

[Federal Register: November 4, 2005 (Volume 70, Number 213)]
[Notices]               
[Page 67206-67209]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no05-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28051]

 
Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

October 28, 2005.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by November 22, 2005, to the Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-9303, and serve a 
copy on the relevant applicant(s) and/or declarant(s) at the 
address(es) specified below. Proof of service (by affidavit or, in the 
case of an attorney at law, by certificate) should be filed with the 
request. Any request for hearing should identify specifically the 
issues of facts or law that are disputed. A person who so requests will 
be notified of any hearing, if ordered, and will receive a copy of any 
notice or order issued in the matter. After November 22, 2005, the 
application(s) and/or declaration(s), as filed or as amended, may be 
granted and/or permitted to become effective.

FirstEnergy Corp., et al. (70-10322)

    FirstEnergy Corp., (``FirstEnergy''), a registered holding company; 
and certain of its public utility subsidiaries: Ohio Edison Company, an 
Ohio corporation (``Ohio Edison''); The Cleveland Electric Illuminating 
Company, an Ohio corporation (``Cleveland Electric''); The Toledo 
Edison Company, an Ohio corporation (``Toledo Edison''); and 
Pennsylvania Power Company, a Pennsylvania corporation and wholly owned 
subsidiary of Ohio Edison, (``Penn Power''; Ohio Edison, Cleveland 
Electric, Toledo Edison and Penn Power collectively referred to as 
``Utility Subsidiaries''); and FirstEnergy Nuclear Generating Corp. 
(``FE Nuclear''), a newly-incorporated Ohio corporation that would 
become a public utility subsidiary of FirstEnergy, all of 76 South Main 
Street, Akron, Ohio 44308, have filed an application-declaration, as 
amended (``Application'') under sections 6(a), 7, 9(a), 10, 12(b), 
12(c), 12(d), and 12(f) of the Act and rules 43, 44, 45, 46 and 54 
under the Act. FirstEnergy, the Utility Subsidiaries and FE Nuclear are 
referred to as ``Applicants.''
    FirstEnergy directly owns all of the outstanding common stock of 
Ohio Edison, Cleveland Electric, Toledo Edison, and indirectly through 
Ohio Edison owns all of the outstanding common stock of Penn Power.\1\ 
Ohio Edison was organized under the laws of the State of Ohio in 1930 
and owns property and does business as an electric public utility in 
that state. Ohio Edison also has ownership interests in certain 
generating facilities located in the Commonwealth of Pennsylvania. Ohio 
Edison engages in the generation, distribution and sale of electric 
energy to communities in a 7,500 square mile area of central and 
northeastern Ohio having a population of approximately 2.8 million.
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    \1\ FirstEnergy's other public utility subsidiaries are Jersey 
Central Power & Light Company, Pennsylvania Electric Company, 
Metropolitan Edison Company, York Haven Power Company, The Waverly 
Electric Power & Light Company and American Transmission Systems, 
Incorporated. These companies are not applicants in this proceeding.
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    Ohio Edison owns all of Penn Power's outstanding common stock. Penn 
Power was organized under the laws of the Commonwealth of Pennsylvania 
in 1930 and owns property and does business as an electric public 
utility in that state. Penn Power engages in the generation, 
distribution and sale of electric energy in a 1,500 square mile-area of 
western Pennsylvania having a population of approximately 300,000. Penn 
Power is also authorized to do business and owns property in the State 
of Ohio.
    Cleveland Electric was organized under the laws of the State of 
Ohio in 1892 and does business as an electric public utility in that 
state. Cleveland Electric engages in the generation, distribution and 
sale of electric energy in an area of approximately 1,700 square miles 
in northeastern Ohio having a

[[Page 67207]]

population of approximately 1.9 million. It also has ownership 
interests in certain generating facilities located in Pennsylvania.
    Toledo Edison was organized under the laws of the State of Ohio in 
1901 and does business as an electric public utility in that state. 
Toledo Edison engages in the generation, distribution and sale of 
electric energy in an area of approximately 2,500 square miles in 
northwestern Ohio having a population of approximately 800,000. It also 
has interests in certain generating facilities located in Pennsylvania.

