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Section 1: 8-K (8-K)

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UNITED STATES
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): November 4, 2016



Commission
 
Registrant; State of Incorporation;
 
I.R.S. Employer
File Number
 
Address; and Telephone Number
 
Identification No.
 
 
 
 
 
333-21011
 
FIRSTENERGY CORP.
 
34-1843785
 
 
(An Ohio Corporation)
 
 
 
 
76 South Main Street
 
 
 
 
Akron, OH  44308
 
 
 
 
Telephone (800)736-3402
 
 
 
 
 
 
 
















Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02 Results of Operations and Financial Condition

On November 4, 2016, FirstEnergy Corp. (FirstEnergy or Company) issued three public documents regarding, among other things, results for the three and nine months ended September 30, 2016. FirstEnergy’s Press Release, Consolidated Report to the Financial Community and slide presentation, which are attached as Exhibits 99.1, 99.2 and 99.3 hereto and incorporated herein by reference, contain non-GAAP financial measures. Pursuant to the requirements of Regulation G and Item 10(e)(i) of Regulation S-K, FirstEnergy has provided quantitative reconciliations within the Press Release and Consolidated Report to the Financial Community and slide presentation of the non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). The information in the Press Release, the Consolidated Report to the Financial Community and slide presentation and the information contained in this Item 2.02 and in Item 9.01 below shall not be deemed filed for purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibits 99.1, 99.2 and 99.3 be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.

The Press Release, Consolidated Report to the Financial Community and slide presentation contain references to non-GAAP financial measures including, among others, Operating earnings, Adjusted Equity, Adjusted Debt, Adjusted Capitalization and Adjusted EBITDA for the Competitive Energy Services segment (CES Adjusted EBITDA). In addition, Basic EPS and Basic EPS-Operating, each calculated on a segment basis, are also non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a companys historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Operating earnings are not calculated in accordance with GAAP because they exclude the impact of special items. Basic EPS for each segment is calculated by dividing segment net income (loss) on a GAAP basis by the basic weighted average shares outstanding for the period. Basic EPS-Operating for each segment is calculated by dividing segment Operating earnings (losses), which exclude special items as discussed above, by the basic weighted average shares outstanding for the period. Management uses non-GAAP financial measures such as Operating earnings and CES Adjusted EBITDA to evaluate the company’s performance and manage its operations and frequently references these non-GAAP financial measures in its decision-making, using them to facilitate historical and ongoing performance comparisons. Additionally, management uses Basic EPS and Basic-EPS Operating by segment to further evaluate FirstEnergy’s performance by segment and references these non-GAAP financial measures in its decision-making. Management believes that the non-GAAP financial measures of “Operating earnings,” “Basic EPS” and “Basic EPS-Operating” by segment provide consistent and comparable measures of performance of its businesses to help shareholders understand performance trends. Management uses Adjusted Equity, Adjusted Debt, and Adjusted Capitalization to calculate and monitor its compliance with the debt to total capitalization financial covenant under the FirstEnergy credit facility and term loan. These financial measures, as calculated in accordance with the FirstEnergy credit facility and term loan, help shareholders understand FirstEnergy's compliance with, and incremental debt capacity under, the debt to total capitalization financial covenant. The financial covenant requires FirstEnergy to maintain a consolidated debt to total capitalization ratio of no more than 65%, measured at the end of each fiscal quarter. All of these non-GAAP financial measures are intended to complement, and are not considered as alternatives to, the most directly comparable GAAP financial measures. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities.


Item 9.01 Financial Statements and Exhibits
(d)
Exhibits

Exhibit No.
 
Description
99.1
 
Press Release issued by FirstEnergy Corp., dated November 4, 2016
99.2
 
Consolidated Report to the Financial Community, dated November 4, 2016
99.3
 
Slide Presentation, dated as of November 4, 2016







 
 


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Forward-Looking Statements: This Form 8-K 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 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 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 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, or accelerate payments under 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 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

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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 and any subsequent Quarterly Reports on Form 10-Q. 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.



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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 hereunto duly authorized.



November 4, 2016

 
 FIRSTENERGY CORP.
 
 Registrant
 
 
 
 
 By:
/s/ K. Jon Taylor
 
K. Jon Taylor
Vice President, Controller and
Chief Accounting Officer


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Exhibit Index

Exhibit No.
 
Description
99.1
 
Press Release issued by FirstEnergy Corp., dated November 4, 2016
99.2
 
Consolidated Report to the Financial Community, dated November 4, 2016
99.3
 
Slide Presentation, dated as of November 4, 2016


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

FirstEnergy Corp.                    For Release: November 4, 2016
76 South Main Street
Akron, Ohio 44308
www.firstenergycorp.com    

News Media Contact:                Investor Contact:
Tricia Ingraham                    Irene Prezelj
(330) 384-5247                    (330) 384-3859



FirstEnergy Announces Third Quarter Financial Results
Raises and Narrows 2016 Non-GAAP Operating Earnings Guidance

AKRON, Ohio - FirstEnergy Corp. (NYSE: FE) today reported third quarter 2016 GAAP earnings of $380 million, or $0.89 per basic and diluted share of common stock, on revenue of $3.9 billion. Operating (non-GAAP) earnings* for the third quarter of 2016 were $0.90 per basic share of common stock.

