View source for L-16-334, Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments

{{Adams
| number = ML16350A077
| issue date = 12/15/2016
| title = Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments
| author name = Harden P
| author affiliation = FirstEnergy Nuclear Operating Co
| addressee name = 
| addressee affiliation = NRC/Document Control Desk, NRC/NRR
| docket = 05000412
| license number = NPF-073
| contact person = 
| case reference number = CAC MF78066, L-16-334
| document type = Letter type:L
| page count = 126
| project = CAC:MF7806
| stage = Supplement
}}

=Text=
{{#Wiki_filter:FENOC
 ,nffi                                                                          341 White Pond Drive Alcron. Ohio 44320 PauI A. Harden                                                                    330-436-1 360 Sr. Vice President & Chief Operating Officer December       15, 2016 L-16-334                                                                     10cFR50.80 10cFR50.90 ATTN. Document          ControlDesk U. S. NuclearRegulatory          Commission Washington,       DC20555-0001

==SUBJECT:==

BeaverValleyPowerStation,UnitNo.2 DocketNo.50-412,LicenseNo.NPF-73 Supplemental       Information    Resardinq     PendinoApplication for Order Consentinq      to Transferof LicensesandApprovinq          Conforminq LicenseAmendments            (CACNo.MF 78066)
By letterdatedJune24,2016(Accession                No.ML16182A155)     andsupplemented        by letterdatedSeptember           13,2016(Accession      No. ML16257A235),    FirstEnergy   Nuclear Operating      Company(FENOC)actingas agentfor andon behalfof FirstEnergy                  Nuclear Generation,      LLC(FENGen),        TheToledoEdisonCompany(TE),andthe OhioEdison Company(OE),submitted             an application  to the NuclearRegulatory   Commission      (NRC) requesting     consentto the transferof the leasedinterestsin BeaverValleyPowerStation, UnitNo.2 (BVPS2) andapprovalof an administrative                amendment   to conformthe licenseto reflectthe proposedtransfer.
On November        4,2016,FirstEnergy         Corp.releaseda combinedquarterly    financialreport, Form10-Q,for the quarterendingon September                 30,2016,for FirstEnergy   Solutions Corp.    (FES)   and itself.FES      provides   energy-relatedproducts  andservicesto retailand wholesalecustomers          throughitssubsidiaries,     FirstEnergyGeneration,  LLCand FENGen.The reportstatesthat FESexpectsto havemorethansufficientcashflow fromoperations        in 2017and2018to fundanticipated         capitalexpenditures  withno equity contributions     fromFirstEnergy       Corp. However,   given exposure  to market  price  volatility andoperational        risks,FESfacessignificant      financialrisksthatcouldimpactits anticipated     cashflowand liquidity.Witha potentiallackof viablefinancialalternative strategies,    FEScouldtakeoneor moreof thefollowingactions:(i) restructuring               of debt

BeaverValleyPowerStation,UnitNo.2 L-16-334 Page2 andotherfinancialobligations,     (ii)additional borrowings(referto thefollowingdescription of a $700millioncreditfacility),(iii)furtherassetsalesor plantdeactivations,    or (iv)seek protection  underbankruptcy     laws. In the eventFESseekssuchprotection,      FENOCmay similar$seekprotection      underbankruptcy    laws. A copyof the Form10-Q(without exhibits)is enclosed.
Moody'sInvestorServiceandStandardand Poorseachdowngraded                 theirrating of theseniorunsecured      debtof FESon November      4,2016. Moody'sInvestor Servicesdowngraded       the debtto Caa1,whileStandardand Poorsdowngraded the debtto B. Standardand Poorsfurtherdowngraded           FESfromB to CCC+on December    1, 2016.
FENOChasnot identified        anyadversematerialchangesto the FENGenProForma fncomeStatement      thatwasenclosedin FENOC'sJune24,2016letter.
FENOC'sSeptember13,2016letterstatedthatFESandAlleghenyEnergySupply Company,    LLC(AES)havea $1.5billioncreditfacility,      withFEShavinga sublimitof
$900million.As statedin a FESForm8-Kfiledon December              6,2016,thiscredit facilityhasbeenterminated      and replaced   witha $700milliontwo-yearsecuredcredit facilitywhichincludes    a $500millionrevolving   creditfacilityanda $200millionof suretycreditsupportamongFESas borrower,            FirstEnergy Generation, LLCand FENGenas guarantors,       and FirstEnergy   Corp.as the lender.As statedin the most recentForm10-Qfor thequarterendingon September             30,2016,FEShad approximately   $3.+billionin revenue,    witha stockholder's equityof approximately
$3.0billion.Therefore,     FEScontinues    to havethe capability to meetits obligations underboththe powersupplyagreement            andthe $400millionfinancialsupport agreement    withFENGen.
Additionally, therehavebeena numberof Directorand Executive           Personnel changesthathaveoccurredin FirstEnergy          Corp.,FirstEnergy  SolutionsCorp.,
andFirstEnergy     NuclearGeneration,    LLCsincethe June24,2016(Accession No.ML16182A155)        letter.The Directors   andExecutive Personnel   forthe aforementioned     threecompanies    are UnitedStatescitizens.
Thereare no regulatory     commitments    containedin thisletter.lf thereareany questions,  or if additional information is required,pleasecontactMr.ThomasA. Lentz,
          -
Manager FleetLicensing,        at 330-315-6810.

BeaverValleyPowerStation,UnitNo.2 L-16-334 Page3 I declareunderpenaltyof perjurythat the foregoingis trueand correct.Executedon December   /f,,2016.

==Enclosure:==

FirstEnergy Corp.andFirstEnergy Solutions  Corp.10-Qfor QuarterEnding September   30, 2016(WithoutExhibits) cc:    Director,NRR NRCRegionI Administrator NRCResidentInspector NRRProjectManager DirectorBRP/DEP SiteBRP/DEPRepresentative

Enclosure L-16-334 FirstEnergy Corp.andFirstEnergy       Corp.10-Qfor Quarter Solutions EndingSeptember30,2016(Without Exhibits)
(122PagesFollow)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549 FORM 1O.Q (Mark One) g  QUARTERLY   REPORTPURSUANTTO SECTTON             13 OR 1s(d)OF THE SECURTTTES      EXCHANGEACT OF 1934 For the quarterly period ended September30, 2016 OR tr  TRANSTTION   REPORTPURSUANTTO SECTTON            13 OR 15(d)OF THE SECURTTTES       EXCHANGEACT OF 1934 For the transition period from Commission                               Registrant;State of Incorporation;                           l.R.S.Employer File Number                             Address; and TelephoneNumber                                ldentification No.
333-21011                                    FIRSTENERGY     CORP.                                     34-1843785 (An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone(800)736-3402 ooo-53742                              FIRSTENERGYSOLUTIONSCORP.                                       31-1560186 (An Ohio Corporation) c/o FirstEnergyCorp.
76 South Main Street Akron, OH 44308 Telephone(800)736-3402 (1)hasfiledall reportsrequired                                   '15(d)of theSecurities Indicate bycheckmarkwhethertheregistrant                                            to be filedbySection13or ExchangeAct    of 1934duringthepreceding     12 months(orforsuchshorterperiodthattheregistrant         wasrequiled   tofilesuchreports),
and(2)hasbeensubjectto suchfilingrequiremenls          forthepast90days.
YesEINo tr         FirstEnergy Corp.andFirstEnergy      Solutions  Corp.
Indicateby checkmarkwhetherthe registrant         hassubmitted     eleclronicallyandpostedon its corporate      Website,it any,every InteractiveDataFilerequired  to besubmitted    andpostedpursuant      to Rule405ot Regulation     S-T(5232.405    oI thischapteoduring thepreceding   12months(orforsuchshorterperiodthatthe registrant           wasrequired   to submitandpostsuchfiles).
YesEl No tr        FirstEnergy Corp.andFirstEnergy      Solutions  Corp.
Indicate bycheckmarkwhethertheregistrant        is a largeaccelerated   filer,an accelerated  tiler,a non-accelerated  filer,or a smaller reporting company. Seethedefinitions  of ''largeaccelerated  tiler,"'accelerated filsi'and"smaller  reporting company'in    Rule12b'2of the ExchangeAct.
LargeAcceleratedFilerEI                      FirstEnergy  Corp.
AcceleratedFilertr                           N/A Non-accelerated   Filer(Do not check         FirstEnergy  SolutionsCorp.
if a smallerreportingcompany)EI SmallerReportingCompanytr                    N/A lndicateby checkmarkwhetherthe registrantis a shellcompany(as definedin Rule12b-2of the ExchangeAct).
Yes tr No M       FirstEnergy Corp.and FirstEnergy     SolutionsCorp.

Indicatethe numberof sharesoutstanding        of eachof the issuer'sclassesof commonstock,as of the latestpracticable     date:
OUTSTANDING CLASS                                                              AS OF SEPTEMBER30, 2016 FirstEnergy  Corp.,$0.10parvalue                                                     425,743,282 FirstEnergy  SolutionsCorp.,no par value                                                         7 FirstEnergy Corp.is the soleholderof FirstEnergy      SolutionsCorp.commonstock.
Thiscombined    Form10-Ois separately      filedby FirstEnergy Corp.andFirstEnergy    Solutions Corp.Informalion   contained herein relatingto any individual registrant is filedby suchregistrant    on its ownbehalt.No registrant  makesany representation     as lo information relatingto the otherregistrant,    exceptthat information   relatingto FirstEnergy SolutionsCorp.is alsoattributed    lo FirstEnergy Corp.
FlrctEnergyWebSlteandOlherSoclalM6dlaSlte3andAppllcatlons Eachof the registrants'  AnnualReportson Form10-K,QuarterlyReportson Form10-O,CurrentReporlson Form8-K,and amendments    tothosereportsfiledwithorfurnished      to theSECpursuant   to Section13(a)or 15(d)of theSecurities   Exchangs Aclol
'1934 arealsomadeavailable     treeofchargeonorthrough                           otFirstEnsrgyswebsiteatwvrw.firsteneryycorp.com.
the'lnvestors'page TheseSECfilingsare postedon the web siteas soonas reasonablypracticableaftertheyare electronically              filed withthe SEC.
Additionally,the registrantsroutinelypost additionalimportantinfomationincludingpressreleases,investorpresentiations            and nolicesof upcomingevenb,underthe'lnvestors"sectionof FirstEnergy's         websiteandrecognize   FirslEneqy'swebsiteasachannel of distributionto reachpublicinvestors  andas a meansof disclosing      materialnon-public informationforcomplying   withdisclosute obligationsunderSECRegulationFD.Investorsmayb notiliedof postingsto thewebsiteby signinguptor emailalertsandRSS feedson the'lnvestor' pageof FirstEnergys         websiteor throughpushalerblromFirstEnergy      InvestorRelations   appstorApple Inc.'siPad@and iPhone@      devices,whichcan be installedfor free at the Appl@ App Store.FirstEnergyalso usesTwitter@           and Facebool@   asadditionalchannels    ofdistribution to reachpublicinvestors  andasa supplementalmeans     of disclosingmaterialnon-publicintormation  forcomplying  withib disclosure   obligationsunderSEC   Regulation FD.Infomation contained  onFiEtEnergy's  web site,Twitter@ handleor Facebook@    page,andanyconesponding        applications ofthosesites,shallnotbedeemedincorporated      into, or to be partot, this report.
OIIIISSION  OF CERTAIN     INFORMATION FirstEnergy Solutions   Corp.meebtheconditions      setlorthin GeneralInstruction H(1Xa)and(b)of FoIm10'Qandis therefore      tiling thisForm10-Qwiththe reduced       disclosure   formatspecifid in GeneralInstruction  H(2)to Form10-Q.

Foru/ard-Looking   Statements:   ThisForm1O-Qincludesforward-looking            statements   basedon information     currentlyavailable   to management. Suchsiatemenbare subjectto certainrisks and uncertainties.              Thesestiatements    includedeclarationsregarding management's     intents,beliefsand currente)eectations.         Thesestatements     typicallycontain,but ars not limitedto, the lerms
'anticipate,"                                                                                           'plan"andsimilar "potential,""aeect,'"forecast,"    "target,''will,''intend,"                    "estimate,'
                                                                          "belie\re,'"proiecl,"                            $rords. FoMaI+
lookingstatementsinvolveestimates,assumptions,          knownandunknowndsks,uncertainties           andotherfactors   hal maycauseaclual results,performance    or achievements   to be materiallydifierentfromanytutureresults,performance          or achievemenbexpressedor impliedbysuchforward{ookng         statements,    whichmayinclude      thefollowing.
    . The speedand natureof increasedcompetitionin the electricutilityindustry,in general,and the retailsalesmarketin oarticular.
    . Theabilityto eperiencegrowthin the Regulated                DistributionandRegulated    Transmission   sgments.
    . Theaccomplishment         ofourregulatory     andoperational    goalsinconnection   withourtransmission   investnent   plan,iltduding, butnotlimitedto,the proposedtransmission         assettransferto MAII andtheetfeciiveness         of ourstrategyto reflecta more regulated   business  profile.
    . Changesin assumptions            regadingeconomiccorditionswithinour territories,              assessmefiof the reliabilityof our transmission    system,or the availability     of capitalor otherresources       supponingidentifiedtransmission        investment opportunities.
The impactof the regulatory    processand resultingoutcomeson the mattersat thefederalleveland in the variousstatesin whichwe do businessincluding,but not limitedto, mattersrelatedto ratesand the ESP lV.
The impactof thefederalregulatory        processon FERC-regulated      entitiesandtransactions,   in particularFERCregulation    of wholesaleenergyand capacitymarkets,includingPJM marketsand FERC-jurisdictionalwholesale                       transactions;  FERC regulationof cost-of-service    rates,includingFERCOpinionNo. 531'srevisedROE methodology                  for FERC-jurisdictional wholesalegenerationand transmissionutilityservice;and FERC'scomplianceand enforcementactivity,including complianceand enforcement        activityrelatedto NERC'smandatoryreliability        standards.
The uncertainties   of variouscost recoveryand cost allocationissuesresultingfromATSI'srealignment               into PJM.
Economicor weatherconditionsaffectingfuturesalesand marginssuch as a polarvortexor othersignificantweather events,and all associatedregulatoryeventsor actions.
Changingenergy,capacityand commoditymarketpricesincluding,but not limitedto, coal,naturalgasand oil prices,and theiravailability and impacton marginsand assetvaluations,           includingwithoutlimitationimpairments      thereon.
The risksand uncertainties      at the CES segment,includingFES and its subsidiaries          and FENOC,relatedto continued depressedwholesaleenergyand capacitymarkets,and the viabilityand/orsuccessof strategicbusinessalternatives,                    such as potentialCESgeneratingunitassetsales,the potentialconversionof the remaininggenerationfleetfromcompetitive operationsto a regulatedor regulated-like       constructor the potentialneedto deactivateadditionalgeneratingunits.
The continuedabilityof our regulatedutilitiesto recovertheircosts.
Costsbeinghigherthan anticipatedandthe successof our policiesto controlcostsand to mitigatelowenergy,capacityand marketprices.
Otherlegislative   andregulatory    changes,andrevisedenvironmental        requirements,   including, but notlimitedto, theeffects of the EPA'sCPP,CCR, CSAPRand MATSprograms,includingour estimatedcostsof compliance,GWAwastewater effluentlimitations  for powerplants,and CWA316(b)waterintakeregulation.
The uncertaintyof the timingand amountsof the capitalexpenditures               that may arise in connectionwith any litigation, includingNSRlitigation,    or potentialregulatory   initiativesor rulemakings  (including thatsuchinitiatives or rulemakings  could resultin our decisionto deactivateor idlecertaingeneratingunits).
The uncertainties   associated   withthe deactivation    of olderregulatedandcompetitive     units,includingthe impacton vendor commitments,     suchas long{ermfuelandtransportation           agreements,  and as it relatesto the reliability of the transmission grid,the timingthereof.
The impactof other futurechangesto the operationalstatusor avaihbilityof our generatingunitsand any capacity performance    chargesassociated      with unitunavailability.
Adverseregulatory     or legaldecisionsandoutcomeswithrespectto our nuclearoperations(including,              but notlimitedto,the revocation   or non-renewal  of necessarylicenses,approvalsor operatingpermitsby the NRCor as a resultof theincident              at Japan'sFukushima       DaiichiNuclearPlant).
lssuesarisingfromthe indications       of crackingin the shieldbuildingat Davis-Besse.
The risksand uncertainties     associated   withlitigation,            mediationand likeproceedings, arbitration,                                  including, butnot limited to, any suchproceedings      relatedto vendorcommitments,         suchas long-termfuel and transportation     agreements.
The impactof labordisruptions       by our unionizedworkforce.
Replacement    powercostsbeinghigherthan anticipated           or notfullyhedged.
The abilityto complywithapplicablestateandfederalreliabilitystandardsandenergyefficiencyandpeakdemandreduction mandates.
Changesin customers'demand          for power,including,   butnotlimitedto, changesresultingfromthe implementation         of state and federalenergyefficiencyand peakdemandreductionmandates.
The abilityto accomplish    or realizeanticipated    benefitsfromstrategicandfinancialgoals,including,but not limitedto, the abilityto continueto reducecostsandto successfully         executeourfinancialplansdesignedto improveourcreditmetricsand strengthen  our balancesheetthrough,amongotheractions,our cashflowimprovement                    planand otherproposedcapital raisinginitiatives.
Ourabilityto improveelectriccommoditymarginsandthe impactof,amongotherfactors,theincreased                     costof fuelandfuel transportation  on suchmargins.

Changingmarketconditions     thatcouldaffectthe measurement     of certainliabilitiesandthevalueof assetsheldin ourNDTs, pensiontrustsand othertrustfunds,and causeus and/orour subsidiaries          to makeadditionalcontributions    sooner,or in amountsthat are largerthancurrentlyanticipated.
The impactof changesto significant     accountingpolicies.
The abilityto accessthe publicsecuritiesand othercapitaland creditmarketsin accordance          with our financialplans,the cost of such capitaland overallconditionof the capitatand creditmarketsaffectingus and our subsidiaries.
Furtheractionsthat may be takenby creditratingagenciesthatcouldnegativelyaffectus and/oroursubsidiaries'          accessto financing,increasethecoststhereof,increaserequirements       to postadditionalcollateralto  support,oraccelerate  payments underoutstandingcommoditypositions,LOCsand otherfinancialguarantees,and the impactof theseeventson the financialcondition  and liquidityof FirstEnergyand/orits subsidiaries, specificallythe subsidiarieswithinthe CESsegment.
The risksanduncertainties   surrounding   FirstEnergy'sneedto obtainwaiversfromitsbankgroupunderFirstEnergy's         credit facilitiescausedby a debtto totalcapitalization   ratio,as definedundereach of the revolvingcreditfacilities,in excessof 65% resultingfrom impairment     chargesor othereventsat CES.
Changesin nationaland regionaleconomicconditionsaffectingus, our subsidiariesand/orour major industrialand commercialcustomers,and othercounterparties        withwhichwe do business,includingfuelsuppliers.
The impactof any changesin tax lawsor regulations       or adversetax auditresultsor rulings.
lssuesconcerningthe stabilityof domesticand foreignfinancialinstitutions      and counterparties  withwhichwe do business.
The risksassociated    withcyber-attacks  and otherdisruptions to our information technology  systemthatmaycompromise our generation,  transmission and/ordistribution servicesanddatasecuritybreachesof sensitivedata,intellectual      property and proprietaryor personallyidentifiableinformationregardingour business,employees,shareholders,                customers, suppliers,businesspartnersand otherindividuals      in our datacentersand on our networks.
The risksand otherfactorsdiscussedfromtimeto time in our SECfilings,and othersimilarfactors.
Dividends  declared  fromtimeto timeon FEscommonstockduring          anyperiodmayintheaggregate        varyfrompriorperiods   dueto circumstances   consideredby FEs Boardof Directorsatthetimeoftheactualdeclarations.          A security]atingisnota recommendation to buyor holdsecuritiss   andis subieclto revision  or withdrawal at anytimebytheassigning      ratingagency. Eachratingshouldbe evaluated  independently   of anyotherrating.
Theforegoingfactorsshouldnotbeconstruedasexhaustive           andshouldbe readin conjunction     withtheothercautionarystatements andrisksthatareincluded     in FirstEnergys  andFES'filings  withtheSEC,including    butnotlimitedto themostrecenlAnnualReport on Form10-KandanysubsequentQuarterlyReportson Form10-Q.Newfactorsemergefromtimetotime,andit is notpossiblelor management    to predictall suchfactors,norassesstheimpactof anysuchfactoron FirstEnergryrs        businessorthee)denttowhichany factor,or combination  of factoF,may@useresultsto differmateriallyfromthosecontainedin anyforward-looking            statements.The registranbexpresslydisclaimanycunentintentionto update,exceptas requiredby law,anyfoMardiookingstatementscontained hereinas a resultof newinlormation. ftJture eventsor otherwise.

TABLE OF CONTENTS Part l. FinancialInformation Glossary of Terms Item 1. FinancialStatements FirstEnergyCorp.
Consolidated   Statementsof Income(Loss)                                                1 Consolidated   Statementsof Comprehensive Income(Loss)                                  2 Consolidated   BalanceSheets                                                            3 ConsolidatedStatementsof Cash Flows                                                     4 FirstEnergySolutions Corp.
Consolidated   Statementsof Income(Loss)and Comprehensive  Income(Loss)                 5 Consolidated   BalanceSheets                                                            6 Consolidated   Statementsof CashFlows                                                   7 Combined Notes To ConsotidatedFinancial Statements                                       8 Item 2. Management'sDiscussionand Analysis of Registrantand Subsidiaries                  57 FirstEnergy  Corp.Management's  DiscussionandAnalysisof FinancialConditionand Resultsof Operations                                                                           57 Management'sNarrativeAnalysis ol Resultsof Operations FirstEnergy  SolutionsCorp.
Item 3. Quantitativeand QualitativeDisclosuresAbout MarketRisk Item 4. Controls and Procedures Part ll. Other Information Item 1. Legal Proceedings                                                                 108 Item 1A. Risk Factors                                                                     108 Item 2. UnregisteredSales of Equity Securities and Use of Proceeds                        110 Item 3. DefaultsUpon SeniorSecurities                                                     110 Item 4. Mine SafetyDisclosures                                                            110 Item 5. Other Information                                                                 110 Item 6. Exhibits                                                                          111

GLOSSARY      OFTERMS Thetollowing  abbreviations andacronyms     areusedinthisreportto identilyFirstEnergy        Corp.andiF current    andlormersubsidiaries:
AlleghenyEnergy,Inc.,a Marylandutilityholdingcompanythat mergedwitha subsidiary         of FirstEnergyon February25,2011.As of January1,20'14,AE mergedwithand into FirstEnergy        Corp.
AESC                      AlleghenyEnergyServiceCorporation,                 of FirstEnergy a subsidiary               Corp.
AE Supply                 AlleghenyEnergySupplyCompany,LLC,an unregulated           generation subsidiary AGC                       AlleghenyGenerating    Company,a   generation subsidiary of AE Supplyand equitymethodinvesteeof MP.
ATSI                      AmericanTransmissionSystems,Incorporated,      formerlya directsubsidiaryof FE that becamea subsidiaryof FET in April2012,whichownsand operatestransmission      facilities, CEI                       The ClevelandElectricllluminating  Company,an Ohioelectricutilityoperatingsubsidiary CES                       CompetitiveEnergyServices,a reportableoperatingsegmentof FirstEnergy FE                       FirstEnergy  Corp,,a publicutilityholdingcompany FENOC                    FirstEnergy  NuclearOperatingCompany,     whichoperatesNG'snucleargenerating     facilities FES                                            Corp.,togetherwith its consolidatedsubsidiaries,whichprovidesenergy-related    products 5ifi,$$l3lrsolutions FESC                     FirstEnergyServiceCompany,whichprovideslegal,financialand othercorporatesupportservices FET                      FirstEnergy  Transmission, LLC,formerlyknownas AlleghenyEnergyTransmission,       LLCwhichis the parentof ATSI,TrAILand MAIT,and has a joint venturein PATH, FEV                      FirstEnergyVenturesCorp.,whichinvestsin certainunregulatedenterprisesand businessventures FG                       t,lj[ili.;gt Generation,LLC, a whollyownedsubsidiaryof FES,whichownsand operatesnon-nucleargenerating FirstEnergy              FirstEnergy  Corp.,togetherwith itsconsolidated subsidiaries GlobalHolding            O'"Jrfl MiningHoldingCompany,LLC,a joint venturebetweenFEV WMB MarketingVentures,LLC and Pinesdale GlobalRai!               A subsidiary of GlobalHoldingthatownscoaltransportation      operationsnearRoundup,Montana JCP&L                     JerseyCentralPower& LightCompany,        a NewJerseyelectricutilityoperatingsubsidiary MAIT                     Mid-AtlanticlnterstateTransmission,   LLC,a subsidiaryof FET,formedto own and operatetransmissionfacilities ME                       MetropolitanEdisonCompany,a Pennsylvania       electricutilityoperatingsubsidiary MP                       Monongahela    PowerCompany,a WestVirginiaelectricutilityoperatingsubsidiary NG                       FirstEnergy  NuclearGeneration,   LLC,a subsidiaryof FES,whichownsnucleargenerating       lacilities OE                       Ohio EdisonCompany,an Ohioelectricutilityoperatingsubsidiary OhioCompanies            CEl,OE andTE PATH                     Potomac-Appalachian    TransmissionHighline,LLC,a joint venturebetweenFE and a subsidiaryof AEP PATH-Allegheny           PATHAlleghenyTransmission      Company,LLC PATH-WV                  PATHWest VirginiaTransmissionCompany,LLC PE                       The PotomacEdisonCompany,a Marylandand West Virginiaelectricutilityoperatingsubsidiary Penn                     Pennsylvania   PowerCompany,a Pennsylvania     electricutilityoperatingsubsidiaryof OE Pennsylvania Companies ME, PN, Pennand WP PN                       Pennsylvania   ElectricCompany,a Pennsylvania   electricutilityoperatingsubsidiary PNBV                     PNBVCapitalTrust,a specialpurposeentitycreatedby OE in 1996 SignalPeak               An indirectsubsidiary  of GlobalHoldingthatownsminingoperations      nearRoundup,Montana TE                       The ToledoEdisonCompany,an Ohioelectricutilityoperatingsubsidiary TrAIL                    Trans-Allegheny  InterstateLineCompany,a subsidiaryof FET,whichowns and operatestransmission         facilities Utilities                OE, CEl,TE, Penn,JCP&L,ME,PN,MP,PE andWP WP                       West PennPowerCompany,a Pennsylvania         electricutilityoperatingsubsidiary and acronymsare usedto identifyfrequentlyusedtermsin this report:
The followingabbreviations AAA                      AmericanArbitrationAssociation AEP                      AmericanEleciricPowerCompany,Inc.
AFS                      Availablejor-sale AFUDC                    Allowancefor FundsUsedDuringConstruction ALJ                      Administrative LawJudge AOCI                     Accumulated   OtherComprehensive     lncome Apple@                   Apple@,iPad@and iPhone@are registeredtrademarksof Apple Inc.

ARO             Asset RetirementObligation ARR             AuctionRevenueRight ASU             AccountingStandardsUpdate BGS             BasicGenerationService BNSF            BNSFRailwayCompany BRA             PJM RPMBaseResidualAuction CAA             CleanAir Act ccR             GoalCombustion   Residuals CDWR            CaliforniaDepartmentof WaterResources CERCLA          Comprehensive   Environmental Response,             and LiabilityAct of 1980 Compensation, CFIP            Cash FlowlmprovementProject CFR             Code of FederalRegulations COz             CarbonDioxide CPP             EPA'sCleanPowerPlan CSAPR           Cross-StateAir PollutionRule CSX             CSXTransportation,   Inc.
CTA             Consolidated TaxAdjustment CWA             CleanWaterAct DCR             DeliveryCapitalRecovery DMR             Distribution Modernization   Rider DR              DemandResponse DSIC            Distribution Systemlmprovement     Charge DSP             DefaultServicePlan EDC             ElectricDistributionCompany EE&C            EnergyEfficiencyand Conservation EGS             ElectricGeneration Supplier ELPC            Environmental Law& PolicyCenter EmPOWERMaryland EmPowerMarylandEnergyEfficiencyAct ENEC            ExpandedNet EnergyCost EPA             UnitedStatesEnvironmental    ProtectionAgency ERO             ElectricReliability Organization ESPIV           ElectricSecurityPlanlV ESPIV PPA       Unit PowerAgreemententeredintoon April1, 2016by and betweenthe OhioCompanies and FES Facebook@       Facebookis a registeredtrademarkof Facebook,Inc.
FASB            FinancialAccountingStandardsBoard FERC            FederalEnergyRegulatory     Commission Fitch           FitchRatings FMB             FirstMortgageBond FPA             FederalPowerAct FTR             FinancialTransmission   Right GAAP            AccountingPrinciplesGenerallyAcceptedin the UnitedStatesof America GHG             Greenhouse   Gases GWH             Gigawatt-hour H8554           OhioHouseBillNo.554 HCI             Hydrochloric Acid tcE             IntercontinentalExchange,lnc.
IRP             IntegratedResourcePlan IRS             InternalRevenueService rso             IndependentSystemOperator KV              Kilovolt KWH             Kilowatt-hour LOC             Letterof Credit LSE             LoadServingEntity LTllPs          Long-TermInfrastructu  re lmprovementPlans

MATS         MercuryandAir ToxicsStandards MDPSC        MarylandPublicServiceCommission MISO         MidcontinentIndependentSystemOperator,Inc.
MLP          MasterLimitedPartnership mmBTU        One MillionBritishThermalUnits Moody's      Moody'sInvestorsService,Inc.
MOPR         MinimumOfferPriceRule MVP          Multi-ValueProject MW           Megawatt MWH          Megawatt-hour NAAQS        NationalAmbientAir QualityStandards NDT          NuclearDecommissioni     ng Trust NERC         NorthAmericanElectricReliabilityCorporation NinthCircuit UnitedStatesCourtof Appealsfor the NinthCircuit NJBPU        NewJerseyBoardof PublicUtilities NMB          Non-Market    Based NOAC         Northwestern    OhioAggregationCoalition NOL          Net OperatingLoss NOV          Noticeof Violation NOx          NitrogenOxide NPDES        NationalPollutantDischargeElimination     System NRC          NuclearRegulatory    Commission NSR          NewSourceReview NUG          Non-Util ity Generation NYPSC        NewYorkStatePublicServiceCommission occ          OhioConsumers'     Counsel OPEB         OtherPost-Employment      Benefits OTTI         OtherThanTemporarylmpairments OVEC         Ohio ValleyElectricCorporation PA DEP       PennsylvaniaDepartmentof Environmental       Protection PCB          Polychlorinated   Biphenyl PCRB         PollutionControlRevenueBond PJM          PJM Interconnection,   L.L.C.
PJM Region   The aggregateof the zoneswithinPJM PJMTariff    PJMOpenAccessTransmissionTariff PM           ParticulateMatter POLR         Providerof Last Resort POR          Purchaseof Receivables PPA          PurchasePowerAgreement PPB          PartsPerBillion PPUC         Pennsylvania    PublicUtilityCommission PSA          PowerSupplyAgreement PSD          Prevention   of Significant Deterioration PUCO         PublicUtilitiesCommission    of Ohio PURPA        PublicUtilityRegulatory   PoliciesAct of 1978 RCRA         ResourceConservationand RecoveryAct REC          RenewableEnergyCredit REIT         Real EstateInvestmentTrust RFC          ReliabilityFrrsfCorporation RFP          Requestfor Proposal RGGI         RegionalGreenhouse      Gas Initiative ROE          Returnon Equity RPM          Reliability PricingModel RRS          RetailRateStability iv

RSS                     RichSiteSummary RTEP                    RegionalTransmission    ExpansionPlan RTO                     RegionalTransmissionOrganization S&P                     Standard& Poor'sRatingsService S8221                   AmendedSubstitute   OhioSenateBillNo.221 SB31O                   Substitute OhioSenateBillNo.310 SB32O                   OhioSenateBill No. 320 SBC                     SocietalBenefits Charge SEC                     UnitedStatesSecuritiesand ExchangeCommission SEC Regulation FD       SEC Regulation   FairDisclosure SeventhCircuit          UnitedStatesCourtof Appealsfor the SeventhCircuit SIP                     Statelmplementation   Plan(s)Underthe CleanAir Act SOz                     SulfurDioxide SixthCircuit            UnitedStatesCourtof Appealsfor the SixthCircuit SOS                     StandardOfferService SPE                     SpecialPurposeEntity SREC                    SolarRenewableEnergyCredit SSO                     StandardServiceOffer TDS                     TotalDissolvedSolid TMI-2                   ThreeMilelslandUnit2 TO                      TransmissionOwner Twitter@                Twitteris a registeredtrademarkof Twitter,lnc.
'         of.Appealsfor
  ?;$H                  Unitedstates court of Appearsfor the Districtof columbiacircuir VIE                     VariableInterestEntity VSCC                    VirginiaStateCorporation  Commission WVDEP                   WestVirginiaDepartment    of Environmental Protection WVPSC                   PublicServiceCommission    of WestVirginia

PARTI. FINANCIALINFORMATION ITEMI.              FinancialStatements FIRSTENERGY          CORP.
CoNSoLTDATED         STATEMENTS         OF INCOME(LOSS)
(Unaudited)
For the Three Months Ended      For the Nine Months Ended September30                     September30 (ln millions, except per share amounts)                                       2016           2015             2016         2015 REVENUES:
RegulatedDistribution                                                 $         2,702 $       2,624 $          7,423 $       7,425 RegulatedTransmission                                                             285            248              824          755 Unregulated   businesses                                                          930         1,251            2,940         3,305 Totalrevenues*                                                               3,917         4,123           11,187        11,485 OPERATING      EXPENSES:
Fuel                                                                              450            482           1,269         1,378 Purchasedpower                                                                    979         1,209            2,992         3,311 Otheroperatingexpenses                                                            953            842           2,835         2,799 Provisionfor depreciation                                                         311            328              974          969 Amortizationof regulatoryassets,net                                                98            110              222          201 Generaltaxes                                                                      265            236              786          747 lmpairment  of assets(Note2)                                                                        I          1,447             24
_
Totaloperatingexpenses                                                       3,056         3,215           10,525         9,429 OPERATING      INCOME                                                               861            908                         2,056 OTHERTNCOME        (EXPENSE):
Investment  income(loss)                                                           28             (28)             75           (14)
Interestexpense                                                                  (286)          (285)            (863)        (846)
Capitalizedf inancingcosts                                                         28              26              79            93 Totalotherexpense                                                             (230)          Q87t             (70e)        v67l TNGOME    (LOSS)BEFORETNCOME        TAXES                                           631            621              (47\       1,289 INCOMETAXES                                                                         251            226              334          485 NETTNCOME       (LOSS)                                                              380            3s5 $           (3e1)$        804 EARNTNGS     (LOSSES)pER SHAREOF COMMONSTOCK:
Basic                                                                            0.89 $         0.94 $          (0.e0)$       1.91 Diluted                                                                          0.89 $         0.93 $          (0,e0)$       1.90 WEIGHTEDAVERAGENUMBEROF SHARESOUTSTANDING:
Basic                                                                             425            423              425          422 Diluted                                                                           427            424              425          423 DIVIDENDSDECLAREDPERSHAREOF COMMONSTOCK                                            0.72 $         0.72 $           1.44 $       1.44
* Includesexcisetax collections of $111millionand $109millionin the threemonthsendedSeptember       30, 2016and 2015, respectively, and $310millionand$320millionin the ninemonthsendedSeptember       30, 2016and 2015,respectively.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY     CORP.
CoNSoLTDATED      STATEMENTS       OF COMPREHENSIVE       INCOME(LOSS)
(Unaudited)
For the Three Months        For the Nine Months Ended September30          Ended September30 (ln millions)                                                     2016         2015          2016          2015 NET TNCOME    (LOSS)                                                  380 $                      (381$ )
OTHERCOMPREHENSTVE        TNCOME  (LOSS):
Pensionand OPEBpriorservicecosts                                     (18)          (31)         (54)        (e4)
Amortizedlosseson derivativehedges                                     2             2            6            4 Changein unrealizedgainson available-for-sale securities                 4           (11)          67         (21)
Othercomprehensive  income(loss)                                   (12)          (40)          19        ( 1 1)1 Incometaxes(benefits)on othercomprehensive  income(loss)              (5)          (15)           6         (42)
Othercomprehensive  income(loss),net of tax                         (7)          (25)          13         (6e)
GoMPREHENSlVE     TNCOME   (LOSS)                                      373 $        370 $        (368) $      735 The accompanying CombinedNotesto Consolidated                     are an integralpartof thesefinancialstatements.
FinancialStatements

FIRSTENERGY         CORP.
CONSOLIDATED         BALANCESHEETS (Unaudited)
September30,   December31, (ln millions, except share amounts)                                                                                  2015 ASSETS CURRENTASSETS:
Cashand cashequivalents                                                                                  551             131 Receivables-Customers,net of allowancefor uncollectible accountsof $61 in 2016and $69 in 2015                   1,470          1, 4 1 5 Other,net of allowancefor uncollectibleaccountsof $3 in 2016and$5 in 2015                             159            180 Materialsand supplies                                                                                    699             785 Prepaidtaxes                                                                                              204            135 Derivatives                                                                                               152            157 Collateral                                                                                                 89              70 Other                                                                                                     156            167 3,480          3,040 PROPERil PLANTAND EQUIPMENT In service                                                                                             50,889        49,952 Less- Accumulatedprovisionfor depreciation                                                             15,450        15,160 35,439        34,792 Constructionwork in progress                                                                            2,394          2,422 37,833 -      37.214 INVESTMENTS:
Nuclearplantdecommissioning     trusts                                                                  2,502          2,282 Other                                                                                                     533            506
                                                                                                  -        3,035          2,788 DEFERREDCHARGESAND OTHERASSETS:
Goodwill(Note2)                                                                                         5,618          6,418 Regulatoryassets                                                                                        1,088          1,348 Other                                                                                                     907          1,286 7.613          9.052
                                                                                                  $_51,gq]-      $      saqq_
LIABILITIESAND CAPITALIZATION CURRENTLIABILITIES:
Currentlypayablelong-termdebt                                                                           1,216          1, 1 6 6 Short-termborrowings                                                                                    2,975          1,708 Accountspayable                                                                                           944          1,075 Accruedtaxes                                                                                              537            519 Accruedcompensationand benefits                                                                           365            334 Derivatives                                                                                                91             106 Other                                                                                                     915            694 7,043 -        5.602 CAPITALIZATION:
Commonstockholders'     equity-Commonstock,$0.10par value,authorized      490,000,000  shares- 425,743,282and 423,560,397 sharesoutstanding  as of September 30, 2016and December31, 2015,respectively                        43              42 Otherpaid-incapital                                                                                10,012          9,952 Accumulated   othercomprehensive   income                                                             184             171 Retainedearnings                                                                                    1,264          2,256 Totalcommonstockholders'equity                                                                 11,503         12,421 Noncontrolling interest                                                                                                      1 Totalequity                                                                                    11,503         12,422 Long-term debt andotherlong-termobligations                                                           18,532         19, 099 30.035 -       31.521 NONCUR     RENTLIABILITIES    :
Accumulateddeferredincometaxes                                                                          7,136          6,773 Retirement benefits                                                                                    4,080          4,245 Assetretirementobligations                                                                              1,459          1, 4 1 0 Deferredgain on sale and leasebacktransaction                                                            765             791 Adversepowercontractliability                                                                             174             197 Other                                                                                                   1,269          1,555 14,883         14,971 COMMITMENTS,      GUARANTEES       AND CONTINGENCIES     (Note12)
                                                                                                  $       51,961$        s2,094 The accompanying       CombinedNotesto Consolidated       FinancialStatementsare an integralpartof thesefinancialstatements.

FIRSTENERGY       CORP.
CONSOLIDATED        STATEMENTS         OF CASH FLOWS (Unaudited)
For the Nine Months Ended September30 (ln millions)                                                                                2016                 2015 CASH FLOWS FROMOPERATINGACTIVITIES:
Net Income(loss)                                                                                      (381)                804 Adiustmentsto reconcilenet income(loss)to net cashfrom operatingactivities-Depreciation and amortization, includingnuclearfuel,regulatory assetsand customer intangibleassetamortization                                                                       1,440               1,383 Deferredpurchasedpowerand othercosts                                                                  (34)                (73)
Deferredincometaxesand investmenttax credits,net                                                     318                 428 lmpairment  of assets(Note2)                                                                      1,447                    24 Investmentimpairments                                                                                  13                  70 Deferredcostson sale leasebacktransaction.net                                                          36                  37 Retirementbenefits,net of payments                                                                     45                 (18)
Pensiontrustcontributions                                                                           (2e7)               (143)
Commodityderivativetransactions,net (Note9)                                                           (10)                (64)
Leasepaymentson sale and leasebacktransaction                                                         (s4)              (102)
Changesin currentassetsand liabilities-Receivables                                                                                           (34)                  7 Materialsand supplies                                                                                  45                  32 Prepaymentsand othercurrentassets                                                                     (28)                (43)
Accountspayable                                                                                       (17)              (285)
Accruedtaxes                                                                                          (81)                (68)
Accruedinterest                                                                                        36                  37 Accruedcompensationand benefits                                                                         2                  16 Othercurrentliabilities                                                                                17                  26 Cash collateral,net                                                                                    25                  59 Other                                                                                                  132                 190 Net cash providedfrom operatingactivities                                                         2.580               2,317 CASHFLOWSFROMFINANCING             AGTIVITIES:
New Financing-Long-termdebt                                                                                        521              1,094 Short-termborrowings,net                                                                          1,275                  134 Redemptions   and Repayments-Long-termdebt                                                                                    ( 1, 0 1 7 )           (781)
Commonstockdividendpayments                                                                           (458)               (455)
Other                                                                                                     (s)               (11)
Net cash providedfrom (usedfor) financingactivities                                                  316                  (2s)
CASH FLOWSFROMINVESTINGACTIVITIES:
Propertyadditions                                                                                  (2,156)             (2,025)
Nuclearfuel                                                                                           (1e5)               (101)
Salesof investmentsecuritiesheldin trusts                                                           1,361               1,126 Purchasesof investmentsecuritiesheld in trusts                                                     (1,437\             ( 1, 2 1 3 )
Assetremovalcosts                                                                                     ( 1 0 1)            (111)
Other                                                                                                    52                  37 Net cash usedfor investingactivities                                                             (2,476\             (2,287)
Net changein cash and cash equivalents                                                                  420                    1 Cashand cashequivalents   at beginningol period                                                        131                   85 Cashand cash equivalentsat end of period                                             --
The accompanying      CombinedNotesto Consolidated      FinancialStatementsare an integralpartof thesefinancialstatements.

FIRSTENERGY      SOLUTIONSCORP.
coNsoLrDATEDSTATEMENTS              OF TNCOME    (LOSS)AND COMPREHENSTVE              TNCOME    (LOSS)
(Unaudited)
For the Three Months        For the Nine Months Ended September30         Ended September30 (ln millions)                                                       ffiffi STATEMENTS    OF INCOME(LOSS)
REVENUES:
Electricsalesto non-affiliates                                    $        952 $      1,157 $      2,917 $      3,146 Electricsalesto affiliates                                                  111         135           360         547 Other                                                                        37           46          124         141 Totalrevenues                                                         1, 1 0 0     1,338        3,401        3,834 OPERATINGEXPENSES:
Fuel                                                                       202          245           595         666 Purchasedpowerfrom affiliates                                              191          103           440         250 Purchasedpowerfrom non-affiliates                                          186          401           829       1,336 Otheroperatingexpenses                                                     316          246           925         996 Provisionfor depreciation                                                    83           79          250         240 Generaltaxes                                                                 21           24            66          78 lmpairmentof assets(Note2)                                                                            540           16 Totaloperatingexpenses                                                  999        1,098        3,645        3,582 oPERATTNG      TNCOME   (LOSS)                                               101          240          (244)        252 OTHERTNCOME        (EXPENSE):
Investment  income(loss)                                                     24          (21)           56           (7)
Miscellaneous  income                                                          1            1            4            5 lnterestexpense- affiliates                                                  (3)           (2)          (6)          (6) lnterestexpense- other                                                      (36)         (36)        (10e)       (110)
Capitalized interest                                                           I            8           27          26 Totalotherexpense                                                         (s)         (50)          (28)       (e2) rNcoME (LOSS)BEFORETNCOME           TAXES(BENEFTTS)                            96         190          (272)        160 rNcoME TAXES(BENEFTTS)                                                                      70            (5)
NET TNCOME      (LOSS)                                                         40$        120 $        (267) $        96 STATEMENTS      OF COMPREHENSIVE      INCOME(LOSS)
NET TNCOME      (LOSS)                                                         40$        120 $        (267) $        96 OTHERCOMPREHENSTVE           TNCOME  (LOSS):
Pensionand OPEBpriorservicecosts                                              (3)          (4)         (10)        ( 12)
Amortizedlosses(gains)on derivativehedges                                      1-(2)
Changein unrealized   gainson available-for-sale securities                      5 -11o    (11)           61         (20)
Othercomprehensive    income(loss)                                          3                        51 Incometaxes(benefits)on othercomprehensive     income(loss)                    1           (6)          20 - -     (13)
Othercomprehensive    income(loss),net of tax                  --                                    s1         al GoMPREHENSTVE        TNCOME   (LOSS) 9__        42 !____ 111g_gqq              !____ ?5 The accompanying    CombinedNotesto Consolidated   FinancialStatementsare an integralpartof thesefinancialstatements.

FIRSTENERGY        SOLUTIONSCORP.
CONSOLIDATED          BALANCESHEETS (Unaudited)
September30,      December31, (ln millions, except share amounts)                                                         2016             2015 ASSETS CURRENTASSETS:
Cashand cashequivalents                                                                            2$                2 Receivables-Customers,  net of allowance for uncollectible accountsof $6 in 2016and $8 in 2015              225              275 Affiliated companies                                                                           482              451 Other,netof allowancefor uncollectible  accountsof $3 in 2016and2015                          55               59 Notesreceivablefrom affiliatedcompanies                                                           26                11 Materialsandsupplies                                                                            403               470 Derivatives                                                                                      146              154 Collateral                                                                                        85               70 Prepaymentsand other                                                                              72               66 1,496            1,558 PROPERTY,      PLANTAND EQUIPMENT:
ln service                                                                                   14,100           14,311 Less- Accumulatedprovisionfor depreciation                                                     5,822            5,765 8,278            8,546 Constructionwork in progress                                                                   1,048            1j57
                                                                                           -          9,326            9,703 INVESTMENTS:
Nuclearplantdecommissioning      trusts                                                        1,542            1,327 Other                                                                                             10                10
                                                                                           -          1.552            1,337 DEFERREDCHARGESAND OTHERASSETS:
Customerintangibles                                                                               11                61 Goodwill(Note2)                                                                                                    23 Propertytaxes                                                                                     10               40 Derivatives                                                                                       98                79 Other                                                                                            374              367 493              570
                                                                                           $        12,867 $         13,168 LIABILITIESAND CAPITALIZATION CURRENTLIABILITIES:
Currentlypayablelong-termdebt                                                                    182 $            512 Short-termborrowings-Affiliatedcompanies                                                                            '1                  8 Other Accountspayable-Affiliatedcompanies                                                                            393              542 Other                                                                                           89              139 Accruedtaxes                                                                                      72                76 Derivatives                                                                                       89              104 Other                                                                                            182              181 1,108            1, 5 6 2 CAPITALIZATION:
Commonstockholder's      equity-Commonstock,withoutpar value,authorized       750 shares- 7 sharesoutstandingas of September30, 2016and December31,2015                                                 3,653            3,613 Accumulated   othercomprehensive    income                                                    77                46 Retainedearnings                                                                           1,679            1,946 Totalcommonstockholder's    equity                                                     5,409            5,605 Long-term   debtand otherlong-term    obligations                                              2,815            2,510 8.224            8,115 NONCURRENT        LIABILITIES:
Deferredgain on sale and leasebacktransaction                                                    765              791 Accumulateddeferredincometaxes                                                                   734              600 Retirement  benefits                                                                            219              332 Asset retirement obligations                                                                     887              831 Derivatives                                                                                      50                38 Other                                                                                            880              899
                                                                                           --         3.535            3,491 COMMITMENTS,       GUARANTEES       AND CONTINGENCIES      (NOIE12)
                                                                                           $         12,86r_ $       13, 168 The accompanying      CombinedNotesto Consolidated         FinancialStatementsare an integralpartof thesefinancialstatements.

FIRSTENERGY       SOLUTIONS       CORP.
CONSOLIDATED         STATEMENTS        OF CASH FLOWS (Unaudited)
For the Nine Months Ended September30 fln millions)                                                                                    2016                2015 CASH FLOWSFROMOPERAilNG AGTIVITIES:
Net income(loss)                                                                                        (267) $
Adjustmentsto reconcilenet income(loss)to net cashfrom operatingactivities-Depreciation and amortization, includingnuclearfuel and customerintangible asset amortization                                                                                            463               422 Deferredcostson sale and leasebacktransaction,net                                                        36                37 Delerredincometaxesand investmenttax credits,net                                                         90               139 Investment  impairments                                                                                  12                63 Pensiontrustcontribution                                                                              (138)
Commodityderivative   transactions,net (Note9)                                                          (10)              (6s)
Leasepaymentson sale and leasebacktransaction                                                           (e4)             (102) lmpairment  of assets(Note2)                                                                            540                16 Changesin currentassetsand liabilities-Receivables                                                                                               19              171 Materialsand supplies                                                                                    25                 (1)
Accountspayable                                                                                         (6e)             (241)
Accruedtaxes                                                                                               (6)            (28)
Accruedcompensationand benefits                                                                                              2 Othercurrentliabilities                                                                                   ;                24 Cashcollateral,net                                                                                          6             107 Other                                                                                                     (16)                (4)
Net cash providedtrom operatingactivities                                                               604 CASH FLOWSFROMFINANCINGACTIVITIES:
Newfinancing-Long-termdebt                                                                                           471               '1 Short-termborrowings,net                                                                                101 Redemptionsand repayments-Long-term debt                                                                                         (503)             (382)
Short-term  borrowings, net                                                                                              (10e)
Other                                                                                                        (7)              (5)
Netcashprovidedfrom (usedfor)financingactivities                                       -                                 (1s7)
CASH FLOWSFROMINVESTINGACTIVITIES:
Propertyadditions                                                                                        (432)             (341)
Nuclearfuel                                                                                              (1e5)             (101)
Salesof investmentsecuritiesheld in trusts                                                                576               503 Purchaseso{ investmentsecuritiesheld in trusts                                                           (61e)             (546)
Cashinvestments                                                                                             10               (10)
Loansto affiliatedcompanies,net                                                                            (15)
Other                                                                                                         I               16 Net cash usedfor investingactivities                                                                   (666)              @7s)
Net changein cashandcashequivalents Cashand cashequivalents     at beginningof period                                                           ;                  2 Cashand cash equivalentsat end of period                                                 $2 The accompanying     CombinedNotesto Consolidated         FinancialStatements are an integralpartof thesefinancialstatements.

