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Irene M. Prezelj
Vice President
Investor Relations
FirstEnergy Corp.
76 S. Main Street
Akron, Ohio 44308
Tel 330-384-3859
December 8, 2016
TO THE INVESTMENT COMMUNITY:1
On December 6, 2016, FirstEnergy Corp. (FE) announced several developments that
advance the company’s strategy of becoming a fully regulated entity. These actions are
consistent with the strategy announced on FE’s third quarter 2016 earnings call as well as
during the EEI Financial Conference last month, and show progress towards the
company’s plan to transition to become fully regulated within a 12-18 month period. This
Letter provides a summary of these actions, and additional details are available in the Form
8-K filed on December 6, 2016, which is available at www.firstenergycorp.com/ir.
Asset Sales
Allegheny Energy Supply Company, LLC (AE Supply), entered into a non-binding letter
of intent with an independent third party for the sale of 1,572 MW of natural gas and hydro
assets including Springdale, Chambersburg, Gans, Hunlock and AE Supply’s interest in
Bath County. The anticipated purchase price of $885 million would include the assumption
of $305 million of unsecured debt by the buyer (AE Supply’s 5.75% Notes due 2019 and
6.75% Notes due 2039), with $580 million in expected proceeds. AE Supply’s interest in
the Buchanan plant, 43 MW, is expected to be marketed in a separate sales process.
Additionally, AE Supply is considering offering its 1,300 MW Pleasants plant into
Monongahela Power Company’s RFP as previously disclosed.
FirstEnergy Solutions (FES) Independent Board Members
FES completed the process to appoint new Directors on November 16, 2016. New
employee board members include Donald R. Schneider, Samuel L. Belcher and Donald A.
Moul, who replace Charles E. Jones, James F. Pearson and James H. Lash. In addition, two
new independent board members, John C. Blickle and James C. Boland, were appointed.
Both have extensive business experience. The newly named FES Board was responsible
for considering and authorizing the new credit facility discussed below.
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Please see the Forward-looking Statements at the end of this Letter.
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Advisors
Both FE and FES have retained their own separate legal and financial advisors to help with
the transition to becoming a fully regulated company, including advisors for potential asset
sales, scenario planning, potential restructuring, and related processes/activities.
Credit Facilities
On December 6, 2016, FE and certain subsidiaries entered into several new five-year credit
syndicated facilities available through December 6, 2021, and concurrently terminated
previous credit facilities that were to expire March 31, 2019 as follows:
• FE and its 10 regulated distribution utilities entered into a new, $4 billion
revolving credit facility, an increase of $500 million vs. its previous $3.5 billion
facility,
• FirstEnergy Transmission, LLC and its subsidiaries entered into a $1 billion
revolving credit facility, replacing a $1 billion facility, and
• FE entered into a $1.2 billion term loan, replacing a $1 billion term loan and
separate $200 million term loan.
Other amendments in the new FE credit agreement include an incremental $5.5 billion
exclusion for purposes of calculating the debt to capitalization ratio for potential future
after-tax charges or write-offs related to asset impairments at FE’s unregulated generation
subsidiaries, and excluding FES and AE Supply from the definition of “significant
subsidiaries,” which removes them from FE’s covenants and defaults resulting from
adverse judgments in excess of $100 million and eliminates lender approvals previously
required for FES and AE Supply asset sales.
In addition, FES and AE Supply terminated their unsecured $1.5 billion credit facility
(commitments of $900 million and $600 million for FES and AE Supply, respectively).
FES entered into a new, two-year secured credit facility with FE in which FE provided a
commitment to make revolving loans of up to $500 million and additional secured credit
support of up to $200 million. FES expects to use the new facility to conduct its ordinary
course of business in lieu of borrowing under the unregulated money pool. The new
facility provides FES with liquidity support through December 31, 2018, and will be
secured by first mortgage bonds issued by FES’ subsidiaries, FirstEnergy Generation, LLC
and FirstEnergy Nuclear Generation. LLC. FE also reaffirmed its obligations under the
Intercompany Tax Allocation Agreement under which FES continues to benefit from cash
tax payments.
