SEC Comment Letter for FIRSTENERGY CORP (FE) (CIK 0001031296) (FE) — Sep 8, 2006
FIRSTENERGY CORP (FE) (CIK 0001031296)
Date: Sept. 8, 2006 · CIK: 0001031296 · Accession: 0000000000-06-043402
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-21011
Letter
Mail Stop 3561 September 8, 2006 Mr. Harvey L. Wagner Vice President, Controller, and Chief Accounting Officer FirstEnergy Corporation 76 South Main Street Akron, Ohio 44308
Re: FirstEnergy Corporation Form 10-K for Fiscal Ye ar Ended December 31, 2005 Filed March 2, 2006 Forms 10-Q for Fiscal Quarters Ended March 31, 2006 an d June 30, 2006 File No. 333-21011
Dear Mr. Wagner:
We have reviewed your filings and have the following comments. Where indicated, we think you should revise your disclosures in future filings in response to these comments. If you disagree, we will consider your explanation as to why our comment is inapplicable or a revision is unneces sary. Please be as detailed as necessary in your explanation. In some of our comme nts, we may ask you to provide us with information so we may better understand your disclosure. After reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requirements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or on any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Mr. Wagner FirstEnergy Corporation September 8, 2006 Page 2 of 5 Form 10-K for Fiscal Year Ended December 31, 2005
Exhibits 31.1 and 31. 2 1. In future filings, please provide separate Section 302 and Section 906 certifications for each registrant. 2. In future filings, please revise your certif ications to replace references to “annual report” with “report.” You may continue to refer to “annual report” in Item 1 of the certification. Note th at the language of the certif ications required by Section 302 of Sarbanes Oxley and Item 601(b)(31) of Regulation S-K should not be altered. Similarly, please revi se your certifications in fu ture filings of Form 10-Q to replace references to “quarterly report” with “report.”
Exhibit 13
Management’s Discussion and Analysis of Results of Operations and Financial Condition, page 4
Executive Summary, page 4 3. We note your presentation of the non-GAAP measures “earnings before unusual items” on page 4 and “cash earnings” on pa ge 22. We assume you consider such measures to be non-GAAP measures of perfor mance. If so, indicate as such and provide cautionary disclosure that the non-GAAP measures may not be comparable to similarly titled measures used by other entities. We believe the non-GAAP measures should not be considered an alternative to net income, the most directly comparable GAAP measure, as an indicator of operating performance. If you agree, you should so state. If you do not, explain why. Further, in arriving at these measures , it appears you exclude items that are recurring in nature. Please note th at if you intend to include non-GAAP performance measures that exclude items of a potentially r ecurring nature in future filings, you should demonstrate the usefulness of the measures. In this regard, you should fully address the bullet points in Question 8 of our Frequently Asked Questions Regarding the Use of N on-GAAP Financial Measures, available on our website at www.sec.gov, in crafting your revised disclosures. In this regard, ensure you revise your disclosures as follows: • Disclose the specific manner in which you use the non-GAAP measures to conduct or evaluate your business. If you do not use the measures in any of the above manners, explain your basis for presenting the measures. • Discuss the economic substance behind your decision to use the measures. • Disclose the material limitations asso ciated with use of the measures as compared to the use of the most directly comparable GAAP financial measure. For example, how does exclusion of an economic event produce a
Mr. Wagner FirstEnergy Corporation September 8, 2006 Page 3 of 5 measure that is at least equal in quali tative content to the comparable GAAP measure? • Disclose the manner in which you comp ensate for these limitations when using the measures. Please show us how the revised disclosures will read in future filings.
Contractual Obligations, page 26
4. Please consider revising your table to incl ude estimated interest payments on your debt. Because the table is aimed at in creasing transparency of cash flow, we believe these payments should be included in the table. If you continue to choose not to include these payments, a foot note to the table should provide any additional information that is materi al to an understanding of your cash requirements. See Section IV.A and Footnote 46 to the Commission’s MD&A Guidance dated December 29, 2003, available at www.sec.gov .
