    
1,333
      
1,444
       -7.7 %
 
 Total Ohio    
2,053
      
2,116
       -3.0 %    
4,135
      
4,403
       -6.1 %
 
                                                  
Pennsylvania 
 -Residential    
11
      
-
      
-
      
11
      
1
      
0
 % 
 
  -Commercial    
156
      
-
      
-
      
264
      
1
      
0
 % 
 
 -Industrial    
460
      
94
      
389.4
 %    
876
      
225
       289.3 %
 
 Total Pennsylvania    
627
      
94
       567.0 %    
1,151
      
227
       407.0 %
                                                   
New Jersey    
 -Residential    
-
      
-
      
-
      
-
      
-
      
-
  
 
 -Commercial    
519
      
491
       5.7 %    
994
      
894
       11.2 %
 
 -Industrial    
555
      
519
       6.9 %    
1,074
      
1,023
       5.0 %
 
 Total New Jersey    
1,074
      
1,010
       6.3 %    
2,068
      
1,917
       7.9 %
 
                                                  
Total Electric Sales Shopped
      
3,754
      
3,220
       16.6 %    
7,354
      
6,547
       12.3 %
 
 
Operating Statistics
 
 
 
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
2007
 
2006
 
 
 
2007
 
2006
 
 
 
 
Capacity Factors:
                            
 
 
Fossil - Baseload
    
90.3%
  
92.2%
      
77.5%
  
92.6%
      
 
 
Fossil - Load Following
    
71.8%
  
67.7%
      
72.9%
  
67.9%
      
 
 
Peaking
    
2.2%
  
0.3%
      
1.2%
  
0.2%
      
 
 
Nuclear
    
79.7%
  
84.0%
      
89.3%
  
83.0%
      
 
Generation Output:
                            
 
 
Fossil - Baseload
    
43.2%
  
43.7%
      
37.8%
  
44.0%
      
 
 
Fossil - Load Following
    
22.8%
  
21.7%
      
23.7%
  
21.8%
      
 
 
Peaking
    
0.4%
  
0.1%
      
0.2%
  
0.0%
      
 
 
Nuclear
    
33.5%
  
34.5%
      
38.3%
  
34.2%
      
 
 
 
                            
 
 
 
    
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
Weather
    
2007
 
2006
 
Normal
 
2007
 
2006
 
Normal
  
 
Composite Heating-Degree-Days
    
659
  
569
  
653
  
3,567
  
3,092
  
3,457
  
 
Composite Cooling-Degree-Days 
    
287
  
206
  
251
  
288
  
206
  
259
  
                                 
 
 
Consolidated Report to the Financial Community – 2nd Quarter 2007                                                                                                                                                                                            9 
 
 
FirstEnergy Corp.
2007 EPS Reconciliations
(Unaudited)
 
Special Items      
 
  
Three Months Ended June 30,   
    
Six Months Ended June 30,   
  
   
2007
    
2006
    
2007
    
2006
  
Pre-tax Items - Income Increase (Decrease)
  
 
    
 
    
 
    
 
  
Gain (Loss) on Non-Core Asset Sales of:
  
 
    
 
    
 
    
 
  
Loss on sale on MYR 60% interest (a)
   $
-
     $
-
     $
-
     $ (5 )
All other (a)(f)
    
-
      
6
      
-
      
6
  
Total Gain on Non-Core Asset Sales
    
-
      
6
      
-
      
1
  
Saxton decommissioning costs regulatory assets (b)
    
-
      
-
      
27
      
-
  
Trust securities impairment (c)
     (8 )    
-
       (12 )    
-
  
FE Facilities sales/impairment (d)(e)(g)
    
-
       (12 )    
-
       (12 )
Total-Pretax Items
   $ (8 )   $ (6 )   $
15
     $ (11 )
 
                                
EPS Effect
   $ (0.02 )   $ (0.03 )   $
0.02
     $ (0.03 )
(a) Included in "Other operating expenses"        
(e) Included in "Discontinued Operations"
  
(b) Included in "Deferral of new regulatory assets"
        
(f)  Before first quarter 2006 tax benefit of $2.5 million
  
(c) Included in "Investment income"
        
(g)  Non-tax deductible
  
(d) Included in "FE Facilities expenses"
            
 
 
 
  
 
    
 
    
 
  
2007 Earnings Per Share (EPS)
  
(Reconciliation of GAAP to Non-GAAP)
  
 
  
 
    
 
    
 
  
 
  
ACTUAL
    
ACTUAL
    
Non-GAAP
  
 
  