Requested Authorization

    The Utility Subsidiaries are requesting authorization to transfer 
ownership of their respective interests in certain nuclear generating 
plants and related assets and liabilities to FE Nuclear. These asset 
transfers are in furtherance of FirstEnergy's Ohio and Pennsylvania 
corporate separation plans, which were described in FirstEnergy's 
application/declaration for authorization to merge with GPU, Inc. 
(``GPU'').\2\ In addition, FirstEnergy and FE Nuclear are requesting 
authorization to engage in financing and other related transactions for 
the period through February 8, 2006 (the ``Authorization Period'').
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    \2\ See HCAR No. 27459 (October 29, 2001).
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Transfer of Nuclear Generating Plants to FE Nuclear

    The Utility Subsidiaries own, as tenants in common, interests in 
the following nuclear generating plants:

------------------------------------------------------------------------
            Plant                 Location        MW       Ownership %
------------------------------------------------------------------------
Beaver Valley 1.............  Shippingport,         821  Ohio Edison
                               PA.                        35%; Penn
                                                          Power 65%.
Beaver Valley 2.............  Shippingport,         831  Ohio Edison
                               PA.                        20.22%; Penn
                                                          Power 13.74%;
                                                          Cleveland
                                                          Electric
                                                          24.47%; Toledo
                                                          Edison 1.65%.
Davis-Besse.................  Oak Harbor, OH.       883  Cleveland
                                                          Electric
                                                          51.38%; Toledo
                                                          Edison 48.62%.
Perry.......................  North Perry         1,260  OES Nuclear
                               Village, OH.               17.42%; Penn
                                                          Power 5.245%;
                                                          Toledo Edison
                                                          19.91%;
                                                          Cleveland
                                                          Electric
                                                          44.85%.
------------------------------------------------------------------------

