-----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, Hkk+8tf4IYLgumE6wTR4IWOBJfMN6soK4sGUU4Q/4RS6R4+wSntkboC0D5+HZ7q+ W22jy7DkLeaIoZXgXUcRgg== 0001031296-98-000029.txt : 19981016 0001031296-98-000029.hdr.sgml : 19981016 ACCESSION NUMBER: 0001031296-98-000029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981008 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981015 SROS: AMEX SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-21011 FILM NUMBER: 98725719 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 8007363402 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC ILLUMINATING CO CENTRAL INDEX KEY: 0000020947 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340150020 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-02323 FILM NUMBER: 98725720 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN STREET STREET 2: C/O FIRSTENERGY CORP CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO EDISON CO CENTRAL INDEX KEY: 0000073960 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340437786 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-02578 FILM NUMBER: 98725721 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA POWER CO CENTRAL INDEX KEY: 0000077278 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 250718810 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-03491 FILM NUMBER: 98725722 BUSINESS ADDRESS: STREET 1: 1 E WASHINGTON ST STREET 2: P O BOX 891 CITY: NEW CASTLE STATE: PA ZIP: 16103-0891 BUSINESS PHONE: 4126525531 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLEDO EDISON CO CENTRAL INDEX KEY: 0000352049 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 344375005 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-03583 FILM NUMBER: 98725723 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN STREET CITY: AKRON STATE: OH ZIP: 43308 BUSINESS PHONE: 2166229800 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) October 8, 1998 Commission Registrant; State of Incorporation; I.R.S. File Number Address; and Telephone Number Employer Identification No. - ----------- ---------------------------------- -------------- 333-21011 FIRSTENERGY CORP. 34-1843785 (An Ohio Corporation) 76 South Main Street Akron, Ohio 44308 Telephone (800)736-3402 1-2578 OHIO EDISON COMPANY 34-0437786 (An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-2323 THE CLEVELAND ELECTRIC 34-0150020 ILLUMINATING COMPANY (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3491 PENNSYLVANIA POWER COMPANY 25-0718810 (A Pennsylvania Corporation) 1 East Washington Street P. O. Box 891 New Castle, Pennsylvania 16103 Telephone (412)652-5531 This combined Form 8-K is separately filed by FirstEnergy Corp., Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to any of the four FirstEnergy subsidiaries is also attributed to FirstEnergy. Item 5. Other Events On October 8, 1998, FirstEnergy Corp. (Company) announced that it will transfer its transmission assets into a new wholly-owned subsidiary, as described more fully in the press release filed as an exhibit to this Current Report on Form 8-K and incorporated herein by reference. On October 15, 1998, the Company announced that it has signed an agreement in principle with Duquesne Light Company that would result in the transfer of 1,436 megawatts (MW) of Duquesne's generating assets for 1,298 MW of the Company's generating assets, as described more fully in the press release and the Memorandum of Understanding, both of which are filed as exhibits to this Current Report on Form 8-K and incorporated herein by reference. Item 7. Financial Statements and Exhibits (a) Not Applicable. (b) Not Applicable. (c) Exhibits. (99a) Press Release dated October 8, 1998 of FirstEnergy Corp. (99b) Press Release dated October 15, 1998 of FirstEnergy Corp. (99c) Agreement in Principle dated October 14, 1998, between FirstEnergy Corp. and Duquesne Light Company.* * The exhibits to this document are not being filed herewith. The Registrants agree to furnish supplementally a copy of any such omitted exhibit to the Securities and Exchange Commission upon request. - 1 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. October 15, 1998 FIRSTENERGY CORP. ----------------- Registrant OHIO EDISON COMPANY ------------------- Registrant THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ---------------------- Registrant THE TOLEDO EDISON COMPANY ------------------------- Registrant /s/ Harvey L. Wagner ------------------------ Harvey L. Wagner Controller PENNSYLVANIA POWER COMPANY -------------------------- Registrant /s/ Harvey L. Wagner ----------------------- Harvey L. Wagner Comptroller - 2 - EX-99 2 PRESS RELEASE 10/08/98 FirstEnergy Corp. FOR IMMEDIATE RELEASE 76 South Main Street October 8, 1998 Akron, Ohio 44308 Media Contact: Ellen S. Raines (330) 384-5808 FirstEnergy Corp. Creates Transmission Subsidiary FirstEnergy Corp. announced today that it will transfer its transmission assets into a new subsidiary, called American Transmission Systems, Inc., with the goal of ultimately becoming part of a larger independent regional transmission company (TransCo) - an entity that owns and operates transmission systems. FirstEnergy plans to initially transfer the operating authority of its transmission system to American Transmission Systems, as soon as possible, while the asset transfer will be finalized by early 1999. The subsidiary will