These results compare to third quarter of 2015 GAAP earnings of $395 million, or $0.94 per basic share of common stock ($0.93 diluted), on revenue of $4.1 billion. Operating (non-GAAP) earnings for the third quarter of 2015 were $0.98 per basic share of common stock.

“Our results for the third quarter exceeded our expectations due to the impact of record summer temperatures on our distribution business, as well as solid operations across each of our business segments,” said Charles E. Jones, FirstEnergy president and chief executive officer. “We also continue to make solid progress on our regulated growth strategies that are designed to provide predictable and customer-service oriented growth.”

FirstEnergy reported that it expects a GAAP loss of $(1.30) to $(0.90) per basic share for the full year of 2016, from its previous range of $(0.75) to $(0.55) per basic share. The loss primarily reflects asset impairment and plant exit costs recognized in the second quarter and an estimated charge of $0.45 to $0.75 per basic share associated with the company’s annual pension and OPEB mark-to-market adjustment.

The company also raised and narrowed its operating (non-GAAP) earnings guidance for the full year of 2016 to $2.60 to $2.70 per basic share, from the previous range of $2.40 to $2.60 per basic share. This estimate includes up to $500 million of additional equity anticipated by year end.

In FirstEnergy’s Regulated Distribution business, warmer summer temperatures drove an increase in third quarter 2016 earnings, offsetting higher pension and OPEB expenses and higher general taxes.

The record-high temperatures contributed to a nearly 7 percent increase in total distribution deliveries compared to the third quarter of 2015. Residential deliveries increased nearly 13 percent, while commercial deliveries rose by nearly 5 percent. Sales to industrial customers increased more than 2 percent compared to the third quarter of 2015 as a result of increased demand in several key sectors.

In the company’s Regulated Transmission business, third quarter earnings increased as a result of continued investments in ATSI and TrAIL as part of FirstEnergy’s Energizing the Future transmission program.


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In the Competitive Energy Services segment, third quarter commodity margin decreased compared to the prior year period due to lower contract sales volume, consistent with the company’s expectations, and lower capacity revenues reflecting lower capacity prices that went into effect in June 2016. Lower capacity expense and purchased power costs, as well as lower fuel costs, transmission costs and higher wholesale sales, benefited commodity margin. Partially offsetting the decline in commodity margin were lower expenses and higher investment income in the third quarter of 2016 as compared to the prior-year period.

The company’s third quarter 2016 earnings were also impacted by a higher consolidated effective income tax rate.

On a GAAP basis, FirstEnergy reported a net loss of $(381) million for the first nine months of 2016, or $(0.90) per basic and diluted share of common stock on revenue of $11.2 billion. This compares to earnings of $804 million for the first nine months of 2015, or $1.91 per basic share of common stock, $1.90 on a diluted basis, on revenue of $11.5 billion. Operating (non-GAAP) earnings were $2.25 per basic share of common stock in the first nine months of 2016, and $2.13 per basic share of common stock for the same period in 2015.

Results for the first nine months of 2016 decreased as a result of the second quarter asset impairment and plant exit costs in the company’s competitive business, as well as higher benefit expenses, depreciation and taxes compared to the same period of 2015. These factors offset stronger year-to-date results in the Regulated Distribution business primarily related to rate cases approved in 2015, the impact of a higher rate base and forward-looking rate structure in the Regulated Transmission business, improved commodity margin in the Competitive Energy Services business and lower operating expenses.

 
 
 
 
 
 
Consolidated GAAP EPS to Operating (Non-GAAP) EPS* Reconciliation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third Quarter
 
Year-To-Date
 
Estimate
 
 
 
 
 
2016
2015
 
2016
2015
 
Full Year 2016
 
 
Basic Earnings (Loss) Per Share (GAAP)
 
$0.89
$0.94
 
$(0.90)
$1.91
 
$(1.30) - $(0.90)
 
 
Excluding Special Items*:
 
 
 
 
 
 
 
 
 
 
 
Regulatory charges
 
0.02
0.01
 
0.12
0.05
 
0.13
 
 
 
Trust securities impairment
 
0.07
 
0.02
0.11
 
0.02
 
 
 
Merger accounting - commodity contracts
 
0.01
0.02
 
0.04
0.05
 
0.05
 
 
 
Asset impairment/Plant exit costs
 
 
2.99
0.04
 
2.97
 
 
 
Mark-to-market adjustments
 
 
 
 
 
 
 
 
 
 
 
Pension/OPEB actuarial assumptions1
 
 
 
0.45 - 0.75
 
 
 
Other
 
(0.02)
(0.09)
 
(0.02)
(0.10)
 
(0.02)
 
 
 
Impact of non-core asset sales/impairments
 
0.02
 
0.05
 
 
 
 
Retail repositioning charges
 
0.01
 
0.02
 
 
 
 
Total Special Items*
 
0.01
0.04
 
3.15
0.22
 
3.60 - 3.90
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS - Operating (Non-GAAP)
 
$0.90
$0.98
 
$2.25
$2.13
 
$2.60 - $2.70
 
 
 
 
 
 
 
 
 
 
 
 
 
1Based on current discount rates ranging from 4.00% - 3.75% for Pension plans and 3.75% - 3.50% for OPEB plans and actual gains on plan assets through September 30, 2016 of 11%.
 
