Higher Volumes of Direct Retail Sales Lift FirstEnergy Solutions Margin

Higher volumes of competitive retail sales directly to large and mass market customers by FirstEnergy Solutions in the third quarter of 2012 more than offset the negative impact of lower pricing and produced increased commodity margin, versus the year-ago quarter, FirstEnergy Corp. said in reporting earnings.

In direct retail sales to large and medium commercial customers, commodity margin was incrementally higher (versus the year-ago quarter) by about $13 million, on a $42 million benefit from higher volumes partially offset by $29 million in lower pricing.

An increase in direct mass market retail sales volumes contributed an incremental $38 million in commodity margin.

These gains were partially offset by lower volumes and pricing for POLR sales.

Across all competitive sales channels, commodity margin from contracted sales for the third quarter of 2012 increased by about $34 million versus the year-ago.

FirstEnergy Solutions said that it continues to successfully expand in competitive retail markets, including Illinois, Michigan, New Jersey and Maryland.

The largest growth in direct sales occurred in central and southern Ohio.

Mass market sales more than doubled primarily in the Pennsylvania and Ohio markets. Consistent with prior statements, executives said that FirstEnergy Solutions will extend offers similar to its seven-year fixed price offer, thus far publicized in Ohio and Pennsylvania, to other states.

Governmental aggregation sales grew in Illinois and central and southern Ohio. In the past year, FirstEnergy Solutions has signed on 43 new communities in Ohio and 81 new communities in Illinois.

FirstEnergy Solutions now has more than 2.5 million retail customers, a 42% increase in the number of retail customers compared to the same period in 2011. FirstEnergy Solutions looks to end 2012 with 101 million megawatt hours in competitive sales.

A breakdown of growth in direct retail sales by market and customer segment for the third quarter, as well as comparisons of POLR and aggregation sales, is below:

FirstEnergy Solutions Retail Sales (in GWh)
Third Quarter Comparison

         3Q 2012    3Q 2011    Change

Direct: Large Commercial and Industrial
  OH      7,398      6,360     1,038
  PA      3,976      3,899        77
  NJ        285        477      (192)
  MI        627        538        89
  IL        891        810        81
  MD        274        187        87
Total    13,451     12,271     1,180

Direct: Medium Commercial and Industrial
  OH        564        573        (9)
  PA        285        244        41
  IL         12         --        12
  MD         --         --        --
Total       861        817        44

Direct: Mass Market
  OH        448        224       224
  PA      1,056        428       628
  IL         16         --        16
  MD         20         --        20
Total     1,540        652       888

Aggregation
  OH      4,851      4,540       311
  IL        377          3       374
Total     5,228      4,543       685

POLR
  OH      1,354      1,165       189
  PA      2,308      3,172      (864)
  MD        752        783       (31)
Total     4,414      5,120      (706)

FirstEnergy's quarterly report includes an aggregate switching percent for the third quarter for each of its distribution companies, listed on page 16 of its report to investors. Although the data reflects an average for the quarter (rather than end of quarter statistics), and is not broken out by customer class, the data is of some utility given that the most recent Ohio migration data from PUCO is as of the second quarter

FirstEnergy also disclosed that FirstEnergy Solutions won 5 of the 17 tranches available for bid in the October SSO procurement at the FirstEnergy Ohio utilities.

FirstEnergy announced that it and American Municipal Power, Inc. (AMP) have entered into a non-binding memorandum of understanding (MOU) to site, build and operate a natural gas peaking facility located on the grounds of FirstEnergy's existing Eastlake Plant in Eastlake, Ohio.

As part of the non-binding MOU, FirstEnergy would supervise construction of the four combustion turbine units that are capable of producing 873 megawatts (MW). AMP will provide the construction financing and own 75 percent of the generation output upon completion, while FirstEnergy will fund and own the remaining 25 percent of the output in 2016. Plans call for the facility to be operational in early 2016.

Adding new generation is expected to reduce or extend the timeframe for some of the previously announced transmission projects planned by FirstEnergy by alternatively addressing reliability concerns resulting from power plants being deactivated in the region due to new U.S. Environmental Protection Agency rules.

"This project is expected to reduce our estimated transmission spending for projects related to plant deactivations by about $200 million through 2016," said Mark T. Clark, executive vice president and chief financial officer, FirstEnergy.