FIRSTENERGY   CORP.AND SUBSIDIARIES COMBINEDNOTESTO CONSOLIDATED           FINANCIALSTATEMENTS (Unaudited)
Note                                                                         Page Number                                                                       Number 1    Organizationand Basisof Presentation                                    9 2    Assetlmpairments                                                        12 3    EarningsPerShareof CommonStock                                          13 4    Pensionand OtherPostemployment   Benefits                               13 5    Accumulated  OtherComprehensive Income                                  15 6    IncomeTaxes                                                             18 7    VariableInterestEntities                                                19 8    FairValueMeasurements                                                   21 I    DerivativeInstruments                                                   26 10   AssetRetirement  Obligations                                            33 11   RegulatoryMatters                                                       33 12   Commitments,   Guaranteesand Contingencies                              41 13   Supplemental  Guarantorlnformation                                      46 14   SegmentInformation                                                      55

COMBINED       NOTESTO CONSOLIDATED               FINANCIAL       STATE ENTS(Unaudlbd)
: 1. ORGANIZATION        ANDBASISOFPRESENTATION Unlessotheru/ise   indicated,definedtermsandabbreviations            usedhereinhavethemeaningssetbrth intheaccompanying                   Glossary of Terms.
FirstEnergy   Corp.wasorganized         underthe lawsof the Stateot Ohioin 1996.FE'sprincipal                business   is the holding,dkectlyor indirectly,of alloftheoutstanding      common    stockof itsprincipal    subsidiaries:   OE,CEl,TE,Penn(awhollyownedsubsidiary              ofOE),
JCP&L,ME,PN,FESC,FESanditsprincipalsubsidiaries                    (FGandNG),AESupply,            Me PE,We FETanditsprincipalsubidiaries (ATSIandTrAIL),andAESC.In addition,FE holdsall of the outstanding                        commonstockof otherdirectsubsidiaries           including:
FirstEnergy   Properties,  Inc.,FEV,FENOC,FELHC,Inc.,GPUNuclear,                     Inc.,andAllegheny    Ventures,  Inc.
FEanditssubsidiarles      areprincipally   involved   inthegeneration,     transmission,    anddistribution                FirstEnergys of electricity.              tenutility operatingcompaniescompdseoneof the nation'slaeest investoFowned                       etectricsystems,basedon seMngsixmillioncustomeFin the MidwsstandMid-Atlantic       regions. lts regulated   andunregulated      generation   subsidiaries controlnearly17,000l W of capacity lrom a diverse mix of non-emittingnuclear,scrubbedcoal, naturatgas, hydroelectricand other renewables.FirstEnergy's transmission   operations   includeapproximately       24,000milesof linesandtworegionaltransmission               operation  centers.
Theseinterimtinancial     statements     havebeenprepared        pursuant    to therulesandregulations      of theSECforQuarterly       Reports on Form10-Q.Certaininformation          anddisclosures      normally  included    in tinancial statements  andnotesprepared       in accordance  with GAAPhavebeencondensed            oromiftedpursuanl       to suchrulesandregulations.        Theseinterim   linancialstatements    shouldbereadin conjunction   withthe financialstatements        andnotesincludedin the combined             AnnualReporton Form10-Kfor the yearended December    31,2015.TheseNotesto theConsolidated                Financial   Stalemenis    arecombined    lor FirstEnergy   andFES.
FirstEnergy   followsGAAPandcomplies           withtherelatedregulations,        orders,policiesandpractices       prescribed bytheSEC,FERC, and,as applicable,    the PUCO,the PPUC,the MDPSC,               the NYPSC,      theWVPSC,theVSCCandtheNJBPU.Theaccompanying interimtinancialstatements     areunaudited,     butreflectalladjustments,       consisting  ofnormalrecurring     adjustments, that,infieopinion of management,     arenecessary     forafairstatement      of thefinancial  statements. Thepreparation    of financialstatements   inconformity withGAAPrequires      managementto        makeperiodic     estimates  andassumptions        thataffectthereported    amounts   oI assets,liabilities, revenues   andexpenses       anddisclosure     ot contingent    assetsandliabilities. Actualresultscouldditferfromtheseestimates.          The reported  resultsofoperations    arenotnecessarily       indicative ol resultsof operations     foranyfutureperiod. FEanditssubsidiaries    have evaluated   eventsandtransactions        forpotential   recognition or disclosure     throughthedatethefinancial       statements  wereissued.
FEanditssubsidiaries     consolidate    allmajority-owned      subsidiaries   overwhich    theyexercise  controland,   whenapplicable,          for entities whichthey havea controlling          financialinterest.Intercompany          transactions    and balancesare eliminated       in consolidation  as appropriate. FEanditssubsidiaries       consolidate    a VIEwhenit is determined        thatit is theprimarybeneticiary    (seeNote7, Variable InterestEntities). Investments   inafiiliates  overwhich     FEanditssubsidiaries       havetheabilitytoexercise     significant influence, butdo nothavea controlling    financial  interest, followtheequitymethodot accounting.            Undertheequitymethod,       theinterest  intheentityis reported  asaninvestment      intheConsolidated       Balance   Sheetsandthepercentage          of FEs ownership    shareoftheentity's   earningsis reported  in theConsolidated     Statements     of Income(Loss)andComprehensive               Income(Loss).
ForthethreemonthsendedSeptember              30,2016and2015,capitalized           tinancing  costson FirstEnergy's   Consolidated   Statements  of Income(Loss)include     $11millionand$ 10million,respectively,          of allowance    forequitylunds  usedduringconstruction     and$ 17million and$16million,respectively,      ofcapitalized   interest. FortheninemonthsendedSeptember              30,2016and2015,capitalized        financing costson FirstEnergy's    Consolidated     Statements     ot Income(Loss)include$28millionand$40million,respectively,               of allowance for equityfundsusedduringconslruction           and$51millionand$53milljon,respectively,              of capitalized  interest.
Duringthethirdquarterof 2016,a reduciion           io depreciation  of $21million($19millionpriorto Januayl, 2016)wasrecorded                 that relatedto priorperiods.Theout-of-period        adjustmentrelatedto theutilizationofanaccelerated           usefullifefora mmponentofa certain powersiation.Management        hasdeteminedthisadjustment             is notmaterial    to thecurrentperiodor anypriorperiods.
Sl/ategicReviewof CompetitiveOperations FirstEnergy's  strategyis to bea fullyregulated       utilityfocusingon stableandpredictable          earnings   andcashfiowfromits regulated businessunits. In orderto executeonthisstrategy,FirstEnergy              hasbeguna strategicreviewof itscompetitive        operations  focusedon thesaleofgasandhydroelectric          unitsaswellasexploring       allaltematives     fortheremaining   generation   assetsat FESandAESupply.
Theseinclude,butarenotlimitedto, legislativeeffortsto convertgenerationfromcompetitive                   operationsto a regulatedor regulated-likeconstruct  suchas a regulatory     restructudng    inOhio,offering    generation    intoanyprocess    designed   to addressMP'sgeneration shortfallincludedin its lRP,andor a solutionfor nucleargeneration                  that recognize   theirenvironmental    benefits.Management anticipates thattheviability  ofthesealternatives      willbedeterm    inedintheneartermwitha targetto implement           lhesestrategic  options withinthenext12to 18monthsandcouldresultin materialassetimpairments.
Basedoncurrentmarketforwards,           CES,including     FES,expects     to havemorethansufiicient      cashflowfromoperations       in2017and 2018to fund anticipatedcapitalexpenditures            with no equitycontributionsfrom FirstEnergy.          However,in additionto exposurelo

marketpricevolatility   andoperational      risks,CES,including   FES,facessignilicant       financial risksthatcouldimpactitsanticipated       cash flowandliquidity,  including,   bul notlimitedto,thefollowing:
     . Requests   to postadditional   collateral  oraccelerated   payments     of upto $355millionresulting      fromcurrentcreditralingsat FES,including    Moodysdowngrade         oftheSeniorUnsecured       debtratingforFESto Caal aswellasS&P'sdowngrade                  ofthe SeniorUnsecured      debtralingat FESto B,bothof whichoccurred               on November     4, 2016.
     . Adverseoutcomes      in thepreviously     disclosed disputesregarding       long-term   coaltransportation    contracls
     . Theinability to extendor refinance      debtmaturities   at CES,including     at FESsubsidiaries,     in2017and2018of$130million and$515million,respectively.
Asignificant  collateralcallor  theinability   to refinance 2017debtmaturities       at FESsubsidiaries     is sxpected    to be addressed   byFES througha combination        of cashon hand,additional        capitalexpenditure       reductions,   assetsales,and/orborrowings           underthe unregulated   moneypool.However,         adverseoutcomes      in thecoaltransportation       contracts  disputes,   theinability  to refinance  2018 debtmaturities,   or lackofviablealternative      strategiescouldcauseFESlo takeoneor moreofthefollowing                 actions:  (i)restructuringof debtandotherfinancialobligations,          (ii)additionalborrowings    underthe unregulated        moneypool,(iii)furtherassetsalesor plant deactivations,  and/or(iv)seekprotection        underbankruptcy    laws.IntheeventFESseekssuchproteclion,               FENOC     maysimilarly  seek protection  underbankruptcy      laws.
Materialasset   impairments    resulting  fromthesaleordeactivation       of generation    assetsorfroma determination         bymanagement     of its intentto exitcompetitive      generation   assetsbeforethe endof theirestimated            usefulliteresulting    fromthe inabilitylo implement alternativestrategiesdiscussedabove,adverseiudgmentsor a FESbankruptcytilingcouldresultinaneventofdefaultundervarious agreementsrelatedto the indebtedness             of FE.Althoughmanagement          expecGto successlullyresolveany FE defaultsthrough waiversor otheractionson acceptable            termsandconditions,      the failureto do so wouldhavea materialandadverseimpacton FirstEnergy's  linancial  condition,  andFirstEnergy    cannotprovideanyassurance           thatitwillbeableto successfully        resolveanysuch defaultson satisfactoryterms.
l,lewAc@untingPrcnouncen}?'nls InMay2014,theFASBissuedASU2014-09,'RevenuefromContractswithCustomers'.Subsquent                                    accounting   standards   updates havebeenissuedwhichamendand/orclarifytheapplication                  ofASU2014-09.       Thecoreprinciple     of thenewguilanceisthatanentity recognizes   revenue   todepictthetransfer      ot promised  goodsorservices      to cuslomers    inanamountthatrefrects        theconsaderation   to whichthe entityexpecbto be entitledin exchangefor thosegoodsor services.Moredetaileddisclosureswill alsobe requiredto enableusersoffinancialslatemenb          to understand   thenature,amount,       timinganduncertainty      otrevonue    andcashflowsarising     ftom contracts  withcustomers. Forpublicbusiness      entities, thenewrevenue        recognition   guidancewill   beefiective    forannualandintedm reporting  periodsbeginning     afterDecember      15,2017.Earlieradoption      is pemittedforannualand        interim  reporting periods  beginning afterDecember      15, 2016.The standards          shallbe appliedretrospectively        to eachperiodpresentedor as a cumulati\-etfect adiustmentas of lhe dateof adoption.FirstEneEyis currentlyevaluatingthe impacton its financialsiatementsof adoptingthese standads.
In February   2015,the FASBissuedASU201+02,'Consolidations:                    Amendments       to the Consolidation     Analysis',whichamends curentconsolidation      guidance   including   changesto boththevariableandvotinginterestmodelsusedby companies                         to e\raluate whetheran    entityshouldbeconsolidated.        A reporting entitymustapplytheamendments             usinga modified     retospective   approach  by recoding a cumulative-effect       adjustmentto equity as ol the beginningof the periodof adoptionor apply the amendments retrospectively. FirstEnergys    adoption   ofASU2015-02,     onJanuary1, 2016,didnotresultina changeintheconsolilation                  ofVlEsby FEor itssubsidiaries.
InApril2015,theFASBissuedASU2015-03,                "Simplifying thePresentation      of Debtlssuance     Costs",whichrequires        debtissuance coststo be presented      onthebalancesheetas a directdeduction            fromthecarrying      valueoftheassociated        debtliability,consistent withthepresentation     ofa debtdiscount.      Inaddition, inAugust2015,theFASBissuedASU2015-15,                   "Presentation    andSubsequert Measurementot     Debtlssuance      CostsAssociated    withLineot-Credit     Arrangements',      whichallowsdebtissuance        costsrelated  toline of creditarrangements      to bepresented      asan assetandamortized        ratablyoverthetermof thearrangement,             regardless  otwhether thereareanyoutstanding        borrowings    ontheline-ot-credit. FirstEnergy   adopted   ASU2015-15      andASU2015-03        beginning  January   1, 2016.As of December        31,2015,FirstEnergy       andFESreclassified       $93millionand$17millionof debtissuance               costsincluded    in Deferred  chargesandotherassetsto          Long-term  debtandOtherlong-term        obligations. FirstEnergy  haselected    tocontinue  presenting debtissuance     costsrelating   to its revolving  crediltacilities as an asset.
In Januaryof 2016,the FASBissuedASU2016-01,"Financial                    Instruments-Overall:      Recognition   andMeasurement         of Financial AssetsandFinancial      Liabilities", whichprimarily   atfectstheaccounting     lor equityinvestments,     financial  liabilitiesunderthefairvalue option,andthepresentation      anddisclosure      requirements forfinancial   instruments. Inaddition,  theFASBclarifiedguidance        related to thevaluation   allowance    assessmenl    whenrecognizing     deferred   taxassetsresulting     fromunrealized    lossesonavailable{oFsaledebt securities.TheASUwillbeefiective         in fiscalyearsbeginning     atterDecember       15,2017,including     interimperiods    withinthosefiscal years.Eadyadoption      forcertainprovisions     canbeelectedforallfinancial       statements   offiscalyears    andinlerimperiods     thathavenot yetbeenissuedorthathavenotyetbeenmadeavailable                 forissuance. FirstEnergy   is currently evaluating    theimpactonilsfinancial statements  of adopting    thisstandard.
10

InFebruary  2016,theFASBissuedASU2016-02,            "Leases   (Topic   842)",whichwillrequireorganizations      thatleaseassebwithlease termsof morethan12 monthsto recognize           assetsandliabilities      for the rightsandobligations    createdby thoseleaseson their balance sheets.Inaddition,    newqualitative  andquantitative    disclosures   oftheamounts,    timing,anduncertainty    ofcashflowsarising ftomleaseswill be required.TheASUwill be elfectivefor liscalyears,andinterimperiodswithinthosefiscalyears,beginningatter DecembelI5, 2018, withearlyadoptionpmitted. Lessorsandlesseeswill be requiredto applya modifiedretospeciivelransition appoach,whichrequiresadjusting         the accounting    tor any leasesexistingat the beginning         of the earliestcomparative    period presented in theadoption-period    financial statements. Anyleasesthatexpirebeforetheinitialapplication           datewillnotrequireany accounting  adiustrnent. FirstEnergy is currently evaluating   theimpacton itsfinancial      statements   of adopting thisstandard.
InMarchof2016,theFASBissuedASU2016-09,              "lmprovements       to Employee   ShareBased      Payment  Accounting',  wfiichsimplifies severalaspecG   of theaccounting   foremployee    sharebased      payment. Thenewguidancewillrequire       allincome taxefiectsofawards to be recognized in the incomestatement      whentheawardsvestor aresettled.lt alsowillnotrequireliabilityaccounting                whenan employer repurchases    moreof an employee's      sharesforiaxwithholding        purposes. TheASUwillbe etfective     lor tiscalyears,and interimperiods withinthosefiscalyears,     beginning  atterDecember        15,2016,withearlyadoption     permitted. FirslEnergy is curlenlly evaluatingtheimpacton itsfinancial      statements  of adopting   thisstandard.
InJune2016,theFASBissuedASU2016-13,             'Financial   Instrumenls    - CreditLosses(Topic326):Measurement         of CreditLosses on FinancialInstruments,'   whichremoves     all recognition  thresholds    andwillrequirecompanies       to recognize  an allowance  torcredit losseslor the ditference   belweenthe amortized      costbasisot a tinancialinstrument         andthe amountof amortized        costthatthe companyexpectsto collectovertheinstrument's           contractual   life.TheASUis effective     forfiscalyears,andinterimperiodswithin thosefiscalyears,beginning     afterDecember'15,2019.        Earlyadoptionis permitted       forfiscalyearsbeginning     afterDecember   15, 2018.FirstEnergy   is currently evaluating  theimpacton itsfinancial       statements   of adopting  thisstandard.
InAugust2016,theFASBissuedASU2016-l5,"Statement                  of CashFlows(Topic230):Classification         of CertainCashReceipts   and CashPayments". Thestandard     is intended  to eliminate   diversity  in practicein howcertaincashreceiplsandcashpayments             are presentedandclassifiedinthestatementof cashflows.Theguidanceis ellsctivelor fiscalyea]s,andfor interimperiodswithinlhose fiscalyears,beginning   afterDecember    15,2017.Earlyadoption        is permitted  forallentities. FirstEnergy  doesnotoQectthisASUto havea materialeffecton itsfinancial     statements.
InOctober2016,the FASBissuedASU2016-16,             'AccountirEforIncomeTaxes:Intra-Entity            AssetTransfers   ofAsseBOlherthan Inventory."
ASU201S16eliminates        theexception   forallintra-entity    salesol assetsotherthaninvenlorywhichallowscompanies           to deferthetaxeffectsof intra-entityassettransters.Asa result,a repodingentitywouldrecognizelhe taxexpensefromthesaleofthe assetin the seller'stax jurisdictionwhenthe intra-entitytransfero@urs,eventhoughthe pre-taxetfectsof that transactionare eliminaled in consolidation. Anydelerred   taxassetthatarisesinthebuyer'siurisdiction          wouldalsobe recognized      atthetimeofthe Theguidance transfer.                is etfectivetorfiscalyears,andfor interimperiodswithinthosefiscalyears,bginningafterDecember                    15, 2017.Earlyadoption    is permitted andthemodified     retmspective     approach   willberequired   tortransition tothenewguidance,    witha cumulative-effect adjustment    recorded  in retained  eamingsas of the beginning        of the periodof adoption. FirstEnergy is currently evaluatingthe impacton its financialstatementsof adoptingthisstandard.
Additionally,dudng2016,the FASBissuedthefollowing             ASUS:
ASU 2016-05,"Effectof Derivative       ContractNovationson ExistingHedgeAccountingRelationships,"
ASU 2016-06,"Contingent       Putand CallOptionsin Debtlnstruments            (a consensusof the FASBEmerginglssuesTask Force),"
ASU 2016-07,"Simplifying      the Transition  to the EquityMethodof Accounting,"         and ASU 2016-17,"Consolidation       (Topic810):lnterestsHeldthroughRelatedPartiesThatAre underCommonControl."
FirstEnergy does not expecttheseASUsto havea materialeffecton its financialstatements.
11
: 2. ASSETIMPAIRMENTS PlantlmDaimenE FirstEnergy reviewslonglivedassetsforimpairmenl      whenever  eventsorchanges    incircumstances    indicatethatthecarryirE  valueot suchassetsmaynotbe recoverable.      Therecoverability ol a longlivedassetis measuredbycomparingitscarryingvalueto thesum of undiscounted  futurecashflowsexpectedto resuhfromtheuseandeventualdisposition            oftheasset.ttthecarryirEvalueisgreatsr thantheundiscounted    cashflows,an impairment    existsanda lossis recognized   fortheamountbyu,hichthecarryingvalueof the longiivedassetexceedsitsestimated       fairvalue.FirstEnergy utilizestheincomeapproach,       basedupondiscounted     cashflowsb estimatefairvalue.
OnJuly19,2016,FirstEnergy     andFEScommitted     to exitoperations of theBayShoreUnit1 generatirE       station(136l"fw)byfrober 1,2020,througheithersaleordeactivation      andtodeactivate  Units1-4of theW.H.Sammis        genorating  siation(720lvfw)byMay31, 2020.As a result,FirstEnergy   recorded  a non-cash  pre-taximpai.ment   chargeof $647million($517million- FES)in thesecond quarterof 2016,whichis included   in lmpairment  ot assetsontheConsolidated    Statement    of Income(Loss)andincluded      withinthe resultsoftheCESsegment.      PJMhasapproved     theW.HSammisUnits1-4andBayShoreUnit1deactivations               pending reviaf bythe Independent    MarketMonitor.In addition,FirstEnergy   and FESrecordedtermination        andsettlement     cosb on luel contracbol approximately   $58million(pre-tax) in thesecondquarterof 2016resulting     fromplantretirements     anddeactivations.
Duringthe first ninemonthsof 2015,FirstEnergy         and FES recognized     impairment   chargesot $24 millionand $16 million, respectively,  associatedwithcertaintransportation   equipmentandtacilities.In orderto confotmto cunentyearpresenlation,           the chargewas reclassified   fromOtheroperatingexpensesin the Consolidated        Statementof Income(Loss)to lmpairmentof assets.
Goodwi In a businesscombination,    the excessof the purchase    priceoverthe estimated    fairvalueof the assetsacquiredand liabilities assumed   is recognized asgoodwill. FirstEnergy's reporting unitsareconsistent withib reportable   segments  andconsist  ofRegulated Distribution, Regulated Transmission,  andCES.Thelollowing    tablepresents  thechanges    inthecarrying  valueofgoodwillforlhe   nine monthsendedSeptember        30,2016:
Competitive Regulated         Regulated            Energy Goodwill                                        Distribution     Transmission          ServiCes       Gonsolidated (ln millions)
Balanceas of December     31. 2015                      5,092 $              526 $              800 $          6,418 lmpairment                                                                                   (800)            (800)
Balanceas of September30, 2016                          5,092 $              526 $                             5,618 FirstEnergy  testsgoodwillfor impairment   annuallyas of July31 and considersmorefrequenttestingif indicators             of potential imDairment  arise.
As a resultof lowcapacitypdcesassociated       withthe 2019/2020   PJMBaseResidualAuction         in MayA)16,as wellas its annual updateto itstundamental   long-termcapacityandenrgypriceforecast,FirstEnergy      deiermined   thatanintedmimpairment     analysisof theCESreporting     unit'sgoodwillwasnecessary    duringthesecondquarterof 2016.
Consistentwith  FirstEnergy's annualgoodwillimpairment   test,a discounled  cashflowanalysis    wasusedto determine     thofairvalue of theCESreportingunitforpurposesofsteponeof theinterimgoodwillimpairment           test.Keyassumptions    incorporated  inb theCES discounted cashflowanalysisrequiring    significantmanagement    judgment  included  thetollowing:
      . FutuB Energyand CapacltyPrlces:Observablemarketinformationfor near-termforwardpowrprices,PJMauction resultsfornearterm   capacity  pricing, anda longer-term  fundamental   picingmodelforenergyandcapacity        thatconsidered theimpactof keyfactorssuchasloadgroMh,plantretirements,           carbonandotherenvironmentalregulations,         andnatural gaspipelineconstruction,   aswellascoalandnaturalgaspricing.
      . hefailSatesand Margln:CES'currentretailtargeted         portfolioto estimate  futureretailsalesvolumeaswellas historical financialresultsto eslimateretailmargins.
      . Operatingand CapltalCosts: Estimatedfutureoperatingandcapitalcosts,includingthe estimatedimpacton costsof pending   carbonandotherenvionmentalregulations,      aswellascosbassociated        withcapacity  performance  reforms  inhe PJMmarkel.
      . DiscountRate:Adiscount       rateof9.50%.basedonselected      comparable    companies'capiial            retumondebtand structure, returnonequity.
TerminalValue:A terminalvalueof 7.0xearningsbeforeinterest,              taxes,                 and amortizationbased on consideration  of peergroupdataandanalyst      consensus   expectations.
12

Basedontheimpairment      analysis,  FirstEnergy   determined   thatthecarrying  valueofgoodwillexceeded      itsfairvalueand Iecognized a non-cash  pre-taximpairment    chargeof $8OO     million($23million- FES)inthesecondquarterof 2016,whichis included          withinthe captionlmpairment   ot assetsin the Consolidated      Slatemenl    of Income(Loss).
As of July3'1,2016,FirstEnergy      performed    a qualitative assssment   of the Regulated Distribution  andRegulated     Transmission reporting units'goodwill,assessing   economic,    industry andmarketconsidorations      inadditionto thereporting   units'overalltinancial performance. lt wasdetermined    thatthefairvalueofthesereporting        unitswere,morelikelythannot,greater     thantheircarrying value anda quantitative  analysis wasnotnecessary Termination of CustomerContact Duringthethirdquarterof 2016,FESrecorded          a pre-tax chargeof$32millionassociated     withthetermination    ol a cuslomercontracl, whichis included  in Otheroperating    expenses    in theConsolidated     Statement of Income(Loss).
: 3. EARNINGS     PERSHAREOF COMMON               STOCK Basicearnings   pershareofcommonstockarecomputed             usingtheweighted     a\ragenumberofcommonshares           oulstanding during the relevantperiodas lhe denominator.      Thedenominator        for dilutedearnings per shareol commonsbck reflectstheweighted average  otcommon    sharesoutstanding    plusthepotentialadditionalcommon         sharesthatcouldresultifdilutivesecurities   andothel agreemenbto issue@mmonslockwereexercised.
Thefollowing   taHereconciles   basicanddilutedearnings        pershareot commonstock:
For the Three Months            For the Nine Months (ln millions, except per share amounts)                                         Ended September30              Ended September30 Reconciliationof Basic and Diluted Earningsper Shareof CommonStock                                                                       2016          2015             2016          2015 Net income(loss)                                                                       380 $         395 $           (381)$         804 Weightedaveragenumberof basicsharesoutstanding                                         425           423              425           422 Assumedexerciseof dilutivestockoptionsand awards(1)                                      2              1                              1 Weightedaveragenumberof dilutedsharesoutstanding                                                     424              425           423 Basicearnings(losses)per shareof commonstock                                 $       0.8e $         0_e4$          (0.e0)$         1.91 Dilutedearnings(losses)per shareof commonstock                               $       0.8e $         0.93 $         (0.e0)$         1.90 (r) FortheninemonthsndedSeoternber      30.2016.threemillionshareswereexcluddlromthecalculation      of dilutedsharEsoutstanding,astheir inclusionwouldbe aniidilutiveasa resultol lhe netlossfor the period.ForthethremonthsendodSeptember      30,2016 and2015, ard lor the ninemonthsendedSeptember      30,2015, onemillionshareswercexcluddfromthecalculation   of dilutedshargsoutstanding,  astheirinclusion woddbe antidilutive.
: 4. PENSIONAND OTHERPOSTEIIPLOYMEITT                    BENEFTS ThroughOctober2016,FirstEnergysatisfiedits minimumrequiredfundingobligationsto its qualifiedpensionplanfor the yearwith contributions of $382million($85millionin October2016),including$138millionat FES.Dependingon, amongotherthings,market conditions,Fi6tEnergyexpectsto makeadditionalconlributionsto itsqualifiedpensionplan in 2016of up to $500millionof equityb addressib fundingobligationsfor futureyears.
13

Thecomponents    of the consolidatednetperiodiccost(credits)for pensionandOPEB(including      amountscapitalized)  wereas follows:
Components of Net Periodic Benefit Costs (Credits)                   Pension                    OPEB For the Three Months EndedSeptember30                          2016        2015          2016 (ln millions)
Servicecosts                                                         48          4e$            2 $          2 Interestcosts                                                        99          967                         7 Expectedreturnon plan assets                                      (100)        (111)           (7)          (e)
Amortizationof priorservicecosts(credits)                             2           2          (20)          (33)
Net periodiccosts(credits)                                         4e$         36$         ( 1 8 )$      (33)
Gomponents of Net Periodic Benetit Costs (Credits)                   Pension                    OPEB For the Nine Months EndedSeptember30                           2016        2015          2016 (ln millions)
Servicecosts                                                        144 $       145 $            4           4 Interestcosts                                                       298         288            22           21 Expectedreturnon plan assets                                       (2e7)       (333)         (23)          (25)
Amortization of priorservicecosts(credits)                            6           6          (60)         (100)
Net periodiccosts (credits)                                       151 $       106 $        (57) $       (100)
FES'shareof the net periodicpensionand OPEBcosts(credits)were as follows:
Pension 2016        2015           2016          2015 (ln millions)
For the ThreeMonthsEndedSeptember30                                   6 $         4 $           (4) $       (5)
For the NineMonthsEndedSeptember30                                   18          12           (12)         (15)
Pension andOPEBobligations    areallocatedto FEs subsidiaries,includingFES,employing  he planparticipants. Thenetperiodic pensionandOPEBcosts(credits),     netot amounts  capiialized, recognized in eamingsby FirstEnergy   andFESwereasfollows:
Net Periodic Benefit Expense(Gredit)                                 Pension                    OPEB For the Three Months EndedSeptember30                          2016        2015           2016 (ln millions)
FirstEnergy                                                          35$         25$          ( 1 1 )$     (21)
FES                                                                   5           4             (4)         (4)
Net PeriodicBenefit Expense(Credit)                                  Pension                    OPEB For the Nine Months EndedSeptember30                           2016         2015          2016 (ln millions)
FirstEnergy                                                         107 $        74$          ( 4 1 )$     (66)
FES                                                                  17          12           (12)         (12) 14
: 5. ACCUMULATED        OTHERCOMPREHENSIVE             INCOME The changesin AOCI,net of tax, in the threeand ninemonthsendedSeptember30, 2016and 2015,for FirstEnergy          are includedin the followingtables:
FirstEnergy                                                      Gains&          Unrealized        Defined Losses on        Gainson           Benefit Cash Flow          AFS           Pension &
Hedges          Securities     OPEB Plans (ln millions)
AOCIBalanceas of July1, 20'16                                           ( 3 1 )$          58$             164 $     191 Othercomprehensive        incomebeforereclassifications                                 21                          21 Amountsreclassified     fromAOCI                                         2             (17)             (18)       (33)
Othercomprehensive        income(loss)                                                                (18)       (12)
Incometaxes(benefits)on othercomprehensive          income (loss)                                                                                                    (7)       (5)
Othercomprehensive        income(loss),net of tax                                                      (11)       (7)
AOCI Balanceas of September30, 2016                                     (2e)$              60$            153 $     184 A O CIB alanc ea s o f J u l y1 ,2 0 1 5                                (36) $             1e$            219 $     202 Othercomprehensive        lossbeforereclassifications                                    (8)                        (8)
Amountsreclassified     fromAOCI                                         2               (3)            (31)       (32)
Othercomprehensive        income(loss)                                 2              (11)            (31)       (40)
Incometaxes(benefits)        on othercomprehensive  income (loss)                                                                   1               (4)             (12)      (15)
Othercomprehensive        income(loss),net of tax                                      (7)             (1e)      (25)
AOCIBalanceas of September30, 2015                                      (35) $             12$            200 $     177 Gains&          Unrealized        Defined Losses on         Gainson           Benefit Cash Flow          AFS           Pension&
Hedges          Securities     OPEB Plans (ln millions)
AOCIBalanceas of January1, 2016                                         (33)$              18$            186 $      171 Othercomprehensive        incomebeforereclassifications                                109                         109 Amountsreclassified     fromAOCI                                         6             (42)              (54)      (e0)
Othercomprehensive        income(loss)                                 6               67              (54)       19 Incometaxes(benefits)        on othercomprehensive  income (loss)                                                                   2               25              (21)         6 Othercomprehensive        income(loss),net of tax                                                      (33)       13 AOCIBalanceas of September30, 2016                                      (2e)$              60$            153 $      184 AOCIBalanceas of January1, 2015                                         (37) $             25$            258 $      246 Othercomprehensive        lossbeforereclassifications                                    (1)                         (1)
Amountsreclassified     fromAOCI                                         4              (20)             (e4)     (110)
Othercomprehensive        income(loss)                                 4              (21)             (e4)     (111)
Incometaxes(benefits)on othercomprehensive          income (loss)                                                                   2               (8)             (36)      (42)
Othercomprehensive        income(loss),net of tax                                     (13)             (58)      (6e)
AOCIBalanceas of September30, 2015                                      (35) $             12$            200 $      177 15

Thefollowing amounts  werereclassifiedfromAOCIfor FirstEnergy     in thethreeandninemonthsendedSeptember       30,2016and 2015:
For the Three Months        For the Nine Months Ended September30           Ended September30      Affected Line ltem in GonsolidatedStatementsof Reclassifications f rom AOGI(2)              2016          2015         2016         2015     Income (Loss)
(ln millions)
Gains& losseson cashflow hedges Commoditycontracts                                   $            $            $     (2) Otheroperatingexpenses Long-termdebt                                    2            2             6         6 Interestexpense 2            2             6         4   Totalbeforetaxes (1)           (2)       (2) Incometaxes 2$           1$            4$        2   Net of tax Unrealizedgainson AFS securities Realizedgainson salesof securities           ( 1 7 )$        (3) $       (42) $     (20) lnvestmentincome(loss) 7            1            16         7   Incometaxes
                                          $       ( 1 0 )$       (2) $       (26) $     (13) Net of tax Definedbenefitpensionand OPEBplans Prior-service costs                     $       ( 1 8 )$     ( 3 1 )$       (54) $    (94) (1) 7          12             21        36   Income taxes
                                          $       ( 1 1 )$     ( 1 e )$       (33) $    (58) Net of tax (1)TheseAOCI componentsare includedin the computationof net periodicpensioncost. See Note 4, Pensionand Other Postemployment  Benefitsfor additionaldetails.
(z)Amounts in parenthesisrepresentcreditsto the Consolidated  Statements    of Income(Loss)fromAOCI.
16

ThechangesinAOCI,netof tax,in thethreeandninemonthsendedSeptember         30,2016and2015,for FESareincluded    in the following tables:
FES Gains&          Unrealized        Defined Losses on        Gains on          Benefit Gash Flow          AFS            Pension&
Hedges          Securities      OPEBPlans     Total (ln millions)
AOCIBalanceas of July 1, 2016                                        ( 1 0 )$          50$             35$        75 Othercomprehensive   incomebeforereclassifications                                    22                         22 Amountsreclassified fromAOCI                                           1             (17)              (3)     (1e)
Othercomprehensive   income(loss)                                    1                5              (3)        3 Incometaxes(benefits)on othercomprehensive     income(loss)                             2              (1)         1 Othercomprehensive   income(loss),net of tax                                                         (2)
AOCIBalanceas of September30, 2016                                     (e)$            53$             33$
AOCIBalanceas of July 1, 2015                                          (e)$             16$             38$       45 Othercomprehensive   lossbeforereclassifications                                       (7)                       (7)
Amountsreclassified fromAOCI                                                           (4)             (4)       (8)
Othercomprehensive   loss                                                           (11)             (4)     (15)
Incometax benefitson othercomprehensive     loss                                       (5)             (1)       (6)
Othercomprehensive   loss,netof tax                                                  (6)             (3)        (e)
AOCIBalanceas of September30, 2015                                     (e)$             10$             35$       36 Unrealized        Defined Losses
                                                               ""in* on         Gains on         Benefit Cash Flow          AFS            Pension&
Hedges          Securities      OPEBPlans     Total (ln millions)
AOCIBalanceas of January1, 2016                                        (e)$             16$             3e$       46 Othercomprehensive   incomebeforereclassifications                                   102                       102 Amountsreclassified fromAOCI                                                         (41)            (10)       (51)
Othercomprehensive   income(loss)                                                    61            (10)        51 Incometaxes(benefits)on othercomprehensive    income(loss)                            24              (4)       20 Othercomprehensive   income(loss),net of tax                                         37              (6)       31 AOCI Balanceas of September30, 2016                                    (e)$             53$             33$       77 AOCIBalanceas of January1, 20'15                                       (7) $            21 $            43$
Othercomprehensive   lossbeforereclassifications                                        (1)                       (1)
Amountsreclassified fromAOCI                                          (2)             (1e)           (12)       (33)
Othercomprehensive   loss                                           (2)             (20)           (12)       (34) lncometax benefitson othercomprehensive    loss                                        (e)            (4)      (13)
Othercomprehensive   loss,netof tax                                 (2)             ( 1 1)           (8)      (21)
AOCI Balanceas of September30, 2015                                    (e)$             10$             35$       36 17

The followingamountswere reclassified       fromAOCIfor FES in the threeand ninemonthsendedSeptember30, 2016and 2015:
For the Three Months          For the Nine Months Ended September30           Ended September30            Affected Line ltem in Consolidated Statements Reclassificationsf rom AOCI(2)                       2016          2015          2016             2015      of Income(Loss)
(ln millions)
Gains& losseson cashflow hedges Commoditycontracts                                       1$                $                         (z',)Otheroperatingexpenses Incometaxes 1$                $               $         (2) Net of tax Unrealized  gainson AFS securities Realizedgainson salesof securities                    ( 1 7 )$         (3) $        ( 4 1 )$       (18) Investment   income(loss) 6              1            15               7   lncometaxes
                                                  $        (11$  )         (2) $        (26)$          (t 1) Net of tax Definedbenefitpensionand OPEBplans Prior-service costs                           $         (3) $          (4) $        ( 1 0 )$       (12) (1) 1              1              4              4   Income taxes
                                                  $         (2) $          (3) $          (6) $          (8) Net of tax (1)TheseAOCIcomoonents           are includedin the comDutation      of net Deriodic   pensioncost.See Note4, PensionandOther Postemployment      Benefils foradditional  details.
(2)Amountsin parenthesis      represent creditsto theConsolidated     Statements   of Operations    fromAOCI.
: 6. INCOME    TAXES FirstEnergy's andFES'interim      efiectivetaxratesreflectthe   estimated   annualeffective    taxratesfor2016and2015.Thesetaxrates areaffected  byestimated     annualpermanent    items,suchasAFUOCequityandotherflow-through                 items,aswellasdiscreteitems thatmayoccurin anygivenperiod,butarenotconsistent              fromperiodto period.
FirstEnergy's effective  taxrateforthethreemonthsendedSeptember              30,2016and2015was39.8%and36.4%,respectively.
Changes   in FirstEnergy's  ellectivetaxratefortheninemonthsendedSeptember              30,2016ascompared        tothesameperiod   of 2015, resulted fromthesecondquarterof2016impairment           of $8OO   millionofgoodwill  (asdescribed    inNote2),ofwhich$433million     isnon-deductible fortaxpurposes. Additionally,$159millionof valuation    allowances  wererecorded       inthesecondquarterof 2016against stateandlocalNOLcarryforwards        thatmanagment     believes,   morelikelythan   not,willnotberealized      basedprimarily onprojecled taxableincomerellecting      updates to FirstEnergy's annuallong-term     fundamental    pricingmodelforenergyandcapacity,        aswellas certainstatutory  limitations onthe utilization of staleandlocalNOLcarMorwards.
FES'etfective  taxrateforthethreemonthsendedSeptember              30,2016and2015was58.3%and36.8%,respectively.                Theincrease intheeffective  taxrateis primarilydueto    theimpactofestimated     annualpermanent       itemsonlorecasted     lowelpre-tax incometorthe penoo.
FES'effective  taxratetortheninemonthsendedSeptember               30,2016and2015was1.8%and40.0%,respectively.                Thechangein theettective taxrateprimarily    resulted from$65millionofvaluation     allowances    recorded    againststateandlocalNOL     carMorwards thatmanagement      believes, morelikelythan   not,willnotberealized    asdescribed    above.Additionally,    FESrecorded  animpairment  of goodwill(asdescribed      in Note2) in thesecondquarterof 2016,of which$23millionis non-deductible               forlax purposes.
In March2016,FirstEnergy       recorded  unrecognized  taxbenefits   of $69millionprimarily     related to protectiveretundclaimsfiledwith theCommonwealth       of Pennsylvania   asa resultofa recentrulingbytheCommonwealth              Courtfindingthatthestate'sNOLcarryover limitationviolated  theunilormity  clauseandwasunconstitutional.      TheCommonwealth          of Pennsylvania  hasappealed  thisruling tothe Pennsylvania  Supreme     Court.
As oI September    30,2016,it is reasonably    possible thatapproximately     $54millionof unrecognized        tax benefitsmaybe resolved withinthenexttwelvemonthsasa resultotthestatuteof limitations           expiring  andexpected      resolutionwithrespect to cenainclaims,of whichapproximately     $15millionwouldatfectFictEnergy's         etfective taxrate 18

In February 2016,theIRScompleted         itsexamination      ol FirstEnergy's    2014federalincometaxreturnandissueda fullacceptance letterwithno adjustments.
: 7. VARIABLE    INTEREST     ENTITIES FirstEnergy performsqualitative      analysesbasedon controlandeconomics                  to determine    whethera variableinterestclassifies FirstEnergy astheprimarybneficiary        (a controlling  financial  interest)  ot a VlE.An enterprise    hasa controlling  financial  interestif it hasbothpowerandeconomic            control,suchthatan entityhas;(i)thepowerto directtheactivities               of a VIEthatmostsignificantly impacttheentity'seconomic      performance,      and(iDtheobligation      to absorlc  lossesoftheentitythatcouldpotentially       besigniticant  to theVIEortherighttoreceivebenefits         fromtheentitythatcouldpotentially           besignilicant  to theVlE.FirstEnergy    consolidates    a VIE whenit is determined   thatit is theprimarybeneficiary The caption"noncontrolling       interest"withinthe consolidated         financialstatements      is usedto retlectthe portionol a VIE that FirstEnergy consolidates,   butdoesnotown.
Inorderto evaluate  contracts    forconsolidation    treatment   andentities    forwhichFirstEnergy     hasaninterest,   FirstEnergy   aggregates variableinterests intocategories     basedon similarriskcharacteristics          andsignificance.
Consolldated    VlEs VlEsin whichFirstEnergy      is theprimarybeneficiary       consistot thefollowing      (included  in FirstEnergy's consolidated    financial statements):
     . PNBVTrust-PNBV,a business              trustestablished    byOEin 1996,issuedcertainbeneficial          interests andnotesto fundthe acquisition of a portionotthebondsissuedbycertainownertrustsinconnection                      withthesaleandleaseback         in 1987of a portionofOEs interest      inthePerryPlantandBeaverValley             Unit2. OEuseddebtandavailablo         fundstopurchase      lhenotes issuedby PNBV.Thebeneficial           ownership    of PNBVincludes       a 3% interestby unafiiliated   thirdparlies.
     . OhioSecurrtlzat        on- InSeptember2O12,        theOhioCompanies          createdseparate,     wholly-owned  limitedliability companies (SPES)which     issuedphase-in      recovery   bondsto securitize     therecovery   of certainall-electriccuslomer    heating   discounts, fuelandpurchased       powerregulatory      assets. Thephase-in     recovery   bondsarepayable     onlyfrom,andsecured       by,phase-in recovery  property   ownedbytheSPES.Thebondholder                 hasnorecourse      to thegeneralcredit   of FirstEnergy    or anyofthe OhioCompanies.       EachoftheOhioCompanies,             asseNicerol itsrespective       SPE,manages     andadministers      thephase-in recoverypropertyincludingthe billing,collectionand remitlan@of usagebasedchargespayableby retailelectric customers.In the aggregate,          the OhioCompanies          are entitledto annualservicingtees of $445thousandthat are recoverable   throughthe usage-based          charges.The SPESare considered              VlEsandeachoneis consolidated            intoits applicable  utility.
AsotSeptember         30,2016andDecember          31,2015,$339millionand$362million          ofthephase-in     recovery bondswereoutstanding,         respectively.
     . JCP&L*curlthat on - InJune2002,JCP&LTransition                       Funding   soldtransition  bondsb securitize  therecoveryofJCP&US bondable   stranded   costsassociated       withthepreviously     divested  OysterCreekNuclearGenerating        Station. InAugust2006, JCP&LTransition      Fundingll soldtransition        bondsto securitize     the recovery   of deferredcostsassociated       wilhJCP&LS supplyof BGS.JCP&Ldidnotpurchase               anddoesnotownanyof thetransition            bonds,whichareincluded       aslong-term   debt on FirstEnergy's    andJCP&LSConsolidated              BalanceSheets.The transitionbondsare the soleobligations                 ot JCP&L Transition  FundingandJCP&LTransition            Fundingll andarecollateralized          by eachcompany's     equityandassets,which consistprimarily   ofbondable     transition  property. Asof September       30,2016andDecember       31,2015,$97millionand$128 millionof thelransition     bondswereoutstanding,         respectively.
     . MP and PE Environnlnl/tFundlng Comrynles - The entitiesissuedbonds,the proceedsof whichwere usedto construct  environmental     controlfacilities. Thespecialpurpose        limitedliability companies  owntheirrevocable      righttocollect non-bypassable     environmental     controlchargesfromallcustomers            whoreceiveeleclricdeliveryservicein MP'sandPEs WestVirginiaservice      territories. Principaland    interest  owedontheenvironmentalcontrolbonds           issecured   by,andpayable solelyfrom,theproceeds         of theenvironmental       controlcharges.Creditors      of FirstEnergy, otherthanthespecialpurpose limitedliability companies,    havenorecourse        to anyassetsor revenues       otthespecialpurpose    limited liabilitycompanies. As of September     30,2016andDecember            31,2015,$407millionand$429milljonof theenvironmental                  controlbondswere outstanding,   respectively.
Unconsolldatod    VlEg FirslEnergyis nottheprimarybeneficiary          of thefollowing   VlEs:
      .                     -
GtobalHolding FEVholdsa 33-1/3%               equityownership      in GlobalHolding,    theholdingcompany      fora jointventurein the SignalPeakminingandcoaltransportation                operations   withcoalsalesin U.S.andintemational           markels.FEVis nolthe primarybeneficiary     ofthejointventure,     asit doesnothavecontroloverthe           significant activitiesatfecting thejointventure's economic    performance. FEV'Sownership       interest  is subjeclto lhe equitymethodof accounting.
Asdiscussed     in Notel2, Commitments,         Guarantees     andContingencies,      FEistheguarantor    underGlobal      Holding's  $300 milliontermloanfacility. Failure  byGlobalHolding      to meettheterms      andconditions    underitstermloanfacilitycould      require FEto be obligated    undertheprovisions        of itsguarantee,    resulting  in consolidation  of GlobalHoldingby FE.
19

PATHWV -PAfrHis a serieslimitedliabilitycompanythatis comprisedof multipleseries,eachofwhichhasseparaterights, powersanddutiesregardingspecifiedpropertyand the seriesprofitsand lossesassociated          withsuchproperty. Asubsidiary of FE owns 100o/"   of theAlleghenySeries(PATH-Allegheny)      and 50% of the WestVirginiaSeries(PATH-WV),        whichis a jointventurewitha subsidiary     of AEP.FirstEnergy  is notthe primarybeneficiary of PATH-WVas it does not havecontrol overthe significantactivitiesaffectingthe economicsof PATH-WV.                   ownershipinterestin PATH-WVis subject FirstEnergy's to the equitymethodof accounting.
PurchasePower Agreements- FirstEnergyevaluatedits PPAsanddeterminedthatcertainNUGentitiesat its Regulated Distribution segmentmaybe VlEsto the extentthattheyowna plantthatsellssubstantially         allof itsoutputtotheapplicable utilitiesand the contractpricefor poweris correlatedwith the plant'svariablecostsof production.
FirstEnergy   maintains14long{ermPPAswithNUGentitiesthatwereenteredintopursuanttoPURPA.FirstEnergywas                    not involvedin the creationof, and hasno equityor debtinvestedin,anyof theseentities.FirstEnergy         hasdetermined   thatfor all but oneof theseNUGentities,it doesnothavea variableinterestor the entitiesdo notmeetthe criteriato be considered a VlE. FirstEnergy   may holda variableinterestin the remainingone entity;however,it appliedthe scopeexceptionthat exemptsenterprises      unableto obtainthe necessaryinformation     to evaluateentities.
BecauseFirstEnergy      hasno equityor debtinterestsin the NUGentities,its maximumexposureto lossrelatesprimarilyto the above-marketcosts incurredfor power. FirstEnergyexpects any above-marketcosts incurredat its Regulated Distribution segmentto be recoveredfromcustomers.Purchasedpowercostsrelatedto the contractsthat maycontaina variableinterestduringthe three monthsended September30,2016and 2015 were $22 millionand $29 million, respectively,  and $78 millionand $86 millionduringthe ninemonthsendedSeptember30, 2016and 2015,respectively.
Saleand LeasebackTransactions- OE and FES have obligationsthat are not includedon their ConsolidatedBalance Sheetsrelatedto the BeaverValleyUnit2 and 2007 BruceMansfieldUnit1 saleand leasebackarrangements,               respectively, whichare satisfiedthroughoperatingleasepayments.FirstEnergyis notthe primarybeneficiary          of theseinterestsas it does not havecontroloverthe significantactivitiesaffectingthe economicsof the arrangements.        As of September30, 2016, FirstEnergy's  leaseholdinterestwas 2.60%of BeaverValleyUnit 2 and FES'leaseholdinterestwas 93.83%of Bruce Mansfield  Unit1.
On June 24,2014,OE exercisedits irrevocablerightto repurchasefrom the remainingownerparticipants                the lessors' interestsin BeaverValleyUnit2 at theendof the leaseterm(June1,2017),whichrightto repurchase           was assignedto NG.
Uponthe completionof this transaction,    NG will haveobtainedall of the lessorequityinterestsat BeaverValleyUnit2.
Therefore,uponthe expirationof the BeaverValleyUnit2 leases,NG will be the soleownerof BeaverValleyUnit2 and entitledto 100o/o of the unit'soutput.
On May 23,2016,NG completed        the purchaseof the 3.75%lessorequityinterestsof the remaining                 leasehold non-affiliated interestin PerryUnit1 for $50 million.In addition,the PerryUnit1 leasesexpiredin accordance    withtheirtermson May30, 2016, resultingin NG beingthe sole ownerof Perry Unit 1 and entitledto 100%of the unit'soutput.Thereafter,OE transferred  its NDTassetsandrelatedAROto NG associated         with PerryUnit1. SeeNote10,AssetRetirement       Obligations, for additionalinformation.
FES and otherFE subsidiaries      are exposedto lossesundertheir applicablesale and leasebackagreementsuponthe occurrenceof certaincontingentevents.The maximumexposureundertheseprovisionsrepresentsthe net amountof casualtyvaluepaymentsdue uponthe occurrence         of specifiedcasualtyevents.Netdiscounted    leasepaymentswouldnot be payableif the casualtylosspaymentswere made.The followingtablediscloseseachcompany'snet exposureto loss baseduponthe casualtyvalueprovisionsas of September30, 2016:
Maximum          DiscountedLease             Net Exposure           Payments,net            Exposure (ln millions)
FirstEnergy                              1,137 $                 895 $               242 FES                                      1,110                   887                 223 20
: 8. FAIRVALUEIIEASUBE ENTS RECURRING     FAIRVALUEIIEASUREIIENTS Authoritative accounting   guidanceestablishes   a fairvaluehierarchy    thatprioritizesthe inputsusedto measure     fairvalue.This hierarchygivesbe highestpriorityto Level1 measurements      andthe lowestpriorityto Level3 measuremenb.      Thethreelsvebofthe fairvaluehierarchy anda description  of thevalualion techniques   areastollows:
Level1        Quotedpricesfor identicalinstruments     in activemarket Level2        Quotedpricesfor similarinstruments     in activemarket Quotedpricesfor identicalor similarinstruments     in marketsthat are not active Model-derived   valuationsfor whichall significant inputsare observablemarketdata Modelsare primarilyindustry-standard    modelsthatconsider   variousassumptions,           quotedforwardpricesfor including commodities,  timevalue,volatilityfactorsandcurrentmarketandcontractual       pricesfor the underlying instruments, as wellas otherrelevanteconomicmeasures.
Level3        Valuationinputsare unobservable     and significant to the fair valuemeasurement FirstEnergyproducesa long-termpower and capacityprice forecastannuallywith periodicupdatesas market conditions change.Whenunderlying     pricesare notobservable,     pricesfromthe long-termpriceforecast,whichhas been reviewedand approvedby FirstEnergy's         Risk PolicyCommittee,are used to measurefair value.A more detaileddescription of FirstEnergy's valuationprocessfor FTRsand NUGsfollows:
FTRsarefinancialinstruments    thatentitlethe holderto a streamof revenues(orcharges)basedon the hourlyday-aheadcongestionpricedifferencesacrosstransmission           paths.FTRsare acquiredby FirstEnergy     in the annual, monthlyand long-termPJMauctionsand are initiallyrecordedusingthe auctionclearingpricelesscost.Afterinitial recognition,FTRs'carrying  valuesare periodically  adjustedto fairvalueusinga mark-to-model     methodology, which approximates   market.Theprimaryinputsintothe model,whicharegenerally        lessobservablethan   objectivesources, arethe mostrecentPJMauctionclearingpricesandthe FTRs'remaining             hours.The modelcalculates  thefairvalue by multiplyingthe most recentauctionclearingprice by the remainingFTR hours less the proratedFTR cost.
Generally,significantincreasesor decreasesin inputsin isolationcould resultin a higheror lowerfair value measurement. See Note9, DerivativeInstruments,    for additionalinformation  regardingFirstEnergy's  FTRs.
NUGcontractsrepresentPPAswiththird-partynon-utilitygeneratorsthat are transactedto satisfycertainobligations underPURPA.NUGcontractcarryingvaluesare recordedat fairvalueand adjustedperiodically               usinga mark-to-modelmethodology,   whichapproximates      market.The primaryunobservable    inputsintothemodelareregionalpower pricesandgeneration   MWH.Pricingfor the NUGcontractsis a combination        of marketpricesforthecurrentyearand nextthree yearsbasedon observabledata and internalmodelsusinghistoricaltrendsand marketdata for the remaining  yearsundercontract.The internalmodelsuseforecasted         energypurchasepricesas an inputwhenprices are notdefinedby the contract.Forecasted     marketpricesarebasedon ICEquotesand management           assumptions.
Generation  NrWHreflectsdataprovidedby conlractual       arrangements  and historicaltrends.Themodelcalculates the fairvalueby multiplying the pricesby the generation  MWH.Generally,    significantincreasesor decreasesin inputsin isolationcouldresultin a higheror lowerfair valuemeasurement.
FirstEnergyprimarilyappliesthe marketapproachfor recuningtair valuemeasurements             usingthe bestinformation    available.
Accordingly, FirstEnergy   maximizes the useof observable    inputsandminimizes      the useof unobservable  inputs.Therewereno changes invalualion methodologies usedasofSeptember       30,2016,fromthoseusedasof December         31,2015. Thedeterminationof thefairvaluemeasures    takesintoconsideration variousfactors,including    butnotlimitedto,nonpertormance   risk,counterparty credit riskandtheimpactof creditenhancements     (suchascashdeposits,      LOCSandpriorityinterests). Theimpactof theseformsof risk wasnotsignificant  to thefairvaluemeasurements.
21

Transfersbetweenlevelsare recognizedat theendotthe reportingperiod.Therewerenotransfersbetweenlevelsdulingthe nine mor hsendedSeptember           30,2016.Thefollowing    tablessetforththerecurring     assetsandliabilities    thatareaccounted          forat fair valueby levelwithin       thefairvaluehierarchy:
FirstEnergy Recurring Fair Value Measurements                            September30,2016                               December31,2015 Level 1   Level 2     Level 3    Total       Level 1    Level 2        Level 3       Total Assets                                                                                  (ln millions)
Corporatedebt securities                                 $   1,242 $            $   1,242 $            $    1,245                   $  1,245 Derivativeassets- commoditycontracts                   7       230                     237          4         224                        228 Derivativeassets- FTRs                                                      13          13                                     8            8 Derivativeassets- NUG contracts(r)                                                                                             1            1 Equitysecurities(2)                                 908                               908         576                                    576 Foreigngovernment debt securities                               77                      77                      75                        75 U.S.government    debtsecurities                               173                     173                    180                        180 U.S,statedebt securities                                       255                     255                    246                        246 Other(g)                                            551        126                     677        105         212                        317 Total assets                                       $ 1/66 $     'J03    $      13 $    3,582 $       685 $     2,182              g $     2,976 Liabilities Derivativeliabilities- commoditycontracts Derivativeliabilities- FTRs                                                                                                  (13)        (13)
Derivativeliabilities- NUG contracts(l)
Totalliabilities                                                                                       (e)$     ( 1 2 2 )$    ( 1 5 0 )$   (281)
Net assets (l iabilities)t+l                       $ 1,454$ 1,e81!_q2              !_3,313_!         6?6 !__r,060_       !-(141) !_r,ses_
(1)
NUG contractsare subjectto regulatoryaccountingtreatmentand do not impactearnings,
(?\
NDTfundsholdequityportfolios    whoseperformance  is benchmarked  againstthe AlerianMLP Indexor the WellsFargoHybridand Preferred SecuritiesREITindex.
(3)
Primarilyconsistsof short-termcash investments.
(4)
Excludes$(8) millionand $7 millionas of September30,2016and December31,2015,respectively,           of receivables,    payables,taxesand accruedincomeassociated                            reflectedwithinthe fairvaluetable.
withfinancialinstruments 22

Bollfotwatdof Level3 fuleasuremenE Thefollowing   tableprovides     a reconciliation ofchanges   inthefairvalueof NUGcontracts              andFTRSthatareclassified         as Level3in thefairvaluehierarchy       fortheperiodsendedSeptember        30,2016andDecember              31,2015:
NUG Contracts(l)                                     FTRs Derivative    Derivative                     Derivative      Derivative Assets      Liabllities       Net            Assets        Liabilities     Net (ln millions)
January1, 2015Balance                     2 $        (1s3$    )   ( 1 5 1$ )           3e$          (14)$       25 Unrealized Purchases gain (loss)
:              'i'          ':'                (5) 22 (7)
(11)
(12) 11 Settlements                            (3)            65           62               (48)            1e       (2e)
December31, 2015Balance                   1 $        ( 1 3 7 )$   ( 1 3 6 )$            I   $       (13) $      (5)
Unrealized  gain(loss)                               (17)         (17)               (8)             1        (7)
Purchases                                                                            17             (8)        e Settlements                            (1)            36           35                (4)            13         I September30, 2016Balance (1)
NUG contractsare subjectto regulatoryaccountingtreatmentand do not impactearnings.
Level 3 Quantitative Information Thelollowingtableprovides          quantitative information lor FTRSandNUGcontracbthatareclassitied                       as Level3 in thefairvalue hierarchy  fortheperiodendedSeptember          30,2016:
Fair Value.Net      Valuation                                                               Weighted (ln milliohsl     Technique        SignificantInput                        Range           Average             Units FTRs                                   6     Model    RTOauctionclearingprices                 $(2.20)to $7.60            $1.00      Dollars/MWH Generation                              400 to 3,207,000         661,000          MWH NUGContracts                         (118)   Model Regionalelectricityprices               $30.90to $35.30           $32.10       Dollars/MWH FES Recurring Fair Value Measurements                        September30,2016                                     December31,2015 Level 1    Level 2     Level 3       Total         Level 1    Level2      Level3      Total Assets                                                                                  (ln millions)
Corporatedebt securities                     $          $    714 $ -             $       714$               $     sze$             $    678 Derivativeassets- commoditycontracts                 7       230                         237             4        224                   228 Derivativeassets- FTRs                                                       7              7                                             5 Equitysecurities(1)                               624                                    624           378                              378 Foreigngovernment debt securities                             ;                            59                      ;                     59 U.S.government      debtsecurities                            53                           53                      23                    23 U.S.statedebtsecurities                                         4                           4                        4                    4 other(2)                                           ;          87                                                  184                   184 Total assets                                             $   1J4?             7 $ 1,787 $                    $  1,172               $  155e Liabilities Derivative            - commoditycontracts liabilities                                                                                (e)
Derivativeliabilities- FTRs Total liabilities                                                                                        (e)
Net assets (liabilities)tsl                    $   621 $     1,025$           2 $ 1,648 $               sZs $    1,050$          (6)$   1,417 I _
23

NDTfundsholdequityportfolioswhoseperformanceis benchmarked            againstthe AlerianMLP lndexor the Wells FargoHybridand Preferred SecuritiesREITindex.
(21   Primarilyconsistsof short-termcash investments.
(3)   Excludes$1 millionas of September30, 2016and December31, 2015,of receivables,         payables,taxesandaccruedincomeassociated    withthe financialinstruments reflectedwithinthe fair valuetable.
Rollforward of Level 3 Measurements Thefollowing     tableprovides   a reconciliation  of changes    in thefairvalueof FTRSheldby FESandclassified           as Level3 in thefair valuehierarchy     torthe  periods endedSeptember         30,2016and      December    31, 2015:
DerivativeAsset         Derivative Liability      Net Asset (Liability)
(ln millions)
January1, 2015Balance                                          27$                     ( 1 3 )$                  14 Unrealized  gain (loss)                                      2                        (5)                      (3)
Purchases                                                    I                      (10)                       (1)
Settlements                                                 (33)                      17                      (16)
December31, 2015Balance                                         5$                     ( 1 1 )$                   (6)
Unrealized  gain (loss)                                     (7)                        1                       (6)
Purchases                                                   10                        (5)                       5 Settlements                                                 (1)                      10                         I September30, 2016 Balance                                           $                    (5)g Level 3 Quantitativelnformation Thefollowingtableprovidesquantitativeinformation            for FTRSheldby FESthatareclassifiedas Level3 in thefakvaluehierarchy              for theperiodendedSeptember           30,2016:
Fair Value.Net       Valuation                                                                    Weighted (ln milliohs;     Technique               SignificantInput                   Range               Average             Units FTRs      $                 2      Model        RTOauctionclearingprices                 ($2.20)to $7.60            $0.70     Dollars/MWH INVESTMENTS All temporarycashinvestmentspurchasedwithan initialmaturityol threemonthsor lessare repoltedas cashequivalenbon the Consolidated    BalanceSheetsat cost,whichappmximates             theirfairmarketvalue.Investments       otherthancashandcashequivalenb includeheld-to-maturity    securities andAFSsecurities.
At theendot eachreporting       period,FirstEnergy      evaluates   itsinvestments   lor OTTI.Investments     classifiedasAFSsecurilies     are evaluated   todetermine    whethera declinein fairvaluebelowthecostbasisis otherthantemporary.                 FirstEnergyconsiders   itsintent andabilitytoholdanequitysecurity       untilrecoveryand      thenconsiders,    amongotherfactors,     theduration  andtheextentto whichthe security's  fairvaluehasbeenlessthanits costandthe neaFterm                 tinancialprospects    ol the securityissuerwhenevaluating        an investment   for impairment. Fordebtsecurities,     FirstEnergy    considers  its intentto holdthe securities,  the likelihood  thatit willbe required  to sellthesecurities   beforerecovery     ot itscostbasisandthelikelihood       of recovery  ot thesecurities'entireamortized    cost basis.ltthedeclineinfairvalueisdetermined          to beotherthantemporary        thecostbasisol thesecurities    iswrittendowntofairvalue.
Unrealizedgains     andlossesonAFSsecurities        arerecognized      inAOCI.However,     unrealized  lossesheldintheNDTS    of FES,OEand TEarerecognized       inearnings  sincethetrustarrangements,        astheyarecurrently     defined, donotmeettherequired     abilityandintent to holdcriteriainconsideration     ofOTTI.TheNDTsofJCP&1,MEandPNaresubjectto                     regulatory  accounting withunrealizsd    gains andlossesoffsetagainstregulatory        assets.
Theinvestment      policyfortheNDTfundsrestricts        or limibthetrusts'ability   to holdcertaintypesof assetsincluding     privateordirect placements,     warrants,securities   of FirtEnergy,investments         in companies    owningnuclearpowerplants,financialderivatives, securities  convertible  intocommonstockandsecurities          of thetrustfunds'custodian     or managers    andtheirparents  or subsidiaries.
AFS Secunties FirstEnergy    holdsdebtandequitysecurities       withinitsNDTandnuclearfueldisposaltrusts.           Thesetrustinvestments    areconsideGd AFSsecurities,recognizedat fair marketvalue.FirstEnergy               hasno securitiesheldfor tradingpurposes' 24

Thefollowing tablesummarizes     lhe amortized costbasis,unrealized     gains(therewereno unrealized             losses)andfairvaluesof investments heldin NDTandnuclearfueldisoosaltrusts       as of Seotember     30.2016andDecember             31,2015:
September30, 201601                        December31,2015(z)
Cost      Unrealized                      Gost         Unrealized Basis       Gains      Fair Value        Basis           Gains       Fair Value (ln millions)
Debt securities FirstEnergy             1,728 $         6s$       1,797 $         1,778 $            16 $        1,794 FES                       834           45           879            801                9          810 Equitv securities FirstEnergy        $      816 $          s2$         908 $           542 $           34$          576 FES                       561            63          624            354              24           378
: 0) Excludes   short-lermcashinvestmenb:  Fi6tEnergy  - $50million;  FES- $39million.
e) Excludss   short-tem cashinvestments: FirslEnergy - $157million;   FEs- $139million.
Proceedsfromthesaleof investmenB     inAFSsecurities,  realizedgainsandlossesonthosesales,OTTIandinterest                   anddividend incomeforthethreeandninemonthsendedSeptember           30,2016and2015wereas follows:
For the Three Months Ended Sale          Realized           Realized                          lnterest and September30,2016            Proceeds          Gains            Losses                          DividendIncome (ln millions)
FirstEnergy                        337 $             36 $                ( 1 s )$       (3) $                 27 FES                                135               23                    (6)          (3)                   16 Sale          Realized           Realized                          lnterest and September30,2015            Proceeds          Gains             Losses                         Dividend Income (ln millions)
FirstEnergy                        307 $             33 $                (32) $       (46) $                  25 FES                                127               28                  (24)         (41)                    14 For the Nine Months Ended Sale           Realized          Realized                          lnterest and September30,2016            Proceeds          Gains             Losses                         DividendIncome (ln millions)
FirstEnergy                       1,361$            131 $                (88) $       ( 1 3 )$                75 FES                                576               s0                  (4e)         (12)                    42 Sale           Realized          Realized                          lnterest and September30, 2015           Proceeds          Gains             Losses                         Dividend lncome (ln millions)
FirstEnergy                       1,126$            135 $              ( 1 2 1 )$     (70) $                  75 FES                                503               e8                  (7s)         (63)                    43 25

HeWTo-Matu tW Seanities Unrealized gains(therewereno unrealized       losses)andapproimatefairvaluesof investments            in held-to-maturitysecuritiesasot September   30, 2016and December       31, 2015are immaterial     to FiFtEnergy. Investments    in employee   benefittrustsandequity methodinvestments   totaling$276millionasof September         30,m16 and$255millionasof December            31,2015,areexcluded    from the amountsreportedabove.
LONG-TERII   DEBTANDOTHERLONG-TEROALIGATIOI{S All borrowings withinitialmaturities  of lessthanoneyearare definedas short-term            tinancialinstruments   underGAAPandare reportedas Short-termborrowingson the Consolidated         BalanceSheetsat cost.Sincetheseborrowingsare short-termin nature, FirstEnergy believesthattheircostsapproximate      theirfairmarketvalue.Thefollowing       tableprovides  theapproximate   fairvalueand relatedcarrying amounts   of long-term debtandolherlong-temobligations,         excluding  capitallease obligations a]d netunamortized debtissuance   costs,premiums     anddiscounts:
September30, 2016                   D ecember31,2015 Carrying             Fair           Garrying            Fair Value             Value             Value            Value (ln millions)
FirstEnergy                           19,745 $          21,465 $          20,244 $         21,519 FES                                     3,003             2,662            3,027            3,121 Thefairvaluesof long-term      debtandotherlong-term      obligations  reflectthe presentvalueof the cashoutflowsrelatingto those securities basedon the currentcall price,the yieldto maturityor the yieldto call,as deemedappropriate                at the endot each respective period.Theyieldsassumed       werebasedonsecurities      withsimilarcharacteristics  ofiered bycorporations  withcreditratings similartothoseof FirstEnergy. FirstEnergy classifiedshort-term  borrowings,   long-term  debtandotherlong-lerm    obligationsas Lvel 2 in thefak valuehierarchy    asof September    30,2016andDecember         31,2015.
: 9. DERIVATIVE    INSTRUMENTS FirstEnergyis exposed  tofinancialrisks  resuhing fromfluctuating   interest ralesandcommodity      prices,includingpricesforelectricity, naturalgas, coalandenergytransmission.       Tomanagethe     volatilityrelatedtothese   exposures,   FirstEnergy'sRiskPolicy Committes, comprised  ol seniormanagement,      provides generalmanagement       oversight  forriskmanagement               throughout activities           FirstEnergy.
TheRiskPolicyCommittee      is responsible  lor promoting theelfective  designandimplementation      ofsoundriskmanagemenl     programs andoversees   compliance   withcorporate   riskmanagement     policies andestablished   riskmanagement     practice.FirstEnergyalso uses a varietyofderivativeinstruments    torriskmanagement     purposes   including foMardcontracts,    options, futuresconlracts andswaps.
FirstEnergy accounts  for derivative inslruments   on its Consolidated   BalanceSheetsat fairvalue(unlesstheymeetthe normal purchases  andnormalsalescriteria)aslollows:
      . Changes  in thefairvalueof derivative    instruments  thataredesignated      andqualifyas cashflowhedgesarerecorded         to AOCIwithsubsequent       reclassificationto earnings  in theperiodduringwhichthe hedgedforecasted           transaction afiects earnrngs,
      . Changes  inthetairvalueofderivative     instruments  thataredesignated     andqualifyasfairvaluehedgesarerecorded        asan adjustment to theitembeinghedged.       Whenfairvaluehedges       arediscontinued,   theadjustment   recorded to theitembeing hedgedis amortized     intoearnings.
      . Changesin the fairvalueof derivative       instruments  thatare not designated      in a hedgingrelationship   are recordedin eamingson a mark-to-market      basis,unlessotherwise      noted.
Derivativeinstruments   meetingthe normalpurchases        and normalsalescriteriaare accounted         for underthe accrualmethodof accouniingwiththeireffectsincludedin earningsat the timeof contractperlormance.
FirslEnergy hascontractual   derivative agreements   through2020.
CashFlowHedges FirstEnergy has usedcashflowhedgeslor riskmanagement            purposesto managethe volatilityrelatedto eposures associated withfluctuatingcommoditypricesandinterestrates.
Totalpre-taxnetunamortized     lossesincludedinAOClassociated        withinstrumenbpreviousvdesignated       ascashflowhedgeslotaled
 $11mitlionasofSeptember      30,2016andDecember        31,2015.Sincetheforecasted       transactions remainprobable   ofoccurring,these amounts  willbe amortized  intoearnings   overthelifeof thehedginginstruments.        Lessthan$1 millionof netunamortized      lossesis expected to be amortized  to incomeduringthenexttwelvemonths.
26

