AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
ON <RR>MAY 19, 1999 </RR> May 4, 2000
FILE NO. 070-09501
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1
AMENDMENT NO. 1
TO
<RR>FORM U-1 </RR> APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
<RR>File No. 070-09501</RR>
FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(NAME OF COMPANY FILING THIS STATEMENT AND ADDRESS OF PRINCIPAL
EXECUTIVE OFFICE)
NANCY C. ASHCOM, CORPORATE SECRETARY
FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(NAMES AND ADDRESS OF AGENT FOR SERVICE)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
MICHAEL F. CUSICK
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
(212) 858-1000
<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
INTRODUCTION
Pursuant to Sections (9)(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "1935 Act" or the "Act"), FirstEnergy Corp., an
Ohio corporation ("FirstEnergy" or the "Applicant"), hereby requests that
the Securities and Exchange Commission (the "Commission") issue an order
(i) approving the direct acquisition by FirstEnergy of all of the issued
and outstanding voting securities of American Transmission Systems,
Incorporated, a newly formed Ohio corporation ("ATSI"), <RR>(ii) approving
the indirect acquisition by FirstEnergy of certain debt securities to be
issued by ATSI as part of consideration for transfer of certain
transmission assets as described in Item 1.B.1 hereof (the "Transmission
Assets") owned by each of 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 (individually, "Penn Power," and collectively, the "Operating
Companies") to ATSI </RR>and (<RR>iii </RR> ii ) granting such
other authorizations as may be necessary in connection therewith.
FirstEnergy proposes that ATSI acquire certain transmission
assets as described in Item 1.B.1 hereof (the "Transmission Assets") owned
by each of 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
(individually, "Penn Power," and collectively, the "Operating Companies").
FirstEnergy's proposed creation of ATSI and transfer of the
Transmission Assets to ATSI is part of its plan to<RR> establish </RR>
participate in an independent regional transmission organization
("RTO"). The proposed formation of the new transmission company is
intended to provide the following benefits to FirstEnergy and its
Operating Companies' customers: (i) greater corporate and organizational
separation of transmission from generation<RR>;</RR>and (ii) by tying
together control, planning, maintenance and financial responsibilities of
the Operating Companies' transmission facilities into a single company
having an independent, streamlined and cost-efficient operation<RR>,</RR>
: (a) creating synergies that result in better service in the
region and (b) assuring non-discriminatory access for all transmission
users. FirstEnergy's plan to <RR>establish </RR> participate in a
transco-based <RR>an </RR>RTO, with the creation of ATSI as a
significant step toward this end, will maximize the value of the
Transmission Assets to shareholders.
FirstEnergy is a public-utility holding company under the 1935 Act.
It directly owns all of the issued and outstanding voting securities of
Cleveland Electric, Toledo Edison and Ohio Edison and indirectly owns all
of the issued and outstanding voting securities of Penn Power.
FirstEnergy has claimed an exemption from all provisions of the 1935 Act
(except for Section 9(a)(2) thereof) pursuant to Rule 2 thereunder. See
FirstEnergy Form U-3A-2, "Statement by Holding Company Claiming Exemption
Under Rule U-2 from the Provisions of the Public Utility Holding Company
Act of 1935," dated <RR>February 26, 1999 </RR> February 29, 2000 ,
attached hereto as Exhibit G-1.
<PAGE>
Ohio Edison currently owns all of the issued and outstanding voting
securities of Penn Power. Ohio Edison, Penn Power, Cleveland Electric and
Toledo Edison are all "public-utility companies" as defined in the 1935
Act. Ohio Edison is also a "holding company" as defined in the 1935 Act.
Ohio Edison is currently exempt from the registration and other
requirements of the 1935 Act, other than from Section 9(a)(2) thereof,
pursuant to Section 3(a)(2) thereof.
ATSI is incorporated as an Ohio corporation. It currently does not
conduct any business or own any utility assets. Upon completion of the
transfer of the Transmission Assets from the Operating Companies to it,
ATSI will become a "public-utility company" as defined in the 1935 Act.
The transactions contemplated hereby will be accomplished through
(i) FirstEnergy's acquisition of all of the issued and outstanding voting
securities of ATSI in exchange for approximately $300 million, (ii) the
sale and transfer by the Operating Companies of their Transmission Assets
to ATSI in consideration for the purchase price (the "Purchase Price")
which will be the net book value of the Transmission Assets as of <RR>
November 30, 1998 </RR> December 31, 1999 (approximately $<RR>655
</RR> 647 million) and (iii) ATSI's financing of the purchase of
the Transmission Assets by <RR>(A) </RR> (a) <R/>the use of
FirstEnergy's purchase price for all of the issued and outstanding voting
securities of ATSI for an amount equal to 45% of the Purchase Price and
<RR>(B)</RR>
(b) ATSI's issuance of promissory notes (which may
be secured by a lien on the assets transferred) to the Operating Companies
in an aggregate amount equal to 55% of the Purchase Price. The interest
rate on the promissory notes will be based on the embedded cost of debt of
the Operating Companies on a consolidated basis <RR>as of November 30,
1998 </RR>(which <RR> was </RR> is approximately 7.75%).
A. DESCRIPTION OF PARTIES TO THE TRANSACTION
1. General Description. (a) FirstEnergy. FirstEnergy was
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organized under the laws of the State of Ohio in 1996. The principal
executive offices of FirstEnergy are located in Akron, Ohio. FirstEnergy
is a holding company within the meaning of Section 2(a)(7) of the 1935
Act.
FirstEnergy's principal business is the holding of all of the
issued and outstanding voting securities of the following 12 direct active
subsidiaries: Ohio Edison; Cleveland Electric; Toledo Edison; FirstEnergy
Properties, Inc.; FirstEnergy Ventures Corp.; FirstEnergy Trading
Services, Inc.; FirstEnergy Securities Transfer Company; FirstEnergy
Facilities Services Group, <RR>Inc </RR> LLC. ; MARBEL Energy
Corporation; <RR>JR Operating Company; </RR>FirstEnergy Services Corp.;
FE Acquisition Corp.; and FirstEnergy Nuclear Operating Company; and
all of the issued and outstanding voting securities of the following
<RR>four </RR> three direct inactive subsidiaries: Centerior
Service Company; <RR>FirstEnergy </RR> FE Holdings, LLC; <RR>FE
Acquisition Corp.; </RR>and ATSI. Unless otherwise noted, all these
subsidiaries are incorporated in the State of Ohio and have their
principal offices in Akron, Ohio.
(b) ATSI.ATSI <RR>is </RR> was incorporated as an Ohio
----
corporation on October 8, 1998. It currently does not conduct any
business or own any utility assets. Upon consummation of the transactions
contemplated hereby, ATSI will become a "public-utility company" as
defined in the 1935 Act.
<PAGE>
(c) Ohio Edison. Ohio Edison was organized under the laws of
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the State of Ohio in 1930 and is both a public utility and a public
utility holding company which is exempt from regulation by the Commission
under the 1935 Act (except for Section 9(a)(2) thereof) because it is
predominantly a public-utility company whose operations as such do not
extend beyond the State of Ohio and contiguous states. See Ohio Edison
Company, Holding Co. Act Release No. 21019 (April 26, 1979). Ohio Edison
owns all of the issued and outstanding voting securities of Penn Power.
Ohio Edison also owns directly 16.5% of the issued and outstanding voting
securities of Ohio Valley Electric Corporation, an Ohio corporation
("OVEC") (which, in turn, owns all of the issued and outstanding voting
securities of Indiana-Kentucky Electric Corporation ("IKEC")). OVEC is a
public utility company organized under the laws of Ohio in 1952. On the
same date, IKEC was organized under the laws of Indiana. The two
companies were formed by 15 independent investor-owned public utilities
(including Ohio Edison, Penn Power and Toledo Edison), furnishing electric
service in the Ohio River Valley for the purpose of providing the large
electric power requirements projected for the major uranium enrichment
complex near Portsmouth, Ohio, then being built by the Atomic Energy
Commission, the predecessor to the Nuclear Regulatory Commission ("NRC").
In addition to Penn Power, Ohio Edison has <RR>seven </RR> nine
other wholly-owned subsidiaries organized, unless otherwise noted,
under the laws of the State of Ohio: (i) OES Capital, Incorporated ,
re-organized in December 1999 under the laws of the State of Delaware ;
(ii) OES Fuel, Incorporated; (iii) OES Finance, Incorporated; (iv) Ohio
Edison Financing Trust, organized under the laws of the State of Delaware;
(v) Ohio Edison Financing Trust II, organized under the laws of the State
of Delaware; (vi) OES Nuclear, Incorporated; and (vii) OES Ventures,
Incorporated. These subsidiaries manage and finance nuclear fuel for Ohio
Edison and Penn Power, finance certain electric accounts receivable,
provide structures for investment in energy-related projects and the
raising of capital by Ohio Edison, finance and manage business
opportunities not directly related to the provision of electric service,
or provide other energy-related products and services. Ohio Edison's
ninth subsidiary, OES Ventures, Incorporated has a 49% beneficial
interest in the PNBV Capital Trust, a business trust organized under the
laws of the State of Delaware to facilitate the acquisition of lease
obligation bonds relating to Ohio Edison's sale and leaseback of
individual interests in Beaver Valley Nuclear Power Station Unit No. 2 and
Perry Nuclear Power Plant Unit No. 1 and the resultant reduction in
effective cost to Ohio Edison under those leases. Finally, Ohio Edison
has a 49% interest in <RR>OES </RR> FirstEnergy Engineering,
Incorporated, a corporation that provides engineering services at cost as
a subcontractor on construction projects undertaken by Ohio Edison for
third parties. Other than Penn Power, these subsidiaries do not,
individually or in the aggregate, have a material effect on the
consolidated financial statements of Ohio Edison.
(d) Penn Power. Penn Power was organized under the laws of
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the Commonwealth of Pennsylvania in 1930 and owns property and does
business as an electric public utility in that state. Penn Power is also
authorized to do business and owns property in the State of Ohio.
<RR>Penn Power has one wholly-owned subsidiary, Penn Power Energy,
Inc.</RR>
(e) Cleveland Electric. Cleveland Electric was organized
------------------
under the laws of the State of Ohio in 1892 and is a public utility
company engaged primarily in the generation, transmission, distribution
and sale of electric energy to an area of approximately 1,700 square miles
in northeastern Ohio, including the City of Cleveland. It has one
subsidiary, Centerior
<PAGE>
Funding Corporation, which is a Delaware corporation organized in 1996
that finances accounts receivable. It also owns 10% of The Toledo Edison
Capital Corporation ("TECC"), which is a Delaware corporation
organized in 1997 that makes equity investments in Delaware
business trusts that hold lessor debt instruments issued in connection
with Cleveland Electric's and Toledo Edison's sale and leaseback of
interests in the Bruce Mansfield Plant.
(f) Toledo Edison. Toledo Edison was organized under the laws
-------------
of the State of Ohio in 1901 and is a public utility company engaged
primarily in the generation, transmission, distribution and sale of
electric energy to an area of approximately 2,500 square miles in
northwestern Ohio, including the City of Toledo. It owns 90% of TECC.
Toledo Edison owns directly 4% of the issued and outstanding voting
securities of OVEC.
(g) FirstEnergy Properties, Inc. FirstEnergy Properties, Inc.
----------------------------
was organized in 1929 and primarily manages non-residential real estate.
It has one subsidiary, BSG Properties, Inc., organized in 1996 that
pursues real estate development.
(h) FirstEnergy Ventures Corp. FirstEnergy Ventures Corp. was
--------------------------
organized in 1971. Its principal business involves the ownership of stock
investments in certain non-utility ventures. It has <RR>seven </RR>
six subsidiaries organized under the laws of the State of Ohio:
(i) Centerior Power Enterprises, Inc. which, together with CPICOR
Management LLC (a non-affiliate), is responsible for implementing a
Department of Energy ("DOE") clean coal project; (ii) Centerior Energy
Services, Inc., which provides various energy consulting services under
the registered trade name "The E Group"; (iii) <RR> Fertile-Earth Inc.,
which composts certain wastes and wood products into salable mulch and
soil amendments; (iv) </RR>FirstEnergy Telecom Corp., which provides
telecommunications services; ( i v) Centerior Communications Holdings,
Inc.,which holds equity investments for certain telecommunications ventures;
(<RR>vi</RR> v ) Bay Shore Power Company, which proposes to provide
steam to a Toledo Edison generating unit and a nonaffiliated refinery; and
(<RR>vii</RR> vi ) FirstEnergy Fuel Marketing Company which provides
products and services to electricity generators and industrial fuel users.
FirstEnergy Ventures is also part owner of seven Ohio limited liability
companies: Eastroc, LLC, Eastroc Technologies, LLC and Engineered
Processes, LTD, which own or apply technologies for the production of
gypsum products; Carbon Plus, LLC, which converts nonhazardous waste by-
products into new products; Warrenton River Terminal, LTD, which owns
facilities for the transloading of bulk materials on the Ohio River; Soils
Technology, LLC, which recycles discarded materials to manufacture
nutrient-rich soils; and Ohio National Energy, LTD, which is involved in
the East Burger Merchant Repowering Project.
(i) FirstEnergy Trading Services, Inc. FirstEnergy Trading
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Services, Inc. (formerly known as FirstEnergy Trading & Power
Marketing, Inc.) is an Ohio corporation organized in 1995 that <RR>is
a power marketer in the wholesalepower markets</RR>
acquires and arranges for the delivery of electricity and natural gas
to the retail customers of FirstEnergy's unregulated marketing and sales
affiliates. .
(j) FirstEnergy Securities Transfer Company. FirstEnergy
---------------------------------------
Securities Transfer Company is an Ohio corporation organized in 1997 to
act as transfer agent and registrar for the securities of FirstEnergy and
its direct and indirect subsidiaries.