Consolidated Statements of Income, page 46 5. Please revise to present the subtotal inco me before income taxes. Refer to the requirements of Rule 5-03(b)(1 0) of Regulation S-X. 6. Please revise to present the subtotal inco me before cumulative effects of changes in accounting principles. Refer to the requirements of Rule 5-03(b)(16) of Regulation S-X.
Consolidated Statements of Cash Flows, page 53 7. With reference to paragraphs 11-13 of SFAS 95, please explain to us how you concluded it was appropriate to present “Nonutility generation trusts withdrawals (contributions)” on a net basis. In this regard, you may want to explain to us the nature of the trusts.
Note 2. Summary of Significant Accounting Policies, page 55
(A) Accounting for the Effects of Regulation, page 55
Regulatory Assets, page 56 8. We note your disclosure that, as a result of the rate certainty plan approved in January 2006, the “Extended RTC” balances were reduced by $205 million on a consolidated basis. Please tell us the regulators rationale in applying it against the “Accumulated cost of remova l regulatory liability.” In doing so, please also explain to us in greater de tail why the “Extended RTC” balances were reduced on January 1, 2006. Lastly help us understand th e cash flow effects of this regulatory action. Tell us the extent amounts defe rred under customer shopping incentives
Mr. Wagner FirstEnergy Corporation September 8, 2006 Page 4 of 5 were cash outflows and whether the practical effect of the offset is to avoid a possible rate increase now as opposed to offsetting a current rate increase with a future rate refund.
(D) Accounting for Certain Wholes ale Energy Transactions, page 57 9. You indicate that on January 1, 2005 you be gan accounting for purchase and sale transactions in the PJM Market based on your net hourly position. Please explain to us how you concluded it was appropriate not to reclassify comparative financial statements for prior periods. In expl aining your accounting ra tionale, please tell us what predominant practice has been and is currently in the financial statements of deregulated electricity providers and tell us whether any other unregulated generator has undergone a si milar accounting change.
(F) Property, Plant and Equipment, page 58 10. With respect to your 50% ownership inte rest in Yards Creek Pumped Storage Facility, please disclose the amount of utility plant in service, the accumulated provision for depreciation, and the am ount of plant under construction. Additionally, disclose whethe r your share of direct expe nses is included in the corresponding operating expense line items on the income statement. Refer to the requirements of SAB Topic 10:C. If you believe such amounts are immaterial, please provide us your reasoning.
(K) Cumulative Effect of Accounting Changes, page 61 11. Please explain to us why the adoption of SFAS 143 in 2003 resulted in income. In this regard, if the income recogni zed relates to amounts collected from customers prior to the adoption of SFA S 143, explain to us how you concluded such amounts represent assets of the corpor ation rather than amounts, if not spent, to be returned to customers. Please tell us whether you received any type of regulatory, legislative, legal or other type of acquiescence for the position you adopted.
Note 3. Pension and Other Postreti rement Benefit Plans, page 62 12. Please explain to us how you calculate the ma rket related value of plan assets as that term is defined in SFAS 87. Sin ce there are alternatives to how you can calculate this item, and it has a direct effect on pension expense, we believe you should disclose how you determine this amount in accordance with paragraph 12 of APB 22.
* * * *
Mr. Wagner FirstEnergy Corporation September 8, 2006 Page 5 of 5 As appropriate, please respond to these co mments within 10 business days or tell us when you will provide us with a response. Please furnish a response letter that keys your responses to our comments and provide s any requested information. Detailed response letters greatly facilita te our review. Please file your response letter on EDGAR. Please understand that we may have addi tional comments after reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes all in formation required under the Securities Exchange Act of 1934 and th at they have provided all information investors require for an informed invest ment decision. Since the company and its management are in possession of all facts re lating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclosure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comme nts as a defense in any proceeding initiated by the Commission or any person under the federal secu rities laws of the United States.
In addition, please be advise d that the Division of Enfo rcement has access to all information you provide to the staff of the Divi sion of Corporation Fi nance in our review of your filing or in response to our comments on your filing.
You may contact Staff Accountant Sarah Goldberg at (202) 551-3340 if you have questions regarding comments on the financial statements and related matters. Please contact me at (202) 551-3849 with any other questions.
