第一能源 (FE) 2008 Q4 法說會逐字稿

Greetings and welcome to the FirstEnergy Corp.'s first quarter 2008 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ms. Irene Prezelj, Manager Investor Relations for FirstEnergy Corp.'s. Thank you, Ms. Prezelj you may begin.

Thank you. During this conference call we will make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects, and other aspects of the business of FirstEnergy Corporation are based on current expectations that are subject to risks and uncertainties.

A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the consolidated report to the financial community, which was released earlier today and is also available on our web site under the "Earnings release" link. Reconciliations to GAAP for the non-GAAP earnings measures we will be referring to today are also contained in that report as well as on the investor information section of our web site at www.firstenergycorp.com/ir.

Participating in today's call are Tony Alexander, President and Chief Executive Officer, Rich Marsh, Senior Vice President and Chief Financial Officer, Harvey Wagner, Vice President and Controller, Jim Pearson, Vice President and Treasurer. [Bill Bird], Vice President of Corporate Risk, and Ron Seeholzer, Vice President of Investor Relations. I'll now turn the call over to Tony.

Thanks, Irene. And good afternoon, everyone.

Earlier today, we reported 2008 normalized non-GAAP earnings of $4.57 per share, exceeding our revised earnings guidance of $4.30 to $4.40. This represents an 8% increase over our 2007 non-GAAP earnings. Earnings on a GAAP basis were $4.41 per share compared to GAAP earnings of $4.27 per share in 2007. We also generated $2.2 billion in net cash from operating activities during the year.

These results were driven by favorable operational performance as we continued to improve the efficiency and reliability of our generating fleet, and further enhance the quality of service to our distribution and transmission customers. Our generation portfolio posted a record output of 82.4 million-megawatt hours during 2008. Our nuclear units produced 32.2 million-megawatt hours with a 93% capacity factor. Our generation record reflected in part our efforts to increase the output of our fleet through incremental low cost upgrades and enhancements. In the last year we added 66 megawatts in nuclear capacity enhancements. And over the past three years we've added 450 megawatts of generation in this similar manner.

In 2008 we also expanded our renewable portfolio with several new, long-term contracts for more than 160 megawatts of wind power. We made several important strategic investments during 2008, including our acquisition of the partially completed 707-megawatt Fremont generating plant. Given our current economic conditions, we've extended the construction schedule for this facility with completion now expected in 2012. This will reduce our 2009 capital expenditures by $142 million.

We also acquired an ownership interest in Signal Peak, a coal mine in Montana, during the year. Construction of the Long Wall mining equipment, wash plant, the development of the mine, and the 35-mile rail extension are proceeding well. And we expect to begin receiving coal deliveries later this year. We continue to improve customer reliability in our energy delivery business during 2008, with a 3% decrease in average outage duration, bringing our three-year improvement to 34%. We also achieved a 9% reduction in the frequency of transmission outages versus the prior year.

These achievements were facilitated by the meaningful capital investments we've made in our regulated utility business and are particularly noteworthy given that 2008 was the worst year for storms in the last ten years. And importantly we recorded an annual OSHA safety rate of 0.97, a near top [decile] performance. Even so accidents in our business can and do result in fatalities and serious injuries, and we won't be satisfied with our performance until we achieve zero incidents.

Like most companies, we saw increasing evidence of the economic recession during the fourth quarter. These conditions are expected to impact FirstEnergy on several fronts this year, including reduced customer loads, particularly in the industrial sector, and softer energy prices. We've already taken steps to help deal with this challenging environment, including a reduction in our planned capital expenditures, lower O&M spending, and further strengthening of our liquidity position.

We've been thoughtful in making these adjustments. And they won't take us off course. For example, we've prioritized our capital and O&M spend, and are focusing our 2009 reductions in areas that aren't expected to adversely impact the reliability of our service or the ability to grow in the future. We'll maintain our focus on the fundamentals; the pursuit of operational excellence, continued financial discipline, and a commitment to continuous improvement throughout the organization. We built a solid foundation over the past several years, and I believe that positions us well as we head into 2009.