own and operate FirstEnergy's major, high- voltage transmission facilities - approximately 5,200 miles of transmission lines with voltages of generally 138 kilovolts and higher and approximately 160 transmission substations - and will have 35 interconnections with 8 regional utilities. These facilities represent approximately $1 billion in assets. The formation of the new subsidiary will not affect customers now receiving transmission service from FirstEnergy. They will continue to receive service from the new subsidiary under the same provisions. "We are convinced that a TransCo structure provides the best means to improve transmission service going forward," said FirstEnergy Vice President Stan Szwed. "The transmission networks require investments for the future, and a TransCo, in our view, will be the best vehicle for attracting the necessary capital and technological innovation." "As competitive markets continue to develop, transmission will become the integral link in delivering electricity more efficiently over wider geographic areas. In addition, we believe this structure provides a better opportunity to assure non- discriminatory access for all transmission users and maximizes the value of our assets for shareholders. A TransCo will create synergies that result in better service in the region," Szwed said. "Creating this subsidiary is the first step toward our goal of establishing a truly independent transmission company. This initial transaction gives us greater flexibility with respect to our transmission assets, and positions us to readily join with others to create a larger TransCo or consider options, such as selling the assets," Szwed said. "The new subsidiary also facilitates the company's continued evaluation of participation in other regional transmission entities, in particular the Transmission Alliance, as well as the PJM [Pennsylvania, New Jersey, Maryland] Independent System Operator, and the Midwest ISO." FirstEnergy is an active participant in the Transmission Alliance, a group of nine utilities that have been discussing the formation of the regional transmission entity since earlier this year. A TransCo structure has been one of the primary options discussed. This subsidiary will more readily facilitate the transition to an appropriate regional entity such as the Alliance. - 3 - A TransCo better addresses the Federal Energy Regulatory Commission's stated goals of providing non-discriminatory treatment of all transmission users; eliminating pancaked rates; managing system congestion; eliminating inter-regional loop flows; and managing short-term reliability. A TransCo also ties together control, planning, maintenance and financial responsibility, resulting in a truly independent, streamlined, and cost-efficient operation. FirstEnergy is a diversified energy services holding company with 2.2 million customers in northern and central Ohio and western Pennsylvania. Its electric utility operating companies - Ohio Edison and its subsidiary Pennsylvania Power, The Illuminating Company and Toledo Edison - comprise the nation's 12th largest investor-owned electric system. FirstEnergy has $18 billion in assets, including ownership in 18 power plants. (100898) - 4 - EX-99 3 PRESS RELEASE 10/15/98 FOR IMMEDIATE RELEASE FirstEnergy Corp. October 15, 1998 76 South Main Street Akron, Ohio 44308 News Media Contact: Analyst Contact: Ralph J. DiNicola Ronald E. Seeholzer (330) 384-5939 (330) 384-5500 FIRSTENERGY REACHES ASSET TRANSFER AGREEMENT WITH DUQUESNE LIGHT FirstEnergy Corp. announced today that it has signed an agreement in principle with Duquesne Light Company that would result in the transfer of 1,436 megawatts (MW) owned by Duquesne Light at eight generating units in exchange for 1,298 megawatts at three power plants owned by FirstEnergy electric utility operating companies. A definitive agreement on the exchange of assets, which will be structured as a tax-free transaction, is expected to be reached by the end of the year. "This transaction will provide us with exclusive ownership and operating control of all of the generating assets that are now jointly owned and operated under the Central Area Power Coordination Group (CAPCO) agreement," said FirstEnergy Chairman and Chief Executive Officer Willard R. Holland. "As a result, we will be better positioned to maximize the value of these eight CAPCO generating units, which have a total capacity of 6,381 MW," he added. CAPCO was formed in 1967 to jointly develop power generation and transmission facilities in an effort to enhance power coordination and reliability in the region. Under the CAPCO agreement, Ohio Edison Company, The Cleveland Electric Illuminating Company, Toledo Edison Company, Pennsylvania Power Company - now FirstEnergy electric utility operating companies - and Duquesne Light, headquartered in Pittsburgh, jointly own and operate nine generating units at six power plants. FirstEnergy companies already own and operate the 906-MW Davis-Besse Plant in Oak Harbor, Ohio, which was also built under the CAPCO agreement. Under the agreement in principle, FirstEnergy's electric utility operating companies will acquire Duquesne Light's minority share in eight generating units at five CAPCO power plants. These include Duquesne's 187 MW of the 600-MW Unit 7 at the W. H. Sammis Plant in Stratton, Ohio; 186 MW of the 597-MW Unit 5 of