S i n c e r e l y ,
J i m A l l e g r e t t o Senior Assistant Chief Accountant
Show Raw Text
Mail Stop 3561
September 8, 2006
Mr. Harvey L. Wagner
Vice President, Controller, and Chief Accounting Officer
FirstEnergy Corporation
76 South Main Street
Akron, Ohio 44308
Re: FirstEnergy Corporation
Form 10-K for Fiscal Ye ar Ended December 31, 2005
Filed March 2, 2006
Forms 10-Q for Fiscal Quarters Ended
March 31, 2006 an d June 30, 2006
File No. 333-21011
Dear Mr. Wagner:
We have reviewed your filings and have the following comments. Where
indicated, we think you should revise your disclosures in future filings in response to
these comments. If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unneces sary. Please be as detailed as necessary
in your explanation. In some of our comme nts, we may ask you to provide us with
information so we may better understand your disclosure. After reviewing this
information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requirements and to enhance the overall
disclosure in your filing. We look forward to working with you in these respects. We
welcome any questions you may have about our comments or on any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Mr. Wagner
FirstEnergy Corporation
September 8, 2006 Page 2 of 5
Form 10-K for Fiscal Year Ended December 31, 2005
Exhibits 31.1 and 31. 2
1. In future filings, please provide separate Section 302 and Section 906
certifications for each registrant.
2. In future filings, please revise your certif ications to replace references to “annual
report” with “report.” You may continue to refer to “annual report” in Item 1 of
the certification. Note th at the language of the certif ications required by Section
302 of Sarbanes Oxley and Item 601(b)(31) of Regulation S-K should not be altered. Similarly, please revi se your certifications in fu ture filings of Form 10-Q
to replace references to “quarterly report” with “report.”
Exhibit 13
Management’s Discussion and Analysis of Results of Operations and Financial
Condition, page 4
Executive Summary, page 4
3. We note your presentation of the non-GAAP measures “earnings before unusual
items” on page 4 and “cash earnings” on pa ge 22. We assume you consider such
measures to be non-GAAP measures of perfor mance. If so, indicate as such and
provide cautionary disclosure that the non-GAAP measures may not be
comparable to similarly titled measures used by other entities. We believe the
non-GAAP measures should not be considered an alternative to net income, the
most directly comparable GAAP measure, as an indicator of operating performance. If you agree, you should so state. If you do not, explain why. Further, in arriving at these measures , it appears you exclude items that are
recurring in nature. Please note th at if you intend to include non-GAAP
performance measures that exclude items of a potentially r ecurring nature in
future filings, you should demonstrate the usefulness of the measures. In this
regard, you should fully address the bullet points in Question 8 of our Frequently
Asked Questions Regarding the Use of N on-GAAP Financial Measures, available
on our website at www.sec.gov, in crafting your revised disclosures. In this
regard, ensure you revise your disclosures as follows:
• Disclose the specific manner in which you use the non-GAAP measures to
conduct or evaluate your business. If you do not use the measures in any of
the above manners, explain your basis for presenting the measures.
• Discuss the economic substance behind your decision to use the measures.
• Disclose the material limitations asso ciated with use of the measures as
compared to the use of the most directly comparable GAAP financial measure. For example, how does exclusion of an economic event produce a
Mr. Wagner
FirstEnergy Corporation
September 8, 2006 Page 3 of 5
measure that is at least equal in quali tative content to the comparable GAAP
measure?
• Disclose the manner in which you comp ensate for these limitations when
using the measures.
Please show us how the revised disclosures will read in future filings.
Contractual Obligations, page 26
4. Please consider revising your table to incl ude estimated interest payments on your
debt. Because the table is aimed at in creasing transparency of cash flow, we
believe these payments should be included in the table. If you continue to choose
not to include these payments, a foot note to the table should provide any
additional information that is materi al to an understanding of your cash
requirements. See Section IV.A and Footnote 46 to the Commission’s MD&A
Guidance dated December 29, 2003, available at www.sec.gov .
Consolidated Statements of Income, page 46
5. Please revise to present the subtotal inco me before income taxes. Refer to the
requirements of Rule 5-03(b)(1 0) of Regulation S-X.
6. Please revise to present the subtotal inco me before cumulative effects of changes
in accounting principles. Refer to the requirements of Rule 5-03(b)(16) of
Regulation S-X.