I know many of you are interested in the status of our discussions in Columbus. And I'll give you a quick update of those at this point. We remain hopeful for a positive regulatory outcome, and currently have a settlement agreement before the PUCO that we believe strikes an appropriate balance between the needs of our investors and customers. In late January, the PUCO directed its staff to develop a proposal for an alternative ESP and share it with the parties in the case.

Earlier this month these parties met, and the discussions resulted in the stipulation that was signed by our Ohio companies, the staff of the PUCO, and many of the intervening parties representing a diverse range of interests. The stipulation result in generation price stability through May, 2011, gives the PUCO flexibility to phase in the generation prices that become effective June 1st of 2009, and settles pricing and service arrangements for the distribution of electric service through December, 2011. We believe it's a more favorable solution to customers than a market rate offer alternative. In broad terms, the stipulation captures many of the elements of the original ESP with the benefit of a competitive bidding process to set retail generation rates.

Let me give you a few highlights of the stipulation. And they would include in April and May of 2009, generation will be supplied from FES to our Ohio companies at the average rate established in the December, 2008, RFP process which is $66.68 per megawatt hour. The deferral of a portion of the purchase power cost for CEI will continue during April and May, with recovery of the deferred balance plus carrying costs commencing June 1st, 2011.

For the period beginning June 1st this year through May 31st of 2011, retail generation rates will be set from the results of a descending clock competitive bidding process. In this process, the Ohio companies will procure on a [slice] system basis 100% of their full requirement supply including transmission and ancillary services. This bidding process will be conducted by an independent bid manager, and if the stipulation is approved by the commission, will likely be conducted in May. The PUCO also has the option to phase in the resulting generation pricing for retail customers subject to specified limits.

The stipulation also promotes economic development and provides rate discounts for qualifying schools. As a part of this stipulation, we will write off 50% of the extended RTC balance at CEI as of May 31st. Which we estimate to be approximately $215 million. The CEI RTC charges will be reduced accordingly, commencing on June 1st, 2009, and continuing through December 31st, 2010. Total onetime charges associated with implementing the ESP would be approximately $250 million or $0.53 per share of common stock.

The companies have committed to a base distribution rate freeze through the end of 2011. There is a delivery service improvement rider which will be established with an effective date as of April 1st, 2009, and run through December 31st, 2011. And the stipulation provides for the recovery of deferrals previously approved by the commission. All the signatory parties to the stipulation requested that the commission approve certain provisions of the stip. Kind of a near term generation service provisions by March 4th and the full stipulation by March 25th.

Although we won't be able to provide 2009 earnings guidance until we reach clarity in Ohio, Rich will review selected earnings drivers later in the call. Overall, I'm pleased with the terms of the stipulation and hopeful that the commission will act promptly and approve what the parties are recommending. Moving to market pricing at this point in the commodity cycle won't be easy, but we're prepared to operate effectively and successfully.

I'll now turn the call over to Rich to discuss our fourth-quarter results and 2009 earnings drivers. Rich?

Thank you, Tony. As I review our fourth-quarter results, it might be helpful to refer to our consolidated report to the financial community that we issued this morning.

Earnings on a GAAP basis in the fourth quarter were $1.09 per share compared to GAAP earning of $0.88 per share in the same period last year. Excluding special items, normalized non-GAAP earnings were $1.21 per share compared to $0.90 per share in the fourth quarter of last year. Key drivers for this quarter's favorable results include' higher generation revenues which increased earnings by $0.04 per share, primarily as a result of the mix of sale. Lower generation O&M expenses increased earnings $0.12 a share driven primarily by fewer scheduled nuclear fossil outages. The sale of unneeded emission allowances and lower rental cost following the acquisition of lessor equity interests under our Perry and Beaver Valley two sale lease backs also contributed to this result.

A lower effective income tax rate increased earnings by $0.09 per share, and this principally reflected the ramp-up of the manufacturing deduction percentage, continuing phaseout of the Ohio State income tax, lower interest on reserve tax issues, and utilization of net operating losses to reduce state income taxes. And for 2009, we expect marginal tax rate to be about 38%.