In combination, these new credit facilities and amendments provide financial flexibility for
FE to transition to become a fully regulated company, and further mitigate the risks to FE
of events of default under the previous credit facilities referenced above related to FES or
AE Supply.
Today, Moody’s Investors Service issued a note that FE’s financial restructuring activity is
neutral to credit quality. Moody’s rates FES Caa1, negative outlook; AE Supply B1,
negative outlook; and FE Baa3, stable outlook.
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Upcoming FirstEnergy Investor Events
Barclays Utilities Conference, Colorado
December 12-13, 2016
Evercore ISI CEO Conference, Florida
January 12-13, 2017
If you have any questions, please contact me at (330) 384-3859, Meghan Beringer,
director of Investor Relations at (330) 384-5832, or Gina Caskey, manager of Investor
Relations at (330) 384-3841.
Sincerely,
/s/ Irene M. Prezelj
Irene M. Prezelj
Vice President
Investor Relations
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Forward-looking Statements
This Letter includes forward-looking statements based on information currently available to management. Such
statements are subject to certain risks and uncertainties. These statements include declarations regarding management's
intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,”
“potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words.
Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements, which may include the
following: the speed and nature of increased competition in the electric utility industry, in general, and the retail sales
market in particular; the ability to experience growth in the Regulated Distribution and Regulated Transmission
segments; the accomplishment of our regulatory and operational goals in connection with our transmission investment
plan, including, but not limited to, the proposed transmission asset transfer to Mid-Atlantic Interstate Transmission, LLC,
and the effectiveness of our strategy to reflect a more regulated business profile; changes in assumptions regarding
economic conditions within our territories, assessment of the reliability of our transmission system, or the availability of
capital or other resources supporting identified transmission investment opportunities; the impact of the regulatory
process and resulting outcomes on the matters at the federal level and in the various states in which we do business
including, but not limited to, matters related to rates and the Electric Security Plan IV; the impact of the federal
regulatory process on Federal Energy Regulatory Commission (FERC)-regulated entities and transactions, in particular
FERC regulation of wholesale energy and capacity markets, including PJM Interconnection, L.L.C. (PJM) markets and
FERC-jurisdictional wholesale transactions; FERC regulation of cost-of-service rates, including FERC Opinion No. 531's
revised Return on Equity methodology for FERC-jurisdictional wholesale generation and transmission utility service; and
FERC’s compliance and enforcement activity, including compliance and enforcement activity related to North American
Electric Reliability Corporation’s mandatory reliability standards; the uncertainties of various cost recovery and cost
allocation issues resulting from American Transmission Systems, Incorporated's realignment into PJM; economic or
weather conditions affecting future sales and margins such as a polar vortex or other significant weather events, and all
associated regulatory events or actions; changing energy, capacity and commodity market prices including, but not
limited to, coal, natural gas and oil prices, and their availability and impact on margins and asset valuations, including
without limitation impairments thereon; the risks and uncertainties at the Competitive Energy Services (CES) segment,
including FirstEnergy Solutions Corp. and its subsidiaries and the FirstEnergy Nuclear Operating Company, related to
continued depressed wholesale energy and capacity markets, and the viability and/or success of strategic business
alternatives, such as potential CES generating unit asset sales, the potential conversion of the remaining generation fleet
from competitive operations to a regulated or regulated-like construct or the potential need to deactivate additional
generating units; the risks and uncertainties associated with a lack of viable alternative strategies regarding the CES
segment, thereby causing FES to seek protection under the bankruptcy laws and the losses, liabilities and claims arising
from bankruptcy proceeding; the continued ability of our regulated utilities to recover their costs; costs being higher than
anticipated and the success of our policies to control costs and to mitigate low energy, capacity and market prices; other
legislative and regulatory changes, and revised environmental requirements, including, but not limited to, the effects of
the United States Environmental Protection Agency’s Clean Power Plan, Coal Combustion Residuals regulations, Cross-
State Air Pollution Rule and Mercury and Air Toxics Standards programs, including our estimated costs of compliance,
Clean Water Act (CWA) waste water effluent limitations for power plants, and CWA 316(b) water intake regulation; the
uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation,
including New Source Review litigation, or potential regulatory initiatives or rulemakings (including that such initiatives