 
* Per share amounts for the special items above are based on the after-tax effect of each item, divided by the weighted average basic shares outstanding and includes the estimated dilutive impact of additional common stock in the fourth quarter of 2016. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%.

 




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Non-GAAP financial measures
*Operating earnings exclude special items as described herein, and is a non-GAAP financial measure. Management uses operating earnings and operating earnings by segment to evaluate the company’s performance and manage its operations and frequently references these non-GAAP financial measures in its decision making, using them to facilitate historical and ongoing performance comparisons. Management believes that the non-GAAP financial measure of “operating earnings” provides a consistent and comparable measure of performance of its business to help shareholders understand performance trends. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). This non-GAAP financial measure is intended to complement, and is not considered as an alternative to, the most directly comparable GAAP financial measure. Also, this non-GAAP financial measure may not be comparable to similarly titled measures used by other entities. Per share amounts for the special items above are based on the after-tax effect of each item divided by the weighted average shares outstanding for the period.


Consolidated Report and Teleconference
FirstEnergy’s Consolidated Report to the Financial Community, which provides highlights on company developments and financial results for the third quarter and first nine months of the year, is posted on the company’s Investor Information website - www.firstenergycorp.com/ir. To access the report, click on Third Quarter 2016 Consolidated Report to the Financial Community. Slides associated with the third quarter earnings call are also posted to the website.

The company invites investors, customers and other interested parties to listen to a live internet webcast of its teleconference for financial analysts at 10:00 a.m. EDT today. FirstEnergy management will present an overview of the company’s financial results and discuss earnings guidance, followed by a question-and-answer session. The teleconference can be accessed on the company’s website by selecting the Q3 2016 Earnings Conference Call link. The webcast will be archived on the website for up to one year.

FirstEnergy is dedicated to safety, reliability and operational excellence. Its 10 electric distribution companies form one of the nation's largest investor-owned electric systems, serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York. Its generation subsidiaries control nearly 17,000 megawatts of capacity from a diversified mix of scrubbed coal, non-emitting nuclear, natural gas, hydro and other renewables. Visit FirstEnergy online at www.firstenergycorp.com. Follow FirstEnergy on Twitter @FirstEnergyCorp.

Forward-Looking Statements: This news release 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

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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 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 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 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, or accelerate payments under 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 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

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Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. 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.

.
(110416)


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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2
36560987_felogo06302014a01a05.jpg

Consolidated Report to the Financial Community                                                                           
Third Quarter 2016
 
(Released November 4, 2016)          (Unaudited)

HIGHLIGHTS  
GAAP earnings for the third quarter of 2016 were $0.89 per basic share, compared with third quarter 2015 earnings of $0.94 per basic share. Operating (non-GAAP) earnings*, excluding special items, were $0.90 per basic share for the third quarter of 2016, compared with third quarter 2015 Operating (non-GAAP) earnings of $0.98 per basic share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competitive
 
 
 
FirstEnergy
 
 
 
EPS Variance Analysis
 
Regulated
 
Regulated
 
Energy
 
Corporate /
 
Corp.
 
 
 
(in millions, except per share amounts)
 
Distribution
 
Transmission
 
Services**
 
Other**
 
Consolidated
 
 
 
3Q 2015 Net Income - GAAP
 
$234
 
$70
 
$145
 
$(54)
 
$395
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3Q 2015 Basic EPS* (avg. shares outstanding 423M)
 
$0.56
 
$0.17
 
$0.34
 
$(0.13)
 
$0.94
 
 
 
Special Items - 2015***
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory charges
 
0.01
 
 
 
 
0.01
 
 
 
Trust securities impairment
 
0.01
 
 
0.06
 
 
0.07
 
 
 
Merger accounting - commodity contracts
 
 
 
0.02
 
 
0.02
 
 
 
Impact of non-core asset sales/impairments
 
0.01
 
 
 
0.01
 
0.02
 
 
 
Retail repositioning charges
 
 
 
0.01
 
 
0.01
 
 
 
Mark-to-market adjustments
 
 
 
(0.09)
 
 
(0.09)
 
 
 
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings*
 
$0.59
 
$0.17
 
$0.34
 
$(0.12)
 
$0.98
 
 
 
Distribution Deliveries - Weather
 
0.11
 
 
 
 
0.11
 
 
 
Distribution Revenues - DCR
 
0.01
 
 
 
 
0.01
 
 
 
Transmission Revenues
 
 
0.05
 
 
 
0.05
 
 
 
Commodity Margin
 
 
 
(0.17)
 
 
(0.17)
 
 
 
O&M Expenses
 
 
 
(0.02)
 
0.02
 
 
 
 
Depreciation
 
 
(0.01)
 
0.03
 
 
0.02
 
 
 
Pension/OPEB
 
(0.02)
 
 
(0.01)
 
 
(0.03)
 
 
 
General Taxes
 
(0.02)
 
(0.02)
 
0.01
 
 
(0.03)
 
 
 
Investment Income
 
 
 
0.01
 
 
0.01
 
 
 
Interest Expense
 
0.01
 
 
 
(0.01)
 
 
 
 
Effective Income Tax Rate
 
 
 
 
(0.05)
 
(0.05)
 
 
 
Other
 
 
(0.01)
 
 
0.01
 
 
 
 
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings*
 
$0.68
 
$0.18
 
$0.19
 
$(0.15)
 