Reduced energy delivery expenses increased earnings $0.08 per share due to lower uncollectibles, general cost control measures, and additional resources devoted to capital projects. Lower transmission costs by FirstEnergy Solutions increased earnings by $0.07 per share primarily due to congestion settlements in the fourth quarter of 2008. The assignment of two existing Powder River basin coal contracts increased earnings by $0.04 per share. Our acquisition of Signal Peak made us long western coal in the 2010 to 2013 period, and this assignment reduced that 2010 position.

Finally, reduced pension expense and other employee benefits increased earnings by $0.04 per share versus the prior year. Although our service territory experienced colder than normal weather in the fourth quarter compared to 2007, that positive impact wasn't enough to offset lower distribution deliveries to the industrial sector, which reduced earnings by a $0.01a share. Kilowatt hour deliveries through our distribution system were 4% lower than in the prior year. The largest impact was in industrial demand and, in particular, our Ohio steel and automotive customers.

Commercial deliveries declined by 2% while residential deliveries increased slightly. Heating degree days were 13% above the same period last year and 5% above normal. Other factors partially offsetting this quarter's positive results included increased net fuel and purchase power expense, which reduced earnings by $0.04 per share. Fuel expenses increased by $0.09 per share, primarily due to higher coal transportation expenses, and related fuel surcharges stemming from new contracts that took effect in 2008. This was partially offset by lower purchase power expense which increased earnings by $0.05 per share.

Purchase volumes were lower in 2008 than in the same period of 2007 due to fewer scheduled outages at our generating plants. General taxes primarily higher franchise and property taxes reduced earnings by $0.03 per share. And incremental property additions also increased depreciation expense by $0.03 per share. Higher Ohio transition cost amortization reduced earnings by $0.02 per share, and decreased investment income from [Pordone] Life Insurance partially offset by an increase in nuclear commissioning trust income reduced earnings by $0.02 per share. And finally higher financing costs related to the issuance of first mortgage bonds at Ohio Edison and Cleveland Electric Illuminating decreased earnings by $0.01 per share.

Looking forward to 2009, the economic climate will make this a challenging year for our industry. As Tony mentioned, we've taken a number of actions to help us weather this storm and to position FirstEnergy favorably when conditions improve. We expect the customer loads will be adversely impacted in 2009, and we've seen that trend already with an overall decline in sales of nearly 3% in the second half of 2008 versus the prior year. Although that result isn't normalized for weather.

In response, we've adjusted both our capital and O&M programs for 2009. Capital expenditure will be reduced to about $1.6 billion from more than $2.1 billion in 2008, primarily reflecting changes in certain generating plant outage schedules, a delay in completion of the Fremont plant, and adjustments in the timing of our environmental programs. Our total generation output for 2009 is expected to be nearly 81 million-megawatt hours.

We're implementing O&M reductions of more than $100 million or 5% compared to the 2008 level. These include adjustments to our staffing levels in certain fossil plant outage schedules, changes in our compensation structure including the suspension of merit adjustments in 2009, and other cost-saving measures across the Company. From a financial perspective, our objectives for 2009 include maintaining an appropriate degree of liquidity, enhancing our ability to be flexible in response to rapidly changing market conditions, maintaining a secure dividend with the potential for growth, and positioning the Company to emerge strongly when the economy recovers.

Our liquidity position remains strong. We have access to more than $4 billion of liquidity of which approximately $2.6 billion was available at the end of January. We've continued to successfully execute our program to reduce our reliance on the bank markets. We've issued $1.2 billion of debt at our operating Company since October, and held cash reserves of $1.1 billion at the end of January. Our net financing costs are expected to increase by about $27 million or $0.05 per share in 2009. This equates to an increase of less than 3% and is driven by the $1.2 billion of operating Company debt we've completed as well as projected additional debt issuance of about $400 million in 2009.

We also recently entered into a definitive agreement to sell 9% or nearly half of our 20.5% ownership interest in the Ohio Valley Electric Corporation or OVEC. OVEC is owned by a consortium of electric utilities which share the output of two generating facilities with a combined capacity of nearly 2,400 megawatts. FirstEnergy's portion of OVEC is qualified as a PGM resource and we expect to close this transaction in April.