(k) FirstEnergy Facilities Services Group,<RR> Inc.</RR>
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LLP FirstEnergy Facilities Services Group is the parent company
---
of the<RR> eight </RR> eleven direct subsidiaries engaged in
heating,
<PAGE>
ventilating, air conditioning and energy management. These
subsidiaries consist of the following: (i) Ancoma, Inc. of Rochester New
York (New York corporation); (ii) Colonial Mechanical Corporation of
Richmond, Virginia (a Virginia corporation); (iii), <RR>which has
a subsidiary </RR>Webb Technologies, Inc. of Norfolk, Virginia (<RR>both
</RR> a Virginia corporation<RR>s</RR>); (<RR>iii </RR> iv
) Dunbar Mechanical Inc. of Toledo, Ohio (Ohio corporation);
(<RR>iv</RR> v ) Edwards Electrical & Mechanical, Inc. of
Indianapolis, Indiana (Indiana corporation); (v i ) Elliott-Lewis
Corporation of Philadelphia, Pennsylvania (Pennsylvania corporation);
(vi i ) L.H. Cranston & Sons, Inc. of Timonium, Maryland (Maryland
corporation); (vii i ) Roth Bros., Inc. of Youngstown, Ohio (Ohio
corporation) ; (ix) <RR> and its subsidiary </RR>The Hattenbach
Company of Cleveland, Ohio (Ohio corporation); <RR>and </RR>(<RR>viii</RR>
x ) R.P.C. Mechanical, Inc. of Cincinnati, Ohio (Ohio
corporation) ; and <RR>its subsidiary </RR> (xi) Spectrum
Controls Systems of Cincinnati, Ohio (Ohio corporation).
(l) MARBEL Energy Corporation.<RR>MARBEL Energy Corporation
-------------------------
("MARBEL") is a fully integrated natural gas company. MARBEL owns
interests in more than 1,800 gas and oil wells and holds interests in more
than 200,000 undeveloped acres in eastern and central Ohio. MARBEL's
subsidiaries include MB Operating Company, Inc., a natural gas exploration
and production company, which has as subsidiaries, J. R. Nominee Corp., J.
R. Nominee Corp. II and Natural Gas Brokerage Corporation (all Ohio
corporations) and Northeast Ohio Operating Companies, Inc., which has as
subsidiaries Gas Transport, Inc., NEO Construction Company and Ohio
Intrastate Gas Transmission Company (all Ohio corporations).</RR> MARBEL
Energy Corporation is a company owning interests in crude oil and natural
gas production, as well as natural gas distribution and transmission
facilities. MARBEL's subsidiaries include Marbel HoldCo. Inc. a holding
company which has a 50% ownership in Great Lakes Energy Partners, LLC, an
oil and natural gas exploration and production venture and Northeast Ohio
Operating Companies, Inc. which has as subsidiaries Gas Transport, Inc.
(Delaware Corporation) and NEO Construction Company (Ohio
Corporation).
<RR> (m) JR Operating Company. JR Operating Company engages in the
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acquisition and development of oil and gas properties.</RR>
<RR>(n) </RR> (m) FirstEnergy Services Corp. A
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national sales group was established within FirstEnergy <RR>Services
</RR>Corp. to <RR>pursue sales</RR> offer energy-related products and
services in the unregulated gas and electric <RR> utility
</RR>market s . <RR>FirstEnergy Services Corp. qualified to do
business in Pennsylvania in 1998 and the national sales group began
selling in the Pennsylvania market following the restructuring which
opened the generation business to increased competition.</RR>
FirstEnergy Services Corp. has one wholly-owned subsidiary, Penn Power
Energy, Inc. (a Pennsylvania Corporation)
(n) FE Acquisition Corp. FE Acquisition Corp. holds all
-------------------
of the outstanding shares of Mid-Atlantic Energy Development Co., which is
constructing a peaking generation unit in Richland, Ohio.
(o) FirstEnergy Nuclear Operating Company.
-------------------------------------
FirstEnergy Nuclear Operating Company operates the Davis-Besse Nuclear
Power Station,<RR> and </RR>the Perry Nuclear Power Plant and the
Beaver Valley Nuclear Power Station under the supervision and
direction of the owners of those facilities.
2. Description of Utility Operations.
---------------------------------
(a) The Operating Companies' Utility Operations. <RR>
--------------------------------------------------------
FirstEnergy and ATSI. </RR>Currently, neither of FirstEnergy and ATSI
- --------------------
directly owns any utility properties or performs any utility
operations. The
<RR>(b)</RR> following discussion focuses on the Operating
Companies utility operations with a detailed description of their
transmission systems in (b) below.
<PAGE>
Ohio Edison and Penn Power. Ohio Edison furnishes
--------------------------
electric service to communities in a 7,500 square mile area of central and
northeastern Ohio. <RR> Ohio Edison also provides transmission services
and electric energy for resale to certain municipalities in its service
area and transmission services to certain rural cooperatives. </RR>Ohio
Edison has ownership interests in certain generating facilities located in
the Commonwealth of Pennsylvania. Ohio Edison also engages in the sale,
purchase and interchange of electric energy with other electric companies.
During the twelve months ended December 31, 199 9 <RR>8 </RR>, the
principal source of Ohio Edison's operating revenues was derived from the
sale of electricity.
Penn Power furnishes electric service to communities in a 1,500
square mile area of western Pennsylvania. <RR>Penn Power also provides
transmission services and electric energy for resale to certain
municipalities in Pennsylvania. </RR>During the twelve months ended
December 31, 199 9,/R> <RR>8</RR>, the principal source of Penn Power's
operating revenues was derived from the sale of electricity.
<RR>Ohio Edison and Penn Power own or lease all or a portion of
39 electric generating units, consisting of 18 coal fired units, three
nuclear units, seven oil fired units, one gas/oil fired unit and 10 diesel
generators (located at three sites), which have total net generating
capacity of 5,757 megawatts ("MW"). All of the electric properties owned
by Ohio Edison and Penn Power are located within the State of Ohio and the
Commonwealth of Pennsylvania.
Eleven of the 18 coal fired units are 100% owned by Ohio Edison,
and all such units are located in Ohio. Four of the 18 coal fired units
are held in a combined Ohio Edison-Penn Power ownership along with other
parties and the remaining three coal fired units are 100% owned by Penn
Power. The three nuclear units consist of (i) Beaver Valley Nuclear Power
Station Unit 1 ("Beaver Valley Unit 1"), located in Pennsylvania and
representing a 425 MW share from a combined Ohio Edison-Penn Power
ownership of 52.50%, (ii) Beaver Valley Nuclear Power Station Unit 2
("Beaver Valley Unit 2"), also located in Pennsylvania and representing a
343 MW share from an Ohio Edison ownership and leasehold interest of
41.88%, and (iii) Perry Nuclear Power Plant Unit 1 ("Perry Unit 1"),
located in Ohio and representing a 421 MW share from a combined Ohio
Edison-Penn Power ownership and leasehold interest of 35.24%. One of the
seven oil fired units is located in Ohio and 100% owned by Ohio Edison.
The remaining six oil fired units are also located in Ohio but are held in
a combined Ohio Edison-Penn Power ownership. The oil/natural gas unit is
located in Ohio and is 100% owned by Ohio Edison. Two of the three diesel
generator sites are located in Ohio and the remaining diesel generator
site is located in Pennsylvania. All three diesel generator sites are
held in a combined Ohio Edison-Penn Power ownership.
Ohio Edison and Penn Power have transmission facilities of 5,647
circuit line miles covering an area of approximately 9,000 square miles.
These facilities have 629 circuit miles of 345 kilovolt ("kV") lines,
2,239 circuit miles of 138 kV lines, 1,894 circuit miles of 69 kV lines,
180 circuit miles of 34.5 kV lines and 581 circuit miles of 23 kV lines.
Additionally, the electric distribution systems of Ohio Edison and Penn
Power have include overhead pole line and underground conduit carrying
primary, secondary and street lighting circuits. Ohio Edison and Penn
Power own, individually or together with one or more of the other Central
Area Power
<PAGE>
Coordination Group ("CAPCO") companies (Cleveland Electric,
Toledo Edison and Duquesne Light Company ("Duquesne")) as tenants in
common, 448 substations with a total installed transformer capacity of
24,849,513 kV-amperes, of which 70 are transmission substations, including
nine located at generating plants.
Ohio Edison and Penn Power have three 345kV and four 138kV
interconnections. Ohio Edison and Cleveland Electric have five 345 kV and
four 138 kV interconnections, and Ohio Edison and Toledo Edison have one
345 kV and one 138 kV interconnection. Ohio Edison has one 345 kV
interconnection with Allegheny Energy Inc., seven 345 kV interconnections
with American Electric Power Company, Inc. ("AEP") and five 345 kV
interconnections with Duquesne. Ohio Edison has the following 138 kV
interconnections with neighboring utility systems: one with Allegheny
Energy, eight with AEP and three with Dayton Power and Light Company
("Dayton"). Ohio Edison and Penn Power also have the following 69 kV
interconnections with other utility systems: one with Dayton, one with
AEP, one with Allegheny Energy, and one with Duquesne.
Ohio Edison does not own or have any financial interest in any natural gas
pipeline company. However, at Ohio Edison's Edgewater plant, OES Fuel
owns a four mile gas pipeline that connects the Edgewater plant to the
Columbia Gas Transmission system.</RR>
Ohio Edison and Penn Power own
or lease all or a portion of 31 electric generating units, consisting of
13 coal fired units, three nuclear units, six oil fired units, one gas/oil
fired unit and eight diesel generators (located at two sites), which have
total net generating capacity of 6,057 megawatts (MW). All of the electric
properties owned by Ohio Edison and Penn Power are located within the
State of Ohio and the Commonwealth of Pennsylvania.
Nine of the 13 coal fired units are 100% owned by Ohio Edison,
and all such units are located in Ohio. Four of the 13 coal fired units
are held in a combined Ohio Edison-Penn Power ownership along with Toledo
Edison and Cleveland Electric.
The three nuclear units consist of (i) Beaver Valley 1 (810
MW), located in Pennsylvania, (ii) Beaver Valley Unit 2, also located in
Pennsylvania and representing a 456 MW share from a combined Ohio Edison-
Penn Power ownership and leasehold interest of 55.61%, and (iii) Perry
Unit 1, located in Ohio and representing a 421 MW share from a combined
Ohio Edison-Penn Power ownership and leasehold interest of 35.24%.
The six oil-fired units are also located in Ohio and are held
in a combined Ohio Edison-Penn Power ownership. The oil/natural gas unit
is located in Ohio and is 100% owned by Ohio Edison. The two diesel
generator sites are located in Ohio and are held in a combined Ohio
Edison-Penn Power ownership.
<RR>(c)</RR> OVEC and IKEC. OVEC owns the Kyger Creek
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Plant at Cheshire, Ohio, which is a coal-fired facility with a capacity of
1,075 MW. IKEC owns the Clifty Creek Plant at Madison, Indiana, which is a
coal-fired facility with a capacity of 1,290 MW. These plants are
connected by a 780-mile 345 kV transmission network and are interconnected
with the major transmission systems of OVEC's sponsor companies, although
<PAGE>
OVEC's transmission facilities do not interconnect directly with the Ohio
Edison-Penn Power or Toledo Edison systems.
<RR>(d)</RR> Cleveland Electric. Cleveland Electric is
------------------
engaged primarily in the generation, transmission, distribution and sale
of electric energy to an area of approximately 1,700 square miles in
northeastern Ohio, including the City of Cleveland. Cleveland Electric
also has ownership interests in certain generating facilities located in
the Commonwealth of Pennsylvania. Cleveland Electric also engages in the
sale, purchase and interchange of electric energy with other electric
companies. During the twelve months ended December 31, 199 9 <RR>8
</RR>, the principal source of Cleveland Electric's operating revenues was
derived from the sale of electricity.
<RR> Cleveland Electric's generating properties consist of all or
a portion of: (i)15 units at four fossil fuel plants including the Avon
Lake Plant, located in Avon Lake, Ohio, the Lake Shore Plant, located in
Cleveland, Ohio, the Eastlake Plant, located in Eastlake, Ohio, and the
Ashtabula Plant, located in Ashtabula, Ohio; (ii) a 452 MW share of Davis-
Besse Nuclear Power Station located in Oak Harbor, Ohio; and
(iii) 351 MW share of a pumped storage hydroelectric plant ("Seneca
Plant") located in Warren, Pennsylvania. These six Cleveland Electric-
owned plants have a net demonstrated capability of 2,997 MW. At the
present time Cleveland Electric is in the process of acquiring its co-
owner's share of the Seneca Plant (87 MW).
Cleveland Electric and Toledo Edison as co-lessees, have an
ownership share of 6.5% (51 MW), 45.9% (358 MW) and 44.38% (355 MW) of
Units 1, 2 and 3, respectively, of the coal-fired Bruce Mansfield Plant
located in Shippingport, Pennsylvania.
Cleveland Electric also has a 31.11% ownership share (371 MW) of
Perry Unit 1 located in Perry, Ohio, and a 24.47% share (201 MW) of Beaver
Valley Unit 2 located in Shippingport, Pennsylvania, and leases, as co-
lessee with Toledo Edison, another 18.26% (150 MW) of Beaver Valley Unit
2.
Cleveland Electric owns the transmission facilities located in the
area it serves in northeastern Ohio for transmitting electric energy to
all of its customers, except for one 5.5 mile 138 kV transmission line
that Cleveland Electric leases from the City of Cleveland. The portions
of the transmission lines located in Pennsylvania to the Seneca Plant,
Bruce Mansfield Plant and the Beaver Valley Power Station are not owned by
Cleveland Electric. Cleveland Electric has a transmission interconnection
with Pennsylvania Electric Company, which provides for transmission of
electric energy from the Seneca Plant. Cleveland Electric also has
interconnections with Ohio Edison that provide for the transmission of
electric energy from the Bruce Mansfield Plant and the Beaver Valley
Nuclear Power Station, and also interconnects with AEP.