the Eastlake Plant in Eastlake, Ohio; 401 MW of the 2,360 MW at Units 1, 2 & 3 of the Bruce Mansfield Plant in Shippingport, Pennsylvania; 498 MW of the 1,630 MW at Units 1 & 2 of the Beaver Valley Power Station in Shippingport, Pennsylvania; and 164 MW of the 1,194 MW at the Perry Nuclear Power Plant in Perry, Ohio. Duquesne Light will fund decommissioning costs equal to its percentage interest in the nuclear units. In exchange, FirstEnergy would transfer ownership of three of its electric utility operating companies' coal-fired plants with a total capacity of 1,298 MW to Duquesne Light. The affected FirstEnergy plants, with a total staff of 268 employees, are the 743-MW Avon Lake Plant in Avon Lake, Ohio; the 339-MW New Castle Plant in New Castle, Pennsylvania; and the 216-MW Niles Plant in Niles, Ohio. The agreement with Duquesne includes assurances that FirstEnergy employees will be treated fairly. - 5 - The Avon Lake, New Castle and Niles plants will be included in Duquesne Light's recently announced plans for auctioning its generating assets. The auction is expected to take place within the next six months, and successful bids should be announced within three months after the auction. As a result of the auction and the time needed to obtain necessary regulatory approvals, including those from the Nuclear Regulatory Commission and the Pennsylvania Public Utility Commission, the asset transfer is expected to take 12 to 18 months to close. FirstEnergy, headquartered in Akron, Ohio, is a diversified energy services company with more than $18 billion in assets and more than $5 billion in annual revenues. FirstEnergy's electric utility operating companies comprise the nation's 12th largest investor-owned electric system. (101598) - 6 - EX-99 4 AGREEMENT IN PRINCIPLE October 14, 1998 FirstEnergy Corp. 76 South Main St. Akron, Ohio 44308 Dear Sirs: This letter confirms the agreement in principle of Duquesne Light Company ("DLC"), a Pennsylvania corporation, and FirstEnergy Corp. ("FE"), an Ohio corporation, acting on behalf of Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company, and The Toledo Electric Company (together, "FE Subsidiaries"), regarding the exchange of interests in certain electric generation facilities (hereinafter "Generation Exchange"). FE shall cause the FE Subsidiaries to perform all acts described herein as necessary or appropriate to fulfill FE's obligations hereunder. The terms of the agreement in principle are as follows: 1. Interests Exchanged. The Parties intend to exchange the following interests in electric generation assets: (a) DLC will assign, convey, transfer and deliver to the FE Subsidiaries its rights, title and interest in and to the following electric generation plants: Beaver Valley Power Station Units Nos. 1 & 2 (subject to Section 3 hereof), Perry Unit No. 1, W.H. Sammis Unit No. 7, Bruce Mansfield Units Nos. 1, 2 & 3, and Eastlake Unit No. 5 (together, "DLC Interests"), as described and identified in Exhibit 1 hereof. (b) The FE Subsidiaries will assign, convey, transfer and deliver to DLC its rights, title and interest in and to the following electric generation plants: all units located at the Avon Lake, New Castle, and Niles generating stations (together, "FE Interests"), as described and identified in Exhibit 2 hereof. (c) Each Party will be responsible for the costs of any state or local transfer taxes associated with the transfer of its real property to the other. 2. Structure of Exchange. (a) The Generation Exchange will be structured to qualify as a tax deferred, like-kind exchange under Internal Revenue Code Section 1031. The Parties recognize, however, that certain assets associated with the exchange may constitute nonqualifying property under Section 1031. - 7 - (b) The Generation Exchange would be followed immediately by DLC's sale of the FE Interests to the winning bidder ("Winning Bidder") in DLC's generation auction ("DLC Auction"), except as provided in Section 7. (c) FE will indemnify and hold DLC harmless against claims and liabilities associated with its temporary ownership of the FE Interests to the extent such claims and liabilities are not assumed by the Winning Bidder. 3. Beaver Valley Unit 2. DLC will terminate the Facility Leases and will be responsible for all payments and expenses associated with such termination. DLC will indemnify and hold FE harmless against any claims and liabilities associated with the termination of the Facility Leases. 4. FE Financial Commitment. FE will provide a financial commitment that DLC has determined will ensure that the net proceeds from the DLC Auction will be sufficient, at a minimum, to maintain or reduce the level of stranded cost recovery approved by the PaPUC in its May 29, 1998 restructuring order. 5. Decommissioning. DLC will be responsible for its share of nuclear decommissioning costs for the Beaver Valley Power Station and Perry Unit 1. The Parties will cooperate in developing alternative methods for handling DLC's decommissioning obligations in a manner that caps such obligations at the total funding amounts allowed by the PaPUC in the DLC restructuring order and provides FE the after-tax treatment associated with those funds that are assumed in such order. Any additional decommissioning costs, or costs associated with spent nuclear fuel or the disposal or decommissioning of any other nuclear equipment, facilities or properties of any kind, will be the sole responsibility of FE. 6. Labor. The Parties will cooperate to resolve labor-related matters, including with respect to union contracts, workforce levels, severance, and employee benefits, in a manner that treats employees fairly and equitably apportions any related costs between the Parties. The definitive agreements for the Generation Exchange shall clearly define and apportion the rights and obligations of the Parties regarding these matters. 