As Tony indicated, we plan to issue 2009 earnings guidance when we achieve regulatory clarity in Ohio, including completion of the power procurement process. So while I can't yet provide specific guidance for 2009, I wanted to outline a selection of earning drivers that we expect will help shape our results during the year. Pretax items that are expected to increase earnings in 2009 versus 2008 include the Ohio distribution rate case approved by the PUCO last month, which results in an increase of more than $75 million or $0.15 per share.

The significant actions we've taken to reduce our operating costs that total more than $100 million. It will improve 2009 earnings by at least $0.20 per share. Increased generation margin at FES as a result of termination of the below-market power sales agreement. The Ohio Company Supply obligation at the end of last year. The 2008 power sales agreement price was $46.40. And we believe that the satisfactory resolution of our Ohio regulatory matters including the results of the generation procurement process will be another positive earnings driver.

Pretax drivers that are expected to decrease earnings in 2009 versus 2008 include qualified and not qualified pension and [OPEB] expense of $0.35 per share in 2009 versus income of $0.12 per share in 2008 or a net year-over-year impact of $0.47 per share. Although we took steps earlier in 2008 to reposition the pension portfolio, including reducing our equity exposure from 61% to 47%, and increasing the duration of the fixed income portfolio, the plan still suffered an investment loss of 24% during the year. That compares favorably to many of our peers, but it still results in this change in pension expense for 2009. Due largely to the $1.3 billion of cash that we contributed to the plan over the 2005 to 2007 period the funded status at the end of 2008 remained at 89% on an ABO basis, and 83% on a PBO basis. We won't be required to make a cash contribution to the plan in 2009.

Our fuel expense is projected to increase by $240 million in 2009, and during the year, we'll have three scheduled nuclear refueling outages versus only two in 2008. Which will increase expense by about $30 million. We had a favorably priced contract with the third-party supplier to serve 4.5 million-megawatt hours and our MetEd and Penn Electric Utilities that expired at the end of 2008. FES is obligated to replace the megawatt hours at a contracted price of $41.50 which results in a loss to wholesale sales opportunity and additional purchase power expense for the utilities.

At our Ohio utilities, RTC revenues were fully recovered at Ohio Edison and Toledo Edison at the end of 2008, and as anticipated under prior rate plans, will be reduced at CEI for the second quarter of 2009. The net impact of this and the associated RTC amortization expense will reduce 2009 pretax income by $375 million or about $0.76 per share. The end of the Ohio distribution reliability deferral and our RCP plan results in $125 million or $0.25 per share decrease in earnings and reflects a reduction due to over recovery of approximately $25 million of RTC at Ohio Edison and Toledo Edison.

We also expect that depreciation expense will increase by about $45 million, and that general taxes will go up by about $40 million. And finally, our overall sales volumes are expected to remain soft due to the economic climate.

So wrap up, let me say that we're gratified by our performance in 2008. But 2009 is a new year, and it's shaping up to be a demanding year for business generally. But we believe the actions we've taken will help guide FirstEnergy successfully through these times.

Our liquidity position is stronger now than it's ever been, with cash investments of $1.1 billion and unused credit availability of $1.5 billion at the end of January. For total liquidity of $2.6 billion. This reduces our reliance on the short-term bank markets. We're focused on maintaining a secure dividend with the potential for growth, and we've reduced our capital and operational spending in 2009 by over $600 million from last year's level to generate incremental earnings and cash flow.

We've reached an agreement with the PUCO staff and many of the interveners in our electric security plan case that would provide predictable pricing for customers and strike a reasonable balance with the needs of our investors. And we submitted a plan in Pennsylvania under which rates for polar service to our MetEd and Penn Elec customers will be based on market prices starting in 2011. We remain committed to delivering consistent financial and operational results for our investors and customers in this turbulent environment. And look forward, along with everyone else, to the return of better economic conditions in the future.

We appreciate your time today and your continued interest in FirstEnergy, and I'd now like to [Claudie] to open the call to questions from analysts. Thank you.