$0.90
 
 
 
Special Items - 2016***
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory charges
 
(0.02)
 
 
 
 
(0.02)
 
 
 
Merger accounting - commodity contracts
 
 
 
(0.01)
 
 
(0.01)
 
    
 
Mark-to-market adjustments
 
 
 
0.02
 
 
0.02
 
 
 
3Q 2016 Basic EPS* (avg. shares outstanding 425M)
 
$0.66
 
$0.18
 
$0.20
 
$(0.15)
 
$0.89
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3Q 2016 Net Income - GAAP
 
$283
 
$78
 
$86
 
$(67)
 
$380
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the weighted average basic shares outstanding for the period. The current and deferred income tax effect was calculated by applying the subsidiaries' statutory tax rate to the pre-tax amount. The income tax rates range from 35% to 42%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    1



*Operating earnings excludes special items as described below, and is a non-GAAP financial measure. Management uses Operating earnings by segment to evaluate the company’s performance and manage its operations and frequently references this non-GAAP financial measure in its decision making, using it to facilitate historical and ongoing performance comparisons. Additionally, management uses Basic EPS and Basic EPS-Operating, each on a segment basis, to further evaluate FE's performance by segment and references these non-GAAP financial measures in its decision making. Basic EPS for each segment is calculated by dividing segment net income (loss) on a GAAP basis by the basic weighted average shares outstanding for the period. Basic EPS-Operating for each segment is calculated by dividing segment Operating earnings (losses), which exclude specials items as discussed below, by the basic weighted average shares outstanding for the period. Management believes that the non-GAAP financial measures of "Operating earnings", "Basic EPS" and "Basic EPS-Operating" by segment provide a consistent and comparable measure of performance of its businesses to help shareholders understand performance trends. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). These non-GAAP financial measures are intended to complement, and are not considered as an alternative to, the most directly comparable GAAP financial measure. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities. The 2016 and 2015 GAAP to non-GAAP earnings reconciliations can be found on pages 33 & 34 of this report and all GAAP to non-GAAP earnings reconciliations are available on FE’s Investor Information website at www.firstenergycorp.com/ir.
**Disclosures for FE's reportable operating segments for 2015 have been adjusted to include the activity of FirstEnergy Ventures Corp.'s (FEV) investment in Global Mining Holding Company (Global Holding) from Competitive Energy Services to Corporate/Other, to conform to the current presentation.
***See pages 23-36 for additional details regarding special items.


























_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    2



2016 Earnings Guidance
GAAP losses for 2016 are forecasted at $(1.30) - $(0.90) per basic share with 2016 Operating (non-GAAP) earnings guidance ranging from $2.60 - $2.70 per basic share, and assumes up to $500 million of additional equity by year end.
 
 
 
Estimate for Year 2016*
 
(In millions, except per share amounts)
 
FirstEnergy Corp. Consolidated
 
 
 
 
 
 
2016F Net Loss - GAAP
 
$(555) - $(385)
 
 
 
 
 
 
2016F Basic Loss Per Share
 
$(1.30) - $(0.90)
 
Excluding Special Items:
 
 
 
 
Regulatory charges
 
0.13
 
 
Trust securities impairment
 
0.02
 
 
Merger accounting-commodity contracts
 
0.05
 
 
Asset impairment/Plant exit costs
 
2.97
 
 
Mark-to-market adjustments
 
 
 
 
Pension/OPEB actuarial assumptions(1)
 
0.45 - 0.75
 
 
Other
 
(0.02)
 
 
Total Special Items**
 
$3.60 - $3.90
 
 
 
 
 
 
2016F Basic Earnings Per Share - Operating (Non-GAAP)
 
$2.60 - $2.70
 
 
 
 
 
 
(1) Based on current discount rates ranging from 4.00% to 3.75% for the pension plans and 3.75% to 3.50% for the OPEB plans and actual gains on plan assets through September 30, 2016 of 11%.
*Per share amounts for the special items above are based on the after-tax effect of each item, divided by the weighted average basic shares outstanding and includes the estimated dilutive impact of additional common stock in the fourth quarter of 2016. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%.

**See pages 35-36 for additional details regarding special items.


_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    3



3Q 2016 Results vs 3Q 2015 - By Segment
Regulated Distribution
Regulated Distribution - GAAP earnings for the third quarter of 2016 were $283 million, or $0.66 per basic share, compared with third quarter 2015 GAAP earnings of $234 million, or $0.56 per basic share. Operating (non-GAAP) earnings, excluding special items, were $0.68 per basic share for the third quarter of 2016 compared with $0.59 per basic share for the third quarter of 2015.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
3Q 2015 Net Income - GAAP
 
$234
 
 
 
 
 
 
 
 
 
3Q 2015 Basic EPS (avg. shares outstanding 423M)
 
$0.56
 
 
 
Special Items - 2015*
 
0.03
 
 
 
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.59
 
 
 
Distribution Deliveries - Weather
 
0.11
 
 
 
Distribution Revenues - DCR
 
0.01
 
 
 
Pension/OPEB
 
(0.02)
 
 
 
General Taxes
 
(0.02)
 
 
 
Interest Expense
 
0.01
 
 
 
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.68
 
 
 
Special Items - 2016*
 
(0.02)
 
 
 
3Q 2016 Basic EPS (avg. shares outstanding 425M)
 
$0.66
 
 
 
 
 
 
 
 
 
3Q 2016 Net Income - GAAP
 
$283
 
 
 
*See pages 23-36 for additional details on special items.
 