FirstEnergy  has usedforwardstartinginterestrateswapagreements               to hedgea portionof the consolidated        inlereslraterisk associated  withanticipated issuances   offixed-rate, long-term  debtsecurities  otitssubsidiaries. Thesederjvatives  weredesignatdas cashflowhedges,protecting     againstthe riskof changesin futureinterestpayments             resulting tromchangesin benchmark        U.S.
Treasury ratesbetween   thedateof hedgeinception       andthedateof thedebtissuance.       Totalpre-taxunamortized      lossesincluded   in AOCIassociated     with priorinterestratecashflowhedgestotaled$35 millionand$42 millionas of September                      30, 2016and December    31,2015,respectively. Basedoncurrentestimates,       approximately   $8millionottheseunamonized       lossesareexpecled     to be amortized  to interestexpense   duringthe nexttwelvemonths.
Reterto Note5,Accumulated     OtherComprehensive        Income,  forreclassifications fromAOCIduringthethreeard ninemonths         ended September   30,2016and2015.
AsofSeptember     30,2016andDecember        31,2015,nocommodity       or interest ratederivatives  weredesignated    ascashflowhedges.
Fair ValueHedges FirstEnergy  has usedfixedJoFlloating     interestrateswapagreements          to hedgea porlionof the consolidated       interestraterisk associated  withthedebtportfolio  of ib subsidiaries. Asof September     30,2016andDecember         31, 2015,nofixed-foFfloating  ifieresl rateswapagreementswereoutstanding.
Unamortized   gainsincludedin long-termdebtassociated        withpriorfixed-for4oatirE  inierestratesutapagreements     totaled$12 million and$20millionasof September       30,2016andDecember          31,2015,respectively. Duringthenexttwelvemonths,        approximately  $8 millionof unamortized  gainsaree&ectedto beamortized          to interestexpense. Amortization   of unamortized gainsincluded   in long-termdebttotaledappoximately      $2 millionduringthethreemonths       endedSeptember      30,2016and$3million     dudngthethrsemonths endedSeptember      30,20l5. Amonization    ol unamortized   gainsincluded   in long-term debtbtaledapproximately     $8million duringthe ninemonthsendedSeptember         30,2016and$9 millionduringtheninemonthsendedSeptember                    30,2015.
CommodityDeivalives FirstEnergy  usesbothphysically     and financially   settledderivatives   to manageits exposurto \,olatility      in commodity   prices.
Commodityderivativesare usedfor risk management             purposesto hedgeexposureswhenit makeseconomicsenseto do so, including circumstances  wherethe hedgingrelationship       doesnotqualifyfor hedgeaccounting.
Electricityiorwardsare usedto balanceexpectedsaleswithe)eectedgenerationandpurchasedpower.Naturalgasfuturesare enteredintobasedon expected       consumption    of naturalgasprimarily   for usein FirstEnergy's    combustion  turbineunits.Derivative instruments  arenotusedin quantities     greaterthanforecasted     needs.
AsofSeplember     30,m16, FirtEnergy's     netassetposition    undercommodily     derivative contracts  was$103million,    whichrelated  to FESpositions. Underthesecommodity      derivative  contracts, FESposted$9 millionof collateraland       recei\d$22million  ofcollateral.
Basedoncommodity       derivati\re contracts  heldasof September      30,2O'l6,an increase    in commodity   pricesof 10%woulddecrease netincomeby approximately     $37milliondudngthenexttwelvemonths.
NUGS As ofSeptember    30,2016,FirstEnergys     netliability position underNUGcontracts      was$118million,    representing   contractsheldat JCP&L,MEandPN.Changes           in thefairvalueof NUGcontracts       aresubiectto regulalory    accounting   treatment  anddo notimpact eamings.
FTRs Asol September     30,2016,FirstEnergy's    andFES'netassetassociated         withFTRSwas$6 millionand$2 million,respectively,         and FESposted$7 millionofcollateral. FirstEnergy  holdsFTRSthatgenerally       represent aneconomic    hedgeoffuturecongestion    charges thatwillbe incurredin connection     withFirstEnergy's    loadobligations. FirstEnergy  acquires   the majorityof its FTRSin an annual auctionthrougha self-scheduling    process   involving theuseofARRS      allocated to memberof PJMthathaveloadserving          obligations.
Thefutureobligations    for the FTRSacquiredat auctionare reflected          on the Consolidated     BalanceSheetsandhavenot bsen designated   ascash  flow hedge  instruments. FirstEnergy          records initially         these FTRS  at the auction  pricelesstheobligation   dueto PJM,andsubsequently     adjuststhecarryingvalueof remaining         FTRSto theirestimated      fairvalueat theendof eachaccounting periodpdortosettlement. Changes    inthefairvalueof FTRSheldbyFESandAESupplyare                included  inotheroperating  epensesas unrealized gainsor losses.Unrealized    gainsor losseson FTRSheldbythe Utilities         arerecorded    asregulatory  assetsor liabilities.
Dkectlyallocated  FTRSareaccounted      torunderlheaccrualmethodot accounting,          andtheirelfectsareincluded      in earnings at the timeof contractDerformance.
27

FirstEnergy recordsthelair valueof derivative instruments   on a grossbasis.Thetollowing        tablesummarizes    thefairvalueand classification of derivativeinstruments on FirstEnergy'sConsolidated    Balance     Sheets:
DerivativeAssets                                                     DerivativeLiabilities Fair Value                                                            Fair Value September30, December31,                                             September30, December31, 2016              2015                                               2016               2015 (ln millions)                                                         (ln millions)
Gurrent Assets -                                                  Current Liabilities-Derivatives                                                       Derivatives CommodityContracts $                139 $             150        CommodityContracts                        (84) $           (e4)
FTRs                                 13                  7       FTRs                                       (7)             (12) 152               157                                                  (e1)           ( 106)
NoncurrentLiabilities-DeferredGhargesand                                                Adverse Power Contract Other Assets - Other                                              Liability N U Gs(1)                            (118)            ( 137)
NoncurrentLiabilities-CommodityContracts                   98                78     other FTRs                                                     1          CommodityContracts                     (50)             (37)
     \[JQsit)                                                 1          FTRs                                                     (1) 98                 80                                               (168)            ( 175)
DerivativeAssets                        250 $             237 Derivative Liabilities                         (25e)$           ( 281)
(1) NUGcomracts   aresubjectto Jegulalory accounting          anddonotimpactamingts.
treatrnent FirstEnergy entersintocontraclswithcountepartiesthatallowfor the otfsettingof derivati\re       assetsandderiva$veliabilitiesunder ne$ingarrangements    withthesamecounterparty. Certainol thesecontracts        containmargining   provisions thatrequirethe useof collateralto mitigatecreditexposurebetweenFirstEnergyandthesecoufierparlies.In situationswherecollatetalis pledgedlo mitigateexposuresrelatedto derivativeand non-derivativeinstrumentswith the samecounterparty,               FirstEnergyallocatesthe collateralbasedontheperconiageol thenetfairvalueof derivativeinstruments          to thetotalfairvalueofthecombineddelivaliveand non-derivative instruments. The followingtablessummadzethe fair valueof derivativeassetsand derivativeliabililieson FirstEnergy's Consolidated  Balance Sheetsandtheeffectof nettingarrangements                         on itsfinancial andcollateral               position:
Amounts Not Otfset in Consolidated Balance Sheet Derivative            Gash Collateral      Net Fair September30, 2016             Fair Value         Instruments (Received)/Pledged Value (ln millions)
DerivativeAssets Commoditycontracts                         237                  ( 1 2 0 )$                (22) $         95 FTRs                                         13                     (7)                                   6 NUGcontracts 250 $                (127)$                    (22) $        101 DerivativeLiabilities Commoditycontracts                        ( 1 3 4 )$              120                       8$           (6)
FTRs                                          (7)                    7 NUG contracts                              (118)                                                       (118)
(25e)$                 127 $                          9-(1'z41 28

Amounts Not Offset in Consolidated BalanceSheet Derivative         Cash Collateral     Net Fair December31, 2015         Fair Value         Instruments (Received)/Pledged Value (ln millions)
DerivativeAssets Gommodity  contracts                 228 $              ( 1 2 5 )$                          103 FTRs                                    I                   (8)
NUGcontracts                            1                                                     1 237 $              ( 1 3 3 )$                   $      104 DerivativeLiabilities Commoditycontracts                  ( 1 3 1$)             125 $                    3 $       (3)
FTRs                                  (13)                   8                     5 NUGcontracts                        (137)                                                  (137)
( 2 8 1 )$            133 $                      q
___(140)
Thefollowing tablesummarizes  thevolumes associated withFirstEnergy's   outsianding   derivative transactions           30, asof September 2016:
Purchases             Sales              Net             Units (ln millions)
PowerContracts                            9                49              (40)       MWH FTRs                                    42                                  42        MWH NUGs                                      3                                  3        MWH NaturalGas .                            49                                  49       mmBTU 29

not in a hedgingrelationship The effectof activederivativeinstruments                           on the Consolidated Statements  of lncome(Loss)during the threemonthsand ninemonthsendedSeptember30, 2016and 2015,are summarized           in the followingtables:
For the Three Months EndedSeptember30
                                                              -Conliictj                         rotal rrns (ln millions) 20 1 6 UnrealizedGain(Loss)Recognized     in:
OtherOperatingExpense(t)                                 le$           (3) $              16 RealizedGain(Loss)Reclassified   to:
Revenues(1)                                  $           32 $           1$                33 PurchasedPowerExpense(t   )                             (:)                              (22)
OtherOperatingExpense(t )                                              .,                  (6)
FuelExpense                                              (2)                               (2)
(1)Allamounts           withFES.
areassociated For the Three Months EndedSeptember30 Commodity         ,FTRs Contracts                        Total (ln millions) 20 1 5 UnrealizedGain (Loss)Recognized   in:
OtherOperatingExpense(e)                                 5e$           (2) $              57 RealizedGain(Loss)Reclassified  to:
Revenues(2)                                              41 $           2$                43 PurchasedPowerExpense(z)                                (1)           (11)
(50)
(11)
OtherOperatingExpense(z)
FuelExpense                                               (5)                              (5)
(2)All amounts            withFES.
areassociated 30

For the Nine Months Ended September30 Commodity Contracts         FTRs            Total 20 1 6                                                                (ln millions)
Unrealized  Gain Recognized     in:
OtherOperatingExpense(t      )                                   2 $           8   $
RealizedGain(Loss)Reclassified      to:
Revenues(1)                                                    162 $           5              167 PurchasedPowerExpense(t         )                             (rT)                           (105)
OtherOperatingExpense(t      )                                              (28)              (28)
FuelExpense                                                     (e)                            (e)
(1)
Allamounts areassociated   withFES.
For the Nine Months EndedSeptember30 Commodity Contracts         FTRs            Total (ln millions) 2015 Unrealized  Gain(Loss)Recognizedin:
OtherOperatingExpense(z)                                       81 $         (17) $
RealizedGain(Loss)Reclassified      to:
Revenues(s)                                                    4s $          48   $           96 PurchasedPowerExpense(+)                                      (78)                           (78)
OtherOperatingExpense(s)                                                    (38)             (38)
FuelExpense                                                   (26)                           (26)
(2)lncludes$81 millionfor commoditycontractsand $(16)millionfor FTRsassociatedwith FES.
(3)Includes$48 millionfor commoditycontractsand $46 millionfor FTRsassociated with FES.
(a)All amountsare associatedwith FES.
(s)Includes$(37)millionfor FTRsassociated with FES.
31

Thefollowingtableprovidesa reconciliationofchanges   inlhefairvalue of FirstEnergys     derivative instruments     lo regulatory subject accauntingduringthethreeandninemonthsendedSeptember         30,2016and2015.Changes          inthevalueoI theseinstrumentsare deferredforfuturerecoveryfrom(orcredilto)customers:
For the Three Months Ended September30 DerivativesNot in a Hedging Relationshipwith                                 Regulated RequlatoryOffset                                             NUGs              FTRs             Total (ln millions)
Outstandingnet asset(liability) as of July 1, 2016                 (124)$                 4 $           (120)
Unrealizedloss                                                      (6)                                (6)
Settlements                                                         12                                 12 Outstandingnet asset(liability) as of September30, 2016    $-111q                            $          (114)
Outstandingnet asset(liability) as of July1, 2015          $       (140)$               12$             (128)
Unrealized loss                                                     (20)               (4)             (24)
Settlements                                                         17                (3)              14 Outstandingnet asset(liability) as of September30, 2015                                                  138 For the Nine Months EndedSeptember30 DerivativesNot in a HedgingRelationshipwith                                  Regulated RegulatoryOffset                                             NUGs              FTRs             Total (ln millions)
Outstandingnet asset(liability) as of January1,2016                 (136)$                1 $           (13 5)
Unrealizedloss                                                    (17)               (1)             (18)
Purchases                                                                             4                4 Settlements                                                        35                                 35 Outstandingnet asset(liability) as of September30, 2016 $           (118)$_____l                         114 Outstandingnet asset(liability) as of January1, 2015       $        ( 1 5 1 )$          11 $            (140)
Unrealizedloss                                                    (36)               (3)             (3e)
Purchases                                                                           12                12 Settlements                                                        44                                 29 Outstandingnetasset(liability)as of September   30,2015 $_1119)            $            5_$           (138) 32

10.ASSETRETIRE ENTOBLIGATIONS FirstEnergy  has recognized    applicable   legalobligations  for AROSand theirassociated          costprimarilyfor nudearpowerplant decommissioning,    reclamation  of sludgedisposalponds,    closureofcoalashdisposal       sites,undergound       andaboveground    storage tanks,wastewater     treatmentlagoonsard lransformers        containingPCBS.ln addition,FirstEnergy             has recognized   conditional retirement obligations,  primarily forasbestos   remedialion.
TheAROliabilities   forFESprimarily    relatetothedecommissioning       of theBeaverValley,    Davis-Besse    andPetrynuclear    generating facilities, whichareapproximately       $701million,  asof September    30,2016.FESusesanepectedcashflouv                      b measuG approacfi          the fairvalueof theirnucleardecommissioning        AROS.
FirstEnergy  andFESmaintain      NDTS   thatarelegallyrestlicted   torpurposes    of settlingthenuclear    decommissioning   ARO.Thefair valuesof thedecommissioning       trustassetsasot September       30,2016andDecember          31,2015wereasfollows:
2016               2015 (ln millions)
FirstEnergy          $          2,502 $           2,282 FES                  $          1,542 $           1,327 The followingtablesummarizes       the changesto theARO balancesduring2016:
ARO Reconciliation                                        FirstEnergy              FES (ln millions)
Balance,December31, 2015                               $          1 , 4 1 0$              831 Liabilitiessettled                                                  (25)                  (17)
Liabilitiesincurred                                                    4                   32 Accretion                                                            70                    41 Balance,September30, 2016                                          1,459$                 887 Duringthe secondquarterof 2016,in connection           withNG purchasing       the lessorequityinterests     of the remaining non-affiliated leasehold  interests froman ownerparticipant      in PerryUnitl, OEtransferred      theARO(included      withinthe FESliabilitiss  incurred above)andrelatedNDTassetsassociated            withtheleaseholdinterestto NGwiththedifference         of $28millioncreditdtothecommon stockof FES.As ofJune30,2016,NGowns100%of PerryUnit1.
Federalandstatehazadouswasteregulations               havebeenpromulgated         as a resultof the RCRA,as amended,         andthe Toxic SubstancesControlAcl. Certaincoal combustionresiduals,suchas coal ash, wereexemptedfrom hazardouswastedisposal requiremenb    pendingthe EPA'S     evaluation  of theneedforfutureregulation.
InDecember    2014,theEPAfinalized      regulations  forthedisposalof   CCRS(non-haz    ardous),  establishing  nationalstandards regarding landfilldesign, structural integritydesignandassessment      criteriaforsurfaceimpoundments,        groundwater    monitoringandprotection proceduresandotheroperationaland reportingproceduresto assurethe safedisposalof CCRSfromelectdcgeneratingplants.
Basedonanassessment         ofthefinalized   regulations,thefuturecostof compliance      anderyectedtimingof spendhadnosignificant impacton FirstEnergys     or FESexisting   AROSassociated    withCCRS.Although        nonearecurrefilye)eected,       anychanges   intiming andclosureplanrequirements        in thefuturecouldmaterially    andadversely     impactFirstEnelgys     andFES'AROS.
: 11. REGULATORY        iIATTERS STATEREGULATION EachoftheUtilities'  retailrates,conditions  otselice, issuance    of securities andothermatters     aresublectto regulation  inthesiates inwhichit operates  - in Maryland  bytheMDPSC,      inOhiobythePUCO,in NewJerseybytheNJBPU,in Pennsytvania                   bythePPUC, inWestVirginia   bytheWVPSCandin NewYorkbytheNYPSC.                 Thetransmission    operations   ol PEinVirginia   aresubjectto certain regulations of theVSCC.In addition,     underOhiolaw,municipalities       mayregulateratesof a publicutility,subjectto appealto the PUCOif not acceptableto the utility.
As competitive   retailelectricsuppliers  servingretailcustomers    primarily  in Ohio,Pennsylvania,    lllinois,Michigan, NewJerseyand Maryland,FESandAE Supplyaresubjectto statelawsapplicableto competitiveelectricsuppliersinthosestates,includingaffiliate codesotconductthatapplyto FES,AESupplyandtheirpublic                                 Inaddition, utilityaffiliates.            ilanyoftheFirstEnergy             wereto affiliates engageintheconstruction     of significant newtransmission    or generation   facilities, dependirE   onthestate,theymaybe required       to obtainslate regulatoryauthorization    to site,constructandoperatethe newtransmissionor generationfacility.
33

MARYLAND PEprovides     SOSpursuant     to a combination   ot settlement agreements,   MDPSCordersandregulations,           andsiatutory     provisions.
SOSsupplyiscompetitively        procured  inthetormot rollingcontracts  ofvaryinglengthsthough        periodic  auctions  thatareoverseen      by the MDPSCanda thirdpartymonitor.           Althoughsettlements    withrespectto SOSsupplyfor PEcustomers                haveexpired,service continues   in thesamemanneruntilchangedbyorderof theMDPSC.                 PErecovers     itscostsplusa returntorproviding         SOS.
TheMaryland      legislature adopteda statutein 2008codifying     theEmPOWER         Maryland   goalsto reduceelectricconsumption             and demandandrequiring       eachelectricutilityto filea planeverythreeyears.PE'scurrentplan,covering               thethree-year      period2015-2017,wasapproved        bytheMDPSCon December          23,2014.Thecostsof the2015-2017         planareexpected       to beapproximately       $68 million,ofwhich$38millionwasincurred          throughSeptember    30,m16. OnJuly16,2015,theMDPSCissuedanorderseltingnew incremental   energysavingsgoalsfor2017andbeyond,beginning               withthe levelot savingsachieved         underPEs currenlplanfor 2016,and rampingup O.2o/o         per fear thereatterto rcach2o/o.PE continuesto recoverprogramcostssubjclto a live-year amortization. Maryland   lawonlyallowsfortheutilityto recoverlostdistribution      revenue   attributable to energyelficiency      or demand reduction  programs    througha baseratecaseproceeding,         andto date,suchrecovery       hasnotbeensoughtor obtained             by PE.
On February     27, 2013,lheMDPSCissuedan oder (theFebuary27 Orde0requiring                       the Maryland     electricutilitiesto submit analyses   relating tothecostsandbenefits      of makingfurthersystemandstaffing       enhan@ments      in orderloattemptto reducestorm outagedurations. Theorderfurther    required theStafioftheMDPSC      to reportonpossible    performance-based        ratestructures   andto propose   additionalrules   relatingtofeederperformance     standards, outage  communication    andreporting,    andsharing     olspecialneeds customer   information. PE'sresponsive    filingsdiscussed  thestepsneeded    to hardentheutilityssysteminordertoattempt             toachieve variouslevelsofstormresponse         speeddescribed    intheFebruary   27 Order,andprojected      thatit wouldrequireapproximately           $2.7 billionininfrastructure  investments    over15yearsto attemptto achieve     thequickest   levelof response    forlhelargeststormprojected in the February    27 Order.On July1, 2014,the Statfot the MDPSCissueda set ot reponsthatrecommended                           the imposition   of extensive   additionalrequirements     intheareasofstormresponse,     federperformance,      estimales  ot restoration   times,andregulatory reporting. TheStaffoftheMDPSCalsorecommended               theimposition  of penalties, including  customer    rebates,  fora utility'sfailureor inabilitytocomplywith    theescalating    standards  ofstormrestoration  speedproposed      bytheStaffoftheMDPSC.           Inaddition, theStafi oftheMDPSCproposed          thattheutilities be required to developandimplement       systemhardening     plans,upto a rateimpactcapon cost.TheMDPSC        conducted   a hearing  Septemberl5-18,2014,     to consider  certainotthesematters,      andhasnotyetissueda ruling on anyof thosematters.
NEWJERSEY JCP&Lcurrently      provides BGSlor reiailcustomers     whodo notchoosea thirdpartyEGSandforcustomers                 of thirdpartyEGSS       that failtoprovide   thecontracted   service. ThesupplyforBGSiscomprised       ottwocomponents,       procured   through   separate,   annually  held descending    clockauctions,   theresultsofwhichareapproved       bytheNJBPU.OneBGScomponent                reflectshourlyreallimeenergy pricesandis available     lor largercommercial    andindustrial customers. ThesecondBGScomponent             provides    a fixedpriceservice and is intendedfor smallercommercial           and residential customers. All NewJerseyEDCSparticipate            in this competitive      BGS procurement     process  andrecoverBGScostsdirectlyfromcustomers            as a chargeseparate      frombaserates.
Pursuant    to the NJBPU'S     March26, 2015finalorderin JCP&L'S          2012ratecaseproceeding          dkectingthatcertainsludiesbe completed,    onJuly22,2015,the NJBPUapproved            the NJBPUstaff'srecommendation         to implement     suchsludies,whichinclude operational   andfinancial   components. Theindependent     consultant conducting   the reviewissueda finalreporton July27,2016, recognizing   thatJCP&Lis meeting       theNJBPUrequirements      andmakingvariousoperational         andfinancial    recommendations.        The NJBPUissuedanOrderonAugust24,2016,thataccepted                  theindependent    consultant's finalreportanddirected      JCP&L,   theDivision of RateCounsel,      andotherinterested    partiesto addresstherecommendations.
ln an OrderissuedOclober22,2014,in a genericproceeding             to reviewits policieswithrespectto theuseol a CTAin baserate cases(Generic     CTAproceeding),     theNJBPUstatedthatit wouldcontinueto         applyitscurrentCTApolicy       inbaseratecases,subject to incorporating   thetollowing  modifications: (i)calculating savings usinga five-year   lookbacklromthebeginning           ofhe testyear;(ii) allocating  savings   with75%retained     bythecompany      and25%allocatsd     to ratepayers;and(iii)excluding        transmission    assstsof electric distribution companies    inthesavings   calculation. OnNovember     5, 2014,theDivision    of RateCounselappealed          theNJBPU Orderregarding     theGeneric   CTAproceeding     totheNewJerseySuperior       CourtandJCP&L       hasftledto participate     asa respondent    in thatproceeding. Briefing hasbeencompleted.      Theoralargument     washeldon October25,2016.
OnApril28,2016,JCP&LfilediariffswiththeNJBPUproposing                a generalrateincrease      associated   withib distribulion     operations thatseeksto improve      serviceandbenetitcustomers      bysupporting   equipment   maintenance,    treetrimming,     andinspections     of lines, polesandsubstations,     whilealsocompensating      torotherbusiness   andoperating   expenses. Thefilingrequested      approvalto   increase annualoperating     Evenuesby approximately       $142.1millionbasedupona hybridtestyearforthetwelvemonthsendingJune30, 2016.On July13,2016,thismatterwassubmitted               to the Officeof Administrative    Lawfor hearingandthe issuance           of an Initial Decision. OnSeptember      30,2016,JCP&Ltiled      an updateto itsfiling,whichinciudes     actualdata  forthetwelvemonthsendedJune 30,2016,requesting     anincrease   toannualoperating    revenues  byapproximately    $146.6million. OnOctober19,2016,anorderwas received approving    theagreeduponprocedural       schedule. Hearings arescheduled    tooccurinJanuary       2017thloughMarch2017.On November    2, 2016,JCP&Lachieved         a settlement-in-p  nciplewithall the intervening    partiesproviding    for an annual$80million 34

distribution revenueincrease,    whichwilltakeeffectonJanuary1,2017,subjecttolinalization,           execution  andNJBPUapproval     ofa Stipulation  of Settlement.
On June19,2015,JCP&L,alongwithPN,ME,FETandMAITmadetilingswithFERC,the NJBPU,andthe PPUClequesting authorization  forJCP&L,PNandMEtocontribute        theirtransmission   assetsto MAII a newtransmission-only         subsidiaryofFETThe procedural   schedule  was suspended      whilethe NJBPUconsidered       a motionon a legalissueregarding         whetherMAITcan be designated   as a "publicutility"in NewJersey.On February     24,2016,theNJBPUissuedan Orderconcluding                thatMAITdoesnot satisfythe'electricity distribution" elementnecessary  for"publicutility"statusbecause      MAlTwould    notownanyelectricdistribution assetsin NewJersey.OnApril22,2016,JCP&LandMAITfileda supplemental                     petitionandtestimony     seekingto includecertain JCP&Ldistributions     assetsin the transferto satisfythe "electricity   distribution"  elementnecessary      for'publicutility'statusin accordance    withtheNJBPU'S      February 24,2016order.Inorderto allowMAlTtofileitstormulatransmission              ratewithanstfective dateof January1,2017,on September           8, 2016,JCP&LandMAITsubmitted            a letterto the NJBPUto withdraw      theirpetitionto transferJCP&Lassetsinto MAIT.The NJBPUadminisfavely closedthe matteron September                             30, 2016.See Transferof Transmission    Assetsto MAITin FERCMattersbelowforfurtherdiscussion            ot thistransaction.
oHro OnAugust4, 2014,theOhioCompanies           tiledanapplication withthePUCOseeking         approvalottheir  ESPlVe illedPowedng      Ohb's Progress. ESPlV included    a proposed   RiderRRS,whichwouldflowthrough        to customers    eithercharges  orcreditsrepresenling  the net resultof the pricepaidto FESthroughan eight-year         FERo-jurisdictional     PPA,referredto as the ESPlV PPA,againslthe revenues   received tromsellingsuchoutputintothePJMmarkets.         TheOhioCompanies         entered  intostipulationswhichmodified  ESP lV andwhichincludedPUCOStaffas a signatory          party,in addition  to othersignatories. On March31,2016,lhe PUCOissuedan OpinionandOrderadopting        andapproving   theOhioCompanies'stipulated      ESPlVwithmodifications.      FESandtheOhioCompanies enteredintothe ESPlV PPAonApril1,2016.
OnJanuary27,2016,certainpartiesfileda complaintwith         FEBCagainstFESandtheOhioCompanies                 requesling FERCreviewthe ESPlV PPAunderSection205 of the FPA.On April27,2016,FERCissuedan ordergrantingthe complaint,                              prohibiting any transactions  underthe ESPlV PPApendingfutureauthorization          by FERC,anddirecting        FESto submittheESPlV PPAforFERC reviewif thepartiesdesiredto transactundertheagreement.          FESandtheOhioCompanies             didnotfilethe ESPlV PPAtorFERC reviewbutratheragreedto suspend         theESPlV PPA.FESandtheOhioCompanies                subsequently   advisedFERCof thiscourseof acton.
OnApril29,2016andMay2, 2016,severalparties,including               the OhioCompanies,       liledapplications  for rehearing  on the Ohio Companies'ESP      lVwiththePUCO.      TheOhioCompanies'Application       forRehearing    included  a modified RiderRRSproposalbutdid notincludea FERC-jurisdiclional      PPA.ThePUCOaccepted        theapplications   for rehearing    torfurtherconsideration   andprovided partiesan opportunity   to comment    on theOhioCompanies'Application       for Rehearing   andfileanalternative    proposal. PUCOStaff recommended      thatthe PUCOdenythe OhioCompanies'            modifiedRiderRRSproposalandrecommended                  a newRiderDMR providing  forthecollection   of $204millionannually (grossed   upforincometaxes)forthreeyearswitha possible             extension foran additional  twoyears.TheOhioCompanies          recommended    thatthe PUCOapprovethe proposed             modified RiderRRSandthata properly designed   RiderDMRwould      bevaluedat$558millionannuallyfor       8 years,andinclude     anadditionalamount    thatrecognizes thevalueof theeconomic       impactof FirtEnergymaintaining     its headquarters   in Ohio.
Severalpartiessubsequently       filedprotestsandcomments     withFERCalleging,       amongotherthings,thatthe modiliedRiderRRS constitutes  a'virtualPPA".ThefilingsandFirstEnergy's      responses    theretoarependingbetoreFERC.
OnSeptember      6,2016,whiletheapplications    forrehearing werestillpending    beforethePUCO,theOCCandNOACfileda noticeof appealwiththe OhioSupremeCourtappealing             variousPUCOandAttorneyExaminerEntrieson lhe parlies'applications                   for rehearing. On September'16,    2016,theOhioCompanies      intervened   andfileda motionto dismisstheappeal.         Theappealremains pendingbetoretheOhioSupreme           Court.
OnOctober12,2016,thePUCOissuedan opinionandoder rulingon theparties'applications                       forIehearing   andturthermodified ESPlV ThePUCOorderdenied           theOhioCompanies'   modilied   RiderRRSproposal,       andinsteadapproved     a RiderDMRproposed by PUCOStatf,withmodifications.
Asa resultofthestipulations,     thePUCO'S    March31,2016OpinionandOrderandthePUCO'S                Octobell2,2016order,thematerial termsof ESPlV include:
     . An eight-year     term(June1,2016-May31,2024J..
     . TheRiderDMRwhichprovides            fortheOhioCompanies      to collect$132.5millionannually     forftreeyears,withthepossibility of a two-yearexlension. TheRiderDMBwillbe      grossed       for up taxes,      resulting  in an approved   amountof approximately
          $204millionannually. Revenuesfrom  theRiderDMRwillbeexcluded          fromthesignificantly   excessive  earnings testtorthe initialthree-year termbuttheexclusion    willbe reconsidered    uponapplication     for a potentialtwo-year  extension.
     . Threeconditions       torcontinued   recoveryunderthe RiderDMR:(1)retention          of thecorporate   headquarters   andnexusof operations  inAkron,Ohio;(2)nochangeincontroloftheOhioCompanies;               and(3)a demonstration     of suffcientprogr$sin theimplementation     of gridmodernization programs   approved    by the PUCO.
35

No restrictions  on the OhioCompanies'use of fundscollectedunderthe RiderDMR.However,the PUCOdirectedthe PUCOStaffto periodically      reviewhowthe OhioCompaniesand FE usethe fundsto ensurethe fundsare used,directlyor indirectly,in supportof grid modernization.       Uses of funds to indirectlysupportgrid modernization     could include,e.9.,
reducingoutstanding     pensionobligations     or reducingdebt.
Continuation  of a basedistribution     ratefreezethroughMay 31,2024.
Continuation  of the supplyof powerto non-shopping        customersat a market-based     priceset throughan auction process.
Continuation  of RiderDCRwith increasedrevenuecapsof approximately             $30 millionper yearfromJune 1,2016through May 31, 2019;$20 millionper yearfromJune 1, 2019throughMay 31, 2022;and $15 millionper yearfromJune 1, 2022 throughMay31,2024 that supportscontinuedinvestmentrelatedto the distribution              systemfor the benefitof customers.
Collectionof lostdistribution    revenuesassociatedwithenergyefficiencyand peakdemandreductionprograms.
Continuation  of a commitment      notto recoverfromretailcustomerscertaincostsrelatedto transmission       costallocationsfor the longerof the five-yearperiodfromJune 1,2011 throughMay31, 2016or whenthe amountof suchcostsavoidedby customersfor certaintypesof productstotals$360 million.
Potentialprocurement      of 100 MW of newOhiowind or solarresourcessubjectto a demonstrated             needto procurenew renewableenergyresourcesas partof a strategyto furtherdiversifyOhio'senergyportfolio.
An agreementto file a casewiththe PUCOby April3, 2017,seekingto transitionto decoupledbaseratesfor residential customers.
An agreement    to filea GridModernization     BusinessPlanfor PUCOconsideration      andapproval(whichfilingwas madeon February29,2016).
A goalacrossFirstEnergy       to reduceCOzemissionsby 90% below2005levelsby 2045.
A contribution of $3 millionperyear($24millionoverthe eight-year       term)to fundenergyconservation     programs,economic development    andjob retentionin the OhioCompaniesserviceterritory.
Contributions   of $2.4 millionper year ($19 millionover the eight-year       term)to fund a fuel-fundin each of the Ohio Companiesserviceterritories        to assistlow-income  customers.
     . A contribution ol $1millionperyear($8millionovertheeight-year         term)to establish a Customer  Advisory  Councilb ensure preservation  andgrowthof thecompetitive         marlGtin Ohio.
Finallton March21,2016,a numberof generation             ownersliledwithFERCa complaint     againstPJMrequesting      thatFERCe{cand the MOPRin the PJMTariffto preventthe allegedartificialsuppressionof pricesin the PJMcapacitymarketsby state-subsidized generation,in particularallegedpricesuppression         thatcouldresult fromtheESPlV PPAandothersimihragreements.          Thecomplaint requestedthatFERCdirectPJMto initiatea siakeholderprocessto developa long-termMOPRreformfor existingresourcesthat receiveout-of-market    revenue. Thisproceeding      remainspendingbeforeFERC.
UnderOhios      energyefiiciency  standards     (58221andS8310),andbasedontheOhioCompanies'amended                energy          plans, efiiciency theOhioCompanies       are requiredto implementenergyefficiencyprogramsthatachievea totalannualenergysavingsequivalentof 2,266GWHSin 2015and 2,288GWHSin 2016,andthenbeginto increaseby 1% eachyea(in 2017,subjectto legislative amendments      to theenergyefiiciency    standards    discussed below.TheOhioCompanies       arealsorequired    to retainthe2014peak demandreduction      levellor2015and2016andthenincrease           thebenchmark    byanadditional0.T5%thereafErthrough       2020,subject to legislativeamendments      to the peakdemandreductionstandardsdiscussedbelow.
OnSeptemberSo,       2015,theEnergyMandates          StudyCommittee   issueditsreportrelated to energyefficiency   andrenervable energy mandates,recommending          that the cunentlevelol mandatesremainin dace indefinitely.         The reportalso recommended:     (i) an expeditedprocessfor reviEwof utiliv propossdgnsrgyEfficiencyplans;(ii) ensuringmadmumcrEditfur all of Ohio'sEnergy Initiatives;(iii)a switchfromsnrgymandabsto enorgyincentives;            and(iv)a declaraton bemadethattheGeneralAssmbly         may determine    the energypolicyot the state.Legislation        was introduced  lo addressissuesraisedin the EnergyMandates          Sludy Committeereport,namelyS8320andH8554.SB320proposestofreezeenergyeffciencyandrenewable                          energyrequirements  foran additional  fouryea6 at 2014levels,as wellas addressing          netmetering   issues.HB554proposes     to freezeenergyefficiency   and renewable    energyrequirements      lhrough2027at 2014levels.
OnSeptember       24,2014,theOhioCompanies          filedanamendment    totheireneqyefiiciency  portfolio planascontemplated     bySBSl0, seekingto suspendcertainprograms            for the2015-2016    periodin orderto betteralignthe planwiththe newbenchmarks         under SB31O. OnNovember      20,2014,thePUCOapproved           theOhioCompanies'amended               phn.Several portfolio             applicationsforrehearing werefiled,andthePUCOgrantedthoseapplications               forfurtherconsideration ofthematterspecified    in thoseapplications  andthe malterremainspendingbeforethe PUCO.
OnApril15,ml6, theOhioCompanies               ftledan applicationforapproval  of theirthree-yearenergyelficiency   portfolioplansforthe periodfiomJanuary1,2017throughDecember               31,2019.Theplansasproposed       complywithbenchmarks     contemplated   bySB3'10 and provisionsof the ESPlV,and includea portfolioof energyefficiencyprogramstargetedto a varietyof qrstomersegmenb, including residentialcustomers,    lowincomecustomers,       smallcommercialcustomers,large    comrnercial  andindustrialcustomers and govemmental      entities.
TheOhioCompanies          anticipate thecostof theplanswillbe approximately     $323millionoverthe lfieof the portfolioplansandsuchcostsareepected to be recoveredthroughthe OhioCompanies'                 existingratemechanisms. Thehearingis scheduled   forNovember    21-23.2016.
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OnSeptember      16,2013,theOhioCompanies         filedwiththeSupreme        Courtof Ohioa notioeof appealofthePUCO'S             July17,2013 Entryon Rehearingrelatedto energyefficiency,altemativeenergy,andlong-temforecastrulesstatingthatthe rulesissuedbythe PUCOareinconsistent      with,andarenotsupported        by,statutory   authority.OnOctober        23,2013,thePUCOfileda motiontodismiss theappeal,  whichwasdenied.OnAugust9,2016,upona JointApplication                  forDismissalfiled      bytheOhioCompanies,     PUCOandthe ELPC,theOhioSupreme          Courtdismissed    theappeal.
Ohiolawrequires    electric utilitiesandelectricseruice   @mpanies      in Ohioto servepartoftheirloadfromrenewable           energyresources measured   byanannually    increasing   percentage   amountthrough       2026,subject   to legislative  amendmenb     discussed  above,excspt 2015and2016thatremainatthe2014level.            TheOhioComoanies          conducted    RFPSin2009,2010        and2011b secureRECS        to help meettheserenewable        energyrequirements.      In September     2011,the PUCOopeneda docketto reviewthe OhioCompanies' alternativeenergyrecovery     riderthrough   whichtheOhioCompanies          recover   thecostsof acquidng      theseRECS. ThePUCOissued anOpinion   andOrderonAugust7,2013,approving             theOhioCompanies'       acquisition    processandtheirpurchases       of RECS  to meet statutorymandalesin all instancesexceptforcertainpurchases             arisingfromoneauctionanddirectedtheOhioCompanies                to credit non-shopping   customers    in the amountol $43.4million,plusinterest,         on thebasisthattheOhioCompanies              did notpro/esuch purchases  wereprudent. On December      24,2013,following     thedenialoftheir     application    forrehearing,theOhioCompanies        fileda noticeot appealanda motionlor siayof the PUCO'S            orderwiththeSupreme          Courtof Ohio,whichwasgranted.          On February     18, 2014,theOCCandthe ELPCalsotiledappealsof the PUCO'S                      order.TheOhioCompanies            timelyfiledtheirmeritbriefwiththe Supreme  Courtof Ohioandthebrietingprocesshasconcluded.                  Thematteris notyetscheduled          for oralargument.
OnApril9, 2014,thePUCOinitiated          a genericinvestigation    of marketing  practices    inthecompetitive    retailelectricservicemarket, witha focusonthema*etingof fixod-priceor guaranteedpercentoffSSOratecontractswherethereis a provisionthatpemib the pass-through   of newor additional    charges. On November       18,20'15,the PUCOruledthaton a going-foMadbasis,pass-though clausesmaynotbe included        in lixed-price conlracts  forallcustomer    classes. On De@mber         18,2015,FESfiledanApplication         ior
                                                                                                                                      '13, Rehearing   seeking  to changetherulingor haveit onlyapplyto residential         andsmallcommercial          customers. OnJanuary 2016, the PUCOgrantedreconsideration         forfurtherconsideration     ol themattersspecitied        in theapplications forrehearing.
PENNSYLVANIA The Pennsylvania     Companies      currentlyoperateunderDSPSthat expireon May31, 2017,andpmvidefor the competitive procuEmentofgeneration       supplyforcustomers      lhatdo notchooseanalternative         EGSorforcustomers        of altemative EGSS   thatfail to providethecontractedservice.Thedefaultseivicesupplyis currentlyprovidedbywholesalesuppliersthrougha mixof long-term andshort-term    contracts  procured   throughspotmarketpurchases,          quarterly  descending      clockauctions  for3-, 12-and24-month energycontracts,   andoneRFPseeking2-yearcontracts              to serveSRECS      forME,PNandPenn.
Following theexpiration   ofthecurrentDSPS,     thePennsylvania       Companies    willoperate     undernewDSPSfortheJune       1,2017through May31,2019delivery       period,whichwouldprovide       forlhe competitive    procurement      of generation  supplyforcustomers    whodo not chooseanalternative     EGSorforcustomers       of alternative  EGSS   thatfailto provide    thecontracted    seMce.Underthepmgrams,           the supplywouldbprovided       bywholesale     suppliers througha mixot'12and24-month            energycontracts,    aswellasoneRFPfor2-year SRECcontracts     forME,PNandPenn.Inaddition,            the planincludes    modifications     to the Pennsylvania   Companies'   existingPOR programsin oder to reducethe levelof uncollectible        e)eensethe Pennsyivania         Companies      expedenceassociatedwithaltemative EGScharges.
Pursuant to Pennsylvania    s EE&Clegislation    (Acl129of 2008)andPPUCorders,Pennsylvania                   EDCSimplement    energyefficiency andpeakdemandreduction          programs. ThePennsylvania      Companies'Phase       ll EE&CPlanswereeftective         throughMay31,2016.
TotalPhasell costsof theseplanswereexpectedto be approximately                   $175millionandrecoverable           throughthe Pennsylvania Companies'   reconcilable  EE&Criders.OnJune19,2015,            thePPUCissueda Phaselll Finallmplementation              Ordersetting:demand reductiontargeb,relativeto eachPennsylvania         Companies'     2007-2008peakdemand(inMW),at 1.8%forME,1.7yofor Penn,1.8%
forwP,and0%forPN;andenergyconsumption                reduclion   targeb,asa prcentage        ofeachPennsylvania      Companies'historic    2010 forecasts(inlvlwH),at 4.0%torME,3.9%tor PN,3.3%forPenn,and2.6%forwP.ThePennsylvania                                Companies'Phase     lll EE&C plansfor the June2016throughMay2021period,whichwereappmvedin March2016,are designedto achievethe targets esiablished  in the PPUC'S    Phaselll Finallmplementation       Orderwithoutrecovery        to implement    theEE&Cplans.
Pu6uantto Act 1l of A)12, Pennsylvania        EDCSmayestablisha DSICto recovercostsof infrastructure                  implovemenBandcosls relatedto highway   relocation  projects  withPPUCapproval.       Pennsylvania   EDCSmustfileLTllPsotjllining        infrastructureimprovement plansfor PPUCreviewandapproval           priorto approval   of a DSIC.On October'19,        2015,eachof thePennsylvania        Companies      filed LTIIPSwiththe PPUCior infrastructure       impovement     overthefive-year     periodof 2016to 2020forthefollowing          costs:WP$88.34 million;PN$56.74million;Penn$56.35million;and            ME$43.44million. OnFebruary        11,2016,ihe   PPUCappo\dthePennsylvania Companies'    LTllPs.On February      15,2016,the Pennsylvania        Companies     filedDSICridersfor PPUCapproval           for quarterly   cost recoveryassociated    withthe capitalprojectsapprovedin the LTllPs.On June9, 2016,the PPUCapproved                          the Pennsylvania Companies'DSIC      ridersto beeffective    July 1,2015,subiectto hearings       andrefundor reallocation        amongcustomels.
OnApril2S,2016,     eachofthePennsytuania       Companies     filedtarifiswiththePPUCproposing           generalrate  increases associated    with lheirdistribution  operations   thatwill benelitcustomers      by modemizing     the gridwithsmarttechnologies,           increasing vegetation management    activilies, andcontinuing     othercustomerserviceenhancements.              Thelilingsrequestapprovalto increase          annual operating revenues   by approximately     $140.2 million  at ME,  $158.8   million at  PN,  $42.0millionat Penn,and$98.2millionat We 37

baseduponfullyprojected     futuretest yearsfor the twelvemonthsendingDecember                   31, 2017at eachof the Pennsylvania Companies. Asa resultoftheenactment     ofAcl/tOof 2016thatterminated         thepractice  of makinga CTAwhen         calculatinga utility's federalincometaxeslor ratemaking    purposes,    thePennsylvania     Companies    submitted  supplemental    testimony   onJuly7,2016,that quantifiedthevalueol theelimination   oftheCTAandoutlined         theirplanfor investing   50 percentofthatamountin ratebaseeligible equipmentas requiredbythenewlaw Formalsettlementagreements                 for eachofthePennsyfuania     Companies      wercfled onOctober 14,2016,  whichprovideincreases   inannualoperating       revenues   of approximately  $96million  atME,$100million      at PN,$29millionat Penn,and$66millionatWP,andaresubiectto PPUCapproval.                 Oneitemrelatedb thecalculation         of DSICrateswasreserved      for briefing,withbriefsfiledby twoparties. Theproposed       newratesareexpected        to takeeffectin January2017pendingregulatory approval, whichis expected  no laterthanJanuary26,2017.
OnJune'19,2015,MEandPN,alongwithJCP&I,FETandMAITmadetilingswithFERC,theNJBPU,andthePPUCrequesting aulhorization forJCP&1,PNandMEtocontribute           theirtransmission   assetsto MAIT,a newtransmission-only          subsidiary of FET.On March4,20'16,a JointPetition  forFullSettlement     wassubmitted     to thePPUCtorconsideration       andapproval. OnApril18,2016,the ALJSissuedan InitialDecision   approving   theJointPetition     for FullSettlement   withoutmoditications. OnJuly21,2016,thePPUC adopted  a Motionapproving  theJointPetition    forFullSettlement     withminormodifications. OnAugust24,2016,lhe PPUCissueda FinalOrder  approving theJointSettlement    consistent    withtheJuly21,2016Motion.       SeeTranster    oITransmission    Assetsto MAITin FEBCMattersbelowforfurtherdiscussion          of thistransaction.
WESTVIRGINIA MPandPEprovideelectric     servicetoallcustomers       throughtraditionalcost-based,     regulated  utilityratemaking. MPandPErecover netpowersupplycosts,including      fuelcosts,purchased       powercostsandrelatedexpnses,           netof relatedmarketsalesrevenue throughthe ENEC.MP'sandPE'sENECraleis updated                 annually.
MPandPEfiledwiththeWVPSConMarch31,2016theirPhasell energyetficiency                       program   proposalfor    approval. MPandPEare proposing  threeenergyefficiency   programs    to meettheirPhasell requirement          of energyetficiency    reduclions   of 0.5%of 2013 distributionsalesfortheJanuary1,2O17throughMay31,2018period,asagreedto byMPandPE,andapproved                               bytheVWPSCin the2012proceeding    approving thetransfer   ofownership     of Harrison  PowerStation   to MPThecostsfortheprogram          areepectedto be$10.4millionandwillbeeligible    forrecovery    through  theexisting   energyetficiency  riderwhich   is reviewed   inthetuel(ENEC)  case eachyear.A unanimous    settlement  wasreached      bythepartiesonallissuesandpresented           to theWVPSConAugust18,2016.An orderapproving   thesettlement infullwithout   modilication   wasissuedbytheWVPSC           on September     23,2016.Underlhe order,the programs   maybeginas of thedateof suchorde(butno laterthanJanuary1, 2017.
TheStaffoftheWVPSCandtheConsumerAdvocate                  Divisionfileda ShowCausepetition     onAugust     5,2016,requesting    theWVPSC orderMPandPElo fileandimplement        RFPSforallfuturecapacity         andenergyrequirements      abovel00 lvlwsandthattheycomply withan RFPsettlement    provisionfromtheHarrison        assetacquisition. MPandPEfileda timelyresponse           to thepetition arguingfor dismissal on September   7, 2016.On October'17,2016,thewvPSC deniedthepetitionfiledbythe Stafiof theWVPSCandthe Consumer   Advocate  Divisionanddismissed      thecase.
On August16,2016,MPand PEfiledtheirannualENECcaseproposing                        an approximate    $65millionannualincreasein rales etfectiveJanuary1, 2017,whichisa 4.7%overallincrease           overexisting  rates.The$65millionincrease        iscomprised   of $119million under-recovered  balanceasofJune30,2016,anda projected            $54millionover-recovery    torthe2017rateeffective       period.Aheadng hasbeensetfor November     9 and10,2016withan orderexpected             to be issuedinthefourthquarterof 2016.
OnAugust22,2016,MPandPEliiedanapplication                forapproval  of a modernization   andimprovement       plantorcoal-fired  boilersat electricpowerplantsandcost-recovery      surcharge    proposing   an approximate    $6.9millionannualincrease        in ralesproposed  to be efiective May1, 2017,whichis a 0.5%overallincrease          overexisting   rates.Thetilingis in response    to recentlegislation  bytheWest Virginia Legislature sessionpermitting  accelerated    recovery   ofcoslsrelated  to modernizing  andimproving     coal-firedboilers,including costsrelatedtomeeting   environmental  requirements      andreducing    emissions. Thefilingwassupplemented         onSeplember2S,    2016, to addtwoadditional  projects,resulting inanapproximate       $7.4millionannualincrease      in rates.TheStattoftheWVPSChasfileda motionto dismissthecasearguingthenewstatutewasnotmeantto recoverthesetypesof projects,                        buttheWVPSChassetthe caselor hearingtor Feuuary2'l-29,2017      -
OnDecember    30,2015,MPfiledanIRPidentifying        a capacity  shortfall startingin2016andexceeding        700tvfwby2020and850lvfw W 2027.On June3, 2016,the WVPSCaccepted                the IRPfindingthat lRPsare informational          andthatit mustnot approveor disapprove the IRPMPPlansto issuea RFPto addressitsgeneration                shortfallidentifiedinthe IRPbylhe endof theyear.
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RELIABILIWMATTEBS Federally-enforceable    mandatory    reliabilityslandadsapplyb thebulkeleclricsystemandimposecertainopeft ing,recod-keepillg andreporting    requiremenB    on the t tilities,FES,AE Supply,FG,FENOC,NG,ATSIandTrAlL.NERCis theEROdesignated                             by FERCto esiablishandenforcethesereliabilitystandads,althoughNERChasdelegated                    day-tcdayimplemeniation    andenbrcement ofthesereliability  standards  to eightregionalentities,   including BFC.Allof FirstEnergy's   facilitiesarelocatedwithintheRFCregion.
FirstEnergy  aclivelypadicipales    intheNERCandRFCstakeholder           processes,     andotherwise  monitors andmanages     itscompanies in responsetothe     ongoing  development,    implementation   andenforcement      of thereliability standards  implemented   andeniorced      by RFC.
FirstEnergybelievesthat it is in compliancewithall currently-etfective         andenforceablereliabilitystandards.Nevertheless,         in the course of operatingits extensiveelectric utility systemsand facilities,FirstEnergyoccasionallyleams of isolatedlacts oI circumstances    thatcouldbe interpreted       as excursions  fromthe reliability   standards. ll a]d whensucho@urencesarefound, FirstEnergy  developsinformation      abouttheoccurrenceanddevelopsa remedialresponseto thespecificcilcumstances,                indudingin appropriate  cases"self-reporting"     an occurrence   to RFC.Moreover,     it is clearthatNERC,RFCandFERCwillcontinue               b refine existingreliability standards  aswellasto developandadoptnewreliability            standards. Anyinability on FirstEnergys   pattto comply withthereliability  standards  foritsbulkelectric   systemcouldresultintheimposition       offinancialpenalties, andobligations   b upgrade or buildtransmission              thatmuld havea materialadverseeffecton itsfinancial facilities.                                                              condition, resultsof operations   andcash flows.
FERCIIATTERS Ohio ESPlV PPA Forinformation    regarding  matters  beforeFERCrelated      to theESPlV PPAbetween        FESandtheOhioCompanies,          see'Regulatory Matters- Ohio'above.
PJMTransmission      Bates PJManditsstakeholders       havebeendebating       thepropermelhodto allocate      costsfornewtransmission              WhileFirstEnergy facilities.
andotherpartiesadvocatefora traditional"beneficiary          pays' (orusagebased)approach,othersadvocatefol "socializing"           thecosts on a load-ratiosharebasis,whereeachcustomerinthezonewouldpaybasedon itstotalusageof energywithinPJM.Thisquestion hasbeenthesubiectotextensive          litigationbeforeFERCandtheappellate         courts,including beforetheSeventh     Circuit.OnJune25, 2014,a dividedthree-judge       paneloftheSeventh      CkcuitruledthatFERChadnotquantified           thebenelitsthatwestemPJMutilities wouldderivefromcertainnew500kVor higherlinesandthushadnotadequately                         supported  itsdecision to socialize thecostsof theselines.Themaiority      loundthateastemPJMutilities       aretheprimarybneficiaries     ofthelines,rvtriletstemPJMutilities     areonly incidental beneficiaries, andthat,whileincidental     beneficiaries shouldpaysomeshareofthecostsofthelines,thatshareshouldbe proportionate   to thebenetittheyderivefromthelines,andnoton load-ratiosharein PJMas awhole.Thecourtremanded                      thecaseto FERC,whichissuedanordersettingtheissueofcostallocation               torhearingandsettlement      proceedings. OnJune15,2016various parties,includingATSI and the Utilities,filed a settlementagreementat FERCagreeingto apply a combind usage based/socialization   approachto costallocationfor chargesto transmission          customersin the PJMrogionbr transmissionproiec{s operatingat or above500kV.Certainpartiesin the proceedingdid notagreeto the settlementandfiled proteststo the settlement seeking,amongotherissues,to strikecertainof the evidenceadvancedby FirstEnergy                  andcertainof the othersettlingpartiesin supportof the settlement,as lrll as providedfurthercommentsin oppositionto the settlement.The PJMTOsrespondedto the protesting parties'vadous    pleadings    ard motions. Thesettlement    is pendingbeforeFERC.
Ina seriesofordersincerlainOrderNo.lOOO            dockets. FERCasserted     thatthePJMtransmission      ownersdo notholdan incumbent 1ightof firstrefusal"to construct,ownandoperatelransmission          projectswithintheirrespective    botprintsthatareapprovedaspattof PJM'SRTEPprocess.        FirstEnergy   andotherPJMtransmission       ownersappealed      theserulingsto theU.S.Courtof Appeals        forthe D.C.Circuitwhich,    in a July1,2016opinion,      ruledthatthePJMtransmission         ownersfailedto preserve  theirarguments    inthelegal proceedings   betoreFERCand,onthatbasis,dniedtheappeal.Ina relatedcasehowht bytheSouthwestPowelPooltransmission ownersandissuedonthesameday,thecourtruledthatthe Mobile-Siena                     standarddoesnotprotecttransmission      owners'rightsof first refusalthat may be providedfor in RTOtaritfs because,accordingto the coutt, the tariff languageis designedto block competition. TheMob,7+Srbna      standardpresumesthat ratesnegotiatedby privatepartiesat arm'slengtharejusl andreasonable and   prohibitsFERCfrommodifying         suchratesunlessthepublicinterestrequires.
Theoutcomeof theseproceedings           andtheirimpact,if any,on FirstEnergy       cannotbe predicted   at thistime.
BTORealignnent OnJunel, 2011,ATSIandtheATSIzonetransferred                lromMISOto PJM.Whilemanyof themattersinvolvsd               withthemovehave beenresotved,    FERCdeniedrecovery        underATSI'S   transmission  rateforcertaincharges     thatcollectivelycanbedescribed      as "exit fees'andcertainothertransmission          costallocation charges  totalingapproximately    $78.8millionuntilsuchtimeasATSIsubmitsa cost/benefitanalysisdemonstrating        netbenefitsto customersfromthe transbrto PJM.Subsquently,             FERCreiecteda poposed settlementagreementto resohre       theexitfeeandlransmission      costallocationissues,statingthatitsactioniswithoutptejudicetoATSI 39

