SEC Company Response from FIRSTENERGY CORP (FE) (CIK 0001031296) (FE) — May 17, 2007
FIRSTENERGY CORP (FE) (CIK 0001031296)
Date: May 17, 2007 · CIK: 0001031296 · Accession: 0000040779-07-000057
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-21011
Letter
Division of Corporation Finance Securities and Exchange Commission The Toledo Edison Company, File No. 1-3583 Metropolitan Edison Company, File No. 1-446 Form 10-K for Fiscal Year Ended December 31, 2006 Filed February 28, 2007
Dear Mr. Thompson:
This letter is in response to your correspondence dated May 3, 2007 regarding your review of the filings by FirstEnergy Corp. and its subsidiaries, Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Metropolitan Edison Company, on Form 10-K for the fiscal year ended December 31, 2006. Your comments are indicated below in italics, followed by our responses.
Form 10-K for Fiscal Year Ended December 31, 2006
Exhibit 13. FirstEnergy 2006 Annual Report to Stockholders
1.
To the extent applicable, please address the comments below on the consolidated financial statements and related disclosures of the parent in the consolidated financial statements and related disclosures of registrant subsidiaries included in the filing.
Response: We respectfully submit these responses for FirstEnergy Corp. and its subsidiaries. To the extent revised disclosure is deemed required in future filings that is also applicable to a registered subsidiary of FirstEnergy, we will also reflect the revised disclosure in future subsidiary-level financial statements, unless otherwise noted.
Consolidated Statements of Cash Flows, page 58
2.
It appears that purchases and sales of debt and equity securities are netted in the line item ”cash investments and restricted funds” in cash flows from investing activities based on the disclosure in Note 5 on page 75. If so, with reference to paragraphs 11-13 of SFAS 95, please explain to us your basis for netting these items.
Response: The line item "cash investments and restricted funds" in the cash flows from investing activities section of the Consolidated Statements of Cash Flows does not include purchases and sales of debt and equity securities presented on a net basis. The line item primarily consists of three activities: (i) cash provided from the return on our investments in secured lease obligation bonds for each of the years 2004, 2005 and 2006; (ii) cash used for an escrow fund investment and a mortgage indenture deposit (“restricted funds”) in 2005; and (iii) cash provided from the liquidation of the “restricted funds” in 2006. A discussion of our investments in secured lease obligation bonds is provided in Notes 6 and 7 to the consolidated financial statements.
3.
Please explain to us why the proceeds from the sale of nuclear decommissioning trust funds differ from the amounts disclosed in the table on page 76.
Response: In response to interpretive guidance given by the SEC to other utilities, FirstEnergy began reporting the gross investment activity within the nuclear decommissioning trust funds in its Statement of Cash Flows in the first quarter of 2006. In prior years, we reported the activity on a net basis. In order to present the comparable gross investment activity in the Statements of Cash Flows for the prior years, FirstEnergy requested supplemental reports from the Trustee, since the 2005 and 2004 certified trust statements did not provide the detail cash transactions on a gross basis.
In 2005, proceeds from sales disclosed in Note 5 to the consolidated financial statements of $1,419 million were understated by $76 million due to the inadvertent omission of sales of an overnight cash investment fund from the proceeds included in the certified trust statements. The Statement of Cash Flows properly reflected the activity of this overnight investment fund. The proceeds from the sale of nuclear decommissioning trust funds, as well as the investments in nuclear decommissioning trust funds included in the Statement of Cash Flows for the year ended December 31, 2005 were both overstated by $220 million. Upon further review of the supporting documentation, it was subsequently determined that there were inconsistencies in the reports submitted to FirstEnergy by its Trustee. FirstEnergy used information from the certified trust statements for the disclosure of proceeds from sales in Note 5. However, because the certified trust statements did not provide sufficient information to calculate the gross proceeds and investment activities for the Statement of Cash Flows, FirstEnergy subsequently sought and obtained supplemental reports from the Trustee that provided the details of all of the cash transactions on a gross basis. We did not detect, however, the inconsistencies in the reports submitted by the Trustee.