    The Utility Subsidiaries propose to sell or otherwise transfer 
their respective ownership interests in the nuclear plants to FE 
Nuclear by means of the following transactions, all of which would be 
carried out concurrently: \3\
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    \3\ The Utility Subsidiaries do not propose to transfer to FE 
Nuclear their remaining percentage ownership interests in certain of 
the nuclear facilities that are currently subject to sale and 
leaseback arrangements with third parties.
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    Transfer of Nuclear Plants by Penn Power. Pursuant to the terms of 
a Subscription and Capital Contribution Agreement (``Penn Power 
Contribution Agreement''), Penn Power would acquire 100 shares of 
common stock of FE Nuclear in consideration for Penn Power's 
contribution to FE Nuclear of its undivided interests in the two Beaver 
Valley units and Beaver Valley common facilities and its undivided 
interest in Perry Unit 1, together with associated decommissioning 
funds. In connection with such contribution, FE Nuclear would assume 
Penn Power's obligations in respect of $64 million aggregate principal 
amount of pollution control revenue bonds (``PCRBs'') and certain other 
liabilities associated with the transferred units. The parties to the 
Penn Power Contribution Agreement have agreed that the value of the 
contributed assets would be the net book value thereof as of the end of 
the fiscal quarter immediately preceding the closing. Simultaneously, 
Penn Power would receive from FE Nuclear a promissory note (``FE 
Nuclear Note'') in respect of the book value of certain related assets, 
including construction work in progress, nuclear fuel, inventories and 
spare parts and accounts receivable, determined as of the end of the 
quarter immediately preceding the closing. The FE Nuclear Note would 
bear interest at a rate equal to Penn Power's weighted average cost of 
long-term debt, would mature 20 years after its date of issuance, and 
would be prepayable at any time, in whole or in part, by FE Nuclear.\4\
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    \4\ Following the contribution to FE Nuclear, Penn Power would 
distribute the stock of FE Nuclear as a dividend to its parent, Ohio 
Edison, such that FE Nuclear would become, momentarily, a direct 
wholly-owned subsidiary of Ohio Edison. If the transactions 
described in the previous paragraph had occurred on March 31, 2005, 
Applicants state that Penn Power's cost basis for the stock of FE 
Nuclear would have been equal to the net book value of the 
transferred interests in the Beaver Valley and Perry units and 
associated assets (approximately $542 million), less the PCRB 
obligations ($64 million) and agreed upon value of other liabilities 
assumed by FE Nuclear (approximately $401 million), and the 
distribution of the stock of FE Nuclear to Ohio Edison would have 
resulted in a charge to Penn Power's retained earnings of $77 
million.
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    Transfer of Nuclear Plants by Ohio Edison. Pursuant to the terms of 
a Capital Contribution Agreement (``Ohio Edison Contribution 
Agreement''), Ohio Edison would contribute its undivided interests in 
the two Beaver Valley units and Beaver Valley common facilities and the 
common stock of OES Nuclear Incorporated (``OES Nuclear''), a wholly-
owned subsidiary of Ohio Edison, which holds an undivided interest in 
Perry Unit 1, together with associated decommissioning funds and its 
interests in other assets, inventories, fuel, spare parts, equipment, 
supplies and contract rights relating to the transferred units, to FE 
Nuclear as an additional capital contribution to FE Nuclear. In 
connection with such transfer, FE Nuclear would assume Ohio Edison's 
obligations in respect of $116 million aggregate principal amount of 
PCRB obligations and certain other liabilities associated with the 
transferred units. An additional $295 million of Ohio Edison's PCRBs 
are expected to be assumed by FE Nuclear after the distribution 
described in the next paragraph. The parties to the Ohio Edison 
Contribution Agreement have agreed that the value of the contributed 
assets would be the net book value thereof as of the end of the fiscal 
quarter immediately preceding the closing.
    Following the transfer of Ohio Edison's nuclear assets to FE 
Nuclear, Applicants state that it is anticipated that OES Nuclear would 
be merged with and into FE Nuclear, and Ohio Edison would distribute 
the stock of FE Nuclear as a dividend to its parent, FirstEnergy, such 
that FE Nuclear would become a direct wholly-owned subsidiary of 
FirstEnergy.
    If the transactions described above had occurred on March 31, 2005, 
Applicants represent that Ohio Edison's cost basis for the stock of FE 
Nuclear would have been equal to the net book value of the transferred 
interests in the Beaver Valley and Perry units and associated assets 
(approximately $712 million), less the initial PCRB obligations to be 
assumed ($116 million)

[[Page 67208]]

