第一能源 (FE) 2010 Q4 法說會逐字稿

Greetings and welcome to the FirstEnergy Corp. fourth quarter 2010 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 being recorded.

It is now my pleasure to introduce your host, Irene Prezelj, Director of Investor Relations for FirstEnergy Corp. Thank you, Ms. Prezelj, you may begin.

Thanks, Doug, and welcome everyone. 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 Corp. 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 website 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 on our website at www.FirstEnergyCorp.com\IR.

Participating in today's call are Tony Alexander, President and Chief Executive Officer; Mark Clark, Executive Vice President and Chief Financial Officer; Harvey Wagner, Vice President and Controller; Jim Pearson, Vice President and Treasurer; Bill Byrd, 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. Thank you for joining us today. I'll provide a brief review of 2010 and recent developments, and then Mark will provide more details about the fourth quarter and other financial matters.

First, looking back to 2010, in a challenging year of soft power prices, we benefited from the successful execution of our competitive strategy, holding the line on costs, a modest recovery in industrial sales, and some favorable weather. This morning we reported 2010 basic non-GAAP earnings of $3.62 per share, which is in line with our updated guidance of $3.60 to $3.70 per share. We also generated $3.1 billion in net cash from operating activities during the year.

Several key events in 2010 helped set the stage for 2011 and beyond. I'll go through these one by one for you. First was in Ohio, our utilities received approval for our second comprehensive Electric Security Plan which will be in effect from June 1, 2011 through May 31 of 2014. In Pennsylvania, we had a series of auctions that were held for the procurement of default service supply for Met-Ed and Peneluc customers. That completes the groundwork for the final move to competitive generation markets that took place for those companies on January 1 of this year.

Our Ohio companies participated in the interim PJM capacity auctions so that we are now in a position to complete the move of our ATSI transmission assets and operations into PJM by June 1 of 2011. We safely completed the Davis-Besse outage and the related control rod nozzle modifications. We also are accelerating our plans to replace the reactor head at Davis-Besse. This will take place in the fall of 2011 and is expected to take future control rod issues off the table. And we submitted our application to the Nuclear Regulatory Commission to renew Davis-Besse's operating license. The application was accepted as filed, and we are moving forward to keep this important asset productive for years to come. We accelerated some of our work activities that were originally planned for future periods during the fourth quarter of this year, such as environmental remediation projects at Mad River and Edgewater plants, and the safe disposition of low level nuclear waste that was at our facilities. While these actions increased our fourth quarter nuclear and fossil O&M, we are pleased to have these important environmental obligations behind us, along with the related expenses as we begin 2011.

Now I'll take a few moments to discuss some more recent developments. In Pennsylvania, a power auction took place on January 18 through the 20, and that completed the process to establish default service prices for Met-Ed, Peneluc, and Penn Power customers for one and two year delivery periods beginning June 1 of 2011. And on January 25, our Ohio utilities conducted the second in a series of six auctions to secure generation for the 2011 through 2014 time frame. The January clearing prices were slightly higher than those from the first auction in October.

In the January auction, FirstEnergy Solutions was one of 7 successful bidders, winning 3 one-year tranches and 3 three-year tranches. Combined with the tranches we won in October, FES will be supplying 26% of the Ohio company's POLR generation requirements beginning in June of this year. This is very much in line with our strategy of balancing our overall competitive portfolio between direct, aggregation, POLR and wholesale sales. At this point, more than 96% of our 2011 forecasted generation output is committed to direct retail sales, government aggregation and POLR auctions. And for 2012, 65% of our output is under contract.

In the fourth quarter, FES continued to successfully acquire customers in markets outside our utility service territories. We entered several new markets in Pennsylvania and Southern Ohio, and we continue to expand our direct sales efforts in Illinois, Michigan and Maryland. As a result of this strategic regional expansion, last year we doubled our sales outside of Ohio. At this point, I'm very pleased with our retail sales efforts. We are growing this business, reducing our overall risk, and positioning the Company for growth as market prices and the economy improve.