Thank you. Ladies and gentlemen, we will now be conducting the question-and-answer session. (Operator Instructions) Our first question is coming from Greg Gordon with Citigroup. Please state your question.

Thank you. Good afternoon.

Hi, Greg.

Looking at the 2009 earning drivers list, one of the things that's not on there -- and I know that this is definitionally not all inclusive. When I look at the second quarter and third quarter of 2008, you talked about basically having been caught short in Pennsylvania and New Jersey in both quarters -- excuse me. In both quarters. And that the high power prices at the time were a $0.20 drag in the second quarter, an $0.11drag in the third quarter. Power prices are obviously off a lot since then. So I'm wondering why that isn't a positive driver unless of course you hedged that -- that open position for 2009 when prices were higher?

I think your question refers to Pennsylvania, not New Jersey, Greg. I mean, New Jersey is a BGS auction, straight pass-through for our district companies. I'm not sure if I follow your question, but I think you're talking about the supply costs for MetEd Penn Elec subsidiaries in Pennsylvania?

That's correct.

Okay. We didn't -- we didn't include -- didn't attempt to include I should say every driver in this list. We tried to highlight selected items. So we didn't intend to purport this as inclusive or representing earnings guidance, Greg. That is a factor. And when we do give guidance, I mean, it will be inclusive. But we didn't -- we didn't try to achieve that with the drivers we -- we laid out here.

That's clear. I understand. I'm just asking directionally if I look at your short position in Pennsylvania, relative to your short position last year and where power prices are now, if you were in fact sort of open to the same magnitude, that would be a benefit. And I'm wondering whether we should expect purchase power costs in fact to be lower in '09 versus '08, or are you substantively hedged?

Greg, it's Ron Seeholzer. Yes. We've talked about this before. You'll see the negative bullet on the MetEd Penn Elec underlying contract. To the extent you're imputing a higher opportunity cost versus wholesale sales in Ohio, eight versus nine, certainly the power price is coming back in 2009 in Pennsylvania will reduce that opportunity cost. I think that's what you were driving at.

Okay. I'll call you offline to talk about it further. The-- the second thing is can you give us a specific assumption as to what you're assuming vis-a-vis load contraction in Pennsylvania and Ohio for '09?

Not at this point, Greg. I don't think anybody has the visibility into 2009 that they would like to have given the economic conditions. But I can say, I mean we have changed our internal forecast to reflect what we think is a good estimate, as good an estimate as we can of that. So a significant amount of -- of revision downward. I would expect that when we give earnings guidance we would go through that in more detail. But we'll hold until that point in time to give specifics on it.

Okay. Thank you.

Thanks, Greg.

Our next question is coming from Paul Fremont with Jefferies & Company. Please state your question.

Thanks, Paul Fremont.

Hi, Paul.

A couple of housekeeping questions first. Can we assume that the assignment of the coal contract is nonrecurring in nature? As well as the transmission expense congestion expense settlement? And does the congestion expense settlement total the full $0.07 or is that only a part of the $0.07?

Going to the first question about the coal assignment, I mean, we had a long position over several years this helped close that long position for part of that time period. So there could be further selling off of the long position as time goes on. Second part of your question --

The congestion expense settlement.

Yes, Harvey.

Paul, this is Harvey Wagner. I think it was around $0.04 or $0.05 on the congestion settlement.

Okay. And on the nuclear decommissioning fund, I guess I'm surprised that it's -- that the earnings for the quarter are up given the performance of the stock market. Is there like little or no equity component in the nuclear decommissioning trust?

We have been reducing that over the past year, Paul. There is some equity component, but not a large equity component. Also, as part of that restructuring, there was some income that was generated, as well. So it was a combination of those items.

Paul, this is Harvey again. The $0.02 that I think you're talking about is the normal income that is thrown off from the decommissioning trust. We had the $0.12 charge for the impairment which reflects the reduction in the market value.

Okay.

And that's a separate item.

And then my last question has to do with the accounting for OVEC. I mean, is OVEC a counter for as part as your generation, is it purchase power and does it factor into the megawatt hour reduction that you're forecasting for 2009?