Consolidated Statements of Cash Flows, page 53
7. With reference to paragraphs 11-13 of SFAS 95, please explain to us how you
concluded it was appropriate to present “Nonutility generation trusts withdrawals
(contributions)” on a net basis. In this regard, you may want to explain to us the
nature of the trusts.
Note 2. Summary of Significant Accounting Policies, page 55
(A) Accounting for the Effects of Regulation, page 55
Regulatory Assets, page 56
8. We note your disclosure that, as a result of the rate certainty plan approved in
January 2006, the “Extended RTC” balances were reduced by $205 million on a consolidated basis. Please tell us the regulators rationale in applying it against the
“Accumulated cost of remova l regulatory liability.” In doing so, please also
explain to us in greater de tail why the “Extended RTC” balances were reduced on
January 1, 2006. Lastly help us understand th e cash flow effects of this regulatory
action. Tell us the extent amounts defe rred under customer shopping incentives
Mr. Wagner
FirstEnergy Corporation
September 8, 2006 Page 4 of 5
were cash outflows and whether the practical effect of the offset is to avoid a
possible rate increase now as opposed to offsetting a current rate increase with a future rate refund.
(D) Accounting for Certain Wholes ale Energy Transactions, page 57
9. You indicate that on January 1, 2005 you be gan accounting for purchase and sale
transactions in the PJM Market based on your net hourly position. Please explain
to us how you concluded it was appropriate not to reclassify comparative financial
statements for prior periods. In expl aining your accounting ra tionale, please tell
us what predominant practice has been and is currently in the financial statements
of deregulated electricity providers and tell us whether any other unregulated
generator has undergone a si milar accounting change.
(F) Property, Plant and Equipment, page 58
10. With respect to your 50% ownership inte rest in Yards Creek Pumped Storage
Facility, please disclose the amount of utility plant in service, the accumulated
provision for depreciation, and the am ount of plant under construction.
Additionally, disclose whethe r your share of direct expe nses is included in the
corresponding operating expense line items on the income statement. Refer to the requirements of SAB Topic 10:C. If you believe such amounts are immaterial,
please provide us your reasoning.
(K) Cumulative Effect of Accounting Changes, page 61
11. Please explain to us why the adoption of SFAS 143 in 2003 resulted in income. In this regard, if the income recogni zed relates to amounts collected from
customers prior to the adoption of SFA S 143, explain to us how you concluded
such amounts represent assets of the corpor ation rather than amounts, if not spent,
to be returned to customers. Please tell us whether you received any type of
regulatory, legislative, legal or other type of acquiescence for the position you
adopted.
Note 3. Pension and Other Postreti rement Benefit Plans, page 62
12. Please explain to us how you calculate the ma rket related value of plan assets as
that term is defined in SFAS 87. Sin ce there are alternatives to how you can
calculate this item, and it has a direct effect on pension expense, we believe you should disclose how you determine this amount in accordance with paragraph 12 of APB 22.
* * * *
Mr. Wagner
FirstEnergy Corporation
September 8, 2006 Page 5 of 5
As appropriate, please respond to these co mments within 10 business days or tell
us when you will provide us with a response. Please furnish a response letter that keys
your responses to our comments and provide s any requested information. Detailed
response letters greatly facilita te our review. Please file your response letter on EDGAR.
Please understand that we may have addi tional comments after reviewing your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes all in formation required under
the Securities Exchange Act of 1934 and th at they have provided all information
investors require for an informed invest ment decision. Since the company and its
management are in possession of all facts re lating to a company’s disclosure, they are
responsible for the accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclosure in the
filing;
staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comme nts as a defense in any proceeding
initiated by the Commission or any person under the federal secu rities laws of the
United States.
In addition, please be advise d that the Division of Enfo rcement has access to all
information you provide to the staff of the Divi sion of Corporation Fi nance in our review
of your filing or in response to our comments on your filing.
You may contact Staff Accountant Sarah Goldberg at (202) 551-3340 if you have
questions regarding comments on the financial statements and related matters. Please
contact me at (202) 551-3849 with any other questions.
S i n c e r e l y ,
J i m A l l e g r e t t o
Senior Assistant Chief Accountant