Cleveland Electric's transmission facilities consist of
transmission lines and transmission substations operating at voltages up
to 345,000 volts. Cleveland Electric owns the distribution facilities
located in the area it serves in northeastern Ohio for distributing
electric energy to all of its customers. These distribution facilities
consist primarily of distribution lines and distribution substations and
related service facilities and are
<PAGE>
used to serve electric energy to customers pursuant to franchises
granted by the State of Ohio and, in some instances, by
municipalities. </RR> Cleveland Electric's generating
properties consist of all or a portion of: (i)10 units at four fossil fuel
plants including the Sammis Plant, located in Stratton, Ohio, the Lake
Shore Plant, located in Cleveland, Ohio, the Eastlake Plant, located in
Eastlake, Ohio, and the Ashtabula Plant, located in Ashtabula, Ohio; (ii)
a 454 MW share of Davis-Besse Nuclear Power Station located in Oak Harbor,
Ohio; and a (iii) pumped storage hydroelectric plant (Seneca Plant)
located in Warren, Pennsylvania. These Cleveland Electric-owned plants
have a net demonstrated capability of 2,923 MW.
Cleveland Electric and Toledo Edison as co-lessees, have an
ownership share of 6.5% (51 MW), 47.56% (371 MW) and 44.38% (355 MW) of
Units 1, 2 and 3, respectively, of the coal-fired Bruce Mansfield Plant
located in Pennsylvania. Cleveland Electric also has a 44.81% ownership
share (535 MW) of Perry Unit 1 located in Ohio, and a 24.47% share (201
MW) of Beaver Valley 2 located in Pennsylvania, and leases, as co- lessee
with Toledo Edison, another 19.88% (163 MW) of Beaver Valley 2. Cleveland
Electric owns the distribution facilities located in the area it serves in
northeastern Ohio for distributing electric energy to all of its
customers. These distribution facilities consist primarily of distribution
lines and distribution substations and related service facilities and are
used to serve electric energy to customers.
<RR>(e)</RR>Toledo Edison. Toledo Edison is engaged
-------------
primarily in the generation, transmission, distribution and sale of
electric energy to an area of approximately 2,500 square miles in
northwestern Ohio, including the City of Toledo. Toledo Edison also has
ownership interests in certain generating facilities located in the
Commonwealth of Pennsylvania. Toledo Edison also engages in the sale,
purchase and interchange of electric energy with other electric companies.
During the twelve months ended December 31, <RR>1998</RR> 1999 , the
principal source of Toledo Edison's operating revenues was derived from
the sale of electricity.
Toledo Edison's generating properties consist <RR>of </RR>
:of: (i) one wholly-owned fossil fuel electric generating station,
Bay Shore, located in Lucas County, Ohio; (ii) a <RR>428 </RR> 429
MW share of Davis-Besse Nuclear Power Station located in Oak Harbor,
Ohio; and (iii) five internal combustion turbine generator units with an
aggregate capability of 77 MW located in northwestern Ohio. These Toledo
Edison-owned plants have a net demonstrated capability of <RR>1,136</RR>
1,137 MW.
Toledo Edison and Cleveland Electric as co-lessees, have an
ownership share of 6.5% (51 MW), <RR>45.9%</RR> 47.56% (<RR>358
</RR> 371 MW) and 44.38% (355 MW) of Units 1, 2 and 3,
respectively, of the coal-fired Bruce Mansfield Plant located
in Shippingport, Pennsylvania.
Toledo Edison also has a 19.91% ownership share (238 MW) of Perry
Unit 1. Toledo Edison has a tenant-in-common interest and leasehold
interest (with Cleveland Electric as co-lessee with respect to 150 MW) in
19.91% (163 MW) in Beaver Valley Unit 2. Toledo Edison is <RR>presently
</RR> currently selling 150 MW of its Beaver Valley Unit 2 leased
capacity entitlement to Cleveland Electric.
<PAGE>
<RR>Toledo Edison's transmission facilities consist of transmission
lines and transmission substations operating at voltages up to 345,000
volts. Toledo Edison owns the transmission facilities located in the area
it serves in northwestern Ohio for transmitting electric energy to all of
its customers. The portions of the transmission lines located in
Pennsylvania to the Bruce Mansfield Plant and the Beaver Valley Power
Station are not owned by Toledo Edison. Toledo Edison has
interconnections with Ohio Edison that provide for the transmission of
electric energy from the Bruce Mansfield Plant and the Beaver Valley
Nuclear Power Station. Toledo Edison also has transmission
interconnections with Consumers Energy Company, The Detroit Edison Company
and AEP.
</RR>Toledo Edison owns the distribution facilities located in the
area it serves in northwestern Ohio for distributing electric energy to
all of its customers. These distribution facilities consist primarily of
distribution lines and distribution substations and related service
facilities and are used to serve electric energy to its customers.
(b) Transmission System. The Operating Companies own
-------------------
and operate approximately 12,000 MW of generation resources that are
connected directly to the transmission facilities to be transferred. ATSI
will acquire from the Operating Companies and will operate transmission
facilities currently operating at voltages of generally 345 kV and 138 kV
(the "Bulk Transmission System"), and 69 kV facilities (the "Area
Transmission System," and together with the Bulk Transmission System, the
"Transmission System"). The Transmission System is planned and operated
to integrate the generation resources of the Operating Companies with the
their native retail and wholesale loads. To perform this network
function, the higher voltage 345 kV and 138 kV facilities, (the "Bulk
Transmission System"), and the 69 kV facilities, (the "Area Transmission
System" and together with the Bulk Transmission System, the "Transmission
System"), are integrated and operate in a parallel manner to each other.
The Operating Companies also operate low voltage 23, 33, 34.5, and 36 kV
facilities. These facilities were originally developed as transmission
systems when load levels were such that the power transferred by these
facilities was considered significant. Today, however, these facilities
are isolated and do not play a significant role in the transfer of power
on the system. Thus, these 23, 33, 34.5, and 36 kV facilities no longer
provide a transmission function.
The Transmission System consists of over 7,100 circuit miles of
transmission lines with nominal voltages of 345 kV, 138 kV and 69 kV. The
Transmission System services over 2.2 million customers in a 13,200 square
mile area in northern and central Ohio and western Pennsylvania. The
Transmission System has 37 interconnections at voltages of 69 kV or higher
with six neighboring control areas. The Transmission System is connected
to other systems to the East via ties with the Pennsylvania-New Jersey-
Maryland Interconnection ("PJM"), Duquesne Light Company ("Duquesne"), and
Allegheny Energy System ("Allegheny"). The Transmission System is
connected to other systems to the North through ties with the Michigan
Electric Coordination Systems, and is connected to other systems to the
South through ties with American Electric Power ("AEP") and Dayton Power
and Light Company ("Dayton").
<RR>(f) Transaction with Duquesne. The CAPCO companies (the
--------------------------
Operating Companies and Duquesne) jointly own nine generating units and
independently own related
<PAGE>
CAPCO transmission facilities. As part of a separate transaction
from the transactions contemplated herein, the Operating Companies
have negotiated a transaction pursuant to which they will
exchange ownership interest of these and other generating units with
Duquesne so that the joint ownership of generating units with Duquesne is
eliminated. Duquesne would also sell seven CAPCO transmission facilities
to ATSI. There can be no assurance that required regulatory approvals
will be received.</RR>
<RR>(g)</RR> (c) Utility Regulation. Ohio Edison,
Cleveland Electric and Toledo Edison are subject to broad regulation as to
rates and other matters by the Public Utilities Commission of Ohio (the
"PUCO"). Under Ohio law, municipalities may regulate rates, subject to
appeal to the PUCO if not acceptable to the utility. Penn Power is
subject to broad regulation as to rates and other matters by the
Pennsylvania Public Utility Commission (the "PPUC").
Ohio Edison, Cleveland Electric, Toledo Edison and Penn Power are
also subject to the jurisdiction of the Federal Energy Regulatory
Commission (the "FERC") under the Federal Power Act with respect to
wholesale electric rates , transmission service, and other
matters. Construction and operation of nuclear generating units are
subject to the regulatory jurisdiction of the NRC, including the issuance
by it of construction permits and operating licenses.
ATSI will be subject to the jurisdiction of the FERC with respect
to its rates and other matters.
B. DESCRIPTION OF THE PROPOSED TRANSACTION
1. Description of the Transmission Assets. The Transmission Assets
--------------------------------------
to be transferred from the Operating Companies to ATSI are identified in
detail in Appendix D to the Operating Agreement between ATSI and the
Operating Companies , and Schedule A to the Bill of Sale. <RR>The
</RR>Appendix D to the Operating Agreement also describes the
generation and distribution facilities retained by the Operating
Companies. The Operating Agreement appears in full in Exhibit B-2 to this
Application/Declaration. Essentially, ATSI will acquire from the
Operating Companies and will operate <RR> transmission facilities
currently operating at voltages of generally 345 kV and 138 kV </RR>(
</RR>the <RR>" </RR>Bulk Transmission System<RR>"), and 69 kV facilities (
</RR> and the <RR>" </RR>Area Transmission System<RR>," and
together with the Bulk Transmission System, the "Transmission
System")</RR>. The Transmission Assets to be transferred shall include:
(1) transmission lines (including towers, poles, and
conductors) and transmission stations;
(2) transformers providing transformation within the Bulk
Transmission System and between the Bulk Transmission System and Area
Transmission System;
(3) the System Control Center facility and equipment in
Wadsworth, Ohio not including the associated land and land rights;
(4) lines providing connections to generation facilities;
<PAGE>
(5) radial taps from the Transmission System that are 69kV and
above (up to, but not including, the facilities that establish the final
circuit connection to distribution facilities or retail customers);
(6) substations that provide primarily a transmission function;
(7) voltage control devices and power flow control devices
directly connected to the Transmission System;
(8) mobile capacitor banks 69kV or higher; and
(9) equipment spares for transmission facilities.
The Transmission Assets include all the facilities currently
recorded on the books of the Operating Companies as "transmission"<RR>
facilities as well as the CAPCO transmission lines discussed in
Item 1.A.2(f) above</RR>, with the exception of certain 36 kV, 34.5kV,
33kV and 23 kV facilities ("Subtransmission Facilities") and do not
include "distribution facilities" used to provide retail service.
Distribution facilities include all facilities with voltages below 69 kV,
including both Subtransmission Facilities and the final circuit connection
to substations providing transformation or connection to any retail
customer regardless of voltage level. The Operating Companies currently
provide transmission service to certain wholesale customers at delivery
points less than 69 kV. In order to ensure continuity of service to such
customers who decide to take service under the new FERC-approved
transmission tariff under which ATSI will offer its transmission service
(the "ATSI Tariff"), ATSI and the Operating Companies have entered into an
Agency Agreement. A copy of the Agency Agreement is attached as Appendix
C to the Operating Agreement, which in turn is included in Exhibit B-1 to
this Application/Declaration. Under the Agency Agreement, the Operating
Companies and ATSI have expressly provided for use of certain distribution
facilities necessary to continue transmission service to wholesale
customers served at delivery points whose voltages are less than 69 kV.
Transmission service to wholesale customers over these distribution
facilities will be offered under the ATSI Tariff, and associated
distribution costs will be recovered in the rates on a direct assignment
basis as a distribution adder. This procedure is necessary to ensure that
existing wholesale customers served at voltages below 69 kV will have
access to comparable transmission service under the ATSI Tariff.
2. Operation of the Transmission System. ATSI will operate the
------------------------------------
Transmission System pursuant to the ATSI Tariff and the Operating
Agreement. ATSI will have operational control of the Transmission Assets,
serve as the control area operator over the Transmission System, offer and
arrange for ancillary services, operate the Open Access Same-Time
Information System ("OASIS") in conformance with FERC Order No. 889*, and
administer the ATSI Tariff,
- ------------
*Open Access Same-Time Information System (Formerly Real-Time Information
Network) and Standards of Conduct, Order No. 889, Docket No. RM95-9-000,
61 Fed. Reg. 21737 (May 10, 1996), FERC Stats. & Regs. [Reg. Preambles
1991-96] 31,035 (1996)(subsequent history omitted).
<PAGE>
including all requests for service under the ATSI Tariff. ATSI
will also be responsible for maintenance of the Transmission
Assets, and will initially contract with the Operating
Companies to perform the maintenance.
ATSI will offer all ancillary services required by the FERC in its
Order No. 888. Since ATSI owns no generating facilities, it will purchase
the necessary ancillary services from third parties. Under the Operating
Agreement, the Operating Companies are required to sell ancillary services
to ATSI upon request at FERC approved rates. ATSI is free, however, to
purchase ancillary services from unaffiliated generators, and will do so
consistent with a least cost procurement strategy. ATSI expects to enter
into agreements to purchase ancillary services from unaffiliated
generators in its control area. ATSI will not, however, engage in the
purchase and sale of energy other than to obtain the necessary ancillary
services.
In short, upon receipt of the necessary regulatory approvals, ATSI
will commence providing open access transmission service to those existing
open access customers served by the Operating Companies under the existing
transmission tariff ("FirstEnergy Open Access Tariff"), and any other
eligible customer requesting transmission service from ATSI. In addition,
post-transfer, the Operating Companies will become customers of ATSI under
the ATSI Tariff. Where the Operating Companies are responsible for
providing transmission service under agreements or tariffs predating Order
No. 888 ("Grandfathered Transmission Agreements"), ATSI will work to
ensure obligations are satisfied, and will make its Transmission System
available to provide transmission service under the Grandfathered
Transmission Agreements unless otherwise directed by the FERC.