7. FENOC. (a) DLC will assign, convey, transfer and deliver its right, title and interest in the Beaver Valley Power Station to FE, including the transfer of responsibility for the operation and maintenance of the plant to FirstEnergy Nuclear Operating Company ("FENOC"), and DLC's interest in Perry Unit 1 ("Nuclear Interest Transfer"), as soon as practicable after the receipt of all associated regulatory approvals and the satisfaction of any other condition, as set forth in the definitive agreements, to such a transfer, including conditions related to the Facility Lease, decommissioning, labor-related matters, nuclear fuel, and transmission as further described Sections 3, 5, 6, 9, and 10 hereof. Such transfers of DLC's right, title and interest and operating responsibility in or for its nuclear interests will be made as the conditions precedent for such transfer of Beaver Valley Unit 1, Beaver Valley Unit 2 and/or Perry Unit 1 are satisfied. (b) Upon execution of this agreement in principle, DLC shall provide written notification to FE that it supports the pending Nuclear Regulatory Commission application by FENOC to - 8 - assume operating responsibility for Perry Unit 1. DLC's support for such NRC application shall not constitute a waiver of DLC's right to withhold consent to the assignment of such operating responsibility to FENOC pursuant to the Perry Unit 1 Operating Agreement, dated as of March 10, 1987, such consent to be required and provided upon execution of the Exchange Agreements described in Section 14. 8. Cooperation in DLC Auction. (a) FE will cooperate with DLC in a commercially reasonable manner to provide for the timely and successful completion of the DLC Auction, including providing the due diligence specified in Section 15 and designating a person or persons having engineering and operational familiarity with respect to each of the FE Interests to be the principal contact person(s) for the auction of the FE Interests and causing such person(s) to make sufficient time available for such purpose as reasonably required by DLC or its consultants or advisors. (b) FE agrees that it will not submit a bid in DLC's auction. (c) For any FE employee(s) affected by the Generation Exchange to whom FE desires to submit an offer of continuing employment, FE shall disclose the identity of such employee(s) to DLC reasonably in advance of the date when bids are due in the DLC Auction. (d) Nothing in this agreement in principle or the definitive agreements shall be deemed to grant FE any rights with respect to, or otherwise to participate in, the implementation of the DLC Auction. 9. Fuel. Each Party will sell, assign, convey, transfer and deliver to the other its rights, title and interest in and to the fuel inventories, including nuclear fuel in core, associated with the generation interests being exchanged at the cost of such fuel inventories. Each Party will also assign, to the extent assignable, all rights and obligations under fuel contracts applicable to such interests. To the extent any such contract is not assignable, including leases for nuclear fuel, the Party to such contract shall agree to resell the fuel delivered under such contract or lease to the other Party and receive from the other Party the cost of such deliveries on an as-incurred basis during the term of the contract or lease, provided that no such contract shall be extended, nor shall any additional nuclear fuel be added to any such leases. 10. Transmission Facilities. DLC will sell, assign, convey, transfer and deliver to FE (i) the transmission facilities necessary and appropriate to permit the delivery of power from the Beaver Valley Power Station and the Bruce Mansfield Power Station to the FE transmission system, and (ii) any substation and related facilities as are necessary to meet Nuclear Regulatory Commission requirements for the safe and reliable operation of the Beaver Valley Power Station, provided that arrangements are made for continued use by DLC of such substation facilities as are necessary for the integration and operation of its system. The purchase price for the DLC facilities so transferred shall be equal to the net book costs of such facilities at the closing date of such transaction. 11. CAPCO Agreements. All contractual arrangements associated with the Central Area Power Coordination Group ("CAPCO"), including the unit operating agreements associated with the DLC Interests, the Transmission Facilities Agreement, and the CAPCO Basic Operating Agreement, will be modified or terminated so that DLC shall have no further rights or - 9 - obligations respecting such agreements and in a manner necessary or appropriate to permit compliance by FE with any law, regulation or contract. 