Moving now to just a couple of generation matters. First, last November we announced that market conditions no longer supported our plans to repower units 4 and 5 of the RE Burger plant that was intended to principally be a biomass conversion. Those units were permanently shut down at the end of the year. While we were disappointed having to make that decision, we determined that repowering the plant would no longer be cost effective. We also plan to continue operating certain of our Lake plant units on 3 day notices for the foreseeable future. Again, this is in response to the continued slow economy, the lower demand for electricity, and uncertainty related to potential new federal environmental regulations.

In December, we sold a 6.6% participation interest in the output of the Ohio Valley Electric Corporation to a subsidiary of Wolverine Power Supply Cooperative for $100 million. The sale involves approximately 150 megawatts of capacity from OVAC generating facilities in Southern Ohio and Southern Indiana. And last week we signed a non-binding memorandum of understanding to sell the Fremont Energy Center to American Municipal Power. Assuming we come to agreement on definitive terms for the deal, AMP Ohio would execute a binding purchase agreement in March of 2011. The sale of Fremont to AMP is consistent with our efforts to divest non-strategic assets and use those proceeds to provide us with additional financial resources to reduce debt and increase our financial flexibility.

Finally, we continue to make progress towards completion of our merger with Allegheny Energy, receiving approvals from the Federal Energy Regulatory Commission and the states of West Virginia and Maryland. As well as the completion of the review process by the United States Department of Justice. All of that occurred since our last call. We are awaiting the final regulatory approval from the Pennsylvania Public Utility Commission. The Commission will meet again next week and we are hopeful that they will support the stipulated agreement and recommendation of the administrative law judge. We continue to expect the transaction to close this quarter.

As we start a new year, I'm confident in our Company, our assets, and our people. We are well positioned to fully capture market-based opportunities and continue to drive efficiencies across our organization.

Now here's Mark to discuss the fourth quarter.

Thanks, Tony, and good afternoon, everyone. I'm going to walk you through our fourth quarter results, some of our 2010 metrics and then I'll share a few preliminary thoughts on 2011.

As Tony said, our full year 2010 results were in line with our guidance which was revised to the upper end of the original range in August. Also, as Tony mentioned, we were able to offset some of the early year headwinds with the better-than-normal weather experienced later in the year and slightly increased industrial sales. These and other positives, coupled with the strong cash position, allowed us to address several legacy issues in light of the pending merger. With the belief that the merger would close in the first quarter, which is earlier than we originally anticipated, we removed several potential distractions by accelerating items such as costs associated with negotiating coal contracts, disposing of radioactive waste being stored at our nuclear units, and remediating some legacy issues associated with the Mad River and Edgewater plants which had been planned for subsequent years. In the aggregate, we moved $0.15 per share forward from subsequent years. Slightly less than half of that was associated with 2011. So, even with the acceleration of these costs, we were able to remain within our earnings guidance range. In short, we're very comfortable with where we ended the year.

As I walk through our fourth quarter results, it may be helpful for you to refer to the consolidated report to the financial community we issued this morning. Excluding special items, normalized non-GAAP basic earnings for the quarter were $0.71 per share, compared to $0.77 per share in the fourth quarter of 2009. On a GAAP basis, this quarter's earnings were $0.61 per share, compared to $0.78 per share last year. As you'll find detailed on page 16 of the consolidated report, 4 special items decreased this quarter's GAAP earnings by a total of $0.10 per share. By comparison, in the fourth quarter of 2009, special items increased GAAP earnings by $0.01 per share. The first of the 2010 special items was a $0.17 per share accounting impairment as a result of the Burger Plant closing and additional costs related to the operational changes of several of our smaller coal-fired plants, which Tony previously mentioned. Importantly, these changes will result in cost savings that we expect will bring long-term benefits.

The second special item was $0.07 per share charge related to merger transaction costs. As in prior quarters, these costs will continue to be expensed as incurred. For the year, merger transaction costs totaled $0.15 per share. Third was a $0.02 per share impairment charge related to our nuclear decommissioning trust investments. And finally, a gain of $0.16 per share from the sale of approximately 150 megawatts, representing a portion of our participation interest in OVEC. As you may recall, we also sold an interest representing approximately 200 megawatts in May of 2009. This most recent transaction leaves us with 110 megawatts which we will continue to market.