3. Financial Aspects of the Transaction. A Bill of Sale will be
------------------------------------
entered into between FirstEnergy Corp., on behalf of the Operating
Companies, and ATSI covering the conveyance of the Transmission Assets.
The Transmission Assets transferred to ATSI under the Bill of Sale include
<RR>FirstEnergy's </RR> the Operating Companies' rights and
interests in any contracts under the FirstEnergy Open Access Tariff. A
copy of the form of Bill of Sale is included as part of Exhibit B-1 to
this Application/Declaration.
The transactions contemplated hereby will be accomplished through
(i) FirstEnergy's acquisition of all of the issued and outstanding voting
securities of ATSI in exchange for approximately $300 million, (ii) the
sale and transfer by the Operating Companies of their Transmission Assets
to ATSI in consideration for the Purchase Price which will be the net book
value of the Transmission Assets as of <RR>November 30, 1998 </RR>
December 31, 1999 (approximately $<RR>655 </RR> 647 million)
and (iii) ATSI's financing of the purchase of the Transmission Assets by
(<RRA</RR a ) the use of FirstEnergy's purchase price for all of the
issued and outstanding voting securities of ATSI for an amount equal to
45% of the Purchase Price and (<RR>B</RR> b ) ATSI's issuance of
promissory notes (which may be secured by a lien on the assets
transferred) to the Operating Companies in an aggregate amount equal to
55% of the Purchase Price. The interest rate on the promissory notes will
be based on the embedded cost of debt of the Operating Companies on a
consolidated basis <RR> as of November 30, 1998 ( </RR>which <RR>was </RR>
is approximately 7.75%). The 45/55 equity-debt ratio is the same
as the Operating Companies' consolidated ratio as of November 30, 1998.
<PAGE>
<RR>Release of the</RR> The Transmission Assets have been
released from the liens of the indentures securing mortgage bonds of
<RR>the Operating Companies </RR> Ohio Edison, Cleveland Electric and
Toledo Edison, and the release from the liens of the indentures securing
mortgage bonds of Penn Power will take place at transfer of the
Transmission Assets to ATSI. Fee land, easements and rights-of-way have
been excluded from the asset transfer and will remain the property of the
Operating Companies. ATSI will acquire the right to use land through 50-
year ground leases with the Operating Companies.
C. REASONS FOR AND ANTICIPATED EFFECTS OF THE PROPOSED TRANSACTION
1. Context of the Transaction-Creation of a Larger RTO.
---------------------------------------------------
The transfer of the Transmission Assets to ATSI will facilitate
implementation of the subsequent transfer of these facilities<RR> into an
</RR> to a transco-based RTO. FirstEnergy's formation of ATSI and
the transfer of the Transmission Assets to ATSI is not the ultimate goal.
Rather, this is a step towards the subsequent transfer of these facilities
to<RR> an </RR> a transco-based RTO. FirstEnergy's ultimate goal
is to divest ownership, operation and control of its transmission
facilities from its other assets. Accordingly, if ATSI does not file a
Section 203 application under the Federal Power Act to transfer ownership
or control of its transmission facilities to <RR>an </RR> a transco-
based RTO within two years of the date of approval of the joint
application with the FERC (a copy of which is attached hereto as Exhibit
D-1), ATSI will file a Section 203 application to divest its transmission
facilities to an unaffiliated entity. FirstEnergy intends to continue its
efforts with other transmission owners in the development of a
transmission alliance that would own, operate and aggregate regional
transmission assets and could, in turn, operate transmission facilities of
other companies (the "Transmission Alliance"). At present, the <RR>three
</RR> four utility systems currently committed to participating
with FirstEnergy in the Transmission Alliance (AEP, Consumers Energy ,
Detroit Edison and Virginia Power) would stretch from Michigan to
Virginia and would provide open access transmission service over
approximately 43,500 miles of transmission lines serving a population of
23 million. It will strive to better align the interests of transmission
customers with the interests of transmission owners and operators.<RR>
FirstEnergy has not precluded consideration of other regional transmission
alternatives. </RR>Whatever the regional entity, ATSI's existence as a
separate corporate entity and single provider of transmission services
will facilitate the process. Moreover, ATSI will have the opportunity to
gain some experience in the operation of the transmission system as a
stand alone entity - experience that will be valuable to the effectuation
of the next step.
2. Anticipated Effects. The proposed formation of the new
-------------------
transmission company is intended to provide the following benefits to
FirstEnergy and its Operating Companies' customers: (i) greater corporate
and organizational separation of transmission from generation; and (ii) by
tying together control, planning, maintenance and financial
responsibilities of the Operating Companies' transmission facilities into
a single company having an independent, streamlined and cost-efficient
operation, (a) creating synergies that result in better service in the
region, (b) assuring non-discriminatory access for all transmission users
and (c) maximizing the value of the Transmission Assets for shareholders.
ATSI will not be engaged in the electric power generation business,
and will contract with the Operating Companies and others on the open
market to provide ancillary services on a
<PAGE>
least cost basis. ATSI will not own distribution facilities,
and will use distribution facilities only to the extent
required to provide transmission services to wholesale
customers served at voltages below 69 kV under the ATSI Tariff. Instead,
ATSI will focus solely on efficiently and effectively operating and
maintaining, and where necessary expanding, its transmission system, and
will be well-situated to respond quickly to customer needs.
D. ADDITIONAL INFORMATION
No associate company or affiliate of FirstEnergy or any affiliate
of any such associate company has any direct or indirect material interest
in the proposed transaction except as stated herein.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
------------------------------
The fees, commissions and expenses to be paid or incurred, directly
or indirectly, in connection with the transactions contemplated herein,
including other related matters, are estimated as follows:
Legal fees
Winthrop, Stimson, Putnam & Roberts $250,000
Fees relating to appraisal of the Transmission
Assets *
Miscellaneous *
TOTAL *
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
-------------------------------
It is believed that Sections 9(a)(2) and 10 of the Act are
applicable to the proposed transactions. To the extent that the proposed
transactions are considered by the Commission to require authorization,
approval or exemption under any section of the Act or provision of the
rules or regulations thereunder other than those specifically referred to
herein, request for such authorization, approval or exemption is hereby
made.
Upon consummation of the transfer of the Transmission Assets from
the Operating Companies to ATSI, ATSI will become an "electric utility
company" as defined in Section 2(a)(3) of the Act as well as a "public-
utility company" as defined in Section 2(a)(5) of the Act. Because
FirstEnergy will, as a result of the transactions contemplated herein, be
directly acquiring five per centum or more of the outstanding voting
securities of ATSI in addition to those of each of the Operating Companies
(which are public-utility companies), such acquisition will be subject to
Section 9(a)(2) of the Act. <RR> Moreover, because FirstEnergy will be
indirectly acquiring certain securities (i.e., the promissory notes) of
ATSI, such acquisition will also be subject to Section 9(a)(2) of the Act.
</RR>Thus FirstEnergy believes that the proposed transactions cannot
proceed without the Commission's approval pursuant to Section 10 of the
Act. The relevant statutory standards to be satisfied are set forth in
Sections 10(b), 10(c), and 10(f) of the Act.
<PAGE>
A. SECTION 10(b)
Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition
under Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or
will be detrimental to the public interest of consumers or the
proper functioning of such holding company system.
1. Section 10(b)(1). The proposed transactions will not tend
----------------
towards interlocking relations or the concentration of control of public
utility companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers.
Notwithstanding the above, as in the case of virtually every
transaction subject to Section 9(a)(2), there may exist among FirstEnergy
and its public utility subsidiaries (including ATSI) interlocking
directors and officers only of such nature and to such extent as normally
exist in public utility holding company systems among affiliated and
associated companies. See CIPSCO, Inc., Holding Co. Act. Release No.
25152, 47 S.E.C. Docket 174, 178 (1990).
Similarly, the proposed transactions will not tend toward any
"concentration of control of public-utility companies" that is detrimental
to the public interest, consumers or investors. The proposed transactions
will not involve the acquisition of any utility assets that are not
already owned, either directly or indirectly, by FirstEnergy and "will
therefore have no effect on the concentration of control of public-utility
companies." Wisconsin Energy Corp., Holding Co. Act Release No. 24267, 37
SEC Docket 296, 300 (1986).
In this Application/Declaration, FirstEnergy seeks only to more
definitively separate its generation from its transmission facilities in
order to pave the way for complete divestiture of the transmission
facilities to an RTO. As proposed herein, the Transmission Assets that
are now owned by the Operating Companies will be divested to, and acquired
by, ATSI, a corporate subsidiary of FirstEnergy. None of FirstEnergy, the
Operating Companies and ATSI proposes to merge with any other entity in
the instant Application/Declaration. ATSI does not currently own any
generation, distribution or transmission facilities, and will not own or
control any generation. Upon completion of the proposed transfer, the
Operating Companies will no longer own transmission facilities.
<PAGE>
2. Section 10(b)(2)-Fairness of Consideration and Fees. (a)
---------------------------------------------------
Fairness of Consideration. Section 10(b)(2) of the 1935 Act requires the
- -------------------------
Commission to determine whether the consideration in connection with a
proposed acquisition of securities is reasonable and whether it bears a
fair relation to the investment in and the earning capacity of the utility
assets underlying the securities being acquired. The consideration in
connection with security acquisitions under the transactions contemplated
herein will be as follows: (i) approximately $300 million will be paid by
FirstEnergy for all of the outstanding voting securities of ATSI and
(ii) the Transmission Assets will be transferred to ATSI for the
promissory notes and a cash payment equal to the difference between the
aggregate principal amount of the promissory notes and the net book value
of the Transmission Assets. FirstEnergy believes that the consideration
to be paid by it for the voting securities of ATSI is reasonable because
the amount of such consideration plus the total amount of debt that ATSI
will incur in acquiring the Transmission Assets is equal to the
approximate actual value of those assets. FirstEnergy further believes
that such consideration bears a fair relation to the investment in and the
earning capacity of the Transmission Assets because it is based on the net
book value those assets had in the hands of the Operating Companies. The
rates set by FERC in connection with those facilities when they were owned
by the Operating Companies permitted them to achieve a fair return on
those assets. Since ATSI's rates will also be subject to FERC approval,
it can be expected that those rates (which should be based on the same
book value) will permit ATSI to achieve a fair return on them as well.
This being the case, FirstEnergy, being the sole equity owner of ATSI, can
expect to earn a fair return on its investment. FirstEnergy believes that
the consideration paid by the Operating Companies for the promissory notes
is reasonable because the principal amount of the notes, when added to the
cash that the Operating Companies will receive for the Transmission
Assets, will be equal to the net book value of those assets on the books
of the Operating Companies. The consideration paid by the Operating
Companies bears a fair relation to the investment in and the earning
capacity of the Transmission Assets because the interest rate borne by the
promissory notes will be equal to the embedded cost of debt of the
Operating Companies on a consolidated basis and this amount is not any
greater than the cost of debt (on a consolidated basis) that FERC
considered when it approved the transmission rates currently applicable to
the Transmission Assets. In any event, the proposed transaction is not in
a real sense an acquisition of securities; it is merely a corporate
reorganization.
(b) Reasonableness of Fees. An estimate of the fees and
----------------------
expenses to be paid in connection with the proposed transactions is set
forth in Item 2 hereof. The estimated amounts to be paid are fees
<RR>required to be paid to governmental bodies, fees </RR>for necessary
professional services, and other expenses incurred or to be incurred in
connection with carrying out the proposed transactions. FirstEnergy
believes that such fees and expenses are reasonable and customary for a
transaction of this kind, and the standards of Section 10(b)(2) are thus
satisfied.
3. Section 10(b)(3)-Capital Structure. Section 10(b)(3) requires
----------------------------------
the Commission to determine whether the proposed transactions will unduly
complicate FirstEnergy's capital structure or will be detrimental to the
public interest, the interests of investors or consumers or the proper
functioning of FirstEnergy's system. The corporate capital structure of
FirstEnergy after the consummation of the proposed transactions will not
be unduly complicated. FirstEnergy will directly acquire all of the
issued and outstanding voting securities of ATSI, in addition to
continuing to own directly or indirectly all of the issued and outstanding
voting securities of each of the Operating Companies, and thus there will
be no minority equity interest
<PAGE>
in any of such companies. The Operating Companies will own all
of ATSI's debt securities. No change will be effected in the
capital structure of Penn Power, which will continue to be
a wholly-owned subsidiary of Ohio Edison.
In any event, as set forth more fully in Item 3.B.2 and elsewhere
in this Application/Declaration, the proposed formation of the new
transmission company is expected to result in certain benefits to the
public and to consumers and investors of the FirstEnergy holding-company
system. FirstEnergy's plan to <RR>establish </RR> participate in
an RTO, with the creation of ATSI as a significant step toward that
end, will maximize the value of the Transmission Assets to shareholders.
B. SECTION 10(C)
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the Commission
shall not approve:
(1) an acquisition of securities or utility assets, or of
any other interest, which is unlawful under the provisions of
Section 8 or is detrimental to the carrying out of the provisions
of Section 11; or
(2) the acquisition of securities or utility assets of a
public utility or holding company unless the Commission finds
that such acquisition will serve the public interest by tending
towards the economical and the efficient development of an
integrated public utility system . . . .
1. Section 10(c)(1). Consistent with the standards set forth in
---------------
Section 10(c)(1) of the Act, the proposed acquisition of securities will
not be unlawful under the provisions of Section 8 of the Act (inasmuch as
Section 8 applies only to registered holding companies), or detrimental to
the carrying out of the provisions of Section 11 of the 1935 Act, which
also applies, by its terms, only to registered holding companies, because
FirstEnergy believes that following the consummation of the proposed
transactions it will continue to be a public-utility holding company
entitled to an exemption under Section 3(a)(1) of the 1935 Act from all of
the provisions of the 1935 Act (except for Section 9(a)(2) thereof),
including provisions relating to registration. See FirstEnergy Form U-3A-
2, "Statement by Holding Company Claiming Exemption Under Rule U-2 from
the Provisions of the Public Holding Company Act of 1935," dated
February <RR>26, 1999 30</RR> 29, 2000 , attached hereto as Exhibit
G-1.