It's reflected as purchase power. But it's not -- no, it does not factor into the -- the generation megawatt hour numbers that you referenced, Paul.

In terms of resources though -- so that would be incremental to the -- to the generation that you're losing from your power plants?

That's correct.

And I guess the last thing there is -- is I would assume you're going to be projecting some sorts of a gain on the sale of your OVEC interest?

Yes. I would expect we would.

Okay. Thank you.

Thank you.

Our next question is coming from Hugh Wynne with Sanford Bernstein. Please state your question.

Hi. One of the things that you all did very well in this quarter was to reduce O&M expenses basically across your operations, the generation fleet, the delivery, the transmission. And then you say that you're going to try and push through $100 million of additional O&M reductions in 2009. Should we read that as implying a -- a $100 million reduction in the level of O&M expense from 2008, or $100 million reduction off of a trajectory of increase that -- that you've not disclosed here?

You should read that as $100 million increase from the levels of 2008.

$100 million decrease from 2008 --

Did I say increase? Decrease. Sorry.

From 2008. Okay. And --

Incremental.

And the 5% decline in generation sales of 4% decline in distribution deliveries in the fourth quarter despite an increase in -- in heating degree days, the implications for -- for 2009, are we at a level of sales now that you think is sustainable for next year, or do you see further declines from this point?

I think the answer is a little bit different across the three states that we serve, Hugh, and also within the categories of our industrial customers. And clearly northeast Ohio we continue to have exposure to the auto and steel.

Right.

Industries in particular. We would expect those to be weak this year, unfortunately. So I think we will likely see some continued erosion. We reflected some of that in our plan for 2009. Now the other side of that from a margin perspective, those are the lowest margin customers. So the margin and the volume impacts are not proportional. But it is something that certainly we've witnessed and continue to track closely.

Okay. Thanks very much.

Thank you, Hugh.

Our next question is coming from John Kiani with Deutsche Bank. Please state your question.

Good afternoon.

Hi, John.

Can you give us an update on the NOPEC customers? I know there was another energy marketer that appeared to be soliciting it was like half a million customers or something. Can you talk to us about where you think the customers stand especially in light of the recent settlement?

Actually, John, this is Tony. Actually I don't have any additional information on it. NOPEC has not signed the settlement proposal. They're one of the parties that chose not to sign on. At least at this point. And quite frankly, their status with -- with the suppliers that they've indicated that they've talked to is -- at this point I don't have any information on it.

Okay. And then so from -- from the perspective of obviously the drivers that you all provided, that at least at this point it seems like assumes that you retain those NOPEC customers as far as we know.

Yes. I think that's --

I just don't think we identified them as drivers.

Got you. Okay. Very good. Thank you.

Thanks, John.

Our next question is coming from Jeff Coviello with Duquesne Capital. Please state your question. Mr. Coviello, your line is live.

Sorry. I was -- good afternoon, guys.

Hi, Jeff.

I had a question on the -- on the auction on the way we should think about the load you're serving with the FES auction. What's the approximate right amount of megawatt hours you guys are going to serve in Ohio on the auction? I guess assuming you did 75% in the first quarter, assuming you do 100%, let's say just say, hypothetically, how many megawatt hours would that be approximately?

55.

55. Okay. And then if you do less than 100%, what would you do with the additional megawatt hours you generate? Should we think about those going into the wholesale market or driven --

Well, there's a couple options. I mean one would be to serve customers at retail as opposed to the auction itself, Jeff.

Okay.

Or into the wholesale market. So there's really three places that generation could end up.

Great. Maybe someone asked this. Currently, when roughly think the auction will be if things move according to plan from here on out?

It looks like it will be in May at this point. I presume early May.

Got it. Okay. Thank you very much.

Thanks, Jeff.

Our next question is coming from Paul Patterson with Glenrock Associates. Please state your question

Hi, how are you?

Good, Paul. How are you?

The shopping, the level of shopping decrease in Ohio among all the customer groups in the fourth quarter, what was driving that? That's on the statistical summary page, electric sales shopped. Looked like across the board it was a 25% kind of drop.