Three Months
    
Six Months
    
Guidance For
  
 
  
Ended June 30
    
Ended June 30
    
Year 2007
  
 
  
 
    
 
    
 
  
Basic EPS (GAAP basis)
   $
1.11
     $
2.03
     $
4.11 - $4.31
  
Excluding Special Items:
                        
   New regulatory asset authorized by PPUC
    
-
       (0.05 )     (0.05 )
   Gain on sale of non-core assets
     -       -       (0.04 )
   Trust securities impairment
    
0.02
      
0.03
      
0.03
  
Basic EPS (Non-GAAP basis)
   $
1.13
     $
2.01
     $
4.05 - $4.25
  
 
                        
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2007                                                                                                                                                                                             10
 
RECENT DEVELOPMENTS

Record Generation Output
FirstEnergy set a new second quarter generation output record of 20.4 million megawatt-hours, which represented a 0.4% increase over the prior record established in the second quarter of 2006.  The generation record was primarily attributable to performance of the fossil generation fleet, which established its best quarterly output ever.

Sale and Leaseback of Bruce Mansfield Unit 1
On July 13, 2007, FirstEnergy Generation Corp. (Genco) completed a $1.3 billion sale and leaseback transaction for its 779 MW portion of Unit 1 of the Bruce Mansfield Plant.  The applicable lease agreements provide for an approximate 33-year lease of the unit.  FirstEnergy used the net after-tax proceeds of approximately $1.2 billion, to repay short-term debt that was used to fund the March 2007 $900 million accelerated share repurchase program and the January 2007 $300 million pension contribution.  Genco continues to operate the plant and is entitled to its full output.

Ohio Distribution Rate Case Filing
On June 7, 2007, FirstEnergy subsidiaries Ohio Edison (OE), The Cleveland Electric Illuminating Company (CEI), and Toledo Edison (TE) (collectively Ohio Companies) filed their base distribution rate increase request and supporting testimony with the Public Utilities Commission of Ohio (PUCO).  On August 6, the Ohio Companies provided an Update Filing with three months of actual results (March through May 2007) for the test year and actual asset and liability balances as of May 31, 2007.  The requested increase in annualized distribution revenues totals $332 million to recover expenses related to distribution operations and the costs deferred under previously approved rate plans.  The new rates would be effective January 1, 2009, for OE and TE customers, and are expected to be effective in May 2009 for CEI customers.  Concurrent with the effective dates, the Ohio Companies will reduce or eliminate their Regulatory Transition Charges (RTC), resulting in an aggregate net reduction of $262 million on the regulated portion of customers’ bills.  It is estimated the PUCO Staff will issue its report in the case in the fourth quarter of 2007 with evidentiary hearings to follow in late 2007.  The PUCO Order is expected in March 2008.

Ohio Competitive Generation Supply Plan Filing
On July 10, 2007, the Ohio Companies filed an application with the PUCO requesting approval of a comprehensive supply plan for providing generation service, beginning January 1, 2009, to customers who choose not to purchase electricity from an alternative supplier.  The proposed competitive bidding process would average the results of multiple bidding sessions conducted at different times during the year beginning in 2008.  The Ohio Companies offered two alternatives for structuring the bids, either by customer class or a “slice-of-system” approach that combines all customer classes into tranches that represent a portion of the total customer load.  The proposal provides the PUCO with an option to phase in generation price increases for residential tariff groups that would experience a change in the average total price of 15 percent or more.  The Ohio Companies requested that the PUCO issue an order by November 1, 2007, to provide sufficient time to conduct the bidding process.  The PUCO has scheduled a technical conference to be held on August 16, 2007 to allow interested parties an opportunity to better understand the filing.

Ohio Companies’ Green Option for Customers
On May 29, 2007, OE, CEI and TE filed a proposed program with the PUCO that would provide customers with the opportunity to purchase Renewable Energy Certificates (RECs) to support alternative energy.  The program was designed in collaboration with the PUCO Staff and the Office of the Ohio Consumers’ Counsel.  The proposal is currently pending before the PUCO.

Pennsylvania Power Company Default Service Plan Update
On May 2, 2007, Pennsylvania Power Company made a filing with the Pennsylvania Public Utility Commission (PPUC) proposing a process to procure the power supply needed for default service customers during the period of June 1, 2008 through May 31, 2011. The hearings are scheduled for September 10-11, 2007, with an Administrative Law Judge (ALJ) recommended decision expected by October 25, 2007.  A PPUC Order is expected on or about November 29, 2007.