submitting   a cost/benefit   analysisdemonstrating       thatthe benelitsot the RTOrealignment            decisions   outweigh    the exittee and transmission    costallocation  charges. OnMarch17,20'16,FERCdeniedFirstEnergy's                 request  forrehearing   of FERC'searlierorder rejecting  thesenlement     agreement    andafiirmeditspriorrulingthatATSImustsubmitthecosvbenefit                    analysis.
Separately,   the questionot ATSI'sresponsibility       forcenaincostsforthe "Michigan            Thumb'transmission      projectcontinues     to be disputed. Potential  responsibility arisesundertheMISOMVPtaritf,whichhasbeenlitigated                   incomplexproceedings        beforeFERC andcertainUniledStatesappellate          courts.OnOctober       29,2015,FERCissuedanorderfinding              thatATSlandtheATSlzone          do not haveto payMISOMVPcharges             fortheMichigan    Thumbtransmission        project. MISOandtheMISOTOsfileda request             forrehearing, whichFERCdeniedon May19,2016.On July 15,2016,the MISOTOsfiledan appealot FERC'S                                     orderswiththeSixthCircuit.
FirstEnergy    intervened  intheproceedings     andintendsto     participate  intheappeal. Ona related  issue,FirstEnergyjoinsd      certainother PJMtransmission       ownersin a protestof MISO'S      proposalto   allocate  MVPcoststoenergy         transactions thatcrossMISO'S     borders  into the PJMRegion.On July13,2016,FERCissuedits orderfindingit appropriate                           for MISOto assessan MVPusagechargefor transmission    exports  fromMlSOtoPJM.Various          parties, including   FirstEnergy   andthePJMTOs,        requested  rehearing  orclarification of FERC'sorder.Theseparties'request           for rehearing    remainspendingbeforeFERC.
In addition,  in a May31,2011order,FERCruledthatthecostsforcertain"legacyRTEP"transmission                              proiects  in PJMapproved beforeATSIjoinedPJMcouldbechargedto transmission                   customers    intheATSIzone.Theamountto be paid,andthequestion                   of derivedbenefits,     is pendingbetoreFERCas a resultof the SeventhCircuit's                 June25,2014orderdescribed            aboveunderPJM Transmission     Rates.
Theoutcomeof theproceedings           thataddresstheremaining          openissuesrelaledto costsforthe"Michigan              Thumb'transmission projectand"legacyRTEP"transmission             projects  cannotbe predicted       at thislime.
Transferof Ttansmission      Assebto MAIT On June10,2015,MAIT,a Delaware              limitedliability  company,    wasformedas a newtransmission-only             subsidiary  of FETfor the purposes    of owningandoperating        all FERc-jurisdictional    transmission    assetsot JCP&1,MEand PNlollowingthe receiptoI all necessary    stateandfederalregulatory       approvals. OnJune19,2015,JCP&1,PN,ME,FET,andMAITmadefilingswithFERC,the NJBPU,    andthePPUCrequesting          authorization  forJCP&1,     PNandMEto contributo         theirtransmission   assetsto MAIT. Additionally, thefilingsrequested      approval  tromtheNJBPUandPPUC,as applicable,                 of:(i) a leaseto MAITot realproperty       andrights-of-way associated    withtheutilities' trsnsmission   assets;(ii)a MutualAssistance         Agreemsnt(iii)MAITbeingdeemeda publicutilityunder statelaw:(iv)MAITSparticipation        in FE'sregulated    companies'    moneypool;and(v)certainaffiliated         interestagreemenb.      Asinitially proposed,    it wasexpected    thatJCP&L,ME,andPNwouldcontribute                 theirtransmission     assetsat netbookvalueandan allocated portionof goodwillin a tax-treeexchange           to MAIT,whichwouldoperatesimilarto FETStwoexistingsiand-alone                        transmission subsidiaries,   ATSIandTrAlL.MAITStransmission             facilities willremainunderthefunctional         controlof PJM,andPJMwillprovide transmission    serviceusingthesefacilities     underthePJMTariff.FERCapproved              thetransaction   onFebruary    18,2016. OnAugust    24, 2016,thePPUCissueda FinalOrderapproving                 thetransaction. In orderto allowMAITto fileitsformulatransmission             ratewithan efiective  dateofJanuary1,2017,onSeptember             8, 2016,JCP&LandMAITsubmitted               a lettertotheNJBPUlo withdraw        theirpetition to transferJCP&Lassetsto MAIT.TheNJBPUadministratively                     closedthe matteron September           30,2016.SeeNewJerseyand Pennsylvania     in StateRegulation   aboveforfurtherdiscussion         of lhistransaction.
OnOctober14and28,2016,MAITsubmitted                   applications   to FERCrequesting       authorization  to issueequity,short-torm      debt,and long-term  debt.MAITintendsto issuemembership              interests  to FET,PN,andMEin exchange             fortheirrespective    cashandasset contributions. MAITis epectedto issueshort-term         debtandparticipate      intheFirstEnergy      UtilityMoneyPoolforworkingcapital,        to fundday-to-day      operations, andforothergeneral       corporate   purposes. Overthelong-term,       MAITis expected    lo issuelong-termdebt to supportcapitalinvestment        andto establishan actualcapitalstructure            for ratemaking    purposes. On October28, 2016,MAIT submitted   anapplication    to FERCrequesting      authorization  to implement    a formulatransmission       rateto recovelandearna returnon transmission    costseffective  January'1,2017.      OnOctober    28,2016,MAlTandPJMsubmitted              jointapplications   to FERCrequesting authorization   for(i) MEandPNto withdraw         fromthePJMConsolidated          Transmission     OwnersAgreement       asTOs,and(ii)MAITto becomea participating      PJMTO.Acceptance         of MAITas a PJMTOwouldgrantPJMtunctional                    controloverMAITStransmission assets,andwouldpermitPJMto implement               MAIT'S   formularateon MAIT'S        behalf.
JCP&LTtansmission        FormulaRate GiventhatJCP&Lwill        notbehansferring    itstransmission    assetsto MAIT,thereis a needforJCP&Ltoupdateitstransmission                   rate.
Accordingly,   on October28, 2016,JCP&Lsubmitted               an application    to FERCrequesting       authorization   to implement     a tormula transmission    rateto recoverandearna relurnontransmission              costsetfeclive   January1, 2017.
Calitomia ClaimsLitigatbn Since2002,AE Supplyhasbeeninvolvedin litigation                 andclaimsbasedon its powersalesto the California                EnergyResource Scheduling    divisionol theCDWRduring2001-2003.             Thislitigation  andclaimsarerelatedto litigation       andclaimsadvanced        bythe Califomia  Attorney   Generaland    certainCalifornia   utilitiesregarding   allegedmarketmanipulation         ofthewholesale    energymarkets    in California duringthe2000-2001        period. AE Supplynegotiated        a senlement    withtheCalitornia    AtlorneyGeneralandlhe California utilitiesand,on August24,2016,filedthe settlement              agreement    for FERCapproval.        Thesettlement    callstorAE Supplyto pay, 40

withoutadmission   of anyliability,
                                  $3.6millioninsettlement    in principle of all remaining claimsthatarebasedonAESupply's          power salesin thewestemenergymarkebduringthe2001-2003               timeperiod.On October27,2016FERCapproved                thissettlemenl.
PATH Ttansmission Proied On August24, 2012,the PJMBoardof Managers             canceled   the PATHproject,a prcposed        transmission  linefromWestVirginia throughMrginiaandintoMaryland       whichPJMhadpreviously       suspended    in February  2011.Asa resultof PJMcanceling      theproject, approximately   $62millionandappmximately       $59millionin costsincurredby PATH-Allegheny           andPATH-WV       respectively,were reclassifiedfrom net property,plant and equipmentto a regulatoryassetfor future reclery. PATH-Allegheny                   and PATH-WV requested   authodzation  from FERCto recoverthe costswith a proposedROEof 10.9%(10.4%baseplus 0.5%for RTO membership)    fromPJMcustomers      overfiveyears.FERCissuedan orderdsnyingthe0.5%ROEadderfor RTOmembership                         and allowingthe tariffchangesenablingrecoveryof thesecoststo becomeeftectiveon December                      1, 2012,subjectto senbment proceedings   and hearingif the partiescouldnot agreeto a settlement.           On March24,2014,the FERCChiefAU teminated settlement  proceedings  andappointed    an ALJto presideoverthe hearingphaseof thecase,including               discovery  andadditional pleadings  leadingupto hearing,   whichsubsequently     included  theparliesaddressing      theapplication  ol FERC'S   OpinionNo.531, discussedbelow,to the PATHproceeding.       OnSeptember14, 2015,theALJissuedhisinitialdecision,disallowing             recoveryofcertain costs.Theinitialdecision  andexceptions   theretoremainbeforeFERCforreviewandafinalorderFirstEnergy                  continues to believe the costsare re@verable,    subjectio finalrulingftom FERC.
FERCODinionNo-531 On June19,2014,FERCissuedOpinionNo.531,in whichFERCrevisedits approach                         for calculating thediscounted    cashflow elementot FERC'S    ROEmethodology,      andannounced     thepotential   fora qualitative adiustment   to the ROEmethodology      lesults.
Underthe old methodology,     FERCuseda five-yeartorecastfor the dividendgrowthvariable,whereasgoingiorwardlhe growth variablewillconsistot t yoparts:(a)a fiv+yearforcastbr dividendgrowlh(2,3weight);and(b)a long-temdividendgrowthtorecast basedon a forecastfor the U.S.economy(l/3 weight).Regadingthe qualitative                adjustment,  for single-utilityratecasesFERC tormerlypeggedROEat themedianof the'2oneof reasonableness'                thatcameoutof the ROEformula,wtrereas            goingforward, FERCmayrelyon recordevidenceto makequalitativeadiustments             to theoutcomeofthe ROEmethodology           in ordertoreacha level sufficientto attrac{futureinvestment. On October16, 2014,FERCissuedits OpinionNo. 531-A,applyingthe revisdROE methodology    tocertainISONewEngland      transmission  owners,andon March3,2015,FERCissuedOpinion                No.531-B   affirmirEib priorrulings. Appealsot OpinionNos.531,531-Aand531-Barependingbeforethe U.S.CourtofAppeals                        forthe D.C.Circuit.
MISOCapacityPotabilv OnJune11,2012,in response        to certainarguments   advanced    by MISO,FERCrequested          comments    regalding  whethersxisting rulesontransfercapabilityactasbarriersto thedeliveryof capacitybetweenMISOandPJM.FirstEnergy                  andotherpartiessubmitbd filingsarguingthat MISOSconoernslargelyare withoutfoundation,              FERCdid not mandatea solutionin response            to MISO'S concerns. At FERC'S   direction,in May,2015,PJM,MISO,andtheirrespective              independent   marketmonitors    provided  additional information  ontheirvariousjointissuessurrounding     thePJIiUMlSO    seamto assistFERC'sunderstanding          oftheissuesandrvhat,if any,additionalstepsFERCshouldiaketo improvetheefiiciencyofoperations               atthe PJI,VMISO   seam.Stakeholders,   includingFESC on behalfofcertainof its afiiliatesandas partof a coalitionof certainotherPJMutilities,filedresponses       totheRTOsubmissions. The varioussubmissions    andresmnsesremainbeforeFERCforconsideration.
Changes   lo thecriteriaandqualifications  forparticipation in thePJMRPMcapacity         auctions couldhavea significant    impaclonthe outcomeof thoseauctions,     including a negative  impacton thepricesat whichthoseauctions           wouldclear.
12.COIIMITIIEiITS,     GUARAI{TEES      ANDCOiITINGEI{CIES GUAFANTEES      ANDOTHERASSURANCES FirstEnergy  hasvariousfinancialand performance       guarantees    and indemnifications    whichare issuedin the normalcourseof business.These contractsincludeperbmance guarantees,stand-byletters of credit, debt gualantees,surty bonds and indemnifications.FirstEnergy  entersintothesearrangements      to facilitatecommercial   transactions withthirdpaniesbyenhancing     the valueof thetransaction   to thethirdparty.
As of September    30, 2016,FirstEnergys    outstanding   guarantees   andolherassurances        aggregated   approximately  $3.4billion, consisting  of parentalguarantees   ($584million),  subsidiaries' guarantees   ($2.0billion), othelguarantees    ($300million)andother assurances  ($504million).
O{ this aggregateamount,substantially    all relatesto guaranteesof wholly-owned       consolidated   entitiesof FirstEnergy. FES'debt obligationsaregenerally  guaranteed  byitssubsidiaries,  FGandNG,andFESguarantees             thedebtobligatbns   ofeachof FGandNG.
Accordingly, presentandfutureholdersof indebtedness       of FES,FGandNGwouldhaveclaimsagainsteachof FES,FGandNG, regardless of whethertheirpiimaryobligoris FES,FGor NG.
41

COLLATERAL      ANDCONTINGENT-RELATED              FEATURES Inthenormalcourse     ot business, FEanditssubsidiaries             enterintophysical routinely                 ortinancially settledcontracts  forthesaleand purchase   ofelectriccapacity, energy,Iuel,  andemission   allowances.Certainbilateralagreements   andderivative  instrumentscontain provisions thatrequireFEor itssubsidiaries    to postcollateral.Thiscollateralmaybepostedinlhelormof cashorcreditsupport        with thresholds  contingent  uponFE'sor its subsidiaries'   creditratingtromeachoI themajorcreditratingagencies.        Thecollateral and creditsupportrequirements    varybycontract    andbycounterparty. Theincremental  collateralrequiremenl  allowsfortheoffsetting  of assetsand liabilities  withthe samecounterparty,       wherethe contractual  rightof ofisetexistsunderapplicable       maslernetting agreemenls.
Bilateralagreements    andderivative  instruments enteredintobyFEanditssuboidiaries    havemargining   provisions            posting thatrequire ofcollateral.Basedon FES'power      portfolio exposures  asof September   30,2016,FEShaspostedcollateralof       $193millionandAE Supplyhaspostedcollateral      of $4 million.
Thesecredit-risk-related  contingent  teatures, orthemargining   provisionswithinbilateralagreements,   stipulatethatitthesubsidiary wereto bedowngraded      or loseitsinvestment   gradecreditrating(basedon itsseniorunsecured     debtrating), itwouldbe requiredto provideadditional    collateral.Depending    on the volumeof torwardcontractsandfuturepricemovements,            higheramountsfor margining,  whichis theabilityto secureadditional              whenneeded,couldbe required.
collateral As a resultofthedowngrades       by Moody'sandS&PonJuly29,2016andAugust1, 2016,CESpostedadditional                   collateral of $53 million.Additionally, on November    4, 2016,Moody'sandS&Pfurtherdowngraded           FES.Giventhedowngrades,        CEShasfurther potential cotlateral postingobligations  totaling$81millionforwhichcounterparties    havenotexercised    theirrightto requireCESto postcollateral. Subsequent   to the o@urrence    of a seniorunsecured   credilratingdowngrade   belowS&P'sandMoody'scurrent ratings, ora "material adverseevent,"theimmediate       postingof collateral or accelerated paymenls   mayberequkedof FirstEnergy.
Thefollowing   tablediscloses  theadditionalcredit contingent  contractualobligationsthatmayberequired     undercertain  eventsasof November    4, 2016:
PotentialCollateralObligations                                    CES           Regulated         Total (in millions)
Contractual  Obligations  for AdditionalCollateral At CurrentCreditRating                                                  81 $                 $           81 UponFurtherDowngrade                                                                    48               48 UponMaterialAdverseEvent                                                10                               10 SuretyBonds(Collateralized      Amount)                                264              96              360 TotalExposurefromContractual       Obligations                      355 $            144              499 Excluded   fromthe preceding     tableare the potential   collateralobligationsdueto affiliatetransactions   betweenthe Regulated Distribution segment   andCESsegment.       Asof September   30,2016,neitherFESnorAESupplyhadanycollateral           postedwjthlheir affiliates.
OT}IERCOMMITMENTS           ANDCONTINGENCIES FEis a guarantor  undera syndicated    seniorsecured  termloanfacilitydueMarch3,2020,underwhich       GlobalHolding   bormwed $300 million.Inaddition to FE,SignalPeak,GlobalRail,GlobalMining       croup,LLCandGlobalCoalSales        Group,LLC,eachbeinga direct or indirectsubsidiary  of clobalHolding,    continue to providetheirlointandseveralguaranties   of theobligations   of GlobalHolding underthefacility.
Inconnection   withthetacility,69.99%ot GlobalHolding's     directandindirectmembership    interestsin SignalPeak,GlobalRailand theiraffiliatesalongwithFEV'S    andWMBMarketing       Ventures, LLC'Srespective 33-1/3%membership     interestsinGlobalHolding,  are pledgedlo the lendersunderthecurrentfacilityascollateral.
ENVIRONMEiTIAL       MATTERS Various federal,stateandlocalauthorities    regulate FirstEnergy withregardto airandwaterquality   andotherenvironmentalmatters.
Compliance   withenvironmental   regulations couldhavea materialadverse   eftectonFirstEnergys  earnings  andcompetitive  positionto theextentthatFirstEnergy    competes    withcompanies   thatarenolsubjectto suchregulations   and,therefore,  do notbeartheriskof costsassociated   withcompliance,   or failureto comply,  withsuchregulations.
CleanAh Act FirstEnergy complies   withSO,andNOxemission         reduction requirements undertheCAAandSIP(s)by burninglower-sulfur          fuel, utilizingcombustion  controls andpost-combustion     controls,generatingmoreeleciricityfromlowerornon-emitting     plantsand/orusing emission  allowances.

CSAPRrequires      reductions of NOxandSOzemissions           intwophases(2015and2017),ultimately            capping SO2emissions    inaffected statesto 2.4milliontonsannually       andNOxemissions       to 1.2milliontonsannually.      CSAPRallowstradingof NOxandSO2emission allowances   between   powerplantslocatedin thesamestateandinterstate               tradingof NOxandSO2emission         allowances   withsome restrictions.TheU.S.CourtofAppeals         fortheD.C.Circuitordered        theEPAonJuly28,20'15,       to leconsiderthe  CSAPRcapsonNOx andSO2emissions       frompowerplantsin 13 states,including             Ohio,Pennsylvania     andWestVirginia. Thisfollowsthe 2014U.S.
Supreme   Courlrulinggenerally      upholding  EPAsregulatory      approach    underCSAPR,butquestioning        whelherEPArequired       upwind statesto reduceemissions      by morethantheircontribution        to airpollution  in downwind   states.EPAissueda CSAPRupdaieruleon September    7,20'16,reducingsummertime          NOxemissions        trompowerplantsin 22 statesin the easternU.S.,including              Ohio, Pennsylvania   andWestVirginia,      beginning in2017.Depending         onhowtheEPAand        thestatesimplement    CSAPR,    thefuturecostof compliance   maybe material     andchangeslo FirstEnergy's          andFES'operations      mayresult.
EPAtightened   theprimaryandsecondary         NMQSforozonefromthe2008standard                 levelsof75 PPBto70PPBonOctober            1,2015.
EPAstatedthe vast majontyof U.S.countieswill meetthe new70 PPBstandardby 2025dueto otherfederalandsiaterulesand programs   butEPAwilldesignate       thosecounties    thatfailto attainthenew2015ozoneNMQS byOctober1, 2017.Stateswillthen ha\roughly   threeyearsto developimplementation          plansto attainthenew2015ozoneNMQS.Depending                  onhowtheEPAandthe statesimplementthenew2Ol5 ozoneNMQS, ltrefuturecostof compliancemaybematerialandchangesb FirstEnergys                                  andFES' operations  mayresult.InAugust2016,theStateof Delaware               fileda CAASection126petition       wilhtheEPAalleging    thattheHarison generating  facilitysNOxemissions       significantly contribute   to Detaware's   inabilitytoattaintheozoneNMQS.Thepetition            seeksa sho termNOxemission        ratelimitof 0.125lb/mmBTU        overanaveraging       pedodof nomorethan24 hours.OnSeptember              27,2016, EPAextended     thetimelramefor actingon theCAASection126petitionby six monthsto April7, 2017.FirstEnergy                          is unableto predicttheoutcome     of this matter   or estimate  the loss  or range   of loss.
MATSimposes      emission  limitsformercuryPM,andHClforallexisting               andnewfossiltuelfired     electricaenerating  unibeffective  in April2015withaveraging       of emissions   frommultiple   unitslocatedat a singleplant.FirstEnergys          totalcaritalcostforcompliance (overthe 2012to 2018timepriod) is currently             expected    to be approximately     $345million(CESsegmentof $168millionand Regulated   Distribution segment    of $177million),  ofwhich$267millionhasbeenspentthroughSeptember                 30,2016($117millionat CESand$150millionat Regulated           Distribution).
OnAugust3,2O15,      FG,asubsidiary      ot FES,submitted    to theAAAofficein NewYork,N.Y.,a demand            forarbitration andstaEment    of claimagainstBNSFandCSXseekinga declarationthat MATSconstituteda forcemajeureeventthatexcusesFG'sprformance underitscoaltransportation     contractwiththesepanies.Specifically,         thedisputearisesfroma contractbr thefanspodationbyBNSF andCSXof a minimum        of 3.5 milliontonsof coalannually         through2025to cenaincoal-fired         powerplantsownedby FGthatare locatedinOhio.Asa resultofandincompliance             withMATS,allplantscoveredbythis@ntraclweredeactivated                byApril16,2015. In January2012,FGnotifiedBNSFandCSXthatMATSconstituteda torcemajeureeventunderthecontraclthatexcusedFG'slurthr prformance. Separately,   on August4, 2015,BNSFard CSXsubmitted                    to theAAAofficein Washington,       D.C.,a demandfor arbitrationandstatementof claimagainstFGallegingthat FGbreachedthe contractandthat FG'sdeclarationof a forcemajeure underthecontractis notvalidandseekingdamages                underthecontractthrough2025.On [,lay31,a)16,thepartiesagreedto a stipulation thatif FG'sforcemajeuredefense        isdeterminedto      bewhollyor partially   invalid,liquidated damages   arethesoleremedy available to BNSFandCSX.TheabitrationDanelhas               determined     to consolidate  theclaimswitha liability hearitscheduled    lo begin on November     28,2016,and,if necessarya damageshearingscheduled                      to beginon May8,2017.Thedecisionon liabilityis expected  to be issuedwithinsixtydaysfromtheendoftheliabitity               hearirEproceedings,    whicharescheduled     to conclude   February 24,2017.FirstEnergy      andFEScontinueto believethatMATSconstitutesa forcemaieureeventurderthe@firacl alsit relatesb the deactivated  plantsandthatFG'speriormance          underthecontractis thereioreexcused.FGintendsto vigorouslyassenitspositionin theabitration   proceedings. lf, however,  thearbitration  panelrulesinfavorol BNSFandCSX,theresulbof operations                 andfinancial conditionof both FirstEnergyand FES could be materiallyadverselyimpacted.Referto the StrategicReviewof Competitive Operationsseciionof Note1, Organization         arxdBasisot Presentation,       for possibleactionsthatmaybetakenby FESintheaventof anadverse    outcome,   including,  withoullimitation,  seeking  protection   underthebankruptcy     laws.FirstEnergy   andFESareunableto estimate thelossor rangeof loss.
FGis alsoa partytoanother       coaltransportation    contract  covering   thedelivery  o12.5milliontonsannually    through  2025,a portionof whichis to be deliveredto anothercoal-firedplantownedby FG that was deactivatedas a resultof MATS.FG has asserteda defenseof forcemaieurein responseto deliveryshortFalls             to suchplantunderthiscontractaswell.lf FGfailsto reacha resolution withtheapplicable    counterpaniesto     thecontract,  ard if it wsreultimately   determined    that,contrary to FirstEnergy's andFES'belief, theforcemajeureprovisions        ofthatcontractdo notexcusethedeliveryshortfalls            to thedeactivated   plant,theresultsof operations andfinancial   condition  of bothFirstEnergy    andFEScouldbe materially            adversely  impacted. FirstEnergy andFESareunableto estimate thelossor rangeof loss.
As to bothcoaltransportation        agreements   refersnced    above,FG paidapproximately          $70millionin the aggregate      in liquidated damages    tosettledelivery  shortfalls  in 2014related   to itsdeaclivated    plants,whichapproximated      fullliquidateddamages    underthe agreements    forsuchyearrelatedto theplantdeactivations.             Liquidated  damages    fortheprjod2015-2025      remainin dispute.
Astoa specific   coalsupplyagreement,       AESupplyhasasserted          termination  rightsetfective in2015.Inresponse     to notlticationofthe termination,  the coalsuppliercommenced           litigationallegingAE Supplydoesnot havesutlicient              justificalionto terminatethe agreement. AE Supplyhasfiledan answerdenyinganyliability               relatedto thetermination. Thismatteris currently   in thediscovery

phaseof litigation    andnotrialdatehasbeenestablished.           Thereareapproximately      5.5milliontonsremaining     undertheconlractfor deliveryAt thistime,AE Supplycannotestimate                the lossor rangeof lossregarding      the on-goinglitigation    withrespsctto this agreement, In September     2007,AE received       an NOVfromtheEPAalleging          NSRandPSDviolations      undertheCAA,aswellasPennsylvania andWestVirginiastatelawsat thecoal-firedHatfeld'sFerryandArmstrongplantsin Pennsylvania                      andthecoal-firedFortMartinand WillowlslandplantsinWestVirginia.          TheEPA'S     NOValleges    equipment  rplacements  duringmaintenance      outages triggedthepre-construction    permitting   requirements   undertheNSRandPSDprograms.            OnJune29,2012,January         31,2013,March27,2013ard October18,2017,EPAissuedCM section114requesbior the Harisoncoal-fired                          plantseekinginfomationanddocumentation relevant   to itsoperation    andmaintenance,     including  capitalpojeclsunderlaken     since2007.OnDecember         12,2014,EPAissueda CAAsection114requestfor the FortMartincoal-firedplantseekinginformationanddocumentation                           relevantlo its operationand maintenance,     including    capitalprojects undertaken    since2009.FirstEnergy    intends b comply  withtheCAAbut,atthistime,is unable to predictthe outcomeof this matteror estimatethe lossor rangeof loss-ClinateChange FirstEnergy    hasestablished      a goalto reduceCO2emissionsby907"below2005levelsby20/15.Therearea numberof initiativesto reduceGHGemissions             at thestate,federalandinternational     level.Certainnortheaslern    statesareparticipating     inthe RGGIand westeinstatesledbyCalifornia,          haveimplemented       programs, primarily capandtrademechanisms,         to controlemissions   ot certain GHGS.Additional        policiesreducingGHGemissions,            suchas demandreduction        programs,  renewable     portfoliostiandards   and renewable     subsidies    havebeenimDlemented         acrossthenation.
TheEPAreleased          its final"Endangerment      andCauseor Contribute      Findings  for Greenhouse   Gasesunderthe CleanAirAct' in December2009,concludingthatconcentrations                of severalkeyGHGSconstitutesan "endangermenfandmaybe regulatedas'air polluiants"   undertheCAAandmandated              measurement      andreporting  of GHGemissions     fromcertainsources,      including  elecllic generating     plants.TheEPAreleased        itstinalregulations    inAugust2015(whichhavebeenstayedbytheU.S.Supreme                   Cou]t),to reduceCo2emissions            fromexistingfossilfuelfiredelectricgenerating        unitsthatwouldrcquireeachsiateto developSlPsby September6, 2016,lo meetthe EPASstatespecificCO2emissionrategoals.The EPASCPPallowsstatesto requesta two-year extension    tofinalizeSlPsbySeptember         6,2018.ffstatesfailtodevelopSlPs,lheEPAalsoproposed               a federalimplemenlafon     plan thatcanbeimplemented            bytheEPAthatincluded      modelemissions     tradingruleswhichstatescanalsoadoptintheirSlPs.TheEPA also finalizedsepaftrteregulationsimposingCOzemissionlimitsfor new,modified,and reconstructed                          fossilfuel fired eleclric generating     units.OnJune23,2014,theUnitedStatesSupreme                Courtdecided   thatCO2orolherGHGemissions          alonecannot   trigger permittingrequiremenls         undertheCAA,butthatair emissionsourcesthatneedPSDpermitsdueto otherregulated                    airpollutants can be rcquiredbythe EPAtoinstallGHGcontroltechnologies.                 Numeroussiatesandprivatopartiesfiledappealsandmotionsto staythe CPPwiththeU.S.CourtofAppeals              fortheD.C.CircuitinOctober2015.        OnJanuary21,2015,a paneloftheD.C.Circuitdeniedthe motions   lor stayandsetanexpedited        schedule    forbriefing andargument. OnFebruary9,2016,      theU.S.Supreme       Courtstayedthe ruleduringthependency          ofthechallenges   totheD.C.CircuitandU.S.Supreme          Court.Depending    ontheoubomeoffurther       appeals andhowanyfinalrulesareultimately             implemented,     thefuturecostot compliance     maybe material.
At the international     tevel,the UnitedNationsFramework           Converfion  on ClimateChangeresultedin the KyotoProtocolrequiring participating  countdes,    whichdoesnotinclude       theU.S.,to reduceGHGScommencing          in2008andhasbeensxtended          through  2020.
TheObamaAdministration             submitted  in March2015,a fomal pledgefor the U.S.to reduceiF economy-wide                  greenhouse    gas
                                                                                                                                    '12,2015 emissions    by26to 28 percentbelow2005levels            by2025andjoinedin adoptngtheagGement             reached   on December               at the UnitedNationsFramework            Convention   on ClimateChangemeetingsin Paris.TheParisAgreement               wasraffiedbythe requisite numberot countries        (i.e.at least55 countries    representing  at least55%of globalGHGemissions)          in October2016andiF non-bindingobligations     to limitglobalwarming    towellbelow     twodegreesCelsius    areeffective onNovember       4,2016.FirstEnergy   cannot currently  eslimate   thefinancial   impactofclimate    changepolicies,   although potentiallegislativeorlegulatory   programs  rcslricting CQ emissions,    or litigation  allegingdamages    fromGHGemissions,         couldrequirematerialcapilalandotherexpenditures           or resultin changesto its operations.        TheCOzemissions       perl(WHof electricity   generated  by FirstEnergy   is lowerthanmanyof its regional competitors    dueto itsdiversified    generation   sources,   whichincludelowor non-Co2      emitting gas-fired   andnucleargenerators.
Clem Wabt Act Various  waterqualityregulations,      themajorityof    whicharetheresultof thefederalCWAand         itsamendmenb,      applyto FirstEhergy's plants.Inaddition,     thestatesin whichFirstEnergy        operates  havewaterqualitystandards      applicable   to FirstEnergys  operations.
TheEPAfinalizedCWASection316(b)regulations                   in May2014,requiring    coolingwaterintakestructures      withan intakevelocity greaterthan0.5feetpersecondto Gducetishimpingement                   whenaquaticorganisms      arepinnedagainstscreens       or otherpartsot a coolingwaterintakesystemtoa 12%annualaverage                  andrequiring  coolingwaterintakestructures     e)ceeding  125million  gallons  per dayto conductstudiesto determinesite-specitic           controls,if any,to reduceentrainment,   whichocculswhenaquaticlifeisdrawnintoa facility'scoolingwatersystem.FirstEnergy          is studyingvariousconlroloptionsandtheircostsandeffectiveness,          includingpilottesting of reverselouversina portionottheBayShoreplanfscooling                waterintakechannelto     divertfishawayfromtheplantscoolingwater intakesystem.Depending           ontheresultsotsuchstudiesandanyfinalaction           takenbythestatesbasedonthosestudies,           thetuture capitalcostsof compliancewiththesestandardsmaybe substantial.
44

OnSeptember     30,2015,theEPAfinalized        new,morestringent      effluent  limitsfortheSteamElectricPowerGenerating           category  (40 CFR Part 423) for arsenic,mercuryseleniumand nitrogenfor wastewaterfrom wet scrubbersystemsand zero dischargeof pollutantsin ashtranspon     wabr.Thetreatment       obligations  willphase-in    aspermitsarerenewed       on a fiv+yearcycleftom2018to 2023.Thefinalrulealsoallowsplantsto committo morestringent                  efiluentlimitsforwetscrubber       systemsbasedon evaporative technology andin returnhaveuntiltheendot2023to meetthemorestringent                    limits.Depending   ontheoutcome      ol appals  andho,Y anyfinalrulesareultimately      implemented,   thefuturecostsofcompliance          withthesestandadsmaybesubstantialand              changes  to FirstEnergys   andFES'operations       mayresult.
In October2009,theWVDEPissuedan NPDESwaterdischarge                         permittor the FortMartinplant,whichimposesTDS,sulfate concentralions   andothereffluent    limitationsforheavymetals,aswellastemperahire             limitations.Concurrent   withtheissuance    ofthe FortMartinNPDESpermit,WVDEPalsoissuedanadministralive                    ordersettingdeadlines     forMPto meetcertainol theefiluentlimits thatwereeffective   immediately    undertheterms     oftheNPDESpemit.MPappealed,               anda stayof certain@nditions      of theNPDES pemitandordrhavebeengrantedpendinga finaldecision                 ontheappealandsubiecttoWVDEPmovingto dissolve                   thestay.The FortMartinNPDESpermitcouldrequirean initialcapitalinvestment                    rangingfrom$150millionto $300millionin orderto install technology  to meetthe TDSandsultatelimits,whichtechnology                  mayalsomeetcertainot the othereffluentlimits.Additional technology  maybe neededto meetcertainotherlimitsin the FortMartinNPDESpermit.MPintendsto vigorously                              pursuethese issuesbutcannotpredicttheoutcome           of lhe appealor estimate     lhe  possible   lossor  range of loss.
FirstEnergy  intendsto vigorously    defendagainsttheCWAmattersdescribed               abovebut,exceptas indicated       above,cannotpredict theiroutcomes    or eslimate  the lossor rangeof loss.
Regulationot WasteDisposal Federalandstatehazardous          wasteregulations     havebeenpromulgated          as a resultof the RCRA,as amended,           andthe Toxic Substances    ControlAct.Certaincoalcombustion           residuals,  suchas coalash,wereexempted             fromhazardous      wastedisposal requirements   pendingthe EPA'S      evaluation  of theneedforfulureregulation.
InDecember    2014,theEPAfinalized       regulations  forthedisposalof    CCRs(non-hazardous),       establishing national standards   regarding landfilldesign, structural integritydesign  andassessmenl       crileriatorsurtace   impoundments,     groundwaler   monitoring  andprotection procedures  andotheroperational        andreporting   procedures    to assurethesatedisposalof CCRStromelectricgenerating                 plants.
Basedonanassessment          otthefinalized  regulations,  thefuturecostofcompliance        andexpected     timingof spendhadnosignificanl impacton FirstEnergy's    or FES'existing   AROSassociated       withCCRs.Although        nonearecurrenlly    expected,  anychangs     intiming andclosureplanrequirements         in theluturecouldmaterially     andadversely      impactFirstEnergy's    andFES'AROS.
Pursuant to a 2013consentdecree,PADEPissueda 2014permitfortheLittleBlueRunCCRimpoundment                                    requiring lhe Bruce Mansfield  plantto ceasedisposalof CCRSby December                31,2016andFGto providebondingfor 45 yearsof closureandpost-closureactivities  andto completeclosurewithina 12-yearperiod,but authorizing                    FG to seeka permitmodification       basedon "unexpected   siteconditions   thathaveorwillslowclosureprogress.-          Thepermitdoesnotrequireactivedewatering            oftheCCRS,    but doesrequirea groundwaler       assessment    forarsenicandabatement         if certainconditions  inthepermitaremet.TheBruceMansfield plantis pursuingseveraloptionsfor disposalof CCRSfollowing               December      31,2016andexpectsbeneficial          reuseanddisposal optionswillbe sufficient   fortheongoingoperation       of theplant.On May22,2015andSeptember                21,2015,thePADEPreissued          a permittorthe   Hatfield's FerryCCRdisposal      facilityandthenmodifiedthat        permittoallowdisposalot     BruceMansfield    plantCCR. On July6, 2015andOctober22,2015,theSierraClubtiledNoticesof Appealwiththe Pennsylvania                             Environmental    HearingBoard challenging  therenewal,    reissuance   andmodification    ot thepermitforthe Hattield's       FerryCCRdisposallacility.
FirstEnergy or itssubsidiaries  havebeennamedaspotentially          responsible    paniesatwastedisposalsites,     whichmayrequire      cleanup underthe CERCLA.Allegations            of disposalof hazardous       substances     at historicalsitesand the liabilityinvolvedare otten unsubstiantiated  andsubject    todispute;  howgver,   bderallawprovides       thatallpotentially responsible   partiesiora particular  sitemay be liableon a joint and severalbasis.Environmental              liabilitiesthat are considered      probablehavebeenrecognized            on the Consolidated   Balance   Sheetsasof SeDtember        30.2016basedonestimates           ol thetotalcosts  ol cleanup,  FEsanditssubsidiaries' proportionate  responsibility forsuchcostsandthefinancialability         ot otherunaffiliated          b pay.Totalliabilities entities                       ot approximately
$121millionhavebeenaccrued          through  September    30,2016.Included       inthetotalareaccruedliabilities   otapproximately    $89million forenvironmental    remediation   oflormermanufactured      gasplantsandgasholdertacilities         inNewJersey,    whicharebeingreco\rered by JCP&Lthrougha non-bypassable           SBC.FirstEnergy      or its subsidiaries    couldbe foundpotentially     responsible   for additional amounts or additional   sites,butthelossor rangeof lossescannotbe determined               or reasonably   estimated   at thistime.
OTHERLEGALPROCEEDINGS NudearPlantMatters UnderNRCregulations,       FirstEnergy  mustensurethatadequale         fundswillbavailable      to decommission    its nuclear tacilities.Asof September  30,2016,FirstEnergy        hadappmximately     $2.5billioninvested     inextemaltrusts   to beusedlor thedecommissioning         and environmental   remediation  of Davis-Besse,    BeaverValley,PerryandTMI-2.Thevaluesof FirstEnergy's                 NDTS   fluctuate basedon marketconditions. lf thevalueof thetrustsdeclinebya material          amount,FirstEnergys       obligation b fundthetrustsmayincrease.
Disruptionsin the carital marketsandtheir effectson panicularbusinessesandthe economycouldalsoaftectthe valuesof the NDTS. FEandFEShavealsoenteredintoa totalof $24.5millionin parenialguarantees                       in supportof thedecommissioning        ofthe 45

spentfuelstorage    facilities locatedal thenuclear   facilities.
However,    as FESnolongermainlains         investment    gradecreditratings     from eitherS&Por Moody's,      NGplansto tunda supplemental       trustin lieuof a parental    guaranlee    thatwouldbe required         to supportthe decommissioning     of thespentluelstoragefacilities. As requiredby the NRC,FirstEnergy           annuallyrecalculates        andadjuststhe amountof itsparental    guarantees,   asappropriate.
InAugust2010,FENOCsubmitted           an application   to the NRCfor renewalof the Davis-Besse            operating    licenselor an additional twentyyears.On Decembei        8,2015,theNRCrenewed         theoperating    licenseforDavis-Besse,       whichis nowautholized          to continue operation through   April22,2037. Priollo thatdecision,    theNRCCommissioners          deniedan intervenois       request  toreopen     therecord andadmita contention       on the NRC'SContinued       StorageRule.On August6, 2015,thisintervenor                  soughtreviewof the NRC Commissioners'decision      beforetheU.S.CourtofAppeals        fortheDCCircuit.FENOCintervened              inthatproceeding.      OnSeptember 21,2016,the U.S.Courtot Appealsforthe DCCircuitgrantedtheintervenor's                   unopposed    motionanddismissed           thiscase.
As partof routineinspections     oftheconcrete   shieldbuilding   at Davis-Besse     in2013,FENOCidentified         changes     to thesubsurface laminar cracking  condition  originallydiscovered   in 2011.Theseinspections        revealed thatthe$ackingcondition           hadpropagated      a smallamount    inseleclareas.FENOC'S      analysis  confirmsthatthe    building continuesto     maintain   itsstructural  integlity, anditsabilily to safelyperformall of its functions. In a May28, 20'15,Inspection         Reportregadingthe apparentcauseevaluation                   on crack propagation,  theNRCissueda non-cited       violation torFENOC'S     tailureto request   andobtaina licenseamendmentfor               itsmethodof evaluating the significance   ol theshieldbuildingcracking.      TheNRCalsoconcluded          thattheshieldbuilding]emained              capableof performing  itsdesignsaletyfunctions     despitetheidentified    laminar cracking   andthatthisissuewasofverylowsatetysignificance.
FENOCplansto submita licenseamendment             application  to the NRCrelatedto the laminarcracking            in theShieldBuilding.
On March12,2012,theNRCissuedordersrequiring                satetyenhancements        at U.S.reactors   basedon recommendations             fromthe lessonsleamedTaskForcereviewof theaccidentatJapan'sFukushimaDaiichinuclearpo$/erplant.Theseordersrequireadditional mitigation strategies  for beyord-design-basis    externalevents,andenhanced           equipment   for monitoring     waterlevelsin spentfud pools.The NRC also requestedthat licenseesincludingFENOC:re-analyzeearthquakeand floodingrisks usingthe latest informationavailable;conductearlhquakeand fioodinghazardwelkdownsat their nuclearplants;assessthe abilityof cunent communications    systemsandequipment       to performundera prolonged        lossofonsiteandotrsiEeleclrical          powe[andassessplant staffinglevels neededto lill emergencypositions.Theseand other NRCrequirementsadoptedas a resultof the accidentat Fukushima    Daiichiare likelyto resultin additional   material   costsfromplantmodifications       andupgrades        at FirstEnergys      nuclear facilities.
OtherLegalliitatP./']s Therearevariouslarusuits,     claims(includingclaimsforasbestosexposure)          andproceedings    relatedto FiFtEnergy's        normalbusiness operations  pending   againstFirstEnergy   anditssubgidiaries. Thelossor rangeof lossinthesemattersis notexpected                 to bematedal to FirstEnergy  or itssubsidiaries. Theotherpotentially    material  itemsnotothe isediscussed           abovearedescribed         underNote11, Regulatory   Mattersof theCombined      Notesto Consolidated       Financial Statements.
FirtEnergyaccrueslegalliabilities       onlywhenit concludes       that it is probablethat it has an obligation         for suchcostsandcan reasonably  estimatetheamountof suchcosb. IncaseswhereFirstEnergy                 determines   thatit is notprobable,butreasonably         possible thatit hasa materialobligation,   itdiscloses suchobligations     andthepossible     lossor rareoflossifsuchestimate            canbemade.lf it wereultimately   deteminedthatFirstEnergy      or itssubsidiaries   havelegalliabilityorare     otherwise    madesubject     to liability basedon anyofthe mattersreferencedabove,it cluld havea materialadverseeffecton FirstEnergysor its subsidiades'                        financialcondition, resultsof operationsandcashflows.
13.SUPPLEIIEiIfALGUARANTOR               INFORIIATION In A)07,FGcompleied       a saleandleaseback     transaction   for a 93.83%undivided      interestin BruceMansfield         Unit1. FG'sparent company   hasfullyandunconditionally     andinevocably     guaranteed   allof FG'sobligations    undereachoftheleases.          Therelated    lessol notesandpassthroughcertificatesare not guaranteedby FGor ib parentcompany,but the notesare securd by,amongother things,eachlessortrust's     undivided interestin Unit1, rightsandinterests     undertheapplicable       leaseandrightsandinterests           under otherrelatedagreements,      includingFES'learse   guaranty.Thistransactionis classifiedarsi     anoperatingleasefor FESandFitslEnergy andas a financing    leasebr FG.
TheCondensed      Consolidating   Statemenb   of Income(Loss)andComprehensive            Income   (Loss)  forthethreeandninemonhsended September   30,2016and2015,Condensed          Consolidating   Balance   Sheetsasof September         30,2016andDecember             31,2015,and Condensed    Consolidating  Statemen$    ofCashFlowsfortheninemonthsendedSeptember                   30,2016and2015,for theparentand guarantorandnon-guarantor        subsidiaries are presentedbelow.Thesestatementsare providedas FG'sparentcompanyfullyand unconditionally guarantees   outstanding  registered  securities  of FGaswellasFG'sobligations          underthetacilityleasefortheBruce Mansfield saleandleaseback       thatunderlieoutsianding     registered    pass-through   trustcertificates. Investments      in whollyowned subsidiaaies areaccounted    forbytheparentcompany        usingtheequitymethod.        Resultsof operations     forFGandNGate,therefore, reflectedin theirparentcompanysinvestment         accounts  andearnings      as if operating  leasetreatment      wasachieved.       Theprincipal elimination entrieseliminate   investments  in subsidiaries  andintercompany       balances   andtransactions       andtheentriesrequired        to reflectoperating  leasetreatment   associated  withthe2007BruceMansfield            Unil1 saleandleaseback         transaction.
46

FIRSTENERGY  SOLUTIONSCORP.
CONDENSED     CONSOLIDATING       STATEMENTS   OF INCOMEAND COMPREHENSIVE             INCOME For the Three Months Ended September30, 2016              FES          FG             NG          Eliminations     Gonsolidated (ln millions)
STATEMENTS    OF INCOME REVENUES                                               $     1,065         494 $          400 $           (85s)$          1,100 OPERATING      EXPENSES:
Fuel                                                                     149             53                               202 Purchasedpowerfrom affiliates                              1,0;                          39             (85s)             191 Purchasedpowerfrom non-affiliates                            186                                                          186 Otheroperatingexpenses                                        95          ;             149                 11            316 Provisionfor depreciation                                       4         28              51                               83 Generaltaxes                                                    8           7              6                               21 Totaloperatingexpenses                                 1,304         245                             (848)            999 oPERATTNGTNCOME(LOSS)                                         (23e)                       102                (11)           101 oTHER TNCOME        (EXPENSE):
Investment  income,includingnet incomefromequity investees                                                 224            I             28             (236)              24 Miscellaneous   income                                                       1-1 Interestexpense- affiliates                                   (13)         (3)             (2)              15               (3)
Interestexpense- other                                        (14)        (27)             (e)              14             (36)
Capitalizedinterest Totalotherincome(expense)                                1s7         (18)            23             (207)               (5) rNcoME (LOSS)BEFORETNCOME           TAXES(BENEFITS)             (42)       231            125              (218)              96 rNcoME TAXES(BENEFTTS)                                          (82)                        49                 2 NET INCOME                                                       40$       144 $            76$            (220)$             40 STATEMENTS     OF COMPREHENSIVE    INCOME NETINCOME                                                        40$       144 $            76$            (220)$
orHER COMPREHENSTVE          TNCOME  (LOSS):
Pensionand OPEBpriorservicecosts                               (3)          (3)                               3              (3)
Amortizedgainson derivativehedges                               1                                                             1 Changein unrealized   gainson available-for-sale securities                                                  5                                            (s)              5 Othercomprehensive  income(loss)                                       (3)                              (2) lncometaxes (benefits)on othercomprehensive income(loss)                                                            (1)                              (1)
Othercomprehensive  income(loss),net of tax                            (2)
COMPREHENSIVE        INCOME                                     42 $       142                             (221\ $
CONDENSED      CONSOLIDATING      STATEMENTS    OF INCOME(LOSS)AND COMPREHENSIVE               INCOME(LOSS)
For the Nine Months EndedSeptember30, 2016                FES          FG             NG          Eliminations     Consolidated (ln millions)
STATEMENTS    OF INCOME(LOSSI REVENUES                                                     3,281 $     1,309 $        1,404 $         (2,593)$          3,401 47

FIRSTENERGY SOLUTIONS CORP.
OPERATING      EXPENSES:
Fuel                                                                       449      146                       595 Purchasedpowerfrom aftiliates                                  2,ggg                145      (2,593)          440 Purchasedpowerf rom non-affiliates                                829                                         829 Otheroperatingexpenses                                            218      220      450          37           925 Provision  for depreciation                                         10      91      151            (2)        250 Generaltaxes                                                       23       23       20                        66 lmpairmentol assets                                                23      517                                540 Totaloperatingexpenses                                     3,991      1,300     912      (2,558)        3,645 oPERATTNGTNCOME(LOSS)                                              (710)              492          (3s)        (244) oTHER TNCOME        (EXPENSE):
Investment   income,includingnet income(loss)from equityinvestees                                               310        21       67       (':)             56 Miscellaneous   income                                               3         1                                 4 Interestexpense- affiliates                                        (34)      (7)      (4)         39            (6)
Interestexpense- other Capitalizedinterest
                                                                     ,1'      (7e) 7 (33) 20          :
(10e) 27 Totalotherincome(expense)                                    239       (57)      so       (260)           (28)
                                                                                             -
rNcoME (LOSS)BEFORETNCOMETA)GS (BENEFITS)                          (471)      (48)               (2e5)         (272) rNcoME TAXES(BENEFTTS)                                             (204)        (1)    196            4            (5)
NETTNCOME        (LOSS)                                            (267) $    (47) $  346 $      (2es)$         (267)
STATEMENTS       OF COMPREHENSIVE     INCOME(LOSS)
NET TNCOME(LOSS)                                                   (267) $    (47) $   346 $     (2ee)$         (267) oTHER COMPREHENSTVE            TNCOME (LOSS):
(10)
Pensionsand OPEB     prior       costs service Amortizedgainson derivativehedges (10)     (10) 1 Changein unrealized   gainson available-for-sale securities                                                      61                60         (60)           61 Othercomprehensive    income(loss)                             51      (10)      60          (50)          51 Incometaxes   (benefits) on othercomprehensive (4)     23          (1e)          20 income(loss)                                       - - - - - - .20 sr--
Othercomprehensive    income(loss),net of tax                                              rqrl-coMPREHENSTVE        TNCOME    (LOSS)                   $          (136)$-         $  383 $      (s3o)$-]mo)
                                                         --+:
48

FIRSTENERGYSOLUTIONSCORP.
CONDENSED      CONSOLIDATING      STATEMENTSOF INCOMEAND COMPREHENSIVE             INCOME For the Three Months Ended September30, 2015             FES                       NG          Eliminations       Consolidated (ln millions)
STATEMENTSOF INCOME REVENUES                                                   1,293 $       420 $         531 $           (s06)$            1,338 OPERATINGEXPENSES:
Fuel                                                                   t:              52                                245 Purchasedpowerfrom affiliates                             9;                           77             (rT)               103 Purchasedpowerfrom non-affiliates                         401                                                            401 Otheroperatingexpenses                                      34          66           134                12               246 Provision for depreciation                                    3         30             47                (1)              79 Generaltaxes                                                 10           8             6                                 24 Totaloperatingexpenses                                1,380                       316              (8e5)             1,098 oPERATTNG     lNCOME (LOSS)                                  (87)        123           215                (11)
OTHERTNCOME         (EXPENSE):
lnvestmentincome(loss),includingnet incomefrom equityinvestees                                         191             4          (18)            (r1)                ,r],
Miscellaneous   income                                                     1-Interestexpense- affiliates                                  (8)          (2)           (1)               e                 (2)
Interestexpense- other                                     (13)         (26)          (12)               15               (36)
Capitalizedinterest Totalother income(expense)                             17o          (22)          (24)            (174)               (s0) 83        101            191             (185)               190 rNcoME BEFORETNCOME          TD(ES (BENEFTTS) rNcoME TAXES(BENEFTTS)                                        (37)         36                                                70 NET INCOME                                                   120 $         65$          121 $           (186)$              120 STATEMENTS      OF COMPREHENSIVE     INCOME NET INCOME                                                   120 $         65$          121 $           ( 1 8 6 )$
OTHERCOMPREHENSIVE           LOSS:
Pensionand OPEB priorservicecosts                            t+)         (3) j                  (4)
Amortizedgainson derivativehedges Changein unrealized   gainson availablefor sale securities                                                                                            11                (11)
Othercomprehensive   loss                                                                            14               (1s)
Incometax benelitson othercomprehensive    loss                                                           5                (6)
Othercomprehensive   loss,netof tax                                                                    9                (e)
COMPREHENSIVE        INCOME                           I      111$         63 q         1149_(1?1                g          111 CONDENSED      CONSOLIDATING      STATEMENTS  OF INCOMEAND COMPREHENSIVE            INCOME For the Nine Months EndedSeptember30,2015                FES         FG            NG          Eliminations       Consolidated (ln millions)
STATEMENTSOF INCOME 49

SOLUTIONSCORP.
FIRSTENERGY REVENUES                                              $   3,699 $  1,259$   1,494 $  (2,618)$ 3,834 OPERATING     EXPENSES:
Fuel                                                               523      143                666 Purchasedpowerfrom affiliates                            2,657              211     (2,618)    250 Purchasedpowerfrom non-affiliates                        1,336                               1,336 Otheroperatingexpenses                                     300     208      452         36     996 Provisionfor depreciation Generaltaxes 892 36      23 142 19        ?      240 78 lmpairment  of assets                                        16                                 16 Totaloperatingexpenses                               4,353              967     (2,584)  3,582 oPERATTNG     TNCOME   (LOSS)                              (654)     413     527        (34)    252 orHER TNCOME       (EXPENSE):
lnvestment  income(loss),includingnet incomefrom equityinvestees                                        551       12        (1)    'u1'       (7)
Miscellaneous   income                                         1       4                          5 Interestexpense- affiliates                                 (21)      (6)      (3)      24       (6)
Interestexpense- other                                     (3e)    (78)     (37)             (110)
Capitalizedinterest                                                    422              :        26 Totalotherincome(expense)                              492     (64)     (1e)     (s01)     (e2) rNcoME (LOSS)BEFORETNCOME            TA)GS (BENEFITS)       (162)             508      (535)    160 rNcoME TAXES(BENEFTTS)                                      (2s8)    131      187          4      64 NETINCOME                                                     e6$    218 $    321 $    (53e)$
STATEMENTS     OF COMPREHENSIVE      INCOME NET INCOME                                                     e6$   218 $    321 $    (53e)$
OTHERCOMPREHENSIVE           LOSS Pensionand OPEBpriorservicecosts                            (12)    (11)                11     (12)
Amortizedgainson derivativehedges                            (2)                                 (2)
Changein unrealized   gainson available-for-sale securities                                               (20)             (20)              (20)
Othercomprehensive   loss                               (34)    (11)     (20)       31     (34)
Incometax benefitson othercomprehensive   loss             (13)     (4)       (7)      11     (13)
Othercomprehensive   loss,net of tax                    (21)      (7)    (13)       20     (21)
COMPREHENSIVE        INCOME                                    75$   211 $    308 $     (s1e) 50

FIRSTENERGY  SOLUTIONSCORP.
CONDENSED   CONSOLIDATING      BALANCESHEETS As of September30, 2016                                  FES          FG            NG            Eliminations         Consolidated (ln millions)
ASSETS CURRENTASSETS:
Cashand cash equivalents                                         $         2$                  $                    $
Receivables-Customers                                             225                                                                  225 Affiliatedcompanies                                   356           351           267                 (4e2)                482 Other                                                   21            4             30                                      55 Notesreceivablefrom affiliatedcompanies                    494        1,501         1,133              (t,t3                    26 Materialsand supplies                                       38          '1            ,,:                                      403 146 Derivatives                                               146 Collateral                                                  85                                                                   85 Prepaymentsand other                                        57                                                                   72 1,4n         2.025         1,643              (3.594)               1.496 PROPERTY,      PLANTAND EQUIPMENT ln service                                                 121        5,683         8,674                 (378)             14,100 Less- Accumulatedprovisionfor depreciation                  49        1,915         4,050                 (192)              5,822 72        3,768         4,624                 (186)              8,278 Constructionwork in progress                                 3          287           758                                     1.048 75        4,055         5,382                 (186)              9.326 INVESTMENTS:
Nuclearplantdecommissioning   trusts                                                 1,542                                    1,542 Investmentin affiliatedcompanies                         7,826                                         (7,826)
Other                                                                    10                                                      10
                                                                  -
7,826           10          1,s42             (7,826)                1,552 DEFERREDCHARGESAND OTHERASSETS:
Accumulateddeferredincometax benefits                      279           27                               -:'
Gustomerintangibles Propertytaxes 11 37                                                    I Derivatives                                                 98 Other                                                       29          333                                   12                374
                                                    -i;;
                                                                  -ot
                                                    $-tu'-        S-57d         $-E,ffi         $-Tmboi              s--1267-LIABILITIES AND CAPITALIZATION CURRENTLIABILITIES:
Currentlypayablelong-termdebt                     $             $       1es $             8 $                (25)$              182 Short-termborrowings-Affiliatedcompanies                                  2,723          480                            (3,102)                  101 Accountspayable-Affiliated companies                                   597          165            180                 (u:)                 '33 Other                                                    18           71 Accruedtaxes                                                31            28             51                  (38)                72 Derivatives                                                88             1-                                                    89 Other                                                      66            71             12                   33                182 ss            1 0 1 5-                         (3,681)               1,108 CAPITALIZATION:
Totalequity                                             5,409        2,897          4,893              (7,790\               5,409 Long-term   debtand otherlongtermobligations              691        2,108          1, 1 2 0           ( 1, 1 0 4 )          2,815
                                                                   -
6Joo            oos         q o 1 3- ' % ) -
NONCUR     RENTLIABILITIES   :
Deferredgain on sale and leasebacktransaction                                                              765                 765 Accumulateddeferredincometaxes                              ;-817                                           (90)               734 Retirement   benefits                                       25          194                                                    219 Assetretirementobligations                                              186           701                                      887 Derivatives                                                 455-                                                                 50 Other                                                       40           48           792                                      880
                                                                   $--6;ass     S-s5r4                       ,goo)$            te,eoz
                                                    ,-:-r#
51

FIRSTENERGY    SOLUTIONSCORP.
CONDENSED   CONSOLIDATING          BALANCESHEETS As of December31,2015                                     FES                 FG                NG              Eliminations          Consolidated (ln millions)
ASSETS CURRENTASSETS:
Cashand cashequivalents                                               $                2$                 $                       $                2 Receivables-Customers                                                 275                                                                              275 Affiliatedcompanies                                       433                 403             461                   (846)                  451 Other                                                       36                    419                                                       59 Notesreceivablefrom affiliatedcompanies                       406              1,210              805                 12,+i'1                    11 Materialsand supplies                                           53                ,t:             ,:                                           470 Derivatives                                                   154                                                                              154 Collateral                                                      70                                                                              70 Prepayments    and other                                        48                  18                                           -T5s8          66
                                                                                                           -?256) 1,4?5                141 -8 PROPERTY,      PLANTAND EQUIPMENT ln service                                                      93             6,367            8,233                   (382)              14,311 Less- Accumulatedprovisionfor depreciation                      40             2,144            3,775                   (194)
                                                                                                                                              ?'19?
53              4,223           4,458                   (188)               8,546 Constructionwork in progress                                    30                 24s            878 -                                      !'!5-!
83              4,472           5.336                   (188)               9,703 INVESTMENTS:
Nuclearplantdecommissioning    trusts                                                           1,327                                        1,327 lnvestment   in affiliated companies                         7,452 10 Other                                                                -io-re- 1 0                                                             1,337
                                                     -                                                                 0,+szt DEFERREDCHARGESAND OTHERASSETS:
(.:)
Accumulateddeferredincometax benefits Customerintangibles 300 61                  T                                                            61 23 Goodwill                                                        23 Propertytaxes                                                                      12               28                                          40 Derivatives                                                    79                                                                               79 Other                                                           29                 312               14                     12                 367
                                                     --Eao--to4)                                                                                 570
                                                     $       e5o2$-5bt$-g,ud,t$-Tit2ooi                                             $         13,199_
LIABILITIES AND CAPITALIZATION CURRENTLIABILITIES:
Currentlypayablelong-termdebt                                                     22s $           308 $                   (25) $               512 Short-termborrowings-Affiliatedcompanies                                     2,021                  389                                (2,410)
Other                                                                             8                                                           8 Accountspayable-Affiliatedcompanies                                        884                 146             368                   (r1)                   542 Other                                                        21                118                                                          139 Accruedtaxes                                                      7                93               62                    (86)                  76 Derivatives                                                   103                     1-                                                       104 Other                                                           66619                                                      45                  181 3J 02               1.045              747                (3,332)                 1,562 CAPITALIZATION:
Totalequity                                                 5,605              2,944            4,476                (7,420)                 5,605 Long-term   debtand otherlong-termobligations                 690               2,116             840                ( 1, 1 3 6 )            2,510 6.295              5,060            5,316                (8,556)                 8"115
                                                     -
NONCURRENT        LIABILITIES :
Deferredgain on sale and leasebacktransaction                                                                            791                   791 Accumulateddeferredincometaxes                                  ;                                 697                   (rT)                   600 Retirementbenefits                                              27                305                                                          332 Assetretirement obligations                                                       191             640                                          831 Derivatives                                                     37                    1                                                         38 Other                                                           35                  61            803                                          899 105                558           2,140                    688 =              ,9'1?1
                                                      $ g 5 0 resot
                                                                -       S - - - - 6 . 0 6 t 5-8"203
                                                                        $-G-o6t             f      8 , 2 0 3il$-      ((tt,eoo) 11,299      $I       13'Eq-13,168 52

SOLUTIONSCORP.
FIRSTENERGY CONDENSED      CONSOLIDATING STATEMENTSOF CASH FLOWS For the Nine Months EndedSeptember30, 2016          FES      FG         NG       Eliminations Consolidated (ln millions)
NETCASHPROVTDED       FROM(USEDFOR)
OPERATING     ACTIVITIES                        $   (605)    401 $      820 $           ( 1 2 )$
CASHFLOWSFROMFINANCINGACTIVITIES:
NewFinancing-Long-termdebt                                                  186        285                         47',l Short-term  borrowings, net                             701       92                      (6e2)         101 Redemptions   and Repayments-Long-termdebt                                                 (211)      (304)            12         (503)
Other                                                            (5)         (2)                        (7)
Net cashprovidedfrom (usedfor)financing activities                                         701       62        (21)          (680)          62 CASHFLOWSFROMINVESTING            ACTIVITIES:
Propertyadditions                                       ,m,    (,r:)      (233)                       (432)
Nuclearfuel                                                               (1e5)                       (1e5)
Salesof investment securitiesheld in trusts                                576                         576 Purchasesof investmentsecuritiesheldin trusts                             (61e)                       (61e)
Cashinvestments                                          10                                             10 Loansto affiliatedcompanies,net                         (87)   (2s2)      (328)           692          (15)
Other                                                     9                                              9 Net cashusedfor investingactivities                    (e6)   (463)      (7ee)           692         (666)
Netchangein cashand cashequivalents Cashand cashequivalents   at beginningof period                                                          2 c               e, Cashand cashequivalents   at end of period                                                       Y'
:
53

