SEC File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
Jersey Central Power & Light Company ("JCP&L")
76 South Main Street
Akron, Ohio 44308
(Name of company filing this statement and address of
principal executive office)
FirstEnergy Corp.
(Name of top registered holding company parent of applicant)
Leila L. Vespoli Douglas E. Davidson, Esq.
Senior Vice President Thelen Reid & Priest LLP
and General Counsel 875 Third Avenue, 10th Floor
FirstEnergy Corp. New York, New York 10022
76 South Main Street
Akron, Ohio 44308
(Names and addresses of agents for service)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
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A. JCP&L is a public utility subsidiary of FirstEnergy Corp.
("FirstEnergy"), a registered public utility holding company. The principal
executive offices of both JCP&L and FirstEnergy are located in Akron, Ohio.
JCP&L is an electric public utility company operating in New Jersey and
accordingly furnishes electric service to over one million customers located
within 13 counties in northern, western and east central New Jersey. JCP&L
hereby requests an exemption from the "at-cost" requirements of section 13(b) of
the Act and rules 90 and 91 thereunder in connection with a service agreement
that will be entered into in connection with the transactions described below.
In connection with a proposed issuance of transition bonds, JCP&L intends (1) to
form a new direct or indirect wholly-owned subsidiary ("Special Purpose Issuer")
which will be a limited liability company; (2) that JCP&L, directly, and that
FirstEnergy, indirectly, will acquire all of the common equity interests in the
Special Purpose Issuer; (3) that the Special Purpose Issuer will issue and sell
up to $400 million in aggregate principal amount of transition bonds; and (4)
that, if necessary, JCP&L will cause the Special Purpose Issuer to enter into
certain interest rate swap agreements, all as more fully described
1
below, to facilitate the offering of the transition bonds.1 The transaction
described above is commonly referred to as a "securitization".2
In connection with the planned securitization, JCP&L intends to enter into
a Servicing Agreement, as hereinafter defined, with the Special Purpose Issuer
pursuant to which JCP&L will provide services, as more fully described below, to
the Special Purpose Issuer, at a pre-determined rate, which rate may not be in
accordance with the "at-cost" requirements of section 13(b) of the Act and rules
90 and 91 thereunder. Accordingly, JCP&L hereby seeks an exemption from the
requirements of section 13(b) of the Act with respect to the Servicing
Agreement.
B. On February 9, 1999, the New Jersey legislature enacted the Electric
Discount and Energy Competition Act, P.L. 1999, c. 23 (N.J.S.A. 48:3-49 et
seq.), which was subsequently amended in 2002 by P.L. 2002, ch. 84 (as so
amended, the "Competition Act"), to restructure the electric utility and natural
gas industries in New Jersey. The Competition Act required New Jersey electric
utilities, including JCP&L, to unbundle electric services into separate charges
for, among other things, customer account services (metering and billing),
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1 The transactions described in this sentence have been previously authorized
by the Commission by Order dated June 30, 2003 (HCAR No. 27694) (the "June 30
Order"), pursuant to which the Commission authorized, among other things,
FirstEnergy and JCP&L to acquire, directly or indirectly, the equity securities
of one or more "Financing Subsidiaries". The Special Purpose Issuer, as more
fully described below, is a Financing Subsidiary. The June 30 Order also
provided that securities issued by any Financing Subsidiaries to third parties
would be exempt under rule 52 under the Act, if such securities, if issued
directly by the parent company of the Financing Subsidiary, which in this
instance is JCP&L, would be exempt under rule 52 under the Act. The issuance of
the transition bonds and any securities issued in connection with any interest
rate swap agreement will be authorized by the New Jersey Board of Public
Utilities (the "BPU" or the "Board") and thus would be exempt under rule 52 if
issued by JCP&L. JCP&L will file reports on Form U-6B-2 after the closing of the
transactions described herein.
2 By Order dated June 5, 2002 (HCAR No. 27537), the Commission authorized JCP&L
and FirstEnergy to undertake a similar transaction in connection with JCP&L
Transition Funding LLC's Series 2002-A Transition Bonds, $320 million of which
were issued and sold on June 11, 2002 (the "2002 Securitization Transaction").