3Q 2016 vs 3Q 2015 Earnings Drivers
Distribution Revenues - Total distribution revenues increased earnings $0.12 per share primarily as a result of increased deliveries of 2,675,000 megawatt-hours (MWH), or 6.9% resulting from higher weather-related usage and higher revenues from the Ohio Delivery Capital Recovery rider. Residential sales increased 1,833,000 MWH or 12.8%, and sales to commercial customers increased 542,000 MWH, or 4.7%. Cooling-degree-days were 28% above the same period last year and 46% above normal. Deliveries to industrial customers increased 302,000 MWH, or 2.4%, primarily due to higher usage in the shale gas, coal and steel sectors.
Pension/OPEB - Higher pension/OPEB expense reduced earnings $0.02 per share.
General Taxes - Higher general taxes decreased earnings $0.02 per share as a result of higher property taxes and higher revenue-related taxes.
Interest Expense - Lower interest expense increased earnings $0.01 per share, primarily as a result of lower long-term debt at Jersey Central Power & Light Company (JCP&L) and Monongahela Power Company (MP).
Special Items - In the third quarter of 2016 and 2015, Regulated Distribution special items included regulatory charges of $0.02 and $0.01 per share, respectively, reflecting the impact of regulatory orders requiring certain commitments and/or disallowing the recoverability of costs. In addition, 2015 special items included trust securities impairment of $0.01 per share and the impact of non-core asset sales/impairments of $0.01 per share. Additional details regarding special items can be found on page 36.

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    4



Regulated Transmission
Regulated Transmission - GAAP and Operating (non-GAAP) earnings for the third quarter of 2016 were $78 million, or $0.18 per basic share, compared with third quarter 2015 GAAP and Operating (non-GAAP) earnings of $70 million, or $0.17 per basic share.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
3Q 2015 Net Income - GAAP
 
$70
 
 
 
 
 
 
 
 
 
3Q 2015 Basic EPS (avg. shares outstanding 423M)
 
$0.17
 
 
 
Special Items - 2015*
 
 
 
 
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.17
 
 
 
Transmission Revenues
 
0.05
 
 
 
Depreciation
 
(0.01)
 
 
 
General Taxes
 
(0.02)
 
 
 
Other
 
(0.01)
 
 
 
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.18
 
 
 
Special Items - 2016*
 
 
 
 
3Q 2016 Basic EPS (avg. shares outstanding 425M)
 
$0.18
 
 
 
 
 
 
 
 
 
3Q 2016 Net Income - GAAP
 
$78
 
 
 
*See pages 23-36 for additional details on special items.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3Q 2016 vs 3Q 2015 Earnings Drivers
Transmission Revenues - Higher transmission revenues increased earnings $0.05 per share, primarily due to recovery of incremental operating expenses and a higher rate base at American Transmission Systems, Incorporated (ATSI) and Trans-Allegheny Interstate Line Company (TrAIL), partially offset by a lower ROE at ATSI, effective January 1, 2016, under a comprehensive settlement approved by the Federal Energy Regulatory Commission (FERC) in October 2015.
Depreciation and General Taxes - Higher depreciation and general tax expense decreased earnings $0.03 per share, due primarily to a higher asset base at ATSI. These expenses are recovered through ATSI's formula rate.











_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    5



Competitive Energy Services
CES - GAAP earnings for the third quarter of 2016 were $86 million, or $0.20 per basic share, compared with third quarter 2015 GAAP earnings of $145 million, or $0.34 per basic share. Operating (non-GAAP) earnings, excluding special items, for the third quarter of 2016 were $0.19 per basic share, compared with third quarter 2015 Operating (non-GAAP) earnings of $0.34 per basic share.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
3Q 2015 Net Income - GAAP
 
$145
 
 
 
 
 
 
 
 
 
3Q 2015 Basic EPS (avg. shares outstanding 423M)
 
$0.34
 
 
 
Special Items - 2015*
 
 
 
 
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.34
 
 
 
Commodity Margin
 
(0.17)
 
 
 
O&M Expenses
 
(0.02)
 
 
 
Depreciation
 
0.03
 
 
 
Pension/OPEB
 
(0.01)
 
 
 
General Taxes
 
0.01
 
 
 
Investment Income
 
0.01
 
 
 
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings
 
$0.19
 
 
 
Special Items - 2016*
 
0.01
 
 
 
3Q 2016 Basic EPS (avg. shares outstanding 425M)
 
$0.20
 
 
 
 
 
 
 
 
 
3Q 2016 Net Income - GAAP
 
$86
 
 
 
*See pages 23-36 for additional details on special items.
 
 
 
 
 
 
 
 
 
3Q 2016 vs 3Q 2015 Earnings Drivers
Commodity Margin - CES commodity margin decreased earnings $0.17 per share primarily due to lower capacity revenue, partially offset by increased wholesale sales. Lower contract sales of 2.6 million MWH, as CES continues to implement its retail strategy to more effectively hedge its generation, was offset by lower purchased power, fuel and capacity expense.
