and the agreed upon value of other liabilities assumed by FE Nuclear 
(approximately $596 million), resulting in no charge to Ohio Edison's 
retained earnings.
    Sale of Nuclear Plants by Cleveland Electric and Toledo Edison. 
Cleveland Electric and Toledo Edison have each entered into a Nuclear 
Purchase and Sale Agreement with FE Nuclear (``Nuclear PSA''), under 
which FE Nuclear has agreed to purchase Cleveland Electric's and Toledo 
Edison's respective undivided ownership interests in Beaver Valley Unit 
2, Perry Unit 1 and Davis-Besse for a purchase price equal to the net 
book value thereof, determined as of the end of the fiscal quarter 
immediately preceding the closing, together with the respective 
interests of Cleveland Electric and Toledo Edison in nuclear 
decommissioning trust funds associated with those plants and their 
respective right, title and interest in and to all contracts, fuel, 
spare parts, inventories, equipment, supplies and other assets 
associated with each transferred unit, less the amount of obligations 
of Cleveland Electric and Toledo Edison under PCRBs associated with the 
transferred units ($367 million and $284 million, respectively, at 
March 31, 2005), and the agreed upon value of certain other liabilities 
associated with the transferred units.
    At closing, FE Nuclear would pay the purchase price, determined as 
described in the previous paragraph, by delivering to Cleveland 
Electric and Toledo Edison FE Nuclear Notes secured by a lien on the 
transferred assets. Each FE Nuclear Note would bear interest at a rate 
per annum based on the average weighted cost of long-term debt of 
Cleveland Electric and Toledo Edison, as the case may be, would mature 
20 years after the date of issuance, and would be prepayable at any 
time, in whole or in part, at the option of FE Nuclear, without 
penalty.\5\
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    \5\ If the transactions described above had been consummated at 
March 31, 2005, Applicants state that the principal amounts of the 
FE Nuclear Notes delivered to Cleveland Electric and Toledo Edison 
would have been approximately $469 million and $307 million, 
respectively.
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    Repurchases of Common Stock of Cleveland Electric, Toledo Edison 
and Penn Power. FirstEnergy states that, in connection with the 
transfer of the nuclear plants to FE Nuclear, FirstEnergy would make a 
cash capital contribution to FE Nuclear of up to $700 million. FE 
Nuclear would use the proceeds of this investment at or subsequent to 
closing to prepay a like amount of the FE Nuclear Notes delivered at 
closing to Penn Power, Cleveland Electric and Toledo Edison. In turn, 
Penn Power, Cleveland Electric and Toledo Edison would apply the 
proceeds of such prepayment of the FE Nuclear Notes to repay 
outstanding borrowings under the FirstEnergy system utility money pool. 
To the extent that there are any remaining prepayment proceeds, the 
Applicants request authorization for Cleveland Electric and Toledo 
Edison to repurchase shares of their common stock that are held by 
FirstEnergy and Penn Power requests authorization to repurchase shares 
of its common stock that are held by Ohio Edison. Applicants state that 
the purpose of these transactions is to adjust (i.e., reduce) the 
equity and debt capitalization of Cleveland Electric, Toledo Edison and 
Penn Power to mirror their smaller asset base after the transfer of 
their undivided interests in the nuclear plants to FE Nuclear.

Financing by FE Nuclear

    External Debt Financing by FE Nuclear. FE Nuclear is requesting 
authorization to issue and sell to unaffiliated lenders, from time to 
time during the period through the Authorization Period, long-term debt 
securities having maturities of up to 50 years (``Long-term Debt'') and 
short-term debt securities having maturities of less than one year 
(``Short-term Debt'') in an aggregate amount at any time outstanding 
not to exceed $1.5 billion (the ``FE Nuclear Debt Limit''). The 
following general terms would be applicable where appropriate to Long-
term Debt and Short-term Debt of FE Nuclear:
    (a) Effective Cost of Money. The effective cost of capital (i.e., 
the aggregate of all payments, including interest, dividend 
distributions and other periodic payments) in respect of Long-term Debt 
and Short-term Debt of FE Nuclear would not exceed competitive market 
rates available at the time of issuance for securities having the same 
or reasonably similar terms and conditions issued by similar companies 
of reasonably comparable credit quality; provided that, in no event 
would the effective cost of capital (i) on Long-term Debt exceed at the 
time of issuance 500 basis points over the yield to maturity of 
comparable-term U.S. Treasury securities if the interest rate on such 
Long-term Debt securities is a fixed rate or, if the rate on such Long-
term Debt securities is a floating rate, 500 basis points over the 
London Interbank Offered Rate (``LIBOR'') for maturities of less than 
one year; and (ii) on Short-term Debt exceed at the time of issuance, 
(A) in the case of commercial paper or any other short-term borrowing 
that is not tied to a reference rate, 300 basis points over LIBOR, and 
(B) in the case of any short-term borrowing that is tied to a reference 
rate, either (1) 300 basis points over LIBOR, (2) 50 basis points over 
the prime rate, as announced from time to time by CitiBank, or any 
successor thereto, or (3) 100 basis points over the Federal Funds Rate, 
whichever reference rate is applicable.
    (b) Issuance Expenses. The underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of any security (not including any original issue 
discount) would not exceed 5% of the principal or total amount of the 
security being issued.
    (c) Use of Proceeds. The proceeds from the sale of securities in 
external financing transactions would be used for general corporate 
purposes, including financing, in part, of the capital expenditures of 
FE Nuclear, financing of working capital requirements of FE Nuclear, 
the acquisition, retirement or redemption of securities (including PCRB 
obligations) previously issued by or on behalf FE Nuclear, and other 
lawful purposes.
    (d) Common Equity Ratio. FE Nuclear and each of the Utility 
Subsidiaries commits that it would maintain common equity as a 
percentage of consolidated capitalization (common stock equity, long-
term debt and short-term debt, including current maturities of long-
term debt) at 30% or higher.
    (e) Ratings Event. With respect to the securities issuance for 
which authorization is requested: (a) Within four business days after 
the occurrence of a Ratings Event,\6\ Applicants would notify the 
Commission of its occurrence (by means of a letter, via fax, e-mail or 
overnight mail to the Office of Public Utility Regulation), and (b) 
within 30 days after the occurrence of a Ratings Event, Applicants 
would submit a post-effective amendment to this Application explaining 
the material facts and circumstances relating to that Ratings Event 
(including the basis on which, taking into account the interests of