2
distribution, transmission and generation. While the New Jersey electric
generation market has been open to competition since August 1, 1999, electric
distribution and, at least initially, customer account services continue to be
regulated by the Board. Transmission services are provided by the New Jersey
electric utilities pursuant to open access transmission tariffs filed with the
Federal Energy Regulatory Commission ("FERC"). The Competition Act, and more
specifically, the 2002 amendments, authorize the recovery, through
securitization, of a number of costs incurred by electric utilities, including
costs defined in the Competition Act as "Basic Generation Service Transition
Costs" -- costs associated with the procurement of power in connection with a
utility's "provider of last resort" responsibilities incurred during the
transition period of electric utility restructuring.3
C. The Competition Act provides for the use of securitization to
facilitate utility restructurings by empowering the BPU, at the request of a
utility, to authorize such utility, directly or indirectly, to issue transition
bonds in order to recover and/or finance a portion of, among other things, its
Basic Generation Service Transition Costs. Utilities must apply to the BPU for a
bondable stranded costs rate order authorizing the issuance of transition bonds
and approving the amount of the initial transition bond charge ("TBC") to be
imposed on all retail electric distribution customers.
D. Under the Competition Act, the BPU may authorize the issuance of
transition bonds if the issuance of the transition bonds will provide benefits
for ratepayers that include the lowest possible TBC consistent with market
conditions and the terms of the related bondable stranded costs rate order.
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3 The New Jersey electric utilities, including JCP&L, have accumulated these
costs in a deferral account on their books. These deferred costs are generally
referred to as the "deferred balance."
3
E. Further, under the Competition Act, the transition bonds may have
a scheduled amortization of up to 15 years from their issuance. In general, the
TBC is a separate, non-bypassable charge that will be assessed against all
retail electric distribution customers, regardless of whether they continue to
purchase electricity from the distribution utility. The TBC will be a
usage-based charge that will be sufficient to recover the principal of and
interest on the transition bonds and all other costs associated with the
issuance of the transition bonds, including costs of credit enhancements, costs
of retiring existing debt and preferred equity, costs of defeasance, servicing
fees and certain other related fees and expenses. The relationship between
collections of the TBC and the debt service and expense requirements on the
transition bonds will likely be dependent upon, among other things, the
utility's ability to forecast: (1) sales; (2) delinquencies and write-offs; and
(3) payment lags.
F. On February 14, 2003, JCP&L filed a petition with the BPU seeking
a bondable stranded costs rate order to authorize securitization of its Basic
Generation Service Transition Costs associated with its deferred balance,
together with other bondable stranded costs.4 Such amounts will be collected
from JCP&L's ratepayers via the TBC once JCP&L has securitized such amounts. On
August 1, 2003, in a separate proceeding (the "Deferred Balances Proceeding"),
the BPU deemed that $272 million of JCP&L's deferred balance was eligible for
rate recovery. JCP&L has requested that the BPU issue a bondable stranded costs
rate order (the "Financing Order") authorizing the Special Purpose Issuer's
issuance of up to $277 million of transition bonds representing approximately
$266 million of Basic Generation Service Transition Costs and an estimated $11
million of transaction costs, including related fees and expenses of
--------------------
4 JCP&L has since amended the petition on September 19, 2003 and December 1,
2003.
4
issuance and sale of the transition bonds and of refinancing or retiring JCP&L's
debt and preferred equity in the near future.5
G. The TBC will remain in effect until all principal, interest and other
costs on the related transition bonds are paid in full, and will be adjusted at
least annually, in accordance with the Competition Act, to insure full payment
of debt service and expenses. Under the Competition Act, neither the BPU nor any
other governmental entity may rescind, alter, repeal, modify or amend a bondable
stranded costs rate order, and the State may not limit, alter or impair any
bondable transition property6 or associated rights. The transition bonds will
not constitute a debt or liability of the State or of JCP&L, but only of the
Special Purpose Issuer.
H. The BTP and the related TBC revenue stream are isolated from any
credit risk associated with the utility because the utility will have
transferred them to the Special Purpose Issuer, which will be structured to be a
"bankruptcy remote" assignee. The Special Purpose Issuer, which will be a
Delaware limited liability company, will issue transition bonds secured by the
BTP and the TBC revenue stream. The securitization will be structured so that
the transfer of the interest in the BTP will be treated as an absolute transfer
of all of JCP&L's right, title and interest in the BTP as in a true sale, and
not as a pledge or other financing, for all purposes other than for Federal and
State income and franchise tax purposes and for certain financial reporting
--------------------
5 JCP&L has reserved the right to appeal the decision in the Deferred Balances
Proceeding seeking an increase in the mount of its deferred balance eligible for
recovery. Therefore, JCP&L has noted in this Application that the initial
principal balance of the transition bonds issued by the Special Purpose Issuer
may be as much as $400 million. JCP&L will advise the Commission of any change
in the amount of its deferred balance deemed eligible for recovery by the BPU.