SOLUTIONSCORP.
FIRSTENERGY CONDENSED      CONSOLIDATINGSTATEMENTS OF CASH FLOWS For the Nine Months EndedSeptember30, 2015        FES       FG         NG       Eliminations Consolidated (ln millions)
NETCASH PROVTDED      FROM(USEDFOR)
OPERATING    ACTIVITIES                       $   (oz+)     405 $       867 $          ( 1 2 )$    636 CASH FLOWSFROMFINANCINGACTIVITIES:
NewFinancing-Long-termdebt                                                43         296                         339 Short-termborrowings, net                           689       51                       (740)
Redemptions   and Repayments-Longtermdebt                                        (17)     ,1'       (322)
(27) 12 (82)
(382)
(10e)
Short-termborrowings,net Other                                                           (4)         (1)                         (5)
Net cash providedfrom (usedfor)financing activities                                       672        35         (54)         (810)        ( 157)
CASHFLOWSFROMINVESTING            AGTIVITIES:
Propertyadditions                                      (3)    (144)      (1e4)                       ( 341)
Nuclearfuel                                                              (101)                       (101)
Salesof investment securitiesheldin trusts                                503                         503 Purchasesof investmentsecuritiesheldin trusts                            (546)                       ,u1, Loansto affiliatedcompanies,net                       (45)    (302)      (475)           822 CashInvestments                                       (10)                                             (10)
Other                                                  10        6                                      16 Net cash usedfor investingactivities                (48)    (440)      (813)           822         (47e)
Net changein cashand cashequivalents Cashand cashequivalents   at beginningof period                  2                                       2 Cashand cashequivalents  at end of period                       2$
54

14.SEGIIENTINFORiIATION FirstEnergys  reportable segments   areasfollows:Regulated                 Regulated Distribution,           Transmission,     andCES.
Financialinformation  for eachot FirstEnergy's  reportablesegmentsis presentedin the tablesbelow.FESdoesnothaveseparate reportableoperatingsegments.
The RegulatedDistributionsegmentdistributeselectdcitythroughFirstEnergy's                  ten utilityoPrating companies,     serving approxi;ately   sixmillionostomerswithin   65,000squaremilesof    Ohio, Pennsylvania,  Wesf    Virginia,Maryland,New  Jersey and New vbi.4anapulcnases      powerlor its POLR,SOS,SSOanddefaultservicerequirements                in Ohio,Penns,ylvania,  NewJerseyand Marytand. ihis segment  alsocontrols 3,790lvfws   of regulaledelectricgeneration  capacity   located pdmalilyin WeslMryinia, Viqinia andNewJersey.Thesegment'sresultsretlectthecom;pdity           cosB  of aecuring electric generation   and the deferal and amonization of ceftainfuelcosts.
TheRegulatad     Transmission   segmenttransmib              through electricity      transmission   tacilities ownedandoperated    byATSl,TrAlL, a]d certain;fFirsrEnergys           (Jcp&L,ME,PN,MB PEa;d WP).Thissgment utitities                                                  also includesthe    regulatoryasset associatedwith the abandonedPATi proiect.Thesegmentsrevenuesareprimarilyderivedfromforwardlookingratesat ATSIandTrAlL,asull as fixed ratesat certain-otFirstEnergy;sutilities.Boththe fonyardiookingand fixed rates recovercosts and providea returnon transmission  capitalinvestment. Unierthe fo]ward-lookng   rates,eaci ofATSI'S   atd TrAlUsrevenuequilementis updatedannually basedon a proiectedratebaseandpmjectedcosts,whichis subjectto annualtrue-upbasedonactualcosts.Exceptfortherecovery of the pATtiabandoned    projectregutatory  asset,thesegmentsrevenuesareprimarilyfrom           transmission selvicesprovidedb LSES pursuantto the PJMtarif. ite segmenti resultsalsoreflectthe nettransmission          expensesrelatedto thedeliveryof slectricityon FirstEnergys  transmission facilities.
TheCESsegment,       throughFESandAE Supply,primarily        supplieselectricity to end-usecustomers      throughretailandwholesale anangementl,     includingaompetitive retaitsit'ei ti customers primarilyin Ohio,   Pennsytvania,   lllinois, Michigan, NewJerseyand t,tarytind,anOttreproviiionoi partiatPOLRanddelaultservicelorsome        utilitiesin Ohio,Pennsylvania    andMaryland,   including the As of September Utitiiies.                 30,2016,this businesssegmentcontrolled13,162l Ws of electricgenerating                 capacity.The CES segment's  netincomeispdmarily    derived fromelectric g;neration saleslesstherelaledcostsof electricily     generation,includingfuel, puicnasedpowerand net transhission(includingcon-gestion)        and ancillarycostsandcapacrtycostscharged.byPJMto deliver
 ;nergyto lhe segment's   customers,  aswellas otheloperating    andmainlenance      @sts,including    costsincunedby FENOC.
Colporatesupportand otherbusinessesthat do not constitutean operatingsegment,interestepense on sland-aloneholding companydelii and corporateincometaxes are categorizedas Corporate/Other               for reportablebusinesssegmentpurposes.
Additionally,reconciling  adjustments  for the elimination of inler-segment  transactions     are includedin Corporate/Other. As of SeptembeiSO,    ZOt6, C6rpoiate/Other  nad94.2billionof stand-alone   holdingcompany     long-term   debt,of which28%  was        to subject variable-interest rales,and$2.7billionwasborrowed      by FEundelits revolving    creditfacility.
55

SegmentFinanciallnformation Gompetitive Regulated        Regulated        Energy         Corporate/       ReconcilinE FortheThreeMonthsEnded                Distribution Transmission        Services          Other         Adiustmentl Gonsolidated (ln millions)
Seotember30.2016 Externalrevenues                             2,702 $          'y$             9e8 $
( 1 17 )
3,917 lnternalrevenues                                                               117 Totalrevenues                            2,702            285                                             (185)       3,917 79              16                          311 Depreciation Amortizationof regulatoryassets,net 171 98             i                                                              98 Investment   income                             13                               23               ,             trol          28 139              43               48             56                          286 Interestexpense 167              45               49             (11)               1        251 Incometaxes (benelits)
Net income(loss)                               283              78               86            (67)                         380 Totalassets                                 28,276          8,034           15,165             486                      51,961 Totalgoodwill                                5,092            526                                                         5,618 303            246              110                5-                        664 Propertyadditions Seotember30.2015 2,624 $          248 $          1,327                     $        (76) $    4,123 Externalrevenues 141                             (141)
Internalrevenues                                    -
Totalrevenues                            2,624            248            1,468                             (2y        4,123 15                          328 Depreciation Amortizationof regulatoryassets,net 174 110              !                i                                           110 8                                                                             8 lmpairmentol assets 8                             (1e)              (6)            (11)         (28)
Investment   income(loss) 149              ;                48              48                          285 Interestexpense 137              41               84             (3e)               3         226 Incometaxes (benefits) 234              70             145              (54)                         395 Net income(loss)
Totalassets                                27,883           6,988          16,229             830                       51,930 5,092            526              800                                         6,418 Totalgoodwill 292             149                83             15                          539 Propertyadditions For the Nine Months Ended Seotember30.2016 Externalrevenues                            7,423 $          t:$           3,158                             (218)$     11,187 lnternalrevenues Totalrevenues                            7,423            824 377 3,535                 --+ii rc                   974 Depreciation Amortizationof regulatoryassets,net 510 218 132 4
284 i                            222 1,447                                        1,447 lmpairment   of assets(Note2) 37                               56              13             (31)          75 Investment   income 431            128              143             161                           863 Interestexpense 349            130               (s6)            (51)               2         334 Incometaxes (benefits) 594            223           (1,029)           (16e)                         (381)
Net income(loss) 878            755              492               31                       2,156 Propertyadditions September30. 2015 Externalrevenues                           7,425 $          '1 $           3 , 5 3 6$
s63
                                                                                                         $       (231)$
(563) 11,48s lnternalrevenues                                                  -----l oee"   --
Totalrevenues                            7,425            755                                                        11/ 8s Depreciation                                 516             116              293              44                          969 201 Amortizationol regulatoryassets,nel           196               j                16                                           24 lmpairmentof assets                             I 33                                (7)             ttl            tsll         (14)
Investment  income(loss) 439             119              144            144                           846 lnterestexpense 350             135                76            (84)               8         485 Incometaxes (benefits) 598             231              129           (1s4)                          804 Net income(loss) 884             700              400              41                        2,025 Propertyadditions 56

Item 2.              Management'sDiscussionand Analysis of Registrantand Subsidiaries FIRSTENERGYCORP.
MANAGEMENT'SDISCUSSIONAND ANALYSISOF FINANCIALCONDITIONAND RESULTSOF OPERATIONS FIRSTENERGY'S         BUSINESS FirstEnergy   andib subsidiaries   areprincipally  involved  in thegeneration,   lransmission  anddistribution                lts reportable of electricity.
segments    are as  follows:Regulated   Distribution, Regulated   Transmission,    and CES.
The RegulatedDbtrlbu on segmentdistibuteselectricitythroughFirstEnergy's                        ten utilityoperatingcompanies'serving approxiriately   sixmillioncustomers   within65,000squaremib; otOhio,Pennsyhrania,          WestVirginia,    Maryland, NewJerseyandNew ybrk,and puichases       poyverfor its POLR,SOS,SSOanddefaultservicerequirements                  in Ohio,  Penns}lvania,  NewJerseyand This Maryland. segment          also controls3,790   lWVs  of regulated  electricaeneration  capacity  located                  Virginia'Virginia primarilyinl/t/est andNewJersey.Thesegment'sresulbreflectthecomiroditycostsot iecuringelectricgenerationandthedeferralandamonization of cenainfuel costs.
TheRegulated      Transml$lonsegment        transmits  electricitythrough transmission   tacilitiesownedandoperated     byATSl,TrAlL,    and certain6f FirstEnergy's           (JCP&1, utitities        ME,   PN,  MP, PE  and  WP). This segment   also includes  the  regulatoryasset associated   with theabandoned      PATHproject. Thesegment's     revenues  areprimarily  derived  fromforwardlooking      ratesatATSland   TrAlL,as\'vellas fixedratesat certainof FirstEnergyls       utilities.Boththe forwardlooking       and fixed rates  recover   costs and provide   a returnon transmission  capitalinvestment. Un-derthelonarardlooking     rates,eachofATSI's    andTrAlUsrevenue      Equirementis  updated  annually basedona projected     ratebaseandprojected      costs,whichis subject   lo annualtrue-up   basedonactualcosb.       Exceptbrtherecovery ofthePATHabandoned        projectregula6ryasset,thesegment's         revenues  areprimarily  fromtransmission    services provided  to LSES pursuant  to thepJMtaritt.itre segmenttresultsalsoreflectthenettransmission              expenses   relatedto thedelivery   of electricilyon FirstEnergy's  transmission  facilities.
TheCESsegment,        throughFESandAE Supply,         primarily supplies  electricityto end-usecustomers      throughretailandwholesale arrangemenG,     including competitive retail  salei to customers   primarily in Ohio, Pennsylvania,            Michioan, lllinois,         NowJerseyand tvtarytind,andtneproviiionoipartialPOLRanddetaultservicefor             someutilitiesinOhio,Pennsylvania       andMaryland,    including lhe gO, Utitiiies.es of September ZO1O,         ttrisbusinesssegmentcontrolled           13,162 lvlvvs of  electric generating capacity. The  CES segment's   netincomeis primarily   derivedfrom           g;neration electric            saleslesstherelated     costsol electricitygeneration, including tuel' puichased   powerandnettransmission         (including congestion)   andancillarycostsand       capacity  costs charged.by  PJM   to deliver
 ;nergyto thesegment's      customers,  aswellas otheroperating       andmaintenance     costs,including    costsincurred by FENOC.
Corporate   supportandotherbusinesses         thatdo notconstitute     an operating  segment,interestexpenseon stand-alone           holding companydebi and corporateincomeiaxesare categorized                   as Corporate/Other    for reportable   businesssegmentpurposes' AOOition'atty,reconciling  adjustments   for ihe elimination    of inter-segmenl   transactions   are includedin CoPorate/Other.       As of gO, Septembei ZOtO,C6rpoiate/Other           trad  g4.2 billion of stand-alone   holding  company   long-term   debt,of which28%   was  subject  to variable-interest  rates,and$2.7billionwasborrowed        by FEunderits revolving      credilfacility.
57

EXECUTIVE     SU iIARY FirstEnergy  believeshavinga combination          ot distribution,  transmission     andgeneration      assetsin a regulated        or regulatedlike constructis the bestway to servecustomers. Company's The                  strategy   is to be  a fully regulated    utility,focusing   on stableand prediciable earnings  andcashflowfromits regulated           business    units.
C@pdllveElersyscrviegs Inorderto executeonthisstrategy,FirstEnergy          hasbeguna strategicreviewof itscompetitive            operationsfocusedonthesalsof gas andhydroetectric  unis aswellasLpbring atilftematives            fortheremaining      generation   assetsat FESandAESupply.            Theseindude, butare notlimitedto, legislativeeffortsto aonvertgenerationfromcompetitiveoperationsto a regulatedor regulated-like                           construct suchasa    regulatory reJtructuring in  Ohio,   offering generation    into any  process   to address   MP's   generation    shortfall included   in its IRRand/ora-solution    fornuclear  generation    thatrecognize    theirenvironmentalbenefib.         Management       anticipates  thattheviatilityof thesealtematives   willbe determined      in the nearter; witha targetto implement             thesestrategic     optionswithinthe next12 lo 18 monthsandcouldresultin material        assetimpairments.
BasedoncunentmaketfoMards,CES,including                 FES,expects       to havemorethansufficient       cashflowfromoperations           in2017and 2018to fundanticipated     capitalexpenditures      withno equitycontributions         tromFirstEnergy. However,     in addilionto exposure       to marketpricevolatility  andoperational    risks,CES,including      FES,facessignificant       financialrisks  thatcould    impactitsanticipated    cash flowandliquidityincluding,    bulnotlimitedto, thefollowing:
Requeststo postadditionalcollateral       or accelerated     paymentsof up to $355millionresultingfromcurrentcreditratingsat FEd,includingMoody'sdowngradeof the SeniorUnsecured                   debtratingfor FESto Caal aswellas S&P'sdowngrade                 of the SeniorUnsecureddebt ratingat FESto B, bothof whichoccurredon November4,2016.
Adverseoutcomesin the previouslydiscloseddisputesregardinglongtermcoaltransportation                              contracts-Theinability  to extendor refinance      debt maturities  at  CES,   including  at FES  subsidiaries,    in 2017   and2018of $130million and $515million,respectively.
A significant collateralcallor theinability   to refinance  2017debtmaturities        at FESsubsidiaries     is expected    to beaddressed      byFES througha combination      of cashon hand,additional           capitalexpnditure       reductions,  assetsales,ancvorborrowings               underthe unreg-ulated moneypool.However,       adverseoutcomes         inthecoaltransportation       contracts   disputes,   the inability to relinance   2018 debt;aturities,oriackofviablealternative        strategies  could  cause   FES   to iake  one  or more  of the  lollowing   actions: (i) restructuring ot debtandotherlinancial    obligations,  (ii)additio;alborrowings       undertheunregulated       moneypool,(iii)furtherassetsalesor plant deactivations, and/or(iv)seekprotection      underbankruptcy      laws.IntheeventFESseekssuchprotection,                 FENOC    maysimilarly   seek protection underbankruptcy    laws.
Materialassetimpairments,    resulting  fromthesaleordeactivation          ofgeneration    assetsorfroma determination         bymanagement       of its intentto exitcompetitive   generatio;   assets    before  the  end  of  their estimated    useful life resulting   lrom  the  inability to  implement alternativestrategies discussed   above,adverse      judgments    ora FESbankruptcyfiling        couldresultinaneventofdehultundervarious agreements   relaiedto the indebtedness       ol FE-Althoughmanagement             expects   to successfully     resolveanyFEdefaultslhrough waiversor otheractionson acceptable          termsandconditions,        thefailureto do so wouldhavea materialandadverseimpacton FirstEnergy's financial condition, andFirstEnergy      cannotprovideanyassurance            thatit willbeableto successtully        resolveanysuch defaultson satisfactory  terms.
Duringthisperiodoftransition,    subject  to strategic  decisions    regarding   competitive   generation   assets,it is anlicipated     thatCESwill produieapproximatety     70 to 75millionMWHSof electricity            annually,   withup to an additional      fivemillionMWHSavailable           from purchased         agreements    forwind,   solar,  and  CES'entitiement      in OVEC. In 2017  and  2018,   CES    expects   to hedge   75%- 85%
iower of itsgeneration out-put bytargeting   approximately     50to 65 million[lwHs in annualcontract           salesandmaintaining         upto 25million MWHIas ,eseruemargiri.for thJpdrioO            Octobei1,2016to December            31,2016,CES'committed            salesareS2y"tedgedagainst generation  supply,including   committed    purchases,     assuming    normalweather       conditions. As of Septembel        30,2016,contractual iales obligatidnjior   2017 ;nd  2018    ar;   approximately    48  ;illion  MWHS     and  28  million MWHS,      respectively. Contractual   sales obligations forA)16areapproximately        67 millionlvfwHs.
CESwillcontinue   to makeprudentinvestmenb            in its nuclearunitsin orderto maintain        safeandreliableoperations          in accordance withnuclearstandards,     buiwillcontinue     to focuson costsgivencurrentmarket@nditions,                specifically   suroundingitslossilieet.
Management   curreny anticipates    totalcapitale4enditureJ         of $370millionand$300millionin 2017and2018,tespectively,                   which represents a significant reduction lrom2Ol6forecasted          capitalependituresof $540million.
Reoulated  Transmission Thecenterpiece  of FirstEnergy's  regulatedinvestment        strategycontinuesto be ib EnelgirngtheFulutetransmission                  plan.Theplan gi.2 inctudes biltionininvestments        irom2014through2017a;d anadditional                $8OO  million to $1.2   billion annually  from  2018to2021 58

to modernize FirstEnergy'stransmission systemto makeit morereliable,  robust,secureandresistant   to extremeweatherevents, withimprovedoperationalflexibility.
Theseinvestments  willcontinue to befocusedinoul stand-alone  transmission @mpanie6    withlormularatesincluding  ATSI,TrAIL andMAIT(whichwillincludethetransmission     assetsfromMet-EdandPenelec),      aswellasthetransmission    systemat JCP&Las filingsweremadewithFERConOctober       28,2016to implement  andtransition to aformularateforMAITandJCP&L's      transmission investments.FirstEnergy believesefsting transmission             createsimprovement infrastructure                    inrslmentopportuni$esol apgofmately
$20billionbeyondthoseidenlilied   through2021.
ReoulatedDistdbution The scale and diversityot our regulatedutilitieshas uniquelypositionedRegulat6dDistribulionfor growthand representsan addilionalinvestmentopportunity.Althoughweather-adjusted     distribufiondeliveriesthrough2019 are forecastedto be flat as comparedto 2016,RegulatedDistribution's   eamingsoverthe nextthreeyearsare anticipatedto increaseas a resultof the recent orderbythePUCOregarding      theOhioCompanies'  ESPlV,whichincludes    approfmately  $204million,gossedupiorincome   bxes, in additional annualrevenue   throughriderDMR,cunentsettlement    agreements   thatarependingbetorethePAPUC      regarding the Pennsylvania Companies'  baseratecases,aswellasthe impactof thesettlement-in-principle    achievedinthebasel?ltecasein New Jersey,whichprovides  foranannual$80milliondistribution  revenueincrease   effectiveonJanuary1,2017,subjectto finalization, executionandNJBPUapprovalof a Slipulationol Setllement.
Planned  capitalependituresfor Regulated  Distribution areapproximately   $1.3billion,annually for2017through2019.
59

FINANCIALOVERVIEW (ln millions,exceptper shareamounts)              For the Three Months Ended September 30           For the Nine Months Ended September30 2016        2015             Change              2016         2015              Change REVENUES:                                      $    3,917 $    4,123 $      (206)        (5)% $ 1 1 , 1 8 7$ 1 1 , 4 8 5 $     (298)       (3)/.
OPERATING      EXPENSES:
Fuel                                                450        482          (32)       (7)o/"     1,269         1,378        (109)       (8)%
Purchasedpower                                      979      1,209        (230)       (19)%       2,992         3,311        (319)     (10)%
Otheroperatingexpenses                              953        842          111        13 %       2,835        2,799           36         1 "/"
Provisionfor depreciation                           311        328          (17l'      (5)%          974          969           5         1 o/o Amortizationof regulatoryassets,net                  98        110          (12\      (11)./"        222          201          21        10 o/"
Generaltaxes                                        265        236           29        12%           786          747          39         5%
lmpairment  of assets                                            8           (8)     (100)%       1,447            24       1,423         NM Totaloperatingexpenses                          3,056      3,215         (15e)       (5t%      1 0 . 5 2 5-  9.429        1,096        12 %
OPERATING      INCOME                                 861                     (47)       (5)%          662       2.056       (1,3s4)     (68)%
OTHERTNCOME       (EXPENSE):
Investment  income(loss)                             28        (28)          56      (2001./"          75         (14)         89         NM Interestexpense                                    (286)      (28s)          (1)       -%           (863)        (846)        (17)        2%
Capitalized financingcosts                           28         26            2         8 o/o          7s          e 3 -58 ( 1 4 )      (15)%
Totalotherexpense                                (230)      (287t          57       (20\%         ?oe)         06?\                    (8)%
rNcoME (LOSS)BEFORETNCOME           TAXES             631        621           10         2 o/"         (47)      1,289      (1,336)    (104)/0 INCOMETAXES                                           251        226           25        11%           334          485        (151)      (31)%
NET TNCOME      (LOSS)                         $      gao             $       (15)_<al%. $_(381)                          9_(1,185)_    (147)/"
EARNTNGS     (LOSSES)PERSHAREOF COMMONSTOCK:
Basic                                        $     0.89 $     0.94 $      (0,0s)       (5)./, $    (0.e0)g       1 . e 1$ (2.81)      (147)%
Diluted                                      $     0.89 $     0.93 $      (0.04)       (4)% $      (0.e0)$       1 . e 0 $ (2,80)     (147)%
NM- NotMeani.lul For the Thriltonlhs EndedSeptem',t30. 2016 FirstEnergy's    netincomeinthethirdquarterof2016was$380million,ora basicanddilutedearnings                      ot$0.89pershareofcommon stock,compared      withnetincomeol $395million,or basicearnings         of$0.94pershareof commonstock($0.93diluted)inthethird quarterof 2015.
As furtherdiscussed      belowthirdquarter2016earningsimproved            overthe sameperiodot 2015at Regulated                  Distributionand Regulaled    Transmission    butwerepartially otfsetby lowerearnings     at CESandCorp/Other.
Duringthethirdquarterof 2016,FirstEnergy's        revenues   decreased   $206millionascompared          to thesameperiodin2015,primarily resulting  froma $353milliondecrease      at CES,partially   ofisetbya $78millionincrease        at Regulated    Oistribution   anda $37million increase   al Regulaled   Transmission.
      . Thedecrease        in revenue al CESresulted    troma 2.6millionMWHdeclinein contractsalesas thesegmenlcontinues                       to alignitssalesto itsgeneration,   aswellas lowercapacityrevenueassociated             withlowercapacity        auctionprices,parlially offsetby higherwholesale    sales.
      . Theincrease       inrevenue  at Regulated  Distribution primarily resultedlrom    a 7%increasein       MWHdeliveries     mainlyrelated to higherweatheFrelated     usageaswellashigherratesassociated          withtherecovery     of detened    program    costs,partially offsel by lowerdefaultservicegeneration     salesresulting    primarily fromlowerpricesin OhioandPennsylvania.
      . Theincrease       inrevenue  at Regulatsd  Transmission   resultedtrom    recovery  of incrementaloperating       expenses   anda higher ratebaseat ATSIandTrAlL,parlially       offsetby a lowerROEat ATSI.
Operating    expenses  deffeased$159millioninthethirdquarterof 2016ascompared                tothethirdquartero12015,          primarily reflecting a decrease     at CESof $217million,partiallyotfsetby an increase         at Regulated    Transmission      of $22millionandan increase        al Regulated    Distribution  of $14million.Changes    in certainoperating  expenses     include thefollowing:
      . Fuelexpensedecreased           $32 million,primarilyresultingfromlowergeneration             at CESassociated          with outagesand economic   dispatch  ol fossilunitsresulling  tromlowwholesale      spotmarketenergyprices,aswellas lowerunitpriceson fossilfuelcontracts.
      . Purchased      powerdecreased     $230million,primarily    dueto lowercapacityexpense            at CESas a resultof lowerconlract salesandcapacityrates,aswellas lowerdefaultserviceandwholesale                  spotma*et prices.
      . Otheroperating        expenses increased  $111million,primarily    retlecting  an increase   of $81millionat Regulated        Distribution primarily associated  withhigherstormrestoration     expenses,   network   transmission   expenses     inOhioandretirement     benefit costsaswellas a $31millionincrease        at CESresulting   primarily   froma contract   termination     charge.
60

Otherincome(expense)   increased   $57million,prjmarilyfromlowerOTTIon NDTinvestments.        FirstEnergy'sofiective lax ratewas 39.8%torthethreemonthsendedSeptember           30,2016compared    to 36.4%forthesameperiodin 2015.
For the Nlne MonthsEn ted sF,otember30. m16 FortheninemonthsendedSeptember         30,2016,FirstEnergy's  netlosswas$381million,or a basicanddilutedlossof $(0.90)per shareof commonstock,compared        to netincomeof $804million,or basicearningsof $1.91pershareof commonstock($1.90 fortheninemonthsendedSeptember diluted)                                       30,2015.
FirstEnergy's2016year-to-date  eamings   decreased  $1,185millionascompared   tothesameperiodof2015primarily       reflecting asset impairment andplantexitcostsrecognized     in thesecondquarterot 2016consisting     of:
    . Non-cash   impairment   chargeof $800million(pre-tax)    associated withgoodwillat CES, Non-cashimpairment    chargesof $647million(pretax)associated     withthe announcedplanto exitoperationsby 2020ot Units1-4of the W.H.Sammisgenerationstation(720MW)and the BayShoreUnit1 generatingstation(136MW),
Coalcontractsettlementand termination     costsof $58 million(pre-tax),and Valuationallowancesagainststateand localNOLcarryforwards        of $159 million.
Duringthefirstninemonthsof 2016,FirstEnergy's       revenues decreased  $298millionas compared      to the sameperiodin 2015, resulting froma $564milliondecrease      at CES,partiallyoffsetbyan increase  of $69millionat Regulated   Transmisshn.
    . Thedecrease     inrevenue   atCESresulted   froma 13millionMWHdeclineincontract      sale6asthesegment    cortinuesto  align itssalesto itsgeneration. Thedeclinein contractsalesvolumewaspartially       olfsetby higherwholesale   salss,increased capacityrevenueassociated     withcapacityauctionprices,andhighernetgainsonlinancially       settldcontrac{s.
    . The increasein revenueat RegulatedTransmission         primarilyreflecledrecoveryof incrementaloperatingexpensesam higherratebaseat ATSIandTrAlL,paniallyoffsetby adjustmentsassociatedwithATSIandTrAlUsannualratelilingfor costspreviouslyrecoveredaswellas a lowerROEat ATSIunderits FERc-approved             comprehensive   settlsmefirelatedto the implementation  of a foMardlookingrate.
Operating expenses increased  $1,096millionduringthefirstninemonths    of 2016ascompared     to2015,mainlyreflecting  anincrease at CESof $830million,resultingprimarilyftom the assetimpairmentand plantexit costsdescdbedabove,and an incleaseat Regulated Transmission  of $62million.Changes    in certainoperating expenses includethetollowing:
    . Fuelexpense     decreased   $109millionmainlyresulting  fromlowergeneralion    at CESassociated withoulages   andeconomic dispatchof fossil units reflectinglow wholesalespot marketenergyprices,as well as lowerunit priceson lossil fuel contracts.
    . Purchased     powerdecreased     $319millionmainlydueto lorvervolumesat CESand Regulated            Distribution andlower capacitye)penseat CES.
Otherincome(e4ense) increased$58million,primarilyfromlowerOTTIon NDTinvestments.             Changesin FirstEnergys   efiectivetax ratefortheninemonths   endedSeptember     30,2016compared    to thesameperiodin2015,primarily     relatedto thesecondquarter    of 2016impairment  of $8OO millionof goodwill, ofwhich$433millionis non-deductible     fortaxpurposes. Additionally, $159millionof valuationallowances  wererecorded    againststateandlocalNOLcarryforwards       in the secondquarterof 2016thatmanagement believes,morelikelythannot,will not be realizedbasedprimarilyon projectedtaxableincomerefectilE updatesto FirstEneagys annuallong-termfundamental   pricingmodelforenergyandcapacity,aswllascertainstatutorylimitationsontheutilizationof state andlocalNOLcarryfoMards.
61

RESULTS     OFOPEFATIONS The financialresulbdiscussedbelowincluderevenuesand expensesfrom transaclions                    amongFirstEnergy's    segments. A reconciliation   of segmentfinancialresultsis provided in Note14,SegmentInformalion,       ot the Combined  Notesto Consolidated FinancialStatemenF.Certainprioryearamountshavebeenreclassifiod            to contormto the currentyearpresentiation.
Summaryol Besultsof Ope/,a,tlons       - Thhtt Atarw 2016Comparedwfth mh.t Quaftr m15 Financial  resultsforFirstEnergy's  businesssegments   in thethirdquarterof 2016and2015wereas follows:
Competitive       Corporate/Other Regulated        Regulated         Energy         and Reconciling     _FirstEnergy Third Quarter2016FinancialResults              Distribution   Transmission       ServiCes         Adiustments       Consolidated (ln millions)
Revenues:
External Electric                                          2,649           285 $               959               (46)           3,847 Other                                                53                                39               (22)              70 lnternal                                                                                 117              (117)
TotalRevenues                                          2,702                             1,115              (185)           3,917 OperatingExpenses:
Fuel                                                   156                               294                                450 Purchasedpower                                         902                               194               t1ul             979 Otheroperatingexpenses                                 615              46               367               (75)             953 Provisionfor depreciation                              171              45                 79                16             311 Amortizationof regulatoryassets,net                     98                                                                   98 Generaltaxes                                           190              37                 30                 8             265 lmpairmentof assets TotalOperatingExpenses                                 2,132            't28                                (168)           3,056 OperatingIncome                                          570            157                                   (17)            861 OtherIncome(Expense)    :
Investment  income                                      13                                 23                (8)             28 Interestexpense                                       (13s)            (43)               (48)              (56)           (286)
Capitalizedf inancingcosts                               6               I                  I                 4              28 TotalOtherExpense                                       (120)            (34)               (16)              (60)           (230) lncomeBeforeIncomeTaxes                                  450            123                135                (77)            631 Incometaxes                                              167              45                 49               (10)            251 Net Income                                               283 $            78$                86$              (67) $          380 62

Competitive     Corporate/Other Regulated        Regulated      Energy        and Reconciling    FirstEnergy Third Quarter2015FinancialResults     Distribution   Transmission    Services        Adjustments      Gonsolidated (ln millions)
Revenues:
External Electric                                2,571            248 $         1,276               (41)          4,054 Other                                       53                             51              (35)             69 Internal                                                                    141              (141)
TotalRevenues                                2,624            248           1,468              (217)          4,123 OperatingExpenses:
Fuel                                          140                           342                               482 Purchasedpower                                980                           370              (141)          1,209 Otheroperatingexpenses                        534            42             336               (70)            842 Provisionfor depreciation                     174            41               98               15             328 Amortizationof regulatoryassets,net           110                                                             110 Generaltaxes                                  172            23               35                6             236 lmpairment  of assets                           I                                                               8 TotalOperatingExpenses                        2,118           106           1,181              (1e0)          3,215 OperatingIncome                                 506           142                               (27)            908 OtherIncome(Expense):
lnvestment income(loss)                         I                            (1e)             (17)            (28)
Interestexpense                              (14e)          (40)             (48)             (48)           (285)
Capitalizedf inancingcosts                      6              I               9                2              26 TotalOtherExpense                              (135)           (31)            (58)             (63)           (287) lncomeBeforeIncomeTaxes                         371           111              229              (e0)            621 Incometaxes                                     137             41              84              (36)            226 Net Income                                      234 $           70$            145 $            (54) $          395 63

ComPetitive       Corporate/Other Changes BetweenThird Quarter 2016 and Regulated       Regulated        Energy          and Reconciling      FirstEnergy Third Quarter2015FinancialResults     Distribution   Transmission     Services          Adjustments        Consolidated (ln millions)
Revenues:
External Electric                                    78$           37$             (317)                 (5)            (207)
Other                                                                      (12)                13                  1 lnternal                                                                      (24',)              24 TotalRevenues                                    78            37              (353)                32              (206)
OperatingExpenses:
Fuel                                           16                             (48)                                 (32)
Purchasedpower                                (78)                           (176)                24              (230)
Otheroperatingexpenses                         81               4              31                  (5)             111 Provisionfor depreciation                      (3)              4             ,:,                   1              (17)
Amortizationof regulatoryassets,net           (12)                                                                 ('t2)
Generaltaxes                                   18            14                                     2               29 lmpairmentof assets                            (8)                             :,                                    (8)
TotalOperatingExpenses                           14                            (217)                                (15e)
OperatingIncome                                                15              (136)                10               (47)
OtherIncome(Expense)    :
lnvestment income                               5                              42                   9               56 Interestexpense                                10             (3)                                  (8)               ( 1)
Capitalizedf inancingcosts                                                                          2                 2 TotalOtherExpense                                15             /e\
                                                                \v,,
IncomeBeforelncomeTaxes                          79            12               (e4)                13                10 lncometaxes                                      30               4             (3s)                26                25 Net lncome                                       4e$              8$            (5e) $             ( 1 3 )$          (15) 64

Regulabd Dlstrlbutlon- Thhd Quarter2016Comparcdwith Thlttt Ouarter2015 Regulated  Distribution's net incomeincreased   $49millionin thethirdquarteroI 2016as compared      to thesameperiodot 2015, reflectinghigherrevenues associated  withcoolingdegreedaysthatwere28%above2015,partially         ofiselbyhigheroperating    and maintenance  costsandincreased    retirementbenefitcosts.
Revenues   -
The$78millionincrease   in toialrevenues  resulted fromthefollowing sources:
For the Three Months Ended September30              Increase Revenuesby Type of Service                      2016             2015        (Decrease)
(ln millions)
Distributionservices                                1,390 $         1,245 $           145 Generationsales:
Retail                                           1,117           1,',182            (65)
Wholesale                                          142             144               (2)
Totalgeneration  sales                          1,259           1,326              (67)
Other                                                  53              53 TotalRevenues                                       2,702 $         2,624 $             78 Distributionservicesrevenues  increased  $145millionprimarilyresultinglromhigherMWHdeliveries,     described   bdow anda rate increaseassociated withtheOhioCompanies'rider    OCR.Additionally,distributionservicerevenues   increased related to higherrates associated  withthe remveryof deferredcosts,including   OhioCompanies'NMB        transmission riderrevenues,   anda surcharge increase inWestVirginia associated  withtherecovery otvegetationmanagement    deferred  program costs,effective January'1,20'16.
Distributiondeliveries by customer   classaresummarized  in thefollowing iable:
For the Three Months EndedSeptember30               lncrease Electric DistributionMWH Deliveries             2016             2015        (Decrease)
(ln thousands)
Residential                                      16,138           14,305           12.8 "/"
Commercial                                       12,005           11,463            4.7 "/"
Industrial                                       13,023           12,721            2.4 V" Other                                                144             146           (1.4)%
TotalElectricDistribution MWHDeliveries           41,310           38,635            6.9 %
Higherdistributiondeliveriesto residential andcommercialcustomers   primarilyreflectincreased wsather-related usageresulting from coolingdegreedaysthatwere28%above2015,and46%abovenormal.Deliveries                  to industrial customers  increased   relaledto highershale,coalandsteelcustomer      usage.
65

Thefollowing tablesummarizes  thepriceandvolumefactorscontributing     to the$67milliondecrease     ingeneralion revenuesforlhe thirdquarterof 2016compared   to thesameperiodof 2015:
Increase Source of Changein GenerationRevenues                (Decrease)
(ln millions)
Retail:
Effectof increasein salesvolumes                              16 Changein prices                                              (81)
(65)
Wholesale:
Effectof increasein salesvolumes                              10 Changein prices                                                (1)
CapacityRevenue                                              (11)
(2\
Decreasein GenerationRevenues                                  (67)
Thedecrease   in reiailgeneration salesprimarily  resulted fromlowerdefaultserviceauctionpricesin OhioandPennsylvania. The increasein retailgeneralionvolumeswasprimarilydueto weather-related     volume,as describedabove,partiallyoffsetby increased customershoppingin Ohioand NewJersey.Totalgenerationprovidedby alternativesuppliersas a percentageof total iifwH deliveriesincreased to 85%from81%fortheOhioCompanies           andlo 48"/"fiom47"/.forJCP&L.
Thedecrease   inwholesale  generationrevenues   of $2 millioninthethirdquarterof 2016,ascompared      to thesameperiodin2015, reflectslowercapacityrevenuespartiallyoltsetby higherwholesalesales.Thedifferencebstweencurrenlwholesalegeneration revenuesandcertainenergycostsincurredare deferredfor tuturerecoveryor refund,with no matelialimpactto earnings.
Openting Expenses   -
Totaloperating epensesincreased    $14millionprimarily  dueto thefollowing:
Fuelexpenseincreased   $16 millionin thethirdquarterof 2016,as comparedto thesameperiodin 2015,primarily    relatedto highergeneration.
Purchasedpowercostswere $78 millionlowerin the third quarterof 2016,as comparedto the same periodin 2015, primarilydue to decreasedunitcost reflectinglowerdefaultserviceauctionpricesin Ohioand Pennsylvania.
lncrease(Decr Source of Changein PurchasedPower                       ease)
(ln millions)
Purchasesfrom non-affiliates:
Changedue to decreasedunitcosts              $              (85)
Changedue to increasedvolumes                                10 (75)
Purchasesfrom affiliates:
Changedue to decreasedunitcosts                             (14)
Changedue to increasedvolumes                                 (e)
(23)
CapacityExpense                                               (7)
Amortizationof deferredcosts                                 27 Decreasein PurchasedPowerCosts                                (78) 66

     . Otheroperating  expenses   increased $81millionprimarily dueto:
              . Higheroperating     andmaintenance    expense of$37millionincluding   higherstormrestorationcostsof $32million, whicharedeferred    forfuturere@veryresulting  in no materialimpacton currentperiodearnings.
              . Highertransmission      expenses  of$24millionprimarilydueto anincrease   in networktransmissionepensesatthe OhioCompanies. Thedifference  between currenlrevenues  andtransmission  costsincurredaredebrredforfuture recovery or refund,resulting              impacton currentperiodearnings.
in no material
              . Higherretirement      benefitcoslsol $12million.
     . Netamorlization  of regulatory assetsdecreased   $12millionprimarily  dueto higherdeferralof stormrestoration costs, partially offsetbyincreased   recovery otvegetationmanagement    program costsinWestVirginia   andincreased lecoveryof networktransmission   expenses   in Ohio.
     . Generaltaxesincreased    $18millionprimarily  dueto higherproperty  taxesandhigherrevenue-related   taxesin Ohio.
Othet ExDense  -
Otherexpenses   decreased    $15millionprimarily dueto lowerinterest expense  associated withvariousdebtredemptions  atJCP&L, OE,andMPandlowerOTTIon NDTinvestments.
lncomeTaxes-Regulated   Distrjbution's effectivetaxratewas37.1%and36.9%forthequarterendedS'ptember            30,2016and2015,respectively.
RegulatectT?,nsml9F,lon   - Thid o{raner m16 Comparedwfth ThhctOuanerm15 Nelincomeincreased      $8 millionin thethirdquarterof 2016compared     to thesameperiodof 2015reflecting   highertransmission revenues,  asdescribed   below.
Revenues  -
Toialrevenues  increased   $37millionprincipally dueto recoveryof incremental  operating expenses  anda higherratebaseatATSI andTrAlL,partially  otfsetbya lowerROEatATSIunderitsFERc-approved          comprehensive   settlement      tolheimplementalion related ol a forwardiooking  rate.
Revenues   bytransmission   assetownerareshownin thefoliowing      table:
Forthe ThleMonths EndodSoptember30 Revenuesby TransmissionAsset Owner                2016           2015         Increase (ln millions)
ATSI                                         $          139$           110$           2s TrAIL                                                    67607 PATH                                                      33 Utilities                                                76751 TotalRevenues                                $          285 $          248 $          37 OperatingExpenses    -
Totaloperating epensesincreased      $22millionprincipallyduetohigher  pmperty taxes,depreciation,andotheroperatingexpenses at ATSI,whicharerecovered      through  ATSI'S formularate.
OtherExpense-Totalotherexpenseincreased       $3 millionin the thirdquarterof 2016as compared     to the sameperiodof 2015primarily  dueto increased  inlerestexpense   resultingfromdebtissuances  of$150millionatATSIinthefourthquarterof 2015,theproceeds     otwhich, in part,paidotfshorl-term   borrowings.
ln@meTaxes-Regulated   Transmission's etfectivetaxratewas36.6%and     36.9%lorthe   quarterended  September  30,2016and2015,respectively.
67

CES- ThhctOuarl3'rm16 Comparedwlth Thhd QuatlF,rm15 Operatingresultsdecreased $59millioninthethirdquarteroI20l6, compared    to thesameperiodoI 2015,primarily      resulting trom lowercontract salesvolumes,lower  capacity revenues fromlowercapacity auctionprices,lo\,ver   mark-to-market gainsoncommodity contractpositions, anda termination chargeassociated   witha FEScustomer    contract,   partially offsetby higherwholesale sales volumesandlowerfuelandpurchased     power, Bevenues-Totalrevenues decreased  $353millionin thethkdquarterof 2016,compared     to thesameperiodof 2015,primarily      dueto lower capacityrevenues fromlowercapacityauctionprices,lowerconlractsalesvolumesandlowerunitprices.Revenues               werealso impacted byhigherwholesale salesvolumes,  partially ofisetbylowernetgainsonfinancially                      asfurtherdescribed settledcontracts, below.
Thechangein tolalrevenues  resultedfromlhe following sources:
For the Three Months Ended September30                lncrease Revenuesby Type of Service                      2016               2015        (Decrease)
(ln millions)
ContractSales:
Direct                                             207 $               296 $         (8e)
GovernmentalAggregation                            235                 296           (61)
Mass Market                                          47                 62           (15)
POLR                                               165                 141            24 StructuredSales                                      94                170           (76)
TotalContractSales                                   748                 965          (217)
Wholesale                                            311                 429          (118)
Transmission                                           17                 23            (6)
Other                                                  39                 51           (12)
Total Revenues                                   1 , 1 ' 1 5$       1,468 $         (353)
For the Three Months Ended September30                 Increase MWHSales by Channel                             2016               2015         (Decrease)
(ln thousands)
ContractSales:
Direct                                          3,913              5,541          (2e.4)%
Governmental Aggregation                        4,238              4,226            0.3 %
Mass Market                                       673                 906         (25.7)%
POLR                                           2,893              2,169           33.4 %
StructuredSales                                 2,437              3,893          (37.4)%
TotalContractSales                              14,154             16,734          (15.4)%
Wholesale                                        4,447              3,156           40.9 %
Total MWH Sales                                18,601             19,890           (6.5)%
68

The followingtablesummarizes     the priceand volumefactorscontributing  to changesin revenues:
Source of Change in Revenues Increase(Decrease)
Gain on Sales                     Settled      Capacity MWHSalesChannel:                          Volumes      Prices        Contracts     Revenue        Total (ln millions)
Direct                                          (87) $        (2) $              $                   (8e)
Governmental   Aggregation                        1          (62)                                    (61)
Mass Market                                     (16)           1                                     (15)
POLR                                             47          (23)                                     24 StructuredSales                                 (64)         (12)                                    (76)
Wholesale                                        38            3              (e)       (150)       (118)
Lowersalesvolumesin DirectandMassMarketchannels             primarily reflectsthecontinuation   oI CES'strategy  lo moreefiectively hedgeitsgeneration. TheDirect,GovernmentalAggregation      andMassMarketcustomer       basewas1.4millionasot September      30, 2016,compared     to 1.7millionas of September    30,2015.Althoughunitpricingwas loweryear-over-year        in the Governmental Aggregation  channel,thedecreasewasprimarilyattribulableto lowercapacitye)penseasdiscussed         bdow whichis a mmponentot the retailprice.
Theincrease   in POLRsalesof$24millionwasdueto higher\olumes,        parlially offsetbylowerratesassociated    withPOLRauctions.
Structured Salesdecreased    $76millionprimarily duetotheimpactof lowermarketpricesandlowerstructured        transactionvolumes.
Wholesalerevenuesdecreased$11I million,primarilydueto a decreaseincapacityrevenuelromcapacityauctionsandlowergains onfinanciallysettledcontracts,partiallyoffsetbyan increasein short-term(nethourlyposition)transactions    athighelrealizedprics.
Althoughwholesaleshort-termtransactionsandpricesincreasedyear-over-yeaa,         lowaveragespolmarlGtenergyplicesreducedthe economic   dispatch offossilgenerating  units,limitingadditional wholesale sales.
Openting Expenses   -
Toialoperating  expenses  decreased   $217millionin thethirdquarterof 2016dueto thefollowing:
     . Fuelcosts  decreased  $48million,primarily dueto lowergeneration  associated  withoutages andeconomicdispabh     ofbssil unitsresulting fromlowwholesale   spotmaketenergyprices,asdescribed        above,aswellaslowerunitpricesonfossilfuel conlracts.
     . Purchased   powercosFdecreased     $176milliondueto lowercapacity    e)eense($137million), lowerprices($27million)  and lowervolumes($12million). Lowervolumes    primarily resultedfromlowercontract    salesasdiscussed  above,partiallyofbet byeconomic    purchases,  resulting fromthelowwholesale    spotmarketpriceenvironment. Thedecrease   incapacityexpense, whichis a mmponentof CES'retailprice,was primarily         the resultol lowercontractsalesand lowercapacityrates associated  withCES'retailsalesobligation.Lowerpricesrellectlowerrealizedpriceson economic           purchases.
     . Depreciation  expense  decreased  $19million,primarilyasa resultot anout-of-period  adjustment to reduce  thedeprecialion of a hydroelectric generating station.
     . Transmission   expenses  decreased  $12milliondueto lowercongestion    andmarket-based   ancillarycosts,primarily resulting fromlowerconlractsales.
     . Otheroperating    expensesincreased    $ million,primarily due to lowermark-to-market    gainson commodity     contract positions of $41million,higherbenefitcostsanda $32millionchargeassociated         withthetermination  of a FEScustomer contract, partiallyolfsetby lowerleaseexpenseas a resultot theexpiration     of a nuclearsaleleaseback    agreement and lowerretail-related costs.
OtherExpense-Totalotherexpense    decreased  $42millionin thethirdquarterof 2016,as compared       to thesameperiodo12015,primarily     dueto lowerOTTIon NDTinvestments.
69

lncone Taxes-CES'efiectivetaxratewas36.3%and36.7%forthethirdquanerof 2016and2015,respectively.
Cotp0,lzte/ Other- Thltd Quarl/rm16 Com,,redwfth Thhtl Quatl,rN15 operatingsegmentandreconcilingitems,includirEinterestexpenseonhoHingcompany FinancialresultstromtheCorporate/Other debt,corporatesupporlservices revenuesandexpenses  andincometaxes,resulted  ina $13million decrease inearnings inthethird quarterof 2016,comparedto the sameperiodof 2015,primarilyassociatedwitha higherconsolidatedeffectivelax rate.
70

Summary ol Results of Operations -       First Nine Months of 2016 Comparcd with First Nine Months of 2015 Financialresultsfor FirstEnergy's   businesssegmentsin the firstninemonthsof 2016and 2015were as follows:
ComPetitive           Corporate/Other Regulated       Regulated       Energy              and Reconciling     FirstEnergy First Nine Months 2016FinancialResults         Distribution    Transmission    Services              Adjustments       Consolidated (ln millions)
Revenues:
External Electric                                        7,238 $           824 $        3,023                      (135)         10,950 Other                                             185                              135                     (83)            237 Internal                                                                              377                    (377)
TotalRevenues                                         7,423             824           3,535                     (5e5)         11,187 OperatingExpenses:
Fuel                                                 436                              833                                   1,269 Purchased  power                                   2,549                              820                    tsnl           2,992 Otheroperatingexpenses                             1,843             118           1,120                     (246)          2,835 Provisionfor depreciation                            510             132              284                      48             974 Amortizationof regulatoryassets,net                   218              4                                                      222 Generaltaxes                                         545             114                98                     29             786 lmpairmentof assets                                                                'i.,447                                  1,447 TotalOperatingExpenses                                6 , 10 1          368           4,602                     (546)         10,525 OperatingIncome(Loss)                                 1,322             456          (1,067)                     (4e)
OtherIncome(Expense):
Investment income                                       37                              56                    (18)              75 Interestexpense                                     (431)           (128)            (143)                   (161)           (863)
Capitalizedf inancingcosts                              15            25                29                     10               79 TotalOtherExpense                                      (37e)           (103)              (58)                  (16e)           (70e)
Income(Loss)BeforeIncomeTaxes(Benefits)                 943            353          (1,125)                    (218)             (47) lncometaxes (benefits)                                  349            130               (e6)                   (4e)            334 Net Income(Loss)                                        594 $          223 $        ( 1 , 0 2 9 )$             (16e)$          (381) 71

Gompetitive     Corporate/Other Regulated      Regulated       Energy        and Reconciling        FirstEnergY First Nine Months2015FinancialResults Distribution  Transmission    Services        Adjustments          Consolidated (ln millions)
Revenues:
External Electric                                7,277          755 $         3,381               (12e)             11,284 Other                                                                  't55              (102)                201 148 Internal                                                                   563               (563)
TotalRevenues                                7,425          755           4,099               (7e4)             11,485 OperatingExpenses:
Fuel                                          406                          972                                  1,378 Purchasedpower                              2,761                        1,113               (563)              3,311 Otheroperatingexpenses                      1,669           112          1,266               (248)              2,799 Provision for depreciation                    516           116            293                   44               969 Amortizationof regulatoryassets,net           196             5                                                   20'l Generaltaxes                                  536            73             112                  26               747 lmpairmentof assets                             8                            16                                     24 TotalOperatingExpenses                       6,092          306           3,772               (741)              9,429 OperatingIncome                              1,333           449            327                  (53)            2,056 OtherIncome(Expense):
Investment income(loss)                       33                             (7)               (40)               (14)
Interestexpense                             (43e)         (11e)          (144)               (144)              (846)
Capitalizedfinancingcosts                      21            36              29                   7                 93 TotalOtherExpense                             (385)          (83)          (122\               (177)              (767)
IncomeBeforeIncomeTaxes                        948          366             205                (230)             1,289 Incometaxes                                    350           135              76                 (76)              485 Net Income                                     ss8 $         231 $           129 $             ( 1 5 4 )$          804 72

ComPetitive    Corporate/Other ChangesBetweenFirst Nine Months2016and  Regulated         Regulated       Energy       and Reconciling   FirstEnergy First Nine Months 2015FinancialResults  Distribution    Transmission     Services       Adjustments     Consolidated (ln millions)
Revenues:
External Electric                                     (3e)$           6e $          (358)               (6)           (334)
Other                                         37                             (20)              19              36 Internal                                                                                        186 TotalRevenues                                      (2)             6e           (564)             199             (2e8)
OperatingExpenses:
Fuel                                             30                           (13e)                             (10e)
Purchasedpower                                (212)                           (2e3)             186             (31e)
Otheroperatingexpenses                          174                 6          (146)                2              36 5
Provisionfor depreciation Amortizationof regulatoryassets,net (6) 22 16 (1)             3                 4 21 Generaltaxes                                       I             41             (14)               3              39 lmpairmentof assets                              (8)                         1,431                             1,423 TotalOperatingExpenses                                             62                             195            1,096 OperatingIncome(Loss)                                                         (1,394)                           (1,394)
OtherIncome(Expense)   :
Investment income                                  4                             63               22              89 lnterestexpense                                    I              (e)             1              (17)            (17)
Capitalizedfinancingcosts                         (6)                                              3             (14)
TotalOtherExpense                                    6            (20)             64                               58 Income(Loss)BeforeIncomeTaxes(Benefits)             (5)           (13)        (1,330)               12          (1,336)
Incometaxes (benefits)                              (1)             (5)          (172)              27            (151)
Net Income(Loss)                                                                                                (1,185) 73

Regula'dDtsttibution- Flrst Nlne Monthsol m16 Comryrd tflnh Fi'r,t NInehnthc ol m15 Regulaled  Distdbution's netincomedecreased      $4 millionin thefirstninemonthsof 2016ascompared     to lhesameperiodot 2015, retlectingincreasingretirementbenefilcostsand lowerdistributiondeliveries,partiallyofisetby the impactot net rate increases implemefiedin 2015as a resultof approvedratecasesat certainoperatingcompanies,        asfurtherdescribedbelowAdditionally,the OhioCompanies    rocognized  $51millionin regulatory  chargesin thesecondquarterof 2016resulting    ftomthe PUCO'S   March31 OpinionandOrderadopting     andapproving,    withmodifications, theOhioCompanies'ESP      lV Revenues-The$2 milliondecrease   intotalrevenues    resultedfromthefollowing   sour@s:
For the Nine Months Ended September30          Increase Revenuesby Type ol Service                         2016        2015        (Deqease)
(ln millions)
Distributionservices                          $      3,681 $      3,502             179 Generation  sales:
Retail                                            3,173        3,331            (158)
Wholesale                                           384          444             (60)
Totalgeneration   sales                          3,557        3,775            (218)
Other                                                  185          148              37 TotalRevenues                                  $     7,423 $      7,425 $            (2)
Distributionservicesrevenuesincreased$179 millionprimarilyresultingfrom appovedbasedistlibutionrate increasesin Pennsylvania, effectiveMay3, 2015,andMPandPEinWestVirginia,            effectiveFebruary 25,2015,partiallyofbetbya distribution ratedecrease  atJCP&L,including    therecovery of2011and2012stormcosts,effective      April1,2015.Partially        thisnetrate ofisetting increasewasa declinein lvlwHdeliveries,pdmarilyresultingfromloweraveragecustomerusage,asdesclibedbelow.Additionally, distdbutionrevenueswere impactedby higherrates associatedwith the recoveryof deterredcosts. Distributiondeliveriesby customer  classaresummarized     in lhe tollowingtable:
For the Nine Months EndedSeptember30 ElectricDistributionMWH Deliveries                 2016         2015       (Decrease)
(ln thousands)
Residential                                        42,130       42,706          (1.3)%
Commercial                                         32,913       33,006          (0.3)%
lndustrial                                         37,746       38,149          (1.1)%
Other                                                 437          438          (0.2)%
TotalElectricDistribution MWHDeliveries            113,226      114,299          (0.e)%
Lowerdistributiondeliveriesto residentialandcommercial   customersretlectdecliningaveftrgecustomerusageassociated   withmore energyefficientproducts  andseMces.Additionally,    wealher-related  distribution deliveriesto residentialand commercial cuslome6 wereflat resultingfromheatingdegreedaysthatwere17olo         below2015,and97"belownormalandcoolingdegreedaysthatwere 16%above2015.and36%abovenormal.Year-to-date            deliveriesto industrial customers havedeclined astheincrease  frcmshale customerusagewasmorethanoffsetby a decreasefromsteelcustomerusage.
74

Thefollowing tablesummarizes    thepriceandvolumefactorscontributing     to the$218milliondecrease     ingeneralion revenuesbr the firstninemonthsot 2016comoared       to thesameDeriod    of 2015:
Increase Source of Changein GenerationRevenues                (Decrease)
(ln millions)
Retail:
Effectof decreasein salesvolumes                             (1e0)
Changein prices                                                32 (158)
Wholesale:
Effectof increasein salesvolumes                               43 Changein prices                                              (101)
CapacityRevenue                                                 (z',)
(60)
Decreasein GenerationRevenues                                  (218)
Thedecrease   in retailgenerationsalesvolumeswas     primarily dueto increased  customer shopping    inOhio,Pennsylvania, andNew Jerseyandindustrial  usageinWestVirginia,    asdescribed  above.Totalgeneration   provided  byalternative suppliers asa percentage oftotalMWHdeliveries     increasedto 82%from80%fortheOhioCompanies,                from65%forthePennsylvania to 670lo                               Companiesand to 5l% from49olo   lor JCP&I.Theincrease     in retailgeneration pricesprimarily resultedan ENECrateincrease       in WestVirginia, etfectiveJanuary1,2016,partially    offsetby lowerdefaultserviceauctionpricesin OhioandPennsylvania.
Wholesale  generation   revenues decreased   $60millionin thelirstninemonthsof 2016,as compared         to thesameperiodoI 2015, primarilydueto lowerspotmarketenergyprices,partially      offsetbyhigherwholesale  sales.Thedifference    between  currentwholesale generation revenues  andcertainenergycostsincurred     aredeterred  torfuturerecovery  or refund, withnomaterialimpacl  toearnings.
Otherrevenues   increased   $37millionprimarily  relatedto a $29milliongainon thesaleof oilandgasrightsat WP OperatingExpenses    -
Totaloperating expenses    increased $9 millionprimarily dueto thetollowing:
     . Fuelexpenseincreased      $30millionin thefirstninemonthsof 2016,as compared         to thesameperiodof 2015,primarily relatedto highergeneration.
     . Purchased   powercostsdecreased      $212millionduringthefirstninemonthsof 2016,as compared          to thesameperiodof 20'15primarily   duetodecreased  volumes  resulting lromincreased  customer shopping,   asdescribed  above, aswellaslower unitcostsretlecting  lowerdefaultserviceauctionpricesin OhioandPennsylvania Increase Source of Changein PurchasedPower                    (Decrease)
(ln millions)
Purchasesfrom non-affiliates  :
Changedue to decreasedunitcosts                             (83)
Changedue to volumes                                         16 (67)
Purchasesfromaffiliates:
Changedue to increasedunitcosts                                6 Changedueto volumes                                        (1e1)
(185)
CapacityExpense                                                2 Amortizationof deferredcosts                                 38 Decreasein PurchasedPowerCosts                                (212) 75

   . OtheIoperating  expenses    increasd$174millionprimarily    dueto:
             . An increaseol $51 millionresultingfrom the recognition            of economicdevelopment          and enelgyefficiency obligations   in accordance   with the PUCO'SMarch31 Opinionand Oder adoptingand approving,with modifications,  theOhioComDanies'     ESPlV.
             . Higheroperating       andmaintenance     expenseof $42million,including      increased    stormrestoration  costsof $39 million,whicharedeferred     forfuturerecovery,resulting in nomaterialimpacton currentperiodearnings.
             . Higherretirement       bnefitcostsot $37million.
             . Highertransmission       expensesof   $36millionprimarilyrelated  to anincrease    in network  transmission expenses  at the OhioCompanies,       partiallyotfsetby lowercongestion     expensesat MP.The difference          betweencurrent revenues    andcostsincurred   aredeferredforfuturere@very     or refund,resulting    in no materialimpacloncurrent periodearnings.
   . Netamortization   of regulatory assetsincreased  $22millionprimarily  dueto:
              . Recovery      ofstormcostsin NewJersey,    Pennsylvania, andwestVirginia       etlective withtheimplementation  of new ratesas discussed    above($35million),
              . Recovery      of WestVirginia vegetation management   program    costs($34million),      partially offsetby
              . Higherdeferralof stormrestoration      costs($39million), and
              . HigherdeferralofOhionetwork         transmissionexpenses   ($10million).
ln@meTaxes-Regulated Distribution'seffective  tax ratewas37.0%forthetirstninemonthsof 2016and2015.
negulaldT'nsmlsslon- Flrat Nlne Monthso, m16 Conparcd wlth Flrst Nln Monthsot m15 Netincomedecreased     $8 millionin thefirstninemonthsof 2016,compared         to thesameperiodof 2015,primarily          resulting from adjustments  associated withATSIandTrAIL'sannualratefilingforcostspreviously         re@vered,     a lowerreturnonequityatATSI,and lowercapitalized financing  costs,partially offsetby higherratebase.
Revenues-Totalrevenues  increased  $69millionprincipally   dueto recoveryof incrementaloperating      epensesanda higherratebaseatATSI andTrAlL,partially otfsetbyadjustments    associated  withATSI'sandTrAIL'sannualrate       filingforcostspreviously   recovered aswell asa lowerROEatATSIunderitsFERo-approved            comprehensive  settlement  related  to theimplementation                       rate.
ofa toru/ard-looking Revenues  bytransmission    asselownerareshownin thelollowing       table:
For the Nine Months Ended September30                Increase Revenuesby Transmission Asset Owner               2016             2015          (Decrease)
(ln millions)
ATSI                                                    401 $            333$               68 TrAIL                                                  187              186                 1 PATH                                                      I               10               (1)
Utilities                                              227              226                 1 TotalRevenues                                          824 $            755 $              69 OperctingExpenses     -
Totaloperating expenses   increased  $62millionprincipally dueto higherproperty   taxesanddepreciation       expense  atATSl,whichare recovered throughATSI'sformularate.
OtherExpense-Otherexpenseincreased      $20millionin thefirstninemonthsof 2016compared          to thesameperiodot 2015primarily        dueto lower capitalizedfinancingcostsresulting   tromlowerconstruction  workinprogress    balances   atATSIaswellasincreased        interest expense resultingtmmdebtissuances      of$150millionatATSIinthefourthquarterof 2015,theproceeds             ofwhich,in part,paidofishort-term borrowings.
lncone Taxes-Begulated Transmission's   effective tax ratewas36.8%and36.9%torthefirstninemonthsof 2016and2015,respectively.
76