12. Property Tax Litigation. As of the date of execution of this agreement in principle, FE will receive the full benefits, including any refunds, and shall bear the full costs after such date related to, pending litigation and appeals regarding the property taxes for the Perry, Eastlake and Sammis plants, provided, however, that if the Generation Exchange as to any such unit is not consummated for any reason, the Parties shall negotiate arrangements that place them in the same position as to such unit, with respect to any such costs or benefits, as if this agreement in principle had not been executed. DLC will continue to take all actions necessary in such proceedings, in cooperation with FE, until the closing subject to reimbursement of all expenses upon closing. 13. Litigation. The Generation Exchange will constitute a full settlement of all existing and future litigation between the Parties related to their ownership interests in the CAPCO assets. Following the execution of this agreement in principle, definitive settlement agreements as to any pending litigation will be negotiated consistent with this agreement in principle and will take effect on the date of closing of the Generation Exchange. In addition, upon execution of this agreement in principle, the Parties will jointly seek an order of the Court in the current litigation regarding Eastlake Unit 5 (the "Eastlake Litigation") to stay all proceedings in the Eastlake Litigation pending the complete execution of Exchange Agreements. Upon the complete execution of the Exchange Agreements, the Parties will jointly present to the Court an agreed order which will have the effect of suspending the Eastlake Litigation while preserving the Parties' rights to continue the Eastlake Litigation in the event that the Generation Exchange does not close. If the Generation Exchange does not so close, DLC shall retain all rights with respects to such litigation, with the exception being that execution of the Exchange Agreements shall constitute an irrevocable waiver by DLC of claims for money damages in the Eastlake Litigation but not for any other remedy, including the partition or sale of the unit. 14. Definitive Agreements. Following the execution of this agreement in principle, the Parties shall in good faith negotiate as soon as practicable definitive agreements (together with any related schedules, together the "Exchange Agreements") reflecting the terms of the Generation Exchange as set forth in this agreement in principle and containing such additional terms, covenants, representations and warranties, assumptions of liability and other conditions as are normal and customary for transactions of this kind. The representations, warranties, covenants and conditions for FE and DLC are expected to include, but not necessarily be limited to, those set forth in the Asset Purchase Agreement Term Sheet, attached as Appendix D to the DLC Generation Auction Plan. It is specifically agreed and understood by the Parties that the terms set forth in this agreement in principle do not constitute all of the major terms which will be included in the Exchange Agreements, that the terms set forth herein are subject to further discussion, negotiation, and due diligence, and that this agreement in principle is an expression of intent only and is not intended, nor will it be alleged by either Party, to create or result in any legally binding obligation upon the Parties, with the sole exception being this sentence and Sections 7(b) and 23. - 10 - 15. Due Diligence. (a) Between the date of this letter and the date of consummation of the Generation Exchange, FE will (i) give DLC and its authorized representatives (including without limitation, its professional and financial advisors and any qualified bidder in the DLC Auction, together "DLC Representatives"), access during regular business hours upon reasonable notice to all of the generating plants constituting the FE Interests and to all of its books and records associated with the FE Interests, (ii) permit DLC Representatives to make such reasonable inspections as it may require, including the performance of Phase I and Phase II environmental audits as to the FE Interests, provided that DLC bears all of the expenses related to such audits and inspections, (iii) cause FE's officers and those of its subsidiaries to furnish DLC Representatives with such financial and operating data and other information with respect to the FE Interests as DLC Representatives may request from time to time, and (iv) keep DLC Representatives apprised of material developments in the operation and maintenance of the FE Interests. As provided in the letter agreement between FE and DLC respecting confidenti- ality, the information provided to DLC Representatives will be treated on a confidential basis. DLC will require any qualified bidder in the DLC Auction to execute a confidentiality agreement providing similar protections for due diligence information provided by FE to such bidders. (b) Between the date of this letter and the date of consummation of the transactions contemplated herein or termination hereof, DLC will keep FE apprised of material developments regarding the operation and maintenance of the Beaver Valley Power Station and shall otherwise provide FE access to such information respecting Beaver Valley as is reasonably required for FE to perform due diligence for the Generation Exchange. To the extent DLC determines that certain due diligence information should be provided to FE only pursuant to a confidentiality agreement, the Parties shall negotiate such an agreement in good faith. 