or rulemakings could result in our decision to deactivate or idle certain generating units); the uncertainties associated with
the deactivation of older regulated and competitive units, including the impact on vendor commitments, such as long-
term fuel and transportation agreements, and as it relates to the reliability of the transmission grid, the timing thereof; the
impact of other future changes to the operational status or availability of our generating units and any capacity
performance charges associated with unit unavailability; adverse regulatory or legal decisions and outcomes with respect
to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or
operating permits by the Nuclear Regulatory Commission or as a result of the incident at Japan's Fukushima Daiichi
Nuclear Plant); issues arising from the indications of cracking in the shield building at Davis-Besse; the risks and
uncertainties associated with litigation, arbitration, mediation and like proceedings, including, but not limited to, any such
proceedings related to vendor commitments, such as long-term fuel and transportation agreements; the impact of labor
disruptions by our unionized workforce; replacement power costs being higher than anticipated or not fully hedged; the
ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction
mandates; changes in customers' demand for power, including, but not limited to, changes resulting from the
implementation of state and federal energy efficiency and peak demand reduction mandates; the ability to accomplish or
realize anticipated benefits from strategic and financial goals, including, but not limited to, the ability to continue to
reduce costs and to successfully execute our financial plans designed to improve our credit metrics and strengthen our
balance sheet through, among other actions, our cash flow improvement plan and other proposed capital raising
initiatives; our ability to improve electric commodity margins and the impact of, among other factors, the increased cost
of fuel and fuel transportation on such margins; changing market conditions that could affect the measurement of certain
liabilities and the value of assets held in our Nuclear Decommissioning Trusts, pension trusts and other trust funds, and
cause us and/or our subsidiaries to make additional contributions sooner, or in amounts that are larger than currently
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anticipated; the impact of changes to significant accounting policies; the ability to access the public securities and other
capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the
capital and credit markets affecting us and our subsidiaries; further actions that may be taken by credit rating agencies
that could negatively affect us and/or our subsidiaries' access to financing, increase the costs thereof, increase
requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial
guarantees; and the impact of these events on the financial condition and liquidity of FirstEnergy and/or its subsidiaries,
specifically the subsidiaries within the CES segment; the risks and uncertainties surrounding FirstEnergy’s need to obtain
waivers from its bank group under FirstEnergy’s credit facilities caused by a debt to total capitalization ratio, as defined
under each of such credit facilities, in excess of 65% resulting from impairment charges or other events at CES; changes
in national and regional economic conditions affecting us, our subsidiaries and/or our major industrial and commercial
customers, and other counterparties with which we do business, including fuel suppliers; the impact of any changes in tax
laws or regulations or adverse tax audit results or rulings; issues concerning the stability of domestic and foreign financial
institutions and counterparties with which we do business; the risks associated with cyber-attacks and other disruptions to
our information technology system that may compromise our generation, transmission and/or distribution services and
data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information
regarding our business, employees, shareholders, customers, suppliers, business partners and other individuals in our data
centers and on our networks; and the risks and other factors discussed from time to time in our United States Securities
and Exchange Commission (SEC) filings, and other similar factors. Dividends declared from time to time on FirstEnergy
Corp.'s common stock during any period may in the aggregate vary from prior periods due to circumstances considered
by FirstEnergy Corp.'s Board of Directors at the time of the actual declarations. A security rating is not a
recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating
agency. Each rating should be evaluated independently of any other rating. The foregoing factors should not be construed
as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our
filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K, any subsequent Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K. New factors emerge from time to time, and it is not possible
for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which
any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking
statements. FirstEnergy expressly disclaims any current intention to update, except as required by law, any forward-
looking statements contained herein as a result of new information, future events or otherwise.