CES- Fhst Nine Monthsot 2016Compa,Edwlth Hrst Nlne Monthsot 2015 Operatingresultsdecroased   $ 1,158millioninthefirstninemonthsof 2016,compared       to thesameperiodot 2015,primarily    resulting Iromchargesassociated   withimpairments  of goodwill,Units1-4of theW. H.Sammisgenerating            stationandlhe BayShorUnit1 generatingstation,as discussed    above,termination andsettlement  costson coalcontracts        andlowermark-to-market    gainson commodity contractpositions. In addition lo theseitems,operating  resultswereimpacted        by highercapacityrevenues,   lowertuel costsandlowerpurchasedpower,partiallyoffsetby lowersalesvolumesanda terminationchargeassociatedwitha FEScustomer contract.
Revenues   -
Totalrevenues decreased  $564millioninthefirstninemonthso12016,     compared    to thesameperiodof 2015,primalily      dueto lower salesvolumes, partiallyoffsetbyhighercapacity  revenues andhighernetgainsonfinancially         settledcontracts,asfuItherdescribed below.
Thedecrease  in totalrevenues   resulted fromthefollowing  sources:
For the Nine Months EndedSeptember30                  lncrease Revenuesby Type of Service                      2016             2015         (Decrease) ftn mittiorrsl ContractSales:
Direct                                     $        610            1 , 0 1 4$        (404)
GovernmentalAggregation                             666              802             (136)
Mass Market                                         133              222              (8e)
POLR                                                 447             585             (138)
StructuredSales                                     371               429             (58)
TotalContractSales                                  2,227            3,052             (825)
Wholesale                                           1,117              776              341 Transmission                                            56              116             (60)
Other                                                135               155             (20)
Total Revenues                             $      3,535 $          4,099 $           (s64)
For the Nine Months Ended September30                 Increase MWHSales by Channel                              2016             2015           (Decrease)
(ln thousands)
ContractSales:
Direct                                          1 1, 3 9 1       18,860             (3e.6)%
Governmental   Aggregation                      10,798           12,278             (12.1)o/"
Mass Market                                       1,912           3,246             (41.1)/"
POLR                                              7,526           9,910             (24.1)/"
StructuredSales                                   9,175           9,790               (6.3)%
TotalContractSales                                40,802           54,084             (24.6)%
Wholesale                                           9,938           4,023             147.0%
Total MWH Sales                                 50,740           58,107             (12.7)/"
77

The followingtablesummarizes       the priceand volumefactorscontributing     to changesin revenues:
Source of Changein Revenues Increase(Decrease)
Gain on Sales                       Settled       Capacity MWHSales Channel:                          Volumes           Prices     Gontracts      Revenue        Total (ln millions)
Direct                                           ( 4 0 1 )$        (3) $             $                  (404)
Governmental    Aggregation                        (e7)           (3e)                                  (136)
MassMarket                                         (e1)             2                                    (8e)
POLR                                             (140)              2                                   (138)
StructuredSales                                    (27)           (31)                                   (58)
Wholesale                                           175            (16)          113           69         341 Lowersalesvolumesin Direct,GovernmentalAggregation            andMassMarketchannels         primarilyreflectsthecontinuation  of CES' strategyto moreeffectivelyhedgeits generation. The Direct,GovernmenialAggregation       andMassMarketcustomerbaselvas 1.4 millionasof September    30,2016,compared     to 1.7millionasol September     30,2015.Although   unitpricingwasloweryear-over-year in theGovernmental    Aggregation    channel,thedecrease   wasprimarily               to lowercapacity attributable                 expense   asdiscussed  belou whichis a component     of the retailprice.
Thedecrease     in POLRsalesot $138millionwaspdmarily       dueto lowervolumes.      SlructuredSalesdecreased    $58million,primarily dueto the impactof lowermarketpricesandlowerstructuredtransactionvolumes.
Wholesale  revenues    increased $341million,primarily duetoanincrease       incapacity revenue fromcapacity  auctions, an increase in shon-term  (nethourly   position)transactionsand  highernetgainsonfinancially     settledcontracts,partially olfsetbylowerspotmarket energyprices.Althoughwholesaleshort-termtransactions        increasedyear-over-year,    lowa\ietagespotmad(etenergypricesreduced theeconomic    dispatchof tossilgenerating   units,limitingadditional  wholesale  sales.
Transmission    revenuedecreased      $60 million,primarity dueto lowercongestion       revenueassociated   withlessvolatilemarftet conditions.
Otherrevenue     decreased  $20million,primadlydueto   theabsence      of a pr+taxgainonthesaleof pmperty     to a regulated        in affiliate thesecondquarterot 2015andlowerleaserevenues            lromtheexpiration     of a nuclearsal+leaseback   agreement.
OperufngE enses-Totaloperating   expenses   increased  $830millionin thelirstninemonthsof 2016,compared        to thosameperiodof 2015,dueto the following:
Fuelcostsdecreased$139 million,primarilydue to lowergenerationassociatedwith outagesand economicdispatchof fossilunitsresultingfromlowwholesale      spotmarketenergyprices,as describedabove,aswellaslowerunitpriceson fossil fuelcontracts.Additionally,   fuelcostswereimpactedby highersettlementand termination         costson coalcontracts.
Purchased    powercostsdecreased$293million,primarilydueto lowervolumes($2OO             million)andlowercapacityexpenses
($t t Z million),partiallyoffsetby higherlosseson financialsettledcontractsfromlowerwholesalespotmarketprices($25 million).Lowervolumesprimarilyresultedfrom lowercontractsalesas discussedabove,partiallyoffsetby economic purchases,   resultingfromthe lowwholesalespotmarketpriceenvironment.           The decreasein capacityexpense,whichis a componentof CES' retailprice,was primarilythe resultof lowercontractsalesand lowercapacityratesassociatedwith CES'retailsalesobligations.
Fossiloperatingcostsincreased$18 million,primarilydue to increasedoutagecostsand higheremployeebenefit costs.
Nuclearoperatingcostsdecreased$31 million,primarilyas a resultof lowerrefuelingoutagecosts,partially          offsetby higher employeebenefitcosts.Therewas one refuelingoutageduringthe firstninemonthsof 2016as comparedto two refueling outagesduringthe sameperiodof 2015.
Retirement    benefitcostsincreased$24 million.
78

     . Transmission   expensesdecreased       $162million,primarilydue to lowercongestion      and markel-based     ancillarycosts associated  with lessvolatilemarketconditions      as comDared   to the first ninemonthsof 2015,as well as lowerload requirements.
     . Otheroperating  expenses    increased  $5million,primarilydueto lowermark-to-market   gainsoncommodily     mntractpositions of$54millionanda $32millionchargeassociated         withthetermination  ol a FEScustomer   contract, partiallyofisstbylower leaseexpense    as a resultot theexpiration  of a nuclearsaleleaseback    agreement   andlowerretail-related   costs.
     . Depreciation expense   decreased   $9 million,primarilyasa resultof anout-of-period adjustmentto   reduce thedeprecialion   ot a hydroelectric generatingstation,partiallyoffsetby a higherassetbase.
     . Generaltaxesdecreased      $14million,primarily   dueto lowergrossFceiptstaxesassociated       withlowerretailsales volumes.
     . lmpairment  of assetsincreased   $1,431millionprimarily  dueto an$800millionimpairment     ofgoodwill  anda decision   toexit operations of UnitsI -4oftheW.H.Sammis       generating  stationbyiitay31,2020andtheBayShoreUnit1 generating           station by October1,2020.
OtherExpense-Totalothereryensedecreased        $64millionin thefirstninemonthsof 2016,compared        to thesameperiodof 2015,primarily       dueto lowerOTTIon NDTinvestmenls.
ln@meTaxs(BeneliB)-
CES'effective   taxratewas8.5%and37.1%forlhe         firstninemonthsof 2016and2015,respectively.      Thedecrease    intheefieclive  tax rateis primarily  dueto valuation  allowances  of $159millionrecorded   againststateandlocalNOLcarMon,ardsthatmanagement believes,  morelikelythan  not,willnotberealized    asdiscussed  aboveaswellastheimpairment       ofgoodwill, ofwhich,$433millionis non-deductible   fortaxDurooses.
Corpo',te / Other- Hrct NInettonths of ml6 ComparEdwnh H'3,t Nine tionths ot ml, Financial  resultsfromtheCorporate/Other     operating segment  andreconciling  itemsresulted  ina $15milliondecrease     in netincome in thetirstninemonthsof 2016compared         to thesameperiodof 2015.Increased       taxesat lhe Coporate/Other    operating  segment resulted froman increased    consolidated  taxrateandtheimpactot estimated     annualpermanent    hemsonlowerpre-tax     income  forthe penoo.
RagulatoryAslsets Regulatory   assetsrepresent    incurredcoststhathavebeendeferredbecauseoI theirprobable             futurerecovery   fromcustomers throughregulated    rates.Regulatory              represent liabilities          amountsthatare expected     to be creditedto customers     throughfuture regulated   ratesor amountscollected     fromcustomers    forcostsnotyet incurred. FirstEnergy andthe Utilitiesnettheirregulatory assetsandliabilitiesbasedonfederalandstatejurisdictions.       Thefollowingtableprovidesinlormatonaboutlhe composition            of net regulatory  assetsasofSeptember      30,2016andDecember       31,2015,andthechanges      dudngtheninemonths      endedSeptember      30, 2016:
September30,      December31,            Increase RegulatoryAssets (Liabilities)by Source                                               2016              2015           (Decrease)
(ln millions)
Regulatory   transitioncosts                                                                123 $              185 $              (62)
Customerreceivables     for futureincometaxes                                               427                355                 72 Nucleardecommissioning       and spentfueldisposalcosts                                    (316)              (272)               (44)
Asset removalcosts                                                                         (470)              (372)               (e8)
Deferredtransmission    costs                                                               123                115                   8 Deferred   generation costs                                                                 247                243                   4 Deferreddistribution  costs                                                                 305                335                (30)
Contractvaluations                                                                          166                186                (20)
Storm-relatedcosts                                                                          375                403                (28)
Other                                                                                       108                170                (62)
Net Regulatory   Assetsincludedon the Gonsolidated      BalanceSheets                   1,088$             1,348 $             (260) 79

Regulatory  assetsthatdo notearnacurrentreturntotaledapproximately             $148millionasot September           30,2016andDecember      31, 2015,respectively,   primarily relatedto stormdamagecosts.
AsofSeptember      30,2016andDecember       31, 2015,FirstEnergy    hadapproximately       $142million     and$116million,  respectively,ofnet regulatory liabilitiesthatareprimarily  relatedto assetremoval    costs.Netregulatory       liabilities areclassified wilhinOthernoncurrent liabilities ontheConsolidated     BalanceSheets.
CAPITALRESOURCES           ANDLIOUIDITY FirstEnergy  expectsitsexisting  sourcesof liquidity  to remainsufficient  to meetitsanticipated       obligations  andthoseofitssubsidiaries.
FirstEnergy's  business  is capitalintensive,  requiring           resources significanl             to fundoperating       e&enses,construction     expendilures, scheduled   debtmaturities   andinterestpayments,     dividend  payments,    andcontributions       to its pensionplan.In addition  lo internal sourcesto fundliquidity   andcapitalrequirements      for 20'16andbeyond,FirstEnergy           expectsto relyon external     sourcesot funds.
Short-term  cashrequirements    notmetbycashprovided       fromoperations     aregenerally     satisfied  through  short-lermborrowings. Long-termcashneeds,including      cashrequirements    to fundRegulated   Transmission's    capitalprogram,        maybemetthrough     a combination of anadditional$500    millionofequityineachyear2017through2019,subjectto certainmarketconditions,                    andnewlong-temdebt.
FirstEnergy  alsoexpectsto issuelong-term      debtat ceriainUtilities to,amongotherthings,           refinance  short-termandmaturing   debt, subjectto maketandotherconditions.        Furthermore,    FESsubsidiaries    havedebtmaturities         in 2017and2018of $130millionand
$515million,respectively,    whichwill needto be refinanced. Theinabilityto refinance         the 2017debtmaturities      at FEScouldbe addressed   througha combination    ot cashon hand,additional     capitalexpenditure     reductions,     assetsales,and/orborrowings     under the unregulated  moneypool.Theinabilityto refinance        2018debtmaturities       at FEScouldcauseFESto takeoneor moreof the lollowing actions: (i)restructuringofdebtandotherfinancialobligations,       (ii)additional    borrowings    underthe unregulated  moneypool, (iii)furtherassetsalesor plantdeactivations,      and/or(iv)seskprotection        underbankruptcy         laws.In the eventFESseekssuch protection,FENOCmaysimilarlybe forcedlo seekprotectionunderbankruptcylaws.
FirstEnergy   expectsthat borrowingcapacityunder credit facilitieswill continueto be availableto manageworkingcapital requirementsdoru with continuedaccesslo long-termcapitalmarkets.However,it materialimpaimentsare recognizedas FirstEnergy  executeson its strategyto transitionb a lully regulatedutilityresultingin a consolidated           debtto totalcapitalizationratio, as definedundereachol the revolving        creditfacilitiesas discussed    belowin excessof 65%,thenFEwouldbe in defaultunder variouscreditagreements      relatedtotheindebtedness     of FE.Furthermore,     adverse   iudgments      or a FESbankruplcyfiling  couldalso resultin aneventot default.Althoughmanagement          expectsto successfully    resolveanyFEdefaultsthroughwaiversor otheractions on acceptable   lems andconditions,      the failureto do so wouldhavea materialandadverseimpacton FirstEnergy's                      fnancial condition,andFirstEnergy     cannotpovide anyassurancethatit willbeableto successfully               resolveanysuchdefaultsonsatisfactory Ierms.
Through   October2016,FirstEnergy     satislieditsminimum     required fundingobligations        to itsqualified pension  planfortheyearwith contributions ol $382million($85millioninOctober       2016),including   $138millionat FES.Depending            on,amongolherthings,    market conditions,  FirstEnergy expects  to makeadditionalcontributions    to ib qualified  pension     planin2016of uplo $500millionofequityto addressitsfundingobligations     forfutureyears.
Planned  capitalexpenditures   for2016through2018by reportable         segmentareincluded           below:
Capital             Gapital               CaPital Expenditures Expenditures Expenditures Forecast            Forecast              Forecast ReportableSegment                  2016                2017                   2018 (ln millions)
RegulatedDistribution            $         1,295 $              1,325 $               1,305 RegulatedTransmission                      1 , 0 0 0            1  , 0 0 0            1 ,000 CompetitiveEnergyServices                    540                   370                  300 Corporate/Other                                90                    95                  90 Total                            $         2,925 $              2,790 $               2,695 Additionally, plannedcapitale4cenditures      in 2019lor Regulated    Distribution   areapproximately        $1.3billionwhileplannedcapitai expenditures  for Regulated  Transmission   areexpected    to beapproximately      $800  million    to $1.2billionannually  in 2019to 2021.
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Forecasted capitalexpenditures  for 2017by operatingcompanyare shownin the followingtable:
2017 Gapital Expenditures Forecast oE                            $          14s Penn                                      45 cEr                                      120 TE                                        45 JCP&L                                   355 ME                                       135 PN                                       160 MP                                       250 PE                                       125 WP                                       205 ATSI                                     420 TrAIL                                     65 MAIT                                     255 FES                                      325 AE Supply                                 50 Other                                     90 Total                                  2,790 FirstEnergy'sstrategyis to tocuson investments     in its regulated operations.Thecenterpiece  of thisstrategyisthe Energizing   the Fut reinvestment  plan,whichbeganasa $4.2billioninvestment         planfrom2014through2017to upgrade       andexpandFirstEnergys transmission systemwithadditional   investments    of $800millionto $1.2billionannually   from2018through2021.Thisprogramis focusedon projects  thatenhance   systemperformance,       physicalsecurityandaddoperating   flexibilityandcapacity siartingwiththe ATSIsystemandmovingeastacrossFirstEnergy's          service  territory overtime.Through  2015,FirstEnergy's  capiialexpenditures under thisplanwere$2.4billionandin2016capitalexpenditures           underthisplanarecurrently  projected  to be approximately $1 billion.In total,FirstEnergyhasidentifiedover$20billionintransmission       investment opportunitiesacross the24,000  miletransmission  system, makingthisa continuing  platform  for investment  in theyearsbeyond2021.
In alignment wilh FirstEnergy's strategyto investin its Regulated      Transmission  and Regulated    Distributionsegments   andthe repositioningoltheCESsegment,      FirstEnergy isalsofocused    onimproving  thebalance  sheetovertimeconsistentwith     itsbusiness protile,maintaininginvestment grademetricsat itsregulated      businesses  andFirstEnergy Corp.andmaintaining    stronglqudilyforan overallstablefinancialposition.Specifically,   at the regulatedbusinesses,      authorityhas beenobiainedtor variousregulated distribution andtransmission   subsidiaries to issueand/orrefinance     debt.
Anyfinancingplansby FirstEnergy,      including the issuanceof equity,refinancing    ot maturing  debtandreductions    in short-term borrowings, aresubjectto marketconditions    andotherfactors,suchastheimpactof thecurrentenelgyandcapacity              marketsand potentialcreditratingchanges. Noassurance     canbegiventhatanysuchissuances,        financings, refinancings, or reductions inshort-termdebt,asthecasemaybe,willbecompleted            asanticipated. Anydelayinthecompletion    offinancing  planscouldrequireFEor FESor anyoftheirsubsidiaries  toutilizeshort-term    borrowing  capacity,whichwouldimpact   available liquidity.
Inaddition, FirslEnergy expectsto continually evaluate anyplannedfinancings,       whichmayresultin changes    lromtimeto time.
As otSeptember   30,2016,FirstEnergy's   netdeticitinworkingcapital(current     assetslesscurrentliabilities) wasduein largepartto currentlypayable long-term  debtandshort-term    borrowings. Currentlypayable long-termdebt as of September  30,2016,  includedthe following:
Currently PayableLong-TermDebt                                                    (ln millions)
Unsecurednotes                                                                              680 FMBs                                                                                        250 Unsecured   PCRBs(1)                                                                        158 Collateralized leaseobligationbonds                                                            8 Sinkingfund requirements                                                                     82 Othernotes                                                                                   38
                                                                                                  $          1,216 81

(r) ThesePCRBS    areclassilied ascurenilypayable long-termdebtbcause   theappli:aHe       rate interesl modepermibindividual   debtholdersto puttherespective debtbacktothebsuerpriorto malurity.
Short-Tam Bofiowings FirstEnergy had$2,975millionand$1,708millionol short-term       borrowings   as of Septembr   30, 2016andDecember    31,2015, respectively.
The$1,267millionincrease   in short-term  borowingsduringthefirstnine-months      of2016wasprimarily  duetopension contributions, debtredemptions, ofwhichsomemayberefinanced          inthefuture,andforgeneralbusiness     purposes.FirstEnergy also hadapproximately $,100millionof short-terminvestments   at Seplember30,2016thatwereredeemedinearlyoc1oberto paydovvna portionof theshort-term borowings.FirstEnergy's    availableliquidityas of November   1, 2016, wasas follows:
Available Borrower(s)                  Type        Maturity     Gommitment          Liquidity (ln millions)
FirstEnergy(t)             Revolving March2019 $               3,500 $           1,241 FES/ AE Supply             Revolving March2019                 1,500             1,500 FET(2)                     Revolving March2019                 1.000               750 Subtotal $           6,000 $           3,491 Cash                                 211 Total $          6,000 $           3,702
{r) FEandtheUtilities.
(a Includes FET, ATSIandTrAlL.
RavolvingCrac t Facfiltles FirstEnergy,FES/AESuNy aN FET Facilities FEandcertainot itssubsidiaries participate  in threefive-year syndicated revolving                withaggregate creditfacilities              commitments of
$6.0billion(Facilities) expkingon March31,2019.
OuringSeptember  of20l6,theFES/AESupplytacilitywasamended           to decrease  FES'Sindividualborrower  sublimitlo $900million from$1.5 billionandAE Supply'sindividualborrowersublimitto $600millionfrom$1 billion.The lendingbanks'aggregate commitments   undertheFES/AESupplyfacilityremainat $1.5 billion.
Generally, borrowingsundereachof theFacilities    areavailable to eachborrower    separately andmatureonlhe earlierof364days tromthe dateof borrowing  or the commitment     terminationdate,as the samemaybe extended.         Eachof the Facilities contains financial covenants  requiring eachborrower    to maintain aconsolidated  debtto totalcapiializationratio(asdetinedundereach ofthe Facilities, as amended) of no morethan65'h,and75l"tot FET,measured            at theendof eachtiscalquarter.
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The followingtablesummarizes      the borrowing  sublimilslor eachbonowerunderthe Facilities,         the limitations on shorl-term indebtedness   applicableto eachbonowerundercurrentregulatoryapprovalsandapplicable          statutoryand/orcfiarterlimitalions, asof September   30,2016:
FES/AESupply FE Revolving           Revolvidj         FET Revolving        _R_egula-toryand Credit Facility      Gredit Facility      Credit Facility     Other Short'Term Borrower                  Sublimit             sublimit            sublimit          Debt Limitations (ln millions)
FE                               3,500                                $
FES                                                       900                                             (21 (2)
AE Supply                                                 600 FET                                                                       1,000 500   (3)
OE                                 500 cEl                                                                                                 500   (3) 500 TE                                                                                                  500   (3) 500 J CP & L                                                                                            500   (3) 600 ME                                                                                                  500   (3) 300 PN                                                                                                  300   (3) 300 WP                                                                                                  200   (3) 200 MP                                 500                                                              500 (3)
PE                                 150                                                              1 5 0 (3)
ATSI                                                                        500                     500 (3)
Penn                                 50                                                             1 0 0 (3)
TrAIL                                                                       400                     400   (3)
(r) No limitations, (2) No limitationbaseduponblanketlinancingauthorization lrom lhe FERCunderexistingopen markellaritls.
(3) Includesamountswhichmay be bonowdunderthe regulatedcompanies'moneypool.
TheentireamountoftheFES/AESupplyFacility,        $600millionof theFEFacility   and$225millionof theFETFacility,      subjectto each borrower's sublimit, is available fortheissuance  ol LOCS(subject   to borrowings drawnundertheFacilities)     expiring upto oneyear lromthedateof issuance. Thestaledamountofoutstanding      LOCSwillcountagainsttotalcommitments       available undereachofthe Facilities andagainsttheapplicable     borrower's bofiowing  sublimil.
TheFacilities  do notcontainprovisionsthat restricttheabilitytoborrowor accelerate   payment    otoutstanding advances    inlheevent of anychangein creditratingsof theborrowers. Pricingis definedin "pricinggrids,"whereby    thecostof fundsborrowed      underthe Facilities is relatedto the creditratingsof the companyborrowing       the funds,otherthanthe FETFacility,      whichis basedon ils subsidiaries' creditratings.Additionally, borrowings  undereach  oftheFacilities aresubjecttothe    usualand  customary   provisionstor acceleration  upontheoccurrence    ot eventsof default,including a cross-default forotherindebtedness    in excessof $'100million.
As of September     30, 2016,the borrowers  werein compliance     withthe applicable  debtto totalcapitalization   ratiosunderthe resDectiveFacilities.
lem Loans FEhasa $1 billionvariableratetermloancreditagreement       witha maturity  dateof March3 t, 2019.Theinitialborrowing       underthe termloan,whichtooktheformofa Eurodollar      rateadvance,   maybeconverted    fromtimeto time,inwholeor inpart,to altemate     base rateadvances    or otherEurodollarrateadvances. Additionally,FEhasa $200millionvariable      ratetermloan,dueMay29,2020.Each ofthetermloanscontainscovenantsandothertermsandconditionssubstantially            similarto thoseotthe FEFacilitydescribed    abor, including thesameconsolidated     debtto totalcapitalization ratiorequirement.
Asol September30,2016,FEwasin compliance         withtheapplicabledebtto totalcapiialization    ratiosundereachoftheelermloans.
83

FlrstEneryylhney Pools FirstEnergy's  utilityoperatingsubskliary   companies   alsohavetheabilityto borowtromeachotherandFEto meettheirshort-tem workingcapitalrequirements.      A similarbut separatearangementexistsamongFirstEnergy's             unregulated companies. FESC administers  thesetwo moneypoolsand tlackssurplusfundsof FirstEnergy                 and the respective regulatedand unregulated subsidiaries, aswellas proceeds     available   frombankborrowings. Companies   receiving a loanunderthemoneypoolagreements mustrepaythe principalamountof the loan,togetherwith accruedinterest,within364daysof borrowingthe funds.The rate of interestis thesameforeachcompanyreceivinga loanfromtheirrespectivepoolandis basedontheaveragecostof tundsavailable throughthepool.Theaverage       intereslratesforbonowings     inthefirstninemonthsof 2016were0.67"6perannumfortheregulatd companies'money       pooland1.94olo   perannumtorthe unregulated     companies'money    pool.Absentsufficient availablefundsfrom othercompanies     in theunregulated   moneypool,borrowings     byFESfromsuchmoneypoolmaybefundedby FEfrombolrowings underits revolving   creditlacililyor cashon hand.
Potlu on Control nevenueBonds In thethirdquarterof 2016,asdiscussed         below,FGrema*eted$86millionof fixedratePCRBS         andretired$12millionof variable interestratePCRBs,     whichresulted   intheelimination  of LOCSrelated to $92millionofvariable interest ratePCRBSthat   arenolonger outstanding.
Long-Tem DebtCapacity FEs andits subsidiaries'    accessto capitalmarketsandcostsof financing        are influenced by thecreditratingsof theirsgcurities.
FirstEnergy  is focusedon improving     itsbalancesheetandmaintaining     investment  gradecreditmetricsat itsregulated businesses andat FirstEnergy     Corp.Thefollowing    tabledisplaysFE'sanditssubsidiaries'   creditratingsasof November    4, 2016:
Senior Secured                    Senior Unsecured lssuer                  s&P         Moody's          S&P          Moody's        Fitch FE                                                   BB+           Baa3           BB+
FES                      BB.            B1             B           Caal AE Supply                BB+                          BB-            B1 AGC                                                   BB.          Baa3 ATSI                                                 BBB-          Baa?
cEl                     BBB+           Baal          BBB-          Baa3 FET                                                   BB+          Baa3 JCP&L                                                BBB-          Baa2 ME                                                   BBB-          Baal MP                      BBB+            A3 OE                      BBB+            A2           BBB-           Baal PN                                                   BBB-           Baa2 Penn                                    A2 PE                      BBB+            A3 TE                      B BB +         Baal TrAIL                                                BBB-            A3 WP                      BBB+            A2 OnJuly29,20'16,Moody's      downgraded     theSeniorUnsecured    debtratingtorFESto Ba2fromBaa3,andforAESupplyto Bal from Baa3.At thesametimeMoody's         atfirmed  theBaa2SeniorSecured    debtratingforFESandtheBaaSSeniorUnsecured          debtrating forAGC-FEs BaaglssuerRatingwasunchanged.               OnNovember   4, 2016,Moody's   turtherdowngraded  theSeniorUnsecured   debt ratingforFESto Caal,ard forAESupplyto Bl, andaffirmed           theSeniorUnsecured     debtratingforAGCat Baa3.Atthesametime Mood)/sdowngraded      theSeniorSecured       debtratingfor FESlo 81.
OnAugust1, 2016,S&Plowered           the SeniolUnsecured    debtratingsfor FES,AE Supply,andAGCto BB-fromBB&. S&Palso dowlgradedthe SeniorSecureddebtratingslor FESandAESto BB+fromBB+. FE andits regulated                                        BBB-utilitysubsidiaries Corporate  CreditRatings   wereaffirmed. Additionallyon November  4,2016,S&Pdowngraded       theSeniorUnsecured   debtratingfor FESto B andSeniorSecuEddebtratingto B&.
Debt capacityis subjectto the consolidateddebt to total caritalizationlimits in the Facilitiespreviouslydiscussed.As of September   30,2016,FEanditssubsidiaries         couldissueadditionaldebtofapproximately  $4billionandremain withinthelimitations of thefinancial covenants   required bytheFacilities. Asof September  30,2016,FES'incremental      debtcapacityunderilsconsolidated 84

debttototalcapitalizationfinancialcovenant  is also$4billiongivenFirstEnergy's   consolidated    debttototalcapitalizationratiounder its Facilily.
Changsln Cash Posltlon As of September  30,2016,FirstEnergy    had$551millionof cashandcashequivalents         compared     to $131millionof cashandcash equivalents asot December   31,2015.AsofSeptember       30,2016andOecember       31,2015,  FirstEnergy   hadapproximately $44million and$82million,respectively,  of restrictedcashincluded   in Othercurrentassetson theConsolidated          BalanceSheets.
CashFlowsFrcm Opentlng AcUvMes FirstEnergy's mostsignificant sourcesofcasharederivedfromelectricserviceprovided          byitsutilityoperaling  subsidiariesandthe salesofenergyandrelated    products  andservices  byitsunregulated  competitive  subsidiaries. Themostsignificanl  useofcashfrom operating activities istobuyelectricity inthewholesale  marketandpayfuelsuppliers,      employees,                  lenders, taxauthorities,       andothers fora widerangeof material   andservices.
Netcashprovided    fromoperating  activitieswas$2,580millionduringthefirstninemonthsof 2016compared               with$2,317million provided fromoperating           duringthefirstninemonthsof 2015.Cashflowstromoperations activities                                                                   increased $263millioninthefirst ninemonthsof 2016,compared      withthesameperiodot 2015,primarily       dueto thetollowing:
     . Distributionrateincreases  associated  withtheimplementation    ot newrates,partially    otfsetby a year-over-year decline in distribution deliveriesprimarily resultingfromloweraveragecuslomer       usage;
     . Highertransmission   revenue,  reflectingrecovery of incremental  operatingepensesanda higherratebase;
     . Highercapacityrevenues    at CES,partially  ofbetby a declinein salesvolume;and
     . Lowerdisbursements    forfuelandpurchased     powerresulting  fromthelowersalesvolumes.
CashF owsFrcm FlnanclngActlvltles Inthefirstninemonthsof 2016,cashprovided        fromfinancing           was$316millioncompared activities                               to $29millionoI cashusedfor Iinancingactivities duringthe first ninemonthsof 2015.Thefollowing        tablesummarizes      redemptions,   repayments,  short-term borrowings  anddividends:
For the Nine Months Ended September30 Securitieslssued or Redeemed/ Repaid                    2016           2015 (ln millions)
New /ssues TermLoan                                                           $       200 PCRBs                                                      471            339 UnsecuredNotes                                                            250 FMBs                                                        50            295
                                                                               $        521 $        1pS 4 Redemptions/ Repayments TermLoan                                           $                      (200)
PCRBs                                                     (483)          (':)
Unsecurednotes                                            (300)
FMBs                                                      (145)          (145)
Seniorsecurednotes                                         (8e)          (124)
( 1 ^ 0 1 r$)     (?81)
:$:
Short-termborrowings,    net                              1,275 $           134 Commonstockdividendpayments                          $      (458) $        (455)
On May 1,2016,JCP&Lrepaid$300millionof 5.625%seniorunsecurednotesat maturity.
85

On June1 andJuly1 of 2016,NGrepurchased             approximately $225millionand$60million,respectively          of PCRBS,  whichwere subjectto a mandatory putonsuchdate.OnAugust15,2016,NGremarketed                theapploximately     $285millionof PCRBS    witha fixed interestrateof 4.375%andmandalory         putdatesranginglromJune1,2022loJuly1,2022.
OnJuly11,2016,   Pennissued$50millionof4.24%FMBS            due2056.Proceeds     received   fromfie issuance  oftheFMBS    u/e]eused:(i) to fundcapitalEleenditures;   (ii)forworkingcapitalneedsandothergeneralbusiness           purposes;  and(iii)to repaybonowings   under the FirstEnergy regulated companies'     moneypool.
OnAugust15,2016,WP repaid$145millionol 5.8757"FMBSat maturity.                 Alsoon September      23,2016,WPagreedto sell$475 millionol new3.84'l.FMBS    due2046($100million),4.09%       FMBsdue2047($100million)         and4.14%FMBS      due2047($275million).
Thesalesareexpected    to settleon December      '15,2016, September '15,2017   andDecember      15,2017,respectively. Proceeds tobe received fromtheissuances    oftheFMBS     areexpected   to beused:(i)forgeneralcorporate     purposes; and(ii)to repsyWP'scurrently outstanding  $275millionot 5.95%FMBSthatmatureon December             15,2017.
OnAugust15,2016,FGremarketed           approximately  $86millionof PCRBswithfixedinterest       ratesranging  trcm4.25/olo4.5O"/"   and mandatory   putdatesrangingfromMay1,2021to Junel, 2021.
OnSeptember    15,2016,FGremarketed        $1OO  millionof PCRBS witha fixedinterest   rateof4.25%anda mandatory        putofSeptember 15,2021.
OnSeptember    15and30,2016,respectively,        FGretiredan aggregate    of $12millionof PCRBS     withoriginalmaturity  datesin 2018 and2029.
OnOctober17,2016,PEissued$155millionof3.89%FMBS                due2046.Proceeds      received  fromtheissuance    wereused:(i)torepay shon-term   bonowings incurredto repayPEs $100mitlionof 5.80%FMBSthatmaturedon October15,2016;and(ii)forgeneral corporarepurposes.
       @sh FlowsFrcm lnves ng Adlyntes Cashusedfor investing    activities  in the firstninemonthsof 2016principally     represented    cashusedfor property     additions.The following tablesummarizes    investing            forthefirstninemonthsof 2016andthecomparable activities                                                      periodof 2015:
For the Nine Months Ended September30 Increase Cash Used for InvestingActivities                          2016           2015       (Decrease)
(ln millions)
PropertyAdditions:
RegulatedDistribution                                         878 $           884 $              (6)
RegulatedTransmission                                         755             700               55 CompetitiveEnergyServices                                     492             400               92 Corporate/ Other                                               31              41              (10)
Nuclearfuel                                                    195             101               94 Investments                                                     76              87              (11)
Asset removalcosts                                             101             111              (10)
Other                                                          (52)            (37)             (15)
:$:
2A?6w                              189 Cashusedlor investing  activities  lor thefirstninemonthsof 2016increased       $189million,compared      to thesameperiodot 2015, primarilydueto increases  in nuclear   fuelandproperty            Property additions.          additions increased  dueto highertransmission    spendin NewJerseyandCES'purchase          oftheremaining   non-affiliated leasehold   interestin PerryUnit1.Theincrease     innuclearfuelwas  due to thescheduled  Davis-Besse    retueling andmaintenance    outage.
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GUARANTEES      ANDOTHERASSURANCES FirstEnergy  hasvariousfinancialand pertormance         guarantees    and indemnif  icationswhichare issuedin the normalcourseof business.Thesecontractsincludeperformance             guarantees,    stand-bylettersof credit,debt guarantees,       suretybondsand indemnitications.FirstEnergy    entersintothesearrangementsto       facilitate commercialfansactions     withthirdparties byenhancing  the valueofthetransactjon    tothethirdparty.Themaximum        potentialamount   offuturepayments    FirstEnergy anditssubsidiaries couldbe requiredto makeundertheseguarantees          as of September    30,2016,wasapproximately       $3.4billion,as summarized     below:
Maximum Guaranteesand Other Assurances                                                Exposure (ln millions)
FE's Guaranteeson Behaltof its Subsidiaries Energyand Energy-Related      Contracts(1 )                                          28 Deferredcompensation     arrangements(2)                                            544 Qths/s)                                                                              12 584 Subsidiaries'Guarantees Energyand Energy-Related      Contracts(4)                                          248 FES'guarantee    of NG'snuclearpropertyinsurance                                     96 FES'guaranteeof nucleardecommissioning          costs                                21 FES'guarantee    of FG'ssaleand leasebackobligations                              1,674 2,039 FE's Guaranteeson Behalfof BusinessVentures GlobalHoldingfacility OtherAssurances SuretyBonds- WhollyOwnedSubsidiaries                                                382 SuretyBonds                                                                          22 l-QQsts)                                                                            100 504 Total Guaranteesand Other Assurances                                                 3,427 (1) lssued foropen-ended    terms,witha 10-day termination rightby FirstEnergy.
e)   CESrelated portion is$136million.
(3)  Includesguarantees of$4million fornuclear decommissioning  lunding assurances, $4millionforrailcar lasesand$4million forvadousl6ase6.
(1)  lncludesenergy andengrgy-relaled  conlracts associaled withFESot approimately    $2,t9million, (t   tncludes$9millionissued  forvarioustermspursuant toLOCcapacity   availableundEr  FirstEnergy's       credilfacililies, revotuing              $87millionissued inconnection withenergy    andenergy  rlated         and$4miltion contracts,             pledged inconnection withthesaleandleaseback  ofBeavr ValleyUnil2 byOE.
FES'debtobligations    aregenerally   guaranteed   byitssubsidiaries,  FGandNG,andFESguaranteesthe            debtobligations  ofeachof FGandNG.Accordingly,        present andfutureholders   of indebtedness   of FES,FGandNGwDuld        haveclaimsagainst    eachof FES,FG andNG,regardless     ol whethertheirprimaryobligoris FES,FGor NG.
Co abral md Contingent-Related       Features Inthenormalcourse   of business,   FEanditssubsidiaries     routinelyenterintophysical   orfinancially settledcontracts  forthesaleand purchaseof electriccapacity,energy,fuel,andemissionallowances.           Certainbilateralagreements    andderivativeinstruments  contain provisions thatrequireFEor itssubsidiaries     to postcollateral.Thiscollateral  maybepostedinthefom ofcashorcreditsupport           with thresholds  contingent  uponFEsor its subsidiaries'    creditratingfromeachof themajorcreditratingagencies.            Thecollateral and creditsupportrequirements      varybycontractandby counterparty.      TheincremertalcollateralrequiGmentallowsforthe offsttingof assetsand liabilities  withthe samecounterparty,       wherethe contractual      rightof otfsetexistsunderapplicable       masternelling agreements.
Bilateralagreements  andderivative   instruments  enteredintobyFEanditssubsidiaries       havemargining   provisionsthat        posting require Basedon FES'power otcollateral.                       portfolio exoosures   asof September    30,2016,FEShaspostedcollateralof       $193millionandAE Supplyhaspostedcollateral      of $4 million.
87

Thesecredit-risk-related   contingent  features, orthemargining    provisionswithinbilateralagreements,    stipulalethatilthesubsidiary wereto bedowngraded       or loseits investmentgradecreditrating(basedon itsseniorunsecureddebtrating),it wouldbe rcquiredto provideadditional    collateral. Depending   on the volumeof forwardcontractsand futurepricemovements,              higheramountsfor margining,  whichis theabilitylo secureadditional      collateralwhenneeded,couldb rcquired.
As a resultofthedowngrades       by MoodysandS&PonJuly29,2016andAugust1, 2016,CESpostedadditional                       collateral of $53 million.Additionally, on November     4, 2016,Moody'sandS&Pfurtherdowngraded            FES.Giventhe downgrades,        CEShasfurlher potentialcollateral  postingobligations  totaling$81millionforwhichcounterparties     havenotexercised      theirrightto requireCESto postcollateral. Subsequent    to the occurrence   of a seniorunsecured    crcditratingdowngrade    belowS&P'sandlroodyscurrent ratings,or a "material  adverseevent,"the    immediate   postingol collateralor accelerated payments   maybe required     of FirstEnergy.
Thefollowing   tabledisclosesthe    additional creditcontingent  conlractualobligationsthatmayberequired      undercertain   eventsasof November    4, 2016:
PotentialGollateralObligations                            CES           Regulated            Total (in millions)
Contractual  Obligations  for AdditionalCollateral At CurrentCreditRating                                          81 $                  $             81 UponFurtherDowngrade                                                             48                 48 UponMaterialAdverseEvent                                        10                                  10 SuretyBonds(Collateralized      Amount)                        264               96                360 TotalExposurefrom Contractual       Obligations              355 $            144 $              499 Excluded   fromthe preceding      tableare the potential    collateral obligations dueto afiliatetransactions    betweenthe Regulated Distribution segment   andCESsegment.       Asot September     30,2016,neitherFESnorAESupplyhadanycollateral            postedwiththeir atfiliates.
OthetCommitments        andContingencies FEisa guarantor    undera syndicated    seniorsecured   lermloantacilitydueMarch3,2020,underwhich         GlobalHolding   bonowed    $300 million.Inaddition  to FE,SignalPeak,clobalRail,GlobalMiningGroup,LLCandGlobalCoalSalesGoup,LLC,eachbeinga direct or indirectsubsidiary  of GlobalHolding,    continue  to providetheirjointandseveralguaranties     of theobligations   of GlobalHolding underthetacility.
Inconnection    withthefacility, 69.99%of clobalHolding's     directandindirectmembership     interests in SiOnal Peak,GlobalRailand theiraffiliatesalongwithFEV'S     andWMBMarketing       Ventures,  LLC'Srespective 33-1/3%  membership    interestsinGlobalHolding,    are pledgedto thelendersunderthecurrentfacilityascollaleral.
OFF-BALANCE        SHEETARRANGEMENTS FESandcertainoftheOhioCompanies             haveobligations   thatarenotincluded   ontheirConsolidated    Balance  Sheetsrelated    lo the PerryUnit1,BeaverValleyUnit2, and2OO7           BruceMansfield    Unit'l saleandleaseback   arrangements,    whicharesatisfied   through operatingleasepayments.         The total presentvalueof thesesale and leaseback          operatingleasecommitments,          net of trust investments,  was$895millionasofSeptember          30,2016,andprimarily    relatestothe2007BruceMansfield      Unit1 saleandleaseback arrangement    expiring in2040.Fromtimeto timeFirstEnergy         andthesecompanies    enterintodiscussionswith     certainpartieslo the arrangements    regarding  acquisition otownerparticipant    andotherinterests.However,   FirstEnergycannotprovide    assurance  thatany suchacquisilions    willoccuron satisfactory   termsor at all.
As ot September    30,2016,FirstEnergy's      leasehold   interestwas2.60%of BeaverValleyUnit2 andFES'leasehold              interest was 93.83%of BruceManslield        Unit1.
OnMay23,2016,NGcompletedthe             purchase  ol the3.75%lessorequity    interestsoftheremaining    non-afiiliated leasehold  interest in PerryUnit1tor$50million.Inaddition,      thePerryUnit1 leasesexpiredinaccordance        withtheirtermsonMay30,2016,resulting          in NGbeingthesoleownerof PerryUnit1 andenlilledto 100%of theunit'soutput.
MARKETRISKINFORMATION FirstEnergy  usesvariousmaketrisksensitive        instruments,  including derivativecontracts, primarilyto  manage   theriskofpriceand interestratefluctuations. FirstEnergy's   RiskPolicyCommittee,     comprised  of membersof seniormanagement,          provides genelal oversight  for riskmanagement      activities throughout   thecompany.
88

Connodfty Pne Bisk FirstEnergy   is exposedto financialrisksresultingfromfluctuatingcommodityprices,includingpricesforelectricity,naturalgas,coal and energytransmission.         FirstEnergy's  RiskManagement         Committee      is responsible    for promoting    the effectivedesignand implementation     of soundriskmanagement          p;ogramsand overseescomplian@                withcorporateriskmanagement          policiesand established  riskmanagement       practice. FirstEnergy  usesa varietyof dedvative        instruments   forriskmanagement     puposesincludiatg forwardcontracts,     options, futurescontracts    andswaps.
Thevaluation     ol derivative contracts  is basedonobservable       marketinformation       to theextentthatsuchinfomationis available.         In caseswheresuchinformation         is notavailable,  FirstEnergy  reliesonmodel-based         information. Themodelprovides     estimates  offuture regionalpricesfor electricity    andan estimate     ot relatedpricevolatility. FirstEnergy    usestheseresultsto developestimates         of fair valuetorfinancial    reporling  purposes   andforinternal   management      decision    making(seeNote8, FairValueMeasurements,             ofihe Combined    Notesto Consolidated      FinancialStatements). Sources  of information    forthevaluation    ot netcommodity    derivativeasseb andliabilities  as of September    30,2016aresummarized          by yearin thefollowing       iable:
Source of Information-Fair Valueby ContractYear                 2016          2017            2018              2019           2020         Thereafter       Total (ln millions)
Pricesactivelyquoted(1)                         (4) $          ( 1 )$                $$                                                      (5)
Otherexternalsources(2)                         11             27               (5)             (30)                                           3 Pricesbasedon models                            (1)             5                                                                             (7) lstsl(e)                                         6 $           31 $             (5) $           (30)$         ( 1 1 )$                        (e)
(1) Represnts    Exchange   traded NewYorkMercanlile    Exchange  lutures andoptions.
) Primarily   represents  contractsba8Ed  onbroker  andICEquotes.
(3) Includes   $(118) millioninnon-hedge  derivativecontracts thatareprimarily  related toNUGcontracts    alcertain               NUGcontracts otlheUtilities.             are subjecttoregulatory   accounlinganddonotimpact     eamings.
FirstEnergy   pertorms    sensitivityanalyses  toestimate  itsexposure    to themarketriskofitscommodity           positions.Basedonderivative contractsheldas of September          30,2016,notsubiectto regulatory          accounting,     an increasein commodity      pricesot l0% would decrease    netincomeby approximately        $37millionduringthe next12 months.
EquityPriceRisk As ot September      30,2016,theFirstEnergy      pensionplanassetswereallocated             approximately   astollows:42%in equitysecurities, 35%in lixedincomesecurities,         9% in absolutereturnstrategies,       10%in realestateand4% in cashandshort-term                 securities. A declineinthevalueof pension        planassetscouldresultinadditional        tundingrequirements.        FirstEnergy's   fundingpolicyis basedon actuarialcomputations       usingtheprojected   unitcreditmethod. Duringtheninemonths          endedSeptember      30,2016, FirstEnergy  made a $297millioncontribution       to its qualifiedpensionplan.Additionally,        in October2016FirstEnergy         contributed   $85 millionto ils qualified  pensionplan,including     $50millionat FENOC.       SeeNote4, Pension        andOtherPostemployment          Benefits,of theCombined Notesto Consolidated       Financial Statements   foradditionaldetails   onFirstEnergys       pension  plansandOPEB.      Through  September   30, 2016,FirstEnergy's      pensionplanassetsearnedapproximately            1'1.5%  ascompared       to an annualexpected     returnonplanassetsof 7.5./".
As of September      30,20'16,FirstEnergy's    OPEBplanswereinvested          infixedincomeandequitysecurities.           Through  September   30, 2016FirstEnergy's      OPEBplanshaveearnedapproximately            5.8%ascompared          to anannualexpected      returnonplanassetsof7.5olo.
NDTfundshavebeenestablished            to satisfyNG'sandotherFirstEnergy           subsidiaries'   nucleardecommissioning      obligations. As of September   30,2016,approximately        62./.of thefundswereinvested         in fixedincomesecurities,      36%of thefundswereinvested         in equitysecurities    and2%wereinvested         in short-term  investments,   withlimitations      relatedto concentration   andinvestment     grade ratings.Theinvestments       arecarriedat theirmarketvaluesof approximately             $1,546million,$908millionand$56millionforfixed incomesecurities,    equitysecurities  andshort-term    investments,   respectively,    asof September     30,2016,excluding    $(8)million ofnet receivables,  payables    andaccruedincome. Ahypothetical    1O%decrease       inpricesquotedbystockexchanges           wouldresultina $91 millionreduction   infairvalueasofSeptember        30,20'16. CertainFirstEnergy      subsidiaries  recognize   inoarningsthe   unrealized losses on AFSsecudties        heldin its NDTas OTTI.A declinein the valueoI FirstEnergy's                 NDTor a significant    escalation  in estimated decommissioning       costscouldresultin addltional       fundingrequirements.         Duringthe ninemonthsendedSeptember                30, 2016, FirstEnergy   contributed   approximately   $2 millionto theNDT.
lnterestBateRisk FirstEnergy  recognizes    netactuarial gainsor lossesforitspension       andOPEBplansinthefourthquanerofeachfiscalyear.                A ptimary factorcontributing   to theseactuarialgainsandlossesarechangesinlhe discountratesusedto valuepensionandOPEBoHigations as of the measurement        dateof December      31 and the difterence      betweenexpectedandactualreturnson the plans'assels.

FirslEnergy  wouldanticipate   a pre-taxmark-to-market     loss(netof amounts   capitalized) to be in the rangeot approximately       $300 millionto$525millionassuming      a discount  rateotapproximately    4.00o/.lo3.751"totlhepension      plansand3.75%to 3.50%forthe OPEBplans,respectively,      anda returnonthepensionandOPEBplans'assetsol 11%basedon actualinvestment                        performance throughSeptember      30,2016.
CREDITRISK Creditriskis defined  astheriskthata counteparty     to a transaction willbeunableto fulfillitscontractual   obligalions. FirstEnergyand FES evalualethe creditstandingot a prospective           counterparty  basedon the prospective       counterparty's   financialcondition.
FirstEnergy  andFESmayimposespeciliccollateral        requiremenls   andusestandardized     agreements     thatfacilitate thenetting ofcash flows.FirstEnergy   andFESmonitorthetinancial        conditions  of existingcounterparties  on an ongoingbasis.An independenl           risk management     groupoversees    creditrisk.
WholesaleCrcditRisk FirstEnergy  andFESmeasure       wholesale  creditriskasthereplacement     costforderivatives   in power,naturalgas,    coalandemission allowances,  adjustedfor amountsowedto, or duefrom,counterparties            for settledtransactions. The replacement    costof open positions represents   unrealized gains,netof anyunrealized     losses,whereFirstEnergy    andFEShavea legallyenforceable           rightof offsel.FirstEnergy  andFESmonitorandmanagethecreditriskof wholesale              marketing,  riskmanagement        andenergylransacting operations  throughcreditpoliciesand procedures,        whichincludean established       creditapprovalprocess,dailymoniloring            of counterpany   creditlimits,theuseofcreditmiligation    measures    suchasmargin,   collateraland   theuseof masternetting     agleements.
Themajority   of FirstEnergy's andFES'energy      contractcounterparties   maintain investment-grade      creditratings.
BetailCreditRisk FirstEnergy's  andFES'principal    retailcreditriskexposure   relatesto CES'competitive    electricity activities,whichserveresidential, commercial   andindustrial  companies. Retailcreditriskresultswhencustomers       defaulton contractual     obligations or failto payfor seMcerendered.      Thisriskrepresents    the lossthatmaybe incureddueto the nonpayment                of customeraccountsreceivable balances,as well as the lossfromthe resaleof energypreviouslycommittedto servecustomers.
Relailcreditrisk is managedthroughestablishedcreditapprovalpolicies,monitoringcustomerexposuresandthe use oI credit miligation measures    suchas deposits   in theformot LOCS,cashor prepayment         arrangements.
Retailcreditqualityis afiectedby the economyandthe abilityof customersto managethroughunfavorableoconomiccyclesand othermarketchanges.lf the businessenvironment             wereto be negatively    affectedby changesin e@nomicor othermarket condilions, FirstEnergys  andFES'retailcreditriskmaybe adversely          impacted.
OUTLOOK STATEREGULATION Eachofthe Utilities'retailrates,conditionsol servi@,issuanceof securitiesandolhermattersaresubjeclto regulationinthestates inwhichit operates   - inMaryland  bytheMDPSC,      inOhiobythePUCO,in NewJerseybytheNJBPU,in Pennsylvania                   bythePPUC, inWestVirginia    bytheWVPSCandin NewYorkbytheNYPSC.                Thetransmission   operations   of PEinVirginiaare    subjecttocertain regulations of theVSCC.In addition,     underOhiolaw,municipalities       mayregulate  ratesof a publicutility,subiectto appealto the PUCOlf notacceptableto the utility.
As competitive   retaileleclricsuppliers servingretailcustomers     primarily in Ohio,Pennsylvania,     lllinois,Michigan,  NewJeBeyand Maryland,  FESandAESupplyare         subjectto statelawsapplicable    to competitiveelectric supdiersinthosestates,including        afiiliate codesofconductthat      applyto FES,AESupplyandtheirpublicutilityatfiliates.      In addition, if anyof theFirstEnergy             wereto atfiliates engageintheconstruction      ot significantnewtransmission    or generation facilities, depending     onthesiate,theymaybe required         to obtainstateregulatory    authorization to site,construct andoperalethenewtransmission         or generalion   facility.
MARYLAND PEprovides   SOSpursuant     to a combination  of senlement   agreements,  MDPSCordersandregulations,           andstalutory   provisions.
SOSsupplyiscompetitively      procured  intheformot rollingcontracts   of varyinglengths  through   periodic auctions thatare  overseen   by the MDPSCanda thirdpartymonitorAlthoughsetllements               withrespectto SOSsupplyfor PEcustomers             haveexpired,service continues  inthesamemanneruntilchangedbyorderof theMDPSC.PErecovers                     itscostsplusa returnforproviding        SOS.
TheMaryland     legislature adopted  a statutein 2008codilying    theEmPOWER       Maryland  goalsto reduceelectricconsumption          and demandandrequiring       eachelectricutilityto filea planeverythreeyears.PEscurrentplan,covering             thethree-year    period2015-2017,wasapproved       bytheMDPSC     on December    23,2014.Thecostsotthe2015-2017         planareexpected       to beapproximately   $68 million,ofwhich$38millionwasincurred        throughSeptember     30,2016.OnJuly16,2015,theMDPSCissuedanordersettingnew incremental energysavingsgoalsfor 2017andbeyond,beginning              withthe levelof savingsachieved       underPEs currentplanfor 90