Well, I think those were the results of contracts or other arrangements expiring at the end of the year and they were being transferred out at probably last billing dates.

Okay. So I guess all that is is just a contractual change. In other words --

Yes. It is moving off of the one plan and into the next. And the arrangements at FES for retail transactions did not extend into the 2009 period.

Okay. The Pennsylvania power auction, does that have any impact on EPS? I know that you guys didn't itemize every little thing in the drivers, but is that a driver at all, or is it just so insignificant from a size perspective? I know that the residential, about half of it was done in early 2008 from a pricing perspective. Just in commercial it was different. But any impact from that at all?

No.

No, Paul. It's similar to New Jersey. And it's pretty much a pass-through.

Okay. And then just -- when you look at that Pennsylvania power auction, how do you think about that in comparison to what you're looking at in Ohio? Is it just such a different market, and such a different situation that that just really bears no resemblance and it's an outlier, or is there any -- is there any way to sort of look at that as a signal as to what could happen in Ohio?

I don't know, Paul. It's a much smaller load for one thing. It's a different time period. Different tranche. I don't know.

Yes, Paul. I'd say this just one data point in a very small or limited transaction.

Okay. Great. Is there any expected change in tax rate for '09?

Our marginal rate is -- will be in the 38% range. But the effective rate -- we'll be able to give you more information on that when we provide guidance for 2009.

Okay. Great. Thanks a lot, guys.

Thank you, Paul.

Our next question is coming from Steve Fleishman with Catapult Capital. Please state your question.

Yes. Hi. Just wanted to clarify in your 2009 factors, you obviously are not -- didn't go into what generation price you're assuming. But you're also not including the distribution rider that's part of the current settlement?

That's correct, Steve.

And did you also not include the resolution of the RTC on Cleveland, too?

Yes, we did not include that also.

So none of the provisions of that.

Correct --

Agreement are included in here?

That's correct, Steve.

Okay. Do you have a sense on when the commission at this point is likely to vote to vote on the settlement?

Well, Steve, if they hold to the recommendation of the parties we would expect an order out before March 4th or on or about March 4th covering the period basically April and May. So that the pricing in that period is fixed, and then some other ancillary parts of the -- the stipulation. But then the main stipulation would be approved prior to or on or about March 25th. Then that -- that would -- it's kind two of parts because we've got to get April and May solved as part this overall transition.

Okay. Great. Thank you.

Thanks, Steve.

Our next question is coming from Carrie St. Louis with Fidelity Investments. Please state your question.

Hi. Good afternoon.

Hi, Carrie.

I was curious, have you had any discussions with the agencies since your Ohio settlement has been announced?

I mean, we've always in some degree of contact with the agencies just making sure that they understand what's going on and so forth, Carrie.

Okay. With specific S&P, have they commented since they've been kind of watching the discussions there pretty closely? Any views on how they view this settlement versus the ESP?

I mean I can't speak for [SMP], but I know they have an understanding of how the proposed stipulation works.

Okay. And then I just wanted to ask about the short-term debt balance. It seemed high. I know that you're holding a lot of cash securities. Is that why that number looks so high?

Yes. Yes, that's right.

Okay. And then lastly, I just wanted to talk about -- I know it's early, but what are your thoughts about the [hold come] maturity in 2011, how you're going to approach refinancing that?

Yes. We continue to look at that, Carrie. I mean we don't have a specific plan that we've discussed yet. But it's something that Jim and Randy and their team continue to look at. So as we move through the year we'll have more clarity as to what our plan is to deal with.

Is it the thought that it would be mainly refinanced there or partly at solutions?

Not sure yet. Not sure yet.

Okay. All right. Great. Thank you.

Thanks, Carrie.

Our next question is coming from Danielle Seitz with Seitz Research.

Thank you. I was wondering where weather do you anticipate the voluntary prepayment plan to be finalized by the commission? In Pennsylvania?

I'm sorry, Danielle, the what plan?

The voluntary prepayment plan.

Oh. Okay. I don't know when. Does anybody have any idea? We had asked for October I'm told.

Okay. All right.

So a ways away.

Oh, yes. Thank you.

