SEC Company Response from FIRSTENERGY CORP (FE) (CIK 0001031296) (FE) — Jun 15, 2007
FIRSTENERGY CORP (FE) (CIK 0001031296)
Date: June 15, 2007 · CIK: 0001031296 · Accession: 0001031296-07-000143
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-21011
Referenced dates: May 3, 2007
Letter
Division of Corporation Finance Securities and Exchange Commission Metropolitan Edison Company, File No. 1-446 Form 10-K for Fiscal Year Ended December 31, 2006 Filed February 28, 2007 Form 10-Q for Fiscal Quarter Ended March 31,
Dear Mr. Thompson:
This letter is in response to your further correspondence dated June 11, 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 and Form 10-Q for the fiscal quarter ended March 31, 2007. Your comments are indicated below in italics, followed by our responses.
Form 10-K for Fiscal Year Ended December 31, 2006
Consolidated Statements of Cash Flows, page 58
1.
We reviewed your response to comment two in our letter dated May 3, 2007. If the line item “cash investments and restricted funds” does in fact include the return on your investments in secured lease obligations rather than the return of your investments, please explain to us why classification within cash flows from investing activities is appropriate. Refer to the guidance in paragraph 22.b of SFAS 95.
Response: The line item “cash investments and restricted funds” includes the return of our investment in secured lease obligation bonds, that is, the receipt of principal repayments. The return on our investment in secured lease obligation bonds (i.e. receipt of interest payments) is included in the cash flows from operating activities section of the Consolidated Statements of Cash Flows.
Furthermore, reference is made to the proceeds from the sale of investments disclosed in the table at the end of Note 5(B) on page 75. It is still unclear to us how the proceeds are classified in the statement. Please advise. In addition, based on the change in the cost basis of the investments disclosed on page 75 and the amounts of sales proceeds for the years presented, it appears you also purchased debt and equity securities. Please tell us how you classified the purchases for each of the years presented in the statement. Finally, if these items are netted, please explain to us your basis for such presentation.
Mr. William Thompson
June 15,
Page 2 of
Response: The proceeds from the sale of investments disclosed in Note 5(B) primarily relate to investments held by FirstEnergy’s nuclear fuel disposal trust (Fuel Trust) and non-utility generation trust (NUG Trust), both of which are subject to regulatory accounting under SFAS 71. Proceeds from sales and maturities of debt and equity securities and the earnings on these restricted investments are reinvested in the trusts. The cash inflows and outflows from the sales, maturities, earnings and purchases related to these restricted investments offset, and thus are presented on a net basis in the Consolidated Statements of Cash Flows. The individual components are summarized in Note 5(B). Cash contributions made by FirstEnergy into the trusts or withdrawals from the trusts to satisfy regulatory obligations are reported on a gross basis in the investing activities section of the Consolidated Statements of Cash Flows. The most recent contribution to the NUG trust was $51 million in 2004 as shown in our Consolidated Statements of Cash Flows. Unlike the registrants’ nuclear decommissioning trust investments, realized gains and losses on the Fuel Trust and NUG Trust investments are subject to regulatory accounting and do not impact FirstEnergy’s current period earnings. This is an important distinction from our nuclear decommissioning trust investment activity, which is not subject to regulatory accounting, and is reported on a gross basis in our Consolidated Statements of Cash Flows. Paragraph 12 of SFAS 95 discusses that net presentation is appropriate when the presentation of gross cash receipts and payments is not necessary to understand the enterprise’s operating, financing, and investing activities. We believe the net presentation more appropriately represents the underlying Fuel Trust and NUG Trust transactions.
(F) Property, Plant and Equipment, page 62
2.
We reviewed your response to comment five in our letter dated May 3, 2007. Since the regulatory process allows for more certainty in the recovery of regulated in service property, plant and equipment, we believe that such assets are qualitatively different from unregulated property, plant and equipment and that separate disclosure of regulated versus unregulated balances provides useful information to the reader. As such, please provide the requested disclosure in future filings or explain in further detail why such disclosure is not necessary.