Section 8 prohibits a registered holding company or any of its
subsidiaries from acquiring, owning interests in or operating both a gas
utility company and an electric utility company serving substantially the
same area if prohibited by state law. Because none of FirstEnergy and any
of its subsidiary companies owns or has any financial interest in any gas
utility company and because ATSI will not own or have any financial
interest in any gas utility company, following the proposed transactions,
FirstEnergy will not have acquired, and will not own or operate a gas
utility company.
Section 11(a) of the Act requires the Commission to examine the
corporate structure of registered holding companies to ensure, among
others, that unnecessary complexities are
<PAGE>
eliminated and voting powers are fairly and equitably distributed.
The proposed transactions meet the standards of Section 11(a) of
the Act. As discussed above with respect to the requirements
of Section 10(b)(3) of the Act, FirstEnergy will directly
acquire all of the issued and outstanding voting securities of ATSI, in
addition to continuing to own directly or indirectly all of the issued and
outstanding voting securities of each of the Operating Companies, thus
leaving no minority interests outstanding. The Operating Companies will
own all of ATSI's debt securities. Penn Power will continue to be a
wholly-owned subsidiary of Ohio Edison. After the consummation of the
proposed transactions, no person will be a holding company with respect to
FirstEnergy.
2. Section 10(c)(2). As the following discussion will
----------------
demonstrate, the proposed transactions will serve the public interest by
tending towards the economical and efficient development of an integrated
public-utility system, as required by Section 10(c)(2) of the Act.
(a) Efficiencies and Economies. As described more fully in
--------------------------
Item 1. B <RR>C </RR>.2 above, the proposed transactions tend
towards the following efficiencies and economies: (i) greater corporate
and organizational separation of transmission from generation; and (ii) by
tying together control, planning, maintenance and financial
responsibilities of the Operating Companies' transmission facilities into
a single company having an independent, streamlined and cost-efficient
operation, synergies will be created that result in better service in the
region and non-discriminatory access for all transmission users will be
assured. FirstEnergy's plan to <RR>establish </RR> participate in
an RTO, with the creation of ATSI as a significant step toward that end,
will maximize the value of the Transmission Assets to shareholders.
(b) Integrated Public Utility System. As applied to electric
--------------------------------
utility companies, the term "integrated public utility system" is defined
in Section 2(a)(29)(A) of the Act as:
a system consisting of one or more units of generating plants
and/or transmission lines and/or distributing facilities, whose
utility assets, whether owned by one or more electric utility
companies, are physically interconnected or capable of physical
interconnection and which under normal conditions may be
economically operated as a single interconnected and coordinated
system confined in its operation to a single area or region,
in one or more states, not so large as to impair (considering
the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation.
The Commission has previously taken notice of developments that
have occurred in the gas and electric industries in recent years, and has
interpreted the Act and analyzed proposed transactions in light of these
changed and changing circumstances. See, e.g., New Century Energies,
Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (approving
transactions relating to combination of a Colorado gas and electric
public-utility company and intrastate exempt holding company and a New
Mexico electric public-utility company), citing Hearing on Regulation of
Public Utility Holding Companies Before Subcomm, on Telecommunications and
Finance and Subcomm. on Energy and Power of the House of Representatives
Comm, on Commerce, 104th Cong., 1st Sess. (Aug. 4, 1995) (testimony of
Arthur Levitt, Chairman, SEC); "The Regulation of Public-Utility Holding
Companies," report of the Division of Investment
<PAGE>
Management (June 1995) ("1995 Report") at 29-31; and Consolidated
Natural Gas Co., Holding Co. Act Release No. 26512
(Apr. 30, 1996). See also Rust v. Sullivan, 500
U.S. 173, 186-87 (1991) ("an agency is not required to" establish rules of
conduct to last forever, "but rather must be given ample latitude to
"adapt [its] rules and policies to the demands of changing
circumstances.") (citations omitted); Shawmut Assn. v. SEC, 146 F.2d 791,
796-97 (1st Cir. 1945) (an agency "is expected to treat experience not as
a jailer but as a teacher").
On the basis of the statutory definition above, the Commission has
established four standards that must be met before the Commission will
find that an integrated public-utility system will result from a proposed
acquisition of securities:
(1) the utility assets of the system are physically
interconnected or capable of physical interconnection;
(2) the utility assets, under normal conditions, may be
economically operated as a single interconnected and coordinated
system;
(3) the system must be confined in its operations to a single
area or region; and
(4) the system must not be so large as to impair (considering
the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation.
Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1263 (9th Cir. 1990),
quoting In re Electric Energy, Inc., 38 S.E.C. 658, 668 (1958).
The proposed transactions satisfy all four of these requirements.
It should be noted that in the 1995 Report, the Division recommended that
the Commission "respond realistically to the changes in the utility
industry and interpret more flexibly each piece of the integration
equation." 1995 Report at 71.
CAPABLE OF PHYSICAL INTERCONNECTION. Upon consummation of the
proposed transactions, Ohio Edison, Penn Power, Cleveland Electric and
Toledo Edison, along with the new transmission company, ATSI, will
continue to be "physically interconnected or capable of physical
interconnection" within the meaning of Section 2(a)(29)(A). The electric
service areas of the Operating Companies are adjacent, with Ohio Edison
separating Cleveland Electric and Toledo Edison. The proposed
transactions will maintain a continuous, geographically compact
transmission system across northern Ohio and western Pennsylvania.
Moreover, the service areas served by the Operating Companies are
already highly interconnected.
Ohio Edison and Penn Power have three 345kV and four 138kV
interconnections. Ohio Edison and Cleveland Electric have five 345 kV and
four 138 kV interconnections, and Ohio Edison and Toledo Edison have one
345 kV and one 138 kV interconnection. After the transfer of the
Transmission Assets to ATSI contemplated by the proposed transactions, the
same physical interconnections will be maintained in the FirstEnergy
holding company system.
<PAGE>
In view of the above, the facts presented clearly support a finding
that the utility assets of the FirstEnergy system are "physically
interconnected or capable of physical interconnection" within the meaning
of Section 2(a)(29)(A) of the Act.
SINGLE INTERCONNECTED AND COORDINATED SYSTEM. Section 2(a)(29)(A)
of the Act requires that the utility assets, under normal circumstances,
may be "economically operated as a single interconnected and coordinated
system." The Commission has interpreted this language to refer to the
physical operation of utility assets as a system in which, among other
things, the generation and/or flow of current within the system may be
centrally controlled and allocated as need or economy directs. See UNITIL
Corp., Holding Co. Act Release No. 25524 (Apr. 24, 1992). The electric
generation, transmission and distribution system of FirstEnergy are
operated in a manner that satisfies the standard of economic and
coordinated operations in Section 2(a)(29)(A) of the Act. Moreover, as
more fully described in Item 1.C.2 above, the proposed transactions are
expected to result in greater coordination and more efficient allocation
of provision of transmission services within the region served by the
FirstEnergy holding company system.
SINGLE AREA OR REGION. The "single integrated system" of
FirstEnergy and its subsidiaries are currently confined in its operations
to a single area or region, namely, northern and central Ohio and western
Pennsylvania. This will not change as a result of the consummation of the
proposed transactions, including the introduction of ATSI into the
existing system.
LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE REGULATION.
The FirstEnergy<RR>'s </RR>utility system will not be enlarged at all as a
result of the proposed transactions; thus, they will not impair the
advantages of localized management, efficient operations and the
effectiveness of regulation. Moreover, the Commission's past decisions on
"localized management" show that the proposed transactions fully preserve
the advantages of localized management. In such cases, the Commission has
evaluated localized management in terms of: (i) responsiveness to local
needs, see American Electric Power Co., Holding Co. Act Release No. 20633
(July 21, 1978)(advantages of localized management evaluated in terms of
whether an enlarged system could be "responsive to local needs"); General
Public Utilities Corp., 37 S.E.C. 28, 36 (1956)(localized management
evaluated in terms of "local problems and matters involving relations with
consumers"); (ii) whether management and directors were drawn from local
utilities, see Centerior Energy Corp., Holding Co. Act Release No. 24073
(April 29, 1986)(advantages of localized management would not be
compromised by the affiliation of two electric utilities under a new
holding company because the new holding company's "management [would be]
drawn from the present management" of the two utilities); (iii) the
preservation of corporate identities, See Northeast Utilities, Holding Co.
Act Release No. 25221 (December 21, 1990) (utilities "will be maintained
as separate New Hampshire corporations . . . [t]herefore the advantages
of localized management will be preserved"); Columbia Gas System, Inc.,
Holding Co. Act Release No. 24599 (March 15, 1988)(benefits of local
management maintained where the utility to be added would be a separate
subsidiary); and (iv) the ease of communications, see American Electric
Power Co., Holding Co. Act Release No. 20633 (July 21, 1978)(distance of
corporate headquarters from local management was a "less important factor
in determining what is in the public interest" given the "present-day ease
of communications and transportation").
<PAGE>
The effectiveness of regulation will not be diminished as a result
of the proposed transactions; Ohio Edison, Cleveland Electric and Toledo
Edison will remain subject to regulation by the PUCO, and Penn Power will
remain subject to regulation by the PPUC. Moreover, the respective
interstate activities of Ohio Edison, Penn Power, Cleveland Electric and
Toledo Edison will continue to be regulated by the FERC. ATSI will also
be subject to regulation of the FERC with respect to rates and other
matters.
C. SECTION 10(f)
Section 10(f) provides that
The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply
in respect of such acquisition have been complied with, except
where the Commission finds that compliance with such State laws
would be detrimental to the carrying out of the provisions of
section 11.
Ohio Edison, Cleveland Electric and Toledo Edison are currently
subject to the jurisdiction of the PUCO. An application <RR>with the PUCO
</RR>(a copy of which is attached hereto as Exhibit D-3)<RR> has been</RR>
was filed for approval of the PUCO with respect to the proposed
transfer of the relevant Transmission Assets from each of the three
Operating Companies to ATSI. Approval from the PUCO was received on
February 17, 2000 and a copy of the Order is attached as Exhibit D-4.
Penn Power is currently subject to the jurisdiction of the PPUC. An
application with the PPUC (a copy of which is attached hereto as Exhibit
D-5) has been filed for approval of the PPUC with respect to the proposed
transfer of the relevant Transmission Assets from Penn Power to ATSI and
the operation of Penn Power's transmission lines by ATSI.
ITEM 4. REGULATORY APPROVALS
--------------------
Set forth below is a summary of the regulatory approvals that the
applicants have obtained or expect to obtain in connection with the
proposed transactions. Except as set forth below, no other state or local
regulatory body or agency and no other federal commission or agency has
jurisdiction over the transactions proposed herein.
A. FEDERAL POWER ACT
Under Section 203 of the Federal Power Act, the FERC has
jurisdiction over the proposed transactions. The Operating Companies have
filed a joint application with the FERC (a copy of which is attached
hereto as Exhibit D-1) for authority to consummate the proposed
transactions. This application was approved by the FERC on October 27,
1999. On March 16, 2000, FERC also approved an initial Open Access
Transmission for ATSI, and the Ground Lease between ATSI and the Operating
Companies. (A copy of the FERC order is attached hereto as Exhibit D-
2).
<PAGE>
B. STATE PUBLIC UTILITY REGULATION
An application with the PUCO (a copy of which is attached hereto as
Exhibit D-3) has been filed for approval of the PUCO with respect to the
proposed transfer of the relevant Transmission Assets from each of the
three Operating Companies to ATSI. Approval from the PUCO was received
on February 17, 2000 and a copy of the Order is attached as Exhibit D-4.
An application with the PPUC (a copy of which is attached hereto as
Exhibit D-5) has been filed for approval of the PPUC with respect to the
proposed transfer of the relevant Transmission Assets from Penn Power to
ATSI and the operation of Penn Power's transmission lines by ATSI.
C. OTHER
FirstEnergy may file other applications for, or request, certain
other consents or authorizations by federal, state or municipal agencies
in connection with the issuance of securities, system operations and
franchises or any other activities subject to regulatory approval.
ITEM 5. PROCEDURE
---------
The Applicant requests that there be no 30-day waiting period
between the issuance of the Commission's order and the date on which it is
to become effective. The Applicant submits that a recommended decision by
a hearing or other responsible officer of the Commission is not needed
with respect to the proposed transaction and that the Division may assist
with the preparation of the Commission's decision and/or order in this
matter unless such Division opposes the matters covered hereby.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
A. EXHIBITS
EXHIBIT
A-1 Articles of Incorporation of ATSI. (previously filed)
A-2 Amended Articles of Incorporation of FirstEnergy (Incorporated
by reference to the Form S-4 Registration Statement filed on
February 3, 1997, File No. 333-21011, as Exhibit (3)-1).
A-3 Amended Articles of Incorporation of Ohio Edison, effective
June 21, 1994 (Incorporated by reference to the Form 10-K Annual
Report of Ohio Edison for the year ended December 31, 1994, File
No. 1-2578, as Exhibit 3-1).
A-4 Amended Articles of Incorporation of Cleveland Electric,
effective May 28, 1993 (Incorporated by reference to the Form
10-K Annual Report of Cleveland Electric for the year ended
December 31, 1993, File No. 1-2323, as Exhibit 3a).
A-5 Amended Articles of Incorporation of Toledo Edison, effective
October 2, 1992 (Incorporated by reference to the Form 10-K
Annual Report of Toledo Edison for the year ended December 31,
1992, File No. 1-3583, as Exhibit 3a).