[[Page 67209]]

investors, consumers and the public as well as other applicable 
criteria under the Act, it remains appropriate for FE Nuclear to issue 
the securities for which authorization has been requested, so long as 
FE Nuclear continues to comply with the other applicable terms and 
conditions specified in the Commission's order authorizing the 
transactions requested in this Application). Furthermore, except in 
accordance with a further order of the Commission, no such securities 
would be issued following the 60th day after a Ratings Event (other 
than Short-term Debt) if the downgraded rating(s) has or have not been 
upgraded to investment grade. Applicants request that the Commission 
reserve jurisdiction, through the remainder of the Authorization 
Period, over the issuance of any securities (other than Short-term 
Debt) that FE Nuclear is prohibited from issuing as a result of the 
occurrence of a Ratings Event if no revised rating reflecting an 
investment grade rating has been issued.
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    \6\ A ``Ratings Event'' will be deemed to have occurred if, 
during the Authorization Period, (i) any security issued by FE 
Nuclear or FirstEnergy upon original issuance, if rated, is rated 
below investment grade, or (ii) any outstanding security of 
FirstEnergy or FE Nuclear that is rated is downgraded below 
investment grade. For purposes of this provision, a security will be 
deemed ``investment grade'' if it is rated investment grade by at 
least one nationally recognized statistical rating organization, as 
that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 
15c3-1 of the Securities Exchange Act of 1934, as amended).
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Description of Specific Types of External Debt Securities of FE Nuclear