6 Under the Competition Act, Bondable Transition Property ("BTP"), the
statutory and regulatory right to collect the TBC, is defined as "the property
consisting of the irrevocable right to charge, collect and receive, and be paid
from collections of, transition bond charges in the amount necessary to provide
for the full recovery of bondable stranded costs which are determined to be
recoverable in a bondable stranded costs rate order . . . ." N.J.S.A. 48:3-51.
5
purposes. The transfer of the BTP to the Special Purpose Issuer will have no
effect on JCP&L's debt to equity ratio.
I. As the TBC is imposed upon and collected from ratepayers, such amounts
will be used to pay principal and interest on the transition bonds, as well as
fees and expenses related to the securitization transaction.
J. The securitization structure outlined above will enhance the
creditworthiness of the transition bonds because the underlying securitized
assets (the BTP and its associated TBC revenue stream) are isolated from the
risks associated with the assets of JCP&L once transferred to the Special
Purpose Issuer. Moreover, as discussed above, the State of New Jersey under the
Competition Act may not reduce the value of the BTP or TBC until the transition
bonds are fully discharged, and the BPU's bondable stranded costs rate order is
irrevocable under the Competition Act. These aspects of the securitization
transaction will enable the transition bonds to obtain a higher credit rating
than the existing debt instruments of JCP&L. JCP&L understands that all other
utility securitization bonds, including those issued in the 2002 Securitization
Transaction, have received the highest possible credit rating from the principal
rating agencies and, accordingly, believes that it is reasonable to expect that
its transition bonds will receive such credit ratings, although JCP&L has
received no such assurances from any rating agency.
K. Pursuant to a "Sale Agreement", JCP&L will transfer the interest in
the BTP created by the irrevocable bondable stranded costs rate order to the
Special Purpose Issuer in exchange for the net proceeds from the sale of the
transition bonds. Such transfer will be treated as a true sale, and not as a
secured financing, for bankruptcy purposes. The Special Purpose Issuer initially
will be capitalized (in an amount equal to at least 0.5% of the total principal
6
amount of the transition bonds) through a direct capital contribution by JCP&L.7
The Special Purpose Issuer will deposit the capital contribution amount into a
"Capital Subaccount."
L. The actual amount of the TBC will be sized to provide for collection
of an amount beyond that needed to pay expected costs and debt service on the
transition bonds (the "Overcollateralization Amount"). The Overcollateralization
Amount, which will be collected ratably over the expected term of the transition
bonds, will enhance the creditworthiness of the transition bonds and will be
deposited into a subaccount (the "Overcollateralization Subaccount").
M. JCP&L, as the servicer of the TBC revenue stream pursuant to the
Servicing Agreement described below, will remit at least monthly all amounts
collected in respect of the TBC to a collection account maintained by the
indenture trustee for the benefit of the holders of the transition bonds (the
"Collection Account").8 The indenture trustee will periodically pay out of the
Collection Account, among other amounts authorized by the BPU, trustee fees,
independent manager fees, servicing fees, administrative fees, operating
expenses, accrued but unpaid interest on all classes of the transition bonds,
and principal (to the extent scheduled) on transition bonds. Any remaining
balance in the Collection Account will be used to restore the Capital
Subaccount, fund and replenish the Overcollateralization Subaccount (to the
required scheduled level), and then be added to reserves (the "Reserve
Subaccount").9
N. The Special Purpose Issuer may issue transition bonds in one or more
series, and each such series may be issued in one or more classes. Different
series may have different
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7 JCP&L will not charge interest on this capital contribution.
8 It is expected that, initially, JCP&L will remit such amounts on a daily
basis within two business days of deemed collection.