In 2004, the proceeds from sales of $1,234 million disclosed in Note 5 were correct. However, the proceeds from the sale of nuclear decommissioning trust funds, as well as the investment in nuclear decommissioning trust funds included in the Statement of Cash Flows were both understated by $103 million. Similar to 2005, there were inconsistencies in the certified trust statements and the supplemental reports obtained from the Trustee. This understatement primarily related to a transaction where all of the securities within one manager account of the nuclear decommissioning trust were sold and repurchased by another manager account. In the Statement of Cash Flows, the proceeds of this sale were included as a transfer (based on the description provided in the detail trust report) rather than as a gross sale and immediate repurchase of an investment. As a result, the proceeds from the sale of decommissioning trust funds and the investment in nuclear decommissioning trust funds included in the Statement of Cash Flows were each understated by $201 million. This understatement was partially offset by a combination of other transactions that were not reported consistently between the supplemental reports and the certified trust statements obtained from the Trustee that contributed to the net $103 million understatement.
Beginning in 2006, FirstEnergy was able to obtain the information required to calculate the gross sales and investments for the Statement of Cash Flow directly from the certified trust statements. As a result, FirstEnergy did not need to request supplemental reports from the Trustee. The $2 million difference in 2006 between the proceeds from the sale of nuclear decommissioning trust funds disclosed in the Statement of Cash Flows and the proceeds from sales disclosed in Note 5 was due to pending trades of $2 million, which was included in Note 5(C) Nuclear Decommissioning Trust Fund Investments.
The following summarizes the differences in 2005 and 2004 as noted above.
(In millions)
Cash Flows from Investing Activities:
Proceeds from NDT fund sales-as reported
$
1,715
$
1,131
Proceeds from NDT fund sales-revised
1,495
1,234
Difference
(103
)
Investments in NDT funds-as reported
(1,816
)
(1,232
)
Investments in NDT funds-revised
(1,596
)
(1,335
)
Difference
(220
)
Impact on net cash used for investing activities
$
-
$
-
As summarized in the table above, the differences identified in the proceeds from nuclear decommissioning trust fund sales and the investments in nuclear decommissioning trust funds are offset, resulting in no change to net cash used for investing activities.
In preparing this response, we reviewed the materiality of the required adjustments under SAB 99 and SAB 108 with our Audit Committee. Considering that the adjustments would not impact the Consolidated Statements of Income or the Consolidated Balance Sheets, nor would they change net cash used for investing activities on the Consolidated Statements of Cash Flows, and based on the qualitative considerations outlined in SAB 99, the Audit Committee concluded that the adjustments are immaterial and should not require amending the Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2005 for FirstEnergy or its subsidiaries. The Committee also concluded that the $76 million understatement of the proceeds from sales disclosed in Note 5 should not require amending the consolidated notes to the financial statements as the activity was properly included in the Consolidated Statement of Cash Flows.
FirstEnergy and its subsidiaries will report the revised proceeds from sales and investments in nuclear decommissioning trust funds applicable to 2005 and 2004 in future filings.
Note 2. Summary of Significant Accounting Policies, page 59
(A) Accounting for the Effects of Regulation, page 59
Regulatory Assets, page 60
4.
With respect to those regulatory assets not earning a return, please disclose the remaining recovery period. Refer to paragraph 20 of SFAS 71. Additionally, please note that we believe the best practices approach regarding regulatory assets is to affirmatively indicate whether a particular regulatory asset is earning a rate of return and the anticipated recovery period.
Response: In future filings, FirstEnergy will disclose the anticipated recovery period of regulatory assets not earning a current return as required by paragraph of SFAS 71. FirstEnergy also agrees to identify in future filings those regulatory assets that earn a return. The recovery periods for regulatory assets not earning a return expire as follows: JCP&L’s reliability costs - 2008; JCP&L’s deferred outage costs - 2009; JCP&L’s post-employment benefit costs - 2012; and Penelec’s NUG stranded costs - 2020.
(F) Property, Plant and Equipment, page 62
5.
Please separately disclose the balances for unregulated versus regulated in service property, plant and equipment and accumulated provision for depreciation.
Response: FirstEnergy's property, plant and equipment balances as of December 31, 2006 were as follows:
Unregulated
Regulated
(In millions)
In Service
$
Show Raw Text
CORRESP
1
filename1.htm
SEC Response Letter
May
17,
2007
Mr.
William Thompson
Branch
Chief
Division
of
Corporation Finance
Securities
and
Exchange Commission
Mail
Stop
3561
100
F Street, N.E.
Washington,
D.C.
20549
Re:
FirstEnergy Corp.,
File No.
333-21011
Ohio Edison Company,
File No.
