METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

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BWG recommended that a detailed, written justification should be provided to theCommission for dividend payouts exceeding 85% of net income against other potentialuses for cash within the utilities, such as correcting electric reliability problems. TheCommission has broad authority to require public utilities to provide information to theCommission.FirstEnergy rejected this recommendation, stating that the determination of adividend is a management decision. FirstEnergy stated that net income, cashgeneration, capital structures, and regulatory restrictions on borrowings for eachCompany are reviewed prior to a dividend recommendation being made and that such adecision is entirely within management’s discretion in the context of its fiduciaryresponsibilities. FirstEnergy also stated that the recommendation is directly contrary tolong-standing <strong>Pennsylvania</strong> precedent that the PUC may not operate as a “super boardof directors”.Follow-up Finding and Conclusion No. III-2 - In certain years, Met-Ed, Penelec,and Penn Power have made dividend payouts that exceeded 85% of their netincome, but have never provided the Commission with a detailed, writtenjustification why such payouts were appropriate.The FE-PA Companies rejected this recommendation when they submitted theirImplementation Plan in response to BWG’s audit report, nonetheless the Audit Staffdeemed it appropriate to follow-up on the status based upon the Commission havingbroad authority to require public utilities to provide information to the Commission.Under 66 Pa. C.S. § 504, the Commission can require public utilities to file periodicalreports, “at such times, and in such form, and of such content, as the commission mayprescribe, and special reports concerning any matter whatsoever about which thecommission is authorized to inquire...” In addition, under 66 Pa. C.S. § 505, theCommission can require public utilities to furnish information to the Commission in aid ofinspection, examination, inquiry, investigation or hearing by the Commission. Lastly,under 66 Pa. C.S. § 506, the Commission has authority to make any inspection, inquiryor investigation of all of a public utility’s facilities and records.The FE-PA Companies’ net income, dividends paid to FirstEnergy, and thepercentage of net income paid in dividends from 2006 to 2009 is summarized on ExhibitIII-1. The annual dividends payments which exceeded the 75%-85% range arehighlighted in red shading and were as follows:• In 2006, Met-Ed paid dividends of $25 million despite a net loss of $240.2million.• In 2008, Penelec paid dividends of $90 million from net income of $88.2million (i.e., 102% of net income was paid as dividends).• In 2009, Penelec paid dividends of $85 million from net income of $65.4million (i.e., 130% of net income was paid as dividends).• In 2009, Penn Power paid dividends of $50 million from net income of $20.1million (i.e., 249% of net income was paid as dividends).- 22 -
Exhibit III-1FE-PA CompaniesDividend Payouts ($000)2006-2009Met-Ed Penelec Penn Power Combined2006Net Income $(240,195) $84,182 $9,716 $(146,297)Dividend Payout $25,000 $20,000 $597 $45,597% of Net Income NA 23.8% 6.1% NA2007Net Income $95,463 $92,938 $22,404 $210,805Dividend Payout $0 $70,000 $0 $70,000% of Net Income 0.0% 75.3% 0.0% 33.2%2008Net Income $88,033 $88,170 $23,194 $199,397Dividend Payout $0 $90,000 $0 $90,000% of Net Income 0.0% 102.1% 0.0% 45.1%2009Net Income $55,523 $65,388 $20,115 $141,026Dividend Payout $0 $85,000 $50,000 $135,000% of Net Income 0.0% 130.0% 248.6% 95.7%2006-2009Net Income ($1,176) $330,678 $75,429 $404,931Dividend Payout $25,000 $265,000 $50597 $340,597% of Net Income NA 80.1% 67.1% 84.1%Source: Data Request No. AI-6During the four year period 2006-2009, total dividends paid by each of the three<strong>Pennsylvania</strong> operating companies are as follows:• Met-Ed paid dividends of $25 million despite a cumulative net loss of $1.2million.• Penelec paid dividends of $265 million from net income of $330.7 million(i.e., 80.1% of net income was paid as dividends).• Penn Power paid dividends of $50.6 million from net income of $75.4 million(i.e., 67.1 % of net income was paid as dividends). The three FE-PACompanies combined paid dividends of $340.6 million from a combined netincome of $404.9 million (i.e., 84.1% of combined net income was paid asdividends). Note the combined dividend payments were just under the 85%of net income maximum recommended by BWG.FirstEnergy does not have a formal policy in regards to the payment of dividendsby its affiliates. The payment of dividends is reviewed on an ongoing basis by- 23 -
Page 5: METROPOLITAN EDISON COMPANYPENNSYLV
Page 8 and 9: • Support Services• Human Resou
Page 10 and 11: • Developed and implemented forma
Page 12 and 13: FIRSTENERGY PENNSYLVANIA COMPANIESM
Page 24 and 25: III. AFFILIATE INTERESTSBackground
Page 26 and 27: In addition, subsidiary or related
Page 30 and 31: management. Other potential uses of
Page 32 and 33: IV. CORPORATE GOVERNANCEBackground
Page 34 and 35: V. FINANCIAL MANAGEMENTBackground -
Page 36 and 37: the internal audit was to determine
Page 38 and 39: Committee citing the internal contr
Page 40 and 41: VI. ELECTRIC RELIABILITYBackground
Page 42: Exhibit VI-1Metropolitan Edison Com
Page 45 and 46: provide additional details to the C
Page 47 and 48: Exhibit VI-6FirstEnergy Pennsylvani
Page 49 and 50: All three FE-PA Companies have had
Page 51 and 52: FirstEnergy is following the right
Page 53 and 54: Company, and The Toledo Edison Comp
Page 55 and 56: technicians. These strategies are u
Page 57 and 58: VIII. EMERGENCY PREPAREDNESSBackgro
Page 59 and 60: Routine periodic updating of the em
Page 61 and 62: Follow-up Finding and Conclusion No
Page 63 and 64: old excess inventory. Spare invento
Page 65 and 66: controls were automated. Moreover,
Page 67 and 68: Exhibit IX-6FE-PA CompaniesPercenta
Page 69 and 70: FE-PA Companies were unable to iden
Page 71 and 72: Staff’s Follow-up Recommendation
Page 73 and 74: Exhibit X-6Metropolitan Edison Comp
Page 75 and 76: Prior Recommendation - Develop a co
Page 77 and 78: Therefore, BWG suggested that First
Page 79 and 80:
XI. CUSTOMER SERVICEBackground - Th
Page 81 and 82:
Exhibit XI-2FE-PA CompaniesPercenta
Page 83 and 84:
Exhibit XI-5FE-PA Companies Compare
Page 85 and 86:
Exhibit XI-7FE-PA Companies Compare
Page 87 and 88:
Follow-up Finding and Conclusion No
Page 89 and 90:
uilding, in an effort to protect re
Page 91 and 92:
Companies would submit a supplement
Page 93 and 94:
3. The "four-fifths" rule (underuti
Page 95 and 96:
Met-Ed has female underutilization
Page 97 and 98:
Exhibit XII-4Page 1 of 2FirstEnergy
Page 99 and 100:
The number of years that FirstEnerg
Page 101 and 102:
FE-PA Companies do track purchases
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