A-6 Agreement of Merger and Consolidation dated April 1, 1929, among
Pennsylvania
<PAGE>
Power Company (Penn), Harmony Electric Company and
Peoples Power Company (consummated May 31, 1930), copies of
Letters Patent issued thereon, together with the Election Return
and Treasurer's Return, relative to decrease of capital stock;
Election Return authorizing change of capital stock and increase
of indebtedness; Election Return authorizing change of capital
stock; Election Return authorizing increase of capital stock;
Election Return establishing 4.24% Preferred Stock; Certificate
with respect to the establishment of the 4.64% Preferred Stock;
Election Returns and Certificates of Actual Sale in connection
with the purchase by Penn Power of all the property of Pine-
Mercer Electric Company, Industry Borough Electric Company, Ohio
Township Electric Company, and Shippingport Borough Electric
Company; Certificate of Change of Location of Penn Power's
principal office; Certificate of Consent authorizing increase
in authorized Common Stock; Certificate of Consent with respect
to the removal of limitations on the authorized amount of
indebtedness of Penn Power; Election Returns and Certificates
of Actual Sale in connection with the purchase by Penn Power of
all the property of Borolak Public Service Company, Eastfax
Public Service Company, Norango Public Service Company, Sadwick
Public Service Company, Sosango Public Service Company, Surrick
Public Service Company, Wesango Public Service Company, and
Westfax Public Service Company; Certificate of Change of
Location of Penn Power's principal office; Amendment to the
Charter extending the territory in which Penn Power may operate
in the Borough of Shippingport, Beaver County, Pennsylvania;
Certificate of Consent authorizing increase in authorized Common
Stock; Certificate with respect to the establishment of the 8%
Preferred Stock; Certificate accepting Business Corporation Law
of Pennsylvania for government and regulation of affairs of Penn
Power; Articles of Amendment incorporating certain protective
provisions relating to Preferred Stock, increasing amount of
authorized Preferred Stock and authorizing future increases in
amounts of authorized Preferred Stock without a vote of the
holders of Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Statement Affecting
Class or Series of Shares with respect to the establishment of
the 7.64% Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Articles of
Amendment increasing the number of authorized shares of
Preferred Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 8.48% Preferred Stock;
Articles of Amendment authorizing sinking fund requirements for
Preferred Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 11% Preferred Stock;
Articles of Amendment increasing the authorized number of shares
of Common Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 9.16% Preferred Stock;
Articles of Amendment increasing authorized number of shares of
Common Stock; Articles of Amendment increasing authorized number
of shares of Preferred Stock; Statement Affecting Class or
Series of Shares with respect to the establishment of the 8.24%
Preferred Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 10.50% Preferred Stock;
Articles of Amendment increasing authorized number of shares of
Common Stock; Articles of Amendment increasing authorized number
of shares of Preferred Stock; Statement
<PAGE>
EXHIBIT
Affecting Class or Series of Shares with respect to the
establishment of the 15.00% Preferred Stock; Statement
Affecting Class or Series of Shares with respect to
the establishment of the 11.50% Preferred Stock;
Articles of Amendment increasing authorized number of shares of
Preferred Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 13.00% Preferred Stock;
Statement Affecting Class or Series of Shares with respect to
the establishment of the 11.50% Preferred Stock, Series B;
Articles of Amendment effective April 2, 1987, adding a standard
of care for, and limiting the personal liability of, officers
and directors; Articles of Amendment effective April 1, 1992,
setting forth corporate purposes of the Company; Statement with
Respect to Shares with respect to the establishment of the
7.625% Preferred Stock and Statement with Respect to Shares with
respect to the establishment of the 7.75% Preferred Stock.
(Physically filed and designated respectively, as follows: in
Form A-2, Registration No. 2-3889, as Exhibit A-1; in Form 1-MD
for 1938, File No.2-3889, as Exhibit (a)-1; in Form 1-MD for
1945, File No. 2-3889, as Exhibit A; in Form U-1, File No. 70-
2310, as Exhibit A-3 (d); in Form 8-K for March 1951, File No.
1-3491, as Exhibit B; in Form 8-K for June 1958, File No. 1-
3491B, as Exhibit 1; in Form 10-K for 1959 as Exhibits 1, 2, 3
and 4; in Form 8-K for March 1960, File No. 1-3491B as Exhibit
A; in Form U-1, File No. 70-3971, as Exhibit A-2; in Form U-1,
File No. 70-4055, as Exhibit A-2; as Exhibits 1 through 8 in
Form 8-K for January 1962, File No. 1-3491; as Exhibit A in Form
8-K for August 1963, File No. 1-3491; as Exhibits A and B in
Form 8-K for September 1969, File No. 1-3491; as Exhibit B in
Form 8-K for April 1971, File No. 1-3491; as Exhibit B in Form
8-K for September 1971, File No. 1-3491; in Form 8-K for
September 1972, File No. 1-3491; as Exhibit A in Form 8-K for
December 1972, File No. 1-3491; as Exhibit A in Form 8-K for
March 1973, File No. 1-3491; as Exhibit A in Form 8-K for
December 1973, File No. 1-3491; as Exhibits A and C in Form 8-K
for February 1974, File No. 1-3491; as Exhibits A and B in Form
8-K for January 1975, File No. 1-3491; as Exhibit F in Form 8-K
for May 1975, File No. 1-3491; as Exhibit A in Form 8-K for
April 1976, File No. 1-3491; as Exhibit G in Form 10-Q for
quarter ended June 30, 1977, File No. 1-3491; as Exhibit C in
Form 10-K for 1977, File No. 1-3491; as Exhibit A in Form 10-K
for 1977, File No. 1-3491; as Exhibit D in Form 10-Q for quarter
ended June 30, 1980, File No. 1-3491; as Exhibit (4) in Form 10-
Q for quarter ended June 30, 1981, File No. 1-3491; as Exhibit 4
in Form 10-Q for quarter ended June 30, 1982, File No. 1-3491;
as Exhibit 4 in Form 10-Q for quarter ended September 30, 1982,
File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended
September 30, 1983, File No. 1-3491; as Exhibit 4 in Form 10-Q
for quarter ended March 31, 1984, File No. 1-3491; as Exhibit 4
in Form 10-Q for quarter ended June 30, 1984, File No. 1-3491;
as Exhibit 4 in Form 10-Q for quarter ended September 30, 1985,
File No. 1-3491; as Exhibit 3-2 in Form 10-K for 1987 File No.
1-3491; as Exhibit 3-2 in Form 10-K for 1992 File No. 1-3491; as
Exhibit 19-2 in Form 10-K for 1992 File No. 1-3491; and as
Exhibit 3-2 in Form 10-K for 1993 File No. 1-3491.)
B-1 Form of Operating Agreement between the Operating Companies and
ATSI.
D-1 Joint Application of Ohio Edison, Penn Power, Cleveland Electric
and Toledo
<PAGE>
EXHIBIT
Edison to FERC.
D-2 Order of FERC. <RR> (To be filed by amendment.) </RR>
D-3 Application to the PUCO.
D-4 Order of the PUCO. <RR> (To be filed by amendment.) </RR>
D-5 Application to the PPUC.
D-6 Order of the PPUC. (To be filed by amendment.)
F-1 Preliminary Opinion of Counsel. (To be filed by amendment.)
F-2 Past Tense Opinion of Counsel. (To be filed with certificate of
notification.)
G-1 <RR>First Energy </RR> FirstEnergy Form U-3A-2, "Statement
by Holding Company Claiming Exemption under Rule U-2 from the
Provisions of the Public Utility Holding Company Act of 1935,"
dated <RR>February 26, 1999 </RR> February 29, 2000
(Incorporated by reference to such filing, File No. 69-423).
G-2 Form 10-K Annual Report of FirstEnergy for the year ended
December 31, <RR>1998 </RR> 1999 (Incorporated by
reference to such filing, File No. 333-21011).
G-3 Form 10-K Annual Report of Ohio Edison for the year ended
December 31, 1999 <RR> 1998 </RR>(Incorporated by
reference to such filing, File No. 1-2578).
G-4 Form 10-K Annual Report of Penn Power for the year ended
December 31, 1999 <RR> 1998 </RR>(Incorporated by
reference to such filing, File No. 1-3491).
G-5 Form 10-K Annual Report of Cleveland Electric for the year ended
December 31, 1999 <RR> 1998 </RR>(Incorporated by
reference to such filing, File No. 1-2323).
G-6 Form 10-K Annual Report of Toledo Edison for the year ended
December 31, 1999 <RR> 1998 </RR>(Incorporated by
reference to such filing, File No. 1-3583).
H-1 Form of Notice of Application.
B. FINANCIAL STATEMENTS
EXHIBIT
FS-1 FirstEnergy Consolidated Balance Sheet as of December 31,
1999 <RR>1998 </RR>(see Annual Report of FirstEnergy on
Form 10-K for the year ended December 31, 1999 <RR>
1998 </RR>(Exhibit G-2 hereto)).
FS-2 FirstEnergy Consolidated Statements of Income for its last
three fiscal years (see Annual Report of Ohio Edison on Form
10-K for the year ended December 31, 1999 <RR>1998
</RR>(Exhibit G-2 hereto)).
FS-3 Ohio Edison Consolidated Balance Sheet as of December 31,
1999 <RR>1998 </RR>(see Annual Report of Ohio Edison on
Form 10-K for the year ended December 31, 1999
<RR>1998 </RR>(Exhibit G-3 hereto)).
FS-4 Ohio Edison Consolidated Statements of Income for its last
three fiscal years (see Annual Report of Ohio Edison on Form
10-K for the year ended December 31, 1999
<PAGE>
EXHIBIT
<RR>1998 </RR>(Exhibit G-3 hereto)).
FS-5 Penn Power Balance Sheet as of December 31, 1999
<RR>1998 </RR>(see Annual Report of Penn Power on Form 10-K for
the year ended December 31, 1998 (Exhibit G-4 hereto)).
FS-6 Penn Power Statements of Income for its last three fiscal years
(see Annual Report of Penn Power on Form 10-K for the year
ended December 31, 1999 <RR>1998 </RR>(Exhibit G-4
hereto)).
FS-7 Cleveland Electric Consolidated Balance Sheet as of
December 31, 1999 <RR>1998 </RR>(see Annual Report of
Cleveland Electric on Form 10-K for the year ended December 31,
1999 <RR>1998 </RR>(Exhibit G-5 hereto)).
FS-8 Cleveland Electric Consolidated Statements of Income for its
last three fiscal years (see Annual Report of Cleveland
Electric on Form 10-K for the year ended December 31, 1999
<RR>1998 </RR>(Exhibit G-5 hereto)).
FS-9 Toledo Edison Balance Sheet as of December 31, 1999
<RR> 1998 </RR>(see Annual Report of Toledo Edison on Form 10-
K for the year ended December 31, 1999 <RR>1998
</RR>(Exhibit G-6 hereto)).
FS-10 Toledo Edison Statements of Income for its last three fiscal
years (see Annual Report of Toledo Edison on Form 10-K for the
year ended December 31, 1999 <RR>1998 </RR>(Exhibit
G-6 hereto)).
Financial Statements of ATSI are not included herein because it has
no assets and has not engaged in any business operations.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
---------------------------------------
The proposed transactions neither involve a "major federal action"
nor "significantly affect the quality of the human environment" as those
terms are used in Section 102(2)(C) of the National Environmental Policy
Act, 42 U.S.C. Sec. 4321 et seq. Consummation of the proposed
transactions will not result in changes in the operations of FirstEnergy,
Ohio Edison, Toledo Edison or Penn Power that would have any impact on the
environment. No federal agency is preparing an environmental impact
statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this Amendment No.
1 to Application/Declaration to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: <RR>May 19, 1999 </RR> April __, 2000
FIRSTENERGY CORP.
<PAGE>
By: /s/H. PETER BURG
--------------------
H. Peter Burg
<RR>President </RR> Chairman
of the Board and Chief Executive
Officer
<PAGE>
American Transmission Systems, Inc., FirstEnergy Operating
Companies, FirstEnergy Operating Companies, The Cleveland
Electric Illuminating Company, Toledo Edison Company, Ohio
Edison Company, Pennsylvania Power Company, American
Transmission Systems, Inc.
Docket Nos. ER99-2647-000, ER99-2609-000, EL99-71-000,
EC99-53-000
FEDERAL ENERGY REGULATORY COMMISSION - COMMISSION
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254
ORDER ACCEPTING FOR FILING AND SUSPENDING TARIFF AND
AGREEMENT, ACCEPTING FOR FILING OTHER AGREEMENTS,
ESTABLISHING HEARING PROCEDURES, AND CONSOLIDATING
PROCEEDINGS
October 27, 1999
CORE TERMS: transmission, protest, intervenors', tariff, jurisdictional,
ground lease, generating, effective, redispatch, network, motion to
intervene, subject to refund, intervene, Commission's Rules Of Practice,
dispatch, customer, suspend, plant, Federal Power Act, pro forma,
cost-of-service, modification, consolidated, concurrently, reliability,
dispatching, suspension, generation, suspended, non-rate
PANEL:
[*1] Before Commissioners: James J. Hoecker, Chairman; Vicky A. Bailey,
William L. Massey, Linda Breathitt, and Curt Hebert, Jr.
OPINION:
In this order, we accept for filing, suspend, and set for hearing a
proposed open access transmission tariff (OATT) and ground lease
agreement, and accept for filing a joint dispatch agreement (JDA) and
operating agreement being filed in conjunction with the creation of a new
entity, American Transmission Systems, Inc. (ATSI), to serve as the
transmission provider for the FirstEnergy system.