1-2578
The
Cleveland
Electric Illuminating Company, File No. 1-2323
The
Toledo
Edison Company, File No. 1-3583
Metropolitan
Edison Company, File No. 1-446
Form
10-K for
Fiscal Year Ended December 31, 2006
Filed
February
28, 2007
Dear
Mr.
Thompson:
This
letter is in
response to your correspondence dated May 3, 2007 regarding your review of
the
filings by FirstEnergy Corp. and its subsidiaries, Ohio Edison Company, The
Cleveland Electric Illuminating Company, The Toledo Edison Company and
Metropolitan Edison Company, on Form 10-K for the fiscal year ended December
31,
2006. Your comments are indicated below in italics, followed by our
responses.
Form
10-K for
Fiscal Year Ended December 31, 2006
Exhibit
13.
FirstEnergy 2006 Annual Report to Stockholders
1.
To
the
extent applicable, please address the comments below on the consolidated
financial statements and related disclosures of the parent in the
consolidated financial statements and related disclosures of registrant
subsidiaries included in the filing.
Response:
We
respectfully submit these responses for FirstEnergy Corp. and its
subsidiaries. To the extent revised disclosure is deemed required
in
future filings that is also applicable to a registered subsidiary
of
FirstEnergy, we will also reflect the revised disclosure in future
subsidiary-level financial statements, unless otherwise
noted.
Consolidated
Statements of Cash Flows, page 58
2.
It
appears
that purchases and sales of debt and equity securities are netted
in the
line item ”cash investments and restricted funds” in cash flows from
investing activities based on the disclosure in Note 5 on page
75. If so,
with reference to paragraphs 11-13 of SFAS 95, please explain to
us your
basis for netting these items.
Response: The
line item
"cash investments and restricted funds" in the cash flows from
investing
activities section of the Consolidated Statements of Cash Flows
does not
include purchases and sales of debt and equity securities presented
on a
net basis. The line item primarily consists of three activities:
(i) cash
provided from the return on our investments in secured lease obligation
bonds for each of the years 2004, 2005 and 2006; (ii) cash used
for an
escrow fund investment and a mortgage indenture deposit (“restricted
funds”) in 2005; and (iii) cash provided from the liquidation of the
“restricted funds” in 2006. A discussion of our investments in secured
lease obligation bonds is provided in Notes 6 and 7 to the consolidated
financial statements.
3.
Please
explain to us why the proceeds from the sale of nuclear decommissioning
trust funds differ from the amounts disclosed in the table on
page
76.
Response:
In
response to
interpretive guidance given by the SEC to other utilities, FirstEnergy
began reporting the gross investment activity within the nuclear
decommissioning trust funds in its Statement of Cash Flows in
the first
quarter of 2006. In prior years, we reported the activity on
a net basis.
In order to present the comparable gross investment activity
in the
Statements of Cash Flows for the prior years, FirstEnergy requested
supplemental reports from the Trustee, since the 2005 and 2004
certified
trust statements did not provide the detail cash transactions
on a gross
basis.
In
2005,
proceeds from sales disclosed in Note 5 to the consolidated financial
statements of $1,419 million were understated by $76 million due to
the inadvertent omission of sales of an overnight cash investment
fund
from the proceeds included in the certified trust statements.
The
Statement of Cash Flows properly reflected the activity of this
overnight
investment fund. The proceeds from the sale of nuclear decommissioning
trust funds, as well as the investments in nuclear decommissioning
trust
funds included in the Statement of Cash Flows for the year ended
December
31, 2005 were both overstated by $220 million. Upon further review
of the
supporting documentation, it was subsequently determined that
there were
inconsistencies in the reports submitted to FirstEnergy by its
Trustee.
FirstEnergy used information from the certified trust statements
for the
disclosure of proceeds from sales in Note 5. However, because
the
certified trust statements did not provide sufficient information
to
calculate the gross proceeds and investment activities for the
Statement
of Cash Flows, FirstEnergy subsequently sought and obtained supplemental
reports from the Trustee that provided the details of all of
the cash
transactions on a gross basis. We did not detect, however, the
inconsistencies in the reports submitted by the Trustee.
In
2004, the
proceeds from sales of $1,234 million disclosed in Note 5 were
correct.
However, the proceeds from the sale of nuclear decommissioning
trust
funds, as well as the investment in nuclear decommissioning trust
funds
included in the Statement of Cash Flows were both understated
by $103
million. Similar to 2005, there were inconsistencies in the certified
trust statements and the supplemental reports obtained from the
Trustee.