Now I'd like to outline the key drivers of our fourth quarter non-GAAP results, starting with the positives. First is commodity margin which increased earnings by $0.24 per share. A detailed summary of this item appears in the first 3 pages of the consolidated report, including information on megawatt hour volumes and prices. Generation sales of our FirstEnergy Solutions subsidiary were 3.4 million-megawatt hours above last year's period, a 23% increase. We are very pleased with the success of our competitive strategy. FES now serves nearly 1.5 million retail customers, effectively tripling our competitive customer base year-over-year.

Wholesale sales were up 1.2 million-megawatt hours, or 58% compared to the fourth quarter of 2009. Generation output for the quarter was 23% above the prior year quarter, or 3.6 million-megawatt hours. The majority of this increase came from our base load fossil units. Total generation output for the full year 2010 was 75.2 million-megawatt hours which exceeded our original forecast, and was a 14% increase from 2009. With increased generation output and higher sales levels, we incurred higher fuel and purchase power expenses during the quarter.

The second positive fourth quarter driver was distribution deliveries. The economy and colder weather contributed to a 2% increase in overall deliveries, which benefited earnings by $0.03 per share. Residential custom usage increased slightly during the quarter, commercial deliveries were 2% higher than last year, and industrial deliveries were up 3% compared to the fourth quarter of 2009, primarily due to higher usage by the steel industry. We continue seeing increased production at several steel plants in our region, as well as an increased operation at some of our automotive customers. For example, General Motors Lordstown plant ran three shifts in the fourth quarter of 2010 versus two shifts the end of 2009. And the Ford Brookpark facility is operating two shifts instead of one. I'll add here that for the full year 2010, total distribution sales were 108 million-megawatt hours. That's up 6% from 102 million-megawatt hours in 2009. The increase was principally a combination of favorable weather, helping residential sales, and stronger industrial sales.

The industrial sector increased by 8% year-over-year. At the end of 2010, industrial sales had recovered to about 90% of 2007's peak levels. As we continue to close that gap, the expectation is that we will begin to see prices strengthen along with the growing demand.

Returning to other fourth quarter drivers, earnings increased by $0.04 per share from higher investment income generated by our nuclear decommissioning trust, $0.02 per share due to increased capitalized interest and $0.01 per share increase from lower depreciation expense.

There were three notable items that had a negative impact on fourth quarter results. Higher general taxes, mostly revenue related, reduced earnings by $0.05 per share. The absence of an income tax adjustment that benefited last year's fourth quarter resulted in an 18% share earnings decrease compared to last year. And higher operation and maintenance costs decreased earnings by $0.18 per share. The quarter-over-quarter O&M increase primarily reflects accelerated expenditures in our generation business, as we mentioned earlier, and a shift in the nature of work performed in our energy delivery business from capital type work in the fourth quarter of 2009, to activities that received expense treatment in 2010. While the timing issues increased expenses for the quarter, full year O&M was essentially flat when compared to 2009, as we continue to hold the line on cost.

Now let me spend a few moments on full year 2010 pension expense. Pension expense decreased by $9 million compared to '09 helping 2010 earnings by $0.02 per share. OPEB expense decreased by $50 million or a benefit of $0.10 per share. The actual return on pension assets was 11.2%, and on an ABO basis the plan was 83% funded at the end of December 2010. For 2011, we are assuming discount rate of 5.5% for pension, and 5% for OPEB,both down from last year's rates. We are also lowering our pension asset return rate assumption from 8.5% to 8.25%.

Like many companies, we are favorably affected by the tax legislation passed in December. We received -- actually several days ago -- incremental cash of approximately $60 million for 2010. and expect $300 million in 2011, and $200 million in 2012. In addition to the tax legislation, we will receive approximately $170 million in tax settlements dating back to 2001. When you also consider the memorandum of understanding for the anticipated sale of our Fremont facility, and the expected 2011 free cash flow from operations, we are in a position to have a very strong free cash flow for the year. We expect to use this cash to continue to reduce the amount of our outstanding debt. We have previously communicated this important aspect of our overall financial strategy and we are delivering on that promise. In 2011, we plan to continue strengthening the balance sheet by further reducing the amount of debt outstanding and building cash reserves.