2016,and rampingup 0.2'/oper fear thereafter              to rcach2o/o.PE continuesto recoverprogramcostssubjectto a five-year amortization. Maryland   lawonlyallowsfortheutilityto recoverlostdistribution         revenue  attributable   to energyetficiency      or demand reduction  programs   througha baseratecaseproceeding,             andto date,suchrecovery       hasnotbeensoughtor obtained              by PE.
On February     27, 2013,the MDPSCissuedan oder (theFeb ary 27 Ordeorequiring                        the Maryland       electricutilitiesto submit analyses   relatingtothecostsandbenefits         of makinglurthersystemandstatfing        enhancements     in orderto attemptto reducestorm outagedurations. Theorderfurtherrequired       theStatfof theMDPSC       to reportonpossible    pertormance-based          ratestructures   andlo propose   additionalrules   relating to leederperformance      standards, outage  communication    andreporting,     andsharing      ofspecialneeds customer   information. PEs responsive     filingsdiscussed    thestepsneededto hardentheutility's       systeminorderto attempt         toachieve variouslevelsotstormresponse          speeddescribed     intheFebruary     27 Order,andprojected     thatit wouldrequireapproximately             $2.7 billionin infrastructure investments     over'15yearsto attempt     to achieve thequickest   levelofresponse      forthelargeslstormprojected in the February   27 Order.On July1, 2014,the Statfof the MDPSCissueda setol reporlsthatrocommended                                the imposition    ot extensive   additionalrequirements      intheareasofstormresponse,        feederperformance,     estimates   of restoration    times,andregulatory reporting. TheStafioftheMDPSCalsorecommendedthe                   imposition of penalties, including  customer     rebates,   fora utility'sfailureor inabilitytocomplywiththeescalating         standards  ofstormrestoration    speedproposed      bytheStaffoftheMDPSC.             Inaddition, theStaff oftheMDPSCproposed           thattheutilities be required   to develop  andimplement     systemhardening       plans,upto a rateimpactcapon cost.TheMDPSC       conducted    a hearingSeptember       15-18,2014,to consider     certainofthesematters,       andhasnotyelissueda ruling on anyof thosematters.
NEWJERSEY JCP&Lcurrently     provides   BGSforretailcustomers       whodo notchoosea thirdpartyEGSandforcustomers                   of thkdpartyEGSS         that failtoprovide   thecontracted   service. ThesupplyforBGSiscomprised          ottwocomponents,      procured    through   separate,    annually  held descending    clockauctions,   theresultsof whichareapproved          bytheNJBPU.OneBGScomponent                rellectshourlyrealtimeenergy pricesandis available     forlargercommercial       andinduslrial  customers. ThesecondBGScomponent              provides     a fixedpriceservice and is intendedfor smallercommercial            and residential   customers. All NewJerseyEDCSparticipate              in this competitive      BGS procurement     processandrecoverBGScostsdirectlyfromcustomers                  asa chargeseparate      frombaserates.
Pursuant    to the NJBPU'S     March26, 2015finalorderin JCP&L'S             2Ol2 ratecaseproceeding          directingthatcertainstudiesbe completed,    on July22,2015,the NJBPUapproved             theNJBPUstaff'srecommendation           to implement      suchstudies,      whichinclude operational   andtinancialcomponents.        Theindependent       consultant conducting   the reviewissueda finalreporton July27,2016, recognizing   thatJCP&Lis meetingtheNJBPUrequirements                 andmakingvariousoperational        andfinancial      recommendations.        The NJBPUissuedanOrderonAugust24,20'16,                thataccepted    theindependentconsultant's     finalreportanddirected         JCP&1,  theDivision of RaleCounsel,     andotherinterested      partiesto addresstherecommendations.
ln an OrderissuedOctober22,2014,in a genericproceeding                  to reviewits policieswithrespectto the useot a CTAin baserate cases(Generic     CTAproceeding),      theNJBPUstatedthatit wouldcontinue          to applyitscurrentCTApolicy         inbaseratecases,subject to incorporaling  thefollowing   modifications:   (i)calculating  savings  usinga five-year  lookbackfromthebeginning             ofthetestyear;(ii) allocating  savingswith750lo    retained   bythecompany        and25%allocated     to rat payers;  and  (iii)excluding     transmission   assebof electric distributioncompanies     inthesavings     calculation. OnNovember      5,2014,theDivision     ol RateCounselappealed           theNJBPU Orderregarding    theGeneric    CTAproceeding       totheNewJerseySuperior        CourtandJCP&Lhasfiledto participate              asa respondent    in thatproceeding. Briefing   hasbeencompleted.       Theoralargument       washeldon October25,2016.
OnApril28,2016,JCP&Lfiled           tariffswiththeNJBPUproposing         a generalrateincrease      associated    withitsdistribution     operations thatseeksto improve     serviceandbenefitcustomers          bysupporting   equipment   maintenan@,     treetrimming,      andinspections      ot lines, polesandsubstations,      whilealsocompensating        forotherbusiness    andoperating   expenses. Thefiling   requestdapprovalto         increase annualoperating     revenues    byapproximately      $142.1millionbasedupona hybridtestyearforthetwelvemonthscndingJune30, 2016.On July13,2016,thismatterwassubmitted                  to the Otficeof Administrative     Lawfor hearingandthe issuance             of an Initial Decision. OnSeptember       30,2016,JCP&Lfiled      anupdateto itsfiling,whichincludes        actualdata   forthetwelvemonthsendedJune 30,2016,requesting      anincrease    toannualoperating      revenues   byapproximately   $146.6million. OnOclober19,2016,anorderwas received   approving  theagreeduponprocedural         schedule. Hearings  arescheduled    to occurinJanuary      2017through      March2017.On November     2, 20'16,JCP&Lachieved         a settlement-in-principle   withall the intervening   partiesproviding      for an annual$80million distribution  revenue  increase,  whichwilltakeefiectonJanuaryI,2017,subjecttofinalization,               execution     andNJBPUapproval           ot a StiDulation  of Settlement.
On June19,2015,JCP&I,alongwithPN,ME,FETandMAITmadefilingswithFERC,the NJBPU,andthe PPUCrequesting authorization   forJCP&LPNandMEto contribute             theirtransmission   assetsto MAIT,a newtransmission-only            subskliary   ofFET.The procedural    schedulewas suspended          whilethe NJBPUconsidered         a motionon a legalissueregadingwhetherMAITcan be designated    as a "publicutility"in NewJersey.On February           24,2016,theNJBPUissuedan Orderconcluding                    thatMAITdoesnot satisfythe"electricity  distribution'element     necessary    for"publicutility"statusbecause    MAlTwould      notownanyelectric         distribution assetsin NewJersey.OnApril22,2016,JCP&LandMAITlileda supplemental                          petitionandtestimony         seekingto includecertain JCP&Ldistributions      assetsin the transferto satist the "electricity        distribution"  elementnecessary        for "publicutility"statusin accordance    withtheNJBPU'S      February   24,2016order.Inorderto allowMAlTto fileitsformulatransmission                    ralewithan eftective dateof January1, 2017,on September             8, 2016,JCP&LandMAITsubmitted             a letterto the NJBPUto withdraw             theirpetitionto 91

transferJCP&Lasselsinto MAIT.The NJBPUadministratively                   closedthe matteron September          30, 2016.See Transterof Transmission   Asselsto MAITin FERCMattersbelowforfurtherdiscussion                of thistransaction.
oHto OnAugust4, 2014,theOhioCompanies             filedanapplication  withthePUCOseeking       approval  oftheirESPlVefiitledPowetitvOhbb Progress. ESPlV included    a proposed    RirlerRRS,whichwouldtlowlhoughto customers             eiihercharges  orcredibrepresnting  the net resultof the pricepaidto FESthroughan eight-year            FERGjurisdictional     PPA,refenedto as the ESPlV PPA,againstthe revenues   received frcmsellingsuchoutputintothePJMmarkets.             TheOhioCompanies       entered intostipulationswhicfimodfiedESP lV andwhichincludedPUCOStaffas a signatory             party,in addition  to othersignatories. On March31,2016,the PUCOissuedan OpinionandOrderadopting        andapproving     theOhioCompanies'stipulated       ESPlVwithmodifications. FESandtheOhioCompanies enteredinlolhe ESPlV PPAonApril1,2016.
OnJanuary27,2016,certainparties         fileda complaint  withFERCagainstFESandtheOhioCompanies                lequesting FERCreview   the ESPlV PPAunderSection205ot the FPA.On April27, 2016,FERCissuedan ordergrantingthe complaint,                               prohibiting any transactions  undertheESPlV PPApending            futureauthorization  by FERC,anddirecting      FESto submittheESPlV PPAforFERC reviewif the partiesdesiredto transactundertheagreement.            FESandtheOhioCompanies           did notfil6theESPlV PPAlorFERC reviewbutratheragreedto suspend         theESPlV PPA.FESandtheOhioCompanies                  subsequently  advisedFERCofthiscourseof action.
OnApril29, 2016andMay2, 2016,severalparties,including                 the OhioCompanies,      filedapplications tor rehearing  on the Ohio Companies'ESP      lVwiththePUCO.      TheOhioCompanies'Application          forRehearing   included a modified RiderRRSproposalbut    did notincludea FERC-jurisdictional      PPA.ThePUCOaccepted           theapplications   tor rehearing  forlurtherconsideration  andprovided partiesan opportunity   to comment    on theOhioCompanies'Application          for Rehearing  andfileanalternative   proposal. PUCOStaff recommended      thatthe PUCOdenythe OhioCompanies'               modifiedRiderRRSproposalandrecommended                a new RiderDMR providing  forthecollection   ot $204millionannually     (grossed  upfor incometaxss)forthreeyearswitha possible          extension for an additional  twoyears.TheOhioCompanies            recommended     thatthe PUCOapprovethe proposed           modifiedRiderRRSandthata property designed   RiderDMRwouldbevaluedat$558millionannually                forI years,andinclude   anadditionalamountthat    recognizes thevalueof theeconomic       impactof FictEnergymaintaining        its headquarlers  in Ohio.
Severalpartiessubsequently       filedprotestsandcomments        withFERCalleging,      amongotherthings,thatthe modifiedRiderRRS constitutes  a'virtualPPA'.ThefilingsandFirstEnergy's         responses    theretoarepndingbeforeFERC.
OnSeptember      6,2016,whiletheapplications       forrehearing werestillpending    beforethePUCO,     theOCCandNOACfileda notbeof appealwiththe OhioSupremeCourtappealing                variousPUCOandAttorneyExaminerEntrieson the parties'applications                 lor rehearing. OnSeptember     16,2016,theOhioCompanies          intervened   andtileda motionto dismisstheappeal.      Theappealremains pendingbeforetheOhioSupreme           Court.
On Octobell2,2016,the PUCOissuedan opinionandoder rulingon theparties'applications                      for rehealing andfunhermoditied ESPlV.ThePUCOorderdenied            theOhioCompanies'moditied         FiderRRSproposal,      andinsteadapproved    a RiderDMRproposed by PUCOStaff,withmodifications.
Asa resultofthestipulations,     thePUCO'S     March31,2016Opinion       andOrderandthePUCO'S         October12,2016order,thematerial termsof ESPlV include:
     '    Aneighl-year   term(June1,2016- May31,2024).
The RiderDMRwhichprovidesfor the OhioCompanies               to collect$132.5millionannuallyforthreeyears,withthepossibility of a two-yearextension.The RiderDMRwill be grossedup for taxes,resultingin an approvedamountof approximately
          $204millionannually.Revenues         fromthe RiderDMRwillbe excludedfromthe significantly         excessiveearningstestforthe initialthree-yearterm butthe exclusionwill be reconsidered         uponapplication   for a potentialtwo-yearextension.
Threeconditionsfor continuedrecoveryunderthe RiderDMR:(1) retentionof the corporateheadquarters                     and nexusof operationsinAkron,Ohio;(2) no changein controlof the OhioCompanies;              and(3)a demonstration                progressin of sufficient the implementation    of gridmodernization    programsapprovedby the PUCO.
No restrictions  on the OhioCompanies'use of fundscollectedunderthe RiderDMR.However,the PUCOdirectedthe PUCOStaffto periodically     reviewhowtheOhioCompaniesand FE usethefundsto ensurethe fundsare used,directlyor indirectly,in supportof grid modernization.      Uses of funds to indirectlysupportgrid modernization        could include,e.9.,
reducingoutstanding     pensionobligations    or reducingdebt.
Continuation  of a basedistribution     ratefreezethroughMay31,2024.
Continuation   of the supplyof powerto non-shopping        customersat a market-based      priceset throughan auction process.
Continuation  of RiderDCRwithincreasedrevenuecapsof approximately                $30 millionperyearfromJune 1,2416through May 31, 2019',$20 millionper yearfromJune 1, 2019throughMay31, 2022;and $15 millionper yearfromJune 1, 2022 throughMay31,2024 that supportscontinuedinvestmentrelatedto the distribution                systemfor the benefitof customers.
Collectionof lostdistribution    revenuesassociatedwith energyefficiencyand peakdemandreductionprograms.
92

     . Continuation  ofa commitment       notto recover   fromretailcustomers     cerlaincoslsrelated to tftrnsmissioncostallocations   for thelongerof thefive-year      periodfromJune1,2011lhroughMay31,2016or whentheamountof snchcostsavoidedby customersfor certaintypesof productstotals$360million.
     . PotentialpDcurementof 100MWof newOhiowindor solarresourcessubjectto a demonstrated                           needto procurenew renewableenergyresourcesas partof a strategyto furtherdiversifyOhio'sene$y portfolio.
     . An agreement    to filea casewiththe PUCObyApril3,2017,seekingto transition                to decoupled  baseratesforresidential cu$omers.
     . Anagreementtofile       a GridModernization      Business   PlanforPUCOconsideration      andappoval(which     lilingwasmadeon February   29,2016).
     . A goalacrossFirstEnergy       to reduceCo, emissions        by90%below2005levelsby 2045.
     . Acontribution  of$3millionperyear($24millionovertheeight-yearterm)               tofundenergyconservation     plograms,  economic development    andiob retentionin the OhioCompaniesservicetefiitory.
     . Contributions   of $2.4 millionper year ($19millionoverthe eight-year              term)to tunda fuel-fundin eachol the Ohio ComDanies    serviceterritories    to assistlow-income     customers.
     . Acontdbution   of $1millionperyear($8millionovertheeight-year            term)to establish  a CustomerAdvisory    Councilto ensure preservation  andgroMhof thecompetitive            marketin Ohio.
Finally, on March21,2016,a numberof generation             ownersfiledwilhFERCa complaint        againstPJMrequesting    thatFERCepand the MOPRin the PJMTaritfto preventlhe allegedartilicialsuppression               of pricesin the PJMcapacitymarkeFby stat+subsidized generation,   in particular allegedpricesuppression         thatcouldresulttromtheESPlV PPAandothersimilar          agreements. Thecomplaint requestedthatFERCdirectPJMto initiatea stakeholderprocessto developa long-termiilOPRreformfor existingresourcesthat receiveout-of-market    revenue. Thisproceeding       remainspendingbeforeFERC.
UnderOhio'senergyefiiciencystandards(S8221and58310),andbasedontheOhioCompanies'amended                                energyefficiency  plans, theOhioCompanies       arerequired    lo implement     energyefficiency  programs   thatachievea totalannualenergy     savings  equivalent  of 2,266GWHSin 2015and 2,288GWHSin 2016,andthenbeginto increaseby 1o/"eachyeat in m17, subjectto legislative amendments      b theenergyetficiency      standards     discussed below.TheOhioCompanies          arealsorcquiredlo retainthe2014peak demandreduction      levelfor2015 ard 2016 andthenincrease           thebenchmark     byanadditional  0.75%theGafter   thlough2020,subieci to legislative  amendments    to thepeakdemandreduction           standards  discussed    below OnSeptember       S0,2015,theEnergyMandates           StudyCommittee     issueditsreportrelated   to energyefficiency  andrnewable    energy mandates,    recommending      thatthe currentlevelof mandates         remainin placindefinitely. The reportalsorecommended:        (i) an epeditedprocessior reviewof utilityproposedeney efficiency                  plans;(ii) ensuringmaximum6edit br all of Ohio'sEnergy Initiati\s;(iii)a swithfromenergymandabsto energyincenti\res;             and(iv)a declarationb madethatthe GensralAssembly           may determinethe energypolicyot the state. Legislationwas introducedto addressissuesraisedin the EnergyMandatesStudy Committeereport,namely58320andH8554.S8320proposes                      tofreezeenergyefficiencyandrener,\table    energyrequirements    foran additional  fouryearsat 2014levels,as wellas addressing             netmetering   issues.HBs54proposes       b freezeenergyefficiency     and renewable    energyrequirements      thmugh2027al2014levels.
OnSeptember       24,2014,theOhioCompanies           filedanamendment      to theirenergy           portfolio efiiciency        planascontemplated    byS8310, seekingto suspendcertainprograms            for the 2015-2016    periodin orderto betteralignthe planwiththe newbenchmarks              under S8310.OnNovember         20,2014,thePUCOapproved             theOhioCompanies'amended                 plan.Severalapplications porttolio                          forrehearing wereliled,andthePUCOgrantedthoseapplications                 forfurtherconsideration    ofthematters  specified inthoseapplications   andthe matterremainspendingbeforethe PUCO.
OnApril15,2016,theOhioCompanies               filedan application   forapprovalof    theirthree-yar energyefficiency  portfolio plansforthe periodfromJanuaryt,2017         throughDecember31,         a)19.Theplansasproposed         complywith  benchmatks   contemplated    byS8310 and provisionsof the ESPlV and includea portfolioof energyefficiencyprogramsiargetedlo a varietyof cusiomersegments, including  residentialcustomers,    lowincomecustomers,        smallcommercial     customers,  largecommercialand    induslrialcustomers  and governmenial             TheOhioCompanies entities.                          anticipate thecostof theplanswillbe approximately        $323millionoverthelifeof the portfolio plansandsuchcosbaree)eectedto berecovered                throughthe   OhioCompanies'existing     ratemechanisms. Thehearingis scheduledfor Novembet21-23.2016.
OnSeptember'16,2013,        theOhioCompanies          filedwiththeSupreme      Courtof Ohioa noticeofappealofthePUCO'S          July17,2013 Entryon Rehearingrelatedto energyefficiency,altemativeenergy,andlong-termforecastrulesstatingthatthe rulesissuedbythe PUCOareinconsistent      with,andarenotsupported          by,statutory authority. OnOctober    23,2013,thePUCOlileda motionto dismiss theappeal,    whichwasdenied.OnAugust           9, 2016,upona JointApplication      torDismissalfiled bytheOhioCompanies,      PUCOandthe ELPC,theOhioSupreme          Courtdismissed      theappeal.
Ohiolawrequires     electric utilitiesandelectric   servicecompanies     inOhioto servepartol theirloadfromrenewable        energyrcsources measured    byanannually    increasing   percentage     amountthrough    2026,subject   to legislative amendments    discussed  above,except 2015and2016thatremainatthe2014level.               TheOhioComoanies        conducted    RFPSin2009,2010and2011to secureRECS            to help meettheserenewable        energyrequirements.        In September    2011,lhe PUCOopeneda docketto reviewthe OhioCompanies' alternative  energyre@very      riderthrough   whichtheOhioCompanies          recover  thcostsof acquiring  theseRECS. ThePUCOissued anOpinion   andOrderonAugust        7,2013,approving       theOhioCompanies'      acquisition process  andtheirpurchases    of RECS  to meet 93

stalutorymandates    in allinsiances  exceptforcertain   purchases     arisingfromoneauctionanddirected       theOhioCompaniesto       credit non-shopping    customers   in theamountof $43.4million,plusinterest,          on the basisthattheOhioCompanios           did notprovesuch purchases  wereprudent. On December     24,2013,lollowing    thedenialof theirapplication      forrehearing, theOhioCompanies      fileda noticeof appealanda motionforsiayof the PUCO'S             orderwiththeSupreme        Courtof Ohio,u/hichwasgranted.        On February    18, 2014,theOCCandthe ELPCalsofiledappealsof the PUCO'S                     order.TheOhioCompanies          timelyliledtheirmerilbriefwiththe Supreme  Courtot Ohioandthebriefingprocesshasconcluded.                 Themaileris notyetscheduled        fororalargument.
OnApril9, 2014,thePUCOinitiated          a genericinvestigation   ol marketing   practices  in thecompetitive  retailelectricservicemarket, witha tocusonthemarketing        offixed-price orguaranteed    percent-off  SSOratecontracts      wherethereis a provision   thatpermits   the pass-through   ot newor additional    charges. On November      18,2015,the PUCOruledthaton a going{orward              basis,pass-through clausesmaynotbe included        infixed-price  contracts torallcuslomer     classes.On December        18,2015,FESfiledanApplication        for Rehearing   seekingto changetherulingor haveit onlyapplyto residentialand              smallcommercialcustomers.       OnJanuary13,2016, the PUCOgrantedreconsideration         for{urtherconsideration     of themanersspecitied      in theapplications  for rehearing.
PENNSYLVANIA The Pennsylvania     Companies     currentlyoperateunderDSPSthat expireon May 31, 2017,andprovidefor the competitive procurement   ofgeneration   supplyforcustomers      thatdonotchooseanalternative         EGSorforcustomels      of altemative EGSSthatfail to providethe  contracted   service. Thedetaultservicesupplyiscurrently        provided  bywholesale    suppliers through  a mixoflong-term andshort-term    contracts  procured   throughspotmarketpurchases,         quarterly  descending    clockauctions  for 3-, 12-and24-month energycontracts,    andone RFPseeking2-yearcontracts            to sen SRECStor ME,PN andPenn.Following                theexpkation   of the currentDSPs,thePennsylvania        Companies     willoperate  undernewDSPSfortheJune1,2017through              May31, 2019delivery    pedod, whichwouldprovidetor thecompetitive         procurement  of generationsupplyforcustomers          whodonotchooseanaltemati\EGSorfor customersof altemativeEGSSthat fail to providethe contractedservice.Underthe programs,the supplywouldbe provuedby wholesale  suppliers  througha mixof '12and24-month        energycontracts,     aswellasoneRFPfor2-year         SRECcontracts    forME,PN andPenn.Inaddition,     theplanincludes     modifications to thePennsylvania     Companies'existing     PORprograms     inordertoreduce    the levelof uncollectible  expense   the Pennsylvania    Companies     experience   associated   withalternative EGScharges.
Pursuantto   Pennsylvanias    EE&Clegislation     (Act129of 2008)andPPUCorders,Pennsylvania               EDCSimplemeril    energyefficiency andpeakdemandreduction          programs. ThePennsylvania     Companies'    Phasell EE&CPlanswereeffective          throughMay31,2016.
TotalPhasell costsof theseplanswereepectedto be approximately                    $175millionandrecoverable        throughlhe Pennsylvania Companies'   reconcilable   EE&Criders.OnJune19,2015,          thePPUCissueda Phaselll Finallmplementation             Ordersetting:demand reductiontargets,relative   to eachPennsylvania     Companies'2007-2008        peakdemand(inMW),at 1.8"6forME,1.7%icr Penn,1.8%
iorWB and0%br PN;andenergyconsumption                reduction  tiaEeb,asa percentage       ofeachPennsylvania     Companies'hisbdc     2010 forecasts (inlvfwH),at 4.0y.forME,3.9%forPN,3.3%forPenn,and2.67"forwP.ThePennsylvania                           Companies'Phase    lll EE&C plansfor the June2016throughMay2021period,whichwereapprovedin March2016,are designedlo achievethe targets established  in the PPUC'S    Phaselll Finallmplementation      Orderwithoutrecovery       to implement   theEE&Cplans.
Pursuant to Act 11ot 2012,Pennsylvania         EDCSmayestablish        a DSICto recovercostsot infrastructure       improvements  andcosts relatedlo highway   relocation  pojectswithPPUCappmval.          Pennsylvania    EDCsmustfileLTllPsoutlining      infElstruclureimprcvement plansfor PPUCreviewandapproval           priorto approval  of a DSIC.OnOctober19,2015,eachofthe Pennsylvania                 Companies    filed LTllPswiththe PPUCfor infrastructure        improvement    overthefive.year     periodof 2016to 2020fortheiollowing        costs:WP$88.34 million;PN$56.74million;Penn$56.35million;          andME$43.44million.OnFebruary            11,2016,thePPUCapproved        thePennsyhrania Companies'    LTllPs.On February      '16,2016,  the Pennsylvania     Companies    filedDSICridersfor PPUCapprovalfor          quarterly  cost recoveryassociated     withthe capitalprojectsapproved         in the LTllPs.On June9, 2016,the PPUCapproved               the Pennsylvania Companies'    DSICridersto be effective     July1,2016,subjectto hearings        andrefundor reallocalion    amongcustomers.
OnApril28,2016,     eachofthePennsylvania        Companiesfiled    tarifiswiththePPUCproposing        generalrate  increases  associated  with theirdistribution  operations   thatwill benefitcustomers      by modemizing     the gridwithsmarttechnologies,        increasing vegetation management      activities,andcontinuing     othercustomer    seMceenhancements.          Thetilingsrequestapprovallo increase        annual operating  revenues   by approximately     $140.2millionat ME,$158.8millionat PN,$42.0millionat Penn,and$98.2millionat We baseduponfullyprojectedfuturetest yearsfor the twelvemonthsendingDecember                            31, 2017at eachof the Pennsylvania Companies. Asa resultottheenactment        of Act40 of 2016thatterminated      thepractice    of makinga CTAwhen                a utility's calculating federalincometaxesforratemaking         purposes,  thePennsylvania      Companies    submitted   supplemental testimony   onJuly7,2016,thal quantified thevalueof theelimination      oftheCTAandoutlined       theirplanfor investing    50 percentofthatamountin ralebaseeligible equipment   asrequired   bythenewlaw.Formalsettlement          agrements    toreachofthePennsytuania       Companies   werefiledonOctober
 '14,2016,whichprovideincreases                                                                                    millionatPN,$29million    at inannualoperating    revenues    of approximately   $96million  at ME,$'100 Penn,and$66millionatWB andaresubject             to PPUCapproval.      Oneitemrelatedto thecalculation      of DSICrateswasreserved        fol brieling,withbriefsfiledby twoparties.Theproposed            newratesareexpected         to takeefiectin January2017pendingregulatory approval, whichis expectedno laterlhan January26, 2017.
OnJune19,2015,MEandPN,alongwithJCP&1,FETandMAITmadefilingswithFERC,theNJBPU,andthePPUCrequesting authorization forJCP&1,PNandMEtocontribute            theirtransmission   assetsto MAIT,a newtransmission-only         subsidiaryof FET.On March4,2016,aJointPetitionfor        FullSettlement  wassubminedtothe        PPUCtorconsideration       andapproval. OnAp l 18,2016,     the ALJSissuedan InitialDecision      approving   theJointPetition   torFullSettlsment     withoutmodifications. OnJuly21,2016,thePPUC 94

adopted  a Motionapproving    theJointPetition      forFullSettlement    withminormodifications.      OnAugust24,2016,thePPUCissueda FinalOrder  approving  theJointSeftlement       consistent   withtheJuly21,2016Motion.       SeeTransfer      ofTransmission   Assetsto MAITin FERCMattersbelowforfurtherdiscussion              of thistransaction.
WESTVIRGINIA MPandPEprovide       electricservice    to allcustomers   lhroughtraditional  cost-based,   regulated    utilityratemaking. MPandPErecover netpowersupplycosts,including         fuelcosts,purchased        powercostsandrelatedexpenses,            netof relatedmarketsalesrevenue throughtheENEC.MP'sandPEs ENECrateis updaledannually.
MPandPEfiledwiththeWVPSConMarch31,2016theirPhasell energyefficiency                          program     proposallor   approval. MPandPEare proposing  threeenergyefiiciency       programs    to meettheirPhasell requirement         of energyetficiency     reductions  of 0.5%of 2013 distributionsalesfortheJanuary1,2017throughMay31, 2018period,asagreedto byMPandPE,andapproved                                  bytheVWPSCin the2012proceeding     approving   thetransfer    ol ownership   ot Harrison  PowerStation   to MP.Thecostsfortheprogram          areexpecled    to be$10.4millionandwillbeeligible        forrecovery    through  theexisting  energyefficiency   riderwhich    is reviewed  inthetuel(ENEC)case eachyear.A unanimous      settlment    wasreached      bythepartiesonall issuesandpresented           to theWVPSConAugust18,2016.An orderapproving    thesettlement   intullwithoutmodification       wasissuedbytheWVPSConSeptember                  23,2016.Undertheorder,lhe programs   maybeginas of thedateof suchorder,butno laterthanJanuary1, 2017.
TheStaffoftheWVPSCandtheConsumer                 AdvocateDivisionfileda ShowCausepetitiononAugust5, 2016, reqrcstirEtheWVPSC orderMPandPEto fileandimplement             RFPS   forallfuturecapacityandenergyrequirements             above100bfwsandthattheycomply withan RFPsettlement      provision  fromtheHarrison       assetacquisition. MPandPElileda timelyresponse             to thepetitionarguingfor dismissal  on September    7, 2016.On October17,2016,theWVPSCdeniedthepetitionfled by the Staffof theWVPSCandthe Consumer    Advocate   DMsionanddismissed          thecase.
On August16,2016,MPand PEfiledtheirannualENECcaseproposing                            an approximate      $65millionannualincrease        in rates effectiveJanuary1,2017,whichisa 4.7"/.overallincrease              o\r existing rates.The$65millionincrease        iscomprised  of $119million under-recovered    balance arsofJune30,20t6, anda proiected           $54millionoveFrecovery       forthe2017raleeffective      period.Ahearing hasbeensetlor November        I and10,2016withan ordere)eectedto be issuedinthefourthquanerof 2016.
OnAugust22,2016,MPandPEfiledan application                  forappovalol a modemization       andimprovement        planforcoal-fired  boilersat electricpowerplantsandcost-recovery           surchargeprcposingan approximate          $6.9millionannualincreasein ralesproposedto be effectiveMayI , 2017,whichis a 0.570overallincreaseoverexistingrates.Thefilingis in responselo recentlegislationbytheWest VirginiaLegislature  sessionpermittingacceleratd recoveryofcostsrelatedto modemizing                  andimpmving     coal-firedboilers,including costsrelated   to meeting environmental     requiremenb     androducing    emissions. Thelillngwassupplemented         onSeptember28,2016, to addtwoadditional    projects, resulting   in anappmximate      $7.4millionannualincrease       in rates.TheStaffof theWVPSChasfileda motionto dismissthe casearguingthe newstalutewasnol meantto recoverthesetypesof pmjecb,buttheWVPSChasset the casefor hearingfor February      21-23,2017     -
On December      30,2015,MPfiledan IRPidentifying          a capacityshortfatl    staningin 2016andexceeding          700lvlwby2020and850 MWby 2027.OnJune3, 2016,theWVPSCaccepted                       the IRPfindingthatlRPsareinformational            andthatit mustnotapproveor disapprove   the lRP.MPPlansto issuea RFPto addressitsgeneration                          iderdmed shorttall            inthe IRPbytheendof theyear RELIABILITY     UAITERS Federally-enforceable    mandatory    reliabilitystandadsapplyto thebulkelectricsystemandimposecertainoperating,                 recod-keeping andreporting    requirements   on the Utilities,  FES,AE Supply,FG,FENOC,NG,ATSIandTrAlL.NERCis theEROdesignated                                by FERCto establishandenfolcethesereliabilitystandards,            alhoughNERChasdelegated           day-tcdayimplementation      andenbrcement ofthesereliability  standards  to eightlegionalentities,     including RFC.Allot FirstEnergys      facilities arelocatedwithinlhe RFCregion.
FirstEnergy  actively participales  intheNERCandRFCsiakeholder              processes,   andothenflise    monitors  andmanages    itscompanies in responseto   theongoing   development,      implementation    andenforcement      ofthereliability standards   implemented   andenlorced     by RFC.
FirstEnergy  believes thatit is in compliance     withall currently-etfective   andenforceable      reliabilitystandards. Nevertheless,  in the courseof operatingits extensiveelectricutilitysystemsand tacilities,FirstEnergy                      occasionally   loarnsof isolatedfactsor circumstances    thatcouldbe interpreted        as excursions    fromthe reliability  standards. ll andwhensuchoccurrences          arefound, FirstEnergy  develops  information  abouttheoccurrence        anddevelops    a remedialresponse      tothespecific   circumstances, including   in appropriate   cases"self-reporting"    an occurrence     to RFC.Moreover,     it is clearthatNERC,RFCandFERCwillcontinue                 to refine existingreliabilitystandards  aswellasto developandadoptnewreliability              standards. Anyinability    on FirstEnergy's partto comply withthereliability standardsfor   itsbulkelectric     systemcouldresultintheimposition       of financial  penalties, andobligationsto   upgrade or buildtransmission             thatcouldhavea materialadverseeffecton itstinancial facilities,                                                                  condition,  resultsof operations  andcash flows.
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FERCMATTERS Ohio ESPlV PPA Forintormation   regarding  mattersbeloreFERCrelated     to theESPlV PPAbetween        FESandtheOhioCompanies,           see"Regulatory Matters- Ohio'above.
PJMftansmissionBates PJManditsstakeholders       havebeendebating    thepropermethodto allocate     costsfornewtransmission       lacilities.
WhileFirstEnergy andotherpartiesadvocate      toratraditional"beneficiary pays"(orusagebased)approach,         othersadvocato    lor "socializing"lhecosts ona load-ratio  sharebasis,whereeachcustomerin        thezonewouldpaybasedonitstotalusage            otenergywithin    PJM.Thisquestion hasbeenthesubject      of extensivelitigationbeforeFERCandtheappellate        courts,including  betoretheSeventh             OnJune25, Circuit.
2014,a dividedthree-judge     panelof theSeventh    CircuitruledthatFERChadnotquantified         thebenefits   thatwesternPJMutilities wouldderivefromcertainnew5OOkV or higherlinesandthushadnotadequately                    supported   itsdecisionto socialize  lhe costsof theselines.Themajority     foundthateasternPJMutilities   aretheprimarybeneficiaries     ot thelines,whilewestern     PJMutilitiesareonly incidental beneficiades,   andthat,whileincidental beneficiariesshouldpaysomeshaleofthecostsof thelines,thatshareshouldbe proportionate  to thebenelittheyderivefromthe lines,andnoton load-ratiosharein PJMasa whole.ThecourtEmandedthecaseb FERC,whichissuedanordersettingtheissueofcostallocation            forhearing   andsettlement    proceedings. OnJune15,2016various parties,includingATSI and the Utilities,filed a settlementagreementat FERC agreeingto apply a combinedusage basedsocialization    approachto costallocalionfor chargesto transmission      customersin the PJMregionfor transmission          projects operatingat or above500kV.Certainpartiesin the proceeding         did not agreeto the settlementandtiledploteststo the senlement seeking,  amongotherissues,to strikecertainof theevidence        advanced    by FirstEnergy   andcertainof theothersetllingpaniesin supportof thesettlemert,     as wellas pmvidedfurthercomments       in opposition  lo the settlement. The PJMTOsresponded           to the protesting parties'variouspleadings     andmotions. Thesettlement   is pendingbetoreFERC.
Ina seriesofordeFincertainOrderNo.1000dockeb,FERCasserted                 thatthePJMtransmission       ownersdo nothoHan incumbent
'rightotfirstrefusal"to @nstruct,ownandoperatetransmission        proiectswithintheirrespective    footsrintsthatareapprovedarspartof PJM'SRTEPprocoss.FirstEnergy         andotherPJMtransmission      ownersappealed      theserulingstotheU.S.CourtofAppeals           torthe D.C.Circuitwhich,ina July'1,2016oFinion,       ruledthatthePJMtransmission      ownerslailedto preserve      theiratguments    inthelegal proceedings   bebreFERCand,onthatbasis,deniedtheappeal.Ina related             casebrowhtbytheSlouthwest         PowerPooltransmission ownersandissuedon the sameday,thecourtruledthatthe lrobrire-S,b/astandarddoesnotprotecttransmission                      owners'rightsot first refusallhat may be proviled for in RTOtariffsbcause,accordingto the court, the tariff languageis designedto block competition. The lroblesrbna standardpresumesthatratesnegotiatedby pdvatepartiesat arm'slengtharejustandreasonable andpmhibitsFERCfrommodifying           suchratesunlessthepublicinterestrequires.
Theoutcome     of theseproceedings    andtheirimpact,if any,on FirstEnergy     cannotbe predicted     at thistime.
RTOBealignment OnJune1,2011,ATSIandtheATSlzonetransferred              fromMISOto PJM.Whilemanyofthe matte6involved                  withthemovehave beenresolved,FERCdeniedrecoveryunderATSI'Stransmission              ratefor certainchargesthatcollectivelycanbedescribedas "exit fees"andcertainothertransmission       costallocation chargestotalingapproximately      $78.8millionuntilsuchlimeasATSIsubmitsa cosubenefitanalysisdemonstrating       net benefitsto customersfromthe transferto PJM.Subsequently,           FERCrejecteda poposed settlementagreementb resohretheexitfee andtransmissioncostallocationissues,statingthatitsactioniswithodprejudice                   toATSI submitting  a cost/benefit   analysisdemonstrating   thatthe benefitsof the RTOrealignment        decisionsoutweigh      lhe exitfee and transmission  costallocation  charges. OnMarch17,2016,FERCdeniedFirstEnerg/s             request  forrehearing   of FERC'S  earlierorder rejectingthe settlementagreementandaffirmedits priorrulingthatATSImustsubmitthe cost/benefitanalysis.
Separately,  the questionot ATSI'Sresponsibility    forcertaincosBtor the "Michigan      Thumb"transmission       projectcontinues    to be disputed. Potential               arisesundertheMISOMVPtariff,whichhasbeenlitigated responsibility                                                             incomplexproceedings       beforeFERC andcertainUnitedStatesappellate       courts.OnOctober29,2015,FERCissuedanorderfinding               thatATSland     theATSlzone    do not havetopayMISOMVPcharges          fortheMichigan   Thumbtransmission     project.MISOandtheMISOTOslileda request            forrehearing, whichFERCdeniedon May19,2016.On July15,2016,the MISOTOsfiledan appealot FERC'S                              orderswiththe SixthCircuit.
FirstEnergy intervened   intheproceedings  andintends  to participate intheappeal. Ona related  issue,FirstEnergyjoined    certain  other PJMtransmission     ownersina protestof MISO'sproposalto     allocate MVPcoststo energy      transactions thatcrossMISO'S    borderinto the PJMRegion.On July13,2016,FERCissuedits orderfindingit appropriate                  for MISOto assessan MVPusagechargetor transmission  exports   fromMISOto PJM.Various     parties,including FirstEnergy  andthePJMTOs,requested          rehearing orclarification of FERC'S  order.Theseparties'request     for rehearingremainspendingbeforeFERC.
Inaddition, in a May31,2011order,FERCruledthatthecoststor certain"legacyRTEP"transmission                     proiects in PJMapproved beforeATSIjoinedPJMcouldbechargedto transmission            cuslomers   in theATSIzone.Theamountto bepaid,andthequestion                 of derivedbenofits,   is pendingbeforeFERCas a resultof the SeventhCircuit's          June25, 2014orderdescribed         aboveunderPJM Transmission   Rates.
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Theoutcomeof theproceedings          thataddressthe remaining        openissuesrelatedto cosb forthe"Michigan             Thumb'transmission poject and"legacyRTEP'transmission           projectscannotbe predictedat thislime.
Tmster of Transmission      AsseBto MAIT On June10,2015,MAII a Delaware            limitedliabilitycompany,      wasformedas a newtransmission-only            subsidiary of FETfor the purposes   of owningandoperating       all FERo-jurisdictional    transmission   assetsof JCP&L,MEandPNfollowing               the receiptof all necessary   stateandfederalregulatory      approvals. OnJune19,2015,JCP&L,PN,ME,FET,andMAITmadefilingswithFERC,the NJBPU,andthePPUCrequesting            authorization  forJCP&L,PNandMEto contribute             theirtransmission   assetstoMAIT. Additionally, theflingsrequested      approval fromtheNJBPUandPPUC,as applicable,                of: (i) a leaseto MAITot realproperty      andrights-of-way associated   withtheutilities' transmission  assetsi(ii)a MutualAssistance        Agreement;    (iii)iilAlTbeingdeemeda publicutililyunder statelaw;(iv)MAITSparticipation      in FE'sregulated   companies'money        pool;and(v)certainaffliatedinterest       agreemenb. Asinitially proposed,   it wasexpected    thatJCP&1,ME,andPNwouldcontribute               theirtransmission     assetsat netbookvalueandan allocated portionof goodwillin a tax-treeexchange         to MAIT,whichwouldoperatesimilarto FETStwoexistingstand-alone                     transmission subsidiaries,   ATSIandTrAlL.MAITStransmission           facilitis willremainunderthefunctional         controlof PJM,andPJMwillprovide transmission    serviceusingthesefacilities   underthePJMTarifi.FERCapproved             thetransaction    onFebruary   18,2016. OnAugust24, 2016,thePPUCissueda FinalOrder            approving   thetransaction. In orderto allowMAITto fileitsformulatransmission          ratewithan etfective dateofJanuary1,2017,onSeptember            8, 2016,JCP&LandMAITsubmitted              a lettertotheNJBPU     to withdraw theirpetition to transferJCP&Lassetsto MAIT.TheNJBPUadministratively                   closedthe matteron September          30,2016.SeeNewJerseyand Pennsylvania     in StateRegulation   abovelor turtherdiscussion       of thistransaction.
On October14and28,2016,MAITsubmitted                applications   to FERCrequesting       authorization  to issueequity,short-term   debt,and long-term  debt.MAITintendsto issuemembership             interests  to FET,PN,andMEin exchange             fortheirrespective  cashandasset contributions. MAITis expected   to issueshort-term    debtandparticipate     inlhe FirstEnergy      UtilityMoneyPoolforworkingcapital,    to fundday-to-day     operations, andlor othergeneralcorporate        purposes. Overthelong-term,      MAITisexpected     to issuelong-term debt to supportcapitalinvestmenl       andto establish    an actualcapitalstructure      for ratemaking     purposes. On October28,2016,MAIT submitted  anapplication   to FERCrequesting      authorization  to implementa     formulatransmission      rateto recover  andearna returnon transmission    costsetfective January1,2017.OnOctober          28,2016,MAlTandPJMsubmitted              jointapplications  to FERCrequesting authorization   for (i)MEandPNto withdraw        fromthe PJMConsolidated        Transmission     OwnersAgreement       asTOs,and(ii)MAITto becomea participating     PJMTO.Acceptance         ot MAITas a PJMTOwouldgrantPJMfunctional                   controloverMAlls transmission assets,andwouldpermitPJMto implement              MAIT'S   formularateon MAITSbehalf.
JCP&LftansmissionFormulaRate GiventhatJCP&Lwill       notbetransferring   itstransmission    assetsto MAIT,thereis a needforJCP&Ltoupdateitslransmission                rate.
Accordingly,    on October28, 2016,JCP&Lsubmitted             an application   to FERCrequesting        authorization  to implement   a tormula transmission    rateto recoverandearna returnon transmission            costsefiective   January1, 2017.
CalitomiaClains Litigation Since2002,AE Supplyhasbeeninvolvedin litigation                andclaimsbasedon its powersalesto the California               EnergyResource Scheduling    divisionof theCDWRduring2001-2003.            Thislitigation  andclaimsarerelatedto litigation      andclaimsadvanced      bylhe Calilornia Attorney   GeneralandcertainCalitornia      utilitiesregarding   allegedmarketmanipulation        ofthewholesale   energymarkets  in California duringthe2000-2001       period.AE Supplynegotiated         a settlement   withtheCalifornia    Attorney GeneralandtheCalifornia utilitiesand,on August24,2016,filedthe settlement             agreement    for FERCapprovat.       Thesettlement    callslor AE Supplyto pay, withoutadmission      ofanyliability,
                                    $3.6millioninsettlement       in principle of all remaining  claimsthatarebasedonAESupply's          power salesin thewesternenergymarkets          duringthe2001-2003        timeperiod.On October27,2016FERCapproved                  thissenlement.
PATHTransmission      Prcject On August24,2012,the PJMBoardof Managers                  canceled    the PATHproject,a proposed         transmission   linefromWestVirginia throughVirginia    andintoMaryland    whichPJMhadpreviously          suspended    in February2011.As      a resultof PJMcanceling    theproject, approximately     $62millionandapproximately       $59millionin costsincurredby PATH-Allegheny               andPATH-WV       respeclively, were reclassified  fromnet property,   plantand equipment        lo a regulatory   assetfor futurerecoveryPATH-Allegheny             and PATH-WV requested   authorization  from FERCto recoverthe costswith a proposedROEof 10.97.(10.4%baseplus 0.5%lor RTO membership)     fromPJMcustomers      overfiveyears.FERCissuedan orderdenying                the0.5%ROEadderfor RTOmembership              and allowingthe taritlchangesenablingrecoveryof thesecoststo becomeefiectiveon De@mber1, 2012,subjectto settlement proceedings    and hearingif the partiescouldnot agreeto a settlement.              On March24, 2014,the FERCChiefAU teminated settlement  proceedings   andappointed     an AL, to presideoverthe hearingphaseof thecase,including                  discovery andadditional pleadings  leadingupto hearing,    whichsubsequently        included  the partiesaddressing      theapplication   ot FERC'S   OpinionNo.531, discussed  bdow tothePATHproceeding.          OnSeptember       14,2015,   theAu issuedhisinitialdecision,      disallowing  recovery ofcertain costs.TheinitialdecisionandexceptionstheretoremainbeforeFERCtor reviewanda finalorder.FirstEnergy                          continuesto believe thecostsarerecoverable,       subjeclto tinalrulingfromFERC.
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FEBCODinionI'lo.531 On June19,2014,FERCissuedOpinionNo.531,in whichFERCreviseditsapproach                                for calculating thediscounted   cashflow elementof FERC'S     ROEmethodology,       andannounced       thepotential    lor a qualitativeadjustrnent   to the ROEmehodology      results.
Undertheold methodology,       FERCuseda five-year        forecastfor thedividendgroMhvariable,            whereasgoingforwardths growth variablewillconsistof twoparF:(a)a live-yearforecastbr dividendgrourth(2/3weight);and(b)a longtermdividendgrowlhtorecast basedon a forecastfor the U.S.economy(1/3weight).Regarding                   the qualitative adjustment,                     ratecasesFERC for single-utility formerlypeggedROEat themedianof the"zoneof reasonableness"                      thatcameoutof the ROEformula,whereasgoingfoMard, FERCmayrelyonrecodevidence            to makequalitative    adjustments    to theoutcome    ottheROEmethodology         inorderb reacha level sufiicientto attractfutureinvestment.      On October'16,2014,FERCissuedits OpinionNo. 531-A,applyingthe revisedROE methodology   tocertainISONewEngland         transmission   owners,    andonMarch3,2015,FERCissuedOpinionNo.531-Baffirming                  its priorrulings. Appealsof OpinionNos.531,531-Aand531-Barependingbeforethe U.S.Courtof Appealslor the D.C.Circuit.
MISOCapadtyPoftability OnJune11,2012,in response         to cenainarguments       advanced     by MISO,FERCrequested          comments    regarding  whetherexisting rulesontransfer   capability actasbarriers   tothedelivery    of capacity between     MISOandPJM.FirstEnergyand         olherparties submined tilingsarguingthatMISO'Sconcernslargelyare withoutfoundation,                    FERCdid not mandalea solutionin response           to MISO'S concerns. At FERC'S   dkection,  in May,2015,PJM,MISO,andtheirrespective                 independent    marktmonitors    provided  additional information ontheirvarious    jointissuessurrounding     thePJ[iVMlSO      seamto assistFERC'sunderstanding           oftheissuesandwhat,if any,additionalsteps   FERCshouldtaketo improve         theefiiciency    otoperations   atthePJiiVMISO     sam.Stakeholders,   including FESC onbehalfofcertainof itsafiiliates   andasoartof a coalition     ofcertainotherPJMutilities,      filedresponses   tolheRTOsubmissions. The varioussubmissions     andresponses     remainbeforeFERCforconsideration.
Changes   to thecriteriaandqualifications     torparticipation   in thePJMRPMcapacityauctions            couldhavea significant   impacton theoutcome    of thoseauctions,   including  a negative   impactonthepricesat whichthoseauctions              wouldclear.
ENVIRONMENTAL         MATTERS Variouslederal,   stateandlocalauthorities    regulate  FirstEnergywith     regardtoairandwaterquality        andotherenvironmentalmatters.
Compliancewith     environmental  regulations   couldhavea materialadverse         effectonFirstEnergys    earnings andcompetitive   positionto theextentthatFirstEnergy     competes    withcompanies     thatarenotsubjectto suchregulations           and,therefore,  do notbeartheriskof costsassociated    withcompliance,    or failureto comply,   withsuchregulations.
CleanAir Act FirstEnergy  complies   withSO,andNOxemission           reduction    requirements    undertheCAAandSIP(s)byburninglower-sulfur            fuel, utilizingcombustion  controls  andpost-combustion      controls,   generating    moreelectricitytromlowerornon-emitting     plantsanUor using emission  allowances.
CSAPRrequires      reductions  ofNOxandSO2emissions          intwophases(2015and2017),ultimately             capping  SO2emissions   inaffected statesto 2.4milliontonsannually      andNOxemissions       to 1.2 milliontonsannually. CSAPRallowstradingof NOxandSO2emission allowances   between   powerplantslocatedinthesamestateandinterstate                tradingol NOxandSO2emission          allowances  withsome restrictions.TheU.S.CourtofAppeals        lortheO.C.Circuitordered       theEPAonJuly28,2015,to reconsiderthe             CSAPRcapson NOx andSO2emissions       frompowerplantsin 13 states,including            Ohio,Pennsylvania     andWestVirginia.      Thisfollowsthe 2014U.S.
Supreme   Courtrulinggenerally    upholding    EPAsregulatory      approach    underCSAPR,butquestioning         whetherEPArequired    upwind statesto reduceemissions      bymorethantheircontribution         to airpollution  in downwind  states.EPAissueda CSAPRupdateruleon September    7, 2016,reducingsummertime          NOxemissions        frompowerplantsin 22 statesin the easternU.S.,including             Ohio, Pennsylvania  andWestVirginia,     beginning  in2017.Depending        onhowtheEPAand        thestatesimplement       CSAPR,  thefuturecoslof compliance   maybe materialand       changes   to FirstEnergy's    andFES'operations       mayresult.
EPAtightenedthe     primaryand   secondary    NAAOSforozonefromthe2008standard                levelsot75 PPBto70PPBonOctober1,2015.
EPAstatedthe vastmaiorityof U.S.countieswill meetthe new70 PPBstandad by 2025dueto otherfederalandstaterulesand programs   butEPAwilldesignate      thosecounties    thatlailto attainthenew2015ozoneNMQS byOctober1,2017.Stateswillthen haveroughlythreeyearsto developimplementation            plansto attainthenew2015 ozoneNAAOS.Depending                  onhowtheEPAandthe statesimplementthe     new2015ozoneNMQS,thefuturecoslofcompliance                      maybematerialand      changes  to FirstEnergys andFES' operations  mayresult.InAugust2016,theStateof Delaware              fileda CAASection126petition        withtheEPAalleging    thattheHanison generating  facility's NOxemissions      significantly contribute   to Delaware's            lo attaintheozoneNMQS.Thepetitionseeksa inability shorttermNOxemission       ratelimitof 0.125lb/mmBTU        overanaveraging       periodof nomorethan24 hours.OnSeptember             27,2016, EPAextended    thetimeframetor actingon theCAASection126petitionby six monthsto April7, 2017.FirstEnergy                          is unableto predicttheoulcomeof lhismatteror estimate         thelossor rangeof loss.
MATSimposes     emission  limitsformercuryPM,andHClforallexisting               andnewfossilfuelfired     electricgenerating  unitseffectivein April2015withaveraging       of emissions  frommultipleunitslocatedat a singleplant.FirstEnergy's             totalcapital costforcompliance (overthe 2012to 2018timeperiod)is cunentlyexpected                to be approximately     $345million(CESsegmentot $168millionand

Regulated  Distributionsegment    of $177million),   ofwhich$267millionhasbeenspentthroughSeptember                      30,2016($117millionat CESand$150millionat Regulated         Distribution).
OnAugust3, 2015,FG,a subsidiary       ol FES,submitted       to theAAAotficein NewYork,N.Y.,a demandforarbitration                andstiatemenl    of claimagainstBNSFandCSXseekinga declaration                thatMATSconstituted          a forcemajeureeventthatexcusesFG'sperformance underitscoaltransportation   contract  withtheseparties.      Specitically,  thedisputearisesfroma contract         lorthetransportation   byBNSF andCSXof a minimum       of 3.5milliontonsot coalannually           through2025to certaincoaffiredpowerplantsownedby FGthatare locatedinOhio.Asa resultotandincompliancewith             MATS,allplantscoveredbythiscontract              rveredeactivated   byApril16,20'15.In January2012,    FGnotifiedBNSFandCSXthatMATSconstituted                   a torcemaieure     eventunderthecontract       thatexcused    FG'sturther performance. Separately, on August4, 2015,BNSFandCSXsubmined                         to theAAAotficein Washington,          D.C.,a demandfor arbitrationandsialement    of claimagainstFGalleging         thatFGbreached         thecontractandthatFG'sdeclaration           of a torcemajeure underthecontractis notvalidandseekingdamages               underthecontractthrough2025.On May3l, 20'16,thepaniesagreedto a stipulationthatit FG'sforcemajeure    detenseis determined         to bewhollyor partially    invalid,liquidated   damages    arethesoleremedy availableto BNSFandCSX.Thearbitration          panelhasdeterminedto           consolidate   theclaimswith    a liabilityhearirE scheduled   tobegin on November     28, 20'16,and,if necessarya damageshearingscheduled                     to beginon MayA,2017.Thedecisionon liabilityis expected  to beissuedwithinsixtydaysfromtheendoftheliability               hearingproceedings,     whicharescheduledto         conclude    February 24,2017.FirstEnergyand     FEScontinue     to believe  thatMATSconstitutes          a torcemajeure   eventunderthecontract       asil relates  tothe deactivated  plantsandthatFG'sperlormance         underthecontract       istherefore    excused. FGintends     to vigorously assertitsposition    in thearbitration proceedings. lf,however,  thearbitration    panelrulesinfavorot BNSFandCSX,theresultsotoperations                     andfinancial conditionot both FirstEnergy    and FEScouldbe materially             adversely    impacled.Referto lhe StrategicReviewof Competitive Operations  sectionol Note1,Organization      andBasisol Presentation,          forpossible   actionsthatmaybetakenbyFESintheeventof anadverse   outcome,  including, withoutlimitation,   seekingprotection       underthebankruplcy       laws.FirstEnergy     andFESareunableto estimate the lossor rangeof loss.
FGisalsoa partyto another     coaltransportation    contract   covering   thedeliveryof2.5milliontonsannuallythrough             2025,a portion    of whichis to be delivered   to anothercoal-fired    plantownedby FGthatwasdeactivated                  as a resuhof MATS.FG hasasserteda defenseof forcemajeurein response       to delivery  shorttalls    to suchplantunderthiscontractaswell.lf FGlailsto reacha resolution withtheapplicable   counterparties  tothecontracl,    andif it wereultimately      determined    that,contrary   to FirstEnergy's  andFES'belief, theforcemajeureprovisions      ofthatcontract   do notexcusethedeliveryshortfalls            to thedeactivated     plant,lheresultsof operations andfinancialcondition   of bothFirstEnergy     andFEScouldbe materially              adversely  impacted. FirstEnergy    andFESare unableto estimate thelossor rangeof loss.
As to bothcoaltransportation     agreements    referenced      above,FG paidapproximately           $70millionin the aggregate         in liquidated damages   tosettledelivery  shortfallsin 2014related     to itsdeactivated     plants,whichapproximated        fullliquidated damages     underthe agreemenls   forsuchyearrelatedto theplantdeactivations.             Liquidated   damages     fortheperiod2015-2025         remainin dispute.
Astoa specific  coalsupplyagreement,      AESupplyhasasserted           termination    rightsetfective  in2015.In response     lo notification ofthe termination,  the coal supplier@mmenced         litigationallegingAE Supplydoesnot havesutficient                    justificationto terminatethe agreement. AE Supplyhasfiledan answerdenyinganyliability               relatedto thetermination.      Thismatteris currently     inthediscovery phaseof litigation andnotrialdatehasbeenestablished.             Thereareapproximately         5.5milliontonsremaining       underthecontract     for deliveryAt thistime,AE Supplycannotestimate             the lossor rangeof lossregarding            the on-goinglitigalion    withrespectto this agreemenl.
InSeptember    2007,AE received    an NOVfromtheEPAallegingNSRandPSDviolations                        undertheCAA,aswellas Pennsylvania andWestVirginia    statelawsatthecoal-fired     Hattield's'Ferry     andArmstrong      plantsin Pennsylvania     andthecoal-fired   FortMartin   and WillowlslandplantsinWestVirginia.      TheEPA'sNOValleges            equipment    replacements    duringmaintenance      outages  triggered  thepre construction  permittingrequirements   undertheNSRandPSDprograms.                   OnJune29,2012,January3'1,2013,March27,2013and Octobell8,2017,EPAissuedCAAsection114requests                     fortheHarrison      coal-fired plantseekingintormation      anddocumentation relevantlo itsoperation  andmaintenance,      including   capitalprojects     undertaken    since2007.OnDecember           12,2014,EPAissueda CAAsection114requestforthe FortMartincoal-fired               plantseekinginformation        anddocumentation         relevantto ils operation   and maintenance,   includingcapitalprojects   undertaken    since2009.FirstEnergy          intends tocomply    withtheCAAbut,     atthistime,is unable to predicttheoutcomeof thismatteror estimate         thelossor rangeof loss.
Clinate Change FirstEnergy  hasestablished   agoaltoreduceCO2emissions              by90%below2005levels          by2045.Therearea numberofinitiatives            to reduceGHGemissions       at thestate,federalandinternational           level.Certainnortheastern      statesareparticipating      in tho RGGIand westernstatesledbyCalifornia,      haveimplemented       programs,     primarily  capandtrademechanisms,           lo controlemissions     ofcertain GHGS.Additional     policiesreducingGHGemissions,             suchas demandreduction            programs,    renewable    portfoliostandards     and renewable   subsidies havebeenimDlemented         acrossthenation.
TheEPAreleasedits final"Endangerment           andCauseor Contribute           Findings    lor Greenhouse     Gasesunderthe CleanAirAcl"in December   2009,concluding   thatconcentrations     ot severalkeyGHGSconstitutes            an "endangerment"        andmaybe regulated      as"air pollutants"underthe CAAandmandated           measurement        andreporting     of GHGemissions        fromcertainsources,     including   electric generating  plants.TheEPAreleased       itstinalregulations      in August2015(rvhichhavebeenstayedbytheU.S.Supreme                        Court),to 99

