Document


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): July 19, 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
 
 
 
 
 
 
 
000-53742
 
FIRSTENERGY SOLUTIONS CORP.
 
31-1560186
 
 
(An Ohio Corporation)
 
 
 
 
c/o FirstEnergy Corp.
 
 
 
 
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))

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Item 2.02 Results of Operations and Financial Condition

On July 22, 2016, FirstEnergy Corp. (FE and together with its consolidated subsidiaries, FirstEnergy) issued a letter to the investment community (Letter) described more fully in item 7.01 herein, which contained a summary of Asset Impairment/Plant Exit Costs that will be recognized in the second quarter of 2016. The Letter is attached as Exhibit 99.1 hereto and incorporated by reference herein. The information contained or incorporated by reference herein this Item 2.02, including Exhibit 99.1 shall not be deemed filed for purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibit 99.1 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.

Item 2.05 Costs Associated with Exit or Disposal Activities

On July 19, 2016, officers of FE and FirstEnergy Solutions Corp. (FES and together with FE, the Registrants) committed to exit operations of the following generating units: (1) Bay Shore Unit 1 with a capacity of 136 Megawatts (MWs) through either a sale or deactivation by October 1, 2020; and (2) W.H. Sammis, Units 1-4 with an aggregate capacity of 720 MWs through deactivation by May 31, 2020.

As a result of this decision, FE will recognize pre-tax impairment charges of approximately $647 million in the second quarter of 2016, including approximately $517 million at FES. The decision to exit operations at these generating units was based on continued challenging market conditions. Deactivation of these generating units is subject to review for reliability impacts by PJM Interconnection, L.L.C. (PJM), the regional transmission organization that controls the area where these power plants are located as well as an economic analysis by PJM’s Market Monitor.

Item 2.06 Material Impairments

The information contained in Item 2.05 relating to the asset impairment associated with Bay Shore Unit 1 and W. H. Sammis, Units 1-4 is incorporated into this Item 2.06 by reference. The information contained in Item 8.01 relating to the impairment of goodwill and valuation allowances against state and local net operating loss carryforwards is incorporated into this Item 2.06 by reference.

Item 7.01 Regulation FD Disclosure

On July 22, 2016, FE issued the Letter regarding Asset Impairments and Plant Exit Costs at its Competitive Energy Services (CES) business segment, which are also described herein in items 2.05, 2.06 and 8.01. Also on the same day, FE issued a press release (Release) regarding FES exiting operations at Bay Shore Unit 1 and W. H. Sammis, Units 1-4. The Letter and Release are attached as Exhibits 99.1 and 99.2, respectively, hereto and incorporated by reference herein this Item 7.01. The information contained or incorporated by reference herein this Item 7.01, including Exhibits 99.1 and 99.2, shall not be deemed filed for purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibits 99.1 and 99.2 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.

Item 8.01 Other Events

FE tests goodwill for impairment annually as of July 31 and considers more frequent testing if indicators of potential impairment arise. As a result of low capacity prices associated with the 2019/2020 PJM Base Residual Auction in May 2016, as well as its annual update to its fundamental long-term capacity and energy price forecast in the second quarter of 2016, FE determined that an interim impairment analysis of the goodwill at CES was necessary in connection with the preparation of its financial statements for the three-month period ended June 30, 2016. Based on such impairment analysis, FE’s second quarter 2016 results will include a pre-tax non-cash impairment charge of approximately $800 million, representing the total goodwill at the CES segment, including $23 million at FES. Approximately $433 million of the goodwill is non-deductible for tax purposes, including $23 million at FES. The CES segment through FES and Allegheny Energy Supply Company, LLC, controls 13,162 MWs of generating capacity, including the Bay Shore and W. H. Sammis capacity referenced in Item 2.05 above, and primarily supplies electricity to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Michigan, New Jersey and Maryland, and the provision of partial provider-of-last-resort and default service for some utilities in Ohio, Pennsylvania and Maryland, including the FirstEnergy utilities.

FE also expects that its second quarter 2016 results will reflect a valuation allowance against state and local net operating loss carryforwards of $159 million that FE management believes, more likely than not, will not be realized, including $65 million at FES.

In addition, FE and FES expect that their second quarter 2016 results will reflect a charge of $58 million from settlement and termination costs on coal contracts associated with retired generating units.

The impact of the goodwill impairment, valuation allowances, and coal contract settlement and termination costs discussed above, together with the asset impairment discussed in Item 2.05, will not cause FE or FES to be in default under any of their respective credit facilities or other debt covenants.


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Item 9.01 Financial Statements and Exhibits

(d)
Exhibits
Exhibit No.

Description
99.1

Letter to the Investment Community, dated July 22, 2016
99.2

Press Release, dated July 22, 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 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 in Ohio; 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 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 certain older regulated and competitive fossil 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 material 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; 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, and increase requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees; 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 ra

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ting 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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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.



July 22, 2016

 
 FIRSTENERGY CORP.
 
 Registrant
 
 
 
FIRSTENERGY SOLUTIONS 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

Letter to the Investment Community, dated July 22, 2016
99.2

Press Release, dated July 22, 2016



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