And so despite the challenges we faced in 2010 including the decision to accelerate the reactor vessel head replacement at Davis-Besse and continued soft power prices, we made headway on our debt reduction goals, we produced strong earnings, and we positioned our competitive business to take advantage of future improvements in power prices. We believe we've laid a strong foundation for continued progress in these areas, as well as the integration of Allegheny Energy. As you know, teams of employees have worked throughout the year to prepare for the merger. We believe the combined Company's 2011 outlook is solid and we are confident that we will achieve substantial merger synergies. We'll provide much more detail for 2011 and beyond after the merger is complete, but I wanted to share with you my early thoughts on how things are shaping up.

On a final note, we look to schedule an analyst meeting once the merger closes and we will communicate the date to the financial community as soon as we can. Thanks again for joining us today. We are certainly looking forward to a strong year in 2011. And I believe our prospects for future success are excellent.

Now I'd like to open up the call to your questions. Thank you very much.

Thank you. (Operator Instructions). Our first question comes from the line of Dan Eggers from Credit Suisse Group. Please proceed with your question.

Just as it relates to the last quarter you guys gave 2011 earnings drivers and they weren't included this year, or this quarter. If we were to think about change from last quarter, O&M should be down, by bringing O&M forward from the fourth quarter, and then you're going to have a higher tax expense without the industrial, manufacturing tax credit benefit. Are there any other changes we should be thinking about since the last set of impact drivers?

Dan, this is Mark. I think two things. One, we alluded to accelerating some expenses from '11 into '10. And then I'm going to let Harvey speak to the manufacturing issue.

Dan, we really didn't see much benefit in 2010 from the manufacturing deduction. We had an adjustment when we filed our 2009 tax return that pretty much offset what we would have otherwise generated in 2010. So comparing 2010 to 2011, you really won't see much difference.

When you guys gave the drivers last quarter were you anticipating the return to the 1099 credits that would have been a relief in the way you guys are looking forward to the year? Or was that not anticipated when you gave the last set of drivers?

It wasn't explicitly addressed but again, those numbers really aren't very material.

Okay. Got it. Then you guys talked about coal recontracting in the quarter as you were tidying up things before the merger closed. Could you just share a little more thought on what all went into that? And is that going to lead to any meaningful deviation from the increasing costs you guys had anticipated last quarter?

Dan, I think one example would be the Mad River legacy remediation. That was going to happen in 2011. We elected to move that forward. Some people might have seen how we handled that. It was a YouTube special because the tower fell in the wrong direction, unfortunately. Another item would be our nuclear people asked if they could accelerate some red waste removal. Eventually they were going to have to remove it. It wasn't in any of our game plans but since we were having a strong quarter we agreed to move some of that forward. That gave them some more operational flexibility. It also took that issue off the table from having to deal with for a while. So there were a number of odds and ends on that.As I said, about half of it were things that were out into the future like the red waste, and some of the things were more current like the Mad River which would have been an '11 item.

Right, but I thought I heard Tony say that there were higher fuel expenses or that you guys did some recontracting in the quarter for 2011 and beyond to tidy things up that added extra costs. Is there any change in your fuel expense we should be thinking about or any change in either rail or coal contracts we weren't anticipating before?

No. What we did was we -- no. The specific answer is no. What we did is we cleaned up some contracts that would have been in '11. We just took care of them in '10. But the aggregate answer is no.

And then with the potential sale of Fremont, is there going to be any other income statement impacts in 2011 beyond whatever you guys are able to do with the cash you bring in from selling the plant?

We're going to speak to '11 in a lot more detail when we set up the post merger call. But, as we said, we're going to apply as much of that as we can to debt reduction and building up our cash reserves. And those will have a positive impact as we go forward. And other than that, everything probably is pretty consistent with what we outlined before.

Okay. Great. Thank you guys.

Our next question comes from the line of Jonathan Arnold with Deutsche Bank. Please proceed with your question.

Thank you. Good afternoon. Could I just ask on, you mentioned having 26 tranches for the '11 to '12 period of the Ohio POLR. And I think if we do our math right you have about half that number of tranches for the second year currently. But then you've also disclosed this number as being 65% hedged in '12. Should we expect you to go after the same amount of Ohio POLR as you have in the first year, in the next auctions for year two that have yet to happen? Or is this part of the shrinking of POLR as part of the overall portfolio?