Consolidated Report to the Financial Community - 2nd Quarter 2007                                                                                                                                                                                             11

 
Met-Ed and Penelec Commonwealth Court Appeals
On June 19, 2007, initial briefs were filed by all parties in the appeal of the PPUC’s January 2007 transition rate plan order to the Pennsylvania Commonwealth Court.  Responsive briefs are due August 20, 2007, with reply briefs due September 4, 2007.  Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec) appealed the PPUC’s decision on the denial of generation rate relief and on a consolidated income tax adjustment related to cost of capital, while other parties appealed the PPUC’s decision on transmission rate relief.  Oral arguments are expected to take place in late 2007 or early 2008.

Met-Ed and Penelec NUG Accounting Case Update
On May 3, 2007, the ALJ issued a recommended decision denying Met-Ed’s and Penelec’s request to modify their Non-Utility Generation (NUG) stranded cost accounting methodology.  The companies filed exceptions to the initial decision on May 23, 2007.  It is not known when the PPUC may issue a final decision in this matter.

Nuclear Update
On May 14, 2007, the Nuclear Regulatory Commission (NRC) issued a Demand for Information related to recent reports prepared at the request of FirstEnergy Nuclear Operating Company (FENOC) by expert witnesses for arbitration of an insurance claim for replacing the damaged reactor head at the Davis-Besse Plant in 2002.  FENOC filed a response with the NRC on June 13, and supplemented that response on July 16, 2007, after participating in an NRC public meeting June 27, 2007, to discuss the company's initial response.

FirstEnergy’s Perry Plant completed its regularly scheduled refueling outage on May 13, 2007. Major work activities performed on the 1,258 megawatt (MW) facility included replacing approximately one-third of the fuel assemblies in the reactor and two of the three low-pressure turbine rotors in the main generator.  On June 29, 2007, the Perry Plant began an outage to replace a 30-ton motor in the reactor recirculation system.  In addition to motor replacement, routine and preventive maintenance and several system inspections were performed to assure continued safe and reliable operation of the plant.  On July 24, the Perry Plant exited its outage and returned to service.

Environmental Update
On May 30, 2007, FirstEnergy announced that Genco plans to install an Electro-Catalytic Oxidation (ECO) system on units 4 and 5 of the R. E. Burger Plant.  The two units produce 312 MW combined.  The original plans called for installation of an ECO system on Unit 4 of the Bay Shore Plant (215 MW).  The decision to install ECO at the Burger Plant will result in additional scrubbed megawatts and better fits the coal-purchasing strategy for both plants.  Design engineering for the new Burger Plant ECO system will begin later this year with anticipated start-up during the first quarter of 2011.  

Jersey Central Power & Light Debt Offering
On May 21, 2007, Jersey Central Power & Light (JCP&L) issued $550 million of senior unsecured notes.  The offering was in two tranches, consisting of $250 million of 5.65% senior notes due 2017, and $300 million of 6.15% senior notes due 2037.  Proceeds from the transaction were used to redeem all outstanding JCP&L first mortgage bonds, repay short-term debt and repurchase common stock from FirstEnergy Corp.

Forward-Looking Statements:  This Consolidated Report to the Financial Community includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy’s regulated utilities to collect transition and other charges or to recover increased transmission costs, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), and the legal and regulatory changes resulting from the implementation of the Energy Policy Act of 2005 (including, but not limited to, the repeal of the Public Utility Holding Company Act of 1935), the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated) or levels of emission reductions related to the Consent Decree resolving the New Source Review litigation, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the NRC (including, but not limited to, the Demand For Information issued to FENOC on May 14, 2007) and the various state public utility commissions as disclosed in our SEC filings, the timing and outcome of various proceedings before the PUCO (including, but not limited to, the Distribution Rate Cases and the generation supply plan filing for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the Rate Stabilization Plan) and the PPUC (including the Pennsylvania Power Company Default Service Plan filing), the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan for Met-Ed and Penelec, the continuing availability and operation of generating units, the ability of generating units to continue to operate at, or near full capacity, the inability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the anticipated benefits from voluntary pension plan contributions, the ability to improve electric commodity margins and to experience growth in the distribution business, the ability to access the public securities and other capital markets and the cost of such capital, the outcome, cost and other effects of present and potential legal and administrative proceedings and claims related to the August 14, 2003 regional power outage, any final adjustment in the purchase price per share under the accelerated share repurchase program announced March 2, 2007, the risks and other factors discussed from time to time in our SEC filings, and other similar factors.  We expressly disclaim any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.
 
 
Consolidated Report to the Financial Community - 2nd Quarter 2007                                                                                                                                                                                             12