Thank you, Danielle.

Our next question is coming from Dan Jenkins with State of Wisconsin Investment Board. Please state your question.

Good afternoon.

Hi, Dan.

I was curious, I think you said you had $1.1 billion in cash at the end of January. Is that correct?

It is correct, Dan.

That's up from, what, about $500 million or $600 million at the end of the year.

That's about right. Yes.

So is the short-term debt, is that also up? What's the status of that? Given the cash is up --

It's because -- the additional cash is because we -- we have several -- two operating company issuances. And we're continuing to hold the cash from those.

So at some point will you then pay down the short-term debt or what's the -- are you saving that for other purposes? Or what's the -- the disposition of that cash?

Well, we'll make that decision as we go through time. Right now, we're comfortable holding the cash. But we'll continue to look at what it -- what we're earning on that versus what it costs us to -- on the revolver and so forth and kind of make that tradeoff.

Okay. And then I had a couple questions related to the O&M, both the generation and the distribution or delivery. On the delivery, you mentioned the lower uncollectible expenses. And then more resources devoted to capital projects. Given that you're bringing down your CapEx budget for next year and then given the -- the economic environment, what do you expect from those two benefits for this quarter going forward?

For this quarter, we haven't talked about it on a quarterly base, Dan, I mean other than what we talked about in the call and in the earnings guidance drivers. We haven't really gotten more specific than that.

All right. So for '09, do you expect the uncollectible rate to continue at the rate you've seen recently, or do you expect that to go up, or have you got any sense of what's going to happen with that? And --

Customer uncollectibles, Dan?

Yes.

That whole issue was a focus of what we called our energy delivery excellence plan. We really focused on the whole revenue realization cycle. And this was a project that largely took place in 2008. So we looked a lot, spent a lot of time looking at our collection policies and so forth. And really fundamentally changed how we identify customer risks and how we collect deposits from customers and so on and so forth. So actually we've got some very good luck in terms of keeping our uncollectibles and [arrearageses] at a very low level. That was true for much of 2008. Probably a little bit of a tick-up so far in 2009. But still within what I would say is a very, very small band. We've been very, pleased with our efforts so far.

And that's -- then the capitalized, say, operating costs were, say, payroll and so forth, do you expect that to be at a similar rate given your lower CapEx budget then, or would you expect maybe more of that to be expensed in '09?

Yes, I would think it would be about the same, Dan.

Okay. On the revenue side, you've seen a pretty rapid deterioration in industrial in the fourth quarter given the economy. Have you actually seen any customers announce like permanent shutdowns of large plants in your service territory -- that probably won't come back?

I don't know of any permanent shutdowns. I mean, certainly many of the impacted facilities are steel or auto related. But I'm not aware of any -- is anybody aware of any permanent shutdown announcements? No. No, we're not.

Okay. So you haven't had any of the big auto plants or anything that -- that have been announced in your particular service territories?

Yes. Not that I'm aware of.

Okay. I think that's all I have. Thanks.

Thanks, Dan. Why don't we do one more question.

I want to make one correction to what we were answering for Danielle Seitz. I would refer you back it our recent developments in terms of the consolidated report. The October date we were asking for is for the procurement plan at MetEd and Penn Elec. We have a set investment already place and was recommended by the ALJ for adoption to the commission without modification. It's already pending for the prepayment plan she was asking about.

Okay. Thank you, Ron.

Thank you. Our final question is coming from Greg Gordon with Citigroup. Please state your question.

Follow-up question was, the $2-per megawatt hour rider, Our question was the $2-per megawatt hour rider, that would go into effect if approved by the commission April 1st, correct?

Yes. That's correct.

If you were to also be approved to make your modification to the Cleveland RTC balance, when would that adjustment take place?

June 1st.

June 1st. Okay, thank you.

Thanks, Greg. Well thanks everybody, we appreciate your time today and your interest in FirstEnergy. If there's any follow-up questions, please feel free contact Ron Seeholzer or any members of our investor relations team. Thanks again for your time. Everybody have a great day.

Thanks for your support, everyone.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines. We thank you for your participation.