BACKGROUND
In a separate proceeding in Docket No. EC99-53-000, the FirstEnergy
operating companies n1 have applied for Commission approval to transfer
their jurisdictional transmission facilities to ATSI. Upon approval of
this transfer, jurisdictional transmission facilities currently owned and
operated by the FirstEnergy system would be transferred to and operated
by ATSI. The Commission is approving the transfer of jurisdictional
facilities in FirstEnergy Operating Companies, 89 FERC P - , - - -
(1999). The instant order also will address two issues originally arising
in Docket No. EC99-53-000 that more appropriately should be decided here
(i.e., the operating agreement [*2] and ground lease agreement). n2
<PAGE>
PAGE 3
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *2 LEXSEE
[FN]
n1 The FirstEnergy Operating Companies are: Cleveland Electric
Illuminating Company; Ohio Edison Company (Ohio Edison); Pennsylvania
Power Company (Penn Power); and Toledo Edison Company. Penn Power is a
wholly owned subsidiary of Ohio Edison. The other three companies are
wholly owned subsidiaries of FirstEnergy Corporation, as is ATSI.
n2 Although, in Docket No. EC99-53-000, FirstEnergy seeks approval to
transfer transmission facilities to ATSI, all fee land, easements, and
rights-of-way will remain the property of FirstEnergy. ATSI will acquire
the right to use the land through 50-year ground leases with FirstEnergy
(renewable for up to ten, 50-year terms). FirstEnergy transmittal letter
in Docket No.EC99-53-000 at 11-12 and Ex. H.
</FN>
On April 28, 1999, ATSI submitted for filing an OATT that proposes to
adopt the rates for transmission service in effect under the FirstEnergy
OATT (as of the date of transfer of the transmission facilities).
FirstEnergy's rates under its OATT became [*3] effective, subject to
refund, on July 10, 1999 and currently are being investigated in a
hearing process established by the Commission in FirstEnergy Operating
Companies, 88 FERC P61,010 (1999)(FirstEnergy). ATSI's April 28, 1999
submittal also included a Joint Dispatch Agreement (JDA) among ATSI and
the FirstEnergy Operating Companies that provides that ATSI will
coordinate the dispatch of FirstEnergy's system resources.
Notice of Filing and Responses
Notice of ATSI's filing was published in the Federal Register, 64 Fed.
Reg. 25,495 (1999), with comments, protests, and motions to intervene due
on or before May 18, 1999. Timely motions to intervene were filed by
American Municipal Power-Ohio, Inc. (AMP-Ohio) (with a separately filed
protest); ProLiance Energy LLC; PECO Energy Company; City of Cleveland,
Ohio (with protest); n3 Arkansas Electric Cooperative Corporation; North
Carolina Electric Membership Corporation (NCEMC); and Electric
Clearinghouse, Inc. n4 In addition, Ohio Consumers' Counsel (OCC) filed
an out-of-time motion to intervene, six days late.
[FN]
n3 The City of Cleveland's protest endorses the protest of AMP-Ohio,
of which it is a member. [*4]
n4 NCEMC refiled its motion and AMP-Ohio refiled its protest to supply
inadvertently omitted materials.
</FN>
On June 22, 1999, ATSI filed an answer to AMP-Ohio's protest.
DISCUSSION
A. Procedural Matters
Pursuant to Rule 214 of the Commission's Rules of Practice and
Procedure, 18 C.F.R. @ 385.214 (1999), the intervenors' timely, unopposed
motions to
<PAGE>
PAGE 4
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *4 LEXSEE
intervene serve to make them parties to the proceeding in Docket No.
ER99-2647-000. In addition, the Commission will accept the late-filed
motion to intervene of OCC in this same proceeding, given the early stage
of the proceeding and the absence of any undue prejudice or delay.
We will reject ATSI's answer to AMP-Ohio's protest, as an
impermissible answer to a protest under Rule 213(a)(2) of the
Commission's Rules of Practice and Procedure, 18 C.F.R. @ 385.213(a)(2)
(1999).
B. ATSI's Filing
1. ATSI's Proposed OATT Rates
ATSI proposes to adopt without change FirstEnergy's transmission
rates, which are the subject of an ongoing rate proceeding established in
FirstEnergy. Consistent with FirstEnergy's tariff, ATSI distinguishes
between the transmission [*5] service it will provide at voltages of
138 kV or above (bulk transmission service), and that which it will
provide at voltages of 69 kv or below (area transmission service). For
both firm and non-firm services, ATSI proposes to charge $ 0.985 per kW
for bulk transmission and $ 0.754 per kW for area transmission. ATSI
proposes a revenue requirement for network transmission service of
$151,666,033.
AMP-Ohio objects to ATSI's adoption of FirstEnergy's rates, pointing
out that ATSI has not submitted a comprehensive cost-of-service analysis
in support of its filing, and arguing that it is not appropriate for ATSI
to rely on the cost-of-service analysis submitted by FirstEnergy as
reflecting ATSI's costs of providing transmission. In addition, AMP-Ohio
raises many of the same issues related to the specific components of the
cost of service that were raised in FirstEnergy.n5
[FN]
n5 Similar protests in both dockets allege, e.g., an excessive return
on equity, inclusions of transmission assets not yet acquired in the
gross plant investment, incorrect functionalizations of general plant,
unsupported lease payments, and questionable calculations of taxes.
</FN>
[*6]
ATSI's OATT proposes the same rates as proposed in FirstEnergy's OATT,
now under investigation in Docket Nos. ER99-2609-000 and EL99-71-000.
Because the rates are identical and similar issues of fact have been
raised in each of these proceedings, we will suspend ATSI's OATT, set it
for hearing, and consolidate this hearing with the hearing proceedings in
FirstEnergy. We will make ATSI's OATT effective, subject to refund, on
the effective date of the transfer of the jurisdictional facilities.
2. Non-rate Terms and Conditions of ATSI'S OATT
ATSI's OATT generally incorporates the non-rate terms and conditions
of FirstEnergy's tariff that the Commission accepted in FirstEnergy.
ATSI's revisions to the non-rate terms and conditions of FirstEnergy's
tariff deviate from the pro forma tariff only to the extent necessary to
reflect the transfer
<PAGE>
PAGE 5
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *6 LEXSEE
in facilities and responsibilities from FirstEnergy to ATSI. Accordingly,
we will accept these revisions as consistent with or superior to the pro
forma tariff.
3. Redispatch
AMP-Ohio argues that ATSI may delay providing transmission service to
non-affiliates. It says that, because ATSI will not own the FirstEnergy
generating facilities, it will not [*7] have full freedom to
redispatch the system effectively to relieve transmission system
constraints. Instead, the FirstEnergy Companies that own the generating
facilities are merely required to redispatch "when feasible" and "subject
to receiving full compensation." n6 This argument fails to give adequate
consideration to the fact that FirstEnergy will become a network customer
of ATSI, and Section 30.5 of ATSI's OATT states that network customers
must redispatch their Network Resources as requested by the Transmission
Provider. In addition, the JDA provides that ATSI is responsible for
dispatching the generating resources of FirstEnergy. Accordingly, we
conclude that ATSI's OATT will allow ATSI to effectively redispatch
generation resources, even though ATSI itself will own no generation,
and, therefore, AMP-Ohio's concerns are unwarranted.
[FN]
n6 AMP-Ohio protest at 8.
</FN>
4. Possible Rate Impact from Ground Leases and Other Factors
In the proceeding in Docket No. EC99-53-000, several intervenors n7
raised concerns about possible [*8] rate impacts associated with the
proposed transfer of jurisdictional assets from FirstEnergy to ATSI.
These concerns involved possible rate impacts from a ground lease
agreement between FirstEnergy and ATSI, and other factors. The
intervenors in Docket No. EC99-53-000 requested that the Commission
closely examine these issues to ensure that FirstEnergy is not improperly
benefitting from the proposed transfer at the expense of ratepayers. n8
The Commission's response, in Docket No. EC99-53-000, is to state,
[FN]
n7 AMP-Ohio, OCC, and NCEMC.
n8 These same intervenors also are intervenors in the instant
proceedings.
</FN>
The concerns raised by intervenors are more properly addressed in
ATSI's accompanying section 205 filing, which adopts the current
FirstEnergy rates under investigation in Docket No. ER99-2609-000, rather
than the instant section 203 filing. ATSI's open access transmission
tariff is concurrently being suspended, set for hearing, and consolidated
with FirstEnergy's ongoing proceeding in Docket No. ER99-2609-000. [*9]
Accordingly, intervenors' concerns may be addressed in that proceeding.
<PAGE>
PAGE 6
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *9 LEXSEE
Consistent with this determination, intervenors may pursue their rate
concerns at the hearing ordered below. Our preliminary analysis indicates
that the proposed ground lease agreement has not been shown to be just
and reasonable, and may be unjust, unreasonable, unduly discriminatory or
preferential, or otherwise unlawful. Accordingly, we will accept the
proposed agreement for filing, suspend it for a nominal period and set it
for hearing.
5. ATSI's Operating Agreement
On June 8, 1999, in Docket No. EC99-53-000, FirstEnergy submitted for
filing an Operating Agreement between FirstEnergy and ATSI (OA) governing
ATSI's obligations for planning and operations, maintenance, reliability,
and regulatory obligations. The OA is designed to ensure that ATSI will
plan, operate and maintain the transmission system in accordance with
NERC, ECAR, and other regulatory requirements. The OA presents no rate
impact, and merely delineates the responsibilities of ATSI with regard to
safe and reliable operation of the transmission system. The intervenors
in Docket No. EC99-53-000 (who also are intervenors in the instant
proceeding) [*10] raise no specific issues regarding the OA. We will
accept the OA without modification. As the OA more properly belongs in
this proceeding under section 205 and as the intervenors have raised no
objection to acceptance of the OA, we will accept the OA in this
proceeding rather than in the order we are concurrently issuing in Docket
No. EC99-53-000.
6. ATSI's Joint Dispatch Agreement
The JDA is the underlying agreement guiding coordination of the
resources of the FirstEnergy companies and is adapted from FirstEnergy's
existing JDA, with only those changes necessary to incorporate provisions
to facilitate the transfer of transmission facilities to ATSI. It
provides that ATSI will operate as a single control area and will
dispatch FirstEnergy's generating units to achieve the lowest incremental
cost for the next unit of load without regard to ownership of the
generating plants. The revised JDA makes ATSI the party responsible for
dispatching the generating units, providing transmission and ancillary
services, and maintaining the reliability of the FirstEnergy System. The
JDA states that all existing agreements will be honored by ATSI, and that
FirstEnergy will become a network customer [*11] under the ATSI OATT.
We will accept ATSI's JDA for filing without modification.
7. Standards of Conduct
In Ameren Services Company, et al., 85 FERC P61,068 at 61,255 (1998),
the Commission accepted the Standards of Conduct submitted by
FirstEnergy. n9 The Standards of Conduct submitted in this proceeding by
ATSI mirror those accepted by the Commission for FirstEnergy, and require
ATSI employees to adhere to these same procedures. n10 Accordingly, we
will accept ATSI's proposed Standards of Conduct.
[FN]
n9 See FirstEnergy Corporation, et al., 87 FERC P61,141 at 61,561-62
(1999).
n10 See testimony of Mr. Bruce J. Busse, Ex. BJB-1 at 7, and Ex. BJB-
3.
</FN>
<PAGE>
PAGE 7
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *11 LEXSEE
The Commission orders:
(A) OCC's untimely motion to intervene is hereby granted, as discussed
in the body of this order.
(B) ATSI's answer to AMP-Ohio's protest is hereby rejected, as
discussed in the body of this order.
(C) ATSI's proposed open access transmission tariff and ground lease
agreement are hereby accepted [*12] for filing and suspended, to
become effective, subject to refund, on the date of the transfer of the
jurisdictional transmission facilities from FirstEnergy to ATSI.
(D) Pursuant to the authority contained in and subject to the
jurisdiction conferred upon the Federal Energy Regulatory Commission by
section 402(a) of the Department of Energy Organization Act and by the
Federal Power Act, particularly sections 205 and 206 thereof, and
pursuant to the Commission's Rules of Practice and Procedure and the
regulations under the Federal Power Act (18 C.F.R., Chapter I), a public
hearing shall be held concerning the justness and reasonableness of
ATSI's proposed tariff rates and ground lease agreement, as discussed in
the body of this order.
(E) ATSI's filing in Docket No. ER99-2647-000 and its ground lease
agreement filed in Docket No. EC99-53-000 are hereby consolidated with
the proceedings currently set for hearing in Docket Nos. ER99-2609-000
and EL99-71-000, as discussed in the body of this order. The
administrative law judge designated to preside in Docket Nos. ER99-2609-
000 and EL99-71-000 shall determine procedures best suited to accommodate
consolidation of this docket with the pending [*13] proceeding.
(F) ATSI's Joint Dispatch Agreement is hereby accepted for filing, to
become effective, without suspension or hearing, on the date of the
transfer of the jurisdictional transmission facilities from FirstEnergy
to ATSI.
(G) ATSI's Operating Agreement with FirstEnergy, submitted for
approval in Docket No. EC99-53-000 is hereby accepted for filing, without
suspension or hearing, as discussed in the body of this order, to become
effective on the date of the transfer of the jurisdictional transmission
facilities from FirstEnergy to ATSI.
(H) Applicants are hereby informed of the rates schedule designations
shown on the attachment to this order.
By the Commission.
APPENDIX:
Attachment
American Transmission Systems, Inc.
Docket No. ER99-2647-000
Schedule Designations Rate
Designation Description
<PAGE>
PAGE 8
89 F.E.R.C. P61,088; 1999 FERC LEXIS 2254, *13 LEXSEE
(1) FERC Electric Tariff, Original Open Access Transmission
Volume No. 1, Original Sheet Tariff
Nos. 1-181
(2) Rate Schedule FERC No. 1 Joint Dispatch Agreement
Docket No. EC99-53-000
Schedule Designations Rate
American Transmission Systems, Inc.