_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    6



A summary by key component of commodity margin is as follows:
 
 
 
 
 
 
 
 
 
 
Commodity Margin EPS - 3Q16 vs 3Q15
 
Rate
 
Volume
 
Total
 
 
(a) Contract Sales
 
 
 
 
 
 
 
 
   - Direct Sales (LCI & MCI)
 
$

 
$
(0.13
)
 
$
(0.13
)
 
 
   - Governmental Aggregation Sales
 
(0.09
)
 

 
(0.09
)
 
 
   - Mass Market Sales
 

 
(0.02
)
 
(0.02
)
 
 
   - POLR Sales
 
(0.04
)
 
0.07

 
0.03

 
 
   - Structured Sales
 
(0.02
)
 
(0.09
)
 
(0.11
)
 
 
        Subtotal - Contract Sales
 
$
(0.15
)
 
$
(0.17
)
 
$
(0.32
)
 
 
(b) Wholesale Sales
 

 
0.06

 
0.06

 
 
(c) PJM Capacity, BRA and CP Revenues
 
(0.25
)
 
0.03

 
(0.22
)
 
 
(d) Fuel Expense
 
0.04

 
0.02

 
0.06

 
 
(e) Purchased Power (net of financials)
 
0.02

 
0.02

 
0.04

 
 
(f) Capacity Expense
 
0.13

 
0.07

 
0.20

 
 
(g) Net MISO - PJM Transmission Cost
 
(0.01
)
 
0.02

 
0.01

 
 
       Net Change
 
$
(0.22
)
 
$
0.05

 
$
(0.17
)
 
 
 
 
 
 
 
 
 
 
 
 
 

(a)
Contract Sales - CES' contract sales decreased 2.6 million MWH, or 15%, and reduced earnings $0.32 per share. Direct sales to large and medium commercial / industrial customers decreased 1.6 million MWH, or 29%. Governmental aggregation sales were essentially flat. Mass market sales decreased 233,000 MWH, or 26%, while POLR sales increased 725,000 MWH, or 33%. Structured sales, which includes bilateral and muni/co-op sales, decreased 1.5 million MWH, or 37%. As of September 30, 2016, the total number of retail customers was 1.4 million, a decrease of approximately 230,000 customers since September 30, 2015.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CES Contract Sales - 3Q16 vs 3Q15
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(thousand MWH)
 
Retail
 
Non-Retail
 
 
 
 
 
 
Direct
 
Aggr.
 
Mass Market
 
POLR
 
Structured
 
Total
 
 
Contract Sales Increase / (Decrease)
 
(1,628)
 
12
 
(233)
 
725
 
(1,456)
 
(2,580)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Wholesale Sales - Wholesale sales increased 1.3 million MWH and increased earnings $0.06 per share.





_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    7



(c) PJM Capacity Revenues (Base Residual (BRA) and Capacity Performance (CP) Auctions) - Lower capacity revenues decreased earnings $0.22 per share, primarily resulting from lower capacity prices on average in the RTO and ATSI zones. Capacity prices by zone for the applicable planning periods are summarized below.
 
Planning Period
 
RTO
 
ATSI
 
MAAC
 
RTO/ATSI/MAAC
 
 
Price Per Megawatt-Day
 
BRA
 
BRA
 
BRA
 
CP
 
 
June 2015 - May 2016
 
$136.00
 
$357.00
 
$167.46
 
NA
 
 
June 2016 - May 2017
 
$59.37
 
$114.23
 
$119.13
 
$134.00
 
 
 
 
 
 
 
 
 
 
 
 
(d)
Fuel Expense - Lower fuel expenses increased earnings $0.06 per share primarily due to lower rates on fuel contracts and lower generation associated with outages and economic dispatch of fossil units resulting from low wholesale spot market energy prices.
(e) Purchased Power (net of financials) - Lower contract sales volumes resulted in decreased purchased power volumes at lower prices and increased earnings $0.04 per share.
(f) Capacity Expense - Lower capacity expense associated with contract sales increased earnings $0.20 per share primarily due to lower sales volumes and lower average capacity prices in the ATSI and RTO zones.
(g) Net MISO-PJM Transmission Cost - Lower transmission expenses and PJM ancillary charges increased earnings $0.01 per share primarily due to lower contract sales.
O&M Expenses - Higher O&M expenses decreased earnings $0.02 per share, primarily due to a termination charge on a FES customer contract, partially offset by lower retail-related costs.
Depreciation Expense - Depreciation expense increased earnings $0.03 per share primarily due to an adjustment to reduce depreciation of a hydroelectric generating station.
Pension/OPEB - Higher pension/OPEB expense reduced earnings $0.01 per share.
General Taxes - Lower general taxes increased earnings $0.01 per share as a result of lower retail sales volumes.
Investment Income - Higher investment income from nuclear decommissioning trust securities increased earnings $0.01 per share.

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    8



Special Items - In the third quarter of 2016, CES special items included impacts from merger accounting - commodity contracts of $0.01 per share and mark-to-market adjustments of $(0.02) per share. In the third quarter of 2015, CES special items included trust securities impairment of $0.06 per share, merger accounting-commodity contracts of $0.02 per share, retail repositioning charges of $0.01 per share, and mark-to-market adjustments of $(0.09) per share. Additional details regarding special items can be found on page 36.