This is Bill Byrd. I think it would be safe to expect that we decrease our POLR business over time. Our business objective is really to sign up direct retail customers. And as we succeed with that, we'll be less interested in the POLR contract opportunities.

So that 26 might be a high water mark effectively.

Time will tell.

Okay. And then if I could ask a second topic. Do you have any sense of what sales would have been, growth-wise, in the fourth quarter, weather adjusted, maybe in the residential sector specifically and then as a whole?

No, not really. We could, I'm sure one of our folks could get it to you after the call.

Thank you.

Our next question comes from the line of Brian Chin with Citigroup. Please proceed with your question.

Good afternoon. Piggybacking off Jonathan's question, could you give a little more clarity on how many megawatt hours or terawatt hours you were able to successfully sell in the different Ohio and Pennsylvania tranches?

In POLR? Yes, we could probably give you that detail, Brian, but why don't you call back and try to get it. I don't know that we've got that level of granularity right here, right now.

Okay. We'll l go ahead and do that. And then secondly, can you give some thoughts on where you think RPMs going to -- the capacity market will likely trend in the next auction? Obviously the PJM parameters came out and had a little bit of changes in terms of transmission line constraints. So if you could give us your sense of what you think about the next auction and whether you think western prices will converge with eastern prices.

I asked our folks this question specifically in anticipation of a question like this. And obviously the New Jersey legislation and associated FERC activity, and the Maryland draft RFP, creates a lot of, I'll say, regulatory uncertainty, which uncertainty is always, as a generality, tends to firm up pricing. We also are somewhat skeptical about the amount of demand response we'll see participate in this go-round. We're cautiously expecting a little less. And all that put together we think prices may firm up a little bit. It's not going to dramatically be different than last year but we think a tad bit stronger in the pricing.

Okay, great. I'll follow up offline with that megawatt hour charge question. Appreciate it.

Our next question comes from the line of Steve Fleishman with Bank of America-Merrill Lynch. Thank you. You may proceed.

Can you hear me okay?

Yes, Steve.

Okay. Great. Yes, I would be curious, maybe Tony or others, on your thoughts on the new Chairman of the Ohio Commission. Just how well you know him and any changes do you expect in how they're addressing the implementation of SB221. And maybe along those lines just your thoughts, because other companies have different perspectives on structure of the rate plans than you have, and just do you see any changes in structure?

Steve, which one of those 10 questions do you want me to answer first? I think the governor made an excellent choice. Todd's a solid individual. He's been a good representative. He understands the process pretty well from a legislative standpoint in terms of energy issues. And he's clearly a good choice for the role. So I think we should look forward to having solid regulation in the state of Ohio with the leadership that's been put in place at this point. Let's see, the second question dealt with?

I think it's just, do you expect the structure and implementation of SB221 to continue along the way it has?

Again, I think there's opportunities under 221 which all of us have taken advantage of, to a certain extent, in terms of having electric security plans put in place. We were just successful in negotiating one last year. But there are limitations to how those can be utilized. So I think you'll see the Commission following its precedent. That's what Ohio Commissions have done typically over time. I think they'll be skeptical about some of the noise I've been hearing, respecting the ability to use Electric Security Plans to create large amounts of non-bypassable future charges. But that's all going to get played out in those proceedings.

Great. Thank you.

Our next question comes from the line of Paul Patterson from Glenrock Associates. Please proceed with your question.

Good afternoon, guys. Just a housekeeping question here. On the condensed consolidated statements of cash flows, there's a $41 million non-cash benefit, it looks like, from commodity derivative transactions. And I wasn't sure whether or not this was associated with a one-time gain of some sort, or whether or not that's part of operating earnings. If you could just elaborate a little bit on that.

Paul, it's Harvey Wagner. As you know, some of these purchase power contracts get marked to market and these are just the impacts of fair value adjustments. The offsets are pretty much in the purchase power expense line of the income statement.

So when we're looking at this net number, would that suggest, though, that you guys actually had a benefit there or do you think there's some offset as well to that?

It was probably a reduction in the net liability.

Okay. So that benefited earnings in the quarter. And how should we think about that going forward?

It depends on what your crystal ball tells you about power prices.

Okay, so this is just mark-to-market fluctuations that we can see from quarter to quarter?

Right.