7
maturities and interest rates and each series may have classes with such
maturities, interest rates. fixed or variable, and other terms as the Special
Purpose Issuer shall determine from time to time in the future. The aggregate
average interest cost of the transition bonds will not exceed the applicable
U.S. mid-market swap benchmark, as quoted, among other places, on Telerate page
19901, plus 300 basis points.10 The TBC for each series will be structured to
provide for the recovery of the principal amount of the related transition bonds
and the related interest, fees and expenses. There will be a date on which each
of the transition bonds is expected to be repaid and a legal final maturity date
by which the transition bonds must be repaid. Neither the expected final
maturity nor the legal final maturity will be later than 15 years and 17 years,
respectively, from the date of issuance of the related transition bonds. The
expected final maturity date must be earlier than the legal final maturity date
to meet rating agency requirements because the TBC is calculated by taking into
account projections of such variables as the anticipated level of charge-offs,
delinquencies and usage, which may differ from the amounts actually experienced.
If necessary, the Special Purpose Issuer may enter into transactions to
convert all or a portion of any transition bonds bearing interest at a floating
rate ("Floating Rate Transition Bonds") to fixed rate obligations of the Special
Purpose Issuer using interest rate swaps or other derivative products designed
for such purposes. The Special Purpose Issuer will enter into one or more
interest rate swaps, or one or more derivative instruments, such as interest
rate caps, interest rate floors and interest rate collars (collectively,
"Derivative Transactions"), with one or more counterparties whose senior debt
ratings, or the senior debt ratings of the parent companies
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9 JCP&L may add other reserve accounts, in addition to those described in this
Application, to obtain the highest possible credit ratings for the transition
bonds.
10 The swap rate used as a benchmark is the fixed rate of interest that could
be exchanged for a floating rate of interest (based on LIBOR) over a specified
term. As an example, if a particular transition bond tranche had a ten-year
average life, that tranche would be priced based on, but would not exceed 300
basis points greater than, the mid-point between current bid and asked 10 year
swap rates at the time of pricing.
8
of the counterparties, as published by Standard and Poor's Ratings Group, are
equal to or greater than BBB, or an equivalent rating from Moody's Investors
Service, Inc. or Fitch, Inc. ("Authorized Counterparties"). The notional amount
of the swaps and the expected average life of the swaps will not exceed that of
the underlying Floating Rate Transition Bonds. For instance, in connection with
Floating Rate Transition Bonds, the Special Purpose Issuer would enter into an
interest rate swap with a swap counterparty whereby it would receive the same
floating rate interest payment from the counterparty as it pays to the
transition bondholders. In return, the Special Purpose Issuer would agree to
make payments to the counterparty based upon the principal amount of such
transition bonds at an agreed upon fixed interest rate. The net effect of such a
transaction would be to convert the Floating Rate Transition Bonds to fixed rate
obligations. The term of the interest rate swap would match the maturity of the
Floating Rate Transition Bonds and the swap notional amount would at all times
equal the outstanding principal amount of such bonds. Swaps or other derivative
transactions would be entered into only with Authorized Counterparties. Any swap
agreement will also include customary provisions related to indemnification by
JCP&L or the Special Purpose Issuer for breakage costs and other losses under
certain circumstances related to the savings.
O. Pursuant to a servicing agreement between JCP&L and the Special
Purpose Issuer (the "Servicing Agreement"), JCP&L will act as a servicer of the
TBC revenue stream. In this capacity, JCP&L will, among other things: (1) bill
customers and make collections on behalf of the Special Purpose Issuer and (2)
file with the BPU for periodic adjustments to the TBC to achieve a level which
allows for payment of all debt service and full recovery of amounts authorized
by the Board to be collected through the TBC in accordance with the expected
amortization schedule for each series and class of transition bonds. JCP&L may,
subject to
9
certain conditions, subcontract with other companies to carry out some of its
servicing responsibilities. JCP&L expects that the Servicing Agreement will
remain in effect until the legal final maturity of the transition bonds, which,
as discussed above in paragraph N of this Item 1, will not exceed 17 years.
P. JCP&L will receive a servicing fee for its servicing activities and
reimbursement for certain of its expenses in the manner set forth in the
Servicing Agreement. JCP&L's servicing fee will be set at an amount equal to no
more than 0.125% of the initial principal amount of the transition bonds. This
fee may not reflect JCP&L's actual costs of providing the related services and
therefore may not meet the "at cost" requirements of Section 13(b) of the Act
and Rules 90 and 91 thereunder. Thus, JCP&L is seeking an exemption from these
requirements. The rating agencies will require that the servicing fee be set at
a level comparable to one negotiated at arms-length and which would thus be
reasonable and sufficient for a similarly situated third party performing
similar services. To do otherwise would most likely lower the credit rating of
the transition bonds. This "arms-length" fee assures that the Special Purpose
Issuer would be able to operate independently and thus strengthens the position
that it is a "bankruptcy remote"11 entity.