    Long-term Debt. Each series of Long-term Debt would have such 
designation, aggregate principal amount, maturity, interest rate(s) or 
methods of determining the same, terms of payment of interest, 
redemption provisions, sinking fund terms and other terms and 
conditions as FE Nuclear may determine at the time of issuance. Any 
Long-term Debt (a) may be secured or unsecured, (b) may be senior or 
subordinated, (c) would have maturities ranging from one to 50 years, 
(d) may be subject to optional and/or mandatory redemption, in whole or 
in part, at par or at various premiums above the principal amount 
thereof, (e) may be entitled to mandatory or optional sinking fund 
provisions, (f) may provide for reset of the coupon pursuant to a 
remarketing arrangement, (g) may be subject to tender or the obligation 
of the issuer to repurchase at the election of the holder or upon the 
occurrence of a specified event, (h) may be called from existing 
investors by a third party, and (i) may be entitled to the benefit of 
affirmative or negative financial or other covenants.
    Long-term Debt may also be in the form of agreements between FE 
Nuclear and one or more industrial development authorities (``IDAs'') 
pursuant to which an IDA agrees to issue PCRBs for the purpose of 
financing or refinancing pollution control revenue facilities relating 
to FE Nuclear's nuclear power plants. Under the terms of any such 
agreement, payments to the issuing IDA would be designed to match 
payments of principal of and interest on the PCRBs to which such 
agreement relates.
    As security for FE Nuclear's obligations under any agreement 
relating to any series of PCRBs, FE Nuclear requests authority to (1) 
issue its promissory note or notes to evidence the loan to FE Nuclear 
of the proceeds of the PCRBs by the issuing IDA, (2) acquire and 
deliver a letter of credit (``LOC'') guaranteeing payment of the PCRBs 
and enter into reimbursement agreements with respect to any such LOC, 
(3) acquire insurance policies guaranteeing payment of the PCRBs, and/
or (4) pledge its first mortgage bonds as collateral for its 
obligations to the issuing IDA, any trustee, LOC bank or PCRB insurer. 
To avoid double counting, FE Nuclear proposes that the amount of any 
note or notes issued by FE Nuclear to evidence the loan to FE Nuclear 
of the proceeds of any PCRBs or first mortgage bonds issued by FE 
Nuclear as collateral security for PCRB obligations not count against 
the FE Nuclear Debt Limit.
    Short-term Debt. Short-term Debt of FE Nuclear may be in the form 
of commercial paper, promissory notes and/or other forms of unsecured 
short-term indebtedness. FE Nuclear may establish from time to time new 
committed bank lines of credit, provided that only the principal amount 
of any outstanding borrowings would be counted against the proposed FE 
Nuclear Debt Limit. Credit lines may be set up for use by FE Nuclear 
for general corporate purposes in addition to credit lines to support 
commercial paper as described in this subsection. FE Nuclear would 
borrow and repay under such lines of credit, from time to time, as it 
is deemed appropriate or necessary. FE Nuclear may also engage in other 
types of short-term financing, including borrowings under uncommitted 
lines, generally available to borrowers with comparable credit ratings 
as it may deem appropriate in light of its needs and market conditions 
at the time of issuance.
    Commercial paper would be sold in established domestic or European 
commercial paper markets from time to time. Such commercial paper would 
be sold to dealers at the discount rate or the coupon rate per annum 
prevailing at the date of issuance for commercial paper of comparable 
quality and maturities sold to commercial paper dealers generally. It 
is expected that the dealers acquiring commercial paper from FE Nuclear 
would reoffer such paper at a discount to corporate, institutional and, 
with respect to European commercial paper, individual investors. 
Institutional investors are expected to include commercial banks, 
insurance companies, pension funds, investment trusts, foundations, 
colleges and universities and finance companies.
    Intrasystem Financing Transactions. FE Nuclear further requests 
authorization to make direct long-term and short-term borrowings from 
FirstEnergy (``Direct Borrowings''). All such Direct Borrowings would 
be evidenced by FE Nuclear's promissory notes and would be prepayable 
at any time without premium or penalty at FE Nuclear's option. The 
aggregate principal amount of Direct Borrowings by FE Nuclear at any 
time outstanding would be counted against and would in no event exceed 
the FE Nuclear Debt Limit. The interest rate and maturity of any Direct 
Borrowings would be designed to parallel the terms (i.e, effective cost 
of funds and maturity) of similar debt securities issued by 
FirstEnergy, as authorized by the Commission by order dated June 30, 
2003 (HCAR No. 27694) (the ``2003 Financing Order'').
    In addition, FE Nuclear requests authorization to become a 
participant in and to make borrowings under the FirstEnergy system 
nonutility money pool agreement (``Nonutility Money Pool'') subject to 
terms and conditions previously approved by the Commission in the 2003 
Financing Order.\7\ FE Nuclear requests authorization to borrow up to 
$1 billion at any time outstanding under the Nonutility Money Pool. 
Borrowings by FE Nuclear under the Nonutility Money Pool would also be 
counted against the proposed FE Nuclear Debt Limit.
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    \7\ Under the 2003 Financing Order, FirstEnergy is authorized to 
maintain and make loans to its nonutility subsidiaries through the 
Nonutility Money Pool.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6105 Filed 11-3-05; 8:45 am]

BILLING CODE 8010-01-P