_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    9



Corporate / Other
Corporate / Other GAAP losses for the third quarter of 2016 were $(67) million, or $(0.15) per basic share, compared with GAAP losses for the third quarter 2015 of $(54) million, or $(0.13) per basic share. Operating (non-GAAP) losses, excluding special items, were $(0.15) per basic share in the third quarter of 2016 and $(0.12) per basic share in the third quarter of 2015.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
3Q 2015 Net Loss - GAAP
 
$(54)
 
 
 
 
 
 
 
 
 
3Q 2015 Basic EPS (avg. shares outstanding 423M)
 
$(0.13)
 
 
 
Special Items - 2015*
 
0.01
 
 
 
3Q 2015 Basic EPS - Operating (Non-GAAP) Losses
 
$(0.12)
 
 
 
O&M Expenses
 
0.02
 
 
 
Interest Expense
 
(0.01)
 
 
 
Effective Income Tax Rate
 
(0.05)
 
 
 
Other
 
0.01
 
 
 
3Q 2016 Basic EPS - Operating (Non-GAAP) Losses
 
$(0.15)
 
 
 
Special Items - 2016*
 
 
 
 
3Q 2016 Basic EPS (avg. shares outstanding 425M)
 
$(0.15)
 
 
 
 
 
 
 
 
 
3Q 2016 Net Loss - GAAP
 
$(67)
 
 
 
*See pages 23-36 for additional details on special items.
 
3Q 2016 vs 3Q 2015 Earnings Drivers
O&M Expense - Lower O&M expense increased earnings $0.02 per share, due to lower environmental remediation costs at legacy plants.
Interest Expense - Higher interest expense decreased earnings $0.01 per share, primarily due to increased short-term borrowings.
Effective Income Tax Rate - A higher consolidated effective income tax rate decreased earnings $0.05 per share. The consolidated effective tax rate for the third quarter of 2016 was 39.6% compared to 36.3% for the same period of 2015.
Special Items - In the third quarter of 2015, Corporate/Other special items included a charge of $0.01 per share reflecting the impact of non-core asset sales/impairments. Additional details regarding special items can be found on page 36.





For additional information, please contact:
Irene M. Prezelj
 
Meghan G. Beringer    
 
Gina E. Caskey
Vice President, Investor Relations
 
Director, Investor Relations
 
Manager, Investor Relations
(330) 384-3859
 
(330) 384-5832
 
(330) 384-3841

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    10



FirstEnergy Corp.
Consolidated Statements of Income (Loss) (GAAP)
(In millions)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
 
 
 
 
 
2016
 
2015
 
Change
 
2016
 
2015
 
Change
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
Regulated distribution
 
$
2,702

 
$
2,624

 
$
78

 
$
7,423

 
$
7,425

 
$
(2
)
 
 
(2
)
 
Regulated transmission
 
285

 
248

 
37

 
824

 
755

 
69

 
 
(3
)
 
Competitive energy services
 
1,115

 
1,468

 
(353
)
 
3,535

 
4,099

 
(564
)
 
 
(4
)
 
Corporate / Other
 
(185
)
 
(217
)
 
32

 
(595
)
 
(794
)
 
199

 
 
(5
)
Total Revenues
 
3,917

 
4,123

 
(206
)
 
11,187

 
11,485

 
(298
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6
)
 
Fuel
 
450

 
482

 
(32
)
 
1,269

 
1,378

 
(109
)
 
 
(7
)
 
Purchased power
 
979

 
1,209

 
(230
)
 
2,992

 
3,311

 
(319
)
 
 
(8
)
 
Other operating expenses
 
953

 
842

 
111

 
2,835

 
2,799

 
36

 
 
(9
)
 
Provision for depreciation
 
311

 
328

 
(17
)
 
974

 
969

 
5

 
 
(10
)
 
Amortization of regulatory assets, net
 
98

 
110

 
(12
)
 
222

 
201

 
21

 
 
(11
)
 
General taxes
 
265

 
236

 
29

 
786

 
747

 
39

 
 
(12
)
 
Impairment of assets
 

 
8

 
(8
)
 
1,447

 
24

 
1,423

 
 
(13
)
Total Operating Expenses
 
3,056

 
3,215

 
(159
)
 
10,525

 
9,429

 
1,096

 
 
(14
)
Operating Income
 
861

 
908

 
(47
)
 
662

 
2,056

 
(1,394
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(15
)
 
Investment income (loss)
 
28

 
(28
)
 
56

 
75

 
(14
)
 
89

 
 
(16
)
 
Interest expense
 
(286
)
 
(285
)
 
(1
)
 
(863
)
 
(846
)
 
(17
)
 
 
(17
)
 
Capitalized financing costs
 
28

 
26

 
2

 
79

 
93

 
(14
)
 
 
(18
)
Total Other Expense
 
(230
)
 
(287
)
 
57

 
(709
)
 
(767
)
 
58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
Income (Loss) Before Income Taxes
 
631

 
621

 
10

 
(47
)
 
1,289

 
(1,336
)
 
 
(20
)
 
Income taxes
 
251

 
226

 
25

 
334

 
485

 
(151
)
 
 
(21
)
Net Income (Loss)
 
$
380

 
$
395

 
$
(15
)
 
$
(381
)
 
$
804

 
$
(1,185
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Earnings (Losses) Per Share of Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(22
)
 