JCP&L is the most logical and cost-effective choice for servicer for a
number of reasons. JCP&L is already performing many of the servicer's tasks in
its capacity as the local distribution utility, such as metering and billing,
and, thus, the servicing fee JCP&L collects will be substantially lower than the
fee any other entity would charge. Further, JCP&L is currently acting as
servicer in connection with the 2002 Securitization Transaction, as was
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11 A "bankruptcy remote" entity would not be impacted by a bankruptcy of JCP&L
and is, therefore, expected to have a credit rating different from (and, indeed,
higher than) that of JCP&L.
10
previously approved by the Commission, and is thus familiar with the
requirements of the position.12 Having JCP&L act as servicer is therefore
beneficial to ratepayers because, ultimately, it is the ratepayers who will pay
the servicing fee through the TBC.
Q. Any successor to JCP&L pursuant to any merger, consolidation,
bankruptcy, reorganization or other insolvency proceeding will be required to
assume JCP&L's obligations under the Sale Agreement and the Servicing Agreement
and under the Competition Act.
R. Personnel employed by FirstEnergy Service Company ("FESC") will
provide ministerial services on an as-needed basis to the Special Purpose Issuer
pursuant to an administration agreement ("AA") to be entered into between the
Special Purpose Issuer and FESC. The services to be provided will consist
primarily of internal administrative matters relating to the Special Purpose
Issuer such as providing notices required under its transition bond
documentation, maintaining its books and records and maintaining authority to do
business in appropriate jurisdictions. Under the AA, the Special Purpose Issuer
will reimburse FESC for the cost of the services provided, computed in
accordance with Rules 90 and 91 under the Act, as well as other applicable rules
and regulations. As described above, JCP&L will be retained under the Servicing
Agreement to collect and manage the BTP and associated TBC revenues and to make
appropriate filings with the BPU.
S. JCP&L will use the net proceeds from the sale of the transition bonds
to reduce eligible stranded costs through the retirement of debt or equity, or
both, as permitted by the Competition Act. In accordance with the Competition
Act, the application of the proceeds from
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12 The Commission has also approved section 13(b) exemptions in connection with
servicing agreement arrangements from other stranded costs securitizations. See
---
Conectiv, HCAR No. 27588 (Oct. 28, 2002); PECO Energy Company, HCAR No. 27483
--------- -------------------
(Dec. 27, 2001); The Connecticut Light and Power Company, HCAR No. 27319 (Dec.
----------------------------------------
26, 2000); West Penn Power Co., HCAR No. 27091 (Oct. 19, 1999).
-------------------
11
the sale of the transition bonds will not substantially alter JCP&L's capital
structure, as assessed by the Board.
T. The specific steps to be taken by JCP&L to reduce its capitalization
will depend, in large part, on the date on which the proceeds from the sale of
transition bonds become available, the then prevailing market conditions, and
the circumstances at that time.
U. Rule 54 Analysis.
The proposed transactions are subject to the requirements of Rules 53 and
Rule 54. Rule 54 provides that the Commission shall not consider the effect of
the capitalization or earnings of subsidiaries of a registered holding company
that are "exempt wholesale generators" ("EWGs") or "foreign utility companies"
("FUCOs") in determining whether to approve other transactions if paragraphs
(a), (b) and (c) of Rule 53 are satisfied.