Response: In future filings, FirstEnergy agrees to separately disclose the balances for unregulated versus regulated in service property, plant and equipment and accumulated provision for depreciation.
Exhibits 31.1 – 31.2
3.
Please be advised that the certifications required by Rule 13a-14(a) or Rule 15d-14(a) must include language exactly as set forth in Item 601(b)(31) of Regulation S-K. Accordingly, in future filings, please add the parenthetical language that has been deleted from paragraph 4(d) or 4(c), as applicable, of your certifications. The revisions should also be included in filings on Form 10-Q.
Response: In future Form 10-K and Form 10-Q filings, FirstEnergy agrees to include the parenthetical language in paragraph 4(d) or 4(c), as applicable, in our certifications.
Form 10-Q for Fiscal Quarter Ended March 31, 2007
Note 5. Asset Retirement Obligations, page 3
4.
We note you developed your asset retirement obligation based on site specific studies performed by an independent engineer. In this regard, please name and file the written consent of the independent engineer to whom you refer. Alternatively, please remove the reference to the engineer. If you do not believe a consent is required, please explain in detail. Refer to Section 436(b) of Regulation C, Section 7(a) of the Securities Act of 1933 and Item 601(b)(23) of Regulation S-K.
Response: We respectfully submit that the filing of the written consent of the independent engineer referenced in Note 5 is not required by either Section 7(a) of the Securities Act of 1933 or Rule 436(b) thereunder. Rule 436 requires the written consent of experts who have reviewed or passed on any information contained in a registration statement. The disclosure referred to is merely factual in nature (i.e., the company used information provided in certain engineering studies in evaluating the future liability for decommissioning the subject units). This disclosure does not refer to any information contained in the filing that was reviewed or passed on by the independent engineer. The $1.2 billion asset retirement obligation valuation was not reviewed, prepared or certified by the independent engineer. Consequently, we believe Rule 436(b) is not applicable to this disclosure.
Similarly, Section 7(a) requires the filing of the written consent of any expert who prepared or certified a report or valuation for use in connection with a registration statement. It provides that the written consent of an engineer or appraiser whose profession gives authority to a "statement made by him" is named as having prepared or certified any part of a registration statement. In the instant situation, there is no statement made by an engineer named in the filing. Also, although the referenced engineering studies provided the initial source data used in the preparation of certain information used in the filing, these studies did not certify or produce the final valuation of any such information. As we indicated above, the information provided was merely factual in nature. Section 7(a) does not require a consent when a person prepares a report that is merely mentioned in a registration statement. For this reason, we believe the requirements of Section 7(a) are also inapplicable to this disclosure.
Notwithstanding the foregoing, we will remove any reference to the independent engineer in future filings.
Mr. William Thompson
June 15,
Page 3 of
* * * *
FirstEnergy Corp. hereby acknowledges that:
·
FirstEnergy is responsible for the adequacy and accuracy of the disclosures relating to its annual report on Form 10-K for the year ended December 31, 2006 and its Form 10-Q for the quarter ended March 31, 2007;
· Staff comments or changes to disclosure in response to staff comments do not foreclose the Securities and Exchange Commission from taking any action with respect to the filing; and
· FirstEnergy may not assert staff comments as a defense in any proceeding initiated by the Securities and Exchange Commission or any person under the federal securities laws of the United States.
I would be happy to discuss these responses with you in more detail. Please feel free to call me (330-384-5296) or Jeffrey R. Kalata, Assistant Controller (330-374-6580) with any further questions you may have. I appreciate your assistance in ensuring our compliance with the Commission’s disclosure requirements.
Sincerely,
Harvey
L.
Wagner
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
FirstEnergy
76
South Main
St.
Akron,
Ohio
44308
Harvey
L.
Wagner
Vice
President, Controller
and
Chief Accounting Officer
330-384-5296
Fax:
330-384-5299
June
15,
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
Form
10-Q for
Fiscal Quarter Ended March 31,
2007
Dear
Mr.