This understatement primarily related to a transaction where
all of the
securities within one manager account of the nuclear decommissioning
trust
were sold and repurchased by another manager account. In the
Statement of
Cash Flows, the proceeds of this sale were included as a transfer
(based
on the description provided in the detail trust report) rather
than as a
gross sale and immediate repurchase of an investment. As a result,
the
proceeds from the sale of decommissioning trust funds and the
investment
in nuclear decommissioning trust funds included in the Statement
of Cash
Flows were each understated by $201 million. This understatement
was
partially offset by a combination of other transactions that
were not
reported consistently between the supplemental reports and the
certified
trust statements obtained from the Trustee that contributed to
the net
$103 million
understatement.
2
Beginning
in
2006, FirstEnergy was able to obtain the information required to
calculate
the gross sales and investments for the Statement of Cash Flow directly
from the certified trust statements. As a result, FirstEnergy did
not need
to request supplemental reports from the Trustee. The $2 million
difference in 2006 between the proceeds from the sale of nuclear
decommissioning trust funds disclosed in the Statement of Cash Flows
and
the proceeds from sales disclosed in Note 5 was due to pending trades
of
$2 million, which was included in Note 5(C) Nuclear Decommissioning
Trust
Fund Investments.
The
following
summarizes the differences in 2005 and 2004 as noted above.
2005
2004
(In
millions)
Cash
Flows
from Investing Activities:
Proceeds
from
NDT fund sales-as reported
$
1,715
$
1,131
Proceeds
from
NDT fund sales-revised
1,495
1,234
Difference
220
(103
)
Investments
in
NDT funds-as reported
(1,816
)
(1,232
)
Investments
in
NDT funds-revised
(1,596
)
(1,335
)
Difference
(220
)
103
Impact
on net
cash used for investing activities
$
-
$
-
As
summarized
in the table above, the differences identified in the proceeds from
nuclear decommissioning trust fund sales and the investments in nuclear
decommissioning trust funds are offset, resulting in no change to
net cash
used for investing activities.
In
preparing
this response, we reviewed the materiality of the required adjustments
under SAB 99 and SAB 108 with our Audit Committee. Considering that
the
adjustments would not impact the Consolidated Statements of Income
or the
Consolidated Balance Sheets, nor would they change net cash used
for
investing activities on the Consolidated Statements of Cash Flows,
and
based on the qualitative considerations outlined in SAB 99, the Audit
Committee concluded that the adjustments are immaterial and should
not
require amending the Consolidated Statements of Cash Flows for the
years
ended December 31, 2004 and 2005 for FirstEnergy or its subsidiaries.
The
Committee also concluded that the $76 million understatement of the
2005
proceeds from sales disclosed in Note 5 should not require amending
the
consolidated notes to the financial statements as the activity was
properly included in the Consolidated Statement of Cash
Flows.
FirstEnergy
and its subsidiaries will report the revised proceeds from sales
and
investments in nuclear decommissioning trust funds applicable to
2005 and
2004 in future filings.
Note
2. Summary
of Significant Accounting Policies, page 59
(A)
Accounting
for the Effects of Regulation, page 59
Regulatory
Assets, page 60
4.
With
respect to those regulatory assets not earning a return, please
disclose
the remaining recovery period. Refer to paragraph 20 of SFAS 71.
Additionally, please note that we believe the best practices approach
regarding regulatory assets is to affirmatively indicate whether
a
particular regulatory asset is earning a rate of return and the
anticipated recovery
period.
3
Response:
In future
filings, FirstEnergy will disclose the anticipated recovery period
of
regulatory assets not earning a current return as required by paragraph
20
of SFAS 71. FirstEnergy also agrees to identify in future filings
those
regulatory assets that earn a return. The recovery periods for
regulatory
assets not earning a return expire as follows: JCP&L’s reliability
costs - 2008; JCP&L’s deferred outage costs - 2009; JCP&L’s
post-employment benefit costs - 2012; and Penelec’s NUG stranded costs -
2020.
(F)
Property,
Plant and Equipment, page 62
5.
Please
separately disclose the balances for unregulated versus regulated
in
service property, plant and equipment and accumulated provision
for
depreciation.
Response: FirstEnergy's
property, plant and equipment balances as of December 31, 2006
were as
follows:
Unregulated
Regulated
(In
millions)
In
Service
$
9