FirstEnergy currently meets all of the conditions of Rule 53(a), except for
clause (1). By Order dated October 29, 2001 (HCAR No. 27459) (the "Merger
Order"), the Commission, among other things, authorized FirstEnergy to invest in
EWGs and FUCOs so that FirstEnergy's "aggregate investment," as defined in Rule
53(a)(1), in EWGs and FUCOs does not exceed $5 billion, which $5 billion amount
is greater than the amount which would be permitted by clause (1) of Rule 53(a)
which, based on FirstEnergy's consolidated retained earning of $1.6 billion as
of September 30, 2003, would be $800 million. The Merger Order also specifies
that this $5 billion amount may include amounts invested in EWGs and FUCOs by
FirstEnergy and GPU, Inc. ("GPU") at the time of the Merger Order ("Current
Investments") and amounts relating to possible transfers to EWGs of certain
generating facilities owned by certain of FirstEnergy's operating utilities
("GenCo Investments"). FirstEnergy has made the commitment that through December
31, 2005, its aggregate investment in EWGs and FUCOs other than the Current
12
Investments and GenCo Investments ("Other Investments") will not exceed $1.5
billion (the "Modified Rule 53 Test"). Under the Merger Order, the Commission
reserved jurisdiction over Other Investments that exceed such $1.5 billion
amount.13
As of September 30, 2003, and on the same basis as set forth in the Merger
Order, FirstEnergy's aggregate investment in EWGs and FUCOs was approximately
$1.06 billion,14 an amount significantly below the $5 billion amount authorized
in the Merger Order. Additionally, as of September 30, 2003, "consolidated
retained earnings" were $1.6 billion. By way of comparison, FirstEnergy's
consolidated retained earnings as of December 31, 2001 were $1.52 billion.
In any event, even taking into account the capitalization of and earnings
from EWGs and FUCOs in which FirstEnergy currently has an interest, there would
be no basis for the Commission to withhold approval of the transactions proposed
herein. With respect to capitalization, since the date of the Merger Order,
there has been no material adverse impact on FirstEnergy's consolidated
capitalization resulting from FirstEnergy's investments in EWGs and FUCOs. As of
September 30, 2003, FirstEnergy's consolidated capitalization consisted of 38.7%
common equity, 1.7% cumulative preferred stock, 1.3% subsidiary - obligated
mandatorily redeemable preferred securities, 57.1% long-term debt and 1.2% notes
payable. As of December 31, 2001, those ratios were as follows: 30.3% common
equity, 3.1% cumulative preferred stock, 2.2% subsidiary-obligated mandatorily
redeemable preferred securities, 60.9% long term debt and 3.5% notes payable.
Further, since the date of the Merger Order, FirstEnergy's investments in EWGs
and FUCOs have contributed positively to its level of
--------------------
13 This reservation of jurisdiction was continued through December 31, 2005 by
order dated June 30, 2003 in File No. 70-10122, HCAR No. 27694.
14 This $1.06 billion amount represents Current Investments only. As of
September 30, 2003, FirstEnergy had no Genco Investments.
13
earnings, other than for the negative impact on earnings due to FirstEnergy's
writedowns of its investments in Avon Energy Partners Holdings ("Avon") and GPU
Empressa Distribuidora Electrica Regional S.A. ("Emdersa").15
Further, since the date of the Merger Order, and, after taking into account
the effects of FirstEnergy's acquisition of GPU, there has been no material
change in FirstEnergy's level of earnings from EWGs and FUCOs.
FirstEnergy's utility subsidiaries remain financially sound companies, as
indicated by their investment grade ratings from the nationally recognized
rating agencies for their senior unsecured debt. The following chart includes a
breakdown of the senior, unsecured credit ratings for FirstEnergy's operating
utility subsidiaries.
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15 At the time of the Merger Order, FirstEnergy identified certain former GPU
EWG and FUCO investments for divestiture within one year. Among those identified
were Avon, a holding company for Midlands Electricity plc, an electric
distribution business in the United Kingdom and Emdersa and affiliates, an
electric distribution business in Argentina. In May 2002, FirstEnergy sold 79.9%
of its interest in Avon, and in the fourth quarter of 2002, recorded a $50
million charge ($32.5 million net of tax) to reduce the carrying value of its
remaining 20.1% interest. Additionally, FirstEnergy did not reach a definitive
agreement to sell Emdersa as of December 31, 2002, and therefore, the Emdersa
assets could no longer be treated as "assets pending sale" on FirstEnergy's
consolidated balance sheets. On November 1, 2002, FirstEnergy began
consolidating the results of Emdersa's operations in its financial statements.
In the fourth quarter of 2002, FirstEnergy recorded a one-time, after-tax charge
of $88.8 million (comprised of $104.1 million in currency transaction losses
arising principally from U.S. dollar denominated debt, offset by $15.3 million
of operating income). In addition to the currency transaction losses,
FirstEnergy recognized a currency translation adjustment in other comprehensive
income of $91.5 million as of December 31, 2002. These accounting charges, in
the aggregate, resulted in a $212.8 million decrease in FirstEnergy's
consolidated capitalization of $21.55 billion as of December 31, 2002, which
amount includes short-term borrowings.