16. Assumption of Liabilities. DLC shall cause the Winning Bidder to assume such liabilities, whether known or unknown, absolute or contingent, direct or indirect, relating to the FE Interests as are normal and customary in transactions of this kind, including liabilities relating to DLC's temporary ownership of the FE Interests. FE will assume such liabilities, whether known or unknown, absolute or contingent, direct or indirect, relating to the DLC Interests as are normal and customary in transactions of this kind. Each Party shall indemnify the other against any claim, and any reasonable expenses incurred by the other party as to such claim, asserting that the other Party's execution of this agreement in principle or the Exchange Agreements constitutes an interference with any contractual obligation of the first Party. 17. Representations and Warranties. FE will provide representations and warranties to DLC that are normal and customary for transactions of this kind and the Winning Bidder shall be an intended third party beneficiary thereof. DLC will provide representations and warranties to FE with respect to the DLC Interests that are normal and customary for transactions of this kind, provided that recognition shall be given for the fact FE, not DLC, is the operator of certain of the DLC Interests. 18. Covenants. Each Party will provide such covenants as are normal and customary for transactions of this kind, - 11 - including, without limitation, covenants to operate and maintain their respective generation interests in the regular and ordinary course from the date of execution of the Exchange Agreements to the closing date of the Generation Exchange. 19. Conditions. The Exchange Agreements shall include conditions to closing the transaction(s) as are normal and customary for transaction of this kind, including conditions related to securing necessary regulatory approvals and for the absence of any material breach of covenants, representations or warranties under the Exchange Agreements and, furthermore, a condition that the Agreement and Plan of Merger between DQE, Inc. and Allegheny Energy, Inc. has been terminated and there is no court order requiring DQE to consummate the transactions contemplated under said agreement. 20. Interim Operations; Proration of Expenses. The Exchange Agreements shall include covenants regarding interim operation of the FE Interests and DLC Interests following execution of such agreements and prior to closing of the Generation Exchange as are normal and customary for transactions of this kind, including the use of prudent utility practice in operating and maintaining such interests, a fair apportionment of the risk of loss or damage to such interests prior to closing, and limitations on encumbering such interests or making certain capital expenditures during such period. The Exchange Agreements also shall include provisions regarding the proration of costs and expenses as of the closing date, including as to property taxes, fuel inventories, etc. 21. Expenses. Except as otherwise provided for herein, each Party will bear its own expenses associated with the Generation Exchange, including expenses associated with legal, financial or other advisors retained to negotiate the Exchange Agreements. 22. Termination. If the Parties do not execute definitive Exchange Agreements by December 21, 1998, this agreement in principle shall be terminable by either Party upon written notice to the other. Following any such termination, neither Party will have any further liability or obligation to the other regarding an exchange of generation assets. 23. Public Announcements; Confidentiality. (a) The parties agree that this agreement in principle shall be a public document and, as such, may be disclosed to employees, shareholders and regulatory bodies as necessary and appropriate. Neither Party, however, shall, without the prior consent of the other, make public statements regarding ongoing negotiations to reach agreement with respect to the Exchange Agreements. (b) FE acknowledges and agrees that DLC will submit this agreement in principle to the PaPUC for the purpose of obtaining PaPUC approval of the Generation Exchange, including authorization for the accounting for the net proceeds from the sale of the FE Interests. It is anticipated that the PaPUC will be in a position to issue an order regarding this Generation Exchange not later than December 21, 1998. 24. Governing Law. This agreement in principle shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the provisions thereof relating to conflicts of law. - 12 - 25. Counterparts. This agreement in principle may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. If the foregoing correctly reflects the understanding between us, please so indicate by signing and returning the enclosed copy of this letter at your earliest convenience. DUQUESNE LIGHT COMPANY By: /s/Victor A. Roque ------------------ Name: Victor A. Roque Title: VP and General Counsel Agreed to and accepted as of this 14th day of October 1998 FIRSTENERGY CORP. By: /s/Anthony J. Alexander ------------------------------- Name: Anthony J. Alexander Title: Exec. V.P. & General Counsel - 13 - -----END PRIVACY-ENHANCED MESSAGE-----