And then in terms of the equity, it looked like it went down. And on a GAAP basis, at least maybe if I was looking at this correctly, it looks like to me that you would have higher earnings than dividends. What caused the equity to decrease?

Yes, year-over-year, Paul, we're always, more or less, marking our funded liability of our pension to other comprehensive income in the equity section of the balance sheet. So the discount rate going down increased the obligation and the unfunded portion got bigger. So I think there was about a $200 million aftertax charge associated with that that's in OCI.

Okay, it's in OCI. Finally, the marketing of power outside your service territory, could you tell us how that's going and what service territories you see the most opportunity and where you've been gaining the most market share, and what's been lucrative there. Just if you could give us a little bit more of a flavor for where you've been taking load away from others.

This is Bill Byrd. Solutions is right in line with their game plan and their business plan in terms of our out-of-territory sales. We aren't going to get too detailed on the volumes and exactly where. Generally it's the Western Pennsylvania, Western PJM territories that we're focused on. Logically it's the utility territories that are reachable with our generation on a physical power basis.

Okay. So basically Western PA's where you're seeing the most activity, you're not seeing it in Southern Ohio or -- ?

I don't think he said that, Paul.

Okay. I'm trying to get a sense. Obviously I want you to feel comfortable with what you're saying but I'm trying to get a sense as to where you guys are.

We're active in all of those markets to different extents and to different degrees. I think what Bill is trying to relate to you is at this point it's really not appropriate to lay out what our game plan is. All I can tell you is that the game plan in each market that's been laid out has been successfully implemented.

Thanks a lot, guys.

Our next question comes from the line of Paul Ridzon from KeyBank Capital. Please proceed with your question.

Could you give an update on Signal Peak?

Yes, Signal Peak is doing quite well. They had some issues with the PPOV. That's pretty much been resolved. We're not happy with some of the safety performance but management is committed to revenue safety plan. We were out in the region in Denver, speaking to the local authorities. They produced 8 million tons last year, somewhere between 4 million and 5 million was cleaned. About half of that comes east to us and about half of it goes into the international market. When we brought on the new COO last year, who spends his entire day in the mine, we're seeing a lot of increased productivity, and we're very, very pleased with where they are right now.

Any update on potential monetization?

We said that we were eventually going to sell Signal Peak. We're putting that material together. We would like to do it after they get into the second seam. And we still anticipate hopefully something being done late first half of this year, maybe even into the second half. But with the memo of understanding on Fremont, the tax legislation, some of those things significantly increasing our cash, there's substantially less pressure on doing something with Signal Peak. And the value of that property just seems to be climbing.

I know you're still in negotiations but how would you characterize your odds of getting your money out of Fremont?

High.

And then lastly, Mark, you said you accelerated a lot of expenditure's into '10. Did that all occur in the fourth quarter?

There was a touch of it in the third quarter, very little. Almost all of it was in the fourth quarter.

Thank you very much.

I'm being corrected by our comptroller. All of it was in the fourth quarter. I thought we did a touch in the third, but apparently not.

Thank you.

Our next question comes from the line of Ashar Khan from Visium Asset Management. Please proceed with your question or comment.

Good afternoon. Could you just elaborate with cash proceeds, what kind of a debt reduction and increase in cash reserves are we expecting?

Yes, this is Jim Pearson. What we're going to be looking at is debt at FES and even if we have some excess cash at some of the utilities. Right now, we haven't targeted any specific issue nor will we do that at this point. We'll look at if it makes sense to retire any of that debt economically. If it doesn't, we'll hold the cash in reserves there.

Okay. But generally, what is the additional cash, the bonus tax and in aggregate that you expect by the end of this year?

I think the tax issues, if you add it up, it's over $500 million. And we gave some earlier drivers on free cash flow in that range. So those two items alone would be $1 billion. And we're not at liberty to speak about the Fremont facility. But, as I said, we are going to be generating a significant amount of cash this year and our game plan is to reduce debt or build our cash on our balance sheet.

Okay. So just to elaborate, you're saying by the end of this year you have $500 million coming from free cash flow, and about $500 million coming from the bonus depreciation, so that's nearly $1 billion, and plus that, is the Signal Peak. Is that correct, the way to think about it?