14
Subsidiary Standard & Poors16 Moody's17 Fitch18
Ohio Edison Company BB+ Baa2 BBB
The Cleveland Electric
Illuminating Company BB+ Baa3 BB
The Toledo Edison
Company BB+ Baa3 BB
Pennsylvania Power
Company B+ Baa2 ---
JCP&L --- --- ---
Metropolitan Edison
Company --- --- ---
Pennsylvania Electric
Company BBB- A2 BBB
FirstEnergy satisfies all of the other conditions of paragraphs (a) and (b)
of Rule 53. With respect to Rule 53(a)(2), FirstEnergy maintains books and
records in conformity with, and otherwise adheres to, the requirements thereof.
With respect to Rule 53(a)(3), no more than 2% of the employees of FirstEnergy's
domestic public utility companies render services, at any one time, directly or
indirectly, to EWGs or FUCOs in which FirstEnergy directly or indirectly holds
an interest. With respect to Rule 53(a)(4), FirstEnergy will continue to provide
a copy of each application and certificate relating to EWGs and FUCOs and
relevant portions of its Form U5S to each regulator referred to therein, and
will otherwise comply with the requirements thereof concerning the furnishing of
information. With respect to Rule 53(b), none of the circumstances enumerated in
subparagraphs (1), (2) and (3) thereunder have occurred.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
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The estimated fees, commissions and expenses expected to be incurred in
connection with the preparation and filing of this Application/Declaration will
not exceed $10,000.
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16 Standard & Poor's Rating Services
17 Moody's Investors Service, Inc.
18 Fitch, Inc.
15
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
The proposed servicing agreement is subject to section 13(b) of the Act
and rules 54, 90 and 91 thereunder.
ITEM 4. REGULATORY APPROVALS.
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No Federal or State commission, other than your Commission and the BPU,
has jurisdiction over the proposed servicing agreement.
ITEM 5. PROCEDURE.
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Applicants request that the Commission issue an order with respect to
the servicing agreement proposed herein at the earliest practicable date. It is
further requested that: (i) there not be a recommended decision by an
Administrative Law Judge or other responsible officer of the Commission, (ii)
the Office of Public Utility Regulation be permitted to assist in the
preparation of the Commission's decision and (iii) there be no waiting period
between the issuance of the Commission's order and the date on which it is to
become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
(a) Exhibits
A - Not Applicable.
B - Form of Servicing Agreement -- To be filed by
amendment.
C - Not Applicable.
D-1 - Petition of JCP&L to the BPU seeking authority to
issue the transition bonds ("BPU Petition").
16
D-2 - Amendment No. 1 to BPU Petition.
D-3 - Amendment No. 2 to BPU Petition
D-4 - Order of the BPU authorizing the transition bonds --
To be filed by amendment.
E - Not Applicable.
F-1 - Opinion of Thelen Reid & Priest LLP -- To be filed by
amendment.
F-2 - Opinion of Gary D. Benz, Esq. -- To be filed by
amendment.
(b) Financial Statements
1 - JCP&L Consolidated Balance Sheets, actual and pro
forma, as at September 30, 2003, and consolidated
Statements of Income, actual and pro forma, and
Statement of Retained Earnings, for the twelve
months ended September 30, 2003; pro forma journal
entries - To be filed by amendment.
2 - FirstEnergy Consolidated Balance Sheets, actual
and pro forma, as at September 30, 2003, and
consolidated Statements of Income, actual and pro
forma, and Statement of Retained Earnings, for the
twelve months ended September 30, 2003; pro forma
journal entries - To be filed by amendment.
3 - None.
4 - None, except as disclosed in the notes to the
Financial Statements.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
(a) As such, the issuance of an order by your Commission with respect to
the proposed servicing agreement is not a major Federal action significantly
affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an environmental impact
statement with respect to the proposed servicing agreement which are the subject
hereof.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, THE UNDERSIGNED COMPANY HAS DULY CAUSED THIS STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Jersey Central Power & Light Company
By: /s/ Harvey L. Wagner
-----------------------------------
Harvey L. Wagner
Vice President and Controller
Date: ____________, 2004
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