Basic
 
$
0.89

 
$
0.94

 
$
(0.05
)
 
$
(0.90
)
 
$
1.91

 
$
(2.81
)
 
 
(23
)
 
Diluted
 
$
0.89

 
$
0.93

 
$
(0.04
)
 
$
(0.90
)
 
$
1.90

 
$
(2.80
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Weighted Average Number of Common
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Shares Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(24
)
 
Basic
 
425

 
423

 
2

 
425

 
422

 
3

 
 
(25
)
 
Diluted
 
427

 
424

 
3

 
425

 
423

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    11



FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competitive
 
 
 
 
 
 
 
 
Regulated
 
Regulated
 
Energy
 
Corporate /
 
FirstEnergy
 
 
 
 
Distribution (a)
 
Transmission (b)
 
Services (c)
 
Other (d)
 
Consolidated
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
(1
)
 
Electric sales
$
2,649

 
$
285

 
$
959

 
$
(46
)
 
$
3,847

 
(2
)
 
Other
53

 

 
39

 
(22
)
 
70

 
(3
)
 
Internal

 

 
117

 
(117
)
 

 
(4
)
Total Revenues
2,702

 
285

 
1,115

 
(185
)
 
3,917

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
(5
)
 
Fuel
156

 

 
294

 

 
450

 
(6
)
 
Purchased power
902

 

 
194

 
(117
)
 
979

 
(7
)
 
Other operating expenses
615

 
46

 
367

 
(75
)
 
953

 
(8
)
 
Provision for depreciation
171

 
45

 
79

 
16

 
311

 
(9
)
 
Amortization of regulatory assets, net
98

 

 

 

 
98

 
(10
)
 
General taxes
190

 
37

 
30

 
8

 
265

 
(11
)
 
Impairment of assets

 

 

 

 

 
(12
)
Total Operating Expenses
2,132

 
128

 
964

 
(168
)
 
3,056

 
(13
)
Operating Income
570

 
157

 
151

 
(17
)
 
861

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
(14
)
 
Investment income
13

 

 
23

 
(8
)
 
28

 
(15
)
 
Interest expense
(139
)
 
(43
)
 
(48
)
 
(56
)
 
(286
)
 
(16
)
 
Capitalized financing costs
6

 
9

 
9

 
4

 
28

 
(17
)
Total Other Expense
(120
)
 
(34
)
 
(16
)
 
(60
)
 
(230
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(18
)
Income Before Income Taxes
450

 
123

 
135

 
(77
)
 
631

 
(19
)
 
Income taxes
167

 
45

 
49

 
(10
)
 
251

 
(20
)
Net Income
$
283

 
$
78

 
$
86

 
$
(67
)
 
$
380

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)

Revenues are primarily derived from the delivery of electricity within FirstEnergy Corp.'s (FirstEnergy) service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs.
 
(b)

Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads.
 
(c)

Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland.
 
(d)

Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other.
 
 
 
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    12



FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competitive
 
 
 
 
 
 
 
 
 
Regulated
 
Regulated
 
Energy
 
Corporate /
 
FirstEnergy
 
 
 
 
 
Distribution (a)
 
Transmission (b)
 
Services (c)
 
Other (d)
 
Consolidated
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
Electric sales
$
2,571

 
$
248

 
$
1,276

 
$
(41
)
 
$
4,054

 
 
(2
)
 
Other
53

 

 
51

 
(35
)
 
69

 
 
(3
)
 
Internal

 

 
141

 
(141
)
 

 
 
(4
)
Total Revenues
2,624

 
248


1,468

 
(217
)
 
4,123

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
(5
)
 
Fuel
140

 

 
342

 

 
482

 
 
(6
)
 
Purchased power
980

 

 
370

 
(141
)
 
1,209

 
 
(7
)
 
Other operating expenses
534

 
42

 
336

 
(70
)
 
842

 
 
(8
)
 
Provision for depreciation
174

 
41

 
98

 
15

 
328

 
 
(9
)
 
Amortization of regulatory assets, net
110

 

 

 

 
110

 
 
(10
)
 
General taxes
172

 
23

 
35

 
6

 
236

 
 
(11
)
 
Impairment of assets
8

 

 

 

 
8

 
 
(12
)
Total Operating Expenses
2,118

 
106


1,181

 
(190
)
 
3,215

 
 
(13
)
Operating Income
506

 
142


287

 
(27
)
 
908

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
(14
)
 
Investment income (loss)
8

 

 
(19
)
 
(17
)
 
(28
)
 
 
(15
)
 
Interest expense
(149
)
 
(40
)
 
(48
)
 
(48
)
 
(285
)
 
 
(16
)
 
Capitalized financing costs
6

 
9

 
9

 
2

 
26

 
 
(17
)
Total Other Expense
(135
)
 
(31
)

(58
)
 
(63
)
 
(287
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(18
)
Income Before Income Taxes
371

 
111


229

 
(90
)
 
621

 
 
(19
)
 
Income taxes
137

 
41

 
84

 
(36
)
 
226

 
 
(20
)
Net Income
$
234

 
$
70


$
145

 
$
(54
)
 
$
395

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)

Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs.
 
 
(b)

Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads.
 
 
(c)

Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland.
 
 
(d)

Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016                    13



FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes Between the Three Months Ended September 30, 2016 and the Three Months Ended September 30, 2015
Increase (Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competitive