reduceCO2emissions         fromexistingfossilfuelfhedelectricgenerating          unitsthatwouldrequireeachstateto developSlPsby September6, 2016,to meetthe EPASstatespecificCO2emissionrategoals.TheEPASCPPallowsstatssto requesta lrvo-year extension  tofinalizeSlPsbySeptember        6,2018.lf statesfailtodevelopSlPs,theEPAalsoproposed               a lederalimplementation    plan thatcanbeimplemented        bytheEPAthatincluded       modelemissions     tradingruleswhichstatescanalsoadoptinthekSlPs.TheEPA alsofinalizedseparateregulations        imposingCO, emissionlimilsfor new,modified,             and reconstructed    fossilfuelfiredelectric generating   units.OnJune23,2014,theUnitedStatesSupreme               Courtdecided    thatCQ orotherGHGemissions         alonecannot   trigger permitting requirements     undertheCAA,butthatairemission        sourcesthat    needPSDpemib duetooherlegulaEd             airpollutants  can be requiredbythe EPAtoinstallGHGcontroltechnologies.             Numerous    statesandprivatepartiesfiledappealsandmotionsto say the CPPwiththeU.S.CourtolAppeals           iortheD.C.Circuitin October2015.        OnJanuary21,2015,a paneloftheD.C.Circuitdeniedthe motions  forstayandsetanexpedited        schedule    lor briefing andargument. OnFebruary9,2016,      theU.S.Supreme      Coun$ayedthe ruleduringthependency        otthechallenges   totheD.C.CircuitandU.S.Supreme           Courl.Depending    ontheoutcome    otturther  apPeals andhowanyfinalrulesareultimately          implemented,     theluturecostoI compliance      maybe material.
At the international   level,the UnitedNationsFramework         Convention   on ClimateChangeresultedin the KyotoProtocolrequiring participating  countries,  whichdoesnotinclude     theU.S.,to reduceGHGscommencing             in2008andhasbeenextended        through  2020.
TheObamaAdministration          submitted  in March2015,a formalpledgefor the U.S.to reduceits economy-wide                 greenhouse     gas
                                                                                                                                  '12, emissions   by26 to 28 percentbelow2005levelsby2025andjoinedin adopting                  theagreemenl    reached   on December 2015at theUnitedNationsFramework          Convention   onClimate    Changemeetings     in Paris.TheParisAgreement        wasratifiedbytherequisite numberof countries      (i.e.at least55 countries    representing at least55%of globalGHGemissions)            in October2016andils non-bindingobligations    to limitglobalwarming   towellbelowtwo     degrees   Celsius areeffective   onNovember4,2016.       FirstEnergy  cannot currently estimate   thefinancial  impactofclimatechange      policies,although   potentiallegislativeorregulatory   programs restricting CO, emissions,   or litigation allegingdamages    tromGHGemissions,        couldrequirematerialcapilalandotherexpendilures             or resultin changesto its operations. TheCO2emissions        perKWHot electricity    generated    by FirstEnergy  is lowerthanmanyof its regional competitors   dueto itsdiversified   generation   sources,  whichincludelowor non-Cozemitting         gasjiredandnucleargenerators.
CleanWatetAct Various  waterqualityregulations,    themaiorityotwhich      aretheresultof thefederalCWAand        itsamendments,     applyto FirstEnergys plants.ln addition,   thestatesinwhichFirstEnergy        operates havewaterqualitystandards        applicable   to FiBtEnergys  operations.
TheEPAfinalizedCwASection316(b)regulations                in May2014,requiring     coolingwaterintakestructures       withan intakevelociiy greaterthan    0.5leetpersecondto reducefishimpingement           whenaquaticorganisms       arepinnedagainstscreensorotherpartsot a coolingwaterintakesystemto a 12"/"annualaverage             andrequirircoolingwaterintakestruclures        e)ceeding  125million  gallons per dayto conductstudiesto deteminesitespecificcontrols,if any,to reduceenlrainment,                whichoccurswhenaquaticlifeis drawnintoa facilityscoolingwatersystem.FirstEnergy        is studyingvariouscontroloptionsandtheircostsandefiectiveness,           includingpilottssdng of reverselouversin a portionof the BayShoreplant'scoolingwalerintakechannelto divertfishawayftomtheplant'scoolingwater intakesystem.Depending        ontheresultsof suchstudiesandanyfinalaction           takenbythestatesbasedonthosestudies,theftJture capitalcostsof compliancewiththesestandardsmaybe substantial.
OnSeptember       30,20'15,  theEPAtinalized   new,morestringent     etfluent limitslortheSteamEleclricPowerGenerating          category   (40 CFR Part423)lor arsenic,mercuryseleniumand nitrogentor wastewater                      fromwet scrubbersystemsandzerodischarge              of pollutanls  in ashtransport   water.Thetreatment      obligations willphase-in  as permitsarerenewed       on a tive-year cyclefrom2018to 2023.Thefinalrulealsoallowsplantsto committo morestringent                 effluentlimitsforwetscrubber      systemsbasedon evaporative technology   andinrelurnhaveuntiltheendof2023tomeetthemorestringent                  limits.Depending   ontheoutcome     ofappeals    andhow anyfinalrulesareultimately       implemented,   thefuturecostsof compliance      withtheseStandards     maybe substantial    andchanges     to FirstEnergy's   andFES'operations     mayresult.
In October2009,theWVDEPissuedan NPDESwaterdischarge                       permitfor the FortMartinplant,whichimposesTDS,sulfate concentrations    andotherettluent   limitations lor heawmetals,aswellastemperature          limitations.Concurrent   withlheissuance    ofthe FortMartinNPDESpermit,WVDEPalsoissuedanadministrative                  ordersettingdeadlines     forMPto meetcertainoftheeftluent       limits thatwereefiective     immediately   underthetermsof theNPDESpermit.MPappealed,               anda stayof certainconditions     of theNPDES permitandorderhavebeengrantedpending              a finaldecision  ontheappealand       subject toWVDEPmovingto dissolve        thestay.The FortMartinNPDESpermitcouldrequirean initialcapitalinvestment                 rangingtrom$150millionto $300millionin orderto install technology    to meetthe TDSandsulfatelimits,whichtechnology               mayalsomeetcertainof the otheretfluentlimits.Additional technology    maybe neededto meetcertainotherlimitsin the FortMartinNPDESpermit.MPintendsto vigorously                          pursuethese issuesbutcannotpredicttheoutcome           ottheappealor estimate     thepossible    lossor rangeof loss.
FirstEnergy   intendsto vigorouslydefendagainstthe CWAmattersdescribedabovebut,exceptas indicatedabove,cannotpredict theirout@mes      or estimate  lhe lossor rangeof loss.
Regulatbnot WasteDisp6al Federaland statehazardouswasteregulationshavebeenpromulgatedas a resultof the RCRA,as amsnded,and the Toxic SubstancesControlAct. Certaincoal combustionresiduals,suchas coal ash, wereexemptedfrom hazardouswasle disposal requirements    pendingtheEPAsevaluation         of theneedfor hJture   regulation.
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InDecember    2014,theEPAfinalized        regulations  forthedisposalot      CCRs(non-hazardous),         establishing national    standards   regarding landtilldesign, structural  integrity designandassessment          criteriatorsurface    impoundments,      groundwater    moniloring    andprotection procedures  andotheroperational         andreporting   procedures      to assurethesafedisposalof CCRSfromelectricgenerating                       planls.
Basedonanassessment           ofthetinalized   regulations,  thefuturecostofcompliance           andexpected     timingof spendhadnosignificant impacton FirstEnergy's     or FES'existing   AROSassociated         withCCRS. Although    nonearecurrently     expected,    anychanges       intiming andclosureplanrequirements          in thefuturecouldmaterially        andadversely      impactFirstEnergy's     andFES'AROS.
Pursuant to a 2013consentdecree,PADEPissueda 2014permitforthe LittleBlueRunCCRimpoundment                                          requiring  theBruce Mansfield plantto ceasedisposalof CCRSby December                    31,2016andFGto providebondingtor 45 yearsof closureandpost-closureactiviliesandto completeclosurewithina 12-yearperiod,but authorizing                         FG to seeka permitmodification             basedon "unexpected   siteconditions    thathaveorwillslowclosureprogress."            Thepermitdoes      notrequireactivedewatering           oftheCCRS,     but doesrequirea groundwater         assessmenlfor     arsenicandabatement         if certainconditions    inthepermitaremet.TheBruceMansfield plantis pursuingseveraloptionsfor disposalol CCRSfollowing                   December       31,2016andexpectsbenelicial            reuseanddisposal optionswilfbe sufficient    fortheongoingoperation        of theplant.On May22,2015andSeptember                   21,2015,thePADEPreissued               a permitfortheHatfield's     FerryCCRdisposal       facilityandthenmodified       thatpermittoallowdisposalof         BruceMansfield       plantCCR.On July6, 2015andOclobet22,2015,the SierraClubfiledNoticesof Appealwiththe Pennsylvania                                 Environmental       HearingBoard challenging  therenewal,     reissuance   andmodification      of thepermitforthe Hatfield's       FerryCCRdisposal        facility.
FirstEnergy  or itssubsidiaries   havebeennamedaspotentially             responsible   parties  atwastedisposalsites,    whichmayrequire          cleanup underthe CERCLA.Allegations             ol disposalof hazardous          substances     at historicalsiles and lhe iiabilityinvolvedare often unsubstantiated   andsubjecttodisputeihowswr,fdrallaw                provides   thatallpotentially   responsible  partiesfora particular       sitemay be liableon a joint and severalbasis.Environmental                 liabilitiesthat are considered       probablehavebeenrecognized                 on the Consolidated   Balance    Sheetsasof September        30,2016basedonestimates              otthetotalcosts    of cleanup,   FE'sanditssubsidiaries' proportionate  responsibility   forsuchcostsandthelinancial          abilityot otherunafiiliated   entitiesto  pay.Totalliabilities    ofapproximately
$121millionhavebeenaccrued           throughSeptember       30,2016.Included        inthetotalareaccruedliabilities     ofapproximately$89         million forenvironmental   remediation     of tormermanufactured       gasplantsandgasholderfacilities          in NewJersey,    whicharebeingrecovercd by JCP&Lthrougha non-bypassable              SBC.FirstEnergy       or its subsidiaris     couldbe toundpotentially       responsible      for additional amounlsor additional     sites,butthe lossor rangeof lossesdrnnotbedetermined                    or reasonably    estimated    at thistime.
OTHERLEGALPROCEEDINGS NucleatPlantMatters UnderNRCregulations,         FirstEnergy  mustnsurethatadequate           fundswillbeavailable       to decommission      ils nuclear   facilities. Asot September   30,2016,FirstEnergy        hadapproximately      $2.5billioninvested      inexternal  truststo be usedforthedecommissioning               and environmental    remediation    of Davis-Besse,    BeaverValley,      PerryandTMI-2.Thevaluesof FirstEnergy's               NDTsfluctuate       basedon marketconditions. lf thevalueof thetrustsdeclinebya material             amount,FirstEnergy's       obligation  to fundthetrustsmayincrease.
Disruptions  in thecapitalmarketsandtheireffectson particular               businesses      andtheeconomycouldalsoatfectthevaluesof the NDTs.FEandFEShavealsoenteredintoa totalot $24.5milljonin parental                           guarantees   in supportof thedecommissioning            of the spentfuelstorage    tacilities locatedatthenuclear     tacilities. However,    asFESnolongermaintains         investment     gradecreditratings     from eitherS&Por Moody's,       NGplansto funda supplemental            trustin lieuof a parental     guarantee   thatwouldbe required         to supportthe decommissioning     oI the spentfuelstoragefacilities.        As required    by the NRC,FirstEnergy         annuallyrecalculates        andadjuststhe amountot itsparental      guaranlees,    as appropriate.
InAugust2010,FENOCsubmitted               an application   to the NRCfor renewalot the Davis-Besse              operating    licensefor an additional twentyyears.OnDecember           8, 2015,theNRCrenewed          theoperating      licenseforDavis-Bess6,       whichis nowauthorized         lo continue operation through   Aptil22,2037.      Ptiotlolhatdecision,    theNRCCommissioners             deniedaninlervenor's     request    to reopen   therecord andadmita contenlion         on the NRC'SContinued         StorageRule.On August6, 2015,this intervenor                 soughtreviewof lhe NRC Commissioners'decision        beforetheU.S.CourtofAppeals           fortheDCCircuit.FENOCintervened              inthatproceeding.       OnSeptember 2'1, 2016,the U.S.Courtof Appealsforthe DCCircuitgrantedtheintervenor's                       unopposed     motionanddismissed         thiscase.
As partot routineinspections      oftheconcrete     shieldbuilding     at Davis-Besse      in 2013,FENOCidentified       changes     to thesubsurface laminarcracking    condition   originally discovered   in 2011.Theseinspections           revealed  thatthecracking     condition    hadpropagated       a smallamount    inselectareas.FENOC'S         analysis  confirms    thatthebuilding     continuesto    maintain  itsstructural   integrity,  anditsability to salelyperformall of its tunctions.In a May28, 2015,Inspection                    Reportregarding     the apparentcauseevaluation             on crack propagation,  theNRCissueda non-cited           violation forFENOC'S      failureto request     andobtaina licenseamendment            foritsmethodof evaluating the significance     of the shieldbuildingcracking.        TheNRCalsoconcluded            thattheshieldbuildingremained            capableol performing  itsdesignsaletyfunctions       despitetheidentified       laminar  cracking    andthatthisissuewasofverylowsatetysignificance.
FENOCplansto submita licenseamendment               application     to theNRCrelatedto thelaminarcrackingin theShieldBuilding.
On March12,2012,theNRCissuedordersrequiring                    saletyenhancements          at U.S.reactors   basedon recommendations             fromthe lessonslearned   TaskForcereviewotthe         accident  at Japan'sFukushima         Daiichinuclear    powerplant.Theseordersrequire            additional mitigationstrategies   tor beyond-design-basis      externalevents,andenhanced              equipment    tor monitoring   waterlevelsin spentfuel pools.The NRCalso requested            that licenseesincludingFENOC:re-analyze                  earthquake   and floodingrisksusingthe latest 101

information  available;  conductearthquake       andfloodinghazardwalkdowns             at theirnuclearplants;assessthe abilityof cunent communications    systemsandequipment         to prform  undera prolonged       lossofonsiteandofisiteelectrical        pot/rr; andassessplant stafiinglevelsneededto till emergency         positions. Theseand otherNRCrequirements                adoptedas a resultof the accidentat Fukushima    Daiichiare likelyto resultin additional     malerialcosts    fromplantmodifications       andupgrades        at FirstEnergys    nuclear facililies.
OtherLegalMatters Therearevariouslawsuits,      claims(including   claimsforasbestos      exposure)and      proceedings  related  to FirstEnergy's   normalbusiness operations  pending   againstFirstEnergy    anditssubsidiaries. Thelossor rangeoflossinthesemattersis notexpected                  to bematerial to FirstEnergy  or itssubsidiaries. Theotherpotentially     material  itemsnototherwise       discussed    abovearedescribed        underNote11, Regulatory  Mattersot theCombined        Notesto Consolidated       Financial   Statements.
FirstEnergy  accrueslegalliabilities    onlywhenit concludes         thatit is probablethat it has an obligation          for suchcostsandcan reasonably  estimale   theamountofsuchcosts.IncaseswhereFirstEnergy                 determinesthat    it isnotprobable,    butreasonably    possible thatit hasa materialobligation,   it discloses suchobligations     andthepossible      lossor rangeoflossifsuchestimate           canbemade.lf it wereultimately   determined   thatFirstEnergy    or itssubsidiaries   havelegalliability   or areotherwise     madesubjectto liability     basedon anyofthemattersreferenced        above,it couldhavea material       adverseeffecton FirstEnergy's         or itssubsidiaries'   financial condition, resultsof operations    andcashflows.
NEWACCOUNTING            PRONOUNCEMEI{TS InMay2014,theFASBissuedASU             2014-09,   'Revenue    fromContracts      withCustomers". Subsequent    accounting    standards  updates havebeenissuedwhichamendanUor             clarifytheapplication   ofASU2014-09.        Thecoreprinciple     ofthenewguidance        isthatanentity recognizes  revenue   todepictthetransferof     promised   goodsorservicesto        customers    in anamountthat     reflects  theconsideration   to whichtheentityexpectsto be entitledin exchange           forthosegoodsor services.          Moredetailed     disclosures   willalsobe required    to enableusersoffinancialstatements        to understandthe    nature,amount,      timinganduncertaintyol       revenue   andcashflowsarisingfrom contracts withcustomers. Forpublicbusiness     entities,thenewrevenue        recognition   guidancewillbe     efiective forannualandinterim reporting periodsbeginning     atterDecember     15,2017.Earlieradoption        is permitted lorannualand     interim  reporting  periods beginning afterDecember      15, 2016.The standards        shallbe appliedretrospectively         to eachperiodpresented          or as a cumulative-effect adjustment   as of thedateof adoption. FirslEnergy   is currently  evaluating   theimpacton itsfinancial       statements     of adopting these slandards.
In February  2015,the FASBissuedASU2015-02,"Consolidations:                   Amendments       to the Consolidation     Analysis",   whichamends currentconsolidation    guidance   including  changes   to boththevariableandvolinginterestmodelsusedbycompanies                        to evaluate whetheranentityshouldbeconsolidated.          A reporting  entitymustapplytheamendments             usinga modified     retrospective  approach   by recordinga cumulative-effect      adjustment    to equityas of the beginningof the periodof adoptionor applythe amendments retrospectively. FirstEnergy's   adoption  ofASU2015-02,      onJanuary1,2016,didnotresultina changeintheconsolidation                    ofVlEsby FEor itssubsidiaries.
InApril2015,  theFASBissuedASU2015-03,             "Simplifying  thePresentation      of Debtlssuance      Costs",whichrequires       debtissuance coststo be presented     on thebalancesheetasa directdeduction            tromthecarryingvalueof theassociated             debtliability, consistent withthepresentation     ofa debtdiscount. Inaddition, inAugust2015,theFASBissuedASU2015-15,                    "Presentation    andSubsequent Measurement     of Debtlssuance    CostsAssociated     withLine-of-Credit     Arrangements',     whichallowsdebtissuance        coslsrelated  toline of crediiarrangements     to bepresented    asanassetandamortized           ratablyoverthetermof thearrangement,             regardless  ofwhether
                                                                                                                                                  '1 thereareanyoulstanding       borrowings   ontheline-of-credit. FirstEnergy    adopted  ASU2015-15       andASU2015-03       beginning   January   ,
2016.As of December       31,2015,FirstEnergy      andFESreclassified        $93millionand$17millionof debtissuance               coslsincludedin Deterred  chargesandotherassets        to Long-term   debtandOtherlong-term         obligations. FirstEnergy  haselected    tocontinue   presenling debtissuance    costsrelating   to itsrevolving  creditfacilities as an asset.
In Januaryot 2016,the FASBissuedASU2016-01,"Financial                   Instruments-Overall:      Recognition   andMeasurement         of Financial AssetsandFinancial                  whichprimarily Liabilities",                 affectstheaccounting      lor equityinvestments,     financial liabilities underthefahvalue option,andihepresentation      anddisclosure    requirements    forfinancial   inslruments. Inaddition,  theFASBclarified      guidance  relatedto thevaluation  allowan@     assessment   whenrecognizing      deferred   taxassetsresulting     lromunrealized    lossesonavailablefoFsaledebt securities. TheASUwillbeefiective       in fiscalyearsbeginning     afterDecember        15,2017,including     interimperiods    withinthoseliscal years.Earlyadoption     lorcertainprovisions    canbeelected     forallfinancialslatements       offiscalyears   andinlerimperiods     thathavenot yetbeenissuedorthathavenotyetbeenmadeavailable                  forissuance. FirstEnergy  is currently  evaluating   theimpacton itsfinancial statemenls   of adopting   thisstandard.
InFebruary  2016,theFASBissuedASU           20'16-02, "Leases    (Topic 842)",whichwillrequireorganizations          thalleaseassetswithlease termsof morethan12 monthsto re@gnize               assetsandliabilities     tor the rightsandobligations       createdby lhoseleaseson their balance sheets.Inaddition,    newqualitative   andquantitative    disclosures    oftheamounts,     timing,anduncertainty       ofcashflovlarising fromleaseswillbe required.      TheASUwillbe etfective       forfiscalyears,    andinterimperiodswithinthosefiscalyears,             beginning atter December   15,2018,withearlyadoption        permitted. Lessors   andlessees      willberequired   to applya modified     retrospective   transition approach,  whichrequiresadjusting       the accounting    for any leasesexistingat the beginning            of the earliestcomparative       period 102

presented in theadoption-period   financialstatements. Anyleasesthatexpirebeforetheinitialapplication           datewillnotrequireany accounting  adjustment. FirstEnergy  is currently evaluating  theimpacton itstinancial    statements    of adopting  lhisstandard.
InMarchof2016,theFASBissuedASU2016-09,              "lmprovements     to Employee  Share-Based     PaymentAccounting",      whichsimplifies severalaspects oftheaccounling    foremployee     share-based   payment. Thenewguidance     willrequire  allincome  laxeffecbofawards to be recognized in theincomestatement       whentheawardsvestor aresettled.lt alsowillnotrequireliabilityaccounting               whenan employer repurchases   moreof an employee's      sharesfortaxwithholding       purposes. TheASUwillbe etfective       fortiscalyears,and interimperiods withinthosetiscalyears,     beginning  atterDecember      15,2016,withearlyadoption      permitted. FirstEnergy is currently evaluatingtheimpacton itslinancialstatements        ot adopting  thisstandard.
InJune2016,theFASBissuedASU2016-13,             "Financial Instruments    - CreditLosses(Topic   326):Measurement       of CreditLosseson FinancialInstrumenls,"  whichremoves      all recognition thresholds   andwillrequirecompanies      to recognize    an allowance  forcredit lossesfor lhe difference  betweenthe amortized      costbasisof a financialinstrument       andthe amountot amortized          costthatthe companyexpectsto collectoverthe instrument's         contractual   lite.TheASUis effective   forfiscalyears,andinterimperiodswithin thosefiscalyears,beginning    afterDecember      15,2019.Earlyadoptionis permitted        forfiscalyearsbeginning       atterDecembel  15, 2018.FirstEnergy  is currently evaluating   theimpacton itsfinancial     statemenls  ol adopting  thisstandard.
InAugust2016,iheFASBissuedASU201615,'Statement                  of CashFlolvs(Topic   230):Classification    of CerlainCashReceipts    and CashPayments". The standardis intendedto eliminatediversityin practicein howcertaincashreceiptsandcashpaymenlsarc presentedandclassifiedinthesiatementof cashflows.Theguidanceis effectivelorfiscalyears,andlor interimperiodswithinthose fiscalyears, beginning ater December     15,2017.Earlyadoption       is permittedforallentities. FirstEnergy   doesnote)pectthisASUto havea materialeffecton its financialstatements.
In October2016,theFASBissuedASU2016-16,             " Accounting    for Income Taxes:Intra-Entity   AssetTransters     ofAssetsOthsrthan Inventory."ASU201Gl6eliminates       theexception    forallintra-entity  salesofassetsothe;thaninventory        whichallowscompanies     io deferthetaxeffectsof intra-entityassettransfers.Asa result,a reportingentitywouldrecognizethetaxe)pensefromthesaleofthe assetin the seller'siax jurisdiction whenthe intra-entity    lransferoccurs,eventhoughthe pre-taxeffectsof thattransaction             are eliminated inconsolidation. Anydeferred     taxassetthatarisesinthebuyer'siurisdiction       wouldalsobe recognized        atthetimeofthe Theguidance transfer.               is elfectivetorliscalyears,andfor interimperiodswithinthosefiscalyears,beginning                afterDecember   15, 2017.Earlyadoption   is permitted andthemodified      retospective    approach willberequired   fortransition  to thenewguidance,    witha cumulative-effect adjustment   recorded   in retained eamingsas of thebeginning       of theperiodof adoption.      FirstEnergy is currenlly evaluatingthe impacton its financialstatemenlsof adoptingthisstandard.
Additionally,during2016,theFASBissuedthetollowing           ASUS:
    . ASU2016-05,     'Effectot Derivative   ContraclNovations     on ExistingHedgeAccounting        Relationships,"
    . ASU2016-06,     'Contingent   PutandCallOptionsin DebtInstruments          (a consensus    of theFASBEmerging        lssuesTask Force),"
    . ASU2016-07,     'Simplifying theTransition   to the EquityMethodol Accounting,'and
    . ASU2016-17,     'Consolidation                           HeldthroughRelatedPartiesThatAreunderCommonControl."
Cfopic8'10):Interests FirslEnergydoesnotexpecttheseASUSto havea materialeffecton its financialstatements.
103

FIRSTENERGYSOLUTIONSCORP.
MANAGEIIENT'SNARRATIVE ANALYSISOF RESULTSOF OPERATIONS FESis awhollyownedsubsidiary         of FE.FESprovides       energy-related  products  andservicesto   retailandwholesale      cuslomers,   and throughits principalsubsidiaries,     FG and NG,ownsor leases,operatesand maintainsFirstEnergy's                      fossiland hydroelectric generation  facilities(excluding  AESupplyandMP),andowns,throughitssubsidiary                 NG,FirstEnergy's   nuclear   generation   facilities.
FENOC,   a whollyownedsubsidiary       of FE,operales     andmainlains    thenuclear  generating            FESpurchasesthe facilities.                      entireoutput of thegeneration    facilitiesownedby FG,NGandAE Supply,             aswellastheoutputrelating      to leasehold    interests of OEandTE in BeaverValleyUnit2 whichremains         subjectto saleandleaseback         arrangements,   andpursuantto    fulloutput,  cost-of-service   PSAS.
FES'revenues      are derivedprjmarily    fromsalesto individual       retailcustomers,   salesto customers     in the formol governmental aggregation  programs,    andparticipation    inatliliatedandnon-affiliated   POLRauctions. FES'salesare   primarily  concentrated    inOhio, Pennsylvania,   lllinois,Michigan,  NewJerseyandMaryland.           Thedemandtorelectricity     produced    andsoldby FES,alongwiththe priceof thatelectricity,   is principally impactedby conditions       in competitive  powermarkels,globalconomic           activityas wellas economic   activityandweatherconditions         in theMidwestandMid-Atlantic       regionsol the UnitedStates.
As partof FirstEnergy's    long-termstrategyto be a lully regulatedutility,FirstEnergy       hasbeguna stratgicreviewof its compelitive operationsfocusedonthesaleof gasandhydroelectric              unitsaswellasexploringall allernativeslor the remaining        generation   asseb at FESandAESupply.       Theseinclude,     butarenotlimited    lo,legislative efiortsto convertgeneration   fromcompetilive     operations   toa regulated  or regulatediike    construct suchas a regulatory      restructuring in Ohio,offeringgeneration     intoanyprccessdesigned          to addressMP'sgeneration        shortfallincludedin its lRe and/ora solutionfor nucleargeneration           thatrecognize     theirenvironmental benefits.Management       anticipalesthattheviabilityol theseahernatives       willbedeterminedinthe neartermwitha taryetto implemefi thesestrategic   optionswithinthenext12to 18monthsandcouldresultin material                  assetimpairments.
Basedon currentmarketforwards,FESexpectsto havemorethansulficientcashflowfromoperationsin 2017 and2018 to fund anticipatedcapitalependitureswith no equitycontributions             from FirstEnergy.However,in additionto eposure to marketprice volatility andoperationalrisks,     FESfacessignificant      financialrisks thatcouldimpactitsanticipated     cashflowandliquidity       including, butnotlimitedto,thefollowing:
Requeststo postadditional      collateralor accelerated    paymentsof up to $355millionresultingfromcurrentcreditratingsat FES,includingMoody'sdowngradeof theSeniorUnsecured                  debtratingfor FESto Caal as wellasS&P'sdowngrade             of the SeniorUnsecureddebt ratingat FESto B, bothof whichoccurredon November4,2016.
Adverseoutcomesin the previouslydiscloseddisputesregardinglong-termcoaltransportation                      contracts.
Theinability  to extendor refinance     debtmaturities   at FESsubsidiaries    in 2017and2018of $130millionand$515million, respectively.
A significant collateral callortheinabitity   to refinance  2017debtmaturities    at FESsubgidiaries   is expected    to beaddressed     byFES througha combination        of cashon hand,additional        capiialexpenditure    reductions,  assetsales,and/orbormwings             underthe unregulaled   moneypool.However,        adverseoutcomes       in thecoaltransportation    contracbdisputes,   the inability  to refinance  2018 debtmaturilies,   or lackof viablealternative    strategies  couldcauseFESto takeoneor moreof thefollowing             actions: (i)restructuring of debtandotherfinancial      obligations,  (ii)additional borrowings   undertheunregulated     moneypool,(iii)furtherasseisalesoI plant deactivations, and/or(iv)seekprotection        underbankruptcy    laws.IntheeventFESseekssuchproteclion,           FENOC     maysimilarly   seek plotection  underbankruptcy      laws.
Materialasset  impairments    resultingfromthesaleordeactivation        otgeneration   assetsorfroma determlnation       bymanagementof       its intentto exitcompetitive    generation  assetsbeforetheendof theirestimated            usefullife resulting tromlhe inabililyto implement alternative strategies  discussed   above,adverse      judgments   ora FESbankruptcytiling    couldresultinaneventofdefault       undervarious agreements    relatedto theindebtedness        of FES.
Duringthisperiodoltransition,     subjectto strategic    decisions regarding  competitive   generation assets,it is anticipated   thatFESwill produce  or purchase   fromafliliates approximately     70to 75 millionMWHSot electricity     annually,  withupto anadditional       livemillion MWHsavailabletrom       purchased   poweragreements       forwind,solar,andFES'entitlemern      inOVEC.In2017and2018FESexpectsto hedge75%- 85%of itsgeneration        outputbytargeting      approximalely   50to 65millionMWHsinannualcontract          salesandmaintaining upto 25 millionMWHS      as reservemargin.FortheperiodOctober1, 2016to Dgcember                  31,2016,FES'committed          salesare82%
hedgedagainst    generation   supply,including    commitled  purchases,   assuming   normalweather   conditions. AsofSeptember       30,2016, contractual salesobligations   for2017and2018areapproximately            48 millionlvlvvHs  and28millionLlWHs,respectively.        Contraclual salesobligations   for2016ar6approximately         67 millionlvlwHs.
FESwillcontinue    to makeprudentinvestments         initsnuclear  unitsinorderto maintain   safeandreliable   operations   inaccordance    with nuclearstandards,     but will continueto focuson costsgivencurrentmarketconditions,               specifically  surrounding    its lossilfleet.
104

Management   currentlyanticipatestotalcapital           of $325millionand$270millionin 2017and2018,respectively, expenditures                                                               which representsa significantreductionfrom2016forecasted   capitalexpenditures  ot $490million.
ForadditionalinformationwithrespecttoFES,plaseseetheinformation      contained  in FirstEnergy'sManagement's    Discussion and Analysisof FinancialCondition andResultsof Operations  underthetollowing    subheadings,   whichintormation  is incorporatedby referenceherein:FirstEnergy's Business, Executive SummaryCapitalResources      andLiquidity, Guarantees andOtherAssurances, Ofi-Balance SheetArrangements,    MarketRiskIntormation, CredilRiskandOutlook,as wellas the information        containedin the Forward-Looking Statements  andRiskFaclors,   whichintormation is incorporated by refelence  herein.
Resultsof Oporatlons Operatingresultsdecreased  $363millioninthefirstninemonthsof 2016,compared        to thesameperiodof 2015,primarily   resulting fromchargesassociated   withimpairments             Units1-4of thew. H. Sammisgenerating of goodwill,                                          stationandtheBayShoreUnit1 generatingstation,as discussed  above,termination  andsettlement  costson coalcontracts,    andlowermark-to-market    gainson commodity  contractpositions.In additionto theseitems,operating resultswereimpacted     by highercapacity revenues,  lowertuel costsandlowerpurchased    power,partiallyoffsetbylowersales volumesandatermination      chargeassociated  witha FEScustomer contract.
Revenues-Totalrevenues decreased  $433millioninthefirstninemonthsof 2016,compared      to thesameperiodof2015,primarily     duetolower salesvolumes. Revenues  werealsoimpacted    byhighercapacityrevenues   andhighernetgainsonfinancially    settledcontracts, as furtherdescribedbelow Thechangein totalrevenues   resulted tromlhe followingsources:
For the Nine Months Ended September30                 Increase Revenuesby Type of Service                             2016             2015        (Decrease)
(ln millions)
ContractSales:
Direct                                                    610 $          1,014            (404)
GovernmentalAggregation                                   666              802            (136)
Mass Market                                               133              222              (8e)
POLR                                                      447              585            (138)
StructuredSales                                           353              410              (57)
TotalContractSales                                        2,209            3,033            (824)
Wholesale                                                 1,015              558             457 Transmission                                                 53              102              (4e)
Other                                                       124               141             (17)
Total Revenues                                          3,401 $          3,834 $          (433)
For the Nine Months Ended September30 MWHSales by Channel                                  2016             2015        (Decrease)
(ln thousands)
ContractSales:
Direct                                               11,391           18,860          (3e.6)%
GovernmentalAggregation                              10,798           12,278          (12.1)%
Mass Market                                           1,912            3,246          (41.1)/"
POLR                                                  7,526            9,910          (24.1)/"
StructuredSales                                       8,863            9,465           (6.4)%
Wholesale                                               8,461              951              NM Total MWH Sales                                      48,951           54,710          (10.5)%
NM- NotMeaningful 105

The followingtablesummarizes     the priceand volumefactorscontributing        to changesin revenuesin the firstninemonthsof 2016,compared    withthe sameperiodof 2015:
Source of Changein Revenues Increase(Decrease)
Gain on Sales                          Settled        Capacity MWHSales Channel:                         Volumes            Prices        Contracts       Revenue        Total (ln millions)
Direct                                           ( 4 0 1 )$          (3) $               $                   (404)
GovernmentalAggregation                            (e7)            (3e)                                      (136)
Mass Market                                        (e1)               2                                        (8e)
POLR                                             (140)                2                                      (138)
StructuredSales                                    (26)            (31)                                        (57)
Wholesale                                         167                42            113            135         457 Lowersalesvolumesin Direct,GovernmentalAggregation           andMassMarketchannels            primarily  reflectsthecontinuation  of FES' strateoyto moreefiectivelyhedgeits generation.TheDirecl,GovernmentalAggregation                andMassMarketcustomerbasewas1.4 millionasofSeptember    30,2016,compared    to 1.7millionasotSeptember         30,2015. Atthough  unitpricingwasloweryear-over-lrear in theGovernmental   Aggregation   channel,thedecrease   wasprimarily      attributable to lowercapacity    epense asdiscussed     below, whichis a component    of the retailprice.
Thedecrease   in POLRsalesol $138millionwasprimarily       dueto lowervolumes.        Structured   Salesdecreased    $57million,primarily dueto the impactof lowermarketpricesandlowerstructuredtransactionvolumes.
Wholesale  revenues  increased  $457million,primarilydueto anincrease        incapacity  revenue  tromcapaclty  auctions,   highernetgains on linancially settledcontracts   andan increase  inshort-term   (nethourtypositon)transactions         at higherrates.Although   wholesale short-termtransactionsincreasedyear-over-year,    lowaveragespotmaftet energyprbes reducedthe economicdispatchof iossil generating units,limitingadditional  wholesalesales.
Transmission  revenuedecreased      $49 million,primarily dueto lowercongestion          revenues   associated  withlessvolatilemarket conditions.
Otherrevenues   decreased   $17million,primarily dueto theabgence       ofa pre-tax  gainonthesaleof property     to a regulated         in affiliate thesecondquarterof 2015andlowerleaserevenues          fromtheexpilation        of a nuclearsaleleaseback      agreement, O@rutingExpenses      -
Toialoperating expenses    increased  $63millioninthefirstninemonthsof 2016,compared              to thesameperiodof 2015.
Thetollowing tablesummarizes     thefactorscontributing to thechanges      infuelandpurchased      powercostsinthefirstninemonthsof 2016,compared    t/uith thesameperiodof 2015:
Source ol Change Increase(Decrease)
Loss on Settled       Gapacity OperatingExpenses                       Volumes           Prices       Contracts Expense              Total (ln millions)
FossilFuel                                       (e4)$          (50) $           70 $              $       (74)
NuclearFuel                                                        3                                         3 AtfiliatedPurchasedPower                         (26)           (41)           257                        190 Non-affiliated  PurchasedPower                 (3e6)            (27)             27          (111)       (507)
Fossiland nuclearfuelcostsdecreased        $71 million,primarily   dueto lowergeneration        associated   withoutagesand economic dispatch offossilunitsresulting  fromlowwholesale   spotmarketenergyprices,asdescribed              above,aswellaslowerunitpriceson fossilfuelcontracts. Additionally, fuelcostswereimpacted    by highersettlement       andtermination    costson coalcontracts.
106

purchased Atfiliated           powercostsincreased    $190million,primarily associated  withnetgainsonsettledcontracts     withAE Supplyin 2015resulting  fromhigherwholesale   spotma*et pricesin2015.Effective    April1,20'16, FESbeganlo physically    purchase  lheentire outpulofAE Supplysgeneration      facilities undera cost-of-service PSA.
Non-affiliatedpurchased   powercostsdecreased     $507milliondueto lowervolumes($395million),lowerprices($27million)and lowercapacity  expenses   ($111million),partially otbetbyhigherlossesonfinancially     settledpurchased  powerconlracts   tromlower wholesale spotmaketprices($27million). Lotyer volumes primarilyresulted tromlowercontract    salesasdiscussed   above,partially offsetbyeconomic    purchases  resultinglromlhe lowwholesale   spotmarketpriceenvironment.      Thedecrease   in capacity expense, whichis a componentol FES'retailprice,wasprimarilythe resultot lowercontractsalesandlowercapacitylatesassociatedwith FES'retailsalesobligation.
Otheroperating   expenses   decreased $71millioninthefirstninemonthsof 2016,compared        to thesameperiodof 2015,duetothe following:
     . Nuclear  operating  costsdecreased  $31million,primarilyasa resultof lowerrefueling  outag cosb,partially ofisetbyhigher employee   beneftcosts.Therewasonerefueling     outagedudngthelirstninemonthsof 2016ascompared            to tworefueling outagesduringthesameperiodof 2015.
     . Retirement   benefitcostsincreased  $23million.
     . Transmission   e{censesdecreased     $134million,primarily  due to lowercongestion     and market-based    ancillarycosb associated   with lessvolatilemarketconditions   as comoared   to the filst ninemonthsof 2015,as well as lo$,clload requirements.
     . Otheroperating    expensesincreased    $71 million,primarily dueto lowermark-temarket       gainson commodity     contract positions ot $54millionanda $32 millionchargeassociated       withthetermination    chargeon a FEScusbmercofirilct, parliallyoftsetby lowerretail-related costs.
Depreciation  expenseincreased    $10millionas a resultof a higherassetbase.
Generallaxesdecreased      $'12million,primarilydueto lowergrossreceipts   taxesassociated    withdocreased   retailsalesvolumes.
lmpairment  ofassetsincreased   $524milliondueto theimpairment    ol goodwill anda decision  to exitopsrations of Units1-4oftheW.
H. Sammisgenerating     stalionby May31,2020,andtheBayShoreUnit1 generating            stationbyOctober1, 2020.
OtherExpense-Totalotherexpense    decreased   $6,4millioninthefirstninemonthsof 2016,compared      to thesameperiodof 2015,primarily      dueto lowerOTTIon NDTinvestments.
ln@meTaxBenefr's-FES'etfective iaxratefortheninemonthsendedSeptember        30,2016and2015was1.87o        and40.0%,respectively. Thedecrease   in the effectivetax rateis primarilydueto valuationallowances  of $65millionrecordedagainstslateandlocalNOLcaftyfo]wardsthat management   believes, morelikelythannot,willnotbe realized   aswellastheimpairment     ol goodwillwhich is non-deductible  fortax purposes.
ITEII3.      OUAiITITATIVE     ANDOUALITATIVE      DISCLOSURES      ABOUTMARKETRISK See'Management's     Discussion andAnalysis  of FinancialConditionandResults   of Operations  - MarketRiskInformation'in    ltem2 above, ITEM4.       CONTROISANDPROCEDURES (al Evaluatlonol Dlsclosurc Controb and Procedurcs Themanagement     of FirstEnergy andFES,withlhe participation  ofeachregistranfschiefexecutiveotficerandchieffinancialofiicer, havereviewed   andevaluated   theeffectiveness ottheirregistranfsdisclosure  controlsandprocedures,   asdefinedintheSecurities Exchange  Actof 1934,asamended,     Rulesl3a-15(e)   and15d-15(e),  asof theendoftheperiodcovered     bythisreport. Basedonthat evaluation,the chietexecutiveofiicerand chieffinancialofficerof FirstEnergy      and FEShaveconcluded        thattheirrespective registrant's disclosure controlsandprocedures    wereeffective as of theendot theperiodcoveredbythisreport.
107

DuringthequarterendedSeptember         30,2016,therewerenochanges         ininternalcontrol   overlinancial  reportirE thathavematerially affected,or are reasonablylikelyto materiallyaffect,FE'sand FES'internalcontroloverfinancialreporling.
PARTII. OTHERINFORMATION I T E M1.          LEGALPROCEEDINGS Information  requiredfor Partll, ltem1 is incorporated  by referenceto thediscussionsin Note11, RegulatoryMatters,andNole 12, Commitments,    Guarantees   andContingencies,    oftheCombined    Notesto theConsolidated       FinancialStatements     in Panl, ftem1 of thisForm10-Q.
I T E M1A .        RISK FACTORS Youshouldcarefullyconsiderthe      riskfactorsdiscussed  in"ltem1A.RiskFactors'intheRgistrants'Annual            Report   onForm10-Kfor theyearendedDecember        31,2015,whichcouldmaterially     afiecttheRegistrants'    business,  financial condition ortutureresults. The information  setforthinthisreport,including  withoutlimitation, theupdated    disclosure related  to theESPlVproceodings         andtherisk factorspresented   belowupdates     andshouldbereadinconjunction       with,theriskfactors   andinformation   disclosed   it theRegistlanls' Form10-Kandpreviously       tiledForms10-Q.
Any Sub*quant Modfflcatlonsto, Dentalor, or Delayin th6 EffectlveneF,s               ot the PUCO'Sapryoval of the Asfibulion Modemha on Ridercould lmpoaeslgnlflcant rlsks on HBtEnerW's oryrations and Il/flte alty antt Adverg,lylmpact the Credlt na ngs, Besultsol Operatlonsand FlnarrclatComtltlonol FhstEnetw On October12,2016,the PUCOdeniedthe OhioCompanies'                  modifiedRiderRRSand,in accordance             withthe PUCOStaff's recommendation,    approved   a newDistribution  Modernization   Riderproviding   forthecollection   of$204millionannually      (grossed up for incometaxes)forthreeyearswitha possible        extension  foran additional  twoyears.However,        thePUCO'S    orderapproving    the Distribution  Modernization   Riderremainssubjectto rehearing       by the PUCOand appealto the SupremeCourtof Ohio. Any subsequent    modification to, denialof,or delayin theetfectiveness    ot,the PUCO'S    orderapproving     theDistribution     Modernization Ridercould  imposerisksonouroperations      andmaterially  andadversely    impactthe   creditratings,  resultsot operations    andfinancial condition  of FirstEnergy.
Fallurc to Succflastut,ylmptementSl/?,teglcAltemaltveslor the CES*gmant May Funherl,lagatlvelyand Ma'f, atly Impacttha Future Besuksol Wrations and Hnanclal Conduon ot HrstE pryy and FES,amt nega.d,l's                              ot the wabltlty or Succsssol ThegStuatrgltcAtonatives, &rbin EventsMay Slgnlticanttytncreasr CashFlow aN Liquldlty n/6'ks,and Ulay CauseFESto TakeOther Actlons,tnctudlng Debt Restructu ng or *eklng Probctlon under the Banhruptcy Laws,WhlchCoukt nesutttn Eventso, Derauttundet Va ous AgrcementsRetatedto tl' lmbbtectnessof FE Depressed   pricesinthewholesale    energyandcapacity   markets   continueto  challengethe     generating  unibwithintheCESsegment, including thoseol FES.Additionally,    becausethe ESPlV PPAremainssuspended,               FESwill notrealizethe revenuos         originally intended bythearrangement,     whichcouldhavefurthermaterialand       adverseimpacts      to thecreditratings,  resultsof operations   and financial condition of FES.
Consequently,  asturtherdiscussed    in FirstEnergy's Management's    Discussion   andAnalysis     of Financial Condition    andResultsof Operations  andFES'Narrative    Analysis  of Resultsof Operations   in thisQuarterly  Reporton Form'10-Q,FirstEnergy           hasbeguna strategicreviewofitscompetitive    operations focused onthesaleofgasandhydroelectric          unitsaswellasexploring                    for allaltornatives theremaining   generation  assetsat FESandAESupply.      Theseinclude,     butarenotlimitedto,    legislative effortsto convertgeneration lromcompetitive   operationsto  a regulated or regulated-like construct  suchasregulatory    restructuring inOhio,offering    generationinto anyprocess   designed  to addressMP'sgeneration             included shortfall         initsIREancuor    a solution fornucleargeneration      thatrecognizes theirenvironmental   benefits. Management    anticipatesthattheviability  ofthesealternatives    willbedetermined   intheneartermwitha targetto implement   thesestrategic  optionswithinthenext'12to 18months.Noassurance             canbegiven,   however,  thatthese   stralegic alternatives areviableorwillbeachieved     or sufficiently realized andevenif realized     theentities  withintheCESsegmentmaytake substantial write-downs   andimpairments    of assetscurrently  on thosecompanies'      balancesheets,whichcouldhavea matefial adverseeffecton theresultsof operations      andfinancial condition  of FirstEnergy  andFES.
Additionally,regadlessoftheviability   orsuccess   ofthestrategic alternatives  fortheCESbusiness       discussed  above,CES,including FES,facessignilicant   cashflowandliquidityrisksincluding,     butnotlimitedto thefollowing       possibilities:
requeststo postadditionalcollateral    or accelerated  paymentsof up to $355millionresultingfromcurrentcreditratings at FES,includingMoody'sdowngradeof the SeniorUnsecureddebt ratingfor FESto Caal as well as S&P's downgradeof the SeniorUnsecureddebtratingat FESto B, bothof whichoccurredon November4,2416; adverseoutcomesin previously      discloseddisputesregardinglongtermcoaland coaltransportation              contracts;and the inabilityto refinance debtmaturities  at FESsubsidiaries    of $130million,$515million,and$323millionin 2017, 2018and 2019,respectively,     and $155 millionin 2019at AE Supplyat attractiveratesor at all; 108

Any oneof theseeventsor the lackof successimplementing               the alternatives   previously  outlinedor anyotherviablebusiness alternatives couldrequireFESto restructure       debtandotherfinancial     obligations,   bonowadditional    fundsunderthe unregulated moneypool,sell additionalassetsor deactivateadditionalplantsand/orseekprotectionunderbankruptcylaws.In the eventFES seekssuchpotection,FENOCmaysimilarly             seekprotection   underbankruptcy      layvs.
Materialimpairments     or chargesor adversejudgmentsor outcomesin ongoingdisputescouldresultin oneor moreeventsofdeiault undervarious    agreements    relaledto theindebtedness    of FEandFES.Furthemore,          a FESbankuptcyfiling      wouldresultinoneor moreeventsofdeiaultundervariousagreements            relatedto theindebtedness     of FE.Inparticulara bankruptcyol FESwouldresultin thedeconsolidation    of FES,whichwouldresultina violationofthedebtto totalcafitalizationratiocovenantunderFiFtEnergyscredit facilities.
lf lhe delaultsundertheFirstEnergy's       creditfacilities arenotresolved     throughwaiversor othenflise      cured,lenderscould accelerate thematudty     ofsuchdebt,andFEwouldlacksufficient         liquidityto paytheaccelerated    amountinfull.Thetailurelo     obtain thewaiveror theacceleration       of suchdebtwouldhavea materialadverseefiec{onFirslEnergy's           business,  financialcondition,resulb ofoperations,   liquidityandthetradingpriceof FirstEnergys     securilies. Noassurance     canbegiventhatsuchwaiverswillbe         obtained on satisfactorytermsor at all.
The CESgEg,rnentltae a Signiflef,ntAmount ot hldeb'drrl9E.,WhichC.ouldAdwr5,lyAfiect FE s an t FES'SCashHow and Llqudlty and theAb lty ol the Entltl$ wlthln the CES*g,',ent to Futfill ttt/lrObt6atlorc, WhlchCouLt tusult ln an Everrtot Defutft uttdr VadouaAgr'niF,rtsnelabd to the tn(tr,b'ldr'rss            of FE and CaucFESto *k Ptgbctlon undar tll6 Bankrupw Laws The entitieswithinthe CES segmenthave a significantamountof indebtedness,                   a matedalperceniageof which is secured.
spEcifically,as of September      30,2016,theentiti$ withintheCESbusinEss          s6gmenthad$3.6billion(FES:$3 billion;AE supply:
$621million)of outstanding       long-term  debt,of whichapproximately    $836miltion(FES:$620million;AE Supply:9216million)is securdandapproximably         $2.8billion(FES:$2.4billion;AE Supply:$405million)b unsecuGd.
Asa resullofthisdebt,a substantial       portionof cashflowfromtheoperations       of CESmustbe usedto malGpayments             onthisdebt, includingthepayment      of principal andinterest. Furthermore,  sincea material   peroentage    oftheCESassetsareusedto securethis debt,thisreducesthe amountof collateralthatis availablefor futuresecureddebtor creditsupportandleducesFirstEnergy's                     and FES'fleibilityin dealingwithfutureliquidityneedsor financial         difficulties.Thishighlevelof indebtedness        andrelatedcollateral pledgescouldhaveotheradverseconsequences              to FEScreditors,   including:
     . difiiculty satisfying debtseMceandotherobligations         at FESand/oritsindividual     subsidiaries;
     . theinability  to refinance   debtmaturities at FESsubsidiaries    of $130million,$515million,and$323millionin 2017, 2018and2019,respoctivsly,         and$155millionin 2019atAE Supplyat atbactive           ratesor at all;
     . theinability  to exendor refinance     on comparable   termstheFES/AESupplyrevolving           creditfacility,whichepkes in Marchof 2019:
     . a creditratingdowngradeol FESdebl,whichcouldcauseluturedebtcostsand/orpaymentsto increaseandconsume an evengreaterportionof cashflowand requireadditionalpostingot collateralor accelerationof paymefisof up to
         $355million;
     . increasing   thevulnerability   of thebusiness  ol FirstEnergy  ard CES,including     FES,to generaladverseindustry       and economic    conditions:
     . reducing   theavailability   ol FESandAE Supplycashflowto fundoher corporate             purposes,   including  theabilityto pay dividends   to FirstEneryy;
     . limitingflexibility of FirstEnergy   andtheCESbusiness,      including  FES,in planning    for,or reacting  to, changesin their business    andtheinduslry;
     . placingFirstEnergy       andtheCESbusiness,     including  FES,at a compelitive     disadvantage   to iis competitors thatarenot as highlyleveraged;       and
     . limiting, alongwiththefinancial      andotherrestdctive   covenants   relating to suchindebtedness,      amongotherthings,FE's andtheCESbusiness',          including FES,abilityto borrowadditional    fundsas needed,     takeadvantage      of business opportunities    aslheyariseor paycashdividends.
ll marketconditions   in thewholesale    energyandcapacitymarketscontinue         to be depressed     andthe CESstrategydisqJssed        in FirstEnergy's Management's       Discussion  andAnalysis of FinancialCondition   andResdbofOperations         ald FES'S   NarrativeAnalysb of Resultsof Operations     in thisQuartedyReporton Form'10-Qandthe aboveriskfac'toris not viable,achieved                    or sufficiently realized, thenlhecashflowsoftheCESsegment              maynotbesufiicient     to funddebtserviceobligations,      including  therepayment  at matudtyall of theoutstanding      debtas it becomes  due.Inthatevent,theCESsegment,            including FES,maynotbe ableto borrow money,sellassets,raiseequityor otherwiseraisefundson acceptable            termsor at all to refinanceits debtas it becomesdue,which couldhavea material     adverseelfectontheresultsof operations,       financial condition  andliquidity of FirstEnergy   andFES,resultin oneor moreevenbof defaultbeingdeclaredundervariousagreements                   relatedto theindebtedness      ol FirstEnergy  andFESand causeFESto seekprolectionunderthe bankruptcylaws.
Additionalu  if anypotential  defaulbat FirstEnergy   ortheCESsegment       arenotresolved    through  waivers  orotherwisecured,lenders couldacceleratethe maturityof the applicabledebt.Thesedefauftswouldcreateuncertaintyassociatedwith the repayn'lent                       of 109

outstanding   FE-related   long-termdebtobligations     astheybecomedueandwouldhavea material             adverseefiecton FirstEnergy's business,   financialcondition, resultsof operations,    liquidityandthetradingpriceof FirstEnergy     securities.
ITEM2.              UNREGISTERED         SALESOF EQUITYSECURITIES              AND USEOF PROCEEDS (c) Thetablebelowsetsforthintormation        ona monthly     basisregarding  FirstEnergy's  purchases of itscommon  stockduringthethird quarterof 2016:
MaximumNumber (or Approximate Total Numberof           DollarValue)of Shares Purchased       Shares that May Yet As Part of Publicly    Be PurchasedUnder Total Number of            Average Price Paid        Announced Plans or           the Plans or Period                          SharesPurchased(l)                 per Share                 Programs(z)              Programs J uly1- 31, 2016                                            $
A ugus 1-t 31, 201 6                                1 , 7 8 2$                 32.44 S ept em ber 1- 30 ,2 0 1 6                            20$                    32.52 Third Quarter                                      1,802$                     32.44 (1) Shareamounts     reflectsharesthatweresurrendered     to FirstEnergyby a panicipantunderour2007Inceniive  Planto satisfytaxwilhholding obligationsrelatingtothevesting of a restricted stockawardandthesubsequenl     dividend reinvestmenb onsuchEquily award. Thetotalnumber ol sharesrepurchased   representslhenetsharessurrendered                 to satisfytaxwithholding.
lo FirstEnergy                                        sharaarenowheld Allsuchrepurc+rased as[easurysnares.
(a FirstEnergy   dosnotcurrenlly  haveanypublicly   announced   planor program forsharepurchases.
ITEM3.              DEFAULTSUPONSENIORSECURITIES None ITEM4.              MINESAFETYDISCLOSURES NotApplicable ITEM5.              OTHERINFORMATION None 110

ITEM6.             EXHIBITS ExhibitNumber FirstEnergy (A)      12   Fixedchargeratio (A)    31,1   Certificationof chiefexecutiveofficer,as adoptedpursuantto Rule13a-14(a)
(A)    31.2   Certificationof chieffinancialofficer,as adoptedpursuantto Rule13a-14(a)
(A)      32   Gertificationof chielexecutiveofficerand chieffinancialofficer,pursuantto 18 U,S,C.Section1350 101   The followingmaterialsfrom the QuarterlyReporton Form10-Qof FirstEnergyCorp.for the periodendedSeptember30, 2016,formattedin XBRL (Extensible       Bu6inedsReportingLanguage):(i)Consolidated     Statementsof Incom^e   (Loss)and Consblidated   Statementsdf Comprenensive    Incom6llos$, (ii)eonSoiiddfed BalanceSheets,(iii)Consolidated Statements  of CashFlows,(iv)relatednotesto thesefinancialstatements      and (v)documentand entityinformation.
FES 4.1    FifthSupplemental  Indsnture,  datedasofAuoust15,2016,to Open-End      Mortoage,   General Mongage  Indenture  and Deedoftrust,datedasol June1,2009,by andbetween          Fi6tEneroy  Nuclearcaneration,    LLCandTheBankol New YorkMellonTrustCompany.       N.A.;astruste(incorporated hereinty reterence  to FES'Form8-KliledAugusl18,2016, Exhibit 4.1,FileNo.000-53742).
4.11a) Formof Firstl\,longage     Bonds,GuarantEe   SsriesF of 2016due2035(incorporated                        lo FES'Form hereinby refgrerrce              8-K filodAugust18,2016,Exhibit4.1(a),FileNo.000-53742)(included       in Exhibit4.1).
4.1(b)
               ''    Formot FilstMongage     Bonds,Guarantee   SeriesG ol 2016dus203ii(incorporaled     hereinby relerence to FES'Form8-K tiledAugusl18,2016:Exhibit4.1(b),FileNo.oo0-53742)(includEd       in Eihibit4.l ).
4.2 EighthSupplemental       Indenture, datedasol August,l5.2016,to Open-End    Mortgage. Gener4MolgageIndnlure        and DeedofTiust,datedasol June19,2008,by aid between         FirstEnbrgy Generation;  LLCandThoBankol NewYork MellonTrustCompany,     N.A. (lomerly  knowirasThEBankol NewYoriTrustCompany,          N.A.),astruslee (incoForated hereinby relersnietd FESForm8-Kfibd August18,2o'16.Exhibit        4.2,FileNo,00G53742).
4.2lal Formol FirslModgage        Bonds,Guarantee  SeriesI ol2016due2028(incorporaled      hereinbyrelerenceto FES'Form&K liled Augusl18,2016,Exhibil4.2(a),FileNo.000-53742xincluded         in Exhibit 4.2).
4.2(b) Formol FirslMortgaoe       Bonds,Guaranlee   SeriesJ ol 2016due2029(incorporatd      hereinbyreference to FES'Fom 8-K filedAugust18,2016,Exhibil4.2(b),FileNo.000-53742xincluded        in Exhibil4.2).
4,21c)
               '     Formol Firstl\,lortgage Bonds.Guaranl88   SeriesK of 2016due2047(incorporated      hereinby rElrenceto FES'Form8-K filedAugust18,2o-16:    Exhibir4.2(c),FileNo.ooGssT42xincluded    in Exhibit4.2).
4.2(d) Formol Firstl\,lortgags    Bonds,Guarantee   SgriesL of 2016due2028(incorporated                        lo FES'Form8-K hereinby referrrce filedAugust18,2016,Exhibit4.2(d),FileNo.000-53742)(included       in Exhibil4.2).
(A)    10.'l Noliceof Borrower    Sublimit Beduction   NegaliveConsenl,datodasol August30.20'16,     to theCredilAgreement,   dalgdas ofJune17,2011,    asamended     asol Octob'er3, 2011,Mai8, 2012,May6, 2013,Octobr       31.2013andMarch     31,2014, amonqFirslEnerov    Solutions Com.andAlleohenv    EnerqisuDolvcom'Panv,    LLc,as borrowers,   andJPMorgan    chase Bank,-N.A., as adininistrativeageht.andthe-lending  baiks,lrbhtingbairks'and  swinglinelendersidenlifedtherin.
(A)    31.1 Certification   ot chiefexecutive oflicer,asadopted pursuantto Rule13a-14(a)
(A)    31.2 Crtification   ol chieffinancialoflicer,asadopted pursuanlto Rule13a-14(a)
(A)      32 Cenification    ol chigfBxecutivE olticerandchieflinancial otficer,pursuant to 18U.S.C.Section1350 101 Ths lollowinomaterials      fromthe OuaderlvReoorton Form104 of FirstEnroy           SolutionsCorp.tor the periodended Septmber   3-0,2016, formatted inXBRL(Eilensible  Business Reporting Languag-B);(i) Consolidated Statements  of Income (Ldss)andCoinprehensive     Income(Losi),(ii)Consolidated  Baldnc  Sleets,(iii)Coir'solidatsd Statements  of CashFlows, (iv)relatdnotesto th6elinancial  statements and(v)document    andentityinlonnation.
(A)Provided  hereinin electroniclormatasanexhibit.
Pursuantto paragraph(b)(axiiiXA)ot ltem 601 of RegulationS-K,neitherFirstEnergynor FEShaveliled as an exhibilto this Form
 '10-Q instrument                                                                                    authorized thereunderdoesnotexceed any             with respectto long-termdebtif the respectivetotalamountof securities 10% ol its respectivetotal assets,but each herebyagreesto furnishto the SEC on requestany such documenls.
111

SIGNAIURES Pursuanttotherequirements                                           hasdulycausedthisreportto besignedonib bahangeActof 1934,eachRegisirant oftheSecurities behalfbytheundersigned thereunto dulyauthorized.
November 4, 2016 FIRSTENERGY    CORP.
Registrant FIRSTENERGYSOLUTIONSCORP.
Registrant lslK. Jon Taylor K. Jon Taylor Vice President,Controller and ChiefAccountingOfficer 112

EXHIBITINDEX Exhibit Number FirstEnergy (A)       12   Fixedchargeratio (A)     31.1   Certificationo{ chiefexecutiveofficer,as adoptedpursuantto Rule13a-14(a)
(A)     31.2   Certificationol chieffinancialofficer,as adoptedpursuantto Rule13a-14(a)
(A)       32   Certificationof chiefexecutiveofficerand chieffinancialofficer,pursuantto 18 U.S.C,Section1350 101   The followingmaterials   fromthe QuarterlyReporton Form10-Qof FirstEnergy      Corp.for the periodendedSeptember30, 2016,formaltedin XBRL (Extensible       BuiinedsReportingLanguage):(i) Consolida'ted  Stateinents   of Incom_e   (Loss)and Consolidated  Statementso'fComprehensive     Incomd(Losi),(ii)don5oliddied BalanceShee-ts, (iii)Consolidated   Statementsof Cash Flows,(iv)relatednotesto thesefinancialstatementsand (v) documentand entityinformation.
FES 4.1    FifthSuoolemental  lndenlure. datedas ol Auoust15.2016.to Ooen-End    Mortqaoe. General   l\4on0a0e  Indenture   and Deedoftrust,daledasof Juhe1,2009,bva-ndbetween          FirstEnBrgy Nuclearcaneration,   LLCani,TheBankof New Yorkl\rgllon TiustCompany.      N.A..astrust6e(incorporated hereinty relerence to FES'Form8-KliledAugusl18,2016, Exhibit4.1,FileNo.000-53742).
4.1(a)
              '     Formol FirstMortoaoe    Bonds.Guarantee    SeriesF of 2016due2035(incorporaled   hreinby relefence     lo FES'Form8-K liledAuoust18,2016:Exhibit4.1(a),FileNo.000-53742)(included      in Exhibii4.1).
4.1(b) Formol Firstl\,lodgage    Bonds,Guarantee    SeriesG ol 2016due2033(incorporatsd    hereinby refrgnce     lo FES'Form8-K tiledAugust18,2016,Exhibil4.1(b),FileNo.000-53742)(includod      in Exhibil4.1).
4,2 EiohthSuoDlemenlal       lndenture. daledasolAuousl15.2016.to Ooen-End     Mortoaoe. General    Mortoao8    Indenture and D;edof Tiist, datedasol Juns19,2008,by a;d betweenFirstEnbrgy        Generation;Llc  andTheBankol NewYork MellonTrustCompany,     N.A.(fomdrlyknorvir  asTheBankof NewYdrkTrustCompany.        N.A.),aslrustee      (incoForated herinby rlersnce  to FES'Form    8-KfiledAugust18,20'16,Exhibit 4.2,FilsNo.000-53742),
4'2lal
                '   Formof FirstMonoaqe     Bonds.Guarantee    SeriesI ol2016due2028(incorporatd    hersinbyreference     to FES'Form    8-K filedAugust18,20-16:   Exhibir 4.2(a),FileNo.000-53742xincluded  in Exhibit4.2).
4.2(b) Formof FirstMongage       Bonds,cuarantee    SeriesJ o12016due2029(incorporated    hereinby r8ference     to FES'Fom8-K filedAugusl18,2016,Exhibit4.2(b),FileNo.000-53742xincluded       in Exhibit4.2).
4.2G1
              '     Formof FirstMortoaoe    Bonds.Guarant    SeriesK of 2016due2047(incomorated     hereinbyrefererrce     lo FES'Form   8-K liledAugust18,zoi 6: Exhibit4.2(c),FileNo.000-53742)(included    in Exhibita.2).
4.2ldl
              '     Formol FirstMortoaoe    Bonds.Guarantee    SeriesLof 2016dug2028(incomorated     hsrinbyrefernce      to FES'Form   8'K liledAugust't8, 2016;Exhibir   4.2(d),FileNo,ooo-53742)(included in Exhibii4.2).
(A)    10.1 Noticgol Borrowsr     Sublimit  Rduction  NgativConsenl, daledasol August30,2016,to theCredilAgreemen\            dalgdas ol June17,2011,as amended       asol Octobier3, 2011,May8. 2012,May6, 2013.Oclober      31,2013andMarch31,2014, amonqFirdtEnerAv   solutions   corD andAlleohenv   EnerqisupDlvcom-panv,   LLc,as borrowers,    andJPMorgan      chase Bank,-N.A.,as adininistrative  ageht,andthe-lending baiks,frbhtlngbairks'and swinglinelenders    identified  therein.
(A)    31.1 Certification  of chielExecutivs   otticsr, asadopted  pursuanllo Rule13a-14(a)
(A)    31.2 Cenification   of chiellinancial ollicer,asadopted  pursuanllo Rulel3a-14(a)
(A)      32 Certificalion  ol chielexecutive   otficerandchieffinarrcial     pursuanl oflicer.        lo 18U,S.C.Section1350 101 The lollowinomaterials       fromthe QuadedvReoorlon Form'to-Oof FirstEneroy        SolulionsCorp,for ihe periodended September  30,2016,formatted     inXBRL(Eitensible  Business Reponing tanguag-e):(i)Consolidaled   Statements    ol Income (Ldss)andComprehensive       Income(Losi),(ii)Consolidated  Baldnce Sleeb, (iii)Consolidated   Statements   of CashFlows, (iv)relalednolesto thesefinancial   statementsand(v)document    andentityinlormation.
(A)Provided hereinin electronic lormatasan erhibit.
Pursuantto paragraph(bx4xiiiXA)of ltem 60 l of RegulationS-K,neitherFirstEnergynor FEShavetiled as an exhibitto lhis Form 10-Qany instrumentwithrespectto long-termdebtifthe respectivetotalamountof securities              authorized  thereunderdoesnotexceed 10% of its respectivetotal assets,but each herebyagreesto furnishto the SEC on requestany such documents.
113}}