The bonus depreciation is not quite all of it. Remember, we got a refund of $60 million in '10 that we just got a couple days ago, $170-some million that was settlement of some issues back to '01. In terms of total tax kind of dollars it was $500 million. Some of that number we gave for tax legislation was '12. But $1 billion is in the ballpark and plus Signal Peak, plus Fremont, plus continuing holding down our O&M expenses. As I said, we're going to have a fairly large pile of cash to increase our overall financial flexibility, or worst case, continue to build up our cash reserves.

Okay. Thank you.

Our next question comes from the line of Ivana Ergovic from Jefferies. Please proceed with your question.

What was the total interest rate swap agreement contribution for 2010 and also for the fourth quarter?

From the interest rate swaps, it was about $128 million of cash. For the year, I believe it enhanced earnings about $0.04, which about probably around $0.01 to $0.02 was in the fourth quarter.

Okay. And also the second thing, this nuclear decommissioning trust increase of $0.04, is that a gain for the quarter or you had a loss in the fourth quarter of 2009?

No, what that is, you might recall at the end of the third quarter last year we reallocated our nuclear decommissioning trust primarily from equities to fixed income. We were in cash for a good period of the time last quarter, so this is really just interest income on those investments.

Okay. And the last thing, how much of bonus depreciation is at your regulated utilities?

Ivana, this is Harvey Wagner. If you consider about $300 million that we're anticipating for 2011, about $220 million of that would be the regulated companies.

Okay. Thank you.

Our next question comes from the line of Gregg Orrill from Barclays Capital. Please proceed with your question.

Hi. I just wanted to follow up on Brian Chin's question about the next RPM auction, which is were you saying that you still expected the east zones to clear separately from the west? And what was your thought there about DSM?

This is Bill Byrd again. To answer your question about the different zones, yes, we expect a significant price difference between the east and the west. As you're aware, for FirstEnergy to pass, it's the price in the west that we're most interested in. And we feel on the demand response contribution to the auction process, we'll be curious to see how it turns out but we believe that there will be less interest in the demand response providers bidding their supply. And particularly in the Western region, where our capacity's at.

Okay. Thank you.

Our next question comes from the line of Paul Fremont with Jefferies. Please proceed with your question.

Thank you, my question's been asked and answered. Thanks.

Our next question comes from the line of Edward Heyn from Catapult Capital Management. Please proceed with your question.

Good afternoon. Just wanted to follow up on Ashar's question about the cash balances that you're bringing in. And given that update, do you guys anticipate issuing any equity in '11 or '12, excluding obviously the two exchange for Allegheny shares?

No.

No, so no anticipation. Thank you.

Operator, we have time for one more call. Thanks.

Our last question comes from the line of Raymond Young from Goldman Sachs. Please proceed with your question.

Hello, guys, thanks, getting in under the wire. A couple of things. First of all, you provided some operating cash flow guidance for '11 of $2.7 billion to $2.86 billion for '11. Can you talk a little bit about, does that include the bonus depreciation or is that a separate item?

Go ahead, Jim.

Ray, I think back when we provided that, that was prior to the legislation being enacted, so that would exclude anything to do with bonus depreciation.

Okay. So that's incremental cash. Okay. And also, can you talk a little bit about where you are with your bank loans? I know it's not until '11, but any update or color on that. And then also, separately, can you talk a little bit about the short-term debt balance?It looks pretty high. Is that still tied to municipal bonds that have to be reset every so often?Could you elaborate on that? Thanks.

Ray, this is Jim Pearson again. Let me start with the bank lines first. As you know, we have our revolving credit facility that's due August of 2012. We have started having the dialogue with the various banking relationships. We would expect that we would have new facilities in place before that facility becomes current. And we will look at potentially setting up facilities at the holding company and the generating companies.

On the second question, the short-term debt balance, a portion of that is made up of our pollution control debt that we continue to roll over in a variable rate mode. At one time we had that up over $2 billion. We're now less than $1 billion that we carry in a variable rate. And we're pretty comfortable with that right now. It's probably in the $800 million to $900 million range. The rest of that would be some short-term working capital debt that we carry.

Great. Thanks, guys.

Thank you. And I'd like to thank everyone for joining us on the call today. As always, we appreciate your continued support and interest in FirstEnergy. Thank you and have a great day.

Thanks, everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.