Thompson:
This
letter is in
response to your further correspondence dated June 11, 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 and Form 10-Q for the fiscal quarter ended March 31,
2007. Your comments are indicated below in italics, followed by our
responses.
Form
10-K for
Fiscal Year Ended December 31, 2006
Consolidated
Statements of Cash Flows, page 58
1.
We
reviewed your response to comment two in our letter dated May 3,
2007. If the line item “cash investments and restricted funds”
does in fact include the return on your investments in secured lease
obligations rather than the return of your investments, please explain
to
us why classification within cash flows from investing activities
is
appropriate. Refer to the guidance in paragraph 22.b of SFAS
95.
Response:
The line item “cash investments and restricted funds” includes the return
of our investment in secured lease obligation bonds, that
is, the receipt of principal repayments. The return on our
investment in secured lease obligation bonds (i.e. receipt of interest
payments) is included in the cash flows from operating activities
section
of the Consolidated Statements of Cash
Flows.
Furthermore,
reference is made to the proceeds from the sale of investments disclosed
in the table at the end of Note 5(B) on page 75.
It is still unclear to us how the proceeds are classified in the
statement. Please advise. In addition, based on the
change in the cost basis of the investments disclosed on page 75 and
the
amounts of sales proceeds for the years presented, it appears you also
purchased debt and equity securities. Please tell us how you
classified the purchases for each of the years presented in the
statement. Finally, if these items are netted, please explain
to us your basis for such
presentation.
Mr.
William Thompson
June
15,
2007
Page
2 of
4
Response: The
proceeds from the sale of investments disclosed in Note 5(B)
primarily
relate to investments held by FirstEnergy’s nuclear fuel disposal trust
(Fuel Trust) and non-utility generation trust (NUG Trust), both
of which
are subject to regulatory accounting under SFAS 71. Proceeds
from sales and maturities of debt and equity securities and the
earnings
on these restricted investments are reinvested in the
trusts. The cash inflows and outflows from the sales,
maturities, earnings and purchases related to these restricted
investments
offset, and thus are presented on a net basis in the Consolidated
Statements of Cash Flows. The individual components are
summarized in Note 5(B). Cash contributions made by FirstEnergy
into the trusts or withdrawals from the trusts to satisfy regulatory
obligations are reported on a gross basis in the investing activities
section of the Consolidated Statements of Cash Flows. The most
recent contribution to the NUG trust was $51 million in 2004
as shown in
our Consolidated Statements of Cash Flows. Unlike the
registrants’ nuclear decommissioning trust investments, realized gains and
losses on the Fuel Trust and NUG Trust investments are subject
to
regulatory accounting and do not impact FirstEnergy’s current period
earnings. This is an important distinction from our nuclear
decommissioning trust investment activity, which is not subject
to
regulatory accounting, and is reported on a gross basis in our
Consolidated Statements of Cash Flows. Paragraph 12 of
SFAS 95 discusses that net presentation is appropriate when the
presentation of gross cash receipts and payments is not necessary
to
understand the enterprise’s operating, financing, and investing
activities. We believe the net presentation more appropriately
represents the underlying Fuel Trust and NUG Trust
transactions.
(F) Property,
Plant and Equipment, page 62
2.
We
reviewed your response to comment five in our letter dated May 3,
2007. Since the regulatory process allows for more certainty in
the recovery of regulated in service property, plant and equipment,
we
believe that such assets are qualitatively different from unregulated
property, plant and equipment and that separate disclosure of regulated
versus unregulated balances provides useful information to the
reader. As such, please provide the requested disclosure in
future filings or explain in further detail why such disclosure is
not
necessary.
Response: In
future filings, FirstEnergy agrees to separately disclose the balances
for
unregulated versus regulated in service property, plant and equipment
and
accumulated provision for
depreciation.
Exhibits
31.1 –
31.2
3.