Designation Description
(1) Rate Schedule FERC No. 2 Operating Agreement
(2) Supplement No. 1 to Rate Ground Lease
Schedule FERC No. 2
[*14]
BEFORE
THE PUBLIC UTILITIES COMMISSION OF OHIO
In the Matter of the Application of The )
FirstEnergy Operating Companies For Ap- )
proval of the Transfer of Their Transmis ) Case No. 98-1633-EL-UNC
sion Assets to American Transmission )
Systems, Inc. )
FINDING AND ORDER
-----------------
The Commission finds:
(1) On May 13, 1999, FirstEnergy Corporation, on behalf
of its operating subsidiaries, Ohio Edison Company,
The Cleveland Electric Illuminating Company, and The
Toledo Edison Company (jointly FirstEnergy), filed
an application seeking approval of the transfer of
certain transmission assets to American Transmission
Services, Inc. (ATSI). ATSI, which would also
operate the transferred transmission assets, is a
wholly-owned subsidiary of FirstEnergy Corporation.
FirstEnergy's application states that this
transaction is intended to be an intermediate and
facilitating step in the subsequent transfer of the
assets, and their operation, to a regional
transmission organization (RTO).
(2) On March 19, 1999, FirstEnergy filed at the Federal
Energy Regulatory Commission (FERC) an application
for authorization to transfer transmission assets to
ATSI under Section 203 of the Federal Power Act (16
U.S.C. Sec. 824b) and Part 33 of the FERC's
regulations (18 C.F.R. Part 33). On April 26, 1999,
FirstEnergy filed an application with the FERC to
modify the FirstEnergy Open Access Transmission
Tariff in order to increase its rates for
transmission service and to change the
classification of below 138 kV transmission
facilities to correspond to that used in the ATSI
applications. On April 28, 1999, FirstEnergy filed
an application with the FERC for acceptance of the
ATSI Tariff under Section 205 of the Federal Power
Act (16 U.S.C. Sec. 824d).
<PAGE>
FirstEnergy included these FERC filings as part of
the application submitted in this proceeding.*
(3) FirstEnergy's application includes a description of
the facilities to be transferred, including
facilities operated at 69kV and above. FirstEnergy
used the FERC's seven factor test from FERC Order
No. 888** in classifying transmission and
distribution facilities for purposes of determining
the facilities to be transferred to ATSI, as well as
for setting the transmission rates proposed in the
ATSI and FirstEnergy Section 205 filing. The
application also provides an identification of the
net book value of assets that will be transferred
and each of the operating companies' contribution of
assets. FirstEnergy claims that the transfer of
assets will not affect rates to Ohio retail
customers due to the rate caps imposed by the
operating companies' existing rate plans. See, Ohio
Edison Co., Case No. 95-830-EL-UNC (October 18,
1995); Cleveland Electric Illuminating Co. and
Toledo Edison Co., Case No. 96-1211-EL-UNC et al.
(January 30, 1997). FirstEnergy also claims that
the operating agreement between ATSI and the
operating companies assures that ATSI will continue
to provide reliable transmission service consistent
with good utility practice and applicable
[FN]
- -----------------------
* On October 27, 1999, the FERC issued an order approving FirstEnergy's
Section 203 application. The FERC concluded that FirstEnergy's
proposed disposition of jurisdictional transmission facilities would
not adversely affect competition, rates, or regulation and the
application was, therefore, approved as consistent with the public
interest. FirstEnergy Corp. Operating Companies/American Transmission
Systems, Inc., Docket No. EC99-53-000 (Issued October 27, 1999). On
that same date, the FERC issued an order accepting for filing,
suspending, and setting for hearing a proposed open access transmission
tariff and ground lease agreement, and accepted for filing a joint
dispatch agreement and operating agreement filed in conjunction with
ATSI's creation as the transmission provider for the FirstEnergy
system. American Transmission Systems, Inc., Docket No. ER99-2647-000;
FirstEnergy Operating Companies, Docket Nos. ER99-2609-000 and EL99-71-
000; and FirstEnergy Operating Companies/American Transmission Systems,
Inc., Docket No. EC99-53-000. On January 12, 2000, FirstEnergy
submitted to the FERC a stipulation and agreement that purports to
resolve all issues that had been set for hearing.
**Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs
by Public Utilities and Transmitting Utilities, Order No.888, 61 Fed.
Reg. 21,540, FERC Stats. & Regs. Para. 31,036 at 31,770-31,785 (1996),
Order on Reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (1997), FERC
Stats. & Regs. Para. 31,048 (1997), Order on Reh'g, Order No. 888-B, 81
FERC Para. 61,248 (1997), Order on Reh'g, Order No. 888-C, 82 FERC
Para. 61,046 (1998) (Order 888).
</FN>
<PAGE>
standards.
(4) By entry issued June 21, 1999, a comment period of
July 9 and July 23, 1999 was established for initial
and reply comments, respectively. Initial comments
were filed by the Ohio Consumers' Counsel (OCC),
Industrial Energy Users-Ohio (IEU), American
Municipal Power-Ohio (AMP-Ohio), and jointly by Ohio
Rural Electric Cooperatives, Inc.* and Buckeye
Power, Inc. Reply comments were filed by
FirstEnergy.
(5) In its comments, OCC states that it is not
necessarily opposed to the placement of transmission
assets into a separate subsidiary from the operating
companies. However, OCC raises concerns with
respect to the proposal's effect on customers, the
effect on competition, and the effect on the
availability of nondiscriminatory transmission
service. Specifically, OCC urges the Commission not
to allow FirstEnergy to recover the above-market
book value of generation plant from customers while
keeping for itself the above-market value of
transmission plant. OCC also expressed concerns with
FirstEnergy's delineation of transmission as
comprising all facilities of 69kV and above.
According to OCC, it is not clear that this division
of transmission assets is consistent with the FERC's
seven factor test required by Order 888. OCC's
comments state further that the Commission must look
at the specifics of the transaction, such as the
ground lease and the operating agreement because it
is not clear that the public interest will be served
by allowing FirstEnergy to maintain ownership of the
real estate upon which the transmission assets are
located.
(6) IEU states that FirstEnergy's proposal could result
in price and service pancaking that will reduce
customers' opportunities to access alternative
suppliers and could deprive customers of the
benefits of effective competition. IEU also argues
that any approval by the Commission should be
conditioned upon a finding that any premiums
resulting from the divestiture be used to offset
transition costs claimed by FirstEnergy. IEU
further argues that the transaction does not meet
the FERC's seven-factor test and that FirstEnergy
has failed to show that ATSI divestiture fulfills
the
- ---------------
* Ohio Rural Electric Cooperatives and Buckeye Power's comments state
only that they should be granted intervention because, as transmission
dependent electric utilities (TDUs), they have a keen interest in any
measures that will eliminate pancaked rates, hidden charges, and other
terms and conditions of transmission service which place TDUs at a
competitive disadvantage.
<PAGE>
objectives of Amended Substitute Senate Bill 3.
IEU concludes that FirstEnergy's application should
be dismissed because it is not in the public
interest.
(7) AMP-Ohio's comments are comprised of the attachment
of its comments filed with the FERC. In those
comments, AMP-Ohio questioned the lack of detail on
fees charged by FirstEnergy to ATSI for start-up
costs and the ground lease agreement. AMP-Ohio also
opposed FirstEnergy's application of FERC's seven-
factor test. According to AMP-Ohio, FirstEnergy
improperly drew the transmission demarcation point
at 69 kV and above, as opposed to basing the
transmission/distribution distinction on
functionality of assets. AMP-Ohio also questions
the relationship between ATSI and FirstEnergy in
ATSI's ability to control generation. AMP-Ohio
argues that ATSI should be required to notify
customers of the source for energy imbalance service
when it is not from FirstEnergy generators, and that
ATSI should have the authority to redirect dispatch.
Finally, AMP-Ohio questions the use of deferred tax
accounts.
(8) In its reply comments, FirstEnergy disputes the
arguments raised by the commenting parties.
FirstEnergy claims that the bulk of the issues
raised in the comments are FERC-jurisdictional and
that the commentors are attempting to pursue FERC
issues before this Commission. FirstEnergy argues
that its application of the seven-factor test for
separating transmission and distribution facilities
appropriately determined the demarcation point at 69
kV. FirstEnergy claims that it classified as
transmission those facilities that transfer power
across the integrated network, and classified as
distribution those facilities utilized to deliver
power to a specific customer. FirstEnergy
reiterated that the creation and transfer of assets
to ATSI is intended only as a first step measure
which will be followed by the formation of the
Alliance RTO. According to FirstEnergy, the only
issue before this Commission is approval of the
transfer of assets from the FirstEnergy operating
companies to ATSI. FirstEnergy also contends that
the use of a ground lease with ATSI provides
advantages such as maximization of real property
rights for ratepayers and shareholders, quicker
transfer of property rights (including avoidance of
surveys, deed recordings, and easement
negotiations), and lower startup costs for ATSI.
(9) On February 8, 2000, the Commission conducted a
public discussion session on the issues raised by
the ATSI application.
<PAGE>
All commenting parties were invited to participate
and representatives of FirstEnergy and IEU offered
input at the meeting. The participants reiterated
many of the same arguments contained in their
comments. During the public discussion, the
participants responded to questions concerning
ongoing jurisdiction over ATSI*, application of the
seven-factor test, and nondiscriminatory access to
transmission services for all customers, including
FirstEnergy's current native load customers.
Based on the public discussion, as well as the
previously filed comments, we conclude that
FirstEnergy's application should be approved,
subject to certain conditions. Although we agree
that the transfer of assets is a sensible step as
part of a movement toward divestiture of the
transmission system, there are concerns raised by
the intermediate period prior to transfer to a state
and FERC approved RTO. The issues addressed in our
public discussion and in the pleadings raise issues
in three areas: (1) application of FERC Order 888's
seven-factor test; (2) ATSI's native load
obligation; and (3) jurisdiction.
FERC's Seven-Factor Test
As noted in the FERC's order approving the
FirstEnergy/ATSI asset transfer, FERC Order No.888
requires utilities to consult with their state
commissions concerning proposed classifications of
transmission and distribution facilities prior to
filing a request for classification with the FERC
(Docket No. EC99-53-000, Order Issued October 27,
1999, at 16). In accordance with that requirement,
the FERC directed FirstEnergy and ATSI to file a
request for declaratory order "recognizing the Ohio
Commission's identification of which facilities
should be classified as local distribution" (Id. at
17, emphasis added). Although it was apparently
contemplated by the FERC that we would render an
opinion regarding which specific assets should be
designated as distribution facilities, we do not
believe that a sufficient record exists in this case
to enable those decisions to be made. Given the
implications and potential customer impacts, the
appropriate demarcation between specific
transmission and distribution facilities will be
best addressed in FirstEnergy's transition plan
case. Thus, the approval in this case is subject to
this
[FN]
- ----------------
* Counsel for FirstEnergy acknowledged that, pursuant to
Section 4905.03(A)(4), Revised Code, (as amended under S.B.
3) ATSI would be a public utility subject to our
jurisdiction.
</FN>
<PAGE>
Commission's ultimate identification of the
facilities involved through the demarcation process
as required in the company's transition plan filing.
Native Load Obligation
The Commission's concern about the interrelationship
of ATSI and FirstEnergy's existing and future native
load obligations was an issue raised in the comments
and in our public discussion. It is critical that
this transaction not put native load customers of
FirstEnergy's transmission system at a disadvantage.
Therefore, we are approving this transaction subject
to the condition that ATSI fully succeed to
FirstEnergy's native load obligations. Moreover, we
direct FirstEnergy to address in its transition plan
case the native load obligations that both it and
ATSI will have for all transmission customers (i.e.,
for those customers that choose an alternative
supplier and those who do not). We expect these
issues to be raised before the Commission as part of
the transition plan process so as to meet the goals
of Am. Sub. S.B. No. 3 prior to the filing of any
amendments to the company's FERC open access
transmission tariff to address retail choice. ATSI,
as a utility subject to the Commission's
jurisdiction, should participate in FirstEnergy's
transition case to ensure a complete record for
review by this Commission.
Jurisdiction
Section 4905.03(A)(4), Revised Code, makes clear
that ATSI is a public utility subject to this
Commission's jurisdiction. Nothing in this approval
shall be interpreted as diminishing this
Commission's jurisdiction over the provision of
transmission service to retail customers.
Accordingly, ATSI should file a tariff with this
Commission within 45 days of the issuance of this
order indicating that it is succeeding to all the
rates, terms, conditions, and obligations of
FirstEnergy to its retail customers. ATSI should
work with the staff on the development of the
tariff.
It is, therefore,
ORDERED, That FirstEnergy's application to transfer its
transmission assets to ATSI is approved subject to the conditions set
forth herein. It is, further,
ORDERED, That, upon consummation of the asset transfer, ATSI is
authorized to
<PAGE>
file four complete copies of new tariffs consistent with this finding
and order. The effective date of the tariffs shall be the date the
tariffs are filed in accordance with this order. It is, further,
ORDERED, That nothing in this finding and order shall be deemed
binding on the Commission in any subsequent investigation or
proceeding involving the justness or reasonableness of any rate,
charge, rule, or regulation. It is, further,
ORDERED, That a copy of this finding and order be served upon
all parties of record in this proceeding and in FirstEnergy's
transition plan case (Case No.99-1212-EL-ETP et al.).
THE PUBLIC UTILITIES COMMISSION OF OHIO
/s/ Alan R. Schriber
-----------------------------
Alan R. Schriber, Chairman
/s/Ronda Hartman Fergus
- ------------------------ ------------------------
Ronda Hartman Fergus Craig A. Glazer
/s/ Donald L. Mason, Esq.
- ------------------------ -------------------------
Judith A. Jones Donald L. Mason
DDN/vrh
Entered in the Journal
FEB 17 2000
-----------
A True Copy
/s/ Gary E. Vigorito
--------------------
Gary E. Vigorito
Secretary
<PAGE>