Please
be
advised that the certifications required by Rule 13a-14(a) or Rule
15d-14(a) must include language exactly as set forth in Item 601(b)(31)
of
Regulation S-K. Accordingly, in future filings, please add the
parenthetical language that has been deleted from paragraph 4(d)
or 4(c),
as applicable, of your certifications. The revisions should
also be included in filings on Form
10-Q.
Response:
In future Form 10-K and Form 10-Q filings, FirstEnergy agrees to include
the parenthetical language in paragraph 4(d) or 4(c), as applicable,
in
our certifications.
Form
10-Q for
Fiscal Quarter Ended March 31, 2007
Note
5. Asset
Retirement Obligations, page 3
4.
We
note
you developed your asset
retirement obligation based on site specific studies performed by
an
independent engineer. In this regard, please name and file the
written consent of the independent engineer to whom you
refer. Alternatively, please remove the reference to the
engineer. If you do not believe a consent is required, please
explain in detail. Refer to Section 436(b) of Regulation C,
Section 7(a) of the Securities Act of 1933 and Item 601(b)(23) of
Regulation S-K.
Response: We
respectfully submit that the filing of the written consent of the
independent engineer referenced in Note 5 is not required by either
Section 7(a) of the Securities Act of 1933 or Rule 436(b)
thereunder. Rule 436 requires the written consent of experts
who have reviewed or passed on any information
contained in a registration statement. The disclosure referred
to is merely factual in nature (i.e., the company used information
provided in certain engineering studies in evaluating the future liability
for decommissioning the subject units). This disclosure does
not refer to any information contained in the filing that was reviewed
or
passed on by the independent engineer. The $1.2 billion asset retirement
obligation valuation was not reviewed, prepared or certified by the
independent engineer. Consequently, we believe Rule 436(b) is
not applicable to this
disclosure.
Similarly,
Section 7(a) requires the filing of the written consent of any expert
who
prepared or certified a report or valuation for use in connection with
a
registration statement. It provides that the written consent of
an engineer or appraiser whose profession gives authority to a "statement
made by him" is named as having prepared or certified any part of a
registration statement. In the instant situation, there is no
statement made by an engineer named in the filing. Also,
although the referenced engineering studies provided the initial source
data used in the preparation of certain information used in the filing,
these studies did not certify or produce the final valuation of any
such
information. As we indicated above, the information provided was merely
factual in nature. Section 7(a) does not require a consent when
a person prepares a report that is merely mentioned in a registration
statement. For this reason, we believe the requirements of
Section 7(a) are also inapplicable to this
disclosure.
Notwithstanding
the foregoing, we will remove any reference to the independent engineer
in
future filings.
Mr.
William Thompson
June
15,
2007
Page 3
of
4
* * * *
FirstEnergy
Corp.
hereby acknowledges that:
·
FirstEnergy
is
responsible for the adequacy and accuracy of the disclosures relating
to
its annual report on Form 10-K for the year ended December 31, 2006
and
its Form 10-Q for the quarter ended March 31, 2007;
·
Staff
comments
or changes to disclosure in response to staff comments do not foreclose
the Securities and Exchange Commission from taking any action with
respect
to the filing; and
·
FirstEnergy
may not assert staff comments as a defense in any proceeding initiated
by
the Securities and Exchange Commission or any person under the federal
securities laws of the United States.
I would
be happy to discuss these responses with you in more detail. Please
feel free to call me (330-384-5296) or Jeffrey R. Kalata, Assistant Controller
(330-374-6580) with any further questions you may have. I appreciate
your assistance in ensuring our compliance with the Commission’s disclosure
requirements.
Sincerely,
Harvey
L.
Wagner
Vice
President, Controller and
Chief
Accounting Officer
Mr.
William Thompson
June
15,
2007
Page 4
of
4
HLW:dlc
Attachment
cc: Sarah
Goldberg
Staff
Accountant
Securities
and Exchange Commission
Anthony
J. Alexander
Richard
H. Marsh
Leila
L. Vespoli